* This article originally appeared in the July 8, 2013 edition of Around the Bar

Act No. 88 makes an important change to a creditor’s right to collect a debt from property that the debtor has transferred to someone else. Unlike alternative approaches to transfer avoidance, the right of action in Louisiana – the “Revocatory Action” – makes a transferor’s intent to defraud creditors irrelevant. The proof is simple. The creditor may seize and sell the transferred property if the transfer of that property caused or increased the debtor’s insolvency.

Act No. 88 does not change the elements of the Revocatory Action;[1] it changes the limitations period in “cases of fraud.” Here is the relevant language from Act No. 88:

Civil Code Article 2041 is hereby amended and reenacted . . . to read as follows:

Art. 2041. Action must be brought within one year

The action of the obligee must be brought within one year from the time he learned or should have learned of the act, or the result of the failure to act, of the obligor that the obligee seeks to annul, but never after three years from the date of that act or result.

The three year period provided in this Article shall not apply in cases of fraud.

2013 La. Legis. Acts, No. 88 (newly added language underlined).[2]

In these undefined “cases of fraud” the creditor may look back to transfers passed in the last ten years, compared to three years in normal cases. In the world of transfer avoidance laws, the look-back period is everything. By more than tripling that period based on the transferor’s intent, Act No. 88 invites every plaintiff to plead fraud generally and take discovery into the transferor’s mind.

The 1984 revisions to the Civil Code eliminated the debtor’s fraudulent intent as an element of proof for a Revocatory Action in favor of the objective insolvency test. If Act No. 88 means anything, it must mean that we have returned to the old search for the debtor’s bad thoughts.

Act No. 88 Changes a Key Feature of this State’s Transfer Avoidance Policy

Each jurisdiction in the U.S. provides a system for creditors to collect from property that a debtor transfers to someone else. The basic policy goal is to protect the value of unsecured debt from deceitful transactions while balancing the opposing need for security of title. As time passes from the transaction date, the particular transferee’s property rights overshadow the generalized concern for the value of debt instruments. To strike a balance, each available system, including our own, provides creditors with limitations periods proportionate to a suspected level of deceit. As a result, creditors have more time to intercept deceitful transactions and less time for honest ones.

Louisiana’s solution is the Revocatory Action, derived from the “Paulian Action” under Roman law. The present Revocatory Action makes a creditor’s proof simple: the transfer is annulled if it 1) occurred after the debt was incurred and 2) increased the transferor’s insolvency. The creditor is protected from the detrimental effects of deceit by starting the one-year prescription period from the date when the creditor knew or should have known of the transaction. Transferee is protected by a three-year peremptive period beginning on the date of the transaction, regardless of the debtor’s intent to deceive.

By comparison, the debtor’s deceitfulness is the main focus of common law “fraudulent conveyance” doctrines, which, for 43 states, have been codified in the Uniform Fraudulent Transfer Act (the “UFTA”).

The UFTA establishes three types of fraudulent transfers, subject to the following limitations periods. For the worst kind of deceit – where the transferor has the “actual intent” to defraud creditors – a UFTA cause of action extinguishes after the later of 4 years from the transfer date or 1 year from the date the creditor either learned or reasonably should have learned of the transfer.[3] For the second worst kind of deceit – where actual intent is missing but the debtor should have known what it was doing, given the value it received for the transfer and the amount of its debts – the cause of action extinguishes after 4 years from the transfer date, regardless of whether the creditor discovered or should have discovered the transfer.[4] For the lowest level transfers – where the transferor received less than “reasonably equivalent value” at a time of insolvency – the cause of action extinguishes after one year from the transfer date regardless of what the creditor was able to know.[5]

Louisiana’s concise approach to transfer avoidance law was a major innovation of the 1984 Obligations Revisions to the Louisiana Civil Code of 1870. The pre-1985 Revocatory Action required proof of 1) insolvency of the debtor, 2) injury to the creditor, 3) intent to defraud the creditors, and 4) pre-existing and accrued indebtedness.[6] The evidence that established the debtor’s intent to defraud under transfer avoidance law was difficult to target.

The modern Revocatory Action provides the most direct solution to the main problem by shifting the focus away from the debtor’s bad faith and, instead, upon the damage to creditors. A seizing creditor cares only about preserving the debtor’s collectible net worth, not what the debtor was thinking in attempting to avoid collection. Much deliberation and explanation was expended in retracing the origins of the Paulian Action to bring us to our State’s modern-day objective insolvency test. The objective approach appropriately focuses on the restitution owed to unsecured creditors while balancing the rights of transferees, without the needless complexity of proving the debtor’s intent.

The Revocatory Action has Always Targeted “Cases of Fraud”

Act No. 88 in search of a problem replaces the three-year peremptive period with a special ten-year prescriptive period[7] reserved for “cases of fraud.” In the context of the Revocatory Action, however, the term “cases of fraud” is redundant. Every Revocatory Action targets a case of fraud.

The purpose of the objective insolvency test – the hallmark of the modern Revocatory Action – is to target transactions made “in fraud of creditors” in the way that Roman Paulian Action applied that concept.[8] That is, to ensure that a creditor’s process of execution is not prejudiced by transactions that deplete the debtor’s net worth, regardless of the debtor’s intent.

The debtor’s intent to defraud creditors was the primary cause for a Revocatory Action before 1985. However, the focus on the debtor’s deceitful intent was the result of a confusion in the meaning of the Latin phrase “in fraudem creditorum,” (“in fraud of creditors”), found in the source articles.[9] In Latin, fraus means “prejudice” or “disadvantage”; it does not mean deceit in the modern sense of the word “fraud.”[10] By missing the distinction, over time, the jurisprudence focused on the deceitfulness of the transaction. As a result, a formula was created for distinguishing between “actual” and “constructive” fraud.[11] That formula led to inconsistent applications.

The objective insolvency test introduced by the 1984 Obligations Revisions, eliminated that inconsistency and confusion. By eliminating the debtor’s intent as an element of proof, the modern Revocatory Action focuses on the prejudice the transaction has upon the creditor’s collection process, as opposed to the deceitful qualities of the transaction. Nevertheless, “fraud” in the sense of the Paulian Action remains the target of the modern Louisiana Revocatory Action.

Legislative History Notwithstanding, Act No. 88 Creates an Intent-Based Revocatory Action

Unfortunately, the legislative history of the Revocatory Action and importance of the objective insolvency test was lost on this year’s Legislature. It is unfortunate because had the Legislature retained a memory of its work in 1984 it would have recognized the redundancy and thus confusion created by (again) interjecting the concept of “fraud” into the Revocatory Action.

Legislation trumps history (and logic) as a source of law. We are not allowed to interpret legislation in a way that renders the words meaningless or superfluous.[12] We must search for a meaning, even if the Legislature gave us a poor, however “solemn[,] expression of legislative will.”[13]

Bound by these rules, creditors obviously cannot argue that the ten-year prescriptive period always expires after the three-year preemptive period on the basis that all Revocatory Actions are “cases of fraud.” If all Revocatory Actions are “cases of fraud” (as in fact they are in the Paulian Action sense of the word), then either the ten-year or three–year limitations period applies, but not both. That interpretation renders Act No. 88 superfluous. Instead, the ten-year Revocatory Action must be interpreted to guard against a type of transaction or protect a type of creditor that is different than the type targeted by three-year version.

Act No. 88 provides no way to distinguish the ten- from the three-year right. Unlike the other intent-based approaches to transfer avoidance law that we have seen in Louisiana, Act No. 88 is an incomplete thought. Nothing in the Civil Code can be read in pari materia to define the kind[14] of fraud that distinguishes between intent-based and objective Revocatory Actions. Nothing allows us to define against whom the fraud must be committed, and what must be the object of the fraud. The pre-1985 Revocatory Action and the UFTA were clear on these points.

At least under the pre-1985 Revocatory Action, we had a complete system for determining when the right of action prescribed and what triggered the right of action. Unlike Act No. 88, we had a way to define what the Legislature meant by “in fraud of a creditor’s rights.” Even our Legislature’s flirtation with the UFTA back in the early 2000’s[15] was better than Act No. 88. It was at least a complete thought.

Conclusion

Act No. 88 is a move backward in the area of transfer avoidance law. The new ten-year right of action in “cases of fraud” uses outdated, redundant terminology to define the limitations period, which is one of the most important aspects of the Revocatory Action. The terminology resurrects needless uncertainty in an otherwise artfully crafted, objective, easy-to-use law. That uncertainty will require judges to “proceed according to equity”[16] far too quickly than the primary source of Louisiana law (i.e., legislation[17]) should allow.

The Legislature should either repeal Act No. 88 or complete its thought, in that order of preference.

_______________________________

[1] La. Civ. C. art. 2036 (“An oblige has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the oblige arose, that causes or increases the obligor’s insolvency.”)

[2] The original bill was sponsored by the Louisiana State Law Institute and introduced by Representative Abramson. It only dealt with tolling agreements which had previously not worked in Louisiana. After passing the House (with a technical amendment), it was amended in the Senate by Senator Martiny to include the revisions to Article 2041.

[3] Uniform Fraudulent Transfer Act § 9(a).

[4] Uniform Fraudulent Transfer Act § 9(b).

[5] Uniform Fraudulent Transfer Act § 9(c).

[6] Thomassie v. Savoie, 581 So.2d 1031, 1035 (La. App. 1 Cir. 1991).

[7] Now that the three-year period “shall not apply in cases of fraud,” no limitations period is “otherwise provided by legislation[; therefore, the] personal action is subject to a liberative prescription of ten years.” La. Civ. C. art. 3499.

[8] See Murray v. Mae M. Stacy Trust, et al. (In re Goldberg), 277 B.R. 251, 270-285 (Bankr. M.D. La. 2002), for a concise summary of scholarship following the origins of the modern Revocatory Action.

[9] Id. at 273

[10] Id. at 279.

[11] E.g., Gast v. Gast, 19 So. 2d 138, 141 (La. 1944).

[12] Credit v. Richland Parish Sch. Bd., 2011-1003 (La. 3/13/12); 85 So. 3d 669, 678 (“It is a cardinal rule of statutory interpretation that it will not be presumed that the Legislature inserted idle, meaningless or superfluous language in the statute or that it intended for any part or provision of the statute to be meaningless, redundant or useless.”).

[13] La. Civ. C. arts. 9-13.

[14] “As used in [the] source articles, the word ‘fraud’ has a meaning which is difficult to determine but which appears different from its meaning in other contexts.” La. Civ. C. art. 2036, cmt. b.

[15] The Legislature passed the UFTA in 2003 and then repealed it in 2004.

[16] La. Civ. C. art. 4.

[17] La. Civ. C. art. 1.

“Pumping,” or expressing breast milk, is now protected under Title VII. In a matter of first impression, the Fifth Circuit Court of Appeal recently held that an adverse employment action taken against a female employee because she was expressing milk constituted sex discrimination in violation of Title VII. See Equal Employment Opportunity Commission v. Houston Funding II, Limited, — F.3d —, 2013 WL 2360114 (5th Cir. 2013).

The EEOC brought the action on behalf of a former employee against her former employer, alleging she had been unlawfully discharged because she wanted to pump at work. The defendant argued that Title VII does not cover “breast pump discrimination.” The Fifth Circuit resolved the dispute by holding that an employer’s adverse employment action against a female employee because she is lactating or expressing milk constitutes sex discrimination in violation of Title VII. The court reasoned that an “adverse employment action motivated by these factors clearly imposes upon women a burden that male employees need not – indeed, could not – suffer.” In addition, the Fifth Circuit held that lactation is a related medical condition of pregnancy for purposes of the Pregnancy Discrimination Act of 1978.

As noted in a concurring opinion, neither Title VII nor the Pregnancy Discrimination Act mandates special accommodations to women – such as special facilities or break time during work to pump. However, employers should read this decision in tandem with the 2010 Patient Protection and Affordable Care Act’s amendment to the Fair Labor Standards Act, which requires certain covered employers to provide nursing women with breaks to express breast milk. Under that provision, covered employers must provide employees covered by the FLSA’s overtime provisions a “reasonable” break each time she has a need to express milk. The employer is not required to compensate the employee for such breaks. In addition, the employer must provide a place – other than a bathroom – that is private and free from intrusion from co-workers and the public.

During the recent 2013 Regular Session, the Louisiana Legislature passed a sweeping tax amnesty bill (House Bill 456). The bill provides amnesty for virtually all Louisiana state taxes and will be available to taxpayers through a series of specified amnesty periods in 2013, 2014, and 2015, with benefits decreasing in each of the amnesty periods. In 2013, the Secretary of the Department of Revenue (the “Secretary” or the “Department”) will waive one-half (50%) of the interest and all of the penalties for the relevant tax periods. In 2014, the Secretary will waive only fifteen percent (15%) of penalties, but no interest. And, in 2015, the Secretary will waive ten percent (10%) of penalties, but no interest.

The specific dates of the amnesty periods are yet to be determined by the Secretary, but they must fall within the following timeframes:

  • 2013: 2 months prior to December 31, 2013
  • 2014: 1 month between July and December, 2014
  • 2015: 1 month between July and December, 2015

The tax amnesty applies to (1) all taxes administered by the Department, except for motor fuel taxes and penalties for failure to submit information reports that are not based on an underpayment of tax; (2) taxes due prior to January 1, 2013, for which the Department has issued an individual or a business proposed assessment, notice of assessment, bill, notice, or demand for payment not later than May 31, 2013; (3) taxes for taxable periods that began before January 1, 2013; and (4) taxes for which the taxpayer and the Department have entered into an agreement to interrupt the running of prescription through December 31, 2013.

In order to claim amnesty, the participating taxpayer must agree that its right to protest or initiate an administrative or judicial proceeding regarding taxes for any of these time periods is barred. Taxpayers involved in field audits or litigation must agree to abide by the Department’s interpretation of the law regarding the issues resolved by amnesty for three years. Failure to abide by the Department’s interpretation subjects taxpayers to a negligence penalty. The amnesty application for taxpayers involved in field audits or litigation must include all issues and all eligible periods involved in the audit or litigation. And, the Secretary reserves the right to require taxpayers to file tax returns with the amnesty application. Taxpayers with existing liens on their property, as well as taxpayers against whom the Department has initiated proceedings under the assessment and distraint procedure are eligible for amnesty. However, such taxpayers are required to pay all liens for the relevant tax periods. Finally, taxpayers who have paid taxes under protest and filed suit must agree that, upon approval of their amnesty application, the Department can release the payment from escrow. No interest will be paid on any refunds of amounts previously collected by the Department.

Taxpayers will be required to apply for amnesty, which must be approved by the Secretary. All of the tax, fees and costs, if applicable, and any interest due must be paid with the submission of the amnesty application. Over the next several months, the Secretary will promulgate regulations to administer and implement the amnesty program, including the amnesty application.

House Bill 456 was signed by Governor Bobby Jindal on June 21, 2013 and is designated as Act 421.

The Fair Labor Standards Act turns 75 today, June 25. The FLSA is a depression-era piece of legislation. Through the FLSA, Congress intended to raise working conditions and spur hiring.  Congress sought to do this by prohibiting child labor, establishing a minimum wage, and requiring payment of a premium for hours worked over a particular benchmark any workweek.  Congress believed that the maintenance of substandard labor conditions, in any part of industry and in any state, would have the effect of lowering labor conditions elsewhere because goods flowed in a stream of interstate commerce. The minimum wage 75 years ago was $.25; today’s minimum wage is $7.25.  FLSA suits are the fastest-growing type of employment litigation.  FLSA suits typically involve misclassification of workers as exempt from minimum wage and/or overtime and off-the-clock (unpaid) time periods.  On the 75th anniversary of the FLSA, it may be a good time to examine your employment practices to ensure that you are in full compliance with the Act.

Through House Bill 589 of the 2013 Regular Session, the Louisiana legislature amended article 966 of the Code of Civil Procedure, which, as of August 1, 2013, requires additional legwork by practitioners who seek to obtain a ruling or dismissal by summary judgment. The new rule requires the moving party to formally admit its evidence into the record for the purposes of that particular summary judgment motion. Thus, unlike in years past, the practitioner may no longer rely upon evidence “on file” in the record or evidence simply attached to the motion itself. Even under the 2012 amendments with similar language to HB589, at least one circuit recently held that the movant must formally admit its evidence in support of the motion at the hearing on the motion.

Article 966(B)(2) now states in pertinent part:

(2) The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions, together with the affidavits, if any, admitted for purposes of the motion for summary judgment, show that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law (underlined language is added by HB589).

Continue Reading Louisiana Legislature Amends Article 966 of the Code of Civil Procedure Requiring Additional Legwork by Practitioners Seeking Summary Judgment

A few weeks ago, in a piece entitled “Thorny Roses: Interns and Potential Wage Liability”, I wrote about PBS talk show host, Charlie Rose, and his production company’s $250,000 settlement of a class-action lawsuit brought by a former unpaid intern who claimed minimum-wage violations. On Monday, the assault against unpaid internships continued when a former intern filed a putative class-action lawsuit against Warner Music Group and Atlantic Records, alleging minimum-wage violations. This new lawsuit comes fresh off the heels of a judgment in Glatt v. Fox Searchlight Pictures, Inc., which gave deference to the U.S. Department of Labor’s six criteria and held that Fox Searchlight Pictures violated minimum wage and overtime laws by not paying interns who worked on production of the movie “Black Swan.”

Although the recent spate of unpaid internship cases has been largely confined to the media industry, the cases set a precedent that could eventually ripple outward to other companies and fields – especially since the six criteria employed by the Department of Labor broadly apply to all “for-profit” private sector internships. As law firms representing the unpaid interns have indicated, more and more inquiries are flooding in from interns interested in filing similar suits. Accordingly, employers should take a hard look to ensure that their internship programs are in compliance with the law.

The question as to whether isolated strands of human DNA are patent eligible subject matter has finally been answered. The Supreme Court handed down its opinion in Association for Molecular Pathology v. Myriad Genetics, Inc (1), on Thursday, June 13, 2013. Confirming what many patent practitioners anticipated, the Court held that a naturally occurring DNA segment is a product of nature and therefore is not patent eligible subject matter under 35 U.S.C. § 101 merely because it has been isolated. Moreover, and perhaps more importantly, the Court ruled that complementary DNA (cDNA), which is synthetically constructed from a DNA segment by removing the introns (the non-coding DNA segments in a gene), can constitute patent eligible subject matter because the cDNA is not naturally occurring. It is important to note that this carved-out exception protects universities, biotech companies, pharmaceutical companies, and other research institutions; without the carved-out exception, the ability for such entities to recuperate resources devoted to research and development may have been lost.

Continue Reading You Can’t Patent My DNA: A brief on Association for Molecular Pathology v. Myriad Genetics, Inc.

Traditionally, a party seeking injunctive relief from the courts bears the burden of proving four elements: (1) a substantial likelihood of success on the merits of their claims; (2) a substantial threat that failure to grant the injunction will result in irreparable injury; (3) the threatened injury outweighs any damage that the injunction will cause to the adverse party; and (4) the injunction will not have an adverse effect on the public interest.  See Johnson Controls, Inc. v. Guidry, 724 F. Supp. 2d 612 (W.D. La. July 12, 2010); Mississippi Power & Light v. United Gas Pipeline Co., 760 F. 2d 618 (5th Cir. 1985).  Due to the first element – a substantial likelihood of success on the merits – a court that is asked to rule upon a request for injunctive relief in effect pre-judges the entire case.  Although in most cases this is not problematic (and can potentially lead to the matter being resolved without the need for a full trial on the merits), the presence of a mandatory arbitration clause in the parties’ contract can lead to problems.

Continue Reading If a Contract Includes a Mandatory Arbitration Clause, the Parties Should be Aware that Injunctive Relief from the Courts can be Available Without the Necessity of Satisfying the Traditional Four-Element Test

The Kean Miller Connection is a free, two-day law school preparatory program for college students from groups that are traditionally underrepresented in the legal profession.  Attorneys from Kean Miller  along with other legal instructors, provide an intense overview of the law school experience. The goal of the program is to "connect" students with information helpful to their decision to attend law school and become an attorney.

Check out the video.  Or, click here to read an article on the 2012 Kean Miller Connection from a recent edition of Louisiana Weekly.

PBS talk show host, Charlie Rose, and his production company recently agreed to pay as much as $250,000 to settle a class-action lawsuit brought by a former unpaid intern who claimed minimum-wage violations under New York State labor laws.

The Complaint, brought on behalf of a potential class of 189 interns, alleged that The Charlie Rose Show used unpaid interns to perform background research to prepare Rose for guest interviews, escort guests through the studio and set, break down the set, and clean up after each taping. The Complaint also alleged that unlawful unpaid internships are prevalent in white collar professions, “especially in fields like politics, film, fashion, journalism and book publishing.”

So, how can an employer avoid Charlie’s folly when bringing on interns?

Continue Reading Thorny Roses: Interns and Potential Wage Liability