Weinman v. Walker (In re Adam Aircraft Industries, Inc.)
- Case No. 14-1236 (10th Cir. Ct. App. October 15, 2015).
- The Tenth Circuit Court of Appeals affirmed the decision of the Bankruptcy Appellate Panel, which denied the Plaintiffs attempts to recover and avoid certain transfers under 11 U.S.C. 548.
- Procedural context:
- The chapter 7 trustee (the "Trustee") for Adam Aircraft Industries ("AAI") brought suit against Joseph Walker ("Walker") to avoid certain transfers under 11 U.S.C. 502, 547, 548 and 550. The bankruptcy court denied the Trustee's 548 claims. The BAP affirmed the bankruptcy court's ruling. The Trustee appealed to the Tenth Circuit Court of Appeals.
- Walker served as the Debtor's president and board member from 2004 to 2007. No employment contract, severance agreement, or non-compete agreement was executed between the Debtor and Walker. In early 2007, AAI decided that it wanted to replace Walker and requested that he resign. Walker requested various things in negotiating the terms of his departure, including compensation at $250,000 per year for consultation services and a covenant not to compete; his ability to retain health benefits; AAI returning $100,000 to Walker that Walker had put down as a deposit to purchase an airplane; and AAI refunding another $100,000 that he had invested in AAI stock. AII agreed to these terms.
AAI filed a voluntary petition for relief under chapter 7 on February 15, 2008. Prior to that date, and pursuant to the terms agreed by the parties, AAI had paid to Walker: (1) $105,704.11 for the aircraft deposit, with interest; (2) $100,002.00 for the stock; and (3) $10,417 twice monthly amounting to $250,000.08 in gross severance over 12 months. Also, the parties entered into an agreement clarifying that Walker's role as president terminated effective March 1, 2007, and that he became a field sales liaison for the company as of that date.
The Trustee filed a complaint seeking to avoid and recover transfers from AAI to Walker pursuant to 11 U.S.C. 502, 547, 548, and 550. The bankruptcy court determined that (1) Walker ceased being a statutory "insider" under 548(a) after February 1, 2007; (2) Walker did not fit the case-law definition of "insider"; (3) the transfers to Walker did not occur under an employment contract; and (4) Walker gave reasonably equivalent value for the transfers he received from AAI. The BAP affirmed. On appeal to the Tenth Circuit, the Trustee argued that the transfers to Walker were avoidable under 548(a)(1)(B)(i) and (a)(1)(B)(ii)(IV) or 548(a)(1)(B)(i) and (a)(1)(B)(ii)(I).
In reviewing the BAP's decision for clear error, the Tenth Circuit found no impropriety in that court's determination that Walker did not qualify as an insider after February 1, 2007. Thus, the Trustee's claim under 548(a)(1)(B)(i) and (ii)(IV) failed for lack of merit. Next, the court analyzed whether the transfers occurred for less than reasonably equivalent value at a time when the debtor was insolvent, for the purposes of evaluating the strength of the Trustee's second alternative claim.
Considering the bankruptcy court's findings regarding reasonably equivalent value and the BAP's interpretations of the same, the Tenth Circuit found unrelated evidence that Walker held a high reputation in the industry and could have found another position easily. In addition, the court could not see how the company's board members would have granted Walker's requests for anything less than what they viewed to be reasonably equivalent value. Based on the circumstances of Walker's departure and the consideration for which the challenged payments were made to Walker, the Tenth Circuit failed to see how any reasonable court could find anything other than reasonably equivalent value provided in exchange. It was not necessary for the court to proceed to consider whether the company was solvent at the time of the transfers.
For these reasons, the Tenth Circuit concluded that the BAP properly affirmed the bankruptcy court's denial of AAI's alternative claim for avoidance under the non-insider portions of 11 U.S.C. 548.
- Tymkovich, Chief Judge and Hartz and Phillips, Circuit Judges
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