Opinion ID: 3022346
Heading Depth: 4
Heading Rank: 2

Heading: Calculation Requirements

Text: As noted above, “[t]he value of consideration received must be compared to the value given by the debtor.” Metro Commc’ns, 945 F.2d at 648. Calculating “direct” benefits (such as an investment of cash that yields a cash return) is typically easy, but becomes more difficult when benefits are “indirect.” See R.M.L., 92 F.3d at 148. Nonetheless, “[t]hese indirect economic benefits must be measured and then compared to the obligations that the bankrupt incurred.” Metro Commc’ns, 945 F.2d at 647; see In re Richards & Conover Steel Co., 267 B.R. 602, 612 (B.A.P. 8th Cir. 2001) (“[I]n deciding whether value has been transferred the court must examine all aspects of the transaction and carefully measure the value of all benefits and burdens to the debtor, direct or indirect.” (citation and internal quotation marks omitted)); In re BCP Mgmt., Inc., 320 B.R. 265, 280 (Bankr. D. Del. 2005) (same, citing Metro Communications). Metro Communications does not, however, require a precise calculation of value in all circumstances. There, Mellon 22 Bank (“Mellon”) provided Total Communications Systems (“TCS”) with a $1.85 million loan to acquire Metro Communications, Inc. (“Metro”). Metro guaranteed TCS’s debt to Mellon and, to secure that guaranty, it granted Mellon a security interest in its assets. As a result of this transfer, Metro (as part of TCS) was eligible for substantial advances of credit and had the opportunity to “synergize” its operations with those of TCS. Yet Metro went bankrupt shortly thereafter, and the unsecured creditors’ committee argued that the security interest conferred no value on Metro because “Metro did not receive the proceeds of the acquisition loan, [and thus] did not receive any direct benefits from extending the guaranty and security interest collaterizing that guaranty.” Metro Commc’ns, 945 F.2d at 646. In holding that the security interest was not a fraudulent transfer under § 548, we noted: The value . . . of the synergy obtained in the corporations’ affiliation and the value of obtaining the credit are difficult to quantify in dollars without the aid of expert witnesses. Regrettably, no such testimony was forthcoming in this case. . . . We do know that the assets of the guaranteeing corporations were sufficiently valuable to justify an immediate additional loan by Mellon to TCS of 2.3 million dollars and letters of credit for an additional 2.25 million dollars. These loans enabled Metro . . . 23 immediately to achieve a very sharp rise in its broadcasting rights amounting to a grand total of $26,240,705. Although the ability to obtain credit is the lifeblood of the commercial world and governmental operational survival, and the synergistic strength expected from the merger here, no doubt had value, the Committee introduced no evidence to support its burden of showing that Metro received less than reasonably equivalent value in exchange for its guaranty and security interest. The Committee acted on the blind assumption that they had no value . . . . Id. at 647-48. Our decision in R.M.L. clarified Metro Communications’ requirements. The R.M.L. debtor paid $390,000 in commitment fees to Mellon Bank for the chance to secure a loan of $53 million, but the loan was never made. Moreover, the agreement between the debtor and Mellon Bank provided that the commitment fees would be retained by Mellon “even if the loan did not close.” R.M.L., 92 F.3d at 143. In determining whether the commitment fees were a fraudulent transfer, we reiterated that “essential to a proper application of the totality of the circumstances test [in determining reasonably equivalent value] is a comparison between the value that was conferred and the fees [the debtor] paid.” Id. at 154. We “acknowledge[d] that the measurement and comparison called for by [Metro Communications] is no easy task,” but “expressed no 24 reservations about the bankruptcy courts’ ability to analyze such potential, intangible benefits.” Id. And yet, despite the Bankruptcy Court not calculating the actual value of the benefits that accrued to the debtor as a result of paying the commitment fees, we discerned no clear error in the Bankruptcy Court’s determination that “the chances of the loan closing were negligible,” and thus “whatever value was conferred” by the chance of securing the loan was “minimal” and “not reasonably equivalent to the fees [the debtor] paid.” Id. at 148, 153-54; see also In re Int’l Mgmt. Assocs., 399 F.3d 1288, 1292 (11th Cir. 2005) (assuming, despite the lack of precise calculations in the record, that the value of stock received as a result of a transfer was obviously “less than [the] $100,000 [cost of the transfer] and in all probability was worthless”). R.M.L. clarifies that Metro Communications did not establish a per se rule requiring a precise calculation of the cash value of intangible costs and benefits in every case, nor did it preclude all inferences regarding values surrendered and gained as a result of a transfer. Rather, we believe Metro Communications, in light of our subsequent holding in R.M.L., stands for two principles. First, in those cases where the plaintiff contends that a transfer resulted in no value to the debtor, the plaintiff must ordinarily prove that the calculated value of the benefit is zero. If no calculations are offered into evidence, and there is some evidence that the benefit conferred 25 value, the plaintiff cannot satisfy its burden of proof.5 Second, where the value of an intangible benefit could equal or exceed the value surrendered by the debtor, precise calculations are essential to allow the court to determine equivalency properly. But this general rule yields to common sense: in those cases where a court has sufficient evidence to conclude, based on a totality of the circumstances, that the benefits to the debtor are minimal and certainly not equivalent to the value of a substantial outlay of assets, the plaintiff need not prove the precise value of the benefit because such a calculation is unnecessary to the court’s analysis. Moreover, R.M.L. makes clear that the trier of fact’s ultimate determination of whether the values are reasonably equivalent is reviewed only for clear error, even if the court did not convert those values into precise cash quantities.