Crumpton v. Stephens (In Re Northlake Foods, Inc.)
715 F.3d 1251
| 11th Cir. | 2013Background
- Northlake Foods, Inc., an S-corporation, paid a 2006 cash transfer to shareholder Stephens pursuant to a 1991 Shareholders Agreement.
- The 5.01 provision required Northlake to reimburse Stephens for his personal income taxes attributable to Northlake’s income if it ever became tax‑taxed to shareholders.
- Stephens incurred $94,429 in 2005 taxes, which Northlake later paid to Stephens in 2006 per the resolution.
- Crumpton, as bankruptcy trustee, alleged the 2006 Transfer was a fraudulent transfer under 11 U.S.C. §§ 544, 548, 550 and Georgia law.
- Bankruptcy court held there was reasonably equivalent value for the transfer, citing antecedent debt and the S-corp election as value.
- District Court affirmed, holding the S-corp election provided reasonably equivalent value and that Stephens, not a director, could not be liable under Georgia’s illegal dividend statute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the 2006 Transfer constitute reasonably equivalent value | Crumpton argues no market value evidence; insufficient value. | Northlake contends the S-corp election plus Shareholders Agreement provided value. | Yes; S-corp election provides reasonably equivalent value. |
| Is there enough evidence to show the value exchange without an evidentiary hearing | Crumpton seeks totality-of-the-circumstances inquiry with an evidentiary hearing. | Northlake asserts pleaded exhibits show benefits; no hearing required. | Evidence in pleadings suffices; no hearing necessary. |
| May Georgia’s illegal dividend statute be applied to Stephens as a non-director | Crumpton argues statutory remedy applies to recipients of dividends. | Northlake contends Stephens cannot be liable as he is not a director. | Statutory argument reserved; but affirmance based on other grounds. |
Key Cases Cited
- In re Rodriguez, 895 F.2d 725 (11th Cir. 1990) (voiding transfers requires lack of reasonably equivalent value)
- In re Advanced Telecomm. Network, Inc., 490 F.3d 1325 (11th Cir. 2007) (reasonably equivalent value does not require dollar-for-dollar exchange)
- Ad-Vantage Tel. Directory Consultants, Inc. v. GTE Directories Corp., 849 F.2d 1336 (11th Cir. 1987) (antecedent debt can constitute value for fraudulent transfer purposes)
- In re JLJ Inc., 988 F.2d 1112 (11th Cir. 1993) (standard of review for bankruptcy court findings; de novo on legal questions)