Allard v. Flamingo Hilton (In re Chomakos)

George and Nikki Chomakos (debtors) filed for Chapter 11 bankruptcy in August 1990 after losing several thousand dollars at a casino operated by Flamingo Hilton (Flamingo). Flamingo’s casino was regulated by state authorities, and the payout ratios and odds for the slot machines and blackjack tables at which the Chomakoses lost money were reasonably generous and competitive. The Chomakoses’ bankruptcy was subsequently converted to a Chapter 7 case, and trustee David Allard brought an adversary proceeding against Flamingo to recover the Chomakoses’ bankruptcy losses. Allard alleged that the Chomakoses had been insolvent for six years before filing for bankruptcy and had transferred money to Flamingo for gambling purposes without receiving a reasonably equivalent value or fair consideration in exchange. Allard asserted that the existence of a house advantage for Flamingo’s casino and the fact that the Chomakoses lost more than they won showed that they did not receive a reasonably equivalent value for their gambling wagers. Allard sought under 11 U.S.C. § 548 to recover losses incurred during the year preceding the bankruptcy filing and also sought to recover losses incurred during the entire six-year insolvency period under Michigan’s version of the Uniform Fraudulent Conveyance Act. The bankruptcy court found that the Chomakoses were insolvent beginning in January 1988 and had incurred net gambling losses of $7,710 at Flamingo’s casino. However, the court denied Allard’s requested relief after finding that Flamingo had given the Chomakoses’ reasonably equivalent value in exchange for their money. The district court upheld the decision, and Allard appealed.