942 F.3d 55
1st Cir.2019Background
- In 2012–2014 Steven and Lori Palladino paid $64,656.22 in college tuition to Sacred Heart University for their adult daughter while they were insolvent.
- In January 2014 the Palladinos pled guilty to running a Ponzi scheme; the SEC obtained a $9.7M judgment; Steven received prison time.
- The Palladinos and their company Viking filed Chapter 7 petitions in April 2014; the cases were consolidated and Mark DeGiacomo was appointed trustee.
- The trustee sued Sacred Heart under 11 U.S.C. § 548(a)(1)(A) & (B) and parallel Massachusetts law to avoid (claw back) the tuition payments as fraudulent transfers.
- The bankruptcy court granted summary judgment for Sacred Heart, concluding the parents reasonably expected an economic benefit (a financially self-sufficient daughter), which satisfied the “reasonably equivalent value” standard of § 548(a)(1)(B)(i).
- On appeal the district court reversed: the payments depleted the estate and conferred no value to creditors under § 548(a)(1)(B)(i); trustee may avoid the transfers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether tuition payments by insolvent parents conferred "reasonably equivalent value" under 11 U.S.C. § 548(a)(1)(B)(i) | Payments depleted the estate and gave only familial/intangible benefit, not value to creditors | Parents reasonably expected an economic benefit (daughter becoming self-sufficient), which amounts to value | Reversed: tuition conferred no value to creditors under § 548(a)(1)(B)(i); trustee may avoid transfers |
Key Cases Cited
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (fraudulent-transfer law origins and mens rea distinction)
- BFP v. Resolution Tr. Corp., 511 U.S. 531 (U.S. 1994) (value measured at time of transfer)
- Bos. Trading Grp., Inc. v. Burnazos, 835 F.2d 1504 (1st Cir. 1987) (equity among creditors principle)
- Tavenner v. Smoot, 257 F.3d 401 (4th Cir. 2001) (intangible/emotional benefits are not reasonably equivalent value)
- Cooper v. Ashley Commc'ns, Inc., 914 F.2d 458 (4th Cir. 1990) (measuring value from creditors' perspective)
- Irving Tanning Co. v. Kaplan, 876 F.3d 384 (1st Cir. 2017) (standard of review for legal questions: de novo)
- TVA v. Hill, 437 U.S. 153 (U.S. 1978) (courts must enforce clear statutory commands)