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Bankruptcy | Case Law | Fraudulent Transfer

FRAUDULENT TRANSFER

In re JTS Corp., 617 F.3d 1102 (9th Cir. 2010)

Bankruptcy court properly found under 11 U.S.C. § 544(b) and Cal. Civ. Code § 3439.04

that transfer of property to the debtor’s chairman, who paid only $10 million, was constructively

fraudulent, based upon a reasonably equivalent value calculated at over $11.8 million (starting

from a full fair market value of $15,760,000. The defendant, however, was entitled to a reduction

in the amount of liability as a good faith transferee under § 3439.09(d), and should be credited

both with the $10 million purchase price as well as the value of an option to repurchase he granted

the debtor. He was also entitled to a credit for the settlement amounts paid by joint tortfeasors

pursuant to Cal. Civil Code § 877. Ultimately, the defendant was found to owe nothing to the

trustee for the conveyance.

In re Bledsoe, 569 F.3d 1106, 1112 (9th Cir. 2009)

“. . .[W]e hold that a state court’s dissolution judgment, following a regularly conducted

contested proceeding, conclusively establishes “reasonably equivalent value” for the purpose of

§ 548, in the absence of actual fraud.” This is true even though the dissolution judgment here was

by default.

In re Slatkin, 525 F.3d 805 (9th Cir. 2008)

1) Plea agreement of debtor is admissible to demonstrate that debtor operated a Ponzi

scheme with an intent to defraud, and that agreement conclusively established intent to defraud as

to transfer of purported profits to investor defendants;

2) Debtor was not a stockbroker for purposes of § 546(e).

In re AFI Holding, Inc., 525 F.3d 700 (9th Cir. 2008)

Under California Civil Code § 3439.04, the good faith exception to actually fraudulent

transfers is not barred as a matter of law because the right to rescission and restitution were

“reasonably equivalent value” under In re United Energy Corp., 944 F.2d 589 (9th Cir. 1991).

In re First Alliance Mortg. Co., 471 F.3d 977, 1001 (9th Cir. 2006)

“The proper measure of damages in fraud actions under California law. . . is “out-ofpocket”

damages. These are based on what was paid due to the fraud, as compared to what would

have been paid absent the fraud.”

In re Costas, 346 B.R. 198 (9th Cir. BAP 2006), aff’d, 555 F.3d 790 (9th Cir. 2009)

“. . .[U]nder [Arizona] state law, a debtor’s prepetition effective disclaimer of an

inheritance is not avoidable as a fraudulent transfer under section 548.” In re Bright, 241 B.R. 664

(9th Cir. BAP 1999) is still good law.

In re Northern Merchandise, Inc., 371 F.3d 1056 (9th Cir. 2004)

No fraudulent transfer found, where loan was to shareholders, but proceeds went to the

debtor and the loan was secured by the debtor’s assets. Bank acted in good faith under § 549(c),

since there was no evidence of fraud in structuring the transaction in this fashion.

Decker v. Advantage Fund Ltd., 362 F.3d 593 (9th Cir. 2004)

Unissued stock was not an interest in property of the debtor corporation for purposes of the

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fraudulent transfer claim.

In re Stern, 317 F.3d 1111 (9th Cir. 2003), cert. denied, 124 S.Ct. 1671 (2004)

Under Cal.Civ. Pro. Code § 704.115(a), funds transferred from an IRA into a non-ERISA

qualified pension plan after an adverse judgment was entered and immediately before filing for

bankruptcy is insufficient as a matter of law to constitute a fraudulent transfer. The private

retirement plan was ruled exempt.

In re Roosevelt, 220 F.3d 1032 (9th Cir. 2000)

A wife who exchanges her interest in her husband's legal education for property conveyed

to her by a bankruptcy debtor does not give property of value when the education was neither paid

for with community funds nor increased her husband's earning capacity during the marriage.

In re Bright, 241 B.R. 664 (9th Cir. B.A.P. 1999)

Washington state debtor’s disclaimer of inheritance not “transfer” of property for purposes

of federal bankruptcy law.

In re Heddings Lumber & Building Supply, Inc., 228 B.R. 727 (9th Cir. B.A.P. 1998)

Trustee claiming fraudulent and post-petition property transfer was required to prove that

debtor had an interest in the transferred property.

In re Trujillo, 215 B.R. 200 (9th Cir. B.A.P. 1997), aff’d, 166 F.3d 1218 (9th Cir. 1998)

Debtors’ transfer of property for no consideration was fraudulent conveyance. Transfer to

relative “is trust”

In re Cohen, 199 B.R. 709 (9th Cir. B.A.P. 1996)

Car dealers who acted in good faith not liable for unknowing involvement in Ponzi scheme.

...although some of the transfers are avoidable under Bankruptcy Code §548, the dealers qualify

for the safe harbor demarked by good faith and value given to the debtor and are entitled to retain

the money they received.

In re Lindsay, 59 F.3d 942 (9th Cir. 1995), cert. denied, 516 U.S. 1074 (1996)

Gross inadequacy of price is a ground only if state law so states.

Under BFP, Beneficial was entitled to judgment as a matter of law that the foreclosure sale

was not a fraudulent conveyance, so long as “all the requirement statute of frauds the State’s

foreclosure law have been complied with.” BFP, 114 S.Ct., at 1757. It could be set aside only if

there were “irregularity in the conduct of the sale that would permit judicial invalidation of the sale

under applicable state law.” Id., Even if there were such an irregularity, that alone would not

permit setting aside the foreclosure sale as a fraudulent conveyance. It would only destroy the

irrebuttability of the presumption that the price was “reasonably equivalent value.” The transfer

could then be avoided if the price received was not reasonably equivalent to “the price that would

have been received if the foreclosure sale had proceed according to law.”

In re Roosevelt, 176 B.R. 200 (9th Cir. B.A.P. 1994)

Property transferred by husband to wife (cp medical practice and law school education) not

valued from creditor’s viewpoint.

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BFP v. RTC, 511 U.S. 531, 114 S.Ct. 1757 (1994) - equivalent value under se 548(a)(2)

In a real property foreclosure sale, ‘reasonably equivalent value’ as used in §548(a)(2), is

conclusively deemed to mean the price in fact received at the foreclosure sale, if there is full

compliance with the requirements of the state foreclosure laws. The proper std is not ‘fair market

value’ which is defined in Black’s Law Dictionary (and by most MAI appraisals) as the price

obtained after ample negotiation between a willing buyer and a willing seller. The 548(a)(2)

inquiry must consider the distress and state law time constraints of a foreclosure sale that affect

price.). The Court declines to impose, as federal bankruptcy policy, “reasonable” foreclosure sale

practices or procedures, which may vary from state to state. Congress is not presumed, by the

phrase “reasonably equivalent value” either to upset 400 years of peaceful coexistence of

fraudulent transfer law and foreclosure law, or to undermine the essential state interest in the

security and stability of title to real estate.

In re Fair Oaks, Ltd., 168 B.R. 397 (9th Cir. B.A.P. 1994)

Creditor who receives a lien on real property on account of an antecedent debt of a third

party does not hold the status of a bona fide encumbrancer for value under Ca law.

In re Prejean, 994 F.2d 706 (9th Cir. 1993)

1) Reasonably equivalent value must be analyzed from creditors' perspective;

2) Payment of a time-barred debt can constitute reasonably equivalent value under CFTA.

Stoumbos v. Kilimnik, 988 F.2d 949 (9th Cir. 1993), cert. denied, 510 U.S. 867 (1993)

Fraudulent transfer of business’ goodwill by and to an insider

In re VandeKamp’s Dutch Bakeries, 908 F.2d 517 (9th Cir. 1990)

Transfers avoided under 548 are automatically preserved under 551

In re United Energy Corp., 944 F.2d 589 (9th Cir. 1991)

Value given for payments in the form of release of restitution claims = reasonably eq value

Ponzi scheme

In re Agric. Research and Tech. Group, Inc, 916 F.2d 528, 531 (9th Cir. 1990)

A Ponzi scheme is “an arrangement whereby an enterprise makes payments to investors

from the proceeds of a later investment rather than from profits of the underlying business

venture.” A “debtor’s actual intent to hinder, delay or defraud may be inferred from the mere

existence of a Ponzi scheme.” Id. at 535.

Kupetz v. Wolf, 845 F.2d 842 (9th Cir. 1988.)

Sale of debtor corp 2.5 yrs prior to filing of petition by means of lbo was not a ‘fr

conveyance

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FULL FAITH AND CREDIT

In re Marshall, 600 F.3d 1037, 1055-56 (9th Cir. 2010), cert. granted in part, 2010 WL 3053869

(Sept. 28, 2010)

Because the Texas probate court was the first to enter a final judgment on the debtor’s

claims, the bankruptcy court was required to given it preclusive effect under Texas law on

collateral estoppel.

Morgan Stanley Mortgage Capital Inc. v. Insurance Comm’r of State of California, 18 F.3d 790

(9th Cir. 1994)

No implied repeal of 1738 found.

Preclusive effect given to state court’s decision that state insolvency court had jurisdiction

over assets of entities affiliated with insolvent insurance company.

Section 1738 “commands a federal court to accept the [preclusion] rules chosen by the

State from which the judgment is taken.”....

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