487 B.R. 705
Bankr. E.D.N.C.2013Background
- Debtor Tanglewood Farms filed chapter 11 on August 20, 2010, later converted to chapter 7 on July 12, 2011.
- Winslows filed a joint chapter 11 petition on August 23, 2010, with Mr. Winslow as president and sole shareholder of the debtor.
- September 15, 2008 promissory note for $600,000 and a security agreement secured 113,208 bushels of corn.
- Loan proceeds ($597,410) were deposited into the Winslows’ personal account; debtor later tendered $50,000, and corn pledged as security had been sold without defendant’s consent.
- Trustee filed August 19, 2012, asserting two constructive fraudulent transfer theories under §§ 544, 548, 550, 551 and NC statute.
- Defendant moved to dismiss the complaint on September 9, 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the § 548 action to avoid the incurrence of the obligation is viable. | Trustee alleges debtor received less than value for incurring the note/security interest. | Argues debtor received value; the transaction mirrors a typical lender/borrower loan. | Plaintiff’s § 548 claim plausible; dismissal denied. |
| Whether the $50,000 payment was for reasonably equivalent value and thus non-avoidable. | Payment lacked value because underlying obligation may be avoided and proceeds went to third party. | Payment could be value-neutral or for debt satisfaction; may be treated as value. | Plaintiff’s theory plausible; dismissal denied. |
| Whether the complaint contains sufficient facts to plead 'reasonably equivalent value' under § 548(a)(1)(B). | Allegations show debtor did not receive value and proceeds benefited a third party (Winslows). | Value could come from the borrower-side perspective and is insufficiently pleaded. | Sufficient factual pleading to state a plausible claim; dismissal denied. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court 2009) (plausibility standard for pleading claims)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (Supreme Court 1994) (definition of value under § 548)
- In re Morris Communications NC, Inc., 914 F.2d 458 (4th Cir. 1990) (value concept in constructive fraudulent transfers)
- In re R.M.I., Inc., 92 F.3d 139 (3d Cir. 1996) (value includes benefits to debtor’s creditors)
- Frontier Bank v. Brown (In re N. Merchandise, Inc.), 371 F.3d 1056 (9th Cir. 2004) (debtor received value where proceeds went to debtor)
- In re Jeffrey Bigelow Design Grp., Inc., 956 F.2d 479 (4th Cir. 1992) (value when third party benefits does not necessarily establish value)
- In re All-Type Printing, 274 B.R. 316 (Bankr. D. Conn. 2002) (distinction between avoiding debt incurrence vs. payments on debt)