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In Forster v Theis et al., No. 86-CV-15-4902 (Minn. Ct. App. Dec. 18, 2017), the Minnesota Court of Appeals found the Minnesota state court had subject-matter jurisdiction to consider an unsecured creditor’s fraudulent transfer action because the bankruptcy action was closed and the bankruptcy trustee did not reopen the bankruptcy case to pursue the voidance action. 

Plaintiffs successfully objected to discharge of the debt owed to them by the debtors pursuant to 11 U.S.C. § 523(a)(4). During the plaintiffs’ post judgment discovery, they uncovered several transfers made to insiders of the debtors. The plaintiffs filed a complaint in state court seeking to avoid the transfers, arguing the transfers were voidable under the Minnesota Uniform Fraudulent Transfer Act (“MUFTA”). The defendants challenged the state court’s subject-matter jurisdiction and the plaintiffs’ standing. The defendants argued that the bankruptcy court had exclusive jurisdiction and the bankruptcy trustee had exclusive standing to avoid the transfers at issue.  

The Court of Appeals acknowledged that only a bankruptcy trustee may avoid fraudulent transfers under §§ 544 and 548 while a bankruptcy case is pending. Here, however, the bankruptcy case was closed and the bankruptcy trustee did not reopen the bankruptcy case to seek to avoid the transfers. In reaching its decision, the court rejected the defendants’ argument that the doctrine of equitable tolling preserves the bankruptcy trustee’s exclusive standing to pursue the fraudulent transfer claim.