## Facts

- Jeffrey and Lynn Citron (the debtors) were charged in New York state court with defrauding Liberty Mutual Insurance Company (Liberty Mutual).
- Jeffrey pleaded guilty to five felony counts and was sentenced to imprisonment and a $75,000 criminal fine payable to the State of New York (the State).
- Lynn pleaded guilty to a misdemeanor and was sentenced to three years’ probation.
- As part of Lynn’s sentence, she agreed to pay the State $5,000 by the sentencing date and $4,722 per month during probation.
- On the December 2007 sentencing date, Lynn paid the initial $5,000 (outside the 90-day preference period).
- Lynn did not make the January and February 2008 monthly payments but paid $9,000 on March 25, 2008.
- On March 25, 2008, Jeffrey paid the State $75,000 to satisfy his fine.
- Two days later, on March 27, 2008, the Citrons filed a joint Chapter 13 petition.
- Liberty Mutual, acting “as fiduciary for the bankruptcy estate,” filed an adversary proceeding against the State seeking to avoid and recover the March 25 payments as preferential transfers and also asserted constructive fraudulent-transfer theories tied to the plea agreements and payments.
- The State conceded the prima facie elements of a preference under 11 U.S.C. § 547(b) as to the March 25 payments, but argued the payments were protected by the contemporaneous-exchange-for-new-value defense under § 547(c)(1).
- The parties filed cross-motions for summary judgment.

## Issues

1. Whether Lynn Citron’s $9,000 March 25, 2008 payment was protected from avoidance as a contemporaneous exchange for new value under 11 U.S.C. § 547(c)(1), given the timing of the plea agreement/sentencing and the later catch-up payment.
2. Whether Jeffrey Citron’s $75,000 March 25, 2008 payment could be resolved on summary judgment under § 547(c)(1), or whether disputed facts remained regarding any new value and the timing of the exchange.
3. Whether the plea agreements and related fine obligations and payments could be avoided as constructively fraudulent transfers for lack of reasonably equivalent value.

## Decision

- The court granted summary judgment to the State on Liberty Mutual’s constructive fraudulent-transfer claims, concluding the plea agreements and criminal-court-approved resolutions were not avoidable on a lack-of-value theory.
- The court granted summary judgment to Liberty Mutual on its preference claim to recover Lynn Citron’s $9,000 March 25, 2008 payment, holding the § 547(c)(1) defense did not apply because the payment was not substantially contemporaneous with any new value.
- The court denied summary judgment to both parties as to Jeffrey Citron’s $75,000 March 25, 2008 payment, finding genuine disputes of material fact that prevented a ruling on the § 547(c)(1) defense at the summary-judgment stage.

## Legal Principles

- A transfer that satisfies 11 U.S.C. § 547(b) is avoidable unless the transferee proves an exception under § 547(c).
- Under § 547(c)(1), the transferee must show (i) the parties intended a contemporaneous exchange for new value and (ii) the exchange was in fact substantially contemporaneous.
- “New value” under § 547(a)(2) must be value given to the debtor (money or money’s worth in goods, services, or new credit), and the timing between the alleged value and the challenged payment is central to the § 547(c)(1) inquiry.
- A late catch-up payment made months after a plea agreement and sentencing, to satisfy missed installment obligations, may be treated as payment on an antecedent debt rather than a substantially contemporaneous exchange.
- For constructive fraudulent-transfer claims, the court treated criminal plea agreements approved by a court of competent jurisdiction as providing reasonably equivalent value to the defendant-debtors in resolving criminal exposure and related financial penalties, defeating avoidance on a lack-of-value theory.

## Conclusion

In *In re Citron*, the bankruptcy court rejected fraudulent-transfer challenges to the plea agreements, but held Lynn Citron’s late $9,000 probation-related payment made two days before the Chapter 13 filing was an avoidable preference because it was not substantially contemporaneous with any new value; the court, however, found the record insufficient to resolve on summary judgment whether Jeffrey Citron’s $75,000 fine payment qualified for the § 547(c)(1) defense.


Liberty Mutual Insurance Co. v. New York (In re Citron), 428 B.R. 562 (2010)