Al Osterheld wrote:The trustee is also filing fraudulent transfer claims for at least some transfers outside the 90 days but in the six years preceding the filing.
Unfortunately, your understanding is way off on the numbers. The real world situation is far worse than you describe. The Trustee has sued many people on wines purchased as long ago as 2002 and 2003 -- that's 15 to 16 years ago, not six. Of the claims currently being litigated I know of one case where some of the wines were purchased in June of 2002 -- that's reaching back 16 years. Those purchases occurred 7 years prior
to the operative maximum statute of limitations "reach back" date of January 8, 2009. In another case that was filed, the wine was purchased in July of 2003.
The Trustee's purported justification for suing people for all of these relatively ancient transactions is the claim that that everything is measured under the Uniform Fraudulent Transfer Act ("UFTA") based on the date the wines were delivered rather than the date that the money the purchaser paid was exchanged for Premier Cru's written contractual promise to deliver the wine upon arrival (or under the Uniform Commercial Code, within a reasonable time.) That is absolutely incorrect as a matter of law, and frankly, it isn't even a close question.
Using the delivery date for the wine instead of its purchase date also creates very large discrepancies in value in some cases. The rarer the wine sold, and/or the rarer the bottle size, and the longer the delay in delivery, the more likely it is that a delay in delivery produced a substantial discrepancy in value according to the Trustee. Someone I know purchased three 3 liter bottles of 2003 Chateau Latour. After many battles with Premier Cru, he actually received those 3 liter bottles from Premier Cru some five plus years later in 2009. He is being sued for thousands of dollars by the Trustee for those very bottles. The Trustee is claiming the difference in the value of the wine at the time it was delivered versus the amount that was initially paid for the wine. But to add insult to injury, the Trustee's complaint pretends that the customer didn't pay for the wine at all. The Trustee is suing him for the alleged fair market value of the wines in 2009 -- with no deduction of the purchase price that he paid. In effect, the Trustee is treating the wine as though it was stolen and suing for the alleged fair market value of the three 3 liter bottles when they were delivered in 2009 -- plus interest on that sum since 2009.
What is truly ironic here is that the claims that the Trustee is asserting turn the provisions of the Uniform Commercial Code governing the sale of goods for future delivery, and the provisions of the Uniform Fraudulent Transfer Act, which governs fraudulent conveyances, completely upside down.
The UCC, which governs the sale of goods, provides that where a customer enters into a contract with a wine merchant for the pre-arrival purchase of wine, an enforceable contract is formed at the time when the buyer exchanges cash in return for the merchant's legally enforceable promise to deliver the specified wine purchased within a reasonable period of time. Under the Uniform Commercial Code, if the merchant fails to deliver the wine within a commercially reasonable period of time (which is measured objectively based upon all of the relevant facts and circumstances), the buyer is entitled to sue the merchant for non-delivery and to recover as damages the difference between the purchase price paid and the fair market value of the wine at the time that the customer learned (of should have known) that the wine was not being delivered.
Despite the Trustee's claim to the contrary, the same rules apply to fraudulent transfers under the Uniform Fraudulent Transfer Act, which is the California statute that the Trustee is principally relying upon in the 70-some fraudulent conveyance claims filed. Under the Uniform Fraudulent Transfer Act, California Civil Code Section 3439.06(e), the very same rule about the the time of contracting applies. The debtor (Premier Cru) is deemed to have "incurred the obligation
" to deliver the wine at the the time that the contract was entered into between the parties, i.e. at the time of the exchange of the cash in return for the issuance of confirmed purchase order by Premier Cru. Under the UFTA, a "transfer made or obligation incurred
" is avoidable as a fraudulent transfer "if the debtor made the transfer or incurred the obligation
" either with actual intent to hinder, delay or defraud creditors, or "without receiving reasonably equivalent value in exchange for the transfer or obligation
" and the debtor was either insolvent or about become insolvent at the time.
Fraudulent transfer claims are usually broken into two categories -- so called "actual fraud" cases where the Trustee proves that the debtor entered into the transaction with the actual intent to hinder, delay or defraud creditors, and "reasonably equivalent value" cases, where a party received an asset transfer or contracted to receive something which the debtor was obligated to provide, but the defendant did not pay the "reasonably equivalent value" (generally described as "fair market value") for the transfer made or the contractual obligation to be performed. But in both types of cases, the creditor/customer has no liability for an alleged fraudulent transfer if the creditor/consumer paid "reasonably equivalent value" for the asset transferred or the obligation incurred by the debtor at the time of the exchange. The only practical difference is who has the burden of proof to establish "reasonably equivalent value" at the time of the exchange or the lack thereof. Moreover, even in Ponzi scheme cases (and this isn't one under Ninth Circuit precedent because this does not involve an "investment scheme"), where the purchaser paid or transferred "reasonably equivalent value" for what the purchaser received, there is no liability for a fraudulent transfer.
The key words in the UFTA statute (Civil Code Section 3439.04I(a) in the context of pre-arrival wine purchases are "without receiving reasonably equivalent value in exchange for ... the obligation
" The case law on fraudulent conveyances, both under Federal (Bankruptcy) law and state law, is that the date of measurement of "reasonably equivalent value" is the date of the exchange
of consideration between the parties, which in these types of cases means the time that debtor incurred the contractual obligation to deliver the wine in the future in exchange for the cash paid. The case law is equally clear that subsequent increases or decreases in the value of the property that the debtor agreed to sell must be disregarded in determining "reasonably equivalent value." Once again, this rule is simply one of common sense. If the buyer paid the fair market value of the wine at the time the contract to sell pre-arrival wine was entered into, then the seller (here Premier Cru) received 100% of what it was legally entitled to receive in an arm's length, non-fraudulent transaction -- so the purchaser cannot be found liable for a fraudulent transfer -- even where there is an alleged Ponzi scheme operating. The law in the Ninth Circuit is very clear on that point.
There are other totally contradictory positions taken in the Trustee's various fraudulent transfer complaints, but I've droned on long enough.
So why is the Trustee suing scores of former customers of Premier Cru claiming that they owe money to the Bankruptcy Estate for the difference between the amount paid and the value of the wine at the time they were delivered? And why is the Trustee suing each customer for the alleged value of all wines received without deducting, or even mentioning in the complaints filed with the Bankruptcy Court, the amount paid for by the customer to purchase the wine in the first instance? There is simply no rational explanation for this assuming that the Trustee and his counsel are acting properly. There are an awful lot of serious unanswered questions here.