IV. Fraudulent Transfers
- Korea Trade Ins. Corp. v. Neema Clothing, Ltd., 2015 U.S. Dist. LEXIS
9975 (S.D.N.Y. 2015) – A seller of goods filed a lawsuit alleging
that a buyer did not make payment to the seller for the goods
purchased by the buyer. The buyer’s CEO and majority
shareholder then transferred nearly $2 million from the buyer’s
corporate accounts to his personal accounts. The seller
subsequently brought an action for fraudulent conveyance. At
issue in this case was whether the CEO’s transfer was made
without fair consideration, an element of a fraudulent conveyance
claim. The court rejected summary judgment relief because the
CEO claimed that the transfers were made as repayment of a
secured loan, explaining that a transfer to an insider is not
inherently a fraudulent transfer if that insider is a secured party.
- Trustco Bank v. Mathews, 2015 Del. CH. LEXIS 18 (Del. Ch. 2015) –
The place of harm caused by a fraudulent transfer determines the
law applicable to a fraudulent transfer.
- Kentucky Petroleum Operating Ltd. v. Golden, 2015 WL 927358 (E.D.
Ky. 2015) – The recipient of an arbitration award was entitled to
avoid the mortgage and security interest granted by the arbitration
defendants to related parties after the arbitrator closed the hearing
but before the arbitration award. The timing of the grant of the
security interest was a classic badge of fraud and the debtors
submitted no evidence of good faith. Moreover, the corporate veil
among the debtors and the secured party would be pierced
because all were under common ownership and control, none
observed corporate formalities, and continued recognition of their
supposedly separate corporate forms would sanction injustice.
- Sourcing Management, Inc. v. Simclar, Inc., 2015 WL 4587974 (N.D.
Tex. 2015) – A judgment creditor stated a cause of action that the
transfer of all of the debtor’s assets, allegedly valued at $44
million, at a collusive private disposition under Article 9 with
respect to a $9 million secured obligation, was both an actually
fraudulent and constructively fraudulent transfer. Because the
complaint alleged that the property disposed of was worth
substantially more than the secured obligation, it was not
excluded from the definition of ‘assets’ under the UFTA. The
creditor also stated a claim against the buyer for successor liability
as a mere continuation of the debtor by alleging that the buyer
entered into a collusive agreement to avoid the debtor’s debts, that
the buyer informed the debtor’s customers that it was merely
operating under a ‘new legal name,’ that the buyer retained many
of the same employees, continued operations in the same location,
and used the same telephone numbers, and that the debtor’s
shareholders became members of the buyer.
- Villaverde v. IP Acquisition VIII, LLC, 39 N.E.3d 144 (Ill. Ct. App.
2015) – A secured party’s foreclosure sale, at which it acquired the
debtor’s only asset – intellectual property – through a credit bid
could not be an avoidable fraudulent transfer because the
intellectual property was fully encumbered, and thus not an ‘asset’
under the Uniform Fraudulent Transfer Act. The secured party
did not acquire successor liability under the theory that the
foreclosure sale was an improper attempt to escape liability for the
debtor’s obligations because the only evidence of the collateral’s
current value was that it was worth substantially less than the
secured obligation. The secured party was not a mere
continuation of the debtor because there was no continuity of
ownership, although the owner of the debtor did become an
employee of the secured party.
- Klein v. King & King & Jones, _ F3d _ (10th Cir 2014) – Law firm not
subsequent transferee for fraudulent transfer purposes when
received funds directly from transferor.
- Janvey v. The Golf Channel, 780 F.3d 641 (5th Cir 2015) – Seller of
advertising space to operator of Ponzi scheme received a
fraudulent transfer because no value for creditors of transferor.
- Hogan Lovells LLP v. Howrey LLP, _ F.Supp.3d _ (ND Calif. 2015) –
Dissolved law firm does not have property interest in pending
matters and cannot bring Jewel claim against firms where former
partners are working.
- MC Asset Recovery v. Commerzbank AG, _ F.Supp.3d _ ( 2015) -
Creditors acceptance of guarantee not a fraudulent transfer.
Acceptance of guarantee following inadequate due diligence on
borrower not absence of good faith.
- In re Brooke Corp., 2015 WL 7568202 (Bankr. D. Kan. 2015) – Parent
corporation guarantied debt of its insolvent subsidiary.
Downstream guaranty could be a constructively fraudulent
transfer unless the creditor demonstrated the value of the indirect
benefit received by the parent in exchange for the guarantee.
- *Sentinel Management Group, Inc. 8, 2016 Wl 98601 (7th Cir. January
8, 2016) – In defense of “actual intent” fraudulent transfer action,
transferee may assert “good faith” defense under Bankruptcy
Code section 548(c). To use that defense transferee must make
diligent investigation when it becomes aware of suspicious facts
relating to the legitimacy of a loan transaction. The transferee
must be on “inquiry notice”, which required it to investigate the
collateral the borrower was using to secure the loan where the
transferee had “awareness of suspicious facts that would have led
a reasonable firm, acting diligently, to investigate further and by
doing so discover wrongdoing ... and … an investigation would
have revealed that the bank could not in good faith accept assets
of [transferor’s] customers as security for the bank’s loans to
Sentinel.” These facts also did not justify equitable subordination,
unless they amounted to “fraud.” That standard would require
that the bank believed there was a high probability of fraud and
acted deliberately to avoid confirming its suspicion. The secured
party’s suspicion of potential wrongdoing without any follow up
might be negligent, but that is not an adequate basis for imposing
V. Secured Party and Borrower Liability | Table of Contents