782 F. Supp. 2d 106
E.D. Pa.2011Background
- This PUFTA action seeks to recover RMH's unpaid 2002 federal tax liability from Dupont as a subsequent transferee of an allegedly fraudulent conveyance.
- Dupont held an 88.99% limited partnership interest in the Dimeling, Schreiber & Park Reorganization Fund, L.P. (the Fund); DS & P held 10.01% as limited partner and 1% as general partner.
- The Fund formed RMH to acquire Rocky Mountain Helicopter, Inc. and RMH LLC; RMH was a blocker to shield Dupont from unrelated taxable income.
- In 2002 RMH/AMC sold the target for $28 million; RMH received about $15.16 million, and most of this was transferred to the Fund and to DS & P, with downstream transfers to Dupont.
- RMH subsequently faced approximately $1.8 million in federal taxes for 2002; tax liens and penalties were assessed in 2003, with RMH later winding down its assets.
- In 2010 the United States obtained a consent judgment against RMH, the Fund, and DS & P for $3,237,969 as transferees, and pursued Dupont as the remaining transferee.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the consent judgment precludes Dupont from litigating the initial transfer | Consent judgment binds parties to the transfer; precludes Dupont. | Consent judgment binds only the signatories; does not preclude Dupont from challenging the initial transfer. | Consent judgment not binding on Dupont; issue not precluded. |
| Whether the initial transfer to the Fund was constructively fraudulent | RMH's transfer left insufficient assets to pay a foreseeable tax liability; was fraudulent. | Reliance on counsel and lack of foreseeability negate constructive fraud. | There is a genuine issue of material fact as to foreseeability; summary judgment denied on this issue. |
| Whether Dupont was a good faith transferee who took for value | Even if initial transfers were fraudulent, Dupont can be liable as a transferee; no good faith defense absolves liability. | Dupont took in good faith and for value; entitled to PUFTA 5108(b) protections. | Dupont cannot be the 'person for whose benefit' of the initial transfer; and its capital contributions did not constitute 'value' under PUFTA; 5108(b)(2) defense rejected. |
| Whether Plaintiff may seek statutory penalties and interest from Dupont | Federal law allows penalties and interest to be sought where assets exceed the judgment amount. | Penalties/interest are improper under PUFTA or require adjustments; equity favors reductions. | Plaintiff may seek penalties and interest under federal law where assets exceed the judgment; not precluded by PUFTA. |
Key Cases Cited
- In re Joshua Slocum, Ltd., 103 B.R. 610 (Bankr. E.D. Pa. 1989) (equity interests not debts; considerations of value and fraud)
- In re Fidelity Bond and Mortg. Co., 340 B.R. 266 (Bankr. E.D. Pa. 2006) (constructive fraud; extent of asset sufficiency)
- Baptiste v. Comm'r, 29 F.3d 1533 (11th Cir. 1994) (consent judgments and res judicata in tax context)
- Arizona v. California, 530 U.S. 392 (2000) (issue preclusion and consent judgments distinction in collateral estoppel)
- U.S. v. Int'l Bldg. Co., 345 U.S. 502 (1953) (consent judgments and collateral considerations in settlements)
- Krueger v. Comm'r, 48 T.C. 824 (1967) (transferee liability and res judicata in tax context)