Rigby v. Mastro (In re Mastro)
465 B.R. 576
Bankr. W.D. Wash.2011Background
- Involuntary Chapter 7 against Michael R. Mastro filed July 10, 2009; James F. Rigby, Jr. appointed trustee.
- Trustee filed adversary proceeding; trial conducted April–July 2011, bench trial without jury.
- Court entered Stipulated Judgment against Mastro and his marital community on April 25, 2011.
- Mastro and Linda A. Mastro are central; multiple related entities (LCY Trust, LCY LLC series, Mastro Revocable and Irrevocable Trusts) involved.
- Premarital Agreement; attempted creation of limited community property via two accounts; post-marital commingling and control by Mastro.
- Court found Mastro insolvent by August 2008 and remained insolvent through August 2009; extensive transfers to trusts and offshore entities.
- Transfers to Irrevocable Trust and LCY Trust deemed self-settled and fraudulent; assets transferred without consideration and when insolvent.
- Court found Linda lacked veracity; Linda’s control and signature on documents implicated in transfers.
- Court ordered turnover of estate assets (Murphy Appraisal items, Gold Bars, LCY LLC Jewelry including Big Rings, Rolls Royce proceeds) and found liability under 11 U.S.C. §§ 542, 550; prejudgment interest awarded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Linda’s assets were her separate property. | Linda has no credible separate-property proofs. | Linda asserts premarital agreement and separate-property ownership. | Linda failed to prove separate property; assets deemed community/property of estate. |
| Whether Irrevocable Trust and LCY Trust transfers were fraudulent/self-settled. | Transfers were to shield assets and hinder creditors in insolvency. | Trusts were legitimate planning devices. | Transfers void as self-settled and fraudulent under 11 U.S.C. §§ 544, 548 and RCW 19.36.020. |
| Whether the trustee may recover as initial/mediated transferee under § 550. | Trustee may pursue initial transferee liability against the trusts. | Trustee should recover from trustees; some liability on Linda as initial/mediate transferee. | Generally trustee not personally liable as initial transferee; Michael K liable in capacity as co-trustee; Linda liable as subsequent transferee for certain transfers; recovery limited to estate value. |
| Turnover of estate property from Linda (Murphy items, Gold Bars, Rolls Royce proceeds). | Property in Linda’s possession/control must be turned over per § 542. | Property is separate or not within estate. | Order turnover for listed items; Gold Bars and LCY assets are estate property; proceeds to be accounted. |
| Liability for Rolls Royce, Medina Residence, and related encumbrances. | Transfers and post-petition disposition harmed estate. | Transfers legitimate or outside estate. | Rolls Royce proceeds net to zero due to encumbrance; Medina Residence transfers fraudulent; liability allocated per § 550/548. |
Key Cases Cited
- Baxter v. Palmigiano, 425 U.S. 308 (U.S. Supreme Court 1976) (negative inference from fifth amendment silence allowed in adjudications)
- In re Babbidge, 175 B.R. 708 (Bankr.W.D. Mo. 1994) (negative evidentiary inferences supported by silence)
- In re Bailey, 145 B.R. 919 (Bankr.N.D. Ill. 1992) (negative inferences permissible from claimants' fifth-amendment refusals)
- In re Incomnet, 463 F.3d 1064 (9th Cir. 2006) (dominant test governs transferee liability; dominion over funds sufficient for liability under 550(a))
- Paloian v. La Salle Bank, N.A., 619 F.3d 688 (7th Cir. 2010) (trustee liability under 550(a) analyzed via dominion framework; trust as initial transferee)