Prosser: Fraudulent Transfers To Kids Makes Them Defendants

[Riser Adkisson LLP]

In re Innovative Communications Corp., 2011 WL 3439291 (Bkrtcy.D.Virgin Islands, Slip Copy, Aug. 5, 2011).

United States Bankruptcy Court, D. Virgin Islands, D. St. Thomas and St. John.

In re INNOVATIVE COMMUNICATION CORPORATION, Debtor.

Stan Springel, Chapter 11 Trustee of the Bankruptcy Estate of Innovative Communication Corporation Emerging Communications, Inc., and Innovative Communication Company, LLC, Plaintiff

v.

Lyndon Adrian Prosser, Michelle Labennett Prosser, Sybil G. Prosser, and John Justin Prosser, Defendants.

Bankruptcy No. 07–30012.

Adversary No. 08–3004.

Aug. 5, 2011.

Adam Hoover, Law Office of Adam Hoover, Christiansted, VI, Kevin A. Rames, K. A. Rames, P.C., St. Croix, VI, William Greendyke, Fulbright & Jaworksi, Houston, TX, for Debtor.

Daniel C. Stewart, James Jay Lee, Michaela Christine Crocker, Vinson & Elkins LLP, Dallas, TX, for Plaintiff.

Jeffrey B. C. Moorhead, Jeffrey B. C. Moorhead, P. C., St. Croix, VI, for Defendants.

MEMORANDUM OPINIONFN1

FN1. This Memorandum Opinion constitutes our findings of fact and conclusions of law. All Doc. Nos. provided herein are docketed in Adv. No. 08–3004 unless otherwise noted.

Related to Doc. Nos. 1 & 117.

JUDITH K. FITZGERALD, United States Bankruptcy Judge.

*1 Before the court is the Original Complaint Against the Adult Prosser Children to Recover Pre–Petition Fraudulent Transfers and Unauthorized Post–Petition Transfers ("Complaint"), Adv. Doc. No. 1, filed by Stan Springel, the Chapter 11 Trustee of the bankruptcy estates of Innovative Communication Corporation ("New ICC"), Emerging Communications, Inc. ("EmCom" or "Emerging"), and Innovative Communication Company, LLC ("ICC–LLC", collectively the "ICC Debtors"). Trustee Springel seeks to avoid and recover transfers made to or for the benefit of Lyndon Adrian Prosser ("Adrian Prosser"), Michelle LaBennett Prosser ("Michelle LaBennett"), Sybil G. Prosser, and John Justin Prosser ("Justin Prosser") (collectively, "Defendants" or "Adult Prosser Children"). This adversary proceeding was consolidated for the purposes of discovery and trial with Adv. No. 07–3010 ("Turnover Action"), in which the Adult Prosser Children, inter alios, are also Defendants. See Scheduling Order and Discovery Plan, Adv. Doc. No. 52.FN2 Trial was held on November 17–20, 2008, December 8–10, 2008, February 9–11, 2009,FN3 March 10, 2009, and March 23–26, 2009, with closing arguments held on July 23, 2009.

FN2. Per the Scheduling Order and Discovery Plan, Adv. Doc. No. 52, two other adversary proceedings (Adv. Nos. 08–3003 and 08–3006) were to be consolidated with this adversary proceeding for the purposes of discovery and trial. However, those actions were tried in the District Court as Case Nos. 3:08–cv–00146 and 3:08–cv–00147. The District Court granted motions to withdraw the reference in each.

This court's Memorandum Opinion and Order in the Turnover Action (hereinafter "Turnover Opinion") were entered on February 9, 2011. Adv. No. 07–3010, Adv. Doc. No. 728.

FN3. Trial was scheduled to proceed on February 10 and 11, 2009, but was continued to provide Dawn Prosser, a defendant in Adv. No. 07–3010, with an opportunity to retain new counsel.

For the reasons expressed herein, we find that the Chapter 11 Trustee met his burden as to certain of the transfers identified and established multiple fraudulent conveyances and post-petition transfers which he is entitled to avoid and recover from the Defendants as provided herein. As to other transfers addressed, he has not met his burden for the reasons expressed in this Memorandum Opinion.

Background

New ICC is a management and holding company that owned, at the times relevant to this adversary proceeding, directly or indirectly, 100% of the common stock of various operating subsidiaries that provide telephone, newspaper, and other services to the citizens of the United States Virgin Islands and surrounding areas.FN4 New ICC is a wholly-owned subsidiary of Emerging, which, in turn, is directly and indirectly owned by ICC–LLC (collectively, Emerging and ICC–LLC are referred to as the "Parent Debtors"). Jeffrey Prosser was Chairman of the Board, President, and CEO of New ICC and sole member of its ultimate parent company, ICC–LLC.

FN4. On August 17, 2010, this court entered its Final Order (A) Approving Sale of Group 1 Assets Free and Clear of All Liens, Claims, Encumbrances, and Other Interests; (B) Approving Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (C) Granting Related Relief, Case No. 07–30012, Doc. No. 1883. The Group 1 Assets consisted primarily of New ICC's interests in the direct and indirect subsidiaries that own telecom and non-French cable operations.

Although there were prior filed involuntary bankruptcy cases then pending, on July 31, 2006, Emerging, ICC–LLC, and Jeffrey Prosser each filed voluntary petitions seeking relief under chapter 11 of the Bankruptcy Code, commencing Case Nos. 06–30007, 06–30008,FN5 and 06–30009, respectively. The commencement of the voluntary cases constituted orders for relief.

FN5. ICC–LLC and Emerging's bankruptcy cases are being jointly administered. See In re Innovative Communication Company, LLC, Case No. 06–30008, Doc. No. 661.

Subsequently, Jeffrey Prosser's case was converted to a chapter 7, and John Ellis was appointed as trustee. See Case No. 06–30009, Doc. No. 865. Mr. Ellis later resigned, and James Carroll was appointed and continues to serve as Chapter 7 Trustee. Case No. 06–30009, Doc. No. 948.

On July 5, 2007, the Greenlight Entities FN6 filed an Involuntary Petition against New ICC, commencing Case No. 07–30012. An Order for Relief was entered on September 21, 2007. See Case No. 07–30012, Doc. No. 60. Stan Springel was appointed Trustee in the Chapter 11 cases. Case No. 06–30007, Doc. No. 543, on March 15, 2007; Case No. 06–30008, Doc. No. 523, on March 15, 2007; Case No. 07–30012, Doc. No. 125, on October 4, 2007. Jeffrey Prosser's control of the Parent Debtors was severed when the trustee was appointed in these bankruptcy cases. Thereafter, he was removed from the Board of Directors of New ICC.

FN6. The Greenlight Entities include Greenlight Capital Qualified, L .P., Greenlight Capital, L.P., and Greenlight Capital Offshore, Ltd.

Jurisdiction and Venue

*2 In their Answer to the Complaint, the Adult Prosser Children assert that this court lacks subject matter jurisdiction.FN7 Adv. Doc. No. 25, at 2. The Defendants contend that this is not a core proceeding and that venue is not proper in the Bankruptcy Division of the District Court of the Virgin Islands. Id. Venue is proper pursuant to 28 U.S.C. sec. 1409. Although this is a core proceeding pursuant to 28 U.S.C. sec. 157, a recent Supreme Court decision requires a deeper look at subject matter jurisdiction.

FN7. Also in their Answer to the Complaint, the Adult Prosser Children contend that the court lacks jurisdiction over them. The same argument was made in their Motion to Dismiss Complaint with Prejudice. See Adv. Doc. No. 9, at para. 3. For the reasons stated on the record at the April 16, 2008, hearing, the court found it does have personal jurisdiction over the Defendants and the Motion to Dismiss was denied with prejudice. Adv. Doc. No. 24. See also Fed.R.Bankr.P. 7004(f).

On July 6, 2011, Defendants filed a Motion to Dismiss based upon the recent Supreme Court decision Stern v. Marshall, No. 10–179, 2011 U.S. LEXIS 4791 (June 23, 2011). See Motion to Dismiss, Adv. Doc. No. 117.FN8 In Marshall, the Court held that, although the bankruptcy court had the statutory authority pursuant to 28 U.S.C. sec. 157(b)(2)(C) to enter a final judgment on the debtor's counterclaim, Article III of the Constitution did not permit the bankruptcy court to do so. See Marshall, 2011 U.S. LEXIS 4791, at *38. The Court explained:

FN8. The full title of the Motion to Dismiss is "Motion to Dismiss Based on the Supreme Court Ruling that Curtails the Court's Authority to Enter a Judgment." The Motion to Dismiss was filed only in this adversary proceeding, though its caption identifies four additional adversary proceedings and the motion itself refers to the Turnover Action. In this Memorandum Opinion, we address the Motion to Dismiss only as it relates to this adversary proceeding.

Although the history of this litigation is complicated, its resolution ultimately turns on very basic principles. Article III, sec. 1, of the Constitution commands that "[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." That Article further provides that the judges of those courts shall hold their offices during good behavior, without diminution of salary. Ibid. Those requirements of Article III were not honored here. The Bankruptcy Court in this case exercised the judicial power of the United States by entering final judgment on a common law tort claim, even though the judges of such courts enjoy neither tenure during good behavior nor salary protection. We conclude that, although the Bankruptcy Court had the statutory authority to enter judgment on [the] counterclaim, it lacked the constitutional authority to do so.

Id. at *15–16. The Court's broad rationale in reaching its conclusion has resulted in much speculation of the ultimate impact of the decision on other matters considered to be core. Nonetheless, the Court expressly stated that its holding was narrow: "We do not think the removal of counterclaims such as [the one at issue] from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree with the United States that the question presented here is a 'narrow' one." Id. at *73. In conclusion, the Court reemphasized this point: "We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984. The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Id. at *74 (emphasis added). As the Supreme Court deems its holding to be narrow, we take the Court at its word.

*3 The Motion to Dismiss also refers to Marshall as it cites to Granfinanciera v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). However, as in Marshall, despite the Court's broad rationale, the holding of the Court was limited:

We do not decide today whether the current jury trial provision—28 U.S.C. sec. 1411 (1982 ed., Supp. V)—permits bankruptcy courts to conduct jury trials in fraudulent conveyance actions like the one respondent initiated. Nor do we express any view as to whether the Seventh Amendment or Article III allows jury trials in such actions to be held before non-Article III bankruptcy judges subject to the oversight provided by the district courts pursuant to the 1984 Amendments. We leave those issues for future decisions. We do hold, however, that whatever the answers to these questions, the Seventh Amendment entitles petitioners to the jury trial they requested.

492 U.S. at 64. In a footnote, the Court explains that "however helpful it might be for us to adjudge every pertinent statutory and constitutional issue presented by the 1978 Act and the 1984 Amendments, we cannot properly reach out and decide matters not before us. The only question we have been called upon to answer in this case is whether the Seventh Amendment grants petitioners a right to a jury trial. We hold unequivocally that it does." Id. at 64, n. 19. Collier on Bankruptcy comments on the characterization of avoidance actions as core proceedings and adjudication of these actions by non-Article III bankruptcy judges and specifically addresses Granfinanciera:

In Granfinanciera, on the other hand, while specifically avoiding the issues, the Supreme Court seemed to point to a result that such actions, at least where the defendant has not filed a proof of claim and has properly demanded trial by jury, must be heard in the United States district courts, if the parties do not consent to a jury trial in the bankruptcy court pursuant to 28 U.S.C. sec. 157(e). This result is not based upon whether an avoidance action is core or not (it is core) but has to do with jury trial rights. While other avoidance actions, such as those arising under sections 544, 545 and 549, are not included in the list of section 157(b)(2), these, too, are core proceedings.

See 1 Collier on Bankruptcy para. 3.02[3][b] (Alan N. Resnick & Henry J. Sommer eds, 16th ed.). While we note that the Supreme Court made limited holdings, we recognize the rationale expressed within the Court's opinions in Marshall and Granfianciera and proceed cautiously so as not to exceed the limits of our jurisdiction. We are not faced with a circumstance where a jury trial applied. As the Adult Prosser Children state in their Motion to Dismiss, "they did not timely perfect their request for a jury trial." Adv. Doc. No. 117, at 3.

In this adversary proceeding, the Trustee seeks to avoid and recover prepetition fraudulent conveyances and unauthorized postpetition transfers. An action to avoid and recover unauthorized postpetition transfers pursuant to 11 U.S.C. sec. 549 is purely a creation of the Bankruptcy Code and does not otherwise exist outside of Title 11. In contrast, as is the case here, an action to recover a fraudulent conveyance can be asserted on the basis of 11 U.S.C. sec. 548 alone or pursuant to 11 U.S.C. sec. 544(b) and applicable state law. (We use the term "state law" to include the law of the Virgin Islands, as applicable.) Fraudulent conveyance actions as set forth in 11 U.S.C. sec. 548 are a creation of federal statute for application in bankruptcy proceedings. However, the dicta in Marshall results in uncertainty as to how to proceed with actions brought pursuant to sec. 544(b) and applicable state law. As was the case in Marshall, 28 U.S.C. sec. 157 designates "proceedings to determine, avoid, or recover fraudulent conveyances" as core. See 28 U.S.C. sec. 157(b)(2)(H). Although the Supreme Court narrowly limited its holding to the constitutionality of sec. 157(b)(2)(C), as to the claims asserted pursuant to sec. 544(b) and applicable state law, this is our Report and Recommendation. As to claims asserted pursuant to secs. 548 and 549, we issue a final judgment in this matter. Assuming, arguendo, that the District Court disagrees and reads Marshall broadly to conclude that the dicta in the opinion limits this court's jurisdiction to making a Report and Recommendation, this Memorandum Opinion in its entirety constitutes our Report and Recommendation to the District Court.

Doctrines of the Election of Remedies and Acceptance of Benefits

*4 At the outset, we address the Adult Prosser Children's contention that the Chapter 11 Trustee is precluded from pursuing the fraudulent conveyance claims. The Adult Prosser Children assert:

By seeking turnover against the Adult Prosser Children and obtaining an injunction contending that the children are in possession of property belonging to one of the estates, the Trustees have elected a remedy, and accepted a benefit, that is at odds with a fraudulent conveyance theory.

Post–Trial Brief, Adv. Doc. No. 102, at 15. In support of their assertion, they cite to California law which precludes a plaintiff from seeking an inconsistent remedy from his previous election. Id. California law is not applicable here. Although the Adult Prosser Children do not provide any citation of the doctrine pursuant to applicable law, the Third Circuit has addressed the doctrine of election of remedies. See Abdallah v. Abdallah, 359 F.2d 170 (3d Cir.1966). "As a general rule, a party may have as many remedies as the law gives provided they are consistent." Id. at 174. The issue is whether "a certain state of facts relied upon as the basis of a certain remedy is inconsistent with and repugnant to another certain state of facts relied upon as the basis of another remedy." Id. at 175 (citing McMahan v. McMahon, 122 S.C. 336, 115 S.E. 293 (S.C.1922)).

In this case, the Trustee is ultimately seeking the same remedy sought in the Turnover Action on the same set of facts: return of the transfers made by the ICC Debtors to or for the benefit of the Adult Prosser Children.FN9 In the Turnover Action, the Chapter 11 Trustee took the position that the payments disbursed were "fraudulent and wrongful" in nature. See Turnover Opinion, Adv. No. 07–3010, Adv. Doc. No. 728, at 96. We noted that "[a]llegations of that nature sound in fraudulent conveyance, not in turnover. In fact, the Chapter 11 Trustee did bring fraudulent conveyance actions regarding the property as an alternative method of recovery...." Id. at 96, n. 126. The outcome of the Turnover Action as to the Chapter 11 estate turned on the manner in which New ICC recorded transfers to or for the benefit of the Prosser family. Ultimately, the Chapter 11 Trustee was not successful in the Turnover Action as "[a] turnover action does not lie against assets that are not property of the estate and the alleged impropriety of the transfers is simply not a sec. 542 issue." Id. at 99.FN10 The method by which transfers were recorded, however, is not dispositive in a fraudulent conveyance action. It is merely one factor in assessing what actually occurred when the corporate funds left the corporate enterprise pursuant to the transfers. In other words, whereas turnover sought to recover the assets acquired with the corporate funds to the extent the assets were corporate assets, fraudulent conveyance looks to the circumstances surrounding the transfer and the intent and financial status of the transferor to determine whether the conveyance is avoidable. The Trustee relies upon the same set of facts in this adversary proceeding: improper use of corporate funds to or for the benefit of the Adult Prosser Children. We find that the Trustee has not taken inconsistent positions. Furthermore, the Turnover Action and this adversary proceeding were tried simultaneously and the Chapter 11 Trustee offered the same, consistent evidence in support of both assertions. We find that, while the Chapter 11 Trustee is pursuing alternative theories to achieve recovery based upon the same facts, he is not seeking inconsistent remedies and is not precluded from proceeding based upon the election of remedies doctrine.

FN9. Counsel for the Chapter 11 Trustee stated that the fraudulent conveyance action was brought in the alternative to turnover: "I think that one of the things that I must highlight here to begin with is that the trustee is seeking this relief in the alternative to turnover. Because of the way the case has ended up procedurally we tried them together. And the court knows that, obviously, to the extent there is a finding that some of the items that are actually still in the possession of these defendants and are property of this estate should be turned over, but especially with respect to services, in particular, where there's nothing left, those are clearly the subject of the fraudulent transfer. But, by bringing this [fraudulent conveyance] action, we in no way intend to exclude any of the claims that we have asserted in turnover." Transcript of 07/23/2009, Adv. Doc. No. 113, at 9.

FN10. We noted in the Turnover Opinion that "[t]he authority to make these distributions is an issue repeatedly raised by the Chapter 11 Trustee. However, [the Turnover] adversary proceeding is not to determine whether property was fraudulently conveyed or whether Mr. Prosser breached his fiduciary duty to the company, ignored corporate formalities or treated the company's funds as his own. This is a turnover proceeding limited simply to the issue of whether property of any bankruptcy estate can be recovered by either trustee pursuant to sec. 542." See Turnover Opinion, Adv. No. 07–3010, Adv. Doc. No. 728, at 24, n. 41. Therefore, the court did not determine in the Turnover Opinion whether the transfers were proper or authorized. See id. at 24.

*5 The Adult Prosser Children also contend that the "pursuit of fraudulent conveyance claims are [ sic ] barred under the 'acceptance of benefits' doctrine, which provides that a party who voluntarily and knowingly accepts the benefits of a judgment or decree cannot seek a reversal of the judgment or decree on appeal." Post–Trial Brief, Adv. Doc. No. 102, at 16. We note that the Defendants cite only to a Florida Supreme Court case in support of the doctrine without a statement as to how the law of Florida is applicable. Nonetheless, this is not an appeal and the doctrine does not bar the Trustee from proceeding with the fraudulent conveyance action.

As already noted, the Chapter 11 Trustee was not successful in the Turnover Action. Therefore, the judgment in the Turnover Action did not benefit the Chapter 11 Trustee. However, the Adult Prosser Children assert that the Trustee has "accepted and to a great extent collected and benefitted under the turnover theory, seizing and reselling a significant portion of the Defendants ['] assets, or freezing such so as to the [ sic ] benefit and enjoyment of such by the Defendants." Id. at 16–17.FN11 An Order Granting Application for Preliminary Injunction ("Injunction Order") was entered in the Turnover Action. See Adv. No. 07–3010, Adv. Doc. No. 79. The Injunction Order required Defendants to "keep the Property in secure locations and protect the Property from destruction, damage, modification, theft, removal, or transfer pending its turnover to the Trustees. The Defendants shall safeguard the Property and shall not spend, consume, damage, dispose of, sequester, abscond with, secrete, or transfer the Property in any form whatsoever without prior, written approval obtained from both Trustees, pending further Order of the Court." Id. at para. 2.FN12 The Chapter 11 Trustee did not accept the benefits of the Injunction Order and then subsequently seek its reversal on appeal. The acceptance of benefits doctrine does not preclude the Chapter 11 Trustee from proceeding with his fraudulent conveyance claims. Therefore, we will address the Chapter 11 Trustee's claims for avoidance and recovery.

FN11. The court is unaware of any seizure or reselling of the Adult Prosser Children's assets by the Trustee. The Adult Prosser Children are the only Defendants in this adversary proceeding, and they have identified no examples of seized or sold assets to the court in support of this assertion in the evidence at trial or in their Post Trial Brief.

FN12. The preliminary injunction remains in place as to certain items enumerated in the Order (1) Requiring Turnover of Certain Property to the Chapter 7 Trustee; (2) Imposing a Constructive Trust in Favor of the Chapter 7 Trustee; (3) Amending the Terms of the Injunction; (4) Setting a Status Conference; (5) Denying Turnover Relief as to the Chapter 11 Estate; and (6) Denying Emergency Motion to Stay. See Adv. No. 07–3010, Adv. Doc. No. 728. The only items enumerated therein at issue in this adversary proceeding are the Mercedes in the possession of Sybil Prosser and the West Palm Beach condominium titled to Adrian Prosser. Id.

FINDINGS OF FACT

The Chapter 11 Trustee asserts that fraudulent transfers and postpetition transfers were made to the Adult Prosser Children. The Trustee seeks avoidance according to three theories: (1) intentional fraudulent transfers pursuant to both provisions of the Bankruptcy Code and applicable state law; (2) constructively fraudulent transfers pursuant to both provisions of the Bankruptcy Code and applicable state law; and (3) unauthorized postpetition transfers pursuant to sec. 549 of the Bankruptcy Code. See 11 U.S.C. secs. 544, 548, 549; NY CLS Dr & Cr sec. 270 et. seq.; 28 V.I.C. sec. 201 et. seq. ; Fla. Stat. sec. 726.101 et. seq. A trustee can avoid a transfer of an interest of the debtor in property made with the actual intent to hinder, delay, or defraud a creditor as demonstrated through common badges of fraud and the circumstances surrounding the transaction. Without proving actual intent, a trustee can avoid a constructively fraudulent transfer for which the debtor did not receive reasonably equivalent value at a time when the debtor was insolvent, had unreasonably small capital, or had debts beyond its ability to pay. A trustee can also recover unauthorized postpetition transfers of property of the estate. If a trustee successfully avoids a transfer as a fraudulent conveyance or postpetition transfer, he can recover from a transferee or beneficiary of the transfer. The Chapter 11 Trustee asserts that he has produced the requisite evidence to establish these elements to avoid and recover transfers made to or for the benefit of the Adult Prosser Children.

*6 We address the contentions of the parties and find as follows:

1. We find that the Adult Prosser Children were the recipients and/or beneficiaries of a number of transfers from the ICC Debtors from January 1, 1999 through September 30, 2007.FN13

FN13. Ingrid Christian, the Custodian of Records of New ICC, compiled information and summarized that information to create Trustee's Exhibit TT60, which "is a summary of the non-business-related expenses that were identified of [ sic ] New ICC books and records, that [in her view] appeared to be to be [ sic ] made for the benefit of Mr. Prosser and/or his family." Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 170–71. The source documents from which the summary was derived make up the ten binders of Trustee's Exhibit TT8. See Transcript of 11/17/2008, Adv. Doc. No. 84, at 171. Exhibit TT60 is a summary of transfers which occurred between January 1, 1999, and September 30, 2007. As indicated at trial, the court does not accept Ingrid Christian's characterization of the transfers but makes its own based upon evidence presented regarding the transfers as identified in this Memorandum Opinion.

The Chapter 11 Trustee has limited the transfers he seeks to avoid and recover to the transactions as listed on TT60. See Transcript of 03/25/2009, Adv. Doc. No. 112–2, at 14–15.

As some of the transfers occurred as many as eight years prepetition, we note that the applicable statutes of limitation are discussed infra.

The Chapter 11 Trustee asserts that "[a]t trial he demonstrated via a multitude of documentary and testimonial evidence that the Defendants received or were the beneficiaries of numerous transfers made by one or more of the ICC Debtors." Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at para. 15. We address the transfers that the Chapter 11 Trustee contends were to or for the benefit of the Adult Prosser Children and find as follows: FN14

FN14. Although the Complaint addresses multiple tickets to athletic events that were purchased for the benefit of Justin and Sybil Prosser, counsel for the Trustee stated on the record that the Trustee was not suing for sporting event tickets. See Complaint, Adv. Doc. No. 1, at para. 16; Transcript of 03/25/2009, Adv. Doc. No. 112–2, at 12. Therefore, we do not address those transactions herein.

Transfers were made out of New ICC to or for the benefit of Justin Prosser in the form of direct payments, rental payments, and American Express payments beginning in 2005 through 2007.

The Chapter 11 Trustee asserts that one or more of the ICC Debtors made transfers to or for the benefit of Justin Prosser totaling at least $174,236.13. See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 9; TT60, at TT4–1820. Based on the evidence, the transfers to or for the benefit of Justin Prosser occurred beginning in the year 2005 through 2007. See discussion infra. Justin Prosser was eighteen years old when the transfers at issue began and twenty-one years old when they ended.FN15 See 12/19/2007 Deposition of Justin Prosser, at 16–17.

FN15. Counsel for the Adult Prosser Children asserted that the age of the Defendants at the time of the transfers is relevant:

MR. GOLDMAN: It wasn't relevant for [Ms. Christian's] categorization. But I would probably submit in closing that such is extremely relevant to whom the true beneficiary is. So if I may continue, I'd like to.

THE COURT: All right.

MR. GOLDMAN: So excuse me, Your Honor, to restate the question.

BY MR. GOLDMAN:

Q. Is age material in any of the decisions that you have made on TT60?

A. No, age was not an issue.

Testimony of Christian, Transcript of 11/19/08, Adv. Doc. No. 111–1, at 244. As to Justin, the argument does not apply. He was not a minor at the time of the transfers to him or for his benefit.

Ingrid Christian, the Custodian of Records for New ICC, testified that she found no evidence in the books and records of New ICC that any of the Adult Prosser Children, other than Adrian Prosser, were employed by the ICC Debtors. Transcript of 11/18/2008, Adv. Doc. No. 111, at 112. Furthermore, Justin Prosser admitted that he has never been employed by or provided services to New ICC, ICC–LLC, or Emerging. See Amended Responses to Plaintiff's First Request for Admissions From John Justin Prosser, TT87.FN16

FN16. Although Jeffrey Prosser's former corporate executive secretary, Eling Joseph, testified that, at some point in time, Justin Prosser worked for New ICC in the company's summer program, Justin Prosser stated that he was neither employed by nor provided services to any of the ICC Debtors. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 36. We accept Justin Prosser's statement to the contrary.

New ICC made payments to Justin Prosser directly in the amount of $22,500.00. See Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 112; TT60, at TT4 1820, 1823, 1873; Tab 94 of TT8. Copies of four checks issued in 2006 in the amount of $1,250 each are included in Exhibit TT8, and the checks were made out to Justin Prosser. Tab 94 of TT8, at T 03587–90. Despite the fact that checks issued to Justin Prosser clearly identified "Innovative Communications Corp." in the upper left corner of the check, Justin Prosser contends that "[a]ny monies received were believed to have come from Jeffrey Prosser or Dawn Prosser." See Amended Responses to Plaintiff's First Request for Admissions from John Justin Prosser, TT87; Tab 94 of TT8, at T 03587–90. A wire transfer in the amount of $5,000 was made from New ICC's bank account listing Justin Prosser as the beneficiary on January 30, 2007. Id. at T 03591–92. In 2007, New ICC's records indicate that five checks were made out to Justin Prosser in the amount of $2,500 each. Id. at T 03584. Therefore, the records of New ICC substantiate the Trustee's allegation, and we find that $22,500 in direct payments were made by New ICC to Justin Prosser in 2006 and 2007.

*7 New ICC also made rental payments totaling $16,001.21 on behalf of Justin Prosser for his apartment in New York City.FN17 See Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 131, 133–34. See also TT60, at TT4 1820, 1826, 1851; Tab 50 of TT8 (supporting documentation evidencing payments to Cheng Ping Lee). One payment was by check dated February 20, 2007, in the amount of $8,501.21. Tab 50 of TT8, at T 01989. Another payment was a wire transfer in the amount of $7,500 dated March 9, 2007. Id. at T 01990–91. A wire transfer fee of $35 was charged to New ICC.FN18 We find that New ICC made rental payments for the benefit of Justin Prosser and incurred fees related to those rental payments in the total amount of $16,036.21.FN19

FN17. The location of Justin Prosser's residence in New York City has been referred to as "Trump Plaza" and "Trump Tower." See Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at para. 17 ("Trump Plaza"); Chapter 11 Trustee's Supplemental Post–Trial Brief, Adv. Doc. No. 110, at 3 ("Trump Tower"); see also Testimony of Ms. Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 133–134:

Q. And with respect to the—let me ask you a question. With respect to the rental payments that were made on behalf of Justin Prosser, what were those for? Were you able to determine?

A. Yes, those were for rental of an apartment in Trump Plaza, I believe it was in New York but it might have been Florida. I believe it was New York, though.

Some of the confusion appears to be the result of where Adrian Prosser (Justin Prosser's brother) previously resided, which was also Trump Plaza, but located in West Palm Beach. See 12/19/07 Deposition of Adrian Prosser, at 7. The rental payments for Adrian Prosser are not at issue in this adversary proceeding.

FN18. We note that the Virgin Islands Community Bank statement identifying activity in New ICC's account includes a $35.00 wire transfer fee on March 9, 2007, the same date as the wire transfer to Cheng Ping Lee. Tab 50 of TT8, at T 01990. The $35 wire transfer fee is reflected in Exhibit TT60 and included in the total beneath the column "Prosser Related Amount." TT60, at TT4 1851. Thus, the amount attributed to the Prossers, i.e. the "Prosser Related Amount" listed in Exhibit TT60, is $16,036.21, which is the amount of the rental payments plus a $35 wire transfer fee. Id.

FN19. Justin Prosser has not contested that he lived in the Trump apartments in New York City, that his landlord was Cheng Ping Lee, or that his rent was paid for him, and we so find. We note, however, the backup documentation provided by the Trustee does not connect these payments to Justin Prosser. The backup documentation at Tab 50 of Exhibit TT8 proves that New ICC made payments to an individual named Cheng Ping Lee. The connection to Justin Prosser was provided by Ingrid Christian's testimony that rental payments were made for Justin Prosser's residence at Trump Plaza.

In the Complaint, the Trustee asserts that New ICC paid for most, if not all, of the goods and services Justin Prosser acquired using his American Express card. See Adv. Doc. No. 1, at para. 15.FN20 Two American Express accounts are involved in this adversary proceeding, a Platinum account and a Centurion account. See TT28 .FN21 Both the Platinum account and Centurion account have multiple cardholders on each account, and thus various charges for each cardholder are reflected on the monthly statements. The evidence established that the American Express accounts were the accounts of Jeffrey Prosser, with sub-accounts for others, mainly Prosser family members. For the purposes of this adversary proceeding, the relevant cardholders are Justin Prosser, Sybil Prosser, and Michelle LaBennett. The Trustee does not seek to recover payments for charges made by Adrian Prosser. The charges to the American Express accounts contained both business and non-business charges. Typically, the business transactions were charges made by Jeffrey Prosser. Neither Justin Prosser, Sybil Prosser, nor Michelle LaBennett provided services to New ICC; thus, their charges to the American Express accounts were generally non-business in nature. However, tuition payments charged by the Adult Prosser Children are considered business expenditures and are not included in the amounts the Trustee seeks to avoid and recover.FN22

FN20. The Complaint asserts that Justin Prosser's aggregate charges on the American Express card from June 29, 2005, through October 29, 2007, totaled $241,112.76. See Adv. Doc. No. 1, at para. 15. At trial, the Trustee asserted that New ICC made payments totaling $135,699.92 to American Express for purchases made by Justin Prosser. Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 109–10; TT60, at TT4 1820, 1824; Tab 11 of TT8.

FN21. Statements from an American Express Gold account are also included in Exhibit TT28 but do not reflect activity relevant to these proceedings. The charges at issue, i.e., those made by Justin Prosser, Sybil Prosser, and Michelle LaBennett, are limited to the Platinum and Centurion accounts.

We note that, beginning with the statement listing charges made in February of 2005, a different account number is reflected on the statement for American Express Centurion activity. However, the balance of $66,967.09 from the January 2005 statement (account number ending in 51009) is carried over to the February 2005 statement (account number ending in 52007) and reflected as paid. See TT28, at TT02968–82. Therefore, the only change in the account was the assignment of a new account number.

FN22. Tuition payments were treated as business expenditures and the Trustee is not seeking recovery of these payments as the company paid the tuition for the children of executives. See Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 222. Therefore, charges for tuition were not included in the calculation of non-business charges. See e.g. TT28, at TT03469, identifying a $11,964 charge made to New York University by Justin Prosser and paid by New ICC.

The credit card statements list the monthly activity of each cardholder (e.g., beneath the heading "Due in Full Activity for John Justin Prosser" each charge made by Justin and the date and amount of the charge for that monthly statement are listed and then reported as "Total of Due in Full Activity of John Justin Prosser". The total for Justin Prosser individually is then added together with the total monthly activity for the other cardholders to reach the "Total Due in Full Activity" for the monthly statement, see generally, TT28.) Payments to American Express for the balance due were credited toward the total due on the account, and not allocated to the amount due for specific cardholders. Payments relating to these American Express accounts were made by New ICC as well as other sources, such as Jeffrey Prosser. The only American Express payments which the Trustee seeks to avoid and recover in this proceeding are the portion of New ICC payments credited toward the non-business charges of the Defendants. Payments by the other ICC Debtors (i.e., ICC–LLC and EmCom) to American Express were not included in the relief sought.

*8 According to the statements in evidence, Justin Prosser was a cardholder only of the Centurion account, and the first statement reflecting activity under his name is the statement of charges made in June of 2005.FN23 See TT28, at TT03055. Justin Prosser acknowledges that he did not remit payment for American Express charges and contends that, as the statements went directly to his parents, they made the payments. See Amended Responses to Plaintiff's First Request for Admissions from John Justin Prosser, TT87. In order to determine the amount of non-business payments made by New ICC to American Express on behalf of Justin Prosser, Ms. Christian reviewed American Express statements, identified payments made by New ICC, and analyzed the transactions. Transcript of 11/17/2008, Adv. Doc. No. 84, at 42–43. Ms. Christian described the process she used to determine the total amount which reflected, in her opinion, personal transactions of the Prossers:

FN23. Throughout this opinion, we refer to charges made during particular months, e.g. charges made in June of 2005. These charges reflect the activity which is identified on the American Express statement with a closing date of June 29, 2005, and generally include charges made during June of 2005. Therefore, the majority of the activity on the statement are charges made during the month identified. We do this for ease of reference and identify the supporting statement located in Exhibit TT28 by bates number as the citation.

Q. Now just using American Express as an example, since you mentioned them by name, what would you do, if anything, to tie up payments that were going out of New ICC with respect to the statements on American Express that you received?

A. Well, we would review the American Express statements, identify all the payments that were being applied to those statements and trace the payments from New ICC to those particular credit card statements. In order to determine the non-business portion of those payments, we then reviewed the actual transactions that occurred on American Express statements and tried to identify the transactions that appeared to be non-business in nature, clearly non-business in nature, and took into consideration the amounts that were applied as paid by Jeffrey Prosser and/or Dawn Prosser personally, and then the difference where we would have considered it to be non-business.

Q. So you're saying if you could see payment by either Mr. or Mrs. Prosser then those were eliminated. Is that what I understood you to say?

A. If we could see payments by Mr. or Mrs. Prosser but in the same period that New ICC was making a payment, we basically would have considered their payments to have been applied to those non-business expenses first. So we took into consideration the payments that they made. We took into consideration that some of those charges may have been business charges specifically. So we did not take the whole universe of expenses that were charged on those credit cards.

Q. Now whose credit card statements were these, just to be clear?

A. There were two cards in Dawn's name. Those did not end up on our schedule because they appeared to have been paid solely by Dawn Prosser. And the rest of the cards, there were a Centurion card, a[G]old card, a Platinum card, if I can remember correctly, and those were all in the name of Jeffrey Prosser. There were then sub accounts under that Mastercard [ sic ] for various family members, and there was one other card for a Procter [ sic ] & Campbell, PC I believe.

*9 Transcript of 11/17/2008, Adv. Doc. No. 84, at 42–44. Ms. Christian reviewed the credit card statements and identified the charges specifically made by Justin Prosser and attributed a portion of the total payments made by New ICC to him based on that review. See Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 108–10. With the exception of tuition payments, the amounts charged by Justin Prosser, who admits he was never an employee of and did not provide services to the ICC Debtors, are personal, non-business charges. No argument or evidence to the contrary was produced. According to Ms. Christian, the $135,699.92 sought to be recovered by the Trustee represents "a portion of the expenses that were charged by Justin Prosser on the credit card that he maintained under the main account held by Jeffrey Prosser." Transcript of 11/18/2008, Adv. Doc. No. 111, at 109–10.

We note that the first twenty pages of the Trustee's exhibit containing evidence of New ICC's American Express payments consist of schedules prepared by the Trustee summarizing the activity on the American Express accounts and related payments. See Tab 10 of TT8, at T 00293–312. The schedules purport to reflect the monthly activity for each cardholder: (1) how much was charged by that individual, (2) the amounts deemed by the Trustee to be business versus non-business charges, and (3) the source and amount of payment credited to each monthly statement. Id. However, neither the schedules nor Ms. Christian's testimony identify which New ICC payments or portions of payments make up the $135,699.92 which the Trustee asserts is the total of payments by New ICC made on Justin Prosser's behalf.FN24 Therefore, although Ms. Christian described her method for analyzing the American Express statements, precisely how she calculated the portions attributed to each of the Adult Prosser Children is unclear. Nonetheless, the Trustee produced clear evidence that New ICC did make multiple payments to American Express for charges made by Justin Prosser.

FN24. Exhibit TT60 reflects payments New ICC made to American Express. TT60, at TT4 1831–1833. One column lists "Check Amount" and another column characterizes what the Trustee identifies as the "Prosser Related Amount" for each check. Id. We note that the Trustee asserts in Exhibit TT60 that American Express payments were made for the benefit of the Defendants and Jeffrey and Dawn Prosser. Thus, the "Prosser Related Amount" column not only fails to identify which portion of each payment the Trustee has allocated to a particular Defendant in this adversary proceeding, but it includes payments for the benefit of two individuals who are not parties to this action.

The court reviewed the American Express statements (Exhibit TT28) and the proof of payments by New ICC to American Express (Tabs 10 and 11 of Exhibit TT8). The analysis of the evidence reveals that New ICC was not the only source of payment for American Express transactions. Some statements reflect payments from multiple sources credited to the same statement. Payments did not always reflect the amount due on the invoice. At times, partial payments or overpayments were made. Sometimes, no payment was made before the due date. When a partial payment was made, the statement does not attribute the payment to particular transactions. An outstanding balance was simply carried to the next statement. When two payments toward the same statement activity were made resulting in an overpayment, it is not clear which transactions were satisfied by which funds. An overall credit is simply reflected on the following month's statement. The Trustee produced no fact or expert evidence to explain how (or whether) there were any allocations. Therefore, we find that the Trustee may only seek avoidance and recovery where transactions for the benefit of the Adult Prosser Children were clearly paid with New ICC's funds. Thus, unless New ICC paid the full invoice in one or a number of payments, the court has excluded any attribution of fraudulent conveyance to the Defendants. This effort to understand the Trustee's evidence resulted in literally months of time devoted by the court to reconciling the evidence, something that the Trustee, a partner in an investment banking firm, and his experienced counsel should have been able to provide through witnesses. Upon the court's review of the statements, the evidence supports that the following non-business charges were made by Justin Prosser and paid by New ICC: FN25

FN25. An example of the court's conclusions regarding the evidence that established the minimum payments made by New ICC to American Express on behalf of the Adult Prosser is attached as an exhibit.

*10 (1) $45,005.41 for charges made in June and July of 2005, see TT28, at TT03046–TT03080; Tab 10 of TT8, at T00399–402; FN26

FN26. See note 23, supra, for explanation of references to credit card statements.

(2) $82,497.74 for charges made in October of 2005 through July of 2006, see TT28, at TT03112–3228; Tab 10 of TT8, at T00414–421, T00428–442, Tab 11 of TT8, at T00443–446, T00449–450, T00458–459;

(3) $14,344.65 for charges made in December of 2006 through February of 2007, see TT28, at TT03344–3419; Tab 11 of TT8, at T00478–479, T00482–483, T00486–490, T00494–495, T00498–500, T00503, T00505–508, T00512–514, T00515–518, T00523–532, T00538–541, T00544–546; and

(4) $15,528.59 for charges made in May through July of 2007, see TT28, at TT0349–3511; Tab 11 of TT8, at T00556–561, T00565–568, T00571–575, T00578–583, T00588–93, T00597–598.

These charges total $157,376.39. Of the payments made by New ICC toward the American Express charges, four payments were made postpetition and credited toward the American Express balance accrued during the months of June and July of 2007. In those two months, New ICC's post-petition funds satisfied $12,540.73 in charges made by Justin Prosser. The evidence establishes that New ICC transferred at least $144,835.66 to American Express prepetition for charges made by Justin Prosser. However, according to Exhibit TT60, the Trustee seeks to recover a total of $135,699.92 from Justin Prosser relating to American Express charges paid with prepetition and postpetition funds. We note that the evidence supports recovery in a higher amount than that listed in Exhibit TT60. Nonetheless, the Trustee has identified the transactions and amounts he seeks to recover in Exhibit TT60, and the court will limit the judgment to the amount sought.FN27 Thus, we find that the documentary evidence establishes that New ICC transferred the amount the Trustee seeks to avoid and recover; i.e., $135,699.92 for American Express charges incurred by Justin Prosser, of which $12,540.73 was transferred postpetition.

FN27. When Mr. Goldman, counsel for the Adult Prosser Children, requested an itemization of what the Trustee was claiming in this adversary proceeding, causing the court to inquire the same, counsel for the Chapter 11 Trustee represented that Mr. Goldman was defending against the items presented in Exhibit TT60. Therefore, we limit what the Trustee may avoid and recover accordingly. See Transcript of 03/25/2009, Adv. Doc. No. 112–2, at 14–15.

In summary, we find that the Trustee established that New ICC transferred funds to or for the benefit of Justin Prosser in the amount of $174,236.13. FN28 Of the $174,236.13, $161,695.40 were prepetition payments to or for the benefit of Justin Prosser and $12,540.73 were postpetition payments to American Express for the benefit of Justin Prosser.

FN28. The $174,236.13 represents $16,036.21 in rental payments, plus $135,699.92 in American Express payments, plus $22,500 in direct payments to Justin Prosser.

Transfers were made out of New ICC to or for the benefit of Sybil Prosser in the form of direct payments, rental payments, purchase of a vehicle, payment of transportation services, and American Express payments beginning in 1999 through 2007.

The Chapter 11 Trustee asserts that, between January 1, 1999, and September 30, 2007, one or more of the ICC Debtors made transfers to or for the benefit of Sybil Prosser totaling $412,978.23. See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 9; TT60, at TT4 1820. Of the transfers to or for the benefit of Sybil Prosser, several were made when she was seventeen years old.FN29 We find, under the facts of this case, that her age is relevant to determining whether she is properly characterized as the beneficiary of New ICC's payments. See discussion infra.

FN29. Sybil Prosser was twenty-five years old at the time of her deposition on December 19, 2007. See 12/19/2007 Deposition of Sybil Prosser, at 4.

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*11 Ms. Christian found no indication in the books and records that Sybil Prosser was ever employed by New ICC or any of its subsidiaries. Transcript of 11/17/2008, Adv. Doc. No. 84, at 127. Sybil Prosser admitted that she has never been employed by or provided services to New ICC, ICC–LLC, or Emerging. See Amended Responses to Plaintiff's First Request for Admissions From Sybil G. Prosser, TT89.

New ICC made payments to Sybil Prosser directly in the amount of $25,500.00. Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 112; TT60, at TT4 1820, 1823, 1896; Tab 141 of TT8. These payments included a wire transfer in the amount of $9,000.00 on June 29, 2007, just seven days prior to the involuntary petition filed against New ICC on July 5, 2007.FN30 TT60, at TT1896; Tab 141 of TT8, at T 05420–21. Sybil Prosser also received wire transfers in the amount of $5,000 on July 8, 2002, $2,000 on January 30, 2007, and $4,500 on April 4, 2007. Tab 141 of TT8, at T05410–11, T05412–13, T05417–18. New ICC's records also indicate five one thousand dollar payments to Sybil Prosser from February through April of 2007. Id. at T05408. At her deposition on December 19, 2007, Sybil Prosser testified that her primary source of income at the time was her allowance of approximately $2,000 a month, which she testified she received from her father (as opposed to New ICC). Deposition of 12/19/2007 at 13. When she needed to speak with someone about her allowance, she would contact either her father or Eling Joseph, her father's secretary at New ICC. Deposition of 12/19/2007, at 47, 49. We find that the evidence established that payments totaling $25,500 were made to Sybil Prosser from 2002 through 2007.

FN30. Within the backup documentation in Exhibit TT8, there is an email from Eling Joseph to Lynia Samuel (an employee in the accounting department) regarding the $9,000 transfer, stating that the transfer to Sybil Prosser was for school tuition. See Tab 141 of TT8, at T05422. Ms. Christian testified that tuition payments were considered business payments as the company paid the tuition for the children of executives. See Transcript of 11/17/2008, Adv. Doc. No. 84, at 222. The Trustee is not seeking avoidance of tuition payments on that basis. However, the wire transfer is directly to Sybil, when she was twenty-five years old, not a check or credit card charge reflecting a payment to a school directly. This is in contrast to tuition payments charged by Michelle LaBennett or Justin Prosser, see note 22 supra, to the American Express card which were excluded from Exhibit TT60 and which the credit card statements reflect as charges to a university in a specific amount.

At her December 19, 2007, deposition, Sybil Prosser testified that the $9,000 payment to her was for tuition. See 12/19/2007 Deposition of Sybil Prosser, at 7–8, 29–33. She admitted that the cost of tuition was less than the $9,000 transfer to her, and the actual amount varied depending upon the amount of credits she took. Id. at 29–33.

Q. And has all of that $9,000 been forwarded to St. Thomas [University]?

A. No. It was spent on school and then some of it was—I got like another—there is extra in there that I spent on books and whatnot.

Q. How much was spent—paid to the school?

A. I believe it was 8,000. I don't remember off the top of my head.

Q. Approximately 8,000?

A. Yeah. I did it in June, so I am guessing—it was like seven nine something or seven eight something.

Id. at 31–32. No one produced an invoice or proof that this specific transfer of $9,000 was the sole source of any tuition payment. Therefore, we credit none to tuition and all to Sybil Prosser.

In addition, New ICC made rental payments on behalf of Sybil Prosser. TT60, at TT4 1820, 1826, 1863, 1889; Tabs 81 (payments to Grand & Associates Realty, Inc.) and 174 & 175 (payments to Rafael Nunez) of TT8; FN31 Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 131. Although Sybil Prosser testified that her father paid her rent, the records of New ICC clearly reflect these corporate payments directly to her landlords. Deposition of 12/19/2007, at 13. A check history report of New ICC reveals that three payments of $2,500, totaling $7,500, were made in January, February, and March of 2007, by the company to Sybil Prosser's landlord Rafael Nunez. Tab 174 of TT8, at T06054. Each payment was made by wire transfer, resulting in $30 wire transfer fees for each transaction.FN32 On July 19, 2007, after the involuntary petition was filed against New ICC, the company made a rental payment of $8,145 to Grand & Associates Realty, Inc. on behalf of Sybil Prosser. TT60, at TT4 1863; Tab 82 of TT8, at T02928–30. We find, based upon the records of New ICC, that the company made rental payments for the benefit of Sybil Prosser in the amount of $15,735. The prepetition rental payments totaled $7,590 and the postpetition rental payments totaled $8,145.

FN31. Sybil Prosser testified that Rafael Nunez was her previous landlord when she lived at 2832 North Bayshore Drive, but she did not know the name of her current landlord at the time of the deposition. 12/19/2007 Deposition of Sybil Prosser, at 13–14. At the time of her deposition, she provided her current address as 1717 North Bayshore Drive, Unit 2140. Id. at 4–5. New ICC made a wire transfer payment to Grand & Associates Realty Inc. Trust Account on July 19, 2007, in the amount of $8,145 for credit to Unit 2140. See Tab 82 of TT8, at T02928–30. The backup documentation in Exhibit TT8 substantiates that payments were made by New ICC to Sybil Prosser's landlords.

FN32. Tabs 174 and 175 of Exhibit TT8 provide the back up documentation for the transfers to Rafael Nunez. New ICC's check history report behind Tab 174 reflects that a total of $7,500 was transferred to Mr. Nunez via wire transfers. Tab 175 contains New ICC's Requests for Telegraphic Transfers and bank statements reflecting the payments and associated fees. Exhibit TT60 identifies the total "Prosser Related Amount" as $7,590, accounting for each of the three payments as thirty dollars higher in the "Prosser Related Amount" column, due to wire transfer fees associated with each transaction.

*12 The evidence establishes that funds from New ICC's bank account were used to pay for a Mercedes SLK 350 in the possession of Sybil Prosser. TT89, at TE2 02485; Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 219; Tab 158 to TT8, at T05820–22. The amount of the wire transfer dated May 26, 2005, to the seller, Smythe European, was $55,708.00. See Tab 158 of TT8, at T 05820–23.FN33 The vehicle was purchased at a dealership in the San Francisco area, delivered to Sybil Prosser, and is titled in her name. See 12/19/2007 Deposition of Sybil Prosser, at 77, 93.FN34 According to Sybil Prosser, the Mercedes was a graduation gift from her father, and she gave no thought as to who actually paid for it. 12/19/2007 Deposition of Sybil Prosser, at 77.FN35 In an email from Eling Joseph to the accounting department, the Mercedes was characterized as equipment for Shoys FN36 at the direction of Jeffrey Prosser. See Testimony of Eling Joseph, Transcript of 03/23/2009, Adv. Doc. No. 112, at 15–17, 25–26; Tab 158 to Exhibit TT8, at T 05823. Sybil Prosser made no repayments to New ICC for the purchase of her Mercedes paid for by New ICC. Testimony of Christian, Transcript of 11/17/2008, at 127. We find that New ICC's funds in the amount of $55,708 were used to purchase the vehicle for Sybil Prosser.

FN33. The "total Prosser related amount" listed on TT60 is $55,823 .00 ($115 more than the purchase price). TT60, at TT4 1982. Although the additional $115 is likely meant to be a wire transfer fee, the Virgin Islands Community Bank statement in the back up documentation of Tab 158 does not indicate any wire transfer fee debited from New ICC's account. See Tab 158 of TT8, at T 05821. It appears that "55708 + 115" is handwritten next to the wire transfer debit amount which has been covered with black marker. However, there is no description of a wire transfer fee in the list of transactions as there are in other bank statements. Therefore, the additional $115 will not be included in the amount of funds transferred relating to this transaction for Sybil Prosser.

FN34. Sybil Prosser lived in San Francisco for a year, but at the time of her deposition on December 19, 2007, she had moved to Miami, Florida. See 12/19/2007 Deposition, at 4–5.

FN35. Dawn Prosser testified that she and Jeffrey Prosser purchased the vehicle for Sybil Prosser. See Transcript of 02/02/2009, Adv. Doc. No. 94, at 110–11. The records of New ICC indicate otherwise.

FN36. The reference to Shoys, although not specified in the email, appears from testimony to mean the main house that was under construction as a residence for Dawn and Jeffrey Prosser in St. Croix. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 25–26. Nonetheless, the attempt to characterize the property in this manner would not result in a "personal" expenditure appearing as a "business" purchase, but rather would continue to appear as personal in nature only with a different purpose. The purpose of intentionally mischaracterizing the transaction was not developed on the record, though a purchase for Shoys would appear to be a transfer directly to or for the benefit of Jeffrey Prosser, the ultimate shareholder, as opposed to a transfer to purchase a vehicle for his daughter in California. According to Eling Joseph, the Mercedes was intended to be for Sybil Prosser from the time the Mercedes dealership (in California) was first contacted. Transcript of 03/23/2009, Adv. Doc. No. 112, at 13. Therefore, the credible evidence establishes that there was never an intention for the vehicle to go to Shoys.

In addition to the purchase of the vehicle, Sybil Prosser also benefitted from transportation services paid for by New ICC. TT60, at TT4 1826, 1855; Tab 230 of TT8. Exhibit TT60 breaks down the parties who used Crawford's Travel, Inc. ("Crawford") for transportation and attributes the services as being to the benefit of Sybil Prosser, Michelle Prosser (addressed infra), and Jeffrey and Dawn Prosser based upon the statements received from Crawford. See TT60, at TT4 1826. According to the Chapter 11 Trustee, a total of $17,380.40 was paid to Crawford for air transportation for Sybil Prosser. See TT60, at TT4 1826. We find that the backup documentation in Exhibit TT8 indicates that payments totaling $17,328.50 were made to Crawford for transportation for Sybil Prosser. See Tab 230 of TT8.FN37

FN37. We note that a number of pages in Tab 230 relating to Crawford statements and payments are unreadable and it is unknown whether any transportation expenses for Sybil Prosser were included in those pages. The court calculated the following to determine payments made to Crawford for Sybil Prosser:

(1) $704.20, paid for with New ICC's check dated 09/16/99 ( see Tab 230 of TT8, at T 06608, T 06622)

(2) $977.20, paid for with New ICC's check dated 09/16/99 ( Id. at T 06608, T 06622)

(3) $996.40, paid for with New ICC's check dated 04/18/00 ( Id. at T 06608, T 06644)

(4) $1,156.00, paid for with New ICC's check dated 05/17/00 ( Id. at T 06608, T 06647)

(5) $535.50, paid for with New ICC's check dated 09/07/00 ( Id. at T 06608, T 06654–55)

(6) $10,076.90, paid for with New ICC's check dated 03/07/01 ( Id. at T 06609, T 06660–61)

(7) $2,882.30, paid for with New ICC's check dated 05/21/01 ( Id. at T 06609, T 06665)

The payments total $17,328.50. This is $51.90 less than the amount claimed by the Trustee.

We note that Exhibit TT60, prepared by Ms. Christian, attributes payments without regard to the age of the Adult Prosser Children at the time of travel or whether they were traveling with their parents. See Testimony of Christian, Transcript of 11/19/2008, Adv. Doc. No. 111–1, at 243–45. The portion allocated was simply based upon the amount related to travel for the particular individual included in the books and records of the company. Id. Two payments to Crawford relate to flights for Sybil Prosser in 1999 totaling $1,681 .40. See Tab 230 of TT8, at T 06622. Three payments to Crawford relate to flights for Sybil Prosser in 2000 totaling $2,687.90. See id. at T 06644, T 06647, T 06654. In 1999 and part of 2000, Sybil Prosser was seventeen years old. Counsel for the Defendants has not directed the court to any case law prohibiting the Trustee from avoiding and recovering payments based upon the age of the beneficiary. Nonetheless, we will subtract the $4,369.30 from what is attributable to Sybil Prosser as we agree that in the unique circumstances of this case, Jeffrey Prosser should be responsible for the amounts he directed the company to transfer for the benefit of his minor child. We find that Sybil Prosser was the beneficiary of New ICC's payments to Crawford totaling $12,959.20 (excluding the $4,369.30 in payments made while Sybil Prosser was a minor).

*13 Sybil Prosser testified that her father paid for the charges to her American Express card, while she paid for charges to her Visa and MasterCard using her allowance (also provided by New ICC at the direction of Jeffrey Prosser). Deposition of 12/19/2007, at 15–16; Amended Response to Plaintiff's First Request for Admissions from Sybil G. Prosser, TT89. However, the records of New ICC reveal that the corporation made payments (distinct from any made by Jeffrey Prosser personally) associated with various American Express charges made by Sybil Prosser. Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 221–222; TT60, at TT4 1820, 1824. It is the corporate payments, not payments made by Sybil from her allowance, that the Trustee seeks to avoid and recover. We find that the amounts charged by Sybil Prosser, who admits she was never an employee of and did not provide services to the ICC Debtors, are personal, non-business charges unless they were tuition payments. See note 22, supra. No argument or evidence to the contrary was produced.

In the Complaint, the Trustee asserts that New ICC paid for most, if not all, of the goods and services Sybil Prosser acquired using her American Express card. See Adv. Doc. No. 1, at para. 15.FN38 Ms. Christian reviewed the credit card statements and identified the charges specifically made by Sybil Prosser and attributed a portion of the total payments made by New ICC to her based upon that review. See Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 108–10. For the same reasons expressed above, it is not clear how the Trustee calculated this number, i.e., which of the New ICC payments are considered to be payments for charges made by Sybil Prosser and how each payment was allocated among the Adult Prosser Children and the other cardholders. As the American Express statements and proof of New ICC payments are in evidence, the court can determine when New ICC paid for all of the charges reflected on a particular statement in order to calculate the minimum amount paid by New ICC to American Express on behalf of Sybil Prosser. Sybil Prosser was a cardholder of the Centurion account and Platinum account.

FN38. The Complaint asserts that Sybil Prosser's aggregate charges on the American Express cards from January 29, 2001, through October 29, 2007, totaled $528,920.84. See Adv. Doc. No. 1, at para. 15. At trial, the Trustee asserted that New ICC made payments totaling $298,539.83 to American Express for purchases made by Sybil Prosser. Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 109; TT60, at TT4 1820, 1824.

We find that the following American Express charges to the Platinum account by Sybil Prosser were paid for with New ICC funds: FN39

FN39. We note that the Trustee's schedule summarizing credit card activity provided at the beginning of Tab 10 to TT8 includes charges to the Platinum account made from January of 2001 through October of 2007. See Tab 10 of TT8, at TT00294–304. However, the first American Express Platinum account statement in evidence reflects a closing date of January 30, 2004. See TT28, at TT02222. Therefore, we do not include any payments for charges made to the American Express Platinum account prior to that statement.

(1) $183.40 for charges made from May through August of 2004, see TT28, at TT02258–2277; Tab 10 of TT8, at T00376–77, T00384, T00387–88;

(2) $404.25 for charges made March through July of 2005, see TT28, at TT02309–2338; Tab 10 of TT8, at T00394–96, T00404–405;

(3) $183.40 for charges made in September through December of 2005, see TT28, at TT02344–2363; Tab 10 of TT8, at T00408–410, T00412–413;

(4) $556.50 for charges made from March through October of 2006, see TT28, at TT02380–2430; Tab 10 of TT8, at T00422–427; Tab 11 of TT8, at T00447–448, T00457–458, T00466–68, T00473–475, T00484–485;

*14 (5) $382.80 for charges made from January through August of 2007, see TT28, at TT02442–2496; Tab 11 of TT8, at T00519–522, T00542–543, T00562–564, T00584–586, T00594–596, T00600–602.

New ICC paid $1,710.35 on behalf of Sybil Prosser for charges to the Platinum account. Charges made in June of 2007 and after were paid postpetition. Therefore, New ICC transferred $1,566.80 prepetition and $143.55 postpetition for charges incurred by Sybil Prosser on the American Express Platinum account.

We find that the following American Express charges to the Centurion account by Sybil Prosser were paid for with New ICC funds:

(1) $21,043.51 for charges made from January through April of 2004, see TT28, at TT02804–2853; Tab 10 of TT8, at T00363–366, T00370–373;

(2) $25,494.90 for charges made from June through September of 2004, see TT28, at TT02867–2910; Tab 10 of TT8, T00374–375, T00378–383, T00385–386, T00389;

(3) $8,774.63 for charges made in June and July of 2005, see TT28, at TT03046–TT03080; Tab 10 of TT8, at T00399–402;

(4) $132,253.49 for charges made in October of 2005 through July of 2006, see TT28, at TT03112–3228; Tab 10 of TT8, at T00414–421, T00428–442, Tab 11 of TT8, at T00443–446, T00449–450, T00458–459;

(5) $31,389.45 for charges made in December of 2006 through February of 2007, see TT28, at TT03344–3419; Tab 11 of TT8, at T00478–479, T00482–483, T00486–490, T00494–495, T00498–500, T00503, T00505–508, T00512–514, T00515–518, T00523–532, T00538–541, T00544–546; and

(6) $18,053.70 for charges made in May through July of 2007, see TT28, at TT0349–3511; Tab 11 of TT8, at T00556–561, T00565–568, T00571–575, T00578–583, T00588–93, T00597–598.

These Centurion charges total $237,009.68. Of the multitude of payments, New ICC made four postpetition payments which were credited toward the balance accrued during the months of June and July. These postpetition transfers on behalf of Sybil Prosser total $14,272.19. Excluding charges paid postpetition, we find that New ICC transferred at least $222,737.49 to American Express prepetition for charges made by Sybil Prosser on the Centurion Account.

We find that $238,720.03 was paid by New ICC to American Express for Sybil Prosser's purchases using the Platinum and Centurion accounts, of that amount $229,304.29 was transferred prepetition and $14,415.74 was transferred postpetition.

We find that New ICC transferred a total of $348,622.23 FN40 to or for the benefit of Sybil Prosser, of which $326,061.49 was transferred prepetition and $22,560.74 was transferred postpetition.

FN40. The $348,622.23 consists of $12,959.20 in transportation costs, plus $238,720.03 in American Express payments, plus $55,708 for the purchase of the Mercedes, plus $15,735 for rental payments, plus $25,500 in direct transfers to Sybil Prosser.

Transfers were made out of New ICC to or for the benefit of Michelle LaBennett (Prosser) in the form of direct payments, rental payments, payments for transportation services, American Express payments, and house staff payments beginning in 1999 through 2007.FN41

FN41. The Chapter 11 Trustee has identified payments made by New ICC related to Michelle LaBennett's wedding. However, the Chapter 11 Trustee has allocated those as payments for the benefit of Jeffrey and Dawn Prosser, and they are not an issue in this adversary proceeding. See TT60; Testimony of Christian, Transcript of 11/19/2008, Adv. Doc. No. 111–1, at 241–42.

The Chapter 11 Trustee asserts that, between January 1, 1999, and September 30, 2007, one or more of the ICC Debtors made transfers to or for the benefit of Michelle LaBennett totaling at least $404,962.46.FN42 See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 9. At the time of her deposition on December 19, 2007, she was twenty-eight years old. See Deposition of 12/19/2007, at 5. Therefore, none of the transfers at issue occurred while Michelle LaBennett was a minor. See note 15, supra.

FN42. The Chapter 11 Trustee has limited the transfers he seeks to avoid and recover to the transactions listed on Exhibit TT60. See Transcript of 03/25/2009, Adv. Doc. No. 112–2, at 14–15. According to the Trustee's Exhibit TT60, transactions totaling $499,967.89 were identified as transfers to or for the benefit of Michelle LaBennett. TT60, at TT4 1820. However, in his Supplemental Post–Trial Brief (Fraudulent Transfer Action), the Trustee asserts that transfers were made to or for the benefit of Michelle LaBennett in the amount of $404,962.26. Adv. Doc. No. 110, at 2. The difference between the amounts is $95,005.43, the amount of the "House Staff Expenses" paid to The Officers Group Securite. See TT60, TT4 1820, 1825. We address these payments, infra, and find that the payments had a business purpose. As the Trustee has excluded payments deemed to have a business purpose from his effort to avoid and recover transfers, we do not consider these in our analysis of fraudulent conveyances.

*15 Ms. Christian found no evidence, based upon her review of the books and records of New ICC, that Michelle LaBennett was ever employed by New ICC. Transcript of 11/17/2008, Adv. Doc. No. 84, at 130. Michelle LaBennett admitted that she has never been employed by or provided services to New ICC, ICC–LLC, or Emerging. See Response to Plaintiff's First Request for Admissions From Michelle LaBennett Prosser, TT88.FN43

FN43. Although Jeffrey Prosser's former corporate executive secretary testified that Michelle LaBennett worked for New ICC in the company's summer program at some point in time, Michelle LaBennett stated that she was neither employed by nor provided services to any of the ICC Debtors. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 36. We accept Michelle LaBennett's testimony.

The Chapter 11 Trustee asserts that direct cash payments were made to Michelle LaBennett by New ICC in the amount of $19,250.00. Transcript of 11/18/2008, Adv. Doc. No. 111, at 111; TT60, at TT4 1820, 1823, 1878; Tab 106 to TT8. These payments spanned from January 30, 2007, to April 5, 2007, and totaled approximately $5,500 .00 per month. TT60, at TT4 1878; Tab 106 to TT8; Deposition of 12/19/2008, at 37. A wire transfer in the amount of $5,500 was made from New ICC to Michelle LaBennett on January 30, 2007. Tab 106 of TT8, at T 03 93 1. New ICC's records indicate that five checks in the amount of $2,750 each were issued to Michelle LaBennett from February 8, 2007, to April 5, 2007. Id. at T 03927. At times, when Michelle LaBennett needed money, she would contact Eling Joseph, Jeffrey Prosser's corporate executive secretary at New ICC, though she insisted the money came from her father. Deposition of 12/19/2007, at 36, 44–45. To the contrary, the evidence proves payments were made by New ICC. Therefore, we find, based upon New ICC's records, that transfers were made by the company in the amount of $19,250 to Michelle LaBennett in 2007.

The Trustee alleges that New ICC also made rental payments to Madame Marie–Denise Leymarie ("Leymarie") for Michelle LaBennett totaling $142,619.40 while Michelle was studying in France. Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 84, at 133. TT60, at TT4 1820, 1826, 1876–77; Tab 114 of TT8. Michelle LaBennett testified that her rent had been paid for her since the time she moved from home. Deposition of 12/19/2007, at 34–35. Though she did not see a check from her father's personal account, she testified that Jeffrey Prosser was the one who made these payments. Id. at 35. Despite her testimony to the contrary, the records of New ICC indicate that New ICC made numerous rental payments for Michelle LaBennett's benefit. Ms. Christian explained the contents of the backup documentation contained in Tab 114 of Exhibit TT8:

Q. And could you identify for the Court what documents exist in Tab 114?

A. Well, the first set of documents, that would be T04160 through T04166, are actually just printouts of the check history report generated by the MAS 200 accounting system that is used by New ICC.

Q. And what do those records reflect?

A. These records just reflect all of the payments that were made to Madam Denise Ley Marie over I think we ran these from the beginning of time.

Q. And so these are—each of the checks you found in the books and records of New ICC showing payments written to Madam Marie Denise Ley Marie and then the check amount and the date?

*16 A. Yes.

Q. And then what is the remaining portion of that tab?

A. The remaining portion reflects via [ sic ] if it was a wire transfer or in this particular case the payments were made out of the bank account. It reflects proof that the payment was made by New ICC.

The money was debited from its bank account. And any additional supporting documents that were maintained—was obtained from the books and records to verify the nature of the payments.

Transcript of 11/17/2008, Adv. Doc. No. 84, at 207–08. Although the check history report contained in pages T04160 through T04166 of Tab 114 identifies a number of payments to Leymarie, Ingrid Christian testified that not all payments are included in Exhibit TT60 and are, therefore, not transfers at issue, because she could not obtain a bank statement as proof that the funds were actually debited from New ICC's bank account. Transcript of 11/20/2008, Adv. Doc. No. 111–2, at 57. The initial payment was made to Leymarie on March 17, 1999, in the amount of $15,819.40. See Tab 114 of TT8, at T 04167–68. Payments were made thereafter ranging from $5,280 to $5,295. See TT60, at TT4 1876; Tab 114 of TT8.FN44 We find that New ICC made rental payments from 1999 through 2002 for the benefit of Michelle Prosser in the amount of at least $142,619.40.

FN44. We note an inconsistency between the summary (TT60) and the backup documentation (TT8). Exhibit TT60 indicates that a payment was made on August 1, 2001, in the amount of $5,280. However, the bank statement in the backup documentation indicates that $5,285 was debited from the Virgin Islands Community Bank Account on that date. Nonetheless, because counsel for the Trustee represented that the Trustee was only seeking the transactions identified in Exhibit TT60, we limit the amount to $5,280. See note 27, supra.

In addition, New ICC paid for transportation for Michelle LaBennett. TT60, at TT4 1820, 1826, 1850, 1855; Tabs 18 and 230 of TT8. The Trustee alleges that payments to Chabe Verjat totaling $38,218.44 were made to provide Michelle LaBennett with transportation services while she was studying in France. Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 128–29. According to Ms. Christian, the payments for these transportation services were only included on Exhibit TT60 and attributed to Michelle LaBennett when the invoice identified her by name. Transcript of 11/19/2008, Adv. Doc. No. 111–1, at 70. We have discovered discrepancies between the total amount claimed by the Trustee and the amount which can be confirmed from the backup documentation as the total amount for services provided to Michelle LaBenentt.FN45 We find that Michelle LaBennett benefitted from New ICC's payments to Chabe Verjat in the amount of $23,293.46.

FN45. According to Exhibit TT60, the Trustee is seeking avoidance and recovery of six transfers or a portion thereof. See TT60, at TT4 1850. Chabe Verjat's services were not used solely for Michelle LaBennett and only those portions of the statement for which her name is listed are properly attributed to her. See Tab 18 of TT8. The Trustee asserts that the following six transfers related to services for Michelle LaBennett:

(1) A $4,248.15 wire transfer was made on November 14, 2000. See TT60, at TT4 1826, 1850; Tab 18 of TT8, at T 00977–78. The backup documentation supports that all transportation services related to this payment were for Michelle LaBennett (Prosser). See Tab 18, at T 00979–80.

(2) An $8,756.36 wire transfer was made on December 6, 2000, of which the Trustee asserts $7,940.80 was related to services for Michelle LaBennett. See TT60, at TT4 1826, 1850; Tab 18 of TT8, at T 00981–82. The backup documentation supports that, after a reduction for the cost of transportation provided to Mr. Prosser, $7,940.80 is attributable to transportation for Michelle LaBennett (Prosser). See Tab 18 of TT8, at T 00983–85.

(3) A wire transfer in the amount of $15,922.56 was made on January 4, 2001, of which the Trustee asserts $7,533.89 is related to services for Michelle LaBennett. See TT60, at TT4 1826, 1850; Tab 18 of TT8, at T 00986–87. The bill related to this payment does not support the Trustee's assertion. The total due is 110,377 Francs. See Tab 18 of TT8, at T 00992. The fees related to Michelle LaBennett total 19,439 Francs. Id. at T 00989–92. Therefore, only $2,805.20 is attributable to Michelle LaBennett. See id. at T 00988.

(4) A wire transfer in the amount of $11,240.50 was made on February 22, 2001, of which the Trustee asserts $587.68 is related to services for Michelle LaBennett. See TT60, at TT4 1826, 1850; Tab 18 of TT8, at T 00993–94. We find that the backup documentation supports the Trustee's assertion, and $587.68 is properly attributed to Michelle LaBennett (Prosser). See Tab 18 of TT8, at T 0996–97.

(5) A wire transfer in the amount of $7,907.91 was made on March 7, 2001. See Tab 18 of TT8, at T 00998–99. The Trustee asserts that the full amount is related to services provided to Michelle LaBennett. See TT60, at TT4 1825, 1850. However, transportation for another, otherwise unidentified individual (Mr. Gordon) is included in the billing statement and that cost must be subtracted. See Tab 18 of TT8, at T 01001. We find that the appropriate amount attributable to Michelle LaBennett (Prosser) is $7,711.63. See id. at T 01000–1001.

(6) A $10,000 wire transfer was made on August 3, 2001, and the Trustee attributes the full amount to Michelle LaBennett. See TT60, at TT4 1826, 1850; Tab 18 of TT8, at T 01002–04. The $10,000 payment is related to "Invoice F0103417" which is not provided in the backup documentation. See Tab 18 of TT8, at T 01003. Therefore, the court cannot confirm what portion, if any, of the $10,000 payment is attributable to Michelle LaBennett. The Trustee has not met his burden as to this payment.

Of these six payments made by New ICC to Chabe Verjat, we find that $23,293.46 is attributable to transportation costs for Michelle LaBennett.

In addition, the Trustee asserts that funds were paid to Crawford for air transportation for the benefit of Michelle LaBennett in the amount of $14,894.73. TT60, at TT4 1826, 1855; Tab 230 of TT8. However, upon review of the documents in Tab 230 of Exhibit TT8, the court determined that a total of $10,132.23 of New ICC's funds were used to pay for air transportation for Michelle LaBennett.FN46 Therefore, we find that Michelle LaBennet benefitted from transportation services paid by New ICC to Crawford totaling $10,132 .23.

FN46. We note that a number of pages in Tab 230 relating to Crawford statements and payments are unreadable and it is unknown whether any transportation expenses for Michelle LaBennett were noted on those pages. The court calculated the following to determine payments made to Crawford for Michelle LaBennett:

(1) $4,035, paid by New ICC's check dated 02/11/00 ( see Tab 230 of TT8, at T 06608, T 06637)

(2) $725.20, paid by New ICC's check dated 02/11/00 ( Id.)

(3) $5,372.23, paid by New ICC's check dated 01/12/01 ( Id. at T 06609, T 06657, T 06658)

The payments total $10,132.43. This is a difference of $4,762.50 from the amount asserted by the Trustee.

In the Complaint, the Trustee asserts that New ICC paid for most, if not all, of the goods and services Michelle LaBennett acquired using her American Express card. See Adv. Doc. No. 1, at para. 15 .FN47 Ms. Christian reviewed the credit card statements and identified the charges specifically made by Michelle LaBennett and attributed a portion of the total payments made by New ICC to her based on that review. See Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 108–10. We note that the amounts charged by Michelle Prosser, who admits she was never an employee of and did not provide services to the ICC Debtors, are personal, non-business charges, except for tuition payments.FN48 No argument or evidence to the contrary was produced.

FN47. The Complaint asserts that Michelle LaBennett's aggregate charges on the American Express cards from January 29, 2001, through October 29, 2007, totaled $405,316.17. See Adv. Doc. No. 1, at para. 15. At trial, the Trustee asserted that New ICC made payments totaling $189,979.89 to American Express for purchases made by Michelle LaBennett. Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 220–224; Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 108–09; TT60, at TT4 1820, 1824; Tab 11 at TT8.

FN48. The Chapter 11 Trustee is not seeking to avoid and recover tuition payments which Michelle charged to the American Express card. See Testimony of Christian, Transcript of 11/17/2008, Adv. Doc. No. 84, at 222. Those payments were considered business expenditures and excluded from Exhibit TT60 as the company paid the tuition for the children of executives. Id.

*17 We calculate the amount New ICC paid on behalf of Michelle LaBennett to American Express in the same manner set forth above.

We find that the following American Express charges to the Platinum account by Michelle LaBennett were paid for with New ICC funds: FN49

FN49. See note 39, supra, addressing the statements included in the calculation.

(1) $1,663.38 for charges made from May through August of 2004, see TT28, at TT02258–2277; Tab 10 of TT8, at T00376–77, T00384, T00387–88;

(2) $374.75 for charges made March through July of 2005, see TT28, at TT02309–2338; Tab 10 of TT8, at T00394–96, T00404–405;

(3) $1,680.80 for charges made in September through December of 2005, see TT28, at TT02344–2363; Tab 10 of TT8, at T00408–410, T00412–413;

(4) $5,163.80 for charges made from March through October of 2006, see TT28, at TT02380–2430; Tab 10 of TT8, at T00422–427; Tab 11 of TT8, at T00447–448, T00457–458, T00466–68, T00473–475, T00484–485;

(5) $79.90 for charges made in January and February of 2007, see TT28, at TT02442–2496; Tab 11 of TT8, at T00519–522, T00542–543.

None of the New ICC payments toward Michelle LaBennett's charges were made postpetition. Therefore, New ICC transferred $8,962.63 prepetition for charges incurred by Michelle LaBennett on the American Express Platinum account.

We find that the following American Express charges to the Centurion account by Michelle LaBennett were paid for with New ICC funds:

(1) $3,496.23 for charges made from January through April of 2004, see TT28, at TT02804–2853; Tab 10 of TT8, at T00363–366, T00370–373;

(2) $11,403.99 for charges made from June through September of 2004 (excluding tuition payments), see TT28, at TT02867–2910; Tab 10 of TT8, T00374–375, T00378–383, T00385–386, T00389;

(3) $2,979.53 for charges made in June and July of 2005, see TT28, at TT03046–TT03080; Tab 10 of TT8, at T00399–402;

(4) $23,333.32 for charges made in October of 2005 through July of 2006 (excluding tuition payments), see TT28, at TT03112–3228; Tab 10 of TT8, at T00414–421, T00428–442, Tab 11 of TT8, at T00443–446, T00449–450, T00458–459;

(5) $3,991.60 for charges made in December of 2006 through February of 2007, see TT28, at TT03344–3419; Tab 11 of TT8, at T00478–479, T00482–483, T00486–490, T00494–495, T00498–500, T00503, T00505–508, T00512–514, T00515–518, T00523–532, T00538–541, T00544–546; and

(6) $1,323.57 for charges made in May through July of 2007, see TT28, at TT0349–3511; Tab 11 of TT8, at T00556–561, T00565–568, T00571–575, T00578–583, T00588–93, T00597–598.

These Centurion charges total $46,528.24. New ICC made four post-petition payments, which were credited toward the balance accrued during the months of June and July 2007. A total of $1,323.57 was paid postpetition by New ICC for charges incurred by Michelle LaBennett, and New ICC transferred at least $45,204.67 to American Express prepetition for charges made by Michelle LaBennett.

We find that $55,490.87 was paid by New ICC to American Express for Michelle LaBennett's purchases on the Platinum and Centurion accounts. Of that amount, $54,167.30 was transferred prepetition and $1,323.57 was transferred postpetition.

*18 The Trustee's Exhibit TT60 reflects payments by New ICC in the amount of $95,005.43 for "house staff expenses" for the benefit of Michelle LaBennett. TT60, at TT4 1820, 1825, 1896; Tab 256 of TT8. The payments were to The Officers Group Securite for security services while she was in Paris. Transcript of 11/18/2008, Adv. Doc. No. 111, at 107. There is no indication that Michelle LaBennett or anyone else ever reimbursed the company. Id. However, Oakland Benta testified that, as the head of security (for EmCom), it was his determination that Michelle Prosser was in need of security while in France. Transcript of 12/10/2008, Adv. Doc. No. 118, at 67. He testified as follows:

Q. And what factors went into your evaluation?

A. That in Paris any child of a corporate—of any corporation or whose family owns a corporation is subject to kidnaping. So it was on those lines we decided that it was more appropriate to have security with her.

Q. Were you aware of any events that might make Michelle Prosser a high-security risk?

A. Yes.

Q. And what was that?

A. That she was known and that within the school she was going to that it was very obvious that everybody knew who she was. Because of information being filtered out of the office unprofessionally to others would make her a high target.

Q. Were you aware of any other publicity surrounding ICC or its executives and their families?

A. Well, there were some incidents where we'd go back to U.S. Customs again and all the other stuff that came up with that. But other than that, that's pretty much what I had.

Id. at 67–68. Mr. Prosser had interests in France and that was a consideration. Id. at 68. In accordance with his evaluation of the risk, Mr. Benta arranged transportation services and also retained security agents in France. Id. at 63–65.FN50 We find that transfers were made by New ICC for the purpose of providing security to Michelle LaBennett, but these payments had a business purpose.

FN50. Mr. Prosser also testified about security concerns as a result of a magazine article published in 1999 identifying Dawn Prosser, Michelle's mother, as one of the wealthiest black women in the Caribbean. See Transcript of 03/26/2009, Adv. Doc. No. 112–3, at 107.

Excluding tuition payments and payments for security services, New ICC made transfers to or for the benefit of Michelle LaBennett totaling $250,785.96, FN51 of that amount $249,462.39 was transferred prepetition and $1,323.57 was transferred postpetition.

FN51. The $250,785.96 consists of $19,250 in direct payments, plus $142,619.40 in rental payments, plus $23,293.46 in transportation payments to Chabe Verjat, plus $10,132.23 in air transportation payments to Crawford, plus $55,490.87 for American Express payments.

Transfers were made out of ICC–LLC and New ICC to Adrian Prosser in the form of direct payments beginning in 2000 and continuing through 2005.

The Chapter 11 Trustee asserts that one or more of the ICC Debtors made non-business transfers to Adrian Prosser totaling at least $159,508.52. See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 9.

Based upon the books and records of New ICC, Ms. Christian determined that direct payments totaling $55,376.43 were made to Adrian Prosser which did not relate to his employment by a subsidiary of New ICC. Transcript of 11/18/2008, Adv. Doc. No. 111, at 87–111; TT60, at TT4 1820, 1823, 1828–29; Tab 2 FN52 of TT8. Due to that employment, expense reimbursements, payroll, and certain housing payments made to or on behalf of Adrian Prosser were excluded from Exhibit TT60 as other executives of the company received the benefit of housing payments also.FN53 Transcript of 11/17/2008, Adv. Doc. No. 84, at 132. However, other payments were clearly personal, and even Adrian Prosser testified he did not realize that they were payments from the corporation. Deposition of 12/19/2007, at 73–74.FN54 Thus, he did not consider these payments as income for services provided through his employment and by his own admission, these were non-business payments. The $55,376 .43 in direct transfers to Adrian Prosser reflects payments for which the books and records of New ICC contain no support to characterize these as business payments, and thus are not related to his employment by the subsidiary of New ICC. See Testimony of Christian, Adv. Doc. No. 111, at 90–91. We agree with the Trustee that these payments did not have a business purpose and find that funds unrelated to Adrian Prosser's employment were transferred out of New ICC to him in the amount of $55,376.43.

FN52. Exhibit TT60 indicates that the backup documents of cash payments to Adrian Prosser are located at Tab 3 of Exhibit TT8. However, the documents are located at Tab 2.

FN53. The housing allowance payments were made by New ICC, though according to Ms. Christian, Adrian Prosser was actually employed by a subsidiary, St. Croix/St. Thomas Cable. Transcript of 11/17/2008, Adv. Doc. No. 84, at 132. In his Amended Response to Plaintiff's First Request for Admissions, he stated that he "received wages and/or salary on account of [his] employment with Innovative Cable TV." TT86. He also stated that he provided services to New ICC "through work performed in the corporate offices on finance/operational activities of the companies in the USVI/BVI/St. Maarten/St. Martin/Guadeloupe/Martinique to include CATV, Internet, Long Distance services." Id.

FN54. Among the direct payments which the Trustee seeks to avoid is a direct payment made to Adrian Prosser on May 20, 2004, in the amount of $20,819.59. See TT60, at TT4 1828. Adrian Prosser was specifically asked about that payment at his deposition on December 19, 2007:

Q. Well, what do you think that might have been for?

A. A gift, but I didn't realize it was a company deal. Like I said, it's news to me that it was coming out of a corporate account.

Q. And that was from Dawn and Jeff?

A. Yep.

Q. Is what you thought, anyway?

A. Yes.

Q. And what was it for?

A. I think I used it to buy furniture.

12/19/2007 Deposition, at 73–74. New ICC's check history report reflects a transfer to "Adrian Labennett" (Adrian Prosser) on May 20, 2004, in the amount of $20,819.59. Tab 2 of TT8, at T00062. Exhibit TT60 reflects the transfer in that amount on May 20, 2004, but lists the "Prosser Related Amount" as $20,876.43, which is $56 .84 more than the amount the check history report reflects. See TT60, at TT4 1828. The Virgin Islands Community bank statement lists a debit to New ICC's account on May 20 in the amount of $20,876.43. Tab 2 of TT8, at T00068. Therefore, the higher amount is substantiated by the bank statement.

*19 Adrian Prosser was also the recipient of a wire transfer in the amount of $104,132.09 from the bank account of ICC–LLC on April 28, 2005. TT63, at TE2 01909. In his Amended Response to Plaintiff's First Request for Admissions, Adrian Prosser admitted that approximately $104,132.09 was paid to him by ICC–LLC on or about April 29, 2005, which he used as a down payment on the purchase of a residence, referred to as the West Palm Beach Condominium. TT86, at TE 02472–73. He understood the money to be a gift from his parents. Id. at 9–10.FN55 At his deposition on December 19, 2007, Adrian Prosser testified that he made a $120,000.00 down payment on the West Palm Beach Condominium. 12/19/2007 Deposition of Adrian Prosser, at 9. We find that the funds provided by the ICC Debtors for the down payment on Adrian Prosser's home were non-business and personal in nature.

FN55. Jeffrey Prosser testified that "[t]here was certainly an advance. Whether that was through LLC or through the contra equity, I don't know." Testimony of 12/09/2008, Adv. Doc. No. 89, at 215. Mr. Prosser testified that he could not recall the characterization of this transfer. Id. The records of the companies reflect that the funds originated in New ICC's account, were transferred to ICC–LLC, and subsequently disbursed to Adrian Prosser. See note 57, infra.

In total, New ICC transferred $55,376.43 prepetition to Adrian Prosser, and ICC–LLC transferred $104,132.09 to Adrian Prosser prepetition, for a combined total of $159,508.52.

The Contra Equity Account

As set forth above, the evidence substantiates that numerous transfers were made out of the ICC Debtors either directly to the Defendants or to third parties for the benefit of the Defendants in the form of rental payments, American Express payments, and transportation costs. The Adult Prosser Children do not contest that payments were made to or for them, but they assert that the transfers to or for their benefit were actually from Jeffrey Prosser, as opposed to the ICC Debtors. Transcript of 07/23/2009, Adv. Doc. No. 113, at 38–44.FN56 Their theory centers specifically upon how New ICC recorded the transfers in its audited financial statements.FN57 The Adult Prosser Children contend that the transfers were actually made by Jeffrey Prosser on the basis that payments were attributed to him by the company (through recording the funds as contra equity in the corporate financial statements) and Jeffrey Prosser reported some of the funds on Schedule C of his and Dawn Prosser's income tax returns.FN58 Id . The Chapter 11 Trustee contends that the transfers did not flow from Jeffrey Prosser, and the Defendants are directly liable to the ICC Debtors' bankruptcy estates. See Chapter 11 Trustee's Trial Brief Regarding Fraudulent Transfer Adversary Proceedings, Adv. No. 70, at 4–9.FN59 In order to address the contentions of the parties, an explanation of the contra equity account is necessary.

FN56. See also Amended Response to Plaintiff's First Request for Admissions from John Justin Prosser, TT87; Response to Plaintiff's First Request for Admissions from Michelle LaBennett Prosser, TT88; Amended Response to Plaintiff's First Request for Admissions from Sybil G. Prosser, TT89; 12/19/2007 Deposition of Adrian Prosser, at 9–10, 73–74.

FN57. All except one of the transfers sought to be avoided and recovered through this adversary proceeding are transfers out of New ICC. The exception is the transfer by ICC–LLC to Adrian Prosser in the amount of $104,132.09. TT86, at TE 02472–73; Testimony of Christian, Transcript of 11/18/2008, Adv. Doc. No. 111, at 104; TT63, at TE2 01909. The evidence indicates that the transfer of $104,132.09 originated from New ICC and was booked by New ICC in the contra equity account, see discussion, infra. Based upon a review of the receivables LLC account on New ICC's general ledger (accounted for as contra equity on the company's audited financial statements), a transaction was posted to the account as a transfer to ICC–LLC in the amount of $104,017.09 the day before ICC–LLC transferred $104,132.09 to Adrian Prosser. The difference in the amount is exactly $115.00.

As to how ICC–LLC recorded the transfer to Adrian Prosser in its books, according to New ICC's CFO, Dennis Kanai, "There is a general ledger in the [accounting] system for [ICC] LLC, but it'd never been completed or reviewed or finalized." Id. at 35. According to Mr. Kanai, no one maintained ICC–LLC's books. Id. There really were no executives of ICC–LLC, and "[i]t was purely a shell holding company." Id. at 39.

FN58. Jeffrey Prosser did not file a Schedule C in every year. Jeffrey and Dawn Prosser's jointly filed income tax returns for the years 1998 through 2006 have been admitted as evidence in this proceeding. JP125 -JP 133. A Schedule C was filed for the years 2000 through 2006.

For the year 2000, Jeffrey and Dawn Prosser reported "wages, salaries, tips, etc." as $2,100,000 and a business loss as calculated on Schedule C of $3,374,000 resulting in a negative adjusted gross income. JP 127. A business loss and negative adjusted gross income were reported in 2001 and 2002. JP128–JP129. Even though business income was reported in 2003, a negative adjusted gross income was reported. JP130. Business income was also reported in 2004, 2005, and 2006, resulting in reported adjusted gross income of $1,010,707, $813,465, and $425,584, respectively. JP 131–JP 13 3.

The Chapter 11 Trustee contends that, even if Jeffrey and Dawn Prosser paid taxes on the transfers as they contend, "that fact alone does not mean the Transfers were proper or authorized." See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 15, n. 13. We agree.

FN59. The Chapter 11 Trustee contends that "Even If the Court Determines that the Transfers Were Initially Distributions to Jeff Prosser, They Are Fraudulent Transfers that Must Be Returned to the ICC Debtors [.]" Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 17. Here, there is no doubt that the transfers sought to be avoided originated from one of the ICC Debtors' accounts. As discussed infra in the court's conclusions of law, the main focus in the analysis of whether a transfer is an avoidable fraudulent conveyance is the intent of the transferor. In re Elrod Holdings Corp., 421 B.R. 700, 709 (Bankr.D.Del.2010). Whether Jeffrey Prosser was the initial recipient of the transfers who then subsequently transferred the funds to the Defendants, as they contend, is an issue with respect to recovery of an avoided transfer pursuant to sec. 550. See discussion infra.

The contra equity account, although an entry on the capital deficit section of the financial statements, developed from (and is a term used interchangeably with) several receivables accounts that appear on the assets side of the company's internal ledger.FN60 According to the Chief Financial Officer of New ICC, Dennis Kanai, the receivables account maintained by New ICC represented "anything that was deemed a distribution not for the benefit of [New] ICC. In other words, ... [a distribution to] any of the holding companies or Mr. Prosser personally." Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 8, 13, 81.FN61 The company did not characterize these payments as compensation to Jeffrey Prosser. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 43.FN62 If the company had considered any of the payments as compensation, then it would have had an obligation to provide documentation such as a 1099 or W–2 form, which it did not. Id. at 45. Anything booked into the accounts was not a true capital expenditure of the corporation but rather an expenditure outside the ordinary course of business operations. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 28. A distribution is defined as a transfer of value, in the form of money or property, from a corporation to or for the benefit of a stockholder. See Testimony of Barbee, Transcript of 03/23/2009, Adv. Doc. No. 112, at 246–248. FN63,FN64 We find that the non-business transfers by New ICC were treated by the corporation as distributions and not as compensation for services rendered by Jeffrey Prosser.FN65

FN60. The contra equity account developed from several receivables accounts. The "due from" account has been referred to by various labels, such as "receivables LLC". See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 80 ("I guess the reason there's such confusion is there's several accounts that are mapped, if you will, into that one category. But generally the activity ran through an account called receivables LLC."); Id. at 102 ("There was [ sic ] probably eight to ten accounts that get mapped into that [contra equity] category.... For convenience we tried to isolate all the transactions into the receivables LLC account."). The "due from accounts" later were labeled as contra equity accounts for purposes of the audited financial statements.

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FN61. Mr. Kanai testified that the transactions posted to the receivable LLC account were not solely for expenditures on behalf of the Prosser family as some transactions posted to the account related to payments to New ICC's parent companies. See Transcript of 03/10/2009, Adv. Doc. No. 98, at 102–03. See also Testimony of Christian, 11/18/2008, Adv. Doc. No. 111, at 195 (testifying that the due from account also includes business related activity of ICC LLC).

FN62. Even the biweekly payments of $71,000 to Mr. Prosser were not treated as compensation by New ICC:

Q. Now, did Mr. Prosser ever describe to you that the entries from the due from shareholder account were his compensation?

A. No, I never heard that.

Q. Are you aware that Mr. Prosser received $71,000 from ICC every two weeks?

A. Yes, sir.

Q. How was this accounted for on the books of ICC?

A. As a receivable from LLC much the same way any of these other distributions were handled.

Q. Was it booked into that same account we've been talking about?

A. Correct. The receivables LLC account.

Q. Was the 71,000 every two weeks to Mr. Prosser ever expensed on the books and records of ICC?

A. No, sir.

Q. To your knowledge as the chief financial officer, did ICC ever issue Mr. Prosser a W2 form with respect to the 71,000 every two weeks?

A. No. No, it did not.

Q. Was the 71,000 every two weeks to Mr. Prosser ever included in the payroll records of New ICC?

A. No, sir.

Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 33–34.

FN63. Although Mr. Barbee was the Chapter 7 Trustee's witness at trial in support of the Trustees' Turnover Action and the Chapter 7 Trustee is not a party to this adversary proceeding, both the Chapter 11 Trustee and Adult Prosser Children cited to his testimony in their briefs and closing arguments in this adversary proceeding. See Adult Prosser Children's Post–Trial Brief, Adv. Doc. No. 102, at 10, and multiple references in Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104. See also Transcript of 07/23/2009, Adv. Doc. No. 113, at 16, 33, 54 (closing arguments).

FN64. Despite the fact that distributions are defined as being to or for the benefit of a shareholder, the corporation lumped the non-business transfers to or for the benefit of the Prosser family together as contra equity in the audited financial statements and treated them as distributions.

FN65. The fact that a disbursement from a corporation is designated as a "distribution" is not a determination that the distribution was proper or authorized. See Testimony of Barbee, Transcript of 03/23/2009, Adv. Doc. No. 112, at 249. A distribution may be fraudulent. See also note 10, supra.

*20 The use of the term "contra equity account" arose as a result of Grant Thornton's audit of the financial statements of the companies on a consolidated basis FN66 for the years 1999 and 2000. See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 17; TT190. The auditors opined that what New ICC booked as an account receivable due from shareholder should not be reflected as an asset on the balance sheet of New ICC because it was not being serviced. TT 190, at TT4 1613–14. That is, principal and interest were not being paid back to New ICC by the shareholder (ultimately, Jeffrey Prosser) to or for whom loans and advances were made and no collection action was contemplated. Subsequently, the treatment of those transfers was changed in the audited financial statements so that the balance sheet no longer reflected the receivables from parent, LLC, or Jeffrey Prosser personally as assets. See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 17–18. Instead, these debts were reclassified into a new category referred to as the "contra equity account" in the equity section of the balance sheet.FN67 See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 17–18, 21; Grant Thornton Audit Report, Exhibit TT90. Thereafter, (from 2001 forward) on the audited financial statements, payments made by the companies that benefitted the Prossers "were classified in the equity section as a reduction to the capital of the company." Testimony of Barbee, Transcript of 03/23/2009, Adv. Doc. No. 112, at 175. Internally, however, New ICC continued to capture these transfers in a receivables account, that is, an account listed as an asset of the company and as loans to Jeffrey Prosser.FN68

FN66. "New ICC is basically a holding company." Testimony of Barbee, Adv. Doc. No. 112–1, at 15.

FN67. We note that, even prior to this reclassification of the receivables account, negative equity was reported. The financial statements report "Total Stockholder's (Deficit) Equity" as negative $27,225,000 as of December 31, 2000. See TT190, at TT4 1617.

FN68. Dennis Kanai testified as follows regarding the treatment on the internal ledger versus the financial statements:

Q. And when you make that distinction between external reporting—well, first of all you said as a receivable, right? That was one—you said you kept it as a receivable?

A. Yeah. On the books and records, in the general ledger if you will, that account is a receivable.

Q. Is that because it had always been a receivable?

A. Correct.

Q. So, you just didn't make the switch, you didn't recategorize it on the books and records, within the company, because that's the way it had always been done?

A. Correct.

Q. In other words, you didn't sort of give the account a new name.

A. That's correct.

See Transcript of 03/10/2009, Adv. Doc. No. 98, at 86.

See also id. at 111–12:

Q. Internally it wasn't considered a contra equity. It was considered an asset. You've already testified to that. Isn't that correct?

A. No. I believe what I said, or what I intended to say, that the internal book keeping convention was to accumulate this activity in what was and has always been an asset account, but it was always mapped into a contra equity account for external reporting purposes.

Q. Yes. And so, internally it was maintained as a receivable, correct?

A. The information or the activity was accumulated in an account that happened to be in the asset section on the general ledger.

Q. And the company never wrote that off, did they?

A. No. Again, because it was part of the contra equity.

Dennis Kanai testified that he believes that reporting the transactions as contra equity was the appropriate characterization and that the internal name for the account was simply retained because that is what it had always been called. See Transcript of 03/10/2009, Adv. Doc. No. 98, at 84–85.

Because the account was considered an asset on the company's internal records, the company never reported the distributions to any taxing body and never filed the appropriate forms to reflect the distributions. Furthermore, to Jeffrey Prosser's benefit, once the receivables were reclassified as contra equity there was no additional accrual of interest. Nonetheless, we credit Kanai's testimony that the distributions were considered to be contra equity transactions. This is not to say that the distributions themselves were appropriate or authorized but simply that, from an accounting standpoint and based upon the Grant Thornton report, the company appropriately booked the transfers on its financial statements for external reporting purposes as contra equity. The effect was to take cash out of the company and give it to, or spend it for the benefit of, Jeffrey Prosser or his designees.

Based upon the credible testimony of the CFO of New ICC, we find that for purposes of the consolidated financial statements of New ICC and its subsidiaries, New ICC characterized and treated personal transactions as distributions that reduced equity, and reflected them as such in the audited financial statements. Internally, however, the same transactions were treated as no-interest loans (accounts receivable) to Jeffrey Prosser. We note that only a portion of the transfers reflected as contra equity transactions (i.e., those to or for the benefit of the Adult Prosser Children) are at issue here. Many of the transactions booked as contra equity were to or for the benefit of Jeffrey and Dawn Prosser, who are not named as defendants in this proceeding.

Mr. Goldman, counsel for the Adult Prosser Children, contends that the transfers alleged to be fraudulent conveyances were transfers from Jeffrey Prosser (not the corporations) to the Defendants based upon the manner in which New ICC recorded the transfers. Transcript of 07/23/2009, Adv. Doc. No. 113, at 40. The Chapter 11 Trustee maintains that "[b]ecause the ICC Debtors, and not Jeffrey Prosser, made the transfers that Trustee Springel seeks to avoid, the ICC Debtors' bankruptcy estates, and not Jeff Prosser's bankruptcy estate, solely hold the appropriate claims and causes of action to avoid those fraudulent transfers and unauthorized post-petition transfers." Chapter 11 Trustee's Trial Brief Regarding Fraudulent Transfer Adversary Proceedings, Adv. Doc. No. 70, at 2.

*21 The evidence does not support Mr. Goldman's contentions. Despite the treatment of the transfers by the corporation as distributions, the reality is that these transfers emanated from one of the ICC Debtors and went directly to either the Adult Prosser Children or third parties for the direct benefit of the Adult Prosser Children. Although Jeffrey Prosser directed the transfers to occur, there is no evidence substantiating that Jeffrey Prosser exercised dominion or control over the funds after they were transferred out of the companies. The fact that New ICC recorded the funds posted to the contra equity account as distributions to its ultimate shareholder in the financial statements is not a determination of the identity of the "initial transferee" for purposes of recovering avoided transfers. The company's characterization of non-business expenditures as distributions to Jeffrey Prosser does not make him a recipient of these transfers who then transferred funds to or for the benefit of the Adult Prosser Children.FN69 In fact, there is no evidence that he was a recipient. The company's accountants made bookkeeping entries reflecting funds transferred out of the company every time a transfer was made, regardless of its purpose. These transfers of corporate money out of the companies were made at Jeffrey Prosser's direction, with the result that payments were issued by one of the ICC Debtors either directly to one of the Adult Prosser Children or to a third party directly for the benefit of the Adult Prosser Children. FN70,FN71 We find that the transfers at issue were either directly to or for the benefit of the Adult Prosser Children.FN72

FN69. Jeffrey and Dawn Prosser's jointly filed income tax returns indicate an attempt to report some, but not all, of the transfers recorded as contra equity by the company. The method of recording does not transform Jeffrey Prosser into a recipient who then transferred funds to the Adult Prosser Children or to third parties for payment of Defendants' personal expenses, nor is it a determination that the company received value in exchange for the transfers. See also note 58, explaining that for several years Schedule C reflected a business loss, and, for the years 2000, 2001, 2002, and 2003, negative adjusted gross income was reported on the Prossers' joint tax returns.

FN70. We note that trustees may recover, to the extent a transfer is avoided, from initial transferees or the entity for whose benefit the transfer was made. See 11 U.S.C. sec. 550 and conclusions of law infra.

FN71. As we find that the transfers were made by one of the ICC Debtors, and not Jeffrey Prosser, directly to or for the benefit of the Adult Prosser Children, there is no need to address the argument that the transfers were in the nature of support by a father for his children. See Post–Trial Brief, Adv. Doc. No. 102, at 5. However, to the extent the Adult Prosser Children cite to the law regarding a "domestic support obligation" (a defined term, see sec. 101(14A)) and treatment of domestic support obligations in the context of avoidable preferences (sec. 547), we note that this is not a preference action. Id. at 5–6. The Adult Prosser Children provide no basis for their assertion that the transfers were made "in recognition of [Jeffrey Prosser's] legal obligations as a father to provide food, shelter, and tuition for his children." Id. at 6 (emphasis added). Moreover, except for those few payments for transportation services identified as for the benefit of Sybil Prosser when she was seventeen years old, these transfers were made to or on behalf of adults. Thus, there was no legal obligation to provide support at the time of the transfers.

FN72. We note that in the Turnover Opinion, we found as follows:

We find that Mr. Prosser controlled the funds and issued all instructions regarding the use of corporate funds, recorded as a reduction of equity, to pay for items purchased for his family.... We find that the transfers benefit Mr. Prosser, as well as the recipients of the property. The court notes that payments through the contra equity account often went directly to vendors to purchase items for Jeffrey Prosser and/or his family members; therefore, the funds never passed through his personal account or even passed through his hands. At times, the property purchased went directly to Dawn Prosser or one of the Adult Prosser Children. However, the funds were distributed based upon Jeffrey Prosser's status as the ultimate, sole shareholder and at his direction.

See Turnover Opinion, Adv. No. 07–3010, Adv. Doc. No. 728, at 16, n. 28.

2. We find that the distributions created a financial hardship on New ICC and there was substantial negative equity in the corporation throughout the period of time that the transfers were made to the Adult Prosser Children.

The Trustee contends that the non-business transfers to the Prossers made it difficult for the company to run operations and "money was going out of New ICC faster than it could be replaced...." Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at paras. 72, 94; Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 14. The credible evidence supports this view.

Personal payments made on behalf of Jeffrey Prosser and any of his family members were recorded in the due from shareholder account on the books of New ICC. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 13–14. The CFO was not aware of the expenditures booked internally to the receivables account before they occurred and there was no budget for this activity. Id. at 30–31. For those who managed cash, this was a concern. Id. Cash was always a significant challenge for New ICC. Id. at 32. Mr. Kanai recalls there being a phase when the due from shareholder account grew at a rate of about $1 million per month. Id. at 46–47. See also TT191, at TT4 1655; TT192, at TT4 1688; TT192, at TT4 1689; TT193, at TT4 1729; TT194, at TT4 1780, establishing that from 2002 forward more than $12 million per year was designated to the contra equity account.

*22 The Trustee correctly states that from 2000 through 2005 the audited financial statements evidence that current total liabilities exceeded current assets. See Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at para. 77. The consolidated financial statements of New ICC reveal that current liabilities exceeded current assets from 1999 through 2005 in amounts ranging from over $54 million to over $119 million: FN73

FN73. A current asset is defined as "cash and other assets or resources that are reasonably expected to be realized in cash, to be sold, or to be consumed during the normal operating cycle of the business or within one year, whichever is greater." 1–8 Applying GAAP and GAAS sec. 8.02.

"A current liability is an obligation that is expected to be liquidated by either a current asset or by the creation of another current liability." 1–8 Applying GAAP and GAAS sec. 8.08.

"The objective of accounting for current liabilities is to identify those obligations that will require the use of unrestricted cash, the liquidation of a current asset, or the creation of another short-term debt." Id.

—For the year ended December 31, 1999, total current assets were $48,464,000 and total current liabilities were $115,848,000. TT190, at TT4 1615. Thus, current liabilities exceeded current assets by $67,384,000.

—For the year ended December 31, 2000, total current assets were $67,568,000 and total current liabilities were $186,826,000. TT190, at TT4 1615. Thus, current liabilities exceeded current assets by $119,258,000.

—For the year ended December 31, 2001, total current assets were $37,052,000 and total current liabilities were $119,283,000. TT191, at TT4 1652–53. Thus, current liabilities exceeded current assets by $82,231,000.

—For the year ended December 31, 2002, total current assets were $28,184,000 and total current liabilities were $91,633,000. TT192, at TT4 1685–86. Thus current liabilities exceeded assets by $63,449,000.

—For the year ended December 31, 2003, total current assets were $33,901,000 and total current liabilities were $91,331,000. TT192, at TT4 1685–86. Thus current liabilities exceeded current assets by $57,430,000.

—For the year ended December 31, 2004, total current assets were $29,689,000 and total current liabilities were $83,983,000. TT193, at TT4 1728–29. Thus current liabilities exceeded current assets by $54,294,000.

—For the year ended December 31, 2005, total current assets were $29,078,000 and total current liabilities were $84,839,000. TT194, at TT4 1776–77. Thus, current liabilities exceeded current assets by $55,761,000.

Thus, from the financial statements, it is clear that New ICC was experiencing financial difficulties.

The consolidated audited financial statements from 1999 through 2005 reveal a capital deficit. TT190, at TT4 1617; TT191, at TT4 1655; TT192; TT192, at TT4 1688–89; TT193, at TT4 1731; TT194, at TT4 1779–80.FN74 The consolidated financial statement for the years ended 2004 and 2005, reflect capital deficits of $265,970,000 as of December 31, 2004, and $292,679,000 as of December 31, 2005. See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 48; TT194, at TT4 1780. Therefore, according to the CFO, at that time, there was no positive equity in the company and the liabilities significantly exceeded the assets. See Transcript of 03/10/2009, Adv. Doc. No. 98, at 49.

FN74. Furthermore, in 2001, the first year that the audited financial statements reflected the "notes and accounts receivable from stockholder" as contra equity, i.e. as a column on the Consolidated Statement of Capital Deficit and Comprehensive Loss, the balance of the notes and accounts receivable column was negative $110,482,000. TT191, at TT4 1655. Thereafter, in 2002, the balance reflected was negative $116,448,000, revealing an increase in the stockholders deficit of $5,960,0000 from the previous year. TT191, at TT4 1655; TT192, at TT4 1688. In the following year, the balance was negative $130,614,000, revealing an in increase in the stockholder's deficit of $14,166,000 from the previous year. TT192, at TT4 1688; id. at TT4 1689. In 2004, the balance was negative $143,627,000, revealing an increase in the stockholder's deficit of $13,013,000 from the previous year. TT192, at TT4 1689; TT 193, at TT4 1729. In 2005, the most recent year of audited financial statements in evidence, the balance reflected as "notes and accounts receivable from stockholder" was negative $156,612,000, revealing an increase in the stockholder's deficit of $12,985,000 from the previous year. TT 193, at TT4 1729; TT194, at TT4 1780.

The Trustee asserts that the last two years of audited financial statements report the total income from operations was less than expenses in both years. See Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at para. 77. The consolidated audited financial statements of New ICC for the years ended December 31, 2005 and 2004, do, in fact, reveal a net loss in both years on the Consolidated Statements of Operations. See TT 194, at TT4–1778.

*23 Based upon the credible testimony of the CFO of New ICC, we find that for purposes of the consolidated financial statements of New ICC and its subsidiaries, New ICC characterized and treated personal transactions as distributions that reduced equity to the point where there was no value to equity, and reflected them as such in their audited financial statements. See note 74 and accompanying text supra. Furthermore, we find that the transfers resulted in difficulty managing cash.

3. We find that Jeffrey Prosser controlled the transfers out of the ICC Debtors which were for the benefit of himself and his family, and he exercised complete dominion over the ICC Debtors.

The Chapter 11 Trustee contends that Jeffrey Prosser caused the ICC Debtors to make transfers without disclosure or board approval prior to making the transfers, and, as a result, "money was going out of New ICC faster than it could be replaced...." Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 14. It is the Chapter 11 Trustee's position that Jeffrey Prosser controlled where and how transactions were booked and that he directed many transactions to be posted to the contra equity account. See Transcript of 07/23/2009, Adv. Doc. No. 98, at 63. We agree and so find. The evidence establishes that Jeffrey Prosser used the funds of New ICC without apparent limits. His control over the amounts posted to contra equity and how they were characterized is clear from the testimony.

Approval of expenditures posted to the account came from Mr. Prosser or his designees. See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 29. The CFO was not aware of the expenditures before they occurred and there was no budget for this activity resulting in cash management concerns. Id. at 30–31.

Mr. Kanai testified that a quarterly review process of the amounts posted to the contra equity account was in place for purposes of finalizing the consolidated financial statement. Id. at 29. "[B]ased on that activity [in the account], generally it was a number that was not anticipated. Because of that, we would do a detailed review of all the activity and review it with the senior executives to make sure that in fact those transactions belong in that account." Id. at 29. Mr. Kanai described how the quarterly reviews were conducted:

Q. And can you just briefly describe what that process was?

A. Well, again, when we would do the quarterly financial statements and try to complete the consolidation, this number was an actual number that was disclosed in this changes of stockholders' equity. And that number would generally be larger than what was anticipated. And because of that, we would develop a detailed schedule with all the items that were posted to that account for Mr. Prosser's review so that he can confirm that in fact those were distributions to [ICC–LLC, one of the parent companies of New ICC, of which Jeffrey Prosser was the ultimate owner] and not expenses of [New] ICC.

*24 Q. Were there ever times during these reviews where Mr. Prosser would challenge some of the entries?

A. Well, I don't know that challenge is a word. Mr. Prosser was directly involved in the process. So, you know, we would review and determine what the proper accounting would be for those transactions.

Q. Is it fair to say then that Mr. Prosser would, in essence, sign off once the review was finished and said he'd agreed or—with the accounting? Excuse me.

A. Yeah, generally, we would not complete the consolidated financial statements without Mr. Prosser's approval.

Transcript of 03/10/2009, Adv. Doc. No. 98, at 33 (emphasis added). These reviews were conducted after-the-fact, i.e., after New ICC paid for the personal transactions, and were simply for the purpose of determining how to account for the transfers on the company's audited financial statements. The reviews were not challenges to Mr. Prosser's ability to spend the corporation's money as he pleased. It is clear from the CFO's testimony that what amounts were and were not posted to the contra equity account were at Jeffrey Prosser's direction and under his control.

We find that the board of directors was not involved in or asked to approve any of these transactions before they occurred. Jeffrey Prosser so acknowledged when he was questioned as to whether the board of directors voted to approve the transfers of New ICC funds for the benefit of his family:

The ... board of directors at least of any company I am familiar with don't [ sic ] approve or disapprove specific transactions. Certainly quarterly financial statements were presented to the board and also the annual audits were presented to the board and in those annual-in those quarterly financial statements the contra-equity account is disclosed and in the annual audits, the contra-equity account is disclosed. So certainly that accounts [ sic ] and those issues were issues that were before the boards [ sic ] when it had meetings. FN75

FN75. We note that the audited financial statements were prepared long after the end of the fiscal years to which they applied. See TT189–TT193 (The auditor's report for the consolidated financial statements for the years ended December 31, 1998, and 1997, is dated June 4, 1999, TT189, at TT4 1593; for the years ended December 31, 2000 and 1999, the auditor's report is dated October 16, 2001, TT190, at TT4 1614; for the year ended December 31, 2001, the auditor's report was dated May 3, 2002, except with respect to Note 13 which was dated May 29, 2002, TT191, at TT4 1651; for the years ended December 31, 2003, and 2002, the auditor's report was dated April 23, 2004, TT192, at TT4 1684; for the years ended December 31, 2004, and 2003, the auditor's report was dated April 22, 2005, TT 193, at TT4 1727; for the years ended December 31, 2005, and 2004, the report was dated April 28, 2006, TT194, at TT4 1775.) Thus, the audited financial statements did not provide the board with information concurrent with the timing of the transfers. Nor did the financial statements provide an itemized list identifying the nature, purpose, or ultimate beneficiaries of the transfers.

Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 224.FN76 There is no indication from the minutes of the meetings, that the board gave approval or had any knowledge of payments made to or for the benefit of the Adult Prosser Children, whether through contra equity or otherwise. TT 10. In fact, the board never gave specific approvals for these transactions. See Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 227.FN77 Moreover, Richard Goodwin, a board member, was questioned about the contra-equity account and expressed an understanding that is completely inaccurate. He understood the contra equity account was used for the purpose of "compensat[ing] [Jeffrey Prosser] for his having borne certain expenses of the company." Exemptions Trial Testimony, Transcript of 09/08/2008, at 189–190 (admitted in this proceeding, see TT203). As is evident from the individual and cumulative testimony of Mr. Kanai, Eling Joseph (Mr. Prosser's corporate executive secretary), Alan Barbee (Chapter 7 Trustee's expert in the field of accounting), and Jeffrey Prosser, the true purpose of the account was exactly opposite of that understanding. It was to record payments at the direction of Jeffrey Prosser to himself or his family or to third parties for the benefit of him and/or his family members that were not reimbursement for corporate expenses.

FN76. See also Transcript of 12/09/2008, Adv. Doc. No. 89, at 225–26 ("Well, the board had to approve the audits. So from that standpoint, the board—as the board doesn't go through and specifically approve repair [ sic ] expense for a company. I mean, the board is there on a high level to approve or disapprove the financial statements or the high level or [ sic ] the audited financial statements, not specific transaction [sic].")

FN77. This conclusion is supported by the testimony of board members. See 04/25/2008 Deposition of Michael Prosser, at 44–45, 49, 83, 206; Exemption Trial Testimony of Raynor, Transcript of 09/09/2008, at 121–22 (admitted in this proceeding, see TT203); Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 214.

*25 As further evidence of Jeffrey Prosser's complete dominion over New ICC, when asked if he controlled the board of directors of New ICC, he responded, "It is true that I could—I certainly through the ownership of LLC who controlled EmCom, ... had the authority to appoint the board of directors of [New] ICC." See Transcript of 12/09/2008, Adv. Doc. No. 89, at 223. At his deposition on August 13, 2008, when asked whether he considered the board to owe any duties to the company, Jeffrey Prosser responded, "I think the board of directors first ... duty is to the stockholders who in this case was me." See Transcript of 12/09/2008, Adv. Doc. No. 89, at 223–24.

Jeffrey Prosser testified as follows regarding what he viewed to be the limitations on distributions to him from New ICC:

Q. And isn't it true that in your mind there were no limits on your ability to use the capital of the company for whatever you and your family may have wished for?

A. Well, the—I assume that there are always limits. I think that the reality is we owned a hundred percent of the company and so to the extent that, you know, certainly we had the authority to approve—I had the ability to approve transactions.

Q. So it's your position that as long as something was okay with you, you could do with New ICC's operating capital whatever you personally wished? Is that right?

A. Well, I had the authority to. However, obviously there is corporate responsibility and so forth in running the company. So as I said, I think that within reasons that are controlled by the corporate needs of the companies.

See Transcript of 12/09/2008, Adv. Doc. No. 615, at 219–20.

Thus, it is abundantly clear from the testimony that Jeffrey Prosser controlled all of the corporate activities, including the contra equity account, and we so find.

4. We find that the transfers occurred after Jeffrey Prosser and his companies had been targeted with claims and lawsuits.

The Chapter 11 Trustee contends that the "Pre–Petition Transfers were made after Jeff Prosser and his companies had been targeted with enormous claims and formal lawsuits[.]" Chapter 11 Trustee's Trial Brief Regarding Fraudulent Transfer Adversary Proceedings, Adv. Doc. No. 70, at 12–13.

The evidence substantiates that both Jeffrey Prosser and his companies had been targeted with lawsuits by the former public shareholders of Emerging ("EmCom"), also a debtor. The Greenlight Entities pursued litigation as holders of litigation rights assigned to them by former shareholders of Emerging. TT44. The lawsuit (hereinafter the "Greenlight Litigation") was initiated as a result of Mr. Prosser's taking Emerging private in 1998. See TT 190, at TT4 1642. On January 9, 2006, a judgment in the principal amount of $56,341,843.00 was entered in favor of the Greenlight Entities and against ICC–LLC, "Innovative Communication Corporation (a dissolved Virgin Islands corporation)", and Jeffrey Prosser. TT44 (Delaware Chancery Court Judgment). At the time the judgment was entered, Jeffrey Prosser read the decision and understood the dollar amount of the judgment. See Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 97–98.

*26 As stated in the notes to the consolidated financial statements for the years ending December 31, 2000, and December 31, 1999, pursuant to a reorganization agreement in 1998, New ICC acquired the assets of the former Innovative Communications Corporation, the dissolved corporation, which was a named party in the Greenlight Litigation. TT 190, at TT4 1621. It is upon predecessor in interest liability that this court found that "each of the Greenlight entities is a holder of a claim against New ICC that is not the subject of a bona fide dispute." See Order Granting Greenlight's Motion for Summary Judgment and Entry of Order for Relief Pursuant to 11 U.S.C. sec. 303(h), Fed.R.Bankr.P. 1018 and 7056 and Fed.R.Civ.P. 56, Case No. 07–30012, Doc. No. 72.FN78

FN78. The court took judicial notice of the Order at trial on December 9, 2008. See Transcript of 12/09/2008, Adv. Doc. No. 89, at 261.

It is clear that New ICC was aware of the litigation and contemplated potential liability. The consolidated financial statements for the years ended December 31, 2000, and 1999, provide the following information regarding litigation:

The Company FN79 [New ICC] is a named defendant in a Fiduciary Duty Action which is currently underway in Delaware Chancery Court for alleged breach of fiduciary duty in regard to the approval of the 1998 offer made to purchase the outstanding shares of EmCom. This claim is part of a consolidated action with the Appraisal Action against EmCom and Civil Action against ICC's President. The Company plans to vigorously defend these actions.... The minimum liability to EmCom would be $7.8 million plus prejudgment and post judgment interest. [New] ICC and/or certain [New] ICC directors could be liable for this balance if the petitioner wins the Fiduciary Duty Action.

FN79. New ICC is referred to as the "Company" or "ICC" throughout the financial statements. See TT 190, at TT4 1620.

TT 190, at TT4 1642. Although the financial statements address the minimum liability to EmCom, the fact that New ICC could be liable for the balance was also clearly contemplated.FN80

FN80. Subsequently, in the notes to the audited financial statements for the years ended December 31, 2004, and 2003, a distinction is made between the former Innovative Communication Corporation, referring to it as "ICC 1" and New ICC, referred to as "ICC2" or the "Company". TT193, at TT4 1769–1770. The notes provide, "The Company was not a defendant ... and is not directly liable.... As the Company's ultimate stockholder is named ..., the Company may be called upon to participate in the funding of ... settlement." Id. at TT4 1770.

It is undisputed that Jeffrey Prosser and New ICC's board were aware of the Greenlight Litigation and that the lawsuit was discussed at board meetings as early as November 5, 1999. See TT10, at TT 00183. The board was updated consistently of the status of the litigation at board meetings on July 17, 2000; June 15, 2001; September 10, 2001; December 3, 2001; October 21, 2002; March 25, 2003; October 10, 2003; March 29, 2004; June 28, 2004; November 5, 2004; May 13, 2005; October 4, 2005; and April 10, 2006. See TT 10.

The notes to the financial statements for the years 2003 and 2004 also address the litigation commenced by the Rural Telephone Finance Cooperative ("RTFC"):

In prior years ICC obtained member loans from RTFC ("ICC Loans").... Such loans are collateralized by, among other things, the stock of ICC and its wholly-owned subsidiary, Vitelco. By complaint filed June 1, 2004, RTFC commenced an action against ICC alleging a default under the ICC Loan (the "ICC Action"). An amended complaint was later filed, in which RTFC alleged that ICC had committed over 30 defaults under the ICC Loan. RTFC sought damages of over $500,000,000. ICC answered, denying liability, and asserted counterclaims.... While litigation is always uncertain, ICC and its counsel believe there is a meritorious defense to each of the alleged defaults and expect to move to dismiss all of them.

*27 TT193, at TT4 1766–1769. According to the financial statements for 2004 and 2005, twenty-one of the thirty-one counts were dismissed, and trial was to be held on the remaining counts. TT 194, at TT4 1815. As noted, the board was regularly updated on the status of the RTFC litigation beginning with the meeting held June 28, 2004. TT10, at TT0025.

According to the minutes of the board meeting held on April 10, 2006 (the last board meeting minutes in evidence):

The Chairman advised the Board that after lengthy negotiations with RTFC and Greenlight, he believed that a settlement of all litigation and claims was in sight. He stated that the sum involved was approximately $402 million and he had about four months to raise the money.

He emphasized that a component of the settlement was a mutual release from all liabilities known and unknown.

As far as the funding for the settlement was concerned, the Chairman advised that he had been working diligently to secure the financing and he was confident that it could be achieved.

The Board was then joined on a telephone conference call by Attorneys Lanny Davis and Joe Holt who confirmed the information provided by the Chairman. Mr. Davis advised that he had a draft settlement agreement with RTFC and Greenlight which was the product of intense negotiation. The Attorneys advised the Board that all directors will have complete releases from all law suits, but that Mr. Prosser would be exposed to litigation and the company would be forfeited if the money required for settlement is not paid.

TT10, at TT00203. Ultimately, the financing was not obtained.

Therefore, while the ICC Debtors were facing litigation and clearly analyzing potential liability, Jeffrey Prosser caused transfers to or for the benefit of the Adult Prosser Children out of New ICC and ICC–LLC.

CONCLUSIONS OF LAW

Count I: To Recover Fraudulent Transfers Made by One or More of the ICC Debtors to or for the Benefit of One or More of the Defendants under Section 548(a)(l)(A) of the Bankruptcy Code

The Chapter 11 Trustee asserts that he is entitled to avoid certain transfers to the Adult Prosser Children pursuant to sec. 548(a)(1)(A), which provides:

The trustee may avoid any transfer ... of an interest of the debtor in property ... that was made ... on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily (A) made such transfer ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made ..., indebted[.]

Once a transfer is avoided, a trustee may recover the transfer pursuant to sec. 550(a):

Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee.

*28 The Trustee bears the burden of proving that the challenged transfers were made with the actual intent to hinder, delay, or defraud a creditor. In re Valley Bldg. & Constr. Corp., 435 B.R. 276, 285 (Bankr.E.D.Pa.2010). FN81 The Trustee must establish the transfers were fraudulent by a preponderance of the evidence. In re Fruehauf Trailer Corp., 444 F.3d 203, 211 (3d Cir.2006).FN82

FN81. The burden of proof of establishing the elements of a fraudulent transfer pursuant to sec. 548 rests on the trustee and never shifts. See In re Fruehauf Trailer Corp., 444 F.3d 203, 217 (3d Cir.2006) (citing to In re Rowanoak Corp., 344 F.3d 126, 131–32 (1st Cir.2003)). The burden of proof should not be confused with the burden of production, which "may shift from side to side as the case progresses, according to the nature and strength of the proofs offered in support or denial of the main fact to be established." Id.

FN82. "The courts are not in agreement about the evidentiary standard by which the trustee must prove fraudulent transfer under section 548(a)(1)(A), and some decline to decide one way or another. The better reasoned decisions require proof only by the general federal standard of a preponderance of the evidence." 5 Collier on Bankruptcy para. 548.11[1][b] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). In support of cases which have applied the preponderance of the evidence standard, Collier on Bankruptcy cites to Fruehauf. See 5 Collier on Bankruptcy para. 548.11[1][b] at n. 17. Although Fruehauf applied the elements for establishing a constructive fraudulent transfer, the court noted the elements for both actual fraud cases and constructive fraud cases and stated that the preponderance of the evidence standard applied without making a distinction between the type of fraudulent transfer case. In In re Dolata, a case decided before Fruehauf, the bankruptcy court for the Western District of Pennsylvania noted the split of authority:

[A trustee's burden of proof is] arguably clear and convincing evidence, but perhaps just a preponderance of the evidence, to the extent that the Trustee proceeds under an actual fraudulent intent theory—ie., pursuant to either sec. 548(a)(1)(A) or [12 Pa.C.S.A.] sec. 5104(a)(1)—compare In re Foxcroft Square Co., 184 B.R. 671, 674 (E.D.Pa.1995) ("The requisite intent under sec. 357 [of Pennsylvania's repealed Uniform Fraudulent Conveyance Act ("Pa.UFCA"), which section provided for the avoidance of transfers on the basis of actual fraudulent intent rather than because they are constructively fraudulent,] must be shown by clear and convincing evidence"); Lease–A–Fleet, 155 B.R. at 674 (standard of proof is clear and convincing evidence under either Bankruptcy Code or Pa. UFCA), and United States v. Green, 1998 U.S. Dist. LEXIS 4821, 1998 WL 167278 at 10 (E.D.Pa.1998) (creditor "has the burden to show actual intent by clear and convincing evidence"), with C.F. Foods, 280 B.R. at 110 n. 14 (pointing out that Foxcroft was decided under the repealed Pa. UFCA, noting that "generally, courts do not [now] agree which standard applies to 'actual intent' actions under sec. 548(a)(1)(A)," citing cases for each proof standard, and avoiding ruling on the issue by holding that "the trustee [therein] has met the more strict 'clear and convincing evidence' standard"), and [David B. Young, Preferences and Fraudulent Transfers, 849 PLI/Comm 729, 860–862 (2003] ("The strong current of opinion now holds that actual intent under 11 U.S.C. sec. 548(a)(1)(A) need only be shown by a preponderance of the evidence.... A minority of courts, however, have continued to adhere to the clear and convincing standard in sec. 548(a)(1)(A) cases;" also citing cases for both sides and placing the Lease–A–Fleet decision in the minority).

306 B.R. 97, 117 (Bankr.W.D.Pa.2004). Although we apply the preponderance of the evidence standard to the claim of actual fraud pursuant to sec. 548, we note that we examine the allegations of actual fraudulent intent pursuant to sec. 544 and applicable law infra and find that the Trustee has met his burden even under the higher standard of clear and convincing evidence.

Rarely will an individual admit actual intent to hinder, delay, or defraud; thus, courts consider a number of factors known as the "badges of fraud." Valley, 435 B.R. at 285. These factors include, but are not limited to, whether:

(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the property transferred after the transfer;

(3) the transfer or obligation was disclosed or concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(5) the transfer was of substantially all the debtor's assets;

(6) the debtor absconded;

(5) the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and

(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Valley, 435 B.R. at 285–86.FN83 The badges of fraud will be discussed in light of the trial evidence, infra.

FN83. Generally, courts consider badges of fraud similar to those identified in Valley. See In re Elrod Holdings Corp., 421 B.R. 700, 710 (Bankr.D.Del.2010) (citing Rosener v. Majestic Mgmt. ( In re OODC, LLC), 321 B.R. 128, 140 (Bankr.D.Del.2005) (analyzing the following factors as badges of fraud: "(1) a close relationship among the parties to the transaction; (2) a secret and hasty transfer not in the usual course of business; (3) inadequacy of consideration; (4) the transferor's knowledge of the creditor's claim and the transferor's inability to pay it; (5) the use of dummies or fictitious parties; and (6) retention of control of property by the transferor after the conveyance").

The fraud of an officer of a corporation can be imputed to the corporation in certain circumstances:

when the officer's fraudulent conduct was (1) in the course of his employment, and (2) for the benefit of the corporation. This is true even if the officer's conduct was unauthorized, effected for his own benefit but clothed with apparent authority of the corporation, or contrary to instructions. The underlying reason is that a corporation can speak and act only through its agents and so must be accountable for any acts committed by one of its agents within his actual or apparent scope of authority and while transacting corporate business.

In re Personal & Bus. Ins. Agency, 334 F.3d 239, 242–243 (3d Cir.2003). According to the "adverse interest exception" imputation is not appropriate where the officer's interests were adverse to the interests of the corporation. Id. at 243. There is, however, an exception to the exception, which provides:

If an agent is the sole representative of a principal, then that agent's fraudulent conduct is imputable to the principal regardless of whether the agent's conduct was adverse to the principal's interests. The rationale for this rule is that the sole agent has no one to whom he can impart his knowledge, or from whom he can conceal it, and that the corporation must bear the responsibility for allowing an agent to act without accountability.

*29 Id. Pursuant to the sole actor doctrine, the "exception is applied to cases in which the agent who committed the fraud was the sole shareholder of the corporation or dominated the corporation." Thabault v. Chait, 541 F.3d 512, 529 (3d Cir.2008).

Here, the sole actor exception applies. Jeffrey Prosser was Chairman of the Board, President, and CEO of New ICC and sole member of its ultimate parent company, ICC–LLC. Furthermore, the evidence established that Jeffrey Prosser was the corporate actor who solely determined what funds would be transferred out of the corporation for his and his family's benefit. All of the corporate employees acted solely at his instruction. He was not challenged. According to the CFO, he had the final say as to which transactions were recorded as contra equity. Jeffrey Prosser's own testimony supports the fact that he was able to use the funds without any limit, at his own discretion.FN84 His hand-picked board was not provided timely information about the transfers. When the board did get information, in the form of financial statements issued well after the applicable year end, it did not review the minutiae and was not asked to approve specific transfers.FN85 The evidence supports the finding that Jeffrey Prosser determined and controlled the amount of distributions through New ICC's contra equity account, and he falls within the exception to the exception. Therefore, his conduct will be imputed to the corporation.

FN84. See Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 89, at 214:

Q. Okay. Isn't it true that excluding you there was never anyone at New ICC or its affiliates that provided any specific approval for the company to remit funds to your family members' personal benefit?

A. Well, again, the—the funds that were paid to family members or any other issue that was deemed not to be related to ICC was run through the contra equity. So was there specific approval from anybody other than me to write checks? Not that I'm aware of and not that I believe would have been needed.

FN85. For example, Mr. Raynor, a board member, testified that he was unaware of the fact that New ICC made payments for credit card charges of the Adult Prosser Children. See Exemptions Trial Transcript of 09/09/2008, at 122 (admitted in this proceeding, see TT203).

Reach Back Period

Only transfers within two years before the date of the filing of the petition may be avoided pursuant to sec. 548(a)(1)(A). All but one of the transfers at issue were made by New ICC. The exception is wire transferred funds used for the down payment on Adrian Prosser's home. Those funds were transferred out of ICC–LLC. An involuntary petition was filed against ICCLLC on February 10, 2006, in the District of Delaware. Subsequently, ICC–LLC filed a voluntary petition on July 31, 2006 in the District Court of the Virgin Islands, Bankruptcy Division. The transfer in the amount of $104,132.09 from the bank account of ICC–LLC was made on April 28, 2005. TT63, at TE2 01909. Thus, it falls within the two-year time period. All other transfers at issue were made out of New ICC. The involuntary petition was filed against New ICC on July 5, 2007. Therefore, any transfers made by New ICC prior to July 5, 2005, cannot be avoided pursuant to this statute.

As stated above, a number of direct payments were made by New ICC to the Adult Prosser Children. None of the direct cash payments to Adrian Prosser fall within the two-year time frame. TT60, at TT4 1828; Tab 2 of TT8. All of the direct transfers totaling $19,250 to Michelle were made within several months of the bankruptcy filing from January through April of 2007. TT60, at TT4 1878; Tab 106 of TT8. Likewise, all direct payments to Sybil Prosser, save for one $5,000 payment made in 2002, were transfers made within the two-year period, occurring from January through June of 2007. TT60, at TT4 1896; Tab 140 of TT8. Thus, a total of $20,500 in direct payments were made by New ICC to Sybil Prosser within the two-year time frame. Id. The direct payments to Justin Prosser spanned from June of 2006 through April of 2007, and the entire $22,500 in direct transfers to him fall within the applicable time frame. TT60, at TT4 1873; Tab 94 of TT8.

*30 Payments by New ICC were consistently made to American Express. TT60, at TT4 1831–1833; Tabs 10 & 11 of TT8; TT28. A number of these payments were made within the two years prepetition.FN86 As to the payments made on the Centurion account, the two years prepetition begin with New ICC's payment on July 7, 2005, which paid for charges to the Centurion account made during June of 2005, and concludes with New ICC's June 22, 2007, prepetition transfer, which paid for credit card activity during the month of May 2007. See TT28, at TT03046–3476; Tab 10 of TT8, at T00399–Tab 11 of TT8, at T00576. As to the Platinum account, the two-year time frame includes New ICC's payment on August 2, 2005, for charges incurred during June of 2005, through the payment made on May 8, 2007, for charges incurred during May of 2007. See TT28, at TT02329–2473; Tab 10 of TT8, at T00405–Tab 11 of TT8, at T00563.

FN86. As the American Express statements in evidence date back to 2004 and New ICC made payments credited to those statements, some payments by New ICC are excluded from this discussion of avoidable transfers pursuant to sec. 548. Therefore, the total amounts of transfers to the Adult Prosser Children for American Express charges discussed supra, at 22–23, 31–33, 40–42, differ from the amounts here. The amounts identified for the purpose of Counts I and II, both sec. 548 claims, are limited to transfers which occurred within two years prepetition.

New ICC made payments during this timeframe for charges by Justin Prosser to the Centurion account totaling $144,835.56.FN87 As stated above, the Trustee is limited to recovering the total amount of $135,699.92 for both prepetition and postpetition transfers made to American Express for Justin Prosser, as listed on Exhibit TT60. Postpetition payments for Justin Prosser in the amount of $12,540.73 are discussed infra, and we address only the prepetition transfers that total $123,159.19 here. New ICC also made payments during the two-year period to American Express for charges made by Sybil Prosser to the Centurion account totaling $176,199.08 and to the Platinum account totaling $1,070.85.FN88 Also, during the two years prepetition, New ICC made payments to American Express for the benefit of Michelle LaBennett for charges to the Centurion account totaling $30,304.45 and to the Platinum account totaling $7,179.40.FN89

FN87. See also explanation of credit card charges made by Justin Prosser and payments made by New ICC, at 21–23.

FN88. See also explanation of credit card charges made by Sybil Prosser and payments made by New ICC, at 30–32.

FN89. See also explanation of credit card charges made by Michelle LaBennett and payments made by New ICC, at 39–41.

The Chapter 11 Trustee has identified transportation payments made for the benefit of Michelle LaBennett and Sybil Prosser to Crawford's Travel, Inc. TT60, at TT4 1826. None of these payments were within the applicable time period. Id. at TT4 1855; Tab 229 of TT8. Payments for Michelle's transportation while in France were also made to Chabe Verjat. TT60, at TT4 1826. None of these payments fell within the two-year time period.

The purchase of the Mercedes by New ICC for Sybil Prosser in May of 2005 did not occur within the two years prepetition.

Rental payments on behalf of the Adult Prosser Children were made to Madame Marie–Denise Leymarie (TT60, at TT4 1876–77; Tab 114 of TT8), Cheng Ping Lee (TT60, at TT4 1851; Tab 50 of TT8), Grand & Associates Realty, Inc. (TT60, at TT41863; Tab 81 of TT8), and Rafael Nunez (TT60, at TT4 1889; Tab 206 of TT8). TT60, at TT4 1826. Two payments to Cheng Ping Lee, totaling $16,036.21, (for the benefit of Justin Prosser) and three payments to Rafael Nunez, totaling $7,590, (for the benefit of Sybil Prosser) fall within the applicable time frame.

In summary, the amounts at issue for purposes of Count I consist of one transfer to Adrian Prosser from ICC–LLC and multiple payments made by New ICC to or for the benefit of Justin Prosser, Sybil Prosser, and Michelle LaBennett. The transfer from ICC–LLC to Adrian Prosser was in the amount of $104,132.09. Within the applicable two year period, transfers were made by New ICC to or for the benefit of the Adult Prosser Children as follows: Justin Prosser in the amount of $161,695.40 (consisting of $22,500 in direct payments, $16,036.21 for rental payments, and $123,159.19 for American Express payments); Sybil Prosser in the amount of $205,359.93 (consisting of $20,500 in direct payments, $7,590 in rental payments, and $177,269.93 for American Express payments); Michelle LaBennett in the amount of $56,733.85 (consisting of $19,250 in direct payments and $37,483.85 in American Express payments).

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Badges of Fraud

*31 As transfers to the Adult Prosser Children occurring within the two years prior to the petition dates of New ICC and ICC–LLC, respectively, have been identified, we now look to the badges of fraud to determine whether there was an intent to hinder, delay, or defraud creditors. For purposes of sec. 548(a)(1)(A), the main focus is the intent of the transferor, i.e., the Debtors' intent, and not the intent of the transferees or beneficiaries. See In re Elrod Holdings Corp., 421 B.R. 700, 709 (Bankr.D.Del.2010).

Transfer or Obligation to an Insider

The Adult Prosser Children are considered "insiders" of New ICC and ICC–LLC pursuant to 11 U.S.C. sec. 101(31)(B). "The term 'insider' includes (B) if the debtor is a corporation (i) director of the debtor; (ii) officer of the debtor; (iii) person in control of the debtor; (iv) partnership in which the debtor is a general partner; (v) general partner of the debtor; or (vi) relative of a general partner, director, officer, or person in control of the debtor[.]" 11 U.S.C. sec. 101(31)(B). The Adult Prosser Children are indisputably insiders of the ICC Debtors as they are relatives of Jeffrey Prosser, who was Chairman of the Board, President, and CEO of New ICC and sole member of its ultimate parent company, ICC–LLC.

Transfer or Obligation Disclosed or Concealed

Another factor to consider is whether the transfer was disclosed or concealed. As previously stated, the board of directors was not involved in or asked to approve any of these transactions before they occurred. Although the board would eventually see that the shareholder's deficit continued to increase in the audited financial statements, the statements were not reviewed until long after the transfers were made. In addition, there was no disclosure in the audited financial statements identifying that transfers were made out of New ICC to or for the benefit of the Adult Prosser Children.FN90

FN90. There was no item-by-item breakdown of what the lump sum reported as contra equity represented. In other words, it was not clear from the financial statements, that the amount included, for example, payments to American Express for personal expenses of the Adult Prosser Children.

Furthermore, the transfers remained receivables on the company's internal ledger. See, supra, note 68 and accompanying text. Because the transfers were accounted internally as receivables as opposed to distributions, New ICC did not file IRS Form 5452 to report the transfers as distributions. See Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 40. See also Testimony of Barbee, Transcript of 03/24/2009, Adv. Doc. No. 112–1, at 61–62. Nonetheless, on the audited financial statements, New ICC treated the transactions as distributions. Therefore, the true nature of the payments is unclear from a comparison of New ICC's internal books and records and the audited financial statements.

More specifically, there was blatant concealment internally of some of the transfers. The Mercedes purchased for Sybil Prosser was mischaracterized at the direction of Jeffrey Prosser as equipment for Shoys (the home of Jeffrey and Dawn Prosser in St. Croix). See Testimony of Eling Joseph, Transcript of 03/23/2009, Adv. Doc. No. 112, at 15–17, 25–26; Tab 158 to Exhibit TT8, at T 05823. From the time of the purchase, the Mercedes was intended to be for Sybil. Transcript of 03/23/2009, Adv. Doc. No. 112, at 13. Therefore, there was never an intention for the vehicle to go to Shoys, and the mischaracterization made the purchase appear as though it was for Jeffrey Prosser as opposed to a transfer of funds for the benefit of his daughter.FN91

FN91. This is not the only item Jeffrey Prosser instructed his corporate secretary to mischaracterize when informing the accounting department of the nature of a transaction. Although not at issue in this adversary proceeding, Eling Joseph testified that some purchases of furnishings for Mr. Prosser's Palm Beach residence were characterized as St. Croix office equipment or office furniture at Mr. Prosser's instruction. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 24.

*32 Other concealed transfers were the allowances paid to the Adult Prosser Children. Eling Joseph testified that she was instructed by Jeffrey Prosser to have the allowances of Sybil Prosser, Justin Prosser, and Michelle LaBennett paid through the payroll of New ICC. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 37. Although Ms. Joseph testified that Justin Prosser and Michelle LaBennett worked for the company's summer program for a period of time, she testified that these allowance payments were not limited to the period of time that the children worked for the summer program. Id. at 36–39. Regardless of Ms. Joseph's testimony about temporary employment in the summer program, Justin Prosser, Sybil Prosser, and Michelle LaBennett admitted that they had neither been employed by nor provided services to the ICC Debtors. See Responses to Requests for Admissions, TT87, TT88, TT89. We accept the Defendants' admissions. Accordingly, there was no basis for Justin Prosser, Sybil Prosser, or Michelle LaBennett to receive payroll distributions from New ICC. Although the allowances appeared as payroll, they were actually non-business payments to three of the Adult Prosser Children.

Debtor Sued or Threatened with Suit Before Transfer was Made or Obligation Incurred

The evidence substantiates that both Jeffrey Prosser and his companies had been targeted with lawsuits by the former public shareholders of Emerging, also a debtor. The status of the Greenlight Litigation was a consistent topic at New ICC's board meetings from at least November 5, 1999, to April 10, 2006. On January 9, 2006, a judgment in the principal amount of $56,341,843.00 was entered against Jeffrey Prosser and his companies, ICC–LLC and the predecessor of New ICC. TT44 (Delaware Chancery Court Judgment).

By 2004, litigation was also commenced by the RTFC against New ICC. The board also received regular updates on the status of the RTFC litigation. See Board Minutes, TT10, at TT00225, TT0027, TT00229, TT00231, TT00233.

The consolidated audited financial statements of New ICC noted the litigation and potential liability related to both the RTFC and Greenlight litigation. While the ICC Debtors were facing litigation, analyzing potential liability, and even after judgment was entered, Jeffrey Prosser caused transfers to or for the benefit of the Adult Prosser Children out of New ICC and ICC–LLC.

Value of Consideration Received By the Debtor in Comparison to Value of Asset Transferred or Obligation Incurred

The company did not receive anything of value from the Adult Prosser Children in return for the funds transferred to or for their benefit. Justin Prosser, Sybil Prosser, and Michelle LaBennett admitted that they were not employed by and they did not provide services to the ICC Debtors. Adrian Prosser provided services to a subsidiary of New ICC for which he received compensation, but the Trustee is not seeking to avoid and recover those payments. As to certain transfers which Adrian Prosser believed to be gifts from his parents, the funds were, in fact, transfers out of the ICC Debtors, which the Trustee is seeking to recover.

*33 The contra equity transactions were not treated by the corporation as salary for services rendered by Jeffrey Prosser. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 43. Even the $71,000 biweekly payments to Jeffrey Prosser (not at issue here) recorded as contra equity were not treated as salary payments.FN92 If the company had considered any of the contra equity transactions to be compensation to Jeffrey Prosser, then it would have had an obligation to provide documentation such as a 1099 or W–2 form, which it did not do. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 45.FN93 Also, inconsistent with the concept of salary, is the fact that the CFO was not aware of the expenditures at issue before they occurred and there was no budget for this activity. Id. at 29–30. Furthermore, viewing the transfers posted to the contra equity account as salary would be contrary to Jeffrey Prosser's own testimony that "repayment" of the contra equity transactions was contemplated through "collapsing" of the corporations. See Testimony of Jeffrey Prosser, Transcript of 12/08/2008, Adv. Doc. No. 116, at 98–99. No repayment would be necessary if the contra equity transactions reflected salary payments.FN94 Generally, funds taken out of New ICC for the personal benefit of the Prossers were recorded as contra equity and treated as distributions by the corporation.FN95 These distributions were within the total discretion of Jeffrey Prosser, who utilized the corporate funds at will, despite the financial hardship that the cash disbursements caused for New ICC. See Testimony of Jeffrey Prosser, Transcript of 12/09/2008, Adv. Doc. No. 615, at 219–220; Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 32. As noted, Mr. Kanai testified that he recalled a phase when the account grew at a rate of about $1 million per month, resulting in cash flow problems. Transcript of 03/10/2009, Adv. Doc. No. 98, at 46–47. This testimony is supported by documentary evidence. See discussion at 55–56. The transfers were reflected in the financial statements' ever-growing negative numbers in stockholder's equity. The distributions to or for the benefit of the Prossers out of New ICC were in excess of the paid-in capital and profits of the corporation. Testimony of Barbee, Transcript of 03/24/2009, Adv. Doc. No. 112–1, at 204. There was no equity available to the stockholder. The company did not receive value in return for the funds transferred.FN96

FN92. Mr. Barbee opined that the "majority" of the payments posted to the contra equity account were distributions; however, the biweekly payments of $71,000 which were posted to the contra equity account were an exception, which he viewed to be more like compensation even though the company did not treat the biweekly payments in that manner. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 234–35. Mr. Barbee testified that, with respect to the $71,000 biweekly payments to Mr. Prosser, there was no FICA withholding which would have been done if New ICC considered the payments to be wages. See Transcript of 03/23/2009, Adv. Doc. No. 112, at 237. These biweekly payments are not at issue here. Only payments to or for the benefit of the Adult Prosser Children are the subject of this adversary proceeding.

FN93. As of 2001, the Prossers jointly filed tax returns do not report income from a W–2 form. See Jeffrey and Dawn Prosser's jointly filed income tax returns for the years 1998 through 2006, JP125 -JP 133. The last year that the Prossers reported income from a W–2 was for the year 2000. See JP127.

FN94. Nonetheless, Jeffrey Prosser testified that the contra equity account was used to pay his salary. See Transcript of 12/08/2008, Adv. Doc. No. 116, at 89–90. Even if Mr. Prosser's compensation was being paid through contra equity, the total expenditures were well in excess of what Mr. Prosser previously reported as income. In their joint tax return for 1998, Jeffrey and Dawn Prosser reported $820,672 as total wages, salaries, tips, etc. JP125. For their joint tax return in 1999, the total wages, salaries, tips, etc. reported was $1,800,000. JP126. In 2000, the Prossers reported $2,100,000 as wages, salaries, tips, etc. JP127. But see TT191, at TT4 1655; TT192, at TT4 1688; TT192, at TT4 1689; TT193, at TT4 1729; TT194, at TT4 1780, establishing that from 2002 forward more than $12 million per year was designated to the contra equity account. See discussion at 55–56, supra.

As further evidence that Jeffrey Prosser did not consider the transfers recorded as contra equity to be his compensation, the Chapter 11 Trustee contends that Jeffrey Prosser failed to reflect the transfers to or for the benefit of his family members in filings relating to his bankruptcy case (Case No. 06–30009), such as his Monthly Operating Reports ("MORs") filed before the case was converted and his Statement of Financial Affairs ("SOFA"). See Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at para. 14. Jeffrey Prosser admitted that the transfers made by New ICC to his family members were not reflected on the MORs. See Transcript of 12/09/2008, Adv. Doc. No. 89, at 151. The SOFA directs a debtor to provide "Income from employment or operation of business" and requires the debtor to "[s]tate the gross amount of income the debtor has received from employment, trade or profession, or from operation of the debtor's business from the beginning of this calendar year to the date this case was commenced. State also the gross amounts received during the two years immediately preceding this calendar year." See TT1, at TT00001. Jeffrey Prosser's SOFA dated September 25, 2006, reports as follows: $1,010,707 (Adjusted Gross Income) in 2004, $1 million (approximately) in 2005, and $720,000 in 2006 year to date. Id. These amounts are significantly less than the annual amounts recorded as contra equity. See note 74, supra. Jeffrey Prosser reported that the section requiring a debtor to report "Income other than from employment or operation of a business" as not applicable to him. See TT1, at TT00001. No gifts from Jeffrey Prosser to the Adult Prosser Children are reported within the one year preceding the commencement of the case. See id. at TT0003. This is further evidence that the transfers made by the company directly to or on behalf of the Defendants were not gifts from Jeffrey Prosser.

FN95. Although the court determined in the Turnover Opinion that the corporate funds transferred to or for the benefit of the Prossers and recorded as contra equity on the audited financial statements were treated by New ICC as distributions to Jeffrey Prosser, that finding does not preclude a determination that the transfers meet the elements of fraudulent transfers. In that Opinion, the court found that Jeffrey Prosser controlled the distributions and that the distributions continued despite the hardship which resulted to New ICC. For the reasons stated herein, we find the same. A distribution is merely a way to record moving an asset (including cash) out of a company. It is not a determination of whether a transfer was proper or authorized. See note 10, supra.

FN96. We note that for purposes of constructively fraudulent transfers, which are avoidable pursuant to sec. 548(a)(1)(B), analysis of whether a debtor received less than reasonably equivalent value is a required element. We find that the ICC Debtors received no value in exchange for the transfers at issue and incorporate this finding infra as to Count II. If we were to find that the Debtors had received some value, we would examine the totality of the circumstances to determine if the value was "reasonably equivalent", specifically addressing (1) the fair market value of the benefit received as a result of the transfer, (2) the existence of an arm's length relationship between the debtor and the transferee, and (3) the transferee's good faith. See In re TSIC, Inc., 428 B.R. 103, 113, (Bankr.D.Del.2010). There is no evidence of value provided to the ICC Debtors by the Adult Prosser Children. The Adult Prosser Children, who were either transferees or beneficiaries, were insiders of the ICC Debtors. Thus, these were not arm's length transactions. Although the Adult Prosser Children contend that the transfers were from their father, there is evidence to the contrary such as their direct receipt of corporate checks in some instances. At times, they would contact Eling Joseph (Jeffrey Prosser's corporate executive secretary) directly for funds. These examples are not evidence of good faith. To the extent that Jeffrey Prosser received value in exchange for directing corporate funds to or for the benefit of his family, that is not value to the ICC Debtors. Jeffrey Prosser's control in directing disbursal of corporate funds at will was not an extra incentive to retain a key executive. Jeffrey Prosser was the ultimate owner of the ICC Debtors, and through this ownership he mis-used the ICC Debtors' funds as though they were in his personal wallet.

Other Badges of Fraud

There were other signs that New ICC was facing financial difficulty. At the time of New ICC's bankruptcy filing, the employee pension benefit plans were underfunded, and had been since 1999.FN97 Also, around April of 2005, New ICC ceased making monthly loan payments to its largest creditor, the RTFC. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 68. FN98 The money that had previously been used to make those payments was instead spent for other purposes, such as the activities in the receivable LLC account, i.e., the distributions to or for the benefit of the Prossers recorded as contra equity in the audited financial statements. Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 68–69.

FN97. Jeffrey Prosser testified that New ICC's employee benefit plans were underfunded prepetition, i.e. prior to July of 2007. See Transcript of 12/09/2008, Adv. Doc. No. 89, at 265. The audited financial statements establish that the benefit plans, in fact, had been underfunded for some time. The audited financial statements for 1999 and 2000 indicate that the "Salaried Pension Benefits" were underfunded in both years and the "Hourly Pension Benefits" were underfunded in 2000. TT190, at TT4 1637. In 1999, EmCom was the sponsor of the salaried pension plan, and New ICC was the sponsor of the hourly pension plan. Id. at TT4 1636. Subsequently, in 2000, New ICC was the sponsor of both plans. Id. According to the audited financial statements, the funded status of Salaried Pension Benefits and Hourly Pension Benefits remained underfunded in 2001, 2002, 2003, 2004, and 2005 (the last year of audited financial statements in evidence). See TT191, at TT4 1670; TT192, at TT4 1709; TT193, at TT4 1754; TT 194, at TT4 1803. The Pension Benefit Guaranty Corporation ("PBGC") filed proofs of claims on the basis that New ICC is a contributing sponsor of these underfunded pension plans. See Case No. 07–30012, Claim Nos. 40–45. New ICC's bankruptcy schedules also reflect the claims of the PBGC. See Case No. 07–30012, Doc. No. 292 (reflecting a contingent, unliquidated, disputed secured claim in the amount of $8,311,030.00 on Schedule D and a contingent, unliquidated, and disputed unsecured nonpriority claim in the amount of 104,400.00 on Schedule F).

FN98. Jeffrey Prosser testified that there was a justifiable reason for the cessation of payments to RTFC:

Q. Isn't it true that no payments were made after the beginning of 2004 to the RTFC, no affirmative payments in the form of sending debt service?

A. RTFC at ICC and VITELCO had a 60–million line matched by RTFC which they took and it was our position that when that account was taken, that it was used to make payments on the account.

Transcript of 12/09/2008, Adv. Doc. No. 89, at 265. Even if the cessation of payments was appropriate as Jeffrey Prosser contends, payments should have recommenced. See discussion infra at 90–93.

*34 In addition, by the terms of the Public Services Commission settlement order dated November 4, 1991, Jeffrey Prosser was prohibited from taking advances out of Vitelco, which was the wholly owned subsidiary of New ICC from which most of its cash flows were derived. See TT59; Testimony of Jeffrey Prosser, Transcript of 12/10/2008, Adv. Doc. No. 118, at 116–119. Rather than the prohibited "advances" (i.e., monies "due from shareholder" that would be repaid) Mr. Prosser took "distributions" from New ICC (a holding company, which received funds upstreamed from Vitelco) that reduced his equity to large negative numbers. By the end of 2005, over $150 million had been posted to the contra equity account and the total capital deficit reported was $292,679,000. See TT194, at TT4 1780.

Conclusion Regarding Badges of Fraud

We find that the Chapter 11 Trustee has met his burden of proof regarding actual fraudulent intent. He has provided substantial, clear and convincing FN99 evidence in support of several badges of fraud and avoidance of the transfers made to the Adult Prosser Children identified as occurring within the applicable two-year period is appropriate.

FN99. As noted in the text, supra note 82 and accompanying text, his burden was to a preponderance.

Recovery Pursuant to sec. 550

The Chapter 11 Trustee may recover transfers or the value of the transfers pursuant to sec. 550 "from (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee." The Bankruptcy Code imposes strict liability on both "initial transferees" and "entities for whose benefit such transfer was made". See In re Red Dot Scenic, Inc., 293 B.R. 116, 118 (S.D.N.Y.2003), aff'd, 351 F.3d 57 (2d Cir.2003).

The Adult Prosser Children contend that, to the extent the Trustee asserts that payments to third party vendors were fraudulent transfers (i.e., payments made by the ICC Debtors to third parties for the benefit of the Adult Prosser Children), "those actions fail because they are not parties to this suit." Post–Trial Brief, Adv. Doc. No. 102, at 15. The language of sec. 550 clearly provides that the Trustee may recover from the initial transferee or the entity for whose benefit the transfer was made or immediate or mediate transferees of the initial transferee.FN100

FN100. See 5–550 Collier on Bankruptcy para. 550.02 ("Thus, the trustee can recover from any combination of the entities mentioned above subject to the limitation of a single satisfaction. The trustee theoretically can recover from both the initial transferee of the debtor and any subsequent transferee, as well as from any entity for whose benefit the transfer was made—but the trustee's right to do so is limited by subsections 550(b), (c), (d) and (e).").

To determine whether an individual is an initial transferee, courts apply the "dominion and control" test. In re Red Dot Scenic, Inc., 293 B.R. 116,119 (S.D.N.Y.2003).FN101 When applying the dominion and control test, there is a distinction between the scenario where, for example, a debtor's check is paid directly to its principal's creditor (a one-step transaction) and where a check is issued to the principal who then pays his personal creditor (a two-step transaction). Id. In Red Dot, the creditor-defendant asserted that "under the dominion and control test, a principal who, for his own benefit, causes a corporate debtor to make a fraudulent transfer, should be considered an initial transferee under section 550(a)(1)." Id. The argument was premised on the fact that when the principal used his power as a principal to divert the corporate debtor's assets to a personal creditor, the principal exercised dominion and control over the funds thereby satisfying the requirement of the dominion and control test. Id. However, the principal did not exercise dominion and control over the funds after the transfer. Id. at 120. Citing to Rupp v. Markgraf, 95 F.3d 936 (10th Cir.1996), the court in Red Dot applied the conclusion that "the extent to which a principal has de facto control over the debtor before the funds are transferred from the debtor, and the extent to which the principal uses this control for his or her own benefit in causing the debtor to make the transfer, are not relevant considerations in determining the initial transferee under sec. 550." Red Dot, 293 B.R. at 120. The purpose behind this rationale is to avoid "the anomalous result that every agent or principal of a corporation would be deemed the initial transferee when he or she affected a transfer of property in his or her representative capacity.... Such a rule 'gives too much power to an unscrupulous insider to effect a transfer ... without allowing a trustee to have the means for avoiding the transfer for the benefit of the debtor's creditors.' " In re Video Depot, Ltd., 127 F.3d 1195, 1199 (9th Cir.1997)(internal citation omitted).

FN101. The "dominion and control" test is "highly-regarded precedent" and most courts have adopted the test. See In re Mervyn's Holdings, LLC, 426 B.R. 96,103 (Bankr.D.Del.2010); In re CVEO Corp., 327 B.R. 210, 216 (Bankr.D.Del.2005).

*35 Here, the evidence regarding transfers to or for the benefit of the Adult Prosser Children, including Jeffrey Prosser's testimony, established that Jeffrey Prosser was the insider controlling the amounts transferred and designating the recipients and beneficiaries of the transfers. His control and dominion over the funds transferred out of the ICC Debtors, however, was before the transfers occurred while he was acting in his representative capacity. Jeffrey Prosser had the final say as to how transactions were recorded by the company according to the testimony of the CFO. Regardless of the fact that transfers to the Adult Prosser Children were generally recorded by New ICC in its consolidated financial statements as contra equity transactions and treated as distributions by New ICC, once the transfers were made, Jeffrey Prosser no longer exercised dominion or control over them. Jeffrey Prosser attempted to report some of these transfers as income on his Schedule C.FN102 Nonetheless, there is no evidence that he exercised dominion or control over the transfers after they were made out of corporate accounts.

FN102. See supra note 58, addressing the years that Jeffrey and Dawn Prosser completed a Schedule C as part of their joint income tax returns and noting that only for the years 2004 through 2006 were both business income (as opposed to loss) and positive adjusted gross income reported.

In Video Depot, Hilton, the principal's creditor and the entity ultimately determined to be the initial transferee, contended that the transfer of funds out of the corporate debtor constituted a loan to the principal, thereby giving him control and dominion over the funds. See 127 F.3d at 1200. The court, however, found no evidence that the principal did, in fact, exercise control and dominion over the funds. The court stated, "Simply referring to the transfer as a 'loan' in the company ledger does not suffice, however, to demonstrate that at any point in time [the principal] exercised independent control over the funds." Id.FN103 The deciding factor was that the check was specifically designated for the principal's creditor. Id.

FN103. The court explained that the principal was not a transferee "[p]articularly in view of the fact that [he], as principal of Video Depot, could direct that the transfer be called anything he pleased in the company ledger," more substantial evidence of independent control would be necessary after the funds left the corporate account. Id.

The facts in Video Depot are similar to those presented here. Jeffrey Prosser decided what transfers to issue, how much to pay, who to pay, and for what purpose. Some of the payments were to his personal creditors. As relevant here, others were to insiders who were not owed anything by Jeffrey Prosser or by the companies. Nonetheless, once the funds left the corporate accounts, there is no evidence that Jeffrey Prosser exerted independent dominion and control over the funds after they were transferred, such that he could be considered a transferee. Rather, the initial transferees were either the Adult Prosser Children or their creditors or third parties paid for their benefit.

The evidence substantiates that each of the transfers at issue was made out of one of the ICC Debtors either directly to one of the Defendants or to a third party for the benefit of one of the Defendants. Section 550 permits a trustee to recover from an initial transferee or the entity for whose benefit the transfer was made.FN104 Although the Adult Prosser Children contend that they were not initial transferees, and in some cases where payments went directly to vendors or their creditors, they clearly were not, they were undeniably beneficiaries of the transfers which the Chapter 11 Trustee seeks to avoid and recover in this adversary proceeding.FN105 Moreover, a number of payments were made directly from New ICC to the Defendants, and those clearly were made to the Defendants as initial transferees. Additionally, New ICC made numerous payments for transportation services, American Express charges incurred by the Adult Prosser Children, and rental payments for properties where one or more of the Adult Prosser Children resided. New ICC's funds were used to purchase a Mercedes for Sybil Prosser. All of these were directly for the benefit of the Adult Prosser Children.

FN104. "Two frequently cited examples of an entity for whose benefit the transfer was made are (1) a guarantor of the debtor and (2) a debtor of the initial transferee." 5–550 Collier on Bankruptcy para. 550.02. Here, the latter applies. For example, where New ICC transferred funds directly to American Express (the initial transferee) for charges made by the Adult Prosser Children (debtors of the initial transferee), the Adult Prosser Children directly benefitted from the payment of their creditor.

FN105. "The distinction drawn in the statute between beneficiaries and initial transferees thus strongly indicates that, as a general rule, beneficiaries and initial transferees are separate parties to a fraudulent transfer." Red Dot, 293 B.R. at 121.

*36 The Trustee is entitled to avoid and recover the following payments made during the two-years prepetition pursuant to secs. 548(a)(1)(A) and 550: $161,695.40 from Justin Prosser, $205,359.93 from Sybil Prosser, $56,733.85 from Michelle LaBennett, and $104,132 .09 from Adrian Prosser (relating to the transfer to him from ICC–LLC).

Count II: To Recover Fraudulent Transfers Made by One or More of the ICC Debtors to or for the Benefit of One or More of the Defendants under Section 548(a)(l)(B) of the Bankruptcy Code

Although we found that the Chapter 11 Trustee established fraudulent intent, substantial evidence was introduced at trial regarding the financial condition of New ICC throughout the period that transfers were made to the Adult Prosser Children in support of a finding of constructive fraud. We address the Trustee's alternative theory for avoidance and recovery and, for the reasons that follow, find that the Trustee also met his burden to establish constructive fraud.

The Chapter 11 Trustee seeks to avoid transfers to the Adult Prosser Children pursuant to sec. 548(a)(1)(B), which provides:

The trustee may avoid any transfer ... of an interest of the debtor in property, or any obligation ... incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily

(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii) (I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;

(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;

(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or

(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.

11 U.S.C. sec. 548(a)(1)(B). It is the Trustee's burden to establish the elements set forth in sec. 548(a)(1)(B). Valley Bldg. & Constr. Corp., 435 B.R. at 287. The Trustee must establish the transfers were fraudulent by a preponderance of the evidence. Fruehauf, 444 F.3d at 211.FN106 As stated above, a trustee who avoids a transfer under this section can recover the property or value of the property transferred pursuant to the terms of sec. 550(a).

FN106. The burden of proof does not shift from the Trustee. See note 81 supra.

Reach Back Period

The Chapter 11 Trustee is limited to avoiding transfers that occurred within the two years prepetition. 11 U.S.C. sec. 548(a)(1)(A). Therefore, the same transfers which were identified in the court's analysis of Count I, above, as having occurred in that time period are applicable here.

Reasonably Equivalent Value

*37 In order to successfully avoid a transfer pursuant to sec. 548(a)(1)(B), the Chapter 11 Trustee must establish that the debtor "received less than a reasonably equivalent value in exchange for such transfer" in addition to one of the four alternatives enumerated above. We begin with the analysis of reasonably equivalent value. Within the Third Circuit, courts have defined "reasonably equivalent value" as follows:

"any benefit ... whether direct or indirect ... [which includes any] 'opportunity' to receive an economic benefit in the future." In re R.M.L., 92 F.3d 139, 148 (3d Cir.1996). To determine whether a benefit constitutes "reasonably equivalent value," courts routinely look to the "totality of the circumstances" of the transfer in balancing the following factors: (1) the "fair market value" of the benefit received as a result of the transfer, (2) "the existence of an arm's length relationship between the debtor and the transferee," and (3) the transferee's good faith. Fruehauf Trailer, 444 F.3d at 213 (quoting In re R.M.L., 92 F.3d at 148–149, 153).

In re TSIC, Inc., 428 B.R. 103, 113 (Bankr.D.Del.2010)."[B]efore determining whether the value was 'reasonably equivalent' to what the debtor gave up, the court must make an express factual determination as to whether the debtor received any value at all." In re R.M.L., 92 F.3d 139, 149 (3d Cir.1996). We have found the ICC Debtors received no value in exchange for the transfers. See note 96, supra.

Therefore, based upon the foregoing, we find that the Trustee met his burden as to the first element of 548(a)(1)(B). However, in order to avoid the transfers, in addition to proving that reasonably equivalent value was not received, the Chapter 11 Trustee must prove one of the following pursuant to sec. 548(a)(1)(B): (1) the debtor was insolvent on the date of the transfer or became insolvent as a result; (2) the debtor was engaged in or about to engage in a transaction for which its remaining property was unreasonably small capital; or (3) the debtor intended or believed it would incur debts beyond its ability to pay.FN107 We find that the Trustee so clearly established that the debtor intended or believed it would incur debts beyond its ability to pay, that we do not address the other grounds.

FN107. Section 548(a)(1)(B)(ii)(IV) provides a fourth alternative when a debtor will be deemed to have made constructively fraudulent transfers: when transfers are made to insiders under an employment contract and not in the ordinary course of business. That is not an issue in this adversary proceeding and is not addressed herein.

Debts Beyond Ability to Pay

For the reasons that follow, we find that New ICC intended to incur, or believed that it would incur, debts that would be beyond its ability to pay as such debts matured. The Chapter 11 Trustee asserts that New ICC "failed to generate sufficient cash to satisfy current and future obligations, such as its employee benefit plans and its indebtedness to the RTFC...." See Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 16.

Mr. Kanai testified that by April of 2005, New ICC had ceased making monthly payments of approximately $3.25 million toward its indebtedness to the RTFC. FN108 Transcript of 03/10/2009, Adv. Doc. No. 98, at 68. The money that had previously been used to make these monthly payments was instead "used for other corporate operations and activities ... in [the] receivables LLC account." Id. That is, at least a portion of the funds were being used to pay the non-business expenses of the Prosser family accumulated in the contra equity account (at times exceeding $1 million per month as explained supra at 55–56). A lawsuit was filed by the RTFC alleging defaults, which were, according to Jeffrey Prosser, "technical in nature, like not filing UCC's and so forth, not renewing UCC's." Transcript of 03/26/2009, Adv. Doc. No. 112–3, at 124.FN109 Jeffrey Prosser testified that he did instruct New ICC to cease making payments to the RTFC in 2005. Transcript of 03/26/2009, Adv. Doc. No. 112–3, at 125. However he contends that his instruction was based upon the RTFC seizing $60 million of New ICC's assets, and it was his position that the monthly payments would not recommence until that $60 million was used up. Id. at 125–26.FN110 Even, arguendo, were we to accept Jeffrey Prosser's testimony that the cessation of payments to the RTFC was appropriate "until the $60 million was used up", we note that, at the rate of $3.25 million per month, New ICC should have recommenced payments in approximately eighteen months, i.e. on or around September of 2006. This did not occur, and New ICC remained in default to the date of the filing of the involuntary petition in July of 2007.

FN108. See also Testimony of Kanai, Transcript of 03/10/2009, Adv. Doc. No. 98, at 69:

Q. During—let's just focus, let's see, that happened April of ′05, so let's focus generally on the time period of, from April of ′05 through ′06. So, is it fair to say that during that time period the monthly debt service payments to the RTFC did not resume?

A. Correct.

Q. All right. So, for that same time period, as chief financial officer of the company, can you tell me whether or not ICC was otherwise meeting its obligations as they came due?

A. Generally. Other than the RTFC.

Q. To your knowledge—so, at least during your tenure after April of ′05, did payments ever recommence, I guess is the right term, to the RTFC?

A. No, sir.

We note, however, that during this time period, the audited financial statements reveal that the pension plans were significantly underfunded. As of December 31, 2005, the audited financial statements provide that both the Salaried and Hourly Pension Benefits were underfunded in the amounts of $9,704,000 and $7,477,000, respectively. See TT 194, at TT4 1803.

FN109. The RTFC litigation was discussed by the board at the June 28, 2004, meeting. The minutes reflect the following discussion:

The Chairman then advised that the Rural Telephone Finance Cooperative (RTFC) had sued the Company on 1st June 2004 in the Federal District Court in Virginia claiming violations of a 2001 loan agreement. The basis for the suit appears to be that a claim that RTFC should have received the proceeds of the sale of preferred stock in Innovative Telephone (Vitelco). The Chairman held the view that while an RTFC agreement with ICC may give RTFC first call if ICC issues stock, Vitelco was not part of this agreement. He also informed the Board that ICC is not in default of any payments to RTFC.

The Chairman voiced his disappointment over the manner that RTFC had handled this matter. He said that RTFC had given no indication of concern over the proceeds of the preferred stock until the Judge's decision in the Greenlight matter was handed down, and then RTFC filed a suit without giving any notice.

The Board expressed concern about the RTFC law suit and hoped that efforts could be made to settle the issues with RTFC amicably.

The Chairman agreed that every effort should be made to settle, and he advised that Mr. Lanny Davis would be retained as legal counsel in this matter.

See Board Minutes of 06/28/2004, TT10, at TT 00225.

FN110. The nature of this alleged $60 million seizure was not fully developed on the record. It is clear that the parties dispute whether the $60 million constituted operating capital of New ICC:

Q. Well, you've referenced earlier—your word, not mine—that there was a seizure of capital by the RTFC. Isn't it true that the RTFC never seized any operating capital?

A. Yes, they did. They absolutely seized $60 million of the investment that we had. Yes, they did.

Q. That was not operating capital—

A. Oh, you call it what you want. All capital is capital.

Q. I'm asking you to answer my question. Isn't it true that the RTFC never seized any operating capital of New ICC?

A. Again, I disagree with that.

[....]

Q. Isn't it true, Mr. Prosser, that what you're referring to is patronage capital that stayed with the RTFC?

A. Part of it; and part of it was SCC's.

Q. Was the FCC's?

A. SCC; another type of capital certificate.

Q. And it stayed with the RTFC, correct?

A. Well, the SCC—no. Those stock certificates would be with us, with ICC.

Q. But any funds remained with the RTFC, correct—were already with the RTFC, correct?

A. Yes, but it doesn't matter where—you can have a number of different funds, of operating funds. It doesn't have to be one place.

Q. And it wasn't New ICC's operating money; it was actually a percentage of the initial facility that stayed with the RTFC as a result of the patronage capital requirements?

A. Well, that's not true. That's not an accurate description. That's not what patronage capital certificates are. SCC's are that.

Q. Did you ever have access to that, those funds for New ICC's daily operations?

A. The—which ones?

Q. The patronage capital.

A. Did we ever have access to it? Patronage capital was paid out every year. So we would have access to it, yes.

Q. You're talking about a dividend now from the RTFC?

A. Which is what patronage capital certificates are.

Q. So they didn't pay you a dividend, and so you consider that a seizure?

A. No, that's not true. That isn't what I said.

See Testimony of Jeffrey Prosser, Transcript of 03/26/2009, Adv. Doc. No. 112–3, at 153–55. The testimony does not clarify the nature of the patronage capital or whether it was appropriate for New ICC to treat the alleged $60 million seizure as prepayment.

*38 New ICC was not current with its obligations. Jeffrey Prosser testified that prior to New ICC's bankruptcy filing, its employee benefit plans were underfunded.FN111 Transcript of 12/09/2008, Adv. Doc. No. 89, at 265. The audited financial statements for 1999 and 2000 indicate that the "Salaried Pension Benefits" were underfunded in both years and the "Hourly Pension Benefits" were underfunded in 2000.FN112 The funded status of Salaried Pension Benefits and Hourly Pension Benefits remained underfunded in 2001, 2002, 2003, 2004, and 2005, and up to the petition date. See TT191, at TT4 1670; TT192, at TT4 1709; TT193, at TT4 1754; TT194, at TT4 1803. See also note 97 and accompanying text. Therefore, the employee benefit plans were underfunded throughout the time period when New ICC was making the transfers at issue.

FN111. We note that the Bankruptcy Code defines "debt" as "liability on a claim." See sec. 101(12). Claim is very broadly defined:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

11. U.S.C. sec. 101(5).

FN112. Funded Status of the Salaried Pension Benefits in 1999 was negative $4,232,000 and negative $4,037,000 in 2000. TT190, at TT4 1637. Hourly Pension Benefits funded status in 2000 was negative $1,450,000. Id. By 2005, the Salaried Pension Benefits' funded status was negative $9,704,000, and the Hourly Pension Benefits' funded status was negative $7,477,000. TT194, at TT4 1803.

The pension benefits remained underfunded as personal transfers continued to be made to or for the benefit of the Prosser family in excess of the paid-in capital and profits of the corporation. See Testimony of Barbee, Transcript of 03/24/2009, Adv. Doc. No. 112–1, at 204. Thus, the Chapter 11 Trustee has established that the transfers continued when the debtor intended to incur and believed it would incur debts that were beyond its ability to pay as they matured.

As an alternative to actual fraudulent intent alleged in Count I, the trustee also established that avoidance is appropriate pursuant to a finding of constructive fraud and recovery is warranted pursuant to sec. 550 for the reasons stated relating to Count I. However, as the same transfers were at issue in Count I, Count II does not provide a basis for additional recovery but rather is an alternative basis for recovery.

Counts III, IV, and V: To Recover Fraudulent Transfers Made by One or More of the ICC Debtors to or for the Benefit of One or More of the Defendants under Section 544 of the Bankruptcy Code and New York Law, Florida Law, and U.S.V.I. Law

The Chapter 11 Trustee also claims he is entitled to avoid transfers made to the Adult Prosser Children pursuant to state law. Although the Trustee successfully avoided transfers pursuant to 11 U.S.C. sec. 548, a trustee is limited to avoiding and recovering transfers made within the two years prepetition under that section of the Bankruptcy Code. In this action, the Trustee is seeking to avoid and recover transfers which occurred beyond this time period. Depending upon applicable state law, a trustee may be able to avoid and recover transfers which occurred beyond the limitations set forth in sec. 548.

Section 544(b)(1) of the Bankruptcy Code provides the trustee with the power to "avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title." For the reasons stated herein, we find that the law of the Virgin Islands has the most significant relationship with the transfers at issue and is applicable for purposes of sec. 544(b)(1) of the Bankruptcy Code.

Identification of Creditors

*39 In order for a trustee to succeed under sec. 544(b), the trustee must show (i) the existence of an actual creditor, (ii) with an allowable unsecured claim, (iii) who, under applicable law, could avoid all or part of the transfer. See 11 U.S.C. sec. 544(b). "It is well settled that 'a trustee ... can use this power only if there is an unsecured creditor of the debtor that actually has the requisite nonbankruptcy cause of action." In re DBSI, Inc., 2011 Bankr.LEXIS 791, at *14 (Bankr.D.Del. Feb. 11, 2011) (quoting In re Cybergenics Corp., 226 F.3d 237, 243 (3d Cir.2000)). Notwithstanding applicable state law, the trustee's avoidance powers are not limited to the amount that the actual creditor could have recovered. Grubbs Construction Co. v. The Florida Department of Revenue, 321 B.R. 346, 351 (Bankr.M.D.Fla.2005) (citing to Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133 (1931)). The trustee may avoid the entire transfer.

The Chapter 11 Trustee identified both the Greenlight Entities and Comstar, Inc. ("Comstar") as holders of claims that are not subject to a bona fide dispute. See Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 104, at paras. 81–83.FN113 The Greenlight Entities obtained a judgment against, inter alios, ICC–LLC and New ICC's predecessor in interest on January 9, 2006, based upon claims originating from a transaction which took place in 1998. TT44. This court found that "each of the Greenlight entities is a holder of a claim against New ICC that is not the subject of a bona fide dispute." See Order Granting Greenlight's Motion for Summary Judgment and Entry of Order for Relief Pursuant to 11 U.S.C. sec. 303(f), Fed.R.Bankr.P. 1018 and 7056 and Fed.R.Civ.P. 56, Case No. 07–30012, Doc. No. 72. Comstar sold internet type equipment to New ICC beginning in 2001. See Testimony of Lunger,FN114 Deposition of 08/14/2008, at 7 (admitted in this proceeding, see TT203). Comstar is listed in New ICC's bankruptcy schedules as a creditor holding an unsecured priority claim in the amount of $26,989.80. See Case No. 07–30012, Doc. No. 915.FN115 Thus, the Chapter 11 Trustee has identified two creditors in existence.FN116

FN113. In their Post–Trial Brief, the Adult Prosser Children contend, without explanation, that Comstar and Greenlight "do not constitute valid sec. 544(b) creditors and none in fact exist." Adv. Doc. No. 102, at 13–14.

FN114. William Reed Lunger is the President of Comstar, Inc. See Deposition of 08/14/2008, at 5.

FN115. The court took judicial notice of New ICC's amended schedules at trial on March 24, 2009. See Transcript of 03/24/2009, Adv. Doc. No. 112–1, at 222.

FN116. Although the PBGC filed proofs of claims on the basis of underfunded pension plans, the Trustee did not identify the PBGC as a creditor for purposes of sec. 544(b). See note 97 supra.

Because the action is based upon sec. 544, the court must determine which state's fraudulent conveyance law applies. In the Complaint, the Chapter 11 Trustee has asserted that the laws of New York, Florida, and the Virgin Islands are applicable. Adv. Doc. No. 1, at paras. 34–63. He does not, however, state how these laws are applicable to the transfers at issue, whether there is a true conflict among the laws, and if so, which law has the most significant relationship to the facts of this case.

Applicable State Law

Bankruptcy courts must apply the choice of law rules of the state in which the court sits. See In re PHP Healthcare Corp., 128 Fed. Appx. 839, 843 (3d Cir.2005). This case is pending in the Virgin Islands. By statute, the Virgin Islands applies the Restatement (Second) of Conflict of Laws (hereinafter "Restatement").FN117 In determining applicable substantive law, the court shall apply the governing principles found in the Restatement as there is no local law to the contrary. Benjamin v. Eastern Airlines, Inc., 18 V.I. 516, 519 (D.C.V.I.1981).

FN117. "The rules of the common law, as expressed in the restatements of the law approved by the American Law Institute, and to the extent not so expressed, as generally understood and applied in the United States, shall be the rules of decision in the courts of the Virgin Islands in cases to which they apply, in the absence of local laws to the contrary." 1 V.I.C. sec. 4. "The Territory of the Virgin Islands possesses a unique status in American jurisprudence because of its adoption of the American Law Institute's ... Restatements of Law as its primary rules of decision 'in the absence of local laws to the contrary.' " In re Manbodh Asbestos Litigation Series, 47 V.I. 215, 226 (V.I.Super.Ct.2005). "To identify the applicable common law in those circumstances, the language of title 1, section 4 directs courts to examine first 'the restatements' and second, only to the extent not so expressed in a Restatement, the common law as understood and applied in the decisions of the courts of the United States. In spite of this seemingly clear directive, there can be little argument that title 1, section 4 is ambiguous, as the phrase 'in the absence of local laws to the contrary,' is susceptible to being understood in two or more ways. To date, courts have interpreted 'local laws' to include both legislation and common law precedent." Id. at 226–27.

Thus, by statute, the Virgin Islands applies the Restatement (Second) of Conflict of Laws. See Benjamin, 18 V.I. at 519 (applying Restatement (Second) Conflict of Laws to determine applicable law in the absence of local laws to the contrary).

*40 The fraudulent conveyance laws of all three jurisdictions at issue are similar in nature. In fact, New York and the Virgin Islands both adopted the Uniform Fraudulent Conveyance Act ("UFCA"). Florida's statute conforms with the Uniform Fraudulent Transfer Act ("UFTA"). Both are products of the National Conference of Commissioners on Uniform State Laws, and UFTA revised UFCA. To the extent there is a conflict, we apply the conflict of law rules of the Restatement pursuant to Virgin Islands law. Fraudulent conveyance claims sound in tort.FN118 Pursuant to the Restatement:

FN118. See Fountain Valley Corporation v. Wells, 98 F.R.D. 679, 684 (D.Vi.1983).

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in sec. 6.

(2) Contacts to be taken into account in applying the principles of sec. 6 to determine the law applicable to an issue include:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

Restatement (Second) Conflict of Laws sec. 145. Section 6 of the Restatement provides the following factors to consider:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

As explained in detail, supra, numerous transfers were made by New ICC to or for the benefit of the Adult Prosser Children. These included a number of direct payments to each of the Defendants, American Express payments for a variety of charges in various locations, transportation expenses, the purchase of a vehicle in California, and rental payments for residences in two different states and even in a different country. All of the transfers out of New ICC have a connection to the Virgin Islands, as each transfer was a payment made out of a Virgin Islands corporation .FN119 Given that the creditors of New ICC are the entities who are suffering the injury and those creditors' dealings were with New ICC, a Virgin Islands corporation, (not with any of the Adult Prosser Children individually), application of Virgin Islands law best satisfies the protection of their justified expectations.FN120 It is unlikely that the creditors would expect that the local law of any state where the corporation arbitrarily sent funds or where funds were used by the Adult Prosser Children to be applicable, especially where the creditors were unaware of transfers to or for the benefit of the children of the CEO and ultimate shareholder. While the creditors of New ICC were located (and therefore injured) in various places,FN121 the conduct causing the injury was that of New ICC, a Virgin Islands corporation. The Adult Prosser Children resided in several states during the relevant time period, and, in the case of Michelle LaBennett, even in a different country. Regardless of where the Adult Prosser Children were located or spent the funds, the operative conduct was the transfer of funds from a Virgin Islands corporation. The conduct at issue is a pattern of conduct that continued for years. That is, Jeffrey Prosser, FN122 the Chairman of the Board, President, and CEO of the company, controlled New ICC and caused the company to make transfers to or for the benefit of the Defendants. Application of Virgin Islands law will provide uniformity in result as to all the transfers at issue. It is the place where the relationship between the parties is centered. Thus, the Virgin Islands has the most significant connection to these transfers and its law will be applied.

FN119. All transfers at issue were made by New ICC, except for one transfer made to Adrian Prosser by ICC–LLC. ICC–LLC is a Delaware limited liability company. ICC–LLC's voluntary Chapter 11 Petition lists its street address as a Virgin Islands address. See Jeffrey Prosser's SOFA, TT1, at TT00006; Voluntary Petition, Case No. 06–30008, Doc. No. 1. Therefore, ICCLLC also has a connection to the Virgin Islands. Furthermore, we note that the funds for the transfer originated out of New ICC. See note 57, supra.

FN120. The Restatement directs the court to examine the following contacts: "(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered." See Restatement (Second) Conflict of Laws sec. 145. The principles to be considered in light of these contacts include: "(a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested parties states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied." See Restatement (Second) Conflict of Laws sec. 6.

FN121. In his bankruptcy schedules, Jeffrey Prosser identifies Greenlight as having a New York address. See TT5, at TT00046 (Schedule F). The president of Comstar provided a business address in Minnesota. See 08/14/2008 Deposition of Lunger, at 4–5.

FN122. We note that Jeffrey Prosser considered St. Croix as his domicile. See TT 160 (The Last Will and Testament of Jeffrey J. Prosser, dated January 12, 2000).

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Application of Virgin Islands Fraudulent Conveyance Law

*41 The Virgin Islands adopted the Uniform Fraudulent Conveyance Act ("UFCA"). There is a dearth of case law interpreting the territory's fraudulent conveyance statutes. However, 28 V.I.C. sec. 212 provides, "This subchapter shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those jurisdictions which enact it." Therefore, in the absence of interpretation by the courts of the Virgin Islands, we look to other case law interpreting and applying UFCA.FN123 We also note that the elements of an avoidable transfer under UFCA do not substantially differ from 11 U.S.C. sec. 548(a)(1)(B). See In re Charys Holding Co., 443 B.R. 628, 636 (Bankr.D.Del.2010).

FN123. Many states that had adopted UFCA have repealed it and replaced it with the Uniform Fraudulent Transfer Act (UFTA).

Intentional Fraud

"Every conveyance made ... with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." 28 V.I.C. sec. 207. A "creditor" is defined as "a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent ." 28 V.I.C. sec. 201. States that have adopted UFCA have required a showing of actual fraudulent intent by clear and convincing evidence .FN124

FN124. The applicable standard of proof has not been set forth in the case law of the Virgin Islands. In order to find actual fraudulent intent under UFCA as enacted in New York, "[a]ctual fraud ... must be proven by clear and convincing evidence.... There is a dispute as to the appropriate standard of proof required to prove constructive fraud...." Fannie Mae v. Olympia Mortg. Corp., No. 04–CV–4971, 2011 U.S. Dist. LEXIS 63564, *13–14 (D.N.Y .2011) (citing to a case applying the preponderance of the evidence standard and a case applying the clear and convincing evidence standard to constructive fraud claims). Before Pennsylvania repealed its version of UFCA, actual intent was to be established by clear and convincing evidence. See In re Foxcroft Square Co., 184 B.R. 671, 674 (E.D.Pa.1995). We apply the clear and convincing evidence standard to the Trustee's UFCA claims.

When it is asserted that a conveyance was made with actual intent to hinder, delay, or defraud creditors, a showing of insolvency is not necessary in order for the conveyance to be set aside. See Williams v. Vialet, Civil No. 77–95, 1982 U.S. Dist. LEXIS 18368, at *2, n. 1 (D.V.I. Mar. 25,1982).FN125 Fraud need not be established by direct evidence, but rather can be proven by recognized badges of fraud. Id. at *3–4. Suspicion may arise when the evidence supports a finding of a single badge of fraud, but the presence of several badges of fraud may establish an act to defraud conclusively when evidence of a clear legitimate, supervening purpose is lacking. In re Prichard, 361 B.R. 11, 17 (Bankr.D.Mass.2007). "Although the intent must exist at the time the transfer was made, it may be shown by conduct subsequent to the execution of the conveyance of such a nature as to show fraud in its inception.' " United States v. Doyle, 276 F.Supp.2d 415, 430 (W.D.Pa.2003)(quoting United States v. Kudasik, 21 F.Supp.2d 501, 507 (W.D.Pa.1998)). Where badges of fraud are present, the well-settled rule is that the burden shifts to the parties seeking to uphold the transfer to rebut the inferences created. See Williams, 1982 U.S. Dist. LEXIS 18638 at *4.

FN125. Although the court in Williams begins to address the requirements for setting aside a conveyance on the basis of a transferor's insolvency pursuant to 28 V.I.C. secs. 202 and 204, ultimately the court analyzes common badges of fraud. 1982 U.S. Dist. LEXIS 18638, at *3–7.

Among the badges of fraud are transfers made in anticipation of a lawsuit being filed against the transferor and transfers for less than fair consideration between family members. Williams, 1982 U.S. Dist. LEXIS 18638, at *4–5. As previously stated, major litigation involving Greenlight was ongoing since 1999, and the RTFC commenced an action against New ICC in 2004. Furthermore, we note that Jeffrey Prosser used corporate funds for the benefit of his children. "The relationship of parent and child when coupled with other suspicious circumstances may be sufficient to raise an inference of fraud in the conveyance." Williams, 1982 U.S. Dist. LEXIS 18638, at *5 (quoting Johnson v. Drew, 218 Cal.App.2d 614, 621, 32 Cal.Rptr. 540 (Cal.App.2d Dist.1963)). Here, although Jeffrey Prosser was not the transferor, he caused New ICC to transfer funds to his children, who are also insiders of the ICC Debtors. See 11 U.S.C. sec. 101(31)(B) (defining "insider" for purposes of the Bankruptcy Code). In addition, the same badges of fraud analyzed for purposes of sec. 548(a)(1)(A) apply here.FN126 We found that several badges of fraud exist to support a finding of actual fraud to hinder, delay, or defraud creditors pursuant to sec. 548(1)(1)(A). See discussion supra at 74–83. The Trustee has met his burden and established fraudulent intent by clear and convincing evidence. Thus, the Trustee is entitled to avoid transfers made prior to the expiration of the limitations period pursuant to 11 U.S .C. sec. 544(b)(1) and 28 V.I.C. sec. 207, see discussion, infra.

FN126. "The factors considered in a fraudulent conveyance action under the UFCA are similar to the factors considered in a fraudulent conveyance action under 11 U.S.C. sec. 548(a)." See In re Prichard, 361 B.R. 11, 16–17 (Bankr.D.Mass.2007).

Constructive Fraud

*42 For the reasons that follow, we find that the Chapter 11 Trustee established constructive fraud pursuant to UFCA, the applicable law in the Virgin Islands.

Fair Consideration

UFCA provides three circumstances when a transfer will be deemed fraudulent without evidence of actual intent. As in the Bankruptcy Code, the three circumstances require either a showing of insolvency, unreasonably small capital, or debts beyond the debtor's ability to pay. Each of the three require a finding that the transfer was made without "fair consideration." UFCA deems "fair consideration" to be given in exchange for property or an obligation when one of two elements is met:

(a) When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or

(b) When such property, or obligation, is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

28 V.I.C. sec. 203.

We have already concluded that reasonably equivalent value was not given in exchange for these transfers. See note 96 and discussion supra at 89–90. In fact, we can identify no value provided in exchange and thus no "fair value" was given in exchange for the transfers to the Adult Prosser Children.

Because the Trustee so clearly established that the company intended or believed that it would incur debts beyond its ability to pay, we address only this ground for avoiding constructively fraudulent transfers pursuant to the applicable Virgin Island's law.

Debts Beyond Ability to Pay

"Every conveyance made ... without fair consideration when the person making the conveyance ... intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." 28 V.I.C. sec. 206. A debt is "any legal liability, whether matured or unmatured, liquidated or unliquidated, fixed or contingent. See 28 V.I.C. sec. 201.

In Nirvana, the court addressed this provision of UFCA, adopted in New York as a section of the New York Debtor and Creditor Law:

It has been observed that sec. 275, like NYDCL secs. 273 and 274, involves constructive fraud, and may invalidate a conveyance "without regard to any actual intent to defraud on the part of the grantor or transferor." 30 N.Y. JUR. 2D, CREDITORS' RIGHTS AND REMEDIES, sec. 338, at 445 (1997); see Sullivan v. Messer ( In re Corcoran), 246 B.R. 152, 159 (E.D.N.Y.2000)("the intent of the parties to the transaction is irrelevant"); MFS/Sun, 910 F.Supp. at 936. While true, it only tells part of the story. Section 275 requires proof of the debtor's subjective intent or belief that it will incur debts beyond its ability to pay as they mature. See MFS/Sun Life, 910 F.Supp. at 943 (noting support for the view that sec. 275 requires proof of subjective intent); 58th Street Plaza Theatre, Inc., 287 F.Supp. at 498 (finding that corporate taxpayer fraudulently transferred property under NYDCL sec. 275 when insider knew that the corporation would be unable to pay the federal tax claims if they were upheld); In re Best Prods. Co., 168 B.R. 35, 52 n. 28 (Bankr.S.D.N.Y.1994)(N.Y.DCL sec. 275 requires proof of the transferor's subjective belief that it will incur debts beyond its ability to pay); aff'd 68 F.3d 26 (2d Cir.1995); Julien J. Studley, Inc. v. Lefrak, 66 A.D.2d 208, 412 N.Y.S.2d 901, 907 (N.Y.App.Div.)(reversing lower court judgment dismissing complaint where, inter alia, the transfers "were made when the corporations knew that debts [w]ould be incurred beyond their ability to pay as the debts matured (see Debtor and Creditor Law, sec. 275)"), aff'd, 48 N.Y.2d 954, 401 N.E.2d 187, 425 N.Y.S.2d 65 (N.Y.1979); see generally PETER A. ALCES, LAW OF FRAUDULENT TRANSACTIONS sec. 5:47 (updated Nov. 2005), available at Westlaw, FRAUDTRAN sec. 5:47(under UFCA sec. 6, "the complaining creditor must show that the grantor subjectively believed or actually intended that he would incur debts he could not satisfy").

*43 See Nirvana, 337 B.R. at 508–509.

For the same reasons expressed when we addressed Count II, we find that New ICC intended to incur debts beyond its ability to pay as they matured. We find that the continuous underfunded status of the pension plans is alone sufficient evidence of subjective intent. In addition, we find the non-payment of the RTFC even after the alleged seizure of $60 million was recouped through lack of monthly payments, is further evidence of intent. Therefore, the Trustee has established the transfers as fraudulent pursuant to 28 V.I.C. sec. 206.

Statute of Limitations

There are two time requirements implicated when a trustee files an avoidance action under sec. 544(b). If the creditor in whose place the trustee stands under sec. 544(b) would have been barred by the statute of limitations on the bankruptcy petition date, then the trustee may not proceed. See In re Bernstein, 259 B.R. 555, at 559 (Bankr.D.N.J.2001). However, if the limitations period did not expire with respect to the creditor as of the petition date, then sec. 546(a) provides the trustee with a two year period after the entry of the order for relief in which to bring an avoidance action. Id. at 558–59.

Therefore, we address the relevant dates as to both ICC–LLC, relating to the transfer made to Adrian Prosser, and as to New ICC, relating to multiple transfers to the Adult Prosser Children. ICC–LLC's voluntary petition was filed on July 31, 2006, and the commencement of the voluntary case constituted an order for relief. See sec. 301(b).FN127 New ICC's involuntary case was commenced on July 5, 2007, and the order for relief in New ICC's involuntary bankruptcy case was entered on September 21, 2007. This adversary proceeding was commenced on February 8, 2008. Therefore, it is clear that Trustee Springel timely filed his complaint under sec. 546(a) as to those transfers made by ICC–LLC and New ICC for which the statute of limitations had not expired prior to the respective petition dates.

FN127. Prior to the filing of the voluntary petitions in the District Court of the Virgin Islands, Bankruptcy Division, involuntary petitions were filed against ICC–LLC, Emerging, and Jeffrey Prosser in the District of Delaware on February 10, 2006. An Order was entered on December 14, 2006, transferring the involuntary cases to the Virgin Islands. See Case No. 06–30008, Doc. No. 193. The court noted in its accompanying December 14, 2006, Memorandum Opinion:

An order will be entered transferring the involuntary cases to the USVI where they will be related to the voluntary cases now filed in the USVI. Because the orders for relief have been entered in the voluntary cases in the USVI, it appears that, after the involuntaries are transferred, no further action will be needed in the involuntary cases and they can be closed.

See Case No. 06–30008, Doc. No. 192. Section 546 provides that actions pursuant to sec. 544 must be commenced prior to two years after the entry of the order for relief. For ICC–LLC, the commencement of its voluntary case constituted the order for relief.

In the Virgin Islands, a two year statute of limitation applies to "an action for libel, slander, assault, battery, seduction, false imprisonment, or for any injury to the person or rights of another not arising on contract and not herein especially enumerated...." 5 V.I.C. sec. 31(5). Inasmuch as a fraudulent conveyance claim sounds in tort, a two year statute of limitations applies. Fountain Valley Corporation v. Wells, 98 F.R.D. 679, 684 (D.Vi.1983). However, there is a tolling provision in the statute. Pursuant to 5 V.I.C. sec. 32(c), "[i]n an action upon a new promise, fraud, or mistake, the limitation shall be deemed to commence only from the making of the new promise or the discovery of the fraud or mistake." Moreover, pursuant to the statute, the Virgin Islands applies the discovery rule, such that the limitations period will commence either when the plaintiff discovers the fraud or when the plaintiff reasonably should have discovered the fraud. Montgomery v. Estate of Griffith, 49 V.I. 255, 265 (V.I.Super.Ct.2008).FN128

FN128. The Adult Prosser Children assert that the court consider the following in interpreting when the creditors should have reasonably discovered the fraud:

Additionally, at least one bankruptcy court has cited the Supreme Court of New Jersey for its "holding that '[i]n our view, a reasonable creditor would perform an asset search when the loan goes into default.' " In re Bernstein, 259 B.R. 555, 560 (Bkrtcy.D.N.J.2001) quoting ASCO 1997 NI, LLC v. Zudkewich, 166 N.J. 579, 767 A.2d 469, 476 (N.J.2001).

Post–Trial Brief, Adv. Doc. No. 102, at 14. However, it is not clear how this applies to the transfers to or for the Adult Prosser Children. There was no public record of these transfers. Even the financial statements did not reflect that transfers were made to or for the benefit of the Adult Prosser Children. An "asset search" would not have revealed these transfers, which were not recorded as receivables of the Adult Prosser Children in the corporate records.

*44 There is no evidence indicating how a creditor of New ICC would be aware of the numerous and substantial funds which were being transferred to or for the benefit of the Adult Prosser Children on a regular basis. Although there is no evidence that the creditors of New ICC (other than the RTFC) had access to the consolidated audited financial statements, even if they had, the financial statements do not indicate the specifics or nature of the transfers recorded as contra equity.FN129 For example, the audited financial statement for the year ended December 31, 2001, (the first year that the contra equity account was implemented) simply designate $111,049,000 as "Notes and Accounts Receivable from Stockholder" reducing equity. The auditor's note does not provide detail regarding the nature of the transactions. The note simply states:

FN129. In response to a question about whether the treatment of distributions as contra-equity was appropriate, Mr. Barbee mentioned that the audited financial statements were provided to "the stakeholders of the company, including creditors, I believe Including the RTFC...." See Transcript of 03/24/2009, Adv. Doc. No. 112–1, at 95. However, he later corrected this statement:

Q. And Mr. Abood [counsel for Mr. Prosser in the Turnover Action] asked you, before, some questions about the audited financials. You don't have personal knowledge of who may or may not have received those audited financial statements, do you?

A. The documents that I have reviewed from the RTFC indicate that they had certain of the audited financial statements. I do not have personal knowledge of whether the RTFC received them.

Q. And what about anybody other than the RTFC; you don't have personal knowledge of whether or not they received the audited financial statements, do you?

A. No.

Id. at 189, 767 A.2d 469. Furthermore, the court noted on the record that there was no evidence that any creditor ever saw the company's books and records. Id. at 324, 767 A.2d 469. Mr. Goldman contended that, nevertheless, there was no evidence that creditors were denied access to the books of the company. Id. The Court agrees. Likewise, there was no testimony that any other creditor asked to see them or that the company would have permitted open access to its financial records.

As part of the reorganization of ICC, a related party note receivable from the stockholder of the Parent of approximately $21.6 million was acquired as well as a note from the Parent of $58.1 million. Effective December 31, 2000, the Company grouped these notes, as well as the related accrued interest on them and other advances for shared costs through that date, aggregating approximately $111.0 million, and reclassified the notes and accounts receivable from stockholder to the capital deficit section on the consolidated balance sheet. No interest income was accrued in 2001.

See TT4–1664. Even the board members did not understand the nature of these transactions. One board member incorrectly believed that the huge sums paid to or on behalf of the Prossers and recorded in the financial statements as "contra equity" were actually reimbursements to Jeffrey Prosser for business expenses, when, in fact, contra equity reflected non-business expenditures to or on behalf of Jeffrey Prosser and his family.FN130 Furthermore, Mr. Lunger, the president of one of New ICC's creditors, Comstar, testified that he was unaware of any transactions between the ICC Debtors and the Adult Prosser Children. Deposition of 08/14/2008, at 7–9. He was unaware of whether any of these transactions were approved by the board. Id. at 9. Furthermore, he was unaware of the contra equity account and the due from accounts from which it developed. Id. at 10. Non-business transactions would have been of interest to Mr. Lunger as they related to New ICC's internal controls and ability to pay Comstar. Id. at 14–15, 16–17.

FN130. See Exemption Trial Testimony of Raynor, Transcript of 09/09/2008, at 121 (admitted in this proceeding, see TT203):

Q. Well, let me ask you this, sir. As a board member did you know that New ICC was paying credit card charges for Dawn and the children of Mr. Prosser for their personal purchases?

A. I had no idea of that.

(Pause)

Q. As a member of New ICC's board of directors did you know whether New ICC ever paid for jewelry that was purchased for Mrs. Prosser?

A. No, I have no idea of that.

See also Exemption Trial Testimony of Goodwin, Transcript of 09/08/2008, at 189–190:

Q. Were you familiar with—had you ever—did you have any discussions at the Board meetings in 1999, 2000 about what we refer to as a contra-equity account?

A. Oh yeah, I think that those accounts were where expenses were paid and compensated for.

Q. Okay, that was my next question. Can you tell the Court generally in your recollection of what the contra-equity account is or was at that time?

A. Well, it was when get paid, [ sic ] I believe, expenses that were deemed to be company expenses and he was compensated for those payments if it had come from him personally. That's essentially what it was, just to compensate him for his having borne certain expenses of the company.

Therefore, the evidence establishes that, without review of the internal books and records of New ICC, there was no way for the board or any creditor to discover the fraudulent transfers out of New ICC. Even if one or some of the creditors had access to the audited financial statements, the fact that New ICC was making transfers to or for the benefit of the Defendants is not explained and it is not evident. Because, as Jeffrey Prosser admitted, he totally controlled the board through his sole ability to replace board members and to constitute the boards, no one could reasonably have discovered the nature of the transfers until Jeffrey Prosser was no longer in control. That event occurred when the Chapter 11 Trustee was appointed in ICC–LLC's bankruptcy case on March 15, 2007 and in New ICC's bankruptcy case on October 4, 2007. Thus, the two year statute of limitations is deemed to commence on the date when the plaintiff could reasonably have discovered the fraud. Here, we found that to be no earlier than appointment of the Trustee, even for the transfers which occurred in 1999. The fraudulent conveyance action was filed on February 8, 2008, well within the two year time period from the date the fraud reasonably could have been discovered.

*45 The prepetition, non-business transfers to or for the benefit of the Adult Prosser Children occurring from 1999 through 2007 are avoidable pursuant to sec. 544(b) and the applicable law of the Virgin Islands. The same may be recovered pursuant to sec. 550 for the reasons already stated. The Trustee is entitled to recover the following: $161,695.40 from Justin Prosser, $326,061.49 from Sybil Prosser, $249,462.39 from Michelle Prosser, and $159,508.52 ($55,376.43 on behalf of New ICC and $104,132.09 on behalf of ICC LLC) from Adrian Prosser. A portion of these amounts reflect transfers which occurred during the two years prepetition as addressed in Counts I and II. The Trustee is limited to a single satisfaction. Therefore, his ability to recover for prepetition transfers is limited to the amounts stated under this Count, which include all prepetition transfers at issue.

To the extent that the District Court disagrees and does not find tolling applicable, we find that, pursuant to the two year statute of limitations applicable in the Virgin Islands, the Trustee has established that the transfers identified for purposes of Count I (limited to transfers made during the two years prepetition FN131) are also avoidable and recoverable by the Trustee pursuant to Virgin Islands law as an alternative basis for recovery: $161,695.40 from Justin Prosser, $205,359.93 from Sybil Prosser, $56,733.85 from Michelle LaBennett, and $104,132.09 from Adrian Prosser (relating to the transfer to him from ICC–LLC).

FN131. If the creditor in whose place the trustee stands under sec. 544(b) would have been barred by the statute of limitations on the bankruptcy petition date, then the trustee may not proceed. See In re Bernstein, 259 B.R. 555, at 559 (Bankr.D.N.J.2001). However, if the limitations period did not expire with respect to the creditor as of the petition date, then sec. 546(a) provides the trustee with a two year period after the entry of the order for relief in which to bring an avoidance action. Id. at 558–59.

Count VI: To Recover Unauthorized Post–Petition Transfers Made by One or More of the ICC Debtors to or for the Benefit of One or More of the Defendants under Section 549 of the Bankruptcy Code

Trustee Springel asserts that transfers made by one or more of the ICC Debtors on or after their respective petition dates to or for the benefit of one or more of the Defendants should be avoided pursuant to sec. 549. Complaint, Adv. Doc. No. 1, at paras. 64–68. Section 549(a),(b) permits avoidance of postpetition transfers as follows:

(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate—

(1) that occurs after the commencement of the case; and

(2)(A) that is authorized only under section 303(f) FN132 or 542(c) FN133 of this title; or (B) that is not authorized under this title or by the court.

FN132. "Notwithstanding section 363 of this title, except to the extent that the court orders otherwise, and until an order for relief in the case, any business of the debtor may continue to operate, and the debtor may continue to use, acquire, or dispose of property as if an involuntary case concerning the debtor had not been commenced." 11 U.S.C. sec. 303(f).

FN133. "Except as provided in section 362(a)(7) of this title, an entity that has neither actual notice nor actual knowledge of the commencement of the case concerning the debtor may transfer property of the estate, or pay a debt owing to the debtor, in good faith and other than in the manner specified in subsection (d) of this section, to an entity other than the trustee, with the same effect as to the entity making such transfer or payment as if the case under this title concerning the debtor had not been commenced." 11 U.S.C. sec. 542(c).

(b) In an involuntary case, the trustee may not avoid under subsection (a) of this section a transfer made after the commencement of such case but before the order for relief to the extent any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, is given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has.

Once avoided, transfers can be recovered pursuant to the terms of sec. 550(a).

The Trustee bears the burden of proving what may be avoided pursuant to sec. 549. See In re PSA, Inc., 335 B.R. 580, 584 (Bankr.D.Del.2005).

*46 The Chapter 11 Trustee must prove the following:

1) after the commencement of the bankruptcy case in question,

2) property of the estate

3) was transferred, and

4) the transfer was not authorized by the Bankruptcy Court or by a provision of the Bankruptcy Code.

Id. at 585. The avoidance powers pursuant to sec. 549 are subject to certain enumerated exceptions. Id. Subsection (b) applies to involuntary cases, and thus applies here, as an involuntary petition commenced New ICC's bankruptcy case. Subsection (c) addresses transfers of real property to a good faith purchaser, and does not apply to these facts. Once the Trustee establishes the elements set forth in sec. 549, "[a]ny entity asserting the validity of a transfer under sec. 549 of the Code shall have the burden of proof." Fed.R.Bankr .P. 6001.

An involuntary petition was filed against New ICC on July 5, 2007. See Case No. 07–30012, Doc. No. 1. Just fourteen days later, New ICC made a rental payment of $8,145.00 to Grand & Associates Realty, Inc. on behalf of Sybil Prosser. TT60, at TT4 1863; Tab 82 of TT8, at T02928–30. The Chapter 11 Trustee asserts that "[t]he post-petition Transfer of $8,145.00 to Sybil Prosser was not authorized under the Bankruptcy Code or by Order of the Court." Chapter 11 Trustee's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Adv. Doc. No. 105, at 9. The wire transfer indisputably constitutes a transfer made after the commencement of the bankruptcy case. The funds were a part of New ICC's bankruptcy estate, which is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S .C. sec. 541(a)(1). There was neither authorization by this court nor a provision of the Bankruptcy Code which permitted this transfer for the benefit of Sybil Prosser. Thus, the Chapter 11 Trustee has met the elements of sec. 549.

The Trustee's Exhibit TT60 identifies the total amount the Chapter 11 Trustee seeks to avoid and recover for American Express payments made for the benefit of Michelle LaBennett, Sybil Prosser, and Justin Prosser throughout the time period of January 1, 1999, through September 30, 2007. Therefore, the amount includes charges that were paid by post-petition transfers. Through the court's review of the American Express credit card statements, it is apparent that New ICC transferred funds post-petition for the benefit of the Adult Prosser Children. This includes $12,540.73 on behalf of Justin Prosser, $14,415.74 on behalf of Sybil Prosser, and $1,323.57 on behalf of Michelle LaBennett. See discussion of American Express charges, supra, at 22–23, 31–33, 40–42.

The burden shifts to the Defendants to establish the validity of the transfers. The only sec. 549 exception which is potentially applicable here is subsection (b) which applies in involuntary cases. Section 549(b) does not permit the trustee to avoid a transfer pursuant to subsection (a) where the transfer was made during the gap period (between the filing of the involuntary petition and order for relief) and value was given in exchange. As established above, no value was given in exchange for these transfers. See supra note 96.

*47 The Adult Prosser Children have not met their burden of proving the validity of the post-petition transfers, and the transfers are avoidable pursuant to sec. 549. The Chapter 11 Trustee is entitled to recovery of the value of the transfers from the Adult Prosser Children pursuant to sec. 550 as they are the individuals for whose benefit the transfers were made. The Trustee is entitled to recover postpetition transfers in the amount of $12,540.73 from Justin Prosser, $22,560.74 from Sybil Prosser, and $1,323.57 from Michelle LaBennett.

Count VII: Imposition of Constructive Trust

Trustee Springel contends that he is entitled to the imposition of a constructive trust on the Palm Beach residence of Adrian Prosser. See Complaint, Adv. Doc. No. 1, at paras. 69–74. Through the imposition of a constructive trust, a court of equity can order the transfer of title to the true owner. Great–West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 213, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). "The imposition of a constructive trust is governed by applicable state law...." Skilled Nursing Professional Services v. Sacred Heart Hospital, 175 B.R. 543, 554 (Bankr.E.D.Pa.1994). This case is pending in the Virgin Islands. By statute, the Virgin Islands applies the Restatement (Second) of Conflict of Laws. See note 117, supra, and accompanying text. "(1) Whether a conveyance transfers an interest in land and the nature of the interest transferred are determined by the law that would be applied by the courts of the situs. (2) These courts would usually apply their own local law in determining such questions." RESTATEMENT (SECOND) OF CONFLICT OF LAWS sec. 223. Inasmuch, as Florida is the location of the real property, Florida law applies.

"A constructive trust is one raised by equity in respect to property which has been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds it." Provence v. Palm Beach Taverns, 676 So.2d 1022, 1025 (Fla.Dist.Ct.App.1996). The purpose of a constructive trust is two-fold: restoration of property to the rightful owner and prevention of unjust enrichment. Id.

The basis upon which the Chapter 11 Trustee relies for imposition of a constructive trust is the payment by the ICC Debtors of funds used by Adrian Prosser as a down payment and mortgage payments. See Complaint, Adv. Doc. No. 1, at para. 70. The Chapter 11 Trustee asserts that the use of these funds by Adrian Prosser was wrongful and if he continues to maintain possession of the Palm Beach residence, then he will be unjustly enriched. Id. at paras. 72–73.

For the three months prior to his deposition, Adrian testified that he made the mortgage payments from his own accounts. 12/19/2007 Deposition of Adrian Prosser, at 11. Prior to that, he testified that the mortgage payments were made through the corporation as part of his compensation. Id. at 11–12. Ingrid Christian testified that "Adrian Prosser was an employee of the company for a few years' time ... and so there were housing payments made for him of I think approximately $5,000 a month. They were excluded from the schedule [of non-business payments] because he was an employee and it was a benefit that was received by other executives of the company." Transcript of 11/17/2008, Adv. Doc. No. 84, at 132. The Trustee has not established how he is entitled to imposition of a constructive trust where it is clear that funds other than those of the ICC Debtors were used to make mortgage payments on the property. FN134

FN134. Furthermore, the issue may be moot. On August 12, 2009, counsel for the Adult Prosser Children filed a Notice of Pending Litigation–Foreclosure attached to which was a Complaint for Foreclosure and Damages. Adv. Doc. No. 109. The complaint was filed by Magnolia Court Homeowners Association "for foreclosure of a lien filed pursuant to the Declaration of Covenants of MAGNOLIA COURT HOMEOWNERS Association, Inc...." Adv. Doc. No. 109–1, at 2.

Count VIII FN135: Disallowance of Claims Asserted by the Defendant pursuant to Section 502(d) of the Bankruptcy Code

FN135. In the Complaint, this Count is improperly numbered as "Count Seven".

*48 Section 502(d) provides for disallowance of "any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title."

Although the Trustee states in the Complaint that he is "entitled to entry of an order disallowing any claim of the Defendants against the ICC Estates pursuant to section 502(d)[,]" he does not identify for the court any claims filed by the Defendants. Adv. Doc. No. 1, at para. 77. This court's review of the claims register in the bankruptcy cases of New ICC (Case No. 07–30012), Emerging (Case No. 06–30007), and ICC–LLC (Case No. 06–30008) did not reveal any claims filed by the Defendants. The bar dates have passed, and there are no claims to disallow. In the event that the Adult Prosser Children attempt to file claims, this ruling is without prejudice to being raised by the Trustee at that time.

Count IX FN136: To Recover from the Defendant Attorney's Fees, Interest, and Costs

FN136. In the Complaint, this Count is improperly numbered as "Count Eight."

Trustee Springel states that he "is entitled to recover attorney's fees and costs and to an award of interest from the dates on which one or more of the Defendants received or became a beneficiary of each of the Transfers pursuant to sections 544, 548, 549, and 550 of the Bankruptcy Code, other federal laws, state law (including sections 5001 and 5004 of the New York Civil Practice Law and Rules FN137), and other applicable law." Doc. No. 1, at para. 79.

FN137. We determined that New York law is inapplicable. See discussion supra.

Attorney's Fees and Costs

Trustee Springel has not provided a statutory basis for an award of attorneys' fees and costs.FN138 Furthermore, Trustee Springel has not provided a reason, such as bad faith or harassment, to warrant departure from the "American Rule," which generally does not permit recovery of attorneys' fees by the prevailing party. Northwestern Corp. v. Magten Asset Management Corp., 326 B.R. 519, 524 (Bankr.D.Del.2005). With respect to costs, "Rule 7054(b) provides that in an adversary proceeding a '[bankruptcy court] may allow costs to the prevailing party except when a statute ... or these rules provides otherwise.' ... It is clear an award of costs under Rule 7054(b) is discretionary." Id. at 529 (citations omitted). Trustee Springel's counsel can be compensated from estate assets, and Trustee Springel can recoup his costs from estate proceeds. See 11 U.S.C. sec. 330.

FN138. See Giuliano v. U.S. Nursing Corp., 339 B.R. 570, 578–79 (Bankr.D.Del.2006) ("[T]here is no statutory basis for the Trustee's request for attorneys' fees and costs.").

Prejudgment Interest

With regard to Trustee Springel's claim to prejudgment interest, the Bankruptcy Code does not include a reference to prejudgment interest. Hechinger Investment Company v. Universal Forest Products, 489 F.3d 568, 579 (3d Cir.2007). However, "courts have relied on the word 'value' in sec. 550(a) as authorizing an interest award." Id.FN139 Section 550(a) provides the trustee with the ability to "recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property ...." (emphasis added). According to the Third Circuit in Hechinger, an award of prejudgment interest is appropriate unless there is a sound reason not to award it. See 489 F.3d at 580.

FN139. Although the court was addressing preference claims in Hechinger, it looked to the language of sec. 550, which also applies to transfers avoided under secs. 544, 548, and 549 for authorization to award prejudgment interest. 489 F.3d at 579.

*49 We found herein that the Trustee established numerous fraudulent and postpetition monetary transfers to or for the benefit of each of the Adult Prosser Children, and the Trustee is entitled to recovery thereon. The court finds that an award of prejudgment interest is appropriate. The Adult Prosser Children had the use or benefit of the funds for an extended period of time. "[A]n award of prejudgment interest in an avoidance action furthers the congressional policies of the Bankruptcy Code by compensating the estate for the time it was without the use of the transferred funds." In re Great Point Intermodal, LLC, 334 B.R. 359, 363 (Bankr.E.D.Pa.2005). Prejudgment interest shall accrue from the date of commencement of this action at the federal judgment interest rate in effect as of that date. See id. at 363–64. FN140 The interest rate pursuant to 28 U.S.C. sec. 1961(b) is the rate applicable to one year Treasury maturities for the week preceding February 8, 2008, (the date of the Complaint). The applicable prejudgment interest rate is 2.23%. See http:/www.federalreserve.gov/releases/h15.

FN140. In Great Point, the court addressed an award of prejudgment interest relating to preferential transfers. Id. at 362. Prejudgment interest is recoverable from the date the return of the transfer was demanded. Id. at 363. If there is no indication that demand for return of the transfer was made prior to commencement of the litigation, then prejudgment interest will accrue from the date the adversary proceeding was filed. Id. at 363–64. The court found the prevailing rate to be the federal judgment interest rate. See id. at 364 (determining the applicable interest rate pursuant to 28 U.S.C. sec. 1961).

Conclusion

For the reasons expressed in this Memorandum Opinion, we find that the Chapter 11 Trustee has established numerous fraudulent transfers to the Adult Prosser Children, which he is entitled to recover for the benefit of the estate. The Chapter 11 Trustee has also proven that he is entitled to recover unauthorized postpetition transfers made to the Adult Prosser Children. The Trustee has not established that he is entitled to imposition of a constructive trust on the West Palm Beach residence of Adrian Prosser. The Trustee's request for disallowance of claims will be denied as Defendants did not file any claims to disallow. The Trustee's request for an award of attorney's fees is denied. An award of prejudgment interest is appropriate.

Exhibit to Memorandum Opinion: Explanation of Calculation of Adult Prosser Children Credit Card Charges Paid for by New ICC

Centurion Account:

The first Centurion Card Statement of Account in evidence is for charges made in January of 2004 (i.e., statement with a closing date of 01/29/2004). See TT28, at TT02804–810. The previous balance reflected on that statement is $0 (i.e., there was no remaining balance due from December of 2003). No payment activity is reflected on the January 2004 statement. The new charges on the account for activity through January 29, 2004, total $10,058.26. The statement breaks down the total due for each cardholder: Jeffrey Prosser ($2,500 membership fee), Michelle LaBennett ($1,500 membership fee), Dawn Prosser ($1,500 membership fee), Sybil Prosser (total of $2,022.64, including a $1,500 membership fee), and Arthur Stelzer (total of $2,535.62, including a $1,500 membership fee). The total due in full activity for all cardholders is $10,058.26. No payment was made toward the January 2004 charges prior to issuance of the next statement containing February credit activity. TT28, at TT02811.FN141 The $10,058.26 balance was carried over, and new activity totaling $42,272.38 was added to the prior balance, resulting in a new balance of $52,330.64. Id. The new activity included charges made by Jeffrey Prosser, Sybil Prosser, and Arthur Stelzer. Sybil Prosser's charges (the only of the three relevant here) totaled $8,307.89. As reflected on the March 2004 statement for the Centurion account, a $53,000 payment was made on March 19, 2004. That payment was credited toward the previous balance of $52,330.64 (consisting of charges made in January and February of 2004). That payment was made by New ICC, as reflected in the Virgin Islands Community Bank ("VICB") Statement for Innovative Communication Corporation (showing a $53,115 debit) and a Request for Telegraphic Transfer made by New ICC on March 19, 2004, in the amount of $53,000 to American Express for ultimate credit to the Centurion account, specifically listing that account number. See Tab 10 of TT8, at T00363–364. Therefore, New ICC paid for the charges incurred by Sybil Prosser (totaling $10,330.53) and Michelle LaBennett (totaling $1,500) in January and February of 2004.

FN141. We note that this is one of several times where the bill states that the account is past due and must be paid immediately.

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*50 The $53,000 payment made by New ICC in March of 2004, was more than the previous balance due ($52,330.64) and therefore the excess funds were credited toward the new activity accrued in March of 2004. See TT28, at TT02823–831. The new balance from March activity totaled $82,763.11. Charges were made by Jeffrey Prosser, Michelle LaBennett (totaling $1,144.43), Dawn Prosser, Sybil Prosser (totaling $5,987.24), and Arthur Stelzer. The statement for April of 2004 reflects a payment of $85,000 on April 19, 2004, and a payment of $100,000 (reflected as payments of $99,999.99 and $.01) on April 26, 2004. Id. at TT02839. The entire $185,000 was paid by New ICC. See Request for Telegraphic Transfer of $85,000 by New ICC on 4/19/2004, Tab 10 of TT8, at T00365; New ICC's VICB statement reflecting a debit of $85,115 on 4/19, id. at T00366; New ICC's VICB statement reflecting a debit of $100,115 on 4/26, id. at T00370; New ICC's Request for Telegraphic Transfer on 4/26/04 to American Express in the amount of $100,000, id. at T00371. The April 19, 2004, payment alone satisfied in full all new activity in March of 2004. This includes $1,144.43 of charges made by Michelle LaBennett and $5,987.24 of charges made by Sybil Prosser.

The excess payments made by New ICC were credited toward the activity in April of 2004, which totaled $158,972.59. See TT28, at TT02839. Once New ICC's April payments were credited toward that amount, the new balance for April was $56,735.70. Id. Charges on the April 2004 statement were made by Jeffrey Prosser, Michelle LaBennett ($851.80), Dawn Prosser, Sybil Prosser ($4,725.74), and Arthur Stelzer. The May statement reflects two payments. TT28, at TT02853. The first was a New ICC payment on May 3, 2004, in the amount of $80,000, which fully covered all charges remaining from April of 2004 in the amount of $56,735.70. See New ICC's VICB statement showing a debit of $80,115 on May 3, Tab 10 of TT8, at T00372; Request for Telegraphic Transfer by New ICC to American Express on 05/03/04 in the amount of $80,000, id. at T00373. Therefore, all April of 2004 charges were paid by New ICC. The second payment reflected on the statement was made on May 24, 2004, in the amount of $75,000. The source of the payment is unknown. That payment along with the remaining portion of the payment by New ICC were credited toward May activity. Therefore, without attempting to allocate the portion of the New ICC payment and the $75,000 payment, we do not include any of the May activity in our calculation of payments made by New ICC on behalf of the Adult Prosser Children.

Even though payments of $155,000 from combined sources were made in May, of which $56,735.70 paid off April 2004 charges and the remaining $98,264.30 was credited toward May 2004 charges, new activity in May totaled $169,727.43 and a balance of $71,463.13 resulted. TT28, at TT02853. We note that, although the credit card statements break out the monthly charges incurred by each cardholder, payments made are credited toward the total balance for all cardholders and are not allocated between the cardholders. Thus, even though New ICC made a $75,000 payment on June 7, 2004, which paid off the remaining balance from May 2004 activity in full, we do not attempt to allocate the non-New ICC payment and the New ICC payments, which are credited toward the same month's activity, to the charges reflected on the May 2004 statement. See TT28, at TT02867; New ICC's VICB Bank Statement reflecting a $75,115 wire transfer on June 7, Tab 10 of TT8, at T00374; Request for Telegraphic Wire Transfer made by New ICC to American Express for $75,000 on June 7, 2004.

*51 In our analysis, once payment(s) by New ICC were traced to a particular American Express statement and examination of the statement revealed that the entire statement was paid with New ICC's funds, then, and only then, were the Adult Prosser Children's charges on that statement included in our fraudulent conveyance analysis. All payments from non-New ICC sources are excluded. Therefore, any charges paid with non-New ICC funds have not been considered, and to the extent payments from New ICC and a non-New ICC source were credited to the same monthly statement, those too were excluded. We note that this is a conservative approach to this analysis and, without certainty as to how the Trustee calculated the amounts he seeks to recover, we find this approach is appropriate and ensures that only New ICC funds will be recovered.

This is the process used by the court to calculate the amounts that New ICC paid to American Express for the benefit of the Adult Prosser Children. Although the Centurion account was used to provide the example above, we employed this process for the entirety of the American Express Centurion and Platinum accounts (Exhibit TT28) and compared the statements with the evidence of payments by New ICC (Tabs 10 and 11 of Exhibit TT8).

JUDGMENT ORDER

AND NOW, this 5th day of August, 2011, for the reasons expressed in the foregoing Memorandum Opinion, it is ORDERED that:

1. As to Count I of the Complaint, transfers are avoided and judgment is entered in favor of Plaintiff and against Defendants on the grounds of actual fraud pursuant to 11 U.S.C. secs. 548(a)(1)(A) and 550 as follows, plus prejudgment interest at the federal judgment rate and postjudgment interest at the federal judgment rate: $161,695.40 against Justin Prosser; $205,359.93 against Sybil Prosser, $56,733.85 against Michelle LaBennett, and $104,132.09 against Adrian Prosser.

2. As to Count II of the Complaint, transfers are avoided and judgment is entered in favor of the Plaintiff and against the Defendants on the grounds of constructive fraud pursuant to 11 U.S.C. secs. 548(a)(1)(B) and 550 as follows, plus prejudgment interest at the federal judgment rate and postjudgment interest at the federal judgment rate: $161,695.40 against Justin Prosser, $205,359.93 against Sybil Prosser, $56,733.85 against Michelle LaBennett, and $104,132.09 against Adrian Prosser.

3. As to Counts III, IV, and V of the Complaint seeking avoidance and recovery of transfers pursuant to 11 U.S.C. secs. 544 and 550, for the reasons expressed within the Memorandum Opinion, this court's Report and Recommendation is attached hereto and shall be transmitted by the Clerk of Court to the District Court.

4. As to Count VI of the Complaint, postpetition transfers are avoided and judgment is entered in favor of Plaintiff and against Defendants pursuant to 11 U.S.C. secs. 549 and 550 as follows, plus prejudgment interest at the federal judgment rate and postjudgment interest at the federal judgment rate: $12,540.73 against Justin Prosser, $22,560.74 against Sybil Prosser, and $1,323.57 against Michelle LaBennett.

*52 5. As to Count VII, the Trustee's request for imposition of a constructive trust on the West Palm Beach residence of Adrian Prosser is DENIED.

6. As to Count VIII, disallowance of the Defendants' claims is DENIED without prejudice as the Trustee has identified no claims to disallow.

7. As to Count IX, the Trustee's request for attorney's fees and costs is DENIED. The Trustee's claim for prejudgment interest is GRANTED.

It is FURTHER ORDERED that counsel for the Chapter 11 Trustee shall immediately serve a copy of this Memorandum Opinion and Order on all parties in interest who do not receive electronic notice and shall file a certificate of service forthwith.

RECOMMENDATION TO THE DISTRICT COURT AS TO COUNTS III, IV, AND V TO AVOID AND RECOVER FRAUDULENT TRANSFERS PURSUANT TO sec. 544 AND APPLICABLE LAW

AND NOW, this 5th day of August, 2011, WHEREAS the foregoing Memorandum Opinion constitutes our Report and Recommendation to the District Court as to Counts III, IV, and V of the Chapter 11 Trustee's Original Complaint Against the Adult Prosser Children to Recover Pre–Petition Fraudulent Transfers and Unauthorized Post–Petition Transfers;

We RECOMMEND, as to Counts III, IV, and V, that judgment be entered in favor of the Plaintiff and against the Defendants on the grounds of actual and constructive fraud pursuant to 11 U.S.C. secs. 544 and 550 and the applicable law of the Virgin Islands as follows, plus prejudgment interest at the federal judgment rate and postjudgment interest at the federal judgment rate: $161,695.40 against Justin Prosser, $326,061.49 against Sybil Prosser, $249,462.39 against Michelle Prosser, and $159,508.52 ($55,376.43 on behalf of New ICC and $104,132.09 on behalf of ICC LLC) against Adrian Prosser.

It is FURTHER RECOMMENDED that, in the alternative, if the District Court does not agree that tolling of the statute of limitations applies, that judgment be entered as to Counts III, IV, and V as follows, plus prejudgment interest at the federal judgment rate and postjudgment interest at the federal judgment rate: $161,695.40 against Justin Prosser, $205,359.93 against Sybil Prosser, $56,733.85 against Michelle LaBennett, and $104,132.09 against Adrian Prosser.

It is ORDERED that counsel for the Chapter 11 Trustee shall immediately serve a copy of this Report and Recommendation on all parties in interest who do not receive electronic notice and shall file a certificate of service forthwith.

It is FURTHER ORDERED that the Clerk of Court shall forward forthwith a copy of this Report and Recommendation to the District Court of the United States Virgin Islands.

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Springel v. Prosser, 2012 WL 2149737 (D.Virgin Islands, Slip Copy, June 12, 2012).

Stan Springel

v.

Dawn Prosser

CIVIL ACTION No. 08–146

District Court of the Virgin Islands, Division of St. Thomas and St. John.

June 12, 2012

MEMORANDUM

Juan R. Sánchez, J.

In this turnover action, Stan Springel, the Chapter 11 trustee for the bankruptcy estates of Innovative Communication Corporation (ICC), Emerging Communications, Inc. (ECI), and Innovation Communication Company, LLC (New ICC) (together, the "ICC Debtors"), sought to restore to the estates allegedly fraudulent pre-petition transfers and allegedly unauthorized post-petition transfers made from the ICC Debtors to Defendant Dawn Prosser.FN1 Following trial, the jury returned a verdict in favor of Prosser and against Trustee Springel.FN2 Upon entry of the jury verdict, Springel moved for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50 with respect to Count 6 of the Complaint regarding unauthorized post-petition transfers pursuant to sec. 549(a) of the Bankruptcy Code. Springel also moved for a new trial under Federal Rule of Civil Procedure 59(a) on Counts 1, 2 and 5 of the Complaint regarding his claims based on actual and constructive fraud pursuant to 11 U.S.C. secs. 544(b), 548(a), and 550 of the Bankruptcy Code and the applicable Virgin Islands law.

FN1. The transfers at issue in this case involved a mix of funds, services and/or property of one or more of the ICC Debtors.

FN2. By agreement of all parties, this case was tried contemporaneously with the turnover action in the parallel Chapter 7 case, James P. Carroll v. Dawn Prosser, No. 08–147 (D.V.I.) using two separate juries. The Chapter 7 case was the personal bankruptcy of Jeffrey Prosser. Although the two juries heard the overlapping evidence in the two cases at the same time as each other, each jury heard a separate opening and closing, each jury was charged independently of the other, and each jury deliberated separately.

In his motion for judgment as a matter of law, Springel argues the evidence was undisputed at trial that Prosser received post-petition transfers that were not authorized by the Bankruptcy Court or the Bankruptcy Code and therefore judgment should be in his favor on this Count.

Federal Rule of Civil Procedure 50 permits a court to grant judgment as a matter of law "only if viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Price v. Trans Union, L.L.C., No. 09–1332, 2012 WL 898687, at *2 (E.D.Pa. Mar. 16, 2012) (quoting LePage's Inc. v. 3M, 324 F.3d 141, 145–46 (3d Cir.2003)). In determining whether to grant this "sparingly invoked remedy," the court must "refrain from weighing the evidence, determining the credibility of witnesses, or substituting [its] own version of the facts for that of the jury;" Marra v. Phila. Hous. Auth., 497 F.3d 286, 300 (3d Cir.2007) (internal citations and quotation marks omitted); see also LePage's Inc., 324 F.3d at 145–46 ("[R]eview of the jury's verdict is limited to determining whether some evidence in the record supports the jury's verdict.").

Count 6 of Trustee Sprirtgel's Complaint seeks to recover unauthorized post-petition transfers from the ICC Debtors to Prosser pursuant to sec. 549(a) of the Bankruptcy Code. Section 549 permits a trustee to avoid transfers of property belonging to the estate that occur after the bankruptcy case was filed, and are not authorized by the Bankruptcy Code or Bankruptcy Court. 11 U.S.C. sec. 549(a); see also In re Pa. Gear Corp., Bankr.No. 02–36436, Adv. Nos. 03–940, 03–942, 2008 WL 2370169, at *6 (Bankr.E.D.Pa. Apr. 22, 2008). The purpose of this provision is to allow a trustee to avoid those transfers which deplete the estate. In re Pa. Gear Corp., 2008 WL 2370169, at *6; In re PSA, Inc., 335 B.R. 580, 584 (Bankr, D.Del.2005). Once a trustee has established a post-petition transfer was unauthorized, the burden then shifts to the recipient to show the validity of the transfer or assert an affirmative defense, such as the defense that the transfers occurred in the ordinary course of business or that the recipient provided new value to the debtor post-petition. In re Pa. Gear Corp., 2008 WL 2370169, at *6–7; see also In re Johnson Bros. Truckers Inc., 9 F.App'x 156, 165 (4th Cir.2001); In re Kickel, 357 B.R. 490, 496–97 (Bankr.N.D.Ill.2006); In re Bryant, 103 B.R. 95 (Bankr.E.D.Pa.1989). Here, Chapter 11 involuntary bankruptcy petitions were filed for ICC and ECI on February 10, 2006, and New ICC on July 5, 2007. Springel argues any transfers made after those dates that were not authorized by the Court or the Code are subject to avoidance as a matter of law. He further argues because evidence at trial was undisputed that transfers from the ICC Debtors to Prosser after the relevant dates were not authorized, the jury's verdict on this issue cannot stand. See Verdict Form, Nos. 21–23.FN3

FN3. The jury returned a verdict finding Prosser received and/or was the beneficiary of "certain transfers of funds, services and/or property from the ICC Debtors." See Verdict Form, No. 1. They also found by clear and convincing evidence that none of the ICC Debtors made the transfers to Prosser "with actual intent to hinder, delay or defraud any other existing or future creditor." See Verdict Form, No. 2. They jury found Prosser provided services or value to the ICC Debtors, see Verdict Form, No. 7, and that the transfers to Prosser were in exchange for "reasonably equivalent value." See Verdict Form, No. 8. However, the jury also found Prosser was not the recipient or beneficiary of "certain transfers of property of one or more of the ICC Debtors after the respective petition dates of the ICC Debtors." See Verdict Form, No. 21.

Prosser contends the jury determined the transfers were not fraudulent and were for fair value, therefore, "it did not matter to the jury, nor does it matter as a matter of law " whether the transfers were made pre- or post-petition. Resp. 3 (emphasis in original); see also Verdict Form, Nos. 1–2, 7–8 (noting the Verdict Form failed to distinguish between pre-petitioh and post-petition transfers). Prosser further argues because the jury found she provided value for the transfers occurring between July 5, 2007, and October 3, 2007, the date on which Trustee Springel was appointed,FN4 see Verdict Form, Nos. 7–8, the transfers during this "gap" period were not fraudulent under 11 U.S.C. sec. 549(b), which permits post-petition transfers during the gap period for which new value was provided in exchange. This Court disagrees.

FN4. This time period is referred to as the "gap" period under the Code.

To prevail on a claim under sec. 549 of the Bankruptcy Code, a trustee need only show that after the commencement of the case at issue, property of the estate was transferred, and the transfer was not approved by the Bankruptcy Court or any provision of the Code. 11 U.S.C. sec. 549(a); In re PSA, Inc., 335 B.R. at 584–85. Where those facts are undisputed, judgment must be in favor of the party asserting the sec. 549 claim. At trial, Trustee Springel proved these elements, a fact which Prosser has never disputed. Contrary to Prosser's assertion, whether or not the transfers were fraudulent is not an element of a sec. 549 claim as a matter of law. In re PSA, Inc., 335 B.R. at 584 (stating fraud by the debtor is irrelevant to the application of sec. 549) (quoting 5 Collier on Bankruptcy para. 549.02 (15th ed. rev.2005)).

Trustee Springel presented testimony regarding the transfers from Ingrid Christian, a director at Alvarez & Marsal, LLC, and Dennis Kanai, the Chief Financial Officer of ICC. Springel also elicited testimony from Prosser herself. The testimony of these witnesses, together with relevant documentary evidence, which was undisputed both at trial and remained so in Prosser's post-trial response, established Prosser received transfers from the ICC Debtors after the commencement of the bankruptcy case against them, which were not authorized by the Bankruptcy Court or the Code. See Trial Tr. 282:22–284:11, 286:4–298:23, 301:10–15, June 7, 2011 (Ingrid Christian); Trial.Tr. 245:2—247:10, 247:17–24, 249:17—250:22, June 7, 2011 (Dawn Prosser); Trial Tr. 22:23—23:2, June 8, 2011 (Dennis Kanai); Exs. 7 and 45 (showing schedule listing non-business payments made by the ICC Debtors to Prosser or her family beginning July 6, 2007, the day after the last involuntary bankruptcy petition was filed against the ICC Debtors, through the end of September 2007, just prior to Trustee Springel's appointment). Significantly, Prosser did not refute receiving the transfers made to her after July 5, 2007, or that the post-petition transfers had not been approved by the Bankruptcy Court or the Code. Trial Tr. 245:2—247:24, June 7, 2011 (Dawn Prosser) (testifying she had no knowledge whether any transfers to her were approved by the New ICC Board of Directors and had never seen a court order approving any transfer made to her after the ICC Debtors were in bankruptcy); see also Trial Tr. 167:2–12, June 7, 2011 (Alan Barbree).

Moreover, although Prosser now argues the transfers were valid because she provided new value to the debtors for the transfers pursuant to sec. 549(b), she never attempted to assert or prove this defense specifically in any of her pleadings or at trial. As a result, not only was the jury never instructed on this "new value" defense, but that defense is now waived. See Fed. R. Bankr.P. 6001 ("Any entity asserting the validity of a transfer under sec. 549 of the Code shall have the burden of proof."); In re Discovery Zone, Inc., 300 B.R. 856, 859 (Bankr.D.Del, 2003) (stating the burden of establishing the existence and amount of new value is on the recipient of the transfer). Compare Regal Indus., Inc. v. Genal Strap, Inc., No. 93–0209, 1994 WL 388686, at *3 (ED. Pa.1994) (finding affirmative defense was waived where the defense was not raised until after trial in defendant's response to the plaintiff's post-trial motion to amend judgment, citing Simon v. United States, 891 F.2d 1154 (5th Cir.1990) (same)), with Franklin Life Ins. Co. v. Bieniek, 312 F.2d 365, 371–72 (3d Cir.1962) (finding affirmative defense had not been waived, even though it was not pleaded, where the defense was raised in defendants' answer and pre-trial statement), and Woodson v. Scott Paper Co., 109 F.3d 913, 925 n.9 (F.D.Pa.1997) (stating a defendant does not waive an affirmative defense if it was raised "at a pragmatically sufficient time, and [the plaintiff] was not prejudiced in its ability to respond" (quoting Charpentier v. Godsil, 937 F.2d 859, 86.3–64 (3d Cir.1991) (internal quotations omitted))).

Even had the new value defense been asserted "at a pragmatically sufficient time," Prosser did not establish such defense at trial. Pursuant to this defense, a transfer is not avoidable to the extent the creditor can establish that the transfer was followed by an advance of new value to the debtor on an unsecured basis. In re Lease–A–Fleet, Inc., 155 B.R. 666, 684 (Bankr.E.D.Pa.1993). The amount of new value must be proved with specificity. In re Discovery Zone, Inc., 300 B.R. at 859. At trial, Prosser did not present any evidence showing she provided new value to the ICC Debtors specifically in exchange for the transfers that occurred after the petition date. Indeed, in her post-trial response, Prosser fails to cite to any evidence she presented at trial specifically in support of such a defense, instead relying on the jury's finding that Prosser provided value to the ICC Debtors. See Verdict Form, No. 7. Significantly, however, the jury specifically found that Prosser did not receive or was not the beneficiary of post-petition transfers. See Verdict Form, No. 21. Consequently, Prosser could not have provided value for transfers which the jury found she never received.

Furthermore, the jury instructions regarding Trustee Springel's sec. 549 claim, which were agreed upon by all parties in this case, did not include an instruction for Prosser's sec. 549(b) new value defense. With respect to the sec. 549 post-petition transfer claim, this Court instructed the jury only that:

[i]n order to for Trustee Springel to recover from Dawn Prosser on Trustee Springel's post-petition transfer claims based on Section 549 of the Bankruptcy Code, you must find Trustee Springel has proved the following three elements by a preponderance of the evidence ... One, Dawn Prosser received or was the beneficiary of certain transfers of property of one or more of the ICC Debtors. Two, such transfers were received after the respective petition dates of the ICC Debtors, And three, such transfers Were not approved by the Bankruptcy Court or authorized by the Bankruptcy Code.

Trial Tr. 80–81, June 9, 2011. No instruction was requested or given concerning the exception to post-petition transfers pursuant to sec. 549(b).

Consequently, Trustee Springers motion for judgment as a matter of law is granted with respect to Count 6 of the Complaint regarding post-petition transfers pursuant to sec. 549 of the Bankruptcy Code because Springel proved transfers occurred after the respective petition dates of the ICC Debtors, which were not authorized by the Bankruptcy Court or the Code, and Prosser failed to prove the validity of these transfers. Trustee Springel may therefore recover the unauthorized post-petition transfers from the ICC Debtors made to Prosser in the amount of $213,606.37.

Trustee Springel next argues he is entitled to a new trial under Federal Rule of Civil Procedure 59(a) on Counts 1, 2, and 5 of the Complaint regarding actual and constructive fraud because the jury verdict is against the great weight of evidence.

Rule 59 provides, "[t]he court may, on motion, grant a new trial on all or some of the issues ... after a jury trial, for any reason for which a new trial has heretofore been granted in an action at law in federal court." Fed.R.Civ.P. 59(a)(1). Generally, a district court may grant a motion for new trial pursuant to Rule 59 "if it determines that the verdict is inconsistent with substantial justice because the verdict is against the weight of the evidence; the damages are excessive; the trial was unfair; or that substantial errors were made in the admission or rejection of evidence or the giving or refusal of instructions." Younis Bros. & Co. v. CIGNA Worldwide Ins. Co., 899 F.Supp. 1385, 1397 (E.D.Pa.1995) (internal quotation marks and citations omitted). Where, as here, the moving party seeks a new trial on the basis that the verdict is against the weight of the evidence, a new trial is "proper only when the record shows that the jury's Verdict resulted in a miscarriage of justice or where the verdict, on the record, cries out to be overturned or shocks our conscience," Williamson v. Consol Rail Corp., 926 F.2d 1344, 1353 (3d Cir.1991) (citation omitted). The trial court may consider the credibility of witnesses and weigh the evidence to determine whether a new trial is necessary to prevent a miscarriage of justice. See Roebuck v. Drexel Univ., 852 F.2d 715, 736 (3d Cir.1988); see also 9 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure sec. 2531 (3d ed.1998). The court, however, is "not to substitute its own judgment for that of the jury simply because the court might have come to a different conclusion." Lightning Lube, Inc. v. Witco Corp., 802 F.Supp. 1180, 1186 (D.N.J.1992), aff'd, 4 F.3d 1153 (3d Cir.1993) (quotation and citations omitted). Indeed, a court granting a new trial merely because of its disagreement with the verdict effects a denigration of the jury system to the extent the judge usurps the prime function of the jury as the trier of facts. See id. (quotation and citations omitted); see also V.I. Mar. Serv., Inc. v. P.R. Mar. Shipping Auth., 978 F.Supp. 637, 647 (D.V.I.1997) (stating it is for this precise reason that "[w]here the movant seeks a new trial on the basis that the verdict is against the weight of the evidence, the Court's power to overturn the jury's award is severely circumscribed"). Although the decision to grant a new trial is within the discretion of the district court, "such requests are disfavored." State Farm Mut. Auto. Ins. Co. v. Lincow, 715 F.Supp.2d 617, 626 (E.D.Pa.2010) (internal citations omitted).

At trial, Trustee Springel sought to recover fraudulent transfers made to Prosser from the ICC Debtors pursuant to sec. 548(a)(1) of the Bankruptcy Code, FN5 which contains both actual fraud and constructive fraud provisions. In re Nam, 257 BR. 749, 768 (Bankr.E.D.Pa.2000).FN6 Trustee Springel asserted Prosser was liable under both provisions. At trial, the Trustee had the burden of proof on these claims. Id.at 768 n. 24. Each type of claim will be discussed in turn.

FN5. Jeffrey Prosser, Dawn Prosser's husband and a non-party to this action, was an officer and director of New ICC, and the sole member of its ultimate parent company, ICC–LLC. In these capacities, Jeffrey Prosser exercised pervasive control over the ICC Debtors. As a result, his conduct could be imputed to the ICC Debtors. Through his fraudulent transfer claims, Springel sought to avoid transfers that Jeffrey Prosser directed or otherwise caused one or more of the ICC Debtors to make to or for the benefit of his wife. The jury was so instructed. Trial Tr. 76:15–18, June 9, 2011.

FN6. Springel also sought to recover fraudulent transfers pursuant to 11 U.S.C. sec. 544(b), which allows a trustee to utilize state fraudulent transfer laws. Springel asserted such claims pursuant to United States Virgin Islands law. The main distinction between Springel's sec. 548(a)(1) claims and those brought pursuant to sec. 544 and the relevant laws of the Virgin Islands, is that under sec. 544, Springel was also required to establish the existence of one or more creditors who held or hold unsecured claim(s) against the ICC Debtors that are allowable and remain unpaid. Compare 11 U.S.C. sec. 548(a)(1)(A) and 11 U.S.C. sec. 548(a)(1)(B), with 11 U.S.C. sec. 544 and 28V.I.C. secs. 204–206 (2010). The jury found Springel established this element at trial. See Verdict Form, No. 13 (finding "[at] all relevant times ... one or more creditors exist who held or hold allowable unsecured claim or claims against the ICC Debtors").

To prove his claims based on constructive fraud, Trustee Springel had to show: (1) each transfer was made without the exchange of reasonably equivalent value (11 U.S.C. sec. 548(a)(1)(B)(I)) or fair consideration (28 V.I.C. secs. 204–206 (2010)); (2) that one or more of the ICC Debtors (a) was insolvent on the date such transfer was made or became insolvent as a result of the transfer; (b) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the respective ICC Debtor was an unreasonably small capital; or (c) intended to incur or believed it would incur, debts that would be beyond its ability to pay as such debts matured. 11 U.S.C. sec. 548(a)(1)(B); 11 U.S.C sec. 544(b), 28 V.I.C. secs. 204—206 (2010).

Trustee Springel asserts he conclusively established Prosser received or was the beneficiary of several transfers made by one or more of the ICC Debtors for which Prosser did not provide any value to the ICC Debtors. Consequently, Springel asserts the jury's finding to the contrary cannot stand, and a new trial should be granted on his constructive fraud claims.FN7

FN7. The jury concluded Prosser provided value to the ICC Debtors; therefore, it did not reach the questions regarding the other elements of the claim, including questions regarding New ICC's insolvency, the fact that New ICC was left with unreasonably small capital, or that it was unable to pay its debts as they became due. Because Trustee Springel asserts the evidence elicited at trial conclusively established Prosser did not provide value to the ICC Debtors in exchange for the transfers, however, Prosser seeks a new trial on these claims.

At trial, Ingrid Christian established numerous transfers amounting to between $12.2 million and $31.8 million had been made by the ICC Debtors on behalf of Jeffrey and/or Dawn Prosser, See Trial Tr. 296:1—297:8, June 7, 2011 (Ingrid Christian); see also Trial Exs. 7 (showing non-business payments made by ICC for the benefit of the Prosser family), 45 (breaking down ICC's non-business payments for each year from January 1, 1999, through September 30, 2007, and showing for the two years prior to the date bankruptcy was filed against New ICC, transfers attributed to Jeffrey and/or Dawn Prosser totaled $12.2 million, and, dating back to 1999, transfers attributed to Jeffrey and/or Dawn Prosser totaled $31.8 million). For her part, Prosser admitted to the receipt of numerous transfers from the ICC Debtors at trial. See Trial Tr. 200:9–21, 202:8—203:17, 215:17—216:8, 239:16–240–1, 241:3–242:13, 245:2 –247:10, 247:17–24, 249:17—250:22, June 7, 2011 (Dawn Prosser).FN8

FN8. In addition, in her response to Springel's post-trial motion, Prosser admitted to receiving transfers from the ICC Debtors totaling $31,883,675.01. Resp. 3.

Although the jury found that Prosser provided value for the transfers from the ICC Debtors, see Verdict Form, Nos. 7, 8, and 14 (finding Prosser provided "services or value" to the ICC Debtors, the ICC Debtors did not make transfers to Prosser in exchange for which they did not receive "less than a reasonably equivalent value," and the ICC Debtors did not make transfers to Prosser without "fair consideration"), Prosser's own testimony belies this finding. At trial, Prosser made clear that she did not provide any value to the ICC Debtors, let alone "reasonably equivalent value" or "fair consideration." Specifically, Prosser testified only that she brought value to her marriage, i.e., to Jeffrey Prosser. She testified she took care of the household, see Trial Tr. 206:20 –207:9, June 7, 2011 (Dawn Prosser), and that the Shoys Estate, a non-business property constructed for the purpose of being the Prosser residence, has been used for corporate functions, such as dinners, see Trial Tr. 241:22—242:11, June 7, 2011. However, this type of value—Prosser's value as the wife of Jeffrey Prosser—is value Prosser provided solely to her husband, and not to the ICC Debtors. Indeed, when questioned whether she provided value to one or more of the ICC Debtors in exchange for certain costly embellishments purchased by ICC specifically for the pool area of the non-business related Shoys Estate, Prosser testified she did not, stating more generally she did not provide value to New ICC in exchange for any specific transfer made for her benefit because she "didn't have to provide value," explaining further, "there wasn't any question in my mind that I had to provide value." Trial Tr. 245:2—247:10, June 7, 2011; see also Trial Tr. 241:22—242:13, June 7, 2011 (Dawn Prosser) (agreeing that some expenses for the Shoys Estate, a non-business property intended to be the Prosser residence, were charged to New ICC). The fact remains Prosser was never employed by the ICC Debtors, and never provided any services or value to the ICC Debtors. See id.; see also Trial Tr. 238:22—239:7, June 7, 2011 (Dawn Prosser).

Notwithstanding her own trial testimony, in her response to Springel's post-trial motion, Prosser insists she provided value to the ICC Debtors in exchange for these transfers, citing several examples in me record demonstrating such value. Therefore, Prosser argues the jury's finding should not be disturbed. None of these examples, however, demonstrate value provided to the ICC Debtors, whose business was in telecommunications. Rather, they either show value Prosser provided to her husband, Jeffrey Prosser, or do not show value provided at all. For example, Prosser notes that the Shoys Estate was purchased and titled solely to her in or around 1989, before New ICC even existed. Resp. 4. This example does not demonstrate value to the ICC Debtors, and is not even relevant to the transfers at issue in the ease, given that the only transfers at issue are those that occurred beginning in 1999. See Trial Ex.45. Prosser also cites Jeffrey Prosser's testimony that she owned one-half of ICC. Resp. 5. Though highly disputed at trial, the mere fact of ownership nevertheless does not equate to value to the ICC Debtors, lest an owner drain her company's coffers without having to provide anything in exchange. In addition, Prosser cites Jeffrey Prosser's testimony explaining taxes were paid on all distributions to Jeffrey Prosser from the contra-equity account. Id. Whether taxes were paid, however, is not relevant to whether value was provided to the ICC Debtors in exchange for the distributions in the first place. Again citing Jeffrey Prosser's testimony, Prosser notes that without her participation, Jeffrey Prosser would never have been able to acquire Guyana Telecom. Id. Although this may be evidence of value, it likely demonstrates value provided to Jeffrey Prosser, and not necessarily value provided to the ICC Debtors. Moreover, it is unclear in the record when this acquisition occurred. Jeffrey Prosser testified only that the company had been "purchased years ago," see Trial Tr. 137:19–25, June 8, 2011 (Jeffrey Prosser), but it was not established at trial that any value Prosser may have provided in this years-old acquisition was in exchange for the transfers at issue in this case from the ICC Debtors, As a further example of the value she allegedly provided to the ICC Debtors, Prosser notes her employment with the ICC Prosser Foundation. Resp. 5. This example also fails to demonstrate value to the ICC Debtors because there is no evidence in the record that Prosser's employment with her husband's foundation provided value to the ICC Debtors, as Prosser herself acknowledged she was never employed by the ICC Debtors, and never provided any services to them. Trial Tr. 238:22—239:8, 241:22—242:13, 245:2—247:10, June 7, 2011 (Dawn Prosser). Prosser cites her testimony that she took care of the household and brought things to the marriage apart from herself and her children. Resp. 5. Again, this type of value, while it may be a benefit to Jeffrey Prosser, in no way benefitted the ICC Debtors. Finally, Prosser asserts she was confident her and her husband's debts would be repaid. Id. While this may be true, it does not demonstrate value provided to the ICC Debtors in exchange for the transfers at issue in this case. It does tend to show Prosser admittedly owed debts to the ICC Debtors.

The remaining examples cite evidence elicited at trial related to insolvency. Because the jury did not reach these questions in the Verdict Form, the question of the ICC Debtors' solvency need not be addressed here. The overwhelming evidence shows that while Prosser may have provided some value (which was likely for her husband's benefit only), she did not provide value to the ICC Debtors in exchange for all of the transfers at issue in this ease. Accordingly, the Court concludes Trustee Springel established the first element of avoidable transfers under the constructive fraud provisions of the Bankruptcy Code sufficient to entitle the Trustee to a new trial on these claims.

The second type of claims brought by Trustee Springel to recover fraudulent transfers were based on actual fraud meaning that Springel bore the burden of proof to show the ICC Debtors made the challenged transfers to Prosser with the "actual intent to hinder, delay, or defraud a creditor." 11 U.S.C. sec. 548(a)(1)(A) (actual fraud provision); 11 U.S.C. sec. 544, 28 V.I.C. secs. 204–206 (2010); In re Valley Bldg. & Canstr. Corp., 435 B.R. 276, 285 (Bankr.E.D. Pa 2010) (stating actual fraud provisions require trustee establishes debtor made payments with actual intent to hinder, delay, or defraud any creditor). Because "individuals are rarely willing to admit intent, actual fraud is rarely proven by direct evidence." In re Pa. Gear Corp., 2008 WL 2370169, at *9. Instead, courts consider various factors, or "badges of fraud," in determining whether fraud has been proven by circumstantial evidence. In re Am. Rehab & Physical Therapy, Inc., Bankr.No. 04–14562, Adv. No. 04–847, 2006 WL 1997431, at *15–16 (Bankr.E.D.Pa. May 18, 2006). While there are numerous badges of fraud, not all need to be shown to prove a claim of actual fraud. In re Valley Bldg. & Canstr. Corp., 435 B.R. at 286 (detailing 11 indicia of fraud courts may consider in determining actual intent, not all of which must be proven to support a claim of actual fraud, and noting this list is "non-exhaustive"); In re Fedders N. Am., Inc., 405 B.R. 527, 545 (Bankr.D.Del.2009) ("The presence or absence of any single badge of fraud is not conclusive." (citation omitted)).

Badges of fraud relevant to a debtor's actual intent include, inter alia, whether: (1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was disclosed or concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8.) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. In re Valley Bldg. & Constr. Corp., 435 B.R. at 286; In re Am. Rehab & Physical Therapy, Inc., 2006 WL 1997431, at *15–16 (quoting In re Pinto Trucking, Inc., 93 B.R. 379, 386 (Bankr.E.D.Pa.1988)).

At trial, the evidence showed numerous badges were present here. The challenged transfers were made to an insider, given Prosser's relationship to Jeffrey Prosser. As previously discussed, Prosser herself testified she did not provide value to the ICC Debtors in exchange for any of the fraudulent transfers. The transfers were not business-related, and were unrelated to compensation to Jeffrey Prosser in that they were not tied to hours worked, services provided, company performance, or the like. See Trial Tr. 248:20–249:9, 263:1–4, June 7, 2011 (Dawn Prosser); Trial Tr. 24:16–25:3, June 8, 2011 (Dennis Kanai). At the time of the transfers, litigation was pending against Jeffrey Prosser which resulted in a significant judgment against him and the ICC Debtors. See Trial Exs. 30, 191; see also Trial Tr. 20:9–22–25, 67:23–68:9, June 7, 2011 (Trustee Carroll). The assets transferred were never disclosed in financial statements filed with the Bankruptcy Court or on the Prossers' joint tax return. See Trial Exs. 1, 2, 147–151, 221. In addition, the transfers made to Prosser, not all of which were accounted for, and none of which were for business purposes, were nonetheless recorded internally as assets on New ICC's general ledger (the "contra-equity account"), and New ICC's audited financial statements referred to the contra-equity account as many things, including a "receivable," "advance," or "notes." See Trial Exs. 150, 151; see also Trial Tr. 168:2–12, June 7, 2011 (Alan Barbree); Trial Tr. 305:17—307:5, 310:3—311:14, June 7, 2011 (Ingrid Christian).

Prosser did not address any of these badges of fraud in her response, with the exception of insolvency; however, insolvency, by itself, is not an element that must be established in order to prove an actual fraud claim. In re Valley Bldg. & Constr. Corp., 435 B.R. at 286 (explaining while there are numerous badges of fraud courts may consider in determining actual intent, not all need to be shown to prove a claim of actual fraud); In re Fedders N. Am., Inc., 405 B.R. at 545 ("The presence or absence of any single badge of fraud is not conclusive." (citation omitted)). Nevertheless, at the time of the transfers, Trustee Springel established that New ICC was insolvent, in that its total liabilities exceeded its total assets for the years 1999—2005. See Trial Exs. 147–151; Trial Tr. 173:2–175:6, June 7, 2011 (Alan Barbree); Trial Tr. 14:16—17:16, 26:15—27:2, June 8, 2011 (Dennis Kanai); see also Trial Tr. 72:22–23, June 8, 2011 (instructing the jury that insolvency means "the fairvalue of the debtor's assets is less than the debtor's liabilities," which instruction was taken from definition agreed upon by the parties, and is consistent with the law on insolvency for fraudulent transfers under Bankruptcy Code); 11 U.S.C. sec. 101(32)(A) (defining "insolvent" in Bankruptcy Code as a "financial condition such that the sum of the entity's debts is greater than all of the entity's property, at a fair valuation").FN9

FN9. In her opposition, Prosser argues that Springel's "reference to New ICC's insolvency on a 'balance sheet basis' " in his post-trial motion is "misleading and not reflective of the legal basis for determining solvency." Resp. 6 n.1 (arguing correctly that assets should be measured at fair value, but contending this necessarily incorporates the "going concern" value of the entity which is measured at "market value" rather than "distress value," an issue on which the jury was not instructed). Springel's definition of insolvency, to which Prosser now objects, is consistent with the jury instruction, which was submitted jointly to the Court by the parties and agreed upon by the parties. Significantly, Prosser does not take issue with the jury instruction. Prosser cannot now assert a new definition for the term, or insert new terms into the definition. Nevertheless, because the jury did not reach any questions on the Verdict Form relating to insolvency, and because insolvency is not the only badge of fraud needed to prove actual fraud, Prosser's argument fails.

Moreover, in addition to the badges of fraud discussed above, other evidence in the record suggests wrongful intent was behind the transfers. In re Am. Rehab & Physical Therapy, Inc., 2006 WL 1997431, at *17. For example, nine days after a $56 million dollar judgment was entered against Jeffrey Prosser, he and his wife executed a marital asset agreemenf"for the purpose of defining the separately owned property of Dawn E. Prosser" to "define their respective financial and property rights." See Trial Ex. 124 (titling all personal property in Dawn Prosser's name on January 18, 2006); see also Trial Tr. 209:6–212:5, June 7, 2011 (Dawn Prosser). Despite the timing of this agreement, Jeffrey Prosser testified there was really no need for it, explaining its need must have been generated out of his wife's concern about the judgment and its effect on her husband. See Trial Tr. 196:10—198:24, June 8, 2011 (Jeffrey Prosser). Thereafter, on July 31, 2006, the date Jeffrey Prosser filed for personal bankruptcy, he transferred $480,000 to his wife. See Trial Tr. 217:22–25, June 7, 2011 (Dawn Prosser). These actions highlight the state of mind of Jeffrey Prosser whose conduct was imputed to the ICC Debtors as the ultimate principal of the ICC Debtors and an officer and director of New ICC. Trial Tr. 70:2–9, 76:15–18, June 9, 2011 (charging jury on both issues, using instructions agreed upon by all parties); see also In re Pinto Trucking, Inc., 98 B.R. at 386 ("It is the conduct of the transferor, i.e., the debtor, which must be established to have been fraudulent, not the transferee.").

The overwhelming evidence indicates Trustee Springel showed several badges of fraud at trial sufficient to avoid transfers under the actual fraud provisions of the Bankruptcy Code and the applicable Virgin Islands law, only one of which Prosser disputes. For this reason, Trustee Springel is entitled to a new trial on these claims.FN10

FN10. Because this Court finds that Trustee Springel is entitled to a new trial on Counts 1, 2, and 5 of his Complaint, Springel's argument concerning Attorney Moorhead's conduct at trial need not be addressed.

An appropriate Order follows.



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In re Prosser, 2012 WL 4442734 (Bkrtcy.D.Virgin Islands, Sept. 18, 2012). http://goo.gl/qlj2l

United States Bankruptcy Court, D. Virgin Islands, St. Thomas Division.

In re Jeffrey J. PROSSER, Debtor.

Stan Springel, Chapter 11 Trustee of the Bankruptcy Estate of Innovative Communication Corporation and James P. Carroll, Chapter 7 Trustee of the Bankruptcy Estate of Jeffrey J.P. Prosser, Plaintiffs,

v.

Jeffrey J. Prosser, Dawn Prosser, Justin Prosser, Michael Prosser, Sybil G. Prosser, Michelle Labennett, and Lyndon A. Prosser, Defendants.

Bankruptcy No. BR 06–30009 JKF. Adversary No. 07–03010 JKF.

Sept. 18, 2012.

Andrew Kamensky, Hunton & Williams, Miami, FL, Daniel C. Stewart, James Jay Lee, Michaela Christine Crocker, Vinson & Elkins LLP, Dallas, TX, Yann Geron, William H. Stassen, Samuel H. Israel, Elizabeth Ann Chew, Fox Rothschild LLP, New York, NY, Fred Stevens, Klestadt & Winters, LLP, New York, NY, for Plaintiff.

Norman A. Abood, The Law Office of Norman A. Abood, Toledo, OH, Robert F. Craig, Robert F. Craig, P.C., Omaha, NE, Jeffrey B.C. Moorhead, Jeffrey B.C. Moorhead, P.C., CRT Brow Building, St. Croix, VI, Christopher Allen Kroblin, Kellerhals Ferguson Fletcher Kroblin LLP, Karin A. Bentz, Law Offices of Karin A. Bentz, P. C., Leigh F. Goldman, Goldman Law Offices, Inc., Thomas F. Friedberg, Law Offices of Friedberg & Bunge, St. Thomas, VI, for Defendant.

MEMORANDUM OPINIONFN1

FN1. The court's jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.

JUDITH K. FITZGERALD, United States Bankruptcy Judge.

*1 The matter before this court is the Chapter 7 Trustee's Motion to Enforce Turnover Order, for Contempt and for Sanctions. Motion for Contempt and Sanctions, Adv. No. 07–03010, ECF No. 756, Aug. 4, 2011. On February 1, 2012, and February 2, 2012, a trial took place in the District Court of the Virgin Islands, Bankruptcy Division of St. Thomas/St. John, to hear evidence on the motion.

FACTS

Jeffrey Prosser (hereafter "Debtor") is a debtor in the bankruptcy case styled In re Jefrey J. Prosser; Case No. 06–30009(JKF), which is pending before this court.FN2 James P. Carroll, the Chapter 7 Trustee (hereafter "Chapter 7 Trustee") was appointed chapter 7 trustee of Debtor's estate on October 31, 2007. Debtor and his wife, Dawn Prosser FN3 (hereafter "Mrs. Prosser"), each claimed an interest in Wines (hereafter the "Wines"), eventually valued at over two million dollars, located at a number of locations including 252 El Bravo Way, Palm Beach, Florida (hereafter the "Palm Beach Property"); the Shoys Estate, St. Croix, Plots 4, 4A, 5, 10A, and 10AA, Christiansted, St. Croix, USVI (hereafter the "Shoys Estate"); 89 Victor Herbert Road, Lake Placid, New York (hereafter the "Lake Placid Property"); Park Avenue Liquor Shop, 292 Madison Avenue, New York, N.Y. 10017 (hereafter "Park Avenue Liquor"); Zachy's Wine and Liquor, Inc. (hereafter "Zachy's"); and a storage facility called The Store Room (hereafter "The Store Room").

FN2. The Debtor was an officer and director of Innovative Communication Corporation, a Chapter 11 Debtor in the bankruptcy case styled In re Innovative Communication Corporation, Case No. 07–30012(JKF). Stan Springel is the court-appointed chapter 11 trustee (hereafter "Chapter 11 Trustee") in the aforementioned chapter 11 bankruptcy case.

FN3. For purposes of clarity, when discussing the Debtor and Mrs. Prosser together, this court will refer to them as "the Prossers."

On December 11, 2007, the court entered an Order Granting Application for Preliminary Injunction (hereafter the "Injunction"), which provided, in relevant part, that the Prossers "shall keep the [Wines] in secure locations and protect [them] from destruction, damage, modification, theft, removal, or transfer, pending [their] turnover to the Trustees...." Order Granting Application for Preliminary Injunction, Ex. 1, Adv. No. 07–03010, ECF No. 79, Dec. 11, 2007. The Injunction further provided that the Prossers "shall not spend, consume, damage, dispose of, sequester, abscond with, secrete, or transfer" the Wines "in any form whatsoever without prior, written approval obtained from both Trustees,FN4 pending further Order of the Court." Id. Debtor understood that the Injunction was binding on him and is still binding on him. Deposition Transcript of Jeffery Prosser, Ex. 23, 15:10–17:3; 31:15–32:12. Mrs. Prosser understood that the Injunction was, and still is, binding on her. Deposition Transcript of Dawn Prosser, Ex. 24, 6:23–8:14.

FN4. The Chapter 7 Trustee and the Chapter 11 Trustee.

INITIAL INVENTORIES

Palm Beach Wines

After the Chapter 7 Trustee was appointed, he made efforts to determine the scope of the assets that would be coming into the Chapter 7 Estate. On January 16, 2008, the Chapter 7 Trustee traveled to the Prossers' Palm Beach residence, i.e., the Palm Beach Property. He was accompanied by Alan Barbee, a partner from the forensic accounting firm, Marcum LLP, which the Chapter 7 Trustee hired to assist in taking inventories of the Debtor's personal property. He was also accompanied by employees of Christie's Inc., (hereafter "Christie's") an auction company hired to sell property of the estate. The purpose of the trip was to review the assets at the Palm Beach Property. Robert Craig, an attorney for the Debtor, and Michaela Crocker, an attorney for the Chapter 11 Trustee, were also present at the Palm Beach Property on January 16, 2008. Although there was some debate as to who represented Mrs. Prosser at this time, the court previously determined that Mr. Craig held himself out as representing Mrs. Prosser in January 2008.FN5 The visit to the Palm Beach Property lasted the bulk of the day on January 16, 2008. The Chapter 7 Trustee concluded that the Wines present at the Palm Beach Property on January 16, 2008, had a higher value than the Debtor listed on his bankruptcy schedules, and initiated an inventory of the Wines.

FN5. "It is a fact that Bob Craig spoke on behalf of Dawn Prosser at many hearings." Trial Tr. 167:1–167:4, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. It is clear that Mrs. Prosser did not hire Karin Bentz to represent her until after the January 2008 visit to the Palm Beach Property, thus the court finds that Mr. Craig held himself out as representing Mrs. Prosser at that time. Trial Tr. 167:11–168:1, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

*2 The wine room in the Palm Beach Property was a self-contained room, accessible from the garage or the kitchen, that was climate controlled with cedar-lined shelves inside. The temperature in the wine room was maintained at a temperature significantly cooler than the rest of the home. The Chapter 7 Trustee, Mr. Craig, Ms. Crocker, and the Christie's representatives walked through the entire Palm Beach Property during the January 16, 2008, visit, including the main house, the outbuildings, pool area, and garage. In addition to the wine room, there were Wines located in a wine refrigerator in the kitchen of the Palm Beach Property. The Chapter 7 Trustee directed Mr. Barbee to conduct an inventory of the Wine at the Palm Beach Property on January 16, 2008.

The inventory was conducted as follows: Mr. Barbee and two employees working under him sketched out a diagram of the wine room and labeled the shelves. The purpose of this system was to eliminate double counting and to enable the three people conducting the inventory to cross-reference each other. At the completion of the inventory it was determined that there were 905 bottles of Wine at the Palm Beach Property on January 16, 2008. Demonstrative Summary of Damages, Ex. 30.FN6 Although the inventory was conducted by Mr. Barbee, Mr. Craig was on site during the process and could have participated in the inventory or conducted his own.

FN6. Exhibit 30 is a demonstrative summary of damages submitted by the Chapter 7 Trustee. See Trial Tr. 33:20–35:4; 42:23–42:25; 44:8–45:14, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012. It consists of two damage summaries and three spreadsheets. Id. The spreadsheets contain data related to the Wines at the Palm Beach Property and at the Shoys Estate. Id. One spreadsheet deals specifically with the Wines from the Palm Beach Property and contains the original inventory taken by Alan Barbee of Marcum LLP on January 16, 2008, as well as the inventory confirmation performed by Ms. Licamara of Marcum LLP on March 22, 2011. Id. The values of the Wines, as well as an estimate of damages, are supplied by the Edgerton Appraisal, Christie's high/low estimates, and Christie's auction (or "Hammer") prices. Id. The other spreadsheets are related to the Wines at the Shoys Estate (one contains damages for all the Wines, the other sheet lists only missing Wines). Id. Like the Palm Beach spreadsheet, these contain an initial inventory, a confirmation inventory, values, and estimated damages. Id. However, the initial inventory used in the Shoys Estate spreadsheets was not completed by Marcum LLP. Id. The initial inventory on these spreadsheets is from the Edgerton Appraisal. Id. The Edgerton Appraisal, created by William Edgerton (who was hired by Mrs. Prosser to value the Wines), is based on the Global Inventory of the Wines at each of the storage locations. The Global Inventory included the initial inventory, taken on January 26, 2008, by the Chapter 7 Trustee and an employee of Christie's at the Shoys Estate. Id.

At trial, Exhibit 30 was admitted except as to the Debtor regarding information related to the Edgerton Appraisal and Christie's "Hammer" prices. The admissibility of these portions was deferred, subject to further briefing by the parties. The court now concludes that the portions of Exhibit 30 related to the Edgerton Appraisal are admissible against the Debtor. As will be discussed in text, infra, the Edgerton Appraisal itself (Exhibit 28) is admissible against the Debtor and thus any portion of Exhibit 30 that is based on the Edgerton Appraisal is admissible. This court will use Exhibit 30 as an accurate summary of the number of Wines present during the initial inventories, the number of Wines present during confirmation inventories, and the values of the Wines (for which we will rely on the values provided in the Edgerton Appraisal). Throughout this Opinion we will reference and cite to Exhibit 30 as a summary of the evidence presented to this court through the Edgerton Appraisal, the testimony of Ms. Licamara of Marcum and the testimony of the Chapter 7 Trustee. When referring to Exhibit 30, we credit and accept the underlying testimony and evidence reflected in this demonstrative exhibit.

Shoys Estate Wines

On January 25th and 26th of 2008, the Chapter 7 Trustee traveled to the Shoys Estate residence of the Prossers. Christie's employee, Melissa Bernstein, was also there to assist with taking the inventory. During the visit, Mr. Craig was present representing the Prossers on January 25, 2008; and Oakland Benta, an employee of the Debtor, was present on behalf of the Prossers on January 26, 2008. The inventory at the Shoys Estate on January 26, 2008, lasted approximately four hours.

On January 26, 2008, the Wines at the Shoys Estate were stored in three separate locations. A climate-controlled wine refrigerator inside the home held individual bottles of Wine. A self-contained refrigerated wine storage location near the pool area, that had temperature and humidity controls and cedar-lined shelves, held individual bottles of Wine.FN7 An outbuilding,FN8 (hereafter the "Outbuilding") maintained by two functioning air conditioning wall units, held cases and individual bottles of Wine. The Wines in the Outbuilding were stored on the first floor, and there were fewer bottles there than in the wine storage location near the pool. The majority of the Wines in the Outbuilding were packed in the original crates, with the exception of a few bottles stacked in the corner. The bottles that were loose did not appear to have any label damage and there was no indication of any vermin or bug infestation.

FN7. The temperature in the wine storage location near the pool was comfortable and cool and drastically different from the hot and humid weather in St. Croix. This wine storage location was approximately the same size, but slightly smaller than the wine room at the Palm Beach Property.

FN8. The Outbuilding served as construction headquarters for the home under construction at the Shoys Estate.

The Chapter 7 Trustee FN9 and Ms. Bernstein conducted an inventory of the Wines at the Shoys Estate by counting them on a shelf-by-shelf or case-by-case basis. Trial Tr. 36:13–37:5, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. After the count was completed at the Shoys Estate, the Chapter 7 Trustee and Ms. Bernstein reviewed each other's lists to make sure there were not discrepancies. There were 980 bottles of Wine counted at the Shoys Estate on January 26, 2008. See Demonstrative Summary of Damages, Ex. 30; Edgerton Appraisal, Ex. 28.

FN9. The Chapter 7 Trustee is a certified public accountant and performed audits while he was working in public accounting. Trial Tr. 27:7–27:11, Feb 1, 2012. He has been personally involved with the inventory process while performing audits and in his capacity as an accountant. Trial Tr. 27:12–27:15, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

*3 The inventory of all of the Prossers' Wines (hereafter the "Global Inventory") FN10 was sent to the Christie's wine department, which estimated a high and low value for each entry. Trial Tr. 131:18–132:16, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. Mr. Craig received a copy of the Global Inventory, including the initial inventories of the Wines from the Palm Beach Property and the Shoys Estate, on March 7, 2008. Trial Tr. 38:6–38:8; 132:7–132:16, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. There were a total of 1,885 bottles of Wine counted at the Palm Beach Property and the Shoys Estate when the Global Inventory was completed. See Demonstrative Summary of Damages, Ex. 30.

FN10. The complete inventory of all the Prossers' Wines has been referred to by the parties, and will be referred to throughout this opinion, as the "Global Inventory." It includes inventories of Wines from the Palm Beach Property, the Shoys Estate, the Lake Placid Property, Park Avenue Liquor, Zachy's and The Store Room.

ALLOCATION OF THE WINES

After establishing the Global Inventory, the Chapter 7 Trustee claimed that the Wines were assets of the Chapter 7 Estate and that Mrs. Prosser had no cognizable legal interest in the Wines. Mrs. Prosser, however, asserted that she was the owner of 50%, if not 100%, of the Wines. The Chapter 7 Trustee, his counsel, the Chapter 11 Trustee's counsel and Mr. Craig had conversations regarding allocating the Wines among the parties by splitting them based on their location, but initially they could not come to a meeting of the minds.

On April 10, 2008, the Chapter 7 Trustee filed a Complaint seeking the entry of an order and judgment against Mrs. Prosser granting the Chapter 7 Trustee authority to sell the Debtor's and Mrs. Prosser's alleged interest in the Wines pursuant to section 363(h) of the Bankruptcy Code. Complaint, Adv. No. 08–03010, ECF No. 1, Apr. 10, 2008. The Chapter 7 Trustee argued that an equal allocation was not possible based on the potential disparity between the estimated value of a given bottle and the actual price that bottle would garner at auction. However, following the filing of an Answer to the Complaint by Mrs. Prosser, Answer, Adv. No. 08–03010, ECF No. 9, May 12, 2008, the court ordered counsel for Mrs. Prosser and the Chapter 7 Trustee to allocate the Wines on a bottle-by-bottle basis for a 50–50 split. Stipulation and Agreed Order between Chapter 7 Trustee and Dawn Prosser, Ex. 2; Adv. No. 08–03010, ECF No. 44, Oct. 28, 2008.FN11

FN11. Exhibit 2 was admitted at trial against Mrs. Prosser, only.

Attorney Karin Bentz was retained by Mrs. Prosser sometime in late March 2008 to handle the negotiations on the allocations. The Chapter 7 Trustee provided copies of the Global Inventory to Ms. Bentz, per her request. The values on the Global Inventory came from Christie's which assigned a high and low range of the estimated values per bottle and by case, to the extent there were cases of Wine. Mrs. Prosser retained William Edgerton to create an additional valuation of the Wines (hereafter the "Edgerton Appraisal"). The Edgerton Appraisal, Ex. 28.FN12 The Chapter 7 Trustee received the Edgerton Appraisal from Mrs. Prosser's counsel, Ms. Bentz, as the proposed basis upon which to allocate the Wines. Email Correspondence from Prosser's Counsel, Ex. 29.FN13 The Chapter 7 Trustee and Mrs. Prosser eventually agreed upon a 50–50 split.

FN12. The Edgerton Appraisal was admitted in its entirety against Mrs. Prosser at trial. However, the admissibility of the Edgerton Appraisal against the Debtor was questioned. The court now determines that the document is admissible in its entirety against both Mrs. Prosser and the Debtor. A discussion of the exhibit's admissibility will be detailed in text, infra.

FN13. Exhibit 29 was not admitted for the truth of the contents of the matter asserted, but only to establish the fact that the correspondence took place. Trial Tr. 45:24–46:5, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

INITIAL INVENTORY DISPUTE

*4 The Prossers now dispute the number of Wines that the Chapter 7 Trustee asserts they owned in 2008 because they did not conduct their own inventory of the Wines. They argue that there is no initial inventory which can be relied upon to determine whether or not the Prossers violated this court's orders. FN14 This argument is specious. The Prossers were in sole possession and control of the Palm Beach Property, the Shoys Estate and all of the Wines in question. Thus, they had every opportunity to count and re-count every bottle and case of wine, or to challenge the Chapter 7 Trustee's inventories. Indeed, Mrs. Prosser retained her own expert who, likewise, could have counted the bottles. They raised no issue and voiced no objection to the count that was used to make the 50–50 split. In addition, the Debtor personally purchased each bottle and case of Wine. If anyone had personal knowledge of the number of Wines, and their value, it was the Debtor.

FN14. Prior to the Motion for Contempt, the Prossers did not complain about, or question, the inventories.

The court finds that Mrs. Prosser accepted the Global Inventory, as she retained Mr. Edgerton, who could have counted the Wines prior to or during the negotiations of the allocation the Chapter 7 Trustee and Mrs. Prosser eventually agreed upon. The Edgerton Appraisal was admitted as evidence against Mrs. Prosser at trial. Trial Tr. 48:25–49:3, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

The Debtor argues that the Edgerton Appraisal, and any document based on the Edgerton Appraisal, is inadmissible hearsay evidence against him. This court disagrees. Under Federal Rule of Evidence 801(d)(2)(B), an exception to hearsay exists if a statement is offered against an opposing party and is one "the party manifested that it adopted or believed to be true." 28 U.S.C. sec. 801(d)(2)(B). "The law of evidence has long recognized 'adoptive admissions.' " United States. v. Miller, 478 F.3d 48, 51 (1st Cir.2007). The doctrine of "adoptive admissions," embodied in Rule 801(d)(2)(B), provides that in certain circumstances, a party's agreement with a fact stated by another may be inferred from (or "adopted" by) silence. Id. "Such an inference may arise when (i) a statement is made in a party's presence, (ii) the nature of the statement is such that it normally would induce the party to respond, and (iii) the party nonetheless fails to take exception." Id. When these elements are present, the statement, or in this case the document, "may be considered 'adopted' by virtue of the party's failure to respond." Id. The court finds that the Debtor, both personally and through counsel, was privy to the inventory and the valuation set forth in the Edgerton Appraisal, such that it constitutes a statement made in his presence.FN15 Debtor was not only aware of the inventory and valuation being used by Mr. Edgerton, but he admitted to assisting Mr. Edgerton in dividing the Wines. Deposition Transcript of Jeffery Prosser, Ex. 23, 20:4–20:11. During his deposition, Debtor testified about what tasks Mr. Edgerton undertook in the valuation and allocation process (what he referred to as the "breakdown" of the Wines). Id. at 21:4–22:7. The court finds that the nature of the Edgerton Appraisal, which was commissioned by Mrs. Prosser and assigned monetary values to the various Wines in which the Prossers were claiming an interest and which Debtor helped to prepare, is one that would induce the Prossers to respond if they did not agree with its findings.FN16 Counsel for the Chapter 7 Trustee and the Prossers undertook a lengthy process to allocate thousands of bottles of Wine based on estimates given by Christie's and Mr. Edgerton. Because the valuation of the Wines directly affected the Wines' allocation, and thus, the allocation to his bankruptcy estate and that to his wife, Debtor would have been induced to respond if he disagreed with either the inventory or the values within the Edgerton Appraisal. As the Debtor did not so respond, and also admitted to assisting Mr. Edgerton with ascertaining the values necessary to allocation and the preparation of the document, the court concludes that he adopted the Edgerton Appraisal and that the document is admissible against him under Federal Rule of Evidence 801(d)(2)(B). Likewise, the Debtor's objections to the portions of Exhibit 30 based on the Edgerton Appraisal are overruled.

FN15. Mr. Craig, counsel of record for the Debtor, was copied on the emails between counsel to the Chapter 7 Trustee and Mrs. Prosser relating to the Edgerton Appraisal and the allocation of the Wines. See Email Correspondence from Prosser's Counsel, Ex. 29. Debtor "certainly remember [s] being involved with [Mr. Edgerton] ... to assist in doing the division, coming up with a division, working with whomever to come up with a division of the wines." Deposition Transcript of Jeffery Prosser, Ex 23, 20:4–20:11.

FN16. Additionally, Debtor had an obligation to ensure the court was accurately informed of the full extent of his assets and their value. The Bankruptcy Code requires a debtor to file a schedule of his assets. 11 U.S.C. sec. 521(a)(1)(B)(I). This court has acknowledged that "[h]e had an absolute unqualified obligation to disclose every bottle of wine that he owned in this collection and its value" Hearing Tr. 101:22–102:3, July 18, 2012, Adv. No. 07–03010, ECF No. 987, July 26, 2012. The Debtor significantly under-reported the collection's value in his bankruptcy schedule, a fact discovered by the Chapter 7 Trustee upon visiting the Palm Beach Property in 2008. An inventory of the collection was sent to Debtor's counsel on March 7, 2008. Trial Tr. 132:8–132:23, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. However, Debtor did nothing to inform the court that the number in the inventory he received, or the number in the Edgerton Appraisal, was incorrect. Hearing Tr. 102:4–102:8, July 18, 2012, Adv. No. 07–03010, ECF No. 987, July 26, 2012.

*5 Thus, the Edgerton Appraisal is admissible against the Prossers and the data within it is a valid initial inventory of the Wines in question.FN17 Any objections made by the Prossers regarding their assertion that they had no opportunity to establish their own inventory, which the court finds to be totally incredible, goes to the weight of the evidence and not to the admissibility. The court finds that the Prossers were represented during the creation of the initial inventories; there is no evidence that the Prossers were prohibited from participating in the creation of such inventories; and, it is clear that the Prossers had the opportunity to create their own inventory had they desired to do so. Further, inasmuch as the inventory was used to produce a 50–50 split, both the Prossers and the Estate benefitted from an accurate assessment. Thus, the Prossers would have reason to speak up if the accuracy were in doubt.

FN17. In addition to the inventory in the Edgerton Appraisal, corresponding inventories of the Wines can be found throughout the evidence admitted at trial. Exhibit 2 (admitted only against Mrs. Prosser) contains an initial inventory of the Wines from the Palm Beach Property and the Shoys Estate; Exhibit 6 (admitted at trial against the Prossers) contains an initial and confirmation inventory of the Wines at the Palm Beach Property; and Exhibit 30 (for a discussion of admissibility, see note 6, supra) demonstrates an initial and confirmation inventory of the Wines from the Palm Beach Property and the Shoys Estate.

RESTATEMENT OF INJUNCTION

After the initial inventory was taken, the requirements set forth in the Injunction were restated by the court. The court first reiterated the requirements in an Order approving a Stipulation between Mrs. Prosser and the Chapter 7 Trustee on December 12, 2008 (hereafter the "9019 Order"), then again enforcing the terms of the Injunction on February 9, 2011, in a Memorandum Opinion and corresponding Order of Court.

9019 Order

On October 28, 2008, the Chapter 7 Trustee filed a Motion for Approval of a Stipulation and Agreed Order Between Chapter 7 Trustee and Dawn Prosser: (A) Settling and Resolving Adversary Proceeding, Without Prejudice to Certain Claims; and (B) Providing for the Division and Sale of a Portion of Certain Fine Wines, Champagnes, Liquors and Other Spirits. Motion to Approve Compromise under Rule 9019, Adv. No. 08–03010, ECF No. 44, Oct. 28, 2008. Attached to the Motion as Exhibit "A," was the Stipulation and Agreed Order between the Chapter 7 Trustee and Mrs. Prosser (hereafter the "Stipulation"). Id; see also Stipulation, Ex. 2; Adv. No. 08–03010, ECF No. 44, Oct. 28, 2008 (the Stipulation was admitted against Mrs. Prosser at trial). The Stipulation between the Chapter 7 Trustee and Mrs. Prosser set forth an agreement "that the approximate market value for the Wines is between $2.15 and $2.28 million, and that, for purposes of resolving the Adversary Proceeding, the Wines should be divided evenly between the Chapter 7 Trustee (the "Estate Wines") and Mrs. Prosser (the "Dawn Prosser Wines"),FN18 so as to enable a sale of the Estate Wines pending resolution of the other Wine Claims." Stipulation, Ex. 2; Adv. No. 08–03010, ECF No. 44, Oct. 28, 2008, at 5.FN19 In general, the Chapter 7 Trustee was allocated the Wines located in storage facilities and Mrs. Prosser was allocated the Wines located at the Prossers' residences, on the grounds that it would be less expensive for Mrs. Prosser to keep the Wines located at the residences. Id.

FN18. The "Dawn Prosser Wines" was a defined term for the 50% share preliminarily allocated to Mrs. Prosser while her claim to ownership was litigated.

FN19. The Stipulation included a Distribution Schedule which, for any given bottle of wine, included categories for the number of bottles or cases, the vintage, the brand and locations. The distribution schedule stemmed from the Global Inventory, and included columns with values provided by Mr. Edgerton and Christie's.

*6 On December 12, 2008, the court entered an Order Approving Stipulation and Agreed Order between Chapter 7 Trustee and Dawn Prosser, the 9019 Order. Order of Court, Ex. 3; Adv. No. 08–03010, ECF No. 61, Dec. 12, 2008. The 9019 Order specifies that "[t]he Stipulation is approved in all respects," except for certain modifications made by the court as detailed in the 9019 Order. Id . The court specifically modified the Stipulation to state: "Dawn Prosser shall continue to store, maintain and protect the Dawn Prosser Wines in continued compliance with the Injunction. Nothing in this Stipulation shall be deemed to constitute a modification or alteration to in any way affect the continuing enforceability of the Injunction as it relates to the Wines." FN20 Id. at 2. During depositions, the Prossers testified that they understood that the Stipulation did not relieve them of any of the responsibilities set forth in the Injunction. Deposition Transcript of Jeffery Prosser, Ex. 23, 31:15; Deposition Transcript of Dawn Prosser, Ex. 24, 18:19.

FN20. The 9019 Order also establishes that, "[t]his Court shall retain jurisdiction to, among other things, interpret and enforce the terms and provisions of this Order and the Stipulation, and to adjudicate, if necessary, any and all disputes concerning or relating to the transactions contemplated hereby." Order of Court, Ex. 3; Adv. No. 08–03010, ECF No. 61, Dec. 12, 2008.

After the court issued the 9019 Order, the Wines that were allocated to the Chapter 7 Estate were auctioned off. Report of Sale, Case No. 06–30009, ECF No. 2523, June 23, 2009. The Wines not allocated to the Chapter 7 Estate were in the care, custody and control of, and remained in the possession of, the Prossers until entry of the Turnover Order.

Turnover Order

On February 9, 2011, the court issued a Memorandum Opinion and entered an Order Requiring Turnover of Certain Property to the Chapter 7 Trustee (hereafter the "Turnover Order"). Turnover Opinion and Order, Ex. 4; Adv. No. 07–03010, ECF No. 728, Feb. 9, 2011. The Turnover Order determined, among other things, that the Wines allocated to, and in the possession of, Mrs. Prosser are property of the Chapter 7 Estate. Id. at 2. It required that the Prossers turn over the Wines to the Chapter 7 Trustee and ordered that the Injunction be made permanent and kept in place until the Wines were turned over to the Chapter 7 Trustee. Id. The Turnover Order did not change the terms of the Injunction previously entered by the court in relation to the Wines. Id.

SECOND INVENTORY

Palm Beach Wines

In March 2011, the Chapter 7 Trustee visited the Palm Beach Property for the dual purpose of evaluating, packing and shipping the Wines for sale and determining how to store and maintain the personal property that was within the home prior to the sale of the Palm Beach Property. The Chapter 7 Trustee was accompanied by Mr. Barbee and Teresa Licamara, an accountant also employed by Marcum LLP, as well as Ms. Bernstein and three other members of the Christie's wine department, and John Cronin from MYC auctioneers. The three members of the Christie's wine department were tasked with evaluating, packing and shipping the Wines for sale and Mr. Cronin was present to review the personal property in the home in preparation for its auction sale.

*7 When the Chapter 7 Trustee entered the wine room, his first impression was that there were significantly fewer Wines than when he visited in 2008. FN21 The Chapter 7 Trustee told the Debtor that there seemed to be fewer bottles present at the Palm Beach Property than on his previous visit in 2008 and asked if bottles were located anywhere else on the property. The Debtor responded that there had never been a confirmed initial inventory and therefore, nothing to compare the current number of bottles against. Trial Tr. 65:1–65:21, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

FN21. There was also a bottle or two in the wine refrigerator in the kitchen, but the Debtor informed the Chapter 7 Trustee that this wine was purchased after the 2008 visit.

Ms. Licamara from Marcum LLP used the original inventory from 2008 and compared it against what was in the wine room in March 2011. She used a numbering/lettering system to identify the various locations of the Wines in the room. Marcum LLP created the numbering/lettering system as part of the inventory. For each vintage of wine present in 2008, Marcum LLP confirmed how many bottles were still present in March 2011. The result of the comparison was that 471 of the bottles present in 2008 were missing from the wine room in March 2011. See Demonstrative Summary of Damages, Ex. 30. The total number of Wines present at the Palm Beach Property in 2008 was 905 and on March 22, 2011, there were only 434. Id. These remaining bottles were packed up and removed from the Palm Beach Property to be sold.

Shoys Estate Wines

With the agreement of counsel for the Prossers, the Chapter 7 Trustee directed representatives of Christie's to go to the Shoys Estate on July 29, 2011, to pick up and ship the Wines stored there for sale. Christie's reserved the right to physically inspect the Wines prior to taking them for sale.FN22

FN22. Prior to July 29, 2011, Christie's picked up and found suitable for sale Wines from other locations, including Wines stored at Zachy's, Park Avenue Liquor, The Store Room and the Palm Beach Property. There were no instances in connection with this case in which Christie's refused to pick up Wines prior to the July 29, 2011, visit to the Shoys Estate.

Although the Christie's representatives went to the Shoys Estate for the purpose of picking up and shipping the Wines, Christie's did not remove the Wines from the Shoys Estate. Upon observing the condition of the bottles and their storage, as detailed below, it was determined that the Wines would not be marketable through Christie's. The Chapter 7 Trustee spoke with Charles Antin, one of the Christie's representatives who visited the Shoys Estate on July 29, 2011, while he was still on the property that day. Mr. Antin explained that based on the conditions in which the Wines were stored as of July 29, 2011, the Wines were not marketable. He expressed that the Wines were not sufficiently cooled, that one of the air conditioning units in the Outbuilding was not functioning and was unplugged, and that the other "wasn't an effective cooling device." FN23 Deposition Transcript of Charles Antin, Ex. D.10, 55:12–55:13. Mr. Antin felt some of the bottles of Wine in the Outbuilding and discovered that they were warm to touch. Deposition Transcript of Charles Antin, Ex. D.10, 58:21–60:6. He also determined that the air being blown into the room was "tepid." FN24 Id.

FN23. The Prossers raised arguments at trial, during closing arguments, and within their pleadings regarding the temperature in the Outbuilding and the Prossers' knowledge of the required temperature for wine storage. See Jeffrey J. Prosser's Post–Trial Brief with Proposed Findings of Fact and Conclusions of Law, Adv. No. 07–03010, ECF No. 970, at 5, June 18, 2012. Although we recognize that the orders of this court did not specifically inform the Prossers that Christie's required wines to be stored at a certain temperature, the Prossers were specifically required to keep the Wines in the same condition as and from the time the orders were entered. They did not do so. We also find that the Debtor, as the purchaser and owner of a large collection of fine wines, had a general understanding of the proper storage methods for such a collection. This conclusion is evidenced by the methods of storage used by the Prossers for the rest of their collection in other locations, as well as the method of storing Wines at the Shoys Estate as observed in 2008. See Exhibit A attached to this opinion (containing sample photographs from Ex. 5).

In 2008 the majority of the Wines at the Shoys Estate were stored in a temperature controlled wine refrigerator which kept the Wines organized and cool. This unit was no longer being used when Mr. Antin visited the Shoys Estate in July 2011. There is also no evidence that the Wines stored in the Outbuilding in 2008 were being stored in a manner that would expose them to heat, sunlight, insects or vermin. The Chapter 7 Trustee and Ms. Bernstein, an employee of Christie's, visited the Shoys Estate in 2008 and there is no evidence that they were concerned about the storage conditions of the Wines. At the time of the 2008 visit the Outbuilding was sufficiently cool and the temperature was maintained by two functioning air conditioning units. The Debtor asserts that the "wine rooms [were] no different [in December 2011] than they were then [in January 2008] when people went through them" although he admits that "they may not be as neat." Deposition Transcript of Jeffrey Prosser, Ex. 23, 55:1–55:6. Despite his assertion, it is clear to this court that the storage conditions at the Shoys Estate changed from 2008 to 2011 and that such changes resulted in Christie's refusal to sell the Wines from that property. The photographs admitted as Exhibits clearly establish changed conditions. See infra note 25.

FN24. We recognize that Mr. Antin's associate unplugged the one semi-functioning air conditioner in the Outbuilding (which he believed was blowing tepid air) upon leaving the Shoys Estate in July 2011. Deposition Transcript of Charles Antin, Ex. D.10, 58:21–60:6. Mr. Antin testified that after his observations he instructed his associate to unplug the air conditioner and he attributed this action to his being "green." Id. at 33:12–34:6; 75:4–75:7. Mr. Benta, an employee of the Debtor, testified that he plugged the air conditioner back in after only 15 minutes. Deposition Transcript of Oakland Benta, Ex. D.8, at 42:2–42:12. Thus, although we acknowledge that Mr. Antin and his associates should not have unplugged the air conditioner, we find that no additional damage to the Wines was caused by the action. The credible testimony of the Chapter 7 Trustee's expert, Ms. Ewing–Mulligan, established that the lack of soundness in the Wines could not have been caused by the air conditioner being unplugged for 15 minutes, that the Wines must have "suffered bad storage for a few years." Trial Tr. 157:18–158:11, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

Photographs of the Wines stored at the Shoys Estate were taken on July 29, 2011, and admitted at trial as Exhibit 7. Photos of Wines at Shoys Estate in July 2011, Ex. 7; see also Exhibit B attached to this Opinion (containing a sample photograph from Ex. 7). After reviewing these photographs, the Chapter 7 Trustee determined, and we find, that the storage conditions of the Wines at the Shoys Estate were completely different than they were in 2008.FN25 In 2011, all of the Wines at the Shoys Estate were located in the Outbuilding, having been moved there by the Debtor and a yard worker earlier in the year. Deposition Transcript of Jeffery Prosser, Ex. 23, 8:10–9:16. The Debtor testified that the refrigerated wine storage location near the pool area stopped working which is why the Wines were moved to the Outbuilding. FN26 Id. at 8:13–20:12. The July 2011 and December 2011 photographs showed nonfunctioning refrigeration units containing Wines stacked haphazardly, as well as Wines stacked sideways in cardboard boxes on the floor in no order. Photos of Wines at Shoys Estate in July 2011, Ex. 7; Photos of Wines at Shoys Estate in December 2011, Ex. 20; See also Exhibit C attached to this Opinion (containing sample photographs from Ex. 20).

FN25. There were photographs of the Wines taken at the Shoys Estate in March of 2008, and these photographs were also admitted into evidence at trial. Photos of Wine at Shoys Estate in 2008, Ex. 5. A comparison of the photographs from 2008 and 2011 shows the changes in the storage conditions at the Shoys Estate, as well as the overall condition of the Wines stored there. Compare Photos of Wine at Shoys Estate in 2008, Ex. 5 (sample attached to this Opinion as Exhibit A), with Photos of Wine at Shoys Estate in July 2011, Ex. 7. See also Exhibit B attached to this Opinion (containing a sample photograph from Ex. 7).

FN26. Neither the court, nor the Chapter 7 Trustee, was ever informed that the Prossers were having difficulty storing and maintaining the Wines, or that any of the Wines were missing. Trial Tr. 90:22–92:3, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012.

*8 Ms. Licamara and two wine experts retained by the Chapter 7 Trustee, Mary EwingMulligan FN27 and Lisa Granik (hereafter the "Experts"), traveled to the Shoys Estate on December 15, 2011, to confirm the number of Wines present, as compared to the number present during the January 2008 visit, and to determine the marketability of the remaining Wines. Counsel for Mrs. Prosser,FN28 counsel for the Chapter 7 Trustee, and the United States Marshal's Service were also present during the December 15, 2011, visit.

FN27. Ms. Ewing–Mulligan was retained by the Chapter 7 Trustee to determine the soundness and marketability of the Wines at the Shoys Estate. She testified at trial, was qualified as an expert and was permitted to give an opinion as to the marketability and quality of the Wines as well as to the condition of the storage of the Wines. Trial Tr. 121:7–121:19, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

FN28. Jeffrey Moorhead, Mrs. Prosser's counsel in these proceedings and Debtor's counsel in other matters, was present at the time of the December 15, 2011, visit. Trial Tr. 63:3–63:9, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

Ms. Licamara used the Edgerton Appraisal to identify and compare the quantity of Wines present during the January 2008 visit to the quantity of Wines present on December 15, 2011. She entered the numbers from the Edgerton Appraisal into an Excel spreadsheet,FN29 which she brought with her to the Shoys Estate. Because the Wines were in such disarray, the Experts had to assist in the inventory process by categorizing and organizing the Wines by vintage so they could be counted. Ms. Licamara, with the assistance of the Experts, went through each bottle of Wine in the Outbuilding, organized it by name and vintage, and checked it against the Excel spreadsheet she brought with her. In December 2011, there were 527 bottles of Wine present at the Shoys Estate, 453 less than the 980 bottles of Wine present during the initial inventory taken in 2008. See Demonstrative Summary of Damages, Ex. 30.

FN29. Ms. Licamara cross-checked the numbers in the Edgerton Appraisal with the Distribution Schedule attached to the Stipulation between the Chapter 7 Trustee and Mrs. Prosser and determined that the names, vintages, and counts for the Wines were the same on both documents. Trial Tr. 31:18–32:5, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

At the December 2011 visit to the Shoys Estate, it was determined that the Wines remaining on the premises were in a state of deterioration from poor storage conditions. As mentioned above, all of the Wines were in the Outbuilding, where both cases and individual bottles were stored near windows exposed to light and heat. The state of the Outbuilding itself had changed since January 2008 when it was in good condition with a functioning cooling system. In December 2011, the Outbuilding was in a state of disrepair, with peeling paint outside and broken glass on the ground.FN30 Trial Tr. 182:21–183:2, Feb. 1, 2012; Case No. 06–30009, ECF No. 3670, Mar. 7, 2012. As can be seen in the sample photographs attached to this Opinion as Exhibits B and C, within the Outbuilding bottles of Wine were stacked in rows and on top of each other in non-operating refrigerators such that the Wines needed to be taken out and sorted in order to be counted. The refrigerators' doors were open and the Wines that were not stacked inside were scattered on the floor. The refrigerators were dirty. There were vermin feces and insect residue present in the Outbuilding and evident on the labels of the Wines. The manner of storage led to scratched and damaged labels.FN31 Some of the labels were missing; others had insect feces on them and some had been eaten by insects or vermin almost beyond recognition. Some labels were so damaged that the Experts had to identify the Wines by their corks. Photos of Wine at Shoys Estate in December 2011, Ex. 20. Ms. Ewing–Mulligan testified that based on the outward appearance of the bottles, alone, 75% of the Wines were not marketable. Trial Tr. 143:23–144:5, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

FN30. The Prossers have argued that they are concerned that a theft may have taken place at the Shoys Estate. Dawn E. Prosser's Post Trial Brief with Proposed Findings of Fact and Conclusions of Law, Adv. No. 07–03010, ECF 971, at 3, June 18, 2012. Mrs. Prosser testified in her deposition that she did not know for sure that any Wines were stolen although she believed someone had possibly broken in and destroyed or consumed some Wines and used the pool at the Shoys Estate. Deposition Transcript of Dawn Prosser, Ex. 24, 8:15–9:14. First, with regard to this argument, the court finds that there is no sound evidence to prove that a break-in did in fact occur at the Shoys Estate. Secondly, the Prossers were specifically ordered to keep the Wines "in secure locations and protect the [Wines] from destruction, damage, modification, theft, removal, or transfer, pending its turnover to the Trustee." Order Granting Application for Preliminary Injunction, Ex. 1; Adv. No. 07–03010, ECF No. 79, Dec. 11, 2007 (emphasis added). Failure to prevent a theft of the Wines is still a violation of this court's orders, and not an appropriate defense.

FN31. Certain types of Wines present in the Outbuilding, such as the Chateau Mouton Rothschild, have particularly valuable labels, as every year a renowned artist is commissioned to design artwork for the label. Ms. Ewing–Mulligan explained that a purchaser of this bottle would want the label to be pristine as the packaging gives the wine an added value beyond the taste of the wine itself. Trial Tr. 133:25–134:24, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012.

*9 Even though the outward appearance of the Wines was telling, Ms. Ewing–Mulligan, intending to conduct a thorough investigation, opened six bottles of Wine for the purpose of tasting them. The Wines she selected had the highest presumption of durability and best chances of being in good condition. Id. at 143:9–143:20. When she tried to open the six bottles, each cork broke for various reasons. In some cases the cork was too soft and the corkscrew couldn't gain purchase on the inside of the cork. In some cases, the cork was loose in the bottle and difficult to extract. In some cases, the cork was dried out. Id. at 149:9–149:22. According to Ms. Ewing–Mulligan, the Wines were out of condition and once a wine falls out of condition it can never be restored to where it should be. Id. at 152:6–152:19. After testing the six bottles of the most durable Wines, and after considering their condition, Ms. Ewing–Mulligan testified that none of the Wines located at the Shoys Estate were marketable or had any sale value. Id. at 153:16–153:24. It was clear from her testimony, and we find, that she made a good faith effort to recover Wines that were marketable but she was unable to find any such bottles due to the improper storage conditions and indicators of external damage to the Wines. Id. at 140:18–141:5. She determined that the storage conditions causing deterioration were environmental factors, such as insect damage, temperature, humidity and light exposure within the Outbuilding. Id. at 180:4–180:22.

Of the 527 remaining bottles of Wine at the Shoys Estate in December 2011 none was considered marketable by Ms. Ewing–Mulligan.

LEGAL ANALYSIS

This court has the authority to sanction the Prossers using its civil contempt powers, which reside in bankruptcy courts pursuant to 11 U.S.C. sec. 105(a), to remedy a violation of its orders. In re Bartock, 398 B.R. 135, 160 (Bkrtcy.W.D.Pa.2008) (citing In re Davitch, 336 B.R. 241 (Bkrtcy.W.D.Pa.2006)). In order to impose sanctions for civil contempt a court must find that a valid court order existed, the defendant had knowledge of that order, and the defendant disobeyed the order. Davitch, 336 B.R. at 251 ( citing Harris v. City of Phila., 47 F.3d 1311 (3d Cir.1995)). A bankruptcy court has the authority to impose civil contempt to enforce compliance with a court order and to compensate a party damaged by a violation of that order. In re Swanson, 207 B.R. 76, 80 (Bankr.D.N.J.1997). Because civil contempt serves a remedial purpose, proof of willfulness is not required for a sanction to be imposed. Id. Thus, it is not necessary to make a finding of bad faith to impose a civil contempt sanction. See Bartock, 398 B.R. at 160 ( citing In re Elias, 98 B.R. 332, 337 (N.D.Ill.1989)).

The court concludes that the elements necessary to find the Prossers in civil contempt of court and to sanction were established in this case. To protect property of the Chapter 7 Estate while issues concerning what was property of the Estate were litigated, this court entered three separate valid orders: the Injunction, the 9019 Order, and the Turnover Order. The court finds that since December 2007, when the Injunction was entered, the Prossers have been forbidden, by explicit Order of this court, from disposing of, consuming, damaging, or in any other way compromising the integrity of the Wines. The court finds that the Prossers had knowledge of the orders and flagrantly disobeyed them by dissipating (or permitting the dissipation of) approximately 52% of the inventoried 905 bottles of Wine at the Palm Beach Property, dissipating (or permitting the dissipation of) approximately 46% of the inventoried 980 bottles of Wine at the Shoys Estate, and by failing to maintain (or to make reasonable efforts to maintain) the remaining Wines at the Shoys Estate in a protected, light and temperature controlled environment (as they were stored in 2008) such that they became unmarketable by Christie's. FN32 Thus, we find Jeffrey Prosser and Dawn Prosser in civil contempt of court. Moreover, their violation of three orders of the court is so egregious that sanctions are warranted.

FN32. Although the testimony is clear that the Wines at the Shoys Estate were unmarketable through Christie's, the Prossers have argued that the Wines may still have some value remaining. Thus, on July 18, 2012, the court instructed the Chapter 7 Trustee to set up an auction to attempt to sell the remaining Wines from the Shoys Estate in order to determine whether or not the Wines have any value. Hearing Tr. 134:21–136:19, July 18, 2012, Adv. No. 07–03010, ECF No. 987, July 26, 2012. On September 10, 2012, this court issued an Order granting the Trustee's motion to retain Auction America to sell property located at the Shoys Estate, including the remaining Wines. Order of Court, Case No. 06–30009, ECF No. 3893, Sept. 11, 2012. Should the Wines sell for any amount, the net, after costs and expenses are subtracted, will be deducted from the damages attributed to missing and unmarketable Wines.

DAMAGES

*10 As discussed above, this court finds that the inventory and the valuation of the Wines summarized in the Demonstrative Summary of Damages, Ex. 30, is admissible evidence against the Prossers and provides an appropriate basis for measuring damages.

The court finds that the Chapter 7 Trustee established that the Chapter 7 Estate suffered damages in the amount of the value of the missing and unmarketable Wines plus the fees and cost of litigation, including the Chapter 7 Estate's retention of experts. Regarding the value of the Wines, the Prossers presented no credible evidence rebutting the Chapter 7 Trustee's calculation of damages. We will therefore use the calculation provided by the Chapter 7 Trustee as summarized in the Demonstrative Summary of Damages, Ex. 30, which was established as reliable and accurate by testimony and evidence admitted at trial. The values of the Wines this court adopts are the values provided by Mrs. Prosser's expert, Mr. Edgerton. As to the fees and costs of litigation, further proceedings are needed.

At the Palm Beach Property, 471 bottles of Wine, with a value of $83,579.00, were missing in March of 2011.FN33 See Demonstrative Summary of Damages, Ex. 30. At the Shoys Estate 453 bottles of Wine, with a value of $139,412.00, were missing in December of 2011.FN34 Id. An additional 527 bottles of Wine worth $211,884 were considered unmarketable,FN35 bringing the amount of damages from the Shoys Estate to $351,296.00. Id. The court therefore finds that the Debtor and Mrs. Prosser have violated the court's orders and are in civil contempt of court. The Chapter 7 Estate is awarded sanctions against the Prossers, jointly and severally, in the amount of $434,875.00, less any net proceeds recovered from the auction of the Wines from the Shoys Estate, plus an as yet undetermined amount in fees and costs, for Trustee's counsel and experts.

FN33. There were additional Wines at the Palm Beach Property which were not present during the initial inventory, but were present during the inventory confirmation in 2011. See Demonstrative Summary of Damages, Ex. 30. These Wines were not considered as a factor in the finding of civil contempt or in the calculation of damages.

FN34. There were also additional Wines present at the Shoys Estate during the inventory confirmation which were not present during the initial inventory. See Demonstrative Summary of Damages, Ex. 30; See also Trial Tr. 84:5–84:19, Feb. 2, 2012; Case No. 06–30009, ECF No. 3674, Mar. 12, 2012. The court did not consider these Wines as a factor in the finding of civil contempt or in the calculation of damages.

FN35. Net proceeds, if any, from a sale of these Wines will be considered in the final calculation of damages. See supra, note 32.

An appropriate order will be entered. Damages will be assessed in a Supplemental Order

Bkrtcy.D.Virgin Islands,2012.

In re Prosser

Slip Copy, 2012 WL 4442734 (Bkrtcy.D.Virgin Islands)


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In re Prosser, 2013 WL 594312 (Bkrtcy.D.Virgin Islands, Slip Copy, Feb. 14, 2013). http://goo.gl/V2C55

District Court, Virgin Islands, Bankruptcy Division, D. St. Thomas and St. John.

In re Jeffrey J. PROSSER, Debtor.

Stan Springel, Chapter 11 Trustee of the Bankruptcy Estates of Innovative Communications Corporation, Emerging Communications, Inc., and Innovative Communication Company, LLC; James P. Carroll, Chapter 7 Trustee of the Bankruptcy Estate of Jeffrey J. Prosser; Greenlight Capital Qualified, L.P.; Greenlight Capital, L.P.; and Greenlight Capital Offshore, Ltd., Movants,

v.

Jeffrey J. Prosser, Respondent.

No. 06–30009.

Feb. 14, 2013.

MEMORANDUM OPINION

Related to Doc. Nos. 1143, 1178, 1236, 1237, 1338, 1343, 1344, 2225, 2226, 2227, 2229, 2230, 2233, 2305, 2309, 2310, 2312, 2316, 2350, 2352, 2354

JUDITH K. FITZGERALD, United States Bankruptcy Judge.

Introduction

*1 Before the Court are objections filed by James P. Carroll, Chapter 7 Trustee of the Estate of Jeffrey J. Prosser (the "Chapter 7 Trustee" or "Trustee Carroll"), Stan Springel, Chapter 11 Trustee of the Estates of Innovative Communication Corporation ("New ICC"), Emerging Communications, Inc. ("EmCom"), and Innovative Communication Company, LLC ("ICC–LLC" and together with EmCom and New ICC, the "ICC Debtors") FN1, and Greenlight Capital Qualified, L.P., Greenlight Capital, L.P., and Greenlight Capital Offshore, Ltd. (collectively, the "Greenlight Entities"), to the exemptions claimed by Jeffrey J. Prosser (the "Debtor") pursuant to sec. 522 FN2 of the Bankruptcy Code in the following property:

FN1. The ICC Debtors are also debtors in bankruptcy in the U.S. Bankruptcy Court for the U.S. Virgin Islands, Division of St. Thomas and St. John at Case No. 07–30012 (New ICC), 06–30007 (EmCom), and 06–30008 (ICC–LLC). EmCom and ICC–LLC's bankruptcy cases are jointly administered under Case No. 06–30008. Liquidation plans have been confirmed in the ICC Debtors' bankruptcy cases.

FN2. All statutory citations are to the Bankruptcy Code, Title 11 of the United States Code, unless otherwise specified.

(1) real property located at Hermon Hill, Plots 96, 97A, Christiansted, St. Croix, U.S. Virgin Islands ("Hermon Hill");

(2) real property located at Estate Shoys, Plot Numbers 4, 4A, 5, 10A, and 10AA, Christiansted, St. Croix, U.S. Virgin Islands (the "Shoys Estate");

(3) real property known as the Shoys Plot (Anna's Hope Plot) numbers 168, 169, 170, and 171, Christianstead, St. Croix, U.S. Virgin Islands ("Anna's Hope").

On October 9, 2009, this Court issued an Opinion (the "Exemptions Opinion") denying Mr. Prosser's claimed exemptions in the above-referenced real property, along with Mr. Prosser's claimed exemption in an additional piece of real property located at 252 El Bravo Way, Palm Beach, Florida (the "Palm Beach Property"), on the grounds that, under the totality of the circumstances, Mr. Prosser's bad faith conduct throughout his bankruptcy case warranted a blanket denial of his real property exemptions. On appeal, Judge Gomez of the United States District Court for the United States Virgin Islands, Division of St. Thomas and St. John, reversed and remanded that portion of the Exemptions Opinion that dealt with real estate in the Virgin Islands, holding that exemptions in real property cannot be denied on the basis of bad faith conduct that is not directly linked to the real property to be exempted.FN3 We are now charged with reconsidering the exemptions for the properties listed in the Hermon Hill, Estate Shoys, and Anna's Hope properties.FN4

FN3. Prosser v. Springel, Civil Case No. 3:09–cv–00147–CVG–RM, Doc. No. 39, at 20 (D.V.I. Jan. 6, 2012) (the "District Court Opinion").

FN4. As stated in the District Court Opinion, the Palm Beach Property is not subject to reconsideration. The Court authorized the Chapter 7 Trustee to sell the Palm Beach Property while the appeal of the Exemptions Opinion was pending and issued an order confirming the sale. Prosser obtained a stay of this Court's order confirming sale from the district court, but the Chapter 7 Trustee moved in the court of appeals to require Prosser to post a bond to stay the sale. The court of appeals granted Trustee Carroll's motion, Prosser failed to timely post a bond, and the stay was lifted. The Palm Beach Property was then sold to a good faith purchaser on May 16, 2011. See District Court Opinion, at 6.

Procedural and Factual Background

Mr. Prosser listed the real property at issue on his fourth Amended Schedule A–Real Property as follows FN5:

FN5. Jeffrey Prosser's fourth amended schedules, Case No. 06–30009, Doc. No. 1226, filed on January 11, 2008 (the "Fourth Amendment"). The Debtor did not list his possessory interest in the Shoys Estate until the first amendment of his schedules filed on February 5, 2007, at Doc. No. 359. We note that Mr. Prosser amended his schedules a fifth time, on May 7, 2009 (the "Fifth Amendment," Doc. No. 2468) after the close of evidence on the exemptions trial. The Fifth Amendment does not have any effect on Mr. Prosser's claimed exemptions. As such, all citations to Mr. Prosser's schedules will be to the Fourth Amendment at Doc. No. 1226.


DESCRIPTION AND LOCATION OF PROPERTY ~ NATURE OF DEBTOR'S INTEREST IN PROPERTY ~ HUSBWIFE JOINT COM. ~ CURRENT VALUE OF PROPERTY WITHOUT DEDUCTING EXEMPTION ~ AMOUNT OF SECURED CLAIM
Shoys Plot # 's 168, 169, 170, and 171 St. Croix, USVI ~ Fee Simple ~ T by E ~ $100,000.00 each $400,000.00 total ~ None
Hermon Hill Plot 96 and 97A Christiansted, St. Croix ~ Fee Simple ~ T by E ~ $50,000.00 ~ None
4, 4A, 5, 10A and 10AA Estate Shoys St. Croix, USVI ~ Possessory Interest ~ n/a ~ Undetermined ~ $2,070,000 (approximately)


*2 Mr. Prosser's fourth Amended Schedule C—Property Claimed Exempt, lists his claimed exemptions in the real property at issue as follows:


DESCRIPTION OF PROPERTY ~ SPECIFY LAW PROVIDING EACH EXEMPTION ~ VALUE OF CLAIMED EXEMPTION ~ CURRENT VALUE OF PROPERTY WITHOUT DEDUCTING EXEMPTION
Shoys Plot (Anna's Hope Plot) Numbers 168, 169, 170, and 171 Christiansted, St. Croix, U.S.V.I. ~ 11 U.S.C. sec. 522(b)(3)(B) ~ Unlimited ~ $100,000.00 each $400,000.00 total
Hermon Hill, Plots 96, 97A Christiansted, St. Croix, U.S.V.I. ~ 11 U.S.C. sec. 522(b)(3)(B) ~ Unlimited ~ $50,000.00
Estate Shoys Plot Numbers 4, 4A, 5, 10A, 10AA Christiansted, St. Croix, U.S.V.I. ~ V.I.C.A. 5 sec. 478(a) ~ $30,000.00 ~ $2,070,000.00


The Chapter 7 Trustee, the Chapter 11 Trustee, and the Greenlight Entities each filed objections to the exemptions claimed by Mr. Prosser.FN6 The objections to the claimed real property exemptions were tried on June 9–12, 2008, August 25–28, 2008, September 8–9, 2008, and October 2–3, 2008.FN7 After the close of evidence, the parties submitted the following proposed findings of fact and conclusions of law and post-trial briefs:

FN6. Doc. Nos. 1143, 1178, 1236, 1237, 1338, 1343, 1344.

FN7. Objections to Mr. Prosser's claimed exemptions in various personal property and a real property located in Lake Placid, N.Y. (the "Lake Placid Property"), not at issue here, were adjudicated after a non-evidentiary hearing on certain of the grounds for objection on February 28, 2008. An Order ruling on the claimed exemptions in personal property was issued by this Court on March 20, 2008, at Doc. No. 1458 (the "First Exemptions Order").

—Jeffrey J. Prosser's Proposed Findings of Fact and Conclusions of Law and Brief, Doc. No. 2225, filed Nov. 14, 2008;

—Trustee Springel's Proposed Findings of Fact and Conclusions of Law, Doc. No. 2226, filed Nov. 14, 2008;

—Trustee Springel's Brief in Support of Proposed Findings of Fact and Conclusions of Law, Doc. No. 2227, filed Nov. 14, 2008;

—Trustee Carroll's Proposed Findings of Fact and Conclusions of Law, Doc. No. 2229, filed Nov. 14, 2008;

—Trustee Carroll's Post–Trial Brief Regarding Exemptions Claimed by Debtor, Doc. No. 2230, filed Nov. 14, 2008;

—Joinder of the Greenlight Entities in Chapter 7 Trustee's (A) Proposed Findings of Fact and Conclusions of Law and (B) Post Trial Brief With Respect to the Exemptions Proceedings, Doc. No. 2233, filed Nov. 14, 2008.

Closing arguments were held on December 1, 2008. Thereafter, the parties filed the following post-argument briefs:

—Jeffrey J. Prosser's Supplementary Trial Brief on Objection to Exemptions, Doc. No. 2305, filed Jan. 15, 2009;

—Chapter 11 Trustee's Objection to Jeff Prosser's Proposed Findings of Fact and Conclusions of Law, Doc. No. 2309, filed Jan. 15, 2009;

—Chapter 7 Trustee's Supplemental Post–Trial Brief Regarding Exemptions Claimed by the Debtor, Doc. No. 2312, filed Jan. 15, 2009;

—Joinder of the Greenlight Entities in (A) Chapter 11 Trustee's Supplemental Post–Trial Brief (Exemptions Contested Matter) and (B) Chapter 7 Trustee's Supplemental Post Closing Brief Regarding Exemptions Claimed by the Debtor, Doc. No. 2316, filed Jan. 15, 2009;

—Jeffrey J. Prosser's Reply Trial Brief on Objections to Exemptions, Doc. No. 2350, filed Jan. 26, 2009;

—Chapter 11 Trustee's Response to Jeff Prosser's Supplementary Trial Brief on Objections to Exemptions, Doc. No. 2352, filed Jan. 26, 2009;

*3 —Chapter 7 Trustee's Reply Brief to Jeffrey J. Prosser's Supplementary Trial Brief on Objections to Exemptions, Doc. No. 2354, filed Jan. 26, 2009.

As we stated in the Exemptions Opinion, we did not address the specific objections to the real property at issue in the Exemptions Trial because, in this Court's view, Mr. Prosser's bad faith conduct throughout his bankruptcy case warranted a sweeping denial of all of his claimed real property exemptions. We will now examine the specific objections to the exemptions claimed in the Hermon Hill, Anna's Hope, and Estate Shoys.FN8

FN8. On November 7, 2012, the Chapter 7 Trustee filed a Motion to Reopen the Exemptions Record [Case No. 06–30009, Doc. No. 3974], seeking to introduce this Court's Memorandum Opinion regarding turnover of assets under sec. 542 (the "Turnover Opinion") [Adv. No. 07–3010, Doc. No. 728], the verdict [Civil Case No. 08–147, Doc. No. 74] and judgment [Civil Case No. 08–147, Doc. No. 85] in the Chapter 7 Trustee's fraudulent conveyance action against Dawn Prosser in the U.S. District Court for the U.S. Virgin Islands, and various invoices relating to payments made by New ICC to vendors who provided goods and services to the Shoys Estate. This motion will be denied by separate Order. However, the Court will take judicial notice of the Turnover Opinion and the fraudulent conveyance verdict and judgment in the U.S. District Court.

HERMON HILL

Mr. Prosser claims an unlimited exemption in Hermon Hill under sec. 522(b)(3)(B), which provides that an individual debtor may exempt from property of the estate:

(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law;

sec. 522(b)(3)(B).

Here, the "applicable nonbankruptcy law" contemplated by sec. 522(b)(3)(B) is clearly that of the U.S. Virgin Islands, as that is not only where the property is located but also the place claimed by the Debtor as his domicile. The U.S. Virgin Islands recognizes tenancies by the entirety in real property. See 28 V.I.C. sec. 7(c) ("a conveyance or devise of real property to husband and wife jointly creates an estate by the entirety unless otherwise provided in the deed"). Furthermore, under the law of the U.S. Virgin Islands, real property owned as tenants by the entirety by a husband and a wife is not subject to execution by a creditor of only one spouse. Modeste v. Benjamin, 1981 U.S. Dist. LEXIS 9353, *3–4 (D.V.I.1981). Mr. Prosser argues that he owns Hermon Hill with his wife, Dawn Prosser, as tenants by the entirety,FN9 and therefore the property is exempt under sec. 522(b)(3)(B).

FN9. See Jeffrey J. Prosser's Response to Greenlight's Objection to Debtor's Claimed Exemptions, Case No. 06–30009, Doc. No. 1239, at 10.

The objecting parties argue that the Prossers do not own Hermon Hill as tenants by the entirety but, rather, as joint tenants by virtue of the fact that the Prossers acquired Hermon Hill before they were married. The courts of the U.S. Virgin Islands have not ruled on whether real property owned as joint tenants is subject to execution by a creditor of only one tenant, but the objecting parties submit that it is, which would make the Debtor unable to exempt his interest in Hermon Hill under sec. 522(b)(3)(B). Alternatively, the objecting parties argue that even if Hermon Hill is owned by the Prossers as tenants by the entirety, the Prossers have joint creditors which fact makes the property subject to execution, and thus Hermon Hill cannot be exempted under sec. 522(b)(3)(B).

The first step in the analysis is determining whether Hermon Hill is owned by the Prossers as tenants by the entirety or as a joint tenancy. When a married couple owns property as tenants by the entirety, they are "deemed by the common law to take the whole estate as a single person with the right of survivorship so that if one dies the entire estate belongs to the other by virtue of the title originally invested." Masonry Prods. v. Tees, 280 F.Supp. 654, (D.V.I.1968). Under the law of the U.S. Virgin Islands, a "conveyance or devise of real property to husband and wife jointly creates an estate by the entirety unless otherwise provided in the deed or will." 28 V.I.C. sec. 7(c).

*4 The Prossers were married on August 14, 1990. Trial Test. of Jeffrey J. Prosser, June 11, 2008, 225:10–12; Trial Ex. TE–95 (Depo. Test. of Dawn Prosser, July 21, 2008, 30:25–31:2). According to Dawn Prosser's testimony, Hermon Hill was acquired by the Prossers before they were married. Trial Ex. TE–95, 31:23–32:6). The Debtor does not dispute the fact that he acquired Hermon Hill jointly with his wife prior to their marriage, but contends that their subsequent marriage automatically transformed the joint tenancy ownership in Hermon Hill to a tenancy by the entirety. There have been no rulings on this issue in the courts of the Virgin Islands. However, the statute is clear that an estate by the entirety is created upon a "conveyance or devise of real property to husband and wife jointly." 28 V.I.C. sec. 7(c) (emphasis added). Nothing in the statute contemplates the transformation of jointly held property into entireties property by virtue of a subsequent marriage. Because the Prossers were not married at the time of conveyance, the conveyance was not "to a husband and wife jointly," and a tenancy by the entirety was not created. Having not been created at the time of conveyance, and in accord with the law of other jurisdictions that recognize a tenancy by the entirety as a form of property ownership, a tenancy by the entirety cannot subsequently arise by virtue of the marriage of the property owners.FN10 The rationale for this proposition is based on the notion that under the common law, a tenancy by the entirety can only arise if, at the time of conveyance, the five unities of time, possession, title, interest, and marriage are present. In re Sampath, 314 B.R. 73, 82 (Bankr.E.D.Va.2004).

FN10. See Schwartz v. United States, 191 F.2d 618, 621 (4th Cir.1951) ("It is well settled, of course, that the marriage of persons holding an estate as joint tenants or tenants in common does not convert such an estate into one by the entireties."); Herron v. Singh ( In re Ramsurat), 361 B.R. 246, 256 (Bankr.M.D.Fla.2006) ("Moreover, a subsequent marriage of the grantees of real property does not convert retroactively their ownership into a tenancy by the entireties."); Novak v. Novak, 516 N.Y.S.2d. 878, 878 (N.Y. Gen. Term 1987) ("The marriage of the parties did not convert the joint tenancy into a tenancy by the entirety, which could be created only by a conveyance to a husband and wife."); Stavish v. Stavish, 1980 Pa. Dist. & Cnty. Dec. LEXIS 452, *2 (Pa. Com. Pleas Ct.1980) ("[T]he subsequent marriage of joint owners of property does not automatically convert their ownership to a tenancy by the entireties."); 41 C.J.S. Husband and Wife sec. 23 (Lawrence J. Culligan & Milorad Nikolic Eds., 1991).

Next, the Court must determine whether a joint tenancy is exempt from process by a creditor of one property owner under the law of the Virgin Islands. While there is no local case law analyzing this issue, the general view as to property held in joint tenancy is that it is generally not exempt from process by creditors, even if the debt is owed only by one property owner.FN11 As a result, the objecting parties' objection with respect to Hermon Hill is sustained; the Debtor cannot exempt his interest in Hermon Hill under sec. 522(b)(3)(B). Because the Debtor cannot exempt his interest in Hermon Hill as a matter of law under sec. 522(b)(3)(B), the Court need not examine any of the objecting parties' allegations of bad faith conduct with respect to this particular property.

FN11. See Spero, Asset Protection: Legal Planning, Strategies and Forms, para. 13.11 Jointly Held Interests, * 11 ("Joint Tenancy property is generally not exempt under local law."); see, e.g., In re Fisher, 27 B.R. 71, 72 (Bankr.M.D.Pa.1983) (applying Pennsylvania law); In re Caliri, 347 B.R. 788, 799 (Bankr.M.D.Fla.2006) (applying Florida law); In re Antonie, 447 B.R. 610, 613 (D.Idaho 2011) (applying Idaho law).

ANNA'S HOPE

As with Hermon Hill, Mr. Prosser claims an unlimited exemption in Anna's Hope pursuant to sec. 522(b)(3)(B) on the ground that he jointly owns Anna's Hope with his wife as tenants by the entirety. Unlike Hermon Hill, the Prossers unquestionably acquired Anna's Hope subsequent to their marriage and own the property as tenants by the entirety. This fact is not disputed by the objecting parties, but rather, the objecting parties argue that the Prossers have joint debts which destroy the Debtor's entireties exemption under sec. 522(b)(3)(B).

*5 As noted above, in the Virgin Islands, real property owned as tenants by the entirety by a husband and a wife is not subject to execution by a creditor of only one spouse. Modeste v. Benjamin, 1981 U.S. Dist. LEXIS 9353, *3–4 (D.V.I.1981). Thus, under "applicable nonbankruptcy law" this property is exempt from process except as to joint creditors. Accordingly, pursuant to sec. 522(b)(3)(B), Anna's Hope can be exempted entirely from the estate unless joint creditors exist to defeat the exemption.

However, the presence of joint creditors alone is not enough to completely eliminate a debtor's entireties exemptions. "A debtor does not lose all benefit of [sec. 522(b)(3)(B) ] when joint creditors are present, but he does not benefit from it to the extent of joint claims." Sumy v. Schlossberg, 777 F.2d 921, 928 (4th Cir.1985). "Where joint creditors exist, a debtor's equity in entireties property above the amount of the joint obligations qualifies for the Section 522(b)(2)(B) exemption. In re McRae, 308 B.R. 572, 575 (N.D.Fla.2003) (citing Havaco of America, Ltd. v. Hill, 197 F.3d 1135, 1139 (11th Cir.1999). See also Napotnik v. Equitable and Parkvale Sav. Ass'n, 679 F.2d 316, 320 (3d Cir.1982) (holding that the debtor's interest in entireties property was not exempt under sec. 522(b)(2)(B) [now sec. 522(b)(3)(B) ] to the extent the property was subject to a judgment against both spouses on a joint debt, but holding that any equity beyond the judgment does qualify for exemption under the statute); In re Raynard, 327 B.R. 623, 629 (Bankr.W.D.Mich.2005) ("The debtor's allowed exemption is the value of the equity in the undivided interest minus whatever debts are owed by the debtor jointly with his spouse."). Therefore, whether the Debtor can exempt his entireties interest in Anna's Hope depends upon whether his total exemption interest in entireties property exceeds the total joint debt he held with his wife. The critical time for making this determination is "immediately before the commencement of the case." sec. 522(b)(3)(B); In re Oberlies, 94 B .R. 916, 918 (Bankr.E.D.Mich.1988) ("[T]he extent of the entireties exemption is reduced by the amount of the joint debts outstanding when this case began.").

At the time of filing, Jeffrey Prosser and Dawn Prosser were jointly indebted to Bank of America by virtue of a mortgage on the Prossers' Palm Beach Property (the "Bank of America Mortgage"), which the Debtor alleged to total $5 million. Both Jeffrey and Dawn's signatures are on the mortgage document executed with Bank of America on July 29, 2005. Trial Ex. TE–45 (Mortgage between Jeffrey and Dawn Prosser and Bank of America, dated July 29, 2005). FN12 Furthermore, on his schedules, the Debtor listed two other joint debts he held with his wife. One is to "FirstBank, St. Thomas, USVI," in the amount of $1,470,000 (the "FirstBank Mortgage"). Trial Ex. TE–2 (Debtor's Original Schedule F). The Debtor's notation on the schedule reads "Co-signer of Note on Wife's House—2004." Id. There is also a joint debt to "PHH Mortgage, P.O. Box 371458, Pittsburgh, PA 15250" in the amount of approximately $600,000 (the "Merrill Lynch Mortgage"). Id. The notation reads "Co–Signer of Note on Wife's House—1989." Id . Neither of these debts is listed as contingent or disputed. Id . Both the Firstbank Mortgage and the Merrill Lynch Mortgage are secured by the Shoys Estate. In total, based on the Debtor's bankruptcy schedules, the Debtor held $7,070,000 of joint debt with his wife.

FN12. The Prossers' debt to Bank of America was satisfied post-petition, when the Palm Beach Property was sold by Trustee Carroll pursuant to our Memorandum Opinion in Support of Interim Order Setting Alternative Closing Dates Depending Upon Terms of Final Order to be Entered Confirming Sale (the "Palm Beach Opinion")[Adv. No. 11–3001, Doc. No. 46], and the Order Confirming Sale [Adv. No. 11–3001, Doc. No. 65]. Bank of America consented to a distribution of $5,275,000 in full satisfaction of the Prossers' debt on the mortgage. Palm Beach Opinion, at 4.

*6 Next, the Court must determine the total amount of the Debtor's exemption interest in entireties property existing on the date of filing. If any such amount exceeds the $7 million in joint debt, that portion shall qualify for exemption under sec. 522(b)(3)(B). The Debtor listed his ownership in the Palm Beach Property as a tenancy by the entirety, and reported its value at $8,717,808. Trial Ex. TE–6. The objecting parties have not disputed the value of the Palm Beach Property at the time of filing as reported by the Debtor. If the Court accepts the Debtor's representation in his schedules, the result is that the value of the Palm Beach Property alone exceeds the Prossers' joint debt by $1,647,808. In addition, by adding the debtor's equity in Anna's Hope, which is valued by the Debtor at $400,000 for all four combined plots and is not subject to any liens, to the $1,647,808 referenced above, the Debtor's exemption interest in entireties property further exceeds the total of the joint debts. Thus, because Anna's Hope is held by the Prossers as tenants by the entirety and because the total amount of the joint debts is less than the total value of the Debtor's exemption interest in entireties property, there is insufficient evidence to establish that the joint creditors could reach the equity in Anna's Hope. The Court will overrule the objection with respect to that property. The Debtor may exempt his entireties interest in Anna's Hope under sec. 522(b)(3)(B).

The objecting parties argue alternatively that even if the Debtor can exempt his interest in Anna's Hope under sec. 522(b)(3)(B), such exemption must be capped at $125,000 pursuant to sec. 522(q), because the Debtor owes a debt arising from "fraud, deceit, or manipulation in a fiduciary capacity." sec. 522(q)(1)(B)(ii). The Debtor argues that sec. 522(q) does not apply to property claimed as exempt under sec. 522(b)(3)(B), but rather, it applies only to limit exemptions claimed under sec. 522(b)(3)(A).

Section 522(q) provides:

(q)(1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $146,450 FN13 if—

FN13. The monetary limit in sec. 522(q) is adjusted periodically. Because the Debtor's bankruptcy filing preceded April 1, 2007, the applicable limit in this instance is $125,000.

* * *

(B) the debtor owes a debt arising from—

* * *

(ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under Section 12 or 15(d) of the Securities Exchange Act of 1934 or under section 6 of the Securities Act of 1933.

sec. 522(q)(1)(B)(ii). Section 522(p)(1) provides:

(p)(1) Except as provided in paragraph (2) of this subsection and sections 544 and 548, as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215–day period preceding the date of the filing of the petition that exceeds in the aggregate $146,450 FN14 in value in—

FN14. See note 10.

*7 (A) real or personal property that the debtor or a dependant of the debtor uses as a residence;

(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;

(C) a burial plot for the debtor or a dependent of the debtor; or

(D) real or personal property that the debtor or dependent of the debtor claims as a homestead.

sec. 522(p)(1). In this Court's view, sec. 522(p) and (q) work together to limit a debtor's homestead exemption under sec. 522(b)(3)(A), either because the debtor owes a debt arising from "fraud, deceit, or manipulation in a fiduciary capacity," or because the debtor acquired the homestead interest "during the 1215–day period preceding the date of the filing of the petition." We agree with the Debtor that these sections have no application to exemptions claimed under sec. 522(b)(3)(B).

The objecting parties read sec. 522(q) to provide that once anything is claimed exempt under sec. 522(b)(3)(A), then that claimed exemption serves as a trigger to apply sec. 522(q) to any property enumerated in sec. 522(p)(1), regardless of whether such property is claimed exempt under sec. 522(b)(3)(A) or (B). See Chapter 11 Trustee's Supplemental Post–Trial Brief (Exemptions Contested Matter), Doc. No. 2310, at 5. The objecting parties argue that if sec. 522(q) were not meant to apply beyond property claimed exempt under sec. 522(b)(3)(A), it would have been drafted in a fashion similar to sec. 522(o) which uses the phrase, "[f]or purposes of subsection (b)(3)(A)" rather than "[a]s a result of electing under subsection (b)(3)(A)." One case cited by the Debtor, In re Hinton, 378 B.R. 371 (Bankr.M.D.Fla.2007), has held that sec. 522(o) does not apply to exemptions claimed under sec. 522(b)(3)(B).FN15 The objecting parties distinguish that case because of this difference in phrasing.

FN15. We note that sec. 522(o) was added to the Bankruptcy Code at the same time as sec. 522(p) and (q), as part of the 2005 BAPCPA amendments.

In In re Buonopane, 359 B.R. 346, 347 (Bankr.M.D.Fla.2007), the court considered whether sec. 522(p)—which, unlike sec. 522(o), contains the identical "as a result of electing under subsection (b)(3)(A)" language found in sec. 522(q)—applies to property claimed as exempt under sec. 522(b)(3)(B). The court held that it does not. Id. The court explained that:

[T]he applicability of section 522(p)(1) is predicated on the debtor having elected '... under subsection (b)(3)(A) to exempt property under State law....' 11 U.S.C. sec. 522(p)(1). However, the exemption of TBE property is permitted under subsection (b)(3)(B), not subsection (b)(3)(A). While this may appear to provide a way for a debtor to 'end run' the $125,000 cap contained in section 522(p), it is consistent with the legislative history of 522(p) which describes that the reason for enacting the $125,000 cap was to close the 'mansion loophole' existing in states such as Florida. H.R.Rep. No. 109–31, pt. 1 (2005), at 15–16, U.S.Code Cong. & Admin. News 2005, para. . 88, 101–02. As Discussed in the House Report, debtors living in certain states with favorable homestead laws can shield from their creditors all of the equity in their homes. In light of this, some debtors relocate to these states just to take advantage of their 'mansion loophole' laws. Id. The Act closes this perceived 'loophole' by amending section 522 to add section 522(p) which, under certain circumstances, limits debtors' rights to avail themselves of favorable state homestead laws. There is nothing in the legislative history which in any way indicates that these new limitations were directed to Florida's common law on tenancy by the entirety property.

*8 Id. at 347–48.

We agree with the analysis set forth in In re Buonopane, and find that sec. 522(q) applies only to property claimed exempt under sec. 522(b)(3)(A), not to property claimed as exempt as entireties property under sec. 522(b)(3)(B). As observed by the court in In re Schwartz, 362 B.R. 532, 534 n. 2 (Bankr.S.D. Fla 2007), "despite its complex tinkering with homestead exemption provisions in BAPCPA, including changes to sec. 522(b)(3)(A) and new secs. 522(o), 522(p), and 522(q), Congress determined to leave wholly intact the preexisting blanket exemption available to debtors who own property in a tenancy by the entireties form if applicable nonbankruptcy law would exempt that property from process." Because we find that sec. 522(q) has no applicability to property claimed exempt under sec. 522(b)(3)(B), we need not determine whether the Debtor owes a debt arising from "fraud, deceit, or manipulation in a fiduciary capacity." sec. 522(q)(1)(B)(2).

In conclusion, the Court finds that the Debtor may exempt his entireties interest in Anna's Hope under sec. 522(b)(3)(B) and that the exemption is not limited by sec. 522(q) as that section applies only to exemptions claimed under sec. 522(b)(3)(A). The objection to exemptions as to Anna's Hope is overruled.

SHOYS ESTATE

Pursuant to sec. 522(b)(3)(A), the Debtor claims an exemption in the Shoys Estate under the Virgin Islands homestead exemption statute, 5 V.I.C. sec. 478, which provides that:

(a) The homestead of any family, or the proceeds thereof, shall be exempt from judicial sale for the satisfaction of any liability hereafter contracted or for the satisfaction of any judgment hereafter obtained on such debt. Such homestead must be the actual abode of and owned by such family or some members thereof. It shall not exceed thirty thousand dollars in value, nor exceed five acres in extent if not located in a town laid off into blocks or lots, or if located in any such town, then it shall not exceed one-fourth of one acre.

5 V.I.C. sec. 478(a).

Certain objecting parties have questioned whether the Shoys Estate is the "actual abode" of the debtor. There is no question that the Prossers lived in the Guest House located on the Shoys Estate at the time the case was filed, and that title to Shoys Estate was in Dawn Prosser's name. Accordingly, the Court finds that the Shoys Estate constitutes an "actual abode ... owned by such family or some members thereof." 5 V.I.C. sec. 478(a).

The Chapter 11 Trustee also argues that because the Prossers lived in the guest house, and because the mansion that sits on the Shoys Estate is unfinished and uninhabitable, only the guest house should be considered his "actual abode" and therefore his homestead exemption should be limited to the guest house. This argument has no merit. As an initial matter, throughout this bankruptcy case, the parties have treated the five plots that constitute the Shoys Estate as one contiguous piece of property. Secondly, in Petrohan v. Petrohan, 2007 WL 790541 (Sup.Ct.V.I. March 1, 2007), the Superior Court of the Virgin Islands noted that 33 V.I.C. sec. 2305, which governs the homestead exemption for purposes of determining property taxes, defines "homestead" as "the abode including land and buildings, owned by, and actually occupied by, the property owner, or by members occupied by, a person, or by members of the property owner's family free of rental charges." Id. at *3 (quoting 33 V.I.C. sec. 2305) (emphasis added). Furthermore, the court rejected an argument that the residence at issue could not qualify as a marital homestead because construction of the dwelling was not completed. The court held that "[m]any people construct additions while remaining in the residence or move into homes that are incomplete. This does not deprive them of their right to claim marital homestead status." Id. at *4. The court explained that 33 V.I.C. sec. 2305 did not contain a "habitability" requirement. Id. at *4. Similarly, in this case, 5 V.I.C. sec. 478(a) likewise does not contain a "habitability" requirement.

*9 The Court finds the Shoys Estate to be the actual abode of the Prossers. Although the Prossers were constructing a larger home on their property that was unfinished at the time of filing, the fact remains that, on the petition date, the Prossers lived on the Shoys Estate, in the guest house, which Debtor claimed as his primary residence.

The Chapter 11 Trustee advances another argument that the Debtor's $30,000 exemption should be reduced to $0 by virtue of sec. 522(o), which provides that:

(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in—

(1) real or personal property that the debtor or a dependent of the debtor uses as a residence;

...; or

(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;

shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10–year–period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

sec. 522(o). This subsection was added to the bankruptcy code in 2005 with the BAPCPA amendments to prevent abuses of state homestead exemptions, i.e., fraudulently converting nonexempt assets into value in exempt homesteads within 10 years of a bankruptcy filing. See In re Lyons, 355 B.R. 387 (Bankr.D.Mass.2006). However, this section cannot apply in this instance to reduce the Debtor's $30,000 exemption in the Shoys Estate. For purposes of the Shoys Estate, sec. 522(o) mandates that the value of the Debtor's interest in that property be reduced to the extent that such value is attributable to non-exempt assets fraudulently disposed of within ten years of the petition date, which is July 31, 1997. In 1990, Dawn Prosser (then Dawn LaBennett) acquired plots 5 and 10A of the Shoys Estate, before she married the Debtor. Thus, upon his marriage to Dawn on August 14, 1990, when he and Dawn became family members and made their residence in the house (now demolished) that sat on plots 5 and 10A of the Shoys Estate,FN16 the Debtor became entitled to the homestead exemption provided for in 5 V.I.C. sec. 478. The value of those plots at the time of acquisition was approximately $900,000. Trial Ex. TE–9 (Examiner's Final Report, dated November 20, 2007). Thus, it cannot be said that any portion of the Debtor's $30,000 exemption interest, which he has held since August 14, 1990, in property which was worth $900,000 at that time, could be attributable to conversion of nonexempt assets between July 31, 1997, and July 31, 2007. Accordingly, we overrule the objection based on sec. 522(o).

FN16. See Trial Ex. TE–9 (Final Examiner's Report, dated November 20, 2007).

Next, the objecting parties argue that to the extent the Debtor is able to exempt his possessory interest in the Shoys Estate, such interest shall be subject to the $125,000 aggregate cap provided for in sec. 522(q), by virtue of the fact that the Debtor owes a debt arising from "fraud, deceit, or manipulation in a fiduciary capacity." sec. 522(q)(1)(B)(ii). As we discussed above with respect to Anna's Hope, sec. 522(q) applies only to limit property interests of the kind described in subparagraphs (A)-(D) of subsection sec. 522(p)(1) if such interests are claimed exempt under sec. 522(b)(3)(A). Although the exemption in question is claimed pursuant to sec. 522(b)(3)(A), Debtor's exemption in the Shoys Estate is capped at $30,000 by 5 V.I.C. sec. 478(a), an amount well below the $125,000 aggregate limit imposed by sec. 522(q).

*10 Under a pure statutory analysis under sec. 522(b)(3)(A), the Debtor could exempt his $30,000 possessory interest in the Shoys Estate pursuant to 5 V.I.C. sec. 478(a). However, in this instance, Debtor's bad faith conduct is directly linked to the Shoys Estate. For the reasons that follow, the Court will deny this $30,000 exemption based on grounds that the Debtor has acted in bad faith. In determining our initial Exemptions Opinion, Judge Gomez agreed that "it is beyond peradventure that a bankruptcy court has discretion to deny exemptions proposed in bad faith." FN17 However, Judge Gomez cautioned that the bad acts committed by a debtor must generally be directly related to the debtor's claimed exemptions in order to justify disallowing the objection on the grounds of bad faith.FN18 The Court finds that the Debtor committed the following bad acts which relate directly to the Debtor's claimed exemption in the Shoys Estate.

FN17. In re Prosser, Civ. Case No. 3:09–cv–00147, Doc. No. 39, at 19 (citing In re Baeur, 298 B.R. 353, 356 (B.A.P. 8th Cir.2003)).

FN18. Id. at 19–20.

First, the Debtor attempted to conceal his true interest in the Shoys Estate by mischaracterizing his interest on his bankruptcy schedules. Though representing at all times to the bankruptcy court that he merely holds a "possessory interest" in the Shoys Estate, the evidence established that, outside of bankruptcy, the Debtor has taken the position on several occasions that he is the owner of the Shoys Estate. In his personal financial statement dated May 1, 2002, to Bank of America N.A., Jeffrey Prosser listed both the main house and the guest house on the Shoys Estate as his own assets "free of any interest or claim of interest thereto of any other person...." Turnover Opinion, at 54. The Debtor signed that financial statement, certifying that the information provided was true and accurate in all material respects. Id. The Debtor made similar representations in a balance sheet, dated December 31, 2002, which he provided to Valentino McBean, the Senior Officer for Banco Popular in the U.S. Virgin Islands, a bank from which the Debtor sought loans. Id. In addition, as previously discussed, the Debtor was jointly indebted with his wife on two mortgages on the Shoys Estate, and Mr. Prosser's testimony was that he was making the monthly mortgage payments for both of those mortgages. Id. at 55. Moreover, Dawn Prosser's balance sheet dated June 30, 2006, lists her ownership interest in the Shoys Estate as "50%." Id. at 56. This balance sheet was created after the Prossers signed the Prossers' Marital Property Agreement FN19, which purported to define the Shoys Estate as Dawn Prosser's separate property. Id. The June 30, 2006, balance sheet is further evidence that the Prossers always had, and intended to have, an equal ownership interest in the Shoys Estate. As a result, we found that, despite claiming merely a "possessory interest" in the Shoys Estate in his bankruptcy schedules, the Debtor held a 50% equitable interest in the Shoys Estate. Id.

FN19. The existence of the Marital Property Agreement was denied by Mr. Prosser until it was discovered in a storage unit in West Palm Beach, Florida utilized by the Prossers, the existence of which was itself, undisclosed by the Debtor. Trial Test. of Jeffrey J. Prosser, TR 8/25/08 at 145:15–146:21, Doc. No.2096; Trial Ex. TE–90 (Marital Property Agreement); Trial Test. of James P. Carroll, TR 8/27/08 at 106:11–22, Doc. No.2096.

Secondly, in the U.S. District Court for the United States Virgin Islands in June 2011, a jury found that the Debtor fraudulently transferred to Dawn Prosser her interest in improvements to the Shoys Estate in the two years prior to the date of filing, totaling $8,341,841.20. See Springel v. Prosser, Civil Case No. 08–147, Doc. No. 74 (D.V.I. June 10, 2011). The jury also found that the Debtor made substantial unauthorized post-petition transfers to Dawn Prosser in the amount of $2,934,487.82, also in the form of improvements to the Shoys Estate. Id.

*11 Mr. Prosser's mischaracterization of his interest in the Shoys Estate as merely "possessory" was done in bad faith and for purposes of preventing the inclusion of a multimillion dollar asset in his bankruptcy estate. Furthermore, despite denying an ownership interest in the Shoys Estate, a jury found that Mr. Prosser fraudulently conveyed the funds to his wife with which to make improvements to the property.FN20 The Debtor's bad faith conduct relates directly to the claimed exemption in the Shoys Estate under 5 V.I.C. sec. 478(a) and warrants denying the $30,000 exemption.

FN20. We note that "improvements" necessarily includes construction of an entirely new residence, the original house having been demolished.

Appropriate orders will be entered consistent with this Opinion.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

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