Opinion ID: 783785
Heading Depth: 2
Heading Rank: 3

Heading: Transfer of Assets Into the 1992 Pension Plan

Text: 36 The Trustee vigorously advocates that Stern's transfer of assets from his IRA into the 1992 Pension Plan was fraudulent, and therefore, the assets are not exempt from the reach of creditors. 37 The Trustee's Fourth Amended Complaint asserted claims for fraudulent transfer pursuant to Cal. Civ.Code §§ 3439.04(a); 3439.04(b)1-2 and 3439.05. 6 38 Cal. Civ.Code § 3439.04(a) and (b) provide: 39 § 3439.04. Transfers fraudulent as to present and future creditors. 40 A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows: 41 (a) With actual intent to hinder, delay, or defraud any creditor of the debtor. 42 (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: 43 (1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or 44 (2) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. 45 Cal. Civ.Code § 3439.04. 46 § 3439.05. Transfers fraudulent as to present creditors. 47 A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation. 48 Cal. Civ.Code § 3439.05. 49 On appeal, only the Fourth, Fifth and Sixth Claims for Relief, related solely to the IRA transfer, are at issue. In the Fourth Claim for Relief, the Trustee alleged that Stern and his Pension Plan effectuated the IRA transfer with the specific intent to hinder, delay and to defraud creditors of the Debtor. 50 In the Fifth Claim for Relief, the Trustee alleged that Stern did not receive reasonably equivalent value in exchange for the IRA transfer. 51 In the Sixth Claim for Relief, the Trustee alleged that Stern was insolvent at the time of the IRA Transfer, or ... became insolvent as a result of the IRA transfer. 7 52 We review the district court's determination through the applicable evidentiary lens. See Anderson v. Liberty Lobby, 477 U.S. 242, 254, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ([I]n ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden.). 53 The appropriate evidentiary standard in this case is a matter of some dispute. We have previously ruled in a bankruptcy action involving state law exemptions that proof of fraud must ordinarily be made by evidence which is clear and convincing. Love v. Menick (In re Love), 341 F.2d 680, 682 (9th Cir.1965) (citation and internal quotation marks omitted). 8 However, the United States Supreme Court more recently ruled, in Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), that proof of fraud for the purpose of the nondischargeability provision of the Bankruptcy Code is governed by the ordinary preponderance-of-the-evidence standard. Id. at 291. 54 Admittedly, Grogan addressed exceptions to the discharge of debts, as provided in 11 U.S.C. § 523, and this case concerns eligibility for state law exemptions under 11 U.S.C. § 522. Nevertheless, we are persuaded that the ruling in Grogan implicitly overruled our holding in In re Love. 55 We recently clarified that circuit precedent, authoritative at the time that it issued, can be effectively overruled by subsequent Supreme Court decisions that `are closely on point,' even though those decisions do not expressly overrule the prior circuit precedent. Miller v. Gammie, 335 F.3d 889, 899 (9th Cir.2003) (en banc) (citation omitted). We are now instructed that we are bound not only by the holdings of [Supreme Court] decisions but also by their `mode of analysis.' Id. at 900 (citation omitted).[T]he issues decided by the higher court need not be identical in order to be controlling. Rather, the ... court ... must have undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable. Id. at 900. 56 Grogan's mode of analysis definitively undercuts the theory of In re Love that proof of fraud sufficient to negate a state law exemption must be clear and convincing. In Grogan, the Supreme Court reasoned that in the context of provisions designed to exempt certain terms from discharge, a debtor has [no] interest in discharge sufficient to require a heightened standard of proof. 498 U.S. at 286, 111 S.Ct. 654. Rather, [r]equiring the creditor to establish by a preponderance of the evidence that [the assets are non-exempt] reflects a fair balance between the[] conflicting interests of giving debtors a fresh start and protecting creditors who are victims of fraud on the part of the debtor. Id. at 287, 111 S.Ct. 654. 57 The reasoning of Grogan warrants a conclusion that our prior precedent, In re Love, has been implicitly overruled. No principled basis exists to distinguish between actual fraud and constructive fraud on the one hand, or between nondischargeability of debts and exemption of assets on the other. 58 Accordingly, we view the evidence in this case in light of the preponderance of the evidence standard of proof. Even so, summary judgment was appropriately entered on behalf of the debtor. 59 We are constrained by our prior opinion in Wudrick v. Clements, 451 F.2d 988 (9th Cir.1971). In that case, we ruled that the purposeful conversion of nonexempt assets to exempt assets on the eve of bankruptcy is not fraudulent per se. Id. at 989 (citation omitted). 60 The facts of Wudrick are not unlike our case. 61 When bankruptcy appeared inevitable, Mr. and Mrs. Roon consulted experienced bankruptcy counsel. One of the things they did on his advice to enhance their exemptions was to refinance their 1966 Chevrolet. The bank loaned them $2,325 on the car. From this amount they paid off the previous car loan and their attorney's fees, and deposited $800 in the Union Federal Savings & Loan Association. They then filed petitions in bankruptcy. They claimed that the $800 account was exempt from execution under California [law] and was therefore exempt under section 6 of the Bankruptcy Act, 11 U.S.C. § 24, though the automobile would not have been. 62 Id. 63 In reversing the district court's determination that Wudrick engaged in a fraudulent transfer, we clarified that [t]he finding of fraud was based solely on the fact that nonexempt assets were deliberately converted to exempt assets just prior to filing the bankruptcy petition. Id. at 990. We explained that this evidence was insufficient as a matter of law to establish fraud. Id. Our analysis was impliedly affected by the clarification that a different conclusion might be reached if on the eve of bankruptcy a debt were created with no intention of repaying the creditor.... Id. 64 Here, the principal evidentiary inference relied upon by the Trustee is that non-exempt assets were converted to exempt assets immediately prior to bankruptcy. But, as Wudrick demonstrates, this inference is insufficient as a matter of law to establish a fraudulent transfer. See Jackson v. Grover (In re Jackson), 472 F.2d 589, 590 (9th Cir.1973). 65 The dissent cites In re Love in an effort to distinguish Wudrick. However, In re Love actually supports a finding of exemption. In that case we recognized that the exemption statutes of California are applied with liberality. 341 F.2d at 682 (citations omitted). We also clarified that the exemption determination is to be determined upon the basis of conditions existing at the time of the filing of the bankruptcy petition. Id. (citations omitted). When Stern's bankruptcy petition was filed, the assets in question rested in [the 1992 Pension Plan] which ... enjoyed an exempt status. See id. 66 The dissent also cites Acequia Inc. v. Clinton, (In re Acequia, Inc.), 34 F.3d 800 (9th Cir.1994) in support of its position. However, that case is inapposite because the property transferred did not enjoy an exempt status when the bankruptcy petition was filed. The rationale of Wudrick is inapplicable to a situation such as that presented in Acequia, but completely pertinent to the case at hand, where assets are converted to an exempt status pre-bankruptcy. 67 At bottom, the badges of fraud articulated in the dissent merely rephrase the argument that Stern transferred funds from his IRA account into the 1992 Pension Plan Account on the eve of bankruptcy. In such a circumstance, we are persuaded that Wudrick controls. 68 Aside from the conversion of non-exempt assets into exempt assets, which is nonfraudulent as a matter of law, see Wudrick, 451 F.2d at 990, the Trustee and the dissent cite as badges of fraud the facts that Stern: 69 1) was sued and lost the arbitration before transferring the funds to the Plan; 70 2) testified inconsistently as to his motive for transferring the funds to the Plan; 71 3) may have, as a result of the 4.5 million dollar arbitration award levied against him, been insolvent when he made the transfer; 4) transferred the funds to the Plan to benefit him and his wife; 72 5) transferred all or substantially all of his property into the Plan; and 73 6) retained control of the funds following the transfer. 74 (Dissenting Opinion at pages 1048) (emphasis added). 75 With the exception of the arbitration loss and the speculative insolvency, the other articulated badges of fraud are simply restatements of the accusation that Stern converted nonexempt assets into exempt assets, an accusation that cannot support a finding of fraud. See Wudrick, 451 F.2d at 990. A similar fate awaits the claim that Stern may have been insolvent. We have consistently discounted speculative assertions when raised in defense of a summary judgment motion. See, e.g., Paladin Assoc., Inc. v. Montana Power Co., 328 F.3d 1145, 1161 (9th Cir.2003). We are left with the fact that Stern lost a multimillion dollar arbitration. That single unspectacular fact does not meet a preponderance of the evidence burden of proof. 76 Accordingly, we AFFIRM the district court's rulings that the 1992 Pension Plan was not ERISA-qualified; that the 1992 Pension Plan was exempt under California law; and that the transfer of assets from Stern's IRA to the 1992 Pension Plan was not fraudulent. 77 AFFIRMED.