BANKRUPTCY CORNER
BANKRUPTCY CORNER
Good Faith and For Value Defense to Fraudulent Transfers
JASON S . RIGOLI
In bankruptcy , transfers can be avoided as fraudulent transfers made with the actual intent to hinder , delay , or defraud creditors under 11 U . S . C . § 548 ( a )( 1 )( A ) or pursuant to 11 U . S . C . § 544 ( b ), other applicable law , which for purposes of this article will be Fla . Stat . § 726.105 ( 1 )( a ). Once avoided , the transfers or value thereof can be recovered for the benefit of the estate pursuant to 11 U . S . C . § 550 .
A transferee of such a fraudulent transfer has a good faith and for value defense which has two prongs that are obvious from the very phrase of the defense . See Fla . Stat . 726.109 ( 1 ) (“ A transfer or obligation is not voidable under s . 726.105 ( 1 )( a ) against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee .”); 11 U . S . C . § 548 ( c ) (“ Except to the extent that a transfer or obligation voidable under this section is voidable under section 544 , 545 , or 547 of this title , a transferee or obligee of such a transfer or obligation that takes for value and in good faith has a lien on or may retain any interest transferred or may enforce any obligation incurred , as the case may be , to the extent that such transferee or obligee gave value to the debtor in exchange for such transfer or obligation .”). Such a defense requires the transferee to prove by a preponderance of the evidence both prongs : “ good faith ” and “ for value .” Kapila v . TD Bank , N . A . ( In re Pearlman ), 440 B . R . 900 , 906 ( Bankr . M . D . Fla . 2010 ) ( citations omitted ).
Good Faith
“ Good faith ” is not defined by either the Bankruptcy Code or the Florida Statutes and has the Eleventh Circuit addressed the definition of ‘ good faith " in this context . Most courts , however , have stated that " good faith " is an objective standard that looks to both the recipient ' s actual and imputed knowledge . See Pearlman , 440 B . R . at 906 ( citing Wiand v . Waxenberg , 611 F . Supp . 2d 1299 , 1319 ( M . D . Fla . 2009 ). See also Perkins v . Lehman Bros ., 2018 U . S . Dist . LEXIS 236659 at * 4 n . 5 ( N . D . Ga . Feb . 12 , 2018 ) ( citing In re Bayou Grp ., LLC , 439 B . R . 284 , 313 ( S . D . N . Y . 2010 )). “ Wiand states that a transferee ' s ‘ lack of actual knowledge of the debtor ' s fraudulent purpose is relevant to the good faith inquiry , but not dispositive ,’ because it is also relevant whether the transferee ‘ had knowledge of such facts or circumstances as would have induced an ordinarily prudent person to make inquiry , and which inquiry , if made with reasonable diligence , would have led to the discovery of the [ transferor ' s ] fraudulent purpose .’” Pearlman , at 906 ( quoting Wiand , 611 F . Supp . 2d at 1319-20 ).
Value
Value is defined by the Bankruptcy Code for purposes of 11 U . S . C . § 548 as : “ property , or satisfaction or securing of a present or antecedent debt of the debtor , but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor [.]” 11 U . S . C . § 548 ( d )( 2 )( A ). Value is similarly defined in the Florida Statues in pertinent part as : “ Value is given for a transfer or an obligation if , in exchange for the transfer or obligation , property is transferred or an antecedent debt is secured or satisfied , but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor ’ s business to furnish support to the debtor or another person … A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous .” Fla . Stat . § 726.104 ( 1 ) and ( 3 ).
Florida has adopted the Uniform Fraudulent Transfer Act , and consistent with the purpose of UFTA , FUFTA “ shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of the law among states enacting it .” Fla . Stat . § 726.112 . First , and foremost , the value provided by the transferee must be given to the debtor . See Janvey v . Golf Channel , Inc ., 487 S . W . 3d 560 , 574-75 ( Tex . 2016 ). For purposes of 11 U . S . C . § 548 ( c ) and Fla . Stat . 726.109 ( 1 ), the determination of value , however , does not necessarily come from the point of view of the debtor or debtor ’ s creditors , but from the point of view of the transferee . Welt v . Publix Supermarkets , Inc . ( In re Phoenix
Diversified Inv . Corp .), 2011 Bankr . LEXIS at * 13-15 ( Bankr . S . D . Fla . 2011 ) ( citations omitted ). The inquiry is whether the transferee delivered goods or services of reasonably equivalent value , not the actual benefit obtained by the debtor . Id . at * 13 .
Conclusion
For a defendant in a fraudulent transfer lawsuit to raise the affirmative defense of “ good faith and for value ,” the transferee defendant must establish by a preponderance of the evidence both “ good faith ” and “ value ” given to the debtor .
This article was submitted by Jason S . Rigoli , Esq ., Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com .
PBCBA BAR BULLETIN 9