Bodenstein v. Univ. of N. Iowa (In re Peregrine Fin. Grp., Inc.)
589 B.R. 360
Bankr. N.D. Ill.2018Background
- Peregrine Financial Group (an FCM) maintained a customer segregated account (the 1845 account); CEO Russell Wasendorf stole customer funds and pled guilty in 2012.
- Wasendorf, as an authorized signatory, caused a $500,000 cashier's check to be drawn from the 1845 account payable to the University of Northern Iowa (UNI) in December 2011.
- The cashier's check was delivered to UNI, which immediately endorsed it to the UNI Foundation (the Foundation), per longstanding practice and a Service Agreement requiring transfers to the Foundation when the Foundation was the intended recipient.
- Trustee Ira Bodenstein (chapter 7 trustee) sued UNI to avoid and recover the transfer as fraudulent under 11 U.S.C. §§ 548 and 550, alleging actual and constructive fraud.
- The court found the transfer both actually and constructively fraudulent (Wasendorf’s intent is established by plea/judgment), but held UNI was not a recoverable transferee under § 550(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court may enter final judgment | Trustee consented; court has core jurisdiction to enter final judgment on fraudulent-transfer claims | University refused consent to final judgment by bankruptcy court | Court concluded it had constitutional authority to enter final judgment in this core fraudulent-transfer proceeding |
| Whether the $500,000 transfer was fraudulent under § 548(a)(1)(A) (actual fraud) | Wasendorf caused the transfer with intent to defraud Peregrine and its customers | UNI did not contest actual fraud | Transfer was actually fraudulent; trustee proved intent (plea/judgment and circumstantial evidence) |
| Whether the transfer was fraudulent under § 548(a)(1)(B) (constructive fraud) | Transfer was of debtor property within one year, for less than reasonably equivalent value, and Peregrine was insolvent | UNI did not contest constructive-fraud elements | Transfer was constructively fraudulent; trustee proved all elements |
| Whether UNI is an "initial transferee" or recoverable under § 550(a) | UNI, as sole payee on cashier's check, had dominion and thus is initial transferee or at least the entity for whose benefit the transfer was made | UNI argued Wasendorf never acquired the funds and UNI was merely a conduit obligated to transfer funds to the Foundation | Court held Wasendorf was not initial transferee; UNI was a mere conduit to the Foundation and not liable as initial transferee or transfer-beneficiary under § 550(a)(1); trustee failed to prove recoverable transferee |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (Sup. Ct.) (limits on bankruptcy courts entering final judgments for certain non-core/state-law counterclaims)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (Sup. Ct.) (Seventh Amendment jury-right discussion in fraudulent-transfer suits)
- Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25 (Sup. Ct.) (treatment of Stern claims as non-core for district-court de novo review)
- Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir.) (initial-transferee test: dominion and control)
- In re Sentinel Mgmt. Grp., Inc., 728 F.3d 660 (7th Cir.) (commodities context; intent to hinder/delay/defraud under § 548)
- Smith v. SIPI, LLC (In re Smith), 811 F.3d 228 (7th Cir.) (bankruptcy court entering final judgment in fraudulent-transfer action)
- Rupp v. Markgraf, 95 F.3d 936 (10th Cir.) (cashier's-check one-step transactions: payee is initial transferee; principal is beneficiary)