Opinion ID: 3170817
Heading Depth: 3
Heading Rank: 1

Heading: the bankruptcy court properly

Text: ALLOCATED THE BURDENS OF PERSUASION AND PRODUCTION FOR THE TRUSTEE’S CONSTRUCTIVE FRAUDULENT TRANSFER CLAIMS First, the Wettachs argue that the bankruptcy court “improperly shifted the burden of proof” to them to demonstrate that they used funds deposited into the entireties account to pay for necessities. Appellants’ Br. 13. We review the allocation of the burdens of persuasion and production de novo, cf. United States v. Dodd, 225 F.3d 340, 343 (3d Cir. 2000), and affirm the district court’s order affirming the bankruptcy court.
We recognized in Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996), that, where state law provides the rule of decision, the allocation of the burden of proof is a matter of substantive state law. This rule applies 8 even if, as here, the Court’s subject-matter jurisdiction is not premised on diversity of the parties. See Hatco Corp. v. W.R. Grace & Co.—Conn., 59 F.3d 400, 406 (3d Cir. 1995). However, the PUFTA “is silent on the issue of the burden of proof for constructive fraud claims.” Fidelity Bond & Mortg. Co. v. Brand, 371 B.R. 708, 717 (E.D. Pa. 2007); cf. Cardiello v. Arbogast, 533 F. App’x 150, 156 (3d Cir. 2013) (same). In accordance with the Supreme Court’s decision in Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), we therefore proceed by “predict[ing] how the highest court of [Pennsylvania] would decide the relevant legal issues.” Ohio Cas. Grp. of Ins. Cos. v. Prof’l Ins. Mgmt. (In re Prof’l Ins. Mgmt.), 130 F.3d 1122, 1125 (3d Cir. 1997). On appeal, the Wettachs improperly conflate the burdens of persuasion and production. Our case law is clear that these burdens are “two distinct elements of the burden of proof . . . .” McCann v. Newman Irrevocable Tr., 458 F.3d 281, 287 (3d Cir. 2006). Although the burden of persuasion “does not change at any time throughout the trial,” the burden of production “may shift from side to side as the case progresses.” Pension Transfer Corp. v. Beneficiaries Under the Third Amendment to Fruehauf Trailer Corp. Ret. Plan No. 003 (In re Fruehauf Trailer Corp.), 444 F.3d 203, 217 (3d Cir. 2006) (citations and internal quotation marks omitted). The record shows that the bankruptcy court required the Trustee to prove “by a preponderance of the evidence” all elements of the fraudulent-transfer claims, including a lack of reasonably equivalent value for the transfers. In re Wettach, 489 B.R. at 507. The district court also recognized that the 9 Trustee retained the burden of persuasion. Sikirica v. Wettach, 511 B.R. at 765-66. Ordinarily, this conclusion would end the analysis since this allocation of the burden of persuasion favors the Wettachs. However, the bankruptcy court also placed on the Wettachs “the burden of producing at least some useful evidence” as to the uses of transferred funds. In re Wettach, 489 B.R. at 507 (emphasis added); see also Sikirica v. Wettach, 511 B.R. at 766 (affirming the bankruptcy court). And because the burden of production is itself a function of the burden of persuasion, the Court must address whether there was any legal error in the bankruptcy court’s allocations of both burdens. Cf. United States v. Taylor, 464 F.2d 240, 243 (2d Cir. 1972). For the reasons stated below, we conclude that there was no error.
The allocation of the burden of persuasion for a constructive fraudulent-transfer claim under the PUFTA is unsettled in this circuit. We previously placed the burden of persuasion on the party defending the transfer to show either solvency or receipt of reasonably equivalent value by clear and convincing evidence. See 718 Arch St. Assocs. v. Blatstein (In re Blatstein), 192 F.3d 88, 98 (3d Cir. 1999); see also Walsh v. Gutshall (In re Walter), 261 B.R. 139, 143 (Bankr. W.D. Pa. 2001). Normally, this precedent would be controlling, but other courts have nonetheless rejected the Blatstein approach as dictum. See, e.g., Fidelity Bond & Mortg. Co., 371 B.R. at 721; Castle Cheese, Inc. v. MS Produce, Inc., No. 04-878, 2008 WL 4372856, at  (W.D. Pa. Sept. 19, 2008). Those courts instead have allocated the 10 burden of persuasion to the party opposing the transfer to prove insolvency and a lack of reasonably equivalent value by a preponderance of the evidence. See Fidelity Bond & Mortg. Co., 371 B.R. at 720-22. At least part of the confusion lies with a change in Pennsylvania law that occurred in 1993, when the state replaced the Pennsylvania Uniform Fraudulent Conveyance Act (“PUFCA”), enacted in 1921, with the PUFTA. Cf. 12 Pa. C.S.A. § 5101 cmt. (1). The Pennsylvania Supreme Court previously interpreted the PUFCA as shifting the burden of persuasion to the party defending the transfer in order to demonstrate either solvency or reasonably equivalent value by clear and convincing evidence. See, e.g., Butler Cnty. v. Brocker, 314 A.2d 265, 268 (Pa. 1974); see also Elliott v. Kiesewetter, 98 F.3d 47, 56-57 (3d Cir. 1996). But when the Pennsylvania General Assembly enacted the PUFTA in 1993 to replace the PUFCA, it made no mention of the burden of persuasion in the statutory text. See Fidelity Bond & Mortg. Co., 371 B.R. at 717. Nor has the Pennsylvania Supreme Court yet addressed whether the PUFTA altered the burden of persuasion. We stated in Blatstein that our discussion of the burden of persuasion for a constructive fraudulent-transfer claim under the PUFTA was “not necessary for our result.” 192 F.3d at 98. Our analysis was therefore dictum. We now hold that, were it to consider the issue, the Pennsylvania Supreme Court would determine that the burden of persuasion as to all elements of a constructive fraudulent-transfer claim under the PUFTA remains with the party opposing the transfer. As relevant to this case, the Trustee needed to prove a lack of reasonably equivalent value for the transfers into the 11 Wettachs’ entireties account by a preponderance of the evidence. We thus affirm the district court on this issue. Pennsylvania has codified its methodology for statutory construction. See 1 Pa. C.S.A. §§ 1921-39. The ultimate objective “is to ascertain and effectuate the intention of the General Assembly.” Id. § 1921(a). Lower courts addressing this issue have focused primarily on the legislative history behind the PUFTA. See, e.g., Fidelity Bond & Mortg. Co., 371 B.R. at 717-18 (noting that Comment (6) to 12 Pa. C.S.A. § 5102 describes the burden-shifting framework under the PUFCA as “an archaism” that “should not be followed . . .”). And it is true that under Pennsylvania law “[t]he comments or report of the commission, committee, association or other entity which drafted a statute may be consulted in the construction or application of the original provisions of the statute . . . .” 1 Pa. C.S.A. § 1939 (emphasis added). However, we find dispositive Pennsylvania’s mandate that “[s]tatutes uniform with those of other states shall be interpreted and construed to effect their general purpose to make uniform the laws of those states which enact them.” 1 Pa. C.S.A. § 1927 (emphasis added). The PUFTA is a statute “uniform with those of other states,” id., and we therefore interpret it in accordance with the laws of other jurisdictions, see Klein v. Weidner, 729 F.3d 280, 283 (3d Cir. 2013). The overwhelming weight of judicial authority on this issue supports placing the burden of persuasion on the party challenging the transfer to show a lack of reasonably equivalent value by a preponderance of the evidence. See, e.g., Dahar v. Jackson (In re Jackson), 459 F.3d 117, 123 (1st Cir. 2006) (New Hampshire UFTA); Pirrotti v. Respironics, Inc., No. 3:11-CV-00439, 2013 WL 12 951721, at  (D. Conn. Mar. 12, 2013) (Connecticut fraudulent-transfer statute); Floyd v. Option One Mortg. Corp. (In re Supplement Spot, LLC), 409 B.R. 187, 201 (Bankr. S.D. Tex. 2009) (Texas law); Daneman v. Stanley (In re Stanley), 384 B.R. 788, 804-05 (Bankr. S.D. Ohio 2008) (Ohio law); Brandt v. nVidia Corp. (In re 3dfx Interactive, Inc.), 389 B.R. 842, 863 (Bankr. N.D. Cal. 2008) (California UFTA); Ellen Equip. Corp. v. C.V. Consultants & Assocs., 183 P.3d 940, 945 (N.M. Ct. App. 2008) (New Mexico UFTA); Stone v. Ottawa Plant Food, Inc. (In re Hennings Feed & Crop Care, Inc.), 365 B.R. 868, 874-75 (Bankr. C.D.