POST-TRIAL MEMORANDUM OF DECISION

James J. Tancredi, United States Bankruptcy Judge.

I. INTRODUCTION

This is an action to turn over nearly $1.6 million in alleged fraudulent transfers that a debtor company made to an insider within two years of its bankruptcy filing. This Chapter 7 debtor, LXEng LLC ("Debtor"), has had a common owner throughout its complicated history, Jie Xiao (hereinafter, "Dr. Xiao"). Dr. Xiao and Michael Little ("Mr. Little") formed the Debtor in 2007, as 50% co-owners, to sell technology packages that provided customers with engineering designs for trichlorosilane ("TCS") manufacturing (solar panel technology). After Mr. Little died in late 2007, Dr. Xiao became the 90% owner and made Xin Chen (`hereinafter, "Ms. Chen") a 10% owner. At the time, Dr. Xiao and Ms. Chen were married, but they subsequently divorced in 2013, mere weeks before the Debtor filed its Chapter 7 bankruptcy petition (ECF No. 1, Case No. 13-51144)1 on July 23, 2013. Dr. Xiao and Ms. Chen were married for roughly 21 years, and since 2007, the Debtor made seven significant financial transfers to Ms. Chen, totaling over $2.5 million. These transfers included: (1) $212,500.00 in 2007; (2) $140,000.00 in 2008; (3) $350,000.00 in September 2008; (4) $42,500.00 in August 2010; (5) $1,430,254.00 in June 2011; (6) $158,917.00 in July 2011; and (7) $180,157.00 sometime in 2012.

Richard M. Coan ("Chapter 7 Trustee"), filed the subject First Amended Complaint ("Complaint," ECF No. 4), alleging that all seven transfers were fraudulent transfers pursuant to 11 U.S.C. §§ 544, 548, and 550. In his four-count Complaint, the Chapter 7 Trustee seeks: (1) avoidance of the four-year transfers under 11 U.S.C. § 544(b)(1) and Conn. Gen. Stat. § 52-552a et seq.; (2) avoidance of the 2011 and 2012 transfers pursuant to 11 U.S.C. § 548; (3) recovery of both the four-year and two-year transfers from Ms. Chen pursuant to 11 U.S.C. § 550(a); and (4) imposition of a constructive trust over and against all fraudulently transferred assets to Ms. Chen, including the proceeds of those assets. In Ms. Chen's Answer ("Answer," ECF No. 40), she denied the Complaint's allegations and asserted six affirmative defenses: (1) lack of personal jurisdiction; (2) failure to state a claim for relief; (3) good faith; (4) that the transfer(s) were not for an antecedent debt or within the period prescribed under 11 U.S.C. § 547(b); (5) that the payment(s) were for debt(s) incurred in the Debtor's ordinary course of business; and (6) that the transfer(s) were for a contemporaneous exchange for new value to the Debtor and, accordingly, were not avoidable.

The trial lasted ten days and six witnesses testified, including Dr. Xiao, Ms. Chen, and the Chapter 7 Trustee. During the course of the trial, Ms. Chen withdrew her first, second, fourth, fifth, and sixth affirmative defenses, so that only her alleged "good faith" defense remained. See ECF Nos. 96, 109. After trial, in the Reply Post-Trial Brief (ECF No. 156), the Chapter 7 Trustee contends that he only seeks to avoid the two transfers that occurred in 2011, two years before the Chapter 7 bankruptcy filing—for respectively $1,430,254.00 ("$1.43 Million Transfer") and $158,917.00 ("$158,917.00 Transfer") (collectively, "Transfers").

For the reasons delineated below, the Court enters judgment in favor of the Chapter 7 Trustee on all Counts, except Count VI of the Complaint.

II. BACKGROUND AND PROCEDURAL HISTORY

The Debtor, Dr. Xiao, and Ms. Chen have an extensive history of lawsuits in both state and federal courts, spanning everywhere from the Eastern District of Michigan,2 to the New Jersey Family Court,3 to this Court. Their historied presence in courtrooms in cases that materially affect this bankruptcy litigation began over ten years ago; those proceedings, indicative of a sustained pattern of irregular and suspect transfers by the Debtor and Dr. Xiao, are hereinafter summarized chronologically, along with the facts material to the fraudulent transfer claims herein.

On January 16, 2009, Kathy Little ("Mrs. Little") filed a civil complaint against the Debtor and Dr. Xiao in the United States District Court for the District of New Jersey ("Little Action").4 Mrs. Little sought to recover the value of her deceased husband's 50% ownership interest in the Debtor pursuant to a "Termination Put" option set forth in the Debtor's operating agreement. The parties reached a settlement agreement in April 2012,5 whereunder the Debtor and Dr. Xiao agreed to pay Mrs. Little $1.5 million—an obligation that they have yet to fulfill.

On December 1, 2009, Dr. Xiao 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 Dr. Xiao's offshore bank account for alleged illegal activity.6 The complaint alleged 26 counts, 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, Dr. Xiao 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 Corning Corporation and Hemlock Semiconductor Corporation (collectively, "Dow") commenced an action against the Debtor, LSI, and Dr. Xiao in the United States District Court for the Eastern District of Michigan ("Dow Action") for misappropriation and use of trade secrets, trademark infringement, false advertising, false representations, unfair competition, trademark dilution, and tortious interference with contract.7 Dow was principally concerned with the Debtor's appropriation of intellectual property allegedly stolen by Mr. Little and used in the Debtor's business for its benefit and profit.

On June 12, 2013, Ms. Chen formally filed for divorce from Dr. Xiao ("Divorce Action") in the Superior Court of New Jersey ("Superior Court").8 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. Afterwards, Ms. Chen transferred substantial sums of money to her parents in China to allegedly fund their medical treatments for unspecified cancer conditions.

On July 23, 2013 ("Petition Date"), on the verge of a default judgment in the Dow Action, the Debtor filed this voluntary petition for bankruptcy protection 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 shortly thereafter to represent the Debtor's Chapter 7 bankruptcy estate and protect the Debtor's unsecured creditors.

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 the Debtor's underlying Chapter 7 bankruptcy case, the District Court entered a default judgment against the Debtor, enjoining it from using or selling Dow's fluid bed reactor technology for the production of TCS and holding in abeyance Dow's request for disgorgement of $15.7 million, leaving only the case against Dr. Xiao pending.9

On April 28, 2015, the Chapter 7 Trustee initiated this Adversary Proceeding, pursuant to 11 U.S.C. §§ 544, 548, and 550, seeking: 1) to avoid the Debtor's transfers to Ms. Chen as fraudulent; and 2) to impose a constructive trust over the transferred property. The Chapter 7 Trustee filed the Complaint, as amended, on May 4, 2015 to broaden the scope of the transfers that he sought to avoid under Count I, to expand Count II's claims of insolvency due to the alleged avoidable transfers, and to correct scrivener's errors. On September 25, 2015, Ms. Chen filed her Answer with the aforesaid claimed affirmative defenses.

On August 25, 2017, following the trial, the Chapter 7 Trustee filed his Proposed Findings of Fact and Conclusions of Law (ECF No. 153), and Ms. Chen submitted her Post-Trial Brief (ECF No. 155), which contained her proposed findings of fact and conclusions of law.10 On September 1, 2017, the Chapter 7 Trustee filed his Reply Post-Trial Brief, and Ms. Chen filed her Post-Trial Reply Brief (ECF No. 157).

III. JURISDICTION

This Court has jurisdiction under 28 U.S.C. § 1334(b) and may hear and determine this matter pursuant to the District Court's General Order of Reference dated September 21, 1984. The Chapter 7 Trustee asserts this Adversary Proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157(a), (b)(2)(A), and (b)(2)(H). This Court is the proper venue for this case pursuant to 28 U.S.C. § 1409. The parties have, in any event, afforded the Court consent to enter final judgment. See ECF Nos. 96, 153.

IV. FINDINGS OF FACT

The trial of this case spanned over ten days, including extensive witness testimony. The Chapter 7 Trustee testified on May 9, 2017; Ms. Chen testified on May 10 and 23, 2017; Jonathan Molloy testified on May 16, 2017 regarding the Dow Action; Dr. Xiao testified on May 17-19 and 22, 2017; Lloyd J. Cazes, who prepared the Debtor's tax returns, testified as Ms. Chen's rebuttal witness on May 23, 2017; and Judge Thomas Zampino testified on May 24, 2017 as an expert witness on property settlement agreements under New Jersey domestic relations laws. According to Fed. R. Civ. P. 52, incorporated by Fed. R. Bankr. P. 7052, after considering the trial evidence and arguments, this Court makes the following Findings of Fact to supplement those advanced in the Introduction and Background and Procedural History of this Decision:

V. CONCLUSIONS OF LAW

This case presents the Court with the age-old adage: if it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck. This case makes it hard to ignore the repeated quacks in the room, leaving the Court to conclude there is a duck in its midst. Consistent with that adage, this Court finds that the fraudulent conduct evaluated herein was manifest and palpable.

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

A. Counts I and II: Avoidance Actions Under 11 U.S.C. § 544 and Conn. Gen. Stat. § 52-552A, et seq.

The Chapter 7 Trustee requests relief under 11 U.S.C. § 544, which provides relief under applicable state law. See Daly v. Richardson (In re Carrozzella & Richardson), 302 B.R. 415, 419 (Bankr. D. Conn. 2003). Conn. Gen. Stat. § 52-552a, et seq. ("CUFTA") provides the statutory framework for transfer avoidance in Connecticut and is not materially distinct from 11 U.S.C. § 548, except for: (1) the extended four-year timeframe prescribed under Conn. Gen. Stat. § 52-552j; (2) the standing requirements as an actual pre-transfer creditor; and (3) the elements of Conn. Gen. Stat. § 52-552e must be proven by clear and convincing evidence. Id. at 419-20 (citing Dietter v. Dietter, 54 Conn.App. 481, 737 A.2d 926 (1999); see also Epperson v. Entm't Express, Inc., 159 Fed. Appx. 249, 251-52 (2d Cir. 2005). The Chapter 7 Trustee claims that the Debtor made the Transfers to Ms. Chen for no consideration with actual intent to hinder, delay, or defraud its creditors at a time when it owed them millions of dollars and was insolvent.

To begin, based on the statute's plain language,15 a trustee can seek transfer avoidance only if he enjoys the rights and status of an unsecured creditor holding a claim that arose prior to the date of the transfer(s) at issue. O'Neil v. Jones (In re Jones), 403 B.R. 228, 233 (Bankr. D. Conn. 2009). The $1.43 Million Transfer occurred in June 2011, while the $158,917.00 Transfer occurred in July 2011. Both Mrs. Little and Dow filed timely proofs of claim, to which the Debtor did not object. Their claims first arose in January 2009 and January 2011, respectively, well before the Transfers at issue. Since the Petition Date fell within the CUFTA statute of limitations period and the claims arose prior to the Transfers, either Dow or Mrs. Little rightfully could bring a CUFTA claim against the Debtor. Accordingly, the Chapter 7 Trustee possesses the requisite standing to avoid the Transfers under CUFTA.

A transfer may only be avoided under 11 U.S.C. § 544 or Connecticut law if, inter alia, the transferred funds constitute an asset or an interest in a debtor's asset. See 11 U.S.C. § 544(b)(1). To prevail on a fraudulent transfer claim, the Chapter 7 Trustee must prove the following elements: "(1) that the [d]ebtor made a transfer within the scope of CUFTA and (2) either (a) constructive fraud—that the transferor did not receive reasonably equivalent value and that, as a result, the transferor was unable to meet his obligations; or (b) actual fraud—that the transfer was made with actual fraudulent intent." In re Jones, 403 B.R. at 234. The Chapter 7 Trustee has met its burden on the first prong and need only prove a constructive or actual fraud by clear and convincing evidence. Because no material difference exists between the operative substantive law of both the state and federal standards, the Transfers can be analyzed conjunctively. In re Carrozzella & Richardson, 302 B.R. at 421.

To determine actual intent under Conn. Gen. Stat. § 52-552e(a)(1), courts may consider a number of factors, including whether:

Conn. Gen. Stat. § 52-552e(b).

For the Bankruptcy Code's purposes, a director, officer, person in control, general partner, or relative of any of the aforementioned persons are all insiders of a corporation. 11 U.S.C. § 101(31)(B); 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). In the present scenario, Dr. Xiao, who acted as managing member and alter ego of the Debtor, is by every stretch of the definition an insider. Ms. Chen, as his wife of 21 years and 10% owner of the Debtor, was also indisputably an insider.

A highly educated man, Dr. Xiao was demonstrably aware of the potential liability that the Debtor faced because of the Little Action and Dow Action. Dr. Xiao formed LSI to divert funds from the Woongjin contract into Seychelles. Remarkably candid in his testimony, Dr. Xiao admits that his express intent and purpose behind forming LSI was to prevent Mrs. Little from receiving any of the Debtor's earnings. Only after Dow contacted the Debtor regarding Mr. Little's actions, and after Mrs. Little initiated the Little Action, did Dr. Xiao begin establishing other business entities in foreign countries and transferring millions of dollars from the Debtor to its insiders. As soon as Dr. Xiao learned that Dow was investigating the Debtor for its suspect business activities, Dr. Xiao defensively transferred money from the Debtor to his and Ms. Chen's personal bank accounts, including the TD Account, where both the $1.43 Million Transfer and $158,917.00 sat. The $1.43 Million Transfer to the TD Account was the single biggest transfer involving Ms. Chen.

Dr. Xiao, however, did not act alone. It is undisputed that Dr. Xiao and Ms. Chen held the TD Account jointly, where the $1.43 Million Transfer remained until the day of their Divorce Judgment. At that point, Dr. Xiao transferred to Ms. Chen his one-half interest in the TD Account, making her its sole owner and giving her full control and use of its funds.

The purpose of the avoidance statutes is frustrated where, as here, the Debtor exercised dominion or control over the Transfer funds at issue to greatly diminish and annihilate the value of the Debtor's estate to frustrate a distribution to creditors, mainly Dow, Mrs. Little, and Attorney Cuevas. See Daly v. Kennedy (In re Kennedy), 279 B.R. 455, 460 (Bankr. D. Conn. 2002).

Indeed, when Attorney Cuevas sued Ms. Chen, she took a page out of her husband's playbook and began transferring funds from the TD Account to several different bank accounts, both domestically and abroad. As she too admits, she did so purposefully to hide the funds from Attorney Cuevas and prevent him from collecting unpaid legal fees from the Debtor and her husband. Eventually, after being sued by Attorney Chorches, Ms. Chen conveniently removed the funds from the TD Account and transferred them to China. These combined actions and acknowledgments by the Debtor and its insiders prove actual fraudulent intent.

At the time of the Transfers, the Debtor was winding down its activities and closing its laboratories. It had not signed a new contract with any customer in almost four years. Throughout all of 2011, the Debtor was insolvent without sufficient assets to pay its lawyers or to settle or litigate the Dow Action or the Little Action, yet the Transfers were described as income distributions to Dr. Xiao and Ms. Chen. By the Petition Date, the District Court in the Dow Action had disqualified the Debtor's expert witness on several key issues with its Daubert order and approved HGG's withdrawal for failure to pay attorney's fees. The Debtor was undeniably insolvent and indisputably vulnerable to the legal consequences of these developments and received no reasonably equivalent value for the Transfers from Ms. Chen. The Chapter 7 Trustee has also met the burden of proof for constructive fraud.

From the overwhelming evidence presented, the Transfers by the Debtor to Ms. Chen fall under the scope of CUFTA. Accordingly, though a rigorous burden, the Chapter 7 Trustee demonstrated by clear and convincing evidence that the Transfers should be avoided under 11 U.S.C. § 544 and Conn. Gen. Stat. § 52-552a, as both Transfers were done to further actual and constructive fraud. The transferred funds were assets of the Debtor's Chapter 7 bankruptcy estate, and both Transfers to Ms. Chen are avoided under CUFTA and 11 U.S.C. § 544(b) as fraudulent transfers.

B. Counts III: Actual Fraudulent Transfers Under 11 U.S.C. § 548

Under Count III, the Chapter 7 Trustee seeks to avoid the Transfers pursuant to 11 U.S.C. § 548(a)(1)(A). Much like CUFTA, the Bankruptcy Code provides a trustee with the power to avoid fraudulent transfers with actual intent:

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. In re Carrozzella & Richardson, 302 B.R. at 419. The purpose underlying the trustee's avoidance powers is namely to prevent asset depletion that otherwise would have been available to creditors.16 In examining the Transfers under the Bankruptcy Code's rubric, the Court adopts the facts, analysis, and reasoning in Part V. Section A., in addition to the Conclusions of Law below.

i. 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 its sole two insider members initiated a material and sustained cascade of fraudulent, evasive, and deceptive activities in the two years preceding 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); (7) repeated patterns or the cumulative effect of courses of conduct post-insolvency or financial troubles; and (8) the timeline of events. See 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). When a questionable transfer occurs, and it is not in the usual course of business, courts consider it a badge of fraud that infers intent. Silverman v. Actrade Cap., Inc. (In re Actrade Fin. Techs. Ltd.), 337 B.R. 791, 809 (Bankr. S.D.N.Y. 2005). 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, 218-19, 61 S.Ct. 904, 85 S.Ct. 1293 (1941). Each of the badges of fraud listed above are present here.

At the outset, for all intents and purposes, the Debtor was Dr. Xiao, and Dr. Xiao was the Debtor.17 Nearly all actions described herein were taken by the Debtor were done at the behest, direction, and design of Dr. Xiao and for his benefit.

After the $158,917.00 Transfer and the $1.43 Million Transfer, the Debtor only once had more than $180,000.00 in its bank account. On that lone occasion, HGG and LSI channeled money to the Debtor, earmarked to pay Mrs. Little's $1.1 million partial settlement. In April 2013, having already received $2.9 million in legal fees, HGG withdrew as the Debtor's legal counsel because the Debtor had not and could no longer pay HGG for their representation in the Dow Action. As the Debtor indicated to the District Court in the Dow Action, as early as May 2013, it formulated a plan to file for bankruptcy protection as a last resort response.

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

Based on the record, it is abundantly clear that the Debtor, through Dr. Xiao's 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.

a. The Divorce

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." Dobin v. Hill (In re Hill), 342 B.R. 183, 196 (Bankr. D.N.J. 2006) (citation omitted).

The Debtor's history under the leadership of Dr. Xiao and Ms. Chen is rife with suspect transfers, but none more so than in the months leading up to the Debtor's Chapter 7 bankruptcy petition filing. 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 Dr. Xiao. Multiple copies of the Dow Action documents were mailed to Ms. Chen's Marital Home during this time. Although Ms. Chen chooses to feign ignorance over the happenings in the Dow Action during this Adversary Proceeding, 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 her husband, Dr. Xiao. While mail affecting the Debtor's continued existence piled up, Ms. Chen, at best, can only be described as remaining willfully blind to a multimillion-dollar action affecting a business of which she was 10% owner, and from which she had received over $1 million. To pretend she had no idea of the severity of the litigation makes a mockery of her duties as a member of the Debtor and common sense. Her contentions to the contrary cast further doubt on her credibility. In actuality, Ms. Chen knew all along the consequences of the Debtor's actions, be it through the formal notice sent by Dow and the District Court, or through conversations with her husband.

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, 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 caused the transfer of nearly all of their significant, liquid assets to Ms. Chen. No due weight or apparent disclosure of Dr. Xiao's potentially multimillion-dollar liabilities to third parties or the effect of the Debtor's impending bankruptcy on Dr. Xiao's earning potential appeared in the divorce record. Ms. Chen herself acknowledged during this Adversary Proceeding 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. Further, after the Divorce Action, Dr. Xiao continued to live with Ms. Chen at the Marital Home, in the very house transferred to her pursuant to 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 by showing that the Debtor actually intended to hinder, delay, or defraud its creditors when it made the Transfers to Ms. Chen within two years of the Petition Date, and that the Transfers were actually fraudulent within the meaning of 11 U.S.C. § 548(a)(1)(A).

C. Count IV: Constructive Fraudulent Transfers Under 11 U.S.C. § 548

Count IV seeks to avoid the Transfers because the insolvent Debtor received less than reasonably equivalent value for the Transfers from Ms. Chen. Under the constructive fraudulent transfer statute, the following elements must be met:

11 U.S.C. § 548(a)(1)(B).18 Under this avoidance statute, "the bankruptcy trustee is permitted to avoid any transfers within [two] year[s] of the filing date ... for which the debtor did not receive reasonably equivalent value, and at which time the debtor was insolvent or because of which the debtor became insolvent." Carroll v. Tese-Milner (In re Red Dot Scenic, Inc.), 351 F.3d 57, 58 (2d Cir. 2003) (citation omitted). The trustee must prove the elements of a constructive fraudulent transfer claim by a preponderance of the evidence. Togut v. RBC Dain Correspondent Servs. (In re S.W. Bach & Co.), 435 B.R. 866, 875 (Bankr. S.D.N.Y. 2010). To decide whether funds were exchanged for a reasonably equivalent value, the court is required to determine the value of what was transferred compared to the value of what was received. Coan v. Fleet Credit Card Servs., Inc. (In re Guerrera), 225 B.R. 32, 36 (Bankr. D. Conn. 1998). There need not be dollar-for-dollar exchange, but "the court must keep the equitable purposes of the statute firmly in mind, recognizing that any significant disparity between the value received and the obligation assumed by either issuer will have significantly harmed the innocent creditors[.]" Rubin v. Mfrs. Hanover Tr. Co., 661 F.2d 979, 994 (2d Cir. 1981).

Ms. Chen has classified both the $1.43 Million Transfer and the $158,917.00 Transfer as dividends payable to her from the Debtor. At the same time, she and Dr. Xiao have also classified such as income from the Debtor to the two of them, with Dr. Xiao receiving the $1.43 Million Transfer as income. On all of her joint tax returns, Ms. Chen never once accounts for the income she claims to have derived from the Debtor. Every year she only lists her $100,000.00 salary from Novartis as her income.

Defining the $1.43 Million Transfer as either a dividend or other income does not help Ms. Chen. Both characterizations fail the constructively fraudulent transfer test. Although undefined by the Bankruptcy Code, the Internal Revenue Code defines a dividend as "any distribution of property made by a corporation to its shareholders... out of its earnings and profits of the taxable year ... without regard to the amount of the earnings and profits at the time the distribution was made." 26 U.S.C. § 316(a)(2).

As to the assertion that these monies constituted wages or consulting income, there is no credible proof from either the Debtor or Ms. Chen that the Transfers were for any substantive services to the Debtor. The $1.43 Million Transfer cannot be seriously described as consideration for Ms. Chen's unproductive administrative services to the Debtor. Assuming, arguendo, that the Debtor made the $1.43 Million Transfer as a payment for Ms. Chen's services, the money grossly overcompensates her for her "work" and would have been multitudes more than even the principal and 90% member received from the Debtor that year. In 2007, Ms. Chen received $212,000.00 for her alleged services, and in 2008, she received $350,000.00 for her alleged services. She then performed mostly administrative work for the Debtor, such as answering phones, filing, and retrieving the mail delivered to the mailbox of her Marital Home. Though it is unclear precisely how long she performed those services, Ms. Chen was much more actively involved with the Debtor in the years preceding 2011, when both the $158,917.00 Transfer and $1.43 Million Transfer took place. Regardless, she has failed to adduce any substantive and credible proof of a defense that her services provided tangible reasonably equivalent value to the Debtor.

Notwithstanding Ms. Chen's adamant assertions that she was winding down her assistance with the Debtor in 2011, she still received the $158,917.00 Transfer and $1.43 Million Transfer. By that time, she had explicitly told Dr. Xiao that she no longer wanted to work for the Debtor and had made an affirmative decision that she would not become more involved with the Debtor. Her own testimony belies the astounding amount of money she received especially given that she admits that she had no idea whether her uncle helped the Debtor's business, and she was unable to provide any detail or substance about the precise work she performed for the Debtor. Although she allegedly performed "some" human resource work after a headhunter provided her resumes, these services are not reasonably equivalent to the collective $1,589,171.00 Transfers, especially for a company with the Debtor's diminished financial means. At best, her work during this timeframe can be described as ministerial, and seems to more align with moral or spousal support. Nothing in the record justifies why she would receive over $1 million more in 2011 than in years past, especially while the Debtor and its business rapidly deteriorated and she undertook less work. Leading up to and during 2011, the Debtor did not receive from Ms. Chen any material services or goods, in good faith and for value, equivalent to the $1.43 Million Transfer or $1,589,171.00 in total transferred. This Court is unpersuaded by Ms. Chen's lone defense of good faith19 based on the factual record and her lack of credibility. Her prepetition conduct, defensive trial testimony, and evasive responsiveness support a finding to the contrary.

i. LXEng's Insolvency

Insolvency is one of the elements of a constructive fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B)(i)(I). In what has been dubbed the "balance sheet" test, insolvency exists within an entity when its financial condition is "such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of—(1) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and (2) property that may be exempted" from the bankruptcy estate under 11 U.S.C. § 522. 11 U.S.C. § 101(32)(A). In defining insolvency, Connecticut's definition mirrors the Bankruptcy Code's. Conn. Gen. Stat. § 52-552c(a). Connecticut law also presumes insolvency where the debtor fails to make debt payments by their due dates. Id. § 52-552c(b). Insolvency is a question of fact, but the requirements of 11 U.S.C. § 548 can be satisfied "provided the court finds it was insolvent proximately before or immediately after the time of [the] transfer." Join-In Int'l (U.S.A.) Ltd. v. N.Y. Wholesale Distribs. Corp. (In re Join-In Int'l (U.S.A.) Ltd.), 56 B.R. 555, 560 (Bankr. S.D.N.Y. 1986) (citation and internal quotation marks omitted).

Debt is defined 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)(A). 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, Estimating Contingent Liabilities to Determine Insolvency in Bankruptcy Proceedings: In re Xonics Photochemical, Inc., 1989 BYU L. Rev. 1315, 1318 (1989). Contingent claims may be discounted based on the probability that the contingency will never occur. 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 the likelihood of the claim's success. Licata v. Coan, 2015 WL 9699304, at *7 (D. Conn. Sept. 22, 2015), aff'd sub nom. In re Licata, 659 F. App'x 704 (2d Cir. 2016).

The unrebutted record supports the conclusion that the Debtor was insolvent both before and after the Transfers. Leading up to the Petition Date, the $1.43 Million Transfer funds were held in the TD Account, which was in the name of the only two members of the Debtor. After the bankruptcy filing, the Debtor failed to disclose the Transfers in its SOFA or at the first meeting of its creditors. 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 includes the $300,000.00 figure as an unsecured claim. The Debtor's Schedule F also indicated it owed HGG $666,000.00 on the Petition Date. However, the Debtor failed to prescribe any numerical value to its liabilities from the Dow Action in its 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.20 Fed. R. Bankr. P. 3001(f). 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 Photochemical, Inc., 841 F.2d 198, 200 (7th Cir. 1988); Estimating Contingent Liabilities, 1989 BYU L. Rev. at 1323.

The Court finds it is significantly more likely than not that the Debtor would have been held liable in some way to Dow either through default, judgment,21 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 defensive expert witness with its Daubert order, striking a significant blow to the Debtor's defenses and its ability to rebut the damning conclusions of the District Court's independent expert. HGG withdrew from representing the Debtor in the Dow Action, and Attorney Medina had indicated to the District Court that the Debtor intended to file bankruptcy on the verge of a default judgment. The substantial likelihood of a credible defense in the Dow Action was never advanced at trial. The continued maintenance of the litigation itself was also an unsustainable expense to the Debtor, as Ms. Chen knew. The Debtor had already accumulated $666,000.00 in legal fees owed to HGG that it had failed to pay, plus 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 its codefendants in the Dow Action, would have sustained a substantial liability to Dow.

By the time of the Transfers, the Debtor's depreciable assets had no meaningful value and were sold for "scrap," leaving the Court to conclude these assets were valued at $0.00. At most, according to its 2011 tax return, these assets were possibly worth $365,000.00. The Debtor's contracts and revenues had long since dried up, and the Debtor was left a shell of a company. The multimillion dollar liabilities coupled with the zero value of the Debtor's appreciable assets irrefutably prove that the Debtor was insolvent by every reasonable analysis throughout 2011, the period when the Transfers occurred.

ii. LXEng's Inadequate Capitalization

An alternative way for the Court to determine insolvency in assessing whether the Debtor engaged in a constructive fraudulent transfer is to determine whether the Debtor had unreasonably small capital at the time of the Transfers at issue, pursuant to 11 U.S.C. § 548(a)(1)(B)(ii)(II). When deciding such, the court must weigh the company's "raw financial data against both the nature of the enterprise itself and the extent of the enterprise's need for capital during the period in question." Barrett v. Cont'l Ill. Nat. Bank & Tr. Co., 882 F.2d 1, 4 (1st Cir. 1989) (citation omitted). Courts can review factors like "the company's debt to equity ratio, its historical capital cushion, and the need for working capital in the specific industry at issue." MFS/Sun Life Tr.-High Yield Series v. Van Dusen Airport Servs. Co., 910 F.Supp. 913, 944 (S.D.N.Y. 1995) (citations omitted). Courts "examine not what ultimately happened to the company, but whether the company's then-existing cash flow projections (i.e., projected working capital) were reasonable and prudent when made" while undertaking this analysis. Statutory Comm. of Unsecured Creditors v. Motorola, Inc. (In re Iridium Operating LLC), 373 B.R. 283, 345 (Bankr. S.D.N.Y. 2007) (citation omitted).

When the Debtor made the Transfers to Ms. Chen, the Debtor and Ms. Chen were both well aware of the lack of cash flow into the business. After all, at that point, the Debtor failed to enter into any new contract with a customer for over three years, and Ms. Chen had asked her uncle to help the Debtor find new Chinese clients. The Debtor failed to sign any new contracts, even if it performed work for new clients, and instead left LSI or another of Dr. Xiao's affiliates to sign them. There was no logical, viable, rational, or believable reason for the Debtor to conclude it would have additional revenue sources in 2011. Not only that, but Dr. Xiao and Ms. Chen also knew of the weight of obligations that the Debtor was liable for at the time of the Transfers. The Debtor was simultaneously defending itself against the Little Action and Dow Action. The attorney's fees alone were in the multimillion-dollar range, without material resources to support those representations.

The $1.43 Million Transfer to Ms. Chen, in particular, essentially left the Debtor with nothing to operate the business, litigate, or defend itself. The inconsequential $100,000.00-$200,000.00 that remained in the bank afterward was nowhere near enough to allow the Debtor to continue defending itself through its financial and legal distress. The Debtor's attorneys, HGG, realized that when they ultimately withdrew from the Dow Action for lack of payment of their fees in the three months leading up to the bankruptcy filing. Taken together, the Debtor left itself with unreasonably small capital to conduct any of its business.

The Debtor made the constructively fraudulent transfers while it was defending, in vain, against two sizable lawsuits, shifting roughly 80% of its assets to Ms. Chen and leaving the already dwindling company woefully insolvent, unable to pay its debts or defend itself in litigation. The Chapter 7 Trustee has shown by a preponderance of the evidence that Ms. Chen received the Transfers in exchange for less than reasonably equivalent value, at a time when the Debtor's finances were in complete disarray to the point of insolvency, and, thus, supporting the Court's conclusion that the Transfers were constructively fraudulent.22

D. Count V: Recovery Under 11 U.S.C. § 550(a) of the Transfers

In arguing for the avoidance of the Transfers, the Chapter 7 Trustee in Count V seeks recovery of the value of the Transfers from Ms. Chen, the initial transferee of the funds. The Bankruptcy Code codifies the ways in which a trustee may recover fraudulently conveyed property, including from the initial transferee. See 11 U.S.C. § 550(a). The Second Circuit uses the mere conduit test in determining who qualifies as an initial transferee under 11 U.S.C. § 550(a). Christy v. Alexander & Alexander of N.Y. Inc. (In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey), 130 F.3d 52, 58 (2d Cir. 1997). Acting as a mere conduit is not enough; instead, the transferee must have "dominion over the money or other asset, the right to put the money to one's own purposes." Id. at 57 (citation and internal quotation marks omitted). Initial transferees are subject to strict liability. Id.

Ms. Chen was anything but a mere conduit relative to the Transfers. The $158,917.00 Transfer was deposited into the TD Account which bore her name. The Debtor made the $1.43 Million Transfer as a cash advance in her name and sent it to the TD Account, which was also in her name. She had unrestricted access to the TD Account up to, during, and after the Transfers. After the PSA executed, she had exclusive control over these funds because Dr. Xiao relinquished any right to the funds in the TD Account in the Divorce Action. She had complete dominion over the $1.43 Million Transfer funds and could put it to any use she saw fit, which she subsequently did when she transferred the money to other bank accounts and ultimately to her parents in China, all in an effort to frustrate all of the Debtor's creditors from collecting from her. Thus, because the Transfers are avoidable as outlined in Part V. Sections A-C., and because Ms. Chen received the funds as an initial transferee, the Chapter 7 Trustee is entitled to recover the value of the Transfers from Ms. Chen under 11 U.S.C. § 550(a).

E. Count VI: Imposition of a Constructive Trust

Based on his foregoing arguments, in Count VI of the Complaint, the Chapter 7 Trustee would like this Court to impose a constructive trust over the assets that the Debtor transferred to Ms. Chen. Bankruptcy courts are generally reluctant to impose constructive trusts without a substantial reason to do so. Superintendent of Ins. for N.Y. v. Ochs (In re First Cent. Fin. Corp.), 377 F.3d 209, 217 (2d Cir. 2004) (citation and internal quotation marks omitted). To the extent that the Chapter 7 Trustee seeks a constructive trust over the Transfers, as Ms. Chen points out in her Post-Trial Reply Brief, the issue was not briefed or raised beyond the pleadings stage. Based on this decision, however, imposing a constructive trust is unnecessary because the Chapter 7 Trustee prevails on other counts for damages and has successfully pursued other remedies.

VI. 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 this Adversary Proceeding, a separate judgment 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.