Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-02564/USCOURTS-casd-3_09-cv-02564-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

In re

JOEL ESGUERRA FORRAL,

 Debtor.

CASE NO. 09-CV-2564 JLS (POR)

ORDER: AFFIRMING DECISION

OF BANKRUPTCY COURT

DAVID WALDEN,

Appellant,

vs.

GREGORY A. AKERS, Chapter 7 Trustee,

Appellee.

David Walden (“Appellant”) appeals from the Bankruptcy Court’s Order Granting Summary

Judgment in favor of Gregory A. Akers (“Appellee”), Chapter 7 trustee. (Bankr. Ct. Order) Appellant

asserts that the United States Bankruptcy Court for the Southern District of California improperly

granted summary judgment in favor of Appellee’s claim to avoid transfers made to Appellant as

preferences. (Appellant Br. at 1.) For the reasons stated below, the Court AFFIRMS the decision

of the Bankruptcy Court.

BACKGROUND

This appeal arises from the September 6, 2007 Chapter 7 bankruptcy filing of Joel Esguerra

Forral (“Debtor”). (Appellee Br. at 2.) Appellee was appointed as bankruptcy trustee in Debtor’s

case. (Id.) Appellee filed suit on behalf of Debtor’s bankruptcy estate, seeking to avoid certain

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transfers made by Debtor to his brother-in-law, Appellant, as preferential pursuant to 11 U.S.C. § 547.

(Id.) 

It is uncontested that the transfers at issue were related to property located at 2381 Boswell

Road, Chula Vista, California (“Boswell”). (Id.) Debtor owned a 50% undivided interest in Boswell.

Debtor’s sister, Anabel Walden, along with her husband, Appellant, (collectively the “Waldens”)

owned the remaining 50% interest. (Id. at 3.) In order to finance the purchase of Boswell, Debtor and

the Waldens obtained a loan of $1,350,000 from a predecessor of Union Bank. (Id.) Debtor and the

Waldens were equally liable for the loan, and were each required to pay half of the monthly mortgage

payment. (Id.) Boswell was leased to For All, Inc., a real estate and mortgage business owned 51%

by Debtor and 49% by the Waldens. (Id.) The rent paid by For All was used by Debtor and the

Waldens to make the monthly mortgage payments on Boswell. (Id.) In August 2005, Debtor

purchased the Waldens’ share of For All. (Id. at 3–4.)

For All defaulted on the Boswell lease and ceased paying rent to Debtor and the Waldens in

July 2006. (Id. at 4.) As a result, Debtor and the Waldens were no longer able to make the monthly

mortgage payments to Union Bank, and the loan went into arrears. (Id.) Union Bank brought a state

court foreclosure action, at which point Appellant agreed to pay the $44,337.99 in loan arrears to

avoid foreclosure. (Id.) Appellant and Debtor claim that the $44,337.99 payment represented an

“advance” or “loan” from Appellant to Debtor. (Id.) On February 14, 2007, Debtor and the Waldens

borrowed an additional $100,000 from Union Bank, secured by a deed of trust on Boswell. (Id.)

Subsequently, between October 1, 2006 and February 14, 2007, Debtor made four transfers

totaling $94,181.48 to Appellant. Appellant characterizes these transfers as repayment of the

$44,337.99 “advance” and reimbursement for money Appellant paid towards Boswell, but for which

Debtor was responsible. (Id. at 5.) In addition to the transfers made directly to Appellant, Debtor

made two full loan payments totaling $25,127.10 to Union Bank in June and July of 2007. (Id. at 6.)

Because Debtor and Appellant were equally liable for the loan obligation, half of the payments

($12,563.55) made by Debtor were on Appellant’s behalf. (Id.) All of Debtor’s transfers presently

at issue, which total $106,745.03, fell within the one-year preference period immediately preceding

Debtor’s September 6, 2007 bankruptcy filing. (Id.)

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On April 10, 2008, Appellee brought an action in the Bankruptcy Court to avoid and recover

as preferences the $94,181.48 of transfers from Debtor to Appellant and $12,563.55 of the transfer

from Debtor to Union Bank. (Id. at 2.) Appellee filed a motion for summary judgment on July 22,

2009. In response, Appellant denied that the transfers were preferential, claiming that Debtor was not

insolvent at the time they were made. (Opp. to MSJ at 4–5.) Alternatively, Appellant argued that the

transfers occurred within the ordinary course of Debtor’s business, a defense to preference actions

codified in § 547(c)(2). (Id.) The Bankruptcy Court granted Appellee’s motion for summary

judgment on September 22, 2009. (Appellee Br. at 2.) The Bankruptcy Court found that $49,095.23

of the transfers from Debtor to Appellant were avoidable, and that the entire $12,563.55 transfer to

Union Bank was avoidable. (Id.) The Bankruptcy Court entered judgment against Appellant for

$61,658.78 on November 2, 2009. (Id.) On October 2, 2009, Appellant filed a motion for

reconsideration, which was denied by the Bankruptcy Court. Appellant timely filed Notice of Appeal

to the United States District Court on November 12, 2009, along with a written statement of election

to have the appeal heard by the district court, pursuant to Bankruptcy Rule 8001(e).

LEGAL STANDARD

The district court has jurisdiction to hear an appeal from the bankruptcy court in this district

under 28 U.S.C. § 158(a). A bankruptcy court’s findings of fact are reviewed for clear error and its

conclusions of law are reviewed de novo. See In re Karelin, 109 B.R. 943, 946–47 (B.A.P. 9th Cir.

1990). A bankruptcy court’s decision to grant a motion for summary judgment is subject to de novo

review. Beeler v. Jewell (In re Stanton), 303 F.3d 939, 941 (9th Cir. 2002).

DISCUSSION

The Bankruptcy Court granted summary judgment on Appellee’s claim for avoidance of

preferential transfers between Debtor and Appellant. When reviewing a grant of summary judgment,

this Court’s task “is identical to that of the [bankruptcy court].” In re Black & White Cattle Co., 783

F.2d 1454, 1457 (9th Cir. 1986). “We must view the evidence and inferences therefrom in the light

most favorable to the party opposing the motion for summary judgment.” Jewel Cos. v. Pay Less

Drug Stores Northwest, Inc., 741 F.2d 1555, 1559 (9th Cir. 1984). A court must then determine

whether the moving party has shown through admissible pleadings, depositions, answers to

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interrogatories, and other affidavits that there is no genuine issue of material fact and that it would be

entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If this

burden has been met, the court assesses whether the non-moving party has come forward with its own

significant and probative evidence showing a genuine issue of material fact as to the relevant claims

or defenses. Id. at 322–23. Without specific evidence to support the conclusion, a bald assertion of

the “ultimate fact” by the nonmoving party is insufficient to fulfill its burden. See Schneider v. TRW,

Inc., 938 F.2d 986, 990–91 (9th Cir. 1991). 

Applying this framework, the Court finds that the Bankruptcy Court properly granted

Appellee’s motion for summary judgment. Because Appellant failed to establish a genuine issue of

material fact in response to Appellee’s motion, the Court AFFIRMS the Bankruptcy Court’s grant

of summary judgment on Appellee’s 11 U.S.C. § 547 claim.

I. Section § 547(b): Preference Payments

The Bankruptcy Code allows debtors and trustees to avoid certain pre-bankruptcy payments

made by the debtor if they can be characterized as preferences pursuant to 11 U.S.C. § 547(b). A

trustee may characterize a pre-petition transfer by the debtor as a preference by proving by a

preponderance of evidence that the transfer: (1) was made to or for the benefit of a creditor, (2) on

account of an antecedent debt, (3) made while the debtor was insolvent, (4) made within one year of

the bankruptcy filing if the transferee was an insider, and (5) enabled the creditor to receive more than

it would have otherwise received through the course of a chapter 7 bankruptcy. 11 U.S.C. § 547(b);

See also Arrow Elec. v. Justus (In re Kaypro), 218 F.3d 1070, 1073 (9th Cir. 2000). 

The Bankruptcy Court found that the transfers from Debtor to Appellant satisfied the five

elements of a preference. (Bankr. Ct. Order at 2.) Here, Appellant asserts that the Bankruptcy Court

was incorrect in finding that Debtor was insolvent at the time of the transfers. (Appellant Br. at 13.)

Because insolvency is the only element challenged by Appellant for which Appellee carries the burden

of proof, the Court will examine the sufficiency of Appellee’s motion for summary judgment only as

to that element. See Int’l Union of Bricklayers v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir.

1985) (“[W]e will not . . . consider matters on appeal that are not specifically and distinctly raised and

argued in appellant’s opening brief.”). 

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In support of his motion for summary judgment, Appellee demonstrated Debtor’s insolvency

during the period in question by setting forth various uncontested facts. For example, Debtor was no

longer able to pay his portion of the Boswell mortgage payments and was five months behind in loan

payments due on his personal residence. (MSJ at 9.) In addition, Debtor’s bank statements show that

his checking account was repeatedly overdrawn and he bounced eight checks during the period in

which the transfers were made. (Id.) This evidence would have entitled Appellee to judgment as a

matter of law on the question of Debtor’s insolvency at the time of the transfers. Celotex, 477 U.S.

at 322. 

Accordingly, Appellant had to demonstrate that a genuine issue of material fact existed in

order to defeat Appellee’s motion for summary judgment. See Richards v. Neilsen Freight Lines,

810 F.2d 898, 902 (9th Cir. 1987). Appellant failed to do so. In his opposition, Appellant claimed

Debtor was moving his assets to off-shore accounts and therefore any appearance of insolvency was

illusory. (Opp. to MSJ at 4.) However, Appellant’s supporting evidence consisted entirely of

conclusory and self-serving testimony. The Ninth Circuit “has refused to find a ‘genuine issue’ where

the only evidence presented is ‘uncorroborated and self-serving’ testimony.” Villiarimo v. Aloha

Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002). For this reason, Appellant’s opposition failed

to establish the existence of a genuine dispute of material fact. Therefore, the Bankruptcy Court

properly granted Appellee’s motion for summary judgment as to the question of Debtor’s insolvency

at the time of the transfers.

II. Section 547(c)(2): Ordinary Course of Business Defense

In an action to avoid and recover preferential payments, the Bankruptcy Code provides

creditors with an affirmative “ordinary course of business” defense. 11 U.S.C. § 547(c)(2); see Sigma

Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 789 (9th Cir. 2007). If

a creditor can prove that (1) the transfer “was in payment of a debt incurred by the debtor in the

ordinary course of business” and (2) that the transfer was either “made in the ordinary course of

business or financial affairs of the debtor and the transferee”, or “made according to ordinary business

terms,” the transfer cannot be avoided, regardless of its status as a preference. 11 U.S.C. § 547(c)(2);

see In re Healthcentral.com, 504 F.3d at 779. 

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The Bankruptcy Court found that the transfers from Debtor to Appellant were not made within

the ordinary course of business. Appellant argues that this finding was incorrect, and therefore

summary judgment should not have been granted. (Appellant Br. at 18–19.) However, in opposing

Appellee’s motion for summary judgment, Appellant had the burden of putting before the Bankruptcy

Court sufficient evidence to create a genuine issue of material fact, i.e. that the § 547(c)(2) defense

applied. See In re Healthcentral.com, 504 F.3d at 789. Appellant failed to meet that burden.

To prove that transfers occurred within the ordinary course of business, a creditor must show

that they were “ordinary in relation to past practices between the debtor and this particular creditor.”

Mordy v. Chemcarb, Inc. (In re Food Catering & Hous., Inc.), 971 F.2d 396, 398 (9th Cir. 1992).

Such a showing entails two components. Id. “First, the creditor must show a baseline of past

practices between itself and the debtor. Second, the creditor must show that the relevant payments

were ordinary in relation to these past practices.’” In re Healthcentral.com, 504 F.3d at 791 (internal

citation omitted). Appellant did not provide the Bankruptcy Court with evidence on either component.

Appellant merely quoted the language of § 547(c)(2), asserting in a conclusory and self-serving

manner that the transfers were “made in the ordinary course of business or financial affairs of the

debtor and the transferee or made according to ordinary business terms.” (Opp. to MSJ at 4–5.) 

On appeal, Appellant presents additional evidence in support of the § 547(c)(2) defense.

Appellant suggests that a landlord-tenant relationship existed between Appellant and Debtor as a result

of the lease agreement with For All, which was eventually owned entirely by Debtor. (Appellant Br.

at 19.) Further, Appellant points to the loans for which Appellant and Debtor were jointly liable. (Id.)

Appellant reasons that because these relationships were “ordinary business relationship[s],” any

payments from Debtor to Appellant should fit within the ordinary course of business defense.

Appellant’s arguments are unavailing. The fact that payments were made pursuant to an “ordinary

business relationship” does not necessarily lead to application of the § 547(c)(2) defense. Appellant

has failed to address the requirement that the payments be “ordinary in relation to past practices

between the debtor and . . . creditor.” Mordy, 971 F.2d at 398. 

However, failure of Appellant’s arguments on their merits is of secondary importance.

Appellant waived these arguments because he did not raise them before the Bankruptcy Court. The

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Court will not address arguments raised for the first time on appeal. See Smith v. Marsh, 194 F.3d

1045, 1052 (9th Cir.1999). Therefore, Appellant’s additional arguments on appeal do not present any

reason to reverse the Bankruptcy Court’s order. Accordingly, the Court AFFIRMS the Bankruptcy

Court’s order granting summary judgment.

CONCLUSION

In summary, because Appellee properly supported his motion for summary judgment and

Appellant failed to establish any genuine issue of material fact in response, the Bankruptcy Court

properly granted Appellee’s motion. The Court AFFIRMS the Bankruptcy Court’s decision to grant

Appellee’s motion for summary judgment on his claim to avoid and recover preferential transfers.

IT IS SO ORDERED.

DATED: April 14, 2010

Honorable Janis L. Sammartino

United States District Judge

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