454 B.R. 444
Bankr. E.D. Mich.2011Background
- Debtors William and Carmen Leonard filed Chapter 7; Trustee sues Marquette University to avoid four pre-petition transfers totaling $21,527 for their son's tuition.
- Transfers were by checks drawn on the Debtors' joint account; dates differ slightly from Trustee’s petition but were within the 2-year pre-petition window for three payments; one payment occurred post-petition.
- The first three transfers allegedly came from Debtors’ funds; the fourth transfer of $43.00 occurred after bankruptcy filing and is not subject to avoidance.
- Marquette argues the $35,000 student loan proceeds were held in trust for Benjamin Leonard and his sister, creating an oral express trust; Trustee disputes existence of such trust and benefits.
- Marquette also argues, if no express trust, that a constructive trust could apply; Trustee argues the Omega/Meoli framework precludes pre-petition constructive trust in this context.
- Trustee alleges fraudulent transfers under §548 (actual intent and, constructively, insolvent transfers for less than reasonably equivalent value) and under Michigan law via §544/566.34–35.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was there an oral express trust for the loan proceeds? | Trustee: there was no express trust; funds were commingled in a joint account. | Marquette: Benjamin and parents formed an oral express trust; loan funds to be held for Benjamin’s education. | Disputed; genuine issue of material fact; denial of summary judgment on express trust. |
| If no express trust, does a constructive trust attach pre-petition? | Trustee: constructive trust may apply to recapture value. | Marquette: constructive trust applies if pre-petition property was impressed with trust; Omega framework limits this. | Constructive trust claim denied; Omega framework bars pre-petition constructive trust absent pre-existing judicial action. |
| Did Debtors receive reasonably equivalent value for the transfers? | Trustee: no value to Debtors; indirect benefit to son does not count as value. | Marquette: Debtors received value via indirect benefits from son’s education and future independence. | Debtors did not receive reasonably equivalent value; value not economic, concrete, or quantifiable. |
| Are the transfers avoidable under §548/§544 given insolvency and timing? | Trustee seeks avoidance of all four transfers as fraudulent; insolvency presumed for pre-petition transfers with no value. | Marquette: last transfer post-petition is not avoidable; questions of property transfer and trust do not support avoidance. | First transfer pre-petition avoided; second and third transfers unresolved; fourth post-petition transfer not avoidable. |
Key Cases Cited
- In re Omegas Grp., Inc., 16 F.3d 1443 (6th Cir. 1994) (constructive trust not applicable pre-petition absent prior action)
- In re Cannon, 277 F.3d 838 (6th Cir. 2002) (trust property held in trust not subject to avoidance when debtor holds only legal title)
- Lisle v. John Wiley & Sons, Inc. (In re Wilkinson), 196 F. App'x 337 (6th Cir. 2006) (indirect benefits may be value only if concrete, quantifiable, and economic)
- McCafferty v. McCafferty (In re McCafferty), 96 F.3d 192 (6th Cir. 1996) (constructive trust rulings and pre-petition trust implications in bankruptcy)
- Bargfrede (In re Bargfrede), 117 F.3d 1078 (8th Cir. 1997) (economic value required; moral or emotional considerations do not constitute value)