Fraudulent Transfer: A Case Where Strong Arm Powers Were 'An Inch Too Short'

Casey v. Rotenberg (In re Kenny G Enterprises, LLC), 512 B.R. 628 (C.D. Cal. 2014) -

A Chapter 11 trustee sought to avoid a transfer of property under Section 544 of the Bankruptcy Code that occurred after (1) the bankruptcy petition was filed and (2) a chapter 11 plan of reorganization was confirmed. The defendants moved to dismiss on the basis that Section 544 applies only to prepetition transfers. The bankruptcy court denied the motion, and the defendants appealed.

The debtor listed a residential rental property valued at $1.2 million in its bankruptcy schedules. Under its plan of reorganization, it proposed to continue to use the property as rental property to provide income to fund the plan. In fact, this property was the only income-generating asset in the entire bankruptcy estate.

However, a couple of months after the plan of reorganization was confirmed, the debtor sold the property for ~$3.1...