S.D. Ohio Bankruptcy Court Discusses Split Re Standard of Proving Fraudulent Transfer under Section 548(a)(1)(A) of Bankruptcy Code

Per In re Canyon Systems Corp., Not Reported in B.R., 343 B.R. 615 (Bankr. S.D. Ohio Mar. 31, 2006):

Courts are split as to the standard of proof a bankruptcy trustee must meet in an action to avoid a transfer under § 548(a)(1)(A) of the Code. Compare Silagy v. Gagnon (In re Gabor), 280 B.R. 149, 155 (Bankr.N.D.Ohio 2002) (trustee must meet preponderance-of-the-evidence standard in actual fraudulent transfer action); Dev. Specialists, Inc. v. Hamilton Bank, N.A. (In re Model Imperial, Inc.), 250 B.R. 776, 790-91 (Bankr.S.D.Fla.2000) (same) and Breeden v. L.I. Bridge Fund, LLC (In re Bennett Funding Group, Inc.), 232 B.R. 565, 570 (Bankr.N.D.N.Y.1999) (same) with Morse Operations, Inc. v. Goodway Graphics of Virginia, Inc. (In re Lease-A-Fleet, Inc.), 155 B.R. 666, 674 (Bankr.E.D.Pa.1993) (clear-and-convincing standard applies in § 548(a)(1)(A) cases) and Bumgardner v. Ross (In re Ste. Jan-Marie, Inc.), 151 B.R. 984, 987 (Bankr.S.D.Fla.1993) (same). See also Taylor v. Rupp (In re Taylor), 133 F.3d 1336, 1338 (10th Cir.1998) (noting the split of authority); David B. Young, Preferences and Fraudulent Transfers, 876 PLI/Comm 667, 803-04 (2005) (“The strong current of opinion now holds that actual intent under 11 U.S.C. § 548(a)(1)(A) need only be shown by a preponderance of the evidence···· A minority of courts, however, have continued to adhere to the clear and convincing standard in Section 548(a)(1)(A) cases.”). Here, it is not necessary to determine whether the preponderance or clear-and-convincing evidentiary burden applies in the context of a § 548(a)(1)(A) case because, as discussed above, the Trustee has established the existence of a Ponzi scheme, and thus actual intent to defraud, by clear and convincing evidence.


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