Legal Memorandum: Burden of Proof in Fraudulent Transfers

Issue: Whether a bank has a burden to show that fraudulent transfers that have been made violate the Minnesota’s Uniform Fraudulent Transfer Act, Minn. Stat. 513.41–.51.

A bank must establish that alleged fraudulent transfers in fact violate Minnesota’s Uniform Fraudulent Transfer Act, Minn. Stat. §§ 513.41–.51. 

First, only “transfers” are subject to Minnesota’s UFTA and specifically only “[a] transfer made . . . by a debtor.”  Id. § 513.44(a) (emphasis added).

Under the UFTA, generally, “the aggrieved creditor bears the burden of proving actual or constructive intent to defraud.”  New Horizon Enterprises, Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12, 15 (Minn. Ct. App. 1997).  In determining fraud and intent, the factfinder may rely on certain statutory factors, sometimes referred to as “badges of fraud”.  Id. at 15.  The statute, § 513.44(b), sets out eleven of these factors.

Proof of insolvency is required. Neubauer v. Cloutier, 122 N.W.2d 623, 628 (Minn. 1963).  Moreover, there must be evidence of the date on which the insolvency occurred. Minn. Stat. § 513.45. 

The statutory factor recognized in § 513.44(b)(10) speaks only to substantial debts that actually are incurred (as opposed to coming due) shortly before or after the transfer.  Minn. Stat. § 513.44(b)(10). 

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