Iowa Supreme Court Says Fraudulent Farmland Transfer Claim Barred

On April 30, 2021, the Iowa Supreme Court released an opinion on the predeath transfer of farmland. In an amended petition, the administrator of the estate requested that the court set aside several allegedly fraudulent real estate transfers. Because the claim in the amended pleading did not arise out of the same transaction as the original pleading, the petition to set aside the conveyance of farmland was barred by the statute of limitations.

Background

In an attempt to avoid paying his creditors, Francis Glaser transferred a one-half interest in a farm to his friend’s mother in 2011. In 2012, the mother transferred the interest directly to his friend. A few months later, Glaser transferred three parcels of real estate to his friend for $1 each. In 2014, Glaser died intestate.

Claiming that Glaser owed over $100,000 in delinquent income taxes, the Iowa Department of Revenue (IDOR) asked the administrator of the estate to petition the district court to set aside the fraudulent conveyances. In 2016, the administrator complied and filed a motion requesting that the court set aside the property transferred within three years of Glaser’s death. The motion specifically named the three parcels of land transferred to Glaser’s friend, but did not mention the farm property.

During trial, the administrator introduced evidence of the farmland transfer. Glaser’s friend objected, claiming such evidence was outside of the scope of the pleadings. At the close of evidence, the administrator moved to amend the original pleadings to include the farmland transfers. The district court allowed the motion and concluded that both the transfer of the three parcels and the farmland conveyance should be set aside as an attempt to defraud creditors.

On appeal, the Court of Appeals found that the amendment did not relate back to the original pleading and the claim to void the farmland transfer was therefore barred by the five-year statute of limitations. However, the court rejected the friend’s argument that the real estate conveyances should only be set aside to the extent needed to pay Glaser’s debts. The Supreme Court granted further review.

Relation Back Doctrine

The Court first considered whether the claim under the amendment relates back to the date of the original filing. In this case, if the 2018 amended pleading did not relate back to the 2016 original filing, it would be barred by the applicable five-year statute of limitations. See Iowa Code § 614.1(4). An amendment relates back to the original pleading if the amended claim arose out of the same conduct or transaction set forth in the original pleading. Iowa R. Civ. P. § 1.402(5).

Here, the original motion specifically asked the court to set aside the transfer for the three parcels of land. It included the deeds for those parcels, but did not mention the farmland transfers, nor did it provide the deed for the farm. Noting that this was not a case of misdescribed property, the Court concluded that the transfer of farmland did not arise out of the same “conduct, transaction, or occurrence” as the transfer of the three parcels of land. Additionally, nothing in the original pleading would put the friend on notice of the administrator’s claim to set aside the farmland conveyance. Thus, the amended claim to void the farmland transfer was barred by the statute of limitations.

Excessive Relief

The Court next considered whether the district court order provided the administrator with excessive relief. An administrator of an estate has the right to recover fraudulently transferred property “so far as necessary for the payment of the debts and charges against the estate of the decedent.” Iowa Code § 633.368. The property liable for the decedent’s debts includes “all property transferred by the decedent with intent to defraud.” Id.

The administrator claimed that “all property” included the three parcels of land Glaser fraudulently transferred to his friend and, therefore, should be set aside, sold to satisfy Glaser’s debts, and the remaining proceeds reserved for the estate. However, the sale of just one parcel of land would more than satisfy the debts claimed against the estate. Finding that the law allows a fraudulent conveyance to be voided only to the extent required to pay a decedent’s creditors, the Supreme Court reversed the Court of Appeals opinion on the issue and remanded the case to the district court.