Trustee Selleck Seeks to Avoid Alleged Fraudulent Transfer Under Guam Law
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August 19, 2022, US District Court of Guam – Kathlyn Selleck, the Chapter 7 trustee (“Trustee”) of Polaris Guam, LLC (“Debtor”) moves the District Court of Guam seeking a summary judgment to set aside and avoid the mortgage recorded by Wonderful Laurel, LLC (“Defendant”) against the hotel property formerly owned by the Debtor.
The hotel property is located in Tamuning, Guam. The Debtor owned the hotel property before the Trustee sold the hotel free and clear of liens and encumbrances. First Hawaiian Bank, Department of Revenue & Taxation, and Internal Revenue Service had already recorded liens on the hotel property before Defendant Wonderful Laurel, LLC recorded a mortgage over the property in its favor on July 5, 2019. Defendant’s mortgage purportedly secured an alleged obligation in the principal amount of $2,310,000.00 of the Debtor to Defendant.
The Trustee’s complaint against Defendant alleges that the mortgage was a fraudulent transfer under § 544(b)(1) of the Bankruptcy Code and § 6103 of Title 20 of the Guam Code. Under § 6103 of the Guam law, the Trustee must show that the transfer (or mortgage) was “without a valuable consideration” and was made by the Debtor “while insolvent”.
The Trustee cites a Guam District Court judgment in Heath v. Evans (In re Evans), 2018 Bankr. LEXIS 2313, 2018 WL 11312995, to argue that insolvency arises under the Guam Code when a person has ceased to pay his debts in the ordinary
course of business or cannot pay his debts as they become due. The Trustee claims that the Debtor had ceased to pay numerous debts including Guam taxes and federal taxes when due by July 5, 2019. The Trustee, therefore, alleges that the Debtor was insolvent under Guam law at the time of July 5, 2019 conveyance of the mortgage to Wonderful Laurel, LLC.
The Trustee alleges that there is no evidence of funding or value provided by Wonderful Laurel, LLC for the mortgage. Wonderful Laurel, LLC submitted 29 checks totaling $1,423,135.70 as evidence but 21 of these checks are from Wonderful Resorts, LLC (an affiliate of Wonderful Laurel, LLC) to the Debtor and other payees. The Trustee claims that Wonderful Laurel, LLC and Wonderful Resorts, LLC are separate entities, and the payments by Wonderful Resorts, LLC cannot allegedly be a consideration for the mortgage in the favor of Wonderful Laurel, LLC.
Selleck v. Wonderful Laurel, LLC (In re Polaris Guam, LLC), AP No. 21-00005, District Court of Guam Bankruptcy Division