In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 01-4058

IN RE:

MICHAEL V. FRIERDICH, SR.,

Debtor,

v.

STEVEN V. MOTTAZ, Trustee of the Estate of

Michael V. Frierdich, Sr.,

Plaintiff-Appellee,

v.

BEVERLY OSWALD,

Defendant-Appellant.

____________

Appeal from the United States District Court

for the Southern District of Illinois.

No. 01-CV-302-DRH—David R. Herndon, Judge.

____________

ARGUED MAY 20, 2002—DECIDED JUNE 21, 2002

____________

Before EASTERBROOK, ROVNER, and EVANS, Circuit

Judges.

EVANS, Circuit Judge. Michael Frierdich is a Chapter 7

debtor, which means, in simplest terms, that he does not

have enough assets to pay off a staggering amount of debt.

This case, between the bankruptcy trustee (Mottaz) and

Frierdich’s wife (Oswald), turns on when Frierdich trans-
2 No. 01-4058

ferred shares of stock (or their proceeds, worth $400,000) to

Oswald. The answer to that question affects whether Mottaz can upset the transfer and obtain its proceeds for distribution to Frierdich’s creditors. Oswald, who would just as

soon keep the $400,000, has already had two swings at this

issue. She lost before the bankruptcy judge and the district

judge. We will ring her up on strikes.

Because this case arose on summary judgment, we state

the facts in the light most favorable to Oswald. We turn

first to the events of early 1998. At that time, Frierdich was

a director and the treasurer of Columbia Centre, Inc., a

closely held company, and owned 360 of its outstanding

1,000 shares. Paul Frierdich (his brother) and Joe Koppeis

held the remaining shares. (Paul and Michael Frierdich

both submitted affidavits saying that Columbia Centre

never issued stock certificates to its shareholders. A certificate—“Certificate #6”—evidencing Frierdich’s shares

turned up but had never been signed.) The stock record

book was also lost.

Meanwhile Frierdich and Oswald were pondering the

business of marriage. In anticipation of their engagement,

they decided to take stock of their respective financial situations. Based on information that Frierdich provided to

Oswald, they determined that the value of Frierdich’s estate

exceeded that of Oswald’s. So they assented to an arrangement under which Frierdich would transfer his Columbia

Centre stock to Oswald and she would waive any interest

in Frierdich’s estate. On January 7, 1998, Frierdich and

Oswald were engaged.

The next day Frierdich executed a “Stock Transfer/Stock

Power.” It assigned to Oswald his interest in the stock and

gave the officers of Columbia Centre power of attorney to

transfer the stock on the company books. On January 16

Frierdich sent the transfer document, along with transfer instructions, to Paul Frierdich. The transmittal letter
No. 01-4058 3

read: “Please transfer stock as of Jan. 8, 1998 to Bev. This

is part of the prenuptial agreement we have. Call if any

questions.” On February 10 Paul Frierdich sent a “speed

message” reading:

Mike and BevI received your stock transfer of all Mike’s stock in

Columbia Centre Inc. Shopping Center Corporation,

and accordingly the transfer to Bev Oswald of his 36%.

We do not need anything else for the transfer.

Oswald never received a stock certificate and no notation on

the (missing) stock record book was ever made.

Frierdich and Oswald each signed a prenuptial “waiver”

to any interest in the other’s estate on March 4. Paragraph

six of Oswald’s waiver read:

It is the intent of the undersigned that her present and

future interest in any assets of Michael V. Frierdich is

specifically limited to those assets which Michael V.

Frierdich shall have voluntarily transferred an interest

to the undersigned and only then in circumstances

wherein he has affirmatively taken action transferring

an ownership interest to the undersigned. Reference

herein includes interest Michael V. Frierdich has previously and voluntarily, by execution of a stock transfer,

assigned all his rights, title, and interest in and to his

stock ownership in a Columbia, Illinois shopping center

to Beverly K. Oswald.

Frierdich and Oswald were married 3 days later.

In August or September of 1998, Koppeis and Paul

Frierdich approached Frierdich about having the corporation repurchase his shares in Columbia Centre. They offered him $250,000, a price that increased, based on financial appraisals, to $400,000. Koppeis, who was Columbia Centre’s president and managing officer, was not aware

of any transfer to Oswald.
4 No. 01-4058

In September a sale agreement was forwarded to

Frierdich. It listed him as the seller. On a draft of the

agreement Frierdich crossed out his name, substituted “Bev

Oswald” as the seller, and sent the documents back to Paul

Frierdich with a transmittal letter reading: “I believe Bev

needs to sign this because of the transfer document I gave

her several months ago. The money should go to her.” The

final agreement of sale, however, again listed Frierdich as

the seller. Frierdich signed that agreement, warranting

that he held title to the stock and that it was not subject to

any agreement that would restrict its sale. Koppeis and

Paul Frierdich also signed the agreement. At closing, which

apparently took place on September 10, Columbia Centre

issued Frierdich a $400,000 check. He signed the receipt

and deposited the check in Oswald’s account after endorsing

it “for deposit.” At that same time, Frierdich resigned his

positions with the company.

In a letter dated September 23, 1998, to Union Planters

Bank, with which Oswald and Frierdich’s son were trying

to arrange a loan for a real estate purchase, Frierdich

stated:

I transferred some $400,000.00 to Beverly K. Oswald as

a gift to a spouse, there are no gift tax consequences.

There is an unlimited marital deduction for gifts to a

spouse, and as such, this is the net amount for her to

utilize. I sold my stock in a shopping center for a sum

in excess of that amount and was only required to pay

capital gains tax on some 20%. My interest in the shopping center was sold in 1998.

Involuntary bankruptcy proceedings commenced on February 17, 1999. Frierdich’s schedules indicate that, as of the

filing, he had debts of $8,530,395 and assets of $1,200.

Twelve lawsuits were pending against Frierdich, five of

which had been pending prior to September 10, 1998. The

claims on file in the bankruptcy proceeding reflect debts in
No. 01-4058 5

1 This subsection has been referred to as the “actual fraud”

avoidance provision because of its “intent ingredient.” See, e.g., In

re FBN Food Servs., Inc., 82 F.3d 1387, 1394 (7th Cir. 1996). Mottaz also argues, and the bankruptcy judge also found, that the

transfer is voidable under the “constructive fraud” provision found

in 11 U.S.C. § 548(a)(1)(B). Because, as we will discuss, we affirm

the bankruptcy judge’s holding under § 548(a)(1)(A), we don’t

dwell on Mottaz’s § 548(a)(1)(B) argument.

excess of $400,000 incurred prior to January 1, 1998, including federal taxes of approximately $240,000 owing.

Frierdich was also the major shareholder and guarantor of

many of the debts of South of the Border, Inc., which had

filed for bankruptcy (apparently in July 1998).

Mottaz, the trustee, filed this adversary proceeding

against Oswald seeking to avoid Frierdich’s transfer to

her of the stock proceeds from the September 10, 1998 sale.

The bankruptcy judge (Fines, J.), finding no dispute that

the relevant transfer occurred in September, and not January, entered summary judgment for Mottaz in the amount

of $400,000. He held, in the alternative, that even if the

transfer occurred in January, it was voidable. Oswald appealed and the district judge affirmed.

In a second appeal from a bankruptcy court’s decision, we

apply the same standard of review as did the district court.

In re Marrs-Winn Co., 103 F.3d 584, 589 (7th Cir. 1996).

Because this case was decided on summary judgment, see

Fed. R. Bankr. P. 7056, our review is de novo.

This case implicates two avoidance provisions of the

federal bankruptcy code. Title 11 U.S.C. § 548(a)(1)(A) provides that a trustee may avoid a transfer by a debtor made

“within one year before the date of the filing” of the bankruptcy petition if the debtor “made such transfer . . . with

actual intent to hinder, delay, or defraud any entity to

which the debtor was or became . . . indebted.”1

 Title 11

U.S.C. § 544(b)(1) allows the trustee to commandeer the
6 No. 01-4058

rights of an unsecured creditor who could have avoided the

transfer under applicable law, in this case the Illinois

Fraudulent Transfer Act. See 740 Ill. Comp. Stat. 160/5.

For our purposes the key difference between these two

avoidance routes is that the Illinois Fraudulent Transfer

Act does not contain a one-year “look back” provision. Thus

if the transfer in the present case occurred in January

of 1998, it occurred more than one year before the February 17, 1999, bankruptcy filing and would fall outside of

§ 548’s one-year “look back” provision. Mottaz would then

be relegated to avoiding the transfer under § 544. If, on the

other hand, the transfer did not occur in January, but

rather occurred when the proceeds of the stock sale were

deposited in September 1998, the transfer would fall within

one year of the February 1999 bankruptcy filing and could

be avoided, if there was actual intent to defraud, under

§ 548(a)(1)(A). The burden of proving a fraudulent transfer

under § 548 is on the trustee. 5 Collier on Bankruptcy

¶ 548.10, p. 548-80 (15th ed. rev. 2002).

So to the key issue we turn: whether Frierdich transferred his Columbia Centre stock to Oswald in January of

1998. Under the bankruptcy code,

a transfer is made when such transfer is so perfected

that a bona fide purchaser from the debtor against

whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property

of the transferee.

11 U.S.C. § 548(d)(1). This provision presumes a “transfer,”

which the bankruptcy code defines as “every mode, direct or

indirect, absolute or conditional, voluntary or involuntary,

of disposing of or parting with property or with an interest

in property.” 11 U.S.C. § 101(54). Although this definition

of transfer is obviously federal, its references to “property”

and “interest in property” require an analysis of whether a
No. 01-4058 7

property interest was created under state law. Barnhill v.

Johnson, 503 U.S. 393, 398 (1992); In re Atchison, 925 F.2d

209, 210-11 (7th Cir. 1991) (“Absent a federal provision to

the contrary, a debtor’s interest in property is determined

by applicable state law.”).

Columbia Centre is an Illinois corporation and the parties

and courts below have applied Illinois law, so we apply it as

well. In re Marrs-Winn, 103 F.3d at 591.

Oswald argues that she acquired the stock pursuant to a

prenuptial agreement under which she waived her interest

in Frierdich’s estate in exchange for the stock transfer. This

qualifies her, she argues, for “protected purchaser” status

under section 303 of Article 8 of the Illinois Commercial

Code. (Certain provisions of Article 8 were revised in 2000

and the revisions became effective July 1, 2001. See 2000

Ill. Legis. Serv. 91-893, § 99. Because the events in this case

occurred in 1998, we will be applying the relevant provisions of Article 8 as they stood at that earlier time.) Section

8-303(a) defines a “protected purchaser” as “a purchaser of

a certificated or uncertificated security” who gives value,

does not have notice of an adverse claim to the security and

obtains “control” of the security. 810 Ill. Comp. Stat. 5/8-

303(a)(1)-(3). Oswald charges ahead to argue that she can

show value, no notice and control, and thus concludes that

she acquired an interest as a “protected purchaser.”

She has put the cart before the horse. To be a “protected

purchaser” she must first show that she is a “purchaser” of

the security, which, unfortunately for her, is the key issue

in this case. A “purchaser” (to no one’s surprise) is “a person

who takes by purchase.” 810 Ill. Comp. Stat. 5/1-201(33).

The Code adds that a purchase “includes taking by sale,

discount, negotiation, mortgage, pledge, lien, issue or reissue, gift or any other voluntary transaction creating an

interest in property.” 810 Ill. Comp. Stat. 5/1-201(32).

Oswald claims to have taken by prenuptial agreement.

That argument confronts two problems. First, even assum-
8 No. 01-4058

2 Oswald is steadfast in arguing that the transfer was not a gift,

so we have not referenced the Illinois law of gifts to determine if

delivery occurred. But see 7A William D. Hawkland & James S.

Rogers, Uniform Commercial Code Series [Rev] § 8-302:02,

pp. 425-26 (1996) (“It is possible that under the general law of

gifts acts that would not constitute an Article 8 ‘delivery’ under

section 8-301 would suffice as a delivery within the meaning of the

requirement of delivery imposed by the law of gifts.”).

ing the parties had a valid agreement pursuant to which

Frierdich would transfer the stock, delivery is required to

effectuate the transfer. 12 William Meade Fletcher, Fletcher

Cyclopedia of the Law of Private Corporations § 5481, p. 240

(rev. ed. 1996); cf. Meshew v. Whitlock, 9 S.W.3d 581, 585

(Ky. Ct. App. 1999) (interpreting 1994 revision of UCC,

adopted by Kentucky in 1996). And, on that point, Oswald

hits a snag. Although Article 8 may not provide the exclusive means of delivery, 12 William Meade Fletcher, Fletcher

Cyclopedia of the Law of Private Corporations § 5481, p. 242

(rev. ed. 1996), Oswald has not cited Illinois law validating

other types of delivery (and our research has uncovered

none), so we analyze whether delivery was accomplished

under Article 8.2

 Section 8-301 specifies when delivery

occurs in the case of both certificated and uncertificated

securities. The parties have had some back and forth about

whether the shares in this case should be classified as

certificated or uncertificated, an argument that seems inconsequential. Even assuming Oswald’s premise that the

shares were uncertificated, she cannot show delivery.

Delivery of an uncertificated security occurs when “the

issuer registers the purchaser as the registered owner,” 810

Ill. Comp. Stat. 5/8-301(b)(1), or “another person . . . either

becomes the registered owner of the uncertificated security

on behalf of the purchaser or, having previously become the

registered owner, acknowledges that it holds for the purchaser.” 810 Ill. Comp. Stat. 5/8-301(b)(2). Oswald cannot
No. 01-4058 9

prevail under section 8-301(b)(1) because Columbia Centre

never registered her as the owner of the stock. (Its stock

book was missing.) Section 8-301(b)(2) is a closer call but

also unavailing. Frierdich attempted to register the stock

in Oswald’s name, not hold it for her. He executed a “Stock

Transfer/Stock Power,” which attempted to assign the stock

and gave the officers of Columbia Centre power of attorney

to change the name in the stock book. The transmittal letter to Paul Frierdich read: “Please transfer stock as of Jan.

8, 1998 to Bev.” Paul Frierdich responded on February 10

that he had “received your stock transfer of all Mike’s stock

in Columbia Centre, Inc. Shopping Center Corporation,

and accordingly the transfer to Bev Oswald of his 36%.”

Frierdich clearly did not intend to remain in possession of

the stock on behalf of Oswald. He wanted to register it in

her name, an attempt that failed under section 8-301(b)(1).

If this seems an overly technical interpretation of section 8-301(b)(2) based on the facts of January and February 1998 alone, later events make clear that Frierdich

continued to be the stock’s real owner. Six months after

the purported transfer, Paul Frierdich and Koppeis (who,

as we said, was unaware of any January transfer) approached Frierdich to buy the shares. Although Oswald

stated that she was involved in discussions concerning the

stock sale, she did not negotiate the price for her purported

property. Rather, “they just came up with the amount.”

Moreover, although Frierdich attempted to have Oswald’s

name put on the sale agreement, he didn’t try very hard.

Frierdich went ahead and signed the (unrevised) final

agreement, which listed him as the seller. He warranted

that he held title to the shares; he also received the

$400,000 purchase price. And even though he deposited the

check in Oswald’s account, Frierdich wrote to Union Planters Bank, in what appears to have been the hope that Oswald and his son would obtain funding for a real estate

purchase, that the transfer was a marital “gift” (which
10 No. 01-4058

would not be taxed). Any force behind that assertion, of

course, necessarily assumed that the transfer occurred after

the Frierdich-Oswald union in March of 1998. The bankruptcy court did not err by finding no dispute of fact that

Oswald did not acquire the stock in the winter of 1998.

The second problem with Oswald’s “prenuptial” theory

is that, even apart from a failure of delivery, she never

obtained an enforceable interest in the stock. Illinois law

requires that a premarital agreement be in writing, 750 Ill.

Comp. Stat. 10/3. The writing that purports to be the prenuptial agreement in this case consists of two matching

“waivers,” one signed by Oswald, the other signed by

Frierdich. Nowhere does Oswald’s waiver recite the stock

transfer, which occurred 3 months prior to this time, as

connected to the waiver. Oswald’s waiver merely states that

her interest was limited to stock (purportedly) in her

possession already. The fact that Frierdich voluntarily

transferred the stock to “calibrate” the estates 3 months

earlier did not give Oswald an interest, enforceable in law

or equity, in the stock.

Accordingly, Oswald did not take an interest in the stock

until Frierdich deposited the proceeds from its sale into her

account in September of 1998. That transfer was 5 months

before the February 1999 bankruptcy filing and, therefore,

well within the one-year provision of 11 U.S.C. § 548.

The transfer is therefore voidable if it was done with

actual intent to defraud under 11 U.S.C. § 548(a)(1)(A). We

find nothing wrong with the bankruptcy judge’s conclusion

that there was no dispute that Frierdich transferred the

proceeds with actual intent to defraud. Direct proof of actual intent to defraud is not required—indeed, it would

be hard to come by—and a trustee can prove actual intent by circumstantial evidence. 5 Collier on Bankruptcy

¶548.04[2][a], p. 548-25 (15th ed. rev. 2002). Courts often

look to “badges of fraud” as circumstantial evidence. Id.
No. 01-4058 11

3 The claims on file in the bankruptcy proceeding revealed debts

in excess of $400,000 incurred before January 1, 1998, including

federal taxes owing in the amount of approximately $240,000. The

bankruptcy judge also took notice of a related bankruptcy proceeding, apparently filed in July 1998, involving South of the

Border, Inc., a company for which Frierdich was the major shareholder and had guaranteed many debts.

¶ 548.04[2][b], p. 548-26; see also In re XYZ Options, Inc.,

154 F.3d 1262, 1271-72 (11th Cir. 1998). These “badges”

include: whether the debtor retained possession or control of the property after the transfer, whether the transferee shared a familial or other close relationship with the

debtor, whether the debtor received consideration for the

transfer, whether the transfer was disclosed or concealed,

whether the debtor made the transfer before or after being

threatened with suit by creditors, whether the transfer

involved substantially all of the debtor’s assets, whether the

debtor absconded, and whether the debtor was or became

solvent at the time of the transfer. 5 Collier on Bankruptcy

¶ 548.04[2][b], pp. 548-26 to 548-28 (15th ed. rev. 2002).

The trustee presented evidence that Frierdich transferred

a substantial sum of money, $400,000, to a close relative,

his wife, and received nothing in return. In Frierdich’s own

words to Union Planters Bank, the transfer was a “gift.” He

made this gift in the midst of his own financial demise. The

bankruptcy judge did not err by taking judicial notice of the

schedules filed in the underlying bankruptcy proceeding. See In re Steffens, 148 B.R. 914, 916 (W.D. Mo. 1993);

Mitchell v. Western Data Processing Servs., Corp., 75 B.R.

825, 828 (D.P.R. 1987). Those schedules indicate that as

of February 17, 1999, Frierdich’s balance sheet was a sorry

$8,529,195 in the red. They also reveal that five lawsuits

against Frierdich were pending prior to September 10,

1998.3

 Although a debtor’s schedules, often filed months

after the time of transfer, may not be probative of the
12 No. 01-4058

earlier time, it simply blinks reality to think that Frierdich

incurred $8,530,395 worth of debt and (innocently) dwindled his assets to $1,200 in the 5 months between September 1998 and February 1999. Moreover, Koppeis stated

that, prior to the September stock sale, the IRS was garnishing $1,000 of Frierdich’s monthly $1,500 “director’s fee”

from Columbia Centre. In sum, no reasonable fact finder

could conclude that Frierdich did not have an actual intent

to defraud his creditors in September 1998.

Because we find that the bankruptcy judge did not err

by concluding that Frierdich’s September transfer was

voidable, we need not address his alternative holding that

had the transfer occurred in January, it would have run

afoul of the Illinois Fraudulent Transfer Act and, therefore,

been avoidable under § 544. In light of Frierdich’s tax debts

and his personal guarantees of the debts of a failing business, however, the bankruptcy judge was likely correct to

conclude that any transfer at that time was also fraudulent

and therefore voidable in the alternative under 11 U.S.C.

§ 544.

AFFIRMED.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-97-C-006—6-21-02