GT DAVE v. Baessler, Adv. No. 11-01188 (July 19, 2018)
In this case, a California state court found the defendant, acting with the
intent to deceive, made false representations that the plaintiff reasonably
relied on to his detriment. Based on that finding, the state court entered
judgment on several legal theories, including one theory that did not
require proof of an intent to deceive. The plaintiff sought a summary
judgment that the state court judgment was nondischargeable based the
doctrine of collateral estoppel. The bankruptcy court granted the motion
because the finding of intent to deceive was necessary to the judgment, was
affirmed on appeal, and because applying collateral estoppel was consistent
with the policy goals of the doctrine. It also found that the attorney’s
fees and punitive damages awards were also nondischargeable because they
were debts that arose from money obtained through fraud.
WL Cite: 589 B.R. 582 (Bankr. W.D. Tex. 2018)
Prado v. Erickson, Adv. No. 16-01062 (Sept. 29, 2017)
In this adversary proceeding, the Defendants asked for a summary judgment
against the Plaintiff regarding her assertion that the Defendants committed
actual fraud through a fraudulent transfer scheme. The Defendants argued
that the Supreme Court’s recent Husky v. Ritz opinion prevents Plaintiff’s
recovery on this theory because the alleged transfers have no connection to
the debt owed to the Plaintiff. The Court agreed and granted summary
judgment in favor of the Defendants on this ground.
WL Cite: 584 B.R. 816 (Bankr. W.D. Tex. 2017)
Prior to filing bankruptcy, the Debtor retained a restructuring consultant
who provided services to the Debtor up to and on the date the bankruptcy
petition was filed. The various engagement agreements between the parties
required the Debtor to pay the consultant within certain time periods by
wire transfer. The liquidating trustee filed an adversary proceeding
against the consultant to avoid the payments as preferential transfers. In
the context of a summary judgment motion, the consultant asserted the
affirmative defense that the payments were made in the ordinary course of
business. To establish the defense, the consultant had to show (1) that
each transfer was in payment of a debt incurred in the ordinary course of
business or financial affairs of the debtor and consultant, and (2) that
each payment was either made in the ordinary course of business or
financial affairs of the debtor and consultant or was made according to
ordinary business terms. The liquidating trustee first argued that debts
for restructuring services were not debts “ordinarily” incurred by a
furniture business and thus could never be incurred or paid in the ordinary
course of the Debtor’s business. The Court disagreed and held that if the
debt was incurred and paid in the ordinary course of business between the
Debtor and restructuring consultant, the payments could be sheltered by the
ordinary course of business defense. The Court then looked at the specific
transfers and found that most of them were made in the ordinary course. At
trial, the Court considered the remaining payments, including a payment of
$50,000 on the day the bankruptcy petition was filed, and held that all but
one of the payments were recoverable preferences because they were, unlike
prior payments, paid in part by check and shortly after they were invoiced.
The Court also noted that the $50,000 payment was a significantly higher
amount than prior payments. Additionally, the Court pointed out that the
engagement agreements could have provided for an eve-of-bankruptcy pay
arrangement that would bring these payments within the ordinary course of
the parties’ dealings, and perhaps shelter the payments from being
preferences, but the various engagement agreements in this case did not.
The Court held that the remaining payment, for services the consultant
provided on the day the bankruptcy was filed, was not recoverable because
it fell within the “new value” exception in 11 U.S.C. § 547(b)(4).
WL Cite: Ciesla, Trustee of the KLN Liquidating Trust v. Harney Management
Partners (In re KLN Steel Products Co., L.L.C.), 506 B.R. 461 (Bankr. W.D.
Tex. 2014)
Satija v. United States (In re Colliau) (June 14, 2017)
The Colliaus paid estimated taxes, $28,000, to the IRS a day before filing
for relief under Chapter 7 of the Bankruptcy Code. The Chapter 7 Trustee
sought to avoid the payment as a fraudulent transfer. Both the Trustee and
the Colliaus moved for summary judgment. The trustee first argued that the
Colliaus’ intended to hinder, delay, or defraud their creditors by paying a
post-petition obligation the day before filing bankruptcy. In response, the
Colliaus stated that they did not intend to hinder, delay, or defraud their
creditors but, rather, that they made the payment at that time because they
could better estimate their tax liability for the year. The Court denied
summary judgment to both parties on this issue because on the question of
the Colliaus’ intent there was a genuine dispute of material fact.
The Trustee also argued that the Colliaus received less than a reasonably
equivalent value when they paid their estimated taxes because they were not
yet due. The Court agreed that if the payment was for taxes not yet due, it
might not meet the statutory definition of value and could be avoided as a
fraudulent transfer. However, because neither party adequately addressed
the issue of the amount of estimated taxes that was actually due when the
transfer was made, the Court denied both summary judgment motions on this
ground as well.
WL: Cite: 584 B.R. 812 (Bankr. W.D. Tex. 2017)
Johnson v. Chase (In re Johnson) (March 27, 2019), Adv No. 18-01003
Mrs. Johnson claimed that Chase breached a home equity loan agreement because the loan was for more than 80% of the value of the home in violation of the Texas Constitution. She argued that Chase should forfeit all principal and interest paid and pay her attorney’s fees because of the violation. She also brought a quiet title action seeking to void Chase’s lien under section 50(c) of the Texas Constitution.
Chase sought summary judgment dismissing the claims. The Court granted the motion on the breach of contract and attorney’s fee claims because they were barred by the 4-year statute of limitations. The Court denied the motion on the quiet title claim because there was some objective evidence that the property’s value was incorrect, which raised a genuine issue of material fact on whether the loan to value ratio was violated. The Court also determined that Chase could not rely on the safe harbor provision in the Texas Constitution because the value acknowledged by Mrs. Johnson was not the value in Chase’s valuation.
WL Cite: Johnson v. Chase (In re Johnson), Adv No. 18-01003, 2019 WL 1423090 (Bankr. W.D. Tex. 2019)