Redmond v. SpiritBank (In re Brooke Corp.)
Redmond v. SpiritBank (In re Brooke Corp.)
Opinion of the Court
This adversary proceeding began with claims asserted against certain parties other than SpiritBank, but SpiritBank was later added as a defendant and the claims against the other defendants have been resolved. In the remaining counts, Christopher J. Redmond, the Chapter 7 Trustee of the Debtors, Brooke Corporation (Brooke' Corp), Brooke Capital Corporation (Brooke Capital), and Brooke Investments, Inc. (BII), seeks to avoid certain transfers from Brooke Corp to Defendant SpiritBank, including over $2,000,000 from the liquidation of a certifícate of deposit, under 11 U.S.C. § 548, the Kansas Uniform Fraudulent Transfer Act,
This litigation arises out of an Option Agreement that was entered into by Spir-itBank and Brooke Corp on March 6, 2008. It provided, among other things, that Brooke Corp would purchase a $2 million CD from SpiritBank to be held by and pledged to SpiritBank to secure Brooke Corp’s conditional obligation to purchase SpiritBank’s participation interest in a loan to Aleritas Capital Corporation, a subsidiary of Brooke Corp. On September 4, 2008, SpiritBank liquidated the CD. On October 28, 2008, Brooke Corp filed a petition under Chapter 11 of the Bankruptcy Code. The case was later converted to Chapter 7, and Christopher J. Redmond was appointed Trustee.
On October 27, 2010, the Trustee filed a five-count First Amended Complaint, only four' counts of which seek relief against SpiritBank. Count I seeks to avoid as fraudulent transfers under § 548 and the Kansas Uniform Fraudulent Transfer Act the transfers to or for the benefit of SpiritBank of money and various interests, including the Option Agreement, the purchase of the $2 million CD, and the payment of some attorney and deferral fees that total $83,000. Alternatively, Count II seeks to avoid as a § 547 preference SpiritBank’s liquidation of the CD and application of the proceeds against Brooke Corp’s alleged defaults under the Option Agreement. Count IV seeks recovery from SpiritBank of all avoided transfers under § 550 and K.S.A. 33-207. Count V is a claim objection cause of action seeking disallowance of SpiritBank’s claim under § 502(d).
The Court has jurisdiction over this adversary proceeding under 28 U.S.C.
SPIRITBANK’S RULE 52(c) MOTION.
. At the close of the Trustee’s case, Spirit-Bank orally moved for a directed verdict on partial findings under Federal Rule of Civil Procedure 52(c)
The Court’s decision to defer ruling on the motion until the close of the evidence is authorized by Rule 52(c), which includes the provision that the Court “may ... decline to render any judgment until the close of the evidence.” When it has deferred the ruling, the Court will determine the Rule 52(c) motion by evaluating the nonmovant’s case, without drawing any special inferences in the nonmovant’s favor or concerning itself with whether the non-movant has made out 'a prima facie case.
In other words, when the Court defers ruling on a defendant’s Rule 52(c) motion made orally at the close of the plaintiffs case until all of the evidence has been presented, the ruling on the motion and the ruling on the merits of the case fuse and become the same. At this stage in the proceeding, the Court makes findings of fact and conclusions of law under Rule 52(a).
TRIAL TESTIMONY AND EXPERT REPORTS.
At trial, the Court heard the testimony of the following witnesses: Bruce Murphy, the assistant vice president of deposit operations for Generations Bank (GenBank) (formerly Brooke Savings Bank), in 2007 and 2008; Christopher J. Redmond, the Plaintiff and Chapter 7 Trustee of Debtor Brooke Corp; Carl Baronowski, Brooke Corp’s general counsel beginning in September 2007 and also its senior vice-president beginning in late 2007; Paul Cornell, SpiritBank’s corporate representative, who served as its deputy CEO and director in March 2008; and Jack F. Williams, Spirit-Bank’s expert. The Court also admitted the deposition testimony of Nancy Bain-bridge, SpiritBank’s senior vice president of commercial loans; Albert “Kell” Kelly, CEO and president of SpiritBank; Anita Lowry, Brooke Corp’s cash management manager; and Christopher J. Redmond, Brooke Corp’s Chapter 7 Trustee.
Three expert reports were admitted: the Expert Report of R. Larry Johnson Regarding Insolvency of Brooke Corporation (Parent Company Only), dated July 1, 2013;
FINDINGS OF FACT.
A. BACKGROUND FACTS.
Brooke Corp and Brooke Capital filed voluntary Chapter 11 petitions on October 28, 2008. Brooke Investments filed a voluntary Chapter 11 petition about a week' later. Brooke Corp, Brooke Capital, and Brooke Investments are collectively referred to as the Debtors, but this proceeding centers on Brooke Corp alone and it will be referred to as either Brooke Corp or the Debtor. At all relevant times, Robert Orr was in control of Brooke Corp, a holding company that did not earn money through operations. Brooke Corp owned approximately 62% of Aleritas, which is not a debtor under the Bankruptcy Code. On June 29, 2009, an order was entered converting the Debtors’ bankruptcy proceedings to Chapter 7. Christopher J. Redmond is the Debtors’ Chapter 7 Trustee.
The Trustee and SpiritBank stipulated that Debtor Brooke Corp and Aleritas were continuously insolvent for purposes of §§ 544, 547, and 548 and the Kansas Uniform Fraudulent Conveyance Act during all time periods relevant to this adversary proceeding. R. Larry Johnson’s expert report regarding the insolvency of Brooke Corp concludes that Brooke Corp was insolvent from December 31, 2005, and thereafter, with its negative equity grow
B. THE TRANSACTIONS.
By a Note and Warrant Purchase Agreement (NWPA) dated October 31, 2006, Brooke Credit Corporation (later known as Aleritas) obtained approximately $45 million in secured financing from entities commonly referred to as Falcon-Jordan.
“Mandatory Repurchase Event” shall mean the occurrence of any one of any of the following events: (i) as to the Parent [Brooke Corp], the occurrence of any one of any of the following events: (a) either of Robert Orr or Leland Orr ... ceases to own and control 80% of the Capital Stock of the Parent owned thereby on the Closing Date, ...; (b) any of Michael Lowry, Shawn Lowry and Anita Larson ... ceases to own and control 80% of the Capital Stock of the Parent owned thereby on the Closing Date ...; or (c) if Robert Orr, Leland Orr, Michael Lowry, Kyle Garst, Shawn Lowry and Anita Larson collectively ceases [sic] to possess the power ... to direct or cause the direction of the management or policies of the Parent ..., (ii) Persons who constitute the Parent’s Governing Body on the date hereof cease for any reason other than in the ordinary course ... to constitute at least a majority of the Governing Body of the Parent, (iii) ... the Parent ceases to own and control ... eighty percent (80.0%) of the Capital Stock of the Company owned thereby on the Closing Date; (iv) the Parent fails to own ... one hundred percent ... of the membership interests in Brooke Agency Services Company LLC or ... seventy five percent ... of the Capital Stock of Brooke Franchise Corporation ..., (v) prior to the consummation of a Qualified Public Offering, the Parent ceases to own and control ... at least fifty-one per cent ... of the Capital Stock of the Company [Brooke Credit Corporation] ..., (vi) after the consummation of a Qualified Pubic Offering, the Parent ceases to own and control ... at least forty percent ... of the Capital Stock of the Company ..., (vii) Persons who constitute the Company’s Governing Body on the date hereof cease for any reason other than in the ordinary course ... to constitute at least a majority of the Governing Body of the Company, (viii) the Company, fails to own at any time one hundred percent ... of the Capital Stock of any Subsidiary thereof ..., (ix)*501 the Company fails to own at any time one hundred percent ... of the Capital Stock of any SPE, (x) the Governing Body of the Company, shall approve [a merger, a sale or transfer of substantially all assets, and any plan of liquidation], or (xi) ... any Person ... acquires the ability to elect a majority of the Governing Body of the Company.17
The occurrence of a Mandatory Repurchase Event is one of nineteen Events of Default stated in § 8.1 of the NWPA.
On February 9, 2008, Aleritas and Falcon-Jordan entered into a Note Repurchase Agreement with respect to the NWPA, defining the terms of “a mutually acceptable windup of their relationship.”
On March 6, 2008, Aleritas entered into a loan agreement (the FSB Loan) with First State Bank of Gothenberg, Nebraska (FSB), to borrow up to $52,500,000 to provide funds to refinance the Falcon-Jordan Notes. FSB sold participation interests in the FSB Loan. SpiritBank initially declined to purchase an interest because the pledge of residual income as collateral to secure-the FSB Loan was against Spirit-Bank’s loan policies. Brooke Corp approached SpiritBank with a proposal for a secured Option Agreement to induce Spir-itBank to become a $10 million participant, which it agreed to do. By March 7, 2008, $41,250,000 (which includes SpiritBank’s $10 million) of the $52,500,000 FSB Loan was subscribed. Aleritas provided an additional $14 million, and the refinance of the Falcon-Jordan Notes closed.
None of the events constituting a Mandatory Repurchase Event, as to the parent (Brooke Corp) or otherwise, were declared to have occurred while the NWPA was in effect. Falcon-Jordan never provided written notice to Aleritas declaring the Falcon-Jordan obligations to be due and payable. But Carl Baranowski, general counsel of Brooke Corp, testified that in his opinion, Falcon-Jordan could have declared a default at any time because of Aleritas’s double pledge of some collateral. The Trustee testified that his examination of Brooke’s records revealed no written notice from Falcon-Jordan of a default under the NWPA, no written notice from
The March 6, 2008 Option Agreement between Brooke Corp and SpiritBank defined the terms and conditions for Spirit-Bank’s purchase of a $10 million interest in the FSB Loan.
Paragraph 3 of the Option Agreement, which defines Brooke Corp’s obligations if SpiritBank exercises its take-out option, is titled Brooke’s Secured Guaranty. It provides that the'paragraph “shall be interpreted and enforced as a Guaranty of payment and performance of the obligations hereunder which guaranty shall be enforceable by SpiritBank in any court of competent jurisdiction.” Nancy Bain-bridge testified that the purpose of the Brooke CD was “to secure the guaranty of Brooke Corporation.”
To purchase the Brooke CD, $2 million was wired on March 7, 2008, to SpiritBank from Brooke Corp’s operating account, Account No. *09113 at GenBank, which had a balance of $2,161.37 as of the close of business on March 6, 2008.
Carl Baranowski testified that the purchase of the $2 million CD was intended to be funded with “a move [of funds] from Brooke Credit [Aleritas] to Brooke Corp.”
When agreeing to the Option Agreement, SpiritBank did not envision that it would exercise the take-out option. But on April 11, 2008, SpiritBank timely exercised its take-out option because it had a few unanswered questions, even, though it thought everything would be fine.
C. THE BONY LITIGATION, BROOKE CORP’S BANKRUPTCY, AND SPIRITBANK’S PROOF OF CLAIM.
On September 11, 2008, Bank of New York Mellon (BONY), as a trustee under certain indentures, filed suit in the United States District Court for the District of Kansas against Aleritas, Brooke Corp, and other Brooke entities alleging fraudulent conduct and misappropriation of funds pledged to note-holders under certain sec-uritizations, and the spoliation of evidence to conceal these actions.
Brooke Corp filed a petition under Chapter 11 on October 28, 2008. Spirit-Bank filed a proof of claim for $7,583,967.11 under the Option Agreement as amended.
D. TESTIMONY REGARDING REASONABLY EQUIVALENT VALUE.
Jack F. Williams, SpiritBank’s expert witness, opined in his report that “the direct and indirect benefits received by Brooke Corp [in its transactions with Spir-itBank] constitute substantial value that is reasonably equivalent to the obligations incurred and interests in property transferred to SpiritBank.”
When testifying, Mr. Williams supplemented his report. He stated he had concluded that “it was at least more likely than not, approaching highly likely,” that one of the events listed in subsections (a)(i)(e), (iii), and (iv) of the definition of Mandatory Repurchase Event in Exhibit B to the NWPA (quoted above) would trigger Brooke Corp’s repurchase obligation during the term of the Falcon-Jordan Notes.
Mr. Williams also opined that Brooke Corp was not the economic source of the $2 million transferred to SpiritBank to purchase the Brooke CD because: (1) Brooke Corp was a holding company and did not receive funds as the result of operations; and (2) the source of funds ap
Mr. Williams’s report did not mention the insolvency of Brooke Corp and Aleri-tas, to which SpiritBank stipulated, as factors in his analysis. Although Mr. Williams acknowledged when testifying that he is the author of published commentary questioning the presumption that a parent company’s downstream guaranties always provide reasonably equivalent value to the parent, he stated that there was no need to amend his expert report, which addressed whether Brooke Corp (the parent) received reasonably equivalent value when it guaranteed the obligation of Aleri-tas (its subsidiary). Mr. Williams’s report also did not address the impact, if any, on the determination of reasonably equivalent value of the circumstance that Brooke Corp owned only 62% of the stock of Aleri-tas, or the impact of the fact that Spirit-Bank’s purchase of the $10 million participation interest was not the sole transfer that made the payoff of the Falcon-Jordan Notes possible.
Christopher J. Redmond testified that his investigation as Trustee has not revealed any benefits or assets that Brooke Corp received in conjunction with Spirit-Bank’s participation in the FSB Loan to Aleritas.
Carl Baranowski testified that the refinancing of the Falcon-Jordan Notes was important to Brooke Corp for two reasons.
DISCUSSION AND CONCLUSIONS OF LAW.
A. THE FRAUDULENT TRANSFER CLAIM.
1. Section 548 in general.
Under § 548, the Trustee seeks to avoid as constructively fraudulent the transfers to or for the benefit of SpiritBank, including the Option Agreement, the purchase and pledge of the Brooke CD, and the payment of the Deferral Fees of $33,000. According to § 548:
*507 (a)(1) The trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the 'debtor voluntarily or involuntarily&emdash;
(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.
“Section 548 and fraudulent transfer law generally attempt to protect creditors from transactions which are designed, or have the effect, of unfairly draining the pool of assets available to satisfy creditors’ claims, or which dilute legitimate creditor claims at the expense of false or lesser claims.”
Both transfers of interests in property and the incurrence of obligations may be avoided. “[I]f the court avoids an obligation under section 548 ..., transfers made by the debtor on account of that obligation are not made for reasonably equivalent value, and may be set aside as actually or constructively fraudulent if the other requirements for actual or constructive fraud are met.”
Although most of the testimony in this case focused on the purchase and pledge of the $2 million CD, the Trustee’s fraudulent transfer action includes both transfers of property and the incurrence of obligations. With respect to transfers of property, he seeks to avoid the transfer of the Brooke CD and the payment of the Deferral Fees in conjunction with the Second Amendment to Option Agreement. In addition, with respect to obligations the Debtor incurred, the Trustee seeks to avoid the Option Agreement as a constructively fraudulent transfer. In order to prevail, he must establish that (1) the transfers were made or the obligations under the Option Agreement were incurred (2) less than two years before the Debtor’s bankruptcy petition was filed (3) without the receipt in return of something with a reasonably equivalent value (4)
2. Brooke Corp had an interest in the funds used to purchase the Brooke CD.
SpiritBank’s initial defense is that the Trustee may not avoid the September 4, 2008 transfer of the Brooke CD to Spir-itBank because, as a matter of law, Brooke Corp had no “interest” in the CD, as required for avoidance under either § 547 or § 548. The Trustee has the burden to prove that the Debtor had an interest in the CD.
The Trustee has satisfied that burden by evidence showing that the CD was purchased using funds sent to SpiritBank by a wire transfer from account number *0913 at GenBank, Brooke Corp’s operating account. The Trustee relies on the dominion or control test when arguing that Brooke Corp had an interest in the funds transferred, but SpiritBank contends the dominion or control test is inapplicable. Assuming the dominion or control test does not apply, SpiritBank then asserts that the funds transferred to purchase the Spirit-Bank CD were not the property of Brooke Corp for three reasons: (1) since Brooke Corp had insufficient funds in its operating account when the transfer was made, the funds wired were actually from GenBank’s account at the Federal Reserve Bank; (2) the funds were provided by Brooke Capital and Brooke Franchise Advisors; and (3) Aleritas loaned the funds to Brooke Corp.
To answer the question whether Brooke Corp had an interest in the funds transferred to SpiritBank to purchase the CD, the Court need look no further than the decision of the Tenth Circuit Court of Appeals in Marshall.
Brooke Corp directed a wire transfer from its operating account at GenBank to SpiritBank for the purpose of purchasing the Brooke CD, as required under the Option Agreement. There is no question that Brooke Corp had control over the account. The fact that the wire transfer was accomplished by a transfer from Gen-Bank’s account at the Federal Reserve and created a daylight overdraft because it placed Brooke Corp’s account in a not sufficient funds (NSF) position
SpiritBank attempts to distinguish Marshall.
After arguing that Marshall does not apply to this case, SpiritBank presents what it apparently 'views as a defense not controlled by Marshall — that the Trustee may not recover because the $2 million transferred was not the property of Brooke Corp. This defense builds upon Mr. Williams’s opinion that Brooke Corp was not “the funding source of the $2 million used to purchase the $2- million CD.”
For the foregoing reasons, the Court rejects SpiritBank’s defense that the Trustee has failed to prove that the funds used to purchase the Brooke CD were property in which the Debtor had an interest, as required under § 548(a)(1).
3. Reasonably Equivalent Value.
a. The law on determining reasonably equivalent value.
“An examination into reasonably equivalent value includes three inquiries: (1) whether value was given; (2) if value was given, whether it was given in exchange for the transfer; and (3) whether what was transferred was reasonably equivalent to what was received.”
“The date for defining ... reasonable equivalence is the date of the transfer.”
“As a general rule, obligations incurred by a debtor solely for the benefit of a third party are treated as not supported by a reasonably equivalent value.”
In this case, the Trustee contends that Brooke Corp did not receive a benefit of a value reasonably equivalent to the value of the obligations it incurred under the Option Agreement. SpiritBank contends that Brooke Corp received value from the satisfaction of the Falcon-Jordan Notes and that the value was reasonably equivalent to the value of Brooke Corp’s obligations to SpiritBank. This defense is based upon the unexamined proposition that the retirement of the Falcon-Jordan Notes was done in “exchange” for the execution of the Option Agreement, as required by § 548(a)(1)(B). Although the Trustee does not question that proposition, the Court observes that the Option Agreement concerned only a $10 million participation interest in the FSB Loan. The Falcon-Jordan Notes were retired in exchange for $14 million provided by Aleritas and $41.5 million in proceeds from the FSB Loan, which included the $10 million interest of SpiritBank. Thus, the Option Agreement facilitated the acquisition of only 18% of the payoff amount. The Court has found no case law addressing whether this attenuated “exchange” is sufficient for purposes of
b. When executing the Option Agreement on March 6, 2008, did Brooke Corp receive a direct value reasonably equivalent to the value of the obligations it assumed?
The Trustee testified that he knew of no value or assets Brooke Corp received as a result of entering into the Option Agreement. The proceeds of Spir-itBank’s $10 million participation interest in the FSB Loan went to Aleritas, not Brooke Corp. Aleritas used these proceeds, together with other funds, to satisfy the Note Repurchase Agreement with the Falcon-Jordan parties. The interest rate Aleritas, not Brooke Corp, had to pay on borrowed funds was reduced.
The Option Agreement imposed liabilities upon Brooke Corp. SpiritBank obtained the right to give Brooke Corp notice of its desire to sell its $10 million participation interest on or before April 21, 2008, for the balance owed on its participation at the time of sale. If a third-party did not complete the purchase, Brooke Corp was obligated to do so. Brooke Corp provided security for its obligation to buy Spirit-Bank’s interest, a lien on 2,500,000 shares of Brooke Corp’s stock in Aleritas and a lien on a $2 million CD. In addition, Brooke Corp agreed to deposit additional cash collateral with SpiritBank if the value of the pledged shares dropped below $10 million. Performance of a reasonably-equivalent-value analysis for purposes of a fraudulent conveyance claim would usually require a valuation of these contingent liabilities. However, believing Brooke Corp received no value from the satisfaction of the NWPA, the Trustee did not try to prove the value of the obligations' Brooke Corp assumed.
SpiritBank, on the other hand, argues that Brooke Corp received direct value as a result of the Option Agreement and that the. liabilities it assumed were reasonably equivalent to that value. SpiritBank’s assertions of direct value are as follows:
Benefit to Aleritas and Brooke Corp, as its parent, from the decrease in interest expense totaling approximately $21.4 million resulting from the retirement of the Secured 12% [Falcon-Jordan] Notes;
Benefit to Brooke Corp from the replacement of the mandatory repurchase obligation liability of approximately $51.75 million with the $10 million Brooke Corp Obligations;
Benefits from the opportunity to retire the Secured 12% Notes outside of the contractual prepayment window and at a reduced premium, resulting in savings of not less than approximately $1.02 million; [and]
Benefits from the ability to resell its interest in the Participation Agreement in the event that SpiritBank exercised the option.89
Of these four items, only the second describes a potential direct value received by Brooke Corp. The first and the third describe direct benefits to Aleritas as the obligor on the Falcon-Jordan Notes, not direct benefits to Brooke Corp, which was not an obligor. The fourth item describes the right of Brooke Corp to dispose of the participation interest if SpiritBank exercised its rights under the Option Agreement and Brooke Corp was required to purchase the participation interest. It is a
This leaves the second item as the only potential direct benefit to Brooke Corp from the execution of the Option Agreement.
This is the only provision of the NWPA that imposes liability on Brooke Corp. The Court interprets the NWPA to mean that this liability may arise only when there is a Mandatory Repurchase Event under subsection (i) of the Mandatory Repurchase Event definition, which provides:
(i) as to the Parent [Brooke Corp], the occurrence of any one of any of the following events: (a) either of Robert Orr or Leland Orr ... ceases to own and control 80% of the Capital Stock of the Parent owned thereby on the Closing Date, ...; (b) any of Michael Lowry, Shawn Lowry and Anita Larson ... ceases to own and control 80% of the Capital Stock of the Parent owned thereby on the Closing Date, ...; or (c) if Robert Orr, Leland Orr, Michael Low-ry, Kyle Garst, Shawn Lowry and Anita Larson collectively ceases [sic] to possess the power ... to direct or cause the direction of the management or policies of the Parent.93
This part of the definition begins with the phrase “as to the Parent.” Under section 3.1(b), Aleritas has a repurchase obligation if “any” Mandatory Repurchase Event occurs, but Brooke Corp, the parent, has such liability only if a Mandatory Repurchase Event “with respect to the Parent” occurs. The NWPA provides that it shall be construed and interpreted in accord with New York law. Under New York law, “ ‘[w]hen parties set down their agreement in a clear, complete document, their writing ... should be enforced according to its terms.’ ”
The events that would have given rise to a Mandatory Repurchase Event with respect to the parent were generally under the direct control of the named stockholders and those with the power to control the management policies of Brooke Corp. The bankruptcy of Aleritas would not have triggered a change of control as to the parent. Even the filing of a petition under Chapter 11 by Brooke Corp would not have been a change of control as to the parent unless a trustee was appointed. Carl Baronowski, general counsel of Brooke Corp, did not even include release from the repurchase obligation as a reason why. the refinancing of the Faleon-Jordan Notes was important to Brooke Corp. Although the Trustee acknowledges that the payoff of the Faleon-Jordan Notes completely removed the possibility that Brooke Corp would be required to pay off those notes, he concludes that under the facts and circumstances presented, the value of that removal was effectively zero and therefore not substantially equivalent to the obligations Brooke Corp assumed under the Option Agreement.
The Court finds that SpiritBank has not refuted the Trustee’s conclusion. After thorough review, the Court has concluded that both the written report and the testimony of SpiritBank’s expert, Jack F. Williams, contending Brooke Corp received reasonably equivalent value under the Option Agreement, are unreliable and not persuasive.
There are several deficiencies in the report which lead the Court to this conclusion. Mr. Williams opined in his written report that “Brooke Corp received substantial value, reasonably equivalent from an economic perspective, in exchange for the incurrence of the Brooke Corp Obligations, the Pledged Aleritas Shares, and the first priority security interest in the $2 Million CD.”
Furthermore, although Mr. Williams’s testimony supplemented his report, the Court remains unconvinced. Mr. Williams testified that it was more likely than not, approaching highly likely, that one of the events listed in subsections (i)(c), (iii), and (iv) of the definition of Mandatory Repurchase Event in the NWPA, quoted above in the findings of fact, would trigger Brooke Corp’s repurchase obligation during the term of the Falcon-Jordan Notes.
As in his written report, Mr. Williams’s testimony did not specify the value of the direct benefit Brooke Corp received as a result of the refinancing. Further, also as in the written report, Mr. Williams did not assign a value to the obligations Brooke Corp incurred in the Option Agreement, even though they were contingent. The closest Mr. Williams came to assigning values to these things was his discussion of the relative probabilities that a Mandatory Repurchase Event and Brooke Corp’s repurchase obligation under the Option Agreement would occur, but even this comparison was flawed because of his failure to recognize that only certain changes of control, those defined in the NWPA as changes of control with respect to the parent, are relevant.
Further, Mr. Williams determined the probability of Brooke Corp’s contingent liability under the NWPA in isolation from the other terms of the NWPA. Default is broadly defined in the NWPA, and many circumstances could have occurred that might have caused Falcon-Jordan to declare a default even though no Mandatory Repurchase Event as to the parent had occurred. Carl Baronowski testified that in his opinion, Aleritas was in default under the NWPA at the time of the Note Purchase Agreement because of a double pledge of collateral. It appears to the Court that there was a significant probability of a default not involving a Mandatory Repurchase Event with respect to the parent, in which case Brooke Corp would have been relieved of its liability under the NWPA before a Mandatory Repurchase Event with respect to it, the parent, occurred. Mr. Williams gave no consideration to this possibility.
The Court concludes that the direct benefit Brooke Corp received from the release of a very remote contingent liability of
For the foregoing reasons, the Court determines, based upon the record before it, that the Trustee has sustained his burden to prove that Brooke Corp did not receive direct benefits with a value reasonably equivalent to the value of the obligations it assumed under the Option Agreement.
c. When executing the Option Agreement on March 6, 2008, did Brooke Corp receive an indirect value reasonably equivalent to the value of the obligations it assumed?
When a court finds that a trustee has sustained the burden to show the debtor did not receive a direct benefit with a value reasonably equivalent to the value of what the debtor gave up in the transaction, the burden shifts to the defendant to show the debtor received reasonably equivalent value from an indirect benefit.
The Trustee responds that the Option Agreement was, in substance, a guaranty of Aleritas’s obligation to purchase Spirit-Bank’s participation interest, and that a parent’s guaranty of an insolvent subsidiary’s debt does not result in a benefit to the parent. He relies on cases holding that the presumption of a benefit to the parent from the parent’s guaranty of the subsidiary’s obligation is not available if the subsidiary whose obligation was guaranteed was insolvent at the time of the transaction in which the guaranty was extended.
The Court agrees with the Trustee that the Option Agreement in substance is a guaranty of Aleritas’s obligation to Spirit-
In support of his position that a parent’s guaranty of an insolvent subsidiary’s obligation does not provide value to the parent, the Trustee relies primarily on Renegade Holdings,
In its briefs, SpiritBank contends that Renegade is inapplicable. Instead, it argues that Aleritas’s insolvency is irrelevant because Brooke Corp received the alleged direct benefit of the payoff of the Falcon-Jordan Notes. SpiritBank relies on case law holding that the debtor receives reasonably equivalent value in return for paying the debt of a third person when the debtor has the use of the goods and services for which the debt was incurred.
SpiritBank’s expert, Jack F. Williams, when opining that Brooke Corp received reasonably equivalent value based upon its status as the parent of Aleritas, does not mention Aleritas’s insolvency. This omission is very troublesome to the Court because Mr. Williams is the author of two law review articles which support the Trustee’s position that Aleritas’s insolvency is relevant. In Revisiting the Proper Limits of Fraudulent Transfer Law, Mr. Williams stated:
The payment or guaranty by the parent of a wholly-owned subsidiary’s debt is less problematic because the courts have held that the parent presumably benefits from a reduction in debt of its “asset,” i.e., the subsidiary’s stock it holds. This may not necessarily be the case. For example, you represent Bravo Corp. which wants to enter into a data-processing contract with Lima Corp., the wholly-owned subsidiary of November Corp. Bravo demands November Corp. to guarantee LimaCorp.’s obligations under the data processing contract. Do the transactions contemplated generate any fraudulent transfer risks for Bravo? The guaranty fact pattern depicts the classic downstream guaranty situation. Most courts would conclude that because November owned the stock in Lima, if*519 the transaction benefitted Lima, that benefit would “ride-up” to November through the stock ownership. See, e.g, Lawrence Paperboard Corp. v. Arlington Trust Co. (In re Lawrence Paperboard Corp.), 76 Bankr. 866, 871 (Bankr. D.Mass. 1987). But what if Lima is hopelessly insolvent at the time of the guaranty? If so, the guaranty by November may well have been a fraudulent transfer. Why? Because the unsecured creditors of November are harmed by the transaction. Assuming no increase in November’s net worth, a safe assumption when the subsidiary is in a precarious financial situation, November’s unsecured creditors will go to judgment and execute on the worthless stock in Lima, a hopelessly insolvent company. At the same time, the creditors would have to contend with the claims of Bravo to November’s assets. See General Elec. Credit Corp. v. Murphy (In re Rodriguez), 895 F.2d 725 (11th Cir. 1990); see Flaschen, Recent Bankruptcy Decisions Threaten Lenders with Increased Liability, 11 BUSINESS LAWYER UPDATE, Jan./Feb.1991, at 1, 2, 9.117
Three years after the publication of this article, in The Fallacies of Contemporary Fraudulent Transfer Models, Mr. Williams stated, “I have questioned this analysis [that the value received by a primary obligor-subsidiary redounds to the benefit of the parent-guarantor] where the subsidiary is insolvent.”
SpiritBank has not sustained its burden to prove that Brooke Corp received indirect value reasonably equivalent to the value of the obligations it assumed and the transfers it made. The Court therefore finds that when Brooke Corp entered into the Option Agreement, it did not receive an indirect benefit having a value reasonably equivalent to the value of the obligations it incurred.
d. When it paid the Deferral Fees in conjunction with the execution of the Second Amendment to Option Agreement, dated July 1, 2008, did Brooke Corp receive reasonably equivalent value?
The Second Amendment to Option Agreement, dated July 1, 2008, extended the date by which Brooke Corp was obligated to purchase SpiritBank’s participation interest in the FSB Loan, which had previously been extended to May 16, 2008, to October 10, 2008. In conjunction with this agreement, Brooke Corp paid SpiritBank the Deferral Fees (a deferral fee of $25,000 and legal fees of $8,000).
The Trustee alleges that Brooke Corp did not receive reasonably equivalent value in return for these payments. First, he includes these transfers in his arguments about the Option Agreement.
The Trustee also argues that Brooke Corp did not receive reasonably equivalent value for the $33,000 in Deferral Fees because they “simply resulted in Spirit-Bank forbearing for a few weeks from foreclosing on its collateral,” which “did not materially or ‘concretely’ benefit Brooke Corp in any way.”
The Court therefore finds that Brooke Corp’s payment of'the Deferral Fees to SpiritBank was not a constructively fraudulent transfer.
4. Conclusion on the Trustee’s Fraudulent Transfer Claim.
For the foregoing reasons, the Court finds that the Trustee has prevailed on his contention that Brooke Corp’s entering into the Option Agreement, pursuant to which the $2 million was transferred to SpiritBank for purchase of the Brooke CD and SpiritBank subsequently liquidated the Brooke CD, was a fraudulent transfer under § 548(B)(i). Brooke Corp had an interest in the $2 million transferred to SpiritBank to purchase the Brooke CD and did not receive a reasonably equivalent direct or indirect value in return when it entered into the Option Agreement. The Trustee is therefore entitled to a judgment avoiding Brooke Corp’s obligations under the Option Agreement, the transfer of the Brooke CD to SpiritBank, and Spir-itBank’s liquidation of the Brooke CD.
However, because Brooke Corp received a direct benefit with a value reasonably equivalent to the $33,000 in Deferral Fees
B. THE TRUSTEE’S UFTA CLAIM.
As permitted by § 544(b)(1) of the Bankruptcy Code, the Trustee also seeks to avoid and recover the allegedly fraudulent transfers under the Kansas version of the Uniform Fraudulent Transfer Act, codified at K.S.A. 33-201 to -212. Subsections 33-204(a)(2) and 33-205(a) of the Kansas UFTA are substantively similar to § 548(a)(1)(B).
C. SPIRITBANK’S GOOD-FAITH DEFENSE UNDER § 548(c) OR K.S.A. 33-208(a).
Section 548(c) of the Bankruptcy Code provides:
Except to the extent that a transfer or obligation voidable under this section [548] is voidable under section 544, 545, or 547 of this title, a transferee or obli-gee of such a transfer or obligation that takes for value and in good faith has a lien on or may retain any interest transferred or may enforce any obligation incurred, as the case may be, to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation.
When both value, and good faith are present, the transferee is given a lien on the property transferred. In essence, good faith transferees are entitled to set off the value they gave to the debtor against the amount of the voidable transfer they received from the debtor.
SpiritBank is not entitled to a lien under the good-faith defense because it did not give value to Brooke Corp for the transfer of the Brooke CD. Section 548(c) expressly requires the giving of value to the debtor. To the extent that a transferee does not give value to the debtor for purposes of determining reasonably equivalent value under § 548(a)(1)(B), such transferee likewise does not give value for purposes of § 548(c).
As explained above, SpiritBank gave no value to Brooke Corp in exchange for the Option Agreement and the transfer of the
D. THE TRUSTEE’S PREFERENTIAL TRANSFER CLAIM.
The Trustee also asserts a claim to avoid SpiritBank’s cashing of the Brooke CD on September 4, 2008, as a preferential transfer under § 547(b). When submitting proposed findings of fact and conclusions of law, the Trustee asserts that all of the elements for avoiding a preference are satisfied.
The Trustee contends that SpiritBank received more by cashing the CD than it would have in a liquidation of Brooke Corp. Apparently, the Trustee is assuming that if he prevails on his fraudulent conveyance claim concerning the Option Agreement and the transfer of the Brooke CD is thereby avoided, then SpiritBank does not have a perfected security interest in the Brooke CD. No authority is provided for predicating a preferential transfer on a successful fraudulent conveyance action, and the Court declines to do so. In the Court’s experience, avoidance actions are generally asserted in the alternative, not cumulatively.
"When the preference claim is viewed independently of the fraudulent conveyance claim, it is apparent that the Trustee may not avoid the transfer of the Brooke CD to SpiritBank as a preferential transfer. Spiritbank’s interest in the Brooke CD was perfected. SpiritBank had possession of the CD if it was in paper form, and control of the CD if it was in book entry form.
E. THE TRUSTEE’S RECOVERY UNDER § 550.
The Trustee seeks to recover the value of the Brooke CD from Spirit-Bank under § 550(a), Which allows the recovery of a transfer avoided under either § 544 (which incorporates the- Kansas UFTA) or § 548 from the initial transferee or any immediate or mediate transferee of the initial transferee. There is a significant difference in the liability of an initial transferee and a subsequent transferee. An initial transferee is strictly liable to the trustee for an avoided transfer.
SpiritBank was an initial transferee. Brooke Corp transferred $2 million to SpiritBank for the purchase of the Brooke CD at SpiritBank. Pursuant to the Option Agreement, SpiritBank retained possession or control of the Brooke CD as security for Brooke Corp’s repurchase obligation in the event SpiritBank exercised its takeout right. Then in September 2008, Spirit-Bank applied the proceeds of the Brooke CD to Brooke Corp’s obligation.
SpiritBank’s defense to liability under § 550 is without merit. First, in an apparent attempt to avoid initial transferee liability, SpiritBank states that “Brooke Corp was merely a conduit of the funds for the CD.”
The Trustee is therefore entitled to a judgment against SpiritBank for $2,012,491.67 based on the avoidance of the transfer of the Brooke CD.
F. PREJUDGMENT INTEREST WILL NOT BE AWARDED.
The Trustee requests an award of prejudgment interest on his claims for avoidance of the transfers of the $2 million Brooke CD and the Deferral Fees. He wants interest totaling $1,232,294.95 for the period from April 14, 2009, the date the original Trustee made a demand on SpiritBank, through April 29, 2015, plus additional prejudgment interest accruing thereafter at $561.41 per diem. The interest is calculated at an annual rate of 10% under K.S.A. 16-201 on a principal amount of $2,045,491.67, which is the sum of the amount SpiritBank received when it liquidated the Brooke CD, $2,012,491.67, and the Deferral Fees of $33,000. SpiritBank opposes the award and also argues that the interest rate in inequitable. The Court agrees that prejudgment interest should not be awarded in this case, and therefore does not reach the question of an appropriate rate.
On this issue, both the Trustee and SpiritBank cite Investment Bankers.
The Court finds that an award of prejudgment interest would not be equitable in this case. The Trustee has prevailed on less than all of his claims. Spir-itBank defended the Trustee’s claims in good faith, relying upon the opinion of a well-known expert to support its position that it was not liable on the claims. Because of the delay inherent in the litigation of avoidance claims in cases as large and complex as the Brooke bankruptcies, this adversary proceeding was filed in 2009 but was not tried until 2015. To assess interest against SpiritBank in an amount exceeding 50% of the Trustee’s claim because of that delay would be inequitable.
G. THE COURT DECLINES TO RULE ON THE ALLOWANCE OF SPIRITBANK’S PROOF OF CLAIM.
The pretrial order states that one of the issues is “[w]hether the SpiritBank proof of claim is subject to disallowance pursuant to 11 U.S.C. § 502(d), until such time as SpiritBank pays to the Trustee an amount equal to the aggregate amount of the avoidable transfers plus interest thereon and costs.”
The Court therefore declines to rule on this issue as part of its findings following trial. This denial is without prejudice. If the parties cannot agree about the impact of this decision on SpiritBank’s proof of claim, the Court will resolve the issue in a separate hearing.
CONCLUSION.
The Court therefore holds: (1) under 11 U.S.C. § 548(a)(1)(b) and the Kansas Uniform Fraudulent Transfer Act, the Trustee may avoid the Option Agreement, including the pledge of the $2 million Brooke CD to SpiritBank and SpiritBank’s subsequent cashing of the Brooke CD; (2) the Trustee may not avoid the Second Amendment to Option Agreement, including the transfer of the $33,000 in Deferral Fees to Spirit-Bank; (3) the transfer of the $2 million
Because this opinion does not resolve all of the Trustee’s claims, the Court has considered whether to make its rulings on the claims it does resolve final and appeal-able.
Having determined that the avoidance claims and the claims under § 502(d) are sufficiently distinct that a final judgment on the avoidance claims alone may properly be entered, the Court must next decide whether there is any just reason to delay the entry of such a final judgment. Despite “the strong federal policy against piecemeal review” of trial court decisions,
Consequently, the Court hereby certifies that a final judgment on the Trustee’s avoidance claims as determined by this opinion should be entered pursuant to Rule 54(b).
The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure, which makes Rule 52(a) of the Federal Rules of Civil Procedure applicable to this proceeding. A judgment based upon this ruling will be entered on a separate document as required by Federal Rule of Bankruptcy Procedure 7058, which
IT IS SO ORDERED.
. K.S.A. 33-201 to-212.
. Future references to sections of Title 11 in the text shall be to the section number only.
.Steven E. Mauer of Zerger & Mauer signed many of the briefs filed on behalf of Spirit-Bank.
. Doc. 124 at 2 ¶ 2, and 4 ¶ 6.
. Civil Rule 52(c) is made applicable to adversary proceedings by Fed. R. Bankr. P. 7052. Rule 52(c) provides:
(c) Judgment on Partial Findings. If a party has been fully heard on an issue during a nonjury trial and the court finds against the party on that issue, the court may enter .judgment against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue. The court may, however, decline to render any judgment until the close of the evidence. A judgment on partial findings must be supported by findings of fact and conclusions of law as required by Rule 52(a).
. 9C Wright & Miller, Federal Practice & Procedure: Civil 3d, § 2573.1 at 256-259 (3d ed. 2008).
. Id. at 259-264.
. Ellis v. United States Dept. of Homeland Security (In re Ellis), 493 B.R. 818, 825 (Bank.D.Colo. 2013). Rule 52(a) is also made applicable to adversary proceedings by Bankruptcy Rule 7052.
. Domenico v. Hooser (In re Domenico), 2010 WL 1509499 at *7 (Bankr.D.N.M. April 14, 2010).
. Exh. 1 at 3-21.
. Exh. 1 at 22-53.
. Exh. WW.
. Exh. WWWW. The supplement made 6 technical corrections to the August 30, 2013 report, and supplemented the list of materials considered by adding 5 depositions. These changes are of tangential importance to Mr. Williams's report and therefore are not discussed in the Court's analysis of the report.
. Exh. 1 at 10-11.
. Exh. 1 at 44-47.
. Exh. 32. The NWPA called for Brooke Credit Corporation to issue a separate note and a separate warrant to each entity that agreed to purchase an interest in the NWPA.
. Exh. 33 at 13-14.
. Exh. 32 at 44-47.
. Exh. 32 at 5 (emphasis supplied).
. Exh. 34.
. Exh. 2.
. Nancy Bainbridge depo. dated June 17, 2014, at 60:6-17.
. E.g., exhs. 1Z, 13, & 15.
. Exh. 24.
. See exh. 40 at 1.
. See exh. 43 at 1.
.See exh. 40 at 1.
. See exh. 44 at 14.
. Tr. vol. II at 5:6-12. All references in this opinion to the trial transcript are to docs. 182 and 183. A later-filed, corrected transcript was not available in time to be cited herein.
. Exh. S.
. Tr. vol. II at 36:11-16.
. Exh. UUU.
. Tr. vol. II at 148:19 to 149:2.
. Tr. vol. II. at 148:3 to 149:11.
. Nancy Bainbridge depo. dated June 17, 2014, at 93:21 to 95:2.
. Exh. 5.
. Bainbridge depo. at 162:4-11; Exh. 20 at 2.
. See exh. 7 at 2; exh. 27; Tr. vol. II at 55:10-20; Doc. 170 at 9; Doc. 171 at 21.
. Exh. 7.
. Bank of New York Mellon v. Aleritas Capital Corp., D. Kan. Case no. 08-cv-2424.
. Exh. 28.
. Tr. vol. I. at 190: 4-10.
. Exh. WW at 47.
. Exh. WW at 31-32.
. Id. at 32.
. Id. at 47.
. Tr. vol. II at 161:11 to 162:5.
. Tr. vol. II at 75:9-13.
.Tr. vol. II at 164:13 to 167:1.
. Tr. vol. II at 175:22 to 176:3.
. Tr. vol. II at 175:22 to 176:21.
. Tr. vol. II at 176:22 to 177:9.
. Tr. vol. II at 48:17 to 49:5.
. Tr. vol. II at 21:7 to 22:3.
. Exh. CCCCC at 13.
. Exh. 32 at 27, § 5.1(a)(xv).
. 5 Collier on Bankruptcy, ¶ 548.01 [l][a] at 548-11 (Alan N. Resnick & Henry J. Sommer, eds.in-chief, 16th ed. 2015).
. Id., ¶ 548.01 at 548-10.
. Id.
. Mat548-11.
. Id., ¶ 548.03[4][a] at 548-50 (citing Silverman v. Paul’s Landmark, Inc. (In re Nirvana Rest, Inc.), 337 B.R. 495, 502 (Bankr.S.D.N.Y. 2006) ("[I]f the Guaranty is avoided as a fraudulent obligation, it cannot serve as 'fair consideration' for the subsequent Transfers.”)).
. Leibowitz v. Parkway Bank & Trust (In re Image Worldwide, Ltd.), 139 F.3d 574, 576-82 (7th Cir. 1998). See also Samson v. Western Capital Partners, LLC (In re Blixseth), 514 B.R. 871, 884-85 (D.Mont. 2014) (where debt- or's guaranty of debts of her son's businesses was set aside as fraudulent conveyance, trustee was entitled to recover all funds lender received by enforcing guaranty).
.Similarly, to prevail on the contention that the Brooke CD was an interest in property fraudulently conveyed to SpiritBank (considered as a transfer of property independent of the allegedly voidable Option Agreement), the Trustee must establish that (1) the Debtor had an interest in the CD that was transferred to SpiritBank (2) less than two years before the Debtor’s bankruptcy petition was filed (3) without the receipt in return of something with a reasonably equivalent value (4) while the Debtor was insolvent.
. Wessinger v. Spivey (In re Galbreath), 286 B.R. 185, 197 (Bankr.S.D.Ga. 2002); see also Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 593 (11th Cir. 1990).
. Parks v. FIA Card Seivices, N.A. (In re Marshall), 550 F.3d 1251 (10th Cir. 2008).
. Id. at 1255.
. Id. at 1256.
. Id. at 1258. Strictly speaking, the bankruptcy estate did not exist at the time of the transfer because the debtors had not yet filed bankruptcy, but the Circuit recognized the question was "whether the loan proceeds 'would have been part of the estate had [they] not been transferred before the commencement of bankruptcy proceedings.’ ” Id. (quoting Begier v. IRS, 496 U.S. 53, 58, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990)).
. Enfield ex rel. Enfield v. A.B. Chance Co., 228 F.3d 1245, 1251 (10th Cir. 2000) (citing Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 479, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992)).
. See Jacobs v. State Bank of Long Island (In re AppOnline.com, Inc.), 296 B.R. 602, 617-18 (Bankr. E.D.N.Y. 2003) (quoting In re Chase & Sanborn Corp., 848 F.2d 1196, 1197-98 (11th Cir. 1988)).
. Nat'l Bank of Andover v. Kansas Bankers Sur. Co., 290 Kan. 247, 270, 225 P.3d 707, 723 (2010).
. Marshall, 550 F.3d at 1257.
. Doc. 168 at 2-6.
. Marshall, 550 F.3d at 1257.
. Exh. VWV at 34.
. Barkley Clark and Barbara Clark, The Law of Bank Deposits, Collections and Credit Cards, ¶ 17.01 (A.S. Pratt & Sons, current through Oct. 2013 update) (available on Thomson Reuters Westlaw).
. LTF Real Estate Co., Inc. v. Expert South Tulsa, LLC (In re Expert South Tulsa, LLC), 522 B.R. 634, 652 (10th Cir. BAP 2014).
. White v. Coyne, Schultz, Becker & Bauer, S.C. (In re Pawlak), 483 B.R. 169, 183 (Bankr. W.D.Wis. 2012).
. Cooper v. Ashley Commc’ns., Inc. (In re Morris Commc’ns. NC, Inc.), 914 F.2d 458,
. In rePawlak, 483 B.R. at 185.
. Allard v. Flamingo Hilton (In re Chomakos), 69 F.3d 769, 770-71 (6th Cir. 1995).
. In re Pawlak, 483 B.R. at 186.
. In re Chase & Sanborn, 904 F.2d at 594 (quoting In re Xonics Photochemical, Inc., 841 F.2d 198, 200 (7th Cir. 1988)).
. Tourtellot v. Huntington Nat’l Bank (In re Renegade Holdings, Inc.), 457 B.R. 441, 444 (Bankr.M.D.N.C. 2011).
. Osherow v. Nelson Hensley & Consol. Fund Mgmt., L.L.C. (In re Pace), 456 B.R. 253, 271 (Bankr.W.D.Tex. 2011) (quoting In re Whaley, 229 B.R. 767, 775 (Bankr.D.Minn. 1999)).
. In re Renegade Holdings, 457 B.R. at 444.
. First Nat’l Bank v. Minnesota Utility Contracting, Inc. (In re Minnesota Utility Contracting, Inc.), 110 B.R. 414, 417-19 (D.Minn. 1990).
. Doc. 170 at 22.
. In a post-trial pleading, SpiritBank argues that the refinancing of the Falcon-Jordan Notes released Brooke Corp from liability under a cross-default provision of the NWPA. Doc. 173 at 7. There was no evidence of such a provision, and the Court has not found such a provision in its review of the NWPA.
. Exh. 32 at 9 (emphasis supplied).
. Id.
. Exh. 33 at 13 (emphasis supplied).
. South Rd. Assocs., LLC, v. Int’l Bus. Machs. Corp., 826 N.E.2d 806, 809, 4 N.Y.3d 272, 277, 793 N.Y.S.2d 835, 838 (2005) (quoting Vermont Teddy Bear Co. v. 538 Madison Realty Co., 807 N.E.2d 876, 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765 (2004)).
. Id. (quoting Vermont Teddy Bear, 807 N.E.2d at 879, 1 N.Y.3d at 475, 775 N.Y.S.2d 765).
. Exh. WWatll.
. Id. at 47.
. Id. at 25.
. Tr. vol. II at 161:10 to 162:5 and 167:10-13.
. Cooper v. Centar Invests. (Asia) Ltd. (In re TriGem Amer. Corp.), 431 B.R. 855, 868 (Bankr.C.D.Cal. 2010).
. Doc. 170 at 22.
. Doc. 168 at 9 (citing Renegade Holdings, 457 B.R. 441). Renegade stated, " ‘Generally, transfers to a solvent subsidiary are considered to be for reasonably equivalent value, because, since the parent is the sole shareholder of the subsidiary corporation, any benefit received by the subsidiary is also a benefit to the parent.’ " 457 B.R. at 444—45 (quoting Branch v. Fed. Deposit Ins. Corp., 825 F.Supp. 384, 399-400 (D.Mass. 1993).
.Doc. 171 at 35-36 (citing Renegade, 457 B.R. at 445; In re Worldcom, Inc., 2003 WL 23861928 at *41 (Bankr.S.D.N.Y. Oct. 31, 2003)).
. Trego WaKeeney State Bank v. Maier, 214 Kan. 169, 173, 519 P.2d 743, 747 (1974).
. Exh. F-l at 2. In the Option Agreement, Brooke Corp is referred to as "Brooke.”
. Exh.VVW at 31.
. Exh. 13 at 5 & exh. 14 at 4.
. Doc. 173 at 10.
. 457 B.R. 441.
. Id. at 444.
. Id.
. Id. at 445.
. Id.
. E.g., In re Pace, 456 B.R. 253, 272 ("Transfers to a debtor’s wholly-owned but insolvent company do not furnish 'reasonably equivalent value.” ’); In re Worldcom, Inc., 2003 WL 23861928 at *41 ("Courts have found a parent’s transfer of assets to a subsidiary to be for less than reasonably equivalent value when the subsidiary was insolvent at the time of transfer.”). See also Leibowitz v. Parkway Bank & Trust Co. (In re Image Worldwide, Ltd.), 139 F.3d 574, 579-81 (7th Cir. 1998) (transferee failed to show debtor received reasonably equivalent value for guarantee of loan owed by liquidated affiliate).
.Doc. 173 at 12 (citing In re Evans Potato Co., 44 B.R. 191, 193-94 (Bankr.S.D.Ohio 1984); In re Rodriguez, 895 F.2d 725, 728 n. 5 (11th Cir. 1990); and In re Chicago, Missouri & W. Ry. Co., 124 B.R. 769, 773 (Bankr. N.D.Ill. 1991)).
. Jack F. Williams, Revisiting the Proper Limits of Fraudulent Transfer Law, 8 Bankr. Dev. J. 55, 87 n. 191 (1991) (emphasis supplied).
. Jack F. Williams, The Fallacies of Contemporary Fraudulent Transfer Models as Applied to Intercorporate Guaranties: Fraudulent Transfer Laws as a Fuzzy System, 15 Cardozo L. Rev. 1403, 1426 n. 95 (March 1994) (emphasis supplied).
. Renegade Holdings, 457 B.R. at 447.
. Doc. 171 at 40-41.
. Depo. of Christopher J. Redmond dated Sept. 24, 2014 at 32:13-19.
. Doc. 171 at 48.
. Cuevas v. Hudson United Bank (In re M. Silverman Laces, Inc.), 2002 WL 31412465 at *6 (S.D.N.Y. Oct. 24, 2002).
.Pembroke Dev. Corp. v. Commonwealth Savs. & Loan Ass'n (In re Pembroke Dev. Corp.), 124 B.R. 398, 400-01 (Bankr.S.D.Fla. 1991).
. See 5 Cottier on Bankruptcy, ¶ 548.01[2][a] at 548-15 ("For the most part, the UFTA tracks section 548.”).
. Clark v. Sec. Pac. Bus. Credit, Inc. (In re Wes Dor, Inc.), 996 F.2d 237, 242-43 (10th Cir. 1993).
. Jobin v. McKay (In re M & L Business Mach. Co., Inc.), 84 F.3d 1330, 1338 (10th Cir. 1996).
. Stalnaker v. Gratton (In re Rosen Auto Leasing, Inc.), 346 B.R. 798, 806 (8th Cir. BAP 2006) (citing Helms v. Roti (In re Roti), 271 B.R. 281, 299 (Bankr.N.D.Ill. 2002)). Roti also said,“[C]ourts have denied use of the § 548(c) shelter to defendants who were not able to establish 'reasonably equivalent value' for purposes of § 548(a)(1)(B).” 271 B.R. at 299.
. Doc. 171 at 23-24 and 49-51.
. Doc. 170 at 33-34.
. See 2 Barkley Clark and Barbara Clark, The Law of Secured Transactions Under the Uniform Commercial Code, ¶ 7.09 (3d ed., 2015).
. 5 Collier on Bankruptcy, ¶ 547.03{7] at 547-39 to -40. '
. 11 U.S.C. § 550(a)(1).
. 11 U.S.C. § 550(b).
. 5 Collier on Bankruptcy, ¶ 550.02[4][a] at 50-20.
. Hopkins v. D.L. Evans Bank (In re Fox Bean Co., Inc.), 287 B.R. 270, 283 (Bankr.D.Idaho 2002).
. Northern Capital, Inc., v. Stockton Nat’l Bank (In re Brooke Corp.), 458 B.R. 579, 584-85 (Bankr.D.Kan. 2011).
. Doc. 170 at 17.
. Id. at 18-19.
. Turner v. Davis, Gillenwater & Lynch (In re Inv. Bankers, Inc.), 4 F.3d 1556 (10th Cir. 1993).
. Id. at 1566.
. Id.
. Diamond v. Bakay (In re Bakay), 454 Fed. Appx. 652, 654 (10th Cir. 2011) (quoting U.S. Indus., Inc., v. Touche Ross & Co., 854 F.2d 1223, 1256 (10th Cir. 1988)).
. FDIC v. Rocket Oil Co., 865 F.2d 1158, 1160 (10th Cir. 1989).
. Inv. Bankers, 4 F.3d at 1566.
. Doc. 124 at 6.
.Id. at 8.
. • See 10 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Fed. Prac. and Pro.: Civil 4th, § 2654 at 32-33 (2014 Thomson Reuters).
. See id., § 2657 at 70.
. Id., § 2659 at 104.
.See id., at 110 (“It is uneconomical for an appellate court to review facts on an appeal following a Rule 54(b) certification that it is likely to be required to consider again when another appeal is brought after the [trial] court renders its decision on the remaining claims.”).
Reference
- Full Case Name
- IN RE: BROOKE CORPORATION, Debtors. Christopher J. Redmond, Chapter 7 Trustee of Brooke Corporation, Brooke Capital Corporation, and Brooke Investments, Inc. v. SpiritBank
- Cited By
- 8 cases
- Status
- Published