Fifth Circuit's Bankruptcy Opinions from October 2014

It's been a slow month in the Fifth Circuit, my home Circuit with just two bankruptcy-related opinions.   This month's cases involve a non-filing spouse who lost her homestead interest and a bank which provided "reasonably equivalent" value but not enough to constitute a complete defense to a fraudulent transfer claim.

Homestead Exemption; Takings Claim by Non-Filing Spouse

Thaw v. Moser (Matter of Thaw), No. 14-40108 (5th Cir. 10/9/14), which can be found here, is another case of the non-filing spouse losing her homestead interest.   Dr. Stanley Thaw filed bankruptcy while his spouse, Kernell Thaw, did not.  Because the Thaws bought their home within 1,215 days, the exemption was capped at $146,450.   However, because Dr. Thaw had liquidated non-exempt property and used it to pay down the homestead, the Bankruptcy Court reduced the homestead exemption to $0 under Sec. 522(o).   Mrs. Thaw argued that  she had a separate homestead interest in the property and that the Bankruptcy Code provisions which eliminated the homestead exemption constituted an unconstitutional taking.   The Fifth Circuit held that because the homestead was purchased after the adoption of BAPCPA, there was not a valid takings claim.    "The Thaws acquired the property after the enactment of BAPCPA, there is no 'gratuitous confiscation,' and the sale is not 'so unreasonable or onerous as to compel compensation.'”   Opinion, p. 9.

Fraudulent Conveyance; Defense for Providing "Value"

In Williams v. Federal Deposit Insurance Corporation (Matter of Positive Health Management), No. 12-20687 (5th Cir. 10/16/14), which can be found here, the Fifth Circuit required an "innocent" recipient of a fraudulent transfer to return the funds received in excess of value given.     

The Debtor occupied a building which was owned by a related party and was subject to a lien.   The Debtor made the payments on the building as "rent."    Because the Debtor was not obligated on the building loan, Trustee Randy Williams brought suit to recover the funds as fraudulent transfers.   The Bankruptcy Court, having read Stern v. Marshall, submitted proposed findings of fact and conclusions of law to the District Court  which adopted them.    

The Bankruptcy Court found that the Debtor received "reasonably equivalent value" for the payments.    The Court found that the reasonable rental value of the property was $253,333.33 while the amount of the payments received was $367,681.35.   Although these two numbers were not equal, they were "reasonably equivalent."     Nevertheless, the Bankruptcy Court found that the transfers were made with actual intent to hinder, delay or defraud.   Unfortunately for the trustee, the Bankruptcy Court also found that the bank was entitled to a defense under 11 U.S.C. Sec. 548(c) for the reason that it took the payments in good faith and gave value in return.   In determining value, the Bankruptcy Court used the same "reasonably equivalent" standard that it used in determining liability.    The Court of Appeals held that for purposes of the defense, value meant dollar for dollar value.   Because the payments received by the bank were more than the rental value received by the Debtor, the bank had to pay back the excess of $114,348.02.

That's the news from the Fifth Circuit where the judges are strong, the clerks are good looking and all of the lawyers are above average.   (Apologies to Garrison Keillor).