MICHAEL HEBENSTREIT, Trustee v. Rajwinder Kaur

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted October 23, 2015*
Decided October 23, 2015
Before
MICHAEL S. KANNE, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
DIANE S. SYKES, Circuit Judge
No. 15‐1824
MICHAEL HEBENSTREIT, Trustee
Plaintiff‐Appellee,
v.
RAJWINDER KAUR ,
Defendant‐Appellant.
Appeal from the United States District
Court for the Southern District of Indiana,
Indianapolis Division.
No. 1:14‐cv‐00943‐LJM‐DKL
Larry J. McKinney,
Judge.
O R D E R
After Harbhupinder Bains filed a Chapter 7 bankruptcy petition, the trustee filed
an adversary complaint against Bains’s ex‐wife, Rajwinder Kaur, to recover corporate
stock that Bains had transferred to her before he sought bankruptcy protection. This
appeal focuses on two issues. The first is the bankruptcy court’s finding that Bains
transferred the stock to Kaur to defraud creditors. The second is the court’s order that
* After examining the briefs and record, we have concluded that oral argument is
unnecessary. Thus the appeal is submitted on the briefs and record. See FED. R. A PP. P.
34(a)(2)(C).
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1

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Kaur must pay to the bankruptcy estate the stock’s value at the time of transfer, rather
than just return the stock. Both rulings are proper, so we affirm.
The principal asset underlying the stock is a “travel plaza” (a gas station,
convenience store, and Subway franchise) in Indiana. Bains, his acquaintance Ashok
Bhargava, and Ashutosh Corporation (then owned equally by Bains and Bhargava)
bought the plaza in 2005. Ashutosh later acquired a third partner, Harbhajan Bajwa, but
Bains became its majority shareholder in 2007 after purchasing Bajwa’s shares. Around
this time Kaur began working at the plaza. This angered Bhargava who in April 2008
complained to Bains that wives, as non‐owners, could not work at the plaza. Bains
replied that, because he owned 52% of the partnership’s assets, Kaur could work there.
Bains eventually transferred his interest in the plaza’s assets to Kaur; in the
bankruptcy court the parties hotly contested whether he did so before or after September
2008. That is the month that Bains crashed his car into a tree, severely injuring a
passenger who sued Bains for over $300,000 in uncovered medical expenses. Kaur
testified that Bains conveyed his interest to her in March 2008, six months before the
collision. She cited to a transfer agreement purportedly signed in March and notarized
by a former employee. She added that she always should have been the majority
shareholder anyway because she provided a significant amount of the purchase money
in 2005. The trustee argued that Bains did not assign his interest until December. He
cited to a different version of the agreement, signed in December and filed then with the
county recorder. The transfer was fraudulent, the trustee continued, because it left Bains
insolvent when he knew he was facing a hefty lawsuit from the car crash.
The bankruptcy court found Kaur not credible and ruled that Bains fraudulently
transferred his interest to Kaur in December. It gave several reasons. First, the
March‐dated agreement included information that Bains testified he did not learn until
December. Second, if he had transferred his interest to Kaur in March, he would have
told Bhargava about it in April when responding to Bhargava’s objection that Kaur was
a non‐owner spouse working at the plaza. Third, previous sales, like the one involving
Bajwa, had been memorialized in a formal resolution, but the supposed March
transaction was not. The court also ruled that, by conveying his interest in December,
after he injured the car passenger, Bains committed actual fraud (an “intent” to harm
creditors, see IND. C ODE § 32‐18‐2‐14(1)) and constructive fraud (a transfer for
less‐than‐fair value that leaves the debtor insolvent, see I ND. C ODE § 32‐18‐2‐14(2)). In
finding actual fraud, the court observed that Kaur and Bains did not give a consistent,
innocent explanation for the transfer. Instead, they “doctored” the transfer agreement to

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No. 15‐1824 Page 3
“to make it look as [if it] occurred months before it actually did.” In finding constructive
fraud, the court noted that the transfer left Bains insolvent. The transfer also did not
occur in the usual course of business: Even after the transfer, Bains remained president
of Ashutosh and received dividends, and any funds that Kaur said she had contributed
to buy the travel plaza did not match the value of the shares at the time of the transfer to
her.
Based on the fraud, the bankruptcy court concluded that the transfer should be
avoided. At Kaur’s request, the court determined whether she must pay to the
bankruptcy estate the value the shares held at the time Bain transferred them to her or
whether she could simply return the stock. The court ruled that, because the stock’s
current value had depreciated significantly (because of environmental issues with the
gas station and the loss of the Subway franchise), Kaur must pay the value of the shares
at the time of transfer. It then credited the trustee’s expert’s testimony about the stock’s
value back then. The district court affirmed the bankruptcy court’s judgment.
On appeal Kaur first contends that the bankruptcy court erred in finding that
Bains transferred the stock fraudulently. We review rulings of law de novo, see First
Weber Grp., Inc. v. Horsfall, 738 F.3d 767, 776 (7th Cir. 2013), but Kaur principally
challenges only findings of facts, which we review for clear error. Id. She again insists
that the transfer occurred in March, before Bains injured his car passenger. The
bankruptcy court, however, permissibly found that Bains and Kaur did not credibly
testify that the transfer occurred in March. Kaur cites no evidence that refutes the several
reasons the court gave for rejecting her March story and its finding that she and Bains
“doctored” a March transaction date to avoid paying a potential judgment. The court
also reasonably rejected Kaur’s defense that she supplied money to purchase the plaza in
2005, finding that even if she did, the stock transfer over‐compensated her and left Bain
insolvent. Therefore the court reasonably found fraud. See In re Marcus‐Rehtmeyer, 784
F.3d 430, 436–37 (7th Cir. 2015); First Weber Grp., Inc., 738 F.3d at 776.
Kaur raises a legal argument about the fraud ruling, but it is groundless. She
asserts that because a state court had decided, in a shareholder suit involving Bains,
Kaur, and Bahargava, that Kaur owned corporate shares, the bankruptcy court was
estopped from relitigating that decision. (We do not have the state‐court judgment in the
record.) Although a state‐court judgment can have preclusive effect in bankruptcy
proceedings, see In re Davis, 638 F.3d 549, 553–54 (7th Cir. 2011); In re Catt, 368 F.3d 789,
792–93 (7th Cir. 2004), the judgment here did not. Indiana law bars relitigation of an
issue only when “the matter at issue was, or might have been, determined in the former

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suit,” see Haber v. Biomet, Inc., 578 F.3d 553, 556 (7th Cir. 2009). But the issue in the
bankruptcy court was not stock ownership; in fact, the court treated Kaur as owner
before it avoided the transfer to her. The issue in the bankruptcy court was whether Bain
made Kaur a stock owner in order to defraud creditors. Because that issue was not
relevant to the state‐court case, the trustee was not estopped by that court’s rulings.
Next Kaur argues that the bankruptcy court erred in framing relief. She should
not, she contends, have to pay the value of the shares when she received them; she need
only return the shares to the bankruptcy estate. But to restore a bankruptcy estate to its
pre‐transfer financial condition, the bankruptcy court has discretion to award the trustee
the actual property or its pre‐transfer value. See In re Taylor, 599 F.3d 880, 889–90 (9th
Cir. 2010); In re Trout, 609 F.3d 1106, 1111–13 (10th Cir. 2010). Here, the bankruptcy court
reasonably determined that returning the stock would not restore the estate’s
pre‐transfer financial condition because post‐petition events significantly decreased the
shares’ value. And Kaur gives us no valid reason to disturb the “great weight” accorded
to a district court’s assessment of the stock‐valuation testimony of the trustee’s expert.
Goodpaster v. City of Indianapolis, 736 F.3d 1060, 1069 (7th Cir. 2013).
Finally, Kaur argues the trustee’s complaint was untimely. But she forfeited this
issue by failing to raise it in the bankruptcy court. See In re Sokolik, 635 F.3d 261, 268
(7th Cir. 2011); Matter of Weber, 25 F.3d 413, 415 (7th Cir. 1994).
Accordingly, the judgment is AFFIRMED.

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