505 B.R. 47
Bankr. D.N.M.2014Background
- Wreyfords operated Xanadu, a Santa Fe, NM retail business, as a sole proprietorship until forming Xanadu, LLC in 2011–2012 after LANB sued them personally for over $2M.
- LANB obtained a state-court judgment against the Wreyfords on March 1, 2012, totaling $2,293,885.70, plus post-judgment interest; a $1.4M deficiency remained after foreclosure.
- Following LANB’s judgment, the Wreyfords transferred substantially all sole proprietorship assets to Xanadu, LLC, funded IRAs, and engaged in related transfers, including a Bill of Sale in May 2012.
- Xanadu, LLC was formally organized December 2011 (Certificate of Organization dated December 23, 2011) with the Wreyfords as 50/50 members; the Wreyfords did not close the sole proprietorship bank accounts when forming Xanadu.
- The Wreyfords opened multiple bank accounts (Sole Proprietorship, Xanadu LLC accounts, Patra and Jalan accounts) and continued using the old accounts after forming Xanadu, creating a hybrid structure until May 2012.
- LANB filed an involuntary Chapter 7 petition against the Wreyfords in June 2012; the Chapter 7 Trustee later filed a report of no distribution, and the court reserved on addressing the other §727(a) bases; the court concluded discharge should be denied under §727(a)(2)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether transfers within one year prior to filing were made with intent to hinder, delay, or defraud. | LANB contends transfers were to hinder or defraud LANB. | Wreyfords claim transfers were for legitimate business purposes and restructuring. | Yes; transfers made with actual fraudulent intent denied discharge under §727(a)(2)(A). |
Key Cases Cited
- Brown v. Brown, 108 F.3d 1290 (10th Cir. 1997) (actual fraud intent required for §727(a)(2)(A) denial; business purpose may negate fraud)
- Coder v. Arts, 213 U.S. 223 ((1909)) (origin of the hinder/delay/defraud concept in fraudulent conveyance law; requires actual fraud)
- Carey v. Carey, 938 F.2d 1077 ((10th Cir. 1991)) (courts equate badges of fraud guidance with §727(a)(2)(A) intent)
- Bezner v. Rosen, 996 F.2d 1527 ((3d Cir. 1993)) (§727(a)(2)(A) denials require intent to hinder or defraud creditors)
- BFP v. Resolution Trust Corp., 511 U.S. 531 ((Supreme Ct. 1994)) (origin of fraudulent transfer concepts; relation to Elizabethan fraud doctrine)