541 B.R. 492
Bankr. D. Kan.2015Background
- Adversary proceeding against SpiritBank; Brooke Corp bankruptcy trustee seeks avoidance for transfers related to SpiritBank Option Agreement and $2M CD pledge.
- Brooke Corp held an approximately 62% interest in Aleritas; Debtors insolvent during relevant period; case began after Brooke converted to Chapter 7.
- March 6, 2008 Option Agreement with SpiritBank to purchase SpiritBank’s participation in the FSB Loan; Brooke Corp pledged $2M CD as security and provided collateral.
- SpiritBank liquidated the Brooke CD on September 4, 2008; funds were used to pay down Brooke-related obligations; BONY litigation and related matters followed.
- Trustee alleges transfers were made within two years of petition, with Brooke insolvent, and seeks avoidance under 548 and UFTA, plus recovery under §550.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Brooke have an interest in the funds used to purchase the Brooke CD? | Trustee: Brooke exercised dominion/controlled funds; funds were Brooke’s property. | SpiritBank: funds originated from GenBank and third parties; Brooke had no interest in the funds. | Brooke had an interest; funds were property of the debtor. |
| Did Brooke receive reasonably equivalent value for incurring obligations under the Option Agreement? | Trustee: no direct/indirect value; no equivalent value for Brooke Corp’s obligations. | SpiritBank: Brooke received direct/indirect value, including reduced liability and collateral benefits. | Brooke did not receive reasonably equivalent direct or indirect value. |
| Did Brooke receive indirect value for the Option Agreement as the parent Guarantor? | Trustee: insolvency of subsidiary negates indirect benefit; indirect value unlikely. | SpiritBank: as parent guarantor, Brooke benefited from downstream guarantees. | No indirect value to Brooke Corp was proven. |
| Did Brooke pay Deferral Fees with reasonably equivalent value? | Trustee: Deferral Fees lacked consideration; part of Option Agreement. | SpiritBank: Deferral Fees provided forbearance and breathing room; value adequate. | Deferral Fees were not constructively fraudulent; no avoidance of Deferral Fees. |
| Is the Brooke CD transfer a preferential transfer under §547? | Trustee: separate from avoidance; if avoided, SpiritBank would be disadvantaged. | SpiritBank: perfected interest; cashing CD not preferential under §547(b)(5). | Transfer of the Brooke CD not a avoidable preference under §547. |
Key Cases Cited
- Parks v. FIA Card Services, N.A. (In re Marshall), 550 F.3d 1251 (10th Cir. 2008) (indirect-benefit/interest concept for transfers analyzed similarly to §547)
- Tour Tellot v. Renegade Holdings, Inc., 457 B.R. 441 (Bankr.M.D.N.C. 2011) (insolvency of subsidiary limits indirect benefit presumption)
- In re Pembroke Dev. Corp., 124 B.R. 398 (Bankr.S.D. Fla. 1991) (transfers to insolvent affiliate and value analysis under fraudulent transfer law)
- In re Pace, 456 B.R. 253 (Bankr.W.D. Tex. 2011) (insolvency considerations in value determinations in fraudulent transfer)