## Facts

- Citicorp-related entities (including what became Court Square Capital Ltd.) acquired Pay ’N Pak Stores, Inc. in a debt-financed buyout.
- To complete the acquisition, the buyers borrowed to purchase Pay ’N Pak’s stock and then repaid the acquisition borrowing using Pay ’N Pak’s own funds after the transaction.
- Pay ’N Pak continued operating and paid its trade creditors for about three years following the buyout.
- Less than five years after the transaction, Pay ’N Pak entered bankruptcy.
- A group of Pay ’N Pak’s unsecured creditors (through the bankruptcy-related litigation) sued the acquiring entities and related defendants, alleging that payments made to the selling shareholders as part of the transaction were fraudulent conveyances.
- At trial, the district court instructed the jury that the case turned on whether Pay ’N Pak received something of fairly equivalent value in exchange for what it transferred.
- Defendants offered evidence that Pay ’N Pak received value, including claimed non-cash benefits such as avoiding a takeover by a third-party “raider” alleged to have intended to strip the company.
- Defendants also offered evidence that Pay ’N Pak’s later failure resulted from an industry downturn rather than the buyout transaction.
- The jury returned a verdict for defendants, and judgment was entered accordingly.
- The unsecured creditors appealed, arguing the court should have ruled as a matter of law that Pay ’N Pak did not receive fairly equivalent value and that the case should not have gone to the jury.

## Issues

1. In a fraudulent-transfer challenge to a debt-financed buyout, was the unsecured creditors’ committee entitled to judgment as a matter of law that the debtor did not receive “fairly equivalent value,” or could the district court properly submit that question to the jury on disputed evidence?

## Decision

- The Ninth Circuit affirmed the judgment for defendants.
- The court held that the district court did not err by allowing the jury to decide whether Pay ’N Pak received something of fairly equivalent value.
- The court concluded that the record contained sufficient evidence for a reasonable jury to find for defendants, including evidence of asserted benefits to Pay ’N Pak and evidence disputing whether the transaction, rather than later market conditions, caused the bankruptcy-related harm.

## Legal Principles

- A constructive fraudulent transfer claim commonly turns on whether the debtor received “reasonably/fairly equivalent value,” and that determination is often fact-dependent.
- When evidence about value is disputed, the trial court may submit the “fairly equivalent value” question to the jury rather than resolve it as a matter of law.
- A defendant may argue that the debtor received non-cash benefits as part of the overall exchange; whether such benefits are real and sufficiently valuable is for the factfinder when supported and contested at trial.
- Evidence bearing on why the debtor later failed (including intervening economic conditions) may affect whether the plaintiff has proved the elements of a fraudulent conveyance theory tied to the transaction.
- On appeal from a jury verdict, the reviewing court does not reweigh conflicting evidence and will affirm if the verdict is supported by legally sufficient evidence.

## Conclusion

The Ninth Circuit affirmed a jury verdict rejecting unsecured creditors’ fraudulent-transfer attack on Pay ’N Pak’s debt-financed buyout, holding that “fairly equivalent value” and related causation questions were disputed factual matters the district court properly left to the jury and that the defense verdict had adequate evidentiary support.


Pay 'N Pak Stores, Inc. v. Court Square Capital Ltd., 141 F.3d 1178, 1998 WL 133560 (1998)