Schempp v. Lucre Management Group, LLC

Citations: 18 P.3d 762; 2000 WL 489449Docket: 99CA0738

Court: Colorado Court of Appeals; July 20, 2000; Colorado; State Appellate Court

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Hans-Martin Schempp appeals a judgment in favor of Lucre Management Group, LLC, and Richard L. Rollings, following the dismissal of his claims regarding a fraudulent transfer of ten office condominium units previously owned by Helmut Schaal. Schempp, who holds a registered foreign judgment against Schaal, contends that the transfer violated multiple provisions of the Colorado Uniform Fraudulent Transfer Act (CUFTA). He argues that Schaal received no reasonable equivalent value for the units and that the transfer was made with the intent to hinder, delay, or defraud creditors.

Evidence presented by Schempp indicates that Rollings, acting under a power of attorney from Schaal, facilitated the sale of the units to Lucre—a company he controlled—without disclosing that he was the buyer. The sale price of $940,000 matched the debt secured by the property but left Schaal with unpaid taxes. The trial court ruled that the transfer lacked the requisite fraudulent intent, but Schempp argues that the court misapplied the legal standard and that Rollings' status as an 'insider' should attribute his actions to Schaal regarding fraudulent intent.

The appellate court finds merit in Schempp's claims, noting that while no Colorado cases directly address these issues, interpretations of similar provisions in the Bankruptcy Code provide relevant guidance. The court highlights the importance of considering "badges of fraud," outlined in CUFTA, to determine actual intent when direct evidence is impractical. The appellate court reverses the trial court's decision and remands for further proceedings.

Courts interpreting fraudulent conveyance under Bankruptcy Code 548(a)(1) often infer fraudulent intent from surrounding circumstances, particularly through recognized "badges of fraud." Direct proof of intent to hinder, delay, or defraud creditors is rarely available, so courts rely on multiple badges of fraud to establish such intent. One critical badge of fraud concerns transfers to insiders, defined as affiliates or managing agents of the debtor. In this case, Rollings was deemed not an insider solely because Schaal was unaware of his self-dealing, despite Rollings' extensive involvement with Schaal’s financial matters and the control he exerted over the sale of Schaal's only real estate in the U.S. Evidence indicated Rollings had a long-standing professional relationship with Schaal and knowledge of his financial difficulties. The court failed to consider Rollings' status as an insider and whether his intent could be imputed to Schaal, which is permissible when the transferee can control the debtor's property disposition. The precedent establishes that if a transferee dominates a debtor’s property management, the transferee's intent can be attributed to the debtor, potentially rendering the transfer fraudulent. Consequently, the court erred by not considering Rollings' intent and also in its assessment of whether Schaal received reasonably equivalent value for the transfer.

To establish a fraudulent transfer claim under 38-8-105(1)(b) and 38-8-106, a creditor must demonstrate that the debtor received less than reasonably equivalent value for the transferred property. While reasonably equivalent value is not strictly equivalent to market value, market value remains a significant consideration. The assessment requires a comprehensive analysis of the transaction's facts and circumstances, as highlighted in Silverberg v. Colantuno. Evidence presented by Schempp indicated that similar office condominium units sold for more than the $94,000 per unit paid by Lucre, with individual sales reaching up to $130,000. Additionally, Lucre quickly resold one unit for $115,000 shortly after the original transaction. An expert valued the units at $125,000 each when sold separately, and the bank that financed Lucre's purchase valued the ten units at 75% of the loan amount, showing awareness of their value. However, Schempp did not provide evidence for the value of all units sold together. The trial court appropriately considered the bulk sale aspect but neglected to address insider issues and the intent of Rollings, which were relevant to the determination of reasonably equivalent value. Consequently, the court's failure to consider all relevant evidence justified the reversal of the dismissal of Schempp's claims, and the case was remanded for further proceedings.