Friday, June 29, 2018
Court of Appeal:
College Tuition Paid for Son by Debtor Not Fraudulent Conveyance
By a MetNews Staff Writer
The First District Court of Appeal has held that the tuition a man paid for his son’s education was not a fraudulent transfer, and that his creditors cannot recover the money from the son.
The opinion, written by Justice Robert L. Dondero of Div. One, was filed May 30, and certified for publication on Wednesday. In it, Dondero addresses the effect of California’s Uniform Voidable Transfer Act (UVTA), previously known as the Uniform Fraudulent Transfer Act, on tuition paid by a debtor for his son.
One of the defendants in the case, Daniel S. Lee, owed plaintiff David Lo and his co-plaintiffs more than $1 million on loans they had made to him. Around the time Lee defaulted on the loans, he paid $104,850 to Northeastern University for his son Tristan You’s tuition.
Lo and his associates sued You for the value of the tuition under the UVTA, which allows creditors to reclaim money from a recipent of funds fraudulently transferred by a debtor. San Francisco Superior Court Judge A. James Robertson II ruled that because Lee gained a benefit, the transfer was not actually fraudulent.
On appeal, however, Dondero indicated that the student was not a transfer beneficiary at all, and the appellate justice affirmed Robertson’s order without addressing the judge’s reasoning.
Federal Law Persuasive
Noting that the California Legislature had based the UVTA on the federal Bankruptcy Code, Dondero applied the bankruptcy courts’ test for whether You was the ultimate beneficiary of Lee’s tuition payment.
The three-part test asks whether a benefit was received by You, whether it was quantifiable, and whether it was accessible by him.
Dondero did not address whether You received the benefit, explaining that “the two remaining requirements… are not satisfied by the allegations in the [complaint].”
There is no way to quantify the benefits of a college education, Dondero explained.
“Any such benefits are entirely intangible and theoretical, and could never be disgorged by him as they cannot be valued solely in terms of dollars and cents,” he wrote.
Addressing the last prong of the test, he continued:
“Additionally, the benefit You received is not, and never was, ‘accessible’ to him. Lee’s funds were transmitted directly to Northeastern, and there are no allegations suggesting that the funds were ever controlled by You.”
Parent’s Benefit Unclear
While Dondero’s opinion affirmed Robertson’s dismissal of the complaint against You, he did not address whether Lee had, himself, received a benefit from paying the tuition. The trial judge had reasoned that, by paying for his child’s education, the father had thereby increased his own economic security.
“We conclude plaintiffs have not adequately alleged a valid transferee beneficiary theory against You. Therefore, we need not decide whether the debtor, in the first instance, received a reasonably equivalent value for his tuition payments to Northeastern University, an issue we might have had to resolve if plaintiffs desired to recover the tuition paid by Lee directly from the college.”
The case is Lo v. Lee, 2018 S.O.S. 3273.
Copyright 2018, Metropolitan News Company