when viewed in the light most favorable to the parly winning the verdict.” U.S.E.E.O.C, v. Century
Broadcasting Corp., 957 F.2d 1446, 1457 (7th Cir.1992) (citation omitted). This court will give “due
regard .,. to the opportunity of the trial court to judge the credibility of the witnesses,” Lange v.
United States, 31 F.3d 535, 539 (7th Cir.1994), Careful to avoid substituting judgment Jor that of the
factfinder at trial, this court must ascertain whether there cxists sufficient evidence upon which any
rational finder of (act could reach the trial verdict. See Gile v. United Airlines, Inc., 213 F.3d 365, 372
(7th Cir. 2000),
B.
1.
‘The Bankruptcy Court did not ert in finding that the Trustee met his burden of proof under 11 U.S.C.
§ 548. § 548 provides:
(a)(1) The trustee may avoid any transfer of an interest of the debtor in property, or any
obligation incurred by the debtor, that was made or incurred on or within one year before the
date of the filing of the petition, if the debtor voluntarily or involuntarily
(B)(i) received less than a reasonably equivalent valuc in exchange for such transfer or
obligation; and
(ii)(1) was insolvent on the date that such transfer was made or such obligation was incurred,
or became insolvent as a result of such transfer or obligation;
(I) was cngaged 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
(III) 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.
Yo obtain relief under section 548(a)(1)(B), the Trustee must establish not only that the debtor

transferred an interest in property for less than reasonably cquivalent valuc, 11 U.S.C. §

548(a)(1)(B)(i), but also establishes that the debtor “was insolvent on the date that such transfer was

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



by Debtor, the Bankruptcy Court was without sufficient evidence to reasonable equate $169,000 of
value being received by Debtor.

Appellant incorrectly asserts that the Trustee had to prove that consultant contract and
covenant not to compete had no reasonably equivalent value. Appellant points to the Bankruptcy
Court's concessions that there was perhaps some value within the two contracts provided to the
Debtor and concludes that since there was some value assigned to the consulting contract and to the
covenant not to compete then the Trustee failed to carry its burden. It is clear from the statute,
however, that Trustee did not have the burden under § 548(a)(1)(B) to prove that the value received
by Debtor had no value. Instead, the ‘l'rustee had the burden at trial to prove that Debtor did not
received a reasonably equivalent value in comparison to the value transferred [rom Debtor. Since
there is sulficient evidence in the record such that the Bankruptcy Court could find that the value of
the stock reccived by Debtor was worthless and the value under the consultant contract and covenant
not to compete speculation, the Trustee successful carried its evidentiary burden of proving that the
Debtor received less than it gave to Chapman.

2.

‘he Bankruptcy Court did not err in finding that Chapman did not meet his burden of proof
under § 548(c). Section 548(c) provides:

(c) Lixcept to the extent that a transfer or obligation voidable under this section is voidable

under section 544, 545, or 547 of this title, a transferee or obligce of such a transfer or

obligation that takes for valuc and in good faith has a lien on or may retain any interest
transferred or may enforce any obligation incurred, as the case may be, to the extent that such

transferee or obligee gave value to the debtor in exchange for such transfer or obligation.

11 U.S.C. § 548(c). There are two prongs to the defense under § 548(c)--value and good faith, and

both must be proven by the transferee. In re Roti, 271 B.R. 281, 295 (Bankr. N.D.I. 2002). In



method of evaluating the solvency of the Debtor was the liquidation approach, given the fact that the
Debtor, during the time in question, was not gencrating any income for purposes of an analytical
comparison. Under the liquidation valuation of the Debtor’s assets, the expert testified that the
Debtor was ina situation where its assets fairly valued did not exceed its liabilities and thercfore was
insolvent on January 14, 1997.

In similar fashion, under the going-concern method, the expert concluded that the Debtor was
insolvent in January of 1997. Again the expert testified that given the fact that the Debtor was not

generating income for purposes of analytical comparison, he was forced to look at a best-case

hypothesis under a going-concem method. Under the best-case hypothesis, the expert calculated a
capitalization of income with a 3% increase using the Debtor’s 1995 results of operation, the most
profitable year for the Debtor over the previous three years. Overull, the court found the expert’s
testimony credible, reliable and unchallenged, thus satisfying Trustee’s burden of proof by a
preponderance of the evidence.

Appellant argues that the Bankruptcy Court erred in finding Debtor insolvent in January, 1 997,
In so arguing, appellant does not challenge the teslimony offered by the expert at trial. Instead
appellant speculates that if the Trustee's expert had interviewed Gropman and utilized a third method
of evaluating solvency, the expert would have concluded the Debtor not insolvent in January 1997.
Whether there exists alternative methods of determining solvency or other resources bearing on the
ultimate question of solvency is of no issue, where the testimony offered by the expert at trial went
unchallenged and was sufficient to form the basis of the Bankruptcy Court’s decision, The record in
this case indicates that the only evidence submitted on the question of solvency came from the

Trustee’s expert. Thus, the Bankruptcy Court being in the best position to evaluate the expert's



Id. § 548(a)(1) (B)(ii)(); Dunham v. Kisak, 192 F.3d 1104, 1109 (7th Cir, 1999).
The test used to determine reasonably equivalent value requires the court to determine the
value of what was transferred and compare that value to the value reecived by the debtor. Barber v.

Golden Seed Co., Inc., 129 F.3d 382, 387 (7th Cir, 1997)(citation omitted), Determining reasonably

equivalent value is nota fixed mathematical formula; rather, the standard for reasonable equivalence
should depend on all the facts of cach case. Barber, 129 F.3d at 387 (citations omitted).

In tuling in favor of the Trustee, the Bankruptcy Court found that the Trustee successfully
carried its evidentiary burden of showing that the Debior did not receive a reasonable equivalent value
for the value it transferred to Chapman and successfully carried its evidentiary burden of showing that
the Debtor was insolvent at the time of the transfers to Chapman. Upon review of the evidence in this
case, it is clear the Trustee presented sufficient evidence such that a reasonable finder of fact could
find in favor of the Trustee under § 548. Specifically, the unchallenged expert testimony at trial
concerning the insolvency of the Debtor at the time of the transfers to Chapman provided a sufficient
basis for the Bankruptcy Court to makes its judgment as to insolvency and as to reasonable equivalent
value.

a.

The Bankruptcy Court did not err in finding the Debtor was insolvent at the time of the
Redemption Agreements. Alter hearmg the evidence presented during the course of the onc-day
bench trial, the Bankruptcy Court answered first whether Debtor was insolvent in January, 1997. In
answering this question, the Bankruptcy Court relied upon the testimony oflered by an expert witness

tendered by the Trustee. The Trustee’s expert testified about two different methods of which to value

the Debtor’s assets in January, 1997. The expert testified that, in this case, the most appropriate



worthless, Whereas, the Bankruptcy Court found that the covenant not to compete gave some value
to the corporation, (Id. at 106, lines 7-9), and also found that if Chapman provided consulting
services, those services would have some value to the Debtor. (Id, at line 5-7). ‘faking the whole
transaction into effect, the Bankruptcy Court found that the value received by Debtor was not
equivalent to value of the funds it transferred to appellant.

Appellant argues that the Trustee did not offer any evidence to establish that the payments to
Chapman were for less than reasonably equivalent value. Appellant explains the only testimony at
trial regarding reasonably cquivalent value came from Chapman and in the absence of any rebuttal
evidence to refute or compromise the testimony given by Chapman the Bankruptcy Court erred in its
valuation of the consulting agreement and the covenant not to compete. Appellant’s recitation of the
trial record, however, is incorrect.

The Bankruptcy’s determination of reasonably equivalent value simplified to whether the
value of the stock transferred from appellant plus the value of the services rendered under the
consulting agreement and the value of the covenant not to compete was reasonably equivalent to
$114,400 plus $18,590, and $37,000 ($169,990) transferred from Debtor. Since there was sufficient
evidence at trial to establish that Debtor was insolvent in January, 1997, thereby making the valuc of
Chapman’s stock transferred worthless, the Bankruptcy Court justifiably simplified its determination
further to solely focus on whether the value of the services rendered under the consulting agreement
and the value of the covenant not to compete to Debtor was reasonably equivalent to $169,990. Upon
hearing all the evidence, the Bankruptcy Court found that there was insufficient evidence in the record

to put a dollar amount upon the services rendered under the consulting agreement or onto the value

of the covenant not to compete. Accordingly, with at least $169,000 in value being transferred out



Minute Ordey Form (06°97)

5 United States District Court, Northern District of Illinois

Name of Assigned Judge James F. Holderman Sitting Sudge if Other
‘or Magistrate Judge . than Assigned Judge
CASE NUMBER 02 C 4058 DATE 8/20/2002
CASE CHAPMAN ys. GROPEMAN INC 014479 98B 19860
TITLE
[In the following box (u) indicate the party filing the motion, ¢.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
qd) Oo Filed motion of [ use listing in “Motion” box above.]
(2) Q Brief in support of motion due
(3) Oo Answer brief to motion duc . Reply to answer brief due___
(4) oO Ruling/Hearing on set for ____ at
(5) a Status hearing[held/continued to] [sct for/re-set for] on set for at
(6) o Pretrial conference[held/continucd to) [set for/re-set for) on set for at
(7) o Trial[set for/re-set for] on. at
(8) a [Bench/Jury trial] [Hearing] held/continued to at | :
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) (OLocal Rule 41.1 CO) FRCP41(a\(1) OO FRCP41(a)(2).
do [Other docket entry] Pursuant to Memorandum Opinion and Order entered this day, the decision
of the Bankruptcy Court is affirmed.
dil) (For further detail see order attached to the original minute order.)

No notices required, advised in open court,

No notices required. _— number of notices

UG 23 2002

te Uuckeled

Notices mailed by judge's staf. ;

Nolified counsel by telephone,

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.
seen2aa2

rts Ra ny 2 sate mailed not
J courtroom PR pe SEIN G5 te mailed notice
I3 deputy's s
initials

{j Datkyime revelvedt ine

central Clerk's Office coming deputy initials



can only avoid transfers of an interest of the debtor in property that was made or incurred on or
within one year before the date of the filing of the petition, 11 U.S.C. § 548(a), the UFTA, provides
that a ‘Trustee can bring a fraudulent transfer action within the later of four years after the transfer
was made or within one year after the transfer was or reasonably could have been discovered, In re
Spatz, 222 B.R. 157, 164 (N.D.IIL.1998). Since the provisions of the UFTA parallel § 548 of the
Bankruptcy Code, findings made under the Bankruptey Code are applicable to actions under the
UFTA._In re Randy, 189 B.R. 425, 433 (Bankr.N.D.II1.1995), the Bankruptcy Court properly was
correct in avoiding all transfers made to Chapman where the payments made to Chapman were made
within four years of Debtor’s bankruptcy petition, where the Bankruptcy Court already had a
sufficient evidentiary basis upon which to find the Debtor insolvent on January 14, 1997 and to find
the value received by Debtor not equivalent to the value of the funds it transferred to appellant.
4,

The Bankruptcy Court did not err in avoiding payments made to Chapman under the
Additional Agreement. Section 550 provides:

a) Except as otherwise provided in this section, to the extent that a transfer is avoided under

section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the

benefit of the estate, the property wansferred, or, if the court so orders, the value of such

property, from--

(1) the initial transferee of such transfer or the entity for whose benefit such transfer was

made; or

(2) any immediate or mediate transferee of such initial transferee.

(b) The trustee may not recover under section (a)(2) of this section from--

(1) a transferee that takes for value, including satisfaction or securing of a present or

antecedent debt, in good faith, and without knowledge of the voidability of the transfer

avoided. ..
Appellant argues that the Bankruptcy Court erred in finding him liable for the return of the payments

made by Debtor pursuant to the Additional Agreement. Grasping for straws, appellant cites Bonded

11



evaluating Chapman’s defense under § 548(c), the Bankruptcy Court found that Chapman had not
established the valuc of either the consulting agreement nor the covenant not to compete, Although
the Bankruptcy Court again conceded that within either contract there may have been some value to
Debtor, the Bankruptcy Court was proper in ruling that there was insufficient evidence upon which
to adequate fix any amount of value to the services rendered. Accordingly, having failed to carried
his evidentiary burden as to the first prong under §548(c), the Bankruptcy Court was properly in not
considering Chapman’s evidence if any under the second prong and ultimately ruling against
Chapman under § 548(c).
3.

The Bankruptcy Court did not err in avoiding payments made to Chapman more than one year
after the filing of the bankruptcy petition against Debtor. Appellant argues that the Bankruptcy Court
erred in calculating the actual amounts to be avoided under the consulting agreement, the covenant
nol to compete and the Additional Agreement. Appellant asserts that the Bankruptcy Court should
not have avoided the full $114,400 paid to Chapman under the consulting agreement where only
$50,050 was paid within one year prior to Debtor filing bankruptcy. Similarly, the Bankruptcy Court
should not have avoided the full $18,590 paid to Chapman under the covenant not to compete where
only $10,010 was paid within onc ycar prior to Debtor filing bankruptcy. Finally, the Bankruptcy
Court should not have avoided the full $37,000 paid to Chapman under the consulting agreement
wherc only $6,000.00 was paid within one year prior to Debtor filing bankruptcy.

Count | of the Complaint sought to avoid and recover the transfers from Debtor to Chapman
pursuant to the UFTA, and Count II sought to avoid and recover the transfers from Debtor and

Chapman pursuant to 1] U.S.C. § 548(a)(2). While appellant is correct that under §548(a), a Trustee

10



credibility, had sufficient evidentiary basis upon which to make its rulings.
b.

The Bankruptcy Court did not err in finding that the Debtor did not receive reasonably
equivalent value for its payments to Chapman. As to whether the Debtor received a reasonably
equivalent value for value given, the parties stipulated as to the value of the asscts transferred from
Debtor to Chapman: $114,400 under the consulting agreement, $18,590 under the covenant not to
compete, and $37,000 under the Additional Agreement. (Tr. of Proceedings, p. 104, lines 16-21, May
9, 2002). Thus leaving the Bankruptcy Court to determine the reasonably equivalent value the Debtor
received in return for the value given up.

First, the Bankruptcy Court found based upon the evidence that the consideration paid for the
consulting agreement, the covenant nol to compete and the Additional Agreement was all part ofa
single transaction to redeem Chapman’s stock The record contains substantial evidence supporting
this finding of fact. In particular, appellant's own testimony at trial is sufficient to support the
Bankruptcy Court’s findings that payments under the Redemption Agreements and the Additional
Agreement were part of an integrated transaction to redeem appellant's stock. Specifically, appellant
testified at trial that he was not involved in the determination of the final values for any of the
agreements executed on January 14, 1997,, he simply provided a bottom-line figure to his accountant,
Further, appellant testified that he concem himself with how the consideration for the stock
redemption was to be divided, he was solely interested in the final figure. (Tr., p. 54-55, lines 23-25,
1-20).

Second, having alrcady found the Debtor to have been insolvent on January 14, 1997, the

Bankruptey Court found that the value of the stock transferred from Chapman to Debtor to be



to avoid and recover the transfers from Debtor to Chapman pursuant to the Illinois Uniform
lraudulent Transfer Act (“UFTA”) 740 ILCS 160/1 et. seq., Count Il sought to avoid and recover the
transfers from Debtor to Chapman pursuant to 11 U.S.C. § 548(a)(2), and Count III sought to disallow
Chapman’s claim pursuant to 11 U.S.C. § 502(d). The Chapmans filed a Motion for Partial Summary
Judgment on October 20, 2001, asserting that the $250,000 reecived by Chapman pursuant to the
stock redemption agreement could not be recovered from them because the funds were carmarked for
payment to the Chapmans by Jcrome Gropman, Gropman’s father, who provided money to the Debtor
for the stock redemption, On December 26, 2001, the Bankruptcy Court found that the $250,000 paid
by Jerome Gropman was earmarked for a specific use and therefore was nol property of the Debtor
which could be recovered by the estate. ‘The Order did not contain findings relating to the allocation
of consideration paid to the Chapmans or possible recovery of payments by the Debtor under the
Redemption Agreements.

On May 9, 2002, this case was tried in a one-day bench trial. In addition to the evidence
presented at trial, the parties stipulated to various facts, including the payments received by Chapman
from Debtor. The partics also stipulated that the deposition testimonies of Gropman and Ricky
Chapman were admissible as evidence. Ricky Chapman settled with the Trustee in a separate
agreement and is nol a party to this appeal.

iL.

STANDARD OF REVIEW

The standard of review in this case is limited to determining “whether the evidence presented,

combined with all reasonable inferences that may be drawn from it, is sufficient to support the verdict

3



the outstanding shares. Alan Gropman (“Gropman”) owned the remaining 43.5% of the Debtor's
outstanding shares, Chapman owned 85.8% of the 56.5% shares outstanding and Ricky Chapman
owned 14.2%,

In order for Gropman and his family to become sole owners of Card World, Inc., Gropman
and the Chapmans entered into a stock redemption agreement dated January 14, 1997, and Chapman
received $250,000 for his stock in Card World, Inc. Simultancous with the execution of the stock
redemption agreement, Chapman entered into a consulting agrccment and a covenant not to compete.
Pursuant to the terms of the consulting agreement, Debtor made an initial payment to Chapman of
$21,450 and promised to pay an additional $107,250 in luture installments. Pursuant to the terms of
the covenant not to compete, Debtor agreed to pay Chapman a total of $21,450 of which Chapman
received $18,590. In addition to the execution of the consulung agreement and covenant not to
compete, Gropman entered into an additional agreement with Chapman (“Additional Agreement”)
pursuant to which Gropman agreed to pay Chapman an additional $37,000 as an added inducement
for Chapman to execute the stock redemption agreement. In all there were four agreements entered
into: (1) a stock redemption agreement; (2) a consulting agreement; (3) a covenant not to compete;
and (4) the Additional Agrecment (“Redemption Agreements”). Pursuant to the Redemption
Agreements, Chapman was to receive 85.8% of the total compensation under each separate
Agreement, and Ricky Chapman the other 14.2%.

On June 26, 1998, an involuntary petition for relief under Chapter 7 of the Bankruptey Code
was filed against Debtor. An Order of Relief was entered on July 21, 1998 and the Trustee was
appointed on September 18, 1998. On May 21, 2001, Trustee filed a Complaint to Avoid and

Recover Fraudulent Transfers and Disallow ot Subordinate Claims. Count I of the Complaint sought



IN THE UNITED STATES DISTRICT COURT
FOR THLE NORTHERN DISTRICT Ol ILLINOIS

EASTERN DIVISION
)
IN RE: )
) DOCKETED
GROPMAN, INC, )
Debtor. ) No. 02 C 4058 AUG 2 3 2002
)
)
ROBERT C, CHAPMAN, ) (Appeal From an Order of the United States
Appellant, ) Bankruptcy Court for the Northern District
) of Illinois in No, 01 A 00479
Vv. ) (Case No. 98 B 19860)
)
JOSEPH A. BALD )
Appellee. )

MEMORANDUM OPINION AND ORDER
JAMES F, HOLDERMAN, District Judge:

This is an appeal froma decision of the Bankruptcy Court for the Northern District of Illinois,
Eugene R. Wedoff, C.J. “Appellant Robert C. Chapman (“Chapman”) asks this court to set aside the
judgment entered in favor of Joseph A. Baldi (“Trustee”), as the trustee of the estate of debtor
Gropman, Inc. (“Debtor”). This court has jurisdiction pursuant to 28 U.S.C, § 158(a) and Federal
Rules of Bankruptcy Procedure 8001 and 8002. For all the following reasons, the decision of the

Bankruptcy Court is affirmed.

STATEMENT OF FACTS
Prior to January 14, 1997, the outstanding shares of the Debtor f7k/a Card Word, Inc. were

owned by three parties. Appellant and his brother, Ricky Chapman (“Chapmans”) owned 56.5% of



Financial Services, Inc. v. European American Bank, 838 1'.2d 890, 893 (7th Cir, 1988) for the
proposition that the minimum requirement of status as a “transferee” is dominion over the money or
other asset, or the right to put the money to one’s own putposcs, and desperately argues that Chapman
was not a initial transferee nor the individual for whose benefit the initial transfer under the
Additional Agreement, but instead was an immediate transferee ofthe initial transferee and therefore
protected under §550(b)(1). The Bankruptcy Court taking the Bonded Financial case into account,
{ound that the funds transferred from Debtor to Chapman consisted of series of dircet transfers, which
were completed at the time they were made. ‘The cvidence at trial showed that while Debtor was not
a party to the Additional Agreement, the Debtor made the payments directly to Chapman pursuant
to the Additional Agreement. Thus, Chapman was the initial transferee of the payments having
dominion and control over the moncy and thus beholding to the avoidance powers of the Trustee.
CONCLUSION

For all the above stated reasons and upon review of the Bankruptcy Court’s judgment, this
court finds sufficient evidence in the record by which the Bankruptcy Court based its decision.
Accordingly, the decision of Bankruptcy Court is affirmed.

ENTER:

JAMES F. HOLDERMAN
/United States District Judge

DATE: August 20, 2002

12