STEVEN P. KARTZMAN V. LATOC, INC. : "THE MALL AT THE GALAXY"
- Summarized by Stephen Falanga , Walsh Pizzi O'Reilly Falanga LLP
- 1 year 6 months ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 23-1906 (3rd Circuit, Aug 07,2024) Not Published
- Tag(s):
-
- Ruling:
- In this non-precedential opinion, the Third Circuit affirmed the decision of the District Court affirming the decision of the Bankruptcy Court finding in favor of the chapter 7 trustee avoiding a fraudulent transfer as part of a disguised loan transaction to the debtor-corporation the proceeds of which were then funneled to a related entity. The Bankruptcy Court concluded that the debtor-corporation did not receive reasonably equivalent value in exchange for the $2 million loan and that the transactions between parties should be collapsed and construed as a single, integrated transaction.
- Procedural context:
- The chapter 7 trustee for the debtor, Mall at the Galaxy, Inc. (the "Debtor”) filed a complaint seeking to avoid pre-petition interest payments on a $2 million loan from an affiliated real estate company as fraudulent transfers under 11 U.S.C. §§ 548(a)(1)(B) and 544(b)(1). The loan proceeds were transferred by the Debtor to another affiliated entity. The Bankruptcy Court and the District Court both held that the Debtor did not receive reasonably equivalent value in exchange for the $2 million loan and that the transactions between the three entities should be collapsed and construed as a single, integrated transaction. On appeal, the Third Circuit affirmed.
- Facts:
- This case arises from the bankruptcy of the Mall at the Galaxy, Inc. (the "Debtor" ), a mall in Guttenberg, New Jersey. From 2007 to 2009, the Debtor, though insolvent, incurred additional liabilities from being used as a conduit for a $2 million loan from an affiliated real estate company ("Latoc") to a group of affiliated rubber recycling companies (the “PermaLife” entities). The loan funds were transferred to the Debtor, which forwarded them to PermaLife.
The loan was arranged by the principals of the Debtor and designed to avoid loans that were otherwise prohibited from being made to PermaLife. The parties memorialized the loan in a promissory note requiring the Debtor to repay the loan with interest. The Debtor was insolvent during the entire relevant period, i.e., 2007–09. The funds from Latoc were deposited into the Debtor’s bank account, and then transferred from the Debtor into the PermaLife entities.
The Debtor's principal stated that the loan was designed to “manage the conflict that precluded a direct loan from Latoc to Permalife.”
The Debtor subsequently repaid Latoc $592,875.03 on account of the loan before entering bankruptcy.
The Trustee filed a complaint seeking to avoid this payment as a fraudulent or preferential transfer detrimental to the Debtor’s creditors under 11 U.S.C. §§ 548(a)(1)(B) and 544(b)(1).
- Judge(s):
- CHAGARES, Chief Judge, PORTER and SCIRICA, Circuit Judges
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