Transcontinental Refrigerated Lines Inc v. New Prime Inc et al

Filing 235

ORDER - It is hereby ORDERED that pltf's claim for actual fraud pursuant to 42 USC Sect. 548(a)(1)(A) & constructive fraud pursuant to 42 USC Sect. 548(a)(1)(B) shall be governed by a preponderance of the evidence standard @ trial. (See order for complete details.)Signed by Chief Judge Christopher C. Conner on 10/19/16. (ki)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
TRANSCONTINENTAL
REFRIGERATED LINES, by
LAWRENCE V. YOUNG, ESQ.,
Liquidating Agent,
Plaintiff
v.
NEW PRIME, INC., et al.,
Defendants

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CIVIL ACTION NO. 1:13-CV-2163
(Chief Judge Conner)

ORDER
AND NOW, this 19th day of October, 2016, upon consideration of the
parties’ dispute regarding the applicable burdens of proof at trial with respect to
Transcontinental’s claims of actual fraud and constructive fraud under § 548 of the
Bankruptcy Code, 11 U.S.C. § 548(a)(1); (see Doc. 211 at 12; Doc. 213 at 5; Doc. 214
at 5), and further upon consideration of the parties’ letter briefs in support of their
respective positions, (see Docs. 220-21), and the court observing that the United
States Court of Appeals for the Third Circuit has concluded that a preponderance
of the evidence standard governs claims of constructive fraud under § 548(a)(1)(B),
see In re Fruehauf Trailer Corp., 444 F.3d 203, 210-11 (3d Cir. 2006), but has not
determined whether claims of actual fraud under § 548(a)(1)(A) are subject to the
same standard or a heightened clear and convincing evidence standard, and it
appearing that the district and bankruptcy courts are generally in disagreement
with respect to the appropriate standard of proof for actual fraud claims under

§ 548(a)(1)(A), see, e.g., In re Innovative Commc’n Corp., No. 08-3004, 2011 WL
3439291, at *28 & n.82 (Bankr. D.V.I. Aug. 5, 2011); In re Lockwood Auto Grp., Inc.,
450 B.R. 557, 562 & n.6 (Bankr. W.D. Pa. 2011); In re Hill, 342 B.R. 183, 197 (Bankr.
D.N.J. 2006); In re Dolata, 306 B.R. 97, 117 & n.2 (Bankr. W.D. Pa. 2004); In re C.F.
Foods, L.P., 280 B.R. 103, 110 n.14 (Bankr. E.D. Pa. 2002); In re Metro Shippers, Inc.,
78 B.R. 747, 751 (Bankr. E.D. Pa. 1987), but that the more robust line of authority
and “better reasoned decisions require proof only by the general federal standard of
a preponderance of the evidence,” 5 COLLIER ON BANKRUPTCY § 548.11(1)(b)(ii) (Alan
N. Resnick & Henry J. Sommer eds., 16th ed. 2016) (collecting cases), and the court
observing that application of a preponderance of the evidence standard to claims
for actual fraud under § 548(a)(1)(A) is consistent with the decision of the Supreme
Court of the United States in Grogan v. Garner, 498 U.S. 279 (1991), wherein the
Court concluded, in determining the proper standard of proof for claims of “actual
fraud” under § 523(a) of the Bankruptcy Code concerning nondischargeability of
debt, that Congress, by its silence on the question, indicated an intent that the
preponderance standard apply, id. at 287-88, and wherein the Court specifically
observed that, unlike most states, Congress elected “the preponderance of the
evidence standard when it has created substantive causes of action for fraud,” id.
at 288 (collecting statutes), and, following a comprehensive review of the parties’
submissions and applicable decisional law, the court concluding that the Grogan

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Court’s ratio decidendi applies with equal force sub judice, it is hereby ORDERED
that plaintiff’s claim for actual fraud pursuant to 42 U.S.C. § 548(a)(1)(A) and
constructive fraud pursuant to 42 U.S.C. § 548(a)(1)(B) shall be governed by a
preponderance of the evidence standard at trial.

/S/ CHRISTOPHER C. CONNER
Christopher C. Conner, Chief Judge
United States District Court
Middle District of Pennsylvania