FILED

U.S. COURT OF APPEALS

ELEVENTH CIRCUIT

MAY 15, 2012

JOHN LEY

CLERK

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

 FOR THE ELEVENTH CIRCUIT

 ________________________

 No. 11-11071 

 ________________________

 D.C. Docket Nos. 0:10-cv-62035-ASG; 0:08-bkc-10928-JKO

In Re: TOUSA, INC., et al.,

Debtors.

__________________________________________________________________

SENIOR TRANSEASTERN LENDERS, 

llllllllllllllllllllllllllllllllllllllllDefendant- Appellee,

CITCORP NORTH AMERICA, INC.,

CERTAIN FIRST LIEN TERM LENDERS,

lllllllllllllllllllllllllllllllllllllllllIntervenors - Appellees,

versus

OFFICIAL COMMITTEE OF UNSECURED CREDITORS, 

llllllllllllllllllllllllllllllllllllllllPlaintiff - Appellant.
________________________

 Appeal from the United States District Court

 for the Southern District of Florida

 ________________________

(May 15, 2012)

Before TJOFLAT, PRYOR and FAY, Circuit Judges.

PRYOR, Circuit Judge:

This bankruptcy appeal involves a transfer of liens by subsidiaries of

TOUSA, Inc., to secure the payment of a debt owed only by their parent, TOUSA. 

On July 31, 2007, TOUSA paid a settlement of $421 million to the Senior

Transeastern Lenders with loan proceeds from the New Lenders secured primarily

by the assets of several subsidiaries of TOUSA. Six months later, TOUSA and the

Conveying Subsidiaries filed for bankruptcy. In an adversary proceeding filed by

the Committee of Unsecured Creditors of TOUSA, the bankruptcy court avoided

the liens as a fraudulent transfer because the Conveying Subsidiaries did not

receive reasonably equivalent value; ordered the Transeastern Lenders to disgorge

$403 million of the loan proceeds because the transfer of the liens was for the

benefit of the Transeastern Lenders; and awarded damages to the Conveying

Subsidiaries. The Transeastern Lenders and the New Lenders, as intervenors,

appealed. The district court quashed the judgment as to the Transeastern Lenders

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and stayed the appeal of the New Lenders. This appeal by the Committee of

Unsecured Creditors presents two issues: (1) whether the bankruptcy court clearly

erred when it found that the Conveying Subsidiaries did not receive reasonably

equivalent value in exchange for the liens to secure loans used to pay a debt owed

only by TOUSA, 11 U.S.C. §548; and (2) whether the Transeastern Lenders were

entities “for whose benefit” the Conveying Subsidiaries transferred the liens, 11

U.S.C. § 550(a)(1). We hold that the bankruptcy court did not clearly err when it

found that the Conveying Subsidiaries did not receive reasonably equivalent value

for the liens and that the bankruptcy court correctly ruled that the Transeastern

Lenders were entities “for whose benefit” the liens were transferred. We reverse

the judgment of the district court, affirm the liability findings of the bankruptcy

court, and remand for further proceedings consistent with this opinion.

I. BACKGROUND

We divide our summary of the events that led to this appeal into three parts. 

We first recount the uncontested facts that underlie this appeal. We then review

the findings of fact and conclusions of law of the bankruptcy court. Finally, we

review the decision of the district court. 

A. Factual Background

As of 2006, TOUSA, Inc., was the thirteenth largest homebuilding

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enterprise in the country, with operations in Florida, Texas, the mid-Atlantic

states, and the western United States. The company had grown rapidly, chiefly by

acquiring independent homebuilders that became subsidiaries of TOUSA. These

subsidiaries owned most of the assets of the enterprise and generated virtually all

of its revenue.

To finance its growth, TOUSA borrowed a lot. TOUSA issued more than

$1 billion of public bonds. That debt was unsecured, but was guaranteed by the

Conveying Subsidiaries. TOUSA also borrowed funds under a revolving line of

credit agreement administered by Citicorp North America, Inc. The Conveying

Subsidiaries and TOUSA were jointly and severally liable for repayment of the

revolving loan, which was secured by liens on the assets of the companies. Both

the bond debt and revolving loan agreements provided that an adverse judgment

for more than $10 million against TOUSA or any of its subsidiaries or a

bankruptcy filing by TOUSA or any of its subsidiaries would constitute an event

of default, which would permit the bondholders and Citicorp to declare all

outstanding amounts of debt due immediately. As of July 31, 2007, TOUSA had

approximately $1.061 billion of principal outstanding on its bond debt and $224

million outstanding on its revolving loan. 

In June 2005, TOUSA entered a joint venture with Falcone/Ritchie LLC to

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acquire homebuilding assets owned by Transeastern Properties, Inc., in Florida. 

TOUSA incurred more debt, this time from the Transeastern Lenders, to fund the

Transeastern Joint Venture, but none of the Conveying Subsidiaries became an

obligor or guarantor of the Transeastern debt.

The downturn in the housing market soon threatened the Transeastern Joint

Venture. By October 4, 2006, the joint venture had defaulted on several

obligations. At the end of that month, the Transeastern Lenders alleged defaults

and demanded payment from TOUSA. In December 2006, the Transeastern

Lenders sued TOUSA, and in January 2007, the Transeastern Lenders alleged that

TOUSA was responsible for damages of over $2 billion.

On July 31, 2007, TOUSA executed settlements with its partner in the joint

venture and the Transeastern Lenders. The settlements required TOUSA to pay

more than $421 million to the Transeastern Lenders. To finance the settlements,

TOUSA and some of its subsidiaries incurred new debt. Citicorp North America,

Inc. agreed to syndicate two new term loans to TOUSA and the Conveying

Subsidiaries: a $200 million loan from the First Lien Lenders, to be secured by

first-priority liens on the assets of the Conveying Subsidiaries and TOUSA; and a

$300 million loan from the Second Lien Lenders, to be secured by second-priority

liens. Both loan agreements with these New Lenders required that the funds be

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used to pay the $421 million settlement with the Transeastern Lenders. TOUSA

also amended its revolving credit agreement with Citicorp.

The transaction was executed in several parts. First, Citicorp transferred

$476,418,784.40 to Universal Land Title, Inc., a wholly-owned subsidiary of

TOUSA that was not one of the Conveying Subsidiaries. Universal Land Title

then sent a wire transfer of $426,383,828.08 to CIT, the administrative agent for

the Transeastern Lenders. CIT disbursed the proceeds of that transfer on July 31

and August 1, 2007. The Transeastern Lenders received $421,015,089.15 and the

remaining funds were dispersed to third parties to cover professional, advisory,

and other fees.

B. Bankruptcy Court Proceedings

Six months later, TOUSA and the Conveying Subsidiaries filed petitions for

bankruptcy under Chapter 11. The Committee of Unsecured Creditors of TOUSA,

on behalf of the estate of TOUSA, later filed an adversary proceeding against the

New Lenders and the Transeastern Lenders to avoid as a fraudulent transfer, see

11 U.S.C. § 548(a)(1)(B), the transfer of the liens to the New Lenders and to

recover the value of the liens from the Transeastern Lenders, see 11 U.S.C. §

550(a)(1). The Committee alleged that the transfer of the liens by the

Conveying Subsidiaries to the New Lenders was a fraudulent transfer under

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section 548(a)(1)(B) because the Conveying Subsidiaries were insolvent when the

transfer occurred, were made insolvent by the transfer, had unreasonably small

capital, or were unable to pay their debts when due; and the Conveying

Subsidiaries did not receive reasonably equivalent value in exchange for their

transfer. See 11 U.S.C. § 548(a)(1)(B). The Committee demanded that the

bankruptcy court avoid the liens and order the Transeastern Lenders, as the entities

“for whose benefit” the transfer was made, 11 U.S.C. § 550(a)(1), to disgorge the

proceeds of the loans.

The Transeastern Lenders and New Lenders responded that the transfer of

the liens was not fraudulent because the Conveying Subsidiaries had received

reasonably equivalent value in exchange for their liens. The Transeastern Lenders

and New Lenders highlighted numerous purported benefits of the transaction, but

the crucial source of alleged value for the Conveying Subsidiaries was the

economic benefit of avoiding default and bankruptcy. The Transeastern Lenders

and New Lenders contended that the Transeastern Lenders were likely to secure a

judgment against TOUSA, which would have constituted an event of default on

more than $1 billion of debt that the Conveying Subsidiaries had guaranteed. The

default would have likely forced TOUSA and the Conveying Subsidiaries into

bankruptcy. The transaction staved off this event and gave TOUSA and the

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Conveying Subsidiaries an opportunity to continue as an enterprise and possibly

become profitable again. The Transeastern Lenders and New Lenders contended

that this opportunity was reasonably equivalent in value to the obligations the

Conveying Subsidiaries incurred. The Transeastern Lenders and New Lenders

also argued that the Conveying Subsidiaries received numerous other benefits,

including a higher debt ceiling on the revolving loan, new tax benefits, the

elimination of adverse business effects from the Transeastern litigation, and the

opportunity to retain access to various centralized services provided by TOUSA

such as cash management, purchasing, and payroll administration. The

Transeastern Lenders argued alternatively that, if the transfer of liens was

fraudulent, they could not be liable as entities for whose benefit the transfer was

made because they were subsequent transferees of the loan proceeds from

TOUSA, not entities that benefitted immediately from the transfer. See 11 U.S.C.

§ 550(a)(1). 

After a 13-day trial, during which the bankruptcy court heard extensive fact

and expert testimony and admitted over 1800 exhibits, the bankruptcy court issued

its findings of fact and conclusions of law. See Official Comm. of Unsecured

Creditors of Tousa, Inc., v. Citicorp N. A., Inc., (In re TOUSA, Inc.), 422 B.R. 783

(Bankr. S.D. Fla. 2009). The bankruptcy court found that the Conveying

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Subsidiaries were unable to pay their debts when due, had unreasonably small

capital, and were insolvent before and after the transaction; that the Conveying

Subsidiaries did not receive value reasonably equivalent to the $403 million of

obligations they incurred; and that the Transeastern Lenders were entities for

whose benefit the Conveying Subsidiaries granted liens to the New Lenders.

The bankruptcy court credited expert opinion testimony that the Conveying

Subsidiaries were insolvent both before and after the transaction of July 31, 2007. 

Experts in real estate value, public accounting, and insolvency examined the

financial records of TOUSA and the Conveying Subsidiaries and concluded that

the liabilities of each of the Conveying Subsidiaries exceeded the fair value of

their assets before the transaction. The bankruptcy court found that the Conveying

Subsidiaries became even more deeply insolvent after incurring additional debt

through the transaction. The bankruptcy court also credited expert opinion

testimony that, after the transaction, the Conveying Subsidiaries had unreasonably

small capital and were unable to pay their debts as they came due.

The bankruptcy court then assessed whether the Conveying Subsidiaries

received reasonably equivalent value from the transaction. The bankruptcy court

first noted that “value” is defined in section 548 as being “property” or

“satisfaction or securing of a present or antecedent debt of the debtor.” 11 U.S.C.

9
§ 548(a)(1)(B)(i), (d)(2)(A). The bankruptcy court determined that “the

Conveying Subsidiaries could not receive ‘property’ unless they obtained some

kind of enforceable entitlement to some tangible or intangible article.” In re

TOUSA, 422 B.R. at 868 n.55. Under this definition of “value,” the bankruptcy

court found that, because the Conveying Subsidiaries did not receive any property,

they did not receive reasonably equivalent value. 

The bankruptcy court also issued alternative findings in which it assessed

the value the Conveying Subsidiaries received under the broadest definition of

“value” proposed by the Transeastern Lenders and New Lenders. The bankruptcy

court found that, even if all the benefits highlighted by the Transeastern Lenders

and New Lenders were legally cognizable, their value “considered . . . as a whole,

. . . f[e]ll[] well short of ‘reasonably equivalent’ value.” Id. at 869. The

bankruptcy court determined the value the Conveying Subsidiaries lost in the

transaction and compared that value with the value of the benefits they received. 

The bankruptcy court determined that the tax benefits, property, and services that

the Transeastern Lenders and New Lenders proffered did not provide reasonably

equivalent value to the Conveying Subsidiaries. The bankruptcy court also found

that the transaction could not have provided substantial value predicated on the

opportunity to avoid bankruptcy because the filing of bankruptcy became

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“inevitable.” Id. at 846. The bankruptcy court credited the expert opinion

testimony of an accountant who had calculated that the Conveying Subsidiaries

had incurred $403 million of obligations when they granted liens to help secure

$500 million of loans from the New Lenders.

The bankruptcy court found that the alleged benefits of the transaction were

insubstantial. The Transeastern Lenders and New Lenders alleged that one of the

Conveying Subsidiaries received control of property from the Transeastern

venture, but the bankruptcy court found that the property was worth only $28

million and was burdened with $32 million in liabilities in accounts payable and

customer deposits. The bankruptcy court refused to credit the property as value. 

The bankruptcy court also rejected the argument of the Transeastern Lenders and

New Lenders that the Conveying Subsidiaries received valuable tax benefits from

the transaction. The Transeastern Lenders and New Lenders argued that losses on

the Transeastern venture could reduce past and future tax liability, but the

bankruptcy court found that the Conveying Subsidiaries received no benefits

because the benefits would accrue to TOUSA, not the Conveying Subsidiaries,

and all of the substantial loss-generating events that ostensibly arose from the

transaction would have accrued without the transaction. The Transeastern Lenders

and New Lenders argued that the Transeastern litigation had negative effects on

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the day-to-day business operations of the Conveying Subsidiaries and that the July

31 transaction conferred an indirect benefit on the Conveying Subsidiaries by

eliminating those effects, but the bankruptcy court found that those arguments

were unsupported by the evidence. The bankruptcy court also found that the

purported benefits of continued access to TOUSA corporate services, such as

purchasing and payroll administration, were not received by the Conveying

Subsidiaries in exchange for their liens because the Conveying Subsidiaries

enjoyed all of these benefits before the transaction and continued to enjoy the

corporate services even after TOUSA filed for bankruptcy. The bankruptcy court

rejected the arguments of the Transeastern Lenders and New Lenders that the

Conveying Subsidiaries obtained value because the transaction allowed the

Conveying Subsidiaries access to an enhanced revolving credit facility. The

Transeastern Lenders and New Lenders asserted that, when TOUSA acquired

assets from the Transeastern Joint Venture, the borrowing limit on the revolving

loan increased, but the bankruptcy court found that there was no evidence that the

Conveying Subsidiaries had any need for a higher borrowing limit on the

revolving loan.

The bankruptcy court found that an earlier bankruptcy for TOUSA would

not have seriously harmed the Conveying Subsidiaries. Two experts testified that

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a TOUSA bankruptcy would not necessarily have caused the Conveying

Subsidiaries to declare bankruptcy because they held 95 percent of the assets of

the TOUSA enterprise, which they could have used to obtain new financing. The

bankruptcy court credited this testimony and found that Conveying Subsidiaries

would not have been forced into bankruptcy by a TOUSA bankruptcy. The

bankruptcy court also found that the Conveying Subsidiaries could have operated

as independent entities without the services provided by TOUSA.

The bankruptcy court found that “even assuming that all of the TOUSA

entities would have spiraled immediately into bankruptcy without the July 31

Transaction, the Transaction was still the more harmful option.” Id. at 847. The

bankruptcy court found that bankruptcy for the Conveying Subsidiaries was

“inevitable” if TOUSA executed the transaction, id. at 846, so the transaction

could not have conferred value by giving the Conveying Subsidiaries an

opportunity to avoid bankruptcy. The bankruptcy court found that the

management and controlling shareholders at TOUSA decided to risk hundreds of

millions of dollars of their creditors’ money despite the impending disaster the

company faced.

These findings by the bankruptcy court were supported by public data and

internal analyses and communications from TOUSA insiders that showed that the

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transaction would almost certainly fail to keep TOUSA and the Conveying

Subsidiaries out of bankruptcy. By the end of 2006, it was clear that TOUSA was

liable to the Transeastern Lenders for defaults on the joint venture, but the extent

of that liability and whether TOUSA could pay back its creditors and, if so, how

quickly, were still in doubt. Internal documents revealed that TOUSA insiders

realized that the liability of the company to the Transeastern Lenders could force

TOUSA into bankruptcy. Lehman Brothers prepared a bankruptcy waterfall

analysis for TOUSA in February 2007. David Kaplan, a senior financial advisor

to the CEO of TOUSA, suggested in early 2007 that the company needed a Chief

Restructuring Officer. On April 15, 2007, Larry Young, an advisor to TOUSA

from AlixPartners LLP, wrote to Stephen Wagman, the CFO of TOUSA, “[W]hy

rush to restructure in a down market with a bad set of terms just to file in 3

months. If we need to file due to the lenders/shareholder issues, then lets [sic] do

it now and save ourselves about $50 million in transaction cost!” Wagman agreed

with the assessment. On May 1, 2007, Kaplan sent Tony Mon, the CEO of

TOUSA, a financial analysis of TOUSA that acknowledged the declining housing

markets and stated, “[A]lthough we can agree to pay Creditors in full and with

interest if payments are postponed, we cannot afford to pay them cash up front.” 

Mon and Wagman both argued that TOUSA should pay part of the

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settlement with an infusion of equity to avoid taking on more debt. Both were

concerned that increased debt from the settlement could severely constrain the

company. Notes on a Mon’s draft presentation to the Board warned, “[W]e must

build in the capacity in this model so that when the market does turn, we have

access to capital to build/sell product. If we can’t do this, we are toast.” In April

of 2007, Mon sent information to a financial advisor of the controlling

shareholders stating that the settlement would leave TOUSA with excessive debt;

that post-settlement TOUSA would have limited access to the capital it would

need to grow its business; and that the ability of TOUSA to escape from under its

debt could be inhibited by significant risks including further deterioration in the

housing market, falling land and home values, and further weakening in credit

markets. Wagman likewise urged the controlling shareholders to consider a

settlement that would include little or no new debt for TOUSA.

Despite the obvious risks posed by taking on more debt during a housing

market decline, the controlling shareholders of TOUSA, the Stengos family,

opposed any settlement deal that diluted their equity position. They directed Mon

to terminate discussions with potential investors until new financing and the

Transeastern settlement closed. Due to constraints imposed by the Stengos family,

TOUSA decided to fund the settlement solely with new debt. The deal would

15
make TOUSA the most highly-leveraged company in the industry.

In the months preceding the July 31 closing of the transaction, public and

private assessments made clear that the financial position of TOUSA was moving,

as one securities analyst wrote, “from bad to worse.” Investors recognized the dire

straits that TOUSA faced, as evidenced by the drop in TOUSA stock prices from a

high of $23 per share in 2006 to just $4 per share by April 2007. TOUSA bonds

traded at discounts of 30 to 40 percent of face value in May 2007. After TOUSA

presented the proposed July 31 transaction to ratings agencies, its corporate credit

rating dropped.

In the same period, the national housing market was fast approaching

collapse. On May 29, 2007, Mon and other TOUSA executives received a report

that Standard and Poor’s had downgraded the bond ratings on several major

homebuilders from stable to negative. On June 6, 2007, TOUSA executives

received a report that the National Association of Realtors was predicting that

prices of new homes would fall 2.3 percent, and prices of existing homes would

fall 1.3 percent. Mon forwarded the report to the Board and noted, “FYI, this

represents [ ] the first time in 40 years that the US median home prices have

declined.”

TOUSA management recognized the implications of this financial news for

16
the proposed settlement. In an email to himself on May 25, 2007, Wagman noted

that the outlook of the rating agencies for the homebuilding industry was “grim

and getting grimmer,” with downward pressure on prices and margins. He

expressed his concerns about the precarious financial position of TOUSA and the

proposed settlement in especially colorful language that would prove prophetic:

“As CFO, and in light of all of this market uncertainty, I have absolutely no desire

to fly this plane too close to the ground, achieve some from [sic] of consensual

settlement today and crash within the upcoming year. That would be a

clusterfuck.” In an email to the Board on June 14, 2007, Mon stated that the

company had not anticipated the degree to which problems in the subprime

mortgage segments were spreading to less risky mortgage segments. Mortgage

lenders began to implement more restrictive underwriting practices for residential

mortgage loan applications, demand higher interest rates, and revoke commitments

to homebuyers. These developments, Mon observed, “could have a cascading

effect down the line.” Mon told the Board, “this housing correction is far from

over.” At the Board meeting on June 20, 2007, at which the Board approved the

July 31 transaction, Mon informed the Board that the U.S. housing market was at

its lowest point since 1991.

On June 22, 2007, Mon sent the Stengos family’s financial advisor a memo

17
entitled “Strategic Alternatives,” which began by acknowledging that “[t]he TE

settlement leaves TOUSA in a very difficult position.” Post-transaction TOUSA

would be “[o]ver-leveraged,” “[w]ithout access to the capital markets,” “[i]n the

middle of a serious housing correction,” “[f]orced to reduce assets at the ‘wrong

time,’” “[i]n need of a significant equity infusion,” and “[u]nable to survive should

housing conditions degrade further or the housing correction lengthen

appreciably.” Mon’s memorandum predicted that a “Stay the Course”

strategy—even when coupled with the company’s de-leveraging plan—would

leave TOUSA unable to service its $1 billion of bond debt, at a “competitive

disadvantage,” with “[c]apital [c]onstraints” that would allow “[b]arely enough

‘oxygen’ to survive,” “[l]ittle room for error; increased risk of crashing and

burning,” “[l]imited ability to re-invest in the business,” and “[a]lways on the

brink of default.” The “[e]nd [r]esult” of the strategy, Mon acknowledged, would

be “[i]ncreased risk of failure and inability to withstand worsening business

conditions.”

The bankruptcy court found that Mon reached these dire conclusions before

the June 20 Board meeting at which the transaction was approved. Mon

exchanged a substantially identical version of the memo with Tommy McAden,

then an executive vice president of TOUSA and President of the Transeastern

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Joint Venture, as early as June 17, 2007. The bankruptcy court found that “[a]

more complete and prescient prediction (that the effect of the Transeastern

transaction would be to leave TOUSA with unreasonably small capital) would be

hard to imagine.” In re TOUSA, 422 B.R. at 795.

In the six weeks between Mon’s assessment that the transaction would leave

TOUSA “[u]nable to survive should housing conditions degrade further” and the

closing of the July 31 transaction, housing conditions unquestionably degraded

further. On June 27, 2007, Mon advised the Board that Lennar, a national home

builder based in Miami, reported a “very ugly quarter” with “more ugliness to

come” as “housing markets . . . continued to deteriorate.” Mon testified that

“throughout the summer we continued to see a downward slope in the housing

market.” On July 9, 2007, Mon sent the Board copies of articles from Barron’s

and The Wall Street Journal that Mon described as providing “un-relenting

negative news on housing.” Barron’s foresaw that home sales volume would

decline another 20 to 25 percent. The Wall Street Journal reported that declining

home prices would increase impairments for homebuilders and decrease their book

values “for the foreseeable future.” By late July 2007, McAden described the

Florida homebuilding market as having gone from the “hottest market” to being

“at the bottom,” with the worst yet to come for Southwest Florida.

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Financial reports from TOUSA revealed the effects the housing downturn

was having on the company. TOUSA sales in the first quarter of 2007 plunged

more than 16 percent from the comparable quarter the previous year, the number

of homes in development fell more than 20 percent, and its profit margin declined. 

The crash continued in the second quarter. On July 12, 2007, TOUSA notified

investors that its deliveries and sales dropped 15 percent, homes under

construction fell 29 percent year over year, the cancellation rate on sale contracts

rose to 33 percent, and profit margins continued to fall. Internal financial

reporting showed similar declines from the prior year.

Numerous analysts, ratings agencies, and market participants recognized

that TOUSA was deeply troubled. On May 16, Debtwire reported that TOUSA

bondholders had warned that the company would be entering the “zone of

insolvency” if it took on new debt to settle with the Transeastern Lenders, and that

some creditors of TOUSA “believe[d] that the proposed settlement could force the

company into an eventual bankruptcy.” In July 2007, ratings agencies Moody’s

and Standard & Poor’s both downgraded their ratings of TOUSA bonds in

contemplation of the July 31 transaction, concluding that TOUSA was “not likely”

to be able to meet its financial obligations. By July 31, 2007, unsecured TOUSA

bonds were selling at discounts as low as $0.45 on the dollar.

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The bankruptcy court also found that the syndication process for the new

loans in the transaction reflected the perilous position of TOUSA. As the housing

sector and TOUSA continued their decline, the syndication market for the new

loans became “[m]ore challenging,” and the cost of the transaction loans to

TOUSA increased. At least as early as July 24, lenders were dropping out of the

deal. One of the lead bankers on the deal for Citicorp, Svetoslav Nikov, informed

his colleagues that they were losing syndicate participants, and “[t]hings were

looking ugly out there.” Marni McManus, the Citicorp engagement leader,

described leaving “panicky” messages about the deal as the market got worse. In a

July 24 email to TOUSA management, McManus urged TOUSA to be prepared to

close the loan deals soon because “the [market] has completely dried up,” and

“[t]he market is going from horrendous to worse.” Nearly half of the prospective

lenders for the First Lien Term Loan dropped out of the deal in the four days

preceding July 31. Citicorp had to provide significant pricing incentives for the

lenders, which raised borrowing costs for TOUSA. The final group of New

Lenders included some firms that were lenders on the Transeastern debt that the

new loans paid off. Through the transaction, these lenders essentially converted

their unsecured loans to the Transeastern Joint Venture into secured loans to

TOUSA and the Conveying Subsidiaries.

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The bankruptcy court avoided the transfer as fraudulent under section 548

and held that the Transeastern Lenders were “entities for whose benefit” the liens

were transferred. See 11 U.S.C. § 550(a)(1). The bankruptcy court held that,

under controlling precedent and the plain language of section 550(a)(1), the

“Transeastern Lenders directly received the benefit of the Transaction and the

Transaction was undertaken with the unambiguous intent that they would do so.” 

In re TOUSA, 422 B.R. at 870. The bankruptcy court avoided the liens on the

assets of the Conveying Subsidiaries and ordered the Transeastern Lenders to

disgorge $403 million and prejudgment interest for the period between July 31,

2007, and October 13, 2009. From the disgorged funds, the court awarded the

Committee damages to cover the transaction costs related to the consummation of

the July 31 transaction; the costs the debtors and the Committee incurred in the

prosecution of the adversary proceeding, including fees and expenses paid to

attorneys, advisors, and experts; and the diminution in the value of the liens

between July 31, 2007, and October 13, 2009. The bankruptcy court held that the

Committee was entitled to the diminution in the value of the liens because “if the

court limits the Trustees to recovery of the property itself, and if the property has

declined in value, the estate will have lost the opportunity to dispose of the

property prior to its depreciation.” Id. at 883 (quoting Feltman v. Warmus (In re

22
Am. Way Serv. Corp.), 229 B.R. 496, 532 (Bankr. S.D. Fla. 1999). The

bankruptcy court ordered that the remaining funds be distributed to the First and

Second Lien Lenders. Because the settlement the Transeastern Lenders had

reached with TOUSA had been undone, the bankruptcy court restored the

unsecured claims of the Transeastern Lenders against TOUSA and its partner in

the joint venture.

C. District Court Proceedings

The Transeastern Lenders and the First and Second Lien Lenders appealed,

and their cases were assigned to three separate district court judges. After a series

of transfers, five appeals by the Transeastern Lenders were assigned to one judge

and four appeals by the New Lenders were assigned to another judge. This appeal

arises from the five appeals by the Transeastern Lenders. 

The district court issued an order quashing the bankruptcy court decision as

it related to the liability of the Transeastern Lenders. 3V Capital Master Fund Ltd.

v. Official Comm. of Unsecured Creditors of TOUSA, Inc., 444 B.R. 613, 680

(S.D. Fla. 2011). The district court held that, as a matter of law, the bankruptcy

court had too narrowly defined “value.” The district court cited a Third Circuit

decision that held that “[t]he mere ‘opportunity’ to receive an economic benefit in

the future constitutes ‘value’ under the Code.” Mellon Bank, N.A. v. Official

23
Committee of Unsecured Creditors of R.M.L., Inc. (In re R.M.L., Inc.), 92 F.3d

139, 148 (3d Cir. 1996). The district court also relied on a decision of the Eighth

Circuit that explained that the correct way to determine “value” was not to define

it “only in terms of tangible property or marketable financial value,” but instead to

“examine[] all aspects of the transaction and carefully measure[] the value of all

benefits and burdens to the debtor, direct or indirect, including ‘indirect economic

benefits.’” United States v. Crystal Evangelical Free Church (In re Young), 82

F.3d 1407, 1415 (8th Cir. 1996) (internal quotation marks omitted) vacated on

other grounds, 521 U.S. 1114, 117 S. Ct. 2502 (1997). The district court also cited

a decision by our Court that stated that Section 548(a) “does not authorize voiding

a transfer which ‘confers an economic benefit upon the debtor,’ either directly or

indirectly.” GE Credit Corp. v. Murphy (In re Rodriguez), 895 F.2d 725, 727

(11th Cir. 1990) (citing Rubin v. Mfr. Hanover Trust Co., 661 F.2d 979, 991 (2d

Cir. 1981)); see also 5 Collier On Bankruptcy ¶ 548.05, at 548–67 (Alan N.

Resnick & Henry J. Sommer eds., 16th ed. 2006) (“The nature of the value that is

received need not be a tangible, direct economic benefit. An indirect economic

benefit can suffice, so long as it is ‘fairly concrete.’”). The district court

concluded that indirect benefits, including the opportunity to avoid bankruptcy,

could constitute “value” under section 548(a).

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The district court then determined that the bankruptcy court clearly erred

when it found that the Conveying Subsidiaries had not received reasonably

equivalent value from the transaction. The district court found that the transaction

gave the Conveying Subsidiaries the opportunity to avoid bankruptcy, continue as

going concerns, and make further payments to their creditors. The district court

found that these benefits did not need to be quantified to establish reasonably

equivalent value. “Inherently, these benefits have immense economic value that

ensure the debtor’s net worth has been preserved, and, based on the entirety of this

record, were not disproportionate between what was given up and what was

received.” In re TOUSA, 444 B.R. at 666.

The district court also held that the Transeastern Lenders could not, as a

matter of law, be liable as “entities for whose benefit” the transfers were made

because they did not benefit from the transfer of the liens to the New Lenders

within the meaning of section 550(a)(1). The district court held that the

Transeastern Lenders were subsequent transferees of the proceeds backed by the

liens, not immediate beneficiaries of the transfer of the liens, and that subsequent

transferees are not covered by section 550(a)(1). See id. at 674.

Finally, the district court held that remand was unnecessary because “the

record allows only one resolution of the factual issues at stake,” id. at 680, and

25
because the Transeastern Lenders made “compelling arguments” regarding the

ability of the bankruptcy court “to approach the Defendant’s evidence and

arguments fairly.” Id. at 679 n.65. The district court quashed the order of the

bankruptcy court and declared all the proceedings regarding the Transeastern

Lenders closed.

Because the district court ruled on issues that were central to the separate

appeals of the New Lenders, the district court allowed the New Lenders to

intervene in this appeal, and the district court stayed the appeals of the New

Lenders pending disposition of this appeal.

II. STANDARDS OF REVIEW

As the second court to review the judgment of the bankruptcy court, we

review the order of the bankruptcy court independently of the district court. 

Westgate Vacation Villas, Ltd. v. Tabas (In re Int’l Pharmacy & Disc. II, Inc.), 443

F.3d 767, 770 (11th Cir. 2005). We review determinations of law made by either

court de novo. Id. We review the findings of fact of the bankruptcy court for clear

error. Id. The factual findings of the bankruptcy court are not clearly erroneous

unless, in the light of all the evidence, “we are left with the definite and firm

conviction that a mistake has been made.” Id. “Neither the district court nor this

Court is authorized to make independent factual findings; that is the function of

26
the bankruptcy court.” Equitable Life Assurance Soc’y v. Sublett (In re Sublett),

895 F.2d 1381, 1384 (11th Cir. 1990). We review equitable determinations of the

bankruptcy court for abuse of discretion. Bakst v. Wetzel (In re Kingsley), 518

F.3d 874, 877 (11th Cir. 2008).

III. DISCUSSION

We divide our discussion into three parts. We first explain that the

bankruptcy court did not clearly err when it found that the Conveying Subsidiaries

did not receive reasonably equivalent value in exchange for their liens. We then

explain that the bankruptcy court did not err when it found that the Transeastern

Lenders were entities for whose benefit the liens were transferred. Finally, we

explain why we will not consider, in the first instance, challenges to the remedies

imposed by the bankruptcy court or issues of judicial assignment or consolidation

of proceedings. 

A. The Bankruptcy Court Did Not Clearly Err When It Found That the Conveying

Subsidiaries Did Not Receive Reasonably Equivalent Value in Exchange for the

Liens They Transferred to the New Lenders.

The Committee argues that the bankruptcy court did not clearly err when it

found that the conveyance of the liens by the Conveying Subsidiaries to the New

Lenders was a fraudulent transfer. Section 548(a)(1)(B) of the Bankruptcy Code

provides for the avoidance of “any transfer . . . of an interest of the debtor in

27
property, or any obligation . . . incurred by the debtor, that was made or incurred . .

. within two years before the date of the filing” of the bankruptcy petition, if the

debtor “received less than reasonably equivalent value in exchange for” the

transfer or obligation, and the debtor (1) “was insolvent on the date such transfer

was made or such obligation was incurred, or became insolvent as a result of such

transfer or obligation;” (2) “was engaged in business or a transaction, or was about

to engage in business or a transaction, for which any property remaining with the

debtor was an unreasonably small capital;” or (3) “intended to incur, or believed

that the debtor would incur, debts that would be beyond the debtor’s ability to pay

as such debts matured.” 11 U.S.C. § 548(a)(1)(B). The parties do not dispute, in

this appeal, that the Conveying Subsidiaries were either insolvent, had

unreasonably small capital, or were unable to pay their debts when the liens were

conveyed. Their dispute concerns whether the Conveying Subsidiaries received

less than reasonably equivalent value. “The purpose of voiding transfers

unsupported by ‘reasonably equivalent value’ is to protect creditors against the

depletion of a bankrupt’s estate.” In re Rodriguez, 895 F.2d at 727.

The bankruptcy court endorsed a definition of “value” that the district court

rejected as too narrow and potentially “inhibitory of contemporary financing

practices,” In re TOUSA, 444 B.R. at 659, but we need not adopt the definition of

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either court. We decline to decide whether the possible avoidance of bankruptcy

can confer “value” because the bankruptcy court found that, even if all the

purported benefits of the transaction were legally cognizable, they did not confer

reasonably equivalent value. See In re TOUSA, 422 B.R. at 869. Because these

findings are not clearly erroneous, they settle this matter. 

The bankruptcy court was entitled to find that the benefits of the transaction

were not reasonably equivalent in value to what the Conveying Subsidiaries

surrendered. “It has long been established that ‘[w]hether fair consideration has

been given for a transfer is ‘largely a question of fact, as to which considerable

latitude must be allowed to the trier of the facts.’” Nordberg v. Arab Banking

Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 593 (11th Cir. 1990) (quoting

Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 829–30 (5th Cir.1959)

(Wisdom, J.)). The record supports the finding by the bankruptcy court that, for

the Conveying Subsidiaries, the almost certain costs of the transaction of July 31

far outweighed any perceived benefits. 

The Transeastern Lenders and New Lenders argue that the transaction of

July 31 allowed the Conveying Subsidiaries to escape the “existential threat” of

the likely bankruptcy that would ensue and that this chance to avoid bankruptcy

was a benefit reasonably equivalent in value to the obligations the Conveying

29
Subsidiaries incurred, but we are unpersuaded that the record compels that finding. 

“A corporation is not a biological entity for which it can be presumed that any act

which extends its existence is beneficial to it.” Bloor v. Dansker (In re Investors

Funding Corp. of New York Sec. Litig., 523 F. Supp. 533, 541 (S.D.N.Y. 1980). 

In other words, not every transfer that decreases the odds of bankruptcy for a

corporation can be justified. The bankruptcy court considered the potential

benefits of the transaction and found that they were nowhere close to its expected

costs. In the light of all the evidence, we are not “left with the definite and firm

conviction that” the bankruptcy court clearly erred. In re Int’l Pharmacy & Disc.

II, Inc., 443 F.3d at 770. 

The Transeastern Lenders and New Lenders argue that the record

establishes that an adverse judgment in the Transeastern litigation would have

caused TOUSA to file for bankruptcy, the revolving financing for the Conveying

Subsidiaries to disappear, and the Conveying Subsidiaries to become liable for

immediate payment of more than $1.3 billion to the revolving loan lenders and

TOUSA bondholders. They contend that the bankruptcy court clearly erred when

it found that the Conveying Subsidiaries could have survived a TOUSA

bankruptcy. They argue that the bankruptcy court found that the Conveying

Subsidiaries were insolvent before the transaction, and they argue that it is

30
unlikely that the insolvent Conveying Subsidiaries could have obtained new

financing. They also argue that the absence of standalone financial statements was

a “clear obstacle” to new financing. They highlight that one of the experts for the

Committee described the intercompany payables and receivables for TOUSA and

the Conveying Subsidiaries as a “huge pile of tangled spaghetti.” The

Transeastern Lenders and New Lenders assert that it would have taken months, if

not years, to sort through the mound of records, which proves that the Conveying

Subsidiaries had no chance to receive standalone financing.

The bankruptcy court found this evidence to be irrelevant because, “even

assuming that all of the TOUSA entities would have spiraled immediately into

bankruptcy without the July 31 Transaction, the Transaction was still the more

harmful option.” In re TOUSA, 422 B.R. at 847. “[A]t most it delayed the

inevitable.” Id. at 846. The bankruptcy court found that the benefits to the

Conveying Subsidiaries were not close to being reasonably equivalent in value to

the $403 million of obligations that they incurred. The Transeastern Lenders and

New Lenders attack this finding as “hindsight reasoning . . . at its most extreme,”

but the bankruptcy court based its extensive findings on a thorough review of

public knowledge available before July 31, 2007; expert analysis of data available

before July 31, 2007; and statements by TOUSA insiders made before July 31,

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2007. 

The Transeastern Lenders and New Lenders argue that the finding of an

“inevitable” bankruptcy is against the weight of the evidence, but the only

evidence they cite, in contrast with the thorough findings of the bankruptcy court,

are the opinions of a TOUSA advisor that the company would remain viable after

the transaction and statements from Tony Mon about a comprehensive strategy to

shrink TOUSA after the transaction, shore up its finances, and rebuild the

company. The Transeastern Lenders and New Lenders contend that the

projections of TOUSA look unreasonable now only because weeks after the

transaction, “a tragic global financial crisis of unprecedented proportions” began. 

They assert that the unexpected downturn was described by Alan Greenspan as “a

once in a century credit tsunami” and by Warren Buffett as an “economic Pearl

Harbor.” The Transeastern Lenders and New Lenders argue that they cannot be

held liable for failing to foresee the unforeseeable, that their actions were

reasonable, and that the bankruptcy court clearly should have found that the

transaction was a reasonable risk for the Conveying Subsidiaries to take. 

The record supports a determination that the bankruptcy of TOUSA was far

more like a slow-moving category 5 hurricane than an unforseen tsunami. The

bankruptcy court considered the evidence from outside advisors to TOUSA and

32
found much of it suspect or based on faulty premises. The bankruptcy court

considered and discounted Mon’s deleveraging strategy for TOUSA in the light of

the dire predictions he and other insiders made regarding the effects the

transaction would have on TOUSA. And the bankruptcy court found that, even

though Alan Greenspan and Warren Buffet could not foresee the general economic

downturn that began in earnest in August 2007, numerous external observers and

insiders at TOUSA recognized that the relevant housing markets for TOUSA had

begun their free fall before the July 31 transaction. In contrast with the surprise

attack at Pearl Harbor, the warnings about the collapse of TOUSA made that event

as foreseeable as the bombing of Nagasaki after President Truman’s ultimatum. 

The opportunity to avoid bankruptcy does not free a company to pay any

price or bear any burden. After all, “there is no reason to treat bankruptcy as a

bogeyman, as a fate worse than death.” Olympia Equip. Leasing Co. v. W. Union

Tel. Co., 786 F.2d 794, 802 (7th Cir. 1986) (Easterbrook, J., concurring). The

bankruptcy court correctly asked, “based on the circumstances that existed at the

time the investment was contemplated, whether there was any chance that the

investment would generate a positive return.” See In re R.M.L., Inc., 92 F.3d at

152. And the record supports the negative answer found by the bankruptcy court.

B. The Bankruptcy Court Did Not Err When It Ruled That the Committee Could

33
Recover from the Transeastern Lenders under Section 550(a)(1).

If a transfer is avoided under section 548 or one of several other provisions

of the Bankruptcy Code, section 550(a)(1) allows the recovery of the property

transferred or its value from the initial transferee or from an “entity for whose

benefit such transfer was made.” 11 U.S.C. § 550(a)(1). Although the liens of the

Conveying Subsidiaries were transferred to secure loans to pay the Transeastern

Lenders, the Transeastern Lenders argue that they are not covered by section 550

because they were subsequent transferees, not entities that benefitted from the

initial transfer. Their argument is contradicted by the loan agreements, which

required that the proceeds of the loans secured by the liens be transferred to the

Transeastern Lenders. Under the plain language of section 550(a)(1) and the

precedent of our Court, the Transeastern Lenders are entities for whose benefit the

Conveying Subsidiaries transferred their liens. 

To be sure, we have stated that “the paradigm case of a benefit under 

§ 550(a) is the benefit to a guarantor by the payment of the underlying debt of the

debtor.” Reily v. Kapila (In re Int’l Mgmt. Ass’n), 399 F.3d 1288, 1292 (11th Cir.

2005). The guarantor receives an immediate benefit when the debtor pays back a

creditor, which reduces the liability of the guarantor. Although this relationship

may be the paradigmatic case, it is not the only circumstance that can give rise to

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“for whose benefit” liability. 

We have also held that a creditor similarly situated to the Transeastern

Lenders can be liable as an entity for whose benefit a transfer was made. In

American Bank of Marin County v. Leasing Service Corp. (In re Air Conditioning,

Inc. of Stuart), 845 F.2d 293 (11th Cir. 1988), we ruled that section 550(a)(1)

allowed the trustee to recover the value of a $20,000 certificate of deposit from the

creditor of a company that had transferred a security interest in the certificate of

deposit to a bank, which had transferred a $20,000 letter of credit to the creditor. 

Id. at 299. The company in Air Conditioning owed its creditor $20,000. Id. at

295. When the company began falling behind on payments, the parties worked out

a deal to keep the company in business. Id. As part of the deal, the company

issued a $20,000 promissory note to a bank secured by a $20,000 certificate of

deposit. Id. The bank, in turn, executed a $20,000 letter of credit to the creditor. 

Id. After the company entered bankruptcy, we ruled that the transfer of the

security interest in the certificate of deposit to the bank constituted an avoidable

preference under section 547(b) because it was a transfer of property of the debtor

to a creditor within 90 days of filing for bankruptcy that provided more value to

the creditor than it would have received under chapter 7 of the Bankruptcy Code. 

Id. at 296–97; see also 11 U.S.C. § 547(b). We then ruled that the bankruptcy

35
trustee could recover the value of the certificate of deposit from the creditor

because the company granted the security interest to the bank for the benefit of the

creditor. Id. at 299. We explained that the text of section 550(a)(1) allows the

trustee to recover from a creditor when it was an entity for whose benefit the

transfer of the certificate of deposit was made. Id. 

Our decision in Air Conditioning controls this appeal. In Air Conditioning,

the debtor transferred a lien to a lender who transferred funds to a creditor. The

transfer of the lien was avoided and, under section 550(a)(1), the creditor was an

entity for whose benefit the transfer was made. In the same way, the Conveying

Subsidiaries transferred liens to the New Lenders, who transferred funds to

creditors, the Transeastern Lenders. The bankruptcy court avoided the transfer of

the liens and, under section 550(a)(1), the Transeastern Lenders were entities for

whose benefit the transfer was made. 

The Transeastern Lenders attempt to distinguish their appeal from Air

Conditioning in two ways, but their arguments ignore the material similarities

between the preference in that decision and the fraudulent transfer at issue in this

appeal. First, the Transeastern Lenders contend that Air Conditioning involved a

preference under section 547 instead of a fraudulent transfer under 548, but “[t]he

theory under which a transfer has been avoided is irrelevant to the liability of the

36
transferee against whom the trustee seeks to recover [under section 550].” 

Danning v. Miller, 922 F.2d 544, 546 n.2 (9th Cir. 1991). Second, the

Transeastern Lenders argue that section 550(a)(1) applied in Air Conditioning

because a letter of credit was involved, but the Transeastern Lenders cannot

provide a principled basis for limiting section 550(a)(1) to factual scenarios that

involve letters of credit.

The Transeastern Lenders also contend that they cannot be liable under

section 550(a)(1) because they benefitted from a subsequent transfer of funds from

TOUSA, not from the initial transfer of the liens, but the record contradicts their

assertion. The new loan agreements required that the loan proceeds be used to pay

the Transeastern settlement, and the Transeastern settlement expressly depended

on the new loans. When the liens were transferred to the New Lenders, the

proceeds of the loans went to the Transeastern Lenders. The Transeastern Lenders

assert that the funds passed from the New Lenders to a wholly-owned subsidiary

of TOUSA before the funds were paid to the Transeastern Lenders, but the

subsidiary that wired the money to the Transeastern Lenders did not have control

over the funds. The loan documents required the subsidiary to wire the funds to

the Transeastern Lenders immediately. Although the funds technically passed

through the TOUSA subsidiary, this formality did not make the Transeastern

37
Lenders subsequent transferees of the funds because TOUSA never had control

over the funds. See Nordberg v. Societe Generale (In re Chase & Sanborn Corp.),

848 F.2d 1196, 1199 (11th Cir. 1988) (stating that courts must apply a “very

flexible, pragmatic” test that “look[s] beyond the particular transfers in question to

the entire circumstance of the transactions” when deciding whether debtors had

controlled property later sought by their trustees); Bonded Fin. Servs., Inc. v.

European American Bank, 838 F.2d 890, 893 (7th Cir. 1988) (holding that a bank

was not an initial transferee because it held funds “only for the purpose of

fulfilling an instruction to make the funds available to someone else”).

The Transeastern Lenders warn that our reading of section 550(a) would

drastically expand the potential pool of entities that could be liable for any

transaction, but these concerns are unsubstantiated. The Transeastern Lenders

offer examples of a parent company taking out a loan secured by its subsidiaries

with the specific intent of paying a contractor to build a building for the parent

company or paying the dry cleaning bill of the parent company. The Transeastern

Lenders caution that the contractor or dry cleaner could be forced to return their

payments if the loan securing the money involved a fraudulent transfer, which

would impose “extraordinary” duties of due diligence on the part of creditors

accepting repayment. But every creditor must exercise some diligence when

38
receiving payment from a struggling debtor. It is far from a drastic obligation to

expect some diligence from a creditor when it is being repaid hundreds of millions

of dollars by someone other than its debtor. 

C. We Remand for the District Court To Consider First the Remedies Imposed by

the Bankruptcy Court and Matters of Assignment and Consolidation.

The parties’ remaining arguments pertain to issues that are not ripe for our

review. The Transeastern Lenders ask that we vacate the remedies ordered by the

bankruptcy court, and both parties ask that we wade into matters of judicial

assignment and consolidation on remand. These issues must be resolved first by

the district court. 

The Transeastern Lenders challenge the remedies imposed by the

bankruptcy court, but we will not address an issue that the district court has not yet

considered. See e.g., Dzikowski v. N. Trust Bank of Fla., N.A. (In re Prudential of

Fla. Leasing, Inc.), 478 F.3d 1291, 1303 (11th Cir. 2007) (“When the district court

does not address an issue [it dismissed as moot], the proper course of action often

is to vacate the order of the district court and remand.”). The district court, on

remand, should review, in the first instance, the remedies ordered by the

bankruptcy court. We express no opinion on that subject.

The parties’ requests about judicial assignment and consolidation of

39
proceedings are also misdirected. The Committee urges us to remand this case to

a different district judge; and the Transeastern Lenders and New Lenders argue

that, if the case needs to be heard again by the bankruptcy court, we should

instruct the district court to remand the case to a different bankruptcy judge. Both

sides complain that the judge who issued a decision unfavorable to their interests

is biased, but neither side has established that “the original judge would have

difficulty putting his previous views and findings aside.” CSX Transp., Inc. v.

State Bd. of Equalization, 521 F.3d 1300, 1301 (11th Cir. 2008). The Committee

also argues that the remaining remedial issues are intertwined with remedial issues

from a related appeal before a different district judge and that consolidation of

proceedings would promote judicial economy. We leave these matters of future

judicial administration and management for the district court to address first. 

IV. CONCLUSION

We REVERSE the order of the district court, AFFIRM the liability

findings of the bankruptcy court, and REMAND to the district court for further

proceedings consistent with this opinion. 

REVERSED AND REMANDED.

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