F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

U N I T E D S T A T E S S M

A L L B U S I N E S S A D M I

N I S T R A T I ON , an ag ency o f the g overnment of the United States of America,

Plaintiff-Appellee
,

v

.

M I C H A E L D. B E

N S A L , an individual, D efendant-Appellant
,

and

S U S A N J

. B E N S A L , as trustee of the Edward D. B ensal Trust; M I C H A E L E D W

A R D B E N S A L , an individual; S O P H I A B E N S AL , an individual, Defendants. No. 14-17404

D.C. No. 3:13-cv-02263-W HO

OPI NI ON

Appeal from the United States District Court for the Northern District of California W illiam Horsley

Orrick, District J udg e, Presiding

Arg ued and Submitted December 12, 2016 San F rancisco, CaliforniaS M A L L B U S

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F iled April 4, 2017

B efore: Michael Daly

Hawkins, Marsha S. B erz on, and Mary H. Murg u ia, Circuit J udg es.
Opinion by

J u dg e Murg uia

SUMMARY *

F e deral Debt Collection P r o cedures Act

The panel affirmed the district court’s judg ment in favor of the U nited States Small B usiness A dministration (“SB A”) in the SB A’s action seeking to satisfy a default j udg ment assig ned to SB A, arising after the default on a loan that SB A g uaranteed b etween a private bank and appellant Michael B ensal’s company

.
Michael B ensa l did not accept a n inheritance in his deceased father’s trust, and instead sig n ed a disclaimer
, which t r a n sferred his trust share to his children and prevented creditors from accessing his trust share under California law.

The F ederal Debt Collection Proce du r e s A ct (“F DCPA”)’ s “ f

raudulent transfer” provision allows the federal g overnmen t t o void a fraudulent transfer b y a debtor owing a debt to the United States. The SB A s o u g ht to void B ensal’s disclaimer under the F DCPA as a fraudulent transfer

* T h is su m m ary co n stitu

tes n o p art o f th e o pin io n o f th e co urt. It h as b eenp rep ared b y

co urt staf

f f o r th e co n v en i en ce o f

th e read er.S M A L L B U S

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that prevented SB A from collecting the debt B ensal owed on the default judg ment.

The panel held that the F DCPA displaced California’s disclaimer law, Californ ia Probate Code § 283. The panel concluded that B ensal’s disclaimer constituted a tra n sfer o f property under the F DCPA, and California disclaimer law did not operate to prevent the SB A from reaching B ensal’s trust share.

The panel held that B ensal o wed a “debt” to t h e United States. T he panel con c luded that the portion of the default judg ment based on a s ec ond loan, which was g uaranteed b y the SB A, was a “debt” within the meaning of the F D CPA.

COUNSEL

Br ian D. Seibel (arg

ued), Seibel & F inta L L P, Concord, California, for Defendant-Appellant.

David M. W iseblood (arg ued), San F rancisco, California, for Plaintiff-Appellee.S M A L L B U S

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OP INION

MURGUI A, Circuit J udg e:

T h i s case requires us to interpret two provisions of t h e F ederal Debt Collection Procedur e s Act (“F DCPA”), which C o n g ress enacted “to create a comprehensive statutor y framew o r k f

o r the collection of debts owed to the United States g o vernment.” United States v. Gianelli
, 543 F .3d 1178, 1183 (9th Cir. 2008) (quoting H .R. Rep. No. 101- 7 3 6, at 32 (1990)).

The United S t a t es Small B u siness Administration (“SB A”) g uaranteed a loan between a private bank a nd Appellant Michael B ens al’s (“B ensal”) company , B ensal & Coburn I n vestments L L C (“BCI ”). After B CI defaulted on the loan, the private bank sued BC I a s the borrower a nd B ensal as a personal g uarantor. The private bank recovered a default judg ment and assig ned that judg ment to the SB A.

Several y ears later, B ensal inher i t ed a share in his deceased f

ather’s trust. B ensal did not accept his inheritance; instead, he sig ned a disclaimer, which leg ally passed his trust share to his two children an d p r e vented creditors from accessing his trust share under California law. After B ensal

ex e c uted his disclaim e r , the SB A filed a lawsuit seeking to satisfy its d efaul t j udg ment. The d istrict court h eld that: (1) the SB A is a l l o w ed to r ecover from B ensal’s trust share under the F DCPA despite contrary California law, and (2) the d e fault judg ment was a d ebt within the meaning o f t h e F DCPA. W e affirm.S M A L L B U S

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BACK G ROUND

I n 1999, B CI soug h t to establish TransW orld Bu r g ers, a fast-food restaurant with an airline-inspired theme and decor. To finance this operation, B CI took o ut two loans from Millennium B ank ( “Millennium”). I n connection with the second loan, b ut not the first, B CI soug ht a g uaranty from the SB A.

The SB A i s a federal g overnment ag ency that assists small businesses b y , among other th i n g s, g uaranteeing commercial loans from p rivate banks. B y prov iding its g uaranty that a commercial loan will b e repaid, the SB A eliminat e s s o me of the risk private lenders face a nd encourag es p rivate lenders t o ex tend more loans to small businesses. 15 U.S.C. § 636 ( a ) ( “ The [ SB A] is empowered

. . . to make loans to any q u alified small busine s s

. . . either directly or in cooperation with bank s or other financial institutions throug h ag r eements to participate on an immediate or deferred (g uaranteed) b asis.”); see also United States v. Kimbell Foods, Inc.
, 440 U

. S

. 7 1 5
, 7 19 n.3 (1979) (noting that “[ t] he SB A prefers to gu arantee private loans rather than to disburse funds directly ”).

A. The SBA G uaranty and BCI’s Def ault

Over the course of several months, the parties sig n ed

se v e ral d ocuments as part of the SB A’s g u aranty of the second loan between B CI and Millennium. F irst, Millennium submitted an application to the SB A for an SB A g uaranty o f 75% of a proposed $ 250,000 l o a n to B CI

. I n a sig n ed document (“SB A Authoriz ation”), the SB A reduced the loan amount to $ 175,000, b u t otherwise approved the bank’s application, ag reeing to g uarantee up to 75% of the l o an.S M A L L B U S

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Nex t, B CI and Millennium ex ecuted a standard loan contract (“B usiness L oan A g reement”), in w h i c h B CI borrowed $175,000 from Millennium. B CI sig ned a form (“SB A N ote”) acknowledg ing its second loan w ith Millennium, and B ensal sign ed a form (“SB A Guaranty ”) personally g uaranteeing repay ment of the second loan if B CI defaulted. B oth the SB A N o te and the SB A Guaranty appeared on SB A letterhead
, referenced the same SB A loa n

- i d e ntify ing information, a nd defined rig hts SB A held ag ainst B e n sal and B CI

.

I n J anuary 2000, B CI defaul t e d on its pay ment obli ga t i ons under both loans; some time before the default, Millennium had assig n e d both loans to F irst B a nk & Trust (“F B T”). F B T filed suit in California state c ourt and a lleg ed, among other claims, t h a t B CI had breached the SB A Note and B ensal had breached the SB A Guaranty . The state court entered default judg ment ag ainst B CI and B ensal in the following sums: (1) $95,576.66 in p rincipal and interest owed

on the first loan, ( 2) $140,905.63 in principal and interest owed on the second loan, (3) $50,257.92 in attorney fees, a nd (4) $902.50 in costs.

B e c a u s e neither B CI nor B ensal satisfied the default judg ment, F B T requested that the SB A honor its g uaranty o f the second loan. I n 2 0 0 5, the SB A neg otiated a monetary adjustment w i t h F B T and ultimately paid $54,027.39 to

s a t i s f y its oblig ations a s a g uarantor on the second loan. I n 2011, F B T assig ned to the SB A its rig ht to collect the entire amount o wing on the default judg ment (over $300,000) from B CI and B ensal.S M A L L B U S

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B. Bensal’s Inheritance and Disclaim er

I n J uly 2 011, B e nsal’s father died, leaving b ehind the E dward D

. B ensal Trust (“EDB Trust”), which consis t e d o f cash and secu r ities valued at $400,692.94. The trust document a

warded B ensal 40% of the EDB Trust. I n October 2011, B e nsal ex ecuted a “Disclaimer o f I nterest in Tr u s t,” which means he renounc e d —refused to accept—his 40% share of the trust. The leg al e ffect of the disclaimer under California law was that B ensal’s trust share passed to his two children. C A L

. P R

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. C O D E§ 282.

After B ensal ex ecuted the disclaimer, the SB A filed suit in federal d i s t r ict court ag ainst the EDB Trust, B ensal, a nd B ensal’s two childr e n

. T he SB A soug ht to void B ensal’s disclaimer under the F DCPA. I n its complaint, the SB A claimed that B ensal had fraudulently transferred his trust share to his children by ex ecuting the d i s c laimer, thereby preventing the SB A from collecting the d ebt B ensal owed on the default judg ment.

B e nsal advanced two arguments in response. Fi rs t, he asserted that his disclaimer was no t a fraudulent transfer because the California Probate Code provides that “[ a] disclaimer is not a voidable transfer.” C A L

. P R O B

. C O D E § 283. Second, he maintained that the default judg ment assig ned to the SB A was not a “debt” within the meaning of the F DCPA.

The district court r ejected both of B ensal ’s arguments, g ranted summary judg ment in favor of the SB A, and ordered the defendants to “transfer all property representing B ensal’s trust share to the SB A in satisfactio n of the portion of the default judg ment relating to the second loan.” At the time o fS M A L L B U S

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the dis t r i c t c ourt’s summary judg ment order, the amount B ensal o wed on the portion o f the d e fa ult judg ment relating to the second loan was over $30 0
, 0 0 0
, 1 while the value o f B ensal’s trust share totaled $153,944.03. B ensal timely appealed.

STANDARD OF REVIEW

This c ase involves only statutory interpretation, which we review de no v o

. See Millard v. United Student A id Funds, Inc.
, 66 F .3d 252, 253 (9th C i r

. 1995). W e review a district court’s g rant of summary judg ment d e novo. Entrepreneur Media v. Smith , 279 F

. 3d 1135, 1139–40 (9th Cir. 2002).

D ISCUSSION

At the h eart of this case lies th e FD C PA’s “fraudulent transfer” provision, which allows the federal government to void a fraudulent transfer by a debtor o w i n g a d ebt to the United States. 2 28 U.S.C. §§ 3301–330 8

. Specifically
, the F DCPA provides that

a tran s fer made o r oblig ation incurred by a debtor is fraudulent as to a debt to the United States w hich a

rises before the transfer is made or the oblig ation is incurred if—

1 In th e def

au lt j u d g m en t issu ed in 2 0 0 2
, th e state co urt determ in ed th at B CI an d B en sal o w ed $ 1 4 0 ,9 0 5.6 3 o n th e s e c o n d l o an

. Sin ce th at tim e, i n terest h a s a c c ru ed at a rate o f 1 0% an n u ally
, b rin g in g th e t o t al

am o u n t o w ed o n

th e seco n d lo an

to o v er $ 30 0 ,0 0 0

.

2 T h e S B A f

alls w i th i n th e d ef

i n itio n of th e “ Un ited States” un d er th e FDCP A . 2 8 U.S.C. § 3 0 0 2 (1 5 ).S M A L L B U S

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(1)(A) the debtor makes the transfer or incurs the oblig a tion without receivinga reasonably equivalent value in ex c hang e for the t r a nsfer or oblig ation; and

(B ) the debtor is insolvent at that time or the debtor becomes insolvent a s a result of the transfer or oblig ation[ .]

28 U.S.C. § 3304(a).

B a sed on the statutory lang uag e, the S B A must prove: (1) the ex istence of a debt predating the transfer, (2) a transfer of assets, (3) lack of equivalent v alue in ex chang e for the transfer, and (4) the debtor’s insolvency at the time o f transfer. Neither party contests that the t h i r d and fourth requirements are satisfied. Instead, the dispute centers o n: (1) whether B ensal’s disclaimer qualifie s as a transfer o f property , and (2) whether the default judg ment c o nstitutes a debt.

I. Whether Bensal’s Disclaim er is a Transf er of P roperty

B e nsal contends that Cali f o r n ia law, which ex pressly states that “[ a] disclaimer is not a voidable transfer,” c ontrols

over the F DCPA and p r ev e n t s the SB A from reaching the EDB T rust assets. C AL

. P R O B

. C O D E § 283. W e disag ree a nd hold that the F DCPA displaces California’s disclaimer law.

A. P reem ption

“The Supremacy Clause of the Constitution provides that any state law conflicting with federal law is preempted by theS M A L L B U S

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federal law and is without effect.” Nathan Kimmel, I nc. v. DowElanco
, 275 F .3d 1199, 1203 (9th Cir. 2002) (citing U.S. Const. a rt. VI
, cl. 2). W here a statute contains an ex press preemption clause, we “focus on the plain wording o f the clause, which necessarily c o n t ains the best evidence o f Cong r ess’ preemptive intent.” Chamber o f Commerce of U

.S.

v. W hiting , 563 U.S. 582, 594 (2011) (quoting CSX Transp., Inc. v. Easterwood
, 507 U.S. 658, 6 64 (199 3 )) (internal quotation marks omitted).

The F DCPA conta i n s a n ex press preemption clause, which “preempt[ s] State law to the ex tent such law is inconsistent with a provision of [ t h e statute] .” 28 U.S.C § 3003(d). E c h o i ng this preemption clause, federal regulations provide:

No person, corporation, or org aniz ation that

a p p l ies for and receives any benefit o r
a s s istance f

rom SB A, or that offers an y
assu rance o r security u

p on which SB A relies for the g ranting of such b enefit or assistance, is entitled to claim or assert any local or state law to d

e f e at the obligation incurred in obtaining or a ssuring s u c h F ederal benefit o r assistance.

13 C.F .R. § 101.106(d) (emphasis added). W hen Be n s al sig ned the SB A Guaranty
, in which he personally g u aranteed the second loan, he ag reed to a provision that t r ac k s the lang uag e of the regulation: “As to this Guarantee, Guarantor may not claim or assert any local or state law ag ainst SB A to deny any oblig ation, d e f

e a t any claim o f SB A, o r preempt federal law.”S M A L L B U S

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The state law at issue here i s C alifornia Probate Code § 283, which provides that “[ a] disclaimer is not a voidable transfer.” This law d irectly conflicts with the F D CPA, which defines “ transfer” in s u c h a way as to include B ensal’s disclaimer. The F DCPA defin e s “transfer” as “every mode

. . . of disposing of or parting with an asset or an interest in an asset

. . . .” 2 8 U.S.C. § 3301(6) (emphasis added). “ ‘Asset’

means p roperty of a debtor.

. . .” Id. § 3301(2) (emphasis added). The term “property ” is defined as

any present or

future interest , whether leg al o r equitable, in real, p e r s o nal (including choses i n action), or mix ed property , tang ible o r intang ible, vested or conting e n t, w herever l o c a t e d a n d h o w e v e r h e l d ( i n c l u d i n g community property and property held in trust

. . . .
Id. § 3002(12) (emphasis added). B ased o n the plain lang uag e of the F DCPA, B ensal’s disclaimer of the trust p r operty qualifies a s a transfer of property b e c ause B ensal “disposed of” a “present o r f

u ture interest” in his 40% share o f “propert y h e ld in trust” by ex ecuting a disclaimer that channelled the trust share to his children.

Under the FD C PA, B e nsal’s disclaimer is a transfer o f property that can b e v o ided, 28 U.S.C. § 3304(a), but under the California Probate Code “[ a] disclaimer is not a voidable transfer.” C A L

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. C O D E § 283. I t seems quite clear that California law is inconsistent with the F DCPA and must g ive way to the federal statute in l i gh t o f the ex press preemption clause.S M A L L B U S

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B. Suprem e Court P recedent

Even aside from t h e preemption c lause, our conclusion that the F D CPA controls over California disclaimer law also f i n ds support in the Supreme Court’s decision in Drye v. United S tates , 528 U.S. 49 (1999). B e n sal argues that Drye is inapplicable to the facts of this case and urg e s u s i n stead to apply the holding of I

n re C o s t a s , 555 F .3d 790 (9th Cir. 2009). B ecause b o th Drye and Costas addressed state disclaimer laws that a r e virtually identical to the California law at issue here, these two cases are best discussed in tandem.

I n Drye
, the debtor, who o wed a substantial tax debt to the federal g overnm e nt, inherited his mother’s estate. 528 U.S. at 52. Soon after b eing named sole heir, the debtor disclaimed his interest in the estate, which the n passed b y operation of Arkansas state law to hi s daug hter. Id. Upon learning of the debtor’s inheritance, t he I nternal Revenue Service (“I RS”) filed a notice o f f e d er a l t ax lien, but the debtor a r gued that Arkansas inheritance law disallowed creditors from reaching disclaime d p r o perty

. Id. at 5 3. The Supreme Court rejected this arg u ment and ex plained,

The question whether a st a t e-law rig ht constitutes “property

” o r “rig hts to property” is a matter of federal law. W e look initially to state law to determine w h a t rig hts the tax pay er has in the property the Government seeks to reach, then to federal law to determine whet h er the tax pay er’s state-S M A L L B U S

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delin e a t ed rig h ts qualify as “property ” o r “rig h ts to property” within the compass of the federal . . . leg islation.

Id. at 58 ( internal citation a nd quotation marks omitted). The Court then looked to state law and noted that Arkansas g ave the debtor a choice: he could either “ receive the entire value of h is mother’s estate,” or choose to “channel that value to his daug hter.” Id. at 6 1

. B ased o n this choice, the Court concluded th a t the debtor held a “control rein” over his inherit a n c e a

nd, therefore, possessed “property ” within the meaning of the federal ta x lien statute. Id. at 61. Ultimately
, t h e D r y e court concluded that state law did not bar the I RS from recovering

ag ainst the debtor’s trust share. Id.

I n Costas
, we addressed a nearly identical state disclaimer statute in the contex t of bankruptcy l a w a n d a rrived a t a different result. The debtor in Costas received a share in her f a t h er’s trust upon his death in 2 002; shortly thereafter, she

ex e c uted a disclaimer under A riz ona law t o r e linquish her interest, which passed the trust share to h e r children. 555 F .3d at 791–92. A few weeks later, the debtor filed for bankruptcy
, and the C h a p t er 7 b ankruptcy trustee soug ht to v o id the disclaimer under the bankruptcy c o d e ’ s fraudulent transfer provision. Id. at 792. T h e debtor a rg ued that under A riz o na law, creditors were pr o h ibited from reaching disclaimed property ; in response, the t ru s t ee invoked Drye for the proposition that Ariz o na disclaimer law does not control over federal l aw. Id. at 7 92–93. We d isting uished Drye both factually and leg ally

. Id. at 795–97.

F irst, we noted a factual distinction based on the t i m ing of the disclaimer in the two c a ses. T h e d e b tor in Drye

ex e c uted his disclaimer a f t e r the g overnment already had aS M A L L B U S

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pre-ex isting interest in h is property ; therefore, “[ a] pplication of the state l a w

. . . w ould have stripped the g overnment o f [ its] interest.” Id. a t 7 9 6

. I n contrast, the debtor in Costas

ex e c uted her disclaimer before filing f o r b ankruptcy
, meaning that the b ankruptcy estate d id n o t have any prior interest in the disclaimed property and “the state law did not operate to defeat any pre-ex isting interests.” I d. W e ex plained that Drye is more analog ous to post-petition disclaimers (i.e., where the debtor ex ecutes a disclaimer a f t er filing for bankruptcy ) because in those situations “courts have g enerally included disclaimed p r operty in the estate, reasoning that the r ig ht to disclaim itself belong s to the estate as of the ti m e of filing

. ” Id. I n short, we conc l u d e d that when a debtor ex ecutes a disclaimer after a debt has already been accrued, then a state disclaimer law does not control.

Nex t, we n oted differences in the purpose and structure o f the federal tax lien statute a nd the bankrupt c y code. As to purpose, we ex plained that the federal tax lien statute is primarily concerned with c o llection of federal debts, which “justifies the ex traordinary priority accorde d ” to the federal g overnment and “contrasts sharply with the p o l i c y o f bankruptcy

law, which larg ely respects substantive state law rig hts.” Id. at 796–97. W e also h ig hlig hted a structural dissimilarity between th e t w o statutes, ex plaining that the federal tax lien stat ute recog niz es “only a narrow rang e o f [ proper t y ] e xe m p t i o n s , n o n e o f which mention[ ] disclaimers,” whereas the b a

nkruptcy c ode’s property “ex emptions are

. . . quite broad, allowing a d ebtor to tak e advantag e of all available state law ex emptions.” Id. at 797 (citing 11 U .S.C. § 522).

Ultimately
, we “refuse[ d] to ex tend [ Drye ’s] log ic to the bankruptcy contex t” in the Costas decision. I d

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Costas
, however, this c ase presents a situation that factually and leg ally

fits within the Drye framework.

F irst, the I RS in Drye a n d t h e SB A here b o th had a preex isting interest in the disclaimed property because the debtor in each case ex ecuted a disclaimer after the debt had already accrued. Id. at 796. I n contrast, the trustee i n C o s t a s h ad no prior interest in the debtor’s disclaimed property , because the disclaimer there o ccurred before the debtor filed for bankruptcy

. Id

. This f

actual distinction is cruc i a l, a s we recog niz ed in Costas
, b ecause “[ a] pplication of the state law [ disclaimer] would

. . . s trip[ ] the g overnment of [ its preex isting ] interest.” Id.

Nex t, the purpose o f t he F DCPA is more similar to the federal tax li e n statute at issue in Drye than the bankruptcy code involved in Costas

. Much like the federal tax lien statute, the F DCPA is primarily concerned with the collection of federal d ebt, as it was enacted to “create a comprehensive statutory framework for the collection o f debts owed to the United States g over n m ent.” Gianelli
, 543 F .3d at 1183 (quoting H.R. Rep. No. 101-736, at 3 2 ( 1990)). This purpose is also reflected in the leg islative history of the F DCPA, which reveals that Congress’ g oal was to

bring an end to the present situation whereby

a craz y patch w o r k o f laws in the 50 states dictate the debt collection remedies available to [ the federal g overn m e n t] in collecting F ederal debts. I t would p rovide consistent a nd fair cr e d i tors’ r ig hts to the Government reg ardle s s of the state of r esidence of the debto r and eliminate the preferences c ertainS M A L L B U S

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state laws presently confer on F ederal debtors

w h o just happen to live in states which a r e reg arded as notorious ‘debtors havens.’

H.R. Rep. No. 101-825 (1990).

The F DCPA does share the bankruptcy code’s ex tensive list of property ex emptions. See 28 U.S.C. § 3014(a)(1) (ex pressly incorporating the bankruptcy code’s p roperty

ex e mptions into the F DCPA). This sing le, shared featu re between the F DCPA and the bankruptcy code, however, is dwarfed by the sig n ificant parallels b etween the F DCPA a nd t h e federal tax lien statute. More importantly
, w e acknowledg ed in Costas that d espi t e the bankruptcy code’s

ex tensive property ex e mptions, if the facts there h ad been

mo r e similar to the facts here (i.e., a disclaimer a fter the bankruptcy estate “g ain[ e d an] interest in the rig ht to disclaim”) the state disclaimer law would not have prevented creditors from accessing the disclaimed pr o p erty

. In re Costas
, 555 F .3d at 796. T h e considerable similarity b etween the federal tax lien statute and the F DCPA supports ex tending the reasoning in Drye to the present case. See E xp. Imp. Bank of U .S. v. Asia Pulp & P aper Co.
, 609 F

. 3d 111, 117 ( 2d Cir. 2010) (ex tending the D rye analy sis from the federal tax lien statute to the F DCPA contex t).

Apply ing the analy

tical f ra mework set forth in Drye
, we look “to state law to determine what rig hts the [ debtor] has in the property the Government seeks to reach, then to federal law to d etermine w hether the [debtor’s] state-delineated rig ht s q u a l i fy as ‘property ’ or ‘rig hts to property ’ within the compass of the [ F DCPA] .” 528 U.S. a t 58. To determine what rig hts B ensal possessed in his 40% share of the EDB Trust,

we must turn to the California d i s c l aimer law at issue h ere,S M A L L B U S

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which is virtually indisting u i s h a b le from the Arkansas disclaimer l aw addressed in Drye

. B oth statutes allow a beneficiary to channel inherited property to h is children a nd

ex p ressly prohibit creditors from reaching disclaimed property

. Compare C A L

. P R O B

. C O D E § 282–83 with Drye
, 528 U.S. at 53. I n lig ht of the nearly identical disclaimer sta t u t e s , the Supreme Court’s holding in Drye mandates a sing le outcome h ere: “[ B ensal] had the unqualified rig ht to receive the

. . . value of his [father’s] estate

. . . or to channel that value to his [ c hildren]

. Th e control rein he held under state law

. . . rendered the inheritance ‘property ’ or ‘rig h ts to property ’ belong ing to him within the meaning o f [ the F DCPA] .” Drye , 528 U.S. at 61.

Therefo r e , w e conclude that B ensal’s disclaimer constitutes a transfer of p ro p e rty under the F DCPA, a nd California disclaimer law does not o p er ate to prevent the SB A from reaching

B ensal’s trust share.

II. Whether Bensal Ow es a “Debt” to the United States

The second disputed issue is whether the sta t e c ourt default judg ment assig ned to the SB A const i t u t es a “debt” within the mea n i ng of the F DCPA. The F DCPA defines a “debt” as follows:

(A) an amount that is owi n g to the United States on account of a direct loan, or loan insured or g uaranteed, by the United States; o r
(B ) an amount that is owing to the United States on account o f a fee, d uty , lease, rent, service, sale of real or personal pro perty , overpay m ent, fine, assessment, penalty
,S M A L L B U S

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. B E N S A L 18

r e s titution, damag e s, interest, tax , bail bon d forfeiture, r eimbursement, recovery o f a cost incurred by the United States, or other source of indebtedness to the U n i ted States, but that is not owing under the terms of a contract orig inally e ntered int o b y only persons other than the United States.

28 U.S.C. § 3002(3). B ecause the statute is writt e n i n the disjunctiv e , an a mount owed constitutes a “debt” a s long a s it satisfies either subsection (A) or subsection ( B)

. We hold that the default judg ment assig ned to the SB A is a d e bt under subsection (B ), and therefore we need not address subsection (A).

Subsection (B ) contains a b road definition of “ debt” that encompasses a wide array of financial oblig ations as well as

a catch-all provision for any “other source of indebtedness to the United States.” Id. § 3002(3)(B ). T he ex pansive definition of “debt” set forth in subsection (B ) is, however, cabined by limiting lang uag e that ex cludes any amount “owing under the terms o f a c ontract orig inally en t e r e d into by only persons other than the United States.” Id.

Neither party disputes that a default judg ment falls within the c atch-all provision because it qualifies as an “other source of inde btedness to the U nited States.” Id. The only question before us, then, is whether the limiting languag e prevents the default judg ment from qualify ing as a debt under subsection (B ); that is, w hether the de f a u lt judg ment involves a d ebt “owing under the terms o f a contract o rig inally entered into by only persons other than the United States.”S M A L L B U S

. A D M I

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. B E N S A L 19

The F ifth Circuit has issued an instructive o p i n ion interpreting the limiting lang u ag e of subsection (B )

. Sobranes Recovery Pool I, LL C v. Todd & H ughes Const. Corp
., 509 F .3d 216 (5th Cir. 2 007). I n Sobranes
, the F ederal Deposit I nsurance Corporati o n (“F DI C”), a United States

a ge ncy , acquired the assets o f a failing private bank in receivership. Id. at 218. A mong those a s s ets was a loan orig inally entered into between the defunct bank and a private borrower, who had defaulted. Id

. Shor t ly after acquiring the bank’s ass e ts, the F D I C broug ht suit ag ainst the defaulting borrower and se c u r e d a judg ment. Id

. At issue before the F ifth Circuit was whether the F DI C’s judg ment constituted a “debt” under subsection (B ). Id. at 223. The F ifth Circuit

ex p lained,

The subpart (B ) limitation is directly applicable to this case: the note underly ing the F DI C’s judg ment was orig inally e n tered into by only private parties

. Thus, even thoug h a judg ment obtained by the g o vernment can fall

w ithin the scope of subpart (B ), the f i n al clause prevents the judg ment here from being

an F DCPA debt.

. . . The judgment does not create an obligation between the de b t o r and holder that is independent o f the note. That is, the note establishes t he rights and liabilities of the parties, what is o wed and to whom

. . . . The subpart ( B ) limita t ion captures this relationship and applies it w h er e the United States was n o t a party to the underly ing contract.

Id. at 223–24 (emphasis added). The court looked bey ond

m e r e l a bels to the actual source o f the debt in the defau l tS M A L L B U S

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j u d gment and determined w hether the United States w a s orig inally a party to the underlying contracts.

W e find this to be a sensible approach that c omports with the statutory l a n gu ag e a n d purpose of the F D CPA. F o r instance, the F DCPA prov i d e s procedures allowing the g overnment “to recover a judg ment on a debt
, ” which indicates t h at the f

ocus should be on the source of the debt. 28 U.S.C. § 3001(a)(1) (emphasi s a d ded). Moreover, the House report accompany ing the F DCPA st ates, “‘Debt’ is defined broadly to include amounts owing to t h e U n i ted States o n account o f a direct loan or loan i n s ured o r g uaranteed by the United State [ sic ] as well as other amounts originally due the United States.” H.R. Rep. No. 101-736 (emphasis added). A dditionally
, during leg islative discussion preceding the enactment of the FD CPA, one representative

ex p lained that “[ t] he d efinition of ‘debt’ was carefully written to make clear that the a ct will not a p p ly to oblig ations which beg in as purely private loan or c o n tract oblig a t ions.” 136 Cong

. R e c. H13288-02, H13288 (1990) (statement o f Rep. B rooks). Overall, the lang uag e, purpose, and leg islative history of the F DCPA sug g e st that the statute was intended to reach debt arising from transactions in wh i ch t h e federal g overnment was orig inally a party

. Apply ing the Sobranes approach, we look to the contracts underly i n g the default judg ment to determine w hether the SB A was orig inally a party

. The default judg ment h e re stems from F B T ’s lawsuit a g ainst B CI and B ensal, alleg ing breach of the SB A No t e and the SB A Guaranty

. B oth of these documents were inex t r icably p art of a larg er, four-party transaction between the SB A, Millennium, B CI
, and B ensal. I n fact, the sole reason B CI and B e nsal were required to sig n the SB A Note and SB A Guaranty
, respectively
, was to secureS M A L L B U S

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the SB A’s g u arantee of the second loan. Moreover, both the SB A Note and the SB A Guaran t y appeared on SB A letterhead, referenced the same loan-identify ing information, and defined rig hts held by the SB A ag ainst B ensal a nd B CI

. F inally
, the f

o rm and subst a n c e of the SB A Note a nd SB A Guaranty derive from the overarching SB A Authoriz a tion, in which the SB A set forth its terms for the overall transaction. B ased o n the und e r l y ing contracts, then, it appears the SB A was a party

to the orig inal transaction.

Our conclusion th a t the SB A was a party also finds support in the statutory authority deleg ated t o t h e S B A b y Cong r ess. When g uaranteeing a loan, the SB A can “authoriz e participating lending institutions to take act i o n s relating to loan servicing on behalf of the [SBA]
, including

. . . loan monitoring
, collection
, and liquidation.” 15 U .S.C. § 634(b)(7) (emphasis added). Even t h o ug h the SB A can authoriz e others to service a loan, the SB A remains a party to the loan and retains the power to take over the loan servicing
, liquidation, collection, or related litig ation activities. See id. ; 13 C.F .R. § 120.535(d). The SB A a lso has statutory authority to “ p u r s ue to final collection, by way of compromise o r otherwise, all claims against t h i r d parties assigned to the [ SB A] in connection with loans made by [ it] .” See 15 U .S.C. § 634(b)(4) (emphasis added).

B e nsal advances several a rguments in support of his position that t h e default judg ment w as not a debt under the F DCPA. F i rs t , Bensal points out that the F DCPA defines “judg ment” as “a judg ment, o rder, or decree e ntered in favor of the U n ited States in a court and a rising from a c ivil o r criminal proceeding reg a

rding a debt.” 28 U.S.C. § 3002(8) (emphasis added). Seiz ing on this lang uag e , B ensal a r gues t h a t the d efault judg ment at issue here falls outside t h eS M A L L B U S

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purview of the F DCPA b e c a u se it was n ot “entered in favor of the United States”; rather, it was entered in favor of F B T,

a priva te lender. B ut § 3002(3)(B ), w hich allows the federal government to recover any “ other source of indebtednes s t o the United States,” does not u se the term “judg ment,” and so is not limited to the statutory definition of that term.

Nex t, B ensal contends that his financial oblig ation on the second n ote was m e r ely a “g uaranty” not a “loan,” a nd therefore it cannot constitute a “debt” under the F DCPA. However, B ensal fails to provide any leg al supp o r t f or the proposi t i o n t hat a “g u arantor,” as opposed to a “ direct borrower,” somehow falls o utside the purview of the F DCPA. As ex plained above, the SB A is authoriz e d to “pursue to final collection

. . . a ll claims against third parties a ssigned to the [ SB A] in c onnection w ith loans made by [ it] .” S ee id. § 634(b)(4) (emphasis added). The claim ag a inst B ensal is a claim ag ainst a third party in connection wit h a loan g uaranteed by the SB A, and therefore f alls within the SB A ’s statutory authority

.

I n fact, B ensa l ’ s proposed rule—that a “g uaranty ” does not qualify a s a “debt” under the F DC P A

— wo u ld lead to disastrous practical c o n s e q u e n c e s

. T he SB A requires personal g uarantees from individuals who own at least 20% of or hold sig nificant manag ement positions i n a ny business seeking a direct loan or g uarantee. 13 C.F .R. § 120.160 (a) ( “Holders o f at least a 20 percent ownership i n t erest g enerally must g uarantee the loan.”); see al s o Collateral
, S M

A L L B U S I

N E S S A D M I N I S T R A T I O N ( l a s t v i s i t e d J a n

. 2 0
, 2 0 1 7 )
, h t t p s : / / w w w

. s b a

. g o v / l o a n s

- g r a n t s / g e t

- r e a d y

- a p p l y/ c h e c k

y our-credit/collateral (“F or all SB A loans, person al g uaranties are required from e v e r y owner of 20 perce n t o r
more of the business, a s well as from other individuals w hoS M A L L B U S

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hold key manag ement positions.”). 3 These p e rsonal g uarantees provide a

n additional level of financial security
, allowing the SB A to e x tend and g uarantee mo r e l o ans to small businesses. B ens a l ’s argu ment would eliminate the S B A’s ability to recover from p ersonal g uarantors, w h i c h would un dermine the financial viability of the small business loan prog ram. Thi s argument is leg ally unsupported a nd practically

untenable.

B e nsal a lso c ontends that the SB A w oul d b e receiving a windfall if allowed to recover the e n tire amount owed on the default judg ment when the SB A only paid a fraction o f that

sum ($54,027.39) to satisfy its g uaranty oblig ations. This argument fai l s because, as ex p lained above, the SB A is authoriz ed to pursue or deleg ate c o l l e c tion of g u aranteed lo ans. 1 5 U.S.C. § 634(b)(7). A n entirely separate provision addresses the SB A’s r ig hts after it h as p a i d an amount to satisfy its g u aranty oblig ations: “I n the e vent the [ SB A] pay s
a claim under a g uarantee

. . . , it shall be subrog ated fully to the r ig h ts satisfied b y such pay ment.” 15 U .S.C. § 634(g )(5)(A). B y including these t w o separate provisions, Cong r ess intended to g rant two se p arate authoriz ations, o ne allowing the SB A to collect o n a loan that it has g u aranteed and another allowing the SB A to recover an a m o u n t that it has paid as a g uarantor. T hus, the mere fact that the SB A did not p a y t h e full amount it now seeks to recover does not somehow bar this action.

F inally
, B ensal argues that the SB A i m p r o p erly seeks to enforce the e ntire default judg ment, even t h o u gh only a

3 “ It is ap p ro p riate to tak e j u d icial n o tice o f t h is in f o rm atio n , as it w as
m ad e p u b licly av a i l a b l e b y g o v ern m en t en tities.” Da n iels-Ha ll v. Na t'l Ed u c. Ass’n , 6 2 9 F.3 d 9 92 , 9 9 8 (9 th Cir. 2 0 1 0 ).S M A L L B U S

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portion of the judg ment concerned the SB A ’ s gu a rantee o f the second loan. This a

rg ument is unpersuasive based purely on the numbers here. As of J anuary 31, 2013, the total value of B ensal’s share in the EDB Trust was a t least $153,944.30. The amount B ensal owes as a g uarantor on the second loan is

over $300,000 ($140,905.63 plus 10% interest accruing from December 1 2, 2002). Therefore, it does not matter that the default judg ment also encompasses the first loan because the amount owed to the SB A on the second loan by itself ex ceeds the value of B ensal’s share in the EDB Trust. 4

CONCLUSION

I n sum, we hold that the SB A is allowed to reach B ensal’s trust share because the F DCPA d isplaces California’s disclaimer law. W e also conclu d e that the portion of the default judg ment based on the second loan, which was g uaranteed by the SB A, is a debt w ithin t h e m e a n ing o f the F DCPA.

AF F IRMED

.

4 Ben sal also arg u es t

h at claim p reclu sio n an d issu e preclu sio n b ar th e p resen t actio n b ecau s e t h e S B A ’ s claim is b ased o n t h e seco n d lo an , w h ich is n o w m erg ed in t

h e state- co urt j u d g m en t an d b arred f ro m relitig atio n

. T h is arg um en t f ails b ecau se th e SB A is n o t attem p tin g un d er a f ed eral s tatu t e to re- litig ate an y issu es prev io u sly ad j u d icated in th e state

co urt actio n ; rath er, t h e S B A filed su i t to v o id a f rau d u len t tran sf

er—an issu e n o t im

p l icated inth e state co urt litig atio n

.