Opinion ID: 6983974
Heading Depth: 2
Heading Rank: 3

Heading: The fraudulent transfer claims

Text: The bankruptcy court rejected Arch Street’s claims that Blatstein fraudulently transferred his stock in the jointly owned corporations and his income derived from the businesses to Lori Blatstein. In this regal’d it reasoned that all of the stock certificates indicated that the Blatsteins owned the corporations as tenants by the entireties and had so owned them since their inception. Moreover, it accepted Lori Blatstein’s testimony that the couple had opened her personal bank account and deposited Blatstein’s income into it because of his bad reputation with banks and to avoid a federal tax lien on Blatstein’s assets. Main II, 213 B.R. at 93-95. The bankruptcy court’s decision rested, then, upon its belief that (1) Blatstein did not transfer assets to Lori Blatstein, and (2) if there were any transfers from Blatstein to Lori Blatstein, then in making the transfers Blatstein did not possess an actual intent to defraud his creditors under Pennsylvania law which the parties agree is applicable. On reconsideration, the bankruptcy court again rejected Arch Street’s fraudulent transfer claims. Main III, 1997 WL 626544, at -. This time the court rejected a “constructive fraud” theory of intent by pointing out that Blatstein’s income came from the corporations the Blat-steins co-owned, and thus “were not the same as paychecks from a third-party employer,” but instead “could be viewed as distributions of dividends or equity from the corporations.... ” Id. at . Therefore, the court implicitly found that Blat-stein did not transfer any earned income to Lori when he deposited his income into her personal accounts. Moreover, inasmuch as Lori used these deposits to satisfy the Blatsteins’ joint obligations and the debts of the various corporations, the court found it “impossible, on this record, to find that ‘reasonably equivalent value’ was not given to Blatstein and the corporations in exchange for their deposits into these accounts.” Id. The district court affirmed the bankruptcy court’s findings on these issues. Blatstein, 226 B.R. at 159-60. On this appeal, Arch Street contends that the bankruptcy court’s factual findings should have led that court to conclude that Blatstein possessed an actual intent to defraud his creditors when he issued stock in Lori’s name and when he made deposits into Lori’s personal accounts. Arch Street also argues that even if we were to find that Blatstein did not actually intend to defraud his creditors, we should hold that his transfers were fraudulent because they fail Pennsylvania’s “constructive fraud” analysis applicable in fraudulent transfer cases. Arch Street contends that the bankruptcy and district courts erred by incorrectly placing the burden of proof on it, instead of shifting the burden to Lori to establish by clear and convincing evidence either that Blatstein was solvent at the time of the transfers or that she gave him fair consideration for the conveyances. We will affirm the district court’s order affirming the bankruptcy court’s finding that Blatstein did not fraudulently transfer corporate shares to his wife, but will reverse the district court’s order affirming the bankruptcy court’s finding concerning his income transfers to her personal bank account. Initially on these fraudulent transfer issues we set forth the germane state law. The Pennsylvania Uniform Fraudulent Transfer Act (“PUFTA”) provides that a “transfer made or obligation incurred by a debtor is fraudulent as to a creditor, ... if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor” was insolvent at the time of the transfer or became insolvent as a result of it. 12 Pa. Cons.Stat. Ann. § 5104 (West 1999). The first provision provides for liability under an “actual intent” theory of fraud, while the second is a “constructive fraud” provision.
The bankruptcy and district courts rested their holdings on their belief that the Blatsteins did not transfer any stock between them because they owned all the corporate stock at all times from their inception as tenants by the entireties. We agree. Pennsylvania defines an “asset” for PUFTA purposes as the “property of a debtor” but not including “an interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.” 12 Pa. Cons.Stat. Ann. § 5101(b). Thus, if the Blatsteins always owned their corporations as tenants by the entireties, Arch Street’s allegation that Blatstein transferred them to Lori Blatstein to defraud his creditors must fail. We reach this conclusion even in the face of evidence that Blatstein alone provided or arranged for the assets to establish the businesses and that Lori Blatstein did not know that she was a joint owner of the corporations. 4 As the bankruptcy court noted, Pennsylvania law presumes that property titled to a husband and wife is owned by them as tenants by the entireties even if only one spouse paid for the property or even if one spouse was unaware of her ownership of the property. Main II, 213 B.R. at 93 (relying upon In re Estate of Holmes, 414 Pa. 403, 200 A.2d 745, 747 (1964)). Because the Blatsteins always had held their corporate shares as tenants by the entireties, Blatstein never “transferred” any shares to his wife, and thus could not have fraudulently transferred the shares to her. Accordingly, we will affirm the district and bankruptcy courts on this point.
We reject, however, the bankruptcy court’s conclusions with respect to Blat-“Does the defendant’s intent have ANY bearing on Count 2 ( second element) of the indictment?” The court responded: “The requirements for conviction under the two different counts is made clear by a reading of the instructions.” The district court did not advise defense counsel of these questions or consult with counsel before issuing its answers. Gaytan was convicted on count 2 and acquitted on count 1.