479 B.R. 617
Bankr. S.D. Florida2012Background
- Debtor was a Florida general partnership (Kane & Kane) with Kanes as sole equity partners.
- Six transfers totaling $727,871.90 were made from the Debtor to the IRS in 2008 to satisfy the Kanes’ personal tax obligations, recorded as distributions in the Debtor’s books.
- State Court Litigation (Stewart Tilghman) pending from 2004-2007 sought substantial judgment against the Debtor and Kanes; final State Court Judgment entered April 24, 2008.
- Transfers occurred while the State Court case was pending; Debtor filed for chapter 11 in November 2008 and was later dismissed as bad-faith; petition to convert to chapter 7 followed in 2009.
- Trustee filed adversary proceeding in the Debtor’s chapter 7 seeking avoidance of transfers under 11 U.S.C. §§ 544/548/550 and Florida equivalents; United States moved for summary judgment; Trustee moved for partial summary judgment and to exclude certain experts.
- Court conducted a Daubert/Rule 702 analysis regarding expert testimony and ultimately: denied United States’ summary judgment, granted Trustee partial summary judgment on initial transferee status, denied Trustee’s motion to exclude Michaelson, and granted Trustee’s motion to exclude Michaelson’s report; final judgment pending as to remaining issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Transfers were for less than reasonably equivalent value and rendered Debtor insolvent. | Trustee asserts no reasonably equivalent value; Debtor insolvent at transfer dates. | Transfers provided value via Kanes’ services; no insolvency proven for all dates. | Material issues of fact exist; summary judgment not appropriate on these issues. |
| Whether the Defendant is an initial transferee under § 550(a)(1). | Trustee bears burden to show defendant was initial transferee. | Kanes first received transfers; Defendant a subsequent transferee. | Court held Defendant was initial transferee for each Transfer. |
| Whether summary judgment on solvency/solvency-related expert testimony is appropriate. | Trustee warrants solvency determination to support avoidance. | Expert Michaelson should be considered; credibility and methodology challengeable at trial. | Summary judgment not appropriate on solvency; credibility issues to be weighed at trial. |
| Whether Reda’s expert on value is admissible and Michaelson’s value methodology is admissible under Rule 702. | Reda admissible; Michaelson problematic. | Both experts should be admissible but subject to weight/credibility. | Reda’s opinion admissible; Michaelson’s valuation of Contingent Liability excluded under 702. |
Key Cases Cited
- Advanced Telecomm. Network, Inc. v. Allen (In re Advanced Telecomm. Network, Inc.), 490 F.3d 1325 (11th Cir. 2007) (present value of contingent liabilities must be >0 when value is nonzero probability)
- Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588 (11th Cir. 1990) (initial transferee status is not determined by debtor control over funds)
- Richardson v. Antex, Inc. (In re Antex, Inc.), 397 B.R. 168 (1st Cir. BAP 2008) (principal directing payment to satisfy others not initial transferee)
- Cortes-Irizarry v. Corporacion Insular De Seguros, 111 F.3d 184 (1st Cir. 1997) (Daubert gatekeeping applicable to expert testimony)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (Supreme Court 1999) (broader Daubert standard applies to non-scientific experts)
- Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (Supreme Court 1993) (gatekeeping reliability and relevance of expert testimony)