Home New Opinions Delaware BK Court — No Need for Badges of Fraud Where Direct Inference is Available

Delaware BK Court — No Need for Badges of Fraud Where Direct Inference is Available


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August 24, 2022, US Bankruptcy Court for Delaware – The Delaware Bankruptcy Court denied the motion filed by Mark Siffin (“Defendant”) to dismiss the Trustee’s adversary complaint against Mark Siffin. RPA Asset Management Services, LLC is the duly appointed Trustee of the MDC Litigation Trust, pursuing clawback litigations for MTE Holdings, LLC, et al. (“Debtors”).

Mark Siffin is the former principal and CEO of Debtors MTE Holdings, LLC, and its affiliates. The complaint alleged that when MDC Energy began defaulting under its credit agreements, Siffin allegedly “directed the transfer” of approximately $23.5 million from MDC Energy to MDC Acquisition, LLC, an affiliate company that Siffin owned but whose bank account was not subject to being swept by MDC Energy’s lenders. The Trustee acknowledged that approximately $15 million of these $23.5 million was ultimately used to pay certain trade creditors of MDC Energy but alleged that the remaining $8.5 million was paid to Siffin allegedly to maintain control of the cash and to keep the money out of creditors’ reach. The Trustee sought to avoid the payment of $8.5 million as an alleged “fraudulent transfer”.

However, Siffin argued that this payment was allegedly due for the alleged services Siffin provided to MDC Energy and its affiliates. Siffin contended that the Trustee failed to allege adequate badges of fraud in the complaint. The Court dismissed this argument and held that badges of fraud need not be alleged in a case in which a complaint adequately alleges facts that would support a direct inference that a transfer was made with the actual intent to hinder, delay or defraud creditors. The Court quoted the US Supreme Court decision in Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 355, 2016 U.S. LEXIS 3048, to hold that the “heartland” of the activity to which the law of fraudulent conveyance is directed are efforts to “hide assets from creditors by giving them to one’s family, friends, or associates.” The Court found that the complaint adequately alleged that Siffin transferred $24.5 million to MDC Acquisition in order to hide the money from MDC Energy’s lenders. The Court found that the complaint sufficiently alleged the intentional fraudulent conveyance under § 548(a)(1)(A) of the Bankruptcy Code.

The Court also found that the complaint sufficiently pleads all the elements of constructive fraudulent conveyance under § 548(a)(1)(B) of the Bankruptcy Code. While Siffin claimed that the payment of $8.5 million was reasonable compensation for his alleged efforts to bring “valuable business opportunities” to the Debtors, the complaint alleged that there were no agreements under which the debtors were obligated to pay any commissions, and that alleged “sham” invoices were generated months after the services were provided, allegedly containing “contradictory and changing payment amounts and justifications”. The court considered the complaint’s factual allegations as sufficient to allege the absence of reasonably equivalent value for the $8.5 million transfer.

The Court, therefore, denied the Defendants’ motion to dismiss the complaint. The Trustee was found successful in pleading actual and constructive fraudulent conveyance.

RPA Asset Mgmt. Servs., LLC v. Siffin (In re MTE Holdings LLC), 2022 Bankr. LEXIS 2352, 2022 WL 3691822