In re Smtc Mfg. of Texas

Citation421 B.R. 251
Decision Date11 September 2009
Docket NumberAdversary No. 06-1283.,Bankruptcy No. 04-16354-CAG.
PartiesIn re SMTC MANUFACTURING OF TEXAS, Debtor. Ronald E. Ingalls, Chapter 7 Trustee, Plaintiff, v. SMTC Corporation, SMTC de Chihuahua S.A. de C.V., SMTC Mex Holdings, Inc., SMTC Manufacturing Corp. of North Carolina, SMTC Manufacturing Corporation of Canada, and HTM Holdings, Inc., Defendants.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas

Randell W. Livingston, Jr., Teresa Ruiz Schober, Law Office of Randell W. Livingston, Jr., Austin, TX, for Plaintiff.

Miguel S. Rodriguez, Taylor Dunham and Burgess LLP, Austin, TX, for Defendants.

MEMORANDUM OPINION

CRAIG A. GARGOTTA, Bankruptcy Judge.

The above referenced adversary proceeding came before this Court for trial the weeks of March 23 and March 30, 2009. After trial, the Court took the matter under advisement. The Court also requested certain post-trial briefing from the parties, which has been submitted and reviewed. This is a core proceeding. This Court has jurisdiction to enter a final order with regard to matters presently under submission pursuant to 28 U.S.C. § 1334(a), (b) and (d), 28 U.S.C. § 157(a) and (b), 28 U.S.C. § 151 and the Standing Order of Reference of Bankruptcy Matters entered by the United States District Court for the Western District of Texas. This Memorandum Opinion is being issued as written findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

                                                   CONTENTS
                PROCEDURAL HISTORY .................................................................. 262
                THE PARTIES ......................................................................... 263
                THE WITNESSES ....................................................................... 263
                BACKGROUND FACTS .................................................................... 264
                THE TRUSTEE'S CLAIMS AND THE PARTIES' ALLEGATIONS ................................... 265
                FINDINGS OF FACT .................................................................... 266
                The Facts Regarding the Joint Cash-Management System and the Zero Balance
                      Accounts ...................................................................... 268
                      The Joint Cash-Management System Prior to March 2002 .......................... 268
                      The Joint Cash-Management System from March 2002 Onward ....................... 269
                The Facts Regarding Claim Category 1: The Intercompany Transfers .................... 269
                The Facts Regarding Claim Category 2: The Expense Reallocations ..................... 271
                The Facts Regarding Claim Category 3: The Net Balance Transfer ...................... 272
                The Facts Regarding Claim Category 4: The Fixed Assets Transfers .................... 272
                The Facts Regarding the Decision to Shut Down ....................................... 274
                The Facts Regarding Corporate Control and Corporate Formalities ..................... 277
                CONCLUSIONS OF LAW .................................................................. 277
                Preliminary Issue I: Whether the Trustee's Expert Testimony Was Sufficient .......... 279
                Preliminary Issue II: Whether the Lien Securing the Lehman Loan Fully
                      Encumbered All of the Debtor's Property, So That There Was No "Asset"
                      That Could Have Been the Subject of a "Transfer" .............................. 280
                      Preliminary Sub-Issue IIA: Whether the Definition of "Asset" under
                             TUFTA, as Interpreted in Mullins, Means That Even When There
                             Is Equity in the Collateral Considered as a Whole, There Is No
                             "Transfer" of an "Asset" So Long as the Value of the Item(s) of
                             Property Conveyed Is Less Than the Entire Secured Debt ................. 281
                      Preliminary Sub-Issue IIB: Whether the Debtor Should Be Considered
                             Liable for the Full Amount of the Lehman Loan Balance, or for
                             Only Some Lesser Amount ................................................ 283
                             Whether the Debtor's Liability Should be Considered "Contingent" ....... 283
                             Whether the Trustee Proved the Debtor's Liability Should Be
                                   Discounted ....................................................... 288
                      Preliminary Sub-Issue IIC: Whether the Lehman Loan Balance Exceeded
                             the Value of All the Debtor's Property at the Time of the
                             Conveyances ............................................................ 291
                Preliminary Issue III: Insolvency ................................................... 296
                The Trustee's Claims for Transfers Made with Actual Intent to Hinder, Delay or
                      Defraud ....................................................................... 298
                      Direct Evidence of Actual Intent .............................................. 300
                             The Early Wind-Down Period ............................................. 300
                             The Post-Default Period ................................................ 301
                      Circumstantial Evidence of Actual Intent: Badges of Fraud on Claim
                             Category 1: The Intercompany Transfers ................................. 303
                             Badge of Fraud 1: Transfers made to insiders or obligations to
                                   insiders incurred ................................................ 304
                             Badge of Fraud 2: The debtor retained possession or control of the
                                   property transferred after the transfer .......................... 304
                
                             Badge of Fraud 3: The transfer or obligation was concealed ............. 304
                             Badge of Fraud 4: Before the transfer was made or obligation was
                                   incurred, the debtor had been threatened with suit ............... 304
                             Badge of Fraud 5: The transfer was of substantially all the debtor's
                                   assets ........................................................... 304
                             Badge of Fraud 6: The debtor absconded ................................. 304
                             Badge of Fraud 7: The debtor removed or concealed assets ............... 304
                             Badge of Fraud 8: The value of the consideration received by the
                                   debtor was reasonably equivalent to the value of the assets
                                   transferred or the amount of the obligation incurred ............. 304
                             Badge of Fraud 9: The debtor was insolvent or became insolvent
                                   shortly after the transfer was made or the obligation was
                                   incurred ......................................................... 306
                             Badge of Fraud 10: The transfer occurred or the obligation was
                                   incurred shortly before or shortly after a substantial debt
                                   was incurred ..................................................... 306
                             Badge of Fraud 11: The debtor transferred the essential assets of
                                   the business to a lienor who transferred the assets to an
                                   insider of the debtor ............................................ 307
                      Summary: Badges of Fraud on the Intercompany Transfers ........................ 307
                      Circumstantial Evidence of Actual Intent: Badges of Fraud on Claim
                             Category 2: The Expense Reallocations .................................. 307
                             Badge of Fraud 1: Transfers made to insiders or obligations to
                                   insiders incurred ................................................ 307
                             Badge of Fraud 2: The debtor retained possession or control of the
                                   property transferred after the transfer .......................... 307
                             Badge of Fraud 3: The transfer or obligation was concealed ............. 307
                             Badge of Fraud 4: Before the transfer was made or obligation was
                                   incurred, the debtor had been threatened with suit ............... 307
                             Badge of Fraud 5: The transfer was of substantially all the debtor's
                                   assets ........................................................... 308
                             Badge of Fraud 6: The debtor absconded ................................. 308
                             Badge of Fraud 7: The debtor removed or concealed assets ............... 308
                             Badge of Fraud 8: The value of the consideration received by the
                                   debtor was reasonably equivalent to the value of the assets
                                   transferred or the amount of the obligation incurred ............. 308
                             Badge of Fraud 9: The debtor was insolvent or became insolvent
                                   shortly after the transfer was made or the obligation was
                                   incurred ......................................................... 309
                             Badge of Fraud 10: The transfer occurred or the obligation was
                                   incurred shortly before or shortly after a substantial debt
                                   was incurred ..................................................... 309
                             Badge of Fraud 11: The debtor transferred the essential assets of
                                   the business to a lienor who transferred the assets to an
                                   insider of the debtor ............................................ 309
                             Summary: Badges of Fraud on the Expense Reallocations .................. 309
                      Circumstantial Evidence of Actual Intent: Badges of Fraud on Claim
                             Category 3: The Net Balance Transfers .................................. 310
                             Badge of Fraud 1: Transfers made to insiders or obligations to
                                   insiders incurred ................................................ 310
                             Badge of Fraud 2: The debtor retained possession or control of the
...

To continue reading

Request your trial
44 cases
  • Maxus Liquidating Trust v. YPF S.A. (In re Maxus Energy Corp.)
    • United States
    • U.S. Bankruptcy Court — District of Delaware
    • June 22, 2022
    ...materially concealed.").147 In re Vaso Active Pharms., Inc. , 2012 WL 4793241, at *13. Ingalls v. SMTC Corp. (In re SMTC Mfg. of Texas) , 421 B.R. 251, 310–11 (Bankr. W.D. Tex. 2009) ("This factor is listed as a badge of fraud because the pendency of litigation implies fraudulent intent whe......
  • Husky Int'l Elecs., Inc. v. Lee (In re Daniel Lee Ritz), Civil Action No. H–11–3020.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
    • July 14, 2014
    ...fraud” 27 on the part of the debtor, he can establish intent to commit actual fraud by the debtor. Ingalls v. SMTC Corp. (In re SMTC Mfg. of Tex.), 421 B.R. 251, 199–300 (Bankr.W.D.Tex.2009). Judge Bohm found the trustee had proven four badges of fraud by Ritz and therefore met the requirem......
  • Trustmark Nat'l Bank v. Tegeler (In re Tegeler), Case No. 16–35634–H4–7
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • June 8, 2018
    ...See, e.g. , Cipolla v. Roberts (In re Cipolla) , 541 F. App'x 473, 479 (5th Cir. 2013) ; Ingalls v. SMTC Corp. (In re SMTC Mfg. of Tex.) , 421 B.R. 251, 300 (Bankr. W.D. Tex. 2009) ; Mladenka , 130 S.W.3d at 405.It is noteworthy that several of the badges involve analysis of "transfers." In......
  • Husky Int'l Elecs., Inc. v. Ritz (In re Ritz), Case No. 09–39895
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • April 19, 2017
    ...(Tex. App.–Houston [1st Dist.] 2002, no pet.) (finding that five badges of fraud are sufficient); 567 B.R. 741In re SMTC Mfg. of Tex. , 421 B.R. 251, 300 (Bankr. W.D. Tex. 2009) (finding that four or five badges of fraud are sufficient). However, the Fifth Circuit has held that "[n]ot all, ......
  • Request a trial to view additional results
1 firm's commentaries
  • Elements Of Fraudulent Transfers Under Bankruptcy Code And TUFTA
    • United States
    • Mondaq United States
    • January 5, 2023
    ...by a preponderance of the evidence, the presence of multiple badges of fraud."); Ingalls v. SMTC Corp. (In re SMTC Mfg. of Tex.), 421 B.R. 251, 300 (Bankr. W.D. Tex. The burden is on the Plaintiff to establish the existence of "actual intent to hinder, delay, or defraud any creditor of the ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT