622 B.R. 887
Bankr. N.D. Ill.2020Background
- Chapter 7 Trustee Ronald R. Peterson sued TTS Granite Inc. to recover ~ $317,000 in payments Mack Industries made to TTS for granite fabricated/installed in properties Mack did not own.
- Complaint alleged two fraudulent-transfer counts: Count I (constructive fraud under §548/IUFTA) and Count II (actual fraud under §548 based on intent to hinder creditor American Residential).
- Trustee alleged (a) many transfers were to properties owned by third parties or related entities, (b) the McClellands formed numerous new entities and shifted assets/business away from Mack beginning in 2013, and (c) a June 2014 statement by Mack VP Erik Workman threatening to transfer assets to related entities to hinder American Residential.
- TTS moved to dismiss: it argued Mack received reasonably equivalent value (it ordered and received the granite) and that the actual-fraud claim lacked particularity and connection to the TTS transactions.
- Court dismissed Count I with prejudice (constructive fraud) because Mack objectively received value for the granite it ordered and paid for; the court denied dismissal of Count II, finding the actual-fraud claim pleaded (just) sufficiently under Rule 9(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constructive fraudulent transfer (Count I) | Mack got no value because granite was installed in properties Mack did not own | Mack ordered, controlled, and paid for fabrication/installation — received objective value | Dismissed with prejudice: Mack received reasonably equivalent value for each transaction |
| Actual fraudulent transfer (Count II) | Workman’s threat and badges of fraud (entity creation, asset shifts, concealment, cash extractions) show intent to hinder American Residential; transfers to TTS were part of scheme | Allegations are conclusory, not connected to TTS transactions, many transfers predate the June 2014 threat; fails Rule 9(b) particularity | Motion to dismiss denied: allegations (including Workman’s statement) sufficiently plead actual fraud with particularity to survive dismissal (narrowly) |
Key Cases Cited
- Baldi v. Samuel Son & Co., Ltd., 548 F.3d 579 (7th Cir. 2008) (definition of reasonably equivalent value under § 548)
- Creditor’s Comm. of Jumer’s Castle Lodge, Inc. v. Jumer, 472 F.3d 943 (7th Cir. 2007) (use of § 548/UFTA equivalence analysis)
- Balaber-Strauss v. Sixty-Five Brokers (In re Churchill Mort. Inv. Corp.), 256 B.R. 664 (Bankr. S.D.N.Y. 2000) (transaction-specific quid pro quo focus for value inquiry)
- McHenry v. Dillworth (In re Caribbean Fuels Am., Inc.), [citation="688 F. App'x 890"] (11th Cir. 2017) (objective-value inquiry for goods/services provided to debtor)
- PSN Liquidating Trust v. Intelsat Corp., [citation="615 F. App'x 925"] (11th Cir. 2015) (debtor may receive value even if transfer increases insolvency)
- Frierdich v. Mottaz, 294 F.3d 864 (7th Cir. 2002) (use of badges of fraud to infer actual intent)
- Katz v. Household Int'l, Inc., 91 F.3d 1036 (7th Cir. 1996) (Rule 9(b) requires who/what/when/where/how pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible right to relief)