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NOTFOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-15-1415-JuKiTa

)

MORTGAGE FUND ‘08 LLC, ) Bk. No. 11-49803

)

Debtor. ) Adv. No. 13-04190

______________________________)

SUSAN L. UECKER, Liquidating )

Trustee of the Mortgage Fund )

‘08 Liquidating Trust, )

)

Appellant, )

)

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

)

ROBERT L. MONTGOMERY, )

)

 Appellee. )

______________________________)

Argued and Submitted on July 28, 2016

at San Francisco, California 

Filed - August 15, 2016

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Roger L. Efremsky, Chief Bankruptcy Judge, Presiding

_________________________

Appearances: Ben G. Young of Jeffer Mangels Butler and

Mitchell LLP argued for appellant Susan L.

Uecker; Richard S. Miller argued for appellee

Robert L. Montgomery. 

_________________________

Before: JURY, KIRSCHER, and TAYLOR, Bankruptcy Judges.

FILED

AUG 15 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* 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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Appellant Susan L. Uecker is the liquidating trustee

(Trustee) appointed under the confirmed chapter 111 plan for 

debtor, Mortgage Fund ‘08 LLC (MF08). Trustee filed an

adversary proceeding against appellee, Robert L. Montgomery

(Montgomery), seeking to avoid and recover as a fraudulent

transfer under § 544 and California state law a $150,000 payment

made to Montgomery by The Mortgage Fund, LLC (TMF).2 TMF was

the sole owner, manager, and member of MF08.

 Montgomery answered the complaint and pleaded several

affirmative defenses, including settlement and release based

upon an agreement between MF08 and its affiliate, chapter 11

debtor R.E. Loans, LLC (REL). The agreement settled disputes

between the parties regarding MF08's $66 million proof of claim

(POC) filed in REL’s bankruptcy case that was commenced in

Texas. As an investor and noteholder in REL’s bankruptcy case,

Montgomery’s claim, and payment on that claim, was affected by

the settlement. The Texas bankruptcy court approved the

settlement agreement (SA), which was incorporated into REL’s

confirmed plan.

Trustee and Montgomery filed cross-motions for summary

judgment. Trustee moved for summary judgment on her

1 Unless otherwise indicated, all chapter and section

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

“Rule” references are to the Federal Rules of Bankruptcy

Procedure, and “Civil Rule” references are to the Federal Rules

of Civil Procedure.

2 On April 8, 2015, the bankruptcy court entered a

scheduling order which consolidated this adversary with Uecker v.

Bennett, Adv. No. 13-04194, for purposes of trial.

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constructive fraudulent transfer claim for relief, and

Montgomery moved for summary judgment on, among other things,

his affirmative defense of settlement and release. After a

hearing, the bankruptcy court took the matters under advisement. 

The bankruptcy court subsequently issued a decision finding

that the SA covered Trustee’s fraudulent transfer claim against

Montgomery and that all other issues raised in the summary

judgment motions were moot. See Susan L. Uecker, Trustee of the

Mortgage Fund ‘08 Liquidating Trust v. Montgomery (In re

Mortgage Fund ‘08 LLC), 541 B.R. 467 (Bankr. N.D. Cal. 2015). 

The court entered an order granting Montgomery’s motion for

summary judgment (MSJ) and denying Trustee’s MSJ. Trustee

appeals from that order.3 

The SA provides that California law governs its

construction. Applying California law, we determine that the

record, when viewed in the light most favorable to the Trustee,

shows that there is no genuine issue of material fact as to the

proper construction of the terms “REL Transfer,” “Paid by REL,”

and “Any Third Party” as used in the SA. Therefore, Montgomery

was entitled to judgment as a matter of law. Accordingly, we

AFFIRM.

3 Trustee also appealed the bankruptcy court’s order

granting summary judgment in favor of Bennett in the related

adversary proceeding, BAP No. NC-14-1408. Trustee filed a notice

of related appeals and a request for consolidation of the two

appeals for oral argument. On March 4, 2016, a one-judge order

set the related appeals before the same merits panel.

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I. FACTS4

A. The MF08 and REL Bankruptcy Cases

On September 12, 2011, several investors filed a chapter 7

involuntary bankruptcy petition against MF08 in the bankruptcy

court for the Northern District of California. The bankruptcy

court converted the case to chapter 11 and entered an order for

relief on September 28, 2011. As of the petition date, MF08 had

about 472 noteholders who were owed approximately $80 million

and held a real estate portfolio valued at around $72 million. 

The bankruptcy court approved MF08's disclosure statement

and confirmed its plan by order entered on February 3, 2012. 

Among other things, the order established the MF08 liquidating

trust; Trustee has been in place since that time. 

REL commenced its chapter 11 case in the Northern District

of Texas on September 13, 2011.5 At the time of its filing, REL

had about 2,900 noteholders who were owed approximately

$646 million (REL Noteholders). On September 22, 2011, the

United States Trustee appointed the Official Committee of

Noteholders (Noteholders Committee) in REL’s bankruptcy case. 

4 We borrow heavily from the comprehensive facts set forth

in the bankruptcy court’s published opinion on this matter, Susan

L. Uecker, Trustee of the Mortgage Fund ‘08 Liquidating Trust v.

Montgomery (In re Mortgage Fund ‘08 LLC), 541 B.R. 467 (Bankr.

N.D. Cal. 2015).

5 Capital Salvage, a California corporation, and R.E.

Future, LLC (RE Future), also filed chapter 11 cases on the same

date as REL. Capital Salvage and RE Future were entities that

owned most of the real property obtained through foreclosure

sales by REL. REL is the sole shareholder of Capital Salvage and

the sole member of RE Future. Those cases were jointly

administered with REL’s case.

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B. Ownership and Operation of MF08 and REL

Walter Ng and his sons, Kelly Ng and Barney Ng, owned,

managed, and controlled, directly or indirectly, MF08 and REL

and their related entities. 

Walter and Kelly Ng formed REL in January 2002. REL was an

investment company that issued secured loans to real estate

developers. To raise money, REL sold unregistered securities to

investors in exchange for making the investors “members” of REL. 

Montgomery was an investor and member in REL.

In 2007, REL faced liquidity problems due to decreasing

values in the real estate market. Its attorneys also advised

REL that that it had been violating state and federal securities

laws by selling securities without registration as required by

the Securities and Exchange Commission. Due to these

violations, the attorneys urged REL to immediately stop

soliciting new investments. As a result, by June 2007 REL had

$20 million in loan commitments, had only $1 million cash on

hand and could not meet the withdrawal requests from its

investors. 

In November 2007, REL made its members into noteholders in

what is referred to as the “Exchange Transaction” and the

issuance of “Exchange Notes.” 

To address REL’s severe cash flow problems, in December

2007, Walter and Kelly Ng, created MF08 for the stated purpose

of raising capital through the issuance of notes to investors

and making loans secured by real estate with the funds raised. 

In reality, MF08 was part of a scheme perpetrated by the Ngs in

which investors’ money was funneled from MF08 to REL. According

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to Trustee, MF08 transferred over $66 million of the

approximately $80 million raised from MF08 investors to REL. 

As mentioned above, TMF was MF08's sole owner, manager, and

member. Walter Ng and Kelly Ng were the sole members of TMF and

thus controlled MF08.

C. MF08's $66 Million POC in the REL Case

Prior to Trustee’s appointment as liquidating trustee, MF08

filed a POC in the REL case for $66,226,496. The attachment to

the POC stated:

[B]etween December 4, 2007, and February 4, 2009, the

Ngs caused the aggregate sum of $66,226,496 to be

transferred from MF08's bank account to [REL] (the

“Cash Transfers”). The Cash Transfers were made

either (1) directly to [REL], (2) indirectly through

[TMF] or Bar-K, or (3) to [REL’s] borrowers to enable

such borrowers to service or repay loans extended to

them by [REL]. (Emphasis added).

The POC alleged that the Ngs caused the “Cash Transfers” and

that they were made with the “actual intent to hinder, delay or

defraud entities to whom MF08 was or became, on or after the

dates that such transfer[s] were made, indebted.” Also included

with the POC was a “Table of Cash Transfers from MF08 to the

Debtor” which detailed the dates, check numbers, and amounts

purportedly transferred by MF08 to REL from December 4, 2007, to

February 4, 2009.6 Trustee continued to assert the POC in the

6 To be clear, the list of cash transfers showed only those

transfers made from MF08 to REL and did not identify those

transfers that REL made to the holders of the Exchange Notes,

either directly or indirectly through TMF or Bar-K. MF08

maintained that if it could trace the funds to the holders of the

Exchange Notes, it might have the right to pursue recovery from

them. Due to the settlement of its POC, tracing became

(continued...)

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REL bankruptcy case after her appointment.

D. MF08's Settlement with REL and Confirmation of the REL Plan

REL informally objected to MF08's POC. On April 24, 2012,

Trustee, REL, and other principle stakeholders in the REL case -

Wells Fargo Capital Finances, LLC (REL’s secured lender) and the

Noteholders Committee (representing Montgomery’s interests as a

REL Noteholder), participated in a judicial mediation regarding

the dispute over the POC and other disputes related to

confirmation of a plan.7 The parties did not reach a settlement

on that date but continued to negotiate and eventually reached

an agreement regarding the validity and priority of MF08's POC. 

Prior to the execution of the SA, the Noteholders Committee

sent a letter to the REL Noteholders, including Montgomery,

dated May 16, 2012. The committee recommended that the

noteholders vote to accept the plan, explaining:

[T]he Plan Compromise8 represents a favorable outcome

for Noteholders when weighed against the risk,

uncertainty and potential cost of litigating against

objections to the allowance or priority of the

Noteholders’ claims. The proposed Plan Compromise

resolves the debtors’ and MF08's potential claims

against Noteholders to recover prepetition

distributions as alleged fraudulent conveyances,

ensures that current Noteholders will not be at risk

of being sued by the Liquidating Trustee for the

6(...continued)

unnecessary. To the extent that Trustee’s counsel asserted at

oral argument that the list defined the universe of Noteholders

entitled to the waiver in question, the list could not do so,

since it showed transfers to, not from, REL.

7 Development Specialists, Inc. (DSI) also participated in

the all-day mediation. All the parties other than DSI agreed on

the terms of the modified plan and the SA.

8 The “Plan Compromise” is explained below.

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recovery of distributions paid out years ago, and

insulates Noteholders from the expense of defending

against such litigation.

The parties, including Trustee, executed the SA on May 30, 2012. 

The SA allowed REL to proceed with confirmation of its plan. 

REL filed a motion for approval of the SA under Rule 9019

(Motion). At the same time, REL filed its Modified Fourth

Amended Joint Chapter 11 Plan of Reorganization, dated June 1,

2012, which had been amended to comply with the requirements of

the SA with MF08.

In the Motion seeking approval, REL generally reiterated

the provisions set forth in the SA. REL stated that MF08

contended, based on various theories, including that the

transfers may have constituted intentional or constructive

fraudulent transfers, that REL was liable to it for the

$66 million received. The Motion defined the “REL Transfers” as

the transfer of $66 million made between December 2007 and

“approximately August of 2008” and REL’s commingling of that

amount in its general account with other REL funds. The Motion

also stated that MF08 contended that “if it [could] trace the

funds that it transferred to REL from REL to any given [REL]

Noteholder, MF08 might have the right to pursue recovery from

that [REL] Noteholder as a subsequent transferee pursuant to

Bankruptcy Code § 550(b).” This potential right to assert

claims against noteholders that received REL Transfers was

defined as the “MF08 Potential Avoidance Actions.” 

The Motion then described the response by REL and the 

Noteholders Committee to MF08's contentions:

[REL] and the Noteholders Committee contend that

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Noteholders who received the REL Transfers who were

not insiders of [REL] cannot be liable to MF08 because

(a) it is not possible to trace the dollars received

from MF08 to any specific REL Transfer or transferee;

and (b) each [REL] Noteholder that received an REL

Transfer, with the possible exception of insiders of

[REL], received any such REL Transfer on account of a

debt payable by [REL] for value, in good faith, and

without knowledge of the voidability of the transfer

from MF08 to [REL] (even assuming that transfer is

avoidable) and, therefore, would be shielded from

liability pursuant to Bankruptcy Code § 550(b).

The Motion also described the “prior plan compromise” which

had been negotiated by REL and the Noteholders Committee and the

change to it which was now required by the proposed settlement

with MF08. The prior plan compromise provided that if the REL

Noteholders voted to accept the plan, the REL Noteholders' lien

on REL assets would be released, they would share pro rata with

holders of general unsecured claims and their claims would not

be “subordinated or challenged,” but each REL Noteholders’ claim

would be reduced by 50% of any cash received after the November

2007 Exchange Transaction through the REL petition date. 

The proposed agreement with MF08 made one change to the

“prior plan compromise.” Instead of the REL Noteholders sharing

pro rata with the REL general unsecured creditors, the first

$5 million distributed was to go to the REL general unsecured

creditors before the REL Noteholders would share pro rata. This

change increased the distribution to general unsecured

creditors, primarily benefitting MF08 as the largest such

creditor, and reduced the distribution to REL Noteholders

through reallocation of the first $5 million. In exchange for

this “enhancement,” MF08 agreed to vote its $66 million claim in

favor of the plan. Per the agreement, MF08 would also waive its

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right to pursue all MF08 Potential Avoidance Actions against REL

Noteholders, and MF08 would be appointed to the trust oversight

committee of the liquidating trust to be created under the REL

Plan. 

In seeking court approval for this agreement, REL explained

that, absent this agreement, the parties would be forced to

litigate the merits of the MF08 POC, the merits of the final

plan compromise, the relative priorities and rights as between

the holders of general unsecured claims and the REL Noteholders,

and the merits of the MF08 Potential Avoidance Actions. This

was an unattractive proposition because it would “consume

substantial cash that would otherwise be distributable to REL

Noteholders and MF08's creditors.” 

As further support, REL mentioned that many REL Noteholders

were also investors in MF08 and paying the professionals to

redistribute the limited funds available as between MF08 and REL

would reduce the total amount received by all creditors. 

Litigating MF08's Potential Avoidance Actions would also likely

be complex and could require expensive efforts to trace funds,

and every dollar spent on professionals would reduce the amount

available for distribution to creditors. The modified plan

eliminated these issues and was supported by all stakeholders,

including the committee of MF08's noteholders. 

On June 18, 2012, the REL bankruptcy court confirmed REL’s

plan and approved the SA. 

E. The Relevant Sections of the SA 

The Recitals in section 2 of the SA state: 

2.01. MF08 transferred cash in an amount equal to

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$66,226,496 to R.E. Loans during the period from

December of 2007 and through 2008.

2.02. MF08 contends that R.E. Loans is liable to MF08

for the monies received on various theories, including

without limitation based upon the contention that the

transfers may have constituted fraudulent transfers.

2.03. During the time period from December of 2007

through approximately August of 2008, R.E. Loans

received cash and deposited that cash into its general

account from multiple sources, including without

limitation (a) the transfers from MFO8 described in

2.01, above, (b) payoffs by R.E. Loans’ borrowers of

principal and interest, (c) sales of assets, and

(d) advances by Wells Fargo Capital Finance, LLC

(“Wells Fargo”).

2.04. During the time period from December of 2007

through approximately August of 2008, R.E. Loans made

payments out of its general account to many different

parties, including without limitation payments to

various creditors, including without limitation the

holders of Exchange Notes issued to R.E. Loans’

Noteholders (REL Transfers).

2.05. MF08 contends that if it could trace the funds

that it transferred to R.E. Loans as described in

Paragraph 2.01 from R.E. Loans to the holders of

Exchange Notes, MF08 might have the right to pursue

recovery from the holders of Exchange Notes as

“subsequent transferees” pursuant to Bankruptcy Code

§ 550(d). R.E. Loans contends that holders of

Exchange Notes who received the REL Transfers cannot

be liable to MF08 because (a) it is not possible to

trace the dollars received from MF08 to any specific

REL Transfer; and (b) each holder of an Exchange Note

that received an REL Transfer, with the possible

exception of insiders who may have received an REL

Transfer, received any such REL Transfer on account of

a debt payable by R.E. Loans for value, in good faith,

and without knowledge of the voidability of the

transfer from MF08 to R.E. Loans (even assuming that

transfer is avoidable) and, therefore, would be

shielded from liability pursuant to Bankruptcy Code

§ 550(b).

2.06. MF08's potential right to assert claims against

holders of Exchange Notes that received REL Transfers

shall be referred to herein as “MFO8's Potential

Avoidance Actions”.

Section 3.01-3.03 of the SA dealt with the allowance of

MF08's claim in the REL case. If REL’s modified plan was

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confirmed and the “Plan Compromise” approved by the Texas

bankruptcy court, then MF08's POC “shall be allowed as a general

unsecured claim against R.E. Loans in the amount of

$66,226,496. . . .” 

Section 4 of SA, titled “Waiver of Right to Pursue MF08

Potential Avoidance Actions,” provides:

4.01. If the MF08 Claim is Allowed pursuant to

Paragraph 3, above, MF08 waives the right to pursue

any MFO8 Potential Avoidance Actions; provided,

however, that this Agreement shall not limit or

restrict the right of MF08 to bring any action against

any third party, including any manager, member,

insider or professional of MF08. This provision shall

be void and of no further force or effect if the MF08

Claim is not Allowed pursuant to Paragraph 3, above.

4.02. With respect to the claims released herein,

MF08 acknowledges that it has been advised by its

attorneys concerning, and is familiar with, 

California Civil Code Section 1542 and it expressly

waives any and all rights under California Civil Code

Section 1542 and under any other federal or state

statute or law of similar effect with respect to the

claims released herein. Section 1542 of the

California Civil Code provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS

WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT

TO EXIST IN HIS OR HER FAVOR AT THE TIME OF

EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM

OR HER MUST HAVE MATERIALLY AFFECTED HIS OR

HER SETTLEMENT WITH THE DEBTOR.

Finally, section 8 provided that the SA be interpreted

according to California law.

F. The Transfer at Issue

As noted, Montgomery was an investor in REL, an affiliate

of MF08. Montgomery was not an investor in, or a creditor of,

MF08. 

Montgomery had $924,887 invested in REL as of December 31,

2007. In February 2008, Montgomery submitted a written request

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to REL to return $450,000, or half of his principal investment,

based on his decision to decrease his investment in real estate

as an asset class. REL then sold Montgomery’s ownership shares

in $150,000 increments, on June 17, 2008, July 23, 2008, and

August 21, 2008, for a total of $450,000 as requested. Checks

representing these distributions were sent directly to

Montgomery’s Wells Fargo IRA account, with a contemporaneous

statement indicating that all three payments came from REL.

Trustee seeks to recover the second $150,000 transfer because it

was made by a check written on TMF's bank account whereas the

other two payments were made from REL’s account. 

The bank documents offered by both Trustee and Montgomery

show the following sequence of events:

1. On July 21, 2008, REL transferred $528,791 to MF08. 

2. On July 21, 2008, MF08 transferred $528,791 to TMF. 

3. On July 22, 2008, TMF wire transferred $400,000 to Troy

Demanes, another REL Noteholder. 

4. On July 23, 2008, TMF wrote check no. 1020 for $150,000

made payable to “WFB IRA Services fbo Montgomery.” 

4. On July 25, 2008, REL transferred $447,566 to MF08. 

5. On July 28, 2008, MF08 transferred $447,566 to TMF.

6. On July 28, 2008, TMF's bank honored the $150,000 check

to Montgomery. Montgomery's IRA statement shows his account had

received this $150,000 as of July 31, 2008. 

From this sequence of events, the record shows that it is

undisputed that in July 2008, REL transferred $528,791 to MF08

and then transferred $447,566 to MF08 and MF08 immediately

transferred these exact amounts to TMF. It is also undisputed

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that when sufficient funds were in the TMF account, TMF's bank

honored the check to Montgomery and it was credited to his IRA

account on July 31, 2008.

G. The Underlying Adversary Proceeding 

On October 6, 2014, Trustee filed an amended complaint

seeking to avoid and recover the $150,000, alleging that amount

was fraudulently transferred by MF08 to TMF and then paid to

Montgomery on July 23, 2008, with funds that could be traced to

MF08. The amended complaint further alleged that the $150,000

transfer to Montgomery was both intentionally and constructively

fraudulent under California law. 

On October 23, 2014, Montgomery answered the complaint. 

Montgomery denied that the $150,000 transfer to him by MF08 was

intentionally or constructively fraudulent and alleged seven

affirmative defenses. In his second affirmative defense,

Montgomery alleged that the court-approved SA in REL’s

bankruptcy case and REL’s confirmed plan operated as a

settlement and release of any fraudulent transfer claims MF08

could assert against him. He also maintained that since he

agreed under the SA to give up a valid claim of $450,000 in

favor of MF08 and other creditors in return for MF08 obtaining

priority repayment of the first $5 million in income from REL,

this constituted value or reasonably equivalent value for

purposes of § 548.9

9 Although the complaint did not assert fraudulent transfer

claims under § 548, Montgomery mentioned this section in his

answer.

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H. The MSJs

On August 3, 2015, Trustee filed a MSJ on the

constructively fraudulent claim under § 544 and Cal. Civ. Code

§ 3439.04(a)(2)(A). Trustee argued that the undisputed facts

showed that MF08 was entitled to avoid the transfer of $528,791

from MF08 to TMF and may recover $150,000 of it from Montgomery

as either the initial transferee or the immediate transferee of

the initial transferee as permitted under § 550(a). Trustee

also asserted that she was entitled to summary judgment

disposing of Montgomery's affirmative defense under § 550(b)

because there is no evidence that he gave value to TMF or MF08

and his interpretation of the SA was incorrect. 

In support of her interpretation of the SA, Trustee

maintained that the plain language of the SA showed that MF08

had released only a limited set of claims; i.e., claims against

REL Noteholders who were paid by REL. Because Montgomery

received the funds from TMF, Trustee asserted that under

section 4.01 of the SA, her right to “bring any action against

any third party” was preserved, and Montgomery qualified as a

“third party.” Finally, Trustee argued that there was nothing

in the SA evidencing that the intent of the parties was to

affect claims that were unknown at the time the SA was signed.

On August 17, 2015, Montgomery filed his MSJ, asserting

that Trustee was barred from bringing the fraudulent transfer

claim against him by MF08's prior settlement with REL in which

it waived its rights to bring an avoidance action against him. 

He also argued that the actual source of the repayment of

$150,000 was REL monies as shown by his tracing. In support of

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his MSJ, Montgomery requested the bankruptcy court to take

judicial notice of numerous documents, including: (1) his REL

investor portfolio account statement in which REL took credit

for the $150,000 payment TMF ostensibly made to him; (2) the

Noteholders’ Committee’s letter to the REL Noteholders; (3) the

findings of fact and conclusions of law in support of the REL

Confirmation Order; and (4) his Wells Fargo Bank IRA statement

indicating payments had come from REL. 

Two weeks later, Montgomery filed his opposition to

Trustee’s MSJ basically reiterating what he argued in his

motion. 

The bankruptcy court heard the motions on September 10,

2015. At the hearing, Trustee’s counsel asserted that the

primary question raised in the motions was whether MF08 released

the avoidance action claims against Montgomery under the SA. 

Counsel argued that only a narrow category of claims were

settled through the SA as shown by sections 2.04 and 2.05 of the

SA. That is, only those avoidance claims that were paid by REL

and not claims paid by TMF. He also maintained that the release

in the SA under Cal. Civ. Code § 1542 was a “general release,”

and section 4.01 of the SA preserved unknown claims by

authorizing Trustee to file any action against any “third

party.”

Following argument, the bankruptcy court took the matter

under submission. On November 19, 2015, the bankruptcy court

issued its memorandum decision finding that the release in the

SA covered Trustee’s claims in the adversary proceeding and that

all other issues were moot. On the same day, the bankruptcy

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court entered an order granting Montgomery’s MSJ and denying

Trustee’s MSJ. Trustee filed a timely notice of appeal from

that order. 

 II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

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

§ 158.

III. ISSUE

Whether the bankruptcy court erred in finding that the SA 

between MF08 and REL barred MF08's fraudulent transfer claims

against Montgomery.

IV. STANDARDS OF REVIEW

We review de novo the bankruptcy court’s decision on crossmotions for summary judgment, applying the same standard used by

the bankruptcy court. Brown v. City of L.A., 521 F.3d 1238,

1240 (9th Cir. 2008); Furnace v. Sullivan, 705 F.3d 1021, 1026

(9th Cir. 2013). 

We also review de novo determinations of whether contract

language is ambiguous, Tyler v. Cuomo, 236 F.3d 1124, 1134 (9th

Cir. 2000), and “whether the written contract is reasonably

susceptible of a proffered meaning.” Brinderson-Newberg Joint

Venture v. Pac. Erectors, Inc., 971 F.2d 272, 277 (9th Cir.

1992); see also Winet v. Price, 4 Cal.App.4th 1159, 1165 (1992)

(the court reviews determinations of whether contract language

is ambiguous de novo); Scheenstra v. Cal. Dairies, Inc.,

213 Cal.App.4th 370, 393 (2013) (even where uncontroverted

evidence allows for conflicting inferences to be drawn,

interpretation of contract is solely a judicial function);

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Sunniland Fruit, Inc. v. Verni, 233 Cal.App.3d 892, 898 (1991)

(de novo review “where the interpretation [of the contract] does

not turn on the credibility of extrinsic evidence” and “where

the extrinsic evidence points only one way, or is

uncontested.”); Wolf v. Super. Ct., 114 Cal.App.4th 1343, 1351

(2004) (where the extrinsic evidence points only one way, or is

uncontested, the meaning of the language in question may be

ascertained as a matter of law). 

V. DISCUSSION

A. Legal Standards for Summary Judgment

“The court shall grant summary judgment if the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Civil

Rule 56(a), made applicable here by Rule 7056. Material facts

are those necessary to establish the elements of a party’s cause

of action. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). A genuine issue for trial exists only if “the evidence

is such that a reasonable jury could return a verdict” for the

party opposing summary judgment. Id. at 248; see also Aguilar

v. Atl. Richfield Co., 25 Cal.4th 826, 856 (2001) (on summary

judgment a court “does not decide on any finding of its own, but

simply decides what finding such a trier of fact could make for

itself.”). 

When considering a motion for summary judgment, a court may

not weigh the evidence nor assess credibility; instead, “the

evidence of the non-movant is to be believed, and all

justifiable inferences are to be drawn in his [or her] favor.” 

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Anderson, 477 U.S. at 255.10 The court is not precluded from

drawing inferences against the non-moving party as long as the

underlying facts are viewed in the light most favorable to that

party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,

475 U.S. 574, 588 (1986). In the end, the court “must determine

whether the record, when viewed in the light most favorable to

the non-moving party, shows that there is no genuine issue of

material fact and that the moving party is entitled to judgment

as a matter of law.” Brown, 521 F.3d at 1240. 

A court may grant summary judgment regarding the

interpretation of ambiguous language in a contract if the

non-moving party fails to point to any relevant extrinsic

evidence supporting that party’s interpretation of the language. 

Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153 (2nd Cir.

2000); see also Torres Vargas v. Santiago Cummings, 149 F.3d 29,

33 (1st Cir. 1998) (summary judgment appropriate where extrinsic

evidence presented to the court supports only one of the

conflicting interpretations).

Under California law and summary judgment standards,

Montgomery had the burden of proof on his affirmative defense to

show that the SA operated as a complete defense to

MF08's/Trustee’s fraudulent transfer claims against him.

10 Trustee has not argued on appeal that the bankruptcy

court erred by weighing the extrinsic evidence. Accordingly,

those arguments are deemed waived for purposes of this appeal. 

Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999).

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B. Is the SA ambiguous?

This appeal involves the interpretation of the SA under

California law. The threshold question is whether the SA is

ambiguous; that is, reasonably susceptible to more than one

interpretation. Winet, 4 Cal.App.4th at 1165. The question of

ambiguity is a question of law subject to de novo review. Id. 

“Whether the contract is reasonably susceptible to a

party’s interpretation can be determined from the language of

the contract itself,” United Teachers of Oakland v. Oakland

Unified Sch. Dist., 75 Cal.App.3d 322, 330 (1977), or from

extrinsic evidence of the parties’ intent. Winet, 4 Cal.App.4th

at 1165. In California, courts are required to receive

provisionally any proffered extrinsic evidence that is relevant

to show whether the contractual language is reasonably

susceptible to a particular meaning. Pac. Gas & Elec. Co. v.

G.W. Thomas Drayage & Rigging Co., Inc., 69 Cal.2d 33, 39–40

(1968) (rational interpretation of a contract requires at least

a preliminary consideration of all credible evidence offered to

prove the intention of the parties). Such extrinsic evidence

might expose a latent ambiguity when the contract appears

unambiguous on its face. Id. at 40 & n.8. “An appellate

analysis of the threshold question concerning whether the

contractual language is ambiguous—that is, reasonably

susceptible to more than one interpretation—usually involves the

examination of competing interpretations offered by the

parties.” Scheenstra, 213 Cal.App.4th at 393.

In seeking reversal of the bankruptcy court’s order in

favor of Montgomery, Trustee repeats many of the arguments that

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she made before the bankruptcy court. Trustee relies upon the

language of the SA itself for her interpretation and offers no

extrinsic evidence in support. In a nutshell, she contends that

Montgomery was not protected under the terms of the SA because

he was paid by TMF and not from REL’s general account. Thus,

according to Trustee, he was not part of the protected class of

REL Transferees under the SA, making MF08's waiver of avoidance

claims inapplicable as to him. 

To support her argument, she urges us to look at the

defined terms in sections 2.04-2.06 of the SA. Section 2.04 

defines a “REL Transfer” as payments made out of REL’s general

account to the holders of Exchange Notes issued to REL’s

Noteholders. Trustee asserts that this provision plainly shows

that MF08 released only its claims against REL Noteholders for

recovery of amounts paid by REL and that these are the MF08

Potential Avoidance actions MF08 agreed to release under section

2.06. She again also relies on section 4.01 which states that

“this Agreement shall not limit or restrict the right of MF08 to

bring any action against any third party.” (Emphasis added). 

According to Trustee, the phrases “any action” and “any third

party” are broad and include her avoidance action against

Montgomery.

Montgomery also repeats his previous arguments in his

opposing brief. He claims he was an REL Transferee within the

meaning of the SA and, therefore, he is protected by MF08's

waiver of the avoidance claims. To support his interpretation,

he relies on extrinsic evidence such as the surrounding

circumstances under which MF08 and REL negotiated or entered

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into the SA, including the SA’s relationship to REL’s confirmed

plan, and the language in MF08's POC. Montgomery points out

that the main objective of the SA was to avoid expensive and

uncertain litigation over whether MF08 had a legal basis to

claim REL Transferees had received $66 million of MF08's monies. 

He further refers to MF08's admission in its POC that the Ng

family controlled the bank accounts of REL, MF08, and TMF, and

could have and did use MF08 monies to pay REL investors - the

“Ngs caused the transfer” of $66 million, the transfers were

made “either directly to REL, indirectly through TMF . . ., or

[directly] to REL’s borrowers.” 

Montgomery also traces the monies coming from REL’s account

that flowed to MF08 and then to TMF, and ultimately to his IRA

account. Based upon this tracing, he contends that the $150,000

used to pay him was “directly” from the general account of REL. 

In addition, Montgomery offered other extrinsic evidence to

shed light on the mutual intention of the parties: (1) his REL

investor portfolio account statement in which REL takes credit

for the $150,000 payment TMF ostensibly made to him; (2) the 

Noteholders' Committee's letter to the REL Noteholders; and

(3) his Wells Fargo Bank IRA statement indicating payments had

come from REL.

In conducting our independent review into whether an

ambiguity exists, we examined the SA and the POC and considered

Montgomery’s proffered extrinsic evidence. Based upon our

review, we determine that the bankruptcy court did not err in

ruling that the SA was ambiguous with respect to the terms “REL

Transfer,” “Paid by REL,” or “Any Third Party,” as those terms

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were reasonably susceptible to the parties’ competing

interpretations. Accordingly, the bankruptcy court properly

admitted all credible extrinsic evidence to aid it in

interpreting the SA. Pac. Gas & Elec. Co., 69 Cal.2d at 37.

C. Interpretation of the SA

This determination does not end our inquiry. Although the

above-referenced terms are ambiguous, we still must consider

whether the bankruptcy court appropriately resolved the

ambiguity. The parties do not challenge the SA itself and

presented no extrinsic evidence as to their intent at the time

the SA was signed. This is not surprising since Montgomery was

not a party to the SA and the negotiations and as the court

ruled that the communications regarding the settlement of MF08's

POC made during the mediation held in REL’s bankruptcy case were

confidential.11

The extrinsic evidence presented by Montgomery presented

the context in which the contract arose and described the

conduct of the parties in connection with the SA which cast

light on their original intent. Although Trustee disputes the

inferences to be drawn from this extrinsic evidence, the

evidentiary facts themselves are not in conflict. The meaning

of the terms “REL Transfer,” “Paid by REL,” and “Any third

Party,” was not dependent on the credibility of conflicting

evidence. There were thus no factual issues for the bankruptcy

court to resolve. Accordingly, we review the SA in the context

11 Trustee filed a motion seeking to prohibit the use of

mediation documents for any purpose in the litigation. The

bankruptcy court granted that motion.

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of the extrinsic evidence presented and make our own independent

determination of its meaning. See Wolf, 114 Cal.App.4th at

1351; Scheenstra, 213 Cal.App.4th at 390. 

We determine the construction of the ambiguous language by

applying the appropriate canons of construction governing

contracts. “‘[W]here the language of the contract is ambiguous,

it is the duty of the court to resolve the ambiguity by taking

into account all the facts, circumstances and conditions

surrounding the execution of the contract.’” Frankel v. Bd. of

Dental Exam’rs, 46 Cal.App.4th 534, 544 (1996); Pac. Gas & Elec.

Co., 69 Cal.2d at 40 (court may consider the circumstances under

which the agreement was made, including its object, nature and

subject matter). The goal is to interpret it to give effect to

the mutual intent of the parties as it existed when they

contracted. Cal. Civ. Code § 1636; see also Pac. Gas & Elec.

Co., 69 Cal.2d at 38. It is the outward expression of the

agreement, rather than a party's unexpressed intention, which

the court will enforce. Winet, 4 Cal.App.4th at 1165. 

1. “REL Transfer” and “Paid by REL”

We begin with the ambiguous terms “REL Transfer” and “Paid

by REL.” Relying on the plain language of the SA, Trustee

maintains that since Montgomery was paid by TMF from its bank

account, he was not “paid by REL.” Therefore, he did not

receive a “REL Transfer” within the meaning of the SA and is not

protected by MF08's waiver of avoidance actions. 

This interpretation is not supported when we consider

Montgomery’s undisputed extrinsic evidence and the context under

which settlement of MF08's POC was reached. The undisputed

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evidence shows - as the MF08 POC stated - that the Ngs

controlled MF08, TMF, and REL and had a pattern of treating them

as they wished: “the Ngs caused the $66 million in transfers to

be made, either directly or indirectly.” Thus, in this Ponzilike scheme, MF08 acknowledged in its POC that the Ngs did not

differentiate between REL, MF08, or TMF. 

The evidence also shows that by all appearances, Montgomery

had been paid by REL and received a REL Transfer. As the

bankruptcy court properly noted, Montgomery was paid during the

time period described in the POC (i.e., December 2007 – February

2009), and in the time period in section 2.04 of the SA (i.e.,

December 2007 – August 2008) and his investor portfolio account

statement showed REL took credit for making the $150,000 payment

when it was made. In other words, REL’s investor’s account

carried payment to Montgomery on its books. 

In addition, the Noteholders’ Committee’s letter sent to

Montgomery and other REL Noteholders is consistent with the

documentation Montgomery received from REL before any

controversy arose. See S. Cal. Edison Co. v. Super. Ct.,

37 Cal.App.4th 839, 851 (1995) (“The rule is well-settled that

in construing the terms of a contract the construction given it

by the acts and conduct of the parties with knowledge of its

terms, and before any controversy has arisen as to its meaning,

is admissible on the issue of the parties’ intent.”). 

In the end, the extrinsic evidence shows that the parties

to the SA necessarily intended that the waiver by MF08 of its

right to sue any REL investor who had been paid with MF08 funds

included anyone paid directly or indirectly by REL. Although

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Trustee urges us to adopt her competing interpretation of the

SA, she has offered no evidence in support of her position. 

Given the lack of evidence supporting Trustee’s inferences and

interpretation, the bankruptcy court reasonably concluded that

Montgomery was entitled to judgment as a matter of law. See

Anderson, 477 U.S. at 249 (holding that “there is no issue for

trial unless there is sufficient evidence favoring the nonmoving

party for a jury to return a verdict for that party”). 

Indeed, the thrust of Trustee’s argument on appeal is that

the bankruptcy court misinterpreted or misused the extrinsic

evidence. First, she contends that the bankruptcy court applied

the wrong legal standard to interpret the SA based on improper

extrinsic evidence. In this regard, Trustee relies on the

bankruptcy court’s statement that “[t]he extrinsic evidence is

consistent on one essential point. By everything he was told by

REL, it is reasonable to interpret the Settlement Agreement as

Mr. [Montgomery] does.” Trustee maintains that the bankruptcy

court erroneously relied upon the statements of REL, only one

party to the agreement, and Montgomery, a stranger to the

agreement. Trustee contends that “at most” REL’s communications

to Montgomery show its subjective intent, but subjective intent

is irrelevant. At another point, Trustee maintains that the

Noteholders’ Committee’s letter is another example of their

subjective intent. Trustee asserts that the letter does not

evidence the mutual intent of the parties. Trustee contends

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therefore that the court should have ignored this evidence.12 

We are not persuaded by these arguments. Error would

occur, if at all, if the bankruptcy court improperly admitted

extrinsic evidence showing only the undisclosed subjective

intent of REL or the Noteholders Committee, which is

inadmissable and incompetent under the objective theory of

contracts. Founding Members of the Newport Beach Country Club

v. Newport Beach Country Club, Inc., 109 Cal.App.4th 944, 960

(2003) (“[U]ndisclosed statements regarding intent or

understanding of” the writing “are irrelevant to contract

interpretation under the objective theory of contracts”;

appellate court determines writing’s meaning de novo “[a]fter

winnowing out the extrinsic evidence that is irrelevant under

the objective theory of contracts.”). “While a party may not

testify to his undisclosed subjective intent in entering into an

agreement, the rule does not preclude admission of evidence of

the surrounding circumstances, usage and custom in the industry,

negotiations and discussion, or any other extrinsic evidence

which may shed light on the mutual intention of the parties.” 

Pac. Gas & Elec. Co., 189 Cal.App.3d at 1141-42. 

We conclude that REL’s statements to Montgomery and the

Noteholders’ Committee’s letter to Montgomery fall within the

latter type of evidence; i.e., the surrounding circumstances,

negotiations, and discussion, and were not the mere “undisclosed

12 Although MF08 did not author this letter, the compromise,

which the letter urged the Noteholders to vote in favor of, was

with MF08 and benefitted its POC. MF08's silence as to the

letter’s accuracy may be construed as an agreement with its

assertions.

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subjective intent” of REL or the Noteholders’ Committee. Id. 

In other words, this extrinsic evidence objectively “shed[s]

light on the mutual intent of the parties.” 

Next, Trustee complains that the court erred by using the

extrinsic evidence to vary or modify the terms of the SA. 

However, what Trustee characterizes as error is, in fact, her

disagreement over the bankruptcy court’s interpretation of SA

based upon the extrinsic evidence which we address in this

appeal. 

Finally, Trustee challenges the bankruptcy court’s finding

that the payment to Montgomery was made by REL and contends that

this is not supported by the evidence. According to Trustee,

the undisputed evidence shows that Montgomery received a check

drawn on TMF’s bank account. Therefore, at the very least, this

creates a genuine issue of material fact, precluding at the

summary judgment stage a finding that the payment had been made

by REL. Trustee also maintains that the fact MF08 obtained the

funds from REL is irrelevant because there is no evidence that

MF08's control over the funds was restricted or conditioned in

any way. According to Trustee, funds which are transferred to a

debtor and are deposited into the debtor’s bank account become

property of the debtor unless the debtor’s right to use the

funds is restricted. Adams v. Anderson (In re Superior Stamp &

Coin Co.), 223 F.3d 1004, 1009 (9th Cir. 2000). 

Again, we are not persuaded. The Ninth Circuit’s decision

in In re Superior Stamp & Coin Co. is not helpful to Trustee’s

argument. There, a bank loaned money to the debtor on the

express condition that the money was to be used to pay a

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specific third-party creditor. The bank, a new creditor,

substituted itself in place of the old creditor that was paid

with the “earmarked” money. The Ninth Circuit defined the scope

of the “earmarking” defense:

[T]he proper inquiry is not whether the funds entered

the debtor's account, but whether the debtor had the

right to disburse the funds to whomever it wished, or

whether their disbursement was limited to a particular

old creditor or creditors under the agreement with the

new creditor.

223 F.3d at 1009. The earmarking doctrine is inapplicable to

this case since the record shows the Ngs were operating a Ponzilike scheme. Further, it is undisputed that the Ngs controlled

the funds that were transferred from REL’s general account to

MF08 and then to TMF and ultimately to Montgomery in the course

of this Ponzi-like scheme. Under these circumstances, it is

disingenuous for Trustee to claim MF08 had dominion and control

of the funds. 

In sum, Trustee failed to raise a genuine issue of material

fact as to the proper interpretation of the terms “REL Transfer”

and “Paid by REL.” 

 2. “Any Third Party”

We next consider the term “any third party” as used in

section 4.01 of the SA. Trustee maintains the bankruptcy

court’s construction of the savings clause in this section was

erroneous. Under section 4.01 of the SA, MF08 waived the right

to pursue any MF08 Potential Avoidance Actions “provided,

however, that this agreement shall not limit or restrict the

right of MF08 to bring any action against any third party,

including any manager, member, insider or professional of MF08.” 

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Trustee argues that the bankruptcy court incorrectly

construed this provision to mean that she could commence an

action only against a “third party” that was a manager, member,

insider or professional. According to Trustee, the savings

clause in section 4.01 of the SA preserves all claims against

any third party, other than those against REL Noteholders who

were “paid by REL.”

Read naturally, the section’s use of the word “any” as in

“any action” has an expansive meaning. However, we cannot

construe the phrase as expansively as Trustee would like because

the preservation of “any action” would ordinarily mean those

claims not settled. Here, as discussed above, Montgomery was

included in the class of protected transferees since he received

a “REL Transfer” that was “Paid by REL,” albeit indirectly. 

MF08 settled and released that potential avoidance action

against him under the terms of the SA. We thus read the savings

clause to preserve claims other than MF08 potential avoidance

claims against the REL Noteholders which were settled. Limiting

the types of claims, which were preserved in this manner, is not

inconsistent with a construction that the word “including” in

the phrase “any third party, including any manager, member,

insider or professional of MF08" is expansive in the sense that

the Trustee may pursue nonavoidance action claims against the

expansive class of third parties.

Further, the record shows that the undisputed objective of

the SA was (1) to resolve the issues regarding the validity and

priority of MF08's claim which was based on the alleged

fraudulent transfer of $66 million to REL where tracing was

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problematic and the Ngs’ commingling was endemic; (2) to

eliminate the REL Noteholders’ risk of being sued by both MF08

and REL as the alleged recipients of fraudulent transfers in

order to ensure their support for REL's Plan; and (3) to

eliminate MF08's ability to impede confirmation because MF08's

$66 million claim made it the largest unsecured creditor in

REL's case. Trustee’s interpretation of “any third party” to

include REL Noteholders who were paid by MF08 or TMF 

effectively would blunt these objectives. 

As the bankruptcy court observed: 

If there was an intent to carve this group of REL

Noteholders out of the release, it had to be precisely

stated before the settlement was incorporated into

REL's Plan. MF08 acknowledged from the start that the

‘Ngs caused’ every payment by any of these affiliated

entities to be made in a way that suited their designs

and the record shows the Trustee was in possession of

records that would have enabled her to trace this

transfer before she signed the Settlement Agreement.

To pretend otherwise endorses a fiction—that MF08 had

legitimate independent management.

The Trustee obtained the $5 million “enhancement” and

the REL Noteholders agreed to reduce their claims by

50% of what they had been paid on their REL

investments pre-petition. The REL Noteholders were

led to believe their risk of being sued—by MF08 and

REL—as the recipients of allegedly fraudulent

transfers was eliminated. 

In sum, Trustee failed to raise a genuine issue of material

fact as to the interpretation of the savings clause under

section 4.01 of the SA. In the words of the bankruptcy court: 

“As a REL Noteholder, Mr. Montgomery is not the type of third

party the Trustee may sue” on an avoidance action. 

VI. CONCLUSION

For the reasons stated, we AFFIRM.

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