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 Hon. Thomas B. Donovan, United States Bankruptcy Judge for 1

the Central District of California, sitting by designation.

 ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-11-1173-DoDH

)

JOSEPH J. VIOLA aka ) Bk. No. 10-30904

GIUSEPPE VIOLA, )

) Adv. No. 10-03103

Debtor. )

 )

)

JANINA M. HOSKINS, )

Chapter 7 Trustee, )

)

Appellant, )

v. ) O P I N I O N

)

CITIGROUP, INC.; CITIGROUP )

GLOBAL MARKETS, INC.; )

CITIBANK, N.A., )

)

Appellees. )

______________________________)

Argued and Submitted on January 20, 2012 

at San Francisco, California

Filed - April 6, 2012

Appeal from the United States Bankruptcy Court

for the Northern District of California

Hon. Dennis Montali, Bankruptcy Judge, Presiding.

Appearances: John H. MacConaghy of MacConaghy & Barnier argued

for the appellant. Stefan Perovich of Keesal,

Young & Logan argued for the appellees. 

Before: DONOVAN, DUNN, and HOLLOWELL, Bankruptcy Judges. 1

FILED

APR 06 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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 All facts are drawn from allegations raised in Hoskins’ Second 2

Amended Complaint, and are taken as true for the purposes of

reviewing the bankruptcy court’s dismissal of Hoskins’ complaint

for failure to state a claim. See Stoll v. Quintanar (In re

Stoll), 252 B.R. 492, 495 (9th Cir. BAP 2000). 

2

DONOVAN, Bankruptcy Judge:

Janina M. Hoskins (Hoskins), chapter 7 trustee for the

estate of Joseph Viola (Viola), appeals an order of the

bankruptcy court dismissing with prejudice Hoskins’ Second

Amended Complaint against Citigroup, Inc. (Citigroup), Citigroup

Global Markets, Inc. (CGMI), and Citibank, N.A. (Citibank),

(collectively Citi), for avoidance of fraudulent transfers and

damages for aiding and abetting intentionally fraudulent

transfers. We AFFIRM the dismissal. 

I. FACTS

Viola, a convicted felon and fugitive from justice,

approached a San Francisco branch of Citibank managed by vice

president Rik B. Schrammel on or about April 14, 1999.2

Citibank was apparently Viola’s bank of choice; his prior

conviction arose out of fraudulent activities in Arizona

involving Citibank accounts, and he was investigated by Citibank

internal fraud personnel in relation to those activities. 

Despite this past investigation, Viola and Ralph Napolitano, a

retired auto mechanic, were permitted to open an account at

Citibank in the name of “The Ralph Napolitano Irrevocable Living

Trust DTD April 13, 1999.” The Account Opening Form indicated

that Napolitano earned $25,000 per year and had an entire net
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 At one point the Second Amended Complaint references a 3

$1,007,800 transfer. This appears to be a typographical error,

as Exhibit 5 to the Second Amended Complaint, referenced as

evidence for this transaction, indicates a value of $1,007,600. 

3

worth of $220,000. Under the terms of the trust, which was

executed and notarized in the presence of Schrammel, Viola had

full power of attorney for Napolitano, Viola and Napolitano were

co-trustees of Napolitano’s affairs, and Schrammel was

designated as successor trustee. Viola and Napolitano also

opened an investment brokerage account in the name of the trust. 

Napolitano died in 2000. However, the funds in the trust

accounts were not distributed to his chosen beneficiaries. 

Instead, beginning around January 1, 2005, Viola began using the

trust accounts to operate a Ponzi scheme. In that year, the

balance in the trust accounts grew from approximately $362,000

to $771,000, with the increase due almost entirely to funds

obtained from Ponzi scheme victims. Viola successfully

represented to at least sixty investors that he was an

experienced securities and commodities trader and promised

generous investment returns. Based on these representations,

these investors entrusted him with roughly $17 million. 

Over the course of the scheme, Viola used the funds

invested: (a) to make distributions to investors, thereby giving

the false impression that he was generating returns, (b) to pay

his own living expenses, (c) to speculate in commodities trades,

in the process losing roughly $4 million, (d) to invest

approximately $1,200,000 in a retail bakery business, and (e) to

design and build custom sports cars. On February 21, 2008,

Viola also used $1,007,600 to purchase preferred stock of 3

Citigroup through an investment brokerage account managed by
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CGMI. Both Citibank and CGMI are subsidiaries of Citigroup, a

holding company.

Due to the increased account balances in early 2005, and

pursuant to the terms of the Patriot Act, Citi required updated

account information forms for the trust accounts, which Viola

fraudulently filled out on behalf of Napolitano, signing

Napolitano’s name and giving his own address and phone number

for Napolitano’s, who was dead. With this information, Viola

was permitted to continue operating the trust accounts and to

transfer millions of dollars through the accounts, which had a

high balance of $9,452,583.34 on February 21, 2008. These

transfers included a $4,810,553 transfer to a commodities

brokerage. When the commodities brokerage firm became concerned

over the size of Viola’s losses, Citi provided two letters of

reference on his behalf in October of 2008, attesting to Viola

and Napolitano’s wealth, sophistication, and integrity. Citi

also assured two of Viola’s victims that Schrammel, the

successor trustee of the accounts, could act in the event that

Viola was not able. 

Citi provided Viola with other assistance, including false

representations to victims that Viola was a practicing attorney

and a skilled investment advisor, and assuring Citi customers

that allocating portions of the victims’ investment portfolios

to aggressive investment with Viola was a sound investment

strategy. Citi also permitted Viola to use its conference room

to meet with victims on at least one occasion. Citi referred

customers to Viola. For example, when Citi customer Morton

Kirsch sought to repatriate approximately $8 million of his
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 Unless otherwise indicated, all chapter, section and rule 4

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

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

5

offshore funds to his own account, Schrammel referred him to 

Viola as one who was experienced in international money

transfers. 

 Citi eventually approached Viola to request additional

documentation after Citi’s compliance department flagged the $8

million foreign wire transfer from Kirsch and acknowledged that

the transactions in general were wholly inconsistent with a

personal trust account. Viola refused to cooperate, and Citi

closed the accounts after sixty days, during which time Viola

disbursed an additional $912,240.22. Viola continued to operate

the Ponzi scheme for another six months, through other Citi

accounts that were opened with Schrammel’s assistance, until

Viola’s arrest and his involuntary chapter 7 petition filed on

March 16, 2010.

Following the involuntary filing, an order for relief was

entered and Hoskins was appointed chapter 7 Trustee. After

investigation, Hoskins filed an adversary complaint and then a

First Amended Complaint naming the Citi defendants and raising

two claims for avoidance of fraudulent transfers under 11 U.S.C.

§§ 548(a)(1)(A) and 544(b) and a third claim for damages for 4

aiding and abetting fraudulent transfers under § 544(a)(2). On

September 10, 2010, Citi brought a motion to dismiss the First

Amended Complaint. The bankruptcy court granted the motion with

leave to amend on the grounds that Viola, not Citi, controlled

the funds in the trust accounts; accordingly, Hoskins could not

bring an action against Citi as a non-transferee. Further, the
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court found that Hoskins lacked standing to assert a claim for

aiding and abetting a fraudulent transfer. Hoskins then filed

the Second Amended Complaint realleging the dismissed claims and

adding a fourth claim for avoidance of Viola’s purchase of

Citigroup preferred stock. The court granted Citi’s motion to

dismiss the Second Amended Complaint with prejudice for the

reasons stated in its previous Memorandum Decision, with the

added reason that § 546(e) precluded the fourth claim. Hoskins

appealed. 

II. ISSUES

A. Are Citigroup, CGMI, and/or Citibank transferees 

for the purposes of imposing fraudulent transfer liability?

B. Does a bankruptcy trustee have standing to bring 

a claim for relief alleging the aiding and abetting of

fraudulent transfers under California law?

C. Do the provisions of § 546(e) apply to protect 

Citigroup from liability in connection with a sale of its 

 own stock through its subsidiary, CGMI?

III. JURISDICTION

The bankruptcy court properly exercised jurisdiction under

28 U.S.C. § 157(b)(2)(E), and § 1334. We have jurisdiction

under 28 U.S.C. § 158. 

IV. STANDARD OF REVIEW

The BAP reviews de novo a bankruptcy court’s dismissal for

failure to state a claim under Federal Rule of Civil Procedure

12(b)(6). Busseto Foods, Inc. v. Laizure (In re Laizure), 548

F.3d 693, 696 (9th Cir. 2008). When reviewing a motion to

dismiss a complaint, the court must take as true all allegations

of material fact and construe them in a light most favorable to

the nonmoving party. Parks Sch. of Bus., Inc. v. Symington, 51
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F.3d 1480, 1484 (9th Cir. 1995) (citation omitted). For a

complaint to survive a motion to dismiss, alleged facts must be

plausibly suggestive of a claim entitling the plaintiff to

relief. Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.

2009). A plaintiff’s complaint may be dismissed either for

failing to articulate a cognizable legal theory or for failing

to allege sufficient facts under a cognizable legal theory. 

Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th

Cir. 1984). 

V. DISCUSSION

 A. The Citi Defendants Are Not Transferees Pursuant To The

Ninth Circuit’s Dominion Test.

Hoskins’ first and second claims for relief against Citi in

the Second Amended Complaint are for avoidance of intentionally

fraudulent transfers under §§ 548(a)(1)(A) and 544(b). These

sections permit the trustee to avoid a transfer of an interest

of the debtor in property made with the actual intent to hinder,

delay, or defraud a creditor within two years prior to the

bankruptcy filing, and to avoid any transfer of such an interest

that is voidable under applicable law by an unsecured creditor. 

Pursuant to § 550(a), a trustee may recover a fraudulent

transfer from “the initial transferee of such transfer or the

entity for whose benefit such transfer was made; or any

immediate or mediate transferee of such initial transferee.” 

The term “transferee” is not defined in the Bankruptcy Code;

however, the Ninth Circuit has examined the question of who

constitutes a transferee at length. 

As explained in In re Incomnet, Inc., 463 F.3d 1064, 1069
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(9th Cir. 2006), there are two generally recognized tests to

determine if a party is a transferee: the “dominion test” and

the “control test.” Perhaps because the words are usually

synonyms, the tests have frequently been conflated, but as

explained in Incomnet, the Ninth Circuit “ha[s] applied the

dominion test several times, but ha[s] declined to adopt the

control test.” Id. The Ninth Circuit’s dominion test defines a

transferee as one who “has dominion over the money or other

asset, the right to put the money to one’s own purposes. . . .

The inquiry focuses on whether an entity had legal authority

over the money and the right to use the money however it

wished.” Id. at 1070 (internal citations omitted). 

The Ninth Circuit has identified Bonded Financial Services,

Inc. v. European American Bank, 838 F.2d 890 (7th Cir. 1988), as

the leading case in this area. Incomnet, at 1070. In Bonded

Financial, a bank was held not to be a transferee under

§ 550(a), even though the debtor, a corporation, sent the bank a

check payable to the bank’s order, because the check was

accompanied by a note directing the bank to deposit the check

into another account belonging to the debtor’s principal. 838

F.2d at 891. The Seventh Circuit found that the bank received

no benefit from the transaction in which it served merely as a

financial intermediary; accordingly, the scenario failed the

dominion test, which stresses the ability of the recipient to

use the money as it chooses. Id. at 893. 

The Ninth Circuit in Incomnet emphasized that the dominion

test is more restrictive than the “control test” used by other

circuits, referencing the explanation of the control test laid
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out in Nordberg v. Societe Generale (In re Chase & Sanborn

Corp.), 848 F.2d 1196, 1199 (11th Cir. 1988). Incomnet, 463

F.3d at 1071. Under the control test, an examining court must

evaluate a transaction in its entirety and make a “logical and

equitable” determination as to whether “the banks actually

controlled the funds or merely served as conduits, holding money

that was in fact controlled by either the transferor or the real

transferee.” Chase & Sanborn Corp., 848 F.2d at 1199-1200. 

Therefore, while similar, “[t]he dominion test focuses on

whether the recipient of funds has legal title to them and the

ability to use them as he sees fit. The control test takes a

more gestalt view of the entire transaction to determine who, in

reality, controlled the funds in question.” Incomnet, 463 F.3d

at 1071 (internal citations omitted). 

Hoskins’ Second Amended Complaint fails to demonstrate that

any of the Citi defendants had dominion over the funds

transferred to the trust accounts with Citibank and CGMI. To

the contrary, the complaint reflects that Viola had dominion

over the funds, or in other words, the legal title and ability

to do with them whatever he wished, much to the chagrin of his

duped investors. Hoskins has argued that, because a Citi

employee, Schrammel, was designated as successor trustee to the

trust accounts, Citi should be viewed as having exercised

dominion over the funds. In the alternative, Hoskins argues

that Citi should be deemed to have exercised dominion over the

funds in light of its continued violations of rules and

regulations in permitting the accounts to operate unlawfully.

Unfortunately for Hoskins, the Ninth Circuit has been clear
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regarding its adoption of the dominion test and corresponding

rejection of the “more lenient” control test. Incomnet, 463

F.3d at 1071. Although it is a disturbing fact that Schrammel,

a Citi branch vice president, was designated as successor

trustee, the complaint does not allege that Schrammel served as

trustee at any time, nor that he had “sufficient authority over

the funds to direct their disbursement.” Id. at 1074. 

The allegations that Citibank ignored multiple red flags

and permitted glaring regulatory violations, thereby

facilitating the continuation of Viola’s fraud, are also

disturbing. It is possible that the Citi defendants may be

subject to liability under state or federal law as a consequence

of these violations. However, the failure of Schrammel or any

of the Citi defendants to exercise dominion over the trust

accounts determines the issue of liability for fraudulent

transfer under the Bankruptcy Code and the Ninth Circuit

dominion test. 

The bankruptcy court correctly determined that the Citi

defendants are not transferees under § 550(e) pursuant to

current binding precedent; accordingly, the dismissal of Hoskins

first and second claims for relief is affirmed. 

B. The Trustee Does Not Have Standing To Bring A Claim For

Relief For Aiding And Abetting Fraudulent Transfers Because The

Trustee Is Not A Real Party In Interest.

Hoskins’ third claim for relief attempts to invoke the

trustee’s “strong arm” powers under § 544(a)(2), which gives the
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For the purposes of analyzing Hoskins’ argument, we assume 5

that § 544(a)(2) powers are available to Hoskins in this case. We

note, however, that there is some ambiguity in this Circuit’s case

law as to whether a creditor must exist who had the legal right to

an execution at the time the bankruptcy case was filed, but simply

failed to obtain said execution. See Pac. Fin. Corp. v. Edwards,

304 F.2d 224, 228 (9th Cir. 1962); see also In re Skipwith, 9 B.R.

730, 737 (Bankr. S.D. Cal. 1981) (noting criticism of the Pacific

decision) (overruled on other grounds by Emmerich v. Lampi, 19

B.R. 666 (9th Cir. BAP 1982)); 124 Cong. Rec. 32400 (1978)

(suggesting that the Bankruptcy Code overrules Pacific Finance

Corp. insofar as it held that the trustee did not have the status

of a creditor who extended credit immediately prior to the

commencement of the case). It is not necessary for us to resolve

this ambiguity in light of our conclusion that these powers, if

granted, would still not allow Hoskins to pursue a claim against

the Citi defendants for aiding and abetting fraudulent transfers.

11

trustee 

. . .

the rights and powers of, or [the power to] avoid any

transfer of property of the debtor or any obligation

incurred by the debtor that is voidable by -- . . . 

(2) a creditor that extends credit to the debtor at the

time of the commencement of the case, and obtains, at

such time and with respect to such credit, an execution 

against the debtor that is returned unsatisfied at such

time, whether or not such a creditor exists . . . . 

§ 544(a)(2). Hoskins refers to the strong arm powers granted in

this section as those of the “hypothetical execution lien

creditor.” These powers, as Hoskins correctly asserts, go beyond

mere avoidance powers. However, they do not establish Hoskins'

right to a claim for relief in this case under Ninth Circuit

precedent. 

5

Congress granted these “rights and powers” primarily to

facilitate a trustee’s pursuit of leviable assets. Section

544(a)(2) was particularly intended to give a trustee, standing

in the shoes of a creditor that has already exhausted available
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legal remedies, power to pursue equitable remedies in the context

of discovery. See S. Rep. No. 89-1159 (1965), reprinted in 1966

U.S.C.C.A.N. 2032, at 2466. Hoskins asks this Panel to

interpret § 544(a)(2) to give a trustee all the substantive

rights of the hypothetical execution lien creditor, which in

California include standing to bring a claim for relief for

aiding and abetting fraudulent transfers against a third party. 

See Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101,

1118 (C.D. Cal. 2003). Other courts within the Ninth Circuit

have declined to grant a trustee standing to pursue such a claim,

albeit under a different subsection of the strong arm statute. 

See Wyle v. Howard, Weil, Labouisse, Friedrichs Inc. (In re

Hamilton Taft & Co.), 176 B.R. 895, 902 (Bankr. N.D. Cal. 1995)

(holding that the trustee did not have power to pursue an aiding

and abetting claim for relief under § 544(b)); Ciolino v. Ryan

(In re Ryan), 2008 Bankr. LEXIS 2968 at *10 n.5 (Bankr. N.D. Cal.

Oct. 29, 2008) (same). 

Hoskins attempts to distance her claim from these rulings by

emphasizing the differences between § 544(a), the basis for her

claim, and § 544(b), the basis for the claims in In re Hamilton

Taft & Co. and Ryan. This attempt is futile in light of the

factual similarities between her claim and that raised in

Williams v. California 1st Bank, 859 F.2d 664 (9th Cir. 1988). 

In addition to having a nearly identical factual scenario, the

reasoning of the Ninth Circuit’s interpretation of Supreme Court

precedent is as applicable to this case as it was to Williams. 

 In Williams, the Ninth Circuit considered a bank’s motion to

dismiss the trustee’s action against the bank for violation of
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the federal securities laws on behalf of creditors who had been

bilked in a Ponzi scheme. Id. at 665. In response to the bank’s

assertion that the trustee did not have standing to bring such a

suit, the trustee obtained an assignment of the claim from some

of the investors. Id. Nonetheless, the Ninth Circuit concluded

that under the Supreme Court’s decision in Caplin v. Marine

Midland Grace Trust Co., 406 U.S. 416, 428-30 (1972), the trustee

did not have standing to pursue the claim against the bank and

the case should be dismissed. 

 The Ninth Circuit gave three specific reasons for

dismissal. First, the trustee did not have power to collect

money not owed to the estate: the court reasoned that the

assignment of their claims notwithstanding, the investors

remained the real parties in interest. Williams, 859 F.2d at

666-67. Second, the debtor had no independent claim against the

bank. Id. at 667. Third, allowing the trustee to bring a suit

raised the potential for inconsistent actions between the trustee

and those investors who had not assigned their claims,

potentially creating a conflict of interest and the proliferation

of litigation. Id. The court further noted that Congress had

the opportunity in 1978 to overturn Caplin, which had first

raised these three points in denying a trustee the authority to

recover damages, and decided not to do so. Accordingly,

“‘Congress’ message is clear -- no trustee, whether a

reorganization trustee as in Caplin or a liquidation trustee [,]

has power under . . . the Code to assert general causes of action

. . . on behalf of the bankrupt estate’s creditors.’” Id. at 667

(quoting In re Ozark Rest. Equip. Co., 816 F.2d 1222, 1228 (8th
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Cir. 1987)). 

The reasoning of Williams applies to this case. First, any

recovery of funds from the Citi defendants will go straight to

the investors, apart from administrative costs that Hoskins may

recoup as the cost for bringing the suit. Second, Viola’s estate

has no independent claim against the Citi defendants. Hoskins

cannot bring a claim on behalf of the estate against the bank for

the bank’s alleged complicity with Viola’s fraudulent activities. 

Finally, allowing Hoskins to go forward with her suit against the

Citi defendants raises the risk of inconsistent actions brought

outside of bankruptcy by the investors themselves. 

 In the Ninth Circuit, “it is well settled that a bankruptcy

trustee has no standing generally to sue third parties on behalf

of the estate’s creditors, but may only assert claims held by the

[debtor] itself.” Smith v. Arthur Andersen LLP, 421 F.3d 989,

1002 (9th Cir. 2005) (internal citations omitted); see also In re

Hamilton Taft & Co., 176 B.R. at 902 (“A debtor’s bankruptcy

trustee . . . is not authorized to pursue every action that

creditors of the debtor might pursue.”). Hoskins’ claim against

the Citi defendants for aiding and abetting fraudulent transfers

is entirely derived from the creditor investors, and would not

exist but for their existence and involvement in the bankruptcy. 

For the reasons laid out in Caplin and adopted by the Ninth

Circuit in Williams, we must conclude that Hoskins does not have

standing to pursue this claim, and therefore we affirm the

dismissal of Hoskins’ third claim for relief. 

 C. The Trustee Cannot Avoid The Transfer Of $1,007,600 For

Citigroup Stock Because The Transfer Was Made Through CGMI, A
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This transfer is treated differently from those raised under 6

Hoskins’ first and second claims for relief, because in this case

the Citi defendants are transferees under § 550(a), having

received the cash in exchange for stock, and accordingly obtained

legal right to do as they wished with the cash. 

15

Protected Entity Under § 546(e). 

 Hoskins’ fourth and final claim for relief against the Citi

defendants seeks to avoid Viola’s 2008 transfer of $1,007,600 for

the purchase of Citigroup’s preferred stock. This transfer 6

falls outside of the statutory period in § 548(a)(1)(A), having

occurred more than two years before the petition was filed. 

Accordingly, Hoskins seeks to avoid the transfer under § 544(b). 

 Section 546(e) limits the trustee’s power to avoid

transfers made by, to, or for the benefit of, certain entities,

including stockbrokers and financial institutions. Specifically,

the section states: 

 

Notwithstanding section[ ] 544 . . . , the trustee may 

 not avoid a transfer that is . . . a settlement payment 

 . . ., made by or to (or for the benefit of) a commodity 

 broker, forward contract merchant, stockbroker, 

 financial institution, financial participant, or 

 securities clearing agency, or that is a transfer made 

 by or to (or for the benefit of) a commodity broker, 

 forward contract merchant, stockbroker, financial 

 institution, financial participant, or securities 

 clearing agency, in connection with a securities 

 contract, as defined in section 741(7), commodity

 contract, as defined in section 761(4), or forward 

 contract, that is made before the commencement of the 

 case.

§ 546(e). Hoskins has conceded that CGMI is an entity covered

under the safe harbor of § 546(e). However, she does not concede

that Citigroup, the parent holding company of CGMI and Citibank,

is so protected. 

 Instead, Hoskins argues that CGMI should be treated as a

“mere conduit,” consistent with the bankruptcy court’s prior
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determination regarding the dismissal of her first and second

claims for relief, which this court has affirmed. Hoskins argues

under this reasoning that Citigroup, the seller of the preferred

stock, is the true transferee. She further argues that Citigroup

is not protected under § 546(e), and so the claim for relief

should move forward. 

 Hoskins’ “mere conduit” argument fails for two reasons. 

First, there is nothing in the Bankruptcy Code or subsequent case

law to suggest that the Ninth Circuit’s test to determine a

transferee under § 550(a) should be applied as a limitation to

the safe harbor provisions of § 546(e). The two sections do not

cross-reference, and they explain different subjects: § 546(e)

deals with transfers, while § 550(a) deals with transferees. 

Second, even under the Ninth Circuit’s dominion test, CGMI would

be considered a transferee for the $1,007,600 transaction. CGMI

received the investor money from the Citi trust accounts in

payment for the Citigroup stock, and then had legal authority to

do what it wished with that money. This is unlike CGMI or 

Citibank’s mere holding of trust account funds, which Viola

controlled and transferred as he wished. 

 As was noted in oral argument, Hoskins unfortunately has

been caught between two statutory provisions--the safe harbor

clause of § 546(e), and the statutory limits of § 548(a)(1)(A). 

Her argument that “Section 546(e) should not be used as a free

pass to avoid liability in a scheme to defraud” is appealing. 

However, the drafters of the Bankruptcy Code have already

provided a limitation on § 546(e) to that effect. Any avoidance

action arising under § 548(a)(1)(A) that concerns transfers made
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“with actual intent to hinder, delay, or defraud,” is exempt from 

§ 546(e) protections. However, § 548(a)(1)(A) is limited to

transactions made within two years before the bankruptcy filing

date. In this case, the filing date was March 16, 2010. The

transaction that Hoskins seeks to avoid took place on February

21, 2008, more than two years prior to the bankruptcy filing, and

is accordingly outside of the § 548(a)(1)(A) statutory period. 

 It is not the place of this Panel to read in an expansion of

clear statutory limits in response to this factual scenario. See

In re Hamilton Taft & Co., 176 B.R. at 901 (finding that the

ethical nature of a transaction outside the statutory period of

exemption under § 546(e) is irrelevant to the court’s

determination). Accordingly, the bankruptcy court’s dismissal of

this claim for relief is affirmed. 

VI. CONCLUSION

For the foregoing reasons, the bankruptcy court’s dismissal

with prejudice of Hoskins’ case for failure to state a claim is

AFFIRMED.

HOLLOWELL, Bankruptcy Judge, concurring: 

 

 I agree with the majority that Hoskins cannot assert an

aiding and abetting claim under § 544(a)(2) because the estate

has no claim against the Appellees. The rights of a

hypothetical lien creditor are dependent on the rights of its

debtor. Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th

Cir. 2005) citing Shearson Lehman Hutton, Inc. v. Wagoner,

944 F.2d 114, 118 (2d Cir. 1991). Here, because the deposits at
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 The deposits were either in the name of the Napolitano Trust or 1

a Delaware “shell” corporation. While Viola had signing authority

for the accounts, the Appellees were authorized “to honor

withdrawals from an account on the signatures authorized by the

signature card, which serves as a contract between the depositor

for the handling of the account.” Certified Grocers of Cal., Ltd.

v. San Gabriel Valley Bank, 150 Cal.App.3d 281, 287 (Cal. Ct. App.

1983).

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issue were not made by Viola, the Citi defendants did not become

the obligors of Viola. Certified Grocers, 150 Cal.App.3d at 1

286 (“When a bank receives deposits, it becomes the debtor of

the depositor and its implied contract with him is to discharge

that indebtedness by honoring such checks as he may draw upon

it; the bank is not entitled to debit his account with payments

not made by his order or direction.”). Even if Viola had been

the depositor, the facts do not indicate that Viola had a claim

against the Appellees. Accordingly, the equitable remedies made

available to a judgment creditor whose execution is returned

unsatisfied, such as the right to bring a creditor’s bill, or

seek a receivership, or bring an action for aiding and abetting,

could not be exercised by Hoskins against the Appellees.

If, however, Viola had a valid claim against the Appellees,

then the holding in Williams v. Cal. 1st Bank, 859 F.2d 664 (9th

Cir. 1988), and its progeny, barring claims against third

parties by a trustee would not apply. Smith, 421 F.3d at 1002

(“If the debtor suffered an injury, the trustee has standing to

pursue a claim seeking to rectify such injury.”). For example,

in such a case, defendants would not necessarily be able to

assert an in pari delicto defense if state law bars such a

defense against receivers. See Mosier v. Stonefield Josephson,

Inc., 2011 WL 5075551 *4 (C.D. Cal. Oct. 25, 2011). Nor, if the
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debtor had a claim, independent of the claims of its creditors,

would a trustee be prohibited from pursuing the claim just

because the creditors might have similar claims. In Smith, the

court recognized that while acts of mismanagement by an

insolvent corporation indirectly injured creditors, the trustee

for the debtor corporation still had standing to bring an action

for breach of duty or misconduct to the debtor. 421 F.3d at

1004. 

There are other important rights a trustee may assert under

§ 544(a) which would be unavailable under § 544(b), such as

defenses to a claim that the statute of limitations has expired. 

Collins v. Kholberg & Co. (In re Sw. Supermarkets, LLC.),

325 B.R. 417, 427 (Bankr. D. Ariz. 2005) 

 I note the differences between § 544(a) and (b) not because

the majority’s analysis is incorrect. On the facts of this

case, no other result is possible. Nevertheless, the difference

between a trustee's § 544(a) and (b) powers is worth noting

because, depending on the facts of a particular case, that

difference may significantly impact a trustee’s ability to

recover assets.