Sheldon Stone v. Citizens Equity First Credit Union
- Summarized by Stephen Falanga , Walsh Pizzi O'Reilly Falanga LLP
- 1 year 8 months ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- No. 23-2965 (7th Circuit, Jun 03,2024) Not Published
- Tag(s):
-
- Ruling:
- Finding that the text of Illinois’ version of the Uniform Fraudulent Transfer Act set up multiple ways in which a business can be insolvent for purposes of fraudulent transfer liability, the Seventh Circuit affirmed the decision of the bankruptcy court entering judgment against a bank-transferee to avoid a $1..7 million fraudulent transfer.
- Procedural context:
- The trustee filed an action to recover the pre-petition transfers from the corporate-debtor to a bank-transferee under 11 U.S.C. § 548 and 11 U.S.C. . § 544(b) as a hypothetical lien creditor under Illinois state fraudulent transfer statutes. Finding the debtor was insolvent at the time of the transfers and the other elements of fraudulent transfer satisfied, the bankruptcy court entered judgment against the Lender and the Lender appealed. The Seventh Circuit affirmed.
- Facts:
- Prior to filing for bankruptcy, the debtor International Supply Company (‘Debtor’) was used by its principal, Lee Hoffman (“Hoffman”) to make settlement payments totaling over $1.7 million on his behalf payoff as guarantor of an unrelated loan to Hoffman’s lender, Citizens Equity First Credit Union (“Lender”). After the Debtor filed for bankruptcy, the trustee filed an action to recover the transfers to Lender under 11 U.S.C. § 548 and 11 U.S.C. § 544(b) as a hypothetical lien creditor under Illinois state fraudulent transfer statutes.
The crux of the dispute centered on whether the Debtor was insolvent when the transfers were made in August 2013. The Court heard testimony of experts bearing on three ways of assessing solvency: the debtor’s balance sheet, its cash flow, and the sufficiency of its capital to support operations. Conflicting expert testimony agreed the Debtor was solvent under the balance-sheet method but disagreed as to the other possible ways of measuring solvency. The bankruptcy court entered judgment against the Lender and the Lender appealed.
On appeal, the Lender argued that the sole legally permissible approach to defining solvency under Illinois law is the balance-sheet test. Finding that the text of Illinois’ version of the Uniform Fraudulent Transfer Act set up multiple ways in which a business can be insolvent for purposes of fraudulent transfer liability, the Seventh Circuit affirmed the decision of the bankruptcy court. The Court also rejected an argument raised by the Lender for the first time on appeal that Illinois’ 4-year limit on bringing actions under the UFTA was a statute of repose and not a statute of limitations. The Court left for another day whether that section is best understood as a statute of limitations or a statute of repose—and, if the latter, how it applies in bankruptcy.
- Judge(s):
- EASTERBROOK, JACKSON-AKIWUMI and LEE
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