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In Re Edwards: Is An Attorney's Advice Fraudulent Intent?

Case AnalysisSheetul Hassan

In re Edwards, 537 B.R. 797 (Bankr. S.D. Tex. 2015). 

Opinion issued: Sept. 1, 2015. WestLaw Link.

Written by: Sheetul Hassan, Staff Member

Following the death of her father, the debtor and her siblings each inherited an interest in three properties: the San Jacinto property, the Terry Street house, and the Lot.[1] The debtor agreed to transfer her share of the San Jacinto property to her sister if her sister assumed the tax payments for the property, but no conveyance was recorded until several years later.[2] Additionally, the debtor exchanged her interest in the Terry Street house for full ownership of the Lot. Although the interests in the Lot were transferred and recorded, no conveyance of the Terry Street house was recorded.[3] After obtaining bankruptcy advice from legal counsel, the debtor recorded the transfer of the Terry Street house. [4] The debtor then filed for Chapter 7 bankruptcy.[5] The trustee sought to recover the value of the interest of the San Jacinto property as an avoidable preference and the interest in the Terry Street house as an avoidable fraudulent transfer.[6]

First, the debtor’s sister claimed the San Jacinto transfer was not preferential because the transfer took place upon an oral agreement—not upon the date of recording the deed.[7] The court found the debtor’s execution of the San Jacinto Deed to her sister was an avoidable preferential transfer.[8] The agreement was for the benefit of a creditor (the debtor’s sister) and for an antecedent debt.[9] Also, the recording fell within the preferential transfer time period because, under Texas law, the date used to determine when a real property transfer takes place is the date of recording.[10]  Because the transfer enabled the sister to receive more than she would under a Chapter 7 liquidation plan, the court found the trustee established a preferential transfer.[11]

Second, the debtor’s siblings claimed that the transfer of the Terry Street house deed was not constructively fraudulent because the debtor received a reasonably equivalent value in exchange of the transfer.[12] The court found that because the transfer of the debtor’s interest in the Terry Street house was to satisfy an agreement, the transfers had value, as a result, any fraudulent transfer claims failed.[13] Next, the court applied a factor test using badges of fraud to determine if the transfer constituted actual fraud, which requires the transfer to be performed with intent to “hinder, delay, or defraud” a creditor.[14] The court found no fraudulent intent and noted that “[a]cting upon an attorney’s advice does not per se constitute fraudulent intent[.]”[15] The court determined the debtor did not transfer either interest with constructive or actual fraud.[16]

Moving forward, practitioners should note that the date of recording is used when establishing a preferential transfer and that an attorney’s advice does not per se constitute fraudulent intent for fraudulent transfer claims.[17]


[1]Edwards v. Denson (In re Edwards), 537 B.R. 797, at 801 (Bankr. S.D. Tex. Sept. 1, 2015).

[2] Id.

[3] Id. at 802.

[4] Id. at 802, 808.

[5] Id. at 801.

[6] Id. The trustee sought to avoid the fraudulent transfer using Tex. Bus. & Com. Code. Ann. §§ 24.005, 24.006(a) (West 2009). Id. at 806.

[7] See In re Edwards, 537 B.R. at 804.

[8] 11 U.S.C. § 547 (2015); In re Edwards, 537 B.R. at 806. The court determined the debtor was insolvent at the time of transfer. Id. In order to avoid a fraudulent transfer, the trustee must establish the transfer was made while the debtor was insolvent, for an antecedent debt, and that the transfer allowed the creditor to receive more than it would if the transfer was not made or under Chapter 7 liquidation plan. 11 U.S.C. § 547 (2011).

[9] In re Edwards, 537 B.R. at 805-06.

[10] Id. at 805.

[11] Id.

[12] See 11 U.S.C. § 548 (2015); Tex. Bus. & Com. Code Ann. §§ 24.005, 24.006(a) (West 2009); In re Edwards, 537 B.R. at 807.

[13] In re Edwards, 537 B.R. at 807. 

[14] Id. at 807–08­ (listing badges of fraud to determine if a transfer was actual fraud under Tex. Bus. & Com. Code Ann. § 24.005(b) (West 2009)).

[15] Id. at 808.

[16] Id.

[17] Id. at 805, 808.