Onkyo Europe Electronics GmbH v. Global Technovations Inc. (In re Global Technovations Inc.)

Summarized by Michael Coury , Glankler Brown, PLLC
13 years 5 months ago

Citation:

--- F.3d ----, 2012 WL 4017386, C.A.6 (Mich.), September 13, 2012 (NO. 11-1582)

Tag(s):

Ruling:

The Sixth Circuit upheld the bankruptcy court's judgment which found that the defendants had received a fraudlent transfer under 11 U.S.C. sec. 544(b) and Florida Uniform Fraudulent Transfer Act when the debtor did not receive reasonably equivalent value in connection with its acquisition of a business through a stock purchase transaction from the defendants and when the transaction rendered the debtor insolvent. The bankruptcy court had found that the defendants' proofs of claim for the unpaid balance of the purchase price should be disallowed and that the defendants should repay the amount by which the cash purchase price paid exceeded the value of stock received. The Sixth Circuit held that (1) the bankruptcy court used proper methodology in valuing any indirect benefits received by the debtor in purchasing the business and thatt its finding the indirect benefits had no value was not clear error; (2) it was unnecessary to determine whether the debtor or the defendants had the burden of proving the value of the indirect benefits since the record supported the court's finding of no value under either approach to burden of proof; (3) noting a split among the circuits, the Sixth Circuit adopted the clear error standard of review with respect to a bankruptcy court's determination of reasonably equivalent value; (4) the bankruptcy court's finding that the debtor did not receive reasonably equivalent value based upon expert testimony which relied upon comparable transactions that occurred in the approximate time frame of the sale in question (whether prior or subsequent to date of sale) was not clearly erroneous; (5) it was not legal error for the bankruptcy court to adopt part but not all of the defendants' expert testimony; (6) the court's finding that the debtor was rendered insolvent as a result of the acquisition was not clearly erroneous; (7) the bankruptcy court had constitutional jurisdiction under Stern v.Marshall, 131 S.Ct. 2594 (2011), to adjudicate the fraudulent transfer claim since it was not possible to resolve the debtor' objection to the defendants' proofs of claim without first resolving the fraudulent transfer issue; (8) Stern v. Marshall does not require a court to determine in advance what facts will ultimately prove strictly necessary to resolve a creditor's proof of claim and, therefore, the court had authority to determine that the defendants were good faith transferrees to the extent of value given, even though such finding may not have been strictly necessary to resolving the objection to proofs of claim given the court's ultimate findings of fact as to reasonably equivalent value and (9) Stern v. Marshall permited the bankruptcy court to enter a money judgment for the amount of the fraudulent transfer after a proof of claim objection has been resolved and where nothing further remains for adjudication.

Procedural context:

The defendants filed proofs of claim for the unpaid balance of notes given by the debtor as part of a stock purchase transaction. The debtor filed suit to avoid as a fraudulent transfer the obligations incurred and purchase money paid in connection with the stock purchase and also objected to the defendants' proofs of claim for the unpaid balance. The bankruptcy court found that the debtor did not receive reasonably equivalent value and that the debtor was rendered insolvent by the transaction. The court disallowed the proofs of claim and rendered judgment against the defendants for the amount by which the purchase price paid exceeded the value of the assets. The District Court affirmed. On appeal, the Sixth Circuit affirmed.

Facts:

The Debtor, Global Technovations, inc.("GTI") purchased the stock of the Defendants' U.S. subsidiary, Onkyo America, Inc.("OAI") for $13 million in cash and $12 million in notes. After closing, the debtor discoverered numerous misrepresentations and non-disclosures concerning the financial condition of OAI.Sixteen months after the sale, GTI and OAI filed Chapter 11. Both debtors sued the defendants seeking to disallow the balance owed on the promissory notes and to recover the purchase price paid. The Court ultimately found that OAI was only worth $6.9 million dollars and that the debtor did not receive reasonably equivalent value for the $25 million purchase obligations incurred.

Judge(s):

Boggs, Norris and Kethledge.

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