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Jared C. Walters, Trustee v. Jeanne A. Gallegos, et al.

Summarizing by David Treacy

Flemmer v. Weiner (In re Village Concepts, Inc.)

9th Cir. BAP No. EC-15-1186-JuFD (December 4, 2015) (unpublished)
Bankruptcy Trustee failed to carry its burden of proving insolvency of a debtor corporation, or actual fraudulent intent, at the time of alleged fraudulent transfers. The 9th Cir. BAP affirmed the bankruptcy court judgment in favor of insider transferee defendants in fraudulent transfer action brought by Chapter 7 bankruptcy trustee.
Procedural context:
Bankruptcy court held a trial on a Chapter 7 Trustee's fraudulent transfer action, and held in favor of defendants. The Trustee appealed to the BAP, which affirmed.
Debtor corporation sold mobile homes. It transferred substantial assets to related entities at a time when it operated at a loss and allegedly had knowledge of construction defect litigation. The bankruptcy court evaluated the balance sheet and cash flow insolvency tests and found that the Debtor was solvent. The potential construction defect litigation was not counted as a liability because at the time was "too speculative." The court believed the Debtor's testimony that the assets were spun off as part of a tax reduction strategy.
JURY, FARIS, and DUNN, Bankruptcy Judges

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