I Nre : Michael V. Frierdich , S R . v. STEVEN V. MOTTAZ , Trustee of the Estate of Michael V. Frierdich, Sr.

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-4058
I N RE :
M ICHAEL V. F RIERDICH , S R .,
Debtor,
v.
S TEVEN V. M OTTAZ , Trustee of the Estate of
Michael V. Frierdich, Sr.,
Plaintiff-Appellee,
v.
B EVERLY O SWALD ,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 01-CV-302-DRH—David R. Herndon, Judge.
____________
A RGUED M AY 20, 2002—D ECIDED J UNE 21, 2002
____________
Before E ASTERBROOK , R OVNER , and E VANS , Circuit
Judges.
E VANS , Circuit Judge. Michael Frierdich is a Chapter 7
debtor, which means, in simplest terms, that he does not
have enough assets to pay off a staggering amount of debt.
This case, between the bankruptcy trustee (Mottaz) and
Frierdich’s wife (Oswald), turns on when Frierdich trans-

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2 No. 01-4058
ferred shares of stock (or their proceeds, worth $400,000) to
Oswald. The answer to that question affects whether Mot-
taz can upset the transfer and obtain its proceeds for dis-
tribution to Frierdich’s creditors. Oswald, who would just as
soon keep the $400,000, has already had two swings at this
issue. She lost before the bankruptcy judge and the district
judge. We will ring her up on strikes.
Because this case arose on summary judgment, we state
the facts in the light most favorable to Oswald. We turn
first to the events of early 1998. At that time, Frierdich was
a director and the treasurer of Columbia Centre, Inc., a
closely held company, and owned 360 of its outstanding
1,000 shares. Paul Frierdich (his brother) and Joe Koppeis
held the remaining shares. (Paul and Michael Frierdich
both submitted affidavits saying that Columbia Centre
never issued stock certificates to its shareholders. A cer-
tificate—“Certificate #6”—evidencing Frierdich’s shares
turned up but had never been signed.) The stock record
book was also lost.
Meanwhile Frierdich and Oswald were pondering the
business of marriage. In anticipation of their engagement,
they decided to take stock of their respective financial sit-
uations. Based on information that Frierdich provided to
Oswald, they determined that the value of Frierdich’s estate
exceeded that of Oswald’s. So they assented to an arrange-
ment under which Frierdich would transfer his Columbia
Centre stock to Oswald and she would waive any interest
in Frierdich’s estate. On January 7, 1998, Frierdich and
Oswald were engaged.
The next day Frierdich executed a “Stock Transfer/Stock
Power.” It assigned to Oswald his interest in the stock and
gave the officers of Columbia Centre power of attorney to
transfer the stock on the company books. On January 16
Frierdich sent the transfer document, along with trans-
fer instructions, to Paul Frierdich. The transmittal letter

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No. 01-4058 3
read: “Please transfer stock as of Jan. 8, 1998 to Bev. This
is part of the prenuptial agreement we have. Call if any
questions.” On February 10 Paul Frierdich sent a “speed
message” reading:
Mike and Bev-
I received your stock transfer of all Mike’s stock in
Columbia Centre Inc. Shopping Center Corporation,
and accordingly the transfer to Bev Oswald of his 36%.
We do not need anything else for the transfer.
Oswald never received a stock certificate and no notation on
the (missing) stock record book was ever made.
Frierdich and Oswald each signed a prenuptial “waiver”
to any interest in the other’s estate on March 4. Paragraph
six of Oswald’s waiver read:
It is the intent of the undersigned that her present and
future interest in any assets of Michael V. Frierdich is
specifically limited to those assets which Michael V.
Frierdich shall have voluntarily transferred an interest
to the undersigned and only then in circumstances
wherein he has affirmatively taken action transferring
an ownership interest to the undersigned. Reference
herein includes interest Michael V. Frierdich has pre-
viously and voluntarily, by execution of a stock transfer,
assigned all his rights, title, and interest in and to his
stock ownership in a Columbia, Illinois shopping center
to Beverly K. Oswald.
Frierdich and Oswald were married 3 days later.
In August or September of 1998, Koppeis and Paul
Frierdich approached Frierdich about having the corpora-
tion repurchase his shares in Columbia Centre. They of-
fered him $250,000, a price that increased, based on fi-
nancial appraisals, to $400,000. Koppeis, who was Colum-
bia Centre’s president and managing officer, was not aware
of any transfer to Oswald.

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4 No. 01-4058
In September a sale agreement was forwarded to
Frierdich. It listed him as the seller. On a draft of the
agreement Frierdich crossed out his name, substituted “Bev
Oswald” as the seller, and sent the documents back to Paul
Frierdich with a transmittal letter reading: “I believe Bev
needs to sign this because of the transfer document I gave
her several months ago. The money should go to her.” The
final agreement of sale, however, again listed Frierdich as
the seller. Frierdich signed that agreement, warranting
that he held title to the stock and that it was not subject to
any agreement that would restrict its sale. Koppeis and
Paul Frierdich also signed the agreement. At closing, which
apparently took place on September 10, Columbia Centre
issued Frierdich a $400,000 check. He signed the receipt
and deposited the check in Oswald’s account after endorsing
it “for deposit.” At that same time, Frierdich resigned his
positions with the company.
In a letter dated September 23, 1998, to Union Planters
Bank, with which Oswald and Frierdich’s son were trying
to arrange a loan for a real estate purchase, Frierdich
stated:
I transferred some $400,000.00 to Beverly K. Oswald as
a gift to a spouse, there are no gift tax consequences.
There is an unlimited marital deduction for gifts to a
spouse, and as such, this is the net amount for her to
utilize. I sold my stock in a shopping center for a sum
in excess of that amount and was only required to pay
capital gains tax on some 20%. My interest in the shop-
ping center was sold in 1998.
Involuntary bankruptcy proceedings commenced on Feb-
ruary 17, 1999. Frierdich’s schedules indicate that, as of the
filing, he had debts of $8,530,395 and assets of $1,200.
Twelve lawsuits were pending against Frierdich, five of
which had been pending prior to September 10, 1998. The
claims on file in the bankruptcy proceeding reflect debts in

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No. 01-4058 5
1 This subsection has been referred to as the “actual fraud”
avoidance provision because of its “intent ingredient.” See, e.g., In
re FBN Food Servs., Inc., 82 F.3d 1387, 1394 (7th Cir. 1996). Mot-
taz also argues, and the bankruptcy judge also found, that the
transfer is voidable under the “constructive fraud” provision found
in 11 U.S.C. § 548(a)(1)(B). Because, as we will discuss, we affirm
the bankruptcy judge’s holding under § 548(a)(1)(A), we don’t
dwell on Mottaz’s § 548(a)(1)(B) argument.
excess of $400,000 incurred prior to January 1, 1998, in-
cluding federal taxes of approximately $240,000 owing.
Frierdich was also the major shareholder and guarantor of
many of the debts of South of the Border, Inc., which had
filed for bankruptcy (apparently in July 1998).
Mottaz, the trustee, filed this adversary proceeding
against Oswald seeking to avoid Frierdich’s transfer to
her of the stock proceeds from the September 10, 1998 sale.
The bankruptcy judge (Fines, J.), finding no dispute that
the relevant transfer occurred in September, and not Jan-
uary, entered summary judgment for Mottaz in the amount
of $400,000. He held, in the alternative, that even if the
transfer occurred in January, it was voidable. Oswald ap-
pealed and the district judge affirmed.
In a second appeal from a bankruptcy court’s decision, we
apply the same standard of review as did the district court.
In re Marrs-Winn Co., 103 F.3d 584, 589 (7th Cir. 1996).
Because this case was decided on summary judgment, see
Fed. R. Bankr. P. 7056, our review is de novo.
This case implicates two avoidance provisions of the
federal bankruptcy code. Title 11 U.S.C. § 548(a)(1)(A) pro-
vides that a trustee may avoid a transfer by a debtor made
“within one year before the date of the filing” of the bank-
ruptcy petition if the debtor “made such transfer . . . with
actual intent to hinder, delay, or defraud any entity to
which the debtor was or became . . . indebted.” 1 Title 11
U.S.C. § 544(b)(1) allows the trustee to commandeer the

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6 No. 01-4058
rights of an unsecured creditor who could have avoided the
transfer under applicable law, in this case the Illinois
Fraudulent Transfer Act. See 740 Ill. Comp. Stat. 160/5.
For our purposes the key difference between these two
avoidance routes is that the Illinois Fraudulent Transfer
Act does not contain a one-year “look back” provision. Thus
if the transfer in the present case occurred in January
of 1998, it occurred more than one year before the Feb-
ruary 17, 1999, bankruptcy filing and would fall outside of
§ 548’s one-year “look back” provision. Mottaz would then
be relegated to avoiding the transfer under § 544. If, on the
other hand, the transfer did not occur in January, but
rather occurred when the proceeds of the stock sale were
deposited in September 1998, the transfer would fall within
one year of the February 1999 bankruptcy filing and could
be avoided, if there was actual intent to defraud, under
§ 548(a)(1)(A). The burden of proving a fraudulent transfer
under § 548 is on the trustee. 5 Collier on Bankruptcy
¶ 548.10, p. 548-80 (15th ed. rev. 2002).
So to the key issue we turn: whether Frierdich trans-
ferred his Columbia Centre stock to Oswald in January of
1998. Under the bankruptcy code,
a transfer is made when such transfer is so perfected
that a bona fide purchaser from the debtor against
whom applicable law permits such transfer to be per-
fected cannot acquire an interest in the property trans-
ferred that is superior to the interest in such property
of the transferee.
11 U.S.C. § 548(d)(1). This provision presumes a “transfer,”
which the bankruptcy code defines as “every mode, direct or
indirect, absolute or conditional, voluntary or involuntary,
of disposing of or parting with property or with an interest
in property.” 11 U.S.C. § 101(54). Although this definition
of transfer is obviously federal, its references to “property”
and “interest in property” require an analysis of whether a

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No. 01-4058 7
property interest was created under state law. Barnhill v.
Johnson, 503 U.S. 393, 398 (1992); In re Atchison, 925 F.2d
209, 210-11 (7th Cir. 1991) (“Absent a federal provision to
the contrary, a debtor’s interest in property is determined
by applicable state law.”).
Columbia Centre is an Illinois corporation and the parties
and courts below have applied Illinois law, so we apply it as
well. In re Marrs-Winn, 103 F.3d at 591.
Oswald argues that she acquired the stock pursuant to a
prenuptial agreement under which she waived her interest
in Frierdich’s estate in exchange for the stock transfer. This
qualifies her, she argues, for “protected purchaser” status
under section 303 of Article 8 of the Illinois Commercial
Code. (Certain provisions of Article 8 were revised in 2000
and the revisions became effective July 1, 2001. See 2000
Ill. Legis. Serv. 91-893, § 99. Because the events in this case
occurred in 1998, we will be applying the relevant provi-
sions of Article 8 as they stood at that earlier time.) Section
8-303(a) defines a “protected purchaser” as “a purchaser of
a certificated or uncertificated security” who gives value,
does not have notice of an adverse claim to the security and
obtains “control” of the security. 810 Ill. Comp. Stat. 5/8-
303(a)(1)-(3). Oswald charges ahead to argue that she can
show value, no notice and control, and thus concludes that
she acquired an interest as a “protected purchaser.”
She has put the cart before the horse. To be a “protected
purchaser” she must first show that she is a “purchaser” of
the security, which, unfortunately for her, is the key issue
in this case. A “purchaser” (to no one’s surprise) is “a person
who takes by purchase.” 810 Ill. Comp. Stat. 5/1-201(33).
The Code adds that a purchase “includes taking by sale,
discount, negotiation, mortgage, pledge, lien, issue or reis-
sue, gift or any other voluntary transaction creating an
interest in property.” 810 Ill. Comp. Stat. 5/1-201(32).
Oswald claims to have taken by prenuptial agreement.
That argument confronts two problems. First, even assum-

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8 No. 01-4058
2 Oswald is steadfast in arguing that the transfer was not a gift,
so we have not referenced the Illinois law of gifts to determine if
delivery occurred. But see 7A William D. Hawkland & James S.
Rogers, Uniform Commercial Code Series [Rev] § 8-302:02,
pp. 425-26 (1996) (“It is possible that under the general law of
gifts acts that would not constitute an Article 8 ‘delivery’ under
section 8-301 would suffice as a delivery within the meaning of the
requirement of delivery imposed by the law of gifts.”).
ing the parties had a valid agreement pursuant to which
Frierdich would transfer the stock, delivery is required to
effectuate the transfer. 12 William Meade Fletcher, Fletcher
Cyclopedia of the Law of Private Corporations § 5481, p. 240
(rev. ed. 1996); cf. Meshew v. Whitlock, 9 S.W.3d 581, 585
(Ky. Ct. App. 1999) (interpreting 1994 revision of UCC,
adopted by Kentucky in 1996). And, on that point, Oswald
hits a snag. Although Article 8 may not provide the exclu-
sive means of delivery, 12 William Meade Fletcher, Fletcher
Cyclopedia of the Law of Private Corporations § 5481, p. 242
(rev. ed. 1996), Oswald has not cited Illinois law validating
other types of delivery (and our research has uncovered
none), so we analyze whether delivery was accomplished
under Article 8. 2 Section 8-301 specifies when delivery
occurs in the case of both certificated and uncertificated
securities. The parties have had some back and forth about
whether the shares in this case should be classified as
certificated or uncertificated, an argument that seems in-
consequential. Even assuming Oswald’s premise that the
shares were uncertificated, she cannot show delivery.
Delivery of an uncertificated security occurs when “the
issuer registers the purchaser as the registered owner,” 810
Ill. Comp. Stat. 5/8-301(b)(1), or “another person . . . either
becomes the registered owner of the uncertificated security
on behalf of the purchaser or, having previously become the
registered owner, acknowledges that it holds for the pur-
chaser.” 810 Ill. Comp. Stat. 5/8-301(b)(2). Oswald cannot

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No. 01-4058 9
prevail under section 8-301(b)(1) because Columbia Centre
never registered her as the owner of the stock. (Its stock
book was missing.) Section 8-301(b)(2) is a closer call but
also unavailing. Frierdich attempted to register the stock
in Oswald’s name, not hold it for her. He executed a “Stock
Transfer/Stock Power,” which attempted to assign the stock
and gave the officers of Columbia Centre power of attorney
to change the name in the stock book. The transmittal let-
ter to Paul Frierdich read: “Please transfer stock as of Jan.
8, 1998 to Bev.” Paul Frierdich responded on February 10
that he had “received your stock transfer of all Mike’s stock
in Columbia Centre, Inc. Shopping Center Corporation,
and accordingly the transfer to Bev Oswald of his 36%.”
Frierdich clearly did not intend to remain in possession of
the stock on behalf of Oswald. He wanted to register it in
her name, an attempt that failed under section 8-301(b)(1).
If this seems an overly technical interpretation of sec-
tion 8-301(b)(2) based on the facts of January and Febru-
ary 1998 alone, later events make clear that Frierdich
continued to be the stock’s real owner. Six months after
the purported transfer, Paul Frierdich and Koppeis (who,
as we said, was unaware of any January transfer) ap-
proached Frierdich to buy the shares. Although Oswald
stated that she was involved in discussions concerning the
stock sale, she did not negotiate the price for her purported
property. Rather, “they just came up with the amount.”
Moreover, although Frierdich attempted to have Oswald’s
name put on the sale agreement, he didn’t try very hard.
Frierdich went ahead and signed the (unrevised) final
agreement, which listed him as the seller. He warranted
that he held title to the shares; he also received the
$400,000 purchase price. And even though he deposited the
check in Oswald’s account, Frierdich wrote to Union Plant-
ers Bank, in what appears to have been the hope that Os-
wald and his son would obtain funding for a real estate
purchase, that the transfer was a marital “gift” (which

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10 No. 01-4058
would not be taxed). Any force behind that assertion, of
course, necessarily assumed that the transfer occurred after
the Frierdich-Oswald union in March of 1998. The bank-
ruptcy court did not err by finding no dispute of fact that
Oswald did not acquire the stock in the winter of 1998.
The second problem with Oswald’s “prenuptial” theory
is that, even apart from a failure of delivery, she never
obtained an enforceable interest in the stock. Illinois law
requires that a premarital agreement be in writing, 750 Ill.
Comp. Stat. 10/3. The writing that purports to be the pre-
nuptial agreement in this case consists of two matching
“waivers,” one signed by Oswald, the other signed by
Frierdich. Nowhere does Oswald’s waiver recite the stock
transfer, which occurred 3 months prior to this time, as
connected to the waiver. Oswald’s waiver merely states that
her interest was limited to stock (purportedly) in her
possession already. The fact that Frierdich voluntarily
transferred the stock to “calibrate” the estates 3 months
earlier did not give Oswald an interest, enforceable in law
or equity, in the stock.
Accordingly, Oswald did not take an interest in the stock
until Frierdich deposited the proceeds from its sale into her
account in September of 1998. That transfer was 5 months
before the February 1999 bankruptcy filing and, therefore,
well within the one-year provision of 11 U.S.C. § 548.
The transfer is therefore voidable if it was done with
actual intent to defraud under 11 U.S.C. § 548(a)(1)(A). We
find nothing wrong with the bankruptcy judge’s conclusion
that there was no dispute that Frierdich transferred the
proceeds with actual intent to defraud. Direct proof of ac-
tual intent to defraud is not required—indeed, it would
be hard to come by—and a trustee can prove actual in-
tent by circumstantial evidence. 5 Collier on Bankruptcy
¶548.04[2][a], p. 548-25 (15th ed. rev. 2002). Courts often
look to “badges of fraud” as circumstantial evidence. Id.

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No. 01-4058 11
3 The claims on file in the bankruptcy proceeding revealed debts
in excess of $400,000 incurred before January 1, 1998, including
federal taxes owing in the amount of approximately $240,000. The
bankruptcy judge also took notice of a related bankruptcy pro-
ceeding, apparently filed in July 1998, involving South of the
Border, Inc., a company for which Frierdich was the major share-
holder and had guaranteed many debts.
¶ 548.04[2][b], p. 548-26; see also In re XYZ Options, Inc.,
154 F.3d 1262, 1271-72 (11th Cir. 1998). These “badges”
include: whether the debtor retained possession or con-
trol of the property after the transfer, whether the trans-
feree shared a familial or other close relationship with the
debtor, whether the debtor received consideration for the
transfer, whether the transfer was disclosed or concealed,
whether the debtor made the transfer before or after being
threatened with suit by creditors, whether the transfer
involved substantially all of the debtor’s assets, whether the
debtor absconded, and whether the debtor was or became
solvent at the time of the transfer. 5 Collier on Bankruptcy
¶ 548.04[2][b], pp. 548-26 to 548-28 (15th ed. rev. 2002).
The trustee presented evidence that Frierdich transferred
a substantial sum of money, $400,000, to a close relative,
his wife, and received nothing in return. In Frierdich’s own
words to Union Planters Bank, the transfer was a “gift.” He
made this gift in the midst of his own financial demise. The
bankruptcy judge did not err by taking judicial notice of the
schedules filed in the underlying bankruptcy proceed-
ing. See In re Steffens, 148 B.R. 914, 916 (W.D. Mo. 1993);
Mitchell v. Western Data Processing Servs., Corp., 75 B.R.
825, 828 (D.P.R. 1987). Those schedules indicate that as
of February 17, 1999, Frierdich’s balance sheet was a sorry
$8,529,195 in the red. They also reveal that five lawsuits
against Frierdich were pending prior to September 10,
1998. 3 Although a debtor’s schedules, often filed months
after the time of transfer, may not be probative of the

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12 No. 01-4058
earlier time, it simply blinks reality to think that Frierdich
incurred $8,530,395 worth of debt and (innocently) dwin-
dled his assets to $1,200 in the 5 months between Septem-
ber 1998 and February 1999. Moreover, Koppeis stated
that, prior to the September stock sale, the IRS was gar-
nishing $1,000 of Frierdich’s monthly $1,500 “director’s fee”
from Columbia Centre. In sum, no reasonable fact finder
could conclude that Frierdich did not have an actual intent
to defraud his creditors in September 1998.
Because we find that the bankruptcy judge did not err
by concluding that Frierdich’s September transfer was
voidable, we need not address his alternative holding that
had the transfer occurred in January, it would have run
afoul of the Illinois Fraudulent Transfer Act and, therefore,
been avoidable under § 544. In light of Frierdich’s tax debts
and his personal guarantees of the debts of a failing busi-
ness, however, the bankruptcy judge was likely correct to
conclude that any transfer at that time was also fraudulent
and therefore voidable in the alternative under 11 U.S.C.
§ 544.
A FFIRMED .
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-97-C-006—6-21-02

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