Gold v. First Tennessee Bank National Ass'n (In Re Taneja), 743 F.3d 423

Background

FMI, run by Vijay Taneja, originated mortgages and used warehouse lenders; when secondary markets tightened in 2007–08 FMI engaged in fraudulent conduct, causing multi‑million dollar losses to lenders and purchasers.
First Tennessee (a warehouse lender) opened a $15M line to FMI in July 2007 after reviewing FMI’s financials, references, and a private mortgage database; advances occurred Aug–Nov 2007 and ceased when exposure grew.
FMI missed documentary deadlines but provided original promissory notes (the crucial security) and later made several repayments totaling nearly $4M (the transfers at issue), including two interest payments in Feb–Mar 2008.
Bank officers Garrett and Daugherty investigated: met with Taneja and counsel, checked with Wells Fargo (a secondary purchaser), reviewed properties and appraisals, and relied on counsel’s assurances that loans were valid; bank learned of forged deeds in April 2008 and then declared default.
Trustee sued under 11 U.S.C. § 548(a) to avoid the transfers as fraudulent; First Tennessee asserted the § 548(c) affirmative defense that it took the transfers for value and in good faith. Bankruptcy court found bank proved good faith; district court affirmed; trustee appealed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the bank met its burden under §548(c) to prove it accepted transfers "in good faith"	Trustee: court misapplied objective standard; bank must show each act was reasonably prudent and likely present expert evidence of industry standards	Bank: In re Nieves standard (subjective + objective) applies; objective prong can be shown by experienced fact witnesses and industry context without mandatory expert testimony	Court: Applied In re Nieves; bank satisfied burden — testimony of experienced bank officers supplied competent objective evidence; affirmed
Whether bank "should have known" of FMI’s fraud given red flags (delayed docs, unsold loans, direct repayments, counsel’s statements)	Trustee: delays, unsold loans, direct payments, and counsel’s statements were red flags that should have prompted further inquiry; bank employees’ testimony is only subjective and insufficient	Bank: Market collapse in 2007–08 and industry practices explained by witnesses made delays and unsold loans non‑indicative of fraud; bank investigated and received key notes; counsel’s assurances were reasonable to rely on	Held: Bankruptcy court’s factual finding that bank lacked knowledge and acted consistent with industry practice was not clearly erroneous
Whether expert testimony was required to prove objective industry standards	Trustee: likely required to show prevailing industry norms; absence undermines objective good faith	Bank: No bright‑line rule; objective prong may be proved by lay witnesses with industry experience depending on case specifics	Held: No per se requirement for experts; experienced employees’ testimony was admissible and sufficient here
Whether bankruptcy court improperly shifted burden to trustee or misapplied Ponzi presumption	Trustee: court erred in burden allocation and should have applied Ponzi presumption	Bank: Court properly required bank to prove affirmative defense; trustee not entitled to Ponzi presumption on these facts	Held: No error — court did not shift burden and trustee not entitled to Ponzi presumption

Key Cases Cited

In re Nieves, 648 F.3d 232 (4th Cir. 2011) (good faith contains subjective and objective components; objective prong considers customary industry practices)
In re Alvarez, 733 F.3d 136 (4th Cir. 2013) (standard of review for bankruptcy findings)
Klein v. PepsiCo, 845 F.2d 76 (4th Cir. 1988) (clear‑error standard articulated)
In re Armstrong, 285 F.3d 1092 (8th Cir. 2002) (good‑faith defense is primarily factual)
Fairchild Dornier GmbH v. Official Comm. of Unsecured Creditors (In re Dornier Aviation), 453 F.3d 225 (4th Cir. 2006) (deference to bankruptcy court credibility findings)