T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on and i s notpr e c e de nt * e xc e pta s pr ovi de d by 9th C i r . R . 36- 3. NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T In re : K A T A Y O N E A D E L I, D ebt or,

K A T A Y O N E A D E L I, A p p e lla n t, v. RI CH A RD B. SA CH S, A pp el l ee . N o. 09- 60017 B A P N o. C C -08-10 98 -M oP aD ME MOR AN DU M *

In re : K A T A Y O N E A D E L I, D ebt or,

K A T A Y O N E A D E L I, A p p e lla n t, N o. 09- 60020 B A P N o. C C -08-10 98 -M oP aD



# FI LED JU N 17 2010 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALST he H onor abl e D a vi d A l a n E z r a , U ni t e d S t a t e s D i s tr i c tJ udge f orthe ** D i s tr i c tof

H a w a i i , s i tt i ng by de s i gna t i on. 2 v. RI CH A RD B. SA CH S, A pp el l ee . A p p e a l f r o m th e N in th C ir c u it B ankrup t cyA pp el l at e P anel P appa s , M ont a l i , a nd D unn, B a nkrupt c yJ udge s , P r e s i di ng

A r gue d a nd S ubm i tt e d M a y5, 2010 P a s a d e n a , C a lif

o rn ia B e f o r e : B . F L E T C HE R a n d P AE Z , C i r c u i tJu d g e s , a n d E Z R A, D i stri ctJudg e. ** K a t a y one A de l i appe a l s ade c i s i on of the B a nkrupt c yA ppe l l a t e P a ne l f orthe N i nth C i r c ui t( “ B A P ” ) r e ve r s i ng a nd r e m a ndi ng the ba nkrupt c yc ourt ’ s pr i or ju d g m e n t f

o rA d e li in a n a d v e r s a ryp r o c e e d in g f ile d b yc r e d ito rR ic h a r d B . S a c h s . S a c h s ’ a d v e r s a ry p r o c e e d in g s o u g h t, in te ra lia , to d e n yA d e li d is c h a r g e p u r s u a n t to 1 1 U .S .C . § 7 2 7 ( a ) ( 2 ) ( A ) d u e to A d e li’s in te n tio n a l tr a n s f e ro f h e ra s s e ts a lle g e d ly to h in d e ro rd e la y S a c h s ’ r e c o v e ry . W e r e vi e w the ba nkrupt c yc ourt ’ s de c i s i on

“ i nd ependent l y, w i tho utdefe re nce t o the B A P . ” T i ng v . Chang (I

n r e Chang ) , 163 F . 3d 11 38 , 11 40 (9th C i r. 19 98 ). W e a ff i rm the B A P ’ s r ever sa l of the bank rupt cy c o u rt’s ju d g m e n t a n d r e m a n d to th e b a n k ru p tc yc o u rt to d e n yd is c h a r g e .3

T h is c a s e in v o lv e s tw o s e ts o f p r e - p e titio n tr a n s f

e r s b yA d e li. T he fi rs tse t of transfe rs consi st ed of: (1) the E qu i ty L i ne D eposi t ; (2) the $3 3, 00 0 V al l ey N a t i ona l T r a ns f

e r ; ( 3) the $58, 000 W i r e T r a ns f e r ; a nd ( 4) the B e a rS t e a rns W i thdr a w a l ( c ol l e c t i ve l y , the “ F i r s t2005 T r a ns f e r s ” ) , a s r e f

e r e nc e d bythe b a n k ru p tc y c o u rt. W e d o n o t a d d r e s s th e b a n k ru p tc yc o u rt’s d e te rm in a tio n a s to the s e c ond s e tof

tr a ns f e r s , be c aus e ade bt orw ho tr a ns f e r s a nypr ope rtyw i thi n one y e a rb e f o r e f ilin g f o rb a n k ru p tc y w ith th e in te n t p e n a liz e d b y§ 7 2 7 ( a ) ( 2 ) ( A ) is d e n ie d d is c h a r g e . 1 1 U .S .C . § 7 2 7 ( a ) ( 2 ) ( A ) ; Fi rs t B e v e r l yB ank v . A de e b (In re A deeb ) , 7 8 7 F .2 d 1 3 3 9 , 1 3 4 2 ( 9 th C ir . 1 9 8 6 ) . T h e o n lyf

a c tu a l d is p u te b e f

o r e th e b a n k ru p tc yc o u rt a n d o n ap p e a l is w he the rA de l i ha d the i nt e ntt o hi nde r , de l a yorde f r aud S a c hs pr ohi bi t e d by § 7 27 (a )( 2)(A ). O n thi s r ec ord, w e f i nd thatS ac hs m ade outa pri m a f aci e case a g a in s t A d e li u n d e r§ 7 2 7 ( a ) ( 2 ) ( A ) b e c au s e A d e li a d m itte d th a t s h e in te n d e d to m o v e n earl y al l o f h er av ai l ab l e fu n d s i n t o a fri en d ’ s n am e w i th th e ex p ress pu rpose of prot ec t i ng her property f rom S ac hs and b ec ause the transfe rs bear “b a d g e s o f

f r au d ,” a s d e ta ile d b y th e B A P . See A u b rey v. T h o m a s (In re A ub re

y ), 11 1 B . R . 26 8, 27 3 (B . A . P . 9th C i r. 19 90 ); R obe r t s v . E rhard (I

n r e R o b e r ts ) , 331 B .R . 8 7 6 , 8 8 4 - 8 5 & n .5 ( B .A .P . 9 th C ir . 2 0 0 5 ) . B e c au s e S a c h s h a s m a d e o u t a4

pri m a f aci e c a s e , A d e li m u s t r e s p o n d w ith “c r e d ib le e v id e n c e ” in o r d e rto p r e v a il. In re A ub re

y , 111 B . R . a t273. H er e, the bank rupt cycourtre l i ed on tw o g roun ds t o sup po rti t s f i nd i ng that A del i l ac ked the re qu i si t e i nt entun der § 72 7(a) (2)( A ). F i rs t , the bank rupt cycourt foun d thatA del i m ade the F i rs t20 05 T ransfe rs w i th the pu rpose of prot ec t i ng her a s s e t s f r om the m i s c onduc tof

ac r e di t or— S a c hs

— a nd tha ts he the r e f or e l a c ke d the r e q u is ite in te n t u n d e r§ 7 2 7 ( a ) ( 2 ) ( A ) . S e c o n d , th e b a n k ru p tc yc o u rt a d d itio n a lly hel d thatA del i l ac ked the re qu i si t e i nt entun der § 72 7(a) (2)( A ) bec ause she r el i ed in g o o d f a ith u p o n th e a d v ic e o f

h e ra tto rn e y s in m a k in g th e s u b je c t tr a n s f

e r s . W e fi nd thatnei ther of these grou nd s i s s up po rt ed by “ cr edi bl e e vi dence” w i th w hi ch to re b u t S ac h s’ pri m a f

aci e c a s e . F i r s t , the ba nkrupt c y c ourtc l e a r l ye rr e d i n hol di ng tha tA de l i l a c ke d the i nt entt o h i nd er , del ayor defr aud a cre di t or un der § 72 7(a) (2)( A ) bec ause she a ct ed t o pr ot e c the ra s s e t s f

r om c r e di t orm i s c onduc t . T he r e c or d i n thi s c a s e pr ovi de s no f a c tua l ba s i s on w hi c h t o s upportaf i ndi ng of a nyi m pr ope rorw r ongf ul be ha vi or b y S ach s o r h i s l aw yers o th er th an A d el i ’ s u n su p p o rt ed sel f-serv i n g al l eg at i o n s. See I n re A ub re

y , 111 B . R . a t273 ( de c l i ni ng t o f i nd ade bt or ’ s “ s e l f

- s e rvi ng st at em entof hi s i nt entas the bestevi dence of thati nt ent ”) . In fa ct , the bank rupt cy co u rtm ad e an ex p ress factual fi n d i n g th at“ S ach s d i d n o tl ev y o n an y A d el i asset s,5

w h ic h h e w a s e n title d to p u r s u e , a t a n ytim e p r io rto A d e li’s b a n k ru p tc y .” A cc o rd in g ly, w e f

in d th at th e b an k ru p tcy c o u rt clea rly e rr ed in fin d in g th at A d eli’ s al l egat i on s of pot ent i al m i sc on du ctby S ac hs negat ed her i nt entun der § 7 2 7 ( a ) ( 2 ) ( A ) . See B ea u ch a m p v. H o o se (I n r e B e a u c h a mp ) , 236 B . R . 727, 731 ( B . A . P . 9th C i r . 1999) ( a f f i rm i ng af

i ndi ng of i nt e ntt o hi nde rorde l a yw he r e the ba nkrupt c y c ourtf

ound tha tthe de bt or ’ s pr e pe t i t i on tr a ns f e rof a s s e t s w a s notf

or the purpos e of

“ thw a rt i ng ape r c e i ve d pa tt e rn of i m pr ope rha r a s s m e nt ” a nd the r e c o r d d id n o t s u p p o rt af in d in g o f a n ys u c h h a r a s s m e n t) , af f’d , 5 F e d. A pp’ x 743 ( 9 th C ir . 2 0 0 1 ) . S e c ond, the ba nkrupt c y c ourtc l e a r l ye rr e d i n hol di ng tha tA de l i l a c ke d the i nt entt o h i nd er , del ayor defr aud a cre di t or un der § 72 7(a) (2)( A ) bas ed up on her go od fa i th rel i ance on the advi ce of coun se l . W here a bankrup t cycourtfi nd s that the debt or kn ew that“ the pu rpose of the transfe rs w as t o h i nd eror del aycr edi t ors of the de bt or [ , ] [ s ] uc h af

i ndi ng pr e c l ude s the de f e ns e of good f a i th r e l i a nc e on the advi ce of an att orney e ven i f the cl i enti s otherw i se i nn ocentof any i m prop er pu rpose. ” In re A deeb , 78 7 F . 2d at13 43 . H er e, A de l i a dm i tt e d, a nd the ba nkrupt c y c ourtf

ound, tha ts he tr a ns f

e rr e d f unds i nt o he rf

r i e nd’ s na m e w i th the e x p r e s s p u rp o s e o f

“ p r o t e c t i n g ” th e m o n e yf r o m S a c h s . T h u s , b yAd e l i ’ s o wn ad m i ssi o n s b o th sh e an d h er N ew Y o rkco u n sel k n ew th atth e p u rp o se o f th e F i rst6

2 0 0 5 T r a n s f

e r s w a s to k e e p A d e li’s a s s e ts a w ayf r o m S a c h s , i . e. , t o h i nd eror del ay S ac hs’ col l ec t i on ef

fort s. T here fore , un der In re A deeb , A de l i ’ s r e l i a nc e on the a d v i c e o f c o u n s e l c o u l d n o th a v e b e e n i n “ g o o d f a i th ” b e c au s e th e r e c o r d s h o ws th a t s h e h a d a c tu a l k n o w le d g e th a t th e s u b je c t tr a n s f

e r s w e r e m a d e to h id e a s s e ts fr om a c re di t or. A cc ordi ng l y, the bank rupt cycourtcl earl y e rr ed i n fi nd i ng that A d e li’s r e lia n c e o n th e a d v ic e o f c o u n s e l n e g a te d h e rin te n t u n d e r§ 7 2 7 ( a ) ( 2 ) ( A ) . T he ba nkrupt c y c ourtf

urthe rr e l i e d on In re A deeb ’ s di sc l ose- and-rec ov er de f e ns e a s a n a ddi t i ona l gr ound on w hi c h t o de nyS a c hs ’ § 727( a ) ( 2) ( A ) c ha l l e nge t o A de l i ’ s ba nkrupt c y pe t i t i on. I n doi ng s o, the ba nkrupt c yc ourta r gue d tha tthe ho l di ng of I

n r e A de e b s h o u ld b e e x p a n d e d to ap p lyto th e f a c ts o f th e in s ta n t c a s e . W e di s a gr e e a nd c onc l ude tha tthe di s c l os e - a nd- r e c ove rde f e ns e r e c ogni z e d i n In r e A de e b s houl d notbe e xt e nde d t o the s i tua t i on he r e , w he r e A de l i , i n r e l i a nc e on th e m is ta k e n a d v ic e o f

c o u n s e l, f

a ile d to r e c o v e rth e F ir s t 2 0 0 5 T r a n s f e r s ’ a s s e ts un t i l som e t i m e a ft ershe f i l ed her vo lu n ta ryb a n k ru p tc yp e titio n . C f . In re A deeb , 7 8 7 F .2 d a t 1 3 4 4 - 4 6 . A FFI R M ED .