Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-1_07-ap-01014/USCOURTS-canb-1_07-ap-01014-0/pdf.json

Parties Involved:
Old Crocker Inn Road, LLC
Defendant
Jeffry G. Locke
Plaintiff
Richard Bernstein
Defendant

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re

MARK and ELIZABETH LEVY, No. 05-12127

Debtor(s).

______________________________________/

JEFFRY G. LOCKE, Trustee,

 Plaintiff(s),

v. A.P. No. 07-1014

OLD CROCKER INN ROAD, LLC, et al.,

 

 Defendant(s).

_______________________________________/

 Memorandum After Trial

_________________

In the late 1980's, debtors Mark and Elizabeth Levy became “names” of Lloyds of London. At about

the same time, they established the Elizabeth M. Levy Trust with an initial contribution of $10,000.00. It was

further funded by an inheritance from Elizabeth Levy’s father in 1987. Although the debtors deny it, the court

has no trouble inferring from all of the facts and circumstances, including both the timing and the offshore

location, that the trust was established to shield assets from potential creditors in general and Lloyds in

particular.

Entered on Docket 

December 19, 2007

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 07-01014 Doc# 15 Filed: 12/19/07 Entered: 12/19/07 15:12:49 Page 1 of 4 
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By the end of the decade, the Levys realized that their relationship with Lloyds was going to be a

disaster. They moved the trust to the Isle of Man in 1990.

The nominal beneficiaries of the trust are Elizabeth Levy and the Levys’ two children, each with an

undivided one-third interest. While the trust purports to be irrevokable and purports to have an independent

trustee, the Levys clearly have always had actual control of the assets of the trust.

In 2002, the Levys found a property in Cloverdale, California, which they decided would be a good

property on which to build their retirement home. By this time, the Levys had been in litigation with Lloyds for

over a decade and knew they had a huge liability to it. Accordingly, they decided to purchase the property

using the trust’s assets. 

The Levys made the $8,500.00 earnest money deposit using their own funds. They then formed

defendant Old Crocker Inn Road, LLC, to take title to the property. The sole manager of the LLC is

defendant Richard Bernstein, a close personal friend of Mark Levy. The LLC is owned 95% by the

Elizabeth M. Levy Trust and 5% by one of the Levys’ children. Of the total purchase price of $395,000.00,

$195,617.32 in cash came from the Trust, $197,500.00 was in the form of a note made by the Levys, and

the balance was the earnest money deposited by the Levys. The Levys have always treated the property as

theirs, and have made several of the note payments from their own funds.

Lloyds obtained a final judgment against the Levys in 2004. The Levys filed their Chapter 7

bankruptcy petition on August 17, 2005. By this adversary proceeding, the Chapter 7 trustee, plaintiff Jeffry

Locke, seeks avoidance of the transfer of funds from the trust to the LLC as a fraudulent transfer, a

declaration that the bankruptcy estate has equitable ownership of the property, and a judgment that the LLC

be wound up and liquidated.

Under California law, trust assets are not shielded from creditors if the debtor is a beneficiary of the

trust and exercises excessive control over the assets of the trust or was the settlor of the trust. Cal. Probate

Code § 15304; In re Moses, 167 F.3d 470, 473 (9th Cir. 1999); In re Atwood, 259 B.R. 158, 162 (9th

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1Despite lack of any standing the court can see, defendants seek to drag the court into a choice-oflaws debate. Since the Levys are residents of California and the real property is in California, the court has

no difficulty applying California law.

2When the bankruptcy was filed, Lloyds had the right to avoid the transfer as fraudulent pursuant to

California Civil Code § 3439 et seq., as the transfer had been made within four years as required by Civ.

Code § 3439.09. Pursuant to § 544(b)(1), the bankruptcy trustee has the same right.

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Cir. BAP 2001).1 Accordingly, Elizabeth Levy’s interest in the trust was property of the estate and her

transfer to defendants for no consideration was a fraudulent transfer avoidable under § 544(b)(1) of the 

Bankruptcy Code.2

Had the Levys not used the trust property for their retirement home, the bankruptcy trustee would

have a much more difficult time recovering the trust assets for the bankruptcy estate. He would have either

had to litigate in the Isle of Man or, more likely, sought repatriation by proceedings against the Levys. See

F.T.C. v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999). Having obligingly repatriated almost all

of the trust assets by purchasing real property in California, the Levys have provided a remedy for their

creditors which does not involve offshore litigation.

Elizabeth Levy’s share of the trust in the Isle of Man was property of her estate because she exercised

excessive control over the trust and it was self-settled. Her transfer to defendants was accordingly avoidable

as fraudulent, both because it was intended hinder Lloyds and because reasonably equivalent value was not

given. 

Locke argues that he is entitled to the entire equity in the property of the defendant LLC, but the court

does not follow his logic. While Elizabeth Levy did not have the power to lawfully shield her own assets from

creditors by establishing her trust, she did have the power to divest assets to her children and did not need to

create the trust offshore in order to do so. It appears uncontested that Elizabeth had only a 33% percent

interest in the trust, having given the other two-thirds to her children. If that transfer was assailable, Locke has

not shown it. Accordingly, it appears that Locke is only entitled to avoid the transfer to the extent of

Elizabeth’s interest, or $65,205.77.

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Nor does it appear necessary to wind up the affairs of the defendant LLC, although the court will

leave the door open for Locke to seek this remedy if it is necessary. The court will issue a money judgment

against the LLC and declare that until it is satisfied it shall constitute a lien against the subject property. The

LLC may thereafter satisfy the judgment or Locke can collect it through normal procedures.

For the foregoing reasons, Locke shall have judgment against the defendant LLC in the amount of

$65,205.77, together with interest at the federal legal rate from and after June 3, 2003. Until satisfied, the

judgment shall be a lien against the Cloverdale property. Locke may seek other and further relief upon a

proper showing of necessity to avoid injustice. Locke shall recover his costs of suit.

This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a) and

FRBP 7052. Counsel for Locke shall submit an appropriate form of judgment forthwith.

Dated: December 19, 2007

SAlan Jaroslovsky

U.S. Bankruptcy Judge 

 

Case: 07-01014 Doc# 15 Filed: 12/19/07 Entered: 12/19/07 15:12:49 Page 4 of 4