Redemption Holdings, Inc. v. Government of the Virgin Islands
2016 V.I. Supreme LEXIS 27
Supreme Court of The Virgin Is...2016Background
- Yusuf Jaber was the mortgagor of property on St. Croix; Bank of Nova Scotia foreclosed and purchased the property at marshal’s sale in 2003; Jaber retained a six‑month statutory right of redemption.
- Jaber incorporated Redemption Holdings, Inc. (RHI) on May 21–22, 2004, became its sole shareholder/officer, and on May 24, 2004 assigned his right of redemption to RHI; RHI redeemed the property the same day by tendering funds provided by Jaber.
- RHI’s redemption was recorded (certificate filed) in 2005; Jaber sold his RHI stock to Clapp in November 2005; the assignment affidavit was not recorded until February 17, 2009.
- Egbert Hall loaned Jaber roughly $670,000 in 2004–2005; Hall obtained a default judgment against Jaber in October 2008 and recorded it in the Personal Lien Register in 2008.
- Hall sued RHI asserting the redemption/assignment was a fraudulent conveyance under the VIUFCA; the Superior Court set aside the conveyance (Feb. 27, 2015), and this appeal followed.
Issues
| Issue | Plaintiff's Argument (Hall) | Defendant's Argument (Jaber/RHI) | Held |
|---|---|---|---|
| Whether the assignment of Jaber’s right of redemption to RHI was a fraudulent conveyance (actual intent) | Jaber transferred the redemption right to a company he controlled, concealed his interest, retained effective control, and thus acted with actual intent to hinder/delay/defraud | Assignment was lawful; redemption via corporation is legitimate; no direct proof of actual intent and debtor’s default alone is not proof of absconding | Court affirmed: multiple "badges of fraud" supported inference of actual intent to defraud creditors |
| Whether badges/indicia of fraud existed (insider transfer, concealment, timing, control) | Pointed to sole‑shareholder transfer, retention of control, secretive recording, timing near loans, and transfer of funds to RHI | Argued some recordings and filings put the public on notice; default may have benign explanations | Court found several badges present (insider transfer, retention of control, concealment, suspicious timing, concealment after loans) supporting fraudulent intent |
| Whether Hall suffered prejudice such that relief is warranted | Transfer put the redemption and cash beyond Hall’s reach; recording/stock transfer prevented execution on the asset when Hall obtained judgment | Argued creditors could have executed on corporate stock or pursued debtor‑examination to reach assets; no loss in debtor’s net worth | Court held Hall was prejudiced: transfer made collection materially more difficult and hid assets from creditors, so conveyance could be set aside |
| Effect on bona fide purchaser/third parties (Clapp) | Relief sought against the fraudulent conveyance to reach property value to satisfy judgment | Noted Clapp purchased RHI as security and may be an innocent party; sale was of a company, not the property | Court acknowledged impact on Clapp but held purchase of the company carried risk; set aside conveyance as to Jaber’s fraud upon creditors |
Key Cases Cited
- Firmani v. Firmani, 332 N.J. Super. 118 (N.J. Super. Ct. App. Div.) (badges of fraud used to infer actual intent)
- United States v. Black, 725 F. Supp. 2d 1279 (E.D. Wash. 2010) (insider transfers can evidence fraudulent intent)
- In re Kaiser, 722 F.2d 1574 (2d Cir. 1983) (transfer to a corporation controlled by debtor is a badge of fraud)
- ABN AMRO Bank, N.V. v. MBIA Inc., 17 N.Y.3d 208 (N.Y. 2011) (lack of consideration can support inference of fraudulent intent)
- Eberhard v. Marcu, 530 F.3d 122 (2d Cir. 2008) (creditor must show injury or prejudice from the transfer)
- Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215 (U.S. 1941) (debtor shifting assets to a wholly controlled corporation is suspect)
- Estate of Ludington v. Jaber, 54 V.I. 678 (V.I. 2011) (property of judgment debtor generally subject to execution)