769 F.3d 899
5th Cir.2014Background
- Ronald Ziegler’s Positive Health Management paid First National Bank $367,681.35 from Feb 2007–Mar 2008 for use of a Garland, TX building; payments were listed as rent. First National held the mortgage on the building for a different Ziegler entity and later foreclosed.
- Trustee Randy Williams sued to recover the payments as fraudulent transfers under 11 U.S.C. § 548.
- Bankruptcy court found actual intent to defraud (§ 548(a)(1)(A)) but held First National acted in good faith and provided value under § 548(c); it relied on First National’s forbearance and an appraisal-based rental valuation ($253,333.33).
- District court adopted the bankruptcy court’s findings; trustee moved to amend, arguing the § 548(c) defense was inadequately pleaded and rental valuation unreliable. Bankruptcy court reaffirmed its findings after an evidentiary hearing.
- The Fifth Circuit reviewed whether “value” under § 548(c) is measured from the transferee’s perspective (Hannover) and whether a transferee who gave less value than it received must be "netted" (i.e., disgorge the excess to the estate).
Issues
| Issue | Williams' Argument | First National's Argument | Held |
|---|---|---|---|
| Whether "value" under §548(c) is measured from transferee or transferor perspective | Value must be assessed from transferee’s perspective (protect unwitting transferee) | Agrees Hannover governs (transferee perspective) | Court confirms value is measured from transferee’s perspective (follows Hannover) |
| Whether First National gave value under §548(c) | Bank did not give value from its own perspective; bankruptcy court improperly relied on debtor’s benefit | Bank gave value via forbearance and foregone rental income (market rent) | Bank gave value via forbearance; appropriate measure is transferee’s opportunity cost (market rent). Court affirms §548(c) defense. |
| Reliability of rental valuation (use of Jan 2006 appraisal for 2007–08 transfers) | Appraisal was stale and unreliable for 2007–08 valuation | Appraisal was only evidence; bankruptcy court reasonably applied it to the 27-month period | Court held use of the 2006 appraisal was not clearly erroneous and affirmed the rent-based valuation |
| Whether transferee may retain entire fraudulent transfer if it gave less value (netting issue) | Trustee: must net and return amount exceeding value given; §548(c) "to the extent" requires reduction | Bank: §548(c) allows retaining full transfer if values are "reasonably equivalent" or court should not apply rigid netting | Court adopts netting: transferee may keep only up to the value it gave; trustee entitled to recover $114,348.02 (difference) |
Key Cases Cited
- Jimmy Swaggart Ministries v. Hayes (In re Hannover Corp.), 310 F.3d 796 (5th Cir.) ("value" under §548(c) measured from transferee's perspective)
- TMT Procurement Corp. v. Vantage Drilling Co. (In re TMT Procurement Corp.), 764 F.3d 512 (5th Cir.) (standards of review for bankruptcy findings)
- Butler Aviation Int’l Inc. v. Whyte (In re Fairchild Aircraft Corp.), 6 F.3d 1119 (5th Cir.) ("reasonably equivalent value" for §548(a) measured by benefit to debtor)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir.) (adequacy of consideration ordinarily not inquired into; discussion of transferee value in fraudulent-transfer context)
- Perkins v. Haines, 661 F.3d 623 (11th Cir.) (netting principle in Ponzi/investor cases: principal may be given as value, excess recoverable)
- Donell v. Kowell, 533 F.3d 762 (9th Cir.) (recoveries from net winners in Ponzi schemes; limits on value given)
- Clark v. Sec. Pac. Bus. Credit, Inc. (In re Wes Dor, Inc.), 996 F.2d 237 (10th Cir.) (transferee liable for amount of fraudulent transfer less value it extended)