Opinion ID: 1317891
Heading Depth: 1
Heading Rank: 6

Heading: Although Limited Partnership Interests are Present in Agretech and In This Case, Mackenzie was Defrauded by Eisenberg, Creating Rights Different Than the Rights Held by the Limited Partners in Agretech.

Text: The first sentence of the Limited Partners section of our Agretech opinion says, The monies which Palm Seedlings-A allegedly received as a fraudulent conveyance was transferred to its limited partners in respect to their capital contributions.  Agretech, 916 F.2d at 540. The three-paragraph section of that opinion dealing with the limited partnership issue operates from that premise. At no time did we discuss any fraud between Palm-A and the limited partners. See id. As a result, we never reached the question we answered in United Energy  whether a restitution claim qualified as reasonably equivalent value. Instead, as noted above, the analytical fulcrum driving our decision in Agretech was the other prong of § 548(c)whether the initial transferee took in good faith. Id. at 539-540. Our discussion of reasonably equivalent value was only relevant in the initial transfer from Agretech to Palm-A in terms of measuring the good faith of Palm-A, the initial transferee. Id. at 539. As far as the secondary transfer, from Palm-A to the limited partners, we held that those distributions were not for value because Palm Seedlings-A made the distributions on account of the partnership interests and not on account of debt or property transferred to the partnership in exchange for the distribution.  Id. at 540 (emphasis added). Although Agretech and the case at bar both involve limited partnerships, the posture of the limited partners makes the cases distinguishable. The limited partners in the case at bar were defrauded into their limited partnership role by the operator of the Ponzi scheme, creating rights different than the rights held by the limited partners in Agretech. The Trustee's argument that Agretech should control because both cases involve limited partners overly simplifies the cases and is not persuasive. [7] 4. United Energy Controls. The district court correctly concluded that the good faith exception is not barred as a matter of law. In reversing the bankruptcy court, the district court held that Mackenzie exchanged his partnership interest for a proportionately reduced restitution claim. Although we agree with the district court in its ultimate conclusion, we wish to clarify further because we recognize the potential effect this case will have on a number of other AFI fraudulent transfer cases. The Trustee argues that the parties did not expressly exchange the restitution claim for the $89,824.18, and instead, AFI transferred the money on account of Mackenzie's partnership interest. Although circumstances of the exchange were cloaked in terms of a partnership interest, we delve beyond the form to the substance of the transaction. See United Energy, 944 F.2d at 596. As noted above, the record demonstrates that Eisenberg's operation was a Ponzi scheme before Mackenzie provided his principal investment, and thus well before the transfers were made from AFI to Mackenzie. Because of this, Mackenzie acquired a restitution claim at the time he bought into Eisenberg's Ponzi scheme, just as the investors in United Energy acquired a restitution claim at the time they bought their solar modules. Id. at 596. It is this restitution claim, in toto, that Mackenzie exchanged when AFI returned Mackenzie's principal investment amount. If AFI had only provided Mackenzie a portion of his initial investment, as a fictitious gain or otherwise, Mackenzie would be entitled also to keep that amount as an exchange for a proportionate reduction in his restitution claim. See id. Even if Mackenzie did not acquire a restitution claim at the time he bought into AFI, the unique facts of this case still provide us grounds to hold that he exchanged reasonably equivalent value for return of his principal investment. Mackenzie was not being paid on account of an equity position as were the investors in Agretech. Instead, he was ending his interest in the so-called partnership, creating something more than a simple equity payment in proportion to a capital contribution. Either way we skin this cat, Agretech is distinguishable, and United Energy is the more appropriate precedent. As a result, the district court was correct to determine that the good faith exception is not barred as a matter of law. If, on remand, the bankruptcy court concludes that Mackenzie took the transfer in good faith, Mackenzie is entitled only to the amount he initially provided to AFI. United Energy, 944 F.2d at 595 n. 6. The fictitious gain, however, amounting to $16,424.18, is in excess of his restitution claim, and was not returned on account of his withdrawal from the partnership. Therefore the district court was correct to find that the Trustee was entitled to have that amount avoided.