Lofstedt v. Kendall (In re Kendall)

Summarized by Brandon Bickle , Gable & Gotwals, PC
12 years 9 months ago

Citation:

10th Cir. BAP, Case No. CO-12-070

Tag(s):

Ruling:

The bankruptcy court's order was affirmed. The appellants challenged the order based on nothing more than the bankruptcy court's findings concerning the debtor's solvency. According to the appellants, the bankruptcy court relied upon experts that used the wrong standard in valuing certain of the debtor's assets, and that if the correct standard had been used the bankruptcy court should have concluded that the debtor was solvent at the time of the transfers. The BAP did not address this issue substantively, because it did not need to do so. Insolvency was only one of the seven "badges of fraud" relied upon by the bankruptcy court in finding actual fraudulent intent, and likewise was not determinative on the issue of constructive fraud because the bankruptcy court found, not only that the debtor received less than reasonably equivalent value for the transfers and was insolvent at the time of the transfers, but also that, at the time of the transfers, the debtor was engaged in a business for which the remaining property was an unreasonably small capital, and knew or should have known that, upon default, it would be impossible for him to pay his bank obligations. In short, even if the BAP agreed that the debtor was solvent at the time of the transfers (which it noted, in a footnote, was "highly unlikely"), the bankruptcy court's order would still easily withstand the applicable "clearly erroneous" standard of review because the appellants failed to appeal provisions of the order that were sufficient, in and of themselves, to withstand appellate scrutiny.

Procedural context:

Appeal from a final order entered by the United States Bankruptcy Court for the District of Colorado, following a trial, avoiding transfers as fraudulent transfers under 11 U.S.C. section 548 and Colorado's Uniform Fraudulent Transfer Act, and authorizing recovery by the trustee within the limits of 11 U.S.C. section 550(d).

Facts:

Within two years of filing chapter 7 bankruptcy, at a time when the debtor was experiencing significant financial difficulties, the debtor (or his alter ego) transferred real estate and cash to his wife (or her alter ego). The real property and cash were subsequently transferred to an offshore trust in a popular asset protection jurisdiction. After the debtor filed bankruptcy, his bankruptcy trustee sued the wife and the trust to avoid the transfers and recover the property. Following a trial, the bankruptcy court held that the transfers were voidable, both as actual and constructively fraudulent transfers. As to actual fraud, the bankruptcy court found that seven of the eleven "badges of fraud" under Colorado's Uniform Fraudulent Transfer Act existed, one of which was the debtor's insolvency. As to constructive fraud, the bankruptcy court found that the transfers were made to insiders for no consideration at a time when the debtor was insolvent, and also found that at the time of the transfers the debtor was engaged in a business for which the remaining property was an unreasonably small capital, and that the debtor knew or should have known that, upon default of the obligations of the debtor and his business (an alter ego) to their bank, it would be impossible for him to pay them. The wife and the trust appealed on the basis that the debtor was solvent at the time of the transfers.

Judge(s):

Thurman, Cornish, and Nugent

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