Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

4-12-2006

In Re: Fruehauf Corp
Precedential or Non-Precedential: Precedential

Docket No. 05-1374

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                                 PRECEDENTIAL

     UNITED STATES COURT OF APPEALS
          FOR THE THIRD CIRCUIT

               No. 05-1374

  IN RE: FRUEHAUF TRAILER CORPORATION,
                                Debtor

         PENSION TRANSFER CORP.

                    v.

BENEFICIARIES UNDER THE THIRD AMENDMENT
          TO FRUEHAUF TRAILER
   CORPORATION RETIREMENT PLAN NO. 003;
FRUEHAUF TRAILER CORPORATION RETIREMENT
            PLAN, PLAN NO. 003

            Beneficiaries Under The Third
            Amendment to Fruehauf Trailer
            Corporation Retirement Plan No. 003,
            and Steven F. Hollrah and Steve Havens,
            as Class Representatives,

                                      Appellants
           Appeal from the United States District Court
                    for the District of Delaware
               (D.C. Civil Action No. 99-cv-00115)
          District Judge: Honorable Joseph J. Farnan, Jr.

                     Argued January 9, 2006

      Before: BARRY and AMBRO, Circuit Judges,
            and DEBEVOISE, District Judge *

                  (Opinion filed April 12, 2006)

Edward M. McNally, Esquire (Argued)
Morris, James, Hitchens & Williams
222 Delaware Avenue
P.O. Box 2306, 10th Floor
Wilmington, DE 19801

      Counsel for Appellant

James W. Perkins, Esquire (Argued)
Greenberg Traurig
200 Park Avenue
MetLife Building
New York, NY 10166

      Counsel for Appellee

      *
         Honorable Dickinson R. Debevoise, Senior District
Court Judge for the District of New Jersey, sitting by
designation.
                            2
                  OPINION OF THE COURT

AMBRO, Circuit Judge

       In this appeal we consider again the meaning and scope
of the Bankruptcy Code’s fraudulent transfer provisions in 11
U.S.C. § 548(a)(1). In particular, we review the District Court’s
determinations that: (1) a debtor’s right to a surplus generated by
a pension plan is a property interest; (2) an amendment to that
pension plan that irrevocably decreases the surplus is a transfer
of the property interest; and (3) the value surrendered and the
value gained as a result of the transfer need not be precisely
calculated in this instance in order to conclude that they are not
reasonably equivalent. We also review the District Court’s
assignment of the burden of proof. For the reasons that follow,
we affirm.

            I. Facts and Procedural Background

       A.     Fruehauf’s Financial Problems

       Fruehauf Trailer Corporation (“Fruehauf” or the
“Company”), a Delaware corporation, operated facilities
throughout the United States that designed, manufactured, sold,
distributed, and serviced truck trailers and related parts.
Fruehauf expanded its business rapidly in the 1980s, leading to

                                3
overextension of capital and related cash flow problems. By the
early 1990s Fruehauf’s long-term liabilities (such as employee
health care and pensions) exceeded revenues, and by 1996
Fruehauf had a negative net worth of approximately $120
million. The Company sought to address this problem by
reducing its work force to approximately 2,000 employees
(about half of them union members), closing facilities, and
selling assets. It also froze the calculation of retirement benefits
for all employees at 1991 salary levels.

       In the early 1990s the Fruehauf Board of Directors (the
“Board”) began exploring a possible sale of the Company, in
whole or in part. In 1995 Fruehauf entered into contracts with
several of its top executives that would pay them significant
benefits if the Company or its assets were sold. These contracts
sought to ensure that top executives would remain with the
Company until the sale, as the benefits would not accrue to the
beneficiaries unless they were still employed by Fruehauf at that
time. In 1996, Fruehauf also instituted a Key Employee
Retention Program (“KERP”) under which it agreed to pay
bonuses totaling $1.3 million to forty key employees if they
agreed to remain until the sale or March 31, 1997, whichever
came first.

       B.      The Emergency Board Meeting

      Fruehauf continued to have financial difficulties, and on
September 19, 1996, with the Company lacking sufficient cash
to meet its payroll and other operating expenses, its Board held
                                4
an emergency meeting. Although the parties dispute what was
considered at this meeting, the District Court concluded that the
Board and Fruehauf’s outside counsel discussed three things.
First, they considered the possibility of a Chapter 11 bankruptcy
filing. Second, they discussed a modified retention plan that
would distribute immediate cash payments to twelve of the
KERP beneficiaries if they agreed to remain with the Company
until at least March 1, 1997 (the “KERP modification”).
Finally, they discussed an amendment (known as the “Third
Amendment”) to the Company’s pension plan.1

       The Third Amendment was drafted by Fruehauf’s outside
counsel and reviewed by Geraldine Tigner (Fruehauf’s Vice
President of Human Resources) and Greg Fehr (a senior
Fruehauf executive), both of whom were members of the
Company’s Pension Administration Committee. Limited to 400
Fruehauf employees (almost all of them managers or executives,
and none union members or non-salaried workers), it provided
two things. First, it lifted the 1991 benefit freeze for those
employees who were vested in the pension plan and calculated
benefits based on 1996 salaries (hereafter the “Pension Thaw
Provision”). Second, it granted all covered employees a cash
contribution to their pension account equal to 5% of annual
salary plus 8% annual interest (hereafter the “Cash Benefit

       1
           The pension plan is a qualified plan under the
Employee Retirement Income Security Act of 1974 (“ERISA”),
as amended, 29 U.S.C. § 1001 et seq. It is a nominal party to
this appeal.
                            5
Provision”) if they were employed by the Company or its
successor on, or were laid off prior to, March 31, 1997. Because
the Cash Benefit Provision was available to all employees
covered by the Third Amendment, it included even those not
vested in the pension plan. Notably, Tigner and Fehr, who were
the only Fruehauf executives to review the Third Amendment
and who were also beneficiaries of the KERP, stood to reap
substantial benefits from its adoption. Fehr’s pension benefits
increased by 470%, while Tigner’s benefits increased by 200%.2
Fruehauf later calculated the cost of the Third Amendment as
$2.4 million.

        The source of funding for the Third Amendment was a
surplus on the “union side” of Fruehauf’s pension plan, i.e., the
funds designated to pay benefits for union members exceeded
the cost of those benefits. Those surplus funds would otherwise
revert to the Company after benefits were paid.

     With this backdrop, the Board approved the Third
Amendment at the September 19, 1996 emergency meeting. It
became effective on October 4, 1996.

       2
          The other members of the Pension Administration
Committee also realized substantial gains. The pension plan’s
actuary testified that Kenneth Minor received a 455% increase
in benefits and Joseph Damiano received a 330% increase.
Derek Nagle, the CEO of Fruehauf shortly before the Company
went into Chapter 11, received an increase of nearly 200%.
                               6
       C.     Proceedings in the Bankruptcy Court

       On October 7, 1996 Fruehauf filed for Chapter 11
bankruptcy protection in the District of Delaware. Fruehauf’s
debts and liabilities totaled over $12 billion at this time, and it
was liquidated to satisfy its creditors. Several purchasers bought
Fruehauf’s assets in the United States and Europe. The most
significant purchaser was Wabash National, L.P. (“Wabash”),
which bought two manufacturing plants and 31 distribution
centers in the United States for $55 million. Although the asset
purchase agreement between Fruehauf and Wabash did not
contain a commitment on Wabash’s part to retain any of
Fruehauf’s employees after the sale, it did rehire approximately
475 unionized employees. Fruehauf’s remaining assets were
placed in a liquidation trust (known as the “End of the Road
Trust”), and the pension plan was taken over by appellee
Pension Transfer Corporation (“PTC”), a subsidiary of the
Trust.

       During the course of the bankruptcy case, Fruehauf
sought and received the Bankruptcy Court’s approval of
payments to key employees who had participated in the KERP.
It did not seek Bankruptcy Court approval of disbursements
under the Third Amendment.

      On January 20, 1998, Fruehauf (as debtor-in-possession)
began an adversary proceeding in the Bankruptcy Court against
the pension plan, alleging that payouts under the Third
Amendment would result in a fraudulent transfer in violation of
                             7
11 U.S.C. § 548. The Bankruptcy Court granted Fruehauf’s
request for a preliminary injunction against the pension plan and
enjoined the plan from distributing payments under the Third
Amendment. On October 27, 1999 the Bankruptcy Court
approved Fruehauf’s amended reorganization plan and
substituted PTC as the administrator of the pension plan. PTC
thus replaced Fruehauf in the adversary action, which was
transferred to the District Court.

       D.     Proceedings in the District Court

       On April 3, 2001, the District Court granted PTC’s
motion to reclassify the pension plan as a nominal defendant and
add the individual beneficiaries of the Third Amendment as
defendants. On May 1, 2002, the Court certified a mandatory
defendant class, pursuant to Federal Rule of Civil Procedure 23,
consisting of all beneficiaries of the Third Amendment (the
“Class Defendants”). The Court held a three-day bench trial in
March 2004.

              1.     Testimony

        At trial, PTC called three witnesses to testify: Chriss
Street, an independent director of Fruehauf and trustee of the
End of the Road Trust; Lawrence Wattenberg, the actuary for
the Fruehauf pension plan; and Irving Becker, the head of the
Compensation Advisory Services Group of the accounting firm
KPMG, who testified as an expert on employment compensation
in general and KERPs in particular.
                               8
       Street testified that he and Worth Frederick, the other
independent director on the Fruehauf Board, strenuously
objected to the KERP modification at the September 19, 1996
meeting because it prepaid the KERP bonuses of many top
executives at a time when it was difficult for those executives to
find work elsewhere in the industry (resulting in little concern
they would leave the Company). He also testified that the Board
was not given any substantive information about the Third
Amendment and that it was presented at the Board meeting as an
“administrative change” that would have no cash effect on the
Company. Moreover, Street testified that the Third Amendment
was never presented as a part of the KERP or for the purpose of
employee retention. Although Street and Frederick abstained,
the Board approved both the KERP modification and the Third
Amendment. Later, Street and Frederick objected to the minutes
of the meeting, which stated that the Third Amendment was part
of the KERP and that both of them had voted in favor. The
minutes were only corrected after the Company entered Chapter
11 and Street and Frederick became the sole remaining Board
members.

       Wattenberg testified that his review of the Third
Amendment revealed that, on average, it nearly doubled the
pension benefits of non-union salaried employees, and that
“[c]ertain senior executives increased their benefits by 400 to
500 percent.” He also calculated that, as of September 2003, the
cost of the Third Amendment rose to over $4.4 million. On
cross-examination, however, he admitted that he did not
calculate how much of a surplus existed in September 1996 or
                               9
how much money Fruehauf might have recovered without the
Third Amendment.

        Becker testified that the Third Amendment was not part
of the KERP or otherwise for the purpose of employee retention.
He noted that, in his experience, he had never seen pension
benefits used as part of a KERP, and that the “reasonable norm”
for KERPs would include payments to key employees of
between 0.4% and 0.5% of revenue to retain them for twelve to
eighteen months. He calculated that the Fruehauf KERP (apart
from the Third Amendment) was at the “high end of those
norms” because it paid about 0.3% of revenue to retain key
employees for only eight months. If the Third Amendment was
viewed as part of an employee retention plan, however,
Fruehauf’s plan (the KERP plus the Third Amendment) would
cost 0.88% of annual revenue — which, in Becker’s expert
opinion, was “not reasonable and did not provide additional
value to Fruehauf.”

        The Class Defendants called two witnesses to testify:
Geraldine Tigner (as noted above, Fruehauf’s Vice President of
Human Resources and one of the Fruehauf executives to review
and benefit from the Third Amendment) and Mark Holden,
Wabash’s Chief Financial Officer. Tigner testified that the
Pension Thaw Provision of the Third Amendment was designed
to improve morale and the Cash Benefit Provision was intended
to benefit those who were not yet vested in the pension plan and
thus could not benefit from the Pension Thaw Provision. She
testified that both provisions were meant to help retain personnel
                                10
while Fruehauf was searching for a buyer, and that this
understanding was communicated in an October 9, 1996 letter
she sent to Fruehauf’s salaried employees, which stated that the
Third Amendment was intended to “reward our loyal employees
whose dedication will provide the basis for a successful
transition.”

       On cross-examination, however, Tigner conceded that the
Pension Thaw Provision was intended to bring the pension plan
up to date and take into account salaried employees’ past
service. She further testified that the Third Amendment was not
made applicable to unionized employees because their collective
bargaining agreements prohibited unilateral changes in benefits.
She did not, however, ask the unions if their members wanted a
pension increase despite the fact that the surplus used to pay for
the Third Amendment had been generated on the union side of
the pension plan.

       Holden testified that Wabash was interested in
purchasing Fruehauf “as an ongoing business” and was “very
concerned about the flight risk of Management within those
businesses as well as the people underneath Management.” He
further testified, however, that he was “not sure [Wabash] paid
more money” for Fruehauf because it was an ongoing business,
and agreed with plaintiff’s counsel’s characterization of the
asset purchase agreement as assigning no value to Fruehauf’s
employees. Holden also stated that Wabash expressly refused
to make any promises to hire any of Fruehauf’s employees.

                               11
              2.      District Court’s Decision

        On January 7, 2005, the District Court issued a
comprehensive opinion finding that the Third Amendment was
a fraudulent transfer under 11 U.S.C. § 548. The Court
determined, as a factual matter, that the Amendment was never
presented to the Board as part of the KERP, and even if it had
been, the total KERP would have constituted 0.88% of annual
revenue, which would have “exceeded the amount that a
reasonable Company in Fruehauf’s position would spend to
retain employees.” The Court also found that the Class
Defendants “offered no evidence that Wabash paid more money
because the assets it purchased were ongoing operations.”

        Turning to the legal question of whether the Third
Amendment was a fraudulent transfer, the District Court
analyzed the factors set forth in § 548. It concluded that
Fruehauf had a future ownership interest in any surplus
generated by the pension plan, and that the Third Amendment
irrevocably transferred this interest to the Class Defendants by
allocating a portion of the surplus to increased pension benefits
for non-union salaried employees. The Court agreed with the
Class Defendants that PTC failed to prove that Fruehauf
received no value from this transfer, but nonetheless concluded
that the value was not “reasonably equivalent” to the costs of the
transfer. Specifically, the Court rejected the Class Defendants’
contention that the Third Amendment helped retain key
personnel and assure that Fruehauf remained an ongoing
business so that it was easier to sell. It concluded that “Fruehauf
                                 12
received considerably less than the cost of the Third
Amendment” because, coupled with the KERP, the Class
Defendants’ purported retention goals cost Fruehauf “twice the
norm” and the Class Defendants failed to rebut adequately
PTC’s evidence that the $2.4 million projected cost of the Third
Amendment did not help assure the $55 million Wabash
purchase. Indeed, the Court noted that Holden “did not testify
with certainty that Wabash would not have purchased the
Fruehauf assets if they were not ongoing concerns,” and Tigner
“was not able to offer factual support for the conclusion that the
Third Amendment had the effect of retaining Fruehauf
employees.” The District Court therefore determined that
payments under the Third Amendment would be a fraudulent
transfer that PTC could avoid.

       E.     Appeal

        The Class Defendants raise three issues on appeal. First,
they contend that the District Court erred in determining that
PTC had a cognizable property interest in the pension plan
surplus that was transferred as a result of the Third Amendment.
Second, they argue that the Court erred in not applying the
correct test for determining whether a transfer is fraudulent, and
that error is not harmless because PTC did not satisfy its burden
of proving the value surrendered and received. Third, they

                               13
assert that the Court erred in assigning the burden of proof.3

                   II. Standard of Review

        In considering final orders of courts in bankruptcy cases,
we review findings of fact for clear error and exercise plenary
review over questions of law. In re Schick, 418 F.3d 321, 323
(3d Cir. 2005). Factual findings may only be overturned if they
are “completely devoid of a credible evidentiary basis or bear[]
no rational relationship to the supporting data.” Citicorp
Venture Capital, Ltd. v. Comm. of Creditors, 323 F.3d 228, 232
(3d Cir. 2003) (citation and internal quotation marks omitted;
alteration in original). The District Court’s allocation of the
burden of proof is a question of law subject to plenary review.
Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 750 (3d
Cir. 1994).

                         III. Analysis

        Section 548(a)(1) allows a trustee to avoid any transfer
of the debtor’s interest in property made within one year before
the filing of a bankruptcy petition if the transfer was the result

       3
         The District Court had subject matter jurisdiction over
this case pursuant to 28 U.S.C. § 1334, as it is an adversary
proceeding arising under Title 11 of the United States Code, and
we have jurisdiction over the appeal pursuant to 28 U.S.C. §
1291.
                               14
of actual or constructive fraud.4 This provision “aims to make

       4
          At the time Fruehauf instituted the adversary
proceeding at issue in this case, 11 U.S.C. § 548(a)(1) provided:

              The trustee may avoid any transfer of an
       interest of the debtor in property, or any
       obligation incurred by the debtor, that was made
       or incurred on or within one year before the date
       of the filing of the petition, if the debtor
       voluntarily or involuntarily—

       (A)    made such transfer or incurred such
              obligation with actual intent to hinder,
              delay, or defraud any entity to which the
              debtor was or became, on or after the date
              that such transfer was made or such
              obligation was incurred, indebted; or

       (B)    (i) received less than a reasonably
              equivalent value in exchange for such
              transfer or obligation; and

              (ii)   (I) was insolvent on the date that
                     such transfer was made or such
                     obligation was incurred, or became
                     insolvent as a result of such transfer
                     or obligation;

                     (II) was engaged in business or a
                     transaction, or was about to engage
                               15
available to creditors those assets of the debtor that are rightfully
a part of the bankruptcy estate, even if they have been
transferred away.” In re PWS Holding Corp., 303 F.3d 308, 313
(3d Cir. 2002).

       “Actual” fraud is prohibited by § 548(a)(1)(A), which
allows a trustee to avoid a transfer made “with actual intent to
hinder, delay, or defraud any entity to which the debtor was or

                       in business or a transaction, for
                       which any property remaining with
                       the debtor was an unreasonably
                       small capital; or

                       (III) intended to incur, or believed
                       that the debtor would incur, debts
                       that would be beyond the debtor’s
                       ability to pay as such debts
                       matured.

       On April 20, 2005, Congress enacted the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005
(“BAPCPA”), Pub. L. 109-8, 119 Stat. 23, which amended §
548, inter alia, to allow avoidance of fraudulent transfers made
within two years of the filing of a bankruptcy petition and to
strengthen prohibitions on insider employment contracts not
made in the ordinary course of business. See BAPCPA § 1402,
119 Stat. at 214. Because these provisions are not applicable to
cases begun before the passage of the BAPCPA, see id. §
1406(b), 119 Stat. at 215-16, they are not relevant to this appeal.
                                16
became . . . indebted.” “Constructive” fraud, the subject of this
appeal, is prohibited by § 548(a)(1)(B); although it contains no
intent requirement, fraud on the creditors is presumed once the
plaintiff establishes the requisite elements. Mellon Bank, N.A.
v. Metro Communications, Inc., 945 F.2d 635, 645 (3d Cir.
1991) (hereafter “Metro Communications”). Those elements
are: (1) the debtor had an interest in property; (2) a transfer of
that interest occurred within one year of the bankruptcy filing;
(3) the debtor was insolvent at the time of the transfer or became
insolvent as a result of the transfer; and (4) the transfer resulted
in no value for the debtor or the value received was not
“reasonably equivalent” to the value of the relinquished property
interest. See 11 U.S.C. § 548(a)(1); BFP v. Resolution Trust
Corp., 511 U.S. 531, 535 (1994). The party bringing the
fraudulent conveyance action bears the burden of proving each
of these elements by a preponderance of the evidence. See
Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors
(In re R.M.L., Inc.), 92 F.3d 139, 144 (3d Cir. 1996) (hereafter
“R.M.L.”). There is no dispute here that the alleged transfer
was made within one year of the filing of Fruehauf’s bankruptcy
petition and that Fruehauf was insolvent at that time. Therefore,
the relevant issues are whether PTC satisfied its burden of
proving that Fruehauf had a property interest, that the interest
was transferred, and that the gains and losses as a result of the
transfer were not of reasonably equivalent value.

       A. Property Interest

       The Bankruptcy Code defines property interests broadly,
                            17
encompassing “all legal or equitable interests of the debtor in
property.” 11 U.S.C. § 541(a)(1). The Supreme Court has noted
that “[t]he main thrust of [the Bankruptcy Code] is to secure for
creditors everything of value the bankrupt may possess in
alienable or leviable form when he files his petition. To this end
the term ‘property’ has been construed most generously and an
interest is not outside its reach because it is novel or contingent
or because enjoyment must be postponed.” Segal v. Rochelle,
382 U.S. 375, 379 (1966). Property of the estate “‘includes all
interests, such as . . . contingent interests and future interests,
whether or not transferable by the debtor.’” In re Prudential
Lines, Inc., 928 F.2d 565, 572 (2d Cir. 1991) (quoting H.R. Rep.
No. 95-595, 175-76 (1978)). It is also well established that “the
mere ‘opportunity’ to receive an economic benefit in the future”
is property with value under the Bankruptcy Code. R.M.L., 92
F.3d at 148.

        Under ERISA, an employer who sponsors a qualifying
retirement plan is entitled to recoup any surplus upon
termination of the plan. See 29 U.S.C. § 1344(d)(1);
Ashenbaugh v. Crucible, Inc., 1975 Salaried Retirement Plan,
854 F.2d 1516, 1523 n.9 (3d Cir. 1988). This recoupment right
is a transferable property interest. See, e.g., Creasy v. Coleman
Furniture Corp., 763 F.2d 656, 662 (4th Cir. 1985) (“[U]nder the
terms of the contract any left-over assets of the [pension] fund
were to be paid over to the Company. . . . [T]he excess, if any,
would be property of the debtor’s estate. The trustee acquires
the rights that the corporate bankrupt possessed; therefore, the
excess funds would be an asset in the bankrupt’s estate.”); In re
                                18
Wingspread Corp., 155 B.R. 658, 664 (Bankr. S.D.N.Y. 1993)
(“[A]lthough the right to recover [the surplus from an ERISA-
qualified retirement plan] is a future estate, the reversion itself
is a present, vested estate. As a result, the employer’s
reversionary interest falls within the broad reach of section
541(a) of the Bankruptcy Code and is considered property of the
debtor’s estate. Not only does the employer have a present
interest in those reversionary assets, but that reversionary
interest is transferable and alienable.” (internal citations
omitted)). In this context, the District Court was correct that
Fruehauf’s potential future recoupment of the surplus from its
pension plan was a transferable property interest for purposes of
§ 548.

       B.     Transfer

       The District Court also correctly found that a property
interest under the Third Amendment was transferred. The
Bankruptcy Code defines “transfer” in the broadest possible
terms: “each mode, direct or indirect, absolute or conditional,
voluntary or involuntary, of disposing of or parting with
property or an interest in property.” 11 U.S.C. § 101(54)(D).
Under ERISA’s “anti-cutback” provision, benefits accrued in a
qualified plan are irrevocable; an administrator or sponsor may
not decrease them once they are granted. See 29 U.S.C. §
1054(g)(1); Central Laborers’ Pension Fund v. Heinz, 541 U.S.
739, 743-44 (2004); see also Hoover v. Cumberland, Md. Area
Teamsters Pension Fund, 756 F.2d 977, 981 (3d Cir. 1985)
(defining “accrued benefit” as “‘an annual benefit commencing
                               19
at normal retirement age’” (quoting 29 U.S.C. § 1002(23)(A))).
There is no question here that, upon ratification of the Third
Amendment by the Board, the benefits of the Pension Thaw and
Cash Benefit Provisions “accrued” to the Class Defendants.
Because ERISA prohibited Fruehauf from decreasing or
revoking those benefits, the District Court correctly concluded
that the irrevocable allocation of part of the Company’s future
interest in the pension plan’s surplus in the form of increased
benefits was a “transfer” for purposes of the Bankruptcy Code.

       C.     Reasonably Equivalent Value

       The Class Defendants concentrate most of their attention
on the District Court’s determination that the value gained by
Fruehauf from the Third Amendment was not “reasonably
equivalent” to the value surrendered. Specifically, they contend
that the District Court erred in finding that PTC satisfied its
burden of proof even though it did not conclusively establish
either the value that Fruehauf gave up as a result of its
commitment to fund the Third Amendment or the value that
Fruehauf gained. This, the Class Defendants assert, runs afoul
of Metro Communications’ calculation requirement.

              1.     Value

       Before considering a plaintiff’s obligation to define with
precision the value surrendered and gained as a result of a
transfer, we need to understand the general structure of the
reasonably equivalent value analysis. We have interpreted
                              20
“value” to include “any benefit[,] . . . whether direct or indirect.”
R.M.L., 92 F.3d at 150. As noted above, “the mere
‘opportunity’ to receive an economic benefit in the future
constitutes ‘value’ under the [Bankruptcy] Code.” Id. at 148.
Thus, Fruehauf gave up something of value when the Board
ratified the Third Amendment.

       The next question is whether the debtor received any
value from the transfer. See id. at 149-50. Although, as
explained below, the “totality of the circumstances” is
considered in determining whether the values surrendered and
gained as a result of a transfer are reasonably equivalent, a court
should not consider the “totality of the circumstances” in
evaluating the threshold question of whether any value was
received at all. Id. at 150. Rather, a court must consider
whether, “based on the circumstances that existed at the time”
of the transfer, it was “legitimate and reasonable” to expect
some value accruing to the debtor. Id. at 152 (internal quotation
marks and emphasis omitted). Although PTC argued before the
District Court that the Third Amendment did not confer any
value on Fruehauf, the Court disagreed because PTC had not
excluded the possibility that “the Third Amendment [was]
effective in retaining the services of at least one Fruehauf
employee.” PTC does not challenge this determination on
appeal.

       If a court determines that the debtor gained at least some
value as a result of the transfer, what follows is a comparison:
whether the debtor got roughly the value it gave. See 11 U.S.C.
                                21
§ 548(a)(1)(A); Metro Commc’ns, 945 F.2d at 647. In
conducting this factual analysis, a court does look to the “totality
of the circumstances,” including (1) the “fair market value” of
the benefit received as a result of the transfer, (2) “the existence
of an arm’s-length relationship between the debtor and the
transferee,” and (3) the transferee’s good faith. R.M.L., 92 F.3d
at 148-49, 153.

               2.     Calculation Requirements

       As noted above, “[t]he value of consideration received
must be compared to the value given by the debtor.” Metro
Commc’ns, 945 F.2d at 648. Calculating “direct” benefits (such
as an investment of cash that yields a cash return) is typically
easy, but becomes more difficult when benefits are “indirect.”
See R.M.L., 92 F.3d at 148. Nonetheless, “[t]hese indirect
economic benefits must be measured and then compared to the
obligations that the bankrupt incurred.” Metro Commc’ns, 945
F.2d at 647; see In re Richards & Conover Steel Co., 267 B.R.
602, 612 (B.A.P. 8th Cir. 2001) (“[I]n deciding whether value
has been transferred the court must examine all aspects of the
transaction and carefully measure the value of all benefits and
burdens to the debtor, direct or indirect.” (citation and internal
quotation marks omitted)); In re BCP Mgmt., Inc., 320 B.R.
265, 280 (Bankr. D. Del. 2005) (same, citing Metro
Communications).

       Metro Communications does not, however, require a
precise calculation of value in all circumstances. There, Mellon
                                22
Bank (“Mellon”) provided Total Communications Systems
(“TCS”) with a $1.85 million loan to acquire Metro
Communications, Inc. (“Metro”). Metro guaranteed TCS’s debt
to Mellon and, to secure that guaranty, it granted Mellon a
security interest in its assets. As a result of this transfer, Metro
(as part of TCS) was eligible for substantial advances of credit
and had the opportunity to “synergize” its operations with those
of TCS. Yet Metro went bankrupt shortly thereafter, and the
unsecured creditors’ committee argued that the security interest
conferred no value on Metro because “Metro did not receive the
proceeds of the acquisition loan, [and thus] did not receive any
direct benefits from extending the guaranty and security interest
collaterizing that guaranty.” Metro Commc’ns, 945 F.2d at 646.
In holding that the security interest was not a fraudulent transfer
under § 548, we noted:

       The value . . . of the synergy obtained in the
       corporations’ affiliation and the value of
       obtaining the credit are difficult to quantify in
       dollars without the aid of expert witnesses.
       Regrettably, no such testimony was forthcoming
       in this case. . . .

               We do know that the assets of the
       guaranteeing corporations were sufficiently
       valuable to justify an immediate additional loan
       by Mellon to TCS of 2.3 million dollars and
       letters of credit for an additional 2.25 million
       dollars.   These loans enabled Metro . . .
                               23
       immediately to achieve a very sharp rise in its
       broadcasting rights amounting to a grand total of
       $26,240,705. Although the ability to obtain credit
       is the lifeblood of the commercial world and
       governmental operational survival, and the
       synergistic strength expected from the merger
       here, no doubt had value, the Committee
       introduced no evidence to support its burden of
       showing that Metro received less than reasonably
       equivalent value in exchange for its guaranty and
       security interest. The Committee acted on the
       blind assumption that they had no value . . . .

Id. at 647-48.

        Our decision in R.M.L. clarified Metro Communications’
requirements. The R.M.L. debtor paid $390,000 in commitment
fees to Mellon Bank for the chance to secure a loan of $53
million, but the loan was never made. Moreover, the agreement
between the debtor and Mellon Bank provided that the
commitment fees would be retained by Mellon “even if the loan
did not close.” R.M.L., 92 F.3d at 143. In determining whether
the commitment fees were a fraudulent transfer, we reiterated
that “essential to a proper application of the totality of the
circumstances test [in determining reasonably equivalent value]
is a comparison between the value that was conferred and the
fees [the debtor] paid.” Id. at 154. We “acknowledge[d] that
the measurement and comparison called for by [Metro
Communications] is no easy task,” but “expressed no
                               24
reservations about the bankruptcy courts’ ability to analyze such
potential, intangible benefits.” Id. And yet, despite the
Bankruptcy Court not calculating the actual value of the benefits
that accrued to the debtor as a result of paying the commitment
fees, we discerned no clear error in the Bankruptcy Court’s
determination that “the chances of the loan closing were
negligible,” and thus “whatever value was conferred” by the
chance of securing the loan was “minimal” and “not reasonably
equivalent to the fees [the debtor] paid.” Id. at 148, 153-54; see
also In re Int’l Mgmt. Assocs., 399 F.3d 1288, 1292 (11th Cir.
2005) (assuming, despite the lack of precise calculations in the
record, that the value of stock received as a result of a transfer
was obviously “less than [the] $100,000 [cost of the transfer]
and in all probability was worthless”).

        R.M.L. clarifies that Metro Communications did not
establish a per se rule requiring a precise calculation of the cash
value of intangible costs and benefits in every case, nor did it
preclude all inferences regarding values surrendered and gained
as a result of a transfer.          Rather, we believe Metro
Communications, in light of our subsequent holding in R.M.L.,
stands for two principles. First, in those cases where the
plaintiff contends that a transfer resulted in no value to the
debtor, the plaintiff must ordinarily prove that the calculated
value of the benefit is zero. If no calculations are offered into
evidence, and there is some evidence that the benefit conferred

                                25
value, the plaintiff cannot satisfy its burden of proof.5 Second,
where the value of an intangible benefit could equal or exceed
the value surrendered by the debtor, precise calculations are
essential to allow the court to determine equivalency properly.

        But this general rule yields to common sense: in those
cases where a court has sufficient evidence to conclude, based
on a totality of the circumstances, that the benefits to the debtor
are minimal and certainly not equivalent to the value of a
substantial outlay of assets, the plaintiff need not prove the
precise value of the benefit because such a calculation is
unnecessary to the court’s analysis. Moreover, R.M.L. makes
clear that the trier of fact’s ultimate determination of whether
the values are reasonably equivalent is reviewed only for clear
error, even if the court did not convert those values into precise
cash quantities.

              3.      Application to this Case

       We therefore determine whether PTC failed to calculate
the cash costs to Fruehauf of the Third Amendment and the cash
value of the benefits to Fruehauf, and, if so, whether the District
Court’s determination that these values were not “reasonably
equivalent” is clearly erroneous. We conclude that the District

       5
           Such a rule comports with our observation in R.M.L.
that it will be a “rare occasion[]” when “a debtor exchanges cash
for intangibles that have no ‘value’ at the time of the transfer.”
92 F.3d at 149 n.3.
                                  26
Court committed no error, let alone clear error.

       The Class Defendants contend, first, that the District
Court erred in ruling that PTC satisfied its burden of proving
what Fruehauf would have had to pay to fund the Third
Amendment. The Court found, based on Fruehauf’s own
calculation, that the projected cost of the Third Amendment was
$2.4 million. At oral argument before us, the Class Defendants
contended that the actual cost of the Amendment was less
because the projected cost did not take into account variables
such as changes in retirement age and shortened duration of the
plan.

        We conclude, however, that the District Court did not
clearly err in relying on Fruehauf’s own calculation of the cost
of the Third Amendment. For the reasons stated in Part III.D
below, PTC did not need to disprove the Class Defendants’
assertions that Fruehauf’s calculations were inaccurate. Rather,
the Class Defendants should have come forward with evidence
that the cost of the plan had changed, and they did not.
Moreover, we note that the pension plan actuary (Wattenberg)
testified that, based on revised calculations in September 2003,
the cost of the Third Amendment actually rose to over $4.4
million. In this context, the District Court had ample evidence
to conclude that the cost to Fruehauf of funding the Third
Amendment was at least $2.4 million, and since the Class
Defendants did not provide evidence of a different amount, the
Court’s finding was not clearly erroneous.

                              27
        The District Court found that Fruehauf accrued some
benefit as a result of the Third Amendment, but did not place a
dollar figure on that amount. It did find, however, that whatever
the value was, it was “considerably less than the cost of the
Third Amendment.” The Class Defendants contend this was
error because, as the District Court stated, PTC did not sustain
its burden of proving that the Third Amendment had no
usefulness as an employee retention mechanism. Therefore,
insofar as the Third Amendment helped Fruehauf retain key
employees and maintain an ongoing business while the
Company was looking for a buyer, the Class Defendants contend
it was not a fraudulent transfer because it helped secure
Wabash’s eventual purchase of Fruehauf’s ongoing business
operations for $55 million. This, in the Class Defendants’ view,
is easily “equivalent” to the projected $2.4 million cost of the
Third Amendment.

       The District Court held that the Third Amendment
conferred some value on Fruehauf because it “may have been
effective in retaining the services of at least one Fruehauf
employee.” Nonetheless, the Court went on to conclude that the
Third Amendment was never presented to the Board or the
Bankruptcy Court as part of Fruehauf’s employee retention
program, and even if it were part of that program, the combined
cost of the Third Amendment and the KERP was “twice the
norm” of employee retention plans in other companies and
“exceeded the amount necessary to retain employees.”

       The Court also found that “the manner in which the Third
                              28
Amendment was presented to Fruehauf’s Board of Directors for
approval, and the fact that the Third Amendment’s sponsors
stood to benefit significantly from its implementation,” strongly
weighed in favor of finding that the Amendment did not confer
reasonably equivalent value on Fruehauf. Though the District
Court did not expressly refer to the totality of the circumstances
test approved in R.M.L., its analysis closely tracks that test.
Even if we accept the Class Defendants’ assertion that the Third
Amendment was intended to retain employees, the fact that it
and the KERP cost twice what an employee retention plan
normally costs, in an industry with very few other jobs to which
employees might go, tends to prove that Fruehauf did not pay
fair market value for the benefit received. That the benefits
inured substantially to corporate insiders, and the Amendment
was reviewed by those who stood to gain between 200% and
500% increases in their pension benefits if it were approved,
suggest that the transaction was not conducted at arm’s length.
Moreover, funding the Third Amendment from the union-side
pension plan surplus — without informing the unions or even
raising with them the possibility of pension increases for their
members (and therefore not benefitting those union employees)
— coupled with the fact that the Third Amendment was
presented to the Board, inaccurately, as an “administrative
formality” that required no discussion nor a cash expenditure
from Fruehauf, strongly suggest that the Third Amendment was
not a “good faith” transaction.

      Since the totality of the circumstances, based on record
evidence, supports a finding that the value gained was not
                               29
reasonably equivalent to the value lost (and therefore the finding
is not clearly erroneous), did the District Court nonetheless err
because the plaintiff did not prove the precise cash value of the
benefit received? The answer in this case is plainly no. As
explained above, our cases establish no rule so particular;
indeed, such formalism would be at odds with § 548, which
merely requires that the plaintiff prove, by a preponderance of
the evidence, that the value surrendered in the transfer was not
reasonably equivalent to the value gained from the transfer. The
District Court correctly found that although PTC did not prove
that the Third Amendment conferred no value on Fruehauf, the
value the Amendment did confer was largely redundant of the
value conferred by the KERP and, based on the totality of the
circumstances, the Third Amendment as an employee retention
device was overpriced, not negotiated at arm’s length, accrued
substantially to the benefit of corporate insiders, and was not
implemented in good faith.

        The conclusion from these findings is that, while the
Third Amendment might have conferred some value on
Fruehauf by influencing at least one employee to stay with the
Company, it was not, on the whole, useful as an independent
means of maintaining Fruehauf as an ongoing business prior to
sale. Therefore, this case is not, as the Class Defendants
contend in their brief, one where Fruehauf invested $2.4 million
in its pension plan to maintain an ongoing business and
safeguard a $55 million sale. As in R.M.L., PTC’s failure to
present evidence of the precise cash value of the minimal benefit
that did accrue to Fruehauf as a result of the Third Amendment
                                30
is of no consequence.

       D.     Burden of Proof

       The Class Defendants also contend that the District Court
inappropriately assigned them the burden of proving that the
values surrendered and gained as a result of the Third
Amendment were reasonably equivalent. In particular, they cite
the District Court’s observations that Tigner “was not able to
offer factual support for the conclusion that the Third
Amendment had the effect of retaining Fruehauf employees,”
and that, even if she had offered that support, Wabash CFO
Holden “did not testify with certainty that Wabash would not
have purchased the Fruehauf assets if they were not ongoing
concerns.” These statements by the Court, the Class Defendants
argue, misplace what should be PTC’s burden of proof.

        This argument is not convincing. The District Court
stated several times that PTC had the burden of proof and the
Class Defendants bore no burden, and we therefore doubt that
the Court was confused on the proper allocation of the burden
of proof. In any event, PTC offered testimony and other
evidence that the Third Amendment was not a component of the
employee retention plan. Even if it were, Wabash did not assign
added value to Fruehauf as an ongoing business nor did Wabash
value the existence of a continuing workforce (and indeed took
steps to assure that Fruehauf’s employees would be terminated
before the sale took place so that Wabash could hire workers as
it saw fit). The Class Defendants argued the opposite: that the
                                31
Third Amendment was intended to retain employees and
maintain an ongoing business and that Wabash paid extra for
Fruehauf because the latter was an ongoing business. The Class
Defendants did not, however, present evidence in support of
their contentions sufficient to convince the District Court that
PTC had not met its burden of proof. As the First Circuit Court
of Appeals has noted:

       The Trustee undisputably has the burden of
       proving the transfers were fraudulent, and this
       burden never shifts to [the defendant]. But [a]
       court [should not] equate the burden of proof with
       the burden of production.

              The burden of the issue and the
              duty of going forward with
              evidence are two very different
              things. The former remains on the
              party affirming a fact in support of
              his case, and does not change at any
              time throughout the trial. The latter
              may shift from side to side as the
              case progresses, according to the
              nature and strength of the proofs
              offered in support or denial of the
              main fact to be established.

       9 Wigmore, Evidence § 2487 (Chadbourn
       rev.1981). . . . Once the Trustee establishes his
                               32
       prima facie case, he need not affirmatively
       disprove every other potential theory.

In re Rowanoak Corp., 344 F.3d 126, 131-32 (1st Cir. 2003).

       Here, the District Court did not clearly err in deciding
that PTC satisfied its burden of proving its prima facie case (i.e.,
that PTC proved all the elements of a fraudulent transfer set
forth in 11 U.S.C. § 548), and thus it was incumbent on the
Class Defendants to produce some evidence to rebut PTC’s
proof. That the Class Defendants failed to do so makes
affirming the District Court the only proper course.

                       *    *    *    *   *

       The District Court did not err in concluding that the
Third Amendment was a fraudulent transfer that PTC may
avoid pursuant to 11 U.S.C. § 548. We therefore affirm its
determinations in every respect.

                                33