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LEIBOWITZ v. IMSORN

August 1, 2003

DAVID P. LEIBOWITZ, APPELLANT,
v.
KOVNVARA IMSORN AND RANI IMSORN, APPELLEES



The opinion of the court was delivered by: James Zagel, District Judge

OPINION

Appellant David P. Leibowitz, as Chapter 7 trustee for Rungsarn Imsorn ("Rungsarn"), filed two complaints in the United States Bankruptcy Court for the Northern District of Illinois against Rani Imsorn ("Rani") and Kovnvara Imsorn ("Kovnvara") to recover funds transferred to them by Rungsarn. Leibowitz claimed that the funds were transferred as either fraudulent conveyances or avoidable transfers under 11 U.S.C. § 548(a)(1)(A), 548(a)(1)(B), and 544 incorporating 740 ILCS 160/6. After a bench trial, the Court entered judgment in favor of Kovnvara and Rani, which Leibowitz appeals.

Background

In December of 2000, approximately eight months before filing for bankruptcy, Rungsarn sold a rental piece of property from which he netted $96,558.48. He then transferred $10,000 to his ex-wife Rani and $10,000 to his daughter Kovnvara. Rungsarn claims he owed Rani $10,000 because she previously owned the property and executed a quitclaim deed during their divorce on he unwritten promise that he would pay her something from the sale of the property. As for his [ Page 2]

daughter, Rungsarn claims that he owed her $16,000 resulting from a loan she made to him in 1998 or 1999, and thus paid her $10,000 as partial payment. However, in his affirmative defenses in his answer to the complaint, Rungsarn stated that he gave her the $10,000 to pay for her wedding, which he reiterated at trial.

As to his personal financial situation, Rungsarn testified that he had a gambling problem and has lost over $50,000 each year for the past several years. On February 23, 2001, he was terminated from his full-time job at Jackson Park Hospital, where he had worked for 29 years. According to his testimony, his salary had been $2,200 per month (or $26,400 annually), although his Statement of Financial Affairs indicates he was making only $23,000 annually. After he lost his job, Rungsarn became depressed and gambled even more. With $950 per month of living expenses, a gambling problem, and no income except the proceeds from the sale of the building, Rungsarn ran out of money in August 2001. On August 23, 2001, he filed for Chapter 7 bankruptcy, and a trustee was assigned.

As part of his Chapter 7 bankruptcy, Rungsarn was required to file a Statement of Financial Affairs disclosing all transfers to insiders within one year of filing for bankruptcy. On his first schedule of affairs, he failed to list the transfers to Rani and Kovnvara. However, at the § 341 meeting on October 2, 2001, he acknowledged that he had transferred $10,000 to both of them. On October 31, 2001, he filed an Amended Schedule of Affairs including these transfers and an income and expense statement with copies of checks drawn showing how he spent the proceeds from the sale of the building.

Leibowitz subsequently filed adverse proceedings under 11 U.S.C. § 548(a)(1)(A), 548(a)(1)(B), and 544 incorporating 740 ILCS 160/6 (Illinois Uniform Fraudulent Transfer Act. [ Page 3]

or "UFTA") against Rani and Kovnvara to recover the funds Rungsarn transferred to them.*fn1 After a bench trial, the Court ruled in favor of Rani and Kovnvara.

Standard of Review

Leibowitz now appeals: (1) the Court's finding that he failed to carry the burden of proving Rungsarn's insolvency; and (2) the Court's ruling as a matter of law that Rungsarn did not intend to defraud his creditors. I "review the courts' legal interpretations de novo; however, [I] review the bankruptcy court's findings of fact for clear error only." Union Planters Bank, N.A. v. Connors, 283 F.3d 896, 899 (7th Cir. 2002).

Actual Fraud/Fraud in Fact

Leibowitz first claims that the Court improperly determined if there was actual fraud, a claim which I must review de novo. Actual fraud, or fraud in fact, requires Leibowitz to prove: (1) a transfer of an interest in property; (2) that the transfer of that property occurred within one year before the bankruptcy filing date; and (3) that the debtor had an actual intent to hinder, delay, or defraud his creditors. 11 U.S.C. § 548(a)(1)(A). The only element at issue here is whether Rungsarn had an actual intent to hinder, delay, or defraud his creditors. Because actual intent is often impractical to demonstrate, bankruptcy courts may use the circumstances surrounding the transfer to infer fraudulent intent. In re Chevrie, 2001 Bankr. LEXIS 97, at *27 [ Page 4]

(Bankr. N.D. Ill. Feb. 13, 2001) (citing Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1254 (1st Cir. 1991)). These circumstances, or badges of fraud, may include: (1) whether the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer; (2) whether the debtor retained control of the asset; (3) whether the transfer was to a family member, In re Chevrie, 2001 Bankr. LEXIS 97, at *28; (4) whether the transfer was prior to debtor incurring a substantial debt; and (5) whether the transfer was substantially all of debtor's assets. In re Mussa, 215 B.R. 158, 168 (Bankr. N.D. Ill. 1997). "Although the presence of a single badge of fraud . . . is insufficient to establish actual fraudulent intent, the confluence of several can constitute conclusive evidence of actual intent, absent significantly clear evidence of a legitimate supervening purpose for the transfer." In re Chevrie, 2001 Bankr. LEXIS 97, at *28. In other words, several badges of fraud may create a presumption of fraudulent intent, id., which "imposes on the party against whom it is ...


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