Brookworth Partners, LP v. Frankford Machinery
2967 EDA 2016
| Pa. Super. Ct. | Sep 26, 2017Background
- Frankford Associates (FA), an established dry-cleaning equipment service company, closed Dec. 31, 2011 after a judgment against it; Brookworth obtained a $249,100 judgment and executed on FA’s bank account in Aug. 2011.
- Frankford Machinery (FM) is a separate corporation founded in 2002 by the same family; after FA closed, FM began providing services and selling parts historically offered by FA and received FA’s tangible assets (bill of sale reducing FA’s debt to FM by $83,000).
- Brookworth sued under the Pennsylvania Uniform Fraudulent Transfer Act (PUFTA), alleging FA transferred intangible assets (workforce, customer lists, websites, goodwill) to FM between July–Dec. 2011 without reasonably equivalent value while insolvent.
- Brookworth’s valuation expert used a market approach and produced an aggregate figure (~$657,000) for combined tangible, intangible assets and inventory as of June 30, 2011 but could not reliably break out or value specific intangible assets as of the alleged transfer date(s).
- Trial court found Brookworth failed to prove (1) any intangible-asset transfer to FM, (2) FA’s insolvency on Dec. 31, 2011, and (3) value/identity of intangible assets at transfer; entered judgment for FM and individual defendants. Brookworth appealed; Superior Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FA transferred intangible assets (workforce, customer lists, websites, goodwill) to FM | FA’s intangibles moved to FM sometime between July 14 and Dec. 31, 2011; FM thereafter captured FA’s revenue and customers | No evidence of a discrete transfer of intangibles; companies remained separate and any shared resources predated closure | Court: Brookworth failed to prove any intangible-asset transfer occurred |
| Whether FA was insolvent at the time of the alleged transfer | FA became essentially penniless by mid-August 2011 (after execution) and likely insolvent as early as July 14, 2011 | Evidence did not reliably establish insolvency date; testimony inconsistent | Court: Brookworth did not meet burden to prove insolvency at the relevant time |
| Sufficiency and timing of valuation evidence for intangible assets | Expert’s market-approach valuation (~$657k) as of June 30, 2011 establishes existence/value of intangibles and they retained value through Dec. 31, 2011 | Expert could not apportion or credibly value intangibles at the alleged transfer date; market approach inappropriate after cessation/liquidation | Court: Expert’s opinion was insufficient and inconsistent; Brookworth failed to prove existence/value of intangibles at transfer |
| Liability of FM principals (individual defendants) for alleged fraudulent transfer | Shareholders/officers (Ronald, Nicholas Jr.) benefited from the transfer and can be subject to equitable relief/joint liability | PUFTA does not impose liability on non-transferees; complaint did not allege transfers to individuals | Court: No basis to hold individuals liable; complaint/evidence didn’t show transfers to them |
Key Cases Cited
- Fell v. 340 Assocs., LLC, 125 A.3d 75 (Pa. Super. 2015) (standard of review for equitable decrees and appellate deference to trial court findings)
- Knoll v. Uku, 154 A.3d 329 (Pa. Super. 2017) (elements and burden for PUFTA fraudulent-transfer claim)
- Lanning v. West, 803 A.2d 753 (Pa. Super. 2002) (standard for new trial based on weight of the evidence)
- Nemirovsky v. Nemirovsky, 776 A.2d 988 (Pa. Super. 2001) (factfinder may accept or reject expert testimony)
- In re Wettach, 811 F.3d 99 (3d Cir. 2016) (allocation of burden of proof in fraudulent-transfer claims)