477 B.R. 696
N.D. Ill.2012Background
- Canopy, a Delaware corporation, developed financial software and health savings accounts; executives Blackburn and Bañas misappropriated funds beginning 2007, funding personal purchases and concealing them with false statements.
- Canopy became insolvent by 2007 and eventually filed for bankruptcy; Paloian was appointed Chapter 7 trustee and pursued adversary proceedings against Blackburn/Bañas’s transfers to Lampert and Geneva Seal.
- Transfers at issue: (a) $80k ring and $20k watch purchased from Lampert in 2009 with Canopy funds, and (b) watches/wristbands totaling $232k from Geneva Seal in 2009, allegedly funded by Canopy, not authorized or ratified by Canopy.
- Paloian asserted three claims under 11 U.S.C. §548(a)(1)(B) and two Illinois UFTA provisions (740 ILCS 160/5(a)(2) & 160/6(a)); Geneva Seal and Lampert moved for summary judgment; the court granted Paloian’s motions.
- Court held Canopy was insolvent, transfers were to initial transferees, and veil-piercing or apparent authority defenses failed; summary judgment for Paloian on all three §548(a)(1)(B) claims and the §160/6(a) claim; issues on voluntariness of transfers addressed in analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Geneva Seal provided reasonably equivalent value | Paloian argues no value; alter ego/veil piercing fails. | Geneva Seal argues value via alter ego and good faith defenses. | No genuine issue; veil-piercing rejected; value not established; grant for Paloian on §548(a)(1)(B). |
| Whether Lampert provided reasonably equivalent value | Paloian asserts no value; no apparent authority or business benefit. | Lampert argues alternate theories of value (alter ego, apparent authority, business benefit). | No reasonable basis for value; grant for Paloian on §548(a)(1)(B). |
| Whether transfer under 11 U.S.C. § 548(a)(1)(B) was voluntary | Not required; transfer can be constructive fraud. | Voluntariness required; reliance on GE Capital dicta. | Voluntariness not required; §548(a)(1)(B) applies to constructive fraud; grant for Paloian. |
| Existence of creditors for § 740 ILCS 160/6(a) | Trustee is the creditor; unsecured creditors existed before transfer. | No identified creditor before transfer; require specific creditor under §160/6(a). | Trustee can avoid transfers by unsecured creditors; lien satisfied; grant for Paloian on §160/6(a). |
Key Cases Cited
- Judson Atkinson Candies, Inc. v. Latini-Hohberger Dhimantec, 529 F.3d 371 (7th Cir. 2008) (choice of law governs veil piercing (internal affairs))
- Sea-Land Servs., Inc. v. Pepper Source, 941 F.2d 519 (7th Cir. 1991) (reverse-piercing and injustice considerations in veil piercing)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (veils piercing guidance in one-man corporations)
- In re KZK Livestock, 221 B.R. 471 (Bankr. C.D. Ill. 1998) (bankruptcy veil piercing considerations; multiple creditors)
- Gendron v. Chicago & N.W. Transp. Co., 139 Ill.2d 422 (Ill.1990) (voluntariness construct in older Illinois fraudulent transfer law)
- BMD Contractors, Inc. v. Fid. & Deposit Co. of Md., 679 F.3d 643 (7th Cir. 2012) (state-law interpretation when state supreme court has not spoken)
- Wallace v. Wood, 752 A.2d 1175 (Del. Ch. 1999) (Delaware veil-piercing standard (domination/control))
- Fogel v. Zell, 221 F.3d 955 (7th Cir. 2000) (Delaware internal affairs applicable to corporate governance)