The Supreme Court of Alabama has been asked to decide on the ability of a party to seek declaratory judgment for various issues surrounding the sale of business assets. The Court decided that there can be no declaratory judgment when a party is seeking a declaration of nonliability in tort, but will allow declaratory judgment for other justiciable controversies.
Mr. Blount served as president in a company called WWJ, and owned a 1/3 share in another company, AUS. Blount’s sons owned all the stock of WWJ. Blount then sold his 1/3 share in AUS to WWJ, leaving WWJ controlling all the interest in AUS. Later, Valley National Bank (VNB) obtained a judgment against Blount individually for almost $1 million. WWJ then sold all the assets of AUS to another entity for $1.6 million. Blount and his sons then filed a declaratory judgment action, asking the court to determine that the asset transfer was not fraudulent with respect to VNB, that Blount was not the alter ego of either WWJ or AUS, and that the sale of AUS’s assets did not result in a constructive trust in favor of VNB. In response, VNB filed an action in another court against Blount under the Alabama Uniform Fraudulent Transfers Act (AUFTA), asserting that the sale of AUS’s assets was fraudulent. Both actions stayed as VNB petitioned for mandamus relief to dismiss Blount’s declaratory judgment case.
The Court found that Blount could not seek declaratory judgment as to whether the transfer of assets was fraudulent. It reasoned that fraud is a tort, and that there could be no declaratory judgment of nonliability in tort. Therefore, VNB’s AUFTA claim could not be dismissed through a declaratory judgment in a separate proceeding, so declaratory judgment could not be had on the issue of the fraudulent transfer.
On the other hand, Blount could seek declaratory judgment as to his alter ego and constructive trust contentions. Even though VNB had not yet sought legal action as to those issues at the time the Blounts filed for declaratory judgment, the Court still found that those issues presented a justiciable controversy as they touched on the legal relations of adversely situated parties, and they asserted adverse claims upon a state of facts which must have accrued. Being justiciable controversies, VNB’s motion to dismiss these claims was denied.
Ex parte Valley National Bank (July 12, 2019).