FOR PUBLICATION



### UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

DZ B A NK AG D EUT S C HE Z E N TR AL

G E N O S S E N S C HAF T B A

NK , F R A NK F U R T AM M AI

N , New York Branch, Plaintiff-Appellant
,

v

.

L O UI S P H I L L I P U S M EYE R ; L Y N N M EYE R , Defendants-Appellees. No. 15-35086

D.C. No. 2:14-cv-00869- JLR

OPINION

Appeal from

the United States District Court for the W estern District of W ashington Jam es L. Robart, Senior Distr ict Judge, Presiding

Argued and Subm itted May 19, 2017 Seattle, W ashington

F iled August 24, 2017

Before: Michael Daly Hawkins, Ronald M. Gould, and Richard A. Paez, Circuit Judges.

Opinion by Judge PaezDZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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SUMMARY *

Bankruptcy

The panel reversed the district court’s decision affirm ing the bankruptcy court’s judgm ent in f avor of a creditor in the creditor’s a dv ersary proceeding alleging that the d ebtors fraudulently transferred assets in o rder to place the assets out of the c reditor’s reach, and that the d ebt therefore was nondischargeable under 11 U.S.C. § 523(a).

The p anel held that the bankruptcy court correctly f ound that, under the W ashington Uniform F raudulent Transfer Act, the d e b t o rs engaged in f raudulent transfers and, therefore, actual fraud, to the creditor’s detrim en t

. The bankruptcy
court err e d
, h o wever, in lim iting relief to the v alue of the
assets that were directly traceabl e t o the creditor’s security interest. The panel held that th e n o n-dischargeable debt resulting from the f

raudulent transfers was the full am ount that the creditor would have reco v e r e d i f it had been able to execute against the debtor’s ownership interest in the closelyheld corporation from which the debtor transferred the assets.

C OUNSEL

D. Alexander Darcy (argued) and Mi chael W

. Debre III, Askounis & Darcy PC, Chicago, Illinois, for Pla intiffAppellant.

* This summ ary constitutes no part of the opinion of the court. It h as been prepared by court staff for the convenience of the reader.DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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Marc S. S tern (argued), Seattle, W ashington; for DefendantsAppellees.

OPINION

PAEZ, Circuit Judge:

This case arises from a d ispute betwee n DZ Bank A G Deutsche Zentral-Genossenschaftsbank (“DZ B ank ”), as creditor, and Louis and L ynn Meyer (“the Meyers”), 1 as debtors. DZ Bank filed an a dve rs ary action against the M e y e r s in bankruptcy court, alleging that the Meyers h ad fraudulen t ly transferred assets in order to place them out o f the b ank’s reach. The bankruptcy court agreed, but lim ited the judgm ent to the v alue of the assets th at were directly traceable to DZ Bank’s secur i ty i n t erest. The district court affirm ed, reasoning that DZ Bank could not recover the value of the other assets because those assets were not the property of the Meyers, but rather, were the property of Louis Meyer’s closely-held corporation. We h ave jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse.

I.

In January 2008, L ouis Meyer was th e sole m em b er and

1 At oral argum ent, Appellees’ counsel represented t o the court t hat the Meyers are no longer m arried. For the sake of convenience, however, we continue to refer to Appellees as “the Meyers.”DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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m anager of Choice Cash Advance LLC (“Choice”). 2 Choice purchased five insurance agencies and th eir books of business in a sale arranged b y Brooke Cred i t Corporation and its associated e ntities (collectively, “Brooke”). As part of the purchase, Brooke loaned Choice $1,771,715.20. The lo an itself was financed p ursuant to a credit and security
agreem ent that Brooke entered into with a third-party entity, whose agent wa s DZ Bank. Under the term s of that

a g r eem ent, Brooke g ranted DZ Bank a security interest i n , am ong other things, its right, title, and interest to the Choice loan. Choice executed a p rom issory n ote for the $1.7 m illion and gave Brooke a blanket security interest in all of its assets, including intangibles. The Meyers personally guaranteed the note, as well.

In October 2008, B rooke defaulted on its obligations under the agreem en t with D Z Bank, and m ultiple B rooke entities filed fo r bankruptcy. Then, DZ Bank and B rooke entered into an agreem en t t o transfer Choice’s note and the Meyers’ personal guarantee to D Z Bank. Ch oice form ally acknowledged the assignm en t and agreed to pay the $1,728,834.65 balance that rem ained on the p rom issory note to DZ B ank. Over the next two years, however, Choice and DZ Bank entered into several fo r b earance agreem ents after Louis Meyer, on b ehalf of C hoice, repeatedly requested loan

m odifications.

During the sam e tim e p er i o d
, the Meyers executed an elaborate series of transfer s an d sales in an effort to place their assets b e y o n d th e reach of their creditors. In October

2 W e t ake t

his fa c tu al background from the b ankruptcy court’s

am ended findings of f

act and concl u s i o ns of law, following trial of D Z Bank’s adversary action.DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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2008, Louis Meyer caused Choice to transfer assets valued at $123,200 to M e y er Insurance (“MI”), a closely-held corporation in which he owned 100% of the shares.

In 2010, Louis Meyer purchased Insurance Choices 4 U
, I n c

. ( “ IC4U”) for $200 f rom a fam ily friend. The Meyer s also set up the Me y e r I rrevocable Trust, presum ably for estate-planning purposes. Their d aughter was designated as trustee, and th e y were listed as beneficiaries. In D ecem ber 2010, Louis Meyer caused MI to transfe r i ts assets to IC4U for no consid eration, and then arranged for the Meyer Trust to purchase 100% of IC4U’s stock. At that tim e, MI’s assets had a fa ir m arket value of $385,000 of which $123,200 was attributable to the assets or iginally transferred from C hoice. IC4U agreed to pay $ 3 85,000 b ack to Louis Meyer, p er sonally, over tim e. There was testim ony that this
agreem ent was to repay h im for a shareholder loan, but the bankruptcy court found that “[t]here w as no evidence at trial . . . of any underlying loan docum ents or any accounting for that loan.”

In January 2011, IC4U transferred its assets to Connect Insurance Agency, Inc. (“Co nnect”) in exchange for paying IC4U all comm issions C onnect received from the transferred insurance p olicies for nine m onths. Together, these transfers left Ch o i c e , MI, and IC4U all insolvent. And within a few

m onths, Choice and the Meyers had defaulted on the note and their personal guarantee.

In August 2011, D Z B ank filed an action against Choice and the Meyers. After the com plaint was filed, the M e y e rs filed for bankruptcy. As a result, the district court stayed DZ Bank’s action against the Meyers. But the dis trict court perm itted p roceedings to go forward against C hoice,DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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eventually entering a fin a l judgm ent of $1,710,469.93 in favor of DZ Bank in March 2013. As C hoice was insolvent, however, DZ Bank could not collect on the judgm ent.

As a result, DZ Bank filed an adversary action against the Meyers in b ankruptcy court alleging that the transfer of assets out o f MI was a f

raudulent transfer under the W ashington Uniform F raudulent Transfer Ac t (“WUFTA”), 3 see W ash. Rev. Co d e § 19.40.041, and therefore non-dischargeable under 11 U .S.C. § 523(a). See Husky Int’l Elecs., Inc. v. Ritz
, 1 36 S. Ct. 1581 (2016). Am ong o ther exceptions from dischargeability, § 523(a) excepts d ebts obtained by “actual fraud.” See 11 U.S.C. § 523(a)(2)(A). As the Suprem e Court has rece n t l y explained, the term “‘actual fraud’ is broad enough to incorporate a fraudulent conveyan ce.” Husky
, 136 S. Ct. at 1587.

In W ashington, under WUFTA, a conveyance is fraudulent when m a de b y a debtor “[w]ith actual intent to hinder, delay, or de fraud any creditor of the debtor.” See W ash. R ev. Code § 19.40.041(a)(1). WUFTA defines a transfer as “every m o d e, direct or indirect” of disposing of an asset, id

. § 19.40.011(12), which, in turn, is defi n e d a s the “property of a d ebtor,” id

. § 19.40.011(2). The statute defines “pr o p e rty” as “anything that m ay be the subject o f ownership.” Id . § 19.40.011(10).

3 I n April 2 017, the W ashington state legislature p a s s e d a b i l l

am ending W UFTA and renam ing it th e Washington Uniform Voidable Transactions Act (“WUVTA”). See S.B. 5085, 6 5 th Leg., Reg. Sess. (W ash. 2017). Although WUVTA took effe ct o n July 23, 2017, w e continue to refer to the W U FTA version of the statute in this opinion, as it is t he law that governs the subject transactions. Se e i d

. (“[W UVTA] does not apply to a transfer m ade or obligation incurred b e fo re the effective date . . . .”).DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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Although the bankruptcy court ruled in favor of DZ Bank

on its fraudulent transfer claim
, it ultim ately lim ited the judgm ent to $123,200, which was the portion of the $385,000 that was traceable to DZ Bank’s security interest in the assets. DZ Bank appealed, arguing that the ban kruptcy court erroneously lim ited the am ount of its non-dischargeable debt. But the district court affirm ed the bankruptcy court’s determ ination that DZ Bank could not m aintain a fraudulent transfer claim as to MI’s “non-collateral assets,” albeit o n a slightly different ground. T h e court reasoned that D Z Bank could o nly recover assets that were the “property of [the] debtor[s],” see id

. § 19.40.011(2)—i.e., legally titled in the M e y e r s’ nam e. Since the assets were legally titled in MI’s

nam e, WU FTA did n ot apply. F or WU FTA to apply, DZ Bank was required to obtain a ruling that MI was the alter ego of the Meyers, which it failed to d o. On the facts of this case, we disagree with both courts.

II.

W e review the bankruptcy court’s find i n g s of fact for clear error and its conclusions of law de novo. In re Kimura
, 969 F.2d 806, 810 (9th Cir. 1992). A s the issue presented is purely legal, our review is de novo.

III.

A

.

The Wa s hington Suprem e Court has explained that “the overriding purpose o f the U FTA is to p r ov ide relief for creditors whose collection on a d ebt is frus tr a t ed by the actions of a debtor to p lace the p ut a ti vely satisfying assets beyond the re a c h of the creditor.” Thompson v. H anson ,DZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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219 P.3d 659, 665, as amended (Mar. 26, 2010), republished

as modified at 239 P .3d 537 (W ash. 2009); see a lso Husky
, 136 S

. Ct. at 1586–88 (discussing the h i s t o ry of “actual fraud”). This “overriding purpose,” Hanson
, 219 P.3d at 665,

can be traced to “the b eginning o f English bankruptcy practice,” Husky
, 136 S. Ct. at 1587. Since then, “courts and legislatures h ave used the term ‘fraud’ to describe a debtor’s transfer of assets that

. . . im pairs a creditor’s ability to collect the debt.” Id

.

B.

W ith WUFTA’s purpose in m ind, we look to what other

co urts h ave concluded when faced with sim ilar circum stan ces under the UFTA. Thompson v. Hanson
, 1 7 4 P.3d 120, 126 (W ash. Ct. App. 2007) (“Be cause an explicit purpose of the UFTA is uniformi ty among the States that have adopted it, the interpretation of other courts also provides guidance.”)
, aff’d
, 239 P.3d 537 (W ash. 2009); see a lso W ash. Rev. Code § 19.40.903 (“[WUFTA] shall be applied and construed to effectuate its general p urpose to m ake uniform the law

. . . am ong states enacting it.”). In Wiand v. Lee
, for exam ple, the defendants argued that “transfers of funds from the receivership entities could not have been transfers of ‘assets’ because assets under FUFTA[, Florida’s statute identical to WUFTA,] m

ust be [the] ‘property of a debtor,’ and the funds

. . . transferred were property of the corporations.” 753 F.3d 1194, 1203 (11th Cir. 2014) (quoting Fla. Stat. § 726.102(2), (12)). The Eleventh Circuit reje ct e d that argum ent, exp l a i n i n g that FUFTA did n ot require the debtors, them selves, to have legal title to the assets transfe rr ed

. Florida law required only that the assets “could have been applicable to the paym ent o f the debt d ue.” Id. (e mp hasisDZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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rem oved) (quoting N

ationsbank, N.A. v. Coastal Utils., Inc
., 814 So.2d 1227, 1229 (Fla. 4th Dist. Ct. App. 2002)).

A Minnesota court interpreting Minnesota’s identical version of W

UFTA in Reilly v. Antonello rejected a corporate officer’s argum ent that it was the corporation, not the officer, that legally diluted the corporation’s shares and the r eby reduced the o fficer’s ownership from 100% to 2 %. 852 N.W .2d 694, 701 (Minn. Ct. Ap p

. 2 014). The court refused to “ignore[] the reality that [the offic er] was exclusively responsible for the actions of the corporation and that he fraudulently transferred assets to the detrim ent of his creditors.” Id. The court reaso n ed that “[t]o allow a sole director
, o fficer, and shareholder to m ask his fraudulent actions behind the facade of a closely held corporation would defy the plain m eaning and intent o f the Minnesota Uniform Fraudulent Transfer Act.” Id

.

In In re Nickeson
, a South Dakota bankruptcy court interpreting that state’s version o f U FTA, which is also i dentical to WUFTA, held sim ilarly. See Bankr. No

. 13

- 10 1 3 7
, Adversary No. 14-1004, 2014 W L 6686524, at *11 (Bankr. D.S.D. Nov. 25, 2014). There, a sole shareholder and d irector of a farm ing corporation caused the corporat i o n t o dilute its shares, reducing the shareholder’s ownership from 100% to 20%. Id. Refu s in g t o “ reward

. . . [the] pervasive disregard for c orporate form alities,” the court rejected the sharehol der’s argum ent that it was the corporation that diluted its own shares. Id.

These cases are instructi ve

. I f MI had retained the $385,000 in assets, DZ Bank would h ave been able to enforce
any judgm ent against the Meyers, p rior to their f iling for bankruptcy protection, by executing against L o ui s M e yer’sDZ B A N K AG D E U T S C H E Z E N T R A L -G E N O S S E N S C H A F T B A N K V

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100% owners hip interest in MI to satisfy $385,000 of its claim

. See W ash. Rev. C ode § 6.17.090 (“All property, real and personal, of the judgm ent debtor that is not exem p ted by law is liable to execution.”). Wh en Louis M e y er indirectly transferred all of MI’s assets to another corporation, he, as in Wiand
, Antonello
, and Nickeson
, depl e t e d the value of his
assets to the detrim ent of h is c reditors. His shares in MI becam e worthless as a result of his actions as MI’s sole owner and s h ar e holder, while, even after filing for bankruptcy, he continued to receive paym ents from IC4U. In other words, he prevented DZ Bank from collecting $385,000 of the debt he owed.

Althoug h th e bankruptcy court correctly f ound that the Meyers engaged in fraudulent transfers and, therefore, actual fraud, to DZ Ba nk ’ s detrim ent, the court lim ited relief to $ 12 3,200—the am ount of the collateralized debt. This was

error. The bankruptcy court should have granted relief for the full $ 3 85,000 that DZ Bank would have recovered if it h ad been able to execute agai n st Louis Meyer’s ownership interest in MI. See 4 Collier on B ankruptcy ¶ 523.08[2] (16th ed. 2016) ( “[A] nondischargeability claim based on a[] schem e in which a debtor fraudulently transfers assets of o ne closely held co r

p oration to other closely held com panies, purposefully intended to hinder, d elay, or defeat the collection of a debt, constitutes actual fraud under section 523(a)(2)(A).”). The am ount of the n o n-discharge able debt resulting f

rom the fraudulent transfers is therefore $385,000, which DZ Bank is entitled to recover.

REVERSED and REMANDED

.