In re THEODORE WILLIAM WHITE, JR.

Summarized by Bradley Pearce , Pearce Law PLLC
7 months 6 days ago

Case Type:

Consumer

Case Status:

Affirmed

Citation:

24-4033 (10th Circuit, Jul 22,2025) Published

Tag(s):

Ruling:

Affirming the bankruptcy court and the BAP, the Court of Appeals ruled that a guarantor's execution of a guaranty and his payment thereunder were not avoidable under Utah's Uniform Fraudulent Transfer Act. The court ruled that the debtor had received reasonably equivalent value, in the form of equity in a newly-formed company, opportunities to earn bonuses from the company, and the receipt of a salary from the from the company, thus defeating the avoidance claims..

Procedural context:

The Chapter 7 trustee brought an action to avoid (1) the debtor's guarantee of a company's debt and (2) the debtor's payment to satisfy his obligations under the guaranty. Following cross motions for summary judgment, the bankruptcy court ruled against the Trustee. The Trustee appealed to the Bankruptcy Appellate Panel, which affirmed the bankruptcy court. The Trustee then appealed to the United States Court of Appeals for the Tenth Circuit.

Facts:

Debtor Theodore White, Jr. ("White") owned and operated several businesses that marketed and sold discount supplemental medical insurance cards. In 2010, the companies were facing financial hardship, so White asked appellee Lynn E. Wardley ("Wardley") for a $4 million capital investment. Wardley and White reached a different agreement. They would form a new company, ABC Club LLC ("ABC") to sell supplemental insurance cards. White would own 15% of ABC, and Wardley would own the remaining 85%. Wardley would loan money to ABC, which White would guarantee, up to $750,000. White would secure the guaranty by pledging a part of his interest in a $15.5 million judgment. ABC would pay White a salary to act as an executive for the company. In December 2010, ABC registered as a Nevada limited liability company, Wardley began advancing funds to ABC, and White began managing ABC's day-to-day affairs. Wardley subsequently agreed to transfer 3% of the membership interests in ABC to C. David Hester ("Hester"). In April 2021, White, Wardley and Hester executed an Operating Agreement for ABC that recognizedHester's 3% ownership interest and required ABC to pay White $1 for each of the first 250,000 supplemental insurance cards sold. Wardley, in his sole discretion, could extend that bonus for the next 250,000 cards. White also agreed to pay Wardley up to $750,000 of the funds advanced by Wardley to ABC. White and Wardley separately executed two additional documents: an Executive Employment Agreement and an Incentive Agreement. While the Employment Agreement did not specify White's income, the parties agreed that it would be at $20,000 per month. (White ultimately received $235,000 in compensation from January to September 2011). The Employment Agreement stated that ABC would employ White so long as he met undefined "minimum performance levels." The Incentive Agreement provided that Wardley would transfer certain of his ownership interests in ABC to White if ABC met certain performance thresholds (which were specified). In July 2011, White wired $750,000 of the judgment proceeds to Wardley in satisfaction of White's guaranty obligations. Wardley continued to loan additional funds to ABC. Neither party disputed that White remained liable on his guaranty after he wired the $750,000 to Wardley. In September 2011, Wardley gave notice that he would continue to loan money to ABC, but that the loan proceeds were not to be used to pay White's salary. White then stopped working for ABC, which ultimately ceased operations around November 2012. White filed a voluntary Chapter 7 petition in May 2014. Two years later, the Chapter 7 trustee commenced an adversary proceeding against Wardley. The Trustee argued that, Utah's Uniform Fraudulent Transfer Act, (1) White's guaranty -- the promise to pay the $750,000 -- was an avoidable constructively fraudulent transfer because White did not receive reasonably equivalent value in exchange for undertaking his obligations as a guarantor (the "Guaranty Claim") and (2) White's payment of the $750,000 was an avoidable constructively fraudulent transfer lacked reasonably equivalent value (the "Transfer Claim"). Following the close of discovery, Wardley made a summary judgment motion on both of the Trustee's claims. The bankruptcy court granted Wardley's motion in respect of the Transfer Claim. In passing, the bankruptcy court noted that it assumed that White's guaranty obligation was not avoidable. Approximately five months later, the Trustee moved for summary judgment on the Guaranty Claim. While Wardley did not make a competing summary judgment motion solely on the Guaranty Claim, the bankruptcy court ruled for Wardley on the Guaranty Claim.

Judge(s):

HARTZ, MORITZ, and ROSSMAN, Circuit Judges

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