Opinion ID: 577691
Heading Depth: 3
Heading Rank: 2

Heading: Actual Fraudulent Transfer

Text: 16 Section 548(a), which concerns fraudulent transfers, provides: 17 (a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by 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-- 18 (1) made such transfer or incurred such obligation with actual intent to hinder, delay or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation incurred, indebted; or 19 (2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and 20 (B)(i) was insolvent ...; 21 (ii) ... [had] unreasonably small capital; or 22 (iii) ... would be beyond the debtor's ability to pay.... 23 The trustee argues that the bankruptcy court erred in finding that under subsection 548(a)(1) no actual intent to hinder, delay or defraud existed. We find no merit to the trustee's argument. 24 While each fact does not have to demonstrate actual fraud, the facts taken together must lead to the conclusion that actual fraud existed. 4 Collier on Bankruptcy, p 548.02 (15th ed. 1989). Courts, however, are aware that there is a difference between actual and constructive fraudulent intent. Regardless of the ability of courts to infer actual fraudulent intent from the presence of badges of fraud, see Boston Trading Group, Inc. v. Burnazos, 835 F.2d 1504, 1509 (1st Cir.1987), actual fraudulent intent requires a subjective evaluation of the debtor's motive. Certainly, an objective determination has bearing on whether constructive fraudulent intent exists, but is not conclusive for actual fraudulent intent. See id. at 1509. 25 As proof of fraud, the trustee notes that the books of the debtor did not list any obligation directly to Donatelli & Klein. Instead, the obligation named First American. The trustee argues that this concealment is an indicium of fraud and drew an analogy to a case which found that fraud existed where individuals were misappropriating property of the corporation for their personal use. See In re Rockaway Soda Water Mfg. Co., 226 F. 520 (E.D.N.Y.1915). While transactions involving insiders should be closely scrutinized, see EEE Commercial Corp. v. Holmes (In re ASI Reactivation, Inc.), 934 F.2d 1315, 1323 & n. 3 (4th Cir.1991), the facts here do not suggest that the insider gained personally from the transaction. In fact, only the debtor received draws on the lines of credit. 26 The trustee also states that the debtor paid First American regularly while falling deeper into debt with other creditors. The trustee cites a number of pages in the joint appendix as support, but none truly support his position. They all demonstrate that the debtor drew upon the lines of credit and repaid First American, but do not indicate whether, as a result, the debtor fell deeper into debt with other creditors. In fact, the evidence demonstrates that, in terms of payments, the debtor treated First American like any other creditor. The financial manager for the debtor stated that he had not intended payments to First American to be different from payments to other creditors. (J.A., 1035a). 27 Far from supporting the trustee, the evidence indicates that the debtor had not acted negligently or recklessly, much less actually intended, to hinder, delay, or defraud other creditors. The books did not list Donatelli & Klein as creditors, because, as agreed, the debtor, not Donatelli & Klein, was responsible for the payments to First American. The books reflected the economic reality of the situation.