POST-TRIAL MEMORANDUM OF DECISION

James J. Tancredi, United States Bankruptcy Judge.

I. INTRODUCTION

The Court heard these matters in a combined trial of an Adversary Proceeding alleging fraudulent transfers ("Chen AP," Adv. Pro. No. 14-05019 (JJT)) and a related Adversary Proceeding objecting to the discharge of the Chapter 7 debtor, Jie Xiao (hereinafter, "Debtor") ("Dow AP," Adv. Pro. No. 14-05054 (JJT)).1

The Debtor filed this Chapter 7 bankruptcy petition (ECF No. 2, Case No. 13-51186) on July 30, 2013 ("Petition Date"). At the time, the Debtor had recently divorced his wife of 21 years, Xin Chen (hereinafter, "Ms. Chen"). Through their July 3, 2013 divorce judgment, the Debtor made multiple financial transfers totaling over $1 million to Ms. Chen, less than one month before the Petition Date.

On April 8, 2014, Ronald I. Chorches ("Chapter 7 Trustee") initiated the Chen AP, and on June 12, 2014, he filed the Amended Complaint ("Chen Complaint," ECF No. 31, Adv. Pro. No. 14-05019) against Ms. Chen raising five avoidance counts: (1) intentional fraudulent conveyance pursuant to 11 U.S.C. § 548(a)(1)(A); (2) constructive fraudulent conveyance pursuant to 11 U.S.C. § 548(a)(1)(B); (3) unjust enrichment; (4) turnover pursuant to 11 U.S.C. § 542; and (5) preferential transfer pursuant to 11 U.S.C. § 547(b).2 The Chapter 7 Trustee seeks, inter alia, to avoid $986,581.33 in asset transfers that occurred pursuant to the divorce judgment ("Transfers") and impose a constructive trust over the Transfers. Ms. Chen filed an Amended Answer3 in response thereto (ECF No. 71, Case No. 14-05019), largely denying the Chen Complaint's allegations and asserting five affirmative defenses: (1) failure to state a claim for relief; (2) that the transfers were for value and in good faith; (3) that the transfers constitute a property settlement in the parties' dissolution; (4) the lack of actual or constructive knowledge of the alleged fraud; and (5) that the payments were bona fide and made for domestic support obligations.

In the Dow AP, Dow Corning Corporation and Hemlock Semiconductor Corporation (collectively, "Dow") filed the Complaint Objecting to Discharge ("Dow Complaint," ECF No. 1) against the Debtor on September 10, 2014. Dow objects to the Debtor's discharge in three related counts under 11 U.S.C. §§ 727(a)(2)(A), (a)(3), and (a)(5). The Debtor interposed an Answer (ECF No. 27) denying the allegations in the Dow Complaint without asserting any affirmative defenses.

II. PROCEDURAL HISTORY

To begin, delay tactics and deception are part and parcel of the shared litigation techniques and strategy of the Debtor and Ms. Chen. By Order dated May 18, 2015 ("Consolidation Order," ECF No. 67), the Court (Shiff, J.) granted Dow's Motion to Consolidate the Dow AP and the Chen AP for Trial. The Consolidation Order combined Dow's 11 U.S.C. § 727(a)(2)(A) claim in the Dow AP and the Chapter 7 Trustee's 11 U.S.C. § 548(a)(1)(A) claim in the Chen AP for trial. The Court stayed the remaining claims pending the outcome of the consolidated matter. All of the parties submitted a Joint Stipulation of Undisputed Facts and Exhibits for use in the consolidated trial (ECF No. 155). The Court accordingly heard the evidence in the consolidated trial of the Dow AP and the Chen AP and constructed the common record upon which this Decision relies.

At the status conference held on February 21, 2017, the Chapter 7 Trustee informed the Court that he learned that Ms. Chen transferred $1.35 million to China—substantially all of her liquid assets from the Divorce Action—a day after the Chen AP commenced. In response, on March 2, 2017, the Chapter 7 Trustee filed an Amended Motion for Preliminary Injunction (ECF No. 119, Adv. Pro. No. 14-05019) against Ms. Chen asking this Court to compel Ms. Chen to return the $1.35 million that she transferred to China. Ms. Chen unabashedly objected (ECF No. 129, Adv. Pro. No. 14-05019). The objection led to insight on the $1.35 million transfer, which Ms. Chen admittedly did to protect her money and avoid a putative creditor.

Shortly thereafter, on March 24, 2017, both Ms. Chen (ECF No. 148, Adv. Pro. No. 14-05019) and the Debtor (ECF No. 161) asked this Court to recuse itself for perceived bias and prejudice. The Court denied both recusal motions on March 31, 2017 (ECF No. 165, Adv. Pro. No. 14-05019; ECF No. 170) with accompanying rulings on April 5, 2017 (ECF No. 176, Adv. Pro. No. 14-05019; ECF No. 178). Ms. Chen filed a petition for writ of mandamus in the District Court, requesting the recusal of this Court from all pending matters related to her. The District Court denied the petition, and the Second Circuit Court of Appeals affirmed by summary order. In re Chen, 2017 WL 1399631 (D. Conn. Apr. 18, 2017), aff'd sub nom. Chen v. Chorches, 712 F. App'x 73 (2d Cir. 2018).

On May 15, 2017, after notice and hearings, this Court issued its Ruling on the Motion for Preliminary Injunction ("Preliminary Injunction Ruling," ECF No. 224, Adv. Pro. No. 14-05019), requiring Ms. Chen to repatriate the $1.35 million that she transferred to China between April 21 and May 12, 2014 (after the Chapter 7 Trustee initiated the Chen AP) into a United States bank account within 15 days and freezing assets under the direct control of Ms. Chen worth up to $209,299.65. Pursuant to the Preliminary Injunction Ruling, the Court ordered Ms. Chen to file a Certificate of Compliance, under oath, stating the amount returned and the identity of the bank and account in which she held the money, so that the Chapter 7 Trustee might obtain a supplemental prejudgment remedy order to attach to the money.

Ms. Chen appealed the Preliminary Injunction Ruling to the District Court ("Appeal of the Preliminary Injunction," ECF No. 235, Adv. Pro. No. 14-05019) and moved for relief from the Preliminary Injunction Ruling (ECF Nos. 236, 238, Adv. Pro. No. 14-05019). While Ms. Chen filed a Certificate of Partial Compliance regarding the frozen assets, she never filed a Certificate of Compliance regarding the return of the $1.35 million she sent abroad, which she claimed was outside of her control. See ECF No. 236, Adv. Pro. No. 14-05019. After notice and a hearing, the Court issued a preliminary decision on June 22, 2017 (ECF No. 244, Adv. Pro. No. 14-05019) directing Ms. Chen to make diligent efforts to account for and repatriate the $1.35 million. As to its earlier Preliminary Injunction Ruling, the Court reserved decision on the sufficiency of Ms. Chen's compliance efforts, postponing its determination on the issue and possible sanctions until the completion of this trial (ECF No. 244, Adv. Pro. No. 14-05019). It issued a ruling on June 24, 2017 (ECF No. 245, Adv. Pro. No. 14-05019) finding that Ms. Chen failed to demonstrate good and sufficient cause for relief from the asset freeze and failed to comply with the Preliminary Injunction Ruling. Again, Ms. Chen filed a Motion for Relief from Judgment on the Preliminary Injunction Ruling (ECF No. 248, Adv. Pro. No. 14-05019), which was later withdrawn on July 31, 2017 (ECF No. 264, Adv. Pro. No. 14-05019).

The Court held seven days of trial on these matters,4 which included testimony from six witnesses, including the Debtor and Ms. Chen. Following the trial and oral arguments, Dow and the Chapter 7 Trustee (collectively, "Plaintiffs") filed their Proposed Findings of Fact and Post-Trial Brief (ECF No. 267) requesting that the Court: (1) determine that the Debtor is not entitled to a discharge under 11 U.S.C. § 727(a)(2)(A); (2) avoid and order the return of $986,581.335 in Transfers to the Chapter 7 bankruptcy estate under 11 U.S.C. §§ 548(a)(1)(A) and 550; and (3) order such additional relief as justice requires. The Debtor submitted his Proposed Findings of Fact and Conclusions of Law (ECF No. 268) arguing, inter alia, that Dow failed to demonstrate the requisite intent to render his debt nondischargeable under 11 U.S.C. § 727(a)(2)(A). Ms. Chen submitted her Post-Trial Brief (ECF No. 268, Adv. Pro. No. 14-05019). In its Reply to the Debtor's Post-Trial Brief (ECF No. 269), Dow reiterates its arguments entitling it to judgment in its favor. Ms. Chen filed a Post-Trial Reply Brief (ECF No. 269, Adv. Pro, No. 14-05019), and the Chapter 7 Trustee filed a Reply to Ms. Chen's Post-Trial Brief (ECF No. 270, Adv. Pro. No. 14-05019).

The District Court dismissed the Appeal on the Preliminary Injunction on June 25, 2018 because it sat pending at the District Court for over six months without Ms. Chen ever filing a brief in support of her Appeal (ECF No. 288, Adv. Pro. No. 14-05019).

During the pendency of the appeals, this matter remained under advisement. For the reasons stated, the Court now enters judgment in favor of the Plaintiffs as delineated herein.

III. BACKGROUND

The Debtor and Ms. Chen have an extensive history of lawsuits in both state and federal courts, spanning from the Eastern District of Michigan6 to the New Jersey Family Court7 to this Court. Their historied presence in courtrooms and in cases that materially affect this bankruptcy litigation began over ten years ago; those proceedings, indicative of a sustained pattern of irregular or suspect transfers by the Debtor, are hereinafter summarized chronologically, along with the facts that are material to the avoidance claims herein.

On January 16, 2009, Kathy Little ("Mrs. Little") filed a civil complaint against the Debtor and LXEng, LLC ("LXEng") in the United States District Court for the District of New Jersey ("Little Action").8 Mrs. Little sought the value of her deceased husband's 50% ownership interest in LXEng pursuant to a "Termination Put" option in the LLC's operating agreement. The parties reached a settlement agreement in April 2012,9 whereunder the Debtor and LXEng agreed to pay Mrs. Little $1.5 million—an obligation that they have yet to fulfill.

On December 1, 2009, the Debtor and LXE Solar Inc. ("LSI") filed a complaint against the Republic of Seychelles, among others, in the United States District Court for the Southern District of New York ("Seychelles Action") to recover over $8.5 million that the country froze in the Debtor's offshore bank account for alleged illegal activity.10 They alleged 26 counts in their complaint, including, inter alia: violations of the Alien Tort Claims Act and Federal Computer Fraud and Abuse Act; theft and conversion; unjust enrichment; common law fraud; tortious interference; breach of fiduciary duty; conspiracy; aiding and abetting intentional tortious conduct; and misappropriation of trade secrets. Three weeks later, the Debtor and LSI voluntarily dismissed the case, pursuant to Fed. R. Civ. P 41(a)(1)(A)(i), before any party had filed responsive papers.

On January 3, 2011, Dow commenced an action ("Dow Action") against the Debtor, LSI, and LXEng in the United States District Court for the Eastern District of Michigan for misappropriation and use of trade secrets, trademark infringement, false advertising, false representations, unfair competition, trademark dilution, and tortious interference with contract.11 Dow was principally concerned with LXEng's appropriation of intellectual property allegedly stolen by Mr. Little and used for both LXEng's and the Debtor's benefit and profit.

On June 12, 2013, Ms. Chen filed for divorce from the Debtor ("Divorce Action") in the Superior Court of New Jersey ("Superior Court").12 Shortly thereafter, the Superior Court entered a Judgment of Divorce ("Divorce Judgment") on July 3, 2013. At the parties' urging, the Superior Court simultaneously approved a property settlement agreement ("PSA") along with the Divorce Judgment, transferring substantially all of the couple's liquid assets to Ms. Chen. However, the Superior Court resisted the parties' anomalous requests to seal their divorce file. After consulting with her legal counsel, Ms. Chen transmitted substantial sums of money to her parents in China to allegedly fund their medical treatments for unspecified cancer conditions.

Less than a month later, on July 30, 2013 ("Petition Date"), on the verge of a default judgment in the Dow Action, the Debtor filed a voluntary petition for bankruptcy protection and relief under Chapter 7 of the United States Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court for the District of Connecticut. The Chapter 7 Trustee was appointed by August 2013 to represent the Debtor's Chapter 7 bankruptcy estate and protect the Debtor's unsecured creditors. The Debtor laid out his assets in his Amended Schedule B (ECF No. 27, Case No. 13-51186). The Debtor's Schedule F (ECF No. 12, Case No. 13-51186) reveals that he had nearly $1 million in his stated general unsecured debt on the Petition Date without factoring in Dow's disputed and unliquidated litigation claims.

On October 23, 2013, the District Court in the Dow Action entered a default judgment against LSI, LXE Solar Ltd., and another defendant. On January 10, 2014, after Dow received relief from the automatic stay imposed by LXEng's underlying Chapter 7 bankruptcy case, the District Court entered a default judgment against LXEng, enjoining it from using or selling Dow's technology and holding in abeyance Dow's request for disgorgement of $15.7 million, leaving only the case against the Debtor pending.13

IV. JURISDICTION

The Court possesses jurisdiction over these Adversary Proceedings pursuant to 28 U.S.C. § 1334(b) and may hear and determine these matters pursuant to the District Court's General Order of Reference dated September 21, 1984. The parties do not contest the venue, which is proper under 28 U.S.C. § 1409(a). As counsel agreed in the Trial Management Order (ECF No. 218), these issues are core proceedings under 28 U.S.C. § 157(b)(2)(A), (B), (H), (I), and (O), and the parties consent to the Court entering final judgment in both the Dow AP and the Chen AP.

V. FINDINGS OF FACT

The trial on the merits of this case spanned over seven days, including extensive witness testimony.14 Jonathan Molloy testified on May 16, 2017 regarding the Dow Action; Cary Cheifetz ("Mr. Cheifetz") testified on May 16 and 17, 2017 regarding the division of assets in the Divorce Action; Richard Finkel ("Mr. Finkel") testified on May 19, 2017 regarding the Debtor's assets, liabilities, and overall insolvency both before and after the Divorce Action; Judge Thomas Zampino ("Judge Zampino") testified on May 24, 2017 as an expert witness on property settlement agreements under New Jersey domestic relations law; the Debtor testified on June 27 and July 5, 2017, and Ms. Chen testified on June 30, 2017. Pursuant to Fed. R. Civ. P. 52, incorporated by Fed. R. Bankr. P. 7052, after considering the trial evidence and arguments, including those related to the hearing on the Preliminary Injunction Ruling, this Court makes the following Findings of Fact to supplement those advanced in the Introduction, Background, and Procedural History of this Decision:

A. The Debtor and Ms. Chen's Personal History

B. The Formation and Background of LXEng

C. Dow's Investigation of the Debtor and LXEng

D. The Debtor Forms Offshore Businesses and Bank Accounts to Protect His Assets

E. The Dow Action

F. The Little Action and The Seychelles Action

G. The Debtor Forms an Entity in Ms. Chen's Name

H. The Suspicious Asset Transfers Before the Divorce

              Joint Assets               Value of Assets   Value of Debtor's   Value of Debtor's
                                          Prior to PSA       Share of Assets    Retained Assets
                                                              Prior to PSA         Post PSA

   TD Ameritrade Brokerage                  $1,654,234.38         $827,117.19               $0.00

   Marital Home                               $500,000.00         $250,000.00               $0.00

   Debtor's LXEng Pension                     $410,472.00         $205,236.00         $410,472.00

   NFCU Shared Draft Checking                 $120,977.19          $60,488.60               $0.00

   NFCU Money Market                           $63,690.97          $31,845.49               $0.00

   NFCU Savings                                $40,495.86          $20,247.93          $25,000.00

   12-Month Shared CD                          $18,767.59           $9,383.80               $0.00

   Marital Home Furnishings                    $10,000.00           $5,000.00               $0.00

   6-Month Shared CD                            $8,192.46           $4,096.23               $0.00

   LXE LLC Interest                             $3,203.35           $1,601.68           $3,203.35

   PNC Bank Checking-Intelligent
   Solar                                        $2,561.56           $1,280.78               $0.00

   Keystone Healthcare, LLC Interest            $1,400.00             $700.00           $1,400.00

   Total Assets                             $2,833,995.36       $1,416,997.70         $440,075.35

J. The Bankruptcy Filings and Exemption Claim

K. The Suspicious Asset Transfers After the Divorce

L. The Credibility of the Witnesses

VI. CONCLUSIONS OF LAW

The Court ADJUDGES, DECREES, and DECLARES the following Conclusions of Law:

A. Actual Fraudulent Transfers Under 11 U.S.C. § 548

Under Count I of the Chen Complaint, the Chapter 7 Trustee seeks to avoid the Transfers pursuant to 11 U.S.C. § 548(a)(1)(A). The Bankruptcy Code provides a trustee with the power to avoid fraudulent transfers with actual intent:

The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation (including any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—

11 U.S.C. § 548(a)(1)(A). To establish a prima facie case of an actual fraudulent conveyance, the trustee must establish actual fraudulent intent. Christian Bros. High Sch. Endowment v. Bayou No Leverage Fund, LLC (In re Bayou Grp., LLC), 439 B.R. 284, 304-05 (S.D.N.Y. 2010). The debtor-transferor's intent is at issue in such claims, not the transferee's. Id. at 304. When making a claim for a fraudulent transfer, the trustee must prove each element by a preponderance of the evidence. Daly v. Richardson (In re Carrozzella & Richardson), 302 B.R. 415, 419 (Bankr. D. Conn. 2003). The purpose underlying the trustee's avoidance powers is namely to prevent asset depletion that otherwise would have been available to creditors.22

1. The Significant Badges of Fraud

A debtor who "hinders or delays" has "an actual intent to significantly impair a creditor's collection efforts." Cadle Co. v. Marra (In re Marra), 308 B.R. 628, 631 (D. Conn. 2004) (citations omitted). Because of the difficulty in proving actual intent to hinder, delay, or defraud in making its case, a party can rely on the "badges of fraud," which are "circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent." Sharp Int'l Corp. v. State St. Bank and Tr. Co. (In re Sharp Int'l Corp.), 403 F.3d 43, 56 (2d Cir. 2005) (citation and internal quotation marks omitted). Since direct evidence of fraudulent intent is rare, "courts infer fraudulent intent by examining the circumstances surrounding the transfer to determine whether any `badges of fraud' are present." Hirsch v. Steinberg (In re Colonial Realty Co.), 226 B.R. 513, 522 (Bankr. D. Conn. 1998) (citing Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582 (2d Cir. 1983)). Circumstantial evidence can be used to establish an intent to defraud. United States v. Federowicz, 2015 WL 1445092, at *3 (D. Conn. Mar. 30, 2015).

One badge of fraud can "spur mere suspicion; the confluence of several can constitute conclusive evidence of actual intent to defraud." In re Colonial Realty Co., 226 B.R. at 522 (citing Acequia v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 806 (9th Cir. 1994) (citation and internal quotation marks omitted)). Here, the Debtor and his wife, Ms. Chen, initiated a material and sustained cascade of fraudulent, evasive, and deceptive activities in the two years preceding the Petition Date. The most telling was the final month before the Petition Date.

Examples of "badges of fraud" include, inter alia: (1) concealing facts and false pretenses; (2) an unconscionable discrepancy in consideration received in exchange for the value of the property transferred; (3) creating a closely-held corporation for property receipt; (4) closeness in relationship between the parties; (5) retaining the property in question for benefit or use; (6) the financial condition of the transferor and transferee both before and after the transfer(s);23 (7) repeated patterns or cumulative effect of courses of conduct post-insolvency or financial troubles; and (8) the timeline of events. In re Kaiser, 722 F.2d at 1582-83. The transfer of property to a spouse is a "classic" badge of fraud. Id. at 1583 (citation omitted). Asset shifting to different corporate entities wholly owned or "so closely assimilated" by the debtor is an additional badge of fraud. See Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 218, 61 S.Ct. 904, 85 S.Ct. 1293 (1941). Each of the badges of fraud listed above are present here.

Neither the Debtor's nor Ms. Chen's defenses or protestations to the contrary are credible. Without pause or reservation, the Debtor continued conducting business on LXEng's behalf through other entities that he conveniently created. He unabashedly acknowledged that these entities were formed purposefully to keep LXEng's assets out of Mrs. Little's and Dow's hands. The Debtor used his affiliates' foreign bank accounts, as well as his own personal bank account with Ms. Chen and HGG's trust account, to conceal LXEng's assets from these two creditors in particular. The Debtor had one paramount goal: to leave himself and LXEng judgment-proof while channeling their assets to his wife, children, and extended family. His willingness to channel, transfer, and distribute those monies reveals his conscious intention and design. Ms. Chen, aware of the ongoing and increasing avalanche of legal proceedings, facilitated, collaborated, and aided and abetted these transfers, including the Transfers at issue.

Based on the record, it is clear that the Debtor, through his and Ms. Chen's efforts, made the Transfers to hinder, delay, and defraud the Debtor's creditors, including Mrs. Little, Dow, and HGG, within two years of the Debtor's bankruptcy petition filing, and, thus, the Transfers were fraudulent within the meaning of 11 U.S.C. § 548(a)(1)(A).

B. Non-Dischargeable Debt Under 11 U.S.C. § 727

Count I of the Dow Complaint asks this Court to deny the Debtor's discharge under 11 U.S.C. § 727(a)(2)(A) based on the Debtor's actions. As laid out, supra, the Chapter 7 Trustee has proven that the Debtor made the Transfers in an effort to hinder, delay, and defraud his creditors—and did so mere weeks before his bankruptcy filing.

A discharge shall be granted by the bankruptcy court unless "the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, . . . or concealed, or has permitted to be transferred, removed, . . . or concealed . . . property of the debtor, within one year before the date of the filing of the petition[.]" 11 U.S.C. § 727(a)(2)(A). This section of the Bankruptcy Code levies an "extreme penalty," and it, therefore, "must be construed strictly against those who object to the debtor's discharge and liberally in favor of the [debtor]." State Bank of India v. Chalasani (In re Chalasani), 92 F.3d 1300, 1310 (2d Cir. 1996) (citation and internal quotations marks omitted). To deny a discharge under this section of the Bankruptcy Code, the chapter 7 trustee must prove by a preponderance of the evidence that the property was transferred by the debtor within one year of the bankruptcy petition filing. Republic Credit Corp. v. Boyer (In re Boyer), 367 B.R. 34, 43 (Bankr. D. Conn. 2007), aff'd, 384 B.R. 44 (D. Conn. 2008), aff'd, 328 F. App'x 711 (2d Cir. 2009).

Courts look to "all the surrounding facts and circumstances[,]" where a "continuing pattern of wrongful behavior is one indication of fraudulent intent." 6 RICHARD LEVIN & HENRY J. SOMMER, COLLIER ON BANKRUPTCY, ¶ 727.02[3][b], p. 727-18 (16th ed. 2019). If several badges of fraud are present, there is "clear and convincing evidence of actual intent." Pereira v. Grecogas Ltd. (In re Saba Enters., Inc.), 421 B.R. 626, 644 (Bankr. S.D.N.Y. 2009) (citations and internal quotations marks omitted). Here, the specifics of the Divorce Action and the PSA illuminate numerous badges of fraud that warrant relief both under 11 U.S.C. §§ 548 and 727.

1. Divorce Action

The division of marital assets during a divorce is a transfer of property and may be successfully challenged by a trustee as a fraudulent transfer under 11 U.S.C. § 548, see Dobin v. Hill (In re Hill), 342 B.R. 183, 196 (Bankr. D.N.J. 2006), or under 11 U.S.C. § 727(a)(2), see Rogers v. Boba (In re Boba), 280 B.R. 430, 434-35 (Bankr. N.D. Ill. 2002). Accordingly, any asset transfer that occurred during the Divorce Action may properly be scrutinized under either statute, as they took place within a month of the Debtor's bankruptcy filing.

a. PSA Transfers

When a disputed transfer results from a divorce settlement, the courts have considered specific badges of fraud relevant to assess allegations of a "sham" divorce, including:

United States v. Schaudt (In re Schaudt), 2012 WL 909299, at *13 (Bankr. N.D. Ill. Mar. 16, 2012) (citations omitted), aff'd, 2013 WL 951138 (N.D. Ill. Mar. 11, 2013). "Where a transfer of property is made to a spouse by means of a `fast-track' divorce on the eve of bankruptcy, this is often evidence of a fraudulent scheme to keep property from creditors." In re Hill, 342 B.R. at 196 (citation omitted).

The timing is suspect throughout much of the Debtor's history, but none more so than in the months leading up to the Debtor's Chapter 7 bankruptcy petition filing. The PSA transfers in the couple's fast-track divorce were made for the benefit of the Debtor's family and to hinder the Debtor's substantial creditors. There is weighty proof that the Debtor intended to defraud his creditors.

The Transfers were all made while the Debtor was defending against two sizable lawsuits: the Little Action for $1.5 million and the Dow Action for $15.7 million. This would have been accounted for when determining the Debtor's liabilities and whether indemnification existed for Ms. Chen. Ms. Chen received $2,852,441.00 in assets by virtue of the PSA, $2,384,000.00 of which were not taxable or subject to capital gains taxes. In contrast, the Debtor received $706,272.00 in assets, $676,669.00 of which was subject to ordinary income tax rates plus a 10% penalty for early withdrawals, which the Debtor later attempted to claim as an exemption in his bankruptcy filing. The PSA made no mention as to how the mounting million-dollar liabilities would be treated. Instead, the Debtor and Ms. Chen purposefully shifted around assets that could have been liquidated by Dow and Mrs. Little to escape these creditors and prevent their recovery of the Debtor's assets. The lopsidedness of the PSA reeks of fraudulent intent.

Ms. Chen filed the Divorce Action the day after the District Court ordered a hearing on Dow's Motion for Default Judgment seeking $15.7 million in damages against the Debtor and LXEng. Multiple copies of the Dow Action documents were mailed to the Marital Home during this time. Although Ms. Chen chooses to feign ignorance over the happenings in the Dow Action during the Chen AP, the evidence abounds that she was on actual notice of the litigation in the Dow Action and the adverse course it took against both the Debtor and the couple's business, LXEng. At best, Ms. Chen can only be described as willfully blind to a multimillion-dollar action affecting a business of which she was a 10% owner. While mail affecting LXEng's continued existence piled up, she pretended to have no idea of the severity of the litigation, which, if it is to be believed, makes a mockery of her duties as a member of LXEng and common sense. Her contentions to the contrary cast further doubt on her credibility. Actually, Ms. Chen knew all along the consequences of her husband's actions, be it through the formal notice sent by Dow and the District Court or through conversations she had with him.

The Divorce Judgment entered a mere three weeks after Ms. Chen's divorce filing without the benefit of formal discovery, asset valuation, or earnest negotiations. A mere 20 days after the Divorce Judgment, LXEng filed for Chapter 7 bankruptcy protection, and a week later, the Debtor filed for Chapter 7 bankruptcy protection. The distribution of marital assets via the PSA was extremely inequitable on its face, as the parties transferred nearly all of their significant liquid assets to Ms. Chen. No due weight or apparent disclosure of the Debtor's potentially multimillion-dollar liabilities to third parties or the effect of LXEng's impending bankruptcy on the Debtor's earning potential appeared in the divorce record. Ms. Chen herself acknowledged that her husband made only $275.00 in the year before the Divorce Action, rather than the $180,000.00 figure indicated in the PSA.

Upon the Court's examination of the record relating to the Divorce Action, the Chapter 7 Trustee has manifestly met his burden of proof—and has done so not just by a preponderance of the evidence, but by clear and convincing evidence—and has shown that the Debtor and Ms. Chen actually intended to hinder, delay, or defraud the Debtor's creditors when the PSA transferred the vast majority of the couple's liquid assets to Ms. Chen within two months of the Petition Date, and that, therefore, the Transfers were actually fraudulent within the meaning of 11 U.S.C. § 548(a)(1)(A).

b. The Debtor's Insolvency

In April 2013, the Debtor's defense counsel, HGG, withdrew from the Dow Action for lack of payment. In May 2013, the Medina Letter exposed the Debtor's dire financial straits. On June 5, 2013, Dow filed a motion for default seeking $15.7 million in damages against the Debtor and LXEng. On June 11, 2013, the District Court scheduled a hearing for July 30, 2013 on the motion for default.

Ms. Chen filed the Divorce Action the very next day. Neither Ms. Chen nor the Debtor had even met with divorce counsel at this point in time. The Divorce Judgment entered after three weeks, without discovery. Within less than a month of the Divorce Action filing, both the Debtor and LXEng filed for Chapter 7 bankruptcy protection. The Debtor filed for bankruptcy protection on July 30, 2013, a few hours before Dow's motion for default was scheduled for hearing. With party agreement, the Divorce Judgment entered on the very same day that the parties executed the PSA. Attorney Vengen knew they were moving at lightning speed, which was why she never requested or received a retainer from the Debtor. Though Ms. Chen alleges she had contemplated divorce for years, the timing and the speed of the Divorce Action related to the Dow Action are incredibly suspect. Meanwhile, the Debtor claimed he never wanted a divorce because of the cultural shame.

The Bankruptcy Code defines "debt" as "liability on a claim." 11 U.S.C. § 101(12). Claim, as defined by the Bankruptcy Code, is a right to payment, even if it is contingent, disputed, or not reduced to judgment. 11 U.S.C. § 101(5). Since claims may be disputed or contingent, they must be included when calculating total indebtedness for purposes of determining insolvency. See Tronox Inc. v. Kerr McGee Corp. (In re Tronox Inc.), 503 B.R. 239, 313 (Bankr. S.D.N.Y. 2013); 2 RICHARD LEVIN & HENRY J. SOMMER, COLLIER ON BANKRUPTCY ¶ 101.32[5], p. 101-155 (16th ed. 2019). Claims are contingent when there is "uncertainty surrounding the likelihood of the triggering event occurring, thus activating the debtor's obligation to pay the creditor[.]" C. Ryan Stewart, Contingent Liabilities and Disputed Claims in the Context of a Bankruptcy Solvency Analysis, INSIGHTS, 51, 52 (Winter 2014).

The Bankruptcy Code, Bankruptcy Rules, and case law do not prescribe a uniform or statutory way to calculate contingent claims in bankruptcy proceedings. Alisa H. Aczel, The Solvency of Mass Tort Defendants: A "Reasonable" Approach to Valuing Future Claims, 20 Emory Bankr. Dev. J. 531, 539 (2004); Kathryn Ogden Balmforth, Note, Estimating Contingent Liabilities to Determine Insolvency in Bankruptcy Proceedings: In re Xonics Photochem., Inc., 1989 BYU L. Rev. 1315, 1318 (1989). Contingent claims must be discounted based on the probability that the contingency will never occur and then multiplied by that probability. Davis v. Suderov (In re Davis), 169 B.R. 285, 302 (E.D.N.Y. 1994); In re Tronox Inc., 503 B.R. at 313. To calculate a disputed claim's value properly, the court must assess their likelihood of success. Licata v. Coan (In re Licata), 2015 WL 9699304, at *7 (D. Conn. Sept. 22, 2015), aff'd, 659 F. App'x 704 (2d Cir. 2016).

The record supports a conclusion that the Debtor was insolvent both before and after the Transfers. As the Debtor agreed to make a $1.5 million settlement payment to Mrs. Little to resolve the Little Action, with $300,000.00 due and owing, the Debtor's Schedule F included the $300,000.00 figure as an unsecured claim. The Debtor's Schedule F also indicated he owed HGG $678,000.00 on the Petition Date. However, the Debtor failed to prescribe any numerical value to his liabilities from the Dow Action in his Chapter 7 bankruptcy petition schedules, even though Dow filed an uncontested $15.7 million claim in the Debtor's case. Absent an objection, that claim is presumptively valid.24 Fed. R. Bankr. P. 3001(f). The Debtor not only failed to object, but he admitted that the claim is allowed. Although the Dow claim may have been disputed, contingent, and unliquidated, it still must appear in the balance sheet analysis when calculating the Debtor's insolvency, with the claim's proper valuation remaining the sole issue. See In re Xonics Photochem., Inc., 841 F.2d 198, 200 (7th Cir. 1988); Estimating Contingent Liabilities, 1989 BYU L. Rev. at 1323.

The Court finds by clear and convincing evidence that the Debtor would have been liable in some way to Dow either through default, judgment,25 or settlement. Where "a contingent liability is both probable and capable of reasonable estimation, it must be accrued[.]" Estimating Contingent Liabilities, 1989 BYU L. Rev. at 1329 (citing ACCOUNTING FOR CONTINGENCIES, Statement of Financial Accounting Standards No. 5 § 8 (Fin. Accounting Standards Bd. 1986)). At the time of the bankruptcy filing, the District Court had disqualified the Debtor's key expert witness with its Daubert order, thus, striking a significant blow to the Debtor's likelihood of success on his claims. HGG withdrew from representing the Debtor in the Dow Action, and Attorney Medina indicated to the District Court that the Debtor intended to file bankruptcy on the verge of a default judgment. The substantial likelihood of an unsuccessful defense continued to mount against the Debtor, while the continued litigation itself was an unsustainable expense, as Ms. Chen knew. The Debtor had already accumulated $678,000.00 in legal fees that he had failed to pay, in addition to the $2.9 million HGG had previously held in reserves for legal fees. While the Debtor may not have been found liable for the entire $15.7 million sum, even by the most deferential standard, it is more likely than not that either through default, continued litigation, or settlement, the Debtor, like his codefendants in the Dow Action, would have sustained a substantial liability to Dow.

The Debtor knew since 2012 that LXEng's money was dwindling, and the Medina Letter admitted as such. His financial outlook, which was inextricably tied to LXEng, only continued to worsen as time wore on. By every stretch of the imagination, the Debtor was insolvent prior to the PSA and Divorce Judgment and only became further insolvent by the grossly uneven PSA distributions.

c. Calculating Debtor's Income

If the Debtor indicated that he was underemployed during the Divorce Action, the Superior Court would have imputed income to him based on appraising the Debtor's earning potential and the job market. See Storey v. Storey, 373 N.J.Super. 464, 474, 862 A.2d 551 (App. Div. 2004). During the best of times, the Debtor earned approximately $180,000.00 per year. While at times he received hefty distributions from LXEng, these trumped up profits resulted from the misuse of Dow's technology. This Court's Pension Plan Ruling further elaborates on the inequity that occurred both between the Debtor and Ms. Chen and their treatment of LXEng.

i. Concealing Assets

The parties' attempt to conceal the transfer of their marital assets from judgment creditors provides evidence for yet another badge of fraud and further shows the debtor's intent to conceal. See In re Hill, 342 B.R. at 199-200. When all was said and done, the parties sought to conceal their transfers under the PSA. Both the Debtor and Ms. Chen asked the Superior Court not to include the PSA with the Divorce Judgment, which the judge denied.

The PSA was not the Debtor's first move in shielding assets from Dow and Mrs. Little. He admitted that he used offshore bank accounts and solely-owned companies to shield his assets from his creditors. Intelligent Solar was the only company he formed that had an owner other than himself—and that was his then-wife, Ms. Chen. He invested over $700,000.00 into Intelligent Solar. He frequently placed money in other people's hands, including HGG and his then-wife, Ms. Chen, to keep it out of his own. His course of conduct was designed to frustrate and disrupt creditors' ability to collect should they come calling. The Divorce Action was his last desperate attempt to keep his assets away from his creditors, all with the help of Ms. Chen.

ii. Insider Status

The Debtor and Ms. Chen are insiders of LXEng, and they are insiders to each other. At the time they mutually agreed to the PSA Transfers, the Debtor and Ms. Chen had been married for more than 20 years and had two children together. Their children, who also qualify as insiders under the Bankruptcy Code, were the beneficiaries of the PSA. See 11 U.S.C. §§ 101(31)(A)(i), (45); U.S. Bank Nat'l Ass'n v. Vill. at Lakeridge, LLC, ___ U.S. ___, 138 S.Ct. 960, 963, 200 L.Ed.2d 218 (2018). The Debtor and Ms. Chen cherrypicked which assets would be exempt and non-exempt when dividing their possessions during the Divorce Action, all in an effort to keep them away from the Debtor's creditors. Although the Debtor claims one of the purported purposes was to ensure financial security for the couple's children, including payment of their future college expenses, neither of the children were college-aged. The division of assets was grossly disproportionate and lacked consideration. The Debtor received assets in which he largely claimed exemptions.

The transactions that occurred between the Debtor and Ms. Chen were surrounded by suspicious timing and behaviors. When coupling these behaviors with their deliberate asset movement to shield the Debtor from his mounting liabilities, it is clear to the Court that their entire course of conduct was intended to defraud the Debtor's creditors by any standard of proof.

iii. Lack of Consideration

Fraud also exists "when the value of the consideration received by the debtor is not reasonably equivalent to the value of the asset transferred." In re Hill, 342 B.R. at 200. However, "the relevant inquiry is not simply whether [the debtor] received consideration, but whether that consideration was in a form available for execution by creditors, i.e[,] an assessment of the extent to which such creditors were deprived of the value of the diverted property." Cadle Co. v. Ogalin (In re Ogalin), 303 B.R. 552, 559 (Bankr. D. Conn. 2004). In reviewing a divorce settlement, courts must make a "surface determination .. that the division of marital property between the divorcing parties was within the range of likely distribution that would be ordered by the state divorce court if the property division had actually been litigated in that state court." Harman v. Sorlucco (In re Sorlucco), 68 B.R. 748, 753 (Bankr. D. N.H. 1986) (internal quotations marks omitted). Even where a bona fide divorce has occurred, there are times when "the transferor nonetheless favors transferring assets to the ex-spouse rather than seeing them go to a creditor body. Although the divorce may be valid, the same may not hold true for the division of marital property." In re Hill, 342 B.R. at 196.

The Debtor and Ms. Chen concocted the PSA without the input of counsel or the benefits of discovery and litigation. They employed counsel merely to file the legal papers and bless the PSA. Where unrepresented divorcing spouses collude in transferring their marital assets, it provides further evidence of intent to defraud creditors. See In re Boba, 280 B.R. at 432-36.

Had the PSA been litigated in the New Jersey state court, the outcome and distribution would have significantly differed, as the Chapter 7 Trustee's expert established. The bank account distribution would have differed substantially. The college expenses would have been paid by both parents as they became due, and variables such as tuition, fees, books, housing prices, and scholarship receipts would have been considered rather than paying for them all in one lump sum well before either child stepped foot onto a college campus.

Ms. Chen's asserted defenses do not hold water. Both the Debtor and Ms. Chen are highly educated actors. They knew exactly what they were doing and worked in concert. Both Ms. Chen and the Debtor lacked fundamental credibility, as did Ms. Chen's expert witness. Ms. Chen simply cannot support her good faith defense that she took the marital assets for value. Ms. Chen was fully aware of the Debtor's and LXEng's financial distresses leading up to the Divorce Action. At that time, she was still one of only two board members of LXEng, the other being her husband, the Debtor. Conscious avoidance or disregard of the Dow Action is not an excuse. See Gowan v. Patriot Grp., LLC (In re Dreier LLP), 452 B.R. 391, 449-50 (Bankr. S.D.N.Y. 2011). Ms. Chen received LXEng's mail regarding the Dow Action to the Marital Home and collected it. She knew Mrs. Little sought payment from her husband since Mr. Little's death. She knew creditors could take money from their shared marital accounts. She knew she would be unable to collect alimony if the Debtor lost the Dow Action.

Debtor's counsel would like to spin the lack of financial disclosures during the Divorce Action as appropriate because Ms. Chen knew of her husband's financial condition. Financial disclosure was still ordinary under the circumstances and indicated by the Debtor's history. However, this Court views the lack thereof as additional evidence that Ms. Chen knew exactly the types of problems that the Debtor had and the trouble he was in at the time of the Divorce Action. This is why she helped structure the grossly disproportionate division of marital assets. It is why she removed $1.35 million to China to shield it from her then-husband's creditors and the Chapter 7 Trustee. The PSA meant to transfer all of the couple's non-exempt assets to Ms. Chen to preserve the value for their family, rather than to fairly fund any liabilities the Debtor faced.

VII. CONCLUSIONS

The Court hereby ADJUDGES, DECREES, AND DECLARES that:

This Decision constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. P. 7052. In these Adversary Proceedings, separate judgments shall enter simultaneously with the docketing of this Decision. The Clerk is ordered to schedule a status conference within 15 days hereof with mandatory attendance by the parties and their respective legal counsel.

IT IS SO ORDERED at Hartford, Connecticut on this 30th day of August 2019.