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Neither Intent nor Motive of the Parties is Relevant Under § 547(b).

Chapter 7 Tr. of Big Apple Volkswagen, LLC v. Salim (In re Big Apple Volkswagen), Nos. 11-11388 (JLG), 11-2251 (JLG), 2016 Bankr. LEXIS 834 (U.S. Bankr. S.D.N.Y. Mar. 17, 2016)

Debtor Big Apple Volkswagen, LLC owned and operated a Volkswagen dealership and repair business pursuant to a franchise agreement with Volkswagen of America, Inc. Julian was the managing member and 54% equity owner of the Debtor and a daughter of Defendants Ratiba and Wahid. The Trustee brought a lawsuit alleging that prepetition, Julian caused the Debtor to make two transfers aggregating $705,000 to an account bearing Ratiba’s name in satisfaction of debts then due and owing to her by the Debtor totaling $675,000. A portion of that indebtedness consisted of a $300,000 loan that Ratiba made to Julian and the Debtor in 2006. Ratiba financed that loan by taking out a $300,000 mortgage on a real estate. The Trustee sought a judgment pursuant to §§ 547, 550 and 551 of the Code avoiding the transfers and directing that the transfers be set aside for the benefit of the Debtor’s estate. The Trustee also sought a judgment avoiding Ratiba’s conveyance of the real estate to Wahid, her husband and Julian’s father, as a subsequent transferee of the value of a portion of the avoided transfers.

The Court found that the Trustee met all the requirements of Sec. 547 (b). The Defendants contended that even if the Trustee has met his burden under §547(b), he cannot avoid the alleged transfers because Ratiba had no knowledge of the existence of the bank account or the transfers. The Court found that there was no question that the bank account was maintained in Ratiba’s name and listed the address of the real estate, her home address. As such, she was the account owner and even if the Defendants Ratiba did not know that the bank account existed or that the Debtor had transferred $705,000 to the bank account in satisfaction of its indebtedness to her, that did not bar the Trustee from avoiding the transfers as preferences because Section 547(b) is a “no fault” provision; a creditor’s knowledge, intent and state of mind are irrelevant in determining whether a transfer is avoidable under section 547(b). The Court ordered that the transfers from the Debtor to the bank account totaling $705,000 be avoided pursuant to section 547(b) of the Bankruptcy Code.


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