Debtor May Establish Reasonably Equivalent Value Through Estimates of Intangible Benefits

By: Alexandria Stiteler

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff Member


Under title 11 of the United States Code (the “Bankruptcy Code”), a trustee appointed to a debtor’s estate may avoid transfers made within two years before the date of the filing if the debtor received less than reasonably equivalent value in exchange.[i] In In re Miami Neurological Inst., LLC, the United States Bankruptcy Court for the Southern District of Florida held that the Trustee could not avoid tuition payments made by a debtor for the benefit of its employees.[ii] According to the Court, the Debtor (Miami Neurological Institute, LLC) received reasonably equivalent value for the tuition payments.[iii] In January 2017, Miami Neurological Institute, LLC, owned by defendant, neurosurgeon Dr. Figuereo, filed for relief under Chapter 11 of the Bankruptcy Code.[iv] The case was, thereafter, converted to Chapter 7.[v] Prior to the bankruptcy filing, Dr. Figuereo was enrolled in University of Miami’s Executive HealthCare Masters of Business Administration Program (“HEMBA”) program to learn how to increase the Debtor’s receivable collections rate.[vi]  The Debtor made tuition payments totaling approximately $54,000.[vii]  The Trustee attempted to avoid the tuition payments as fraudulent transfers, alleging that Debtor had received less than reasonably equivalent value.[viii] In response, the Debtor claimed that it had indirectly received reasonably equivalent value.[ix] The bankruptcy court held that Debtor received reasonably equivalent value because (1) given Debtor’s significant gross income figures, the amount of the tuition was a reasonable risk that indirectly provided value, and (2) even one tenth of one percent of improvement of Debtor’s billings would have produced reasonably equivalent value to the tuition paid.[x]

Under § 548(d)(2)(a) of the Bankruptcy Code, when analyzing whether a debtor received reasonably equivalent value for a transfer, a court must make a two-step inquiry asking (1) whether debtor received value and (2) whether the value received was reasonably equivalent to the property transferred.[xi] Courts have acknowledged that intangible property such as an opportunity to receive an economic benefit in the future, constitutes value.[xii] Value can be received directly or indirectly.[xiii] After a defendant has established that the debtor has indeed received value, the burden shifts to the trustee to show that the debtor did not receive reasonably equivalent value.[xiv] In determining receipt of reasonably equivalent value, insolvency is a non-dispositive element.[xv] Finally, when establishing that there was reasonably equivalent value for an exchange, the presentation of a dollar for dollar exchange is not required.[xvi]

The Court in In re Miami Neurological Inst., LLC held that the Debtor had indirectly received value under the first prong of the § 548(d)(2)(a) analysis.[xvii] While Debtor’s business billed forty to sixty million dollars annually, it only collected between eleven and twelve percent of those billings per year, thus “yielding no material profit.”[xviii] Dr. Figuereo completed the HEMBA program and testified that he had accomplished his goal of improving the Debtor’s receivables rates by decreasing the collection time by half and negotiating better coverage rates with insurance companies.[xix] The Court held this to be sufficient evidence that the Debtor had indirectly received value in exchange for the tuition payments made.[xx]

Given that the Debtor billed millions of dollars annually, the Court held that it was highly probable that the Debtor indirectly received reasonably equivalent value under the second prong of the § 548(d)(2)(a) analysis because they would have only have needed to improve by one-tenth of a percent to equal to the tuition payments, thus, providing reasonably equivalent value.[xxi] The Court did not require presentation of a dollar for dollar exchange.[xxii] Finally, the Court held the fact that Debtor had been insolvent at the time of the transfer and grew deeper in insolvency did not dispositively establish a lack of reasonably equivalent value because Debtor’s hope for return on their investment was reasonable and there was even evidence that this transfer may have reduced their insolvency through their operational improvements.[xxiii]

In sum, the tuition payments were not avoidable under § 548(d)(2)(a).[xxiv] According to the court, reasonably equivalent value may be indirectly received in a non-monetary, intangible form.[xxv] In analyzing whether the Trustee had established a lack of reasonably equivalent value, the Court followed the general rules that a debtor does not need to prove a dollar for dollar exchange and that even deepening insolvency after the exchange does not dispositively prove lack of reasonably equivalent value.[xxvi] Accordingly, a payment made for the benefit of a third party, such as a tuition payment that benefits a debtor’s employees, may not necessarily be avoided as a fraudulent transfer.

[i] 11 U.S.C. § 548(a)(1)(B)(i) (2018).

[ii] In re Miami Neurological Inst., LLC, No. 17-10703-BKC-RAM, 2020 WL 3410182, at *7 (Bankr. S.D. Fla. June 19, 2020).

[iii] Id. at *6–7.

[iv] Id. at *1.

[v] Id. at *1.

[vi] Id. at *2.

[vii] Id. at *3.

[viii] Id. at *3.

[ix] Id. at *6–7.

[x] Id. at *5.

[xi] Id. at *4.

[xii] See Intershoe, Inc. v. The Official Comm. of Unsecured Creditors (In re R.M.L., Inc.), 92 F.3d 139, 148 (3d Cir. 1996) (“[T]he mere ‘opportunity’ to receive an economic benefit in the future constitutes ‘value’ under the Code.”).

[xiii] See Gen. Elec. Credit Corp. & Domino Inv. Inc. v. Murphy (In re Rodriguez), 895 F.2d 725, 727 (11th Cir. 1990) (“Therefore, this provision does not authorize voiding a transfer which ‘confers an economic benefit upon the debtor,’ either directly or indirectly.”).

[xiv] In re Miami Neurological Inst., LLC, 2020 WL 3410182, at *6.

[xv] Id.

[xvi] Id.

[xvii] Id. at *5.

[xviii] Id. at *1.

[xix] Id. at *2.

[xx] Id.

[xxi] Id. at *7.

[xxii] Id. at *6.

[xxiii] Id.

[xxiv] Id. at *7.

[xxv] Id. at *5.

[xxvi] Id. at *6.