Bank of America, N.A. ex rel. Estate of Pethinaidu v. Veluchamy
535 B.R. 783
N.D. Ill.2015Background
- Senior Veluchamys personally guaranteed two loans totaling about $43 million and later defaulted.
- Bank of America recovered a judgment and pursued asset discovery; Veluchamys transferred assets to Arun/Anu via family and entities.
- Bankruptcy court found a pervasive conspiracy to defraud creditors and awarded over $64 million plus assets.
- VMark stock transfers shifted control to Arun and Anu and were treated as fraudulent transfers.
- Downers Grove, Chennai, and Appu real estate/stock transfers were found fraudulent and subject to avoidance; values were assigned.
- Judgment affirmed in part, reversed in part, and remanded to enter amended judgment consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether VMark stock dilution was a fraudulent transfer | Arun/Anu contend the dilution was not a transfer. | BoA contends dilution transferred control from parents to children. | Yes; the transfers constituted fraudulent transfer; valuation upheld. |
| Whether VMark valuation and lack of setoff were correct | Arun/Anu seek lower value and allow setoff for payments. | BoA argues accurate valuation and no setoff for knowing participants. | Valuation proper; setoff denied due to good-faith requirement. |
| Whether Downers Grove properties were fraudulent transfers | Transferred at or above fair market value; defense lacks. | Argue overpayment should negate benefit. | Transfers fraudulent; liability determined by FMV minusMortgage payoff. |
| Whether Chennai properties were fraudulent transfers and remedy appropriate | Ask for turnover or lower valuation. | Challenge valuation methodology and ownership. | Money judgment appropriate; valuation supported by Colliers-based methods. |
| Whether Appu Hotels stock issuance constituted fraudulent transfer and amount | Argue full value of Appu stock should be recovered. | Challenge source of funds and extent of transfer. | Amended judgment awarded full value; estate recoveries adjusted. |
Key Cases Cited
- Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir. 1988) (setoff and good faith in fraudulent transfer context)
- Cent. Mfg., Inc. v. Brett, 492 F.3d 876 (7th Cir. 2007) (clear-error standard; ‘dead fish’ analogy for review)
- In re Bulk Petroleum Corp., 796 F.3d 667 (7th Cir. 2015) (de novo review of legal conclusions; factual findings reviewed for clear error)
- Reilly v. Antonello, 852 N.W.2d 694 (Minn. Ct. App. 2014) (upstream/ Upstream fraudulent transfer under UFTA principles)
- Freeland v. Enodis Corp., 540 F.3d 721 (7th Cir. 2008) (corporate conduit and avoidance principles in transfers)