534 B.R. 400
10th Cir. BAP2015Background
- EST (Expert South Tulsa, LLC) sold a 21.5-acre parcel (the Commons) to Cornerstone for $3,000,000 on January 8, 2010; Cornerstone resold the Commons 19 days later to South Memorial for $4,421,230.
- EST was insolvent; the Tulsa Loan (≈ $7.75 million) secured by the Commons was in default and owned by OKL/GTMI; the Trust held an option to purchase that loan but never paid the option price or exercised it.
- At closing, Cornerstone’s $3,000,000 was disbursed to satisfy multiple obligations: $1,742,170 to GTMI (loan holder), legal fees to OKL, payments to mechanic’s lienholders, $415,000 credited to the Trust, $686,000 to unsecured creditors, and $261,477 to EST (which then paid for Riverside Property).
- EST (and intervening Trust) sued to avoid the sale under 11 U.S.C. § 548(a)(1)(B) and § 544(b)/Oklahoma UFTA, alleging the sale was a fraudulent transfer because EST received less than reasonably equivalent value and (for UFTA) that the Commons was an "asset."
- The bankruptcy court granted summary judgment for Cornerstone, finding (1) the Commons was not an "asset" under the UFTA because it was fully encumbered at the time of sale, and (2) EST received reasonably equivalent value under § 548. The BAP affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of UFTA: whether Commons was an "asset" subject to UFTA avoidance | The liens were effectively compromised before transfer (via negotiations/option), leaving equity in the Commons, so UFTA applies | No compromise occurred before closing; the loan remained a >value encumbrance at time of sale, so Commons was not an "asset" under UFTA | Commons was not an "asset" at the time of sale because the mortgage exceeded value; UFTA inapplicable |
| § 548: whether EST received reasonably equivalent value | EST received only $3M purchase price and remained liable on the Tulsa Loan (via Trust claim), so value was not reasonably equivalent | Sale extinguished or fully satisfied the Tulsa Loan (dismissal with prejudice of foreclosure claim); sellers received benefit of loan satisfaction plus sale proceeds | Court held EST received reasonably equivalent value (sale proceeds + extinguishment/satisfaction of loan) |
| Effect of Trust Option and purported loan transfer | The Trust had rights/interest that meant the loan was not extinguished and value to EST should exclude loan satisfaction | The Trust never exercised the option and received $415,000 at closing; loan was paid/compromised at closing and foreclosure claims were dismissed | Material dispute about extension of option is immaterial—Trust never paid; loan was extinguished at closing and dismissal bars further claims |
| Measure of "reasonably equivalent value" | Market appraised value (~$4.99M) controls; $3M sale fails REV test | REV includes all benefits to debtor (direct and indirect), including debt satisfaction and lien releases; those benefits made creditors no worse off | REV measured by net benefit to debtor/creditors; here loan satisfaction and other benefits made transfer reasonably equivalent value |
Key Cases Cited
- Nat'l Loan Investors, L.P. v. World Props., LLC, 79 Conn. App. 725, 830 A.2d 1178 (Conn. App. 2003) (pre-sale compromise of lien changes whether property is an "asset" under UFTA)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (Sup. Ct. 1986) (standard for summary judgment; view evidence in light most favorable to nonmoving party)
- United States v. Telluride Co., 146 F.3d 1241 (10th Cir. 1998) (de novo review of statutory interpretation)
- Jobin v. McKay (In re M & L Bus. Mach. Co.), 84 F.3d 1330 (10th Cir. 1996) (definition and treatment of "value" in § 548; satisfaction of antecedent debt counts as value)
- Salve Regina Coll. v. Russell, 499 U.S. 225 (Sup. Ct. 1991) (when legal questions are pure questions of law appropriate for summary judgment)