Source: http://www.ecases.us/case/ilnd/c1552405/anand-v-national-republic-bank-of-chicago
Timestamp: 2020-04-05 16:40:57
Document Index: 774659651

Matched Legal Cases: ['§ 548', '§ 547', '§ 548', '§ 547', '§ 547', '§ 548', '§ 548']

Anand v. National Republic Bank of Chicago, Northern District of Illinois, US Federal District Court Cases, Federal Courts, COURT CASE
Dinesh Anand, debtor in bankruptcy, transferred his interest in a land trust to Republic National Bank in July 1992, a few months before filing a Chapter 11 bankruptcy petition. He seeks to avoid the transfer based on the constructive fraud provisions of the Bankruptcy Code, under which a debtor may avoid a transfer if, inter alia, "the debtor received less than a reasonably equivalent value in exchange for [the] transfer." 11 U.S.C. § 548(a)(2)(A). The bankruptcy court has twice rejected Anand's claims, and he now appeals for the second time. For the reasons that follow, the decision of the bankruptcy court is affirmed.
Anand filed for protection under Chapter 11 of the Bankruptcy Code in January 1993. In August 1993, Anand filed an Adversary Complaint to Avoid Transfer of Interest of Debtors in Property against National Republic Bank (the "Bank"). After hearing evidence in Anand's case in chief, Bankruptcy Judge Ronald Barliant granted a judgment on partial findings in favor of the Bank, and at the close of the evidence Judge Barliant denied Anand any relief. Anand appealed, and in October 1996 Judge Brian Barnett Duff of this court affirmed the decision in part and vacated and remanded in part. In re Anand, No. 95 C 3940, 1996 WL 596399 (N.D.Ill. Oct. 10, 1996). On remand, the bankruptcy court again rejected Anand's claims. In re Anand, 210 B.R. 456 (Bankr. N.D.Ill.1997). The bankruptcy court denied Anand's motion for rehearing or in the alternative for relief from the judgment under FED.R.BANKR.P. 9024 and FED. R.CIV.P. 60(b)(6). Anand timely filed the instant appeal on August 25, 1997.
The Court: The July 31 transfer 
As part of his remand ruling, Judge Barliant observed, "[H]ere[,] the Debtor did not give up all of his interest in the Mokena property; he only gave the Bank an interest in that property sufficient to secure payment of his debts," and further noted that "[t]he value of the property, beyond the amount of the debt, is . . . not lost to the debtor or other creditors as a result of the transfer." 210 B.R. at 459. Anand characterizes Judge Barliant's statement that he did "give up all of his interest in the Mokena property" in July 1992 as inconsistent with the ruling Judge Barliant had made in 1995. Specifically, in his initial opinion, in 1995, Judge Barliant found that "[s]ince the CABI attached in July, the transfer of the Debtor's 60% interest in the Trust occurred outside the 90 day period required by § 547(b)." (Record Ex. 6, at 14.) He concluded, "The Bank's Security Interest is valid and attached on July 31, 1992," and therefore *516 held that the October 1992 transfer was not avoidable as a preference, because it did not occur within ninety days of Anand's bankruptcy petition. (Id. at 15.) Anand argued in his Rule 60(b)(6) motion for relief from judgment that the bankruptcy court's findings and conclusions in 1995 and 1997 were inconsistent because the 1995 ruling recognized the transfer as having occurred in July, whereas the 1997 ruling emphasized the limited nature of that transfer.
Judge Barliant denied the Rule 60(b)(6) motion from the bench. His substantive comments were as follows:
Anand basically raises two issues on appeal.[4] First, he claims that Judge Barliant erred in his determination on remand that a transfer to secure an antecedent debt will always be for reasonably equivalent value. Second, he contends it was error for Judge Barliant to deny his Rule 60(b)(6) motion for relief from judgment. This court reviews the bankruptcy court's legal conclusions de novo and its factual findings for clear error. In re Cult Awareness Network, Inc., 151 F.3d 605, 607 (7th Cir.1998); see also FED. R.BANKR.P. 8013. As Judge Duff noted, clear error means that "`although there is evidence to support the findings, the court is left with the definite and firm conviction that a mistake has been committed.'" 1996 WL 596399, at *3 (quoting Matter of Robert Sheridan, 57 F.3d 627, 633 (7th Cir.1995)). Mixed questions of law and fact also are reviewed under the clearly erroneous standard. Matter of Teranis, 128 F.3d 469, 471 (7th Cir.1997).
Determination of reasonably equivalent value under Section 548(a)(2) is a *517 two-step process. The court first asks whether the debtor received value, and then examines whether the value is reasonably equivalent to what the debtor gave up. In re RML, Inc., 92 F.3d 139, 149, 152 (3d Cir.1996); Matter of Bundles, 856 F.2d 815, 824 (7th Cir.1988), superceded on other grounds by BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S. Ct. 1757, 128 L. Ed. 2d 556 (1994). There is no dispute that collateralization of an antecedent debt confers value on the debtor, since the bankruptcy statute's definition of "value" includes "securing of a present or antecedent debt of the debtor." 11 U.S.C. § 548(d)(2)(A).
In this court's view, Judge Barliant's reasoning is persuasive. The key factor to bear in mind  one that Anand's argument mainly ignores  is that the debtor receives value simply by securing a debt.[5] The *518 collateral makes he loan possible; the value received by the debtor is access to the loan proceeds; in the same sense, the value received by a debtor who satisfies an antecedent debt is the proceeds of the loan. This value conferred on the debtor is no less significant when the debtor provides security for an antecedent debt, rather than doing so at the time of the original loan transaction. When one focuses on the fact that the value the debtor receives is the proceeds of the loan itself  even where the debtor collateralizes an antecedent debt  then Judge Barliant's approach is eminently sensible. By definition, a security interest is pegged to the value of the secured assets; a high degree of equivalence between the two values is, therefore, a safe assumption.
Anand contends that the bankruptcy court erred when it denied his motion for relief from judgment pursuant to Rule 60(b)(6).[6] Under Rule 60(b), "upon such terms as are just" the trial court may "relieve a party or a party's legal representative from a final judgment, order, or proceeding" for reasons of mistake, inadvertence, surprise, excusable neglect, newly discovered evidence, or fraud, or if the judgment is void or has been satisfied. The court may also grant relief from the judgment based on "any other reason justifying relief from the operation of the judgment." FED.R.CIV.P. 60(b)(6).
Anand's "other reason justifying relief" is that he believes Judge Barliant's findings and conclusions in his 1997 remand ruling and his 1995 written order are inconsistent. Specifically, he maintains that the 1995 ruling announced "law of the case" to the effect that the Bank's security interest attached in July 1992 by virtue of the CABI, and "there was no property remaining in Anand which could be the subject of the October 9, 1995[sic] `absolute transfer.'" (Reply Br., at 10.) According to Anand, on remand Judge Barliant then ruled to the contrary, stating that "the Debtor did not give up all of his interest" by virtue of the July 1992 CABI, but relinquished only a security interest. As Anand put it in his 60(b)(6) motion, in 1997 the bankruptcy court "announced for the first time its finding of law that the Debtor Anand retained a residual ownership interest in the Mokena property after the July 31, 1992 CABI. That finding, if it had been disclosed in the 1995 opinion, would be have [sic] pointed out that the 1995 decision on the Section 547(b) issue was clearly wrong." (Record Ex. 22, at 3.) In short, Anand insists that the remand ruling changed the law of the case, and breathed new life into his claim that the October transfer was a preference under 11 U.S.C. § 547.
Relief under Rule 60(b)(6) requires "a showing of extraordinary circumstances that create a substantial danger that the underlying judgment was unjust." Margoles v. Johns, 798 F.2d 1069, 1073 (7th Cir.1986). This court reviews Judge Barliant's disposition of Anand's 60(b)(6) motion under a lenient abuse of discretion standard. As the Seventh Circuit has explained,
"[A]buse of discretion" in cases under Rule 60(b) is restricted review. It limits review to cases in which no reasonable person could agree with the [trial] court's decision. . . . [D]ecision under Rule 60(b) is discretion piled on discretion, and as we said in Metlyn such doubly discretionary decisions stand unless the judge was very far off base  if the judge relied on forbidden factors or omitted to consider some important relevant factor.
Anand's argument is based on his assertion that the bankruptcy court ruled in 1995 that he had no interest in the Mokena trust after the July 1992 CABI. But the court has not found, and Anand has not cited, any part of the 1995 order in which Judge Barliant made such a determination. The 1995 ruling simply states that "[s]ince the CABI attached in July, the transfer of the Debtor's 60% interest in the Trust occurred outside the 90 day period" preceding Anand's bankruptcy petition. (Record Ex. 6, at 14.) In the next paragraph, it concludes, "The Bank's Security interest is valid and attached on July 31, 1992. The transfer of the security interest did not occur within the preference period and cannot be avoided under § 547." (Id. at 15.) Although Judge Barliant did not explicitly state in 1995 that transfer of a collateral security interest does not encompass ownership interest, as he did in his 1997 ruling, he never expressly held  or established "law of the case"  that Anand conveyed all of his interest by the CABI. Indeed, the bankruptcy court's consistent reference to the CABI as a transfer of security interest in its 1995 order suggests otherwise. Whatever additional explanation Judge Barliant issue in 1997, his remand ruling on the issue of the nature of the CABI was certainly sufficiently consistent with his 1995 order that he was within his discretion in denying Anand's motion.[7] The bankruptcy court's denial of Anand's 60(b)(6) motion is affirmed.
[3] The elements of a constructive fraud claim are that the debtor: (1) transferred property within one year of filing a petition in bankruptcy; (2) received less than reasonably equivalent value for the property transferred; and (3) either (a) was insolvent or became insolvent as a result of the transfer, (b) retained unreasonably small capital after the transfer, or (c) made the transfer with the intent to incur debts beyond its ability to pay. 11 U.S.C. § 548(a)(2).
[5] This premise, of course, is not novel  it is exemplified by the definition of value at 11 U.S.C. § 548(d)(2)(A), as Judge Barliant recognized but it is not necessarily intuitive. One commentator, noting this quirk, offered the following historical explanation:
Under Section 548(d)(2)(A) of the Code, which defines value for purposes of fraudulent conveyance law, a debtor that secures or pays an antecedent debt is deemed to receive reasonably equivalent value. At first glance, that result seems illogical. The debtor receives nothing tangible by securing or paying its debts; rather, it gives away tangible collateral or cash. History and policy, however, can explain this apparent inconsistency. Historically, fraudulent conveyance law was intended to prevent fraud, and securing or paying a legitimate debt is not fraudulent. The rule may promote bankruptcy policy by allowing a troubled debtor the flexibility to secure or pay its debts in order to avoid default or reach an out-of-court settlement, thereby facilitating its rehabilitation. Thus, even under fraudulent conveyance law itself, the inability to verify the equivalence of values exchanged is irrelevant to the determination of reasonably equivalent value when the debtor secures antecedent debt, an action that may facilitate its rehabilitation.
DocketNumber： 97 C 6873
Citation Numbers： 239 B.R. 511
Lorain Tolliver v. Northrop Corporation , 786 F.2d 316 ( 1986 )
Dr. Milton Margoles v. Alida Johns and the Journal Company, ... , 798 F.2d 1069 ( 1986 )
Thomas Barrow v. Lloyd A. Falck, Individually and as ... , 11 F.3d 729 ( 1994 )
United States v. Marc L. Polland , 56 F.3d 776 ( 1995 )
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In the Matter of Zigurds B. Teranis and Mara Teranis, ... , 128 F.3d 469 ( 1997 )
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