Lack of Fraudulent Intent in Receiving Transfers – A Trustee’s Motion Denied in Part

October 13, 2021, District of Idaho – The case involves a motion for partial summary judgment filed by Plaintiff Wayne Klein against Defendant Jonathon Peirsol. 

Defendant was a sole owner and shareholder of J & J Chemical, Inc. (“Chemical”). Chemical filed a Chapter 11 bankruptcy petition. Later, Defendant pled guilty to a crime and was sentenced to a term of imprisonment. As part of his duties, Trustee Klein commenced several adversary proceedings in Chemical’s bankruptcy case. The Trustee brought multiple allegations against Defendant, claiming that Defendant made several cash withdrawals from the business accounts, transferred various other funds from its accounts to Defendant’s personal checking and savings accounts, breached his fiduciary duty as an officer and owner of the company by paying his personal expenses with Chemical’s funds. The Trustee argued that Chemical received no reasonably equivalent value in exchange, and the alleged transfers were made with the intent to hinder, delay, or defraud Chemical’s creditors while Chemical was insolvent, thereby constituting fraudulent transfers. The Court granted a ruling in favor of Plaintiff (“Judgment”). Defendant filed an individual Chapter 11 bankruptcy petition and listed the debt represented by the Judgment in favor of Chemical in his schedules.  

Plaintiff then commenced the adversary proceeding before the Court, alleging that the facts as established in the Chemical Adv. satisfy § 523(a)(2)(A) and render the debt represented by the Judgment in Plaintiff’s favor excepted from discharge in Defendant’s personal bankruptcy case. Plaintiff then moved for partial summary judgment concerning the portion of the Judgment debt. 

First, the Court concluded that issue preclusion applies to the issue of actual fraud but not to the fact that Defendant received the transfers from Chemical. The Court found that the undisputed evidence established that as a fact. Therefore, the Court granted Plaintiff’s motion for partial summary judgment on this issue. Next, the Court held that the Judgment entered in the prior adversary proceeding did not preclusively decide whether Defendant had fraudulent intent when he received the transfers from Chemical. Further, Defendant specifically disputes that fact in the current proceeding. Thus, the Court denied Plaintiff’s motion for partial summary judgment on this issue because it was disputed whether Defendant had fraudulent intent in receiving the alleged transfers.

Klein v. Peirsol (In re Peirsol), 2021 Bankr. LEXIS 2838 

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