Court Opinion

ID: 8945479
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:20:19.486544+00
Date Added: 2024-06-11T17:09:50.413624
License: Public Domain

A. LEON HIGGINBOTHAM, JR., Circuit Judge,
concurring in part and dissenting in part.
I concur in the majority’s judgment that Pennsylvania’s fraudulent conveyance laws may be applied to a leveraged buyout where, as here, a few shareholders seek to use it as a device to benefit themselves and take advantage of the creditors of a clearly faltering corporation. Since I find that the purposes underlying Pennsylvania’s fraudulent conveyance law dictate that only a portion of the disputed transfer of funds be set aside, however, I must dissent from that part of the majority’s opinion which declares the IIT mortgage loans wholly void.
The basic objective of fraudulent conveyance law is to preserve estates and to prevent them from being wrongfully drained of assets. See Melamed v. Lake County National Bank, 727 F.2d 1399, 1401 (6th Cir.1984). Fraudulent conveyance law is not intended to add to estates for the unjustified benefit of creditors. In fact, “creditors have causes of action in fraudulent conveyance law only to the extent they have been damaged.” A/S Kreditt-Finans v. Cia Venetico De Navegacion, 560 F.Supp. 705, 711 (E.D.Pa.1983), aff'd, 729 F.2d 1446 (3d Cir.1984). IIT made four separate loans totaling $8,530,000. Of this, $4,085,000 was passed through Raymond Group companies to shareholders and $1,530,000 was retained by IIT as an inter*1308est reserve as part of the invalid transaction. However, $2,915,000 was used to pay existing debts (including an existing mortgage loan owned by Chemical Bank). To the extent that the IIT funds were used to pay existing creditors, the assets available to creditors generally were not diminished and the Raymond Group’s estate was not improperly depleted.1 I would therefore hold that only the transfer of the $4,085,-000 between IIT and the Raymond Group’s shareholders and the creation of the $1,530,000 interest reserve for IIT should be set aside.

. It is clear that Pennsylvania’s fraudulent conveyance laws would have permitted the Raymond Group to take out a loan to pay existing debts. Trumbower Co. v. Noe Construction Corp., 64 D. & C.2d 480 (1973). To an extent, this is what the Raymond Group did with IIT loan proceeds.