                                                                   [PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS
                                                            FILED
                       FOR THE ELEVENTH CIRCUIT
                                                      U.S. COURT OF APPEALS
                                                        ELEVENTH CIRCUIT
                         ________________________            09/15/98
                                                         THOMAS K. KAHN
                                No. 96-6845                   CLERK
                         ________________________

                      D. C. Docket Nos. CV-95-AR-329-W,
                             94-70883, 94-70537-BKC

IN RE: XYZ OPTIONS, INC.,

                                                                        Debtor.

DONALD DIONNE, as Trustee of the
Estate of XYZ Options, Inc.,

                                                            Plaintiff-Appellant,

                                   versus



W. LEO KEATING,

                                                          Defendant-Appellee.


                         ________________________

                                  No. 96-6846
                          ________________________
                      D. C. Docket Nos. CV-95-AR-329-W,
                            94-70883; 94-70537-BKC

IN RE: XYZ OPTIONS, INC.
                                                                        Debtor.
DONALD DIONNE, as Trustee of the Estate
of XYZ Options, Inc.,
                                                                     Plaintiff-Appellant,
                                        versus


SCOTT M. SPANGLER, JEAN G. SPANGLER,
THE SCOTT M. SPANGLER CHARITABLE TRUST,

                                                                 Defendants-Appellees.

                             ________________________

                     Appeals from the United States District Court
                        for the Northern District of Alabama
                           _________________________
                                (September 15, 1998)




Before ANDERSON and BLACK, Circuit Judges, and MOORE*, Senior U.S. District
      Judge.


ANDERSON, Circuit Judge:




____________________________
* The Honorable John H. Moore, II, Senior United States District Judge for the Middle
District of Florida, sitting by designation.




                                           2
       We must determine in this appeal whether a bankruptcy court can look behind a

prior consent judgment and whether there are genuine issues of material fact with respect

to actual or constructive fraud against creditors. Plaintiff-Appellant Donald Dionne

(“Trustee”) is the trustee for the bankruptcy estate of XYZ Options, Inc. (“XYZ”). The

Trustee sued Defendants-Appellees, Scott M. Spangler, Jean G. Spangler, and the Scott

M. Spangler Charitable Remainder Unitrust (“Spangler entities”),1 asserting fraudulent

transfer and preference claims under 11 U.S.C. §§ 547 and 548.2 The United States

District Court for the Northern District of Alabama removed the case from the

Bankruptcy Court pursuant to 28 U.S.C. § 157(d).

       The Spanglers filed a Motion for Partial Summary Judgment. Defendant W. Leo

Keating (“Keating”) also filed a Motion for Summary Judgment. In separate orders, the

district court granted summary judgment in part in favor of the Spangler entities and

Keating. The district court entered final judgment pursuant to Fed. R. Civ. P . 54(b). The

Trustee filed a timely Notice of Appeal as to both orders of summary judgment.



I. THE RELEVANT FACTS AND COURSE OF PROCEEDINGS3


       1
              See infra n.5, noting that our use of the name, the Spangler entities, also
sometimes includes First Phoenix Capital, a corporation controlled by Scott Spangler.
       2
              Although Defendant-Appellee W. Leo Keating was not named in the initial
complaint of April 28, 1994, he was named as a defendant in a later amended and restated
complaint.
       3
              In the summary judgment posture of this case, we state the facts with reasonable
inferences drawn in favor of Appellant.

                                                 3
       The Debtor, XYZ, was owned by William Muscarella and Richard Kendrick.4 In

1988, XYZ entered into a contract with Machinery Trade Company (“Machinery Trade”),

whereby XYZ agreed to build a plant in Iraq to manufacture carbide cutting tools. The

total amount of the contract price was approximately $14,000,000. In order to secure

payment and XYZ’s performance, the contract required both Machinery Trade and XYZ

to post letters of credit in favor of each other. The contract required Machinery Trade to

pay a down payment of approximately $1,400,000 and post a letter of credit in an amount

equal to the amount due XYZ under the contract. The contract also required that XYZ

post two letters of credit: one letter as a performance bond for approximately $400,000

and another letter of approximately $1,400,000 to ensure that Machinery Trade could

recover the down payment in the event of a default by XYZ.

       Muscarella and Kendrick, however, were unable to come up with the required

letters of credit because of insufficient assets. They wanted to use the down payment due

them from Machinery Trade as collateral, but they could not do so because the letters of

credit were a prerequisite to their receipt of this money. In search of financial assistance,

XYZ approached Scott M. Spangler, the principal of First Phoenix Capital (“First

Phoenix”), for help.5 First Phoenix and XYZ reached an agreement (“joint agreement”)



       4
               In July of 1993, Richard Kendrick died and his wife was named executrix of his
estate. Before the major transfers involved in this case, his interest in XYZ was conveyed to
Muscarella.
       5
               Because Scott Spangler controlled First Phoenix during the relevant times, we
include First Phoenix in our reference in the opinion to the Spangler entities.

                                               4
whereby First Phoenix agreed to arrange financing for the two letters of credit and lend

XYZ $400,000 in working capital for the project. XYZ agreed to repay First Phoenix for

any draws made on the letters of credit and signed a note for the amount of the letters of

credit plus the working capital loan. The joint agreement also provided that XYZ would

use funds received from the Machinery Trade contract to collateralize the letters of credit

and eventually remove First Phoenix from the deal.      In addition, the transaction provided

a base fee of $400,000, payable to First Phoenix, which could increase or decrease

depending upon how quickly XYZ could collateralize the letters of credit issued in favor

of Machinery Trade.

       Machinery Trade caused the issuance of its letter of credit which was confirmed by

Banco Nazionale del Lavoro (“BNL”). First Phoenix obtained both of its letters of credit

through Northern Trust Bank of Arizona (“Northern Trust”), with Bank of America

International as the originating bank. These two letters of credit in favor of Machinery

Trade were posted to Rafidain Bank in Iraq. Spangler signed two promissory notes in

order to secure the two Northern Trust letters of credit.

       Pursuant to the joint agreement with First Phoenix, a closing was held in Texas in

October 1988. To secure payment of its note to First Phoenix, XYZ executed an

assignment which assigned to First Phoenix the proceeds of the BNL letter of credit.

Muscarella brought the BNL letter of credit to this meeting in Texas. While Muscarella

laid the letter of credit down on the table, Spangler did not take physical possession of it.

Apparently, it was the understanding of the parties that XYZ would retain possession of

                                              5
the BNL letter of credit in order to make credit arrangements with suppliers and shippers.6

       In November 1988, following the issuance of the required letters of credit,

Machinery Trade paid to XYZ the down payment of approximately $1,400,000. After the

down payment money was deposited into the joint account of First Phoenix and XYZ,

Spangler directed Northern Trust to remove $1,000,000 from the joint account to open a

certificate of deposit in the names of First Phoenix and XYZ. First Phoenix then released

the remaining $400,000 from the down payment for XYZ’s use as working capital.

       Three months after receipt of the down payment, Spangler sought a release of the

personal assets he had pledged to Northern Trust to secure the two letters of credit in

favor of Machinery Trade. In order to do this, First Phoenix and XYZ executed a Third

Party Security Agreement granting Northern Trust a security interest in the $1,000,000

certificate of deposit. In addition, XYZ signed a Loan Agreement providing that

Northern Trust would first liquidate the $1,000,000 certificate of deposit to satisfy any

liability under the letters of credit before turning to Spangler. As a result, Northern Trust

released its security interest in Spangler’s personal assets.

        Performance on the construction project began in early 1989, and Machinery

Trade made regular progress payments through the BNL letter of credit. Pursuant to the

contract, XYZ would submit a draw to BNL requesting payment for work performed or


       6
                 The question of when and whether First Phoenix held a security interest in the
BNL letter of credit is the subject of a companion case, No. 96-7035. The opinion in that case is
published simultaneously with this opinion. In November 1993, First Phoenix took possession
of the letter of credit and perfected a security interest in the letter of credit.

                                                6
materials shipped to Iraq. BNL would fund the draw directly to the joint account of First

Phoenix and XYZ at Northern Trust.

       In the fall of 1989, Spangler discovered that Muscarella, through a business entity

named TRU-MET, had acquired ownership of Carbitech, a subcontractor on the Iraqi

contract, using money XYZ received from the contract with Machinery Trade. As part of

the venture, Muscarella caused XYZ to guarantee TRU-MET’s payment of the purchase

price. Contending that this activity violated the terms of the joint agreement, Spangler

had his attorney draft a Waiver & Assignment, which Muscarella and Kendrick signed.

Pursuant to the Waiver & Agreement, First Phoenix agreed to waive the breach, and XYZ

agreed to assign and transfer a certain interest in the $1,000,000 certificate of deposit to

First Phoenix. The Waiver & Agreement gave First Phoenix permission to use the

proceeds of the certificate of deposit under specified conditions, but XYZ retained a

residual interest in the certificate of deposit.

       In November 1989, BNL stopped making payments to XYZ and filed a declaratory

judgment action in federal court in Atlanta stating that it was no longer liable under the

BNL letter of credit. XYZ counterclaimed asserting that BNL had breached the terms of

the BNL letter of credit by refusing to honor XYZ’s draws.7 Because XYZ had assigned

to First Phoenix an interest in the BNL letter of credit, First Phoenix filed a notice of



       7
              After BNL refused to make payment on the letter of credit, XYZ and Machinery
Trade arranged for XYZ to receive payments through the Iraqi embassy in Washington, D.C..
XYZ received over $3,000,000 through this embassy.

                                                   7
interest and moved to intervene in the action.

       On August 2, 1990, Iraq invaded Kuwait. On that same day, Rafidain Bank made

a pay or extend demand to Bank of America International in connection with the two

Northern Trust letters of credit in favor of Machinery Trade; Bank of America

International made a similar demand on Northern Trust. In August 1990, XYZ and First

Phoenix filed suit in Houston, Texas to enjoin Bank of America International and

Northern Trust from releasing funds to Rafidain Bank. XYZ and First Phoenix succeeded

in obtaining a preliminary injunction preventing Rafidain from drawing against Bank of

America International and Bank of America International from drawing on the Northern

Trust letters of credit.

       With the contract between Machinery Trade and XYZ at an impasse, XYZ was

without a source of income and had difficulty meeting its financial obligations.

Accordingly, TRU-MET was unable to make payments on the purchase of Carbitech’s

stock. The sellers of the Carbitech stock called on XYZ’s guarantee and eventually filed

suit in Indiana. In April 1992, the former Carbitech shareholders obtained a default

judgment of approximately $1,700,000 against XYZ.

       On January 4, 1993, XYZ filed a cross-claim against First Phoenix in the Houston

litigation, alleging that the joint venture agreement was usurious, and claiming ownership

of the certificate of deposit. First Phoenix, in defense, asserted that the money due under

the joint venture agreement was a profit and not interest and, as a result, Texas usury law

did not apply.

                                             8
       Largely in response to the cross-claim in Houston, First Phoenix filed suit in

federal court in Phoenix, Arizona against XYZ seeking a declaratory judgment to have

the court determine that the payments due under the joint agreement were not usurious

but were in fact a joint venture profit. First Phoenix also sought a money judgment of

$966,000 for this joint venture profit and expenses incurred by First Phoenix.

       On July 21, 1993, the district court in the Atlanta litigation entered a Memorandum

Opinion finding in favor of XYZ against BNL in an amount exceeding $2,000,000. XYZ

filed a motion to amend the judgment to add pre-judgment interest. That motion

remained pending for several months.

       In November 1993, XYZ and the Spangler entities met to discuss settlement.

Spangler wrote out an outline of a deal and faxed it to XYZ’s attorney. This draft of the

deal provided that the Spangler entities would receive $1,200,000, which would come out

of the expected judgment against BNL in the Atlanta litigation. However, the parties met

again a few days later. For reasons that are not adequately explained in the record

evidence, the parties finally agreed to settle upon terms much more favorable to the

Spangler entities.

       In implementing the settlement agreement, the parties entered into a consent

judgment in the Arizona litigation in favor of the Spangler entities and against XYZ. The

judgment was in an amount of approximately $2,300,000, including interest.8 The



       8
              In this opinion, we refer to this as the Arizona consent judgment.

                                               9
amount of the Arizona consent judgment was virtually identical to the amount (net after

attorneys’ fees) which XYZ would receive from the judgment against BNL in the Atlanta

litigation. Pursuant to the settlement, this $2,300,000 was transferred to the Spangler

entities in satisfaction of the Arizona consent judgment. The subsequent implementation

of the settlement agreement was somewhat different from the settlement agreement, and

was extremely complicated, complex, and convoluted.

       A fact finder could reasonably conclude from this summary judgment record that

after full implementation of the settlement agreement, XYZ was left with virtually no

assets, having given up the following assets: (a) the approximately $2,300,000 that it

netted after attorneys’ fees from the judgment against BNL in the Atlanta litigation; (b)

XYZ’s remaining interest in the $1,000,000 certificate of deposit; (c) real estate which it

had owned, subject to a bank mortgage; and (d) a usury claim against the Spangler

entities which it had been asserting in the Houston litigation and the Arizona litigation,

both of which were settled as part of the settlement agreement.

       Questions of fact surround the Arizona consent judgment entered into by the

parties in favor of the Spangler entities in an amount of approximately $2,300,000. The

fact finder could reasonably find that the full $2,300,000 did not in fact go to the Spangler

entities, but rather that $550,000 went to either a corporation controlled by Muscarella’s

mother or to the benefit of Muscarella’s business interests.9 In addition, a fact finder


       9
              It is clear that the Spangler entities ended up with $1,500,000 in the Scott M.
Spangler Charitable Remainder Unitrust. There are issues of fact with respect to part or all of

                                                10
could reasonably find that the $1,000,000 certificate of deposit (subject to any lien of

Northern Trust) also ended up in the possession of a corporation owned by Muscarella’s

mother. The record does not adequately explain why Muscarella, or friends or family of

Muscarella, were permitted to receive any of the assets.



II. ISSUES

       We first address whether the district court sitting in bankruptcy can entertain the

Trustee’s challenge to the Arizona consent judgment. This is a legal issue which we

review de novo.

       Next, we address the issues of actual and constructive fraud. Under 11 U.S.C. §

548, there are two types of fraudulent transfer claims: actual fraud and constructive fraud.

We address each in turn, first the issue of actual fraud and then the issue of constructive

fraud. In the summary judgment posture of this case, summary judgment is appropriate

when evidence in the summary judgment record gives rise to no genuine issue of material

fact and the moving party is entitled to judgment as a matter of law. We review the

district court’s grant of summary judgment de novo and apply the same standards as the

district court.



another $250,000. But what is significant for this opinion is that the fact finder might reasonably
find that the Spangler entities ended up with at least $550,000 less than the full $2,300,000, and
that this $550,000 was diverted to a corporation owned by Muscarella’s mother or to persons or
organizations benefitting Muscarella personally, to the exclusion of XYZ’s creditors. There is
evidence that the $550,000 passed through Keating’s possession, and that Keating retained
approximately $10,000.

                                                11
       Finally, we address the district court’s granting of Keating’s motion for summary

judgment.



III. DISCUSSION

       A. THE ARIZONA CONSENT JUDGMENT

       The primary transfer challenged by the Trustee’s fraudulent transfer claim is the

$2,300,000 which XYZ transferred to the Spangler entities in satisfaction of the Arizona

consent judgment in federal court.     The Spangler entities argue that this transfer is

shielded by the Arizona consent judgment in favor of the Spangler entities and against

XYZ. In other words, they argue that a bankruptcy court is powerless to look behind the

Arizona consent judgment. The district court rejected this argument of the Spangler

entities, as do we.

       In Pepper v. Litton, 308 U.S. 295, 60 S. Ct. 238 (1939), the Supreme Court

rejected a claim of res judicata and sustained the power of a bankruptcy court to look

behind a previous state court judgment. Emphasizing the broad equitable powers of

bankruptcy courts, the Court stated:

       [A] bankruptcy court has full power to inquire into the validity of any claim
       asserted against the estate and to disallow it if it is ascertained to be without
       lawful existence. And the mere fact that a claim has been reduced to
       judgment does not prevent such an inquiry. As the merger of a claim into a
       judgment does not change its nature so far as provability is concerned, so
       the court may look behind the judgment to determine the essential nature of
       the liability for purposes of proof and allowance. . . . And the bankruptcy
       trustee may collaterally attack a judgment offered as a claim against the
       estate for the purpose of showing that it was obtained by collusion of the

                                              12
       parties . . . .

Id. at 305-06, 60 S. Ct. at 244-45 (citations omitted). In that case, Litton, the controlling

stockholder of the bankrupt corporation, caused the bankrupt to confess judgment in favor

of Litton, thus giving Litton a judgment lien against the bankrupt for amounts alleged to

have been for past unpaid salary. Id. at 297, 60 S. Ct. at 240. The bankruptcy court

found “a planned and fraudulent scheme,” id. at 312, 60 S. Ct. at 248, and found that the

lien (or confessed judgment) and subsequent transfer of property to Litton pursuant

thereto were but steps “in a general fraudulent plan . . . designed to defeat creditors.” Id.

The effect of the Supreme Court’s holding in Pepper v. Litton affirmed the power of the

bankruptcy court to look behind the consent judgment which Litton had caused his

corporation to confess in his own favor under the circumstances there, which included

“collusion of the parties.”   Id. at 306, 60 S. Ct. at 245.10

       10
                In Pepper v. Litton, the consent judgment referred to in the text above was entered
into in state court before the bankruptcy, and the trustee in bankruptcy was obviously not a party.
The Court in Pepper v. Litton also focused on subsequent litigation, in which the trustee in
bankruptcy himself became a party in a subsequent phase of the state court litigation, i.e., when
the trustee in bankruptcy later moved in state court to set aside the Litton consent judgment.
Pepper, 308 U.S. at 299, 60 S. Ct. at 241. Even though the trustee in bankruptcy had himself
attempted to set aside the Litton consent judgment in the state court, the Supreme Court rejected
the claim of res judicata. However, that holding must be viewed in light of Heiser v. Woodruff,
327 U.S. 726, 66 S. Ct. 853 (1946), in which the Court held generally that res judicata applies in
bankruptcy proceedings. In Heiser, the trustee in bankruptcy had himself been a party in the
previous litigation culminating in the previous judgment claimed to be res judicata. In that
previous litigation to which the trustee in bankruptcy was a party, the claim of fraud was
presented by the trustee to set aside the prior judgment, id. at 730, 66 S. Ct. at 855, and was
“fully heard, and the contested issue . . . decided against him.” Id. at 733, 66 S. Ct. at 856.
Recognizing that the trustee in bankruptcy in Pepper v. Litton had also moved in state court to
set aside the Litton judgment, and that the Pepper v. Litton court had nevertheless rejected res
judicata, the Court in Heiser distinguished Pepper v. Litton, pointing out that in Pepper v. Litton
“the issue which the bankruptcy court later considered was not an issue in the trial of the cause

                                                13
       The Second Circuit, in Margolis v. Nazareth Fairgrounds & Farmers Mkt., 249

F.2d 221 (2d Cir. 1957), followed the foregoing rule of Pepper v. Litton and held that the

broad equity powers of a bankruptcy court empowered it to look behind a previous

judgment to determine the essential nature of the liability and to disregard such a

judgment if obtained by collusion. Margolis, 249 F.2d at 223-24 (following and quoting

from Pepper v. Litton). Under the circumstances of that case, which were similar to

Pepper v. Litton, the Second Circuit rejected the res judicata defense. Id. at 224. See

Coleman v. Alcock, 272 F.2d 618 (5th Cir. 1959)11 (rejecting a res judicata defense to a

fraudulent transfer claim of a trustee in bankruptcy and holding that the trustee was not

bound by a previous state court judgment merely because the bankrupt was a party, thus

implying that the trustee could challenge the previous judgment); see also Kelleran v.

Andrijevic, 825 F.2d 692, 694 (2d Cir. 1987) (stating that “[b]ankruptcy courts may look

beyond a state court default judgment where the judgment was procured by collusion or

fraud”); In re Beck-Rumbaugh Assoc., Inc., 103 B.R. 628, 633-34 (Bankr. E.D. Pa. 1989)



in the state court and could not be adjudicated there.” Heiser, 327 U.S. at 738-39 n.*, 66 S. Ct.
at 858-59 n.*.
        Thus, there were two holdings in Pepper v. Litton. The holding with respect to the
subsequent state court litigation to which the trustee was a party has been clarified by Heiser, as
explained in this footnote. On the other hand, nothing in Heiser undermines the Pepper v. Litton
holding with respect to the original Litton consent judgment to which the trustee was not a party.
This is the holding to which we refer in this opinion as the rule of Pepper v. Litton. Later in this
opinion, we explain more fully why Heiser does not undermine this holding.
       11
           In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) (en banc), this court
adopted as binding precedent all of the decisions of the former Fifth Circuit handed down prior
to the close of business on September 30, 1981. Id. at 1209.

                                                14
(finding that, in light of Pepper v. Litton and its progeny, the bankruptcy court could look

behind a state court consent judgment that was entered into collusively so as to deprive

another creditor of its lawful stake in the proceeds of the debtor); In re Fill, 82 B.R. 200,

217-18 (citing Pepper v. Litton and holding that the bankruptcy court was not precluded

from setting aside the judgment because of res judicata, and further noting that the

judgment was “collusive and laced with fraud”) (Bankr. S.D.N.Y. 1987). The instant

case fits comfortably within the rule of Pepper v. Litton and its progeny. As we discuss

below in this opinion, there is ample evidence in this summary judgment record giving

rise to genuine issues of fact with respect to whether the Arizona consent judgment was

taken as part of a scheme of fraud and collusion not only on the part of XYZ and

Muscarella, but also on the part of the Spangler entities. Following the rule of Pepper v.

Litton and its progeny, we hold that the district court in this case, sitting in bankruptcy,

properly entertained the Trustee’s challenge to the Arizona consent judgment.12

       Our holding in this regard is explained not only by the foregoing precedent, but

also by the following reasoning. The Arizona consent judgment was not binding upon the

Trustee. The Trustee represents the rights of the creditors of XYZ who were not parties

to the Arizona consent judgment and whose interests were not represented by XYZ,



       12
               With respect to this issue, the parties have not argued that the law of any state
should govern, and have cited only federal cases. Having litigated the issue as a matter of
federal law and having presented no choice of law issue to this court, we accept the implied
concession that federal law governs. We note also that the Arizona consent judgment was in a
federal court.

                                                15
which was a party to that judgment.13 With respect to the Arizona consent judgment, the

Trustee was not in privity with XYZ. See Fill, 82 B.R. at 217. In circumstances

somewhat similar to those in the instant case, the former Fifth Circuit in Coleman v.

Alcock, supra, held that a trustee in bankruptcy is not bound, either by res judicata or

collateral estoppel, by an in personam judgment in prior litigation in which the bankrupt

was a party. The court held:

       [W]e are of the view that the Trustee is not bound, either on res judicata or
       judicial collateral estoppel, by the prior state court proceedings. The
       Trustee is, of course, a successor of the Bankrupt for many purposes. But
       he is much more both in the extraordinary rights with which the Bankruptcy
       Act invests him, and as a general representative of the creditors. Unless he
       intervenes and takes on the role of an active litigant subjecting himself
       thereby to the usual incidents of such action, he is not bound by the
       judgment merely because the Bankrupt was a party defendant in the prior
       litigation.

Coleman, 272 F.2d at 621-22 (footnote omitted). The decision in Coleman does not

elaborate on the circumstances under which the trustee in bankruptcy will be deemed not

to be in privity with the debtor, and thus not bound by a prior judgment involving the

debtor. Nor need we elaborate in the instant case beyond the circumstances here. As will

be demonstrated in the discussion below, the fact finder in the instant case could

reasonably find that the Arizona consent judgment was part of a collusive scheme on the

part of XYZ and the Spangler entities to hinder, delay, or defraud creditors. Thus, we



       13
                Indeed, as discussed below, the summary judgment evidence creates a genuine
issue of fact with respect to whether XYZ was intending to hinder, delay, or defraud the very
creditors that the Trustee represents.

                                               16
need hold in the instant case, and we do hold, only that the Trustee in bankruptcy would

not be in privity with XYZ, with respect to the Arizona consent judgment, where that

judgment was obtained as part of a collusive scheme on the part of XYZ and the Spangler

entities to hinder, delay, or defraud creditors.

       This holding is consistent with Heiser v. Woodruff, 327 U.S. 726, 66 S.Ct. 853

(1946), in which the Supreme Court clarified its prior decision in Pepper v. Litton. After

holding generally that res judicata is applicable in bankruptcy proceedings, the Court

discussed Pepper v. Litton and said:

       Undoubtedly, since the bankruptcy act authorizes a proof of claim based on
       a judgment, such a proof may be assailed in the bankruptcy court on the
       ground that the purported judgment is not a judgment because of want of
       jurisdiction of the court which rendered it over the persons of the parties or
       the subject matter of the suit or because it was procured by fraud of a party.
       Pepper v. Litton, supra, 308 U.S. 306, 60 S.Ct. 245, 84 L.Ed. 281; Chandler
       v. Thompson, 7 Cir., 120 F. 940; In re Continental Engine Co., 7 Cir., 234
       F. 58; In re Stucky Trucking & Rigging Co., D.C., 243 F. 287; In re Rubin,
       7 Cir., 24 F.2d 289.

327 U.S. at 736, 66 S. Ct. at 857-58. Thus, Heiser recognized and reaffirmed the rule of

Pepper v. Litton, as described earlier in this opinion14 – that res judicata does not preclude

a bankruptcy court from looking behind even a claim which has been reduced to a

judgment against the bankrupt where “the purported judgment is not a judgment . . .

because it was procured by fraud....” Heiser, 327 U.S. at 736, 66 S. Ct. at 858. Where a

prior judgment against the bankrupt was procured as part of a collusive scheme to hinder,



       14
            See supra n.10.

                                              17
delay, or defraud creditors, as in Pepper v. Litton and as the fact finder might find in the

instant case, res judicata does not preclude inquiry by the bankruptcy court. This reading

of Heiser is reinforced by the other cases which Heiser cites for this proposition. For

example, in Chandler v. Thompson, 120 F. 940 (7th Cir. 1902), the court rejected a claim

of res judicata under circumstances indistinguishable from the instant case. There,

appellee had obtained a consent judgment against the bankrupt before the bankruptcy.

After bankruptcy, appellee filed a claim against the bankrupt estate based on the consent

judgment. Another judgment creditor and the trustee in bankruptcy objected to appellee’s

claim; in defense, appellee argued that res judicata precluded the bankruptcy court from

impeaching the prior consent judgment. In rejecting appellee’s argument, the Seventh

Circuit held:

       The averments, in the petition, of fraud and collusion are inartistically
       drawn. They show in substance, however, that no real debt underlay the
       judgments, but that the judgments were entered in pursuance of a scheme
       (to which both judgment creditor and judgment debtor were parties) to
       hinder, delay, and defraud certain claimants, in the collection of claims
       pending against [the bankrupt].

       The case, thus presented, is not that of an attack collaterally upon the
       judgments by the parties thereto, or their privies. It is the case of an attack
       by the trustee of third persons, strangers to the judgment, whose rights and
       interests would be injuriously affected, if the judgments were allowed to
       stand proved as claims. As to such persons, a judgment procured through
       the collusion of the parties thereto, and founded upon no real debt, is to be
       treated as void, and open to collateral attack . . . .

Chandler, 120 F. at 941. To the same effect, see In re Continental Engine Co., 234 F. 58




                                              18
(7th Cir. 1916); In re Stucky Trucking & Rigging Co., 243 F. 287 (D.C.N.J. 1917).15

       Thus, we conclude that Heiser reaffirms the rule of Pepper v. Litton as described

above in this opinion. We also conclude that the instant case fits comfortably within the

rule of Pepper v. Litton and its progeny. Moreover, the rule of Pepper v. Litton and its

application in this case comports with sound common sense. We see no reason why one

creditor of a bankrupt should be able to escape the usual scrutiny with respect to

fraudulent transfers merely because that creditor’s claim was reduced to a judgment prior

to the bankruptcy, where the trustee in bankruptcy was not a party and its interests were

not represented, but rather where the prior judgment was obtained by parties antagonistic

to the trustee’s interests as part of a collusive scheme to hinder, delay, or defraud other


       15
                Although some subsequent cases have narrowly construed the passage in Heiser
which acknowledges that bankruptcy courts have the power to look behind a previous judgment
where the judgment was procured by fraud, none of those cases have involved a prior judgment
obtained as part of a collusive scheme to hinder, delay, or defraud creditors. Because the very
cases cited by Heiser – Pepper v. Litton, Chandler v. Thompson, In re Continental Engine Co.,
and In re Stucky Trucking & Rigging Co. – affirmed the authority of a bankruptcy court to look
behind a prior judgment obtained as part of a collusive scheme to hinder, delay, or defraud
creditors, we are confident that the fraudulently procured judgment contemplated by Heiser
includes fraud of such nature, and therefore includes the fraud in the instant case. Moreover, the
fraud in the instant case fits comfortably within the description of the necessary fraud in one of
the leading cases amongst the progeny of Heiser. In Browning v. Navarro, 826 F.2d 335 (5th Cir.
1987), the Fifth Circuit discussed Heiser and the circumstances which would warrant
disregarding res judicata. The court stated:
        [The party challenging the prior judgment] must demonstrate that the judgment
        was obtained as the result of a scheme or collusion that is designed to influence
        corruptly the proceedings, or to inhibit the ability of an adverse party to fully
        present his case or defense, and which has the effect of foreclosing to him the
        opportunity to have a fair and complete trial.
Browning, 826 F.2d at 345. Where a prior consent judgment was obtained as part of a collusive
scheme to hinder, delay, or defraud other creditors, as the fact finder might reasonably find on
remand in the instant case, the fraud falls comfortably within the Fifth Circuit’s description.

                                               19
creditors. For the foregoing reasons, we conclude that both precedent and reason support

our conclusion rejecting the res judicata argument of the Spangler entities based upon the

Arizona consent judgment. On remand, the district court can properly look behind that

judgment upon the appropriate showing of fraud and collusion.

        B. ACTUAL FRAUD

        We turn next to the issue of actual fraud. The district court held that the Trustee

had failed to create a genuine issue of material fact, and granted summary judgment in

favor of the Spangler entities. The Trustee asserts that the district court did not apply the

proper “badges of fraud” analysis. Because proof of “actual intent to hinder, delay, or

defraud” creditors, pursuant to 11 U.S.C. § 548, may rarely be accomplished by direct

proof, the Trustee argues that courts may infer fraudulent conduct from the circumstantial

evidence and the surrounding circumstances of the transactions. We agree with the

Trustee. In determining whether the circumstantial evidence supports an inference of

fraudulent intent, courts should look to the existence of certain badges of fraud.16 See In


   16
        Both parties acknowledge that courts should look to the badges of fraud in analyzing
actual fraud pursuant to § 548(a)(1). The Spangler entities contend, however, that this court does
not have to reach a badges of fraud inquiry. The Spangler entities argue that a legitimate
business purpose successfully rebuts any showing of actual fraud. See In re Sherman, 67 F.3d
1348, 1354 (8th Cir. 1995) (stating that badges of fraud are sufficient to establish actual
fraudulent intent, “absent significantly clear evidence of a legitimate supervening purpose.”).
The basis for this assertion centers on the legitimacy of First Phoenix’s claim to the BNL letter
of credit. The Spangler entities contend that it was a reasonable business decision for XYZ to
turn the entire proceeds from the Atlanta litigation over to First Phoenix because XYZ had no
hope of dealing with its other creditors while First Phoenix stood waiting at its front door.
However, in light of the circumstances of this case, we conclude that the Spanglers have not
shown evidence of a legitimate business purpose sufficient to overcome the reasonable
inferences of fraud. In addition to the inferences of fraud discussed below, at the time of the

                                               20
re Sherman, 67 F.3d 1348, 1353-54 (8th Cir. 1995); In re Acequia, Inc., 34 F.3d 800, 805-

06 (9th Cir. 1994); FDIC v. Anchor Properties, 13 F.3d 27, 32 (1st Cir. 1994); In re

Brantz, 106 B.R. 62, 67 (Bankr. E.D. Pa. 1989). In Sherman, the court stated that

fraudulent conduct may be inferred from the circumstances following a transfer.

Sherman, 67 F.3d at 1353. In determining whether the circumstantial evidence is

sufficient to establish fraudulent intent, the court should investigate the transfer for the

existence of badges of fraud.17 These badges of fraud include:

       (1) The transfer was to an insider;
       (2) The debtor retained possession or control of the property transferred
       after the transfer;
       (3) The transfer was disclosed or concealed;
       (4) Before the transfer was made 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;
       (9) The debtor was insolvent or became insolvent shortly after the transfer
       was made;
       (10) The transfer occurred shortly before or shortly after a substantial debt
       was incurred; and


settlement negotiations, the Spanglers’ security interest was not perfected because XYZ had
retained possession of the BNL letter of credit. See infra n.20. Thus, the validity and priority of
the Spangler security interest was vulnerable. As we will discuss in greater detail, the structure
of the settlement agreement left XYZ with almost no assets. Furthermore, assets originally
slotted for creditors were funneled off for other uses.
       17
           Although the presence of one specific “badge” will not be sufficient to establish
fraudulent intent, the “confluence of several can constitute conclusive evidence of an actual
intent to defraud.” Sherman, 67 F.3d at 1354 (quoting Max Sugarman Funeral Home, Inc. v.
A.D.B. Investors, 926 F.2d 1248, 1254 (1st Cir. 1991)); see also In re Kranich, 53 B.R. 821
(Bankr. M.D. Fla. 1985).

                                                21
       (11) The debtor transferred the essential assets of the business to a lienor
       who transferred the assets to an insider of the debtor.

Alabama Code, § 8-9A-4(b)(Supp. 1996); see also Arizona Revised Statutes, § 44-

1004(b)(1990).18

       After a careful review of the briefs and the summary judgment record, and after

oral argument, we readily conclude that the evidence adduced creates genuine issues of

material fact as to whether or not there was an actual intent to hinder, delay, or defraud

creditors. We find genuine issues of fact with respect to actual fraud on the part of XYZ

and its principal, Muscarella, and also on the part of the Spangler entities.

       In this opinion, we focus on the transfer of the approximately $2,300,000

(proceeds from the BNL letter of credit, which the Atlanta judgment awarded to XYZ) by

XYZ to the Spangler entities. Our focus is on the initial $2,300,000 transfer19 to the

       18
          The parties acknowledge that the appropriate analysis of actual fraudulent intent under
§ 548(a) would look to the badges of fraud. The parties also assume the applicability of the
badges of fraud itemized in the text, which are substantially the same under the laws of Alabama
and Arizona. Thus, this appeal presents no choice of law issues.
       19
               There is evidence that virtually all of the assets of XYZ were dissipated as a result
of the settlement agreement between Muscarella, as owner of XYZ, and the Spangler entities.
Thus, other assets that a fact finder might deem to have been transferred, in addition to the
$2,300,000 include:

       (a) XYZ’s potential interest in the $1,000,000 certification of deposit, to the extent of the
excess of same over any potential liability to Northern Trust. This certificate of deposit was lost
to XYZ as a result of the implementation of the settlement agreement;

       (b) Real estate which XYZ had at one time owned, subject to a bank mortgage; and

        (c) The usury claims which XYZ was asserting against the Spangler entities both in the
Houston litigation and in the Arizona litigation. The Trustee asserts that a fact finder could find
that the usury claim had the potential of eliminating or reducing substantially the value of any

                                                 22
Spangler entities in satisfaction of the Arizona consent judgment, and on the subsequent

flow of this money pursuant to the implementation of the settlement agreement.

       We turn our attention first to the evidence suggesting that Muscarella and the

Spangler entities fixed the amount of the Arizona consent judgment in favor of the

Spangler entities at approximately $2,300,000, notwithstanding the fact that all parties

intended at the time that the Spangler entities would actually receive a substantially lesser

sum, with the balance thereof to be diverted primarily to Muscarella personally or to

persons or family designated by him. Evidence to the foregoing effect includes: (a) the

affidavit filed by the Spangler entities in the Atlanta litigation indicating that the Spangler

entities were owed approximately $1,250,000, approximately 6 months before the

Arizona consent judgment; (b) a draft of the settlement agreement, reflecting the status of

the settlement negotiations just a few days before the final settlement agreement was

reached, indicating that the Spangler entities were owed $1,200,000, and the testimony of

Muscarella that during the negotiations leading up to the Arizona consent judgment the

Spangler entities only claimed they were owed $1,250,000; (c) the testimony of

Muscarella that the Arizona consent judgment was intended to be in the precise amount of

the Atlanta judgment, despite the fact that Muscarella did not know whether XYZ owed

the Spangler entities anything close to $2,000,000 at the time; and (d) most importantly,



claim the Spangler entities had against XYZ. The usury claim was abandoned as part of the
settlement agreement which dismissed the Houston litigation, and finalized the Arizona litigation
with the Arizona consent judgment.


                                               23
in the actual disbursement of the monies as part of the implementation of the settlement

agreement, the fact that the Spangler entities actually ended up with substantially less

than the $2,300,000 amount of the consent judgment, with approximately $550,000 (plus

the $1,000,000 certificate of deposit) being diverted either to Muscarella personally or to

persons or family designated by him. Based on the foregoing evidence, the fact finder

could reasonably find that Muscarella, in control of XYZ, and the Spangler entities

artificially inflated the amount of the Arizona consent judgment, notwithstanding the

intent on the part of all parties that the Spangler entities would actually end up with a

substantially lesser amount and that $550,000 would be diverted to either a corporation

owned by Muscarella’s mother or to persons or organizations benefitting Muscarella’s

business interests, to the exclusion of XYZ’s creditors.

       We also conclude that there is evidence from which a fact finder could reasonably

find that the above-mentioned artificial inflation of the amount of the Arizona consent

judgment was intended by Muscarella and the Spangler entities as part of a collusive

scheme to hinder, delay, or defraud the creditors of XYZ. The following evidence would

support such a finding:

       (a) Shortly before the finalization of the settlement agreement, Birenbaum, one of

the attorneys for the Spangler entities, wrote a letter to Scott Spangler noting that

Spangler had told the attorneys that one of the arguments that Muscarella intended to use

in negotiating with his creditors was that the Spangler entities had a first-priority security

interest in the proceeds of the BNL letter of credit, and, consequently, that the other

                                              24
creditors of XYZ could ultimately receive little or nothing even after the Atlanta litigation

was resolved. The letter also noted Muscarella’s request that the settlement agreement be

structured so as to ensure the priority security interest of the Spangler entities. The letter

also noted that the Spangler entities were certainly taking the position that they had a

first-priority security interest in the BNL letter of credit, but acknowledged that it did not

appear that the Spangler entities would be entitled to all of the proceeds, then estimated to

be approximately $2,100,000, thus possibly leaving a significant portion for the other

creditors. Finally, the letter noted the possibility that the security interest of the Spangler

entities might be successfully attacked. With regard to the latter, the evidence in this

record indicates that possession of the BNL letter of credit was not delivered to the

Spangler entities until late November 1993, shortly after the date of the Birenbaum letter.

During the settlement negotiations, the fact that the Spangler entities did not have

possession of the letter of credit was known to both sides, and both sides thus were aware

of the legal vulnerability of the Spangler security interest.20

       (b) Muscarella testified in his deposition that he needed to have the Spangler lien

remain in place so that he could use it as leverage in negotiating with other XYZ

creditors. He had advised Spangler of this.

       (c) Muscarella’s attorney, Chamberlin, testified in deposition that he had discussed


       20
                In the companion case, No. 96-7035, this court has held that the Spanglers’
security interest in the BNL letter of credit first became perfected in late November 1993, on the
date the Spangler entities took possession of the BNL letter of credit. The opinion in No. 96-
7035 is being published simultaneously with this opinion.

                                                25
with Muscarella the need to make sure that the Spangler entities had a lien on the BNL

letter of credit proceeds before settlement negotiations.

       (d) Shortly after the foregoing, XYZ, in November 1993, delivered possession of

the BNL letter of credit to the Spangler entities, thus perfecting the security interest of the

Spangler entities.

       (e) If the fact finder concludes that the Arizona consent judgment was in fact

artificially inflated, that in itself would add support for a finding of intent on the part of

Muscarella, XYZ, and the Spangler entities to hinder, delay, or defraud creditors, at least

in the absence of other credible explanation. In other words, the most reasonable

explanation for artificially inflating the amount of the judgment may be an intent to use

the judgment as a shield to make assets unavailable to other creditors of XYZ.

       (f) Finally, the fact finder could reasonably find that, of the $2,300,000 initially

transferred to the Spangler entities, at least $550,000 was ultimately diverted to

Muscarella’s mother’s corporation or otherwise for Muscarella’s benefit. The fact finder

could reasonably find that this diversion, and also the transfer of the $1,000,000

certificate of deposit which ended up in Muscarella’s mother’s corporation, occurred with

the knowledge and participation, not only of Muscarella, but also of the Spangler entities.

       On the basis of all the evidence, the fact finder could reasonably find that the

Arizona consent judgment was artificially inflated with the intent on the part of the parties

to use the judgment as a shield against creditors to protect the diversion of funds to

Muscarella, or persons or family influenced by him.

                                               26
       Looking at the foregoing evidence through the prism of the badges of fraud, we

readily conclude that a reasonable trier of fact could find that most of the badges of fraud

are established by the evidence in the summary judgment record. We turn first to discuss

the eighth badge of fraud, i.e., the issue of whether or not the value of the consideration

received by the debtor, XYZ, was reasonably equivalent to the value of the assets

transferred. The primary asset transferred by XYZ was the approximately $2,300,000

representing the proceeds of the BNL letter of credit which were awarded to XYZ by the

district court in Atlanta.21 The primary value received by XYZ was the satisfaction of the

consent judgment in the Arizona litigation.22 The Spangler entities argue that their

claims, which were thus settled, greatly exceeded the $2,300,000 received, and thus

amounted to equivalent value. We readily conclude that a reasonable fact finder might

find otherwise.23 Thus, we conclude that the fact finder could reasonably find the


       21
               See supra n.19 (listing other assets that a reasonable fact finder may find were
transferred by XYZ as a result of the settlement agreement and ensuing transactions).
       22
                Also settled were any claims by the Spangler entities against XYZ in the Atlanta
litigation and the Houston litigation.
       23
                As is often the case when genuine issues of material fact preclude summary
judgment, it is true that the Spangler entities have adduced evidence from which a jury might
find equivalent value. However, they have not persuaded us that they had claims equaling or
exceeding a realistically perceived value of $2,300,000, thus eliminating genuine issues of fact in
this regard. This is especially true in light of the ample evidence suggesting that the Spangler
entities never intended to receive the full $2,300,000. Moreover, there are genuine issues of
material fact as to the realistic value of several of the Spangler claims. For example, there is
very little evidence that the Spangler entities realistically perceived that they had a viable claim
for $875,531 for any remaining liability on the Northern Trust letters of credit. The evidence
suggests that those letters of credit were amply collateralized by the $1,000,000 certificate of
deposit.

                                                27
existence of the eighth badge of fraud.

       There is ample evidence from which a reasonable fact finder could find that the

transfers in connection with the implementation of the settlement agreement transferred

substantially all of the debtor’s assets, and left the debtor insolvent, thus satisfying the

fifth and ninth badge of fraud. With respect to the fourth badge of fraud, it might

reasonably be found that the debtor, XYZ, was subject to judgments and threatened suits

by creditors immediately before the transfer.

       A reasonable fact finder could also find that the first, second, seventh, and eleventh

badges of fraud are satisfied. All deal with retention of possession or control by the

debtor or insiders. There is ample evidence from which it could reasonably be found that

essential assets of the debtor, XYZ, were transferred to a lienor, the Spangler entities,

who then transferred assets to an insider. For example, the fact finder could reasonably

find that $550,000, plus XYZ’s residual interest in the $1,000,000 certificate of deposit,

ended up in the hands of insider Muscarella, or persons or family controlled by him.

       Finally, there are reasonable inferences in this summary judgment record from

which it might reasonably be found that the third badge of fraud is satisfied, namely, that

the transfer was concealed. The fact finder might reasonably infer, from the fact that the

implementation of the settlement agreement was delayed approximately 90 days, that

there was an intent to conceal the transfer for a sufficient length of time until the

bankruptcy preference period expired. Moreover, an intent to conceal might reasonably

be inferred from the complex and convoluted nature of the transfers by which the

                                              28
settlement agreement was implemented. While it is true that mere complexity would not

give rise to an inference of fraud or intent to conceal, in this case, the record wholly fails

to provide any reasonable explanation for a considerable number of the convoluted

transactions involved.

       After careful consideration of the evidence discussed above in light of the badges

of fraud, we readily conclude that there is ample evidence from which a fact finder could

reasonably find an actual intent on the part of both the debtor, XYZ, and the Spangler

entities to hinder, delay, or defraud creditors.24 The district court’s contrary conclusion



       24
                 It is true that there is also evidence in the record on the basis of which a fact
finder could find that the Spangler entities were innocent dupes with respect to the fraud on
creditors. There is evidence that the plan for settlement originally contemplated that the
$550,000 (which ultimately found its way into the pockets of Muscarella personally or persons
or family designated by him) would ultimately benefit creditors of XYZ. The plan apparently
contemplated that XYZ could use the $550,000 to fund a new letter of credit to be substituted for
the two Northern Trust letters of credit, which in turn would free up for XYZ’s use the
$1,000,000 certificate of deposit which had collateralized the two Northern Trust letters of
credit. There is some evidence that this original plan was intended to make available to XYZ
that $1,000,000 for the benefit of XYZ’s other creditors. While a fact finder might find the
Spangler entities innocent on the basis of the foregoing evidence, several reasons persuade us
that there remain genuine issues of fact with respect to the innocence of the Spangler entities.
The foregoing original plan was not followed in the implementation of the settlement agreement.
The $550,000 did not end up at the disposal of XYZ, nor did the $1,000,000 certificate of
deposit. To the contrary, the $550,000 and the $1,000,000 certificate of deposit ended up in
possession of a corporation owned by Muscarella’s mother. Although the record does not
explain how or why Muscarella’s mother’s corporation was permitted to swoop in and pocket
such substantial assets, nevertheless this is what happened. There is evidence on the basis of
which a fact finder could reasonably find that this occurred with the knowledge and participation
not only of Muscarella, but also of the Spangler entities. Moreover, there is no adequate
explanation in the record for the fact that the Arizona consent judgment may have been
artificially inflated, thus leaving the reasonable inference that there was an intent on the part of
Muscarella, XYZ, and the Spangler entities to use the consent judgment as a shield against other
creditors. Thus, genuine issues of material fact remain with respect to actual fraud on the part of
Muscarella, XYZ, and the Spangler entities.

                                                29
was error.

       C. CONSTRUCTIVE FRAUD

       In addition to actual fraud, the Trustee also argues that the transfer of the

$2,300,000 BNL proceeds to the Spangler entities was constructively fraudulent, pursuant

to 11 U.S.C. § 548(a). The elements of a claim of constructive fraud under § 548(a) are

that: (1) the debtor had an interest in property; (2) the transfer of that interest occurred

within one year of the bankruptcy petition; (3) the debtor was insolvent at the time of the

transfer or became insolvent as a result thereof; and (4) the debtor received less than

reasonably equivalent value in exchange for such transfer. Finding that the Spangler

entities did not deny any of the first three elements, the district court addressed only the

issue of reasonably equivalent value. The district court rejected the Trustee’s argument

and determined that no genuine issue of fact existed as to whether or not XYZ had

received reasonably equivalent value in exchange for the transfer of the BNL judgment

proceeds to First Phoenix.

       In our above discussion of the badges of fraud, we have already determined that

there are genuine issues of material fact on the issue of reasonably equivalent value. We

need not discuss the issue again. The fact finder could reasonably find all four elements

of constructive fraud. The district court’s contrary conclusion was error.

       D. KEATING’S MOTION FOR SUMMARY JUDGMENT

       The district court granted Keating’s motion for summary judgment and dismissed

the action as against Keating. The district court had already granted summary judgment

                                              30
in favor of the Spangler entities, holding that they had given equivalent value for XYZ’s

transfer of the $2,300,000 BNL proceeds. The Trustee’s claim against Keating was based

on the allegation that Keating was at least a temporary recipient of a portion of the

$2,300,000, pursuant to one of the convoluted transactions which followed XYZ’s initial

transfer of the $2,300,000 to the Spangler entities. In granting summary judgment in

favor of Keating, the district court reasoned as follows: because the court had already

ruled that XYZ had no further interest in the $2,300,000, it followed that neither XYZ nor

its Trustee in bankruptcy had any interest in the subsequent transfers to other entities.

       Our holding today, reversing the district court’s grant of summary judgment in

favor of the Spangler entities, nullifies the reasoning of the district court in its ruling in

favor of Keating. Accordingly, we also reverse the district court’s grant of summary

judgment in favor of Keating.25



IV. CONCLUSION

       For the foregoing reasons, we reject the argument of the Spangler entities that the

Trustee’s challenge to the $2,300,000 is shielded by the Arizona consent judgment, and

we conclude that there are genuine issues of material fact with respect to actual fraud and

constructive fraud. We reverse the district court’s grant of summary judgment in favor of


       25
            Anticipating a possible reversal of the district court’s grant of summary judgment in
favor of the Spangler entities, Keating makes alternative arguments in support of the judgment in
his favor. We decline to address the alternative arguments, preferring that they be addressed in
the first instance by the district court.

                                               31
the Spangler entities, and we reverse the district court’s grant of summary judgment in

favor of Keating. We remand this case for further proceedings not inconsistent with this

opinion.

      REVERSED AND REMANDED.




                                            32
