Opinion ID: 546944
Heading Depth: 3
Heading Rank: 2

Heading: fraudulent conveyance, counts ii and iii

Text: 42 A transfer may be avoided as fraudulent under 11 U.S.C. Sec. 548 5 for either of two reasons: actual intent to delay, hinder or defraud creditors, Sec. 548(a)(1), or the production of less than reasonably equivalent value for the estate, Sec. 548(a)(2). The Trustee raised both prongs of Sec. 548 in separate counts of the adversary complaint. The bankruptcy court rejected the actual intent to defraud claim, relying on its finding at the Sec. 362 hearing that Champlin and the Bank had not acted collusively. This was error. Allegations of collusion between the lienholder and the buyer at liquidation are not within the narrow scope of the Sec. 362 inquiry. It does not speak to whether the lienholder has a colorable claim--indeed, it assumes that the lienholder does have some claim. Before a question of the propriety of the conduct of a sale under Ind.Code Sec. 26-1-9-504 is reached, it must be assumed that the seller, the lienholder, has a legitimate legal right to conduct some sort of sale. Therefore the finding at the Sec. 362 hearing that the Bank and Champlin had not colluded was not necessary to the decision, and therefore is not to be given preclusive effect under the doctrine of collateral estoppel. White v. Elrod, 816 F.2d 1172, 1174 (7th Cir.), cert. denied, 484 U.S. 924, 98 L.Ed.2d 246 (1987). The court should have considered the Trustee's arguments. 43 With all due respect to the superior opportunity of the bankruptcy court judge to observe the demeanor of witnesses and to make credibility determinations, we are troubled by the court's finding that the Bank and Champlin had not acted collusively. The chronology of events leading up to the repossession and sale of Vitreous' assets in our opinion is suspect. Two days before repossession Champlin created a new corporation to compete directly against Vitreous, of which he was already majority shareholder and sole director. One day before repossession he took over $13,000 from the corporate treasury for expenses. On the same day he voluntarily turned all of Vitreous' assets over to the Bank, he obtained a contract to run the same business he had before, but now with a $2500 per week management fee. The time allowed by the Bank for sale to pay off Vitreous' debt did not leave enough time for an outside buyer to both decide the business was a good investment and allow an outside lender to do the necessary due diligence. Even though the Bank demanded cash in hand from the other bidders, the sale to Champlin and VITCO was a cashless transaction. If the Bank was willing to take the risk of Champlin running the business without further supply of outside money, why would they threaten to repossess? The only answer we can see is that the Bank and Champlin wanted the business shed of unsecured debt. The record contains Champlin's statement that in order for the company to succeed, you had to eliminate a good deal of that [general] debt. If elimination of the unsecured debt was the Bank's motive, then the Bank did act collusively to delay or defraud the unsecured creditors. Matter of Met-L-Wood, 861 F.2d 1012, 1019 (7th Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 1642, 104 L.Ed.2d 157 (1989); Matter of Ambassador Riverside Investment Group, 62 B.R. 147 (M.D.La.1986). The court should carefully reexamine this question on remand. 44 The other branch of fraudulent transfer analysis is whether the estate received substantially equivalent value from the transfer. Sec. 548(a)(2). Our analysis is complicated by the lack of a specific finding by the bankruptcy court on the value of the personalty. Without such a finding, we are without a figure against which we can compare the price received. Because there never was a finding of fact on this issue at the Sec. 362 hearing, the Sec. 362 hearing cannot preclude litigation of the question of equivalent value. We therefore reverse the grant of summary judgment as to this count, and remand for a determination of the value of all property sold and a comparison of that value to the price received.