Opinion ID: 718704
Heading Depth: 2
Heading Rank: 2

Heading: Evidence of a Lack of Good Faith

Text: 34 Mr. McKay also argues that, even under an objective standard, the bankruptcy and district courts erred in concluding that his receipt of the $43,500 was not in good faith under § 548(c). Resolution of this issue requires a determination of whether the facts satisfy the proper legal standard, a mixed question of law and fact. See Clark v. Security Pac. Business Credit, Inc. (In re Wes Dor, Inc.), 996 F.2d 237, 241 (10th Cir.1993). In these circumstances, because the question of good faith is primarily factual, we will review the findings of the bankruptcy court for clear error. See id. at 242 (applying the clearly erroneous standard to the district court's determination of value under § 548(c)); see also Acequia, Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 805 (9th Cir.1994); In re Roco, 701 F.2d at 981-82. 35 In arguing that he received the $43,500 from M & L in good faith, Mr. McKay notes that he invested in M & L on the recommendation of Dr. Tsoucatos, a former economics professor, and that he received assurances about the financial soundness of the company from M & L's president after the first check was returned. As further indicators of good faith, Mr. McKay also points to his visit to M & L's offices, the explanations of the high rates of return provided by M & L officials, and his review of company financial statements. 36 Under § 548(c), Mr. McKay has the burden of establishing good faith. See Agric. Research & Technology Group, 916 F.2d at 535; In re Candor Diamond Corp., 76 B.R. at 351, 4 Collier on Bankruptcy, supra, p 548.10 at 548-129. Upon review of the record, we agree with the district court that the bankruptcy court's finding that Mr. McKay failed to establish good faith under the objective standard of § 548(c) was not clearly erroneous. The factors supporting this conclusion have been persuasively outlined by the district court: Mr. McKay's experience as an investor; promised rates of return greatly exceeding the market rate (120% per year on two investments and 468% on the two other investments); an implausible explanation by M & L officials as to how the company could pay these extremely high rates; M & L's use of postdated checks to pay investors; Dr. Tsoucatos's disclosure that he received a commission for finding investors for M & L; and the fact that the company's first check to Mr. McKay was returned. See Jobin, 164 B.R. at 662-63. In light of all of these circumstances, it was not clearly erroneous for the bankruptcy court to conclude that a reasonably prudent investor in Mr. McKay's position should have known of M & L's fraudulent intent and impending insolvency and that he was therefore not entitled to the good faith defense established by § 548(c). 37