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Ameriserv Financial Bank v. Commercebank


April 17, 2009


Magistrate Judge Lisa Pupo Lenihan



By its Memorandum Opinion and Order of March 26, 2009 (the "Memorandum Opinion"), this Court granted Plaintiff's Motion for Partial Summary Judgment under the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. § 5104 et seq. ("PUFTA").

Plaintiff's Motion asserted that (a) Callahan and/or CCM dispursed $700,000 from its Ameriserv transaction to Commercebank with actual intent to defraud Ameriserv in violation of § 5104(a)(1) of the PUFTA and Plaintiff was therefore entitled to avoidance of the transfer or other appropriate relief under §5107; and (b) under the affirmative defense of § 5108, Commercebank bore the burden of proving that it received the funds (i) in good faith and (ii) in exchange for reasonably equivalent value, and Commercebank could not meet its burden as to the first of these elements. The Court concurred. In particular, this Court concluded that "the fraudulent intent of Callahan's actions [was], particularly in the full context set forth in the factual history, self-evident." It further concluded that "no reasonable jury could find that Defendant met its burden of proof that it took in good faith within the affirmative defense of § 5108."

Presently before this Court is Defendant's Motion for Reconsideration asserting that the Memorandum Opinion (a) "impermissibly [found] facts based on disputed evidence and . . . in a manner which disfavor[ed] the non-moving party", and (b) failed to consider the principals of equity followed in In re Bayou Group, 396 B.R. 810 (Bankr. S.D.N.Y. 2008), on which the Court "heavily relied". Motion for Reconsideration at 1, 4. For the reasons set forth below, both assertions are without merit.


Summary Judgment Standard

The Court was cognizant of its duties under the summary judgment standards set forth in the Memorandum Opinion; and it carefully and expressly relied upon undisputed facts of record found in Defendant's Answer, the deposition testimonies of Defendant's representatives and legal counsel, Defendant's Statement of Concise Facts, and the Exhibits.*fn1 The Memorandum Opinion provided the relevant citations to these record sources in Section II, Factual Background.

Relevance of In Re Bayou Group

The Court expressly looked to the law of this Circuit in reaching its determination. See Memorandum Opinion at 10-12 (discussing In Re Burry, 309 B.R.130 (Bankr. E.D. Pa. 2004) and In re Bressman, 327 F.3d 229 (3d Cir. 2003)). It further noted that "[t]he holdings in this Circuit comport with the generally-accepted analysis of a good faith defense under the related provisions of either the Bankruptcy Code or the Uniform Fraudulent Transfers Act ("UFTA")." Memorandum Opinion at 12 (citing to decisions of other jurisdictions, including In re Bayou Group, 396 B.R. 810 (Bankr. S.D.N.Y. 2008)).

As fully set forth in the Memorandum Opinion, the Court found (a) the South District of New York's summation of the federal courts' consensus on a "good faith" standard helpful, and (b) its legal analysis on this question both in accordance with cases in this Circuit and well-written.

That said, the source and nature of the assets at issue in that case were patently distinguishable from those sub judice, and the case cannot be read to support Defendant's strained assertion that AmeriServ's loan proceeds were "comingled" and/or that resolution of AmeriServ's claims for their recovery under PUFTA must await untangling of all Callahan's fraudulent actions and an equitable distribution amongst his victims.

To the contrary, in Bayou Group, some investors of a fraudulently operated hedge fund (the "fund") successfully redeemed their investments in the fund within a year prior to its collapse and bankruptcy. The Bankruptcy Court was considering whether individual investors who had successfully "cashed in" did so in good faith or whether those monies should be returned to the bankrupt fund and distributed, with the rest of the fund's remaining value/assets, to its investors equally. In contrast, as expressly discussed in the Memorandum Opinion, Defendant has acknowledged that the $700,000 transferred to it from a Callahan entity were proceeds from the AmeriServ loan.*fn2 That all Callahan's misdeeds have yet to be discovered and/or addressed does not mean that an identifiable/separable fraudulent transfer of one victim's funds to another, sued for under a legal standard met (i.e., PUFTA, which provides remedy against the transferee in the absence of good faith), cannot or should not be adjudicated.

Callahan was, of course, not free to "rob Peter to pay Paul", and Commercebank is unentitled to retain those funds in the undisputed circumstances of this case.*fn3

The total amounts loaned to Callahan and/or related entities by Plaintiff and Defendant, and the net amounts of their fraudulent losses, discussed in Defendant's Motion for Reconsideration at pp. 5-6, would be relevant to the parties' potential equitable recoveries from Callahan as, e.g., any bankruptcy litigation proceeds. They are not, however, relevant to the question before this Court.


Accordingly, IT IS HEREBY ORDERED that the Defendant's Motion for Reconsideration is DENIED.

Lisa Pupo Lenihan United States Magistrate Judge

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