Court Opinion

ID: 7028819
Source: CourtListenerOpinion
Date Created: 2022-07-24 06:20:26.246461+00
Date Added: 2024-06-11T16:10:52.648081
License: Public Domain

KENNEDY, Circuit Judge,
concurring in part and dissenting in part.
While I agree with much of the majority opinion, I am unable to concur in full because I am persuaded that the debt here is for a tax and, therefore, not dischargeable in bankruptcy under 11 U.S.C. § 523 even though no claim was filed.
Tenn.Code Ann. § 66-3-310 permits the creditor of an insolvent person or corporation to proceed against property conveyed to another individual or entity without consideration while the debtor was insolvent.1 Further Tennessee law permits a judgment against the creditor when the property has been reduced to cash. Applying Tennessee law, we affirmed the tax court when it required the wife of a taxpayer to surrender cash she received from the taxpayer’s insurance policies because the transfer was a fraudulent conveyance. See Bowlin v. Comm’r of Internal Revenue, 273 F.2d 610 (6th Cir.1960); accord Vance v. McNabb Coal & Coke Co. 92 Tenn. 47, 20 S.W. 424 (1892) (holding that a creditor of insolvent corporation was permitted to sue purchasing corporation which permitted insolvent corporation to distribute assets to shareholders without payment of selling corporation’s debt.)2 Thus, I agree *408with the majority that the fact they received the insolvent’s property in cash rather than in kind does not affect the debtor’s right to recovery.
But I cannot agree that the debt is for fraud and, therefore, dischargeable. Because it is a claim for a tax, I would hold defendants liable to the extent each individually received assets from the insolvent corporation. While it is true that the district court found that the corporation was insolvent and its conveyance of the property to defendants was a fraudulent conveyance, that finding was necessary only to identify that it was the corporation’s property and to determine the amount each defendant received. The debt on which the United States makes its claim is a debt for the corporation’s tax. Its right to recover from defendants is because of that debt. Were we dealing with tangible property fraudulently conveyed to defendants and the same scenario of an action in equity to set aside the transfer, it would be easier to recognize that the debt is for the tax, not a personal claim against the transferee for fraud. The transferee is only liable for the amount of the insolvent’s property transferred while insolvent. Indeed, the transferee would be liable even if not guilty of fraud. The insolvent corporation could transfer assets to innocent shareholders who knew nothing about its insolvency. The creditor would nonetheless be entitled to set aside the transfer as a fraud of creditors without any fraud on the part of the intended shareholder. The fraud would be by the corporation. Yet the creditor would be able to recover the money or property transferred by the insolvent corporation.
Transferee liability is an action against the transferred property, as the majority points out. (Majority Opinion If 50.) The creditor seeks to recover only the property conveyed by the insolvent corporation. The United States, in its capacity as a creditor of the insolvent corporation, seeks a money judgment only for the amounts transferred to defendants by the insolvent corporation in its capacity as a creditor of that corporation. While the district court made a finding that defendants were guilty of actual fraud in that they intended to evade the corporation’s taxes, that finding was not essential to the government’s right as creditor to recover the corporation’s property transferred to them while the corporation was insolvent.
The debt here is the debt of the corporation for a tax. The property from which the government seeks to recover the tax is the property of the corporation. As a debt for tax, it has not been discharged.
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. Tenn.Code Ann. § 66-3-310 states
Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when the claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser: (1) Have the conveyance set aside or obligation ammulled to the extent necessary to satisfy the creditor’s claim; or (2) Disregard the conveyance and attach or levy execution upon the property conveyed.

. The principle that a creditor in Tennessee may pursue the insolvent corporation’s assets in the hands of anyone who is not a purchaser for fair consideration is restated in dicta in Jennings, Neff & Co. v. Crystal Ice Co., 128 Tenn. 231, 159 S.W. 1088 (1913), and applied in circumstances where a corporation purchasing another corporation and taking over all its assets rendering it insolvent failed to pay the debts of the other corporation.
The doctrine that corporate assets are a trust fund, at least to the extent that creditors are entitled to equity to payment of their debts before any distribution of corporate property is made among stockholders, is fully established in Tennessee, and creditors have a right to follow its assets or property into the hands of anyone who is not a holder in good faith in the ordinary course of business.
As such, the purchasing corporation holds the property so acquired impressed with the same trust with which said property was originally charged, and the purchasing corporation is liable to the creditors of the *408selling corporation to the extent of the value of the property thus obtained.
Id., at 1089.