Bass, Berry & Sims attorney Chris Lazarini examined further developments in a case involving a former UBS investment advisor’s attempt to prevent the company from collecting on promissory notes the advisor owed to UBS upon his departure. After the former advisor established an investment company and gave his wife a 95% ownership in the company in exchange for a $140,000 capital contribution, UBS sued the advisor, the advisor’s wife and the company to prevent the transfer of assets. The trial court voided the transaction. Previously, Chris analyzed the wife’s appeal and the court’s subsequent rejection.

The former advisor’s appeal was also rejected as the appellate court determined the transfer was fraudulent to UBS because the advisor retained control over the investment company, received nothing of value for the transfer of a majority ownership interest in the company, and used the wife’s cash contribution for non-business purposes.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

UBS Financial Services, Inc. vs. Lacava, No. 106260 (Ohio App., 8Dist., 8/16/18)

Under Ohio law, a transfer made by a debtor is fraudulent as to a creditor whose claim arose prior to the transfer if the debtor made the transfer without receiving a reasonably equivalent value for the transfer and the debtor was insolvent when the transfer was made or he became insolvent because of the transfer.

This is Mr. Lacava’s second-bite appellate effort to prevent UBS from collecting on a $196,953 FINRA Award arising out of his unpaid promissory notes (FINRA ID #08-04976(Cleveland, 2/9/10)). Before the FINRA Award issued, Mr. Lacava made himself collection-proof, amending his investment management company’s LLC operating agreement and giving his wife a 95% ownership interest in the company for $140,000 paid to the company. Unable to collect on the FINRA Award, UBS sued Mr. Lacava, his wife, and the LLC, seeking to set aside the wife’s contribution as a fraudulent conveyance. The trial court awarded summary judgment to UBS, voiding the $140,000 transfer and freezing the Lacavas’ and the LLC’s assets. The trial court also awarded UBS substantial punitive damages, attorneys’ fees, and costs. In SOLA 2018-32, we reported on the Court’s rejection of Mrs. Lacava’s appeal.

Here, the Court similarly rejects Mr. Lacava’s appeal. First, the Court summarily denies Mr. Lacava’s venue challenge. The Court finds that venue in Cleveland, Cuyahoga County was proper because it was where the FINRA arbitration was held. Next, the Court rejects Mr. Lacava’s argument that the trial court erred in dismissing his counterclaims, finding no arguments supporting the alleged error and declining to create them for Mr. Lacava.

Third, Mr. Lacava’s challenge to the summary judgment award also fails. Conducting a de novo review, the Court, like the trial court, finds multiple factors demonstrating that Mrs. Lacava’s contribution to the LLC was fraudulent. Here, Mr. Lacava retained control over Mrs. Lacava’s contribution because he was the only registered person associated with the company, he ran the business, and he used the funds for purposes other than true “business” purposes. Moreover, Mr. Lacava attempted to conceal the transfer and continued to amend the company’s operating agreement to frustrate UBS’ collection efforts. Also, Mr. Lacava received nothing for the transfer of his LLC ownership interests to his wife, which rendered him insolvent, while simultaneously giving him access to the $140,000 without it being exposed to recovery by UBS.

Finally, the Court affirms the trial court’s remedies, including the award of punitive damages, which are appropriate in fraudulent conveyance cases where the debtor acted with actual malice, defined as “hatred, ill will or a spirit of revenge [or] a conscious disregard for the rights of others that had a great probability of causing additional harm.”

Mr. Lacava has one more opportunity to avoid paying the Award, as the LLC also appealed the lower court’s ruling.