Janvey v. GMAG, LLC (Opinion)
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The Supreme Court answered a question certified to it by the United States Court of Appeals for the Fifth Circuit regarding what constitutes good faith under the Texas Uniform Fraudulent Transfer Act (TUFTA) by holding that when a transferee on inquiry notice attempts to use TUFTA's affirmative defense that it acted in good faith to shield a transfer from the statute's clawback provision it must show, at a minimum, that it investigated its suspicions diligently.
Creditors may invoke TUFTA to claw back fraudulent transfers from their debtors to third-party transferees, but if the transferee proves that it acted in good faith and the transfer was for a reasonably equivalent value, it may keep the transferred asset. The Fifth Circuit asked the Supreme Court whether a transferee on inquiry notice of fraudulent intent can achieve good faith without investigating its suspicions. The Supreme Court answered the question in the negative, holding that a transferee on inquiry notice of fraud cannot shield itself from TUFTA's clawback provision without diligently investigating its initial suspicions, regardless of whether a hypothetical investigation would reveal fraudulent conduct.
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