DeGiacomo v. Sacred Heart University, Inc., No. 17-1334 (1st Cir. 2019)Annotate this Case
The First Circuit reversed the judgment of the bankruptcy court granting summary judgment in favor of Sacred Heart University and allowing the university to retain tuition payments made by Steven and Lori Palladino for their adult child's college education, payments that were made while the Palladinos were legally insolvent, holding that none of the classes of transactions that confer value were present in this case.
The Palladinos paid $64,565 in tuition to Sacred Heart before pleading guilty to fraud in connection with operating a Ponzi scheme. The Palladinos and their closely held company later filed chapter 7 bankruptcy petitions. The bankruptcy trustee for the bankrtupcy estate filed a four-count adversary complaint against Sacred Heart seeking to claw back the Palladinos' tuition payments to Sacred Heart. The bankruptcy court granted summary judgment in Sacred Heart's favor on all counts of the complaint, including the constructive fraud claim. Specifically, the court found that the Palladinos paid their daughter's tuition because "they believed that a financially self-sufficient daughter offered them an economic benefit," which satisfied 11 U.S.C. 548(a)(1)(B)(I)'s reasonably equivalent value standard. The First Circuit reversed, holding the law did not allow the payments, which were not for value by insolvent creditors, to be clawed back by the trustee.
The court issued a subsequent related opinion or order on November 13, 2019.