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Full-Text Articles in Law
Tuition As A Fraudulent Transfer, David G. Carlson
Tuition As A Fraudulent Transfer, David G. Carlson
Articles
Bankruptcy trustees are suing universities because the insolvent parent of an adult student has written a tuition check while insolvent. The theory is that the university is the initial transferee of a fraudulent transfer that has provided benefit to the student but not to the parent debtor. This article claims that the university is never the initial transferee of tuition dollars. Rather, the student is. Where the university has no knowledge of parent insolvency, the university can count educating the student as a good faith transfer for value, thus immunizing the university from liability. The unpleasant side effect is that …
Giving Back A Fraudulent Transfer: A Defense To Liability?, David G. Carlson
Giving Back A Fraudulent Transfer: A Defense To Liability?, David G. Carlson
Articles
In Whitlock v. Lowe (In re Deberry) (5th Cir. 2019), the Fifth Circuit court of appeals found it obvious that if a transferee gives back fraudulently transferred funds (which the debtor then dissipates), the transferee has a complete defense to liability to the transferor’s bankruptcy trustee. This puts the Fifth Circuit at odds with the Sixth and Seventh Circuits, where the prepetition give-back counted as no defense. This article concludes that a more nuanced position should mediate between these extremes, based on an “innocent donee” defense retrieved from Nineteenth Century precedent. The article emphasizes that if bad faith transferees for …
Mere Conduit, David G. Carlson
Mere Conduit, David G. Carlson
Articles
"Mere conduit" is a legal fiction in fraudulent transfer and other avoidance cases. This article argues that the legal fiction is misleading, unnecessary and rendered obsolete by the Supreme Court's recent opinion in Merit Management Group v. FTI Consulting, Inc. (2018). The article further contends that a huge majority of leading cases confound fraudulent transfer law with the law of corporate theft. This error leads to depriving financial intermediaries of their opportunity to avoid liability on the ground of being bona fide transferees for value. Finally, courts often mistake banks as initial transferees of fraudulent transfers (absolutely liable in spite …
Constructive Trusts And Fraudulent Transfers: When Worlds Collide, David G. Carlson
Constructive Trusts And Fraudulent Transfers: When Worlds Collide, David G. Carlson
Articles
When Ponzi schemes collapse and enter into bankruptcy liquidation, bankruptcy trustees assume that conveyances made by the debtor for no consideration are fraudulent conveyances. This Article argues that they are not. Virtually all the assets held by a Ponzi scheme are held in constructive trust for the victims of the fraud. If victims of the fraud can trace the proceeds of their investments into property transferred to a third party, the third party holds the asset transferred in trust for the relevant victim. When a bankruptcy trustee characterizes the asset as a fraudulently conveyed asset, the trustee expropriates the asset …