569 B.R. 192
Bankr. S.D. Ala.2017Background
- Kudzu Marine, Inc. (Debtor) owned tank barge KDZ 1801; it had long-standing financial problems, ceased operations by July 2012, and faced suit from creditor MB Barge.
- In May 2013 Lanac Investments, LLC purchased the 1801 (and push boat Sandra Ann) for $493,126.61 (purchase documents reflect $460,711.64), paid for repairs (~$93,771), and later obtained financing secured by the barge.
- Multiple marine surveys/appraisals (eight) produced widely varying valuations ($590,000 to $1,433,000), with many reports flawed, outdated, or based on incorrect assumptions (e.g., COI status, cargo capacity).
- Trustee sued under 11 U.S.C. §§ 548(a)(1)(A) & (B) and 544(b)(1) (AUFTA) alleging actual and constructive fraudulent transfer, seeking avoidance and recovery.
- Trial evidence: extensive witness testimony and expert surveys; Court accepted experts but found many appraisals lacking persuasive weight.
- Court ordered the barge returned to the Trustee for sale at auction, found constructive (but not actual) fraud, and held Lanac entitled to a good-faith transferee lien under §§ 548(c) and 550(e); lien amount to be determined at evidentiary hearing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the transfer actually fraudulent (intent to hinder/defraud)? | Trustee: transfer to related parties and concealment show badges of fraud indicating actual intent. | Lanac: transaction was arm’s-length; no insider transfer, no concealment, and negotiations/communications do not prove intent. | No actual fraud; badges present but evidence insufficient to prove intent. |
| Was the transfer constructively fraudulent (received less than reasonably equivalent value while debtor insolvent)? | Trustee: purchase price far below several appraisals, so Lanac gave less than reasonably equivalent value. | Lanac: appraisals are flawed; it paid fair market price given vessel condition and financing constraints. | Constructive fraud found: Lanac paid less than reasonably equivalent value and Kudzu was insolvent when/after transfer. |
| Is Lanac entitled to the § 548(c) good-faith/value defense? | Trustee: Lanac failed to plead good faith and knew/should have known of Kudzu’s insolvency, so defense unavailable. | Lanac: reasonably investigated (appraisal, negotiations, financing) and acted in good faith; defense implied in its answer. | Lanac established good-faith transferee status under § 548(c) despite failure to use the exact phrase in the answer; good faith found. |
| Remedy: return of property vs. monetary recovery; and transferee’s remedy under § 550(e)? | Trustee: seeks avoidance and recovery (presumably turnover or value). | Lanac: even if transfer avoided, § 550(e) permits lien for value expended in good faith. | Court orders return of barge to Trustee for public sale (value disputed); Lanac entitled to § 548(c)/§ 550(e) lien for purchase price and costs of improvements (amount to be determined). |
Key Cases Cited
- In re Vista Bella, Inc., 511 B.R. 163 (Bankr. S.D. Ala. 2014) (framework for REV and badges-of-fraud analysis)
- In re TOUSA, Inc., 680 F.3d 1298 (11th Cir. 2012) (purpose of REV requirement in § 548)
- In re Rodriguez, 895 F.2d 725 (11th Cir. 1990) (protecting creditors from depletion of estate; REV discussion)
- In re Taneja, 743 F.3d 423 (4th Cir. 2014) (good-faith analysis and application of § 550(b)/§ 548(c) principles)
- Goldman v. City Capital Mortg. Corp. (In re Nieves), 648 F.3d 232 (4th Cir. 2011) (knew-or-should-have-known standard for good-faith transferee)
- In re Taylor, 599 F.3d 880 (9th Cir. 2010) (discretion to award turnover of property vs. monetary recovery)