EL ECTRONI C CI TATI ON: 2007 FE D App. 0008P (6th Cir.) File Na me: 07b0008p.06
BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n r e : CH ERY LA. F ORB ES,

Debtor.

______________________________________ J AMES D. L YON, TRUSTEE,

Plaintiff-Appellee ,

v. D. L AVONN E EI SEMAN and GREGORY C. FORB ES,

De fe nd ants -A

pp e lla nt.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 06-8075

Appea l from the United States B ankruptc y Court for the E astern D istrict of Kentuc ky , at L exington. No. 05-54580; Adve rsar

y Case No. 06- 05135. Argued: May

1, 2007
Dec ided and F iled: J uly

25, 2007
B e fo re : A UG , G REG G, and PAR SON S, B ank

ru ptc y Ap pe llate Pa

ne l Judg e s.

____________________ CO UN SEL
ARG UED: Mic ha e l J. G art land , WI SE DE L CO TT O PL L C, L e xing ton , K e ntu c ky , f or Ap pe lla nt. Chrisandrea Turner I ng ram, L exington, Kentucky , for Appellee

. O N B RI E F: Michae l J . Gar tland, WI SE DEL COTTO P L L C, L exington, Kentucky , for Appe llant. Chrisandrea Turner I ng ram, John O. Morg an, Jr., L exington, Kentucky , for Appe llee.The De btor’s bankr uptcy case was filed on O ctober 10, 2005. Be cause the case was filed 1 befor e the e ffe ctive date of the Ba nkruptcy Abuse Prevention and Consumer Prote ction Act of 2005 (“ B APC PA” ), g e ne ra lly

e ff e c tiv e Oc tob e r 1 7, 20 05 , a ll refere nc e s to the B ank ru ptc y Cod e in t his opinion are to the pre-B APCP A version. The Bankr uptcy Code is contained in 11 U.S.C. §§ 101- 1330. Unless stated to the c ontrary , all future statutory ref ere nces a re to the B ankruptc y

Code, e.g ., “§ ____.”

- 2- ____________________ OP IN ION

____________________ J . VI NCENT AUG, J R., Ba

nkruptcy Appellate Panel Chief J udg e. This appe al involves an alleg ed fra

udulent transfe r by Cheryl F orbes (the “De btor”) to he r sister, D. L av o n n e Eiseman (“Eise man”)

. The disput ed transfer occur red w hen the De btor’s ex-husband, Gre g ory For bes (“ Gre g For bes”) , loaned a

pproxi mately

$157,000 to Eiseman. Ei seman used those funds as a down pay ment tow ard the purc ha se of

a ho us e fo r t

he De bto r in L od i, Ca lif

or nia and su bs e qu e ntl y , in

Ve rs a ill e s, Ke ntu c ky . T he ba

nk ru ptc y c ourt fo un d th a t the $1 57 ,0 00 do wn pa y me nt o n th e L od i pr op e rt

y wa s, in a c tua lity , pro pe rt

y of the De bto r, that the tr ans fe r of the fu nd s to Eise man c on sti tut e d a n avo ida ble fra udulent conveyance under § 544( b) of the Ba nkruptcy Code, and that the Ver sailles proper ty was pr op e rt y of the De bto r’ s e stat e. For th e re a so ns that f oll ow , th e ba

nk ru ptc y c ourt ’s jud g me nt i s 1 AFF I RMED.
I. ISSU ES ON AP P EAL The issues on appeal are: (1) whether a loan in the amount of $157,480.99 (“the $157,000 loan”) from Gr egFor

bes to Eiseman wa s, in effe ct, a tra nsfe r of the Debtor’s pr operty ; and (2) whe ther the Tr

ustee ha s standing unde r § 544(b) an d C ali fornia la w to pursue the a sserted fra udulent conveyance claim ag ainst the Debtor.

II. JU RI SDI CT ION AND STANDARD OF RE VI EW
Th e B ank ru ptc y Ap pe llate Pane l of

the Sixth C ir c uit ha s jur isd ic tio n to de c ide thi s a pp e a l. Th e Un ite d St a te s Dist

ri c t Cour t for the Ea ste rn Di str ic t of Ke ntu c ky ha s a uth or ize d a

pp e a ls t o th is Pane l and a fi na l or de r o f t

he ba nk ru ptc y c ourt may be app eal e d a s o f r ig ht p ur su ant t o 2 8 U .S. C. § 158(a) (1). F or purpose s of appe al, an or der is fina l if it “ends the litigation on the mer its and- 3-

leave s nothing for

the cour t to do but ex ecute the judg ment.” Midland As p h a l t C o r

p . v. United States , 489 U.S. 794, 798, 109 S. C t. 1494, 149 7 (1 9 8 9 ) (c itations and internal quotation marks omi tte d) . T he ba

nk ru ptc y c ourt ’s jud g me nt r e so lve d th e un derly inga dv e rs ary pr oc e e din g on

its merits and is a fina l, appea lable orde r. See I n re FBN Food Serv

s., Inc. , 82 F.3d 1387, 1392 ( 7th Cir. 1 9 9 6 ) ( o r d e r s e t t i n g a s i d e f r a u d u l e n t c o n v e y an c e u n d e r 1 1 U

. S

. C

. § 5 4 8 ( a ) i s a f i n a l or de r) ; s ee ge ne ra lly Ge be re ge or gis v . G am ma rin o (

In re Ge be re

ge or gis ) , 310 B. R

. 6 1 , 6 3 (B .A.P. 6th Ci r. 2004) (“ [A] n order

that conclude s a par

ticular a dversa

rial matter w ithin the larg er c ase should be deeme d final and r eviewa ble in a bankr

uptcy setting.” ) (c itations omi tted).
Th e ba nk ru ptc y c ourt ’s le g a l c on c lus ion

that th e tr ans fe r at is su e c on stitut e d a n avo ida ble fra udulent conveyance is reviewe d de novo. See Steve nson v. J.C. Bradford & Co. ( In re Cannon) , 277 F.3d 838, 849 (6th Cir. 2002) (citations omitted). “Que stions of standing . . . a re [also] reviewe d de novo.” SPC Plastics Cor p. v. Griffith (I

n re Structurlite Plastics Corp.) , 2 24 B .R. 27 , 2 9 ( B .A .P. 6th Cir. 1998). “De novo means that the a ppellate c ourt deter

mines the law indepe ndently of the trial court’s de termination.” Tre ini sh v . No rwe

st B an k Mi nn ., N.A . (

In re Pe ria nd

ri) , 266 B.R. 651, 653 (B .A.P. 6th Ci r. 2001) ( citation omitted).
The ba nkruptcy court’s deter

mination that the challeng ed tra nsfer involved proper

ty of the Debtor is a f

actua l finding that must be upheld on appea l unless it is clea rly err oneous. W

estg ate Vacation Villas, L td. v. Tabas ( In re I nt’l Pharmacy

& Discount II, I

nc.) , 4 43 F .3 d 7 67 , 7 71 (1 1th Cir. 2005) (citations omitted). A fa ctual dete rmination i s cl early err oneous “w hen althoug h there is evidence to support it, the reviewingcourt on the e ntire evidenc e is le ft with the definite and firm conviction that a mistake ha s been c ommitt ed.” B a i l ey v. B a i l ey (In r e B a i l ey ), 254 B.R. 901, 903 (B .A.P. 6th Ci r. 2000) ( citations and interna l quotations omi tted).

III . F AC TS
The facts of this case are complicated, highly suspicious, and larg ely

undisputed. The De btor and her ex-husband, Gre g For bes, wer e divorce d in 1995. No spousal support was a war ded under the pa rt ie s’ jud g me nt o f d ivo rc e , a nd Gr e g F or

be s h a s n e ver

be e n und e r a

ny le g a l ob lig a tio n to support the Debtor

. Af

ter their divor ce, the Debtor a nd Gre g For

bes re mained co- owner s of an airplane canopy

manufa cture r ca lled Flig ht Materials, Inc. (“ Flig ht Materials”)

. The De btor serve d as President of the corpor at i o n. The re cord c ontains no written documentation of the Debtor’ sI t i s unclea r to the Panel why

g iving the D ebtor ha lf of any proce eds fr om the sale of the 2 business would be done out of a s ense of fairne ss since the testimony is uncontrover

ted that the Debtor ow ned fifty

perc ent of F light Mate rials.

- 4- owner ship interest in Flig ht Materials nor of Gre g For

bes’ owne rship inte re st for that matter. Ho we ve r, bo th the De bto r and Gr e g F or be s te sti fi e d th a t th e De bto r h e ld a fi ft y pe rc e nt o wn e rs hip int e re st. I n a dd iti on , G re g F or be s e xpla ine d th a t, o ut o f a se ns e of fa ir ne ss, he a lw ay s int e nd e d to g ive the De bto r h a lf

the pr oc e e ds fr om a

ny sa le of the bu sin e ss. 2

I n ear ly 2003, R ichar d Malott (“Malott”) a nd his company

Ridge wood Associate s, I nc. (“Ridg ewood” ) expressed an interest in purcha sing Flig ht Materia ls. Malott and R idge wood made

a $ 3 0 0 , 0 0 0 ref

undable de posit toward the purc hase of the cor poration. I f Malott and Ridg ewood elec ted not to purcha se F light Mate rials, the De btor and Gr egFor bes we re to re pay

the $300,000 deposit within forty -five da y s. On J anuar

y 15, 2003, the Debtor

and G re g Fo rb es executed a $3 00 ,0 00 pr omi sso ry

no te statin g tho se re pa

y me nt t e rm s.
Th e re c or d c on ta ins no do c ume nta ry e vid e nc e of

ho w the or ig ina l $3 00 ,0 00 de po sit wa s p a id or disbursed. Ac cordingto Malott’s testimony at trial, he d id not place the f unds in an escr ow
acc ount but inst ead issued a number of c ashier’ s chec ks at the re q u es t o f Greg For bes and the Debtor. A lthough Ma lott did not reme mber t h e am ounts of the ca shier’s c hecks or all of the

rec ipients, he specif

ically rec alled that one check was made out to Gre g For bes, one to the Debtor,

and on e to G ary

F land e rs , G re g F or

be s’ fr ie nd

and bu sin e ss as so c ia te

. Ma lott thou g ht the c he c k to Gar y Flande rs was in a

n amount b et we en $ 5 0 , 0 00 and $100,000. (J.A. at 233.) Gre g For bes testified that he could not remembe r whe ther the c heck ma de out to Gar y Flande rs was f

or $85,000 or $100,000. (J.A. at 276.) Malott and Ridge wood ultimate ly d e c id e d n o t to pur chase Flig ht Materials. When aske d why that decision wa s made, Ma lott testi fied that whe n the business rec ords wer e re viewed, “ [t ]here we re no financ ial statements. Ther e we re n o W -2 s . There wer e no 1099s. Thing s had bee n paid by cashie rs che ck and c ash

. T he whole ope ration wa s [run] in such a wa y that Idid not want to deal with it.” (J .A. at 198-99.) Malott subsequently demande d return of the $300,000 deposit. Neither the Debtor

nor Gre g For

bes re paid the deposit in full.Ac c or din gto a c omp la int

tha t w a s late r f

ile d b y Ma lott and

Rid g e wo od

in t he Ca lif or nia 3 state cour t, Ridgew ood, Gre g For

bes, and the Debtor e x ecute d a “mem o randum to the wr itten a g re e me nt [the pr omi sso ry no te ]” o n July

8, 20 03 . “ Th e me morandu m ack no wl e dg e d th a t on May 1 3 , 2 0 0 3 , $ 5 0,000.00 was paid back on the $300,000.00 sum and that on or a bout Aug ust 1, 2003, [Malott and Ridg ewood] will rece ive an a dditional pay ment of $45,000.00 and w ill rece ive an additional $45,000.00 per canopy sold . . . .” (Tria l Ex . 17; emphasis added.)

- 5- On October 27, 2004, Malott and R idge wood obt ained a judgme nt ag ainst the Debtor, G reg For bes, and F light Mate rials in the amount of $354,298.79 in t he Superior Court of California, Neva da County

. I t is not clea r, however, that the j udg ment related solely to the failure to repa

y the $300,000 promissory

note. The r ecor d ref

lects that Malott loaned Gr egFor bes an a dditional $2 00 ,0 00 in A

pr il 2 00 3, and

tha t so me po rt ion

of thi s lo an r e ma ine d unp a id at th e ti me the state court judg ment was e ntere d. There is also evidence sug g esting that some portion of the $300,000 ob lig a tio n w a s r e pa id t o M a lott and Rid g e wo od

pr ior to e ntr y of the jud g me nt. 3
At the time Malott and R idge wood wer e conside ring purcha sing F light Mate rials, the De btor and her adult daug hter, F ranc esca For bes , l i v ed in a sing le family residenc e located at 1116 Riverg ate Road in L odi, California (the “L odi pr operty”). The Debtor and Gr egFor bes we re le asing the L odi property

and had a

n option to purchase the proper ty for $350,000 but had le t that option

e xpir e . In F e br

ua ry 20 03 , the ow ne rs of the L od i pro pe rt y c omm e nc e d e vic tio n p ro c e e din g s a g a ins t the Debtor

and Gr egFor

bes. The e viction proce eding was re solved pursuant to a se ttlement

a g re e me nt, wh ic h in c lud e d a $5 00 ,0 00 purc ha se op tio n in fa vo r o f t he De bto r a

nd Gr e g F or be s.
I n Marc h 2003, the Debtor approa ched her sister, Eiseman, and informe d her that the Debtor

and Gr e g F or be s w ou ld n ot b e a

ble to o bta in t

he fi na nc ingtha t wou ld b e re qu ir e d to e xer c ise the ir op tio n to purc ha se the L od i pro pert y . Th e De bto r t he n a sk e d E ise man if

sh e wo uld

be wi lli ngto purcha se the L odi pr operty , and Eiseman ag ree d to do so. The settlement ag ree ment with the owner s of the L odi property

was subseque ntly

amende d to extend the $500,000 purc hase option to Eiseman.
Eiseman fina

nced he r purc hase of

the L odi property b y obtaining a $350,000 loan from Wor ld S a vin g s B ank , F SB . E ise man bor ro we d the ba lanc e of the purc ha se pr ic e and c los ingc os ts, in the total amount of $157,480.99, from Gre g For bes. At trial, Gr egFor

bes testified that he loaned this money

to Eiseman at the r equest of the Debtor, be cause he wa nted to provi d e a s t able livi ng
e nv ir on me nt f

or his da ug hte r, F ra

nc e sc a
. He fu

rt he r expl a ine d tha t he obt a ine d the fu nd s to lo a n toThis tracks Ma lott’s testim ony that he, pursua

nt to GregFor

bes’ instruction s , g ave G ary 4 F land e rs be tw e e n $ 50 ,0 00 and $1 00 ,0 00 fr om t

he $3 00 ,0 00 de po sit

. Gre g For bes deposited a

total of $160,000 into the escr ow acc ount use d to f und Eiseman’s 5 purc ha se of the L od i pro pe rt y , the n re c e ive d a por

tio n of that mone y

ba c k, wh e n th e c los ingc os ts totaled only

$7,480.99.

- 6- E is e ma nb y p r o c u r in g an$ 8 5 , 0 0 0 lo anf r o m h is lo n g ti me f

r ie n d , G ar

y F la n d e r s
. T h e r emaining

4 $75,000 came from the $200,000 loan G regFor bes obtained f

rom Malott in April 2003. Eiseman 5 testified that she ne ver a sked the Debtor or Gre g For bes about the source of

the $150,000 loan. She stated that she r ece ived the asse rted loan “ interest fr ee” and that there wa s no written documentation evidenc ing the loan.
There is no question that Eiseman purcha sed t he L odi proper ty with the i ntention of allowing the Debtor

and F ranc esca

For bes to reside ther e. I ndeed, one day befor e the c losing on the L odi proper ty , the Debtor , Gre g For

bes, and F ranc esca For

bes entered into a r esidential lea se ag ree ment with Eiseman (the “ L odi lease” ). Althoug h Gre g For bes wa s not living at the L odi property , he wa s inc lud e d a s a

pa rt y to t he L od i le a se be c a

us e he wa s to b e re sp on sib le fo r f un din g the mon thl y

le a se pay ments. These monthly pay ments wer e equal to the monthly principal and interest p aym en t on the $350,000 bank loan. When the mortg ag e pay ments came due ea ch month, Gre g For bes g ave the De bto r t he mon e y to ma ke the pa

y me nts , a nd the De bto r d e po sit e d th e fu nd s in to a ba nk a c c ount i n Ei se man’ s n a me . E ise man th e n ma de the m or tg a g e pa y me nt. Whe n tax an d in sura nc e pa y me nts
came due on the L odi property , the pay ments were handled in a similar manne r.
The De btor and he r d au gh t er lived at the L odi property until November 2004. On De c e mbe r 1 , 2 00 4, Ei se man a c c e pte d a n o ff e r t o p ur c ha se the L od i pro pe rt y fo r $77 5, 00 0. Th e sa le closed on January

9, 2005, and Eiseman r ealized a g ross profit of $275,000. Thr ee da y s later, Ei se man r e pa id t

he or ig ina l $1 50 ,0 00 loa

n f ro m G re g Forb es by issui nghim a c he c k f or the fu ll

a mou nt.
Eiseman used the rema inder of the profits from the sale of the L odi property to purcha se a
new r esidenc e for

the Debtor

and her daug hter in Ke ntucky located at 1151 Cummins Ferry Road in Ver sailles, Kentucky (the “Versa illes proper ty ”), with the entire tra

nsaction handle d by

the Debtor as Eiseman’ s attorney -in-fa ct pursuant to a spe cific pow er of attorney executed on January

13, 2005.- 7-

At the J anuar

y 20, 2005 closing , the Debtor executed a pr omi s s o ry n o te and mortg ag e in favor of Country wide Home L oans, I nc. (“Country wide”) in the orig inal principal amount of $460,000. The monthly rent, mortg ag e, insurance and tax pay ments on the proper

ty wer e handled in a

s i m ilar

mann e r a s h a d b e e n u se d w iththe L od i pr op e rt y , e xce pt t

hat F ra nc e sc a F or be s ma de the pa

y me nts to Eiseman.
Around the time the Debtor and her daug hter moved to the Versailles proper ty , Gre g For

bes g ave the m another c ash g ift – in the total amount of $157,000. At trial, Gre g For bes explained that he g ave a pproxi mately

$117,000 to his daug hter, F ranc esca , to help her start her ne w dog g rooming business. He gav e the balance of the money to the Debtor to c over living expenses until the dog g rooming business g ot off the g round. On April 18, 2005, Malott and Ridge wood filed a First Amende d Complaint for Fra udulent Transf er, Civil Conspiracy , and for Money Damag es ag ainst the Debtor, G reg For bes, Eis eman a

nd Fr ance sca Fo rbes in the Ne vada County Superior Court of California . Among other c laims, the complaint alleg ed ca

uses of a ction for fra

udulent convey ance s and conspira cy relating to tra

nsfer s of prop e rty f

r o m th e D e b to r an d G r e g F o r b e s to E is e ma

n an d a s s e rte d th a t th e d e f e n d an ts were attempting to e vade pa

y ing the ir cre ditors, including Ma lott and Ridgew ood. Eiseman filed a motion for summary

judgme nt in the C alifornia action on Fe bruar y 24, 2006. Fr ance sca Forbe s also filed a motion for summary

judgme nt.
On Octobe r 10, 2005, the De btor filed a voluntar y petition f or relief under chapte r 7 of the Ba nkruptcy Code. J ames D. L y on was a ppointed as cha

pter 7 trustee (“Tr

ustee” ). Shortly

there afte r,
on Ma y 5, 20 06 , th e Tr

us te e fi le d th is a dv e rs ary pr oc e e din g a g a ins t E ise man, Gr e g F or be s, Ridge wood, Malott, and Country wide. Count One of the Trustee ’s complaint allege d that the Debtor transfe rre d funds to Eiseman for the purchase of the L odi proper ty and that the transf

er w as an a ctual or construc tive fra

udulent conveyance under Califor nia law. See Ca l. Ci v . Co d e § 3 4 39 et seq

. Count T wo of

the Tr us te e ’s c omp la int a sse rt e d tha t Eise man’ s pur c ha se of the Ve rs a ill e s p ro pe rt

y
co n s tituted a “per

petuation of the f

raudule nt transfe r” by

Gre g For bes, Eiseman a

nd the Debtor

. Acc ording ly , the Trustee ’s complaint soug ht to avoi d t h e t ra nsfer s under § 544( b) and to sell the Ve rs a ill e s p ro pe rt

y , f re e and c le ar o f d e fe nd ants ’ i nte re sts

.- 8-

On July 11 , 2 00 6, nin e mon ths a ft e r the De bto r fi le d he r ba nk ru ptc y pe tit ion , the Ca lif

or nia court iss ued a decision and orde r g ranting Eiseman’s a nd Fr ance sca F orbes’ motions for summary judgme nt. I n its opinion, the court held that Malott a nd Ridge wood “fa iled to present a ny evidenc e to e stablish f

raud on the part of [d] efe ndant Eiseman reg arding the loans she ob t ai n ed fr o m [c] odefe ndant Gre g ory

C. Forbe s or any

evidenc e that would ra ise eve n a t ri able issue of fac t to that

e ff e c t.” (J.A . at 10 0. ) T he Ca lif or nia c ourt fu rt he r h e ld t hat Ma lo tt and Rid g e wo od “ fa ile d to prese nt any

evidenc e that ther e exists t riable issues of fa ct re gar d i ng any liability owing from the [d] efe ndants t o t h e [p] laintiffs pursuant to the UF TA [Uniform Fr audulent Tra nsfer Act] or otherwise.” (J.A. at 1 0 0 -0 1

. ) Accordingto the Trustee ’s appe llate brief , Malott and Ridge wood appea led the California

order on October

5, 2006. On September

6, 2006, the adver sary proce eding was tried befor e the bankruptc y court. At the c on c lus ion

of the tr ia l, t

he ba nk ru ptc y c ourt state d it s f

ind ing s o f f

a c t and c on c lus ion s of

law i n an oral bench opinion. The c ourt beg an by noting the pr esenc e of se vera l badg es of f raud, inc luding the fa ct that Eiseman wa s an insider of the Debtor, that the alleg ed tra nsfer may have be en conc eale d, and that the Debtor reta ined the L odi and Ver sailles proper ties for he r own use. T he cour t identified the qu e sti on

of wh e the r t he re ha d b e e n a

tr ans fe r o f t

he De bto r’ s p ro pe rt

y a s th e “ c e ntr a l is su e ” in the c a se . ( J.A. a t 30 6. ) T he ba nk ru ptc y c ourt fo un d th a t: [T]he re wa s an u nwr it ten a g re e me nt b e tw e e n th e F or be s th a t [th e De bto r] w ou ld rec eive ha lf of the sa le proc eeds of the business Flig ht [Materials]. The Court does not believe it is simply coincidenta l that when a $300,000 down pay ment was made on the business, $150,000 plus e nds up in the hands of Ms. Eiseman, w ho buy s the house that [the Debtor] just happens to live in . . . . [T]he do wn

pa y me nt f or the ho us e – the $1 50 ,0 00 plu s 75 hun dr e d in clo sin g – w hil e furnished by

[Greg ] Forbes wa s, in fact, intende d to b e [ t h e Debtor’ s] half of the downstroke on the c ompany in the amount of $300,000. [Greg ] Forbes did not deny that half of the benef

it of t he company

would belong to his wife per what he f rame d as his own g ener osity . The Court would believe that it was by ag ree ment betwee n [the De bto r] a

nd [Gr e g ] F or

be s. The Court there [fore] concludes that the money for the dow n pay

ment on the proper ty was, in fac t, [t he Debtor’s] money
. I t was [ the Debtor’s] money , and it was a tra nsfer to her sister. I t was, there fore , a fr audulent tra nsfer

. . . . (J.A. at 306-07.) The c ourt furthe r reasoned that Eiseman used the down pay ment to purcha se the L odi property

for the D ebtor to l ive i n and acted “as a conduit for sums t o service the debts, pay the- 9-

ta xes, pa y the mor tg a g e , a nd the n ro ll th e mone y

ov e r t o a no the r p ie c e of

pr op e rt y in h e r n a me in which [the Debtor] and F ranc esca would reside.” (J.A. at 306.) Having found that “at all times the proper ty has bee n simply

held on behalf of t he [ D]ebtor,” and “following that transfe r throug h [t he L od i pr op e rt

y ] an d in to t

he [Ve rs a ill e s] pr op e rt

y ,” the c ourt c on c lud e d th a t th e Ve rs a ill e s p ro pe rt y was prope rty

of the De btor’s estate and could be sold by the Trustee . (J.A. at 307.)

I n acc ordanc e with its oral benc h opinion, the bankruptcy court e ntere d an Or der of J udg ment
on Se pte mbe r 1 1, 20 06 . T he jud g me nt s ta te s:

(1) The transfe r of $157,480.99 to [Eiseman] fo r t h e p u rchase of the [L odi pr op e rt y ] wa s p ro pe rt

y of De bto r, Che ry

l F or be s, is a fr a ud ule nt t ra ns fe r, and sh a ll be avoide d; (2) The transfe r by

[Eis eman] o f t he proc eeds f rom the sale of

[t he L odi proper ty ] which w ere used for the purcha se of [the Ver sailles proper ty ] i s fra udulent and shall be a

voided; (3) The [L od i p ro perty ] and [ Ver sailles proper ty ] were at all times held by [Eis e man] f

or De bto r C he ry

l F or be s; (4) The [Versailles prope rty ] i s proper ty of the ba nkruptcy estate;

. . . . (6) The [Versailles prope rty ] shall be sold by [t he Trustee] fre e and clea r of all liens, encumbra

nces, a nd mortg ag es with the liens, encumbra nces, a nd mortg ag es att ac hing to the pr ocee ds of the sale in the order of priority

to which they

are entitled[.] (J.A . a t 10 7- 08 .) Af

te r t he or de r w a s e nte re d, Ei se man f ile d th is t ime ly

a pp e a l.
IV . D ISC USS ION
Th e Tr us te e se e ks to av oid the a lle g e d tra ns fe rs in thi s ca se by

e xer c isi nghis “ str on g arm ” po we rs a s se t f

or th i n § 54 4( b) of

the B ank ru ptc y Cod e . Se c tio n 5 44 (b ) a

uth or ize s a

tr us te e to a vo id

“ any tr ans fe r o f a

n in te re st o f t

he de bto r i n p ro pe rt

y or any ob lig a tio n in c ur

re d b y the de bto r t

hat is voidable under

applicable law by

a cr edi t o r hol ding a

n unsecur ed cla im that is allowable under

se c tio n 502 of thi s title

. . . .” 11 U. S.C. § 544 (b ). Es se nti a lly , this pr ov isi on pe rm its the tr

us te e to “stand in the shoes” of an unse cure d cre ditor and asse rt ca uses of a ction under state fra udulent convey an ce l aw s for the be nefit of a ll creditors. Am. Nat’l Bank of Austin v. MortgageAm erica- 10-

Corp. ( In re M ortgageAmeric a Corp.) , 7 14 F .2 d 1 26 6, 12 75 (5 th C ir . 1 98 3) ; Belfance v. Bushey ( In re Bushey ) , 210 B.R. 95, 100 (B .A.P. 6th Ci r. 1997).
As t h is Pa

n e l h a s p r e v io u s ly n o te d , “ [t ]h e p la in la n g u a g e o f § 5 4 4 ( b ) c o n ta ins f our require ments: (1) A c reditor, ( 2) holding an allowa ble unsec ured c laim ; an d (3) a transfe r of a

n interest of the debtor in pr operty , (4) that is voidable under a pplicable [state] law.” In re Bushe y , 210 B .R. a t 10 0. As the pa

rt y se e kin g to a

vo id t he tr ans fe r, the Tr

us te e be ars the burd e n o f p ro vin g a ll elements of his fr audulent tra nsfer claim by a pre pondera

nce of the evidenc e. H

a r tv i g v
. T r i- City B a p t i s t T e m p l e o f M i lw a u k i e, I n c
. ( I n r e G o m es) , 21 9 B.R . 2 86 , 2 91 (B ank r. D. Or . 1 99 8) ; see Sh ap iro v . M

ato uk ( In re Ha y es) , 322 B.R. 644, 646 (B ankr. E.D . Mich. 2 0 0 5 ) (d i s cussi ng the trustee’ s power to avoid fraudule nt transfe rs under § 548).
A. Was the L oa

n f ro m G re g F or

be s to Ei se man a

“ Tr ans fer of an I nte re st o f t he De bto r i n P r o p e rt y ?”
The he art of the bankruptc y court’s judg ment was its finding that the initial $157,000 loan from Gr egFor

bes to E i s eman was, in eff ect, a transfe r of the D ebtor’s pr operty . As noted above , § 544(b) a llows a trustee to avoid the transfe r of “an interest of the debtor in property” to the extent the transf er c onstitut es a f

raudule nt convey ance under a pplicable state law. The Ba nkruptcy Code does not define the phra se “inter est of the de btor in prope rt y . ” In re Cannon , 277 F.3d at 849 (discussing § 548(a) (1), whic h permits the trustee to avoid fraudule nt tr ansfe rs of “an interest of the debtor in prope rty ” made within one y ear befor e the filing of the debtor’s bankruptc y petition). The United States Supreme Court has de fined “ an intere st of the debto r in property” as inc luding a ny “prope rty that would have been part of the [debtor’s bankruptc y ] estate had it not been tra nsfer red befor e the c ommenceme nt of the bankr uptcy proce eding s.” Begier v . IRS , 496 U. S. 53, 58 , 1 10 S. Ct. 2258, 2263 (1990) (interpr eting “intere st of the debtor in property ” under § 547, which allows the trustee to a

void prefe rential tra

nsfer s). The Supre me Court also looked to § 541 (a )(1) ’s de fi nit ion of “ pr op e rt

y of the e state ” fo r guid anc e in d e te rm ini ngthe sc op e of the de bto r’ s in te re st in property

for a voidance purposes. Id. at 58-59.
Se c tio n 5 41 (a )( 1) state s th a t “ pr op e rt y of the e state ” inc lud e s “ a ll l e g a l or e qu ita ble int e re sts of the de bto r i n p ro pert y as of th e co mme nc e me nt o f t he c a se .” 11 U. S.C. § 5 41 (a )( 1) . T his definition is unqu es t i o n ably broad, its main purpose be ing to “ ‘bringany thing of value that theCa lif or nia Civ il Co de § 3 43 9. 04 (a ) p ro vid e s: 6 (a) A transf

er ma de or obligation i ncurr ed by a debtor is fraudule nt as to a cr editor, whether the cr editor’s c laim arose be fore or af ter the tra

nsfer was ma de or the obligation was incurre d, if the debtor made the tr ansfe r or incur red the obligation as fo llo ws : (1) Wit h actua l intent to hinder, delay , or def raud a ny cre ditor of the debtor

. (2) Wit hout rec eiving a re asonably equivalent va lue in exchang e for the transf er

- 11- debtors have into the [ bankruptc y ] estate.’” Booth v. Vaughan ( In re Booth) , 260 B.R. 281, 284-85 (B .A.P. 6th Ci r. 2001) ( quo t i n g H. R. Rep. No. 95-595 at 176 (1977) , re pr int e d in 1978 U. S.C. C.A .N . 5 78 7, 59 63 , 6 13 6) . “ To thi s e nd th e ter m ‘pr op e rt

y ’ h a s b e e n c on str

ue d mo st g ener ously ” and ha s been f ound to include a va

riety of tang ible or intang ible pro p er t y as well as future, non-possessory , or contingent int ere sts and causes of action. Se ga l v . R oc he lle , 382 U.S. 375, 37 9, 86 S. Ct. 51 1, 51 5 (196 6) ; see U nited States v. W

hiting Pools, Inc ., 46 2 U .S. 19 8, 10 3 S. Ct. 2309 (1983). Although the ref

ere nce in § 544( b) to an “ interest of the debtor in prope rty ” is feder al law,

a de bto r’ s p ro pe rt

y int e re sts are g e ne ra lly “ c re a te d an d de fi ne d b y state law” un le ss a

fe de ra l pu

rp os e require s otherwise. Lehtonen v. T i me W arner, Inc . (

In re Purc hasePro.com , Inc.) , 332 B.R. 417, 4 2 3 -2 4 (B an kr. D. Ne v . 2 0 0 5 ) ( ci t i n g Butner v. United States , 440 U.S. 48, 55, 99 S. C t. 914, 918 (1979)) . L ike the fe dera l definition, the definiti on of “property” under California law is very broad: proper ty is a “thing of which the re ma y be owne rship.” Cal. Civ. Code § 654. Ow nership, in turn, is “the rig ht of one or more persons to possess and use [a thing] to the exclusion of others.” Id .; see Downing v. Mun. Court of San Francisco , 88 Ca l. A pp . 2 d 3 45 , 3 50 (1 94 8) (t

he te rm “ pr op e rt y ” is “all-e mbrac ing so a s to include eve ry intang ible benef

it and prer og ative susce ptible of possession

or dis po sit ion ;” a lth ou g h th e me anin g of “ pr op e rt y ” may va ry de pe nd ingon

the c on te xt in wh ic h it is used, it ge nera lly

includes “a

ny valuable r ight or

interest prote cted by

law”) (citations and inter

nal quotation marks omitted).

I n this case, the Trustee seeks to avoid the initial down pay ment on the L odi property under California fr audulent conve y anc e l aw. California law provide s that a transf er of the debtor’ s proper ty may be avoi d ed t o t h e extent it was made with the “ac tual intent to hinder, delay , or de fr a ud ” any c re dit or
. Ca l Civ. Co de § 34 39 .0 4( a )( 1) ; se e Ke nd all v . Tu rn e r (

In re Tur ne r) , 335 6or oblig ation, and the de btor either: (A) Was eng ag ed or wa s about to eng ag e in a business or a transac tion for which the rema ining assets of the debtor we re unr easona bly small in relation to the business or transa ction. (B ) I ntended to incur , or believed or re asonably should have be lieved that he or she would incur, debts bey ond his or her a bility to pay as they beca me due. The “ badg es of f

raud” are codified unde r California la w and include : 7 (1) Whether the tra

nsfer or oblig ation was to an insider

. (2) Wh et h er t he debtor reta ined possession or control of the prope rty

transfe rre d afte r the tra

nsfer

. (3) Whether the tra

nsfer or oblig ation was disclosed or conce aled; (4) Whether bef

ore the transfe r wa s made or oblig ation was i n cu rred, the debtor ha d b e e n s ue d o r t

hr e a te ne d w ithsu it. (5 ) Whe the r t

he tr ans fe r w a s o f s ub sta

nti a lly a ll the de bto r’ s a sse ts. (6) Whether the de btor absconde d. (7 ) Whe the r t

he de bto r r e mov e d o r c on c e a le d a sse ts. (8 ) Whe the r t

he va lue of the c on sid e ra

tio n re c e ive d by the de bto r wa s r e a so na bly equivalent to the va lue of the a sset tr an sfer red or the amount of the oblig ation incurre d. (9) Whether the de btor was insolvent or be came insolvent shor tly afte r the transf

er was made or the oblig ation was incur red. (10) Whether the tra

nsfer occur red shortly befor e or shor tly afte r a substantial de bt was incur red. (11) Whether the de btor transfe rre d the essential a ss et s o f the business to a lienholder who tra

nsfer red the assets to an insider of a debtor

. Cal. Civ. C ode § 3439.04(b)

.

- 12- B.R. 1 4 0 , 1 4 5 ( B an kr
. N

. D

. Ca l. 2 0 0 5 ) ( d e s c r ib in g Ca li f o r n ia f r a u d u le n t c o n v e y an c e la

w). The requisite intent m ay

be prove n by

consideration of the circ umstances surr ounding the transac tion, commonly

ref err ed to as “ badg es of f

raud.” Cal. Civ. C ode § 3439.04(b) . I n addi t ion, a transf er 7 may be set a side as construc tively fra udulent under Califor

nia law if the debtor d oes not rec eiveCa lif or nia Civ il Co de § 3 43 9. 05 state s: 8 A transf er ma d e o r o b l i g ation incurre d by a debtor is fraudule nt as to a cr editor whose c laim arose be fore the transf er w as made or t he obli g ation was incur red if the de bto r m a de the tr ans fe r o r i nc ur re d th e ob lig a tio n w ith ou t r e c e iv in g a re a so na bly equivalent va lue in exchang e for th e t ransf

er or obligation and the debtor w as insolvent at that time or the debtor be came insolvent as a re s u l t o f the tra nsfer or obligation.

- 13- rea sonably

equivalent value in exchang e for the transf

er a nd the transf

er is made while the debtor is insolvent or render s the debtor insolvent. Cal. Civ. C ode § 3439.05. 8
There is no documentary evidenc e that the De btor was leg ally enti t l ed t o o ne half

of the $3 00 ,0 00 de po sit . H ow e ver, as th e ba nk ru ptc y c ourt no te d, the De bto r a

nd Gr e g F or

be s b oth testified that the Deb t o r was half owner of F light Mate rials and that they had an inf

ormal

un de rs tand ingthat pr oc e e ds fr om any sa le of the bu sin e ss wo uld be div ide d eq ua lly be tw e e n th e m. The testimony

particula rly from Gr egFor

bes, the c o-owne r of F light Mate rials, conf irming r ather than contesting that the Debtor was ha lf owner , is strong e vidence establi s h i n g t h e Debtor’s leg al int e re st i n F lig ht M a te ri a ls a nd in h a lf of the $3 00 ,0 00 de po sit

. Moreove r, this conclusion is supported by the fa ct that t he De btor signe d the $300,000 promissory

note pledg ing r epay

ment of the de posit. The Appellants ar g ue th at t h er e is no direc t evidenc e linking the $157,000 loan to the Debtor ’s half of the $300,000 es cr ow deposit. Gre g For bes testified that he borrowe d the funds he loa ned to Eiseman f

rom other sourc es – $85,000 fr om his friend, Ga

ry Flande rs, and $75,000 f

rom Malott. Although Malott’s testimony at trial disclosed that the Debtor

rec eived a

cashie r’s c heck a

t the time the $300,000 dep o s i t was made , there is no evid e n c e o f h o w mu c h mo n e y th e D e b to r ma y h a v e r e c e iv e d a t th a t ti me o r h o w th at initial distribution m ay

have f actor ed into the Debtor ’s “ha lf of the downstroke .” Admittedly , this is a case ba sed entire ly upon circ umstantial ev i d en ce
. However, the circ umstances surrounding the t ransa ctions involved are highly suspicious and strong ly

support the

c on c lus ion that the pa

rt ie s we re e ng a g e d in an ov e ra ll sc he me to sh e lte r a sse ts fro m cre dit or s. Severa l fac ts or coincidence s, when analy zed toge ther, support the ba nkruptcy court’s de termination that the $157,000 loan fr om GregFor bes to his former sister-in-law , Eiseman, wa s proper ty of the- 14-

Debtor, a nd that the transf

er of the funds to E iseman constituted an avoidable fra udulent convey ance under § 544( b) of the B ankruptc y Code. For

instance:

I t is uncontra dicted that Ga ry Flande rs re ceive d a ca shier’s c heck f rom Malott in an amount be tw e e n $ 50 ,0 00 and $1 00 ,0 00

. Gr e g F or be s’ te sti mony that it

wa s e ith e r $ 85 ,0 00 or

$1 00 ,0 00 is consistent with Malott’s testimony . Malott, presumably , would have g iven Gar y Flande rs the che ck sometime afte r J anuar

y 2003, beca

use that was when Malott a nd Ridge wo o d we re consi dering purcha sing F light Mate rials and the time pe riod in which the Debtor and Gre g For bes ex ecute d the promissory

note for the $300,000 ref

undable deposit. There afte r, sometime befor e the c losing of the L odi property which occurre d on May 9, 2003, Gar y Flande rs then “loa

ned” $85,000 ba ck to Gre g For bes. Eiseman did not pay

any interest on the $157,000 loan r ece ived from he r for mer brothe r-inlaw. The re w as no written note or agr ee m en t wi t h respe ct to the loan. When Eiseman pa id Greg For bes the full amount she ow ed him, Gre g For bes then turne d around and g ave the identical amount to his ex -wife and daug hter.
Ei se man u se d th e re ma ini ng $1 22 ,0 00 pr of it f ro m th e sa le of

the L od i pr op e rt

y fo r t he be ne fi t of the De btor by

using it to m ak e a d own pay ment on the Ver sailles proper ty . Eiseman fur

ther obtained a $65,000 home equi ty line ag ainst the Ver sailles proper ty for the pur

pose of supporting the Debtor

. The a dult daug hter that Gr eg For bes t estified “has major l ear ning disabilit ies” (J .A. at 250.)

and wh o w ou ld b e so tr a

umatize d if

re qu ir e d to mov e ou t of

the L od i pr op e rt

y , w a s a ble to r e loc a te to K ent uck y by herse lf

to atte nd sc ho ol a nd op e n a do g g ro omi ngbu sin e ss. At the tim e of

tr ia l, Fr ance sca F orbes wa s supporting he r mother. ( J .A. at 148-49.) Fr ance sca F orbes “ major lea rning disability ” wa s dy slex ia. (Appe llant’s Opening Statement, J .A. at 128.)
The bott om l in e is E is e ma nh a s n e v e r

b e e no u t a

n y mo n e y f r o m o w n in g e it

h e r th e L odi p ro p er t y o r t he Ve rsailles prope rty – not the down pay

ments, not the mortga g e pay ments, not the insurance and not the taxes. Eiseman cla imed the re nt paid on behalf of the De btor as income a nd owes the I RS ca

pital ga ins tax es on the $275,000 prof it from the sale of

the L odi property . Howeve r, Eiseman testified that she intended to refinance the Ver sailles proper ty to pay the ca pital ga ins tax- 15-

bu t th os e pla

ns we re hin de re d b e c a

us e of a lis pen den s fi le d b y

Ma lott. G ive n th e pa

rt ic ipa nts ’ his tor y of c on vo lut e d v e rb a l tr ans a c tio ns , h a d Eise man b e e n a ble to c omp le te tho se pla ns , it is

rea sonable to conc lude that the new mortg ag e pay

ment would be funde d as the orig inal Ver sailles

mor tg a g e . A g a in, Ei se man wo ul d no t ha ve inc ur re d a ny e xpe ns e s o r p a id a

ny of he r m on e y

in further ance of the sche me.
Eiseman and the Debtor testified on many occa sions that they

did not discuss finances of the Debtor or Gre g For

bes but then contra dicted themselve s. Eiseman knew t h e Debtor was not working . Eiseman wa s asked by the Debtor

to buy the L odi home . Eiseman knew that the Debtor either ha d to purcha se the home or that she wa s g oing to be evicted. E iseman aske d how the De btor was g oing to pa

y rent on the L od i p ro p er t y . The De btor advised Eisema n that Gre g For

bes wa s g oing to pa

y the rent. Eiseman knew that Gre g For

bes wa s g oing to bor

row the dow n pay

ment that he was go i n g t o gi v e t o her. She a lso knew that the De btor and Gr egFor bes had poor

cre dit and believed the y

could not obtain a loan to purc hase th e L o d i p ro p er ty . Eiseman took out a $65,000 loan sec ured by

th e Ve rs ailles proper

ty to assist the Debtor and G regFor bes bec ause the y

wer e havin g fi na

nc ia l pr ob le ms, bu t E ise man c on sis te ntl y te sti fi e d s he did no t know any thi ng a bo ut t he ir fi na nc e s. (J.A . at 17 2, 17 9- 81 , 1 86 -8 7. ) M os t si g nif ic antl y , th e pa

rt ie s st ipu la te d p ri or

to t ri a l th a t: “In Marc h 2003, the Debtor app ro ac h ed M s . Eiseman and inf ormed he r that she a

nd Gre g For

bes

wer e havingsome financ ial difficulties.” ( J .A. at 91.)
Neither Gre g For bes nor the D ebtor have income of their own, a lthough ther e is no evidenc e that either a

re una ble to work. A t t h e time of trial the De btor’s daug hter wa s supporting he r and Gre g For bes wa s living with a

nother woman who was supporting him. In addition, the Debtor ha d the $6 5, 00 0 lo an f

ro m E ise man a

nd the $4 0, 00 0 gift or

loa n f ro m he r e x-hu sb and

wi th w hic h to support herse lf althoug h there was no support oblig ation. (J.A. at 152-53.)
The ba nkruptcy judge is the one who ha s the opportunity to observe the witnesses’ testimony and asse ss their cre dibilit y . Fe d. R. Bank r. P

. 8 0 1 3. The ba nkruptcy judge ’s assessments of

cre dibilit y

are to be g iven par

ticular de fer ence
. An de rso n v. City of B esse me r Ci ty , 470 U.S. 564, 575, 105 S. Ct . 1504, 1512 (1985).
The c lear ly

err oneous standar d does not p er m it this Panel to substitut e its assessments of

cre dibilit y

in place of

the explicit findi ng s made by the bankruptcy court. W hen diffe ring views of- 16-

the evidenc e ar e possible, the bankr uptcy court’s f indings cannot be clea

rly err oneous. Anderson , 47 0 U. S. a t 57 4; Duddy v. Kitchen & Bath Distribs., Inc. ( In re H.J. Sc heirich Co.) , 982 F.2d 945, 94 9 ( 6th Cir . 1 99 3) ; Haske ll v. W

ashington T

wp., 864 F.2d 1266 (6th Cir. 1988). As long as the tria l court’s f indings are “re asonable and supported by the evidenc e,” they may not be over turned. In re Southern Indus. Banking Corp. , 809 F.2d 329, 331 ( 6th Cir. 1987).
The De btor, Gre g For

bes, Franc esca For

bes and Eise man wer e succ essful in leavingno paper trail as they

proce eded w ith their scheme. We a cknowledg e that it is g ener ally the Trustee ’s burde n to trace the funds he claims are proper ty of the estate. Howeve r, the fac t that the parties did such a tho ro ug h jo b o f p lay inga

sh e ll g a me wi th t

he ir mon e y do e s no t pr e ve nt the ba

nk ru ptc y c ourt and

thi s P an el from examining a ll the circumstanc es surroundingthe par ties’ eva sive ac tions over seve ral y ear s to hinder the Debtor’ s (and Greg For bes’) cre ditors from beingpaid. As stated by the United States Court of Appea ls for the Eleve nth Circuit in IB T I nte rn ati on al, In c . v . No rth e rn ( In re In t er n a t i o n a l

A d mi n i s tr a t i ve S er vi ce s , Inc.) , 4 0 8 F

. 3 d

6 8 9 , 7 08 (11th Cir. 2005), “pr oper tra cing does not require dollar-f

or-dollar acc ounting.” L ike Gre g For bes, Fr ance sca For

bes and Eiseman in the appea l b ef

o re this P anel, the pa

rties in International Administrat ive Se rvice s a lso e ng a g e d in multipl e, complicated transa ctions to make it extremely difficult, if not impossible, to trac e the f unds in a sc he me to d e fr a

ud c re dit or s.
When the rec ord in this appeal is ca ref ully revie wed, it is abunda

ntly clea r that the De btor was de ter m i n ed t o evade paying he r cr editors. Gre g For bes, Eiseman a

nd Fr ance sca F orbes we re deter mined to assist the Debtor in that scheme. The se par ties, espec ially

Eiseman, ca

nnot ostrichlike stick their hea ds in the sand and pretend that the t ransf er of the Debtor’s funds wa s a bona f ide tr ans a c tio n, wh e the r “ loa

ns ” or oth e rw ise . E ise man c ann ot c on vin c ing ly c la im t o h a ve be e n a

“ we llintentioned, but gullible, par t[ y ] who mi stakenly

fell victim” to this fra

udulent scheme

. In re I

nt’l Admin. Servs., I

nc. , 408 F.3d at 706.
No tw ith sta

nd ingthe la c k o f d oc ume ntatio n, the ba nk ru ptc y c ourt ’s fi nd ing s ar e no t c le a rl y
err oneous. This Panel ag ree s with the bankruptcy court that the Tr

ustee ha s succe ssfully

proved by a pre pondera

nce of the evidenc e that the $157,480.99 tra nsfer red by Gre g For

bes to Eiseman to be used as a down pay

ment on the L odi property was orig inally

the Debtor ’s portion of the $300,000 deposit rec eived f

rom Malott. Cf. In re Int’l Admin. Serv s., Inc. , 408 F.3d at 708. Those funds ar e- 17-

trac eable to the profits from the s al e o f t he L odi property and to the subseque nt purcha se of the Ver sailles proper

ty

. We a lso a g ree with the bankruptc y court that the V ersa illes property constituted proper ty of the De btor’s bankr

uptcy estate.
B. Do es t h e T ru s t ee Ha v e S t an d i n g?
We must nex t consider t h e arg ument raised by Eiseman that the Tr

ustee doe s not have standing to pursue the f

raudule nt convey ance action be cause the De btor does not have a cr editor with an unsec ured c laim into whose shoes the Trustee may step to pursue the a ction. “[T] o preva il under § 544(b) , the trustee must first esta blish that at the time of the tra nsaction there was, in f

act, a cre ditor in e x istence who was holding an unsec ured c laim that is allowable under 11 U.S.C. § 502.” Parlon v

. Claiborne ( In re Kaylor Equip. &Rental, Inc.) , 56 B.R. 58, 60 (Bankr

. E. D. Te nn . 1 98 5) ; see In re Bushe y , 2 10 B .R. a t 10 1; Thomas v. Lawrence , 302 B.R. 194, 196 (W.D. Ky . 2003). I f such a

cre ditor exi sts, “the first and sec ond elements of § 544( b) ar e satisfied a nd the inquiry shifts: W ould this creditor have standing under ‘applica ble law’ to prosecute the avoidanc e action broug ht by

the trustee?” In re Bushey , 210 B.R. at 101. “ I f the c reditor is estopped or barr ed from recove ry for some

. . . rea son, so is the trustee.” In re M arlar , 25 2 B .R. 74 3, 75 4 ( B .A .P. 8th C i r. 2 0 0 0 ) ( ci t i n g Brent Explorations, Inc. v . Karst Enters., Inc. ( In re Bre nt Explorations, Inc.) , 31 B.R. 745, 748 (B ankr. D . Colo. 1983)), aff’d , 26 7 F .3 d 74 9 (8 th C ir . 2 00 1) ; In re Bushe y , 210 B .R. at 100 (the truste e is “subjec t to any defe nses that could be a sserted a g ainst the cre ditor”).

I n the pre sent appe al, it is incontrovertible that t h e cr editors identified in the Tr ustee’s complaint, Malott a

nd Ridge wood, wer e cre ditors of the Debtor

at the time of the disputed tra nsfer

. There is no evidenc e that the state court judg ment in the amount of $354,298.79 which Ma lott and Ridge wood obtained a g ainst the Debtor, G regFor bes and F light Mate rials in October 2004 was e ver satisfied. Ther efor e, a c reditor holding an allowa ble unsec ured c laim ag ainst the Debtor e x ists.
Ho we ve r, Ei se man a sse rt s th a t Ma lott and Rid g e wo od

we re un a ble to pr os e c ute the ir

c la im. Eiseman ar g ues that Malott and Ridge wood alre ady asser ted their fra

udulent transfe r cla ims in t he California state c ourt ac tion. Referr ing to the Cal i fo rn i a co urt’s summary judgme nt order, w hich states that Malott and Ridge wood “f ailed to pre sent any evidenc e that there exis ts tria ble issues of fac t reg ardingany

liability owing from [Eis eman] to [Malott a nd Ridge wood] pursua

nt to the U FTA- 18-

or otherw ise,” Eisema

n asser ts that Ma lott and Ridge wood’s fra udulent transfe r claims have been adjudicate d and re

jected by the California c ourt. Acc ording ly , she alleg es that Malott and Rid g e wo od

wo uld be ba rr e d f ro m a sse rt ingfu

rt he r f ra ud ule nt c on ve y anc e c la ims un de r C a lif or nia law, and the Trustee is barre d from bring ing a fra udulent conveyance action under § 544(b).
For two rea sons, w e deter

mine de novo that the Califor nia cour t’s order had no pre clusive eff ect pr ohibiting the Truste e fr om prosecuting the bankruptc y court avoidance action. F irst, there is a qu e sti on of wh e the r t he Ca lif or nia c ourt vio la te d th e a

uto ma tic sta

y imp os e d by

§ 3 62 wh e n it enter ed its order

afte r t he Debtor’s bankruptcy petition. Second, there i s a question of whether the California c ourt order

is final.
The Tr ustee c orre ctl y o b s er v es that both the Debtor’ s chapte r 7 ca se and this avoidanc e action we re f

iled prior to any

judgme nt b ei n g re n d ered by the California state court. The rec ord establishes that the De btor filed her chapte r 7 ca se ni ne months befor e the Califor nia cour t issued its order. Althoug h the Trustee does not fully addre ss the pertinent law, without question, the filing of the De bto r’ s b ank

ru ptc y pe tit ion g e ne ra lly sta y s in div idu a l c re dit or s’ “ pie c e me a l” act ions t o collect pr operty

that may have been fra

udulently transfe rre d by a debtor. N.L.R.B. v. Martin Arsham Sewing Co. , 873 F.2d 884, 887 (6th Cir. 1989)

. After the bankruptc y filing, the chapte r 7 trustee has standing to avoid and r ecove r such tra nsfer red pr operty

for the be nefit of all cre ditors. Id

. (c i t i n g In re MortgageAm erica Corp. , 714 F.2d at 1275). To the extent the California case involved alleg ed fra udulent transfe rs of the D ebtor’s pr operty and proc eeded af

t er h er bankruptcy

filing, the postpetition entry

of the summary

judgme nt order violate d the automatic stay and is invalid. Easley v. Pe ttibone Mich. Corp. , 990 F.2d 905, 911 (6th Cir. 1993) (holding that “ac tions taken in violation of the stay

are invalid and voidable a nd shall be voided a

bsent limit ed equitable circ umstances”). Acc ording ly , the summary judgme nt order w ill not be given pr eclusive e ffe ct. S e e S o a r es v. Br oc k ton Cre dit

Un ion ( In re S oa re s) , 107 F.3d 969, 975 ( 1st Cir. 1997) (judg ment was not min ist e ri a l and

wa s e nte re d p os tpe tit ion

in v iol a tio n o f a

uto ma tic sta

y ); Constit ution Bank v. Tubbs , 68 F.3d 685, 693 ( 3d Cir. 1995) (district cour t judgment e ntere d postpetition wa s i n v iolation of

a uto ma tic sta

y and wa s in va lid ); Fl e e t Co ns um e r D isc ou nt v . G ra v es ( In re Grav es) , 33 F.3d 242, 247 (3d Cir. 1994) (ba

nkruptcy court wa s corr ect in not giving pr eclusive e ffe ct to state cour t orders enter ed postpetition in viol ation of the a utomatic stay

).Ei se man c ou ld e a sil y have pr ov ide d the ba

nk ru ptc y c ourt wi th a c op y of the Ca lif or nia 9 do c ke t sh ow ingno a

pp e a l ha d b e e n lo dg e d, if thi s w e re ind e e d c or

re c t.

- 19- F ur the r, in h is b ri e f t

he Tr us te e no te s th a t Ma lott and Rid g e wo od

a pp e a le d th e Ca lif

or nia summary judgme nt order on O ctober 5, 2006, and states that the a ppeal is stil l p en d i n g in the California state c ourts. There fore , the Trustee argues that there has bee n no final re solution of Malott and Ridge wood’s fr audulent conve y ance claim.
Al tho ug h E ise man d oe s n ot c on te st t hat the app eal ha s b e e n f ile d a nd is p e nd ingin California, she obje cts to the Trustee ’s re fer ence to the appea l, be cause the appe al was not pa rt of the re cord be fore the bankr uptcy court. Eisem an ra i s ed the pr eclusion issue as a defe nse to the Tru s t ee ’s fr au d

u l en tco n v ey an ce as s er t i o n
. T h er ef o re , E i s em an h as t h e b u rd en o f p ro o f o nt h at i ssue. See B rowning v. Levy , 283 F.3d 761, 771- 72 (6th Cir. 2002). B eca use o f t h e requirements of C al i fornia law discussed be low, without ex plicit information as to whether the orde r had be en appea led, a c ourt is unable to deter mine the finality

of the California

order . I t is Eiseman’s burden to provide proof

that the California or der ha s not been a ppeale d. She faile d to do so in the bankruptc y

court per the rec ord bef

ore this Panel. Eiseman’s objec tion to the Trustee providing

9 information about the a

ppeal is not persua sive.

I n the c on te xt o f pr e c lus ion pr inc ipl e s, fe de ra l and state c ourt jud g me nts are ty pic a lly considere d final, even when the judg ment is on appea l. W rig ht v. Tur ne r ( In re Tur ne r) , 2 04 B .R. 9 8 8 , 9 9 2 (B

. A. P

. 9 t h C i r. 1 9 9 7 ) ( ci t i n g Robi v. Five Platters, Inc. , 838 F.2d 318, 327 ( 9th Cir. 1988); Sa nd ov al v . S up e rio r Co ur t , 140 Cal. App.3d 932, 937 n.2 (1983))

. “California , howeve r, does not fol l o w t he majority

rule.” Id

. (c i t i n g Sandoval , 140 Cal. App.3d at 936-37) . California Code of Civ il Pr oc e dure § 1 04 9 p ro vid e s: “ [a]n a c tio n is de e me d to be pe nd in g fr om the tim e of its

commence ment until i t s fi n al deter mination upon appeal, or until the tim e for

appea l has passed, unless the judg ment is sooner satisfied.” Cal. C i v . P ro c. C o d e § 1049. I f an a ppeal wa s lodge d, Malott and Ridge wood’s fr audulent convey ance action is still “pending” under Califor nia law. B e c a us e Ei se man d id n ot e sta

bli shla c k o f a

n ap pe a l unde r Ca lif

or nia law to est a

bli shhe r d e fe ns e that the California or der ha s prec lusive eff ect, ther e wa s no prec lusion which prohibited the bankruptc y

court fr om enteringits judgment.- 20- V. CO NC LU SION
Ba sed on t he record on appea l, with defer ence to the bankruptc y court’s f actua l findings, a

nd this P anel’ s de novo re view of the law, the de cision of the bankr uptcy court is AF FI RMED.