Once a plaintiff has introduced evidence to establish a “badge of fraud,” a prima facie case of fraudulent conveyance is established and the burden shifts to the defendant to establish that the transaction was not fraudulent. So held the Virginia Supreme Court, in reversing the Henrico County Circuit Court’s decision to strike the plaintiff’s evidence and enter judgment in favor of the defendant.
Fox Rest Associates, L.P. v. Anne B. Little involved a dispute between George B. Little, an attorney and the general partner of Fox Rest Apartments, and the limited partners of Fox Rest Apartments, arising out of an alleged sale of the apartments by the general partner without the consent or knowledge of the limited partners. After learning that the limited partners planned to sue him, Mr. Little made various transfers, including transfers into an account at SunTrust Bank held jointly with his wife. The limited partners filed a derivative action against Fox Rest for malpractice, double billing, and other claims. The limited partners obtained a judgment but were unable to collect approximately $856,400. They then proceeded to file a fraudulent conveyance action to attempt to set aside various transfers as fraudulent.
The trial court struck the limited partners’ evidence, finding that they had produced insufficient evidence of fraudulent intent. The Supreme Court, however, reversed. Under Virginia law, it pointed out, to survive a motion to strike, a plaintiff need only introduce evidence of “badges of fraud.” Badges (or presumptions) of fraud include: