- Case Type:
- Case Status:
- Reversed and Remanded
- 17-1334 (1st Circuit, Nov 12,2019) Published
- Payments made by debtors to a university for a child's college education are per se constructively fraudulent transfers under section 548 when the payments were made when the parents were insolvent. Constructive fraud is determined from the point of view of the debtor's creditors. The parents' subjective belief that college education would result in a "financially independent" child was irrelevant.
- Procedural context:
- The chapter 7 trustee of the debtor-parents and of an affiliated corporate debtor appealed the bankruptcy court's ruling granting Sacred Heart University's summary judgment on its defense to the trustee's fraudulent transfer action against the university for tuition payments made by the parents on behalf of their adult child.
- In the fall of 2012, Nicole Palladino, the Palladinos' 18-year-old daughter, enrolled as an undergraduate at Sacred Heart University. Between March 2012, and March 2014, Steven and Lori Palladino paid $64,656.22 in tuition to Sacred Heart. In January 2014, the Palladinos pled guilty to fraud in connection with operating a multimillion-dollar Ponzi scheme through their closely held company, Viking Financial Group, Inc. The SEC also obtained a $9.7 million civil judgment against the Palladinos for securities violations. In April 2014, the Palladinos filed a Chapter 7 bankruptcy petition. The trustee sued Sacred Heart University for constructive and actual fraud for the tuition payments paid by the Palladinos.
- Howard, Torruella, and Lynch
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