### NOT FOR PU BLICA TION

U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: BLU E EA RTH, IN C .,

Deb to r. BRA DLEYD. SHA R P, C hapter 11 Liquidatio n Trustee,

A p pellant,

v. IN TRA C O A STA L C A PITA L, LLC ; A N SO N IN VESTMEN TS MA STER FU N D LLP, A p pellees. BA P N o . N C -18-1232-BSTa Bk. N o . 3:16-b k-30296-DM A dv. N o . 3:17-ap-03063-DM

M E M ORA ND U M *

A rgued and Sub m itted o n June 20, 2019 at Sac ram ento , C alifo rnia Filed – O c tob er 2, 2019 

# FIL ED

OCT 2 2019
SUSAN M . SPRAUL, CLERK U. S. BKCY

. APP. PANEL O F T HE NI NT H CI RCUI T

*Thi s di s posi ti on i s not appr opr i ate for publi cati on. Although i t may be ci ted for whatev er per suasiv e v alue i t may hav e, see Fed. R. App. P. 32.1, i t has no pr ecedenti al v alue, see 9th Ci r . BAP Rule 8024-1.A ppeal fro m the U nited States Bankruptcy C o urt fo r the N o rthern Distric t o f C alifo rnia Ho no rab le Dennis Mo ntali, Bankruptcy Judge, Presiding

A ppearanc es: Ho ward Tro y R o m ero o f R o m ero Park P.S. argued fo r

appellant Bradley D. Sharp, Chapter 11 Liquidatio n Trustee; Michael Benz o f C hapm an and C utler LLP argued fo r A ppellee A nso n Investm ents Master Fund, LLP; Sc o tt Mendelo ff o f Greenb erg Traurig, LLP argued fo r A ppellee Intrac o astal C apital, LLC

.
Befo r e: BRA N D, SPRA K ER and TAY L O R

, Bankruptcy Judges. INT ROD U CT I ON Bradley D. Sharp appeals (1) an o r der granting appellees' m o tio ns to dism iss his first am ended c o m plaint to avo id and rec o ver alleged
c o nstruc tive fraudulent transfers 1 to appellees, and (2) an o rder denying
rec o nsideratio n o f that dec isio n. A ltho ugh we agree that Sharp's first
am ended c o m p laint failed to plead plausib le c laim s against appellees, we b elieve that the b ankruptc y c o urt sho u ld have granted himleave to am end. A c c o rdingly, we A FFIRM in part, R EVER SE in part, and R EMA N D. ////

1 S har p also alleged clai ms foractual fr audulent tr ansfer, whi ch the bankr uptcy cour t also di smi ssed. He does not appeal that r uling. 2I. FA CT U A L BA CK GROU N D A N D PROCE D U RA L HIST ORY

A . Bac kg round of the partiesand the alleg ed fraudulent trans fers Blue Earth, Inc . ("BEI") was a pro vider o f alternative and renewab le energy so lutio ns fo r sm all and m edium -sized c o m m erc ial fac ilities. BEI filed a chapter 11 2 b ankruptc y c ase o n March 21, 2016. Sharp ("Trustee") is the trustee o f the litigatio n trust that was estab lished to investigate and pro secute c auses o f ac tio n fo r the b enefit o f the litigatio n trust b enefic iaries. The fo llo wing fac ts are as alleged b y Trustee. During an expansion perio d fo r BEI, the c o m pany was in c o nstant need o f c ash infusio ns to fund its o peratio ns and the o peratio ns o f its sub sidiaries until the entities c o uld develo p pro

jec t s and b ec o m e pro fitab le. BEI raised the nec essary c apital thro ugh a c o mb inatio n o f equity sales and lo ans. By O c tob er 2015, BEI's financ ial o utlo o k was b leak. The c o m pany was b o r ro wing funds fro mits
o ffic ers and direc to rs to m eet b asicob ligatio ns, such as payro ll. To raise c apital to avo id a default o n a secu red lo an that c o uld have prec ipitated BEI's b ankruptc y, BEI turned too ne o f its shareho lders, Intrac o astal C apital, LLC("Intrac o astal"), and a new investo r, A nso n Investm ents Master Fund, LLP ("Anso n"). O n O c tob er 16, 2015, BEI entered into Sec urities Purchase A greem ents with Intrac o astal and Anso n (the

2 Unless speci fi ed other w i se, all chapterand secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S

. C. §§ 101-1532, all "Rule" r efer ences ar e to the Feder al Rules of Bankr uptcy Pr ocedur e, and all "Ci v i l Rule" r efer ences ar e to the Feder al Rules of Ci v i l Pr ocedur e. 3"SPA s "). In exchange fo r $2,000,000 fro m each investo r, each investo r

wo uld rec eive 4,000,000 shares o f BEI c o m m o n sto c k, 6-m o nth warrants to purchase an additio nal 4,000,000 c o m m o n sto c k shares fo r $0.50 per share, and five-and-a-half year warrants to purchase an additio nal 4,000,000
c o m m o n sto c k shares fo r $0.83 per share. Intrac o astal's and Anso n's respec tive $2,000,000 investm ents c lo sed o n O c tob er 20, 2015. Just days after the SPA s c lo sed, BEI, Intrac o astal and Anso n agreed to undo the transac tio ns. O n O c tob er 27, 2015, Intrac o astal and Anso n each
exec u ted an "Exchange A greem ent" with BEI, which effec tively reversed the SPA s. In exchange fo r the return o f the 4,000,000 shares and warrants Intrac o astal rec eived, BEI paid Intrac o astal $2,000,000, plus an additio nal $200,000, $10,000 in legal fees, and a five-year warrant to purchase 1,500,000 shares at $0.55 per share. In exc hange fo r the return o f the shares (less a sm all am o unt it had already so ld) and warrants Anso n rec eived, BEI paid A nso n $2,003,419, plus a five-year warrant topurchase 1,500,000 shares at $0.55 per share. These "Exc hange A greem ent" transfers are the b asis o f Trustee's c laim s against Intrac o astal and Anso n. By the tim e o f the Exchange A greem ents, BEI had already spent the $4,000,000 it raised through the SPA s o n existing deb t s. Thus, to financ e the sto c k repurchase, BEI had tob o rro w $4,900,000 fro mJac kso n Investm ent Gro up, LLC("JIG"), o ne o f BEI's largest shareho lders and a senio r lender. The lo an was evidenc ed b y a 9% Senio r Sec ured N o te due in two m o nths

4o n Dec emb er 23, 2015. BEI filed fo r b ankruptc y five m o nths after the

Exchange A greem ents. B. T rus tee' s orig inal c om plaint and the m otions to dis m is s In his o riginal c o m plaint against Intrac o astal and Anso n (to gether, "Defendants"), Trustee alleged that the Exchange A greem ents c o nstituted
c o nstruc tive fraudulent transfers under § 548(a)(1)(B). He so ught to avo id the transfers and rec o ver $2,210,000 fro mIntrac o astal and $2,003,419 from A nso n, the am o unts Defendants rec eived fro mBEI under the Exchange A greem ents, plus pre- and po st-judgm ent interest. Defendants m o ved to dism iss Trustee's o riginal c o m plaint, arguing that Trustee's inso lvenc y allegatio ns were c o nc luso ry and c o ntradic ted pub licinfo rm atio n and BEI's o wn statem ents c o nc erning its so lvenc y at the tim e o f the Exchange A greem ents. Spec ific ally, BEI had represented in the Exchange A greem ents that it was financ ially healthy, and BEI's Fo rm10-Q dated Septemb er 30, 2015, just weeks b efo re the Exchange A greem ents, reflec ted that BEI had nearly $80,000,000 in assets over liab ilities (e.g., assets o f nearly $100,000,000 versus liab ilities o f just o ver $21,000,000). Lastly, Defendants argued that Trustee c o nc eded BEI was so lvent at the tim e, b ec ause he alleged that BEI was ab le to secure a lo an fro m JIG fo r the purpo se o f funding the transfers. In o ppo sitio n, Trustee argued that even if he c o uld no t estab lish inso lvenc y under § 548(a)(1)(B)(ii)(I), he c o uld still prevail o n his c laimif

5BEI was (a) engaged in b u siness o r a transac tio n fo r which any pro perty

rem aining with it was unreaso nab ly sm all, o r (b ) if BEI intended to inc ur o r b elieved that it wo uld inc u r deb ts b eyo nd its ab ility to pay as they
m atured. § 548(a)(1)(B)(ii)(II), (III). Trustee requested leave toam end the
c o m p laint if additio nal fac ts were nec essary. The b ankruptc y c o urt held two hearings o n the m o tio ns to dism iss the o riginal c o m plaint. A t the first hearing, the c o urt indic ated that Trustee had suffic iently pled BEI's inso lvenc y. By the sec o nd hearing, the c o urt had
rec o nsidered and to ld himthat ¶¶ 41-43 o f the c o m plaint were insuffic ient fo r pleading the three alternative gro unds fo r estab lishing inso lvenc y under § 548(a)(1)(B)(ii)(I)-(III); they sim ply parro ted the statuto ry language. U ltim a tely, the c o urt granted the m o tio ns to dism iss with leave to am end: THE C O U RT : Mr. Po well, I'm go ing to stic k with that [ruling]. I think with m y thinking that inso lvent, do yo u m ean b alanc e sheet inso lvent? Do yo u m ean c ash flo w inso lvenc y? Y o u k n ow , we re they -- were their revenues such that they c o u ldn't pay their deb ts as they b ec o m e due and, again, just state it. Y o u c an't just restate the definitio n. I do think fo r yo u to file the c o m plaint a nd state that BEI was inso lvent, yo u have to have so m e b a sis, and I do n't think it's a high b ar here. . . . . Hr'g Tr. (Mar. 26, 2018) 8:1-9. C. T rus tee' s firs t am ended c om plaint and the m otions to dis m is s Trustee then filed his first am ended c o m plaint ("FA C " ). To b o lster his allegatio n that BEI was inso lvent at the tim e o f the Exchange A greem ents,

6Trustee added the fo llo wing:

¶ 38. A t the tim e o f the Transfers, BEI suffered fro m u nm anageab le indeb t edness. But fo r the funds it rec eived pursuant to the O c tob er 16 S PA s, it wo uld have defaulted o n a s ec ured lo an that wo uld have nec essitated it im m ediately filing fo r b ankruptc y pro tec tio n; ¶ 39. BEI did no t have suffic ient funds to c o ntinue develo ping its wo rks in pro gress. S uch pro jec ts w ere needed t o finally generate inc o m e stream s fo r the c o m pany; ¶ 40. O n O c tob er 15, the day b efo re the SPA s were finalized, BEI h a d a m o nthly 'b urn rate' o f $ 900,000, an am o unt that had to b e raised m o nthly to m eet its deb t s. Thi s w as a 50% inc rease in the 'b urn rate' sinc e Septemb er; ¶ 4 2. A s a result o f the T ransfers, BEI was left witho ut m eaningful c ash reserves to pay its deb t s as they b ec am e due, and the Exchange A greem ents ultim ately c o ntrib uted signific antly to BEI dec laring b ankruptc y; ¶ 43. A part fro m b eing c ash-flo w inso lvent, BEI was also b alanc e sheet inso lvent at the tim e o f the Transfers o r b ec am e inso lvent a s a result thereo f. Despite the c o m pany's disc lo sures du r ing the relevant tim efram e, its fi n anc ial statem ents c o ntained vario us ac c o unting erro rs that resulted in a gro ssly o verstated value o f the c o m pany’s assets. Fo r exam ple, BEI accou n ted fo r no n-b inding letters o f intent o n unfunded renewab le energy pro jec ts as assets wo rth m illio ns o f do llars; ¶ 44. BEI pro c eeded with the E xch ange A greem ents w ith kno w ledge o f the c o m pany’s serio u s financ ial prob lem s an d o f th e

7prejudic e to c r edito rs c aused b y trading $ 4 m illio n in c ash fo r o ver

$5 m illio n in deb t; ¶ 53. A s no ted ab o ve, BEI was inso lvent at the t im e o f t h e Transfers o r b ec am e inso lvent as a result thereo f. It no lo nger had the ab ility t o pay d eb ts as they c a m e due a nd the value of its liab ilities exc eeded its ac tual assets; ¶ 5 4

. The Transfers also left BEI with an unreaso nab ly sm all am o unt o f c apital with which to engage in its b usin e s s . It had to turn to its e xi s ting shareho lders and c redito rs fo r funds to keep the c o m pany o n life suppo rt. A fter a few unsuc c essful m o nths witho ut c apital needed to engage i n b usiness BEI filed fo r b ankruptc y; ¶ 55. A t the tim e o f the Transfers, BEI was engaged in b usiness o r was ab o ut to engage in b usiness fo r w hi ch a n y pro perty rem aining with BEI was an unreaso nab ly s m all am o unt o f c apital. Indeed, o ne o f its prim ary investm ent m o dels was to fund c apital-intensive renewab le energy system s. S uch pro jec t s required signific ant so urc es o f c o nstruc t io n and pro jec t financ ing, and B E I had an unreaso nab ly sm all am o unt o f pro perty to engage in its b usiness; ¶ 56. A t the tim e o f the Transfers, BEI intended to inc ur, o r b elieved it wo uld inc ur, deb ts that wo uld b e b eyo nd BEI's ab ility to pay a s such deb ts m atured. A fter all, it transferred nearly a ll its c ash assets to A nso n and Intrac o astal pursuant t o t he Exchange A greem ents while kno wing that it wo uld c o ntinue incurring deb ts in o peratio n o f its b u si n e s s t h a t w o u ld [b e] b eyo nd its ab ility to pay. Defendants m o ved to dism iss the FA C, arguing that it to o failed to
8state plausib le c o nstruc tive fraudulent transfer c laim s. Defendants argued

that Trustee's allegatio ns o f BEI's c ash-po o rc o nditio n were c o nc luso ry and did no t differentiate BEI's c irc um stanc es and c ash po sitio n at the tim e o f the Exchange A greem ents fro many o ther po int in tim e in its existenc e. Further, they argued that the FA C c o ntained no fac t s to suppo rt the allegatio n that BEI had noac c ess to c ash at the tim e o f the Exchange A greem ents. To the c o ntrary, Defendants m a intained that BEI's ab ility to
ob tain c ash was dem o nstrated b y a sub sequent lo an fro mJIG in Dec emb er 2015 — BEI ob tained $2,000,000 in additional financ ing, go t an extensio n o n the $4,900,000 millio n lo an to repurchase the sto c k fro mDefendants, and paid JIG a 3% transac tio n fee. BEI also c o ntinued to m ake tim ely interest paym ents o n the JIG lo ans until late Feb ruary 2016. N ext, Defendants argued that the FA C was silent as to BEI's assets and liab ilities; there was no fac tual allegatio n that BEI's liab ilities exc eeded its assets o r any allegatio n as toBEI's assets o ther than c ash. In additio n, Trustee failed to allege any fac ts to suppo rt his c o nc luso ry allegatio n that BEI's financ ial statem ents c o ntained "ac c o u nting erro rs" which inflated the value o f its assets; he c ited vaguely to o nly the alleged im pro per inc lusio n
o f no n-b inding letters o f intent invo lving "m illio ns o f do llars" am o ng the
c o m p any's assets. Defendants o ppo sed any further leave to am end. In o ppo sitio n, Trustee m aintained that he had suffic iently pleaded inso lvenc y, which he argued the c o urt said was a "low b ar" fo r pleading

9purpo ses. Trustee argued that BEI was b o th b a lanc e sheet and c a sh flo w

inso lvent at the tim e o f the transfers. He further argued that BEI's ac c ess to
c redit after exec u t ing the Exc hange A greem ents was a fac tual determ inatio n that c o uld no t b e m ade o n a C ivil Rule 12(b )(6) m o t io n. Trustee requested leave to am end sho uld the c o u rt determ ine that any additio nal fac tual allegatio ns were required. The b ankruptc y c o urt o rally granted the m o tio ns to dism iss. The
c o u rt o pined that Trustee's allegatio n o f "ac c o u nting erro rs" that resulted in an alleged o verstatem ent o f assets was insufficient fo r pleading "b a lanc e sheet inso lvenc y". It alsofo und that Trustee failed toplead "c ash flo w inso lvenc y" b ec ause the FA C c o nc eded the po int; he ac kno wledged that BEI rem a ined in b usiness fo r several m o nths after the Exchange A greem ents. The c o urt denied leave to am end o n futility gro u nds. D . T rus tee' s m otion to rec ons ider Trustee m o ved to alter o r am end the o rders dism issing the FA C ("Mo tio n to R ec o nsider"). He argued that the b ankruptc y c o urt erred b y im pro perly inferring that BEI was no to r c o uld no t have b een inso lvent at the tim e o f the Exchange A greem ents b a sed o n pub lic filings and that BEI did no t file fo r b ankruptc y until a few m o nths after the Exchange A greem ents. Trustee argued that the c o urt alsoerred b y determ ining that the FA C failed to state a plausib le c laimfo r b a lanc e sheet inso lvenc y under

10§ 548(a)(1)(B)(ii)(I). Ho wever, even if it did, Trustee argued that it was erro r

to dism iss his c laimunder the alternative gro unds fo r inso lvenc y in sub parts (II) and (III) witho ut determ ining if he stated a plausib le c laim

. Trustee argued that the FA C 's allegatio ns regarding BEI’s struggles topay its deb t, lac k o f funding to c o ntinue develo ping wo rks in pro gress, lac k o f inc o m e stream s, and generally dire financ ial situatio n aro und the tim e o f the Exchange A greem ents were suffic ient to plausib ly sho w it engaged in a b usiness fo r which any o f its rem aining pro perty was an unreaso nab ly
sm all am o unt o f c apital, and that it intended to inc ur o r b elieved it wo uld inc ur deb ts b eyo nd its ab ility to repay. Lastly, Trustee argued that dismissing the FA C witho ut leave to
am end was a m anifest erro r o f law and am o unted to a finding that BEI was
so lvent. If given the o ppo rtunity to am end, Trustee c o ntended that he
c o u ld "plead a lo ng list o f additio nal allegatio ns in suppo rt o f the c laim,"
such as: "specificfac t s regarding BEI's b alanc e sheet inso lvenc y (e.g., financ ial data) and lack o f ac c ess to c apital; m o re spec ificallegatio ns regarding its a c tua l existing assets; and m o re spec ificallegatio ns regarding BEI's o verstatem ent o f the c o m pany's value o n its disc lo sures due to
ac c o u nting erro rs and likely fraudulent filings, the fac ts o f whic h are still b eing investigated." In o ppo sitio n, Defendants argued that the c o urt pro perly c o nc luded that the self-c o ntradic t o ry allegatio ns in the FA C fo rec lo sed a plausib le

11theo ry o f inso lvenc y o n a c ash flo w b asis, and that the FA C c o ntained to o

few fac tual allegatio ns to suppo rt the c o nc luso ry assertio n that BEI was b alanc e sheet inso lvent. A fter a hearing, the b ankruptc y c o urt entered an o rder denying the Mo tio n to R ec o nsider. Bec ause Trustee had no t explained to the c o u rt why the FA C did no t referenc e the shamb alanc e sheet and sham audit he was
no w asserting, it c o nc luded that "no m a tter ho w o ne appro aches it," Trustee's allegatio ns o f inso lvenc y were "sim ply no t plausib le." The c o urt
o pined that to grant yet ano ther am endm ent o f the c o m p laint wo uld unfairly b urden Defendants who twic e had to challenge the suffic ienc y o f the c o m p laints. This tim ely appeal fo llo wed. II. JU RISD ICT ION The b ankruptc y c o urt had jurisdic tio n under 28 U .S.C . §§ 1334 and 157(b )(2)(H). W e have jurisdic tio n under 28 U .S.C . § 158. III. ISSU E S 1. Did the b ankruptc y c o urt err when it granted Defendants' m o tio ns to dism iss the FA C ? 2. Did the b ankruptc y c o urt ab use its disc r etio n when it denied Trustee leave to am end? 3. Did the b ankruptc y c o urt ab use its disc r etio n in denying the Mo tio n to R ec o nsider? ////

12I V . ST A ND A RD S OF RE V IE W

W e review de no vo the b ankruptc y c o urt's dism issal fo r failure to state a c laimunder C ivil Rule 12(b )(6), and we review the denial o f leave to am end a c o m plaint fo r ab use o f disc retio n. S ee C urry v. Y elp Inc ., 875 F.3d 1219, 1224 (9th C ir. 2017). Denial o f a m o tio n to am end o r alter judgm ent under C ivil Rule 59(e) is reviewed fo r an ab use o f disc retio n. D ixo n v. W a llo wa C ty ., 336 F.3d 1013, 1022 (9th C ir. 2003). Ab ankruptc y c o urt ab u ses its disc retio n if it applies the wro ng legal standard, o r m isapplies the c o rrec t legal standard, o r if its fac tual findings are c learly erro neo us. United S ta tes v. Hinkso n , 585 F.3d 1247, 1262-63 (9th C ir. 2009) (en b anc )). V . D ISCU SSION A . Civ il Rules 8 and 12 C ivil Rule 8(a) (applic ab le here b y Rule 7008) requires that a pleading
c o ntain "a sho rt and plain statem ent o f the c laimsho wing that the pleader is entitled to relief." S ee Ashcro ft v. Iqba l , 556 U .S. 662, 678-79 (2009). U nder
no tic e pleading in federal c o urt, the c o m plaint m ust "give the defendant fair no tic e o f what the c laim. . . is and the gro unds upo n whic h it rests." Bell Atl. v. Two m bly, 550 U .S. 544, 555 (2007) (internal quo tatio ns o m itted). Am o t io n to dism iss fo r failure to state a c laimunder C ivil Rule 12(b )(6) (applic ab le here b y Rule 7012) tests the legal suffic ienc y o f a
c o m p laint. N

a va r ro v. Blo ck

, 250 F.3d 729, 732 (9th Cir. 2001). "Tosurvive a

13m o tio n to dism iss, a c o m p laint must c o ntain suffic ient fac tual m atter,

ac c epted as true, to'state a c laimto relief that is plausib le o n its fac e.'" Iqba l , 556 U .S. at 678 (quo ting T wo m bly, 550 U

. S. at 570). "Ac laim has fac ial plausib ility when the plaint iff pleads fac tual c o ntent that allo ws the c o urt to draw the reaso nab le inferenc e that the defendant is liab le fo r the
m isc o nduc talleged." Id. (c iting Two m bly, 550 U

. S. at 556). A ltho ugh we m u st ac c ept as true all well-pleaded fac ts, we do no t need to ac c ept as true c o nc luso ry statem ents, statem ents o f law, and unwarranted inferenc es c ast as fac tual allegatio ns. Two m bly, 550 U .S. at 555-57; United S ta tes ex rel. C hunie v. R ingro se, 788 F.2d 638, 643 n.2 (9th Cir. 1986) (a c o urt need no t assum e the truth o f legal c o nc lusio ns c ast in the fo rmo f fac tual allegatio ns). While C ivil Rule 8(a) do es no t require detailed fac tual allegatio ns, "a pleading that o ffers 'lab els and c o nc lusio ns' o r 'a fo rm ulaicrec itatio n o f the elem ents o f a c ause o f ac tio n will no tdo

. '" Iqba l, 556 U .S. at 678 (quo ting T wo m bly, 550 U

. S. at 555). "N o rdo es a c o m plaint suffic e if it tenders 'naked assertio n[s]' devo id o f 'further fac tu al enhanc em ent.'" Id. (quo ting T wo m bly, 550 U .S. at 557). Mo reo ver, it is inappro priate to assum e that the plaintiff c an pro ve fac ts that it has no t alleged o r that the defendants have vio lated the laws in ways that have no t b een alleged. Asso cia ted Gen. Co ntra cto rs o f Ca l., Inc. v. Ca l . S t. Co uncil o f Ca rpenters , 459 U .S. 519, 526 (1983). ////

14B. T he bankruptcy c ourt did not err in granting the m otions to dis m is s the FA C . 1. Sec tion 548 and ins olv enc y To plead plausib le c o nstruc tive fraudulent transfers c laim s against Defendants, Trustee had toallege fac ts to suppo rt the fo llo wing fo ur elem ents: (1) a transfer o f BEI's interest in pro perty; (2) the transfer was
m ade o rinc urred within two years b efo re the date o f the b a nkruptcy petitio n; (3) BEI rec eived less than reaso nab ly equivalent value in exc hange fo r the transfer; and (4) o ne o f three alternatives: (I) that BEI was inso lvent o n the date the transfer was m ade o r b ec am e inso lvent as a result o f the transfer; (ii) that BEI was engaged in b usiness fo r which any pro perty
rem aining was an unreaso nab ly sm all c apital; o r (iii) that BEI intended to inc ur o r b elieved it wo uld inc u r deb ts b eyo nd its ab ility to pay as such deb ts m atured. § 548(a)(1)(B)(i)(ii)(I)-(III). The b ankruptc y c o urt dism issed the FA C o n the gro unds that Trustee failed toplausib ly allege inso lvenc y.

a. Balanc e Sheet T es t Adeb to r is inso lvent when its deb ts exc eed its assets — the "traditio nal b a nkruptc y b alanc e sheet test." Akers v. K o ubo urlis (In re K o ubo urlis) , 869 F.2d 1319, 1321 (9th Cir. 1989). This test is c o dified at § 101(32)(A ), which defines inso lvenc y as a "financ ial c o nditio n such that

15the sumo f such entity's deb ts is greater than all o f such entity's pro perty, at

fair valuatio n[.]" Thus, fo r purpo ses o f § 548(a)(1)(B)(ii)(I), inso lvenc y is determ ined using a "b alanc e sheet test." In re K o ubo urlis , 869 F.2d at 1321. A trustee's c o nstruc tively-fraudulent transfer c o m plaint m u st c o ntain eno ugh fac tual info rm atio n to plausib ly sho w the deb to r's liab ilities exc eeded assets at the tim e o f the transfers. S pra dlin v. Mo nday Co a l, LLC (In re Lick ing R iver M i ning, LLC) , 571 B.R . 241, 244 (Bankr. E.D. K y. 2017). Trustee c o ntends that he pleaded suffic ient fac t s in the FA C to estab lish BEI's b a lanc e sheet inso lvenc y, and that the b ankruptc y c o urt sho uld have ac c epted these allegatio ns as true, drawn all inferenc es in his favo r, and denied the m o tio ns to dism iss. Instead, he argues, the c o urt fo und that it was im plausib le that BEI was inso lvent even with kno w ledge
o f fab r ic ated financ ial statem ents. By denying leave to am end, argues Trustee, the c o urt ruled as a m atter o f law that BEI c o uld no t plausib ly have b een inso lvent at the tim e o f the Exchange A greem ents regardless o f what additio nal fac ts he c o uld plead regarding the fraudulent financ ials. C o ntrary to Trustee's c o ntentio n, the b ankruptc y c o urt did no t"find" that BEI was so lvent despite the alleged fab ric ated financ ial statem ents; the
c o u rt sim ply determ ined that the FA C failed to m ake a plausib le c ase fo r b alanc e sheet inso lvenc y. In reviewing the relevant paragraphs in the FA C, the first sentenc e o f ¶ 43 and all o f ¶ 53 are either rec itatio ns o f the statuto ry elem ents under § 548(a)(1)(B)(ii)(I) o r c o nc luso ry statem ents

16regarding BEI's inso lvenc y that the Suprem e C o urt has instruc ted "will no t

do ." Iqba l , 556 U .S. at 678 (quo ting Two m bly, 550 U .S. at 555). While the
rem aining po rtio n o f ¶ 43 is m o re spec ific, the FA C did no t identify whic h
no n-b inding letters o f intent o n whic h energy projec ts were o verstated in BEI's Septem

b er 30, 2015 Fo rm10-Q(b a lanc e sheet), o r the am o unt o f the alleged o verstatem ent. W e see no erro r here. The FA C failed to articulate anyam o unts fo rBEI's assets and liab ilities o r allege that the o verstated assets c a used BEI's liab ilities to exc eed its assets. S ee H a rla n C ty. M ining, LLCv. W rigley's 7–711, Inc. (In re Lick ing R iver M ining, LLC) , 572 B.R . 830, 844 (Bankr. E.D. K

y. 2017) (while c o m plaint alleged financ ial difficulties and identified prepetitio n deb ts, it failed to "c o m p arab ly allege the value o f Deb to rs' assets todem o nstrate Deb to rs' inso lvenc y.").

b. A d equate Capital T es t Under this test, alsokno wn as the "unreaso nab ly sm all c apital" test, Trustee had toplead fac ts suppo rting the allegatio n that at the tim e o f the transfers BEI was engaged in o r ab o u t to engage in b u siness that wo uld leave it with an unreaso nab ly sm all c apital. § 548(a)(1)(B)(ii)(II). This test deno tes a financ ial c o nditio n sho rt o f equitab le o r "c ash flo w" inso lvenc y. M o o dy v. S ec. Pa c. Bus. Credit, Inc. , 971 F.2d 1056, 1070 (3d Cir. 1992); AW TR Liquida tio n Tr. v. 2100 Gra nd LLC(In re AW TR Liquida tio n Inc

. ) , 548 B.R . 300, 312-13 (Bankr. C .D. C al. 2016); Tese-M ilner v. Edidin & Asso cs. (In re O pera tio ns N Y

LLC) , 490 B.R . 84, 98 (Bankr. S.D.N .Y . 2013); M urphy v.

17Merito r S a v. Ba nk (In re O 'D ay Co rp . ) ,126 B.R . 370, 407 (Bankr. D. Mass. 1991) (unreaso nab ly sm all c apitalizatio n enc o m passes financ ial diffic ulties which are sho rt o f equitab le inso lvenc y o r b ankruptc y inso lvenc y b u t are likely to lead to so m e type o f inso lvenc y eventually). It is "aim ed at transferees that leave the transfero r technic ally so lvent b ut do o m ed to fail." MF S / S un Life Tr.-Hi

gh Yield S eries v. V

a n D usen Airpo rt S ervs. Co . , 910 F. Supp. 913, 944 (S.D.N .Y . 1995) (c iting M o o dy, 971 F.2d at 1070 & n.22). In determ ining unreaso nab ly sm all c apital, c o urts generally exam ine
c ash flo w to determ ine whether it was "reaso nab ly fo r eseeab le" that the transfer at issue wo uld lead to the deb to r's "inab ility to generate eno ugh
c ash flo w to sustain o peratio ns." M o o dy, 971 F.2d at 1070; 5 CO L L IE RO N B A N K R U P T C Y ¶ 548.05[3][b ] (A lan N . R esnic k & Henry J. So m m er, eds., 16th ed. 2012) (plaintiff must sho w deb to r 's inab ility to generate eno ugh c ash to sustain o peratio ns). In a b usiness setting, the aggregate am o unt o f c apital "sho u ld inc lude . . . all reasonab ly antic ipated so urc es o f o perating funds, which m ay inc lude new equity infusio ns, c a sh fro mo peratio ns, o rc a sh fro msecured o r unsecured lo ans o ver the relevant tim e perio d

. " M o o dy, 971 F.2d at 1072 n.24 (quo ting Bruc e A . Markell, To w a rd True a nd Pla in D ea ling: A Theo r y o f F ra udulent Tra nsfers Invo lving U nrea so na bly S m a ll Capita l , 21 Ind. L. Rev. 469, 496 (1988) (citing c ases)). Befo re the b a nkruptc y c o urt, Trustee equated c ash flo w inso lvenc y with a sho wing under b o th sub parts (II) and (III) o f § 548(a)(1)(B)(ii). He

18did the sam e in his o pening b rief o n appeal. In his reply, Trustee argues

that the b ankruptc y c o urt c o nsidered o nly sub part (I) in its ruling. 3 Trustee's argum ent is c o nfusing, b ut he appears toargue that the c o urt failed to c o nsider all his allegatio ns suppo rting a c laimunder sub parts (II) and (III) b efo re dism issing the FA C . The c o urt's finding that the FA Cfailed to estab lish c ash flo w inso lvenc y appears to b e direc ted at b o th sub parts (II) and (III), altho ugh this is no tentirely c lear; the c o urt said no thing ab o u t
unreaso nab ly sm all c apital. While this c o nfusio n m ay b e a b asis fo r granting leave to am end, we c o nc lude that the FA C did no t adequately plead that the Exchange A greem ents left BEI with an unreasonab ly sm all
c apital. Trustee alleged ¶¶ 39, 54, and 55 to estab lish unreaso nab ly sm all
c apital. Ho wever, he also alleged: ¶ 18. N evertheless, BEI fo und two investor s t o pro vide the desperately needed c ash influx to keep the c o m p any aflo at fo r the im m ediate future; ¶ 29. Therefo re, in o r der to financ e BEI's repurchase o f its BBLU shares and o ther securities under the Exchange A greem ents, BEI had to b o rro w $4.9 m illio n fro m [JIG], o ne o f BEI’s largest shareho lders and a senio r lender.

3 Thi s i s par t of the r eason why Intr acoastal fi led a moti on to str i ke Tr ustee's r eply br i ef and alter nati v ely r equested leav e to fi le a sur -r eply. We DENY the moti on to str i ke and GRANT leav e to fi le the sur -r eply. 19The b ankruptc y c o urt c o nsidered that BEI was ab le to ob tain c a sh

after the Exchange A greem ents b y infusio ns fro mits o ffic ers and b y financ ing fro mJIG. Trustee argues that it was impro per fo r the c o urt to "speculate" ab o ut JIG's "hypo thetic al" willingness to c o ntinue to lo an BEI
m o ney and that BEI allegedly m ade so m e interest paym ents to JIG fo r
so m e o f its existing deb ts. The b ankruptc y c o urt never said that it
c o nsidered in its rulingBEI's interest paym ents m a d e to JIG o n the $4,900,000 millio n lo a n whic h funded the Exchange A greem ents. What it did rely o n, ho wever, and rightfully so , was Trustee's c o ntradic to ry statem ents in the FA C that, after the Exchange A greem ents, BEI was ab le "to turn to its existing shareho lders and c redito rs fo rfunds to keep the
c o m p any o n life suppo rt." Thus, the c o urt did no tneed to speculate ab o ut JIG's willingness to lo an BEI funds after the Exchange A greem ents o r
c o nsider any extrinsicevidenc e as Trustee c o ntends it did; the FA C adm itted that BEI had ac c ess to c apital as o f, and after, O c t ob er 27, 2015. 4 BEI's ab ility to ob t ain c ash thro ugh either c ash infusio ns fro mo ffic ers
o r b y lo ans fro mc redito rs were allegatio ns that the c o urt c o uld c o nsider.

4 Whi le the cour t could consi der Tr ustee's contr adi ctor y allegati ons in di smi ssing the FAC, we note that the October 2015 loan was a shor t ter mloan fr om JIG —one of BEI's lar gest shar eholder s and seni or lender . One can i m agi ne a scenar i o wher e i t i s possi ble that the loan was not i ndi cati v e of BEI's abi li ty to obtai n funds to r emain in business. Howev er, i t i s j ust that, a possibi l i ty, and that i s not the pleadi ng standar d. Plausi bi li ty "asks for mor e than a sheer possi bi l i ty that a defendant has acted unlawfully." Iqbal, 556 U.S . at 678 (ci ti ng Twombly, 550 U.S . at 556). 20M o o dy, 971 F.2d at 1072 n.24 (c apital inc ludes new equity infusio ns and

c ash fro msecu red lo ans). "The ab ility to b o rro w m o ney has c o nsiderab le value in the c o m m erc ial wo r ld." Id. at 1072-73. And, c o ntrary to Trustee's argum ent, the c o urt c o uld alsoc o nsider the allegatio n that BEI rem ained in b usiness fo r five m o nths after the Exchange A greem ents. "Generally, 'c o urts will no t find that a c o m pany had unreaso nab ly lo w c apital if the
c o m p any survives fo r an extended perio d after the subjec t transac tio n[.]'" Burtch v. Opus LLC (In re Opus Ea s t LLC) , 698 F. A pp'x. 711, 715 (3d Cir. 2017) (quo ting D a ley v. C h a ng (In re Jo y R eco v ery Tech. C o rp .), 286 B.R . 54, 76 (Bankr. N .D. Ill. 2002)) (c iting M o o dy, 971 F.2d at 1074) (nounreaso nab ly
sm all c apital where c redito rs were paid fo r twelve m o nths after transac tio n); In re Opera tio ns N Y LLC , 490 B.R . at 98 (dism issing c laim s fo r inadequate c apital inso lvenc y where transfero r had assets and c o ntinued
o peratio ns fo rten m o nths after the challenged transac tio ns); MF S / S un Life Tr.–High, 910 F. Supp. at 944 (c o m pany was viab le fo r eight m o nths after LBO ); O h io Co rruga ting Co . v. D PAC , Inc. (In re O h io Co rruga ting Co .) , 91 B.R

. 430, 440 (Bankr. N .D. Ohio 1988) (c redito rs paid fo r ten m o nths); C redit Ma nagers Ass'n o

f S . Ca l. v. Fed. Co . , 629 F. Supp. 175, 184 (C .D. C al. 1985) (twelve m o nths). In additio n, the FA C failed to allege anything ab o ut BEI's financ ial pro jec tio ns at the tim e o f the transfers o r allege that they were
unreaso nab le. C entral to a determ inatio n o f whether a transac tio n leaves a

21c o m p any with unreaso nab ly sm all c apital is "whether the parties'

pro jec tio ns" used in fac ilitating the transac tio n were "reaso nab le." M o o dy, 971 F.2d at 1073. Finally, and som ething the FA Cac tually c o nc edes, BEI was still attrac ting so phistic ated investo rs such as Defendants at the tim e o f the transfers, which c o ntradic ts a c laimo f unreaso nab ly sm all c apital. S ee W eisfelner v. Blava tnik (In re Lyo ndell Chem . Co .) , 567 B.R . 55, 111 (Bankr. S.D.N .Y . 2017), a

ff'd, 585 B.R . 41 (S.D.N .Y . 2018) (in additio n to lo o king at
m anagem ent's pro

j ec tio ns, c o urts alsolo o k to views o f the so phistic ated investo rs invo lved in the transac tio n); D a v ido ff v. Fa rina, N o . 04 C iv. 7617, 2005 W L 2030501, at *11 & n.19 (S.D.N .Y . A ug. 22, 2005) (finding it signific ant that "so phistic ated investo rs with the m o st intim ate kno w ledge
o f [the deb to r's] b usiness plan and c apitalizatio n had c o nfidenc e in the
c o m p any's future and c ertainly did no t think that the c o m pany was 'underc apitalized'" b ec ause it m akes "no ec o no m icsense fo r defendants to invest literally b illio ns o f do llars in a venture that they knew wo uld fail").

c . Cas h Flow T es t Under the "c ash flo w" o r "equitab le" inso lvenc y test, Trustee had to plead fac ts suppo rting the allegatio n that at the tim e o f the transfers BEI intended to inc ur o r b elieved that it wo uld inc ur deb ts b eyo nd its ab ility to pay as they c am e due. § 548(a)(1)(B)(ii)(III). "This part o f the statute pro tec ts future c redito rs fro ma deb to r who transfers assets with the intent to hide them o r im pair the deb to r's ab ility to pay deb ts as they arise o r with

22the b elief that inab ility to pay deb ts wo uld likely result." W R T C redito rs Liquida tio n Tr. v. W

R T Ba nkr. Litig. Ma ster F ile D e fenda nts (In re W

R T Energy Co rp.) , 282 B.R . 343, 414-15 (Bankr. W .D. La. 2001). This pro ng is satisfied "if it c an b e sho w n that the deb to r m ade the transfer o r inc urred an ob ligatio n c o ntem po raneo us with an intent o r b elief that sub s equent c r edito rs likely wo u ld no t b e paid as their c laim s
m atured." Id. at 415; see EBC I., Inc. v. Am . O nline, Inc. (In re EBC I, Inc.) , 380 B.R . 348, 359 (Bankr. D. Del. 2008), a ff'd, 400 B.R . 13 (D. Del. 2009), a ff'd, 382 F. A pp'x 135 (3d C ir. 2010) (sam e). "While the statute suggests a standard b ased o n subjec tive intent, the c o urts have held that the intent requirem ent
c an b e inferred where the fac ts and c irc um stanc es surro unding the transac tio n sho w that the deb to r c o uld no t have reaso nab ly b elieved that it
wo uld b e ab le to pay its deb ts as they m atured." 5 C O L L IE R O N B A N K R U P T C Y at ¶ 548.05[3][c ] (c iting c ases). A rguab ly, if Trustee failed to adequately plead unreaso nab ly sm all
c apital, then he also failed to plead c ash flo w/equitab le inso lvenc y. In additio n to what he alleged fo r unreaso nab ly sm all c apital, Trustee alleged ¶¶ 41, 44, and 56 toestab lish c ash flo w inso lvenc y. Ho wever, he also alleged: ¶ 15. During its expansio n perio d, BEI w a s in c o nstant need o f c ash infusio ns to fund its o wn o peratio ns and the o peratio ns o f its sub sidiaries until the entities c o uld develo p pro jec ts and b ec o m e pro fitab le;

23¶ 16. BEI raised c a pital t o fund its expan s i on and o p eratio ns

thro ugh a c o mb inatio n o f equity sales and lo ans; ¶ 28. A t the tim e the Exchange A greem ents were exec uted, t he funds gained b y B EI pursuant to th e O ct ob e r 16 SPA s had b een expended in o rder to avo id a default o n a secured deb t o w ed b y BEI that c o uld have prec ipitated BEI’s b ankruptc y. First, the FA C failed to allege any "fac ts" relating to BEI's intent to inc ur deb t that it b elieved it wo uld b e unab le to pay. Paragraph 56 is essentially a rec itatio n o f the statuto ry elem ents under § 548(a)(1)(B)(ii)(III). A nd ¶ 44 is sim p ly inc o rrec t, as the b ankruptc y c o urt po inted o ut. BEI did
no t "trade" $4,000,000 in c a sh fo r o ver $5,000,000 in deb t. A s Trustee also asserted in FA C, the $4,000,000 BEI raised fromthe SPA s had already b een spent. In the Exchange A greem ents, BEI to o k o n deb t to purchase equity. Sec o nd, the FA C 's allegatio ns regarding BEI's ab ility to pay its future deb ts is defic ient fo r the sam e reaso n that the allegatio ns o f unreaso nab ly
sm all c apital failed. Paragraphs 16 and 28 o f the FA C c o nc ede the po int that BEI was ab le to pay its deb ts as they b ec am e due with c ash infusio ns fro mits o ffic ers, b y selling equity to investo r s, and b y ob taining lo ans fro m
c redito rs. 2. Conc lus ion A c c o rdingly, b ec ause the FA C failed to plead plausib le c laim s fo r
c o nstruc tive fraudulent transfer against Defendants, the b ankruptc y c o urt did no t err in granting the m o tio ns to dism iss and dismissing the FA C

. 24Ho wever, as we discuss b elo w, the b ankruptc y c o urt ab used its disc retio n

in denying leave to am end. C. T he bankruptcy c ourt abus ed its dis c r etion when it denied T rus tee leav e to am end

. C ivil Rule 15(a), applic ab le here b y Rule 7015, pro vides that leave to
am end sho uld b e "freely" granted "when justic e so requires." W e c o nsider five fac t o rs to assess whether the trial c o u rt pro p erly granted o r denied leave to am end pleadings: (1) b ad faith; (2) undue delay; (3) prejudic e to the o ppo sing party; (4) futility o f am endm ent; and (5) whether the plaintiff has previo usly am ended the c o m plaint. 5 Jo hnso n v. Buck l ey, 356 F.3d 1067, 1077 (9th C ir. 2004). The N inth C ircuit has c o nsistently held that a trial
c o u rt ab uses its disc r etio n in denying leave to am end unless the c o urt "'determ ines that the pleading c o u ld no t po s sib ly b e c ured b y the allegatio n
o f o ther fac ts,'" Bly-Magee v. Ca l. , 236 F.3d 1014, 1019 (9th Cir. 2001) (quo ting Lo pezv. S m ith , 203 F.3d 1122, 1127 (9th Cir. 2000) (en b a nc )), o r "if the plaintiff had several o ppo rtunities to am end its c o m plaint and repeatedly failed to c ure defic ienc ies," Telesa urus V PC , LLCv. Po wer

, 623 F.3d 998, 1003 (9th C ir. 2010). An am endm ent is futile when it is c lear that
am endm ent wo uld no t have rem edied the c o m plaint's fac tual defic ienc ies. S ee Intri-Plex Techs., Inc. v. C rest Grp., Inc. , 499 F.3d 1048, 1056 (9th Cir. 2007).

5 Bad fai th and undue delay ar e not at i ssue her e. 25A ltho ugh the b ankruptc y c o u rt expressed its reluc tanc e to deny

Trustee leave to am end given the extrem ely lenient standard, it ultim ately
c o nc luded that am endm ent wo uld b e futile. It later no ted in its ruling o n the Mo tio n to R ec o nsider that ano ther am endm ent wo u ld "unfairly b urden" Defendants. A ssum ing we even need to c o nsider this later ruling, we interpret the c o urt's "unfairly b urden" finding as a finding o f prejudic e. While "the c o nsideratio n o f prejudic e to the o ppo sing party c arries the greatest weight," E m inence Capita l, LLC v. Aspeo n, Inc ., 316 F.3d 1048, 1052 (9th C ir. 2003), no t any prejudic e will do ; the prejudic e m ust b e "undue," Fo m a n v. D a vis , 371 U .S. 178, 182 (1962). The party oppo sing leave to am end b ears the b urden o f estab lishing undue prejudic e. D C D Prog ra m s, Ltd. v. Leighto n , 833 F.2d 183, 187 (9th Cir. 1987). W e agree with the b a nkruptcy c o urt's assessment that the FA Cwas defic ient. N evertheless, the rec o rd suggests that, if given leave to am end, Trustee c o uld plausib ly allege that BEI's financ ial c o nditio n was no t as represented at the tim e o f the Exchange A greem ents given the allegatio n o f fraudulent financ ial statem ents, and that the Exchange A greem ents left BEI with unreaso nab ly sm all c a p ital given the allegatio n that BEI had tothen turn to shareho lders and c r edito rs to keep the c o m pany o n life suppo rt. A m endm ent is espec ially appro priate in this c ase, b ec ause the b ankruptc y
c o u rt and the parties m ixed the c o nc epts o f the three distinc t gro unds upo n which a plaintiff c an estab lish inso lvenc y under § 548(a)(1)(B)(ii)(I)-(III),

26reduc ing them to o nly "b alanc e sheet" and "c ash flo w" inso lvenc y. The

c o u rt's "prejudic e" finding appears to b e b a sed so lely o n its b elief that
am endm ent wo uld b e futile, a finding whic h we rejec t. In any c ase, Defendants did no t m eet their b urden to estab lish "undue" prejudic e and we do no t perc eive such. Finally, that Trustee has already am ended his
c o m p laint o nc e do es no t am o unt to "several o ppo rtunities to am end [his]
c o m p laint" and "repeated[] fail[ure] to c ure defic ienc ies." S ee Telesa urus V PC , LLC , 623 F.3d at 1003. A c c o rdingly, we c o nc lude that the b ankruptc y c o urt did no t appro priately exerc ise its disc retio n b y denying Trustee leave to am end; his allegatio ns were no t frivo lo us, he endeavo r ed to c o m p ly with the c o urt's instruc tio n fo ram ending, and, m o st im p o rtantly, it appears that he had a
reaso nab le c hanc e o f suc c essfully stating a c laimagainst Defendants if given ano ther o p p o rtunity. D . T rus tee waiv ed his appeal of the rec ons ideration order. Under C ivil Rule 59(e), applic ab le here b y Rule 9023, the b ankruptc y
c o u rt m ay rec o nsider a previo us o rder o rjudgm ent, b ut o nly if: (1) it is presented with newly disc o vered evidenc e that was no t availab le at the tim e o f the o riginal hearing; (2) it c o m m itted c lear erro r o r m ade an initial dec isio n that was m anifestly unjust; o r (3) there is an intervening c hange in
c o ntro lling law. Fa del v. D C B United LLC (In re Fa del) , 492 B.R

. 1, 18 (9th C ir. BA P 2013).

27Even tho ugh Trustee appealed the o rder denying his Mo tio n to

R ec o nsider, he did no t pro vide any argum ent o n the issue in his o pening b rief. He did argue the issue in his reply b rief. N o netheless, an appellate
c o u rt in this c irc u it "will no t review issues which are no t argued spec ific ally and distinc tly in a party's o pening b rief." C ity o f Em eryville v. R o binso n , 621 F.3d 1251, 1261 (9th Cir. 2010). A s a result, any argum ent o n this issue has b een waived. V I. CONCL U S ION Fo r the reaso ns stated ab o ve, we A FFIRM in part, R EVER S E in part, and R EMA N D to allo w Trustee an o p po rtunity to am end his c o m plaint.

28