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Sixth Circuit Trims Bank's Good-Faith Defense to Fraudulent Transfer Claims

By Michael L. Cook
May 02, 2017

The issue of what constitutes a good-faith defense to a fraudulent transfer claim is a murky question that has produced a wide variety of reported decisions from appellate courts over the years. This issue has continued its serpentine course, but a recent Sixth Circuit opinion sheds some clear light on a complicated fact pattern. In this two-part article, we review the Sixth's Circuit's most recent decision in detail and offer some guidance on this thorny question.

Meoli v. Huntington Nat'l Bank

A defendant bank (Bank) in a fraudulent transfer suit “could not prove” its “good faith” defense for loan repayments it received after its “investigator discovered [the] fraudulent past” of the Ponzi scheme debtor's principal, but “failed to disclose that past to [the Bank's account] manager,” held the U.S. Court of Appeals for the Sixth Circuit on Feb. 8, 2017. Meoli v. Huntington Nat'l Bank, 2017 U.S. App. LEXIS 2248, *28 (6th Cir. Feb. 8, 2017). As for “earlier … loan repayments” made before the investigator's discovery, held the court, “the bankruptcy court erred” in rejecting the Bank's good-faith defense merely because the Bank had “inquiry notice of … fraud.” Id.

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