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Trustee’s Avoidance Action Collapses as Defendant Did not Qualify as a Non-Statutory Insider

Seaver v. Glasser (In re Top Hat 430, Inc.), Nos. BKY 13-40651-WJF, 15-04025-MER, 2016 Bankr. LEXIS 3537 (U.S. Bankr. D. Minn. Sep. 27, 2016)

This adversary action primarily centered around the Defendant Pennie Glasser’s relationship with the Debtor Top Hat 430, Inc., her former employer and its principal, her former spouse, David Pomije. The Debtor operated a jewelry business. In March 2011, Pomjie sought loan from Glasser. Glasser issued a check for $200,000.00 to the Debtor and in return Pomije executed a promissory note in favor of Glasser. The terms of the promissory note provided for repayment of the principal in 90 days as well as a 20% interest rate if default occurred. Almost after a year, the Debtor paid interest to Glasser totaling $36,555.55 and also transferred a check in the amount of $205,444.45. After few months, the Debtor filed for bankruptcy and the Trustee brought an adversary proceeding against Glasser to avoid and recover alleged transfers pursuant to §547 of the Bankruptcy Code and under Minn. Stat. §513.45(b). The Trustee argued that the Defendant’s status as a former spouse to the Debtor’s principal, her employment history with Pomjie and her receipt of payment for the debt supported a showing of closeness between the Defendant and the Debtor and that Glasser was an insider within the meaning of §547(b)(4) and hence the alleged transfer was avoidable as a preference.

The Court found that Glasser was not an insider under §101(31). Her status as the Debtor’s former spouse did not qualify her as a non-statutory insider as their post-divorce relationship lacked the closeness contemplated by the term “insider”. As an employee of the Debtor, the record did not show that Glasser had authority over the Debtor “as to unqualifiedly dictate corporate policy and the disposition of corporate assets”. The Court also concluded that though a less-than-arm’s length transaction occurred between the Debtor and the Defendant, Glasser lacked any meaningful closeness with, or control over, the Debtor. The Court ruled that the Trustee failed to carry his burden of showing that Glasser was a non-statutory insider and hence the alleged transfer cannot be recovered as a preference.