Can attorney fees from fraudulent transfer litigation be recovered as consequential damages? Gardiner v. York Explained

The Utah Court of Appeals addressed an important question regarding attorney fee recovery in Gardiner v. York, examining when fees incurred in pursuing fraudulent transfer claims can be recovered as consequential damages from an underlying breach of contract.

Background and Facts

Gardiner obtained a $7,182 breach of contract judgment against Interport in Virginia and domesticated it in Utah. While the Virginia action was pending, Interport’s president transferred the company’s only asset—a Utah warehouse—to his parents, including Betty York. Gardiner then filed a fraudulent transfer action under the Utah Uniform Fraudulent Transfer Act, seeking to avoid the transfer or obtain a judgment lien. The trial court found the transfer fraudulent and authorized a judgment lien, but denied Gardiner’s motion for attorney fees incurred in the fraudulent transfer litigation.

Key Legal Issues

The central issue was whether the third-party litigation exception allowed recovery of attorney fees as consequential damages when the original breach of contract foreseeably caused litigation with a third party. The trial court incorrectly focused only on the insurance contract exception and failed to analyze the distinct third-party litigation exception.

Court’s Analysis and Holding

The Court of Appeals clarified that the third-party litigation exception allows recovery of attorney fees as consequential damages, but only when the defendant’s breach of contract foreseeably caused the plaintiff to incur fees through litigation with a third party. The court distinguished this from the separate insurance contract exception and held that the UFTA’s lack of an attorney fee provision does not bar recovery under the third-party litigation exception. However, the movant must demonstrate that the original breach foreseeably caused the attorney fees as consequential damages.

Practice Implications

This decision provides important guidance for practitioners seeking attorney fees in related litigation. The key is establishing foreseeability at the time of contracting—whether reasonable minds would have contemplated that breach would necessitate third-party litigation. Courts must analyze whether attorney fees resulted from the original breach rather than subsequent wrongful acts, requiring careful factual development regarding the parties’ reasonable expectations when forming the contract.