Opinion ID: 750642
Heading Depth: 2
Heading Rank: 1

Heading: Reasonable Probability of Success

Text: 23 The district court had to decide whether the NCUAB had a reasonable probability of success on two closely related issues: The first is did Johnson transfer the sum of $72,325 to L & V to hinder, delay, or defraud the Credit Union or the NCUAB; and the second is did L & V take the property for value and in good faith? 24 The FCUA has two important sections dealing with the NCUAB's powers with respect to transfers of any property within five years of the date that the NCUAB becomes conservator of a failing credit union. Section A permits the NCUAB to avoid any transfer of property made with the intent to burden, delay, or defraud the insured credit union or the board. Under this section, the intent of the transferor is the controlling factor. Rare will be the case in which the transferor admits that he intended to make an impermissible transfer. Intent will, in most instances, have to be proved by extrinsic evidence. Among the more common badges of fraudulent intent at the time of a transfer are: 25 (1) actual or threatened litigation against the debtor; (2) purported transfer of all or substantially all of the debtor's property; (3) insolvency or other unmanageable indebtedness on the part of the debtor; (4) a special relationship between the debtor and the transferee; and (5) retention by the debtor of the property involved in the putative transfer. 26 .... 27 the confluence of several [badges of fraud] can constitute conclusive evidence of an actual intent to defraud. 28 F.D.I.C. v. Anchor Properties, 13 F.3d 27, 32 (1st Cir.1994), (quoting Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1254-55 (1st Cir.1991)). In this case there was actual or threatened litigation against the debtor and there was insolvency on the part of the debtor, but the debtor did not transfer all or substantially all of his property. There was no special relationship between the debtor and transferee, and the debtor did not retain any of the property involved in the transfer. 29 Here, Johnson's intent was to obtain competent legal representation in a complicated bankruptcy case fraught with both criminal and civil issues. There is no evidence that he intended to place the money transferred to L & V to put it out of the reach of the NCUAB and creditors. If the sum transferred was unreasonable, clearly such an intent can be inferred, but the sum was clearly reasonable in light of the complexity of his legal problems. Thus, the question becomes whether this transfer was illegal per se under the FCUA simply because the inevitable effect of the transfer will be to reduce the assets available for the Credit Union and other creditors. We do not believe that this result is dictated either by the plain meaning of the FCUA or the intent of Congress. To put the matter simply, the FCUA does not prohibit a debtor of a credit union to enter into a nonrefundable retainer agreement, provided the payment is a reasonable one; and the NCUAB agrees that for the purposes of this appeal, we should assume that the retainer was a reasonable one. Clearly Congress could prohibit such payments, but it has not done so. 30 The NCUAB argues that this case should be controlled by United States v. Monsanto, 491 U.S. 600, 109 S.Ct. 2657, 105 L.Ed.2d 512 (1989). In that case, the question was whether the federal drug forfeiture statute gives the district court the power to freeze a defendant's assets in his possession even if he wishes to use them to pay for an attorney. The Supreme Court in a 5-4 vote held that the language of § 853 of the forfeiture statute was plain and unambiguous. It stated, section 853(a) provides that a person convicted of the offenses charged in respondent's indictment 'shall forfeit ... any property that was derived from the commission of these offenses.'  Id. at 607, 109 S.Ct. at 2662. We recognize that Monsanto gives some comfort to the NCUAB's position. We note, however, that the opinion deals only with funds in the possession of a defendant at the time the forfeiture order is entered and that the forfeiture requires that the defendant be convicted of a crime and the property forfeited be derived from the proceeds of the crime or used to facilitate the crime. We are reluctant to extend Monsanto to the facts of this case. 31 Even if we were to hold that Johnson's intent was an impermissible one, there remains the question of whether L & V took the $72,325 nonrefundable retainer for value and in good faith. There is no question but that L & V took the retainer for value. Indeed, no one argues that L & V did not give value for the fee. So the question is did it take the payment in good faith? L & V, of course, knew that Johnson was in deep trouble. It knew that it was likely that he would be faced with both criminal and civil litigation. It knew that the checks tendered were checks that would become part of the bankruptcy estate if it did not accept them in payment of its retainer agreement. It inquired as to whether the livestock, which Johnson sold, was covered by a security agreement and received a negative answer. So the question is whether this conduct constitutes lack of good faith within the meaning of the FCUA. We do not believe that it does. L & V clearly was not obligated to represent Johnson unless it could be assured of payment. It reasonably relied on representations to it that the livestock that had been sold was not covered by a security agreement. So they were faced with the question of whether the FCUA made acceptance of the retainer an act of bad faith. The FCUA does not specifically define good faith and reported cases as of the date L & V accepted the retainer fee indicate only that acceptance of a nonrefundable retainer from a bankrupt is improper only if the retainer was excessive or a means of hiding assets of the bankrupt. See, e.g., FDIC v. Cafritz, 762 F.Supp. 1503, 1507 (D.D.C.1991). 32 On remand, the matter, of course, will be heard on the merits. See Olin Water Servs. v. Midland Research Laboratories, Inc., 774 F.2d 303, 308 (8th Cir.1985). 5 If at that time the NCUAB can establish that the fee paid was an unreasonable one, examined as of the date of the transfer, then L & V will have to return the nonrefundable retainer, otherwise it will not. We simply hold as a matter of law that an insolvent debtor in a bankruptcy proceeding may pay a nonrefundable retainer to attorneys of his choice for representation if the amount paid is reasonable and is not taken from assets that the law firm either knew or should have known were secured at the time they were paid.