                  NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 06a0590n.06
                             Filed: August 17, 2006

                                             No. 05-5744

                            UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT


In re: WALLACE G. WILKINSON, Jr.

                      Debtor
_________________________________

CHARLES J. LISLE, as Trustee of the Trust
established under the Amended Liquidating
Plan of Reorganization of the Official
Committee of Unsecured Creditors for the
Debtor Wallace G. Wilkinson,
                                                                 On Appeal from the
                                Appellant,                       United States District
v.                                                               Court for the Eastern
                                                                 District of Kentucky
JOHN WILEY & SONS, INC.,

                                Appellee.



Before: DAUGHTREY and COLE, Circuit Judges, and GRAHAM,* District Judge

                                               OPINION

GRAHAM, District Judge.



        This bankruptcy action presents the question of whether a $1 million payment made

by Debtor Wallace Wilkinson to Defendant John Wiley & Sons, Inc. was a fraudulent


        *
          The Hon. James L. Graham, United States District Judge for the Southern District of Ohio, sitting
by designation.

                                                    1
transfer under 11 U.S.C. §548(a). Wilkinson made the payment out of his personal account

to pay for books being shipped by Wiley, a book publisher, to Wallace’s Bookstore, Inc.

(“WBI”). Wilkinson was the majority shareholder of WBI. At the time of the payment,

Wilkinson owed a substantial debt to WBI, and this debt was reduced by $1 million as a

result of the payment to Wiley.

       The Trustee of Wilkinson’s estate filed an adversary proceeding against Wiley to

recover the $1 million payment as a fraudulent transfer. The bankruptcy court held that the

payment was not fraudulent because Wilkinson received “reasonably equivalent value” in

exchange for the payment, namely, Wilkinson received a dollar-for-dollar reduction in his

debt to WBI. See 11 U.S.C. § 548(a)(1)(B)(i). On appeal, the district court affirmed the

bankruptcy court’s decision.

       The Trustee argues that the bankruptcy court and district court erred in concluding

that Wilkinson received reasonably equivalent value. The Trustee submitted an expert

opinion purporting to show that the payment had a fair market value benefit of no more than

$118,300 to Wilkinson’s creditors. Because the courts below properly rejected the expert’s

valuation, we AFFIRM.



                                   I. BACKGROUND

       WBI and its corporate affiliates operated campus bookstores and sold college

textbooks throughout the United States. WBI regularly purchased textbooks from Wiley.

In late 2000, WBI placed a $1.2 million order for textbooks, but Wiley refused to ship the

books because WBI had an outstanding balance of $2.4 million. Wanting to receive the

books in time for the upcoming semester, Wilkinson negotiated the shipment of the $1.2

                                            2
million order in exchange for $1 million to be paid by Wilkinson. On January 4, 2001,

Wilkinson wired $1 million dollars from his personal account to Wiley, who shipped the

textbooks to WBI upon receipt of the wire transfer.

       It is undisputed that both WBI and Wilkinson were insolvent on the date of the

transfer. It is also undisputed that Wilkinson owed WBI $60 million around this time. The

$1 million paid by Wilkinson to Wiley on January 4, 2001 was credited to WBI's account

with Wiley. Both WBI’s and Wilkinson's accountings showed a $1 million dollar credit to

Wilkinson against his debt to WBI for the $1 million dollar payment to Wiley.

       On February 5, 2001, Wilkinson’s personal creditors filed an involuntary petition for

bankruptcy against Wilkinson, who in turn filed a voluntary petition on February 12, 2001.

WBI and its affiliates filed voluntary Chapter 11 bankruptcy petitions shortly thereafter. The

bankruptcy court confirmed a liquidating plan of reorganization on December 14, 2002 in

the Wilkinson bankruptcy proceedings. The plan authorized the Trustee to pursue claims

for the benefit of the estate.

       On December 6, 2002, and January 9, 2003, the bankruptcy court approved a

settlement of claims and disputes between Wilkinson and WBI. Under the settlement,

WBI’s $60 million claim against Wilkinson was reduced to an unsecured claim for $31

million.

       On January 31, 2003, the Trustee brought an adversary proceeding against Wiley.

The Trustee alleged that Wilkinson’s $1 million payment to Wiley was fraudulent under the

Bankruptcy Code, 11 U.S.C. § 548, and applicable Kentucky law, Ky. Rev. Stat. § 378.020.

The Trustee sought to recover the transfer under 11 U.S.C. § 550.

       Wiley and the Trustee each filed motions for summary judgment. After a hearing on

                                              3
the motions, the bankruptcy court granted summary judgment to Wiley on all counts and

dismissed the action. The bankruptcy court found that the transfer was not fraudulent

because Wilkinson received reasonably equivalent value in exchange for his $1 million

payment to Wiley. Stating that “value” is provided when a debtor receives either a direct

or indirect economic benefit, the bankruptcy court found that Wilkinson received a direct

benefit in the form of a dollar-for-dollar reduction in his debt to WBI.

       The Trustee had submitted an insolvency report prepared by his expert, Jane D.

Ciancanelli, who concluded that Wilkinson’s $1 million payment to Wiley had a fair market

value of between $15,474 and $61,030 to Wilkinson’s creditors. Ms. Ciancanelli first

reduced the $1 million payment by the percentage of Wilkinson’s assets being paid to WBI

under their settlement. This left $515,807 available to creditors. Noting that Wilkinson was

deeply insolvent, Ms. Ciancanelli then took $515,807 and reduced it by two different

percentages, 3.0% and 11.83%, that represented the worst- and best-case scenarios for

how much creditors could expect to recover on their claims. This led Ms. Ciancanelli to

conclude that the $1 million reduction in debt that Wilkinson received for his payment to

Wiley was worth only $15,474 to $61,030 to creditors.

       The bankruptcy court rejected Ms. Ciancanelli’s valuation because she considered

events subsequent to the date of the transfer. In particular, she considered the settlement

with WBI and the potential recovery percentages of creditors. The bankruptcy court stated

that the date of valuation should have been the date of the transfer. See In re Morris

Communications NC, Inc., 914 F.2d 458, 466 (4th Cir. 1990) (“The date for defining such

reasonable equivalence is the date of the transfer.”).

       The Trustee appealed the bankruptcy court’s decision to the district court, which

                                              4
affirmed. As an initial matter, the district court found that the benefit to Wilkinson was

indirect, not direct as the bankruptcy court had concluded, because Wilkinson did not

receive anything in exchange from Wiley, the party Wilkinson paid. Rather, the benefit

stemmed from Wilkinson’s relationship with WBI. But the district court found that this

difference was insignificant to the outcome of the case because the benefit to Wilkinson,

though indirect, was a dollar-for-dollar reduction in debt and thus was reasonably

equivalent in value.

       The Trustee had offered a revised valuation to the district court. This valuation was

found in Ms. Ciancanelli’s affidavit, which stated that the reduction in debt had a value of

at most $118,300 to Wilkinson’s creditors. To arrive at this amount, Ms. Ciancanelli

multiplied $1 million by 11.83%, the best-case recovery percentage for creditors.

       The district court rejected Ms. Ciancanelli’s revised valuation. It found that even

though Ms. Ciancanelli had eliminated reference to the WBI settlement, she still had made

future assumptions about whether “all unsecured creditors would file proofs of claims and

what assets would be recoverable on the date of bankruptcy.” (J.A. at 1139).



                               II. STANDARD OF REVIEW

       “On appeal from a bankruptcy court, a district court applies the clearly erroneous

standard of review to findings of fact, and reviews questions of law de novo. On appeal of

a bankruptcy decision from a district court, this court employs the same standards,

evaluating the bankruptcy court's decision directly, without being bound by the district

court's legal determinations.” In re Gardner, 360 F.3d 551, 557 (6th Cir. 2004) (citing In re

M.J. Waterman & Associates, Inc., 227 F.3d 604, 607 (6th Cir. 2000); In re Lawrence S.

                                             5
Charfoos, 979 F.2d 390, 392 (6th Cir. 1992)).



                                     III. DISCUSSION

       A. Reasonably Equivalent Value under 11 U.S.C. § 548

       The Trustee’s complaint sought to avoid the transfer as fraudulent under 11 U.S.C.

§ 548, which provides in part:

       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
       one year before the date of the filing of the petition, if the debtor voluntarily
       or involuntarily-
       ...

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

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

11 U.S.C. § 548(a) (1). A trustee seeking to avoid a transfer carries the burden of proving

each statutory element by a preponderance of the evidence. See Frierdich v. Mottaz, 294

F.3d 864, 867 (7th Cir. 2002); In re Craig, 144 F.3d 587, 590 (8th Cir. 1998); In re Hayes,

322 B.R. 644, 646 (Bankr. E.D. Mich. 2005); In re Gerdes, 246 B.R. 311, 313 (Bankr. S.D.

Ohio 2000).

       Here, the only element in dispute is whether Wilkinson received reasonably

equivalent value in exchange for the payment to Wiley. This is a question of fact. See In

re Humble, 19 Fed.Appx. 198, 200 (6th Cir. 2001) (unpublished) (analysis of reasonably

equivalent value is “based upon the facts and circumstances of each particular case”); see

also In re Erlewine, 349 F.3d 205, 209 (5th Cir. 2003); In re Image Worldwide, Ltd., 139



                                              6
F.3d 574, 576 (7th Cir. 1998). A court considering this question should first determine

whether the debtor received any value in the exchange. If so, the court should determine

if the value received was reasonably equivalent. See In re Fruehauf Trailer Corp., 444 F.3d

203, 212 (3d Cir. 2006).

       Though the Bankruptcy Code does not define “reasonably equivalent value,” it does

define “value” as “property, or satisfaction or securing of a present or antecedent debt of

the debtor.” 11 U.S.C. § 548(d)(2)(A). “[A] determination of whether value was given under

Section 548 should focus on the value of the goods and services provided rather than on

the impact the goods and services had on the bankrupt enterprise.” In re Financial

Federated Title & Trust, Inc., 309 F.3d 1325, 1332 (11th Cir. 2002). This determination

depends on the circumstances of each case and not on a fixed mathematical formula. See

In re Humble, 19 Fed.Appx. at 200; Barber v. Golden Seed Co., Inc., 129 F.3d 382, 387

(7th Cir. 1997); In re R.M.L., Inc., 92 F.3d 139, 145 (3d Cir. 1996). Fair market value is one

factor the bankruptcy court may consider.         Barber, 129 F.3d at 387.      Whether the

bankruptcy court used proper methodology in assessing value is an issue of law reviewed

de novo. In re Dunham, 110 F.3d 286, 289-90 n.11 (5th Cir. 1997).

       Value can be in the form of either a direct economic benefit or an indirect economic

benefit. “It is well settled that ‘reasonably equivalent value can come from one other than

the recipient of the payments, a rule which has become known as the indirect benefit rule.’”

In re Northern Merchandise, Inc., 371 F.3d 1056, 1058 (9th Cir. 2004) (quoting In re Jeffrey

Bigelow Design Group, Inc., 956 F.2d 479, 485 (4th Cir. 1992)). The indirect benefit rule

was first explained in Rubin v. Manufacturers Hanover Trust Co.:

       [A] debtor may sometimes receive “fair” consideration even though the

                                              7
       consideration given for his property or obligation goes initially to a third
       person. . . . [T]he transaction's benefit to the debtor need not be direct; it may
       come indirectly through benefit to a third person. . . . If the consideration
       given to the third person has ultimately landed in the debtor's hands, or if the
       giving of the consideration to the third person otherwise confers an economic
       benefit upon the debtor, then the debtor's net worth has been preserved, and
       [the statute] has been satisfied -- provided, of course, that the value of the
       benefit received by the debtor approximates the value of the property or
       obligation he has given up.

661 F.2d 979, 991-92 (2d Cir. 1981) (internal quotation marks and citations omitted).

       Because the benefit Wilkinson received did not come from Wiley, the district court

was correct in finding that the benefit was indirect. See Jeffrey Bigelow Design Group, 956

F.2d at 485 (benefit is indirect when it “come[s] from one other than the recipient of the

payments”). The Trustee argues that Wiley has the burden of proving that any indirect

benefit was concrete and quantifiable. Some courts have indeed held that once “a plaintiff

has established that consideration for the transfer passed to a third-party, the burden of

demonstrating and quantifying reasonably equivalent value for the transfer shifts to the

defendant.” In re Nat. Century Fin. Enter. Inc., 341 B.R. 198, 217 (Bankr. S.D. Ohio 2006)

(citing cases).

       The burden of showing that the benefit is concrete and quantifiable can be

challenging in a case where the alleged benefit is goodwill, corporate synergy, a business

opportunity, the continuation of a business relationship, or some other intangible benefit.

See, e.g., In re Fidelity Bond and Mortg. Co., 340 B.R. 266, 287 (Bankr. E.D. Pa. 2006);

In re Dayton Title Agency, Inc., 292 B.R. 857, 875 (Bankr. S.D. Ohio 2003). That is not the

case here, however. There is no dispute on the record that Wilkinson received a $1 million

reduction in his debt to WBI as a result of the $1 million payment to Wiley. Wiley thus has

demonstrated that the benefit to Wilkinson had concrete and quantifiable value.

                                               8
       The courts below found that the benefit was reasonably equivalent in value because

Wilkinson received a dollar-for-dollar reduction in debt. On appeal, the Trustee repeats the

argument, based on Ms. Ciancanelli’s affidavit, that this benefit was not reasonably

equivalent because the reduction in debt had a value of no more than $118,300 to

creditors.

       The date for determining reasonable equivalence is the date of the transfer. See In

re Chomakos, 69 F.3d 769, 770 -71 (6th Cir. 1995); In re Fairchild Aircraft Corp., 6 F.3d

1119, 1126 (5th Cir. 1993); In re Morris Communications NC, Inc., 914 F.2d 458, 466 (4th

Cir. 1990). The district court was correct that Ms. Ciancanelli’s valuation does not eliminate

reliance on events subsequent to the payment to Wiley. Though removing the WBI

settlement from her calculation, Ms. Ciancanelli’s valuation still makes assumptions about

what will transpire after the payment, such as that every creditor will file a proof of claim

and that all of Wilkinson’s assets will be recoverable. Value is to be tested on the date of

the transfer, not with reference to when distributions are made to creditors.

       At the heart of the Trustee’s argument is the assertion that satisfying a third-party

antecedent debt can never amount to reasonably equivalent value for a debtor who is

deeply insolvent at the time of the transfer. Before the payment to Wiley, Wilkinson had

approximately $41 million in assets and $349 million in liabilities. After Wilkinson paid $1

million to Wiley, he had $40 million in assets and $348 million in liabilities. According to the

Trustee, creditors “lost out” because the transfer left a smaller pool of assets available for

them to recover in bankruptcy. From the creditors’ perspective, the transfer was worth

pennies on the dollar and thus was not reasonably equivalent in value.

       The Trustee offers no statutory language or case law to support this approach to

                                               9
analyzing reasonably equivalent value.         The Bankruptcy Code expressly includes

“satisfaction . . . of a present or antecedent debt of the debtor” in its definition of “value.”

11 U.S.C. § 548(d)(2)(A). Courts have held that a reduction in debt is sufficient to establish

equivalent value. See, e.g., In re Uiterwyk Corp., 75 B.R. 33, 34 (Bankr. M.D. Fla. 1987);

In re Coors of N. Miss., 66 B.R. 845, 862 (Bankr. N.D. Miss. 1986); In re Jamison, 21 B.R.

380, 382 (Bankr. D. Conn. 1982). The Trustee would adopt an insolvency analysis for

determining reasonably equivalent value, when § 548 is “‘directed at what the debtor

surrendered and what the debtor received irrespective of what any third party may have

gained or lost.’” In re United Energy Corp., 944 F.2d 589, 597 (9th Cir. 1991) (quoting In

re Jamison, 21 B.R. at 382); see also In re Richards & Conover Steel, Co., 267 B.R. 602,

614 n.4 (8th Cir. B.A.P. 2001); In re Butcher, 58 B.R. 128, 130 (Bankr. E.D. Tenn. 1986).

       Further, the Trustee’s argument ignores the fact that Wilkinson’s net worth remained

the same after the transfer, at negative $308 million. The district court rightly stated that

“the focus should be on the overall effect on the debtor's net worth after the transfer.” (J.A.

at 1137) (citing In re Newtowne, Inc., 157 B.R. 374, 379 (Bankr. S.D. Ohio 1993); In re

Galbreath, 286 B.R. 185, 208 (Bankr. S.D. Ga. 2002)); see also In re Richards, 267 B.R.

at 614 n.4; In re Evergreen Security, Ltd., 319 B.R. 245, 254 (Bankr. M.D. Fla. 2003). As

the Second Circuit held in Rubin,

       [F]air consideration will often exist for a novation, where the debtor's
       discharge of a third person's debt also discharges his own debt to that third
       person . . . . [Tlhe net effect . . . on the debtor's estate is demonstrably
       insignificant, for he has received, albeit indirectly, either an asset or the
       discharge of a debt worth approximately as much as the property he has
       given up or the obligation he has incurred.

661 F.2d at 992.


                                              10
         In sum, the courts below correctly found that Wilkinson received reasonably

equivalent value in exchange for his payment to Wiley. On the date of the transfer,

Wilkinson received a $1 million debt reduction in exchange for his $1 million payment to

Wiley.

         B. Valuable Consideration under Kentucky Law

         The Trustee also claimed that the transfer was fraudulent under Kentucky law, which

voids a transfer made “without valuable consideration.” K.R.S. § 378.020. The bankruptcy

court dismissed this claim for the same reasons it dismissed the federal claim under §

548(a)(1), and the district court affirmed.

         The Trustee argues on appeal that discharge of a debt cannot constitute valuable

consideration under Kentucky law. But the sole case cited by the Trustee, In re Akin, 64

B.R. 510 (Bankr. W.D. Ky. 1986), does not stand for that proposition. In Akin, the debtor

made a series of transfers under the guise of satisfying his debts. The court found that the

transfers were “outrageous gift[s]” that “clearly depict[ed] a preconceived and cavalier

disregard for creditors' rights.” 64 B.R. at 518. The record “teem[ed]” with “reprehensible

conduct” and “such specific and general fraud as to be transparent to even the casual

observer.” Id.

         Such is not the case here. The Trustee points to no evidence on the record below

that Wilkinson’s transfer to Wiley was anything other than a fair and bona fide transaction.

There is no evidence that Wilkinson made the transfer with the intent to defraud his

creditors.

         As the courts below explained, discharge of a debt to a third party can constitute

valuable consideration under Kentucky law. See Burnett’s Adm‘x v. Farmers’ Nat'l Bank,

                                              11
49 S.W.2d 1033, 1034 (Ky. 1932) (a benefit accruing to a third person is valuable

consideration); Linn v. Brown, 206 S.W. 287, 289 (Ky. 1918) (discharge of a debt can

constitute valuable consideration). Wilkinson’s transfer therefore was made for valuable

consideration.

      C. The Trustee’s Motion to Exclude Defendant’s Expert Testimony

      In the bankruptcy court, the Trustee moved to exclude the testimony of defendant’s

expert, Dr. Donald J. Mullineaux. Dr. Mullineaux had testified that the economic interests

of Wilkinson and WBI were fully aligned. Defendant used this testimony to support his

alternative argument that Wilkinson received reasonably equivalent value from the payment

to Wiley because Wilkinson, as majority shareholder of WBI, benefitted indirectly from the

value of the books shipped to WBI. The Trustee moved to exclude the expert testimony

as failing the standard set out in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.

579, 113 S.Ct. 2786 (1993). Both the bankruptcy court and the district court denied the

Trustee’s motion to exclude as moot upon finding that Wiley was entitled to summary

judgment on grounds independent from Dr. Mullineaux’s testimony.

      On appeal, the Trustee renews his request to exclude Dr. Mullineaux’s testimony.

However, the courts below were correct in finding that the motion is moot. The testimony

is unnecessary to a finding that Wiley is entitled to summary judgment.



                                   IV. CONCLUSION

      For the reasons stated above, we AFFIRM the bankruptcy court’s decision granting

summary judgment to Defendant Wiley.



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