            United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT

                                _______________

                                  No. 10-6056
                                _______________

In re: Grant A. Kendall;               *
  Andrea L. Kendall                    *
                                       *
      Debtors                          *
                                       *
Kip M. Kaler, as Bankruptcy Trustee    *   Appeal from the United States
 for Grant A. Kendall and              *   Bankruptcy Court for the
 Andrea L. Kendall                     *   District of North Dakota
                                       *
      Plaintiff - Appellant            *
                                       *
            v.                         *
                                       *
Able Debt Settlement, Inc.             *
                                       *
      Defendant - Appellee             *

                                _______________

                           Submitted: November 4, 2010
                             Filed: December 9, 2010
                               ________________

Before FEDERMAN, VENTERS, and SALADINO, Bankruptcy Judges

FEDERMAN, Bankruptcy Judge
       Kip M. Kaler, as Bankruptcy Trustee for Debtors Grant A. Kendall and Andrea
L. Kendall, appeals from the Judgment of the Bankruptcy Court1 finding that the
Kendalls’ payments to Able Debt Settlement, Inc. for debt settlement services were
not fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(B). For the reasons that
follow, we AFFIRM.

                                      BACKGROUND

      In 2008, the Kendalls realized that they were in financial trouble. They
considered filing for bankruptcy protection at that time, but feared it would cause
problems in assisting their children obtaining college loans. They initially consulted
a nonprofit organization known as “The Village” for credit counseling, but that
organization proposed a plan which would have required a $748 monthly payment,
a payment they could not afford.

       Then, after seeing the website for Able Debt Settlement, Inc., Debtor Andrea
Kendall contacted Able via the internet. A representative of Able, Jason Irwin,
contacted the Kendalls in response to Andrea’s e-mail.2 Irwin e-mailed her the
necessary documents, and she filled them out with information concerning the
Kendalls’ creditors, amounts of debts, and monthly income and expenses. The forms
showed that the Kendalls had monthly disposable income of negative $158. Able
sent the Kendalls a service agreement dated February 2, 2008, which the Kendalls
signed on February 13, 2008, and returned to Able by fax.




       1
        The Honorable William A. Hill, United States Bankruptcy Judge for the District of
North Dakota.
       2
         Irwin was not an actual employee of Able. Rather, he was an employee of Experience
Financial, Inc., an affiliate of Able, which undertook the initial process to enroll people into
Able’s program. Irwin received a share of the fees the Kendalls paid to Able.

                                                2
       According to a “Program Worksheet” dated February 13, 2008, prepared by
Able, Able proposed a monthly payment of $135 for sixty months to settle the debts
with the Kendalls’ creditors and to pay Able’s fees. Phase 1 of the program offered
by Able included a $675 retainer fee paid over the first five months of the plan, at
$135 per month. Phase 2 included an additional service fee to be paid at $61.04 per
month for 27 months. Phase 2 also provided for the Kendalls to start a savings
account and to contribute $73.96 which would be used to pay the creditors. Phase 3
then provided for the Kendalls to contribute $135 per month to the savings account
to pay creditors, apparently without a third component to the service fee. In sum, the
plan provided for the Kendalls to pay their creditors a total of $5,776.86 on debts
totaling $22,125.15. Able’s total service fee for the program was $2,323.14.

        Andrea Kendall wrote a notation on the Program Worksheet stating that the
Kendalls thought they could pay $200 per month toward the program. She also
indicated that there were two creditors missing from the list of creditors, which they
wanted to be included in the program. Based on that, Able sent the Kendalls a new
Program Worksheet. Under the program proposed there, the Kendalls were to pay
$200 per month for sixty months. Phase 1 included an $800 retainer fee, paid over the
first four months of the program, at $200 each. Phase 2 included a service fee of
$100.93 per month for 24 months and provided for the Kendalls to contribute $99.07
per month to a savings account to pay creditors. Phase 3 called for the Kendalls to
pay $200 per month into the savings account to pay creditors. Under this plan, the
Kendalls would pay their creditors an estimated $8,777.72 on debts totaling
$26,852.32, and would pay Able a total service fee of $3,222.28.

      The Kendalls signed an authorization for Able to automatically withdraw funds
from their checking account each month to cover the service fees. Through the
automatic withdrawals, they made payments of $200 each on February 25, March 25,
April 25, and May 25, 2008. On June 25, 2008, the automatic withdrawal payment
decreased to $100.93. As is apparent, these automatic withdrawals covered only the

                                          3
service fees to Able. The Kendalls were supposed to, on their own, put the suggested
amounts into a savings account to fund the settlements Able reached with creditors on
the Kendalls’ behalf.

      The Kendalls did open a savings account and, over the next four to six months,
they deposited $300 into it. After that, the Kendalls did not have the funds to continue
depositing into the savings account. According to Andrea Kendall, Able never asked
whether they had set up the savings account or checked on the progress in their
funding it, although she testified she knew it was their responsibility to do so. The
Kendalls continued to pay the $100.93 toward the service fees, via the authorized
automatic withdrawals, though February 25, 2009.

       The Kendalls were advised by Able about a possible settlement with one of the
creditors whereby the Kendalls could settle that debt for a payment of $1,002.78 due
on or before May 3, 2008. They did not have the funds the pay that settlement.
Meanwhile, the Kendalls also attempted to talk to some of their creditors on their own,
but the creditors told them they could not talk to them because they were enrolled in
Able’s program.

       On June 16, 2008, after receiving a summons and complaint related to one of
their credit card debts, Andrea Kendall sent Able a letter inquiring as to whether the
creditor had refused to participate in the program. She testified that Able told her that
it had contacted the creditor and that the Kendalls might need to seek legal counsel.
Ultimately, the credit card company obtained two judgments against the Kendalls, and
their wages were garnished in the fall of 2008.

      By early 2009, the Kendalls’ financial circumstances had deteriorated further.
Among other things, a child support payment of $600 was added to their monthly
obligations. On March 25, 2009, the Kendalls signed a notice of cancellation of the
agreement with Able. Able sent them an acknowledgment of the termination from the

                                           4
program, indicating that the Kendalls had paid Able service fees totaling $1,708.37.
They filed a Chapter 7 bankruptcy petition on April 3, 2009.

       The Chapter 7 Trustee then filed an adversary complaint against Able, seeking
to recover the $1,708.37 in service fees as a fraudulent transfer under the Bankruptcy
Code’s constructive fraud provision, § 548(a)(1)(B).3 The Bankruptcy Court entered
Judgment in favor of Able, and against the Trustee. The Trustee appeals.

                                STANDARD OF REVIEW

       We review findings of fact for clear error, and legal conclusions de novo.4

                                        DISCUSSION

       Section 548(a)(1)(B) of the Bankruptcy Code provides, in relevant part:

       (a)(1) The trustee may avoid any transfer (including any transfer to or
       for the benefit of an insider under an employment contract) 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 –

                                             ***

       3
          The Trustee’s Amended Complaint and trial documents also alleged that the transaction
violated North Dakota’s fraudulent transfer statutes, see N.D.C.C. §§ 13-02.1-04(1)(b) and 13-
02.1-05(1) and 11 U.S.C. § 544, as well as North Dakota’s statutes barring unlawful sales or
advertising practices, see N.D.C.C. § 51-15-01 et seq. However, the Bankruptcy Court’s
Judgment addressed only the § 548 issue, and summarily denied all other requested relief. The
Trustee does not appeal the denial of the North Dakota fraudulent transfer and unlawful practices
causes of action.
       4
         First Nat’l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th Cir.
1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997); Fed. R. Bankr. P.
8013.

                                                5
               (B)(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[.]5

Because there was no dispute that the transfers fell within two years of the filing of
the Kendalls’ bankruptcy petition, and that the Kendalls were insolvent at the time of
the transfers, the only issues were whether the Kendalls received value, and if so,
whether the services provided by Able were reasonably equivalent to the $1,708.37
in fees paid.

       Finding in favor of Able, the Bankruptcy Court concluded that the Kendalls
received reasonably equivalent value in exchange for the service fees. The Trustee
asserts this was error because (i) the contract between the Kendalls and Able was
illegal under North Dakota statute and, therefore, void and (ii) the value of the fees
was not reasonably equivalent to the services provided because there was no
possibility that the Kendalls would avoid bankruptcy by participating in the program.

      As to the first argument, namely, that the contract was illegal under North
Dakota law, the Trustee points to § 13-06-02 of the North Dakota Century Code,
which provides that “[a]ny person who engages in the business of debt adjusting,
unless exempted under the provision of section 13-06-03, is guilty of a class A
misdemeanor.”6 Section 13-06-01 defines “debt adjusting” as follows:

      “Debt adjusting” means the making of a contract, express or implied,
      with a debtor whereby the debtor agrees to pay a certain amount of

      5
          11 U.S.C. § 548(a)(1)(B).
      6
          N.D.C.C. § 13-06-02.

                                             6
      money or other thing of value periodically to the person engaged in the
      debt adjusting business who shall, for a consideration, distribute the
      same among certain specified creditors in accordance with a plan agreed
      upon. The term includes a debt adjustment, budget counseling, debt
      management, or debt pooling service or the holding of oneself out, by
      words of similar import, as providing services to debtors in the
      management of their debts and contracting with the debtor for a fee to:

               a. Effect the adjustment, compromise, or discharge of any
               account, note, or other indebtedness, of the debtor; or

               b. Receive from the debtor and disburse to the debtor’s creditors
               any money or other thing of value.7

       The Trustee’s argument turns on the interpretation of this statute which is,
undeniably, internally inconsistent: The first sentence of the statute defines “debt
adjusting” to mean contracts under which the debtor pays money to the debt adjuster
who then, for consideration, pays the money out to creditors pursuant to a plan. That
sentence would not apply to Able’s activities here because it did not agree to make
payments to creditors. However, the statute then provides that the term “debt
adjusting” includes those types of contracts where the debt adjuster pays the debtor’s
money out to creditors, or contracts to merely compromise debts, such as the one in
this case. So, while the first sentence suggests that the statute would not apply to
Able, the second sentence suggests that it would.

       The Bankruptcy Court concluded that the first sentence controlled, such that the
prohibition against debt adjusting applies only to contracts whereby the debt adjuster
handles the debtor’s money and pays it out to creditors. Merely negotiating or
compromising debts on behalf of a debtor for a fee is, therefore, permissible. As a
result, the Court concluded, the contract between Able and the Kendalls was legal
under the statute.


      7
          N.D.C.C. § 13-06-01.

                                           7
       The Trustee’s argument here focuses on general canons of statutory
interpretation and what he asserts is the presumed legislative intent.8 However, we
need not decide whether the Court’s interpretation of the North Dakota statute was
correct because, even assuming that the Trustee is correct that the North Dakota
statute prohibits the type of debt adjusting involved here – namely, the mere
compromising of debts for a fee – that premise would not provide the Trustee with a
remedy under § 548 of the Bankruptcy Code.

       The mere fact that a contract is void, unenforceable, or illegal does not require
a finding that there was no reasonably equivalent value given for purposes of §
548(a)(1)(B). As one Court has said, “there is nothing in the plain language of [§ 548]
. . . suggesting an illegality exception to the ‘reasonably equivalent value’
requirement.”9 Thus, even if the contract with Able violated § 13-06-02, the Court
was still required to determine whether the Kendalls received reasonably equivalent
value, based on what was actually exchanged.

       In addition, § 13-06-02 is a regulatory statute which provides only criminal
penalties for its violation. It provides no civil remedy. Perhaps the Kendalls could
have avoided the contract or even sought damages against Able on some ground in
state court, but the only remedy provided under the statute on which the Trustee relies
is criminal in nature. In any event, the Trustee cannot rely on § 13-06-02 as a basis
for constructive fraud under § 548(a)(1)(B).

       8
          There is scant legislative history to suggest what the North Dakota legislature intended
by the language it used. As a result, the Trustee relies on language in debt adjustment statutes
from other states.
       9
         In re Carrozzella & Richardson, 286 B.R. 480, 491 (D. Conn. 2002) (in the context of
a Ponzi scheme) (affirming In re Carrozzella & Richardson, 270 B.R. 92 (Bankr. D. Conn.
2001) (“This Court does not share the legal view that a transaction’s illegality deprives that
exchange of value.”)). See also In re Universal Clearing House Co., 60 B.R. 985, 1000 (D. Utah
1986) (“We conclude that 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 that the goods
and services had on the bankrupt enterprise.”).

                                                8
       Having concluded that the contract’s alleged illegality does not preclude a
finding of reasonably equivalent value, we turn to whether the Bankruptcy Court erred
in concluding that the value of Able’s services was reasonably equivalent to the
$1,708.37 the Kendalls paid for them. The question of whether the Kendalls received
reasonably equivalent value for the fees is a factual determination which we reverse
only if clearly erroneous.10

       The Trustee bore the burden of proving, by a preponderance of the evidence,
that the exchange was not for reasonably equivalent value.11 “A transfer is in
exchange for value if one is the quid pro quo of the other.”12 The Kendalls’ payment
of fees was, clearly, in exchange for Able’s debt settlement services. Thus, the
ultimate question is whether the value of the services was reasonably equivalent to the
$1,708.37 the Kendalls paid for them.

       The Bankruptcy Court correctly stated the law: “The concept of reasonably
equivalent value is a means of determining if the debtor received a fair exchange in
the market place for the goods transferred. Considering all the factors bearing on the
sale, did the debtor receive fair market value for the property.”13 It is a “question of
fact requiring the court to consider all factors bearing [on] value in the marketplace.”14
 “[O]ften there is nothing to consider beyond simply comparing the fair market value
of what the debtor transferred against the fair market value of what the debtor


         10
              In re Ozark Restaurant Equip. Co., 850 F.2d 342, 344 (8th Cir. 1988).
         11
              In re Southern Health Care of Arkansas, Inc., 309 B.R. 314, 319 (B.A.P. 8th Cir.
2004).
         12
          Pummill v. Greensfelder, Hemker & Gale (In re Richards & Conover Steel Co.), 267
B.R. 602, 612 (B.A.P. 8th Cir. 2001).
         13
              Id. (citation omitted).
         14
         Kaler v. Red River Commodities, Inc. (In re Sun Valley Prods., Inc.), 328 B.R. 147,
156 (Bankr. D. N.D. 2005).

                                                   9
received. If the two values are reasonably similar, no fraudulent transfer has taken
place.”15 Other factors courts consider include the good faith of the parties and
whether the transaction was an arm’s length transaction between a willing buyer and
a willing seller.16 The inquiry is “fundamentally one of common sense, measured
against market reality.”17

       The Bankruptcy Court found that the Program Worksheets clearly indicated
what the cost of participation in the program would be to the Kendalls. The service
agreement states that Able makes no guarantees about the outcome of its services, and
Andrea Kendall testified that she knew it was their responsibility to contribute to the
savings account to fund any settlements Able reached with the creditors. In other
words, as the Bankruptcy Court said, the Kendalls knew the cost, the requirements,
and the risk of the program, and decided it was worth it. The Court found that it was
an arm’s length transaction between a willing buyer and willing seller, was entered
into in good faith and for fair market value. None of these findings was clearly
erroneous.

       The Trustee asserts that the Bankruptcy Court ignored the fact that the stated
purpose of the program was to avoid bankruptcy and that it should have been
apparent, even at the time they entered into it, that that purpose was impossible, given
the Kendalls’ monthly shortfall of $158. He also asserts that Able and Irwin did not
verify the numbers the Kendalls gave them. However, Andrea Kendall stated on her
program papers that they believed they could make a payment of $200 per month,
despite the shortfall, and Grant Kendall testified that he thought they could pay the
$200 through belt tightening. It is not necessarily incredible for debtors to believe


       15
            Id. (citations omitted).
       16
            Id.
       17
         Leonard v. Mylex Corp. (In re Northgate Computer Systems, Inc.), 240 B.R. 328, 365
(Bankr. D. Minn. 1999).

                                             10
they can tighten their belts to make desired payments; indeed, debtors in Chapter 13
bankruptcy cases or those seeking to reaffirm debts frequently say, and do, just that.

        Finally, the Trustee asserts that success in the program was impossible because
the creditors would not accept the nominal payments to be made over a 60-month
period. However, although there was evidence that some of the creditors were
rejecting offers of settlement, there was no actual evidence that Able could not have
ultimately negotiated workable amounts with the creditors as a whole – indeed, Able
was still in the process of negotiating with many of the creditors when the Kendalls
withdrew from the program. And, as stated, the program had no guarantees. At the
time the Kendalls entered the program, there was no way of knowing for sure how the
negotiations would go. As the Trustee says, the parties were unable to achieve the
intended goal of avoiding bankruptcy, but it would have been inappropriate for the
Bankruptcy Court to view the transaction with the benefit of such hindsight.18 So long
as there is some chance that a contemplated investment will generate a positive return
at the time of the disputed transfer, value has been conferred.19 As the Trustee bears
the burden of proof on this issue, we cannot say that the Court erred in not finding the
program to be impossible from its inception.

                                        CONCLUSION

        Based on the foregoing, we conclude that the Bankruptcy Court did not clearly
err in finding that the Kendalls received reasonably equivalent value for the fees they
paid to Able. Accordingly, the Judgment is AFFIRMED.



       18
           See Peltz v. Hatten, 279 B.R. 710, 738 (D.Del.) (“[I]t is not the place of fraudulent
transfer law to reevaluate or question those transactions with the benefit of hindsight.”), aff'd 60
Fed.Appx. 401 (3d Cir. 2003).
       19
          Mellon Bank, N.A. v. Official Comm. of Unsecured Creditors of R.M.L., Inc. (In re
R.M.L., Inc.), 92 F.3d 139, 152 (3d Cir. 1996).

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