[00:00:00] Speaker 03:
We'll turn to 24-4033, White versus Wardley.

[00:00:10] Speaker 03:
Mr. Affleck.

[00:00:16] Speaker 02:
Good morning, Your Honors.

[00:00:17] Speaker 02:
It's nice to be here today in this beautiful courtroom.

[00:00:21] Speaker 02:
And as a woodworker, I can certainly appreciate the nice job that's been done here

[00:00:28] Speaker 02:
money of our taxpayers, perhaps in the 1930s, 40s, who paid for this building.

[00:00:33] Speaker 03:
It's beautiful.

[00:00:35] Speaker 03:
When we look at places like this, one of my colleagues says, nothing is too good for the American taxpayers.

[00:00:41] Speaker 02:
It is beautiful.

[00:00:42] Speaker 02:
It's my first time.

[00:00:42] Speaker 02:
I've been here several times.

[00:00:44] Speaker 02:
It's my first time in this courtroom.

[00:00:48] Speaker 02:
May it please the court, Adam Affleck, for J. Kevin Byrd, who is a Chapter 7 trustee in Utah.

[00:00:56] Speaker 02:
This case involves the trustee's efforts to avoid a $750,000 guarantee obligation incurred by the debtor to a Mr. Lynn Wardley for the benefit of a company called ABC Club LLC.

[00:01:14] Speaker 02:
The matter before the court involves a single issue in the context of this fraudulent transfer claim, and that is the concept of reasonably equivalent value.

[00:01:25] Speaker 02:
and whether the debtor received reasonably equivalent value for the obligation that it incurred to guarantee Mr. Wardley's debt to ABC Club.

[00:01:36] Speaker 02:
The trustee moved for summary judgment on this narrow issue.

[00:01:41] Speaker 02:
The motion was denied by the bankruptcy court.

[00:01:44] Speaker 02:
The bankruptcy court, Sue Espante, granted summary judgment in favor of Mr. Wardley on the issue.

[00:01:51] Speaker 03:
He had not moved for summary judgment.

[00:01:53] Speaker 03:
Did not move for summary judgment.

[00:01:56] Speaker 03:
But the court gave him summary judgment.

[00:01:58] Speaker 03:
Correct.

[00:01:59] Speaker 03:
What's our standard of review in this case?

[00:02:02] Speaker 02:
Standard of review is same as the review standard in any summary judgment case.

[00:02:08] Speaker 02:
You have to find that the facts viewed in the light most favorable to the non-moving party or the losing party, because we don't have a non-moving party here,

[00:02:21] Speaker 02:
show that as a matter of law, the relief should be granted.

[00:02:25] Speaker 01:
And the facts here are undisputed, right?

[00:02:29] Speaker 02:
Yes.

[00:02:30] Speaker 02:
I mean, obviously, I would say the facts, as stated by the parties, are undisputed.

[00:02:36] Speaker 01:
Some of the facts, I would say that's... The facts that are relevant to our legal determination are undisputed.

[00:02:41] Speaker 01:
Right.

[00:02:41] Speaker 02:
They have to be undisputed.

[00:02:43] Speaker 02:
So in deciding a motion for summary judgment, first objective of the court is to determine which of the facts are undisputed

[00:02:51] Speaker 02:
and material to the question at hand.

[00:02:54] Speaker 03:
Well, but there are facts and then there are facts.

[00:02:57] Speaker 03:
All the historical facts here are undisputed.

[00:03:02] Speaker 03:
But there's a question about whether the value was reasonably equivalent.

[00:03:08] Speaker 03:
None of the briefs discuss whether that's a fact or not.

[00:03:11] Speaker 03:
But every circuit has said that's a factual issue, whether it's reasonably equivalent.

[00:03:17] Speaker 03:
How you grant summary judgment on that issue

[00:03:20] Speaker 03:
It's a real question to me.

[00:03:23] Speaker 03:
I don't know that there's any court that's granted summary judgment on that issue.

[00:03:29] Speaker 03:
That's for a fact finder.

[00:03:32] Speaker 03:
If summary judgment isn't granted here, is it a bench trial or is it a jury trial?

[00:03:37] Speaker 03:
It's a bench trial.

[00:03:39] Speaker 03:
But the judge wasn't saying, as the fact finder, well, he couldn't in the circumstances.

[00:03:46] Speaker 03:
So I just, I can't see.

[00:03:49] Speaker 03:
It is how we can affirm this unless you say no reasonable person could find that this wasn't regionally equivalent value and that wasn't your nobody just nobody addressed standard review here.

[00:04:06] Speaker 03:
I'm sorry say that again your honor.

[00:04:08] Speaker 03:
Nobody in the briefs addressed the standard of review here and the standard review is whether any reasonable person could find that the

[00:04:18] Speaker 03:
value is not reasonably equivalent.

[00:04:20] Speaker 03:
I think someone could and someone couldn't.

[00:04:24] Speaker 03:
When that's the situation, you can't have summary judgment, can you?

[00:04:29] Speaker 03:
I agree.

[00:04:29] Speaker 03:
Well, you started the problem by filing for summary judgment.

[00:04:33] Speaker 02:
I did.

[00:04:34] Speaker 02:
We started the problem.

[00:04:35] Speaker 02:
The court denied it, but then decided he would grant it in favor of Mr. Wardley.

[00:04:42] Speaker 01:
Well, certainly, reasonably equivalent value is fact-intensive.

[00:04:47] Speaker 01:
Most of the time.

[00:04:48] Speaker 01:
I mean, it's about factors all the time, but it doesn't mean that you get to a jury all the time.

[00:04:52] Speaker 01:
So the question is why in this case is the determination of reasonably equivalent value something that cannot be decided on this record?

[00:05:08] Speaker 02:
There was no obvious exchange.

[00:05:14] Speaker 02:
So Mr.

[00:05:17] Speaker 02:
or the debtor in this case, the debtor and Mr. Wardley owned this company, ABC Club.

[00:05:23] Speaker 02:
The debtor was a 15% owner.

[00:05:25] Speaker 02:
Mr. Wardley was an 82% owner.

[00:05:28] Speaker 02:
Mr. Wardley said, I'm not going to loan money to this company unless you guarantee it, debtor.

[00:05:33] Speaker 02:
So the debtor guaranteed it.

[00:05:36] Speaker 02:
What did the debtor get in return for Mr. Wardley?

[00:05:39] Speaker 02:
The trustee's position is absolutely nothing.

[00:05:44] Speaker 01:
Now, Mr. Warden's position is... So you're saying that Mr. White acquired salary, 15% stake, incentives.

[00:05:56] Speaker 01:
That's nothing?

[00:05:58] Speaker 02:
It is not an exchange.

[00:06:00] Speaker 02:
It was not an exchange for the guarantee.

[00:06:04] Speaker 02:
Sure it was.

[00:06:05] Speaker 02:
It was because of the guarantee.

[00:06:09] Speaker 03:
That's right.

[00:06:09] Speaker 03:
So he gave the guarantee because of this.

[00:06:12] Speaker 03:
And that's the question.

[00:06:13] Speaker 03:
Well, the issue should be, for example, would any reasonable investor have paid $750,000, committed $750,000 to get what this fellow got, which is a job, he has to work, so you have to just count for the fact that he has to put in time, that pays him this much, the chance to make so much money, but another investor might not have

[00:06:39] Speaker 03:
I might have found this way too speculative, but this is going to work.

[00:06:44] Speaker 03:
I'm trying to help you.

[00:06:45] Speaker 02:
You're putting me at every step.

[00:06:47] Speaker 02:
I get it.

[00:06:47] Speaker 02:
I get it.

[00:06:49] Speaker 02:
I appreciate the help.

[00:06:51] Speaker 02:
And I will address the issue as the Court has given it to me.

[00:06:55] Speaker 02:
But I'll lay aside this question of the indirect benefit rule, which I think is something that is very important that has been ignored by the Bankruptcy Court, the Bankruptcy Appellate Panel,

[00:07:08] Speaker 02:
And I think this court should address.

[00:07:10] Speaker 02:
But I'll address the question.

[00:07:14] Speaker 02:
Based on Mr. Wardley's arguments, this is what the debtor got in exchange for his guarantee.

[00:07:22] Speaker 03:
He got a 15% interest in the company.

[00:07:25] Speaker 03:
That's worth something, is it not?

[00:07:27] Speaker 03:
You can't say as a matter of law that's worthless, can you?

[00:07:29] Speaker 02:
Well, if you look at the operating agreement, really, the debtor paid for it himself.

[00:07:37] Speaker 02:
That's an undisputed fact.

[00:07:40] Speaker 02:
He paid $150 for his 15% interest.

[00:07:46] Speaker 02:
Mr. Wardley paid $820 for his 82% interest.

[00:07:52] Speaker 02:
In addition, Your Honor, when you look at reasonably equivalent value, you look at the value of the item on the date of the transfer.

[00:08:00] Speaker 02:
On the date of the transfer, what was the value of the 15% interest in a company

[00:08:07] Speaker 02:
that had $1,000 in capital, that had no contracts, no operating assets, that was... That's a good argument with respect to reasonably equivalent value.

[00:08:18] Speaker 03:
Correct.

[00:08:19] Speaker 03:
On the market, that probably wouldn't have sold for very much, but I don't think as a matter of law, it's worthless.

[00:08:26] Speaker 03:
See... In terms of reasonably equivalent value, you have a good argument, but you're arguing that there's no value whatsoever.

[00:08:34] Speaker 03:
which is a legal argument, one on those.

[00:08:37] Speaker 03:
If nothing he got was a value, legally a value, then you win.

[00:08:44] Speaker 03:
But I don't see how you can say it's of no legal value.

[00:08:49] Speaker 03:
Someone might have invested in that.

[00:08:51] Speaker 00:
Plus, you need to assess it at the time.

[00:08:53] Speaker 00:
You assess reasonable value at the time of the transfer, the obligation.

[00:08:57] Speaker 00:
So at the time of the transfer obligation, they all assumed this was going to be a

[00:09:02] Speaker 00:
a profitable company.

[00:09:04] Speaker 00:
So you can't take the facts later, it didn't turn out that way, and then value the company at that point.

[00:09:11] Speaker 00:
You've got to take into account what they thought at the time, and there was no reason based on his experience, and the investors

[00:09:21] Speaker 00:
experience that this wasn't going to be a successful company.

[00:09:26] Speaker 02:
What people think cannot be put in a bank account.

[00:09:29] Speaker 00:
But that's the date at which you assess the reasonable value.

[00:09:34] Speaker 00:
You were assessing it from what happened a year later.

[00:09:38] Speaker 03:
Well, venture capitalists invest a lot because they think this has a great chance, a decent chance of succeeding.

[00:09:46] Speaker 03:
Most of them fail.

[00:09:47] Speaker 03:
It doesn't mean that their

[00:09:51] Speaker 03:
They got nothing in return for their investment, legally nothing.

[00:09:55] Speaker 03:
Correct.

[00:09:56] Speaker 02:
But that's what you're saying, isn't it?

[00:09:58] Speaker 02:
Yeah.

[00:09:58] Speaker 02:
Yeah.

[00:09:59] Speaker 02:
This isn't an issue.

[00:10:00] Speaker 02:
I mean, if you look at it that way, you have to say, well, what was the reality of the party's assumptions?

[00:10:08] Speaker 02:
And can you count on them as being accurate?

[00:10:12] Speaker 01:
Well, it's based on the evidence of summary judgment.

[00:10:14] Speaker 01:
It's not hypothetical.

[00:10:16] Speaker 01:
So based on the evidence of summary judgment,

[00:10:18] Speaker 01:
There was no evidence presented that suggested the company was doomed from the start, right?

[00:10:22] Speaker 02:
Well, okay.

[00:10:26] Speaker 02:
This kind of issue was addressed by the court in the RML case.

[00:10:32] Speaker 00:
It doesn't matter whether a court in another case addressed the issue.

[00:10:35] Speaker 00:
What Judge Rusman's pointing out is you had findings of uncontroverted fact here that were not disputed by either party.

[00:10:42] Speaker 00:
Both parties accepted that the court can make this decision at summary judgment because the findings of fact were uncontroverted.

[00:10:47] Speaker 00:
So that's appropriate, especially when the court is going to be the trier fact.

[00:10:52] Speaker 00:
So that's appropriate.

[00:10:54] Speaker 00:
So you move on.

[00:10:56] Speaker 00:
And I guess I don't understand your point.

[00:11:00] Speaker 00:
Well, my point is... You did not controvert that at the time the guarantee and the transfers were made, the agreements were made, that anyone thought that this company was not going to be successful.

[00:11:15] Speaker 00:
And if they did, why would they be?

[00:11:19] Speaker 00:
making this effort.

[00:11:21] Speaker 00:
Why would the debtor... But it's not controverted, is my point.

[00:11:25] Speaker 00:
We can't speculate now.

[00:11:26] Speaker 00:
You did not controvert these facts.

[00:11:28] Speaker 02:
Well, the speculation is their speculation.

[00:11:31] Speaker 02:
They are speculating that the company will have value in the future.

[00:11:35] Speaker 00:
And you... That's... I mean... All right.

[00:11:39] Speaker 02:
Never mind.

[00:11:40] Speaker 02:
Now, you asked the question... Well, this company wasn't dead on arrival, so it had to have some value.

[00:11:46] Speaker 02:
And I agree.

[00:11:48] Speaker 02:
But...

[00:11:50] Speaker 02:
The size of the chance of success is what is the value, not simply that there is a chance of success.

[00:11:59] Speaker 02:
You can't say, well, there's a chance, I'll buy stock in this company for $100,000 because there's a chance of success.

[00:12:08] Speaker 02:
It is the size of the chance of success that renders it reasonably equivalent value or not.

[00:12:20] Speaker 02:
It's not an undisputed fact that the size of the success is equal or reasonably equivalent to $750,000.

[00:12:31] Speaker 01:
Can I ask you a question about your argument about the payment of the guarantee that Mr. White had

[00:12:45] Speaker 01:
not received reasonably equivalent value for paying the $750,000 separate issue, right?

[00:12:50] Speaker 01:
Talking about the, yes.

[00:12:52] Speaker 01:
And so the payment here was literally dollar for dollar.

[00:12:57] Speaker 01:
So I just want to make sure I understand your argument.

[00:12:58] Speaker 01:
So the only way that this could not be reasonably equivalent value is if the promise to pay was conditional.

[00:13:05] Speaker 01:
Is that a correct way to understand your argument?

[00:13:08] Speaker 02:
Contingent.

[00:13:08] Speaker 01:
Contingent?

[00:13:09] Speaker 01:
Yeah.

[00:13:10] Speaker 01:
And can you point us to how the promise here is

[00:13:15] Speaker 01:
anything but unconditional.

[00:13:17] Speaker 01:
Yes.

[00:13:17] Speaker 01:
I'm having trouble understanding that component of your agreement.

[00:13:20] Speaker 02:
Yes.

[00:13:21] Speaker 02:
At Appendix 895, it is the operating agreement which contains the language of the guarantee.

[00:13:32] Speaker 01:
It says this is an irrevocable and unconditional promise to pay.

[00:13:36] Speaker 02:
Yes.

[00:13:36] Speaker 01:
This is the... Am I reading the correct language?

[00:13:41] Speaker 02:
I'm not sure what your...

[00:13:43] Speaker 02:
It's the language in the guarantee itself.

[00:13:46] Speaker 02:
It's the guarantee itself, yeah.

[00:13:48] Speaker 02:
So the language of the guarantee says, Mr. White personally guarantees the payment of the full amount of Mr. Wardley's loans up to $750,000, such that to the extent the company's cash distributions to Mr. Wardley during the first 12 months of the company's operation, commencing with the first commercial shipment of cards,

[00:14:12] Speaker 02:
Do not total the amount owed on the loans he has made.

[00:14:15] Speaker 02:
Mr. White shall pay Mr. Wardley personally the shortfall.

[00:14:21] Speaker 02:
So if you, it's not a bad sentence, it's not a great sentence, but it means that the guarantee is not owed until 12 months after the first commercial shipment of cards by the company.

[00:14:37] Speaker 02:
And the amount that is owed on the guarantee

[00:14:40] Speaker 02:
is the difference between the distributions that Mr. Wardley receives from the company and the amount that he has loaned.

[00:14:49] Speaker 02:
That is a contingent, makes it a contingent obligation.

[00:14:55] Speaker 01:
It's contingent on the company actually having... Why isn't a better or correct way to read it that Mr. White is liable on the full amount, no matter what, but if these things that you just read happen, this is how we calculate

[00:15:08] Speaker 01:
what he owes, because ABC will have presumably paid some of it off.

[00:15:13] Speaker 01:
I mean, it really goes to the method of calculation, not a contingency surrounding the obligation to pay.

[00:15:18] Speaker 02:
Well, it says after the company ships commercially, 12 months, you've got 12 months of operation.

[00:15:27] Speaker 02:
And during that 12 months of operation, I'm sure the debtor thought the company would make millions of dollars and pay Mr. Wardley back everything he had loaned.

[00:15:36] Speaker 02:
But if there was a shortfall, then

[00:15:38] Speaker 02:
He would only guarantee.

[00:15:40] Speaker 02:
Now.

[00:15:41] Speaker 02:
Your time has expired.

[00:15:43] Speaker 02:
Did you want to?

[00:15:44] Speaker 02:
Thank you, Your Honor.

[00:15:44] Speaker 03:
No, thank you.

[00:15:45] Speaker 03:
Any questions?

[00:15:46] Speaker 03:
No.

[00:15:46] Speaker 03:
Thank you.

[00:15:47] Speaker 03:
Thank you.

[00:15:57] Speaker 04:
Good morning.

[00:15:58] Speaker 04:
Troy Aramber on behalf of Lynn Wardley, the appellee.

[00:16:01] Speaker 04:
I want to make sure that the.

[00:16:03] Speaker 04:
Go ahead.

[00:16:03] Speaker 04:
I'm sorry, Your Honor.

[00:16:04] Speaker 03:
I was going to ask a question, but I think you may be answering it, so go ahead.

[00:16:07] Speaker 03:
Well, I don't know if I'm going to answer it or not, but now I'm going to try.

[00:16:12] Speaker 00:
Don't try to read Judge Hart's mind.

[00:16:14] Speaker 00:
That's probably a problem.

[00:16:16] Speaker 04:
I'm not very good at mind reading anywhere.

[00:16:18] Speaker 04:
So maybe instead of starting with that, I'm going to just start with an interchange that you had with the trustee on essentially why would any reasonable investor have given this guarantee?

[00:16:31] Speaker 04:
And I want to make sure that we're... That was not my question.

[00:16:34] Speaker 03:
I'm a poor mind reader.

[00:16:35] Speaker 03:
No, no, no.

[00:16:36] Speaker 03:
Maybe I expressed it that way.

[00:16:37] Speaker 03:
That was not what I was thinking.

[00:16:38] Speaker 03:
I couldn't read my mind.

[00:16:41] Speaker 03:
Well, that was certainly... Let me go ahead and ask the question.

[00:16:44] Speaker 03:
Please do.

[00:16:46] Speaker 03:
You did not move for summary judgment?

[00:16:48] Speaker 04:
Your Honor, there were, I think, four summary judgment motions that were made before the bankruptcy court.

[00:16:55] Speaker 04:
We made one of them.

[00:16:57] Speaker 04:
We had cross motions, essentially, in every one of these motions for summary judgment.

[00:17:03] Speaker 04:
If we didn't move on the particular issue of whether the guarantee itself, not the payment of the $750,000 that Judge Rossman was asking about, but the guarantee itself,

[00:17:14] Speaker 04:
was for lack of reasonably equivalent value.

[00:17:18] Speaker 04:
I think we did that on cross motion based on the trustees motion who I believe was trying to carry some sort of burden that he had that there was a lack of direct benefit under the Jolly case.

[00:17:32] Speaker 04:
He failed to carry that burden.

[00:17:34] Speaker 04:
before the bankruptcy court, and it's only when you carry that burden as the plaintiff that you then get into this realm of, well, if there's no direct benefit, let's talk about what possibly could be the indirect benefit that was given as part of this transaction.

[00:17:54] Speaker 04:
Go ahead.

[00:17:56] Speaker 04:
Oh, no, please.

[00:17:56] Speaker 03:
Your questions are certainly going to be more important than mine.

[00:18:00] Speaker 03:
OK.

[00:18:00] Speaker 03:
So the parties agreed on the facts, the historical facts.

[00:18:06] Speaker 03:
What happened, what was signed, what was shipped, what was paid, all that stuff.

[00:18:12] Speaker 03:
Is that correct?

[00:18:12] Speaker 03:
Correct.

[00:18:14] Speaker 03:
So the only issue was reasonable equivalent value.

[00:18:18] Speaker 03:
Is that right?

[00:18:19] Speaker 04:
Well, sure.

[00:18:20] Speaker 04:
But it's a little bit more nuanced than that, Judge.

[00:18:23] Speaker 04:
And the reason for that is if you are looking at what does the trustee really want out of this case, the trustee doesn't want to set aside a guarantee.

[00:18:32] Speaker 04:
The trustee wants to find a creative way to say that the $750,000 that was paid to Mr. Wardley on account of a fully secured guarantee

[00:18:44] Speaker 04:
that has all of the language that we just read that it's irrevocable.

[00:18:48] Speaker 04:
It's not contingent.

[00:18:50] Speaker 04:
It is, well, it doesn't say non-contingent.

[00:18:52] Speaker 04:
I don't think it says it's unconditional.

[00:18:54] Speaker 04:
It's irrevocable.

[00:18:55] Speaker 04:
There are many shalls in the guarantee language.

[00:19:00] Speaker 04:
Despite that fact, there must be some reason that we can set this $750,000 payment aside.

[00:19:07] Speaker 04:
And the theory that the trustee came up with using now hindsight nine months into the future from the time that Mr. Wardley and the debtor entered into this deal was, well, look, nine months down the road, this doesn't look like it was that great of a deal.

[00:19:23] Speaker 04:
It doesn't look like that was that great of an investment.

[00:19:25] Speaker 04:
That venture capitalist lost his or her investment.

[00:19:29] Speaker 04:
And it started this creative way to look backwards

[00:19:34] Speaker 04:
from a dollar-for-dollar exchange to the first step, can we make this somehow contingent?

[00:19:40] Speaker 03:
And the bankruptcy court said no.

[00:19:42] Speaker 03:
The only way you can set something aside, because you didn't get reasonable equivalent value, is if you're... Oh, shoot.

[00:19:51] Speaker 03:
The word escaped.

[00:19:52] Speaker 04:
Like an insider, or if there's actual fraud.

[00:19:57] Speaker 03:
I'm guessing you get what you're trying to... Underwater to start with.

[00:20:00] Speaker 03:
What's the term?

[00:20:01] Speaker 03:
You're insolvent to start with.

[00:20:02] Speaker 03:
Correct.

[00:20:03] Speaker 03:
Is that right?

[00:20:03] Speaker 03:
Correct.

[00:20:05] Speaker 03:
Did the trustee say that Mr. White was insolvent when he entered into this agreement and that he did not get reasonably equivalent value at that time and therefore the money he's paying was not for reasonably equivalent value.

[00:20:29] Speaker 03:
He was insolvent and we can revoke that.

[00:20:32] Speaker 03:
Was that the theory?

[00:20:33] Speaker 04:
That's the theory, and that's the allegation.

[00:20:35] Speaker 04:
As an aside, the issue of insolvency has never been determined by the court below because we didn't get to insolvency because the court knocked it out on there was a dollar-for-dollar exchange of value.

[00:20:49] Speaker 03:
But there wasn't at the time, the agreement was, what if, okay, you're insolvent, but let's consider what could be a bothersome situation.

[00:21:00] Speaker 03:
It might not be what happened here.

[00:21:02] Speaker 03:
Mr. White is insolvent.

[00:21:04] Speaker 03:
He says, the only way I'm going to get out of this is if I can make this company go.

[00:21:10] Speaker 03:
So I'm going to put all my eggs in that basket.

[00:21:13] Speaker 03:
I'll promise to pay up to $750,000 if Mr. Wardley puts money in this company.

[00:21:22] Speaker 03:
Nobody else would probably invest in this company.

[00:21:26] Speaker 03:
It's too speculative.

[00:21:28] Speaker 03:
So what I'm doing, no other, no reasonable, or there are reasonable people who would say it's not worth anything like the money he's guaranteeing.

[00:21:37] Speaker 03:
So he does that.

[00:21:40] Speaker 03:
The creditors of Mr. White could be very upset with that.

[00:21:43] Speaker 03:
We shouldn't pay for him being able to speculate on, you know, he could have gone to Vegas and speculated.

[00:21:50] Speaker 03:
And we want, you know, he's not allowed to spend that $750,000.

[00:21:54] Speaker 03:
That was a fraudulent transfer under the statute.

[00:21:58] Speaker 03:
So in that circumstance, I would think the trustee could set something aside.

[00:22:05] Speaker 03:
If, in fact, he got reasonably equivalent value for this $750,000 promise, then everything's kosher.

[00:22:17] Speaker 03:
The bottom line to me seems to be, was this original deal, a transaction for recently equivalent value, that's a factual issue.

[00:22:25] Speaker 03:
That is not a legal issue for a judge to decide unless there's no value.

[00:22:30] Speaker 03:
And he seems to be arguing there was no value.

[00:22:32] Speaker 03:
But aside from that, it's a factual issue and it wasn't

[00:22:36] Speaker 03:
treated as a factual issue.

[00:22:38] Speaker 04:
Well, so there's a bit to unpack there.

[00:22:43] Speaker 04:
But let me start with this.

[00:22:44] Speaker 04:
First, as it relates to the facts, you're absolutely right that the trustee came up, at least during the bankruptcy court level, with no facts to contradict the 10 or so categories of benefits that Mr. Wardley pointed to as undisputed fact.

[00:23:02] Speaker 01:
Can I ask you just a question about what you just said?

[00:23:07] Speaker 01:
But they weren't quantified, right?

[00:23:09] Speaker 04:
Correct.

[00:23:09] Speaker 04:
Well, it depends.

[00:23:11] Speaker 04:
One of them was certainly quantified in terms of the 20,000, well, maybe a couple of them.

[00:23:18] Speaker 04:
One of them was certainly quantified, the $20,000 a month payment that both White and Wardley considered Wardley to be loaning to White for the use of the ABC Club.

[00:23:31] Speaker 04:
So in terms of quantification at the time that they reached the deal, and there's an important point here because we've got to talk in a moment, hopefully, about what was actually exchanged for the value of the guarantee at the time of the transaction in December.

[00:23:49] Speaker 04:
But to answer your question, yes, there was quantifiable benefits, $20,000 a month that would be used for whatever purpose.

[00:23:58] Speaker 04:
It was the debtor's money that was coming from Wardley that he could use for whatever purpose.

[00:24:07] Speaker 04:
I mentioned at least two categories.

[00:24:09] Speaker 04:
The other category of quantifiable was the 15% ownership stake in the company.

[00:24:14] Speaker 04:
Now, granted, what was the company worth on the day of formation?

[00:24:19] Speaker 04:
Who knows?

[00:24:22] Speaker 01:
So should we say the same thing about the 15% stake?

[00:24:25] Speaker 01:
Does that count as a benefit if we don't have a point of departure from which to assess what it could be?

[00:24:29] Speaker 04:
We certainly have a point of departure.

[00:24:31] Speaker 04:
And I would say, first of all, you can certainly take, for reasonably equivalent value purposes, the value in a speculative company.

[00:24:41] Speaker 04:
Those are my terms, not necessarily the court's.

[00:24:44] Speaker 04:
That RML case is on point for that very issue.

[00:24:48] Speaker 04:
The Third Circuit said that that's not a problem.

[00:24:51] Speaker 04:
In fact, it happens all the time.

[00:24:52] Speaker 04:
If we didn't do that, we would be discouraging investors like venture capitalists to take a shot at something.

[00:24:58] Speaker 03:
Well, we do want to discourage insolvent people from defeating the opportunity of creditors to collect by spending the money they have in a speculative venture that the insolvent person hopes will get them out of the hole.

[00:25:15] Speaker 03:
may well make the creditors harm the creditors.

[00:25:19] Speaker 04:
I agree, Your Honor, but let's talk about what it is that Mr. White, we'll start with W so sometimes, the debtor, that the debtor was giving up in December when he gave the guarantee.

[00:25:31] Speaker 04:
At the time he gave the guarantee, no loans had been made.

[00:25:34] Speaker 04:
There wasn't anything that he had to actually stand for.

[00:25:38] Speaker 04:
So we keep talking on the one hand,

[00:25:40] Speaker 04:
about the speculative value or the pie in the sky, millions of dollars in this medical card business that these two individuals thought that they were going to earn.

[00:25:51] Speaker 04:
But on the date of the transfer, which is when you look at reasonably equivalent value.

[00:25:55] Speaker 04:
He owed nothing under the guarantee.

[00:25:56] Speaker 04:
He owed nothing under the guarantee at all.

[00:25:59] Speaker 03:
Don't you look at the whole transaction, though, to see what it is?

[00:26:01] Speaker 03:
Because he ends up having to pay $750,000.

[00:26:06] Speaker 04:
Correct.

[00:26:06] Speaker 04:
That's the end of the transaction that the court

[00:26:09] Speaker 04:
has said there was a dollar-for-dollar exchange.

[00:26:12] Speaker 04:
So at the end of this transaction, what Mr. White had done is pay off a $750,000 secured guarantee obligation.

[00:26:24] Speaker 04:
He gave dollar-for-dollar credit.

[00:26:26] Speaker 04:
To your point, Your Honor, his creditors wouldn't be harmed at all, because if the creditors came calling, Mr. White could say, well, wait a second.

[00:26:37] Speaker 04:
I'm sorry, Mr. Wardley.

[00:26:39] Speaker 04:
Mr. Wardley said, just wait a second here.

[00:26:41] Speaker 04:
I have a fully secured interest in this judgment that the debtor was going to obtain.

[00:26:49] Speaker 04:
He pledged it to me to help induce me to make these loans, and I'm just coming to call.

[00:26:55] Speaker 04:
His solvency is not... The challenge is whether he got value for that guarantee.

[00:27:01] Speaker 04:
Correct.

[00:27:02] Speaker 04:
And that's my point, Your Honor, for making sure that we focus on what was being exchanged.

[00:27:09] Speaker 04:
We hear the trustees say, well, this was doomed from the start, although he had no evidence for that, at the trial level.

[00:27:17] Speaker 04:
But he says, look, this was doomed from the start.

[00:27:19] Speaker 04:
It was pie in the sky.

[00:27:20] Speaker 04:
It's millions of dollars.

[00:27:22] Speaker 04:
They should have known that it wouldn't work out that way.

[00:27:25] Speaker 04:
the debtor actually exchanged at the time.

[00:27:31] Speaker 04:
He had a guarantee of potential future liability if Mr. Wardley made these loans.

[00:27:37] Speaker 04:
So in terms of the overall impact to his creditor body, if someone sued him on the date of the guarantee, I mean, it's kind of no harm, no foul.

[00:27:46] Speaker 04:
It's like, hey, I gave this guarantee, but there isn't anything to be paid here.

[00:27:53] Speaker 04:
Hopefully that helps.

[00:27:54] Speaker 00:
Well, so on the doomed from the start, which is I think what he's suggesting now is that it didn't have the value that Mr. Wardley apparently thought it did.

[00:28:08] Speaker 00:
But there is no evidence and no evidence was presented about

[00:28:16] Speaker 00:
from the trustee regarding that aspect, that this was somehow doomed from the start, that this was a bad deal, that it clearly wasn't going anywhere.

[00:28:25] Speaker 00:
Was there any evidence presented of that?

[00:28:28] Speaker 04:
No.

[00:28:28] Speaker 04:
The short answer is no.

[00:28:30] Speaker 04:
I mean, what really happened here was for some period of time, the debtor had been trying to convince Mr. Wardley to come to the table, make some investments, get into business together, and they were slicing and dicing in different ways.

[00:28:47] Speaker 04:
The answer repeatedly from Mr. Wardley was no.

[00:28:50] Speaker 04:
I'm sure

[00:28:51] Speaker 04:
if we want to keep using hindsight being 2020, he wishes it would have always been no, because he ended up losing, you know, he ended up getting paid back his $750,000, but he invested a lot more than the $750,000 that he lost.

[00:29:06] Speaker 04:
So the answer was no.

[00:29:07] Speaker 04:
But as to the kind of the speculative nature, I would just want to make sure that the court understands and appreciates that there are cases, gambling cases,

[00:29:19] Speaker 04:
which I think was some sort of Jimmy Swaggart Fifth Circuit case, so there might even be, you know, other elements that we don't typically think of as pure exchanges of value that go into the mix at the beginning of a relationship such that it's not so crazy to give things like guarantees if you're going to make millions of dollars with one another.

[00:29:43] Speaker 01:
How should we be thinking about the direct-indirect benefit burden shifting here that, you know,

[00:29:49] Speaker 01:
the appellant is discussing with us.

[00:29:53] Speaker 01:
Your client only wrote checks to ABC, right?

[00:29:57] Speaker 04:
Correct.

[00:29:58] Speaker 01:
So why is that not literally the factual predicate for what we would take to be an indirect benefit?

[00:30:05] Speaker 04:
Right.

[00:30:06] Speaker 04:
I would invite the court to look at the record and what was actually before the trial court.

[00:30:12] Speaker 04:
What was before the trial court was both of these parties undoubtedly

[00:30:16] Speaker 04:
Mr. Wardley and the debtor treated these loans as loans from Mr. Wardley to the debtor.

[00:30:26] Speaker 04:
And there are no, there's no disputed fact, there's no disputed facts that take issue with that.

[00:30:32] Speaker 01:
There are no... Well, it wasn't direct.

[00:30:34] Speaker 01:
I mean, it went through ABC, right?

[00:30:36] Speaker 01:
So we would have to agree with the bankruptcy court that that, you know,

[00:30:40] Speaker 01:
This is just form over substance.

[00:30:42] Speaker 01:
And that's what you're asking us to do, right?

[00:30:44] Speaker 04:
Correct.

[00:30:45] Speaker 04:
And I would also add, take a look at the Rubin case that was cited by the trustee.

[00:30:51] Speaker 04:
There's language.

[00:30:51] Speaker 04:
I think it's a Second Circuit case that discusses the fact that even if the payments went to the entity, if it was just a mere conduit to get to someone else, it's still reasonably equivalent value.

[00:31:03] Speaker 04:
It's still benefit.

[00:31:05] Speaker 04:
I'm out of time.

[00:31:06] Speaker 04:
Thank you, counsel.

[00:31:06] Speaker 04:
Thank you.

[00:31:07] Speaker 04:
The case is submitted.

[00:31:09] Speaker 04:
Thank you.

[00:31:11] Speaker 03:
Counselor excused.