South-Western Legal Studies in Business

Jury Will Determine if Good Faith Defense Applies to Alleged Fraudulent Transfer
Description Appeals court held that a relative of company executives, who was paid a very large sum for managerial duties prior to bankruptcy of the firm, may present the defense of good faith for value before the jury to determine if the payment she received was justified or not.
Topic Bankruptcy
Key Words Fraudulent Transfers; Good Faith
C A S E   S U M M A R Y
Facts Orlick worked for ABS; her contract stated that she would be paid one percent of the gross revenues generated by ABS for her managerial functions. In the 18 months she worked at ABS, she was paid over $1.1 million. When ABS, which was involved in various fraudulent scams, declared bankruptcy, the trustee demanded repayment of the money, since Orlick, the daughter of an ABS executive, was a poorly educated person with little work experience. The trustee contended that the payment was a fraudulent transfer not given for real value of work. The district court agreed with the trustee and did not allow the matter to go to trial; Orlick appealed.

Reversed. Orlick may raise the claim of "good faith for value" for the work she performed for ABS. Just because ABS was involved in fraudulent scams does not mean that the payments to Orlick were necessarily fraudulent transfers. Orlick did perform managerial duties for the company, such as handling payroll. She provided substantive managerial services for the company. The matter will go to trial and Orlick may raise the good faith defense.

Citation In re Financial Federated Title & Trust, Inc., --- F.3d --- (2002 WL 31356650, 11th Cir., 2002)

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