Trustee for Ponzi scheme debtors asserted fraudulent transfer claims, pursuant to 11 U.S.C. § 548 and 544(b), against defendant, an attorney who acted as debtors' coordinating counsel with respect to numerous lawsuits filed against debtors across the country. Defendant argued that he was essentially a conduit from debtors to local counsel, and that he should not be accountable for money he did not retain. After a trial, the bankruptcy court concluded that defendant had failed to account properly for more than $350,000 of funds that had been transferred to him by debtors, and granted trustee a judgment for that amount. The district court agreed with the bankruptcy court's conclusion that trustee had established that debtors had transferred funds to defendant during the one-year period prior to debtors' bankruptcy filing, and that debtors were insolvent at the time of those transfers. The district court rejected defendant's argument that trustee had failed to meet his burden of proving that debtors received less than reasonably equivalent value for those transfers, on the ground that trustee testified that his investigation found no evidence at all of consideration received by debtors, which placed the duty on defendant to produce evidence of value returned to debtors. As defendant's accounting practices were grossly inadequate, he failed to establish that debtors had received value in return for the transfers made to him. However, the district court ruled that the bankruptcy court had failed to credit defendant with a few transfers that were adequately tied to legal services provided to debtors, totaling approximately $37,000, and affirmed the judgment less that amount.
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Title: Merrill v. Turner (In re Indep. Clearing House Co.) | Date: Dec-30-1987 | Status: APPEAL Unpublished See 237.pdf and 185.pdf (U.S. District Court, Utah) | Case(s): 83PA-3081
Title: Prudential Fed. Sav. v. Dana (In re Dana) | Date: Dec-4-1987 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 87C-0810
The district court tentatively ruled that appellants' attempt to file a chapter 13 bankruptcy petition while another chapter 13 petition was still pending was void from its inception. Given the opportunity to argue otherwise, appellants agreed with the court and requested dismissal. Their bankruptcy case was dismissed.
Title: In re CFS Fox River, Ltd. | Date: Dec-1-1987 | Status: UNPUBLISHED (Judge Clark) | Case(s): 86C-2732
Debtor filed its chapter 11 petition on the eve of a scheduled foreclosure sale of an apartment complex it operated. Secured creditor sought relief from stay or dismissal, but postponed the hearing on its motions and entered into a stipulation with debtor that essentially granted it superpriority administrative expense status over funds debtor would deposit into a segregated account. The court executed an order approving the stipulation, which included a provision regarding how a dismissal of debtor's petition would affect the agreement. Five days later, pursuant to a previous order, the court dismissed the case due to debtor's failure to file its schedules and statement of affairs. Thereafter, creditor sought post-dismissal relief from the court, alleging that debtor had violated the parties' stipulation. The court ruled, first, that superpriority status and collateral management are inherently bankruptcy functions, and are not "ancillary matters" over which the court would have continuing jurisdiction. Creditor's argument that the court retained inherent power to enforce its own orders was also rejected by the court, noting that a motion to dismiss supersedes prior orders and returns the parties to the remedies available to them under non-bankruptcy law. Concluding that it may have jurisdiction to consider creditor's motion, the court ruled that it would be inappropriate to do so.
Title: Rushton v. Nell Inv. Co. (In re Nell) | Date: Nov-16-1987 | Status: UNPUBLISHED (Judge Clark) | Case(s): 86PA-0026
Trustee filed fraudulent conveyance claims against a limited partnership that debtor created and controlled, and its limited partners, who were all family members of debtor. The court determined that all of the transfers made by debtor to the partnership were fraudulent under 11 U.S.C. §548 and 544, and that none of the defenses to those claims were available. Trustee was entitled to judgments against the transferees, either for the value of the transferred property or declaring the transfers null and void.
Title: In re Larson | Date: Sep-25-1987 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 87C-0042
Debtor, an individual guarantor of the debts of his failed corporation, filed a chapter 11 petition on the day of a scheduled foreclosure sale of his home, which creditor moved to dismiss. Debtor moved to disqualify the assigned bankruptcy judge and, at the hearing on that motion, moved to disqualify the bankruptcy judge hearing the motion as well. Debtor's disqualification motions were denied and, at a later hearing, creditor's motion to dismiss was granted. On appeal, the district court held that the bankruptcy court had not abused its discretion, either in the handling of debtor's motions to recuse, or by granting the motion to dismiss.
Title: Merrill v. Allen (In re Universal Clearing House Co.) | Date: Sep-11-1987 | Status: APPEAL Unpublished See 157.pdf and 185.pdf (U.S. District Court, Utah) | Case(s): 82PA-0253
The bankruptcy court granted summary judgment to trustee on his claims that commission payments made by Ponzi scheme debtor to its salespeople were fraudulent conveyances. Nine salespeople appealed that ruling, and the district court reversed the judgment against them and remanded for factual determination of whether they had given value for their commission payments. One defendant, who had not appealed, filed a motion to set aside the judgment against him in the bankruptcy court, pursuant to Fed. R. Civ. P. 60(b) and Bankruptcy Rule 9024, after the district court's ruling. The bankruptcy court denied that motion, and defendant appealed. On appeal, the district court ruled that the bankruptcy court had not abused its discretion by denying defendant's Rule 60(b) motion, notwithstanding defendant's claim that he did not appeal the final order because he could not afford to hire a lawyer, since such a motion is not intended to provide a substitute for appeal.
Title: In re Clark Tanklines Co. | Date: Aug-6-1987 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 86C-0545
The bankruptcy court denied lenders' motion for relief from stay, but granted them adequate protection payments under 11 U.S.C. § 361, to begin 30 days after the hearing. On appeal, the district court held that: (1) in the absence of statutory time mandates, the bankruptcy court had some discretion regarding when protection payments would begin; (2) allowing debtor to purchase certain collateral for fair market value was appropriate protection under § 361, as the "indubitable equivalent" of lenders' interest in that collateral; (3) the bankruptcy court properly concluded that lenders failed to perfect a security interest in vehicles debtor leased from third parties by filing a financing statement that did not appear on the vehicles' titles; and (4) adequate protection does not include compensation for delay in enforcing lenders' right against the collateral. Bankruptcy court's order was affirmed.
Title: Merrill v. Abbott (In re Indep. Clearing House Co.) | Date: Jul-23-1987 | Status: APPEAL 77 B.R. 843 (D.Utah) (U.S. District Court, Utah (en banc)) | Case(s): 83PA-0986
Trustee brought adversary proceeding to recover payments made to investors by debtor clearinghouses in connection with debtors' Ponzi scheme, and investors counterclaimed. The bankruptcy court entered default judgment on trustee's claims against some investors and denied those investors' motion to set aside the default. The defaulted investors appealed. The bankruptcy court subsequently granted trustee's motion for summary judgment on his 11 U.S.C. § 547 preference claim, and his 11 U.S.C. § 548 fraudulent transfer claim, but granted investors' motion for summary judgment on his third claim, and both sides appealed. The district court consolidated the appeals and held that: (1) trust that held investors' money in furtherance of a Ponzi scheme was a "business trust" eligible for chapter 11 relief; (2) debtors did not receive "reasonably equivalent value" for payments made to investors that exceeded their investments; (3) whether investors acted in good faith in accepting payments that did not exceed their investments was an issue of fact that precluded summary judgment for either party on trustee's third claim; (4) mere fact that debtors did not have legitimate or "ordinary" business did not mean that debtors' payments to investors were other than in "ordinary course of business" for purposes of a preference claim; and (5) denial of investors' motion to set aside default judgment and granting trustee's claims against them was an abuse of discretion.
Title: John Deere Co. v. Iverson (In re Iverson) | Date: Jul-20-1987 | Status: UNPUBLISHED (Judge Clark) | Case(s): 83PC-0666
In an adversary proceeding involving a farm equipment seller and two banks, the court sifted through the parties' arguments based on stipulated facts in order to resolve the priority of their conflicting security interests in various farm equipment.
Title: Wilkins v. Union Bank (In re Irving Fin. Corp.) | Date: Jul-20-1987 | Status: UNPUBLISHED (Judge Clark) | Case(s): 85PC-0181
Chapter 11 debtor pledged collateral to defendant bank based on bank's loan to debtor's subsidiary. Later, debtor sold the collateral and used the proceeds to pay off the loan. Chapter 11 trustee filed adversary complaint against bank, claiming the fund transfer from debtor was either a preference under 11 U.S.C. § 547 or a fraudulent conveyance under 11 U.S.C. § 548(a)(2). The court held that the payment was not a preference because bank had a perfected security interest in the collateral that was sold, and granted bank's motion for summary judgment on that issue. With respect to the fraudulent transfer claim, the court noted that transfers that solely benefit third parties generally are not considered supported by reasonably equivalent value, but that the indirect benefit exception precludes avoidance when debtor received the benefit of the transaction, despite third party participation. The court concluded that debtor's 80% ownership of the borrower raised issues of fact with respect to the quantity and nature of any indirect benefit debtor received from the transactions with bank. Accordingly, bank's motion for summary judgment was denied with respect to trustee's § 548 claim.