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U.S. v. Bacon 82 F.3d 822, 96
Cal. Daily Op. Serv. 2990, 96 Daily Journal D.A.R. 4965 C.A.9 (Wash.),1996. Argued and Submitted
Feb. 7, 1996. SUBSEQUENT HISTORY: On remand: U.S.
v. Bacon, 1996 WL 887473, 78 A.F.T.R.2d 96-7442 (E.D.Wash. Nov. 14, 1996) (No.
CS-93-0052-W [*823] COUNSEL: Gary R. Allen, William S. Estabrook, John A.
Dudeck, Jr., Tax Division, United States Department of Justice, Washington,
D.C., for plaintiff- appellant. Douglas M. O'Coyne, Sr., Spokane, Washington, for
defendants-appellees. Appeal from the United States District Court for the Eastern
District of Washington Wm. Fremming Nielsen, Chief District Judge, Presiding.
No. CV-93- 00052-WFN. ORDER A timely request for the publication of the Memorandum disposition
filed on March 7, 1996 is GRANTED. The Memorandum disposition filed on March 7,
1996 is redesignated as an authored opinion by Judge Wright. OPINION JUDGE: EUGENE A. WRIGHT, Circuit Judge: This case concerns the applicable time limitation on an action by
the federal government to set aside two alleged fraudulent conveyances of
property. Upon de novo review, we reverse the judgment and remand. The government argues that the court erred in concluding that the
government was bound by the four-year extinguishment provision of Washington
state's Uniform Fraudulent Transfer Act. Specifically, it contends that the
Transfer Act may not be applied retroactively to the conveyances, which were
made before the statute's effective date. Instead, says the government, the
court should have applied the state's repealed Uniform Fraudulent Conveyance
Act. [FN1] FN1. The Washington legislature repealed the Conveyance Act in
1987 and replaced it with the Transfer Act, which became effective on July 1,
1988. RCW 19.40; 1987 Wash.Laws Ch. 444 §§ 15-16. The determination of which statute applies is relevant because the
two statutes have different types of time limitations for bringing fraudulent
conveyance actions. Actions under the Conveyance Act are governed by a general
three-year statute of limitations for fraud claims. RCW 4.16.080; McMaster v.
Farmer, 76 Wash.App. 464, 886 P.2d 240, 241 (1994). According to the rule of United
States v. Summerlin, 310 U.S. 414,
416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283 (1940), the federal government is not
bound by such state statutes of limitations. See United States v. Fernon, 640 F.2d 609, 612
(5th Cir.1981) (government's action under Florida's fraudulent conveyance
statute governed by federal statute of limitations for tax collection actions,
not by state statute of limitations); United States v. Peterson, 93-1 USTC ¶
50,230, 1993 WL 151850 (W.D.Wash.1993) (United States as sovereign entity is
not bound by statute of limitations governing actions under Washington's
Conveyance Act), appeal dismissed, 19 F.3d 1442 (table) (9th Cir.1994). The Transfer Act, on the other hand, introduces a claim
extinguishment provision which abolishes the right to bring a fraudulent
transfer action if the action is not brought within four years. RCW 19.40.091.
This provision differs from a traditional statute of limitations because it
places a substantive *824 condition on the accrual of a fraudulent transfer
action. McMaster, 886 P.2d at 242. Courts have disagreed over whether the federal
government is subject to the provision. Compare United States v. Vellalos, 780 F.Supp. 705, 708
(D.Hawai'i 1992) (government bound by extinguishment provision of Hawaii's
Transfer Act), aff’d on other grounds, 990 F.2d 1265 (table) (9th
Cir.1993), with Stoecklin v. United States, 858 F.Supp. 167, 168 (M.D.Fla.1994)
(government not bound by identical extinguishment provision of Florida's
Transfer Act because of the rule of Summerlin). [FN2] Here, the
district court followed Vellalos and held that the government was subject to
the provision, without considering the possible retroactive effect of the
Transfer Act. FN2. Apparently the extinguishment provision
was designed in part to bar actions asserted by the government under the
Summerlin rule: “The section rejects the rule applied in the United
States v. Gleneagles Inv. Co., 565 F.Supp. 556, 583 (M.D.Pa.1983) (state
statute of limitations held not to apply to action by United States based on
Uniform Fraudulent Conveyance Act).” Unif. Fraudulent Transfer Act §
9, comment (1), 7A U.L.A. 665-66 (1984) (quoted in Vellalos, 780 F.Supp. at 707).
In this regard, the provision appears to be a dressed-up statute of
limitations, crafted to circumvent the rule of Summerlin. There is a traditional presumption against retroactive application
of statutes. Landgraf v. USI Film Products, 511 U.S. 244, ----, 114
S.Ct. 1483, 1497, 128 L.Ed.2d 229 (1994). Accordingly, statutes generally are
not held to apply retroactively unless they expressly provide for such
application. Retirement Systems v. Kralman, 73 Wash.App. 25, 867 P.2d 643, 648
(1994). To determine whether a statute is retroactive, or has a retroactive
effect, courts consider whether the statute “would impair rights a
party possessed when he acted, increase a party's liability for past conduct,
or impose new duties with respect to transactions already completed.” Landgraf, 511 U.S. at ----,
114 S.Ct. at 1505. Although statutes that affect substantive rights generally
are considered to have a retroactive effect, see id. at ----, 114 S.Ct.
at 1504, a remedial statute, which relates to practice, procedure or remedies
and does not affect a substantive or vested right, often is deemed not to have
a retroactive effect. Gem Trading Co. v. Cudahy Corp., 92 Wash.2d 956, 603
P.2d 828, 834 (1979) (en banc); see also Landgraf, 511 U.S. at ----,
114 S.Ct. at 1502 (“Changes in procedural rules may often be applied
in suits arising before their enactment without raising concerns about
retroactivity.”). With these principles in mind we turn to the Transfer Act's claim
extinguishment provision. This provision is not merely remedial or procedural;
it seeks to affect substantive rights. Its purpose is “to make clear
that lapse of the statutory periods prescribed by the section bars the right
and not merely the remedy.” McMaster, 886 P.2d at 242
(quoting Unif. Fraudulent Transfer Act § 9, comment (1), 7A U.L.A.
665-66 (1984)). It imposes a condition upon the right to bring an action and
therefore introduces a new element of a fraudulent transfer claim. Id. (citing In re
Estate of Speake, 743 P.2d 648, 652 (Okla.1987)). Because the Transfer Act, through its extinguishment provision,
seeks to affect the government's substantive right to bring a fraudulent
transfer action, we hold that it should not have been applied here. The statute
does not expressly provide for such retroactive application. See Gem Trading
Co., 603 P.2d at 834 (statute cannot be applied retroactively if it is
substantive and changes the elements of a cause of action). Instead, the court should have applied the repealed Conveyance
Act, which was the act in effect when the conveyances were made. See, e.g., Peterson, 93-1 USTC ¶
50,230, n. 1 (applying Washington Conveyance Act in action brought after its
repeal and replacement by Transfer Act, because Conveyance Act was the law in
effect at time conveyances were made); Towe Antique Ford Found. v. I.R.S., 791 F.Supp. 1450,
1457 (D.Mont.1992) (finding that Montana Conveyance Act controlled in a
fraudulent conveyance action where it was the law in *825 effect at the time
the conveyances were made, even though it had been replaced by the Transfer
Act), aff'd on other grounds, 999 F.2d 1387 (9th Cir.1993); Karras v. Karras, 16 F.3d 245, 247
(8th Cir.1994) (applying South Dakota's repealed Conveyance Act because it was
the law in effect at the time of the alleged fraudulent transfers). Because the state statute of limitations for actions under the
Conveyance Act does not apply to the federal government, the applicable
limitation is the ten-year federal statute of limitations governing tax
assessment collection actions. 26 U.S.C. § 6502(a)(1). United
States v. Overman, 424 F.2d 1142, 1147 (9th Cir.1970); see also Fernon, 640 F.2d at 612
(ruling that government's collection action brought under Florida's fraudulent
conveyance statute was governed by 26 U.S.C. § 6502(a)(1)). CONCLUSION We reverse the judgment and remand for reconsideration of Bacon's
summary judgment motion, with instructions that the applicable statute is the
Conveyance Act, and the applicable time limitation is the ten-year federal
statute of limitations for tax assessment collection actions. REVERSED and REMANDED. |