No punitive damages under UFTA

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A plaintiff can’t recover punitive damages under the Uniform Fraudulent Transfers Act (UFTA).

Because the remedies provided by the statute do not include compensatory damages, the Wisconsin Court of Appeals held on Oct. 19 that punitive damages are prohibited.

Judge Gregory A. Peterson wrote for the court, “In enacting [UFTA], the legislature could have provided an exception to the compensatory damages requirement for punitive damages, if it intended that result. Because the legislature did not do so, we conclude punitive damages are not available under the Act.”

Brian J. Kelly entered into a land contract to purchase property in Eau Claire, but soon defaulted, and a deficiency judgment was entered against him.

Kelly then conveyed a farm he owned for no consideration. The holder of the judgment against him, C & A Investments, commenced an action under the UFTA against Kelly and the “buyers” of the farm.

The jury found that Kelly transferred the farm for the purpose of depriving C & A of an asset on which it could execute its judgment. The jury also awarded C & A a total of $275,000 in punitive damages.

Kelly and the other defendants appealed, and the Court of Appeals reversed the punitive damage awards.

The remedies under UFTA are set forth in sec. 242.07(1), and include avoidance of the transfer, attachment against the asset, an injunction, appointment of a receiver, or “[a]ny other relief the circumstances may require.”

C & A argued that the catchall provision permits an award of punitive damages.

But the Court of Appeals disagreed, citing the recent holding by the Wisconsin Supreme Court that, where a plaintiff obtains rescission, rather than compensatory damages, punitive damages cannot be awarded. Groshek v. Trewin, 2010 WI 51, 325 Wis.2d 250, 784 N.W.2d 163.

The court acknowledged that, of the eight states to have addressed the identical statute, six have allowed punitive damages.

But the court found this irrelevant, inasmuch as the issue hinges not on the statutory language, but on each state’s underlying law regarding the availability of punitive damages.

Because no compensatory damages were awarded, the court reversed the punitive damage award.

David Ziemer can be reached at [email protected]

What the court held

Case: C & A Investments v. Kelly, No. 2009AP2420

Issues: Are punitive damages available under the UFTA?

Holdings: No. Because UFTA only provides equitable remedies, rather than compensatory damages, punitive damages are unavailable.

Attorneys: For Plaintiffs: Michael Jacobson, River Falls; Peter F. Herrell, Eau Claire; For Defendants: R. Michael Waterman, Hudson