Punitive damages not available under Wisconsin’s Uniform
Fraudulent Transfers Act
In Wisconsin, punitive damages are not available without an award of
compensatory damages. This principle disallows punitive damages in
Uniform Fraudulent Transfer Act cases where an award is equitable in
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
Oct. 20, 2010
– A claimant that obtains equitable relief under Wisconsin’s
Uniform Fraudulent Transfers Act (UFTA) is not eligible to receive
punitive damages, the District III Wisconsin appeals court recently
The UFTA provides a means of redress for transfers made to hinder,
delay, or defraud any creditor of a debtor. But UFTA does not explicitly
provide for punitive damages.
Investments v. Kelly, 2009AP2420 (Oct. 19, 2010), the appeals
court reversed a circuit court judgment (in part) that rescinded certain
deeds and mortgages and allowed C&A Investments (C&A) to collect
a jury verdict for punitive damages totaling $275,000.
Noting the general rule in Wisconsin that “there can be no
punitive damages without compensatory damages,” the appeals court
rejected C&A’s argument that rescission of deeds and mortgages
to make it “whole” essentially amounted to compensatory
In 2000, Brian Kelly defaulted on a land contract to purchase property.
C&A subsequently foreclosed and obtained a $22,663 deficiency
judgment against Kelly.
In 2002, Kelly conveyed a 156-acre plot of farmland to a trust account
with his stepmother, Patricia Kelly, as named beneficiary of the trust
and Teresa Hestekin, a family friend, as named trustee. On the same day
as the transfer, the trust granted a mortgage to Red Cedar Bank.
As the appeals court explained, “[t]his document was essentially
a mortgage and note from the Trust back to its own bank
In that same year, the trust granted a second mortgage on the property
to Kori Kelly, but she testified she never loaned money to the trust or
had an interest in the property.
C&A commenced an action under UFTA, claiming Kelly
“fraudulently transferred the farm and encumbered it with sham
mortgages to deprive C&A Investments of an asset upon which to
execute its deficiency judgment.” The jury agreed, and the he
circuit court entered judgment setting aside the deed and mortgages.
In addition, the jury found that Brian Kelly, Patricia Kelly, and the
trust acted with “intentional disregard of C&A
Investments’ rights” and assessed punitive damages of
$275,000. Kelly appealed the punitive damages assessment.
No punitive damages
C&A Investments argued that although punitive damages are not
expressly listed among the enumerated remedies in UFTA, Wis. Stat.
section 242.07(1) permits a creditor to obtain “any other relief
the circumstances may require.”
The appeals court rejected this argument, explaining that
“punitive damages are available only where the claimant recovers
compensatory damages” and “[n]othing in the Uniform
Fraudulent Transfers Act changes this principle of law.”
The appeals court also rejected C&A’s argument that
rescission amounted to compensatory damages, noting that “[t]he
supreme court’s recent decision in Groshek confirms that
rescission is an equitable remedy and does not constitute compensatory
damages.” Thus, the appeals court reversed the judgment awarding
C&A punitive damages.