Montoya v. Campos

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
Eli Tarin and Lilia Tarin,
Debtors. 	No. 7-08-12316-SL
Philip J. Montoya, Trustee,
Plaintiff,
v. 	Adv. No. 10-1004-S
Amanda Campos,
Defendant.
MEMORANDUM OPINION
This matter came before the Court for a final pretrial
conference. 	The parties agreed that many of the facts were not
in dispute and that the outcome of this adversary proceeding
might be decided on a legal basis. 	The Court scheduled briefs,
which have now been completed. 	This is a core proceeding. 	28
U.S.C. § 157(b)(2)(H). 	The Court finds that the adversary
proceeding should be dismissed with prejudice.
FACTS
1. 	Debtors Eli Tarin and Lilia Tarin filed a joint Chapter 7
proceeding in this district on July 17, 2008.
2. 	Defendant is Debtors’ daughter.
3. 	On or about January 8, 2008, Debtors wrote a check to Lydia
Traina in the amount of $12,000.00 for wedding planning services
for Defendant for her wedding scheduled for February 2, 2008.
4. 	Ms. Traina made the following disbursements:
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Item 	Amount
Wedding planner fees 	$1,450.00
Decorations 	$2,815.04
Flowers 	$2,782.43
Photographer 	$1,147.88
Cake 	$889.14
Band 	$600.00
Limousine 	$205.99
Supplies 	$128.47
Projector for slide show 	$85.00
Piano player 	$75.00
Extra labor 	$50.00
Rehearsal dinner deposit 	$25.00
Subtotal 	$10,253.95
Refunded to Debtors 	$1,746.05
Total 	$12,000.00
5. 	On January 10, 2010, Plaintiff filed this adversary
proceeding against defendant seeking avoidance of the $12,000.00
transfer (“Transfer”) to Defendant under 11 U.S.C. § 548.
6. 	Plaintiff argues that the Transfer was made with the intent
to hinder, delay or defraud a creditor or future creditor, or,
alternatively, that the Debtors were insolvent at the time of the
Transfer or became so as a result thereof and that they received
less than reasonably equivalent value for the Transfer.
7. 	The Court finds that the Debtors transferred $10,253.95 in
return for $10,253.95 in goods and services.
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CONCLUSIONS OF LAW
Section 548 allows a trustee to recover fraudulent
transfers. 	It states:
§ 548. Fraudulent transfers and obligations.
(a)(1) The trustee may avoid any transfer (including
any transfer to or for the benefit of an insider under
an employment contract) of an interest of the debtor in
property, or any obligation (including any obligation
to or for the benefit of an insider under an employment
contract) incurred by the debtor, that was made or
incurred on or within 2 years 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 in business or a transaction,
for which any property remaining with the debtor
was an unreasonably small capital;
(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; or
(IV) made such transfer to or for the benefit of
an insider, or incurred such obligation to or for
the benefit of an insider, under an employment
contract and not in the ordinary course of
business.
(2) ...
(b) ...
(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
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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.
(d)(1) ...
(2) 	In this section-
(A) “value” means 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[.]
It is inconceivable that the wedding planner, cake maker,
florist, band, piano player, limo driver or photographer would
not be transferees in good faith for value. 	They would all have
defenses to § 548(a)(1)(A) under § 548(c). 	See Clark v. Security
Pacific Business Credit, Inc. (In re Wes Dor, Inc.), 996 F.2d
237, 242 (10 th Cir. 1993). 	In that case, Espedel was the
president of Wes Dor, Inc. and its subsidiaries, and had
personally guaranteed Security Pacific’s debt. 	Id. at 238. 	The
subsidiaries gave Security Pacific financing statements but no
security agreements in support of the financing statements. 	Id.
at 239. 	When Security Pacific realized its position, it informed
Espedel that if he wanted additional financing he would have to
sign an addendum pledging the subsidiaries’ assets as collateral.
Id. 	Wes Dor, Inc. subsequently entered bankruptcy and the
trustee challenged Security Pacific’s secured status. 	Id. at
240. 	The bankruptcy court concluded that Espedel made the
transfer to Security Pacific with the actual intent to hinder or
delay or defraud the creditors of Wes Dor. 	Id. 	Security Pacific
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1 375 Park Avenue Assoc., Inc. was an action brought
pursuant to §544 and New York fraudulent transfer law, but the
principles cited by the court in that case are equally
applicable.
2 Had Debtors delivered the funds directly to their daughter
(continued...)
Page -5-
claimed a defense under § 548(c) arguing that it gave value for
the transfer. 	Id. 	The trial court limited the defense to the
amount Security Pacific had actually given. 	Id. 	“Because the
parties do not dispute the bankruptcy court's finding that Mr.
Espedal and Debtor executed the Addendum with an actual intent to
defraud its unsecured trade creditors, the only issue before us
is the extent to which the Bank gave ‘value’ for the transfer
and, hence, may retain proceeds under § 548(c).” 	Therefore, a
creditor that has given value for a transfer has a defense in the
amount given. 	And, lack of value is an element of proof to avoid
a constructively fraudulent transfer under § 548(a)(1)(B)(i).
Plaintiff cannot prevail under either section.
The cases cited by the Plaintiff are all distinguishable.
In In re 375 Park Avenue Assoc., Inc., 182 B.R. 690, 692 (Bankr.
S.D. N.Y. 1995) 1, the issue was the avoidance of a $3 million
pledge to the U.S. Holocaust Memorial Museum, for which the
Debtor would receive nothing tangible. 	In Henkel v. Green (In re
Green), 268 B.R. 628, 651 (Bankr. M.D. Fla. 2001), the issue was
the avoidance of a $50,000.00 outright cash gift to the Debtor’s
daughter, for which the Debtor received nothing tangible. 2 	In
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2(...continued)
instead of paying for the goods and services themselves, the
Court might reach a different result, and therefore this
memorandum opinion does not address that possible set of facts.
Nor does the Court decide the issue (or even the relevance of the
issue) of whether cultural values of the Tarin family and their
immediate community compelled and justified the payment by the
bride’s family of the majority of the wedding expenses.
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Geltzer v. Crossroads Tabernacle (In re Rivera), 214 B.R. 101,
106 (Bankr. S. D. N.Y. 1997), the issue was avoidance of tithes
given to Debtors’ church, for which the Debtor would receive
nothing tangible.
In determining whether fair and reasonable
consideration has been given, the court will
focus on whether the debtor received an
“economic benefit”, either directly or
indirectly.
375 Park Avenue Assoc., Inc., 182 B.R. at 695-96 (citation and
internal punctuation omitted). 	In the case before the Court,
Debtors did receive tangible goods and services equal in value to
what they paid.
Plaintiff cites Hanrahan v. Walterman (In re Walterman
Implement, Inc., 2007 WL 2901151 (Bankr. N.D. Iowa 2007) for the
proposition that “consideration does not qualify as reasonable
equivalent value if it does not provide a financial benefit to
the debtor and thus to the creditors.” (quoting In re Marlar, 252
B.R. 743, 760 (8 th Cir. BAP 2000), aff’d, 267 F.3d 749 (8 th Cir.
2001). 	The facts of that case were that Debtor transferred
$13,300 to his daughter and $8,464.52 to the University of
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Northern Iowa on his daughter’s behalf. 	Id. at *1. 	Debtor
defended the transfers on the grounds that it earned him his
daughter’s love and affection and she in return gave her best
academic effort. 	Id. at *3. 	It has of course long been the case
that love and affection in return for the expenditure do not
constitute “value” under the statute. 	Id. (citing Marlar, 267
F.3d at 756); 	Tavenner v. Smoot (In re Smoot), 257 F.3d 401,
408-09 (4 th Cir. 2001)(“[C]ourts have consistently held that a
transfer motivated by love and affection does not constitute
reasonably equivalent value for the purposes of 11 U.S.C. §
548.”) 	Compare Hinde's Lessee v. Longworth, 24 U.S. 199, 213
(1826):
A deed from a parent to a child, for the
consideration of love and affection, is not absolutely
void as against creditors. 	It may be so under certain
circumstances; but the mere fact of being in debt to a
small amount, would not make the deed fraudulent, if it
could be shown, that the grantor was in prosperous
circumstances, and unembarrassed, and that the gift to
the child was a reasonable provision according to his
state and condition in life, and leaving enough for the
payment of the debts of the grantor. 	The want of a
valuable consideration may be a badge of fraud, but it
is only presumptive, and not conclusive evidence of it,
and may be met and rebutted by evidence on the other
side.
(Decided under non-bankruptcy law.)
Distinguishing between cases in which the debtor made the
transfer in return for love and affection as opposed to something
more tangible is clearly what is behind the language from the
Hanrahan case quoted by Plaintiff. 	But of course, taken
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literally, the language overstates the requirement to prove
“value”: the debtor need only have received a tangible value for
itself, not the creditors. 	Otherwise, one could imagine that a
trustee might be entitled to recover, for example, the
compensation paid to a masseuse by a debtor.
The fact that Defendant benefitted incidentally does not
matter. 	The purpose of the fraudulent transfer section is to
ensure that the estate is not depleted by transfers for no or
inadequate value. 	Therefore, the Court analyzes an allegedly
fraudulent transfer by examining “what the debtor surrendered and
what the debtor received irrespective of what any third party may
have gained or lost.” 	See Meister v. Jamison (In re Jamison), 21
B.R. 380, 382 (Bankr. D. Ct. 1982). 	In Meister, in 1978 the
debtor executed a promissory note to a credit union and used the
loan proceeds to purchase a pick-up truck for his son. 	Id. at
381. 	The Debtor made all of the regularly scheduled payments
until debtor filed a Chapter 7 bankruptcy in February 1981. 	Id.
Debtor was discharged from his liability on the credit union
note. 	Id. 	The lien on the truck was decreased by the amount of
payments made by the father. 	Id. 	The parties stipulated that
debtor was insolvent at all relevant times. 	Id. 	The trustee
sought to avoid the payments as fraudulent transfers, arguing
that the payments to the credit union increased the equity in the
son’s vehicle for which the debtor received no consideration.
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3 “Value” includes satisfaction of an antecedent debt of the
debtor. 	Section 548(d)(2)(A).
4 Nothing in the opinion says whether Meister ever got to
use the truck.
5 To be fair to Plaintiff, the Court is not at all
suggesting that Plaintiff would have brought an action to recover
for hosting Thanksgiving dinner. 	Clearly what caught Plaintiff’s
attention was the size of the expenditures taken together, and
the fact that a primary beneficiary was Debtors’ daughter. 	Had
the expenditure been, say, $100,000 instead of $10,253.95, the
(continued...)
Page -9-
Id. 	The bankruptcy court rejected the argument. 	Id. 	It found
that there was no depletion of debtor’s estate because each
payment made was matched by an equivalent reduction in the
debtor’s debt. 3 	Id at 382. 	It was true that the debtor’s son
received a benefit, but that was not at the expense of the
estate. 	Id.
The facts of the instant case are stronger than the facts in
Meister. 	Arguably Meister’s son was receiving a truck with the
only obligation being incurred by Meister himself, who apparently
got no benefit from the transaction. 4 	In the instant case, as
Debtors correctly point out, they and their guests, and of course
their daughter, got to smell the flowers, listen and dance to the
music, eat the food, etc. 	If Plaintiff were entitled to recover
from the daughter, would he also be entitled to recover from the
guests? 	And what would be the difference between this set of
facts and a situation in which Debtors hosted Thanksgiving dinner
for all the extended family? 5
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5(...continued)
result might have been different since at some level of
expenditure, benefit to the debtor becomes inconsequential
compared to benefit to the transferee. 	The Tenth Circuit
proverb, quoted in Albuquerque Nat'l Bank v. Zouhar (In re
Zouhar), 10 B.R. 154, 157 (Bankr.D.N.M.1981), continues to be
apt: “There is a principle of too much; phrased colloquially,
when a pig becomes a hog it is slaughtered.” 	Dolese v. United
States of America, 605 F.2d 1146, 1154 (10th Cir. 1979). 	But
that is not this case and the Court does not rule on that
hypothetical set of facts.
Page -10-
In this case the Debtors received value equal to what they
surrendered. 	The fact that they put the value received into a
wedding party for their daughter does not make it a fraudulent
transfer.
Finally, allowing relief on this complaint would amount to a
double recovery for the creditors. 	Debtors received the goods
and services for which they paid. 	Now, Plaintiff is attempting a
second recovery identical to what was already received. 	See Id.
(Meister court noted that if trustee could recover the funds it
would be a double recovery because the claims against the estate
had already been reduced by the amount paid.)
The Court will enter an Order dismissing this adversary
proceeding with prejudice.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	April 4, 2011
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Copies to:
Bonnie Bassan Gandarilla
Moore, Berkson & Gandarilla, P.C.
PO Box 7459
Albuquerque, NM 87194
Kieran F Ryan
Ryan Law Office
PO Box 26
Las Cruces, NM 88004-0026
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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