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FILED

MAY 01 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP Nos. CC-13-1045-DKiTa

) CC-13-1257-DKiTa

EDWARD J. STOUT, ) (related appeals)

)

Debtor. ) Bk. No. 09-17134-ES

______________________________)

) Adv. Nos. 11-01026-ES

DOLORES STOUT; KAUFMANN ) 09-01669-ES

GROUP, INC. )

)

Appellants, )

)

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

)

RICHARD A. MARSHACK, Chapter 7)

Trustee; STEVEN ROOT; JAMES )

KERCHNER; QUALTECH BACKPLANES,)

INC.; ELECTRONIC CONNECTOR )

SERVICE; DYNAMIC STAMPING, )

)

Appellees. )

______________________________)

)

STEVEN ROOT; JAMES KERCHNER, )

)

Appellants, )

)

v. )

)

EDWARD J. STOUT, )

)

Appellee. )

______________________________)

Argued and Submitted on March 20, 2014

at Pasadena, California

Filed - May 1, 2014

FILED

MAY 01 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.
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Appeals from the United States Bankruptcy Court

for the Central District of California

Honorable Erithe A. Smith, Bankruptcy Judge, Presiding

 

Appearances: Richard Edwin Masson, Esq. of Masson & Fatin, LLP

argued for Dolores Stout and Kaufman Group, Inc.,

appellants in 13-1045; John Robert Armstrong, II,

Esq. of Horwitz Cron & Armstrong LLP argued for

Richard A. Marshack, Chapter 7 Trustee, appellee

in 13-1045 and for James Kerchner and Steven Root,

appellees in 13-1045 and appellants in 13-1257;

Michael S. Winsten, Esq. of Winsten Law Group

argued for Edward J. Stout, appellee in 13-1257.

 

Before: DUNN, KIRSCHER and TAYLOR, Bankruptcy Judges.

We consider two related appeals arising out of the same set

of facts involving the debtor, Edward Stout, his mother, Dolores

Stout (“Dolores”), and her company, Kaufman Group, Inc. (“Kaufman

Group”), and three of the debtor’s creditors, Jim Kerchner

(“Kerchner”), Steve Root (“Root”) and Qualtech Backplanes, Inc.

(“Qualtech”)(collectively, “Creditors”).

The two appeals concern transfers of assets by the debtor to

Dolores. One of the appeals (BAP No. CC-13-1045) involves an

adversary proceeding (AP No. 11-1026) initiated by the chapter 72

trustee (“Trustee”) and Creditors (who joined as co-plaintiffs)

against Dolores and Kaufman Group (together, “Dolores”) under

§§ 547(b), 548(a) and 550 (“Preference Adversary”). Trustee and

2 Unless otherwise indicated, all chapter and section

references are to the federal Bankruptcy Code, 11 U.S.C.

§§ 101-1532, and all “Rule” references are to the Federal Rules

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

Civil Procedure are referred to as “Civil Rules.”

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Creditors later moved for partial summary judgment on their 

§§ 547(b) and 548(a)(1) claims against Dolores and Kaufman Group. 

The bankruptcy court granted partial summary judgment in favor of

Trustee and Creditors on their § 547(b) claim (“§ 547(b) partial

summary judgment order”). Dolores appeals the bankruptcy court’s

grant of partial summary judgment.

The second appeal (BAP No. CC-13-1257) involves an adversary

proceeding (AP No. 09-1669) initiated by Creditors against the

debtor seeking to except their debt from discharge under 

§ 523(a)(6) and to deny the debtor’s discharge under 

§ 727(a)(2)(A)(“Discharge Adversary”). There, the bankruptcy

court ultimately ruled in the debtor’s favor on both claims. 

Creditors subsequently moved to set aside the findings or for a

new trial (“motion for new trial”) under Civil Rules 52(a) and

59(a)3 and Rules 9013-4(a)(2), (7) and (8) of the Local

Bankruptcy Rules for the Central District of California.4 The

bankruptcy court denied the motion for new trial (“new trial

order”); the Creditors now appeal. Creditors moreover appeal the

bankruptcy court’s judgment in the debtor’s favor on their 

§ 727(a)(2)(A) claim (“§ 727(a)(2)(A) judgment”).

For the reasons set forth below, we AFFIRM the § 547(b)

partial summary judgment order, the new trial order to the extent

3 Civil Rule 52 is made applicable through Rule 7052. Civil

Rule 59 is made applicable through Rule 9023.

4 Creditors did not specify in their motion for new trial

the subsections of Civil Rules 52(a) and 59(a) that apply. Based

on our review of the record and briefs before us, we assume that

Creditors intended Civil Rules 52(a)(6) and 59(a)(1)(B) to apply.

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it dealt with Creditors’ § 523(a)(6) claim, and the 

§ 727(a)(2)(A) judgment.

FACTS

A. Events prior to the debtor’s chapter 7 bankruptcy

Prepetition, the debtor wholly owned and operated Dynamic

Stamping, Inc. (“Dynamic”), Electronic Connector Service, Inc.

(“Electronic”), and Qualtech Applied Engineering Corp.

(“Applied”)(collectively, “businesses”).5 Dynamic, Electronic

and Applied designed, made and/or assembled specialized

electronic components.

Kerchner and Root owned and operated Qualtech, a company

that made and sold various electronic connectors. It leased from

Lapco Industrial Parks (“landlord”) its manufacturing and office

facilities (“facility”) located in Santa Ana, California.

On September 18, 2006, the debtor and Creditors entered into

an asset purchase agreement (“Asset Purchase Agreement”) whereby

Creditors sold Qualtech’s business to the debtor (“Qualtech

sale”). Specifically, under the Asset Purchase Agreement, the

debtor purchased substantially all of Qualtech’s assets

(“Qualtech Assets”)6 for $250,000 cash.

5 Applied formerly was known as Zip-Tron Corp. (“ZTC”). ZTC

was incorporated in Nevada on May 1, 2000. It qualified to do

business in California on April 16, 2001. ZTC changed its name

to “Qualtech Applied Engineering Corp.” on October 10, 2006.

6 We use the term “Qualtech Assets” in the very limited and

specific sense of the Qualtech assets sold in the Qualtech sale. 

Assets of the debtor, Dynamic, Electronic and Applied, as

continue...

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However, the debtor did not intend to own the Qualtech

Assets. He expressed his intent in the Asset Purchase Agreement

to assign his rights and obligations under the Asset Purchase

Agreement to Applied.

Specifically, Article 2, Section 2.01 of the Asset Purchase

Agreement provided:

[The debtor] plans to assign his rights, and delegate

his obligations, under this [Asset Purchase Agreement],

to a legal entity to be formed. Such legal entity may

be a corporation or a limited liability company so long

as it is wholly owned and controlled by [the debtor]. 

In connection with such assignment and delegation, [the

debtor] and such legal entity shall execute and deliver

an Assignment and Assumption Agreement [(“Assignment”)]

. . . .

The Assignment named Applied as the assignee. Article 1,

Section 1.01 of the Assignment provided:

[The debtor] hereby assigns to [Applied] all of his

rights, and hereby delegates to [Applied] all of his

duties, under the Asset Purchase Agreement. [Applied]

hereby accepts such assignment and delegation.

The Assignment further provided that Applied “will own and

operate [Qualtech’s] Business after the [sale] Closing (as

defined in the Asset Purchase Agreement).” Qualtech consented to

the assignment.7

6...continue

relevant to this disposition, are referred to collectively as the

“Business Assets.”

7 We have taken some of the facts from a joint pretrial

order filed and entered on December 29, 2011, in the docket of

AP No. 09-1669. We exercise our discretion to take judicial

notice of documents electronically filed in the adversary

proceeding. See Atwood v. Chase Manhattan Mortg. Co.

(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

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Although the debtor assigned to Applied all of his rights

and obligations under the Asset Purchase Agreement, “[s]uch

assignment and delegation shall not act as a release of [the

debtor] and [he] shall remain legally responsible for the

performance of all of the obligations of Buyer (as defined in the

Asset Purchase Agreement) under the Asset Purchase Agreement.”

The debtor also entered into a sublease with Qualtech to

lease its facility (“sublease”), agreeing to pay all of the rent

for the facility. He agreed to hold Qualtech harmless from any

liability arising from any failure to perform under the sublease. 

The landlord consented to the sublease.

The debtor further entered into separate consulting

agreements with Root and Kerchner whereby they each agreed to

provide consulting services relating to Applied’s business in

exchange for consulting fees totaling $375,000 each. The debtor

was to pay the consulting fees in equal monthly installments over

five years.

Qualtech expressed its intent in the Asset Purchase

Agreement to cease all business activities following the sale. 

However, Qualtech would continue to remain obligated as the

master tenant for the facility. Qualtech became inactive on

April 1, 2008. However, Qualtech later obtained a certificate of

revivor effective August 23, 2010.

For several years, the debtor operated the businesses out of

the facility. The debtor’s mother, Dolores, took care of various

administrative matters for the businesses. She also was an

officer and director of the businesses.

Dolores helped the debtor and the businesses in other ways

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as well. Under two separate loan agreements, both dated June 20,

2005,8 Dolores loaned the debtor and the businesses a total of

$250,000. According to the debtor, he needed the funds “to close

out the deal with [Root] and [Kerchner].” As noted above, the

purchase price for the Qualtech Assets under the Asset Purchase

Agreement was $250,000.

On November 1, 2006, Applied, Electronic and the debtor

obtained a $1 million loan from Vineyard Bank. Vineyard Bank

filed UCC-1 financing statements perfecting its security

interests in the assets of Applied and Electronic in November

2006.

Pursuant to the loan agreements, Dolores sent the debtor a

written notice of demand, dated January 8, 2008 (“demand

letter”), requiring the debtor to make full payment by March 15,

8 The debtor and Dolores entered into a loan agreement,

dated June 20, 2005, wherein Dolores loaned the debtor $250,000,

payable within 60 days of Dolores providing a written notice of

demand. The debtor personally guaranteed the loan, granting

Dolores a security interest in “his assets and properties until

this Loan is paid in full.”

The businesses (i.e., Dynamic, Electronic and Applied) and

Dolores entered into their own loan agreement, also dated

June 20, 2005, wherein Dolores loaned the businesses $250,000,

payable within 60 days of Dolores providing a written notice of

demand. The loan to the businesses was “secured by the following

equipment (the Security): All current and future assets of the

[businesses].” The businesses granted Dolores a security

interest in “the Security until this Loan is paid in full.” As

president and CEO of the businesses, the debtor signed the loan

agreement on their behalf.

Notably, the two loan agreements contained nearly identical

provisions. The record reflects that the two loan agreements

encompassed a single $250,000 loan. Dolores did not file a UCC-1

financing statement to perfect her security interest at the time.

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2008.9 When the debtor failed to comply with the demand letter,

she sent another letter, dated March 26, 2008, advising him that

she was exercising her right under the loan agreements to

repossess the Business Assets.10

The debtor and Dolores thereafter entered into a loan

resolution agreement, dated March 31, 2008. Under the loan

resolution agreement, Dolores was to take immediate possession of

her collateral.11 No mention was made in the loan resolution

agreement of Dolores foreclosing her security interest in the

Business Assets. The loan resolution agreement further does not

provide for any transfer of title or ownership of the Business

Assets, and the Business Assets apparently remained in place. 

Dolores agreed to lease the equipment to the debtor on certain

conditions, including: 1) Dolores making payments on the

9 In the demand letter, Dolores stated that she had made a

$250,000 loan to Dynamic. She listed both the debtor and Dynamic

as addressees. However, she addressed the debtor directly and

sought repayment from him.

10 In the March 26, 2008 letter, Dolores advised the debtor

that she was going to “exercise her rights under section 6 of the

agreement and take possession of the security items defined in

our agreement.” Dolores also stated that she was “disappointed

that [the debtor] did not comply with her request of January 8,

2008 for repayment of the $250,000 [she] loaned [the debtor] on

June 20, 2005.”

In the March 26, 2008 letter, Dolores addressed the debtor

directly (i.e., as the recipient). As in the demand letter, she

also listed both the debtor and Dynamic as the addressees.

11 The loan resolution agreement stated that it was between

the debtor and Dolores. It also stated that “[i]n exchange for

the option to use this equipment, [Dolores would] lease use of it

to [the debtor] . . . .” The debtor did not list any equipment

among his personal property assets on Schedule B.

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debtor’s line of credit; and 2) the debtor paying Dolores $6,000

per month, starting in April 2009.

In a letter dated June 19, 2008, Dolores informed the debtor

that she was “unhappy” with the “direction and results of the

company.” She advised him that she was “exercising her right to

demand payment in full of $165,000.” However, to make repayment

easier for him, Dolores declined to collect interest on the loan. 

She purportedly obtained a lien securing future repayment of the

loan, recognizing that “the current economic conditions of the

company” made immediate repayment difficult. There is no

evidence in the record that Dolores took any action to have the

“lien” attach or to perfect it; she only referenced the lien in

her letter.

Thereafter, on January 1, 2009, Applied defaulted under the

lease by failing to pay the rent for the facility. After

notifying Applied and the debtor of the default, the landlord

initiated an unlawful detainer action against Creditors, Applied

and the debtor. On March 23, 2009, the landlord obtained a

$205,470.84 judgment against Creditors for past due rent and

rental value damages and attorney’s fees and costs (“landlord

judgment”).

Contributing to the flurry of collection activity against

the debtor and the businesses, Dolores sent the debtor a letter,

dated April 30, 2009 (“breach of contract letter”). In the

breach of contract letter, Dolores notified the debtor that she

would take immediate possession of all of Dynamic’s equipment,

tools, etc., as the debtor had failed to make the monthly loan

payments in breach of the loan agreement. Again, apparently all

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of the Business Assets remained in place.

Due to the landlord judgment against them, on May 8, 2009,

Creditors initiated a state court action against the debtor and

Applied for breach of the sublease, declaratory relief as to the

right of indemnity from Applied and the debtor on the landlord

judgment and breach of guaranty against the debtor (“state court

action”).

On June 8, 2009, the debtor and Dolores entered into a

“voluntary foreclosure and repossession agreement” (“turnover

agreement”). Under the turnover agreement, Dolores took all of

the debtor’s right, title and interest in and possession of the

Business Assets, which included Dynamic’s and Electronic’s

machines, tools and equipment. Specifically, the turnover

agreement provided:

[The debtor] hereby continuously and irrevocably

tenders to [Dolores] without need of judicial

proceedings, all right, title and interest, and full

possession of, in and to all of its Asset Collateral,

which [the debtor] now owns or will own as a result of

the daily operation of its business. All such Asset

Collateral not now in [Dolores’] possession shall be

deemed received and held by [the debtor] in trust for

and subject to the sole discretion of [Dolores] until

[her] acceptance of such tender of possession.

Notably, the turnover agreement included a list of various

machines and a list of equipment. Applied was not a party to the

turnover agreement.

At the time she entered into the turnover agreement, Dolores

was doing business as Kaufman Group. She soon transferred the

Business Assets acquired under the turnover agreement to Kaufman

Group. Using the Business Assets, Dolores began operating out of

the facility, making and selling the same products previously

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made and sold by the businesses.

Dynamic filed a certificate of dissolution with the

California Secretary of State on June 22, 2009. Electronic and

Applied filed certificates of dissolution with the California

Secretary of State on July 10, 2009.

B. The debtor’s chapter 7 bankruptcy and adversary proceedings

On July 15, 2009, the debtor filed his chapter 7 bankruptcy

petition. He listed his interests in Applied, Electronic and

Dynamic on Schedule B, but noted that they were no longer in

business. He did not list any of the Business Assets as his own. 

The debtor named Applied, Electronic and Dynamic as co-debtors on

his Schedule H. He listed Dolores on Schedule F with a $250,000

general unsecured claim based on business debt. 

The debtor also scheduled Kerchner and Root with general

unsecured claims each in the amount of $605,000, both based on

business debts. He also listed Vineyard Bank with a $1,165,000

general unsecured claim based on trade debt. Two months after

the initial § 341(a) meeting, Trustee filed a no asset report on

October 7, 2009.12

1. Preference Adversary

On January 1, 2011, Trustee and Creditors filed a complaint

against Dolores (AP No. 11-1026) under §§ 547, 548, 550 and 551

to commence the Preference Adversary.

In their complaint, Trustee and Creditors highlighted the

lack of documentation for the following in their allegations: 

1) attachment and perfection of Dolores’ security interests and

12 The debtor received his discharge on March 25, 2013.

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liens in the Business Assets; 2) the provision of the loan funds

to the debtor and the businesses; 3) the transfer of the Qualtech

Assets to Applied; and 4) the repossession of the Business Assets

by Dolores. They also pointed out that the debtor, the

businesses and/or Dolores did not provide any third party notice

of the transfer of the Business Assets to Dolores.

Trustee and Creditors further alleged that there was such a

unity of interest between the debtor and Dolores and the

businesses, the businesses were their alter egos. They cited

numerous examples in support, including allegations that: 

1) funds were moved between the businesses without regard to the

source or obligations; 2) the businesses had the same officers

and directors (i.e., the debtor and Dolores); 3) Kaufman Group

continued to use the trade names of Applied and Electronic and to

service the same customers; and 4) the debtor received

compensation (in the form of payment for his rent and the use of

a Mercedes Benz for his wife) for providing consultation services

to Kaufman Group.

They also pointed out that the debtor scheduled Dolores as a

general unsecured creditor, even though she took possession of

the Business Assets prepetition and supposedly had a valid

security interest in them. Moreover, even though the debtor

transferred the Business Assets to Dolores as a form of payment

on the $250,000 loan, he did not characterize the transfer in his

bankruptcy schedules as a credit against the debt owed to

Dolores.

Given these facts, Trustee and Creditors argued that the

debtor and Dolores fraudulently transferred the Business Assets

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to Dolores through their alter egos in order to thwart Creditors’

attempts to obtain judgment against the debtor, and to continue

the operations of the businesses.

Seven months after Dolores filed her answer, Trustee and

Creditors moved for partial summary judgment against them on the

§§ 547(b) and 548(a)(1) claims (“partial summary judgment

motion”).

With respect to their § 547(b) claim, Trustee and Creditors

averred that they met all of the elements for establishing an

avoidable preferential transfer. They focused on one element in

particular: the Business Assets as property of the debtor and/or

the bankruptcy estate.

Trustee and Creditors contended that because the debtor

wholly owned the businesses, they became assets of the bankruptcy

estate when he filed for bankruptcy. Under Cal. Corp. Code 

§ 2004, corporate assets are distributed to shareholders upon

dissolution of the corporation. Here, had the debtor not

transferred the Business Assets to Dolores, they would have been

distributed to him as the sole shareholder. The Business Assets

then would have become part of the bankruptcy estate when he

filed for bankruptcy.

Alternatively, Trustee and Creditors claimed that the debtor

owned the Qualtech Assets, not Applied. He never produced

documents showing that he transferred the Qualtech Assets to

Applied pursuant to the Asset Purchase Agreement and Assignment. 

Moreover, he treated the Business Assets as his personal assets

when he pledged them as security on the personal loan.

Trustee and Creditors further argued that the debtor

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actually owned the Business Assets because the businesses were

his alter egos. Under California law, although a corporation

typically is an entity separate and distinct from its

stockholders, it is considered an individual’s alter ego when

there is such a unity of interest between the individual and the

corporation as to negate the corporation’s separateness. In

other words, the corporation is considered the individual’s alter

ego when he uses it for convenience to transact his business in

such a way that amounts to fraud or injustice against third

parties.

Here, the debtor admitted at the § 341(a) meeting that he

moved funds between the businesses without regard to the source

or obligations, even though he maintained separate bank accounts. 

Also, the debtor was the sole shareholder of the businesses. He

and Dolores were the only officers and directors of the

businesses.

As for the § 548(a)(1) claim, Trustee and Creditors

contended that the debtor received less than reasonably

equivalent value in exchange for the transfer of the Business

Assets to Dolores. Specifically, although he owed Dolores only

$250,000, he transferred all of the Business Assets, which were

worth more than $560,000.

They also argued that, based on circumstances surrounding

the transfers, the debtor had actual intent to hinder, delay or

defraud creditors when he transferred the Business Assets to

Dolores. Several badges of fraud existed, demonstrating the

debtor’s fraudulent intent, including: 1) as an officer and

director of the businesses, Dolores was an insider; 2) the debtor

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concealed the transfer by failing to provide public notice to

creditors and by failing to comply with California bulk sales

law; 3) the debtor transferred the Business Assets to Dolores

less than a month after being served with Creditors’ state court

complaint; and 4) the debtor became insolvent after he

transferred the Business Assets to Dolores.

Dolores opposed the partial summary judgment motion

asserting that Trustee and Creditors failed to show that no

material factual issues existed as to their §§ 547(b) and 548(a)

claims.

With respect to the § 547(b) claim, Dolores contended that

Trustee and Creditors could not show that no material factual

issue existed as to whether the transfer involved property of the

debtor. She claimed that evidence showed that the debtor never

personally owned the Business Assets. Under the Asset Purchase

Agreement, Applied was the intended purchaser of the Qualtech

Assets. The debtor simply was the placeholder, holding the

Qualtech Assets until Applied could be established. The

Assignment further supports this intent.

Also, the Business Assets did not belong to the debtor

because Dolores took possession of the Business Assets on

March 31, 2008, then leased them back to the debtor and the

businesses. Neither the debtor nor the businesses owned the

Business Assets after March 31, 2008; they simply were leasing

them. In other words, they held a leasehold interest in the

Business Assets only, similar to holding the Business Assets in

trust for Dolores.

Moreover, the transfer of the Business Assets to Dolores

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occurred outside of the statutory preference period under

§ 547(b). Section 547(b)(4)(B) requires that the transfer take

place up to one year prepetition. Here, Dolores took possession

of the Business Assets on March 31, 2008.

She also disputed Trustee and Creditors’ allegation that the

businesses were her and the debtor’s alter egos. Each of the

businesses filed its own tax returns, conducted separate

operations and maintained separate books and records. Funds were

transferred between the businesses because goods and services

were exchanged between them. Further, Dolores made loans to each

of the businesses and the debtor separately. The debtor did not

use all of the loans for his personal benefit. Additionally,

Dolores was not paying the debtor a consulting fee; she simply

was helping his family with its expenses.

Dolores further argued that Trustee and Creditors failed to

show that no material factual issue existed as to whether Dolores

received more than she would have under a chapter 7 liquidation. 

She was a secured creditor who was entitled to repayment of the

entire loan. Payment to a fully secured creditor is not

preferential because it does not deplete the bankruptcy estate as

such payment reduces the secured creditor’s lien in an equal

amount.

Dolores also raised the new value defense under § 547(c)(1),

claiming that she and the debtor intended that the transfer of

the Business Assets be a contemporaneous exchange for new value

given to him.

The bankruptcy court held a hearing on the partial summary

judgment motion on September 18, 2012. It concluded that the

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debtor’s ownership interests in the businesses constituted

property of the estate within the meaning of § 541. The

bankruptcy court referenced the loan agreements, the loan

resolution agreement and the turnover agreement. It pointed out

that all of these agreements had been between the debtor and

Dolores. The bankruptcy court acknowledged that

[S]ome other entities that [the debtor] controlled also

had an interest in all those assets. But it [was]

pretty clear that – you look at the agreements between

Dolores Stout and Edward Stout, and the reference to

the assets is the reference to him. It’s only to him

individually, in the body of the actual document.

Tr. of Sept. 18, 2012 hr’g, 6:7-12.

The bankruptcy court also determined that the perfection of

Dolores’s security interests, through the filing of a UCC-1

financing statement on May 27, 2009, was within the preference

period. At the summary judgment hearing, the bankruptcy court

wondered, “[i]f [Dolores] was the owner of the property, why on

earth would she file a UCC-1 in 2009, on her own property?” 

Tr. of Sept. 18, 2012 h’rg, 2:22-25. It also noted that Dolores

took further steps to perfect her security interest by executing

the turnover agreement, which allowed her to take possession of

the Business Assets immediately.

The bankruptcy court also concluded that Dolores was an

insider within the meaning of § 101(31) as she was the debtor’s

mother. Consequently, the one-year reach back period of 

§ 547(b)(4)(B) applied. It thus granted summary judgment on the

§ 547(b) claim, concluding that no genuine triable factual issues

existed as to that claim. 

The bankruptcy court denied summary judgment on the 

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§ 548(a)(1) claim. It found that triable issues of material fact

existed as to the § 548(a)(1) claim.13

On January 23, 2013, the bankruptcy court entered the 

§ 547(b) partial summary judgment order in favor of Creditors. 

Dolores timely appealed the § 547(b) partial summary judgment

order. The bankruptcy court entered a Rule 54(b) certification

thereafter.

2. Discharge Adversary

On October 20, 2009, before the Preference Adversary was

filed, Creditors filed a complaint (“Discharge Complaint”)

against the debtor, initially asserting a claim under 

§ 727(a)(2)(A) only. Under a stipulation entered February 9,

2010, the debtor agreed to allow Creditors to amend their

complaint to include a claim under § 523(a)(6). AP No. 09-1669

Docket Nos. 9 and 10. Creditors filed their amended complaint on

March 16, 2010, including a claim under § 523(a)(6). 

With respect to their § 523(a)(6) claim, Creditors asserted

that the businesses were the debtor’s alter egos. They then

alleged that the debtor “conspired” with Dolores “to thwart” the

pending state court action and to hinder, delay and defraud them

by fraudulently transferring the Business Assets to Dolores

and/or Kaufman Group. Finally, they alleged that such acts

willfully and maliciously injured Creditors.

Alternatively, they argued that the debtor’s discharge

should be denied under § 727(a)(2)(A) because, within one year

13 Since disposition of the § 548(a)(1) claim has no

relevance to the disposition in this appeal, we will not refer to

it further herein.

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prior to filing for bankruptcy, he transferred the Business

Assets to Dolores and/or Kaufman Group with the intent to prevent

Creditors from obtaining and collecting a judgment against him in

the state court action.

Several months after he filed his answer to the Discharge

Complaint, the debtor moved for summary judgment (“debtor summary

judgment motion”), asserting that Creditors failed to establish

the elements of their § 727(a)(2)(A) and § 523(a)(6) claims.

With respect to the § 727(a)(2)(A) claim, the debtor argued

that he never owned the Qualtech Assets at any time. At the time

of the Qualtech sale, the debtor merely held the Qualtech Assets

for Applied.14 The Asset Purchase Agreement specifically

contemplated that a business entity would be the “true” purchaser

of the Qualtech Assets; the debtor simply was a placeholder. 

Moreover, Applied owned the Qualtech Assets until March 2008,

when Dolores allegedly foreclosed on the Business Assets. 

Because the debtor never truly owned the Qualtech Assets, there

could not have been a transfer within the meaning of 

§ 727(a)(2)(A).

He also maintained that the businesses never were his alter

egos. The businesses filed their own tax returns and maintained

separate books and records. They also maintained separate bank

accounts; they did not commingle any funds with the debtor.

The debtor further contended that the transfer of the

Business Assets to Dolores occurred outside the one-year period

14 The debtor advanced a number of arguments in his summary

judgment motion, but we focus only on those relevant to the

appeal.

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under § 727(a)(2)(A). Although Dolores did not file her UCC-1

financing statement until May 27, 2009, the debtor alleged that

she had a perfected security interest. The transfers of the

Business Assets to Dolores through the attachment of her security

interest became effective on June 20, 2005 when she signed the

loan agreements.

He also contended that Creditors failed to show that he had

actual intent to hinder, delay or defraud them at the time he

transferred the Business Assets to Dolores. She had a valid

security interest in the Business Assets pursuant to the loan

agreements. Dolores acquired the Business Assets because the

debtor failed to repay his debt to her, not because the debtor

intended to prevent Creditors from obtaining a state court

judgment against him.

As to the § 523(a)(6) claim,15 the debtor argued that

Creditors failed to show that he had a subjective intent to

injure them when he transferred the Business Assets to Dolores. 

She had a valid security interest in the Business Assets; Dolores

15 The debtor also argued that Creditors could not assert

their § 523(a)(6) claim because it was time-barred under

Rule 4007(c).

Rule 4007(c) provides that the deadline to file a complaint

to except a debt from discharge, including under § 523(a)(6), is

60 days after the first date set for the § 341(a) meeting of

creditors. The initial § 341(a) meeting of creditors in the

debtor’s bankruptcy case was scheduled for August 21, 2009. 

According to Form B9A, the “Notice of Commencement of Case under

the Bankruptcy Code, Meeting of Creditors and Deadlines,” that

was filed and entered on July 20, 2009 in the debtor’s bankruptcy

case (main case docket no. 3), the deadline to file

dischargeability complaints was October 20, 2009.

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simply exercised her right to repossess them pursuant to the loan

agreements.

He also argued that the debt owed to Creditors arose out of

a breach of contract, which is not recognized as a debt excepted

from discharge under any of the provisions of § 523(a).

The debtor further sought to dismiss Qualtech as a

plaintiff. When Creditors filed the Discharge Complaint,

Qualtech was suspended for failing to pay taxes. Qualtech

therefore lacked the capacity to commence and prosecute the

Discharge Adversary against him.

Creditors filed an opposition to the debtor’s summary

judgment motion. They opposed it on procedural grounds only,

contending that the debtor filed his summary judgment motion

untimely. They also argued that notice of the hearing on the

summary judgment motion was defective as the notice was served

untimely.

Before the December 16, 2010 hearing on the summary judgment

motion,16 the bankruptcy court issued a tentative ruling. In its

tentative ruling, the bankruptcy court indicated an intent to

grant the debtor’s summary judgment motion as to the § 523(a)(6)

claim, but to deny the summary judgment motion as to the 

§ 727(a)(2)(A) claim. At the summary judgment hearing, the

bankruptcy court adopted its tentative ruling. 

16 Within the Central District of California, a hearing

automatically is scheduled on a motion for summary judgment,

whether or not an opposition is filed. See Rule 7056-1(a) and

Rule 9013-1(a)(5) of the Local Bankruptcy Rules for the

Bankruptcy Court of the Central District of California.

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On March 21, 2011, the bankruptcy court entered the 

§ 523(a)(6) partial summary judgment order. It granted summary

judgment in the debtor’s favor as to the § 523(a)(6) claim on two

grounds: first, concluding that the § 523(a)(6) claim was not

timely filed and, further, determining that Creditors did not

raise any material factual issue concerning the debtor’s intent

to cause injury within the meaning of § 523(a)(6).

The bankruptcy court denied summary judgment on the 

§ 727(a)(2)(A) claim, determining that genuine material factual

issues existed as to the following: 1) the significance and

legal effect of the transfer of the Qualtech Assets to Applied;

2) the existence of alter ego; 3) the circumstances concerning

Dolores’ taking possession of the Business Assets; and 4) the

debtor’s intent to hinder, delay or defraud Creditors.

The bankruptcy court further determined that there was

insufficient admissible evidence as to Qualtech’s legal status as

of the filing of the Discharge Complaint. It also determined

that the debtor failed to address the issue involving Qualtech’s

certificate of revivor.

The remaining claim in the Discharge Complaint proceeded to

trial. In preparation for the trial, the debtor and Creditors

submitted a joint pretrial order. 

In the joint pretrial order, they agreed and admitted to

several facts, including that: 1) the debtor wholly owned and

controlled the businesses by June 20, 2005; 2) Dolores was an

officer and director of the businesses by June 20, 2005; 3) the

debtor and the businesses entered into the loan agreements with

Dolores; 4) the debtor or his allowed assignee was the purchaser

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under the Asset Purchase Agreement; 5) the debtor personally

guaranteed performance under the Asset Purchase Agreement, the

sublease and the consulting agreements; 6) Dolores took

possession of the Business Assets two months before the debtor

filed his chapter 7 petition; and 7) Qualtech was under

suspension from April 1, 2008 until August 23, 2010, when it

filed its certificate of revivor.

The debtor and Creditors also listed several factual issues

remaining to be litigated, including: 1) whether the debtor was

the alter ego of the businesses; 2) whether the debtor acted to

transfer, conceal, destroy or remove the Business Assets; and

3) whether the debtor had actual intent to defraud, delay or

hinder Creditors through his actions within one year prepetition.

Before the trial, the bankruptcy court addressed several

pretrial motions filed by the debtor. In one pretrial motion,

the debtor again sought to dismiss Qualtech as a plaintiff for

lack of standing to prosecute the Discharge Complaint (“pretrial

motion”). AP No. 09-1669 Docket No. 82. Following a hearing,

the bankruptcy court granted the pretrial motion, entering the

order on May 15, 2012. AP No. 09-1669 Docket No. 138. It

concluded that Qualtech lacked capacity to prosecute the

Discharge Adversary because at the time it was filed on

October 20, 2009, Qualtech was under suspension.

The bankruptcy court held a four-day trial. It issued its

ruling orally on March 1, 2013 (“Trial Findings Hearing”).

At the outset of the Trial Findings Hearing, the bankruptcy

court stressed that it reviewed all admissible evidence

independent from any other pending adversary proceeding, i.e.,

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the Preference Adversary. It then went on to state that

Creditors had established all but one of the elements of 

§ 727(a)(2)(A).

It found that the debtor transferred all of the Business

Assets to Dolores within one year of his bankruptcy filing with

the actual intent to hinder, delay and defraud Creditors. The

bankruptcy court noted that the evidence showed that the transfer

of the Business Assets to Dolores “was designed to ensure

protection of [her] interest as a creditor to the detriment of

[Creditors].” Tr. of March 1, 2013 hr’g, 6:7-8.

It inferred that the debtor had fraudulent intent in

transferring the Business Assets to Dolores based on the

circumstances surrounding the transfer. The bankruptcy court

pointed out that Dolores had a close relationship with the debtor

because she was his mother. It also noted that the debtor made

the transfer very shortly after Creditors initiated the state

court action. The bankruptcy court further pointed out that the

debtor transferred substantially all of the Business Assets to

Dolores which left “other creditors with little from which to

recover on their claims.” Tr. of March 1, 2013 hr’g, 6:23-24.

However, it found that Creditors failed to show that the

Business Assets were the property of the debtor. The bankruptcy

court noted that Creditors seemed to rely on its earlier

determination in the Preference Adversary. There, in its partial

summary judgment order entered January 23, 2013, the bankruptcy

court had found that the debtor’s transfer of the Business Assets

to Dolores under the turnover agreement constituted a

preferential transfer under § 547(b). It explained to Creditors

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that its holding in the Preference Adversary had “no bearing on

[its] ruling in this matter” because: 1) the debtor was not a

party to the Preference Adversary so he could not raise a defense

or submit evidence and legal argument regarding the property

transfer’s characterization; 2) the evidence and legal arguments

presented in the Preference Adversary “were far more extensive

and compelling” than the Creditors’ presentation in the Discharge

Adversary; 3) Creditors provided no evidence showing that the

debtor was the alter ego of the businesses, even though a joint

pretrial order had listed this as an issue to be determined at

trial. Tr. of March 1, 2013 hr’g, 7:10-25, 8:1-18. See

Discussion infra. The bankruptcy court concluded that, “absent a

finding of alter ego, property belonging to a debtor’s whollyowned corporation is property of that entity and not property of

the debtor within the meaning of 727(a)(2).” Tr. of March 1,

2013 hr’g, 10:8-11.

On March 25, 2013, the bankruptcy court entered judgment in

favor of the debtor on the § 727(a)(2)(A) claim (“§ 727(a)(2)

judgment”). Two weeks later, Creditors filed the motion for new

trial.

They contended that they established all of the elements of

§ 727(a)(2)(A). In particular, Creditors averred that the

Business Assets were property of the estate within the meaning of 

§ 727(a)(2)(A). Under California law, when a corporation is

dissolved, all of its assets automatically are transferred to its

shareholders. When an individual files for bankruptcy, the

chapter 7 trustee acquires all of his rights and interests in

property. Any property belonging to the debtor thus becomes part

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of the bankruptcy estate. 

Here, the debtor owned all of the stock in the businesses. 

When the debtor dissolved the businesses shortly before he filed

his bankruptcy petition, all of their assets went to the

businesses’ shareholder – i.e., the debtor. When he filed for

bankruptcy, Trustee succeeded to the debtor’s rights and

interests, including his ownership interest in the Business

Assets. The Business Assets thus became part of the bankruptcy

estate.

Creditors further argued that, under § 727(a)(7), a debtor’s

discharge shall be denied if he is an insider of a corporation

and had fraudulently transferred the corporation’s assets within

the meaning of § 727(a)(2). Here, the debtor was an officer and

director and sole shareholder of the businesses, which qualified

him as an insider. Because he fraudulently transferred the

Business Assets to Dolores when he was an insider of the

businesses, his discharge must be denied.

Creditors also maintained that the businesses were the

debtor’s alter egos under California law. In California, a

person is the alter ego of his corporation if: 1) he owns all of

the corporation’s stock; 2) there is such a unity of interest and

ownership that the separateness of the person and the corporation

has ceased; and 3) an adherence to the fiction of the separate

existence of the corporation would sanction a fraud or promote

injustice. Here, Creditors averred, all three elements of alter

ego were met: 1) the debtor wholly owned and controlled the

businesses; 2) the debtor admitted at the § 341(a) meeting that

he co-owned with the businesses the Business Assets and

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commingled his personal assets in the Business Assets in such a

way that he could not separate them; and 3) adhering to the

fiction of the separate existence of the businesses would condone

fraud and promote injustice.

Creditors further asked the bankruptcy court to reconsider

its grant of partial summary judgment on the § 523(a)(6) claim. 

Creditors contended that the facts proven at trial showed that

the debtor intended “to strip the value” from his corporate stock

by transferring the sale assets to Dolores, an insider. In doing

so, the debtor caused Creditors willful and malicious injury

within the meaning of § 523(a)(6).

Following a hearing on May 7, 2013 (“new trial hearing”),

the bankruptcy court denied the motion for new trial. It noted

that Creditors did not provide any substantive analysis as to how

Civil Rules 52 and 59 and Local Rule 9013-4(a) applied.

The bankruptcy court determined that Creditors misapplied 

§ 727(a)(7). It explained that § 727(a)(7) ties together related

cases so that misconduct in one case by an individual may be

chargeable against him in other related cases. Here, the

businesses never filed for bankruptcy; they were nonbankruptcy

insiders.

Moreover, the bankruptcy court reasoned, even if § 727(a)(7)

applied to nonbankruptcy insiders such as the businesses,

Creditors never included their § 727(a)(7) claim in the joint

pretrial order as a claim to be litigated.

As for their arguments regarding alter ego, the bankruptcy

court found that Creditors failed to address the lack of evidence

of alter ego at trial. They also failed to proffer appropriate

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analysis of alter ego under Civil Rules 59 and 52.

The bankruptcy court further found unpersuasive Creditors’

argument that the debtor’s dissolution of the businesses shortly

before his bankruptcy filing required the denial of his

discharge. It pointed out that Creditors failed to provide any

analysis as to how the assets of the debtor’s dissolved

businesses (if any at the times that the businesses were

dissolved) legally reverted to the debtor, as shareholder,

prepetition.

The bankruptcy court denied Creditors’ request to reconsider

its grant of partial summary judgment on their § 523(a)(6) claim

because they failed to present any grounds for reconsideration. 

It moreover mentioned that Creditors were seeking reconsideration

of an order that it issued more than two years before.

On May 15, 2013, the bankruptcy court entered the new trial

order. Creditors timely appealed the new trial order.

JURISDICTION

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

§§ 1334 and 157(b)(2)(F) and (J). We have jurisdiction under

28 U.S.C. § 158.

ISSUES

1) Did the bankruptcy court err in granting partial summary

judgment on the § 547(b) claim by determining that the debtor’s

transfer of the Business Assets to Dolores constituted a

preferential transfer?

2) Did the bankruptcy court err in granting judgment in the

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debtor’s favor on Creditor’s § 523(a)(6) claim? 

3) Did the bankruptcy court err in granting judgment in the

debtor’s favor on Creditors’ § 727(a)(2)(A) claim?

STANDARDS OF REVIEW

We review the bankruptcy court’s legal conclusions de novo. 

Goodrich v. Briones (In re Schwarzkof), 526 F.3d 1032, 1034 (9th

Cir. 2010). We also review de novo the bankruptcy court’s grant

of partial summary judgment. White v. City of Sparks, 500 F.3d

953, 955 (9th Cir. 2007). “Summary judgment is appropriate only

if, taking the evidence and all reasonable inferences drawn

therefrom in the light most favorable to the non-moving party,

there are no genuine issues of material fact and the moving party

is entitled to judgment as a matter of law.” Smith v. Clark

Cnty. Sch. Distr., 727 F.3d 950, 955 (9th Cir. 2013)(quoting

Furnace v. Sullivan, 705 F.3d 1021, 1026 (9th Cir. 2013)). The

moving party has the initial burden of demonstrating that no

material fact issues exist. Soremekun v. Thrifty Payless, Inc.,

509 F.3d 978, 984 (9th Cir. 2007).

Generally, a court cannot grant summary judgment based on

its assessment of the credibility of the evidence presented. 

Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th

Cir. 2008)(quoting Agosto v. INS, 436 U.S. 748, 756 (1978)). At

the summary judgment stage, the bankruptcy court’s function is 

not to weigh the evidence and determine the truth of the matter. 

Barboza, 545 F.3d at 707 (quoting Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 249 (1986)). Rather, it simply must

determine whether there is a genuine issue for trial. Barboza,

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545 F.3d at 707 (quoting Anderson, 477 U.S. at 249).

We review the bankruptcy court’s factual findings under the

clearly erroneous standard. United States v. Hinkson, 585 F.3d

1247, 1252 & n.20 (9th Cir. 2009)(en banc). Determinations of

alter ego typically are factual findings, which we review for

clear error. Schwarzkof, 526 F.3d at 1034 (citing Towe Antique

Ford Found. v. IRS, 999 F.2d 1891, 1897 (9th Cir. 1993)). We

must affirm the bankruptcy court’s factual findings unless we

conclude that they are “(1) ‘illogical,’ (2) ‘implausible,’ or

(3) without ‘support in inferences that may be drawn from the

facts in the record.’” Hinkson, 585 F.3d at 1252. Clear error

exists when, on the entire evidence, the reviewing court is left

with the definite and firm conviction that a mistake was made. 

Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th Cir.

2009); Hoopai v. Countrywide Home Loans, Inc. (In re Hoopai),

369 B.R. 506, 509 (9th Cir. BAP 2007).

We may affirm on any ground supported by the record. White,

500 F.3d at 955.

DISCUSSION

A. Preference Adversary

1. Motion to Supplement Record

Before we begin our analysis, we must address a procedural

matter: Dolores’ motion to supplement the record on appeal

(“supplement record motion”). All of the supplemental documents

submitted for our review concern Trustee’s application to employ

Creditors’ adversary counsel as his special counsel in the

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underlying bankruptcy case.17

Having reviewed the supplemental documents, we conclude that

the supplemental documents would not be helpful in our

determination of Dolores’ appeal. We thus deny the supplement

record motion.18

2. Appeal of the § 547(b) partial summary judgment order

Under § 547(b), the transfer of a debtor’s interest in

property made to an insider within one year prior to the debtor’s

bankruptcy filing may be avoided as a preference if six elements

are met. Sigma Micro Corp. v. Healthcentral.com

(In re Healthcentral.com), 504 F.3d 775, 788 (9th Cir. 2007). A

preferential transfer consists of the following six elements: 

1) a transfer of the debtor’s interest in property; 2) that was

to or for a creditor’s benefit; 3) that was for or on account of

an antecedent debt; 4) that was made while the debtor was

insolvent; 5) that was made up to one year prepetition, if such

creditor was an insider; and 6) that was a transfer that enables

the creditor to receive more than such creditor would receive in

a chapter 7 liquidation of the bankruptcy estate. Hansen v.

MacDonald Meat Co. (In re Kemp Pac. Fisheries, Inc.), 16 F.3d

17 This same counsel also represented Creditors in the state

court action.

18 Shortly before oral argument, the debtor, Creditors and

Dolores each submitted additional authorities in support of their

briefs. The debtor and Dolores objected to Creditors’

submissions and moved to strike them. We deny the debtor’s and

Dolores’ motions to strike. After considering all of these

submissions, however, we conclude that the supplemental

authorities cited by the debtor, Creditors and Dolores do not

assist us materially in our dispositions of these appeals.

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313, 315 n.1 (9th Cir. 1994). All six of these elements must be

met, Wind Power Sys., Inc. v. Cannon Fin. Group, Inc. (In re Wind

Power Sys., Inc.), 841 F.2d 288, 290 (9th Cir. 1988)(en banc)

(citation omitted), and each must be proven by a preponderance of

the evidence. Arrow Elecs., Inc. v. Justus (In re Kaypro),

218 F.3d 1070, 1073 (9th Cir. 2000). 

Dolores claims that she provided sufficient evidence to

raise genuine material factual issues as to three of these

elements: 1) whether the transfer involved the debtor’s

property; 2) whether the transfer was made within the preference

period; and 3) whether Dolores, as a secured creditor, received

more than she would have received in a chapter 7 liquidation.

a. Property of the debtor

Dolores first argues that she submitted evidence raising

questions as to whether the Business Assets ever constituted the

debtor’s property. Dolores asserts that the debtor never

intended to own the Business Assets. She references the Asset

Purchase Agreement and the Assignment, both of which provided

that Applied would own the Qualtech Assets when the debtor

assigned his rights under the Asset Purchase Agreement and made

the Assignment to Applied.

Dolores contends that she presented further evidence raising

material factual issues as to whether the debtor owned the

Business Assets under the alter ego theory. She provided

evidence that the businesses each kept separate books and

records, even though they operated out of the same facility. 

Dolores also submitted evidence showing that the businesses did

not transfer funds between themselves without regard to source or

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obligation, as Creditors alleged. The businesses exchanged funds

for various goods and services they provided to one another.

However, Dolores seeks to manufacture a genuine issue of

fact out of her subjective intent, which is belied by the reality

of her documented transactions with respect to the Business

Assets. As the bankruptcy court pointed out, Dolores relies on

documents that indicated that the debtor owned the Business

Assets. The loan resolution agreement was between Dolores and

the debtor only. None of the businesses was a party to the loan

resolution agreement. The loan resolution agreement further

allowed Dolores to take immediate possession of collateral under

her loan agreement with the debtor, but the loan resolution

agreement did not provide for any transfer of title or ownership. 

In fact, the loan resolution agreement left the Business Assets

in place with the debtor.

Dynamic and Electronic along with the debtor, Dolores and

Kaufman Group were parties to the turnover agreement, but Applied

was not. Two lists of transferred assets were attached to the

turnover agreement, without any indication or division of

respective ownership interests among the debtor, Dynamic and

Electronic. If the subject lists included any of the Qualtech

Assets, to the extent Applied owned them, it was not a party, and

the subject assets were not transferred, unless the debtor had a

continuing ownership interest in them.19

At the summary judgment hearing, the bankruptcy court

19 Nothing in the record indicates that any interest in the

Qualtech Assets ever was assigned or transferred from Applied to

either Dynamic or Electronic.

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highlighted certain language in the turnover agreement indicating

that the Business Assets belonged to the debtor. The relevant

provision of the turnover agreement stated that the debtor

“continuously and irrevocably tender[ed] . . . all right, title

and interest and full possession of, in and to all its asset

collateral not [now] in [Dolores’] possession . . . .” Such

language, the bankruptcy court reasoned, indicated that the

debtor owned the Business Assets collateral, lists of which were

attached to the turnover agreement. Further, the bankruptcy

court concluded that the turnover agreement was more “explicit,

in terms of what it says,” than the loan resolution agreement. 

Tr. of Sept. 18, 2012 hr’g, 11:6-7.

Dolores maintains that the actual transfer of the Business

Assets occurred on March 31, 2008, more than a year before the

debtor filed for bankruptcy protection. Following the transfer

on March 31, 2008, she asserts that she owned the Business

Assets, which she then leased back to the debtor. The debtor

thus did not own the Business Assets during the preference

period.

As the bankruptcy court noted, if Dolores actually owned the

Business Assets outside of the preference period, then it made no

sense (or, as the bankruptcy court put it, was “illogical”) for

Dolores to file the UCC-1 financing statement on May 27, 2009. 

Like the bankruptcy court, we too wonder if she truly owned the

Business Assets during the preference period, “why on earth would

[Dolores] file a UCC-1 in 2009, on her own property?” 

On the record before us and then before the bankruptcy

court, there is no genuine issue that the debtor owned at least

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some interest in the Business Assets during the insider

preference period. However, even if the businesses owned some of

the Business Assets to an unspecified extent, as conceded by

Dolores’ counsel at oral argument, the debtor’s transfer of all

the Business Assets to Dolores drained the stock that he wholly

owned in the businesses of all value, thus constituting a

preferential transfer. 

We ultimately conclude, as did the bankruptcy court, that

Dolores did not raise a genuine issue of material fact as to

whether the debtor had a property interest of some type either in

or with respect to the transferred Business Assets for purposes

of a determination of preferential transfer under § 547(b).

b. Preference period

Dolores next argues that she provided evidence raising

material factual issues as to whether the debtor transferred the

Business Assets to her within one year prepetition. She points

to the loan resolution agreement, dated March 31, 2008, under

which she allegedly took possession of the Business Assets. 

According to Dolores, the loan resolution agreement proves that

the transfer occurred more than one year before the debtor filed

for bankruptcy protection on July 15, 2009.

We give no credence to this argument. As noted above, and

as the bankruptcy court reasoned at the partial summary judgment

hearing, if Dolores truly owned the Business Assets before the

preference period began, why would she file the UCC-1 financing

statement on her property on May 27, 2009, and enter into the

subsequent turnover agreement that transferred title and

ownership of the Business Assets? Such actions indicate that the

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debtor had not yet transferred the Business Assets to Dolores

before the preference period began. Also, the loan resolution

agreement does not mention foreclosure by Dolores on the Business

Assets, and no notice of the purported transfer was provided at

that time to any third parties.

We thus conclude that Dolores did not raise a genuine issue

of material fact as to whether the transfer occurred outside of

the preference period.

c. Secured creditor status

Dolores finally contends that she raised a genuine issue of

material fact as to whether, as a secured creditor, she received

more than she would have in a chapter 7 liquidation. She points

out that payments to a fully secured creditor are not

preferential because such payments do not deplete the bankruptcy

estate. They do not diminish the value of the bankruptcy estate

because, while funds are removed from the bankruptcy estate, the

secured creditor’s lien is reduced in equal amount.

Dolores claims that she submitted evidence showing that she

was a fully secured creditor. However, the uncontradicted

evidence before the bankruptcy court established that her claimed

security interests were unperfected until she filed the UCC-1

financing statement on May 27, 2009 – well within the preference

period. Sheehan v. Valley Nat’l Bank (In re Shreves), 272 B.R.

614, 622 (Bankr. N.D.W. Va. 2001)(“The trustee is granted the

right under the Code to avoid transfers within the preference

period, and the perfection of a lien within the preference period

is a transfer avoidable by the trustee.”); Rouse v. Chase

Manhattan Bank (In re Brown), 226 B.R. 39, 45 (W.D. Mo.

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1998)(“The perfection of a lien within the preference period is

considered a transfer, which is avoidable by the trustee.”). 

Dolores also presented evidence to raise questions as to

whether the Business Assets had a value that exceeded her secured

claim. However, because her security interests were not

perfected until late in the preference period, such evidence was

ineffectual to raise a genuine issue of material fact. 

Based on the foregoing, we determine that Dolores did not

present sufficient evidence to raise genuine factual issues as to

the three contested elements for a preferential transfer under

§ 547(b). We thus conclude that the bankruptcy court did not err

in granting summary judgment on the § 547(b) claim.

B. Discharge Adversary

According to their notice of appeal, Creditors appeal the

new trial order. But, in their appellate briefs, Creditors

appear to be appealing both the § 523(a)(6) partial summary

judgment order and the § 727(a)(2)(A) judgment.

1. Section 523(a)(6) claim

Creditors contend that the bankruptcy court erred in

refusing to except their debt from discharge under § 523(a)(6). 

They argue that they successfully established that the debtor

intentionally and fraudulently transferred to Dolores the

Business Assets because the bankruptcy court expressly found that

he transferred the Business Assets to diminish his bankruptcy

estate thereby defrauding his creditors. Creditors maintain that

the debtor’s intentional and fraudulent transfer constituted a

“willful and malicious injury” within the meaning of § 523(a)(6).

As noted above, the bankruptcy court granted summary

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judgment in the debtor’s favor on Creditors’ § 523(a)(6) claim

for two reasons: First, the § 523(a)(6) claim was not timely

filed. Although the parties had stipulated to allow Creditors to

amend the Discharge Adversary complaint, there was no agreement

that the debtor could not assert an untimeliness defense to any

new claims that Creditors might assert in an amended complaint. 

The deadline to file exception to discharge claims was

October 20, 2009. The amended complaint asserting a § 523(a)(6)

claim for the first time was not filed until March 16, 2010. The

Creditors missed the deadline to assert their § 523(a)(6) claim. 

Rule 4007(c) provides that, “On motion of any party in interest

after hearing on notice the court may for cause extend the time

fixed under this subdivision. The motion shall be filed before

the time has expired.” No such motion was filed by the Creditors

to extend the deadline to file their § 523(a)(6) claim. On this

record, we perceive no error in the bankruptcy court dismissing

the Creditors’ § 523(a)(6) claim as not timely filed.

In addition, Creditors misapprehend § 523(a)(6). 

Section 523(a)(6) essentially encompasses intentional torts. 

Creditors’ claims arise out of breach of contract. Under

controlling Ninth Circuit case law, “‘a simple breach of contract

is not the type of injury addressed by § 523(a)(6).’” Petralia

v. Jercich (In re Jercich), 238 F.3d 1202, 1205 (9th Cir.

2001)(quoting Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154

(9th Cir. 1992)). The Ninth Circuit has held that “‘an

intentional breach of contract is excepted from discharge under

§ 523(a)(6) only when it is accompanied by malicious and willful

tortious conduct.’” Jercich, 238 F.3d at 1205 (quoting Riso,

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978 F.2d at 1154 (emphasis in original)). Creditors only have

breach of contract claims with an after-the-fact argument that

the debtor’s alleged fraudulent transfer of the Business Assets

to Dolores constitutes a willful and malicious injury. Their

embellished breach of contract claim does not support a willful

and malicious injury claim within the meaning of § 523(a)(6). 

See Jercich, 238 F.3d at 1206. We thus conclude that the

bankruptcy court did not err in determining, on an alternative

basis, that Creditors’ debt was not excepted from discharge under

§ 523(a)(6) due to a lack of evidence of the required subjective

tortious intent.

2. Section 727(a)(2)(A) claim

We now turn to Creditors’ appeal of the bankruptcy court’s

determination on their § 727(a)(2)(A) claim. Section

727(a)(2)(A) provides that the bankruptcy court must deny the

debtor’s discharge if the debtor, with intent to hinder, delay or

defraud a creditor, transferred property of the debtor within one

year prepetition. Aubrey v. Thomas (In re Aubrey), 111 B.R. 268,

273 (9th Cir. BAP 1990). The creditor must demonstrate by a

preponderance of evidence that: 1) the debtor transferred or

concealed property; 2) the property belonged to the debtor;

3) the transfer occurred within one year of his bankruptcy

filing; and 4) the debtor made the transfer with the intent to

hinder, delay or defraud a creditor. Id. (citations omitted). 

The only element at issue on appeal is whether the Business

Assets were property of the debtor.

The bankruptcy court found in the Discharge Adversary that

Creditors did not meet their burden of proof to establish that

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the debtor owned the Business Assets for § 727(a)(2)(A) purposes. 

The fact that the bankruptcy court concluded upon the more

extensive evidentiary record and legal arguments presented in the

Preference Adversary that a property interest of the debtor had

been transferred for preference purposes is not dispositive here.

Creditors argue that they established that the Business

Assets belonged to the debtor. Creditors contend that the

businesses were the alter egos of the debtor. Specifically, they

argue that: 1) the debtor jointly owned the Business Assets with

the businesses; and 2) under California law, the shareholders of

a dissolved corporation hold legal and equitable title to the

dissolved corporation’s property, subject to the superior claims

of its creditors.

In determining whether alter ego liability applies, we must

look to the law of the forum state. Schwarzkopf, 626 F.3d at

1037. Here, California law applies.

California recognizes alter ego liability: 1) “where ‘there

is such a unity of interest and ownership that the individuality,

or separateness, of the said person and corporation has ceased’”

and 2) “where ‘adherence to the fiction of the separate existence

of the corporation would . . . sanction a fraud or promote

injustice.’” Id. at 1038 (quoting Wood v. Elling Corp., 572 P.2d

755, 761 n.9 (1977)). This is a highly fact-intensive

determination. Factors suggesting an alter ego relationship

include “‘[c]ommingling of funds and other assets [and] failure

to segregate funds of the separate entities . . .; the treatment

by an individual of the assets of the corporation as his own

. . .; the disregard of legal formalities and the failure to

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maintain arm’s length relationships among related entities . . .’

[and] the diversion [of assets from a corporation by or to a]

stockholder or other person or entity, to the detriment of

creditors, or the manipulation of assets . . . between entities

so as to concentrate the assets in one and the liabilities in

another.’” Schwarzkopf, 626 F.3d at 1038 (quoting Associated

Vendors, Inc. v. Oakland Meat Co., Inc., 26 Cal. Rptr. 806,

813-15 (1962)).

The bankruptcy court found that Creditors presented no

evidence establishing that the businesses were the debtor’s alter

egos, even though the joint pretrial order expressly listed this

as an issue to be determined at trial. We agree.

Creditors also contend that upon dissolution of a

corporation, its shareholders retain and own its assets. But

here, the dissolution of the businesses occurred after the

Business Assets already had been transferred to Dolores. By the

time the businesses dissolved, they had no assets to distribute

to the debtor. 

Based on our review of the record, we do not have a firm and

definite conviction that the bankruptcy court clearly erred in

finding that the Creditors had not met their burden of proof to

establish that the Business Assets were the debtor’s property in

the Discharge Adversary for purposes of their § 727(a)(2)(A)

claim.

CONCLUSION

Both Dolores and Creditors contend on appeal that the

bankruptcy court erred in its determinations in the adversary

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proceedings. Based on our review of the record, we conclude that

the bankruptcy court did not err. Accordingly, we AFFIRM the

bankruptcy court’s rulings on appeal.

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