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Badges of Fraud Shift Burden of Proof to Judgment Debtor Defendant

The Michigan Court of Appeals recently reiterated that the burden of proof shifts to a fraudulent transfer defendant to establish that a transaction was "in all respects bona fide" when a plaintiff establishes the elements of a fraudulent conveyance against a judgment debtor defendant. In Burke v. Maurer (Mich. Ct. App. February 21, 2017), Plaintiffs filed a complaint alleging that the judgment debtors' transfers of property were fraudulent because they were intended to render the judgment debtors uncollectible. Plaintiffs filed a motion for summary disposition arguing that the defendants had failed to rebut plaintiff's prima facie case by failing to produce evidence that the transfers were bona fide transactions. The Court of Appeals held that, although badges of fraud are not conclusive evidence of fraud and may be overcome by evidence establishing the bona fides of a transaction, "a concurrence of several badges will always make out a strong case." The reason the burden of proceeding shifts to a fraudulent transfer defendant once badges of fraud have been demonstrated is that "the defendant . . . is supposed to be in a better position to show the facts." Defendants failed to establish that the transactions were made in good faith, therefore "the presumption created by the statute did not dissolve" and Plaintiff was properly granted summary disposition.

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