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Home / Case News / A Plaintiff’s Complaints Fail to State a Claim for the Avoidance of the Overdraft Loan Repayment Transfers as Constructively Fraudulent Transfers.

A Plaintiff’s Complaints Fail to State a Claim for the Avoidance of the Overdraft Loan Repayment Transfers as Constructively Fraudulent Transfers.

October 10, 2018, FloridaDebtors Able Body Temporary Services, Inc., et al. was engaged in the business of providing staffing services. Briefly, Debtors’ principals, Frank and Anne Mongelluzzi, owned numerous companies (the “Mongelluzzi Entities”). The Mongelluzzi Entities maintained multiple deposit accounts at Defendant Regions Bank. Some of the Mongelluzzi Entities also had lending relationships with Regions.

In 2011, Mr. Mongelluzzi filed a Chapter 11 case, which was converted to a Chapter 7 liquidation case. Angela Welch was appointed as the Chapter 7 Trustee. In 2013, Trustee Welch filed Chapter 7 bankruptcies on behalf of sixteen of the Mongelluzzi Entities, including the Debtors. Christine Herendeen (“Plaintiff”) was appointed as the trustee in the Mongelluzzi Entities’ cases. In January 2015, the Plaintiff filed complaints against the Defendant in the Mongelluzzi Entities’ bankruptcy cases. The Plaintiff sought to avoid and recover alleged actual and constructive fraudulent transfers under the Florida Uniform Fraudulent Transfer Act, Chapter 726, Florida Statutes, and 11 U.S.C. §§ 544 and 550.

The Plaintiff alleged that Regions was aware of a check-kiting scheme within the Regions Accounts and that, to protect its interests and reduce its exposure on the Regions Loans, Regions entered into a forbearance agreement with the Mongelluzzis and some of the Mongelluzzi Entities. According to the agreement, Regions applied more than $7.4 million on deposit in the Debtors’ accounts at Regions to the outstanding indebtedness on the Regions loans. These transfers were at issue.

Regions moved to dismiss the Plaintiff’s constructive fraud claims on three grounds. First, Regions contended that the Plaintiff did not plausibly allege that the Debtors did not receive reasonably equivalent value in exchange for the Overdraft Loan Repayment Transfers. Second, Regions argued the alleged transfers were in payment of overdrafts in Debtors’ accounts at Regions, such that they constituted the payment of antecedent debts. Third, Regions contended that dismissal was warranted because “fair consideration” and “good faith” were not incorporated into the Florida Uniform Fraudulent Transfer Act.

The Court found that Regions’ first two grounds for dismissal were intertwined. Essentially, Regions argued that the Plaintiff has not and cannot state a claim for the avoidance of constructively fraudulent transfers as to the alleged transfers because the alleged transfers were in payment of overdrafts in Debtors’ own accounts. The Court relied upon Welch v. Highlands Union Bank and concluded that the repayment of an overdraft in the Debtor’s own account is a transfer on account of an antecedent debt such that reasonably equivalent value is received in exchange for the repayment. And when the transfer is in the exact amount of the antecedent debt—as was in the case at bar—the dollar for dollar exchange is, by definition, reasonably equivalent value. Further, the Court concurred with Regions’ contention that good faith was irrelevant to the Court’s consideration of whether the reasonably equivalent value was received in exchange for the alleged transfers.

The Court accordingly held that the Plaintiff’s complaints failed to state a claim for the avoidance and recovery of the overdraft loan repayment transfers as constructively fraudulent transfers and granted the Defendant’s motions to dismiss as to the constructive fraudulent transfer claims, but allowed the Plaintiff leave to file an amended complaint.

Herendeen v. Regions Bank (In re Able BodyTemporary Servs.), Nos. 8:13-bk-06864-CED, 8:15-ap-118-CED, 2018 Bankr. LEXIS 3157 (Bankr. M.D. Fla. Oct. 10, 2018)