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* Food Mgmt. Group, Inc. v. Matrix Realty Group, Inc. (In re Food Mgmt. Group, Inc.), 372 B.R. 171 (Bankr. S.D.N.Y. July 2007) (Hardin, J.)
Recovery against a purchaser for repudiating a 363 sale agreement did not require the debtor to prove its ability to enter into the transaction. The bankruptcy court had approved defendant as the successful bidder of the debtor's assets and cancelled a scheduled auction (cancellation was one of the purchaser's conditions before purchasing the assets). Months later, when a franchiser conditioned its approval of the sale (yet another pre-condition) upon the replacement of one of the defendant's principals, the defendant notified the debtors that it would not close on the sale. Taking this notification as an anticipatory repudiation, the debtors sold to another entity on terms less beneficial to the debtor and then sued the defendant for damages resulting from the repudiation. The court noted that the debtors were ready and willing to close on the sale. Despite the defendant's contention that the debtors were not actually able to transfer a number of assets at closing, the court held that the contract was divisible, and that any inability of the debtors' did not give the defendant the right to repudiate, but could grant the defendant's right a cause of action or counterclaim for damages. The court held that the defendant's repudiation was pre-planned and not genuinely based on the franchiser's rejection. The court also rejected the purchaser's defenses of fraud in the inducement, impossibility, and frustration of purpose.
* Johnson v. Neilson (In re Slatkin), 525 F.3d 805 (9th Cir. May 2008) (Norris, J.)
Guilty pleas or plea agreements admitting to operating a Ponzi scheme conclusively established the debtor's fraudulent intent in making avoidable transfers. The appellants here were some of the few investors who actually made money from Mr. Slatkin's Ponzi scheme. During Slatkin's criminal prosecution, he pled guilty and admitted to operating a Ponzi scheme with actual intent to defraud investors. The bankruptcy trustee commenced an adversary proceeding against some of the "successful" investors to avoid fraudulent transfers under state and bankruptcy laws. Using Slatkin's plea agreement as conclusive evidence, the trustee obtained a partial summary judgment in his favor. The district court affirmed.
In affirming the district court's decision, the Ninth Circuit first held that the plea agreement was admissible under FRE 807 (the catch-all hearsay exception). Because Slatkin admitted to operating the Ponzi scheme with the intent to defraud investors, the Ninth Circuit held that the plea agreement conclusively established fraudulent intent under section 548(a)(1)(A) and precluded re-litigation of that issue. Further, because Slatkin admitted to operating the Ponzi scheme, purported profits received by the appellant-investors -- amounts exceeding their initial "investment" -- were deemed to be fraudulent transfers as a matter of law. The court also rejected the appellants' contention that Slatkin was a "stockbroker" within the meaning of section 101(53A) such that settlement and margin payments to investors would be immune from avoidance actions pursuant to 546(e), distinguishing Slatkin from the debtor in Wesbanco Bank Barnesville v. Rafoth (In re Baker & Getty Fin. Servs., Inc.), 106 F.3d 1255 (6th Cir. 1997).
