Where a plaintiff has no ownership interest in assets that a defendant fraudulently transfers, a public registration of the new ownership interest is insufficient to put the plaintiff on notice of the improper transfer. Window World of Baton Rouge, LLC, et al v. Window World, Inc., et al, 2019 NCBC 10 (J. Bledsoe). Under such circumstances, the public filing by itself does not mean the transfer could have been “reasonably discovered” as a matter of law.
Plaintiffs were franchisees of the Window World, Inc. (“Window World”), which provides windows, doors and siding from third-party suppliers to its franchisees under the Window World name. In 2010, following the death of her then-CEO husband, Tammy Whitworth became the sole shareholder and CEO of Window World, created a new entity—Window World International, LLC (“WWI”)—and transferred all of Window World’s intellectual property assets to WWI for no consideration. Later in 2010, WWI registered its ownership of the transferred assets with the United States Patent and Trademark Office (“USPTO”).
Between 2011 and 2015, the business relationship between the plaintiffs and Window World deteriorated. In January 2015, Plaintiffs filed their lawsuit. While asserting numerous claims against Window World and other defendants, Plaintiffs asserted only fraudulent transfer claims against WWI, all related to Window World’s transfer of the intellectual property to WWI in 2010. In its Rule 12(c) motion, WWI contended that any claim that the 2010 transfer was made with the intent to defraud creditors was barred by the Uniform Voidable Transactions Act (“UVTA”)’s four year statute of repose. Moreover, WWI contended the provision of the UVTA that required a plaintiff to file such a claim within one year of when the transfer “was discovered or could have reasonably been discovered” was inapplicable because WWI’s public filing with the USPTO necessarily meant the plaintiffs could have reasonably discovered the existence of the transfer at the time the filing was made as a matter of law.
The Business Court disagreed. After acknowledging an inability to find any case that held the registration of ownership with the USPTO puts all creditors on notice of a transfer under the UVTA, the Court then recognized a distinction in federal court decision as to when any public filing puts a creditor on notice of a transfer. Specifically, the Court recognized that a public filing will usually provide notice to a plaintiff who owns an interest in the transferred asset. In contrast, where the plaintiff has no such ownership interest in the asset, the Court held that a public filing does not determine as a matter of law either that notice was provided to the plaintiff or that the plaintiff could have reasonably discovered the transfer. In such a situation, the Court held, the issue of whether the plaintiff could have reasonably discovered the transfer should be decided by the jury. Based upon this ruling, when getting into disputes with potential adversaries, businesses should be mindful to check public filings to see if assets in which they hold an ownership interest have possibly been transferred improperly, but if the would-be defendant has no assets in which the business is an owner, there is no need to search the public records.