## Facts

- The Personal & Business Insurance Agency (PBI) was an insurance brokerage owned and controlled by its CEO and sole shareholder, Emil Kesselring.
- Kesselring used PBI to submit fraudulent premium-finance loan applications to Premium Financing Specialists (PFS) in the names of PBI customers without authorization.
- PFS disbursed loan proceeds in connection with the applications; the proceeds were routed to Kesselring or into PBI accounts and diverted for Kesselring’s personal benefit rather than payment of customer insurance premiums.
- To conceal the scheme and keep PFS from detecting the fraud, Kesselring caused PBI to pay PFS about $580,000 as purported loan repayments.
- After Kesselring was indicted for mail and wire fraud, PBI filed for Chapter 7 bankruptcy and a trustee was appointed.
- The trustee sued to avoid and recover the $580,000 payments as fraudulent transfers under 11 U.S.C. § 548 and Pennsylvania fraudulent conveyance law, alleging PBI did not receive reasonably equivalent value because the transfers satisfied obligations arising from Kesselring’s wrongdoing.

## Issues

1. Whether, in a trustee’s avoidance action under 11 U.S.C. § 548, a court may consider post-petition events, including the appointment of an independent trustee, when analyzing imputation-based defenses.
2. Whether the sole-actor exception requires imputation of a corporate insider’s fraud to the debtor (and thus to the trustee) so that payments connected to the fraud are treated as satisfaction of an antecedent debt constituting reasonably equivalent value.
3. Whether treating the trustee as fully subject to the debtor’s imputed misconduct improperly bars § 548 remedies sought for the benefit of innocent creditors.

## Decision

- The Third Circuit reversed the district court’s affirmance of the bankruptcy court’s dismissal and remanded.
- The court held that post-petition events, including the trustee’s appointment replacing the wrongdoer, may be considered in evaluating a § 548 fraudulent-transfer claim.
- The court rejected the view that Kesselring’s fraud must automatically be imputed to the trustee for § 548 purposes, undermining the conclusion that the challenged payments necessarily satisfied a valid antecedent debt.
- Because dismissal rested on an imputation theory treating the transfers as supported by reasonably equivalent value as a matter of law, the trustee’s avoidance claims were allowed to proceed.

## Legal Principles

- A trustee’s avoidance power under 11 U.S.C. § 548 is a remedial tool aimed at protecting creditors by permitting avoidance of certain pre-petition transfers that are actually or constructively fraudulent.
- Doctrines of imputation and related equitable defenses are not mechanically applied in § 548 litigation when their effect would be to bar recovery sought by an independent trustee on behalf of innocent creditors.
- The appointment of a trustee can be relevant to whether insider misconduct is attributed to the plaintiff for purposes of evaluating defenses to a § 548 avoidance action.
- Treating a fraudulent-transfer payment as supported by “reasonably equivalent value” on the theory that it repaid an antecedent debt may depend on whether the asserted debt is established only through imputation of an insider’s fraud to the party seeking avoidance.

## Conclusion

The Third Circuit held that a § 548 fraudulent-transfer action brought by an independent trustee is not automatically defeated by imputing the debtor’s sole shareholder’s fraud to the trustee, and that courts may consider the trustee’s post-petition appointment when assessing imputation-based defenses and reasonably equivalent value.


In re The Personal & Bus. Ins. Agency, 334 F.3d 239 (3d Cir. 2003)