Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight)

In re: ANLINDA Y. KNIGHT, Debtor.

THOMAS C. BOSCARINO,CHAPTER 7 TRUSTEE OF THE ESTATE OFANLINDA Y. KNIGHT, Plaintiff. v. BOARD OF TRUSTEES OF

CONNECTICUT STATE UNIVERSITY SYSTEM, Defendant.

CASE No. 15-21646 (JJT)

ADV. PRO. No. 15-02064 (JJT)

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT HARTFORD DIVISION

September 29, 2017

CHAPTER 7

RE: ECF Nos. 30, 34, 35, 36

APPEARANCES

Jeffrey Hellman, Esq.

Law Offices of Jeffrey Hellman, LLC

195 Church Street, 10th Floor

New Haven, CT 06510

Attorney for the Chapter 7 Trustee

Denise S. Mondell, Esq.

Assistant Attorney General

55 Elm St., Fourth Floor

Hartford, CT 06141-0120

Attorney for the Board of Trustees

MEMORANDUM OPINION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

In this adversary proceeding, Thomas C. Boscarino, the Chapter 7 Trustee (the "Trustee") of the estate of Alinda Y. Knight (the "Debtor" or "Ms. Knight") seeks to avoid and recover, as fraudulent transfers pursuant to both 11 U.S.C. § 548(a)(1)(B) and Conn. Gen. Stat. §§ 52-552e(a)(2) and f(a) ("CUFTA"), several payments that Ms. Knight made for her adult son's college tuition and expenses. Before the Court is the motion for summary judgment (the "Motion") of the Defendant in this adversary proceeding, the Board of Trustees of Connecticut State University System (the "Board"), which seeks judgment in its favor on both counts of the complaint. For the reasons stated herein, the Court denies the Motion in its entirety.

JURISDICTION

The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper in the Bankruptcy Court pursuant to 28 U.S.C. § 1409(a). This action is brought as an adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7001.¹

FACTUAL BACKGROUND

The facts in this case are essentially undisputed. On September 18, 2015 (the "Petition Date"), the Debtor filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. The Debtor is the mother of Jeremy G. Thomas ("Jeremy"), who was born on November 10, 1993.

Jeremy was enrolled as a full-time undergraduate student at Central Connecticut State University ("CCSU") during the period from the Fall of 2011 through the Spring of 2016. Pursuant to Conn. Gen. Stat. § 10a-87, the Board of Trustees of the Connecticut State University System shall maintain CCSU.

Although the Debtor made payments to CCSU in October of 2011, the Trustee is not seeking to recover any payments made by the Debtor to CCSU before Jeremy reached the age of eighteen. Between November 28, 2011 and September 18, 2013, the Debtor paid $16,527.00 to CCSU for Jeremy's tuition and related educational expenses (the "Initial Transfers"). Between September 18, 2013 and the Petition Date, the Debtor paid CCSU $5,509.50 for Jeremy's tuition and expenses (the "Subsequent Transfers", and together with the "Initial Transfers", the "Transfers").

As averred in her uncontested affidavit, the Debtor made the payments to CSSU because she wanted to reduce the amount of debt that Jeremy would graduate with and because she wanted to fulfill her Expected Family Contribution, a federally-imposed formula that is applied in determining a student's eligibility for federal financial aid. The Debtor also believed that subsidizing Jeremy's college tuition would help Jeremy become financially self-sufficient, which, in turn, would ultimately result in a financial benefit to her because Jeremy would be less likely to rely upon her for housing, food and other costs and more likely to be in a position someday to provide financial support to her, if necessary.

ANALYSIS

A. Summary Judgment Standard

Fed. R. Bank. P. 7056 makes Fed. R. Civ. P. 56 applicable to adversary proceedings in bankruptcy. Fed. R. Civ. P. 56(a) provides that summary judgment shall enter only if "the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."

The burden rests with the moving party to clearly establish the absence of a genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 331, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986); Adickes v. S.H. Dress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970). Regardless of whether the material facts are undisputed, however, "the court must determine whether the legal theory of the motion is sound." Jackson v. Fed. Exp., 766 F.3d 189, 194 (2d Cir. 2014).

B. The Evidence Establishes That The Debtor Did Not Receive Reasonably Equivalent Value In Exchange For The Transfers

Section 548(a)(1)(B) of the Bankruptcy Code, the 'constructive fraud' provision, states, in pertinent part, as follows:

(a)(1) The trustee may avoid any transfer...of an interest of the debtor in property...that was made...on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily--

(B)(i) received less than a reasonably equivalent value in exchange for such transfer...; and

(ii)(I) was insolvent on the date that such transfer was made...or became insolvent as a result of such transfer...;

11 U.S.C. § 548(a)(1)(B). As the party seeking to avoid the transaction, the Trustee bears the burden to establish every element of a voidable transfer under section 548, including the absence of reasonably equivalent value, by a preponderance of the evidence. In re S.W. Bach & Co., 435 B.R. 866, 875 (Bankr. S.D.N.Y. 2010).

For purposes of the Motion, the Board assumes that the Debtor was insolvent at the time of the Transfers or became so as a result of the Transfers. The parties therefore agree that the Transfers would qualify as constructively fraudulent under both 11 U.S.C. § 548(a)(1)(B) and Conn. Gen. Stat. §§ 52-552e(a)(2) and f(a), if the Trustee could establish that the Debtor received less than reasonably equivalent value in exchange for the Transfers.²

As explained below, the Court finds that the Debtor did not receive any legally cognizable value under these statutes in exchange for the Transfers and therefore could not have received reasonably equivalent value.

To determine whether a debtor received "reasonably equivalent value" in exchange for a transfer, courts first determine whether the debtor received any "value" at all in exchange for the transfer, and then determine whether the value received was reasonably equivalent to the value the debtor gave up. In re Lyondell Chem. Co., 567 B.R. 55, 113-14 (Bankr. S.D.N.Y. 2017); Kipperman v. Onex Corp., 411 B.R. 805, 837 (N.D. Ga. 2009); In re Adler, Coleman Clearing Corp., 263 B.R. 406, 466-67 (S.D.N.Y. 2001); see also Mellon Bank v. Official Comm. of Unsecured Creditors (In re R.M.L., Inc.), 92 F.3d 139, 149 (3d Cir. 1996) ("[B]efore determining whether the value was 'reasonably equivalent' to what the debtor gave up, the court must make an express factual determination as to whether the debtor received any value at all.").

The Bankruptcy Code defines "value," for purposes of section 548, as "property, or satisfaction or securing of a present or antecedent debt of the debtor, but [it] 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). Under this definition, value is limited to economic benefits that preserve the net worth of the debtor's estate for the benefit of creditors. Rubin v. Manufacturers Hanover Tr. Co., 661 F.2d 979, 992 (2d Cir. 1981) (applying the Bankruptcy Act) ("The decisions in fact turn on the statutory purpose of conserving the debtor's estate for the benefit of creditors."); Suhar v. Bruno, 541 F. App'x 609, 611-12 (6th Cir. 2013) ("[W]e look to the net effect of the transfer or obligation on the debtor's estate and, more specifically, on the remaining funds available to the unsecured creditors."); Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2006) ("The primary consideration in analyzing the exchange of value for any transfer is the degree to which the transferor's net worth is preserved."); Harman v. First Am. Bank of Md. (In re Jeffrey Bigelow Design Group, Inc.), 956 F.2d 479, 485 (4th Cir. 1992) ("[T]he focus is whether the net effect of the transaction has depleted the bankruptcy estate."); see also HBE Leasing Corp. v. Frank, 48 F.3d 623, 638-39 (2d Cir. 1995) (To determine whether a debtor indirectly received reasonably equivalent value, "the fact-finder must first attempt to measure the economic benefit that the debtor indirectly received from the entire transaction, and then compare that benefit to the value of the property the debtor transferred."); Lisle v. John Wiley & Sons, Inc. (In re Wilkinson), 196 F. App'x 337, 342 (6th Cir. 2006) ("Value can be in the form of either a direct economic benefit or an indirect economic benefit."); Zubrod v. Kelsey (In Re Kelsey), 270 B.R. 776, 781 (9th Cir. BAP 2001) ("value is limited to economic or monetary consideration"); In re R.M.L., 92 F.3d at 149 ("The touchstone is whether the transaction conferred realizable commercial value on the debtor ....") (citations omitted).

Moral or familial obligations cannot be considered in the value analysis "for the obvious reason that the depletion of resources available to creditors cannot be offset by the satisfaction of moral obligations." Coan v. Fleet Credit Card Servs., 225 B.R. 32, 37 (Bankr. D. Conn. 1998). "As cold and unsentimental as that rule might seem, it is easier to understand from the perspective of creditors, most of whom would probably be unwilling to volunteer to provide a financial subsidy to enhance the insolvent debtor's family relationships by allowing the debtor to put valuable property beyond their reach." Zeddun v. Griswold, (In re Wierzbicki), 830 F.3d 683, 689-90 (7th Cir. 2016) citing In re Bargfrede, 117 F.3d 1078, 1080 (8th Cir. 1997) ("[N]on-economic benefits in the form of a release of a possible burden on the marital relationship and...