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FILED

DEC 10 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-15-1081-KiTaKu

)

ALETHEIA RESEARCH AND ) Adv. No. 14-01735

MANAGEMENT, INC., )

) Bk. No. 2:12-47718-BR

Debtor. )

)

 )

)

JEFFREY IAN GOLDEN, Chapter 7 )

Trustee, )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

CLAY LACY AVIATION, INC., )

)

Appellee. )

______________________________)

Argued and Submitted on November 19, 2015, 

at Pasadena, California

Filed - December 10, 2015

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Barry Russell, Bankruptcy Judge, Presiding

 

Appearances: Aaron H. Stulman of Ashby & Geddes, P.A. argued for

appellant Jeffrey Ian Golden, Chapter 7 Trustee;

Amy L. Goldman of Lewis Brisbois Bisgaard & Smith

LLP argued for appellee Clay Lacy Aviation, Inc.

 

Before: KIRSCHER, TAYLOR and KURTZ, Bankruptcy Judges.

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may have

(see Fed. R. App. P. 32.1), it has no precedential value. See 9th

Cir. BAP Rule 8024-1.
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Chapter 72 trustee Jeffrey I. Golden appeals an order

dismissing his complaint against Clay Lacy Aviation, Inc., which

sought to avoid and recover from Clay Lacy certain constructive

fraudulent transfers under § 544(b), 548(a)(1)(B) and Cal. Civ.

Code § 3439. For several years prior to the petition date, Clay

Lacy provided private flight-related services to the debtor,

Aletheia Research and Management, Inc. and its management and/or

employees. Trustee had alleged that insolvent Aletheia did not

receive reasonably equivalent value, or any value, in exchange for

flights that he alleged were of a personal nature, benefitting

only Aletheia's corporate officers, non-employees and family

members of Aletheia's principals. The bankruptcy court

determined, however, that Aletheia got exactly what it bargained

for — a chartered plane to fly persons from point A to point B,

regardless of who received the benefit of the flight. Further,

Trustee had not alleged that the fees charged by Clay Lacy were

something other than fair market value. As such, the court

concluded Aletheia had not received less than reasonably

equivalent value from Clay Lacy and that Trustee's complaint

failed. We VACATE and REMAND. 

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Aletheia, a California corporation, was founded in 1997. 

One of its founders, Peter J. Eichler, Jr., served as Aletheia's

chief executive officer. Aletheia filed a chapter 11 bankruptcy

case on November 11, 2012. Thereafter, Trustee served as the

2 Unless specified otherwise, all chapter, code and rule

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The

Federal Rules of Civil Procedure are referred to as “Civil Rules.”

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chapter 11 trustee, closed the business, and the case was

converted to chapter 7.

A. Trustee's complaint 

Trustee later filed an avoidance action against Clay Lacy and

Christy Eichler a/k/a Mavis Christine Lessley, the wife of

Mr. Eichler.3 He alleged that Clay Lacy had provided flight

services to management, "ostensibly for purposes related to

Aletheia and/or in furtherance of Aletheia's business operations." 

During the four years prior to the petition date, Aletheia paid to

Clay Lacy no less than $5,262,355.50 for flight-related services

(the "Transfers"). However, alleged Trustee, the Transfers paid

for flights for personal use by employees or members of management

and their family and friends and served no business purpose of

Aletheia. Many of these flights paid for by Aletheia did not have

a single Aletheia employee on board. For example, Clay Lacy

received $267,198 to charter a flight to Europe for two weeks in

connection with the Eichlers' son's graduation. The flight

included the Eichlers and their five children. Trustee alleged

this flight neither served a business purpose nor conferred any

benefit to Aletheia.

Within Trustee's complaint were detailed examples of other

flights he contended were for personal use and not for the benefit

of Aletheia, including multiple trips to the Eichlers' Lake Tahoe

3 Mrs. Eichler, who apparently was never an Aletheia

employee, was served with Trustee's complaint on January 12, 2015. 

Mrs. Eichler failed to file any timely response. On Trustee's

request, the clerk entered Mrs. Eichler's default on March 19,

2015, after this appeal had been filed. One day prior, on

March 18, 2015, Mrs. Eichler filed a voluntary chapter 7

bankruptcy case. As a result, Trustee's avoidance action against

her has been stayed.

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vacation home, ski trips to Salt Lake City, and Eichler family

vacations to Hawaii. Obtaining the information from flight

manifests, Trustee's complaint included the date of each flight in

question, the name of each person on the flight, the flight

destination and the fee paid to Clay Lacy. A detailed list of

each flight and the amount paid to Clay Lacy was also attached to

the complaint, including one flight that alone cost over $500,000.

Trustee further alleged that Aletheia was insolvent at the

time the Transfers were made to Clay Lacy. He argued that no

reasonable person would conclude any of the listed flights were

for a legitimate business purpose of Aletheia and, thus, the

Transfers made on account of these flights were not received by

Clay Lacy in good faith. In closing, Trustee reserved the right

to amend his complaint.

B. Clay Lacy's motion to dismiss, Trustee's opposition and Clay

Lacy's reply

1. Clay Lacy's motion to dismiss

Clay Lacy moved to dismiss Trustee's complaint under Civil

Rule 12(b)(6)("Motion to Dismiss"). In short, Clay Lacy argued

that Trustee's complaint asserted conclusory statements and failed

to provide any specificity or ultimate fact.

Clay Lacy argued that Trustee's claims for avoidance of

constructive fraudulent transfers should be dismissed for two

reasons. First, the complaint failed to show a lack of reasonably

equivalent value received by Aletheia. Trustee had not presented

any comparison of the value of the Transfers in relation to the

value Aletheia received. For example, Trustee failed to allege

any other carrier or provider like Clay Lacy could have provided

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similar services for less cost. Instead, argued Clay Lacy,

Trustee erroneously focused on the identity of each flight

passenger and his or her purported relationship to Aletheia to

summarily conclude that no business purpose or benefit was

provided to Aletheia as a result of these flights. Clay Lacy

argued that even if it was aware of the names of each passenger to

whom it provided services, it did not have any legal duty to

inquire as to why a particular passenger was on a given flight or

to ascertain or question the purpose of each passenger's flight

plan. Clay Lacy argued that it provided the appropriate services

if and when requested by Aletheia — i.e., a fueled plane to fly to

a specific location at a specific time and date with flight

attendants and requested food and beverage items — in exchange for

reasonably equivalent value — i.e., payment for such services.

Second, Clay Lacy argued that Trustee's complaint failed to

provide any facts to support his unsubstantiated conclusion that

Aletheia was insolvent at the time of the Transfers. The

complaint merely stated "at the time that Aletheia made each of

the alleged transfers to Clay Lacy, Aletheia was insolvent." This

conclusory allegation of insolvency, argued Clay Lacy, failed to

meet the pleading standard in Twombly.4

2. Trustee's opposition

Trustee contended that his complaint met the Twombly standard

and sufficiently alleged that while Aletheia was insolvent, it

made at least 126 transfers totaling no less than $5,262,355.50 to

Clay Lacy for which Aletheia did not receive reasonably equivalent

4 Bell Atlantic Corp. v. Twombly, 550 U.S. 554 (2007).

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value, or any value, in return. Trustee reiterated that during

the fraudulent transfer period, Aletheia chartered at least

21 flights purportedly for the benefit of Aletheia amounting to no

less than $355,949.35 for which no Aletheia employee was even

present. Trustee argued that no value was received for these

flights. An additional 41 flights all purportedly undertaken for

Aletheia's benefit that cost Aletheia no less than $1,512.150.53

were personal in nature for the Eichler family and their friends,

such as vacation trips to Lake Tahoe, Hawaii and Europe. Trustee

argued that Aletheia received little to no value on account of

those flights. 

As for Clay Lacy's contention that the complaint failed to

plead facts alleging lack of reasonably equivalent value, Trustee

argued that "reasonably equivalent value" focuses on what the

debtor surrendered and what the debtor received, not what the

creditor gave. Trustee contended that his complaint had met this

standard by alleging that Aletheia paid Clay Lacy certain sums of

money for which it received little or no value in return. Trustee

further disputed Clay Lacy's contention that his complaint failed

to present any comparison of the value of the alleged Transfers in

relation to the value Aletheia received. In fact, he had alleged

that Aletheia received no value in return for the amount paid to

Clay Lacy where no employee was on board and no business purpose

existed. Thus, the comparison of value was self-evident. 

Moreover, argued Trustee, his complaint focused on the identity of

each flight passenger because if no employees were on board (e.g.,

Mrs. Eichler and her four friends flying to Salt Lake City at an

expense to Aletheia of $16,798.01), then no Aletheia business

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could have been conducted and Aletheia received no value in return

for the payments it made to Clay Lacy.

Finally, Trustee argued that he did not need to plead

insolvency with particularity. Rather, insolvency could be

pleaded generally and still be sufficient to survive a motion to

dismiss. Trustee contended that his allegation of Aletheia's

insolvency had to be considered in a light most favorable to him

and assumed to be true for purposes of Clay Lacy's motion. Any

question regarding Aletheia's insolvency would be further

developed in discovery, on summary disposition or at a trial on

the merits. Alternatively, Trustee requested leave to amend his

complaint to address any possible deficiencies. 

3. Clay Lacy's reply

In reply, Clay Lacy argued that while Trustee's complaint

alleged facts about flights he contended were personal in nature

and of no benefit to Aletheia and it recited the statutory

elements of a constructive fraudulent transfer under the Code and

California law, nothing sufficiently connected the description of

the flights and passengers to the allegations of constructive

fraudulent transfer against Clay Lacy. Clay Lacy argued that

Trustee's complaint either missed or was trying to avoid the

simple facts that: (1) Aletheia requested flights and other

related services; (2) Clay Lacy provided the services Aletheia

requested; and (3) Aletheia paid Clay Lacy for the services

provided. Whether or not the passengers were Aletheia employees

and whether or not the paid flights were to serve a specific

business purpose, argued Clay Lacy, was inapposite to the analysis

of a constructive fraudulent transfer claim. Clay Lacy contended

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that if "reasonably equivalent value" was defined by the ultimate

purpose of the service, such a standard would hinder service

providers from engaging in business with debtors such as Aletheia. 

As for insolvency, Clay Lacy reiterated that Trustee's

complaint merely parroted the statutory elements of § 548(a)(1)(B)

and failed to allege any facts regarding Aletheia's financial

condition at the time of the Transfers, such as a reference to a

balance sheet or a description of the obligations Aletheia owed as

compared to the working capital Aletheia had at that time.

C. The bankruptcy court's ruling to dismiss Trustee's complaint

At the start of the hearing on Clay Lacy's Motion to Dismiss,

the bankruptcy court noted it was not clear from Trustee's

complaint whether Aletheia or some individual not representing

Aletheia hired Clay Lacy for each of the flights in question. 

Counsel for Trustee responded that it appeared Aletheia had hired

Clay Lacy each time, but they were still investigating whether

certain executive employees may have made the call on behalf of

Aletheia. Counsel conceded that such employees would have had the

authority to arrange the flights. 

The bankruptcy court then made its ruling from the bench,

granting Clay Lacy's Motion to Dismiss:

Okay. Well, let me tell you this. This is going to be

a very short hearing; I think you can see where I'm

going. When I read this I said this can't possibly be

the law. Maybe, sometimes it is. But this case, it's

quite clear that the debtor got what it bargained for. 

. . . .

There's not going to be a debate. It is so clear to me

that you got it wrong; just the whole theory of this is

wrong. . . . There are two things going on here. The

debtor got what it bargained for. As they pointed out,

there is no – your theory is that it's . . . a fraudulent

transfer because . . . there was no good purpose for it

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and so forth. I really do understand it but I just don't

buy it for a second.

What actually happened here is in any commercial

activity, like, for example, with renting a car or

renting a house . . . . The debtor got what it bargained

for. It got a plane. Period. And as they point out,

there's no evidence that this was a higher price for the

normal planes. . . . 

What you're saying is well, because the use of the plane

didn't benefit the debtor, therefore, it's a fraudulent

transfer. I just don't buy that for a second. 

If indeed, for instance – and I'm not ruling on it . . .

because it's not before me, but as [Mrs. Eichler] is

concerned, if the debtor then gave away, in this case,

free transportation to her at a certain value then that

might very well be. I'm not saying it is but that, at

least, as far as . . . any of these other people that got

a free ride . . . yes, that could very easily be a

fraudulent transfer. But the transfer there would be

from the debtor giving the actual seats on the plane[.] 

That could easily be a fraudulent transfer because the

debtor got no benefit on that. But here, the debtor got

what it bargained for. It got a plane, a chartered

plane. Period. 

So . . . there is no fraudulent transfer here. . . . 

Hr'g Tr. (Feb. 11, 2015) 8:19-23, 9:7-21, 10:1-20. The court did

not discuss whether Trustee would be given leave to amend.

The order granting Clay Lacy's Motion to Dismiss and

dismissing Trustee's complaint was entered on February 24, 2015. 

The order, drafted by counsel for Clay Lacy, failed to articulate

or incorporate any of the bankruptcy court's findings. It was

also silent as to whether the complaint was dismissed with or

without prejudice. Trustee timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334

and 157(b)(2)(H). We initially determined the order on appeal was

interlocutory. After briefing by the parties, the Panel agreed to

consider Trustee's notice of appeal as a motion for leave to

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appeal and granted leave to appeal. See Rule 8004(d). 

Accordingly, we have jurisdiction under 28 U.S.C. § 158. 

III. ISSUES

1. Did the bankruptcy court err when it granted Clay Lacy's 

Motion to Dismiss?

2. Did the bankruptcy court abuse its discretion when it 

dismissed Trustee's complaint without leave to amend?

IV. STANDARDS OF REVIEW

We review de novo the bankruptcy court's order dismissing a

complaint under Civil Rule 12(b)(6). Hernandez v. Cty. of Tulare,

666 F.3d 631, 636 (9th Cir. 2012); Tracht Gut, LLC v. Cty. of L.A.

(In re Tracht Gut, LLC), 503 B.R. 804, 810 (9th Cir. BAP 2014). A

dismissal without leave to amend and with prejudice is reviewed

for an abuse of discretion. Id. A bankruptcy court abuses its

discretion by denying leave to amend unless amendment would be

futile or the plaintiff has failed to cure the complaint's

deficiencies despite repeated opportunities. Hernandez, 666 F.3d

at 636. A bankruptcy court also abuses its discretion when it

commits an error of law. Id. 

V. DISCUSSION

A. Standard for dismissal under Civil Rule 12(b)(6) 

Under Rule 7012, incorporating Civil Rule 12(b)(6), a

defendant may move to dismiss a complaint if it fails to "state a

claim upon which relief can be granted." Under Rule 7008,

incorporating Civil Rule 8(a), a complaint must contain "a short

and plain statement of the claim showing that the pleader is

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entitled to relief."5 Civil Rule 8(a)(2). "[T]he pleading

standard Rule 8 announces does not require 'detailed factual

allegations,' but it demands more than an unadorned, the-defendant

-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009)(quoting Twombly, 550 U.S. at 555). "A pleading

that offers 'labels and conclusions' or 'a formulaic recitation of

the elements of a cause of action will not do.'" Id. (quoting

Twombly, 550 U.S. at 555). "Nor does a complaint suffice if it

tenders 'naked assertions' devoid of "further factual

enhancement.'" Id. (quoting Twombly, 550 U.S. at 557).

To survive a motion to dismiss, "a complaint must contain

sufficient factual matter, accepted as true, to 'state a claim to

relief that is plausible on its face.'" Id. (quoting Twombly,

550 U.S. at 570). "A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the

misconduct alleged." Id. (quoting Twombly, 550 U.S. at 556). 

"[A] complaint [that] pleads facts that are 'merely consistent

with' a defendant's liability . . . 'stops short of the line

between possibility and plausibility of entitlement to relief.'" 

5 Neither party has contended that the heightened pleading

standard of Civil Rule 9(b) applies to constructive fraud claims. 

We agree it does not apply. See Cendant Corp. v. Shelton, 474 F.

Supp.2d 377, 380 (D. Conn. 2007)(Civil Rule 9(b) applies only to

actual, not constructive, fraud claims); Charys Liquidating Trust

v. McMahan Sec. Co. (In re Charys Holding Co.), 443 B.R. 628, 632

n.2 (Bankr. D. Del. 2010)(constructive fraudulent transfer claims

are governed by Civil Rule 8, not the heightened Civil Rule 9(b)

pleading standard); Angell v. Ber Care, Inc. (In re Caremerica,

Inc.), 409 B.R. 737, 755-56 (Bankr. E.D.N.C. 2009)(Civil Rule 9(b)

is inapplicable to constructive fraud claims because such claims

are not based on actual fraud but instead rely on the debtor's

financial condition and the sufficiency of consideration paid by

the transferee)(citing cases).

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Id. (quoting Twombly, 550 U.S. at 557). Although a court must

accept as true all factual allegations contained in a complaint, a

court need not accept plaintiff's legal conclusions as true. Id. 

"Threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice." Id.

(quoting Twombly, 550 U.S. at 555). A dismissal under Civil

Rule 12(b)(6) may be based on either the lack of cognizable legal

theory or on the absence of sufficient facts alleged under a

cognizable legal theory. Johnson v. Riverside Healthcare Sys.,

534 F.3d 1116, 1121 (9th Cir. 2008). 

B. Governing law: §§ 544, 548 and CAL. CIV. CODE § 3439

A bankruptcy trustee can avoid constructive fraudulent 

transfers under state law and the Code. Section 544(b) allows the

trustee to avoid any transfers of a debtor's property which would

be avoidable by an unsecured creditor under state law. Section

548 provides a federal statutory basis for avoiding fraudulent

transfers. Wyle v. C.H. Rider & Family (In re United Energy

Corp.), 944 F.2d 589, 593 (9th Cir. 1991). Trustee sought to

avoid the Transfers to Clay Lacy under both §§ 544(b) and

548(a)(1)(B). 

Under § 548(a)(1)(B), a trustee may avoid any transfer of an

interest of the debtor in property that was made within 2 years

before the date of the filing of the petition, if the debtor

voluntarily or involuntarily received less than a reasonably

equivalent value in exchange for such transfer, and was insolvent

on the date that such transfer was made or became insolvent as a

result of such transfer. § 548(a)(1)(B)(i), (ii)(I). The

applicable state law for Trustee's claim under § 544(b) is

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California law, namely CAL. CIV. CODE §§ 3439.04(a)(2) and

3439.05.6 These state statutes are essentially identical to 

§ 548(a)(1)(B), except the limitations period for avoidance is

longer — the later of 4 years after the transfer or 1 year after

the date of reasonable discovery. See CAL. CIV. CODE § 3439.09(a). 

Both state and federal law allow a transfer to be avoided

where "the debtor did not receive a reasonably equivalent value in

exchange for the transfer and the debtor was either insolvent at

the time of the transfer or was engaged in business with

unreasonably small capital." In re United Energy Corp., 944 F.2d

at 594 (citation and internal quotation marks omitted). Because

California law is similar in form and substance to the Code's

fraudulent transfer provisions, they may be interpreted

contemporaneously. Id. 

Applying Twombly to the present case, a complaint seeking

relief under §§ 544(b) and 548(a)(1)(B)(i) and (ii)(I) must

contain sufficient facts plausible on their face that establish

the debtor: (1) made a transfer of the debtor's property;

(2) within 2 or 4 years of the petition date; (3) received less

than a reasonably equivalent value in exchange for the transfer;

6 Under California law, constructive fraud may be found as

to any present or future creditor when a debtor does not receive a

reasonably equivalent value in exchange for the transfer, and

either: (A) was engaged or was about to engage in a business or a

transaction for which the remaining assets of the debtor were

unreasonably small in relation to the business or transaction;

(B) intended to incur, or believed or reasonably should have

believed that he or she would incur, debts beyond his or her

ability to pay as they became due. CAL. CIV. CODE § 3439.04(a)(2). 

Similarly, constructive fraud can be found under CAL. CIV. CODE §

3439.05 "as to an existing creditor if the debtor does not receive

reasonably equivalent value and 'was insolvent at that time or

. . . became insolvent as a result of the transfer." Mejia v.

Reed, 31 Cal. 4th 657, 670 (2003)(quoting CAL. CIV. CODE § 3439.05).

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and (4) was insolvent on the date the transfer was made or became

insolvent as a result of the transfer. In re United Energy Corp.,

944 F.2d at 594 (stating elements of a claim under § 548).

Whether the Transfers were property of Aletheia and that they

were made within 2 or 4 years of the petition date was not

disputed. We agree these two elements were supported by the

requisite factual allegations. The complaint identified the

property transferred (i.e., Aletheia funds paid to Clay Lacy) and

provided dates of the Transfers, which were all within 2 or 4

years of the petition date. The issue before us is whether

Trustee sufficiently pleaded that Aletheia was insolvent at the

time of the Transfers (or became insolvent as a result) and

whether he sufficiently pleaded that Aletheia did not receive

reasonably equivalent value in exchange for the Transfers. 

C. The bankruptcy court erred when it granted Clay Lacy's Motion

to Dismiss. 

1. The bankruptcy court applied an incorrect standard of

law in ruling that Clay Lacy could not be a transferee. 

The bankruptcy court's ruling here is ambiguous, making our

review somewhat difficult. It appears the court did two things. 

First, it seems to have ruled as a matter of law that Clay Lacy

could never be a proper transferee because Aletheia "got what it

bargained for." This ruling was in error.

We agree with Trustee that the bankruptcy court incorrectly

determined that because Aletheia directly contracted with Clay

Lacy, no fraudulent conveyance claim could be asserted, ruling

that "if a principal of the debtor . . . incurs debts and then the

debtor pays those debts; that's different. . . . But this is

[Aletheia] who incurred the debt. So I'm going to . . . grant the

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motion to dismiss." Hr'g Tr. (Feb. 11, 2015) 11:18-25. The

general rule is that the party who receives a transfer of property

directly from the debtor is the initial transferee. Incomnet,

Inc. v. Universal Serv. Admin. Co. (In re Incomnet, Inc.),

299 B.R. 574, 578 (9th Cir. BAP 2003), aff'd, 463 F.3d 1064, 1073

(9th Cir. 2006). The fact that a corporate debtor directly

incurred a debt to a service provider, such as Clay Lacy, is not

an automatic bar to recovery for a fraudulent conveyance from the

service provider transferee. See Burdick v. Lee, 256 B.R. 837

(D. Mass. 2001); Lawrence v. Bonadio, Insero & Co. (In re Interco

Sys., Inc.), 202 B.R. 188 (Bankr. W.D.N.Y. 1996); Brandt v.

Charter Airlines, LLC (In re Equip. Acquisition Res., Inc.),

511 B.R. 527 (Bankr. N.D. Ill. 2014), rev'd in part, 2015 WL

4764145 (N.D. Ill. 2015) (hereinafter "EAR").

EAR involved substantially similar facts. There, the

corporate debtor, EAR, had contracted directly with the defendant,

Charter Airlines, to provide flights for EAR's officers in

exchange for payment. 511 B.R. at 530, 533. The flights were

paid for by EAR. Id. The plaintiff plan administrator sought to

avoid certain transfers to Charter Airlines for flights that he

contended were taken by the debtor's officers "purely for personal

pleasure, not as business trips taken on EAR's behalf," and that

did not benefit EAR. Id. at 530, 535. No argument was raised

that Charter Airlines charged more than fair market value for the

flights. The primary focus was whether EAR received reasonably

equivalent value for the chartered flights it contracted and paid

for. Id. at 530, 534-35. In its defense, Charter Airlines

offered an affidavit of the chief pilot and captain of every

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flight, who asserted that the flights were for business purposes

based on his belief that he was flying EAR's officers to business

meetings and his observations of cell phone conversations of a

business nature. Id. at 535. Ultimately, the bankruptcy court

denied summary judgment to the plan administrator, holding that a

factual issue remained for trial as to whether EAR received

reasonably equivalent value. Id.7

A similar claim was at issue in Burdick. There, the

corporate debtor had contracted with a charter flight service,

Enterprises, for flights taken by one of its officers, Mr. Lee. 

256 B.R. at 839. The chapter 7 trustee sought to avoid transfers

to Enterprises for flights that he alleged benefitted only

Mr. Lee. Id. A question for trial was whether the debtor

received less than reasonably equivalent value for the flights

taken by Mr. Lee and charged to the debtor via the defendant,

Enterprises. Id. at 839-40. Enterprises ultimately prevailed. 

Mr. Lee testified that he used the plane for both business and

personal travel, but that he paid with his own funds for any

personal use. Therefore, the court held that it could not infer

the corporate debtor received less than reasonably equivalent

value for the expenses incurred for Mr. Lee's personal use of the

plane. Id. at 840.

Finally, one of the issues in Interco Systems, Inc. was

whether the corporate debtor received reasonably equivalent value

7 After discovery, the bankruptcy court granted summary

judgment in favor of defendant Charter Airlines due to its good

faith defense under § 548(c). Id. at 536. However, as we discuss

below, the defense of "good faith" is fact-specific and should not

be considered in the context of a motion to dismiss.

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for payments it made to attorneys for legal services provided in

connection with a sale of one of the debtor's company divisions. 

202 B.R. at 191. In suing the attorneys for recovery of the fees,

the chapter 7 trustee alleged that the legal services requested

and paid for by the corporate debtor benefitted only the debtor's

corporate officer. Id. at 192-93. Thus, reasonably equivalent

value to the debtor was lacking. Ultimately, the trustee lost at

trial. The bankruptcy court concluded that the corporate debtor,

in its business judgment, believed that it received a financial

benefit from the sale transaction. Id. at 194. The court went on

to note:

Certainly, if the facts and circumstances indicate that

a payment of professional fees or other expenses by a

corporation was for services or goods which solely

benefitted a third party, whether it be a principal,

officer or employee, and had no reasonable, good faith

business judgment benefit to the corporation, that

payment would be avoidable under Section 548 because of

a lack of reasonably equivalent value, if all of the

other requirements of that Section were met. In this

case, the $150.00 paid by Interco for services rendered

to Davie in connection with his matrimonial is such an

improper and avoidable transfer. However, when in the

exercise of reasonable, good faith business judgment,

there is a perceived financial benefit to the corporation

which justifies the fees or expenses paid, as in the case

of the sale to UDI, unless the Trustee meets his or her

burden to prove that there was in fact no benefit, or a

substantially and reasonably quantifiable

disproportionate financial benefit, the payment of

professional fees or expenses to the professionals or

others who perform the services or provided the goods at

the request of the corporation and charged a reasonable

rate is not avoidable as a fraudulent conveyance under

Section 548(a)(2)(B)(I).

Id. 

Regardless of the outcome, these cases have one important

common denominator: the corporate debtor contracted and paid for

a service that may not have benefitted the debtor, but rather may

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have benefitted only the debtor's corporate officer or employee. 

In each case, the defendant service provider was the recipient of

the transfer (i.e., money for services rendered), which was

potentially avoidable because the corporate debtor may have

received less than reasonably equivalent value in exchange. Such

defendants, however, may offer an affirmative defense, as did some

of the defendants discussed. However, resolution of such defenses

is not proper in the context of a motion to dismiss under Civil

Rule 12(b)(6). McFarland v. Gen. Elec. Capital Corp. (In re Int'l

Mfg. Grp., Inc.), 538 B.R. 22, 33 (Bankr. E.D. Cal. 2015)(citing

Picard v. Merkin (In re Bernard L. Madoff Inv. Sec.), 440 B.R.

243, 256 (Bankr. S.D.N.Y. 2010)). But see Asarco, LLC v. Union

Pac. R.R. Co., 765 F.3d 999, 1004 (9th Cir. 2014)(dismissal under

Civil Rule 12(b)(6) on the basis of an affirmative defense is

proper only if the defendant shows some obvious bar to securing

relief on the face of the complaint.) 

Therefore, to the extent the bankruptcy court ruled as a

matter of law that Clay Lacy could not be a transferee because

Aletheia incurred the debt for flight services and got what it

bargained for, we believe it erred. 

2. The bankruptcy court further erred in making a factual

determination as to reasonably equivalent value. 

The bankruptcy court also appears to have found as a matter

of fact that even if Clay Lacy could be a transferee, it

undisputedly provided Aletheia with reasonably equivalent value

for the Transfers because it provided Aletheia with the service it

requested at a fair market price. Such findings are not

appropriate in the context of a motion to dismiss under Civil

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Rule 12(b)(6).

The question of whether or not reasonably equivalent value

was provided in exchange for a transfer is clearly a question of

fact. Nordberg v. Arab Banking Corp. (In re Chase & Sanborn

Corp.), 904 F.3d 588, 593 (11th Cir. 1990); Jacoway v. Anderson

(In re Ozark Rest. Equip. Co.), 850 F.2d 342, 344 (8th Cir. 1988);

Samson v. W. Capital Partners LLC (In re Blixeth), 2012 WL

1981719, at *15 (Bankr. D. Mont. June 1, 2012); Salven v. Munday

(In re Kemmer), 265 B.R. 224, 232 (Bankr. E.D. Cal. 2001). See

also Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109-10

(9th Cir. 2010)(holding that bankruptcy court's finding as to

reasonably equivalent value was not "clearly erroneous"). The

primary focus is on the net effect of the transaction on the

debtor's estate and funds available to the unsecured creditors. 

Frontier Bank v. Brown (In re N. Merch., Inc.), 371 F.3d 1056,

1059 (9th Cir. 2004); Maddox v. Robertson (In re Prejean),

994 F.2d 706, 708-09 (9th Cir. 1993)(reasonably equivalent value

under California UFTA is "determined from the standpoint of the

creditors"). See also In re United Energy Corp., 944 F.2d at 597

("[T]he analysis is directed at what the debtor surrendered and

what the debtor received irrespective of what any third party may

have gained or lost."). 

In reviewing the complaint, Trustee alleged that in exchange

for the Transfers, Aletheia received little or no value for

flights where (1) employees took the flight for personal purposes

or (2) no Aletheia employees were even on board. He provided a

comprehensive list of the flights in question, including the

dates, names of each passenger on the flight, the flight's

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destination and the price paid to Clay Lacy. Viewing the

complaint in a light most favorable to Trustee, we conclude he

stated sufficient facts to show Aletheia may not have received

reasonably equivalent value from Clay Lacy for the Transfers. 

3. Trustee failed to plead sufficient facts to establish a

plausible claim for insolvency.

The bankruptcy court did not rule on Trustee's allegation of

Aletheia's insolvency. However, our review is de novo, and we

conclude Trustee's complaint fell short on the matter. 

For this required element under both state and federal law,

Trustee alleged generally that at the time Aletheia made each of

the alleged Transfers to Clay Lacy, "Aletheia was insolvent." 

Trustee's complaint failed to set forth any factual support for

this conclusion that would demonstrate plausibility. He did not

offer a single fact to show that Aletheia was insolvent at the

time of the Transfers or became insolvent as a result. This

threadbare allegation does not pass muster under Twombly. 

550 U.S. at 555 ("Threadbare recitals of the elements of a cause

of action, supported by mere conclusory statements, do not

suffice."). Notably, some of the alleged Transfers reach back as

far as four years before Aletheia filed its bankruptcy case; thus,

plausibility for those transfers is highly questionable without

more supportive facts from Trustee. However, he will have another

opportunity to plead his claim.

D. The bankruptcy court abused its discretion when it dismissed

Trustee's complaint without leave to amend.

Trustee contends the bankruptcy court abused its discretion

by not granting his request for leave to amend. The court did not

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discuss amendment at the hearing. In addition, the order

dismissing Trustee's complaint fails to state whether it was

dismissed with or without prejudice. However, because the court

believed that Trustee could never plead a fraudulent conveyance

claim against Clay Lacy, we can only presume it believed any

amendment would be futile and that dismissal was with prejudice. 

Due to the errors committed by the court discussed above, we agree

with Trustee.

Under Rule 7015, incorporating Civil Rule 15(a)(2), "[t]he

court should freely give leave [to amend] when justice so

requires." If a Civil Rule 12(b)(6) motion is granted, the "court

should grant leave to amend even if no request to amend the

pleading was made, unless it determines that the pleading could

not possibly be cured by the allegation of other facts." Lopez v.

Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)(en banc)(internal

quotation marks and citation omitted). In other words, dismissal

is proper if any potential amendment of the complaint would be

futile. Although Trustee failed to plead sufficient facts to show

insolvency, we do not conclude that amending his complaint would

be futile.

VI. CONCLUSION

Accordingly, we VACATE and REMAND to the bankruptcy court

with instruction that Trustee be allowed to amend his complaint.

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