U.S. High Court Will Not Hear Bankruptcy Case Dealing with Fraudulent Transfers

 WASHINGTON, D.C. — (Mealey's) The U.S. Supreme Court on Oct. 7 refused to hear a case in which the 10th Circuit U.S. Court of Appeals had affirmed that fraudulently transferred property is not part of a bankruptcy estate until it is recovered (Eric C. Rajala v. Robert H. Gardner, et al, No. 12-1447, Chapter 7, U.S. Sup.).

Bankruptcy

Generation Resources Holding Co. LLC filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of Kansas in 2011.

FreeStream Capital LLC and Lookout Windpower Holding Co. LLC moved for approval to distribute $9 million that had been held in escrow related to their purchase of a wind power project that Generation Resources allegedly developed.

The Chapter 7 trustee, Eric C. Rajala, sued Robert H. Gardner, Robbin M. Gardner, R. James Ansel, William W. Stevens, Akikon N. Stevens, Lookout Windpower, Forward Windpower Holding Co., Stevens Family Investment Co., Freestream Capital, Gardner Family Investment Co., Windforce Holdings Inc., Edison Mission Energy, Mission Wind Pennsylvania Inc. and Mission Wind Pa Three Inc. in the U.S. District Court for the District of Kansas.

Transfers Fraudulent

The trustee alleged that Generation Resources had been left with $5 million in debt while the power company defendants and their affiliated entities received $13 million in proceeds from the sale of several wind power projects, unburdened by the debt.

The District Court ruled that the unrecovered property that was the subject of the fraudulent transfer in question was not part of the bankruptcy  estate.

The trustee had maintained that 11 U.S. Code Section 541(a)(1) includes property that is the subject of a fraudulent transfer claim, even if the property has been sold to a bona fide purchaser.

Meaning ‘Plain’

The 10th Circuit panel said it assumes that Congress legislates with constitutional limitations in mind; therefore, the panel was reluctant to adopt the trustee's sweeping interpretation of the statute (See 3/20/2013).

The trustee appealed to the U.S. Supreme Court.

Consequently, the panel said, "We adopt the statute's plain meaning and hold that fraudulently transferred property is not part of the bankruptcy estate until recovered."

The trustee is represented by Michael P. Healy of the Healy Law Firm in Lee's Summit, Mo.  The wind power defendants are represented by Scott J. Goldstein, Douglas M. Weems and Barry L. Pickens of Spencer Fane Britt & Browne in Kansas City, Mo., and Tyler W. Hudson and Adam S. Davis of Wagstaff & Cartmell in Kansas City, Mo.

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