In re TransCare Corporation
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 21-2547, 21-2576 (2nd Circuit, Aug 28,2023) Published
- Tag(s):
-
- Ruling:
- The Second Circuit held that in determining damages under section 548 the "value of the property" avoided is going concern value and not liquidation value.
- Procedural context:
- Appeal from SDNY decision affirming SDNY bankruptcy court (Judge Stuart Bernstein) decision awarding a money judgment against Lynn Tilton, debtor's former investor and sole director, in the amount of $41.8 million and avoiding a transfer resulting from a strict foreclosure and awarding judgment in the amount of $39.2 million against Tilton private investment fund.
- Facts:
- The Debtor, TransCare Corporation, was a DE corporation with headquarters in Brooklyn, NY. TransCare provided ambulance services to hospitals and municipalities for both emergency and non-emergency patients. Defendant Lynn Tilton served as the sole director of TransCare. Defendant Patriarch Partners Agency Services ("PPAS") is indirectly owned by Tilton and Tilton served as the sole director of PPAS. TransCare and certain of its affiliated entities filed chapter 7 petitions on February 24, 2016. Prior to the bankruptcy filings, Defendant Tilton developed a plan to address the failing financial condition of TransCare. This plan involved splitting TransCare into two companies- OldCo and NewCo. Under the plan, NewCo would operate the most profitable divisions of TransCAre as a going concern while OLD Co (representing the remainder of TransCare) would winddown for 60 to 90 days and file for bankruptcy. Tilton formed two new DE entities to serve as NewCo. Tilton also procured new financing from Tilton's personal fund PPAS to bridge TransCare to a strict foreclosure sale following which NewCo would acquire the assets (some of which included assets of OldCo) and continue what was the profitable part of TransCare's former business operations. On February 24, 2016, Defendant Tilton directed PPAS to serve notices of default and acceleration and notice of acceptance of subject collateral in partial satisfaction of obligations (each of which were signed by Tilton). Upon completion of the Art 9 strict foreclosure, and also on February 24, 2016, Tilton had NewCo (Transcendence) deliver Bill of Sale pursuant to which PPAS sold the collateral to Transcendance for a purchase price of $10mm. The chapter 7 filings for OldCo followed the same day. On February 22, 2018, the chapter 7 trustee in the TransCare cases commenced an adversary proceeding against Tilton and PPAS, among others, asserting a claim against Tilton for breach of fiduciary duty and seeking the avoidance of the transfer made to PPAS in the strict foreclosure sale as an actual fraudulent transfer. After a multi-day bench trial, the bankruptcy court entered judgments against Tilton and PPAS. Defendants appealed. On appeal, the SDNY affirmed. A further appeal to the Second Circuit followed resulting in the instant decision affirming both lower courts.
- Judge(s):
- Circuit Judges Nathan, Menashi and Merriam with Judge Menashi dissenting
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