Barry Koffman v. Luke Smith

OPINION BY KELLY, J.: FILED August 28, 1996 In this opinion, we are called upon to determine whether, upon dissolution, the conveyance by two former business partners of the assets of a partnership to themselves amounted to a fraudulent conveyance entitling a judgment creditor to relief under the Pennsylvania Uniform Fraudulent Conveyance Act; whether that conveyance was in violation of the provision of the Pennsylvania UFCA requiring that creditors be paid before the assets of a partnership can be distributed to the partners; whether relief in the form of a constructive trust is appropriate under the circumstances to enforce the judgment debt; and whether the partners' conduct was arbitrary, vexatious, and intended to delay and harass the judgment creditor in his legitimate claims such that the trial court should have ordered the partners to pay damages and reimburse the judgment creditor for the attorneys' fees which he incurred. We are further asked to determine whether property held as tenants by the entirety is always unavailable to creditors of one of the tenants and where a sheriff's unfavorable determination of a property claim by a third person claimant is not timely objected to by that third person, whether such determination is res judicata as to any subsequent execution on the same property by the third person claimant. We hold that Mr. Smith and Mr. Kingsley fraudulently conveyed partnership assets in order to hinder, delay, or defraud their creditor, Mr. Koffman, and therefore Mr. Koffman is entitled to relief in the form of appropriate damages. We hold that a constructive trust may be imposed against the assets of Mr. Smith and Mr. Kingsley to avoid unjust enrichment. In addition, we do not conclude that Mr. Koffman is entitled to recover attorneys' fees and damages related to the litigation. Further, we do not conclude that, in order to pursue his allegations of fraudulent conveyance. Mr. Koffman must first bring an action in equity, seeking to set aside the conveyances. Finally, we agree with the trial court that the doctrines of res judicata and collateral estoppel do not apply to the initial determination made by the sheriff that Mr. Smith and Mr. Kingsley held title to the claimed property. Hence, we affirm in part and reverse in part.