IN RE: STEVEN PALLADINO; LORI PALLADINO, Debtors.
SACRED HEART UNIVERSITY, INC., Appellee. MARK G. DEGIACOMO, Chapter 7 Trustee for the Estate of Steven Palladino and Lori Palladino, et al., Appellant,
FROM THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Melvin S. Hoffman, U.S. Bankruptcy Judge]
Jeffrey R. Hellman, with whom the Law Offices of Jeffrey R.
Hellman was on brief, for appellant.
P. Sheehan and Sheehan & Nugent PLLC on brief for the
National Association of Bankruptcy Trustees, amicus curiae.
Elizabeth J. Austin, with whom Jessica Grossarth and Pullman
& Comley LLC were on brief, for appellee.
Howard, Chief Judge, Torruella and Lynch, Circuit Judges.
S. Bayer, Benjamin M. Daniels, and Wiggin
& Dana LLP on brief for the American Council on
Education, APPA, Association of American Medical Colleges,
Association of Catholic Colleges and Universities,
Association of Community College Trustees, Association of
Governing Boards of Universities and Colleges, Association of
Independent Colleges and Universities in Massachusetts,
Association of Independent Colleges and Universities of Rhode
Island, Association of Jesuit Colleges and Universities,
Commission on Institutions of Higher Education of NEASC,
Connecticut Conference of Independent Colleges, Council for
Christian Colleges & Universities, Council of Independent
Colleges, Higher Learning Commission, Middle States
Commission on Higher Education, National Association of
College and University Business Officers, National
Association of Independent Colleges and Universities,
Southern Association of Colleges and Schools Commission on
Colleges, University Risk Management and Insurance
Association, and WASC Senior College and University
Commission, amici curiae.
HOWARD, CHIEF JUDGE.
DeGiacomo, the Chapter 7 bankruptcy trustee for the
bankruptcy estate of Steven and Lori Palladino ("the
Palladinos") and Viking Financial Group, Inc., appeals
from the bankruptcy court's grant of summary judgment in
favor of appellee, Sacred Heart University. The summary
judgment order allowed the university to retain tuition
payments made by the Palladinos for their adult child's
college education, payments that were tendered while the
Palladinos were legally insolvent.
fall of 2012, Nicole Palladino, the Palladinos'
18-year-old daughter, enrolled as an undergraduate at Sacred
Heart University in Fairfield, Connecticut. Between March
2012, and March 2014, the Palladinos paid $64, 656.22 in
tuition to Sacred Heart. In January 2014, however, the
Palladinos also pled guilty in a state court to fraud in
connection with operating a multimillion-dollar Ponzi scheme
through their closely held company, Viking Financial Group,
their fraud convictions, Steven was sentenced to serve ten
years in prison and Lori to five years' probation. The
Securities and Exchange Commission also obtained a $9.7
million civil judgment against the Palladinos for securities
violations. In April 2014, the Palladinos filed a Chapter 7
bankruptcy petition. Viking filed its own Chapter 7 petition
shortly thereafter. In May 2014, the bankruptcy court
consolidated the two bankruptcy estates and appointed
DeGiacomo to serve as the Chapter 7 trustee.
2015, DeGiacomo filed a four-count adversary complaint
against Sacred Heart in bankruptcy court seeking to avoid,
and thus to claw back, the Palladinos' tuition payments
to Sacred Heart. Two counts of the complaint claimed that the
Palladinos' tuition payments constituted actual fraud
under 11 U.S.C. § 548(a)(1)(A) and Mass. Gen. Laws ch.
109A, §§ 5(a)(1), 8, and 9. The other two counts alleged
that the Palladinos' payments were constructively
fraudulent under 11 U.S.C. § 548(a)(1)(B) and Mass. Gen.
Laws ch. 109A, §§ 5(a)(2), 8, and 9 because the
Palladinos did not receive "reasonably equivalent
value" in exchange for their tuition payments.
concept underlying fraudulent transfer is easily grasped.
Where a person cannot reasonably expect to pay his debts in
due course, that person's transfer of his assets to
another person, without receiving equivalent value in return,
can if done with bad motive be viewed as a dishonest trick
that ought to be civilly undone and perhaps criminally
punished. The present case involved only the civil remedy,
namely, the effort of the trustee to force the school to
return the tuition payments.
statutes or doctrine extending the remedy to
"constructive fraud" contemplates the same remedy
where the insolvent transferor does not have a bad motive.
This is a reasonable result on its own terms since the
concern is with equity among claimants and not criminal
punishment. "Constructive" means that, as only a
civil remedy is involved, the court will treat the situation
as if it were fraud and require that the tuition or other
transfer be undone and the money returned to the estate. 5
Collier on Bankruptcy ¶ 548.01 (Alan N. Resnick
& Henry J. Sommer eds., 16th ed. 2017) [hereinafter
February 2016, DeGiacomo and Sacred Heart each moved for
summary judgment. The bankruptcy court granted summary
judgment in Sacred Heart's favor on all four counts of
DeGiacomo's complaint. With respect to the constructive
fraud claim -- the only issue on appeal -- the bankruptcy
court found that the Palladinos paid their daughter's
tuition because "they believed that a financially
self-sufficient daughter offered them an economic
benefit." DeGiacomo v. Sacred Heart Univ.
(In Re Palladino), 556 B.R. 10, 16 (Bankr. D. Mass.
2016). This belief, the bankruptcy court reasoned, satisfied
§ 548(a)(1)(B)(i)'s reasonably equivalent value
standard. The bankruptcy court then acted sua sponte to
certify its decision for direct appeal to this court ...