WDNY — Constructive Fraud: In re Successor Borrower Services LLC

By: Daily Record Staff//April 4, 2013

By: Daily Record Staff//April 4, 2013//

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U.S. District Court, WDNY

Constructive Fraud

Security Interest in Legal Fees

In re Successor Borrower Services LLC
09-13505 B
Judge Bucki

Background: The trustee commenced a proceeding to avoid a lien that the debtor had given to secure payment of legal fees that would arise in the defense of ongoing litigation in state court. At issue was whether the security interest for legal fees will constitute a fraudulent conveyance under the circumstances.

Ruling: The Bankruptcy Court denied the trustee’s motion for summary judgment. The court found that the adequacy of consideration precluded a finding of constructive fraud. The trustee has no basis to avoid the transfer. The court found that the debtor had acted in good faith when it granted a security interest as collateral for repayment on a note valued at $200,000.

Lon J. Seidman of Silverman Acampora for the plaintiff Marianne T. O’Toole; Matthew J. Shier and Kevin F. Rooney of the Pinnacle Law Group for the defendant Moscone, Emblidge & Quadra

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