In Re Positive Health Management    

Positive Health Management, Inc. (Positive Health) (debtor) operated pain-management clinics before going bankrupt. President and sole shareholder Ronald Ziegler had a separate corporation that owned the building Positive Health used for office space. In 2005, First National Bank (First National) refinanced the building. Despite having no direct obligation for the loan payments, Positive Health paid First National a series of payments over a year totaling $367,681 that it deducted on its taxes as rent. When the payments stopped, First National foreclosed. The bankruptcy trustee brought an adversary proceeding against First National to recover the payments as fraudulent transfers. The trustee conceded that First National took the payments in good faith but claimed it gave no value in return. The bankruptcy court found Positive Health made the payments intending to defraud creditors because it faced lawsuits and judgments and deteriorating finances at the time, but also found Positive Health received reasonably equivalent value because First National not foreclosing allowed Positive Health to continue operating and generate millions in cash flow, and an appraisal showed $253,333 was reasonable rent. As a result the court concluded that First National could keep the funds. The district court adopted the bankruptcy court’s recommendations. The trustee appealed.