Court Rules on Declaratory-Judgment Action Arising Out of Transfer of Membership Interest
Ex parte Valley National Bank
In the case, Valley National Bank (“VNB”) petitioned the Alabama Supreme Court for a writ of mandamus directing the Montgomery Circuit Court to dismiss a declaratory-judgment action filed against it by Jessie Blount, Wilson Blount, and William Blount (the “Blounts”). The declaratory-judgment action stemmed from the transfer of William Blount’s interest in Alabama Utility Services, LLC (“AUS”) to WWJ Corporation, Inc. (“WWJ”), where William serves as president. After the interest-transfer, VNB obtained a judgment against William in a separate underlying action and a limited liability company purchased all of AUS’s assets from WWJ.
The Blounts were seeking a judgment declaring that the interest-transfer was not fraudulent as to VNB, William was the alter ego of neither AUS nor WWJ, the sale of AUS did not result in a constructive trust in VNB’s favor, and the Blounts did not engage in a civil conspiracy. VNB responded by filing a motion to dismiss arguing that the trial court lacked subject-matter jurisdiction and that the case lacked a justiciable controversy. VNB also filed an action under the Alabama Uniform Fraudulent Transfer Act (“AUFTA”) against the Blounts asserting that William had fraudulently transferred assets. VNB’s motion to dismiss was denied and its AUFTA action was stayed pending resolution of the mandamus petition.
On its petition, VNB argued that a claim under AUFTA, under which the Blounts could be liable, is a tort claim and that declaratory-judgment actions are not available to potential tort defendants to establish non-liability for a tort. The Blounts contended, however, that an action under AUFTA sounds in equity, not tort. The Court agreed with VNB and emphasized the purpose of AUFTA is to prohibit the fraudulent transfer of property by a debtor. The Court reasoned further that since fraud is recognized as a tort under Alabama law and that it has long considered a fraudulent conveyance to be a tort, an AUFTA action sounds in tort.
Thus, because the Blounts were seeking a determination of non-liability for alleged torts, the Court held that a declaratory-judgment action was not an appropriate means for resolving the fraud and civil conspiracy issues.
Although alter-ego and constructive trust claims are not based in tort, VNB argued that there was no justiciable controversy regarding these claims since it had not elected to pursue a claim against the Blounts at the time that the declaratory-judgment action had been filed. The Court disagreed and emphasized that the Blounts were “not required to [wait] until [VNB] sued [them] to have [their] rights and obligations determined.” Therefore, because the Court held that the Blounts’ alter-ego and constructive trust claims were appropriately resolved by a declaratory-judgment action, VNB’s petition was both granted and denied in part.