07/09/2012 01:06:00 PM EST
The Ponzi Perpetrator’s Art Dealer? The Endless Scope of Clawback Claims
Sheila Gowan, the trustee of Dreier, LLP ("DLLP"), has
filed a fraudulent transfer action against Marc Dreier's personal art advisor,
Heidi Lee, and her business, Heidi Lee Art Advisory. Gowan asserts that Marc Dreier
caused DLLP to make a series of transfers to Lee totaling $1,940,915.00 for Mark
Dreier's personal obligations and that DLLP received no consideration for these
transfers. The Trustee asserts that Dreier retained Lee to advise him on his
art purchases for his personal collection and that DLLP was not a party to any
agreement with Lee.
The Trustee's complaint asserts a claim for avoidance and
recovery of the payment as constructive fraudulent transfers under 11 U.S.C. § 548(a)(1)(b)
and § 550 on the theory that DLLP did not receive any value from Lee's
services in exchange for the money DLLP paid to Lee. The complaint also objects
to Lee's proof of claim under § 502(d), which requires the court to disallow a
claim filed by a party from whom property is recoverable under §§548 or 550.
It will be interesting to see what defenses Lee asserts
to this claim. Undoubtedly, the Trustee will have little difficulty in proving
her case-in-chief. Presumably, the Trustee has the DLLP checks payable to and
negotiated by Lee, so the Trustee's case will be complete when she establishes either:
(1) that DLLP was insolvent at the time of the transfers; (2) that the
transfers left DLLP with unreasonably small capital; or (3) that DLLP intended
to incur or believed that it would incur debts beyond its ability to pay as
such debts matured.
Lee may assert a good faith value defense under § 548(c),
but even that will be challenging for her. While she may have acted in good
faith and without knowledge or notice of Dreier's fraud, that is not enough. The
defense will only help her to the extent that her services provided value to
DLLP, and that may be tough for her to prove since the services rendered by Lee
were allegedly for the benefit of Dreier individually and not for DLLP.
This case highlights the difference between preferences
and fraudulent transfers from the perspective of the transferee. The Trustee
does not allege that Lee did anything wrong or out of the ordinary course of
Lee's business.. Unfortunately for Lee, however, there is no ordinary course
defense for fraudulent transfer claims as there is in a preference action. See 11 U.S.C. § 547(c)(2).
A fraudulent transfer claim has a different objective
than a preference claim, where the ordinary course of business makes a
difference. The purpose of the ordinary course exception in preference actions
is "to leave undisturbed normal financial relations, because it does not
detract from the general policy of the preference section to discourage unusual
action by either the debtor or [its] creditors during the debtor's slide into
bankruptcy." Lawson v. Ford Motor Co.
(In re Roblin Indus., Inc.) 78 F.30
(2d Cir. 1996).
In constructive fraudulent transfer actions such as the
Trustee's claims against Lee, however, the purpose and perspective is
different. Fraudulent transfer law considers liability from the perspective of
the financial condition of the debtor to ensure that the debtor hasn't given
away its property with no return value being provided in exchange. Whether the
transaction is ordinary or unusual, therefore, not an issue.
Lee may be out of luck in this case, even though all she
did was accept payment for the services she provided. In the fraudulent
transfer context, however, defendants are stuck with the option of demonstrating
both good faith and value, and if the money came from an entity different from
the entity that received the value, the value element of the defense cannot
likely be established.
A complete discussion of fraudulent transfer claims,
preference claims, and the defenses to them may be found in The Ponzi Book: A Legal Resource for
Unraveling Ponzi Schemes (LexisNexis 2012) by Kathy Bazoian Phelps and Hon.
Steven Rhodes. The Ponzi Book is available for purchase at www.lexisnexis.com/ponzibook,
and more information about the book can be found at www.theponzibook.com.
Kathy Bazoian Phelps is
the co-author of The Ponzi Book: A Legal Resource for Unraveling Ponzi
For more information about LexisNexis
products and solutions connect with us through our corporate site.