452 B.R. 562
Bankr. E.D. Pa.2011Background
- In 2001 the Debtors purchased the Braxton Property, granting a mortgage to their lender.
- In 2006 the Debtors bought the Sunnybank Property for $320,000; Michael Vetri provided $10,000 as a deposit and later paid additional funds allegedly in advance for the Braxton Property.
- November 2007 closing on the Braxton Property occurred; Thomas Vetri (Defendant) ended up purchaser; Debtors signed HUD statements and related documents.
- At closing, a $23,587.40 check was payable to the Debtors as part of the Braxton sale but was deposited by the Defendant into an account he controlled.
- The HUD Statement also listed $28,422.79 as an escrow/deposit amount, though there was testimony about whether the Debtors actually received it.
- The Debtors filed for Chapter 7 relief on September 16, 2008; the Trustee filed this adversary proceeding on November 5, 2009; after other defendants were dismissed, trial occurred January 25, 2011.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Plaintiff's Requests for Admissions admissible evidence? | Trustee argues admissions are proper under Rule 36. | Defendant contends admissions were improper or insufficient. | Admissions were admitted; proper under Rule 36. |
| Does the 23,587.40 transfer support constructive fraud under § 548(a)(1)(B)? | Transfer to Vetri without consideration harmed the Debtors and was insolvent beforehand. | Disputes over facts and lack of consideration undermine the claim. | Yes; Debtors’ transfer of 23,587.40 is avoidable as constructive fraud. |
| Can the 28,422.79 escrow deposit be avoided under § 548(a)(1)(B)? | Deposit constitutes a transfer for less than reasonably equivalent value and insolvency. | Offsets and pre-closing advances by Michael mean value received or no transfer to Debtors. | No; insufficient proof of less than equivalent value or fraudulent transfer for 28,422.79. |
| Was there actual fraud under § 548(a)(1)(A) regarding the 28,422.79 deposit? | Badges of fraud show intent to hinder or delay creditors. | No clear intent shown; testimony disputing the facts. | Not proven; court did not avoid the 28,422.79 deposit on actual-fraud grounds. |
| What relief should the Trustee receive based on § 548 transfers? | Trustee should avoid both transfers and recover the value for the estate. | Only limited relief consistent with the evidence and admissions. | Judgment in favor of Trustee for 23,587.40; no relief for 28,422.79. |
Key Cases Cited
- Airco Industrial Gases, Inc. v. The Teamsters Health and Welfare Pension Fund of Philadelphia and Vicinity, 850 F.2d 1028 (3d Cir. 1988) (Rule 36 admissions create an unassailable fact; admissible evidence if properly served)
- In re Freuhauf Trailer Corporation, 444 F.3d 203 (3d Cir. 2006) (constructive fraud elements and badge analysis under § 548(a)(1)(B))