UNPUBLISHED

UNITED STATES COURT OF APPEALS 

FOR THE FOURTH CIRCUIT 

No. 07-1874

In Re: MARYLAND PROPERTY ASSOCIATES, INCORPORATED; MARYLAND 

PROPERTY MANAGEMENT, INCORPORATED; MARYLAND PROPERTY GROUP, 

INCORPORATED; MARYLAND PROPERTY SYSTEMS, INCORPORATED; 

MARYLAND PROPERTY SERVICES, INCORPORATED, 

 Debtors. 

---------------------------------------- 

CHARLES R. GOLDSTEIN, Trustee, 

 Plaintiff - Appellee, 

 v. 

COLOMBO BANK, F.S.B., 

 Defendant - Appellant. 

No. 08-1251

In Re: MARYLAND PROPERTY ASSOCIATES, INCORPORATED; MARYLAND 

PROPERTY MANAGEMENT, INCORPORATED; MARYLAND PROPERTY GROUP, 

INCORPORATED; MARYLAND PROPERTY SYSTEMS, INCORPORATED; 

MARYLAND PROPERTY SERVICES, INCORPORATED, 

 Debtors. 

---------------------------------------- 

CHARLES R. GOLDSTEIN, Trustee, 

 Plaintiff - Appellant, 
 v. 

COLOMBO BANK, F.S.B., 

 Defendant - Appellee. 

Appeals from the United States District Court for the District 

of Maryland, at Baltimore. William D. Quarles, Jr., District 

Judge. (1:07-cv-00514-WDQ; AP-00-05578; BK-98-53783-JS) 

Argued: December 3, 2008 Decided: January 26, 2009 

Before WILLIAMS, Chief Judge, and TRAXLER and KING, Circuit 

Judges. 

Affirmed in part and reversed in part by unpublished per curiam 

opinion. 

ARGUED: Stephen Warren Nichols, DECKELBAUM, OGENS & RAFTERY, 

CHARTERED, Bethesda, Maryland, for Appellant/Cross-Appellee. 

Lisa Bittle Tancredi, VENABLE, L.L.P., Baltimore, Maryland, for 

Appellee/Cross-Appellant. ON BRIEF: Nelson Deckelbaum, 

DECKELBAUM, OGENS & RAFTERY, CHARTERED, Bethesda, Maryland, for 

Appellant/Cross-Appellee. Abby W. Clifton, VENABLE, L.L.P., 

Baltimore, Maryland, for Appellee/Cross-Appellant. 

Unpublished opinions are not binding precedent in this circuit. 

2 
PER CURIAM: 

 In this case, a bankruptcy trustee seeks to avoid 24 

financial transfers made by the bankruptcy debtors to Colombo 

Bank, F.S.B. (“the Bank”). The bankruptcy court ruled that the 

trustee could avoid the transfers and recover the assets from 

the Bank. The Bank now appeals and the trustee cross-appeals 

the district court’s order affirming in part, reversing in part, 

and modifying the bankruptcy court order. We affirm in part and 

reverse in part. 

I. 

 The Bank is a small community savings bank with several 

offices in Maryland. Monte Greenbaum is a former shareholder 

and director of the Bank and the sole owner of the following 

affiliated corporations: The Maryland Property Group, Inc. 

(“MPG”), Maryland Property Associates, Inc. (“MPA”), Maryland 

Property Management, Inc. (“MPM”), Maryland Group Management, 

Inc. (“MGM”), Maryland Property Systems, Inc. (“MPS”), and 

Maryland Property Services, Inc. (“MPServ”) (collectively, “the 

Debtors”). These corporations were established to manage 

housing projects that were located in the greater Baltimore, 

Maryland area and owned by separate limited partnerships (“the 

Partnerships”). The projects were subsidized by the United 

States Department of Housing and Urban Development (“HUD”). 

3 
 HUD required that the Partnerships maintain tenant security 

deposits in accounts. From 1993 to 1998, Greenbaum embezzled 

substantial monies from these accounts and from the projects’ 

operating accounts, moving the funds into his companies and then 

disbursing them for, among other things, his own personal 

benefit. 

 The Partnerships maintained separate operating accounts at 

several financial institutions, including the Bank. As agent of 

the Partnerships and owner of the companies managing their 

properties, Greenbaum controlled all transactions with these 

institutions. Having used this authority to embezzle the 

Partnerships’ money, Greenbaum also used it to disguise the 

embezzlement. In this regard, in 1994 he approached Thomas 

Knowles, the Bank’s then-current president, about obtaining 

loans. Greenbaum proposed that the loans would be secured by 

the loan proceeds themselves, which the Bank would hold on 

deposit in the Partnerships’ names. Greenbaum also gave Knowles 

an instruction that Knowles had never received from another 

customer: the accounts were not to bear interest. When Knowles 

asked why Greenbaum would want to set up the proposed 

arrangement, Greenbaum responded that he needed to “establish a 

reserve,” and when Knowles asked how borrowed money could be 

used to establish reserves, Greenbaum replied simply that he 

could “establish the reserves that way.” J.A. 1394 (internal 

4 
quotation marks omitted). Knowles questioned Greenbaum no 

further and undertook no further investigation. 

 Greenbaum then proceeded to borrow funds in the 

Partnerships’ names (“the share loans”). The proceeds of each 

loan were deposited with the Bank in the name of the Partnership 

in whose name the loan was taken out, and the Bank placed a 

“collateral hold” on each account to secure the loans. J.A. 

1499. The existence of these accounts and the funds therein 

helped Greenbaum conceal the fact that he had raided the 

Partnerships’ other accounts. 

 Knowles also took several actions that helped Greenbaum 

conceal the existence of the share loans, and hence Greenbaum’s 

embezzlement. The accounts holding the tenant security deposits 

— which Greenbaum had raided — needed to be confirmed for HUD 

and the Debtors’ auditor. Customarily, such audit requests 

originate from a customer’s accountant and are returned directly 

to the accountant, to ensure the veracity of the response. 

Here, however, Greenbaum himself brought the applicable form to 

Knowles. Knowles knew that this was highly unusual but 

nevertheless signed the form.1 However, he did not complete the 

 1

 Similar forms in later yearly audits were forged by 

Greenbaum and not actually signed by any Bank employee. 

5 
parts asking for a description of any loans relating to the 

accounts. Nor did he complete the section requesting a 

description of the collateral for those loans. Moreover, 

Knowles returned the form to Greenbaum, in contravention of the 

form’s instruction that it should be returned to his accountant. 

By his actions, Knowles concealed from the auditors and the 

Partnerships the facts that there were outstanding loans to the 

Partnerships and that the Bank held security interests in the 

funds in the accounts. 

 Knowles also helped conceal the fact that Greenbaum was 

voluntarily declining interest that otherwise would have accrued 

on the accounts. When statements were issued that showed 

interest accruing, Greenbaum contacted Knowles, and Knowles used 

a word processor to produce dummy statements for Greenbaum that 

did not show any interest. 

 Greenbaum used MPA’s operating account to make payments on 

the share loans. And, when Greenbaum determined in July 1997 

that the loans had served their purpose, he paid their balances 

with a $238,751.61 check drawn on MPA’s operating account. The 

funds MPA transferred were commingled funds that had been 

received from various sources, including a bank in Florida. 

MPA’s payment of the Partnerships’ loan obligations extinguished 

the Bank’s security interest in the loan proceeds, leaving them 

6 
unencumbered in the Partnerships’ accounts. In November 1997, 

the Bank wired the funds to MPA at MPA’s request. 

 In March 1998, the Partnerships filed involuntary 

bankruptcy petitions against MPA, alleging that it had 

misappropriated $790,617.95 in funds belonging to the 

Partnerships. Charles Goldstein (“the Trustee”) was appointed 

Chapter 7 Trustee. He, in turn, filed involuntary bankruptcy 

petitions on MPA’s behalf against MPM, MPG, MGM, MPS, and 

MPServ. With the Debtors’ consent, a bankruptcy court entered 

Chapter 7 relief orders and ordered that all of the Debtors’ 

cases be jointly administered under MPA’s case. 

 In March 1999, Greenbaum was charged, by way of criminal 

information, with conspiracy to violate the National Housing 

Act, see 12 U.S.C.A. 1701, et seq. (West 2001 & Supp. 2008). 

The information alleged that between January 1993 and March 

1998, Greenbaum defrauded the federal government by embezzling 

funds for his personal benefit from rent escrow accounts when 

the housing projects were in a “non-surplus cash position,” J.A. 

765 (internal quotation marks omitted); making false statements, 

creating false documents, and forging signatures in connection 

with the HUD-insured properties; fraudulently concealing 

shortages in these accounts by obtaining loans on the 

Partnerships’ behalf and placing the proceeds in the 

Partnerships’ accounts; failing to report the existence of these 

7 
loans during audits of the accounts; and misappropriating 

substantial portions of the security deposits and rent payments. 

Greenbaum pleaded guilty pursuant to a plea agreement to one 

count of conspiracy. He was sentenced to 18 months’ 

imprisonment and ordered to pay $900,000 in restitution to HUD. 

 The Trustee filed the instant complaint against the Bank in 

the bankruptcy court in March 2000, requesting avoidance of 24 

transfers made to the Bank, each of which had been accomplished 

by checks drawn on MPA, MPG, or MGM’s accounts and signed by 

Greenbaum. The transfers fall into three categories: amounts 

paid pursuant to the share-loan scheme; amounts paid on loans 

secured by a second mortgage on a residence of Greenbaum’s 

located in Columbia, Maryland or by a mortgage on a condominium 

of Greenbaum’s located in Ocean City, Maryland; and amounts paid 

to the Bank for unexplained reasons. Count One sought avoidance 

of each of the 24 transfers under the Maryland Uniform 

Fraudulent Conveyance Act and a judgment in the amount of 

$397,494.77. That amount represented the total amount of the 

alleged transfers sought to be avoided, less $100,000. One of 

the transfers sought to be avoided was made by check number 784, 

which had a face amount of $172,000. The complaint specifically 

alleged that “$72,000 was for the benefit not of MPA, but of 

Monte Greenbaum.” J.A. 9. Count Two sought avoidance as 

fraudulent conveyances of those 15 transfers that allegedly 

8 
occurred within one year before the filing of the involuntary 

bankruptcy petitions, under section 548 of the Bankruptcy Code, 

and requested a judgment of $278,768.32. Count Three sought 

avoidance and recovery of transfers that were made within 90 

days of the filing of the involuntary bankruptcy petitions and 

that constituted preferential transfers, pursuant to Section 547 

of the Bankruptcy Code, and requested a judgment of $3,597.62. 

 Before discussing further the proceedings below, we pause 

to discuss the applicable statutes. Section 541 of the 

Bankruptcy Code provides that a bankruptcy estate consists of 

all “interests of the debtor in property.” 11 U.S.C.A. § 541(a) 

(West 2004). Further, section 548 allows the bankruptcy trustee 

to avoid certain transfers of such interests. See 11 U.S.C.A. 

§ 548(a) (West 2004). Section 548 and the Maryland Uniform 

Fraudulent Conveyance Act (“UFCA”) both permit avoidance of a 

transfer if either (1) the transfer was made with the actual 

intent to hinder, delay, or defraud a creditor (an “actually 

fraudulent” transfer); or (2) the debtor was insolvent and 

received less than reasonably equivalent value in exchange (a 

“constructively fraudulent” transfer). See 11 U.S.C.A. § 548(a) 

(West 2004); Md. Code Ann., Com. Law §§ 15-204, 15-207 (West 

2005). Because the UFCA allows avoidance of transfers that 

occurred in the three years preceding the bankruptcy petition, 

see Md. Code Ann, Cts. & Jud. Proc. § 5-101 (West 2006), and the 

9 
version of the federal statute in effect when the petition in 

this case was filed allowed avoidance only of transactions 

occurring within one year prior to the filing of the petition, 

see 11 U.S.C.A. § 548(a)(1), we will review the bankruptcy 

court’s decisions under the UFCA, as the district court did. 

 The UFCA provides that a fraudulent conveyance may be set 

aside, as is relevant here, “against any person except a 

purchaser for fair consideration without knowledge of the fraud 

at the time of the purchase.” Md. Code Ann., Com. Law § 15-209 

(West 2005). Maryland courts, therefore, have held that to set 

aside a conveyance as actually fraudulent, the party challenging 

the conveyance must demonstrate that the grantor’s fraud was 

known or participated in by the grantee. See Oles Envelope 

Corp. v. Oles, 65 A.2d 899, 903 (Md. 1949). Proving a 

transferee’s constructive knowledge of the transferor’s 

fraudulent intent is sufficient in this regard. See Fick v. 

Perpetual Title Co., 694 A.2d 138, 146 (Md. Ct. Spec. App. 

1997). Having set out the applicable legal framework, we now 

return to a description of the proceedings below, beginning with 

the trial in bankruptcy court. 

 During his opening statement, counsel for the Trustee 

acknowledged that his complaint sought the return of only 

$72,000 of the $172,000 transfer made by check 784. He 

explained that when he drafted the complaint, he did not believe 

10 
he was entitled to recover more. However, the Trustee stated 

that following discovery and his requests for documents or an 

explanation of how the Bank applied the funds transferred by 

this check, he had come to doubt whether the Bank could 

establish that more than $52,963.88 of the check was applied to 

debts for which MPA could be liable.2 Accordingly, the Trustee 

reserved the right to conform his pleadings to the evidence 

produced at trial, in the event that the Bank did not offer 

adequate proof. 

 The Bank objected, arguing that even the Trustee’s pretrial 

statement, filed two weeks before the trial, did not notify the 

Bank that the Trustee would seek recovery of this additional 

amount. The Bank argued that it was not prepared to defend 

against a claim for such a recovery. The Trustee responded that 

he had been exchanging documents with the Bank regarding check 

784 until the week prior to trial, but that the Trustee had only 

recently concluded that only $52,963.88 was applied to a loan 

guaranteed by MPA whereas the Trustee earlier had believed the 

amount to be $100,000. 

 Following the close of testimony, the Trustee argued that 

his complaint as drafted sought avoidance of the entire transfer 

 2

 Documents produced by the Bank indicated that $52,963.88 

was applied to a loan that MPA had guaranteed. 

11 
effected by check 784. He nevertheless moved to amend his 

complaint to the extent that he needed to do so to seek recovery 

of $119,036.12 of that transfer. The bankruptcy court granted 

the motion to amend over a renewed objection by the Bank. In so 

doing, the court noted that the complaint, even as originally 

drafted, sought to avoid the entire transfer as a fraudulent 

conveyance, and therefore would have allowed suit for the entire 

$172,000. 

 The bankruptcy court also allowed the Trustee to testify as 

an expert witness on the issue of the Debtors’ insolvency during 

the relevant time periods, as a forensic expert, and as an 

expert on fraudulent conveyance issues. The Bank unsuccessfully 

objected to the testimony on the ground that the Trustee was 

neither listed as an expert in his initial disclosures pursuant 

to Bankruptcy Rule 7026(a)(2) nor identified in response to an 

interrogatory from the Bank seeking the identification of 

experts. 

 Following the trial, the bankruptcy court found that the 

other Debtors were merely alter egos of MPA and that MPA was 

insolvent at all times from 1995 through the filing of the 

bankruptcy petition. The court further found that the transfers 

made during the 90 days prior to the filing of the petition 

enabled the Bank to receive more than it would have received in 

bankruptcy had the transfer not been made. Accordingly, the 

12 
court determined that those transfers were avoidable as 

preferences. 

 The bankruptcy court also found that MPA had made the 

challenged payments to hinder, delay, or defraud its creditors, 

and that the Bank knew or should have known of the fraud. 

Specifically, the court reasoned that the payments were made 

with the intent to conceal from the Partnerships and HUD that 

Greenbaum had misappropriated the funds from the escrow 

accounts. The court found that the amounts transferred did not 

constitute money stolen or fraudulently taken from the housing 

project accounts and that even if they did, MPA continued to 

retain an interest in it. The court also concluded that the 

funds, even if stolen from the project accounts, were not 

subject to a constructive trust because they had been commingled 

with other funds. 

 The court also determined that the Bank did not apply the 

funds transferred with check 784 to the share loans. The 

bankruptcy court found that $52,963.88 of the funds had been 

applied to a loan that MPA had guaranteed. Although John Lane, 

the Bank president at the time of trial, had testified that the 

remaining portion of check 784 — $119,036.12 — was applied to 

the share loans, the court drew a negative inference against the 

Bank from the Bank’s failure to produce supporting documentary 

evidence. Thus, the court found that MPA received no fair 

13 
consideration for $119,036.12 of the transfer effected by check 

784. 

 On this basis, the bankruptcy court entered an order and 

judgment in favor of the Trustee against the Bank for 

$444,523.89, plus pre-judgment interest from the date the 

complaint was filed, with post-judgment interest allowed at the 

federal rate. 

 The Bank appealed to the district court, arguing that the 

bankruptcy court erred in permitting the Trustee to amend his 

complaint at trial and to testify as an expert witness. The 

Bank also argued that the court’s decision was not supported by 

the evidence. 

 The district court ruled that the bankruptcy court did not 

abuse its discretion in allowing the Trustee to amend his 

pleadings to conform to the evidence at trial, reasoning that 

the Bank was on notice at all times that the Trustee was seeking 

to avoid all transfers made to the Bank within the relevant time 

period. The court also ruled that the bankruptcy court was 

within its discretion in allowing the Trustee to testify as an 

expert. The court noted that the Bank neither disputed the 

Trustee’s qualification to be an expert nor offered evidence 

that MPA was solvent. The court also concluded that the Trustee 

knew of MPA’s insolvency based on his examination of MPA’s books 

and records and therefore could have testified as a mere fact 

14 
witness regarding insolvency regardless of whether he testified 

as an expert. Thus, the court reasoned that any error in the 

Trustee’s admission as an expert was harmless. 

 Regarding the bankruptcy court’s ruling that the transfers 

made within 90 days before the petition could be avoided as 

preferences, the district court concluded that the ruling could 

not be affirmed because the bankruptcy court had not found that 

the challenged payments were for an obligation of the Debtors’. 

As for the avoidance of the share-loan payments as fraudulent 

conveyances, the district court initially ruled that the 

bankruptcy court erred in failing to credit the Bank for 

payments that had the effect of discharging the Partnerships’ 

liability to the Bank for the share loans. It therefore 

initially reversed the bankruptcy court ruling allowing 

avoidance of payments attributable to the share-loan principal 

and affirmed as to payments attributable to the share-loan 

interest. 

 The court also vacated the bankruptcy court judgment as it 

related to the non-share-loan payments. The district court 

concluded that avoidance of these transfers could not be 

affirmed under an actual-fraud theory because the bankruptcy 

court had not found that Greenbaum actually intended to defraud 

the Debtors’ creditors with these payments, nor had it found 

that the Bank knew or should have known of such fraud. The 

15 
district court also ruled that avoidance could not be affirmed 

under a constructive-fraud theory because the bankruptcy court 

had not found that the non-share-loan transfers were made 

without fair consideration. 

 The district court therefore affirmed the bankruptcy-court 

judgment in the amount of the share-loan interest payments, 

reversed the judgment in the amount of the share-loan principal

payments, vacated the remainder, and remanded to the bankruptcy 

court for further proceedings. 

 Subsequently, however, the district court granted a request 

by the Trustee for rehearing. Recognizing that MPA in fact did

have creditors besides the Partnerships, and that these other 

creditors did not directly benefit from the share-loan principal 

payments, the court concluded that the share-loan payments 

actually did prejudice other creditors of MPA.3 Thus, 

reconsidering its initial ruling, the district court affirmed 

the bankruptcy court’s judgment with respect to the share-loan 

payments. 

 The Bank next appealed to this court. We dismissed the 

appeal on the basis that the bankruptcy court judgment had been 

 3

 The Trustee testified that the total amount of claims 

against the bankruptcy estate is approximately $1.7 million, 

$1.2 or $1.3 million of which was claimed by the Partnerships. 

He testified that the size of the estate would be approximately 

$1 million. 

16 
vacated and thus was not a final judgment from which appeal 

could be taken. See In re Md. Prop. Assocs., Inc., 116 F. App’x 

442 (4th Cir. 2004) (per curiam). 

 On remand, the bankruptcy court determined that each of the 

challenged transfers was avoidable both as an actually 

fraudulent conveyance and as a constructively fraudulent 

conveyance. In support of this conclusion, the court found that 

MPA, through Greenbaum, intended to defraud MPA’s creditors with 

the non-share-loan payments; that the Bank knew or should have 

known that the non-share-loan payments were actually fraudulent; 

and that MPA did not receive fair consideration for the nonshare-loan payments. 

 The bankruptcy court also made more detailed findings 

regarding the Bank’s culpability with respect to the share 

loans. Whereas in its first opinion the bankruptcy court had 

found that the Bank merely knew or should have known about 

Greenbaum’s fraudulent share-loan scheme, in its opinion on 

remand the bankruptcy court found that the Bank actually knew of 

Greenbaum’s fraud and knowingly assisted him in it. The 

bankruptcy court noted that Knowles “agreed to make unusual 

loans, sign and deliver official documents in a fraudulent 

manner[,] and conceal the nature of the share loans by creating 

misleading interest statements.” J.A. 2082. The court also 

17 
found that Joel Fernebok, who was the Bank’s chairman, Knowles’s 

superior, and Greenbaum’s friend, knew about the scheme. 

 The bankruptcy court further found that Greenbaum made the 

non-share-loan transfers with the intent to hinder, delay, or 

defraud the Debtors’ creditors and that the Bank knew or should 

have known of that intent. The court noted that the Debtors’ 

insolvency, the lack of consideration for the transfers, the 

Bank and the Debtors’ secrecy and concealment, and their 

departures from usual business methods all demonstrated 

Greenbaum’s intent. The court determined that the Bank knew of 

or should have known of Greenbaum’s fraudulent intent regarding 

the non-share-loan payments for several reasons. First, it was 

aware of Greenbaum’s fraud with regard to the share-loan scheme. 

Second, the checks given to the Bank for Greenbaum’s personal 

obligations did not indicate that they were compensation to 

Greenbaum for services rendered or otherwise for the benefit of 

the Debtors. The bankruptcy court determined that these facts 

put the Bank on constructive notice that Greenbaum was making 

the transfers to thwart the Debtors’ creditors. The court 

concluded that this notice precluded a finding that the Bank was 

a good-faith transferee, and the court therefore allowed the 

Trustee to avoid the payments under a theory of actual fraud. 

 The bankruptcy court further found that the Debtors had not 

been obligated to make any payments to the Bank on the loan 

18 
secured by Greenbaum’s Ocean City condominium or the loan 

secured by his Columbia residence. Because those loans were 

personal obligations of Greenbaum, the court found that the 

Debtors received no consideration in exchange for those 

transfers, and the transfers could therefore be avoided under a 

constructive-fraud theory as well. 

 The bankruptcy court also found two other of the transfers 

— those made with checks 784 and 1254 — could be avoided under 

this same theory. John Lane, the president of the Bank at the 

time of trial, had testified that his investigation indicated 

that $100,000 of the funds transferred with check 784 had been 

applied to principal and interest on a share loan. The 

bankruptcy court discredited this testimony because Lane did not 

have first-hand knowledge and could not produce supporting 

documentation. Thus, the court could not determine what the 

funds transferred by check 784 were applied to, and it 

determined that the Bank failed to prove that the funds were 

transferred in exchange for fair consideration. The bankruptcy 

court found that the transfer made with check 1254 was avoidable 

as well. The court found that the Bank applied those funds to a 

personal obligation of Greenbaum’s rather than to an obligation 

of MPA’s. 

19 
 For all of these reasons, the court ordered the recovery of 

$444,523.89 from the Bank.4 

 Again, the Bank appealed the bankruptcy court’s decision to 

the district court, which affirmed in part and reversed in part. 

 Regarding the share-loan transfers, the district court 

rejected an assertion by the Bank that the bankruptcy court’s 

finding that the Bank had actual knowledge of Greenbaum’s 

fraudulent intentions regarding the share-loan transfers 

exceeded the scope of findings authorized by the remand. The 

court also rejected an argument by the Bank that the bankruptcy 

court erred in not giving the Bank credit for the loan proceeds 

it released once the share loans were repaid. In this regard, 

the district court reasoned that the loan proceeds, held in the 

Partnerships’ names on deposit at the Bank, were the 

Partnerships’ property. The court concluded that the Bank 

should not receive a credit simply for wiring account holders 

their funds. The court further noted that the fact the Bank’s 

loans were the original source of these funds was immaterial. 

 4

 This total included certain credits and deductions that 

are not relevant here. 

The bankruptcy court also determined, in contravention of 

its earlier opinion, that because none of the challenged 

payments were in payment of any antecedent debt owed by the 

Debtors, none of the challenged payments could be avoided as 

preferential transfers. 

20 
 The district court then turned to the other challenged 

transfers. The court ruled that avoidance of these transfers 

could not be affirmed under an actual-fraud theory because the 

evidence was not sufficient to support the bankruptcy court’s 

finding that MPA made the non-share-loan-related transfers with 

the actual intent to defraud. Addressing the theory of 

constructive fraud, the district court ruled that the bankruptcy 

court had improperly shifted the burden to the Bank to prove 

that there was fair consideration for those payments. The court 

concluded, however, that had the bankruptcy court placed the 

burden on the Trustee to prove there was no fair consideration 

for all of the non-share-loan payments, a finding that the 

Trustee met that burden would not have been clearly erroneous 

with regard to any of the transfers except the one made with 

check 784. On this basis, the district court affirmed the 

bankruptcy court’s ruling that these payments could be avoided 

under a constructive-fraud theory. However, the district court 

reversed the bankruptcy court’s ruling that the Trustee could 

avoid $119,036.12 of the transfer accomplished with check 784, 

concluding that no evidence would have supported a finding that 

the Trustee proved that transfer was not made for fair 

consideration. 

21 
 The Bank now appeals and the Trustee cross-appeals from the 

district court’s decision.5 

II. 

 The Bank contends that the district court erred in 

affirming the bankruptcy court’s ruling allowing the Trustee to 

avoid the share-loan payments on the basis of fraud. We 

disagree. 

 Because the district court “act[ed] in its capacity as a 

bankruptcy appellate court, we review the bankruptcy court’s 

decision independently.” Banks v. Sallie Mae Servicing Corp. 

(In re Banks), 299 F.3d 296, 300 (4th Cir. 2002). We review the 

bankruptcy court’s factual findings for clear error and its 

legal conclusions de novo. See Kielisch v. Educ. Credit Mgmt. 

Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir. 2001). “A 

 5

 In its opinion on remand, the bankruptcy court had ordered 

payment of 6.2% pre-judgment interest from the date of the 

complaint and 5.1% post-judgment interest from the date of 

issuance of the bankruptcy court opinion, January 31, 2007. The 

district court modified this order to award pre-judgment 

interest at 6.18% on the portion of the bankruptcy court’s 

judgment that the district court affirmed in the first appeal, 

post-judgment interest of 1.59% on that same portion from the 

date of the first bankruptcy court judgment, 6.18% pre-judgment 

interest on the affirmed portion of the second bankruptcy court 

judgment up to the date of that judgment, and post-judgment 

interest of 5.10% on that same portion from the date of the 

second judgment. The Trustee cross-appeals the district court’s 

modification of the bankruptcy court’s interest awards. We find 

no reversible error and therefore affirm the modification. 

22 
finding is ‘clearly erroneous’ when although there is evidence 

to support it, the reviewing court on the entire evidence is 

left with the definite and firm conviction that a mistake has 

been committed.” United States v. United States Gypsum Co., 333 

U.S. 364, 395 (1948). 

A. 

 The Bank submits that because the sole purpose of 

fraudulent conveyance law is to restore the transferor’s estate 

to the condition in which it existed prior to the transfer, no 

cause of action exists for a transfer that caused no prejudice 

to the estate’s creditors. See, e.g., United States v. 

Johnston, 245 F. Supp. 433, 440 (W.D. Ark. 1965) (explaining 

that transfer will not be set aside as fraudulent conveyance if 

it “does not operate to the prejudice of creditors’ rights”). 

It contends that MPA’s use of its funds to repay the principal 

amount of the share loans caused no prejudice to its creditors 

because the payments reduced the liability MPA had to the 

Partnerships, and because the Partnerships benefited from the 

repayment of their loan obligations. The Bank also argues that 

the bankruptcy court erred in failing to give it credit for 

money that it paid to MPA after MPA paid off the Partnerships’ 

loans. We disagree with both arguments. 

 First, even if MPA’s payment of the Partnerships’ loans did 

not prejudice the Partnerships, it prejudiced MPA’s other 

23 
creditors. That is so because the claims against MPA’s estate 

exceeded the estate’s assets, so that less than 100% of each 

claim would be paid. Even if MPA reduced its liability to the 

Partnerships in the very amount that MPA paid off the share-loan 

principal, those payments allowed the Partnerships to receive 

100% payment for that liability. Had those funds remained 

within MPA’s estate, it would have been available to pay the 

claims arising from that liability at a less than 100% rate, 

with a balance left over to pay more of the other claims.6

 6

 The Bank argues that the prejudice to non-Partnership 

creditors cannot be considered because the Trustee did not prove 

that any non-Partnership creditors existed at the time of the 

challenged transactions. Because this argument is raised for 

the first time on appeal, it has been waived. See Muth v. 

United States, 1 F.3d 246, 250 (4th Cir. 1993). In any event, 

it is without merit as section 15-207 makes every conveyance 

effected with the intent to hinder, delay, or defraud “present 

or future creditors . . . fraudulent as to both present and

future creditors.” Md. Code Ann., Com. Law § 15-207 (emphasis 

added). 

The Bank also claims that the transfer made with check 1359 

— the check that paid off the share loans — did not prejudice 

MPA’s creditors because the transferred funds could not have 

been subject to claims from MPA’s creditors even had those funds 

not been used to pay off the Partnerships’ loans. The Bank 

argues that the funds were stolen, and thus would have been 

subject to a constructive trust, which would have put them out 

of the reach of MPA’s creditors. This argument, however, is at 

odds with an unchallenged finding of the bankruptcy court that 

the funds could be reached by MPA’s creditors because they “came 

from other sources as well [as the thefts from the 

Partnerships], including the transfer from [a] bank in Florida 

where there were no properties being managed by the debtor.” 

J.A. 1247. Since the funds were commingled and could not be 

traced, the bankruptcy court concluded, no constructive trust 

(Continued) 

24 
 Nor do we agree with the Bank that it is entitled to a 

credit for wiring MPA the funds the Partnerships had on deposit 

at the Bank. The Bank argues that, by wiring these funds “it in 

effect gave back the principal portion of check 1359” — the 

check that paid off the share loans. Brief of Appellant at 31. 

The Bank contends that the district court was incorrect to 

characterize that transaction as involving the Partnerships’

funds because MPA would have had no obligation to release the 

wired funds to the Partnerships. It is the Bank’s position, 

however, that is flawed. Once the share loans were paid off in 

July 1997, the Partnerships owned — free of any security 

interest — the funds that the Partnerships had borrowed and that 

were held in their names on deposit at the Bank. The Bank’s 

wiring of the Partnerships’ funds to their agent, MPA, did not 

somehow divest the Partnerships of entitlement to their funds 

and grant MPA an ownership interest in them. Thus, the Bank’s 

argument that wiring the Partnerships’ funds to MPA made MPA 

whole for MPA’s repayment of the share-loan principal — and 

therefore entitled the Bank to a credit — is incorrect. 

 

could be imposed. Because the Bank does not even acknowledge, 

let alone challenge, this analysis, there is nothing for us to 

review concerning this argument. 

25 
B. 

 As we have noted, the bankruptcy court found that Greenbaum 

paid off the share loans to conceal his embezzlement. The Bank 

challenges this finding, contending that even if Greenbaum’s 

taking out the loans on the Partnerships’ behalf was fraudulent, 

his repayment of them was not. The Bank notes that Greenbaum 

testified that he was not yet under investigation at the time he 

decided to pay off the loans. We conclude, however, that the 

bankruptcy court’s finding was not clearly erroneous. 

 Greenbaum surely knew that if the existence of the share 

loans were discovered by HUD or the Partnerships, his 

embezzlement scheme — and MPA’s corresponding liability for the 

embezzlement — might be uncovered. It was therefore reasonable 

to infer that Greenbaum had MPA pay off the Partnerships’ loans 

so that the loans would not be discovered and so that the 

embezzlement would remain concealed. 

C. 

 The Bank next argues that regardless of what Greenbaum’s

state of mind was regarding the repayment of the share loans, 

the bankruptcy court clearly erred in finding that the Bank knew 

of Greenbaum’s fraudulent intent, as the Bank contends was 

required to support avoidance of the share-loan payments under 

an actual-fraud theory. See Berger v. Hi-Gear Tire & Auto 

Supply, Inc., 263 A.2d 507, 510 (Md. 1970) (holding that 

26 
grantor’s fraudulent intent “will not vitiate or impair a 

conveyance unless the grantee participates in the fraudulent 

intent”).7 We hold that proof of the Bank’s constructive 

knowledge of Greenbaum’s fraudulent intent was all that was 

required. Alternatively, we conclude that the finding that the 

Bank actually knew of Greenbaum’s fraud was not clearly 

erroneous. 

1. 

 The Bank first contends that the district court and the 

bankruptcy court both erred in concluding that proof of 

constructive knowledge by the Bank of Greenbaum’s fraudulent 

intent would be sufficient to allow the Trustee to avoid the 

share-loan transfers under an actual-fraud theory. In essence, 

 7

 The Bank also argues that the bankruptcy court improperly 

deviated from the district court’s mandate in finding on remand 

that the Bank had actual knowledge of Greenbaum’s fraudulent 

intent regarding the share-loan-related transfers. This 

argument is curious because the Bank takes the position that 

such a finding would be necessary to sustain the bankruptcy 

court’s decision. Even if we agreed with the Bank that the 

bankruptcy court exceeded the district court’s mandate in 

finding that the Bank actually knew of Greenbaum’s fraud 

regarding the share-loan payments, it would serve no purpose to 

vacate the judgment and then return the case to the bankruptcy 

court to consider the very factual issue that it had already 

resolved. In any event, the fact that the Bank actually knew 

about the share-loan scheme was relevant to the issue of whether 

the Bank had constructive knowledge of Greenbaum’s fraudulent 

intent regarding the non-share-loan payments, a subject clearly 

within the scope of the remand. 

27 
the Bank maintains that the Maryland Court of Appeals would not 

follow Fick, on which the lower courts relied. We disagree. 

 In Fick, the Maryland Court of Special Appeals confronted 

the question of whether a grantee of property who gives fair 

consideration must be shown to have actual, as opposed to 

constructive, knowledge of the grantor’s fraudulent intent in 

order for a party to successfully set aside the conveyance under 

the UFCA. See Fick, 694 A.2d at 140. The court noted that 

although some courts have required actual notice by the grantee, 

most have held that constructive notice is sufficient. See id.

at 145. The court acknowledged that some language in certain 

Maryland cases indicated that Maryland followed the minority 

rule requiring actual knowledge. See id. at 145-46. The court 

did not find those cases dispositive, however, explaining that 

none “concerned an allegation by a creditor that a grantee had 

constructive, as opposed to actual, knowledge of the grantor’s 

fraud.” Id. at 146. And, the court cited older Maryland cases 

that explicitly held that constructive knowledge by the grantee 

was sufficient. See id. Although the court noted that these 

cases were decided prior to the UFCA, it explained that the UFCA 

was declaratory of the common law and of the Statute of 

Elizabeth. See id. Thus, the court found the older cases 

applicable. See id.

28 
 The Bank, relying primarily on the cases Fick explicitly 

distinguished, argues that the Maryland Court of Appeals would 

not follow Fick. Alternatively, the Bank argues that Fick does 

not apply in a case in which constructive fraud was not 

specifically alleged in the complaint. We disagree with both 

arguments. 

 When predicting how a state’s highest court would decide a 

legal issue, we view decisions of the state’s intermediate 

appellate court as the best indication, other than decisions of 

the highest court itself, of how the highest court would rule. 

See Private Mort. Inv. Servs. v. Hotel and Club Assocs., Inc., 

296 F.3d 308, 312 (4th Cir. 2002). It is undisputed that the 

cases on which the Bank relies for support were, unlike Fick, 

cases in which a theory of constructive knowledge was not 

asserted. The significance of that point is not that Fick

decided that constructive knowledge must be pleaded explicitly 

in order to charge the grantee with knowledge under that theory. 

Rather, it is that language in those other cases stating the 

requirement that a grantee know of a grantor’s fraud should not 

be read to exclude the possibility that the grantee would be 

charged with such knowledge because he was on inquiry notice. 

2. 

 Even if the Trustee were required to prove that the Bank 

had actual knowledge of Greenbaum’s fraudulent intent regarding 

29 
the share-loan payments, we conclude that the bankruptcy court’s 

finding of such knowledge was not clearly erroneous. 

Greenbaum’s prior relationship with the Bank, Knowles’s failure 

to make any significant investigation despite the obviously 

unusual nature of the share loans, his participation in creating 

misleading audit documents, and his production of dummy account 

statements, taken together, are powerful evidence that the Bank 

was aware of the share-loan scheme. The Bank concedes that this 

evidence “might support a finding that Knowles knowingly 

participated in the share loan scheme” were it not for other 

facts that the Bank argues the bankruptcy court did not 

explicitly consider. Brief of Appellant, at 44. In particular, 

the Bank points out that Knowles and Greenbaum had not known 

each other prior to the making of these loans; Knowles and 

Greenbaum both testified that no Bank employee knew about 

Greenbaum’s scheme; there was no evidence presented that any 

bribes were paid to anyone connected with the Bank or that the 

Bank or Knowles profited from the share loans other than the 

interest that they generated; bank examiners concluded there was 

nothing illegal about the loans; neither Knowles nor any Bank 

employee was charged with any crime related to the share loans; 

and although Knowles signed some of the account confirmations 

early in the scheme, Greenbaum later forged Knowles’ signature 

on some account confirmations. 

30 
 In the end, the Bank argues that the only reasonable 

inference to be drawn from the evidence as a whole was that 

Knowles was not actually aware of Greenbaum’s scheme, but merely 

“incredibly stupid.” Id. at 44. We do not agree that the 

evidence compelled that conclusion. The lack of evidence of any 

financial motive on the part of anyone at the Bank to help 

Greenbaum execute his fraud and the lack of evidence of any 

previous relationship between Greenbaum and Knowles might have 

been more persuasive in the absence of the evidence that 

Greenbaum was a former director and shareholder of the Bank. 

That relationship certainly raised the possibility that Bank 

employees might be sympathetic, or might be urged by their 

superiors to be sympathetic, to assisting Greenbaum in his 

fraudulent activities. And, the fact that various government 

entities did not bring criminal proceedings against Bank 

employees does not excuse the bankruptcy court from deciding for 

itself, by a preponderance of the evidence, whether the Bank was 

aware of Greenbaum’s fraudulent scheme. Finally, it is hard to 

see the relevance of the fact that Greenbaum forged Knowles’s 

signature on some account confirmations, in light of the fact 

that Knowles willingly signed others. We therefore conclude 

that the bankruptcy court’s finding that the Bank had actual 

knowledge of Greenbaum’s fraudulent intent was not clearly 

erroneous. 

31 
 In sum, for all of the reasons discussed, we hold that the 

district court properly affirmed the bankruptcy court’s ruling 

allowing the Trustee to avoid and recover the share-loan 

payments. 

III. 

 The Bank also contends that the bankruptcy court abused its 

discretion by permitting the Trustee to testify as an expert 

witness in the areas of fraud examination, fraud transfer 

analysis, and solvency analysis, given that the Bank had no 

notice prior to trial that he might be testifying as an expert 

in those areas. The Bank argues that without this expert 

testimony, the Trustee would have been unable to establish MPA’s 

insolvency, and any attempt by the Trustee to avoid and recover 

the non-share loan payments under a constructive-fraud theory 

would have failed. We find no abuse of discretion. 

 Bankruptcy Procedure Rule 7037, which provides that Rule 37 

of the Federal Rules of Civil Procedure applies in adversary 

proceedings, see Fed. R. Bankr. P. 7037, requires the exclusion 

of any witness not disclosed as required by Rule 26 of the 

Federal Rules of Civil Procedure unless the failure to disclose 

is “substantially justifi[ed]” or “harmless,” Fed. R. Civ. P. 

32 
37(c)(1).8 Although the Bank argues that the failure to disclose 

cannot be considered harmless because the expert testimony 

helped the Trustee’s case and harmed the Bank’s, that argument 

is misplaced. The critical inquiry under Rule 7037 concerns the 

prejudicial effect of the Trustee’s failure to disclose that he 

might be providing the expert testimony, not of the testimony 

itself, and the Bank offers no argument regarding how timely 

disclosure would have made any difference. 

IV. 

 On cross-appeal, the Trustee argues that the district court 

erred in reversing the bankruptcy court’s ruling allowing the 

Trustee to avoid and recover $119,036.12 of the transfer made 

with check 784. We agree. 

 The bankruptcy court found that the evidence did not 

establish how the Bank applied $119,036.12 of the funds 

transferred by that check, and thus the court found that MPA did 

not receive fair consideration for it. The president of the 

Bank at the time of trial, John Lane, testified that his 

investigation had indicated that $119,036.12 of the funds had 

 8

 Bankruptcy Procedure Rule 7026 provides that Rule 26 of 

the Federal Rules of Civil Procedure applies in adversary 

proceedings. See Fed. Bankr. Rule 7026. 

33 
been applied to share loans.9 The bankruptcy court discredited 

this testimony because Lane did not have first-hand knowledge 

and could not produce supporting documentation. The court also 

inferred from the fact that the Bank did not produce the records 

that MPA did not receive fair consideration for $119,036.12 of 

the transfer.10 

 The district court ruled that the bankruptcy court erred in 

shifting the burden to the Bank to prove that MPA received fair 

consideration for the transfer. The district court ruled that, 

had the bankruptcy court realized that the Trustee bore the 

burden, it could only have found that the Trustee failed to meet 

his burden with regard to check number 784. The district court 

therefore reversed the bankruptcy court decision to the extent 

it allowed the Trustee to avoid and recover $119,036.12 of the 

payment. The Trustee argues that the district court erred 

regarding the constructive-fraud theory.11

 9

 Of course, had the bankruptcy court credited Lane’s 

testimony that the funds had been applied to the share loans, 

the court would have ruled that the transfer could be avoided. 

10 The court inferred that $119,036.12 of the transfer was 

“part of the fraudulent scheme in which [the Bank] participated 

with Greenbaum.” J.A. 2112. 

11 Because we conclude that the bankruptcy court’s ruling 

should have been affirmed under a constructive-fraud theory, we 

do not address the viability of the Trustee’s actual-fraud 

theory. 

34 
A. 

 The Trustee argues that the district court erred in 

concluding that the bankruptcy court improperly shifted the 

burden of proof to the Bank regarding this transfer. We agree. 

 A party seeking to set aside a conveyance as fraudulent 

initially bears the burden of proving the fraud. See Sullivan 

v. Dixon, 373 A.2d 1245, 1248 (Md. 1977). “It is well 

established . . . that facts and circumstances may be such as to 

shift the burden to the grantee to establish the bona fides of 

the transaction.” Berger, 263 A.2d at 510. The presence of 

several badges of fraud are “facts and circumstances” sufficient 

to shift the burden regarding consideration. See Wellcraft 

Marine Corp. v. Roeder, 550 A.2d 377, 379 (Md. 1988) (internal 

quotation marks omitted). Such badges can include, inter alia, 

the grantor’s insolvency, the relationship between the grantor 

and the grantee, and departure from the normal course of 

business. See id.

 Here, the relationship between Greenbaum and the Bank bears 

special attention not only because Greenbaum was a former 

director and stockholder, but also because the two were already 

engaged in fraudulent activities regarding the share loans that 

represented a departure from the Bank’s normal course of 

business. In light of this relationship and MPA’s insolvency, 

the bankruptcy court’s decision to shift the burden to the Bank 

35 
to show that MPA received fair consideration for check 784 was 

well founded. 

B. 

 The Bank maintains that even if the transfer made by check 

784 was otherwise avoidable, the bankruptcy court abused its 

discretion in allowing the Trustee to amend his complaint to 

seek recovery of more than $72,000 of that transfer. We 

disagree. 

 Federal Rule of Bankruptcy Procedure 7015, providing that 

Rule 15 of the Federal Rules of Civil Procedure applies in 

adversary proceedings, see Fed. R. Bankr. P. 15, allows 

pleadings to be amended with leave of the court, see Fed. R. 

Civ. P. 15(a). Leave to amend “shall be freely given when 

justice so requires.” Id. We review the grant of a motion to 

amend the pleadings for abuse of discretion. See Lone Star 

Steakhouse & Saloon, Inc. v. Alpha of Va., Inc., 43 F.3d 922, 

940 (4th Cir. 1995). We find no abuse of discretion here. 

 Counsel for the Trustee represented to the bankruptcy court 

that the parties had been exchanging documents regarding check 

784 until the week before trial and that the Trustee had only 

recently determined that he was entitled to recover more than 

$72,000 of the transfer. As the Bank did not dispute counsel’s 

account, the bankruptcy court had no reason to believe that the 

36 
37 

Trustee had delayed unreasonably in notifying the Bank that he 

was seeking recovery of a greater amount. 

 Furthermore, the Bank did not demonstrate to the bankruptcy 

court how it would be prejudiced by the “late” amendment. 

Whether the Trustee was seeking recovery of $72,000 or 

$119,036.12 of the $172,000 transfer, the Bank had reason to 

show that it had given MPA more than the $52,963.88 worth of 

consideration that it could prove. As it failed even to prove 

consideration valued at $72,000, there is no reason to believe 

that its evidence would have been any different had the initial 

complaint sought recovery of the additional $47,036.12. 

V. 

 In sum, we reverse the district court’s reversal of the 

bankruptcy court’s ruling that the Trustee could avoid and 

recover the challenged portion of the transfer accomplished by 

check number 784. Otherwise, we affirm. 

AFFIRMED IN PART AND REVERSED IN PART