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Fraudulent Conveyances
Second Circuit
Motlow v. Southern Holding & Securities Corporation, 95 F.2d 721, (2nd Cir.
1938), cert. denied, 305 U.S. 609. The court found that a creditor's mere
allegation that the insurance commissioner as liquidator had not attempted to
recover the company's assets which had been fraudulently transferred was
insufficient to show an intent to abandon the assets or that the court had
approved such abandonment so as to prevent recovery.
Eighth Circuit Motlow v. Southern Holding & Securities Corporation, 95 F.2d 721 (8th Cir. 1938),
cert denied, 305 U.S. 609. By an order of liquidation of a New York court, title to
a cause of action for setting aside fraudulent transfers by an insolvent insurance
company was vested in the insurance commissioner as the statutory successor
of the insurance company for purposes of liquidation. The commissioner is
subject to the direction, supervision and control of the court entering the
liquidation order over the insolvent insurer's estate.
Tenth Circuit
Strong v. W. United Life Assurance Co. (In re Tri‐Valley Distrib.), BAP No. UT‐05‐
119, BAP No. UT‐06‐048, 2006 Bankr. LEXIS 3252 (B.A.P. 10th Cir. 2006). The
receiver for an insolvent insurance company and a bankruptcy examiner
entered an agreement regarding the sale of certain assets claimed to be
property of the estates being administered by the receiver and bankruptcy
examiner, respectively. The agreement provided that the funds from the sale of
the subject properties would be held in escrow pending a negotiated resolution
of the dispute as to ownership, or pending a final order of the United States
Bankruptcy Court for the District of Utah. Ultimately, the bankruptcy examiner
filed an adversarial proceeding claiming that the properties at issue were
fraudulently transferred to the insolvent insurance company. The receiver
asserted that the bankruptcy court had no jurisdiction due to the reverse
preemption provisions of the McCarran‐Ferguson Act, or alternatively, due to
the permissive abstention powers under federal law. The court first held that
the McCarran‐Ferguson Act did not apply, because the bankruptcy court’s
jurisdiction does not invalidate, impair, or supersede the state insolvency law.
The court reasoned that to deny the court jurisdiction in this case on the basis of
the McCarran‐Ferguson Act would remove federal jurisdiction from every claim
involving an insolvent insurer. Moreover, the receiver agreed to submit to the
jurisdiction of the bankruptcy court in the agreement with the bankruptcy
examiner related to the disposition and sale of the subject receivership
property. After denying the receiver’s challenge to jurisdiction on the basis of
McCarran‐Ferguson, the court denied the receiver’s alternative request that the
bankruptcy court abstain from hearing the bankruptcy examiner’s petition for
adversarial proceeding. The court reasoned that the abstention was within the
sound discretion of the lower court and would not be overturned on appeal.
Connecticut Reider v. Arthur Andersen, LLP, 784 A.2d 464 (Conn. Super. 2001). In the
liquidator’s action against an accounting firm to recover the alleged
misrepresented value of the insurer’s largest asset ‐‐ an account receivable
owed by a corporation controlled by the insurer’s two shareholders – the court
rejected the firm’s argument that the liquidator could not prevail because the
harm resulted from the insurer’s own fraudulent conduct; the alleged fraud by
the shareholders was a fraud upon, rather than by, the insurer and was not
imputable to the insurer in the liquidator’s action.
District of Columbia
Argon Financial Group v. Marro, 897 F. Supp. 568 (D.C. 1995). The creditor of
an insolvent insurer filed suit against a government official for breach of
fiduciary duty, tortuous interference with a contract, and civil rights
violations. Previously, the Delaware Chancery Court had issued a liquidation
order and injunction prohibiting actions against the insolvent insurer and the
Commissioner as Receiver.