In Re TransCare Corporation

• Court: Court of Appeals for the Second Circuit
• Decided: August 28, 2023
• Docket: 21-2547 21-2576
• Status: Published

Opinion

21-2547; 21-2576 In re TransCare Corporation

United States Court of Appeals For the Second Circuit

August Term 2022

Argued: December 16, 2022 Decided: August 28, 2023

Nos. 21-2547, 21-2576

IN RE: TRANSCARE CORPORATION,

Debtor.

*************************************

SALVATORE LAMONICA, AS CHAPTER 7 TRUSTEE OF THE JOINTLY-ADMINISTERED ESTATES OF TRANSCARE CORPORATION, ET AL.,

Plaintiff-Appellee,

SHAMEEKA IEN,

Plaintiff,

v.

LYNN TILTON,

Defendant-Appellant,

1 21-2547; 21-2576 In re TransCare Corporation

PATRIARCH PARTNERS AGENCY SERVICES, LLC, PATRIARCH PARTNERS, LLC, PATRIARCH PARTNERS MANAGEMENT GROUP, LLC, ARK II CLO 20011, LIMITED, ARK INVESTMENT PARTNERS II, L.P., LD INVESTMENTS, LLC, PATRIARCH PARTNERS II, LLC, PATRIARCH PARTNERS III, LLC, P ATRIARCH PARTNERS VIII, LLC, PATRIARCH PARTNERS XIV, LLC, PATRIARCH PARTNERS XV, LLC, TRANSCENDENCE TRANSIT, INC., TRANSCENDENCE TRANSIT II, INC.,

Defendants.

PATRIARCH PARTNERS AGENCY SERVICES, LLC, TRANSCENDENCE TRANSIT, INC., TRANSCENDENCE TRANSIT II, INC.,

Appellants,

SALVATORE LAMONICA, AS CHAPTER 7 TRUSTEE OF THE JOINTLY-ADMINISTERED ESTATES OF TRANSCARE CORPORATION, ET AL.,

Trustee-Appellee. *

Appeals from the United States District Court for the Southern District of New York Nos. 20-cv-6523 & 20-cv-6274, Lewis A. Kaplan, Judge.

* The Clerk of Court is respectfully directed to amend the captions accordingly. 2 21-2547; 21-2576 In re TransCare Corporation

Before: MENASHI, NATHAN, and MERRIAM, Circuit Judges.

Lynn Tilton was the sole director and indirect owner of TransCare Corp. When TransCare was on the brink of bankruptcy, Tilton created a plan to sell the profitable parts of the business to herself. She directed Patriarch Partners Agency Services, LLC, a company she controlled, to foreclose on the TransCare assets associated with its profitable business lines. Patriarch Partners Agency Services then sold those assets to two other companies that she created and controlled. What remained of TransCare filed for Chapter 7 bankruptcy. Both the bankruptcy court and the district court agreed that (1) Tilton had breached her fiduciary duties by engaging in a self-interested transaction that failed to meet the entire fairness standard, and (2) the foreclosure on TransCare’s assets was an actual fraudulent conveyance. The district court calculated that Tilton and her companies owed TransCare’s bankruptcy estate a combined total of $39.2 million in damages. We find no error in the determination of the bankruptcy and district courts that Tilton breached her fiduciary duties to TransCare and engaged in an actual fraudulent transfer. Tilton did not meet her burden to prove fair dealing or fair price with respect to the sale of the TransCare assets, and nearly every badge of fraud was present in the transfer. We also find no clear error in the damages award, which was based on the projected future earnings of the TransCare assets that Tilton had sold to herself. Accordingly, we AFFIRM. Judge Menashi dissents in part in a separate opinion. ________

MARK A. PERRY, Weil, Gotshal & Manges LLP, Washington, DC (Michael T. Mervis, Proskauer Rose LLP, New York, NY, Kellam M. Conover, Gibson Dunn & Crutcher LLP, Washington, DC, on the brief), for Appellants. CARTER G. PHILLIPS, Sidley Austin LLP, Washington, DC (Avery Samet, Amini LLC, New York, NY, William R. Levi, Aaron P.

3 21-2547; 21-2576 In re TransCare Corporation

Haviland, Sidley Austin LLP, Washington, DC, on the brief), for Appellees. ________ NATHAN, Circuit Judge:

This case arises from a transaction executed by Lynn Tilton, a private equity

investor and the sole director of TransCare Corporation. When TransCare was on

the verge of bankruptcy, Tilton hatched a plan to salvage the profitable parts of

the business and spin them off into a new company. She directed Patriarch

Partners Agency Services, LLC (PPAS), a company she controlled, to foreclose on

select TransCare assets associated with TransCare’s profitable business lines.

PPAS then sold those assets to two other companies that Tilton created and

controlled: Transcendence Transit, Inc. and Transcendence Transit II, Inc.

(collectively, Transcendence). What remained of TransCare filed for Chapter 7

bankruptcy.

However, Tilton’s plan fell apart when the new business was unable to get

off the ground. Transcendence shut down after only three days and its assets were

returned to the bankruptcy estate, where they were liquidated.

In the bankruptcy proceedings below, the bankruptcy court and the district

court agreed that (1) Tilton had breached her fiduciary duties to TransCare by

4 21-2547; 21-2576 In re TransCare Corporation

engaging in a self-interested transaction that failed to meet the entire fairness

standard, and (2) the foreclosure on TransCare’s assets was an actual fraudulent

conveyance. The district court calculated that Tilton, PPAS, and Transcendence

owed the bankruptcy estate a combined total of $39.2 million in damages, based

on the projected future earnings of the profitable TransCare assets that Tilton had

transferred to Transcendence. Tilton, PPAS, and Transcendence appeal the

judgments. For the reasons explained below, we AFFIRM.

BACKGROUND

I. Ownership and Debt Structure

TransCare, a Delaware corporation headquartered in New York, contracted

with hospitals and municipalities in the mid-Atlantic region to provide ambulance

and paratransit services. The company’s board consisted of a single member,

Lynn Tilton, who was also the indirect owner of about 61% of its equity. Two of

Tilton’s personal investment vehicles—Ark II CLO 2001-1, Ltd. (Ark II) and Ark

Investment Partners II, LP (AIP)—owned 55.7% and 5.6% of TransCare’s stock,

respectively. Credit Suisse owned and/or managed about 26% of TransCare, and

the remaining 12.7% was owned by various individuals and entities. As the sole

5 21-2547; 21-2576 In re TransCare Corporation

director, Tilton maintained ultimate control over all of TransCare’s significant

financial and operational decisions.

TransCare had two lines of credit that are relevant to this action. The parties

refer to these credit agreements as the “Asset-Backed Loan” and the “Term Loan.”

The Asset-Backed Loan was a revolving loan facility from Wells Fargo. The Term

Loan was a credit agreement between TransCare and several entities, including

(1) AIP, (2) the “Zohar Funds,” a group of three funds that were controlled by

Tilton but funded by outside investors, (3) Credit Suisse, and (4) First Dominion

Funding I (collectively, the Term Loan Lenders). PPAS acted as the administrative

agent on behalf of all the Term Loan Lenders, and Tilton was the sole manager and

indirect owner of PPAS.

Both the Term Loan and the Asset-Backed Loan were backed by blanket

liens on TransCare’s assets, but PPAS and Wells Fargo entered into an intercreditor

agreement granting the Term Loan Lenders “a first priority lien on TransCare’s

vehicles, certain other physical assets, capital stock of the subsidiaries, and

intellectual property,” and Wells Fargo “a first priority lien on all other assets . . . ,

including the accounts (such as accounts receivable) and general intangibles.”

6 21-2547; 21-2576 In re TransCare Corporation

Lamonica v. Tilton (In re TransCare Corp.), Nos. 20-cv-6274 & 20-cv-6523, 2021 WL

4459733, at *3 (S.D.N.Y. Sept. 29, 2021) (hereinafter Distr. Op.).

II. Financial Troubles

By the end of 2014, TransCare began to experience serious financial

problems that affected its ability to continue operating. Throughout the following

year, TransCare struggled to pay employees and vendors and “depended on

Tilton affiliates to cover shortfalls.” Ien v. TransCare Corp. (In re TransCare Corp.),

614 B.R. 187, 210 (Bankr. S.D.N.Y. 2020). On October 14, 2015, Wells Fargo issued

a notice of non-renewal and informed TransCare that the Asset-Backed Loan

would expire, with the outstanding balance of $13 million due by January 31, 2016.

At the time, TransCare also owed approximately $43 million on the Term Loan.

Thus, by mid-December 2015, “Tilton understood that Wells Fargo was not

going to stay in past January 31 absent a sale process.” Lamonica v. Tilton (In re

TransCare Corp.), No. 18-1021, 2020 WL 8021060, at *6 (Bankr. S.D.N.Y. July 6, 2020)

(hereinafter Bankr. Op.). As part of the sale process, a credit officer at Tilton’s

investment firm, Patriarch Partners, LLC (a separate legal entity from PPAS),

identified comparable acquisitions and public companies that were similar to

TransCare. The analysis found that the similar companies had been valued at

7 21-2547; 21-2576 In re TransCare Corporation

approximately eight to eleven times their annualized earnings before interest,

taxes, depreciation, and amortization (EBITDA).

Tilton also asked her team to prepare a 2016 budget that would convince

Wells Fargo to extend the Asset-Backed Loan while she looked for a potential

buyer. Wells Fargo acknowledged that a sale of TransCare would require bridge

financing to keep the company afloat until a deal was closed, but it conditioned its

extension of the Asset-Backed Loan on a requirement that Patriarch Partners, LLC

contribute to critical operating expenses. As part of the negotiations with Wells

Fargo, Tilton also agreed to retain Carl Marks Advisory Group LLC to serve as a

third-party financial advisor and to help with the budgeting process.

Throughout 2015, TransCare had received several offers from other

ambulance companies to acquire certain assets and contracts. In particular,

• In February 2015, National Express offered $15 to $18 million to buy TransCare’s paratransit services contract with the New York Metropolitan Transit Authority (MTA). • In March 2015, the Richmond County Ambulance Service (RCA) emailed Tilton seeking to purchase some or all of TransCare for up to eight times TransCare’s EBITDA. • In July 2015, RCA sent a follow-up email reiterating its interest in purchasing or operating TransCare. • Also in July 2015, National Express sent Glenn Leland, TransCare’s CEO, a Letter of Intent offering to purchase the MTA contract for $6 to $7 million and assume up to $2 million in liabilities.

8 21-2547; 21-2576 In re TransCare Corporation

• In December 2015, National Express contacted Leland again to reiterate that its offer to buy the contract was “still out there.” Bankr. Op. at *6. • Also in December 2015, another member of Tilton’s team informed her “that Leland had received unsolicited calls from several potential purchasers in the ambulance business including Falck, [American Medical Response], RCA, and Enhanced Equity.” Id. at *7.

However, Tilton never pursued any of these opportunities and prohibited her

employees from speaking to potential buyers. Leland testified that when he

informed Tilton about the February 2015 offer from National Express, he “was

called to Lynn Tilton’s office,” where “she came in and told me, ‘Don’t ever

[expletive] sell one of my companies.’” Joint App’x 273. When asked why she did

not consider these offers, Tilton explained that she wanted to “try to get the

company back” to “the $12 to $14 million dollars of EBITDA a year” that it had

historically earned so she could sell the company “at a price that would have

covered both Wells and the term loan lenders.” Id. at 679–80.

After the bridge financing was secured, TransCare’s managers worked to

determine how much capital TransCare would need to survive until a sale. On

January 27, 2016, Carl Marks produced a “2016 Plan Executive Summary”

concluding that TransCare was “operating at an absolute breaking point.” Joint

App’x 1680–81. It determined that Patriarch Partners would need to pledge over

$7.5 million to keep TransCare afloat, with $3.5 million needed in the next two 9 21-2547; 21-2576 In re TransCare Corporation

weeks. Id. at 1684. Tilton considered but ultimately rejected this plan because she

did not “want to keep funding into a black hole that cannot be filled.” Id. at 1668–

69. As of February 3, 2016, TransCare still had no agreement with Wells Fargo or

Credit Suisse for a new line of credit and was in default on the Term Loan.

Thus, by February 5, 2016, Tilton determined based on TransCare’s “rapidly

deteriorating condition” that the sale of the entire company was not feasible.

Bankr. Op. at *18. The bankruptcy court found that Tilton’s decisions up to this

point were made in good faith and protected by the business judgment rule, and

neither party has challenged this conclusion on appeal. See id.

III. The Tilton Plan

After further discussions with Carl Marks failed to produce a solution,

Tilton directed her staff to build a business model that could continue a version of

TransCare under a new company. The “Tilton Plan” involved splitting TransCare

into two entities, which were referred to for planning purposes as “OldCo” and

“NewCo.” PPAS, as the agent acting on behalf of the Term Loan Lenders, would

foreclose on part of the Term Loan Lenders’ priority collateral; that collateral

would then be transferred to NewCo. The plan was for NewCo to operate the

most profitable divisions of TransCare as a going concern, while the remainder of

10 21-2547; 21-2576 In re TransCare Corporation

TransCare—aka OldCo—would wind down for 60 to 90 days and then file for

bankruptcy. Tilton thus created two new Delaware corporations that would serve

as “NewCo”: Transcendence Transit, Inc. and Transcendence Transit II, Inc.

(collectively, Transcendence).

Tilton also procured a new source of financing to support TransCare while

the Plan was being implemented. Ark II, her personal investment fund, extended

a $6.5 million loan to TransCare that was secured by a blanket lien on TransCare’s

assets. Although Tilton’s team “had not received Credit Suisse’s consent to

subordinate its lien in connection with the Term Loan, Tilton signed an

intercreditor agreement on behalf of PPAS . . . that granted Ark II structural and

payment priority over the Term Loan Lenders, including Credit Suisse.” Distr.

Op. at *5. Despite already having subordinated Credit Suisse’s position, Tilton

directed her team to send an email to Credit Suisse “warning that TransCare was

going to be forced to file for bankruptcy because Credit Suisse would not agree to

subordinate its Term Loan position.” Id.; see also Joint App’x 432–34. “Credit

Suisse indisputably was not informed about the planned foreclosure” on the Term

Loan Priority Collateral. Distr. Op. at *5.

11 21-2547; 21-2576 In re TransCare Corporation

Once the Plan was set, Tilton instructed her team to contact insurance

brokers. In one email explaining Transcendence’s business model to an insurance

broker, Tilton stated:

[T]here is a smaller, less risky transit business that we would like to continue in a new company. This would include our NY Transit business [providing paratransit services to the MTA] and our suburban ambulance businesses in Hudson Valley, Pittsburgh Pennsylvania and Maryland. ... The models show that this business in 2016 would [have] approximately . . . $4mm of EBITDA and would grow with the additional transit business under the contract to . . . $7mm of EBITDA in 2017. It is because this new business makes sense that I would be providing all the new working capital for this business myself, personally.

Joint App’x 1438. A “Transcendence Go Forward Model” prepared by Tilton’s

team assumed that Transcendence would operate six divisions of TransCare:

paratransit, Pittsburgh, Hudson Valley, Maryland, Westchester, and Bronx

911/Montefiore 911. Id. at 2012–13.

On February 24, 2016, after Transcendence had obtained insurance, the

Tilton Plan was put into motion. Shortly after midnight, Tilton authorized

foreclosure on the “Subject Collateral,” which included all of TransCare’s personal

property (including servers and related data), three contracts, and the stock of

12 21-2547; 21-2576 In re TransCare Corporation

three subsidiaries: TransCare Pennsylvania, Inc., TC Hudson Valley Ambulance

Corp., and TC Ambulance Corp. Joint App’x 1479. Tilton’s team then directed

PPAS to accept the Subject Collateral in satisfaction of $10 million out of the $43

million balance on the Term Loan.

Tilton had arrived at a purchase price of $10 million based on the December

2015 book value of the six divisions that NewCo would operate under the

Transcendence Go Forward Model. However, before the foreclosure took place

TransCare lost several valuable contracts with Bronx Lebanon, Montefiore

Hospital, and the University of Maryland. As a result, Tilton decided not to

purchase the Bronx911/Montefiore911, Westchester, and Maryland operations.

Even though this drastically lowered the book value of the Subject Collateral,

Tilton did not adjust the $10 million purchase price. Her team provided an

updated financial model based on these reductions that projected a $4 million

annualized EBITDA.

That same morning—February 24, 2016—PPAS transferred the Subject

Collateral to Transcendence in exchange for $10 million. Though Transcendence

never issued any equity, Tilton testified at trial that it was her intent for Ark II to

own 55% of Transcendence (the same amount it owned in TransCare) and to give

13 21-2547; 21-2576 In re TransCare Corporation

the other Term Loan Lenders the remaining 45%. See id. at 770–73; see also Distr.

Op. at *7. Later that day, TransCare and its remaining subsidiaries filed for

Chapter 7 bankruptcy.

The Tilton Plan began to encounter obstacles the very next day. After

Salvatore LaMonica was appointed as the Trustee for the TransCare estate, a

representative from PPAS informed the Trustee that PPAS had foreclosed on all of

TransCare’s physical assets, including ambulances that were still on the road.

However, the Trustee still owned the Certificates of Need (CONs) that were

required to operate the ambulances. The PPAS representative informed the Trustee

that TransCare could continue to operate the ambulances as long as the Trustee

reached an agreement with Tilton and Transcendence.

But that was not the end of the Tilton Plan’s problems. TransCare had $1.2

million in payroll obligations scheduled for the next day, and it was $200,000 short.

The Trustee made clear that he would not agree to operate TransCare unless he

could pay its employees, but neither Wells Fargo nor the Patriarch Entities were

willing to provide any more money to close this shortfall.

The final nail in the coffin came the following day, when the Trustee visited

TransCare’s corporate headquarters and found the president of Transcendence

14 21-2547; 21-2576 In re TransCare Corporation

attempting to take possession of a computer server that Transcendence needed to

operate. The Trustee refused to surrender the server because it contained “all of

[TransCare’s] books and records.” Joint App’x 611. That evening, Tilton

concluded that Transcendence was a lost cause. She instructed the company to

cease all operations and issued a notice of termination to all of its employees. On

March 10, PPAS and Transcendence transferred the Subject Collateral back to the

Trustee. The collateral was liquidated, and its sale yielded $1.2 million for the

TransCare estate.

IV. Procedural History

In February 2018, the Trustee initiated proceedings against Tilton and her

companies in the Bankruptcy Court for the Southern District of New York. The

Trustee brought (inter alia) a fraudulent conveyance claim against PPAS and

Transcendence (referred to by the parties collectively as the Patriarch Entities), and

a breach-of-fiduciary-duties claim against Tilton. After a six-day bench trial, the

bankruptcy court (Bernstein, J.) issued an exhaustive 100-page “Findings of Fact

and Conclusions of Law” that concluded that the Patriarch Entities had engaged

in an actual fraudulent conveyance as defined by the bankruptcy code. The

15 21-2547; 21-2576 In re TransCare Corporation

bankruptcy court also recommended finding that Tilton had violated her fiduciary

duties of loyalty and good faith.

Tilton and the Patriarch Entities filed objections to the bankruptcy court’s

recommendations and appealed the bankruptcy court’s decisions to the district

court. In September 2021, the district court (Kaplan, J.) issued an opinion that (1)

upheld the bankruptcy court’s liability determination as to the fraudulent

conveyance claim against the Patriarch Entities, and (2) adopted its

recommendation that Tilton be found liable for breaching her fiduciary duty to

TransCare.

The bankruptcy court and the district court calculated the parallel damages

owed to the TransCare estate by looking to the lost going-concern value of the

divisions that were part of the Subject Collateral. Once the bankruptcy court

concluded that the Patriarch Entities were liable for the fraudulent transfer, it

calculated the damages owed to the TransCare estate by using the February 2016

financial projections, which forecasted an annualized EBITDA of $4 million. The

bankruptcy court also looked to the December 2015 analysis of comparable

companies to arrive at an average “EBITDA multiple” of 10.1x. Bankr. Op. at *25;

see also id. at *31. Using these estimates, the bankruptcy court calculated the lost

16 21-2547; 21-2576 In re TransCare Corporation

going-concern value to be $40.4 million. It then subtracted the liquidation value

of the Subject Collateral ($1.2 million) to arrive at a damages award of $39.2

million. Id. at *31–32.

The district court took a similar approach to calculating Tilton’s liability for

breaching her fiduciary duty. The court used the same valuation method to arrive

at the $39.2 million figure but further subtracted another $1 million to account for

the estimated “buyer capital investment,” or the amount of money that a buyer

would have to invest for the Subject Collateral to succeed as a going concern. Distr.

Op. at *16; see also id. at *15. Thus, the district court concluded that Tilton owed

the bankruptcy estate $38.2 million for the breach of her fiduciary duties, and the

Patriarch Entities owed $39.2 million for the fraudulent transfer. Id. at *16, *19.

Because these are parallel theories of liability with respect to the same injury, the

district court limited the Trustee to only a single satisfaction. Id. at *20.

Tilton and the Patriarch Entities appealed.

STANDARD OF REVIEW

The Trustee’s actual-fraudulent-conveyance claim was a “core” bankruptcy

proceeding brought under the Bankruptcy Code and New York law. See U.S. Lines

v. Am. Steamship Owners Mut. Prot. & Indem. Ass’n, Inc. (In re U.S. Lines, Inc.), 197

17 21-2547; 21-2576 In re TransCare Corporation

F.3d 631, 636 (2d Cir. 1999). In such cases, “we review the bankruptcy court

decision independently, accepting its factual findings unless clearly erroneous but

reviewing its conclusions of law de novo.” Midland Cogeneration Venture Ltd. P’Ship

v. Enron Corp. (In re Enron Corp.), 419 F.3d 115, 124 (2d Cir. 2005).

The Trustee’s fiduciary breach claim was a “non-core” bankruptcy

proceeding. With respect to non-core claims, the bankruptcy court issues

proposed findings of fact and conclusions of law that are reviewed de novo by the

district court. See In re U.S. Lines, Inc., 197 F.3d at 636. On appeal, we review the

district court’s findings of fact for clear error and its conclusions of law de novo.

See Harris Tr. & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 18, 26 (2d Cir.

2002).

DISCUSSION

I. Liability

On appeal, Tilton challenges the district court’s liability conclusion that she

had breached her fiduciary duties by executing the Tilton Plan, and the Patriarch

Entities challenge the bankruptcy court’s liability conclusion that the Tilton Plan

was an actual fraudulent transfer. We address each of these objections in turn.

A. Breach of Fiduciary Duties

18 21-2547; 21-2576 In re TransCare Corporation

Tilton argues that her sale of the Subject Collateral to herself did not breach

her fiduciary duties. Because TransCare and its subsidiaries were incorporated in

Delaware, the breach of fiduciary duty claim against Tilton is governed by

Delaware law. Hausman v. Buckley, 299 F.2d 696, 702–03 (2d Cir. 1962).

When a controlling shareholder engages in a self-dealing transaction

without approval by the company’s independent board, the transaction

constitutes a breach of the shareholder’s fiduciary duties unless it satisfies

Delaware’s “entire fairness” standard. Weinberger v. UOP, Inc., 457 A.2d 701, 710

(Del. 1983). The entire fairness standard is “Delaware’s most onerous standard

and requires that the defendant prove that the transaction was the product of both

fair dealing and fair price.” Burtch v. Opus, LLC (In re Opus E., LLC), 528 B.R. 30, 66

(Bankr. D. Del. 2015) (emphases added). The entire fairness standard is holistic

and unitary, which means that the fairness of the process can affect the fairness of

the price and vice versa. See Kahn v. Tremont Corp., 694 A.2d 422, 432 (Del. 1997).

Tilton does not dispute that the foreclosure and the sale of the Subject

Collateral was a self-interested transaction. Instead, she argues that the

transaction met the entire fairness standard because it was a “product of both fair

19 21-2547; 21-2576 In re TransCare Corporation

dealing and fair price.” In re Opus E., LLC, 528 B.R. at 66. We conclude that Tilton

has failed to satisfy either prong of the entire fairness standard.

1. Fair Dealing

Fair dealing “embraces questions of when the transaction was timed, how it

was initiated, structured, negotiated, disclosed to the directors, and how the

approvals of the directors and the stockholders were obtained.” Weinberger, 457

A.2d at 711. Fair dealing typically requires procedural protections such as

appointing an independent special committee to assess the transaction or

obtaining the consent of disinterested stockholders. See, e.g., Reis v. Hazelett Strip-

Casting Corp., 28 A.3d 442, 464 (Del. Ch. 2011) (finding a violation of fair dealing

where “[p]rocedural protections were not implemented, and no one bargained for

the minority”); Strassburger v. Earley, 752 A.2d 557, 576–77 (Del. Ch. 2000) (finding

an absence of fair dealing because the negotiating and decision making processes

lacked “any independent representation of the interests of [the corporation’s]

minority public stockholders”).

We agree with the courts below that “‘[t]here was nothing fair about the

process through which Tilton effectuated’ the foreclosure and sale of the Subject

Collateral to Transcendence.” Distr. Op. at *9 (quoting Bankr. Op. at *20). This

20 21-2547; 21-2576 In re TransCare Corporation

legal conclusion is reviewed de novo, but the underlying factual findings are

reviewed for clear error. The district court found that Tilton “presented no

evidence of true arms-length bargaining designed to protect the interests of the

company and/or the minority shareholders,” engaged in “no review by a

disinterested party, independent director, or independent financial advisor,” and

“presented no evidence that she considered any alternative other than selling the

Subject Collateral . . . to herself.” Id. Tilton does not demonstrate that any of these

findings were clear error.

Tilton claims she engaged in fair dealing because (1) she retained Carl

Marks as independent consultants to facilitate the sale of TransCare and followed

several of its recommendations; (2) she kept “essential stakeholders” (namely,

Wells Fargo) apprised of her decisions; (3) she intended to give the Term Loan

Lenders approximately 45% of Transcendence’s equity; and (4) after she decided

bankruptcy was inevitable in February 2016, there was no time or reason to

consider alternatives to the Tilton Plan, since no third party would have been

willing to buy the Subject Collateral in the relevant time frame. Appellant’s Br.

47–49. However, each of these objections misses the mark.

21 21-2547; 21-2576 In re TransCare Corporation

First, Tilton’s retention of Carl Marks is irrelevant to the fair dealing

analysis. “Carl Marks indisputably was not hired to find a buyer or investor.”

Distr. Op. at *9 n.81 (cleaned up). The firm was instead hired to prepare a budget

that would help TransCare obtain bridge financing from Wells Fargo until Tilton

found a third-party buyer. Joint App’x 307. Thus, the question of whether Tilton

paid heed to Carl Marks’ budgetary advice has no bearing on whether she engaged

in fair dealing.

Second, Tilton cannot demonstrate that she protected disinterested

stakeholders by pointing to her communications with Wells Fargo. After all,

“Credit Suisse—the largest minority shareholder—not only apparently was left in

the dark throughout the process, but Tilton actively misled them about whether

and how the wind-down of OldCo was being financed.” Distr. Op. at *9. Tilton

argues that her deception of Credit Suisse is “irrelevant because foreclosure of the

Subject Collateral did not require Credit Suisse’s consent.” Appellant’s Br. 50. But

the very purpose of the fair dealing standard is to protect minority shareholders

who are, by definition, not needed to approve a transaction. See In re LNR Prop.

Corp. S’holders Litig., 896 A.2d 169, 176 (Del. Ch. 2005). Accepting Tilton’s

argument would create an exception to fair dealing that would swallow the rule.

22 21-2547; 21-2576 In re TransCare Corporation

Third, Tilton’s purported intent to give the Term Loan Lenders a 45% stake

in Transcendence is neither dispositive in a fair dealing analysis nor clearly

supported by the record. Even if Tilton did intend to give the Term Loan Lenders

a stake in Transcendence at a later time, that would have little bearing on the

procedural fairness of the transaction, because the bargaining process was still

devoid of any opportunity for the independent shareholders to advocate for

themselves. Moreover, it is not clear that the Term Loan Lenders would even have

received this stake. The district court found that “there is no contemporaneous

evidence of [Tilton’s intent] other than a draft spreadsheet, apparently maintained

internally by Patriarch Partners,” and concluded that “Tilton’s self-serving

testimony that she would have given them a stake in [Transcendence] is not

persuasive.” Distr. Op. at *9 n.80. Based on the record before us, we cannot

conclude that the court’s findings were clearly erroneous. Even the members of

Tilton’s inner circle did not know of her purported intent to share Transcendence’s

equity when they implemented the Tilton Plan. See Joint App’x 438–39, 515–17.

Tilton’s fourth and final argument for fair dealing is her strongest, but it too

is unavailing. She contends that the district court erred “by faulting [her] for not

undertaking a third-party sale process that was . . . infeasible due to TransCare’s

23 21-2547; 21-2576 In re TransCare Corporation

daily unravelling and lack of any committed funding,” Reply Br. 21, and claims

that “no third party would have purchased TransCare’s debt-saddled lines [in

February 2016] without up-to-date financial statements or due diligence,”

Appellant’s Br. 50.

While it is certainly true that TransCare was in bad shape in February 2016,

it does not follow that the unusual, self-dealing process Tilton undertook was the

only viable pathway. Both the district court and the bankruptcy court

acknowledged that “TransCare was rapidly declining and time was running out.”

Bankr. Op. at *19; see also Distr. Op. at *10. Nevertheless, the district court found

that Tilton could have explored other pathways for a sale of the Subject Collateral.

For example, “a strategic third party [may] have been willing to buy certain of

[TransCare’s] more profitable and less risky business lines at that time, even if such

a transaction called for a condensed timeline and/or minimal due diligence.”

Distr. Op. at *10. (emphasis added) (internal quotation marks omitted).

Tilton claims that this would not have been feasible given that “every

TransCare division was either a borrower or guarantor of [TransCare’s] debt, and

the lenders’ blanket liens applied to each division’s assets.” Reply Br. 18. But this

argument “ignores the fact that Tilton sold the Subject Collateral free and clear of

24 21-2547; 21-2576 In re TransCare Corporation

any liens to herself without the consent of anyone by causing PPAS to foreclose on it

and subsequently transfer it to Transcendence.” Distr. Op. at *10. Tilton’s own

actions belie her argument that these profitable business lines were too “debt-

saddled” to be saleable to a third party.

Tilton also argues that a third-party sale would have been impossible

because “[t]he only third party interested enough to send a non-binding letter of

intent expressly conditioned any offer on satisfactory due diligence.” Appellant’s

Br. 41 (citing Joint App’x 1205). But it bears emphasizing that at no point did Tilton

even try to solicit any other offer from a third party. In fact, she forbade her staff

from pursuing any sales. Tilton points to a single, unsolicited opening offer as

conclusive proof that nobody would have been willing to buy the Subject

Collateral on a compressed timeframe with less due diligence. This evidence is

not sufficient to demonstrate that the district court’s factual findings were clear

error. Tilton cites Oberly v. Kirby, 592 A.2d 445, 470–71 (Del. 1991), to support her

argument that she was not required to explore alternative transactions with

“obvious drawbacks.” Appellant’s Br. 39. However, that case found that a failure

to explore alternative possibilities was not probative of unfair dealing because the

25 21-2547; 21-2576 In re TransCare Corporation

negotiations at issue were “lengthy, vigorous, and arm’s length.” Oberly, 592 A.2d,

at 470. No such procedural protections existed here.

Tilton’s arguments ultimately amount to a contention that she had only two

options available to her in February 2016: liquidation or the Tilton Plan. She asks

us to conclude that her willingness to invest $10 million of her own money in

acquiring Transcendence tells us nothing about whether a third party would have

also been willing to acquire TransCare’s profitable assets. However, Delaware

courts have observed that “the contemporaneous views of financial professionals

who make investment decisions with real money” are an “informative source of

probative evidence” because “people who must back their beliefs with their purses

are more likely to assess the value of the judgment accurately than are people who

simply seek to make an argument.” In re Appraisal of Dole Food Co., Inc., 114 A.3d

541, 557–58 (Del. Ch. 2014) (cleaned up). The district court rejected Tilton’s

characterization of TransCare’s sales prospects, and we see no reason to overturn

its finding as clearly erroneous.

2. Fair Price

The fair price aspect of an entire fairness analysis requires the proponent of

a self-dealing transaction to demonstrate that “the price offered was the highest

26 21-2547; 21-2576 In re TransCare Corporation

value reasonably available under the circumstances.” Cinerama, Inc. v. Technicolor,

Inc., 663 A.2d 1156, 1163 (Del. 1995) (citation omitted). When determining whether

a seller received a fair price, “an initial decision to be made is whether to value the

assets on a going concern basis or a liquidation basis.” Am. Classic Voyages Co. v.

JP Morgan Chase Bank (In re Am. Classic Voyages Co.), 367 B.R. 500, 508 (Bankr. D.

Del. 2007). Going-concern value is defined as “[t]he value of a commercial

enterprise’s assets . . . as an active business with future earning power,” and

liquidation value is “[t]he value . . . of an asset when it is sold in liquidation.”

Value, Black’s Law Dictionary (11th ed. 2019). “If liquidation in bankruptcy was

not ‘clearly imminent’ on the transfer date, then the entity should be valued as a

going concern.” Am. Classic Voyages, 367 B.R. at 508 (quoting Travelers Int’l AG v.

Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 134 F.3d 188, 193 (3d Cir.

1998)).

Tilton did not use either of these valuation methodologies to arrive at her

$10 million purchase price for the Subject Collateral; instead, she relied on the book

value of TransCare’s assets to arrive at her estimate. “Book value tends to

undervalue a business as a going concern because it does not fully account for

intangible value attributable to the operations.” Reis, 28 A.3d at 476.

27 21-2547; 21-2576 In re TransCare Corporation

Tilton does not contend that her use of book value was appropriate here, but

she argues that it was error for the district court to compare the sale price of $10

million to the going concern value of the Subject Collateral instead of the liquidation

value. Patriarch Partners’ internal projections estimated that the Subject Collateral

could generate an EBITDA of $4 million annually (which, as discussed infra at Part

II, leads to a going concern valuation well above $10 million). But because

TransCare was on its deathbed by February 2016, Tilton contends that the court

should have used liquidation value as the yardstick for its fair price analysis. She

claims $10 million was a fair price for the Subject Collateral because it was more

than eight times the liquidation value of $1.2 million.

Once again, this argument turns on a factual question: whether the Subject

Collateral had value as a going concern as of February 2016. It was not clear error

for the district court to conclude that it did. Although the parties agree that

TransCare as a whole was on its deathbed, that does not mean that the most

profitable divisions within TransCare were in the same position. Those divisions,

not TransCare as a whole, were the subject of the transaction and therefore of the

courts’ fair price analysis. Tilton herself admitted that the Subject Collateral had

28 21-2547; 21-2576 In re TransCare Corporation

going-concern value when she emailed an insurer and communicated her intent

to operate those divisions “in a new company.” Joint App’x 1438.

Nevertheless, Tilton cites the New Haven Inclusion Cases for the proposition

that creditors cannot “treat [a company] as a liquidating enterprise with respect to

certain items and as an operating [business] with respect to others, depending on

which approach happens to yield the higher value.” 399 U.S. 392, 482 (1970). In

that decision, the Supreme Court rejected a claim by bondholders that “Penn

Central should pay an added amount to reflect the going-concern value of the

[company]. This sum, it is stressed, would be calculated, not as an alternative to

liquidation value, but as a supplement to it.” Id. at 481 (emphases added) (internal

quotation marks omitted). A footnote goes on to say that two of the cases the

bondholders relied upon were inapposite, because “[i]n neither of these cases did

the New York courts require the taking authorities to pay both an operating and a

liquidating value.” Id. at 483 n.80 (emphasis added).

Thus, when read in context, the New Haven Inclusion Cases stand for the

relatively narrow proposition that stakeholders are not entitled to collect both

liquidation value and going concern value for a company’s assets. Here, the

Trustee argues that going concern value, not liquidation value, is the proper

29 21-2547; 21-2576 In re TransCare Corporation

measure of the Subject Collateral’s value. That argument is not foreclosed by New

Haven.

Tilton also argues that the Subject Collateral could not have had going-

concern value to anyone other than herself by February 2016. See Reply Br. 13

(“Unlike any third party, Tilton needed no financial statements or due diligence.”).

She essentially repackages her claim that her willingness to buy the Subject

Collateral for $10 million says nothing about its value to a third party. But as the

district court noted, Tilton has not met her burden to prove this claim because

“[h]er outright refusal to consider the possibility of selling any of TransCare’s

business lines undermined any chance that the company had at a third-party sale.”

Distr. Op. at *11. In other words, Tilton’s failure to implement a fair process

undermines her ability to demonstrate that she had obtained a fair price and

renders her argument “conclusory and circular.” Id; see also S. Muoio & Co. LLC v.

Hallmark Ent. Invs. Co., No. 4729-cc, 2011 WL 863007, at *16 (Del. Ch. Mar. 9, 2011)

(“[T]he fair price inquiry has most salience when the controller has established a

process that simulates arms-length bargaining, supported by appropriate

procedural protections.” (cleaned up)), aff’d, 35 A.3d 419 (Del. 2011). Under the

entire fairness standard, the burden rests on Tilton to show “no better

30 21-2547; 21-2576 In re TransCare Corporation

alternatives.” In re Latam Airlines Grp. S.A., 620 B.R. 722, 791 (Bankr. S.D.N.Y. 2020)

(relying on Delaware law). Tilton cannot meet that burden because she failed to

consider any pathway that she did not fully control.

For these reasons, the district court did not err in concluding that Tilton had

failed to demonstrate fair dealing or fair price. We therefore affirm the court’s

conclusion that Tilton breached her fiduciary duties to TransCare when she

executed the Tilton Plan.

B. Fraudulent Conveyance

The bankruptcy court concluded that the foreclosure and sale of the Subject

Collateral constituted an actual fraudulent conveyance under federal and New

York law. Under 11 U.S.C. § 548(a)(1)(A) and N.Y. Debt. & Cred. L. § 276, “a

bankruptcy trustee [may] recover fraudulent transfers . . . made with actual intent

to hinder, delay, or defraud creditors.” Kirschner v. Large S’holders (In re Trib. Co.

Fraudulent Conv. Litig.), 10 F.4th 147, 159 (2d Cir. 2021) (cleaned up), cert. denied sub

nom. Kirschner v. FitzSimons, 142 S. Ct. 1128 (2022); see also Sharp Int’l Corp. v. State

St. Bank & Tr. Co. (In re Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir. 2005). “[A]n intent

to hinder or delay is adequate even if it be not an intent to defraud.” In re Condon,

198 F. 947, 950 (S.D.N.Y. 1912) (Hand, J.), aff’d, 209 F. 800 (2d Cir. 1913).

31 21-2547; 21-2576 In re TransCare Corporation

The parties do not dispute that the foreclosure was a transfer of TransCare’s

property, or that Tilton’s subjective intent can be imputed to TransCare. Thus, the

key question in determining liability is whether the Trustee met his burden to

prove Tilton’s scienter.

Because “[a] transferor rarely admits her own fraudulent intent,” Bankr. Op.

at *30, courts look to the following “badges of fraud” to ascertain an intent to

hinder, delay, or defraud:

(1) the lack or inadequacy of consideration; (2) the family, friendship, or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and (6) the general chronology of the events and transactions under inquiry.

Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582–83 (2d Cir. 1983). Fraudulent

intent can also be inferred from the “secrecy, haste, or unusualness of the

transaction,” HBE Leasing Corp. v. Frank, 48 F.3d 623, 639 (2d Cir. 1995), or “the

concealment of facts and false pretenses by the transferor.” In re Trib., 10 F.4th at

32 21-2547; 21-2576 In re TransCare Corporation

160 (internal quotation marks omitted). “While the presence or absence of one

badge of fraud is not conclusive,” “the confluence of several can constitute

conclusive evidence of an actual intent to defraud, absent ‘significantly clear’

evidence of a legitimate supervening purpose.” Kirschner v. Fitzsimons (In re Trib.

Co. Fraudulent Conv. Litig.), No. 12-cv-2652, 2017 WL 82391, at *13 (S.D.N.Y. Jan. 6,

2017) (cleaned up), aff’d, 10 F.4th 147 (2d Cir. 2021).

The bankruptcy court concluded that “[v]irtually all of the badges of fraud

identified [in the case law] are present in this case[,] providing strong

circumstantial evidence of Tilton’s fraudulent intent.” Bankr. Op. at *30. We

agree. As the prior sections have already established, Tilton: failed to demonstrate

that $10 million was a fair price for the Subject Collateral; sold the Collateral to

herself; maintained control of the Collateral at all times in the transaction; retained

the most valuable parts of her business, free and clear of any liens; executed all of

the transfers after the onset of financial difficulties; conducted the entire

transaction hastily; and kept key stakeholders in the dark.

The Patriarch Entities do not dispute that these badges were present, but

they make two other arguments for reversal. As a threshold matter, they claim the

district court erred in reviewing the bankruptcy court’s fraudulent-intent

33 21-2547; 21-2576 In re TransCare Corporation

determination for clear error, when it should have been reviewed de novo. Next,

they argue that the lower courts ignored evidence of Tilton’s intent to benefit

creditors and save jobs. The Patriarch Entities also ask us to adopt a two-step test

that would allow them to rebut the presumption of fraudulent intent by

establishing a legitimate supervening purpose. We address these arguments in

turn.

The Patriarch Entities begin by citing United States v. McCombs for the

proposition that a reviewing court should review “the [lower] court’s ultimate

conclusion that the conveyance was fraudulent under section 276 de novo as an

issue involving the application of law to fact.” 30 F.3d 310, 328 (2d Cir. 1994).

However, McCombs is not on all fours, and a closer look at the decision actually

belies their assertion. In McCombs we said: “Were the fraudulent conveyance

inquiry merely a battle between the ‘badges’ on one hand and inferences of [the

transferor’s] nonfraudulent motivation on the other, we would be reluctant to

disturb the [trial] judge’s finding of actual fraudulent intent.” Id. But in McCombs,

the trial judge’s finding of fraudulent intent was premised on a finding that “was

flawed both legally and factually.” Id. (emphases added). Thus, McCombs suggests

34 21-2547; 21-2576 In re TransCare Corporation

that a finding of fraudulent intent is reviewed for clear error, unless that finding is

premised on a legal error.

This reading is consistent with our approach in the cases that followed

McCombs. See, e.g., The Cadle Co. v. Smith (In re Smith), 321 F. App’x 32, 32 (2d Cir.

2009) (summary order) (“The question of whether Debtor acted with intent to

hinder or defraud his creditors is a question of fact.”); United States v. Evseroff, 528

F. App’x 75, 77 (2d Cir. 2013) (summary order) (reviewing “de novo the district

court’s determination that Evseroff’s transfers to the Trust were actually

fraudulent,” but reviewing the “factual findings underpinning those legal

determinations” for “clear error”). It is also consistent with the decisions of our

sister circuits. See, e.g., Harman v. First Am. Bank of Md. (In re Jeffrey Bigelow Design

Grp., Inc.), 956 F.2d 479, 481 (4th Cir. 1992) (“For a finding of fraudulent intent in

an actual fraudulent transfer, a reviewing court must apply a clearly erroneous

standard.”); Wiggains v. Reed (In re Wiggains), 848 F.3d 655, 660–61 (5th Cir. 2017)

(same); Brown v. Third Nat’l Bank (In re Sherman), 67 F.3d 1348, 1353 (8th Cir. 1995)

(same); Acequia, Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 805 (9th Cir. 1994)

(same). Therefore, we conclude that the district court was correct to review the

bankruptcy court’s finding of fraudulent intent for clear error.

35 21-2547; 21-2576 In re TransCare Corporation

Applying the clear error standard of review, we conclude that the evidence

of Tilton’s good faith is too weak to reverse the bankruptcy court’s determination

that she acted with fraudulent intent.

To start, the Patriarch Entities urge us to adopt a formal two-step inquiry

that allows evidence of a legitimate purpose to overcome a presumption of fraud.

The bankruptcy court shared this view of the test, noting that “the confluence of

several [badges] can constitute conclusive evidence of an actual intent to defraud,

absent significantly clear evidence of a legitimate supervening purpose.” Bankr. Op.

at *30 (emphasis added) (cleaned up). However, even if we were to adopt this test,

the evidence of Tilton’s good faith would be too slight for the Entities to prevail at

step two.

The Patriarch Entities first highlight an exchange that occurred during the

bench trial, in which the Trustee’s counsel was asked for evidence of Tilton’s

subjective intent. The Trustee’s Counsel responded: “I don’t know that we would

say that she wasn’t acting with an honest intention to reorganize or save the

company.” Joint App’x 822–23. The Entities claim that this concession by itself

warrants a reversal. However, Tilton’s intention to save the company is

nonetheless compatible with a finding that she “intended also to hinder or delay

36 21-2547; 21-2576 In re TransCare Corporation

TransCare’s other creditors—even if just temporarily to restore affairs.” Distr. Op.

at *18. Because “an intent to hinder or delay is adequate even if it be not an intent

to defraud,” this concession does not get the Patriarch Entities very far. Condon,

198 F. at 950.

The Patriarch Entities also call attention to Tilton’s testimony that she tried

“to collect as much as possible not only for Wells, but also for the remaining term

lenders.” Joint App’x 748. They argue that her good faith is corroborated by her

correspondence with Carl Marks and Wells Fargo, which “repeatedly stated her

intent to save jobs and repay creditors,” and the Patriarch Partners spreadsheet,

which noted that the Term Loan Lenders would receive 45% of Transcendence.

Appellant’s Br. 29–30.

Once again, the Patriarch Entities paint an incomplete picture of the events

leading to the Tilton Plan. They omit the fact that Credit Suisse—the largest

minority shareholder—was actively misled about the details of the restructuring.

They also fail to mention that “there was no evidence that Tilton consulted or

informed Wells Fargo before foreclosing on the Subject Collateral.” Distr. Op. at

*6. The record does not contain evidence that Tilton told the other Term Loan

Lenders of her intent to give them a minority stake in Transcendence. Nor were

37 21-2547; 21-2576 In re TransCare Corporation

members of her own inner circle cued in on this plan. In light of these facts, it was

not clear error for the bankruptcy court to conclude that Tilton acted with the

intent to hinder, delay, or defraud creditors.

We therefore affirm the bankruptcy court’s determination that Tilton

executed the transfer of the Subject Collateral with the intent to hinder, delay, or

defraud the other TransCare creditors. Because we conclude that both Tilton and

the Patriarch Entities are liable for the transfer of the Subject Collateral, we now

turn to the lower courts’ calculations of damages.

II. Damages

Tilton and the Patriarch Entities raise several general objections to the

damages calculations. They argue that both courts “erred in measuring damages

based on the Subject Collateral’s purported going concern value,” instead of the

liquidation value. Appellant’s Br. 51. They also claim that the lower courts

improperly shifted the burden of proof for damages onto them, instead of the

Trustee. And finally, they contend that the Trustee cannot be awarded the going-

concern value of the Subject Collateral, because he was responsible for

Transcendence’s failure to launch. According to the defendants, these purported

errors require us to modify the overall damages award from $39.2 million to $0.

38 21-2547; 21-2576 In re TransCare Corporation

We are unconvinced. We begin with an overview of the applicable legal standard

before turning to the parties’ arguments.

When a fiduciary breaches her duty of loyalty, “Delaware law dictates that

the scope of recovery . . . is not to be determined narrowly.” Thorpe ex rel. Castleman

v. CERBCO, 676 A.2d 436, 445 (Del. 1996). “The strict imposition of penalties under

Delaware law are designed to discourage disloyalty.” Id. Accordingly, courts have

the “very broad” power to fashion damages “as may be appropriate, including

rescissory damages.” Int’l Telecharge, Inc. v. Bomarko, Inc., 766 A.2d 437, 440 (Del.

2000). The plaintiff bears the burden of proving damages by a preponderance of

the evidence, but “Delaware does not require certainty in the award of damages

where a wrong has been proven and injury established.” Beard Rsch., Inc. v. Kates,

8 A.3d 573, 613 (Del. Ch. 2010) (quotation marks omitted), aff’d sub nom. ASDI, Inc.

v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010).

When a fraudulent transfer is avoided, the Bankruptcy Code provides that

“the trustee may recover, for the benefit of the estate, the property transferred, or,

if the court so orders, the value of such property.” 11 U.S.C. § 550(a). “The purpose

of § 550(a) is to restore the estate to the condition it would have been in if the

transfer had never occurred.” Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC,

39 21-2547; 21-2576 In re TransCare Corporation

568 B.R. 481, 486 (Bankr. S.D.N.Y. 2017). “The question of the amount of

recoverable damages is a question of fact . . . review[ed] for clear error.” Bessemer

Tr. Co., N.A. v. Branin, 618 F.3d 76, 85 (2d Cir. 2010) (quotation marks omitted).

Once again, the defendants argue that a sale of the Subject Collateral would

have been impossible, and therefore no harm flowed to the estate as a result of the

foreclosure. We are unconvinced by these points for essentially the same reasons

covered above.

It was not clear error for the courts to find that the Subject Collateral could

have been sold for substantially more than liquidation value if Tilton had

attempted to sell the Collateral to anyone but herself. Tilton had received

numerous unsolicited offers to buy part or all of TransCare as late as December

2015. She handpicked the business lines that were part of the Subject Collateral

after a thorough review of TransCare’s finances, and she chose them precisely

because she believed they had value as a going concern. Tilton argues that

TransCare was too distressed for a sale to be possible in February 2016, but the

Trustee’s expert specifically compared the business lines in the Subject Collateral

to other “smaller, distressed, low operating, or undercapitalized” companies when

he arrived at his damages estimate. Distr. Op. at *14. Tilton “did not offer any

40 21-2547; 21-2576 In re TransCare Corporation

substantive evidence of how [the expert] failed to account for risks, made

inappropriate assumptions, used incomplete or inaccurate financial information,

or excluded comparable companies.” Id. at *15.

We are similarly unpersuaded by the defendants’ claim that the courts

committed “legal error” by shifting the burden of proof onto them. As the district

court noted, “determining damages for breach of fiduciary duty ‘unavoidably

requires the court to make judgments concerning liability and other contingencies’

based on its responsible estimate of what would have happened if the defendant

had not acted disloyally.” Distr. Op. at *13 (quoting Bomarko, 766 A.2d at 441). In

this case, the Trustee had the burden of proof, which he met by providing expert

projections based on the evidence available to him. The defendants failed to rebut

it or provide their own estimate of damages. Accepting the Trustee’s estimate in

the absence of compelling rebuttal evidence is not the same as placing the burden

of proof on the defendants.

Next, the defendants argue that the fraudulent conveyance award was

improper because the Trustee, not Tilton, was responsible for the Subject

Collateral’s loss of going-concern value. The defendants claim that “the Trustee

himself smothered Transcendence in the crib the day it was born” by refusing to

41 21-2547; 21-2576 In re TransCare Corporation

turn over the TransCare computer servers. Appellant’s Br. 59. But regardless of

who was responsible for Transcendence’s downfall, the lower courts’ damages

calculations were not erroneous. We have explained that “breaches of a fiduciary

relationship . . . comprise a special breed of cases that often loosen normally

stringent requirements of causation and damages.” Milbank, Tweed, Hadley &

McCloy v. Boon, 13 F.3d 537, 543 (2d Cir. 1994). This is because “[a]n action for

breach of fiduciary duty is a prophylactic rule intended to remove all incentive to

breach—not simply to compensate for damages in the event of a breach.” ABKCO

Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988, 995–96 (2d Cir. 1983). Similarly,

“when property declines in value after the [fraudulent] transfer, a trustee may

recover the value of the property at the time of the transfer rather than the property.”

5 Collier on Bankruptcy ¶ 550.02[3][a] (16th ed. 2022) (emphasis added). This is

true even if “[d]epreciation in the value of the property” occurs for reasons outside

of the transferor’s control, such as “market fluctuations.” Id. Therefore, the courts

did not err by awarding the Trustee the value of the Subject Collateral at the time

of the transfer.

Finally, the Patriarch Entities raise a challenge specific to the fraudulent

transfer award. They contend that awarding any damages once the Subject

42 21-2547; 21-2576 In re TransCare Corporation

Collateral was returned was legal error because § 550(a) of the Bankruptcy Code

permits the Trustee to recover only “the property transferred, or [its] value.” 11

U.S.C. § 550(a). However, the bankruptcy court subtracted the liquidation value

of the Subject Collateral from the going concern value to ensure that there was only

a single recovery. See Jones v. The Brand L. Firm, P.A. (In re Belmonte), 931 F.3d 147,

154 (2d Cir. 2019) (“Section 550(a) authorizes the Trustee to pursue recovery from

all available sources until the full amount of unlawfully transferred Estate

property is fully realized for the Estate’s creditors.”). Awarding the value of the

Subject Collateral was also appropriate because its value depreciated significantly

after the fraudulent transfer. See Andrew Velez Constr., Inc. v. Consol. Edison Co. of

N.Y. (In re Andrew Velez Constr., Inc.), 373 B.R. 262, 274 (Bankr. S.D.N.Y. 2007).

In sum, we find no error in the damages award of $39.2 million for the

fraudulent conveyance or the award of $38.2 million for the breach of fiduciary

duties.

* * *

After oral argument, we ordered supplemental briefing on whether the

damages awards resulted in a double recovery to the Trustee for the value of the

Certificates of Need, which were not part of the Subject Collateral. We also asked

43 21-2547; 21-2576 In re TransCare Corporation

the parties to explain whether that objection was raised by the defendants at any

stage of the proceedings. The letters submitted by the parties confirmed that the

defendants failed to raise this argument before the bankruptcy court, the district

court, or this Court.

The dissenting opinion concludes that this objection was fairly encompassed

within the defendants’ broader argument that the Trustee obtained a double

recovery by receiving the Subject Collateral and its going-concern value, even after

subtracting its liquidation value. Post at 4-6. But that argument, which we have

rejected here, is not just broader. It is meaningfully distinct from, and even at odds

with, the argument that the Trustee was entitled to that recovery but that the

bankruptcy court made an error in failing to subtract some items already

accounted for. The defendants did not advance that latter argument.

“In our adversarial system of adjudication, we follow the principle of party

presentation,” and courts are assigned “the role of neutral arbiter of matters the

parties present.” United States v. Sineneng-Smith, 140 S. Ct. 1575, 1579 (2020).

Accordingly, courts “do not, or should not, sally forth each day looking for wrongs

to right. They wait for cases to come to them, and when cases arise, courts

normally decide only questions presented by the parties.” Id. (cleaned up). To be

44 21-2547; 21-2576 In re TransCare Corporation

sure, this rule is not “ironclad”: courts have “depart[ed] from the party

presentation principle . . . to protect a pro se litigant’s rights,” or in criminal cases

where significant liberty interests are at stake. Id. (internal quotation marks

omitted). Thus, we have explained that we may address an abandoned issue if the

“issue is necessary to avoid manifest injustice or . . . is purely legal and there is no

need for additional fact-finding.” United States v. Gomez, 877 F.3d 76, 92 (2d Cir.

2017).

This case does not meet either of those criteria. First, the new double-

counting argument requires the court to engage in factfinding, and it is therefore

not “purely legal.” Id. Determining which Certificates of Need were double-

counted requires an independent search of the record to determine which

Certificates were necessary to operate Transcendence. And second, the arguments

are not necessary to avoid “manifest injustice.” The parties in this case were on

notice about the damages calculations at all stages of litigation, and they were

represented by exceptionally able counsel who have demonstrated a thorough

command of the record. Perhaps for strategic reasons, defense counsel focused its

appeal on arguments that would reverse liability or vacate the entire damages

award. Further, any lingering skepticism regarding the damages awards we have

45 21-2547; 21-2576 In re TransCare Corporation

determined to be free from clear error, see post at 9, does not suggest ”manifest

injustice” here.

Therefore, in keeping with our role as “passive instruments of government,”

we limit our analysis to the issues the parties have asked us to review. Sineneng-

Smith, 140 S. Ct. at 1579. Because the defendants did not raise below and have not

raised on appeal the new double-counting issue with the Certificates of Need, we

affirm the district court’s damages award in full.

CONCLUSION

The judgments of the district court and the bankruptcy court are

AFFIRMED.

46 21-2547, 21-2576 In re TransCare Corp.

MENASHI, Circuit Judge, dissenting in part:

I agree that the attempted restructuring of TransCare amounted to a fraudulent transfer and a breach of fiduciary duties. I disagree, however, with the conclusion that there was no error in the monetary awards to the estate.

I

When a bankruptcy court avoids a fraudulent transfer, the trustee may recover for the benefit of the estate either “the property transferred, or, if the court so orders, the value of such property.” 11 U.S.C. § 550(a). The trustee is entitled to a “single satisfaction,” id. § 550(d), not to a “double recovery, or a windfall that would benefit the estate,” In re Andrew Velez Constr., Inc., 373 B.R. 262, 275 (Bankr. S.D.N.Y. 2007).

This principle is uncontroversial. On appeal, the trustee acknowledges that the estate is entitled “only [to] the going-concern value of the subject collateral, [but] not the going-concern value on top of the liquidation value.” Appellee’s Br. 68. In its opinion, the court similarly agrees that “stakeholders are not entitled to collect both liquidation value and going concern value for a company’s assets.” Ante at 29. Indeed, “it is the rare bankruptcy trustee that has the audacity” to seek “the fair market value of property that was the subject of an avoidable transfer, even after that trustee has already recovered the equity value of the property.” In re Bean, 252 F.3d 113, 116 (2d Cir. 2001).1

1 The same principle barring double recovery applies to the damages award for the breach of fiduciary duties. See Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1277 (Del. 2021) (“The double recovery rule prohibits The bankruptcy court, however, failed to adhere to the single- satisfaction principle here. After deciding that Lynn Tilton’s attempted restructuring transaction was a fraudulent transfer, the bankruptcy court awarded “the value” of the property transferred. In re TransCare Corp., No. 18-1021, 2020 WL 8021060, at *31 (Bankr. S.D.N.Y. July 6, 2020). Yet in doing so, it double-counted the value of a Certificate of Need (“CON”)—a certificate issued by New York State that was necessary for Transcendence to “operate the ambulances.” Id. at *12 n.15. The estate received $1.9 million in net proceeds from the liquidation of the CON and—on top of that—it was awarded the full going-concern value of Transcendence. The estate thereby received both the liquidation value of the CON and its value in enabling Transcendence to operate as a going concern. The bankruptcy court erred because it double-counted the value of a critical operating asset.

Even the trustee agreed that he was not entitled to such a double recovery. In the bankruptcy court, the trustee said that the awards should be reduced by the liquidation proceeds from the sale of Transcendence’s assets, including the CON. Plaintiff’s Proposed Findings of Fact and Conclusions of Law ¶¶ 314, 319, In re TransCare Corp., No. 18-1021, 2020 WL 8021060 (Bankr. S.D.N.Y. July 6, 2020), ECF No. 134; see also TransCare, 2020 WL 8021060, at *28 n.27, *31. The trustee would have offset the awards by $5.7 million to account for the CON, accounts receivable, and physical assets that would have been transferred to Transcendence but were returned and liquidated for the benefit of the estate. The bankruptcy court adopted this recommendation in part, reducing the awards by the liquidation

a plaintiff from recovering twice for the same injury from the same tortfeasor.”).

2 value of the physical assets that would have enabled Transcendence to operate. But the bankruptcy court declined to make a similar reduction for the CON because the CON was not included in the foreclosure transaction. This was erroneous because Transcendence may be valued as a going concern only with the CON that was necessary to operate the ambulances. 2

We review the “legal question of the applicable damages measurement”—and the “mixed question[]” of applying that law to the facts of this case—de novo. Bessemer Tr. Co. v. Branin, 618 F.3d 76, 85 (2d Cir. 2011). In my view, the bankruptcy court erred in failing to reduce the awards by the value of the CON that was necessary for Transcendence to operate as a going concern. I would vacate the

2 If Tilton’s restructuring plan had succeeded, Transcendence would have operated three divisions: (1) paratransit services for the New York Metropolitan Transit Authority (“MTA”); (2) Pennsylvania ambulance services, and (3) Hudson Valley ambulance services, which required a CON. Transcendence would have received TransCare’s personal property, including the computer servers; three contracts, including the MTA paratransit contract; and the stock of TransCare Pennsylvania, Inc., TC Hudson Valley Ambulance, Inc., and TC Ambulance Corp.—all of which constituted the “Subject Collateral.” The trustee liquidated the Hudson Valley and TC Ambulance CONs for a total of $3.2 million in net proceeds to the estate. While the parties now acknowledge that “none of the CONs were included in the Subject Collateral,” Tilton “believed that by foreclosing on the stock” of the three TransCare entities, “Transcendence would be able to use their CONs even though title to the CONs would not pass to Transcendence.” TransCare, 2020 WL 8021060, at *12 n.15. Tilton had initially planned for Transcendence to operate the Bronx 911/Montefiore 911 division, organized as TC Ambulance Corp., but that division lost its contracts days before the transaction. In the final plan, Transcendence would operate the Hudson Valley division, and the Hudson Valley CON would have been necessary for its ambulances to operate.

3 judgment and remand to the district court to reduce the awards by the value of the CON that was double-counted.

II

The court does not disagree that the estate received a double recovery of both the liquidation value and going-concern value of the CON. Instead, the court decides that we should not address the issue because it was insufficiently presented by the parties. Ante at 44.

While “courts normally decide only questions presented by the parties,” United States v. Sineneng-Smith, 140 S. Ct. 1575, 1579 (2020) (alteration omitted) (quoting United States v. Samuels, 808 F.2d 1298, 1301 (8th Cir. 1987) (Arnold, J., concurring in the denial of rehearing en banc)), we are not “hidebound by the precise arguments of counsel,” id. at 1581. We also have “discretion to consider arguments waived or forfeited below because our waiver and forfeiture doctrine is entirely prudential.” United States v. Gomez, 877 F.3d 76, 95 (2d Cir. 2017) (alterations omitted) (quoting In re Nortel Networks Corp. Sec. Litig., 539 F.3d 129, 133 (2d Cir. 2008)).

In this case, the parties addressed the issue of double-counting, so I would reach that issue in the context of the CON. In their opening brief, the defendants argued as follows:

The Bankruptcy Code thus gives the Trustee a choice: recover either the Subject Collateral or its value. The Trustee here, however, recovered both the Subject Collateral (which he liquidated pursuant to a court- approved stipulation) and its purported going-concern value (in damages). As a result, the damages award violates the bedrock principle that [t]he trustee is not entitled to double recovery, or a windfall that would benefit the estate.

4 Appellant’s Br. 52 (internal quotation marks and citation omitted). This argument encompasses the bankruptcy court’s erroneous double-counting of the value of the CON. The trustee responded that “[w]hen the bankruptcy court calculated damages, it subtracted the liquidation value of the subject collateral ... from the going-concern value ... ensur[ing] that the trustee will receive only the going-concern value of the subject collateral, not the going-concern value on top of the liquidation value.” Appellee’s Br. 67-68. But the bankruptcy court failed to apply this principle with respect to the CON.

To be sure, the defendants offered a broader double-counting argument according to which, “[h]aving chosen to liquidate the Subject Collateral and distribute the proceeds, the Trustee cannot argue that damages is a more appropriate remedy.” Appellant’s Br. 53. 3 In other words, the defendants argued that any award based on the value of the Subject Collateral was erroneous, netted or not, because the property was returned and liquidated.

I agree with the court that this argument is incorrect. A bankruptcy court may remedy a fraudulent transfer by awarding the “value of such property” transferred instead of the property itself. If it elects to do so, as the bankruptcy court did here, it must apply appropriate offsets to avoid double-counting the value of assets. There is no rule that precludes it from awarding the value of the transferred property when some of that property has been liquidated. See Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 883 n.3

3 See also Reply Br. 24 (“[T]he statute does not say that trustees can choose to recover both the property and its value, so long as damages are netted. ... Having already recovered the property by receiving the Subject Collateral free of all liens, the Trustee could not also recover its value in damages— netted or not.”) (internal quotation marks omitted).

5 (9th Cir. 2008) (“Although the statute contains the conjunction ‘or,’ at least one court has held that the remedies of the value of the property or the property itself are not mutually exclusive, and the bankruptcy court may award a judgment that involves both types of recovery, as long as it does not result in double recovery for the estate.”).

Still, the parties sufficiently addressed the issue of double- counting such that I would correct the improper double-counting that did occur.

III

Even if the defendants had not addressed double-counting at all, we still would have “broad discretion” to consider the issue. Gomez, 877 F.3d at 92 (quoting Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 418 (2d Cir. 2001)). We have said that “[w]e are ‘more likely to exercise our discretion (1) where consideration of the issue is necessary to avoid manifest injustice or (2) where the issue is purely legal and there is no need for additional fact-finding.’” Id. (quoting Baker v. Dorfman, 239 F.3d 415, 420 (2d Cir. 2000)). I would exercise our discretion to address the double-counting error because the awards appear to be inflated based on several questionable assumptions.

First, the bankruptcy court determined that the Subject Collateral, which would become Transcendence, had going-concern value at the time of the transfer. But Transcendence never became operational. Transcendence “was in fact not operating at any given time.” Transcendence Transit II, Inc., 369 N.L.R.B. No. 101 (June 10, 2020). Transcendence—along with the entire TransCare enterprise— shut down two days after the restructuring transaction. The trustee did not offer evidence that a third party would have purchased all or part of TransCare in February 2016 on the compressed timeframe

6 necessary to stabilize operations. By that time, TransCare was in a “rapidly deteriorating condition” that made a sale of the company infeasible. TransCare, 2020 WL 8021060, at *18. In place of such evidence, the bankruptcy court relied on the fact that Tilton, in devising a restructuring plan, considered parts of the company to be viable. But the company’s rapid collapse—despite Tilton’s effort and incentive to preserve its value—suggests that it was not.4

Second, even accepting that Transcendence had going-concern value, the awards were not based on historical performance or even on ordinary management projections. The district court valued Transcendence at $40.4 million based on a projected EBITDA of $4 million and a 10.1x multiple. In the prior two years, however, TransCare achieved an EBITDA of only about $500,000 and $1.4 million. The only source for the projection of $4 million in EBITDA is an email that Tilton’s staff sent to an insurance broker seeking coverage as Transcendence, unsuccessfully, attempted to operate. See J. App’x 1831; In re TransCare Corp., No. 20-CV-06274, 2021 WL 4459733, at *5 (S.D.N.Y. Sept. 29, 2021) (“Beginning on February 10, 2016, Tilton and her staff provided insurance brokers with financial information about Transcendence for the purpose of binding a new insurance policy.”). Similarly, in selecting the proper multiple based on comparable companies, there was no evidence that the companies were—as the third-party financial advisor described TransCare— “operating at an absolute breaking point” because “[v]irtually all key customers are pursuing or considering replacement options ... [and]

4 Moreover, as the court acknowledges, we may not fault Tilton’s decisions prior to February 2016. “The bankruptcy court found that Tilton’s decisions up to this point were made in good faith and protected by the business judgment rule, and neither party has challenged this conclusion on appeal.” Ante at 10.

7 loss of another key customer will likely create ‘domino effect.’” J. App’x 1681.5

Third, the loss of going-concern value was not fully attributable to the fraudulent transfer or to the breach of fiduciary duties. The trustee blocked Transcendence from accessing its computer server, which it needed to operate, and he refused to agree to make employee payroll due to a $200,000 shortfall. The trustee’s independent decision to withhold access to the server—which was part of the Subject Collateral—was at least partially responsible for the cessation of operations and the loss of going-concern value. The awards do not account for the loss in value attributable to the trustee’s actions. Diminutions in value after a fraudulent transfer are typically borne by the party that effected the transfer. 6 But the awards in favor of the

5 The court observes that “Tilton had received numerous unsolicited offers to buy part or all of TransCare as late as December 2015.” Ante at 40. But Tilton’s decision to reject those offers is protected by the business judgment rule. See supra note 4. It is far from clear that such offers were available in February 2016 when the company was on the verge of bankruptcy. And the amounts offered were nowhere close to $40.4 million. National Express initially offered $15 to 18 million—revised downward to $8 to $9 million in July and December of 2015—for the MTA contract that was supposed to generate $4 million in annual EBITDA. Richmond County Ambulance Service offered to purchase TransCare for eight times EBITDA, which would have valued the company at approximately $11 million given the 2015 performance. 6 See 5 Collier on Bankruptcy ¶ 550.02 (16th ed. 2022) (“Depreciation in the value of the property due to market fluctuations may support the bankruptcy court in ordering restitution of the property’s value at the time of the transfer. Thus, when property declines in value after the transfer, a trustee may recover the value of the property at the time of the transfer rather than the property.”).

8 trustee could have accounted for the trustee’s contribution to the loss of value.7

Aside from the double-counting of the CON, I agree with the court that, all things considered, the amounts awarded were not clearly erroneous. “Under the clearly erroneous standard, there is a strong presumption in favor of a trial court’s findings of fact if supported by substantial evidence. We will not upset a factual finding unless we are left with the definite and firm conviction that a mistake has been committed.” Bessemer, 618 F.3d at 85 (quoting White v. White Rose Food, 237 F.3d 174, 178 (2d Cir. 2001)). There was such evidence for each step of the awards. The EBITDA projection was “sufficiently credible to send to insurance brokers to procure insurance for Transcendence and commit to invest up to $10 million of her own funds”; the defendants did not identify a more appropriate EBITDA multiple; the defendants set in motion a restructuring transaction that left critical assets under a liquidating trustee’s control. Transcare, 2020 WL 8021060, at *25. But the fact that the awards were based on such arguable findings supports the exercise of our discretion at least to correct the “manifest injustice” of the double-counting error so that the awards are not further inflated. Gomez, 877 F.3d at 93.

7 See In re EBC I, Inc., 380 B.R. 348, 362-66 (Bankr. D. Del. 2008) (explaining that the debtor bears the “burden of proving that it lost anything of value” from the transaction and that the bankruptcy court “must determine the net effect of the transaction on the debtor”), aff’d, 400 B.R. 13 (D. Del. 2009), aff’d, 382 F. App’x 135 (3d Cir. 2010); In re Olsen Indus., Inc., No. 98-140, 2000 WL 376398, at *12 (D. Del. Mar. 28, 2000) (“In order to prevail on a claim for breach of fiduciary duty, a plaintiff must demonstrate by a preponderance of the evidence that the defendant’s conduct proximately caused its injury.”).

9 A decision on appeal to eliminate double-counting would not require additional fact finding. Only the CON associated with one subsidiary, TC Hudson Valley Ambulance Corporation, was double- counted because only the Hudson Valley division would have continued to operate ambulance services in New York as part of Transcendence. See TransCare, 2020 WL 8021060, at *12; see also J. App’x 1969.8 The trustee recovered for the estate $1.9 million from the CON. See J. App’x 1976. I would vacate and remand for the district court to reduce the awards by the same amount.

I would vacate and remand for the district court to recalculate the awards to the estate without double-counting. For that reason, I dissent in part.

8 The Pennsylvania and paratransit divisions would not operate ambulances in New York and therefore would not require New York CONs.