MEMORANDUM DECISION ON LYNN E. WARDLEY'S MOTION FOR SUMMARY JUDGMENT (DOCKET NO. 58)

KEVIN R. ANDERSON, Bankruptcy Judge.

I. Introduction

Theodore William White, Jr. ("White" or the "Debtor") and Lynn E. Wardley ("Wardley") were engaged in several business transactions wherein Wardley would advance funds and the Debtor would operate the businesses. Wardley allegedly advanced over $1.5 million toward these ventures, for which the Debtor was allegedly directly or indirectly liable. The loans were generally evidenced by notes signed by the Debtor. In December 2010, Wardley and the Debtor formed an entity called ABC Club that Wardley would fund and the Debtor would operate. In connection therewith, the Debtor signed a guaranty to repay up to $750,000 of Wardley's advances to ABC Club. During this time, the Debtor's primary asset was a judgment for $15 million. In July of 2011, the Debtor collected on the judgment and immediately made two transfers to Wardley of $750,000 each in payment on the notes, the guaranty, and other loans.

Almost three years later on May 30, 2014, the Debtor and his spouse, Porscha Shiroma ("Shiroma"), filed a voluntary Chapter 7 bankruptcy petition. J. Kevin Bird was appointed as the Chapter 7 Trustee ("Trustee"). On May 30, 2016, the Trustee filed this adversary proceeding against Wardley and American Benefits Company, Inc. The Trustee amended his complaint on September 15, 2017 (the "Complaint").1 The Complaint seeks to recover the Debtor's allegedly fraudulent transfers to Wardley under 11 U.S.C. §§ 544, 550, and the Utah Uniform Fraudulent Transfer Act ("UUFTA").2

The matter before the Court is Wardley's motion for summary judgment, which argues that the Debtor received "reasonably equivalent value in exchange" for the transfers pursuant to Utah Code Ann. §§ 25-6-5(1)(b) and 25-6-6(1)(a).3 The Court held a hearing on Wardley's motion for summary judgment on January 9, 2018 and a continued hearing on January 17, 2018. The Court has reviewed the briefing, including the exhibits attached to Wardley's motion4 and the Trustee's memorandum in opposition,5 and has conducted its own independent research of applicable law. For the reasons set forth in this memorandum decision, the Court denies in part and grants in part Wardley's motion for summary judgment.

II. Jurisdiction and Venue

The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334(a) & (b) and 157(b). Wardley's motion for summary judgment is a core proceeding under 28 U.S.C. § 157(b)(2)(H). Venue is appropriate in this District under 28 U.S.C. §§ 1408 and 1409, and notice of the hearing was properly given.

III. Undisputed Facts

Wardley's Motion for Summary Judgment centers on whether the Debtor received "reasonably equivalent value in exchange" for the transfers to Wardley. The following factual statements from Wardley's Motion for Summary Judgment,6 the Debtor's Memorandum in Opposition,7 and Wardley's Reply8 are undisputed:9

A. The Consolidated Note for $600,000 and the $78,000 in Advances

1. On or about October 1, 2010, White and his wife Shiroma, executed a promissory note (the "First Cascade Note") in the amount of $100,000 payable to Cascade Lending Resources, LLC ("Cascade") — a company Wardley owns and controls.10

2. On or about October 21, 2010, White and Shiroma executed a promissory note (the "Second Cascade Note") in the amount of $100,000 payable to Cascade — a company Wardley owns and controls.11

3. Pursuant to a subsequent agreement between White and Wardley, which was memorialized in writing, the original principal amount owed under the Second Cascade Note was increased from $100,000 to $200,000.12

4. On or about November 9, 2010, White and Shiroma executed a promissory note (the "Wardley/Brennan Note") in the amount of $100,000 payable to Wardley and Lyle E. Brennan.13

5. On or about December 17, 2010, White and Shiroma executed a promissory note (the "Third Cascade Note") in the amount of $100,000 payable to Cascade — a company Wardley owns and controls.14

6. In connection with and in consideration for the First Cascade Note, the Second Cascade Note, the Third Cascade Note, and the Wardley/Brennan Note, Wardley made the following advances of at least $110,50015 for White's use and benefit:

7. On or about February 19, 2011, White and Shiroma executed a promissory note (the "Consolidated Note") in the amount of $600,000 payable to Wardley.16

8. In consideration for the Consolidated Note, which recognized the benefits of the previous loans made to White and Shiroma, Wardley made the following additional loans for White's personal use and benefit:

9. Following execution of the Consolidated Note, Wardley personally, and through companies he owned and controlled, continued to advance funds to or for the benefit of White, and Wardley expected to be repaid for the same. These advances included at least $78,000, evidenced through the following transactions:

B. The BayHill Note for $100,000

10. On October 1, 2010, BayHill Capital Corporation ("BayHill Capital") loaned $75,000 to American One Benefits Company, LLC; Frogboss, LLC; and American Senior Benefits Company (the "American Benefits Entities") in exchange for that certain American One Benefits Company Secured Promissory Note, dated October 1, 2010 (the "BayHill Note") in the principal amount of $100,000.19

11. The term of the BayHill Note expired on November 19, 2010.20

12. Under the BayHill Note, BayHill Capital had the right to foreclose on the American Benefits Entities' business and receive all their assets.21

13. On November 19, 2010, the American Benefits Entities executed that certain Agreement for Assignment and Satisfaction, Through Offset, of Promissory Note (the "Assignment"), by which the American Benefits Entities became obligated to Wardley under the BayHill Note in the principal amount of $100,000.22

14. White has never denied his personal liability under the BayHill Note.23

15. The obligors under the BayHill Note were the American Benefit Entities.24

16. The Debtor did not sign the BayHill Note in his individual capacity.25

C. The ABC Club Guaranty of $750,000

17. For several months prior to December 2010, White solicited Wardley to invest $4 million in American Benefits Company, a company wholly-owned by White or White's other entities.26

18. While Wardley declined to invest in American Benefits Company, Wardley and White agreed, among other things, that they would form a new entity called "ABC Club LLC" ("ABC Club") that Wardley would fund and White would manage, with Wardley receiving a majority interest and White receiving a minority interest.27

19. In December 2010, and based on their agreement, Wardley began advancing funds to ABC Club,28 and White began to oversee its day-to-day affairs.29

20. On April 7, 2011, White, Wardley, and C. David Hester ("Hester") executed an operating agreement for ABC Club with an effective date of December 6, 2010 (the "Operating Agreement").30

21. The Operating Agreement established the following ownership interests in ABC Club: Wardley 82%; White 15%; and Hester 3%.31

22. Between December 2010 and April 2011, Wardley advanced at least $518,000 to ABC Club.32

23. White believed the value of ABC Club was going to be "millions of dollars."33

24. In the Operating Agreement, White agreed to guarantee the repayment of funds advanced by Wardley to ABC Club up to $750,000 (the "Guaranty" or "ABC Guaranty"):

25. As part of the Guaranty, White also assigned his interest in a $15 million judgment to Wardley:

26. In connection with the Operating Agreement, Wardley and White also signed an Executive Employment Agreement wherein ABC Club employed White "to provide executive services in charge of product development and marketing."36

27. White testified, "I was working for ABC Club taking a draw on something I had to pay back dollar for dollar at $20,000 a month."37

28. From January 2011 through September 2011, ABC Club paid White at least $235,000 in compensation, amounting to an average of approximately $26,000 a month.38

29. For the period beginning on December 16, 2010 through July 8, 2011, and at White's request, Wardley advanced $868,000 to ABC Club.39

30. The transfers made to ABC Club are evidenced by the following transactions:

31. White knew he was obligated to repay his liability under the Guaranty, and he did so in July 2011.41

32. White was working for ABC Club during the period that Wardley was making the alleged $78,000 in undocumented personal loans to White, and during this same time, Wardley was financially supporting ABC Club's operations.42

33. White's job with ABC Club was not guaranteed, and ABC Club could terminate White's employment at will with 30 days' notice.43

34. When the Second $750,000 Transfer was made, ABC Club was still operating, but it ceased operations some time thereafter. It has yet to be dissolved.44

35. Wardley's alleged loans to ABC Club were undocumented and had no maturity date, no interest rate, and no terms for repayment.45

36. Wardley's general practice was to have a promissory note evidencing every loan he made.46

37. Wardley did not keep track of what he "loaned" to ABC Club and had to rely on others to tell him.47

38. White's Guaranty of Wardley's advances to ABC Club was to be reduced by "cash distributions" from ABC Club to Wardley.48

D. White's $15 Million Judgment

39. In August 2008, following a trial on certain causes of action White had filed against Richard McKinley ("McKinley"), a judgment was entered in White's favor on a general verdict for $14,000,000 and punitive damages for $1,000,000 (the "Judgment").49

40. McKinley appealed the Judgment, and the Eighth Circuit Court of Appeals affirmed the verdict on July 2010.50

41. On or about July 22, 2011, following a mediation, the City of Lee's Summit ("Lee's Summit") agreed to indemnify McKinley for the Judgment, and White and Lee's Summit reached a settlement (the "Settlement").51

42. Pursuant to the Settlement, Lee's Summit agreed to pay White $15.5 million in satisfaction of the general damages portion of the Judgment.52

E. White's Transfer of the Judgment Proceeds to Wardley

43. On or about July 22, 2011, at White's direction, and based on previous agreements between White and Wardley (discussed below), Lee's Summit wired $750,000 of the Settlement proceeds directly to Wardley (the "First $750,000 Transfer").53

44. A few days later, on or about July 25, 2011, White transferred another $750,000 of the Settlement proceeds to Wardley (the "Second $750,000 Transfer").54

45. White testified that he paid Wardley because he "believed" he owed Wardley the amounts he paid him.55

IV. SUMMARY JUDGMENT STANDARD

Under Fed. R. Civ. P. 56(a), as incorporated into bankruptcy proceedings by Fed. R. Bankr. P. 7056, the Court is required to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Substantive law determines which facts are material and which are not. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."56 Whether a dispute is "genuine" turns on whether "the evidence is such that a reasonable [fact finder] could return a verdict for the nonmoving party."57 In sum, the Court's function at the summary judgment stage is to "determine whether there is a genuine issue for trial."58

The moving party bears the burden to show that it is entitled to summary judgment,59 including the burden to properly support its summary judgment motion as required by Rule 56(c).60 If the moving party has failed to meet its burden, "summary judgment must be denied," and the nonmoving party need not respond because "no defense to an insufficient showing is required."61 Once the moving party meets its initial burden, "the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter."62 The nonmoving party may not rely solely on allegations in the pleadings, but must instead designate "specific facts showing that there is a genuine issue for trial."63

When considering a motion for summary judgment, the Court views the record in the light most favorable to the non-moving party,64 but the Court does not weigh the evidence or make credibility determinations.65

V. UTAH UNIFORM FRAUDULENT TRANSFER ACT

The Trustee's Complaint66 asserts three causes of action under the UUFTA:

To prevail on a cause of action under UUFTA § 25-6-6(1), the plaintiff must prove four elements: (1) a transfer by the debtor; (2) a debt owed to the creditor that preceded the transfer; (3) that the debtor did not receive a reasonably equivalent value in exchange for the transfer or obligation; and (4) the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer.67 Wardley's Motion for Summary Judgment focuses on the third element of UUFTA § 25-6-6(1) and argues that the Debtor received reasonably equivalent value in exchange for the transfers to Wardley.

Determining whether the Debtor received "reasonably equivalent value" under the UUFTA is a two-step analysis.68 First, the Court must look to whether Wardley provided "value" to the Debtor.69 The second step is to determine whether the Debtor received "reasonably equivalent" value within the meaning of the statute.70

As to the meaning of "value," UUFTA § 25-6-4 provides that "[v]alue is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied." "`Value' is to be determined in light of the purpose of the Act to protect a debtor's estate from being depleted to the prejudice of the debtor's unsecured creditors. Consideration having no utility from a creditor's viewpoint does not satisfy the statutory definition."71

Wardley asserts that the Debtor's $1.5 million in transfers to him were in satisfaction of antecedent debts — three notes and various personal loans. For ease of reference, the notes and loans are identified below in chronological order:

Wardley contends that White received reasonably equivalent value in exchange for the transfers. The core issue in each category of obligations is whether White was legally obligated to repay Wardley under a valid, antecedent debt.74 The Court will examine each category of alleged obligations in turn.

VI. ANALYSIS

A. The BayHill Note for $100,000

Based upon the relevant undisputed facts,75 the Court finds a genuine dispute of material fact as to whether White was individually liable to repay Wardley under the BayHill Note and therefore, whether White received reasonably equivalent value when he transferred funds to Wardley in July of 2011.

Wardley relies on White's testimony that "he never denied personal liability under the BayHill Note."76 However, White's understanding as to his personal liability directly contradicts the BayHill Note itself. It is undisputed that the obligors under the BayHill Note were the American Benefit entities.77 Furthermore, the BayHill Note is not signed by White in his personal capacity, but rather as the CEO of American One Benefits Company, LLC, American Senior Benefits Company, and FrogBoss LLC.78

A corporate signatory to a note is generally personally liable unless "the signer's corporate capacity [is] clear from the form of signature."79 "Individuals who fail to limit their signatures to their corporate capacity have consistently been held to be directly liable on corporate instruments."80 Therefore, based upon the BayHill Note itself and the undisputed facts related thereto, White did not have personal liability on the BayHill Note.

Wardley contends that even if White did not personally obligate himself to repay the BayHill Note, the Trustee's expert accountant prepared a report showing an 80% probability of contingency between White and his various business entities.81 However, there are no undisputed facts as to this argument, and a determination of whether, under a veil-piercing theory, White should be held liable for the debts of the American Benefits Entities is an issue more appropriate for trial.

The undisputed facts, including that White did not sign the BayHill Note in a personal capacity despite "never denying" personal liability, create a genuine dispute of material fact as to whether White was legally obligated to repay Wardley under the BayHill Note. Thus, the Court denies Wardley's summary judgment motion as to whether White received reasonably equivalent value for his payment to Wardley on the BayHill Note.

B. The Consolidated Note for $600,000

The parties do not dispute that Wardley, White, and Shiroma executed a series of promissory notes between October 2010 and December 2010, and that they subsequently executed the Consolidated Note in February 2011.82 The Trustee's Complaint does not seek to recover White's payment of $600,000 to Wardley under the Consolidated Note. It is only in the response to Wardley's Motion for Summary Judgment that the Trustee first argues that the $600,000, or some portion thereof, was not an antecedent debt of White under the Consolidated Note.

It is inappropriate to consider a new legal theory set forth in a response to summary judgment where such theory was not pleaded in a complaint.83 The Court declines to consider the Trustee's argument as to White's liability under the Consolidated Note because the Complaint did not contest White's liability or seek to avoid payments made under the Consolidated Note. The Complaint provides that "White only owed $600,000 (which was the principal amount of the Notes) and had no personal liability for alleged personal loans not included within the Notes."84 Further, the Complaint provides that "[u]nder 11 U.S.C. § 544(b) and standing in the shoes of such creditors, the Trustee may similarly avoid the First $750,000 Transfer to the extent of $150,000 for the benefit of the bankruptcy estate."85 "These creditors could avoid the First $750,000 Transfer to extent of $150,000 under the Utah Uniform Fraudulent Transfer Act."86 At oral argument, Trustee's counsel confirmed the Complaint's admission that White owed $600,000 under the Consolidated Notes as a valid and enforceable debt.87 For these reasons, the Court will not consider the Trustee's argument that the Consolidated Note was not an antecedent debt, or that White did not receive reasonably equivalent value in exchange for the transfer of $600,000 to Wardley on the Consolidated Note.

C. The Personal Advances for $78,000.

The parties do not dispute that following the execution of the Consolidated Note, Wardley personally, and through companies he owned and controlled, continued to advance funds to or for the benefit of White, and Wardley expected to be repaid for the same.88 These "personal advances" included at least $78,000, transferred from Wardley to White between April and June 2011.89 The personal advances are not evidenced by written documentation. Further, the parties do not dispute that White was working for ABC Club at the time of the $78,000 in personal advances, and Wardley was financially supporting ABC Club's operations.90

Wardley asserts that the Trustee admitted that Wardley advanced $78,000 to White in the Complaint. Wardley is correct. The Complaint states that "[b]etween October 1, 2010, and June 10, 2011, Wardley . . . transferred the following amounts to White. . . ."91 The Complaint goes on to state, "Wardley asserts that each of these transfers was a personal loan to White."92 Thus, while the Complaint acknowledges that the transfers occurred, the Complaint does not admit that these transfers were personal loans and does not admit any legally cognizable obligation by White to repay the transferred funds to Wardley.

The Court finds that the undisputed facts — including testimony from White and Wardley as to their general practice of documenting loans between them93 and that White was working for ABC Club when the personal advances were transferred — create a genuine and material dispute as to whether these advances were intended to be personal loans, business loans to ABC Club, or advances on White's salary from ABC Club. The Court determines that further evidence is necessary regarding the parties' intention and understanding with respect to these personal advances.

D. The ABC Club Guaranty for $750,000

Based on the relevant undisputed facts,94 and for the reasons set forth below, the Court finds that White received reasonably equivalent value for the transfers made in satisfaction of the ABC Guaranty.

1. Relevant Undisputed Facts

The following undisputed facts are particularly relevant to the Court's analysis of the ABC Club Guaranty. In the months prior to December 2010, the Debtor solicited Wardley to invest $4 million in American Benefits Company, a company owned by the Debtor or other entities owned by the Debtor. Wardley declined to invest in American Benefits Company, but in the alternative, he agreed to fund a new entity called ABC Club that would be run by the Debtor with Wardley holding an 85% interest and the Debtor holding a 15% interest.95

The parties dispute whether the Debtor agreed at this time to personally guarantee the repayment of any funds advanced by Wardley to ABC Club.96 The Court concurs with the Trustee that under the Utah Statute of Frauds, a "promise to answer for the debt . . . of another" is unenforceable unless in writing (U.C.A. § 25-5-4).97

Nonetheless, it is undisputed that starting in December 2010, Wardley began transferring funds to ABC Club while the Debtor began to run its day-to-day affairs. It is undisputed that between December 2010 and April 2011, Wardley transferred at least $518,000 to ABC Club.98 It is also undisputed that on April 7, 2011, the Debtor and Wardley signed the Operating Agreement of ABC Club, LLC (the "ABC Operating Agreement").99

On its face, the ABC Operating Agreement states that it is "Effective December 6, 2010," which is consistent with the parties' testimony as to their discussions in December of 2010 regarding the formation of ABC Club.100

Paragraph 6.7 of the ABC Operating Agreement states:

2. The Court Assumes the Guaranty is Not a Voidable Obligation.

Wardley's motion seeks a summary judgment ruling that White received reasonably equivalent value for the $750,000 transfer to Wardley because it satisfied the antecedent debt of the ABC Guaranty. However, the Trustee's Complaint also seeks to avoid the ABC Guaranty obligation as a fraudulent transfer,102 but this issue is not presently before the Court. Therefore, for purposes of this summary judgment motion, the Court will assume that the Guaranty obligation is not avoidable.

3. Capital Contributions vs. Loans

The Trustee argues that the Court cannot grant summary judgment because Wardley's transfers to ABC Club should be recharacterized as capital contributions rather than loans; thus, there was no antecedent debt associated with the $750,000 transfer. The Court disagrees. First, the Trustee did not assert a cause of action for recharacterization in the Complaint, and second, the Operating Agreement controls as to the parties' rights and responsibilities as to capital contributions and the Guaranty. Lastly, even if recharacterization were properly pleaded in the Complaint, the Court is unconvinced that the undisputed facts support an exercise of the Court's equitable powers to restructure the parties' business relationship.

a) The Trustee's Complaint Did Not Assert a Cause of Action for the Recharacterization of Loans to Equity

First, the Trustee's Complaint did not assert a cause of action for the recharacterization of Wardley's loans to ABC Club as equity. Actions for the recharacterization of debt to equity are generally asserted to subordinate insider claims and are brought as a separate cause of action under 11 U.S.C. § 510 or in an objection to a proof of claim under 11 U.S.C. § 502. Even in cases where a trustee argues for the recharacterization of a debt to equity in connection with a fraudulent transfer action, it is pleaded as a separate cause of action in the complaint so that the defendant can respond and defend the allegations of recharacterization.103

In this case, the Trustee's Complaint does not contain a cause of action for recharacterization of Wardley's debt to equity. The Tenth Circuit considers thirteen factors in distinguishing true debt from camouflaged equity.104 Because the Trustee did not raise a claim for recharacterization in the complaint, Wardley has not had the opportunity to respond or otherwise defend as to these factors. The Trustee raised the issue of recharacterization for the first time in his response to Wardley's motion for summary judgment, which is procedurally problematic.105 At this point in the proceedings, it is simply too little, too late, and too prejudicial to Wardley to require him to respond and defend a claim for recharacterization.

b) The Operating Agreement Controls

Second, in determining the parties' intent and the legal effect of an unambiguous contract, a court should confine its analysis to the text of the contract.106 Only if the language at issue is reasonably susceptible to varying interpretations should the court look outside the contract's four-corners.107 In this case, the guaranty and capital account provisions of the Operating Agreement are clear and unambiguous as to their purpose, meaning, and execution.

For example, Article VI of the Operating Agreement titled "Contributions; Allocation of Profits and Losses; Distributions" consists of almost five pages of single-space text. This Article contains the following paragraphs:

Further, The Operating Agreement provides for member loans to ABC Club, and specifically references Wardley's prior and possibly future loans to the company.108 Paragraph 6.7 of the Operating Agreement details the basis for the Guaranty, the amount of the Guaranty, and the three options for satisfying the Guaranty: (1) from company profits; (2) from the Debtor directly if ABC Club failed to generate sufficient profits after twelve months; or (3) from any proceeds the Debtor was entitled to receive from the Judgment.109

The Court has reviewed these provisions in the Operating Agreement and finds them to be unambiguous as to how the parties would maintain or increase their capital accounts, and the allocations of profits and losses, including a detailed allocation of "distributable cash" as to Wardley and White.110 Further, there is nothing in the undisputed, or even disputed facts, suggesting that the creation, funding, and operation of ABC Club was anything less than a legitimate, if not overly optimistic, business enterprise that both parties anticipated would generate significant profits. In the confines of this motion for summary judgment, there is nothing to suggest fraud or bad faith in the execution or carrying out of the Operating Agreement.

Therefore, because the Operating Agreement is unambiguous, there is no basis to look outside its four corners to determine the rights and responsibilities of Wardley and White both as to their capital accounts and to the Guaranty.

c) Recharacterization of the Debt is Not Appropriate

Third, recharacterization of Wardley's loans to equity is not appropriate under these facts. The Trustee cites to In re Hedged-Investments Assocs.111 in support of his argument that the bankruptcy court should exercise its equitable powers to ignore the terms of the Operating Agreement and recharacterize Wardley's loans as capital contributions in order to prevail on his fraudulent transfer action. Hedged-Investments references the Tenth Circuit's previous case on recharacterization, In re Mid-Town Produce Terminal, Inc.112 The more recent Tenth Circuit case on recharacterization is In re Alternate Fuels, Inc.,113 which cites to both Hedged Investments and Mid-Town. The Court has reviewed these three Tenth Circuit cases and notes that none of them arose within the framework of a fraudulent transfer action. Rather, they involved a bankruptcy action to subordinate the claims of insiders to those of general creditors. As stated in the In re Alternate Fuels, Inc. case:

Further, the Tenth Circuit found that recharacterization does not eliminate a claim but only changes its priority of payment:

It is true that in the setting of a complex fraudulent transfer scheme, bankruptcy courts will collapse multiple transactions to focus on their substance over form.116 However, this is not such a case.

Here, the parties' transactions were simple and straightforward. Wardley was to provide the funding, and the Debtor was to provide the know-how to make ABC Club a success, with both parties anticipating sufficient profits to both repay Wardley's loans and to generate a significant return.117 To reallocate the risk of loss, and based on White's acknowledged benefit118 of receiving lucrative employment119 and a desired business opportunity through Wardley's funding of ABC Club,120 White agreed to guarantee the repayment of Wardley's loans. These facts do not support or justify an exercise of the Court's equitable powers to restructure the parties' business relationship in the way the Trustee would like it to be versus what the parties intended it to be. Therefore, the Court finds that Wardley's transfers to ABC Club were not capital contributions but "loans" for purposes of the Guaranty.

4. Debtor's Liability under the Guaranty

The next issue is whether the Guaranty created an antecedent debt; meaning, did Wardley have a legally cognizable, state-law claim against White for payment under the Guaranty.121

a) The Two Contingencies

The Trustee argues that the Guaranty contains two contingencies that had not occurred at the time of the transfers; thus, the Guaranty did not constitute an antecedent debt. The Trustee relies on the following language in the Operating Agreement:

As to the first alleged contingency, the Trustee argues that at worst there were no "commercial shipments" of the cards, and at best, some preliminary shipments occurred in May of 2011.123 Thus, the Trustee asserts that the Debtor was not liable on the Guaranty until May 2012 at the earliest. As to the second contingency, the Trustee correctly notes that ABC Club did not cease operations, and White never received an accounting of his liability under the Guaranty. The Trustee thus argues that the Guaranty was a contingent liability and not an antecedent debt; therefore, White received no value from the $750,000 transfer to Wardley. The Court disagrees that the Guaranty was a contingent liability, and even if it was, its satisfaction constituted reasonably equivalent value to White as the guarantor.

b) Guarantee of Payment vs. Guarantee of Collection

The Court finds that the nature of the Guaranty created immediate and direct liability in White without regard to the performance of ABC Club. The Guaranty provides: "This is an irrevocable and unconditional promises [sic] to pay and not a guarantee of the Company's performance" (emphasis added). This express language created an absolute guaranty of payment as opposed to a guaranty of collection.124

"[A] conditional guaranty, or guaranty of collection, is an obligation to pay or perform if payment or performance cannot be first reasonably obtained from the principal obligor."125 A "guaranty of payment" is an unconditional obligation "and the guaranteed party need not fix its losses by pursuing its remedies against the debtor or the security before proceeding directly against the guarantor."126 Further, "a guaranty of payment shifts much of the risk of delay or loss from the creditor to the guarantor by allowing the creditor to recover directly from the guarantor without exhausting the collateral or seeking recovery from the debtor."127

As a guarantor of payment, White was concurrently liable with ABC Club to repay the advances from Wardley, and Wardley was not required to first seek recovery from ABC Club. Therefore, White's liability under the Guaranty was not contingent on Wardley waiting a year to see if ABC Club would repay the loans through profits, or waiting for ABC Club to dissolve and provide White with an accounting. Further, as explained more fully below, Wardley was entitled to receive proceeds from the Lee's Summit Settlement in satisfaction of White's absolute guarantee of repayment of Wardley's loans to ABC Club.

c) Conditions vs. Covenants

The conditions in the Guaranty did not relieve White of his liability under the Guaranty. Utah law recognizes two contractual promises — covenants and conditions.128 A covenant consists of the mutual obligations between the parties; thus, a party's failure to perform a covenant gives rise to an action for breach of contract.129 On the other hand, a condition involves events not certain to occur and that are often dependent upon the performance of a third party.130

In this case, the Guaranty is a covenant based on mutual promises — Wardley would make loans to ABC Club and White would guarantee their repayment. As discussed below, Wardley's loans were to be repaid by ABC Club profits, by White personally, or from the Judgment proceeds. As to Wardley's promises, the Operating Agreement acknowledges "that Lynn Wardley has lent and may, in his discretion, lend cash" to ABC Club.131 Indeed, by the end of April 2011, Wardley had loaned at least $518,000 to ABC Club.132 As to White's promises, he assigned a partial interest in the Judgment to Wardley and directed that any proceeds from the Judgment be disbursed to Wardley in satisfaction of the Guaranty.133

The conditions in the Guaranty contemplated that a third entity, ABC Club, would generate sufficient profit to fully repay Wardley's loans, and thus White would not be required to pay them under the Guaranty. However, by giving the Guaranty, White assumed the risk that ABC Club would not generate sufficient profits to repay Wardley.134 This is consistent with the fact that the Operating Agreement employed White as an "executive" to oversee ABC Club's day-to-day operations.135 Thus, White was in the best position to effectuate the profitability of ABC Club. Nonetheless, this condition was not certain to occur, and its existence in the Guaranty did not relieve White of his unconditional obligation to repay the loans Wardley made to ABC Club.136

d) Secondary Basis for Payment under the Guaranty

In addition, the Court finds that the Guaranty created a secondary method for its satisfaction that was payable on demand and was not contingent on the profitability of ABC Club.137 Specifically, in the Guaranty White assigned his interest in any proceeds from the Judgment to Wardley, with such proceeds to be paid on demand:

By this language, White assigned his interest in the Judgment to Wardley to secure the Guaranty. Further, White directed his attorneys, upon demand, to distribute to Wardley such amount from the Judgment proceeds as to fully satisfy the Guaranty — and this is precisely what happened. On July 22, 2011, Lee's Summit wired $750,000 in proceeds to Wardley in full satisfaction of the Guaranty.139

Thus, the Court finds that White made an absolute and unconditional guaranty of repayment of Wardley's loans to ABC Club, and that the Guaranty constituted an antecedent debt on the date of the transfers to Wardley.

5. Calculation of Amount Owed Under the Guaranty

It is undisputed that between December 16, 2010 through July 8, 2011, Wardley conveyed $868,000 to ABC Club.140 Having found that Wardley's conveyances were indeed loans and that White had absolute liability under the Guaranty to ensure the repayment of such loans, the Court finds that the amount of such liability was $868,000; thus, White's liability on the Guaranty was the maximum of $750,000 as provided for in the Operating Agreement.

6. White Received Reasonably Equivalent Value When He Paid the Guaranty

Under both bankruptcy law and the UUFTA, value is given if the transfer results in the satisfaction of an antecedent debt.141 The Court finds that White received reasonably equivalent value from the $750,000 transfer to Wardley.

a) Payment on a Contingent Obligation, such as a Guaranty, is Value.

Payment on a contingent obligation, such as a guaranty, is value. COLLIER ON BANKRUPTCY summarizes the case law on the subject of guaranties and fraudulent transfers: "Payment of a pre-existing debt is value, and if the payment is dollar-for-dollar, full value is given. This is so even if the payment is on a contingent obligation, such as a guaranty.142

The Court has found that White's transfer of $750,000 to Wardley was in full satisfaction of his $750,000 liability on the Guaranty. As summarized in Cox v. Grube (In re Grube),143 White's payment in satisfaction of the Guaranty is dispositive of reasonably equivalent value: "A dollar for dollar credit against personal liability is determinative as to reasonably equivalent value."144

In further support of the Court's finding of reasonably equivalent value is that the transfer had no impact on White's net worth — even if he was insolvent: "The focus remains on the economic benefit conferred on the debtor and the overall effect of the benefit on the debtor's net worth position."145 The payments to Wardley had no effect, or a neutral effect, on White's net worth. His assets (his interest in the Judgment) and his liabilities (the Guaranty) both decreased by the same amount; thus, his net worth before the transfer was the same as after the transfer. Further, it makes no difference whether White was insolvent, even deeply insolvent, at the time of the transfer because it resulted in a dollar-for-dollar reduction in White's pool of debts at the time of the transfer.146

Finally, the Court notes that White was a direct beneficiary of Wardley's loans in that they were the only source of funding to pay White's salary that totaled $235,000. Further, Wardley's loans allowed the Debtor to pursue the ABC Club business opportunity that he anticipated would ultimately be worth "millions."147 While the parties' financial expectations for ABC Club were unrealized, the value to the Debtor for both giving and paying the Guaranty is determined at the time of the transfers, which is when the parties had high hopes for the profitability of ABC Club.148 Finally, there is nothing in the Complaint, the disputed facts, or the undisputed facts suggesting that ABC Club was a sham business operated for some ulterior, illegitimate purpose.149 The Court thus finds that the Debtor received reasonably equivalent value in exchange for the $750,000 transfer to Wardley under the ABC Guaranty.

VII. CONCLUSION

In conclusion, the Court grants and denies Wardley's Motion for Summary Judgment in part. Based upon the relevant undisputed facts, the Court finds a genuine dispute of material fact as to whether White was personally liable under the BayHill Note, and therefore, whether he received reasonably equivalent value for his transfer of funds to Wardley under the BayHill Note. Thus, Wardley's Motion for Summary Judgment is denied as to the BayHill Note.

The Court finds a genuine dispute of material fact as to whether the $78,000 in personal advances from Wardley to White were in fact loans which White was legally obligated to repay. Thus, the Court denies Wardley's Motion for Summary Judgment as to whether White received reasonably equivalent value in relation to the personal advances in the amount of $78,000.

The Court finds that the Trustee's Complaint does not seek the avoidance and recovery of the $600,000 transferred by White in connection with the Consolidated Note. Thus, the Trustee cannot now contest or pursue recovery of this transfer through his response to summary judgment.

As for White's ABC Club Guaranty, the Court assumes that the guaranty itself is not avoidable as a fraudulent transfer because that issue is not before the Court on summary judgment. The Court disagrees with the Trustee's argument that Wardley's advances to ABC Club should be recharacterized as capital contributions because: (1) the Trustee did not assert a separate cause of action for recharacterization in the Complaint; (2) the unambiguous terms of the Operating Agreement control; and (3) recharacterization of these advances as capital contributions is not appropriate under the facts.

The Court finds no genuine issue of material fact that White was personally liable under the Guaranty. White gave an absolute and unconditional guaranty of payment which created direct and immediate liability under the Guaranty. Wardley made loans to ABC Club in excess of the $750,000 Guaranty, and White was a primary beneficiary of Wardley's loans because they funded his $235,000 salary and gave him the chance to pursue a desired business opportunity. Finally, the Court finds that White received reasonably equivalent value in exchange for his payment of $750,000 to Wardley in that such transfer resulted in a dollar-for-dollar reduction of a valid, antecedent debt owed by White.

The Court will enter an Order consistent with the rulings set forth in this Memorandum Decision.