Court Error – Motion to Compel

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Civil

7th Circuit Court of Appeals

Officials: FLAUM, WILLIAMS, and HAMILTON, Circuit Judges.

Court Error – Motion to Compel

No. 14-2174

William Brandt Jr. v. Horseshoe Hammond, LLC

Court did not err in its interpretation of applicable statute and was not prejudiced by denial of his motion to compel.

“Regardless, even if Horseshoe had investigated, it is un‐ likely—in fact, virtually impossible—that Horseshoe would have uncovered the fraud or EAR’s financial distress. As this Court stated in Bonded, when a subsequent transferee’s reasonable inquiry “would have turned up nothing pertinent to voidability, the [transferee’s] failure to make it does not permit a court to attribute to it the necessary knowledge.” Id. Even assuming that Horseshoe was put on inquiry notice of a fraudulent transfer, a reasonable inquiry would have turned up nothing indicating that the transfers were voidable. At the time of these transfers, EAR’s creditors and advi‐ors, who had complete access to EAR’s books and records, were unaware of the ongoing fraud and financial distress. It took FTI Consulting, a forensic accounting firm, nearly three months to discover the fraud. Horseshoe knew that Player’s funds might have come from EAR, but § 550(b)(1) and Bonded make clear that knowledge of the transfers’ origin is insufficient. Therefore, the district court correctly determined that a reasonable jury would find that Horseshoe acted “without knowledge of the voidability of the transfer avoided.””

Affirmed.

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.[/box]