Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
Oct. 4 — A Chapter 7 trustee can undo a fraudulent transfer involving a 6.32 carat pink diamond that the debtor purchased for three times its value two and a half years before filing bankruptcy, a bankruptcy court in Texas held Sept. 27 ( Robert Milbank v. Sharpshooter II, Inc. (In re Worldwide Diamond Ventures, LP) , 2016 BL 318491, Bankr. N.D. Tex., No. 15-03121-SGJ, 9/27/16 ).
The trustee presented overwhelming evidence that the debtor received less than reasonably equivalent value for the $600,000 it paid at a time when there were many creditors and the debtor was insolvent.
Judge Stacey G.C. Jernigan of the U.S. Bankruptcy Court for the Northern District of Texas concluded that trustee Robert Milbank, Jr. is entitled to summary judgment because there was no genuine issue of material fact.
Debtor Worldwide Ventures, LP “grossly overpaid” for what the court described as a “breathtaking” and “eye-popping” pink diamond. There was no evidence presented that the pink diamond had ever been worth anywhere close to the $600,000 that the debtor paid for it when it was insolvent.
The trustee is entitled to avoid the transaction, the court said, and can recover the difference between the value given by the debtor ($600,000) and the value of the Pink Diamond ($210,000), which is $390,000, from the seller of the diamond, defendant Sharpshooter II, Inc., under Bankruptcy Code Sections 544, and 550, and Texas Business and Commerce Code §§ 24.001 et seq.
Bankruptcy Code Section 544(b) “permits a bankruptcy trustee to avoid any transfer of an interest of a debtor in property that is avoidable under applicable law by a creditor holding an unsecured claim,” and Section 550 “permits a bankruptcy trustee to recover property transferred and avoided” under Section 544, or the value of such property from the initial transferee, the court said.
The court arrived at the pink diamond’s $210,000 valuation based on the winning bid at Sotheby’s auction in New York at its “Magnificent Gems” international auction.
Thomas Daniel Berghman, Munsch Hardt Kopf & Harr PC, Dallas; Isaac Joseph Brown, Munsch Hardt Kopf & Harr, PC, Dallas, Robert Milbank, Jr., Law Office of Robert Milbank, Jr., Dallas; Joseph J. Wielebinski, Esq., Munsch Hardt Kopf & Harr, P.C., Dallas, represented plaintiff/Trustee Robert Milbank, Jr.; Charles I. Kaplan, Kaplan and Associates, LLP, Dallas; James P. Moon, James P. Moon, PLLC, Dallas, represented defendant Sharpshooter II, Inc., a Texas Corporation; Mark A. Castillo, Joshua Lee Shepherd, and Curtis Castillo PC, Dallas, represented debtor Worldwide Diamond Ventures, LP;
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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