(Bankr. N.D. Ill. Feb. 13, 2001) (citing Max Sugarman Funeral Home, Inc. v. A.D.B. Investors,
926 F.2d 1248, 1254 (1st Cir. 1991)), These circumstances, or badges of fraud, may include: (1)
whether the debtor was insolvent at the time of the transfer or became insolvent as a result of the
transfer; (2) whether the debtor retained control of the asset; (3) whether the transfer was to a
family member, In re Chevrie, 2001 Bankr. LEXIS 97, at *28; (4) whether the transfer was prior
to debtor incurring a substantial debt; and (5) whether the transfer was substantially all of
debtor’s assets. Jn re Mussa, 215 B.R. 158, 168 (Bankr. N.D. Ill. 1997). “Although the presence
of a single badge of fraud . . . is insufficient to establish actual fraudulent intent, the confluence
of several can constitute conclusive evidence of actual intent, absent significantly clear evidence
of a legitimate supervening purpose for the transfer.” In re Chevrie, 2001 Bankr. LEXIS 97, at
*28. In other words, several badges of fraud may create a presumption of fraudulent intent, id.,
which “imposes on the party against whom it is directed the burden of going forward with
evidence to rebut or meet the presumption, but does not shift to such party the burden of proof in
the sense of the risk of nonpersuasion, which remains throughout the trial upon the party on
whom it was originally cast,” Fed.R.Evid. 301.

Leibowitz claims that three badges of fraud were sufficiently demonstrated at trial: (1)
Rungsarn was insolvent or became insolvent as a result of the transfers; (2) the transfers were to
family members; and (3) the transfers included substantially all of Rungsarn’s assets. On this
basis, Leibowitz claims he was entitled to but not given a presumption of Rungsarn’s fraudulent
intent. From its oral opinion, the Court stated that it did not believe Leibowitz carried his burden
of proof on any count and that it did not “believe that [Rungsarn] intended to defraud his

creditors,” thus preventing Leibowitz from prevailing on his fraud in fact claim. As to the


Constructive Fraud/Fraud in Law

Leibowitz also challenges the Court’s finding that his constructive fraud claim fails. To
prove constructive fraud or fraud in law, Leibowitz must prove: (1) a transfer of an interest in
property; (2) that the transfer of that property occurred within one year before the bankruptcy
filing date; (3) that the debtor received less than equivalent value in exchange for the transfer;
and (4) that the debtor was insolvent at the time of the transfer or became insolvent as a result of
the transfer. 11 U.S.C. §§ 548(a)(1)(B)G), 548(a)(1)(B)Gi)(). For the reasons discussed above,
the Court did not commit error in finding insufficient evidence proving that Rungsarn was
insolvent at the time of the transfers or that Rungsarn became insolvent as a result of the

transfers, thus sinking Leibowitz’s constructive fraud claim.

For the reasons above, the bankruptcy court’s judgment for both defendants is

AFFIRMED.

ENTER:

James)B. Zagel Con o°
United States Distr? ge

DATE: { Cluguch 2004



or “UFTA”) against Rani and Kovnvara to recover the funds Rungsarn transferred to them.!

After a bench trial, the Court ruled in favor of Rani and Kovnvara.

Standard of Review

Leibowitz now appeals: (1) the Court’s finding that he failed to carry the burden of
proving Rungsamn’s insolvency; and (2) the Court’s Tuling as a matter of law that Rungsarn did
not intend to defraud his creditors. I “review the courts’ legal interpretations de novo; however,
[I] review the bankruptcy court’s findings of fact for clear error only.” Union Planters Bank,

N.A. v. Connors, 283 F.3d 896, 899 (7th Cir. 2002).

Actual Fraud/Fraud in Fact

Leibowitz first claims that the Court improperly determined if there was actual fraud, a
claim which I must review de novo. Actual fraud, or fraud in fact, requires Leibowitz to prove:
(1) a transfer of an interest in property; (2) that the transfer of that property occurred within one
year before the bankruptcy filing date; and (3) that the debtor had an actual intent to hinder,
delay, or defraud his creditors, 11 U.S.C. § 548(a)(1)(A). The only element at issue here is
whether Rungsarn had an actual intent to hinder, delay, or defraud his creditors. Because actual
intent is often impractical to demonstrate, bankruptcy courts may use the circumstances

surrounding the transfer to infer fraudulent intent. Jn re Chevrie, 2001 Bankr. LEXIS 97, at *27

' Because the state and federal statutes are functional equivalents, except for the statute
of limitations, the analysis is the same. In re First Commercial Management Group, Inc., 279
B.R. 230, 240 (Bankr. N.D. iL 2002) (citing Jn re Randy, 189 B.R. 425, 443 (Bankr. N.D. Ill.
1995)).


specific badges of fraud, the Court explicitly stated that Leibowitz did not carry the burden to
prove Rungsarn was insolvent or became insolvent as a result of the transfer. Accordingly, I will
review that finding for clear error only. However, because nothing in the record indicates
whether the Court considered if the second or third badges of fraud (transfer to a family member
or transfer of substantially all of debtor’s assets) were present, I will review each badge de novo.
I will first address whether Leibowitz carried the burden to prove Rungsarn was insolvent
or became insolvent as a result of the transfers to Rani and Kovnvara. “The UFTA defines
insolvency as when ‘the sum of the debtor’s debts is greater than all of the debtor’s assets at a
fair valuation.’” Jn re Mussa, 215 B.R. at 169 (quoting 740 ILCS § 160/3(a)). Rungsarn
admitted during the trial that at the time of the transfer to Rani and Kovnvara, he had unpaid
debts. He also testified he had no other assets or income except the proceeds from the sale of his
building and income from his job. While Rungsarn acknowledged he did not pay off all his
debts, he never admitted he could not have paid off his debts. He netted almost $96,558.48 from
the sale of the building. Between the sale of the building and the transfer to Rani and Kovnvara,
he spent $6,710.70 of the proceeds on various expenses, leaving $89,847.78. Subtracting the
$10,000 he transferred to both Rani and Kovnvara, Rungsarn still retained $69,847.78.
Leibowitz presented no evidence at the trial that at the time he transferred the money to Rani and
Kovnvara, his debts were greater than $89,847.78 or even $69,847.78. In fact, Leibowitz
presented no evidence as to the amount of Rungsarn’s outstanding debts at the time of the
transfers. In addition, Rungsarn continued to pay various creditors after the transfers, such as
$5,113 to Fleet, $5,000 to First USA Bank, $4,823 to First USA Bank, and $2,000 to Chase.

Furthermore, after he lost his job and only source of income in February 2001, he increased his



ide Form (0697)

United States District Court, Northern District of Illinois

T Name of Assigned Judge James B. Zagel Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 4465 DATE 8/1/2003
* CASE DAVID P. LEIBOWITZ vs. KOVNVARA IMSORN, ET AL
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintitl, delendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.}
DOCKET ENTRY:
(1) Oo Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) Oo Answer brief to motion due. . Reply to answer brief due____
(4) a Ruling/Hearing on set for at
(5) Oo Status hearing[held/continued to] {set for/re-set for]on__ set for at
(6) Qa Pretrial conference[held/continued to} [set for/re-set for] on set for at
(7) oO Trialfset for/re-set for] on at
(8) im) [Bench/Jury trial} [Hearing] held/continued to at 7
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OOFRCP4(m) OLocalRule 41.1 OFRCP41(a)(1) [ FRCP41(a)(2).
(10) [| [Other docket entry) The bankruptcy court’s judgment in favor of defendants is AFFIRMED.
al) ff (For further detail see order attached to the original minute order.]
No notices required, advised in open court. Document
. Number
No notices required. number of notices
Notices mailed by judge’s staff.
Notified counse! by telephone.
Y | Docketing to mail notices.
JY | Mail AO 450 form. 1a'sP
Copy to judge/magistrate judge. Lynod LOVMLs
us wuss
courtroom -
Dw deputy’s 9:4 Wd 4 on
initials =
Date/tiggrereivadiey() 3G4 3
consi hieedine ca ning dep



gambling and continued to lose money. Out of 45 withdrawals from his account between the
time of the transfers and his filing for bankruptcy, only eight were to pay bills. The remaining
transactions were to various casinos, to an unknown entity referred to as “H.C.B.” or for cash, all
of which arguably contributed to his insolvency. Therefore, the Court’s finding that there was no
evidence that Rungsarn was insolvent or became insolvent as a result of the transfers is not
clearly erroneous.

As to whether the transfers in question went to a family member, Leibowitz is correct as
to the existence of a badge of fraud on this basis. There is no dispute that Rungsarn made a
transfer to his daughter and his ex-wife whom he continued to see socially. While transfers
“between family members is not proof per se of fraudulent intent, a familial relationship is
weighty proof of such intent,” Jn re Chevrie, 2001 Bankr. LEXIS 97, at *28. Unfortunately for
Leibowitz, however, the Court’s failure to consider this badge of fraud is harmless error because
Leibowitz did not sufficiently demonstrate the existence of a badge of fraud on the basis of
Rungsarn’s transfer of substantially all of his assets. At the time of the transfer, Rungsarn still
retained $69,847.78 or nearly 75% from the sale of his building and was working full time.
Therefore, he did not transfer “substantially” all of his assets. In sum, because Leibowitz
demonstrated only one badge of fraud, he was not entitled to a presumption of fraud at trial.
Accordingly, the Court did not commit error in finding that there was no fraudulent intent on the

part of Rungsarn, thus sinking Leibowitz’s actual fraud claim.



UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
DAVID P. LEIBOWITZ,
Appellant,
v. No. 02 C 4465
No. 02 C 4466
KOVNVARA IMSORN and RANI Judge James B. Zagel
IMSORN,
Appeal from U.S. Bankr. Ct. Nos.: 01 B
Appellees. 29705; 01 A 01248; 01 A 01250.

OPINION
Appellant David P. Leibowitz, as Chapter 7 trustee for Rungsarn Imsorn (“Rungsarn”),
filed two complaints in the United States Bankruptcy Court for the Northern District of Illinois
against Rani Imsorn (“Rani”) and Kovnvara Imsorn (“Kovnvara”) to recover funds transferred to
them by Rungsarn. Leibowitz claimed that the funds were transferred as either fraudulent
conveyances or avoidable transfers under 11 U.S.C. §§ 548(a)(1)(A), 548(a)(1)(B), and 544
incorporating 740 ILCS 160/6. After a bench trial, the Court entered judgment in favor of

Kovnvara and Rani, which Leibowitz appeals.

Background we

In December of 2000, approximately eight months before filing for bankruptcy, Rungsarn.
sold a rental piece of property from which he netted $96,558.48. He then transferred $10,000 to
his ex-wife Rani and $10,000 to his daughter Kovnvara. Rungsarn claims he owed Rani $10,000
because she previously owned the property and executed a quitclaim deed during their divorce on

the unwritten promise that he would pay her something from the sale of the property. As for his



daughter, Rungsarn claims that he owed her $16,000 resulting from a loan she made to him in
1998 or 1999, and thus paid her $10,000 as partial payment. However, in his affirmative
defenses in his answer to the complaint, Rungsarn stated that he gave her the $10,000 to pay for
her wedding, which he reiterated at trial.

As to his personal financial situation, Rungsarn testified that he had a gambling problem
and has lost over $50,000 each year for the past several years. On February 23, 2001, he was
terminated from his full-time job at Jackson Park Hospital, where he had worked for 29 years.
According to his testimony, his salary had been $2,200 per month (or $26,400 annually),
although his Statement of Financial Affairs indicates he was making only $23,000 annually.
After he lost his job, Rungsarn became depressed and gambled even more. With $950 per month
of living expenses, a gambling problem, and no income except the proceeds from the sale of the
building, Rungsarn ran out of money in August 2001. On August 23, 2001, he filed for Chapter
7 bankruptcy, and a trustee was assigned.

As part of his Chapter 7 bankruptcy, Rungsarn was required to file a Statement of
Financial Affairs disclosing all transfers to insiders within one year of filing for bankruptcy. On
his first schedule of affairs, he failed to list the transfers to Rani and Kovnvara. However, at the
§ 341 meeting on October 2, 2001, he acknowledged that he had transferred $10,000 to both of
them. On October 31, 2001, he filed an Amended Schedule of Affairs including these transfers
and an income and expense statement with copies of checks drawn showing how he spent the
proceeds from the sale of the building.

Leibowitz subsequently filed adverse proceedings under 11 U.S.C. §§ 548(a)(1)(A),

548(a)(1)(B), and 544 incorporating 740 ILCS 160/6 (Illinois Uniform Fraudulent Transfer Act