Opinion ID: 1458245
Heading Depth: 2
Heading Rank: 3

Heading: The district court erred in dismissing the fraudulent conveyance claim

Text: In the district court, Imperial sought to avoid any obligation created by the performance guaranty as a constructive fraudulent conveyance under 11 U.S.C. § 548. The district court dismissed this claim as barred by 12 U.S.C. § 1828(u)(1) unless Imperial could plead actual fraud, which it was unable to do. Imperial argues that this decision was based on an erroneous interpretation of § 1828(u) and asks the panel to reinstate its fraudulent conveyance claim. The FDIC requests the panel affirm the district court because the fraudulent conveyance claim was a trustee defense, and so was barred by 11 U.S.C. § 365( o ). In the alternative, the FDIC argues that the district court properly interpreted 12 U.S.C. § 1828(u). [12]
In its February 15, 2005, order, the district court held that Imperial could not exercise its powers as a trustee without first curing its deficit to the FDIC under § 365( o ). The district court held that Imperial's fraudulent conveyance claim was a trustee defense made on behalf of its creditors, and that Imperial, therefore, could not litigate that defense until it cured its obligation to the FDIC. However, the court did not dismiss the fraudulent conveyance claim for that reason, as it had already dismissed the claim as barred by § 1828(u). The FDIC urges the panel to affirm the district court's dismissal of the fraudulent conveyance claim because Imperial was barred from bringing it in the first place as a trustee defense. We decline to affirm on that basis. Section 365( o ) requires immediate cure of a deficit to a federal depository institution under a performance guaranty only when the debtor is in Chapter 11. A Chapter 7 debtor is under no obligation to immediately cure such a deficit. Accordingly, the district court's holding that Imperial could not bring trustee defenses until it cured its deficit under § 365( o ) necessarily applies only to debtors in Chapter 11, not debtors in Chapter 7 like Imperial. Although the district court need not have reached the question whether the fraudulent conveyance claim survived dismissal in the Chapter 11 proceeding, it did in fact dismiss the claim as barred by § 1828(u). Now that Imperial is in Chapter 7, we cannot affirm its dismissal of the fraudulent conveyance claim on the separate ground that it was a barred trustee defense in Chapter 11. That question is moot, and Imperial's fraudulent conveyance defense is viable now, unless precluded by § 1828(u).
Because we cannot affirm the dismissal of the fraudulent conveyance claim as a barred trustee defense, we address the Trustee's argument that the district court erroneously dismissed its fraudulent conveyance claim as barred by 12 U.S.C. § 1828(u). Wolkowitz argues that the statute prohibits persons from bringing only fraudulent conveyance claims regarding a transfer of assets and thus does not bar Imperial's claim requesting the voiding of an obligation under a performance guaranty. The district court rejected this argument below, holding that Imperial's argument was based on an unsupported distinction between assets and obligations. To the contrary, we find that the distinction between assets and obligations is supported by the plain language of the statute and the legislative history. On its face, § 1828(u) [13] prohibits persons from bringing fraudulent conveyance claims against federal banking agencies only for the return of assets . . . transferred to a federally insured bank or for monetary damages or other legal or equitable relief in connection with such transfer, if the transfer was made when the insured bank was undercapitalized. The statute makes no mention of obligations, which is what Imperial is attempting to avoid as a fraudulent conveyance. [14] Moreover, the House Conference Report reveals that the purpose of § 1828(u) is to protect the federal deposit insurance funds from claims brought by the bankruptcy trustee of a depository institution holding company for the return of capital infusions, not for the avoidance of obligations. H.R.Rep. No. 106-434, at 183 (1999) (Conf. Rep.), reprinted in 1999 U.S.C.C.A.N. 245, 276. And related statutes addressing fraudulent conveyances recognize the distinction between avoiding an obligation and recovering a transfer, suggesting that Congress intentionally omitted obligations from § 1828(u). Compare 12 U.S.C. § 1821(d)(17)(A) (The Corporation . . . may avoid a transfer of any interest of an institution-affiliated party ... or any obligation incurred by such party or person. . . .) with 12 U.S.C. § 1828(u)(only barring claims based on transfers of assets); see Barnhart v. Sigmon Coal Co., 534 U.S. 438, 452, 122 S.Ct. 941, 151 L.Ed.2d 908 (2002) ([W]hen `Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.' (quotation source omitted)). Academic articles also have clarified that a guaranty is not equivalent to a transfer. See Phillip I. Blumberg, Intragroup Guaranties Under the Uniform Fraudulent Transfer Act, 9 CARDOZO L. REV. 685, 703 (1987) (With the issuance of a guaranty, the guarantor incurs an obligation, but no transfer takes place. A transfer takes place only when the guarantor or some other party makes a payment in reduction of the indebtedness that has been guaranteed. Thus, it is clear that the issuance of a guaranty is not included in[a statute barring transfers] although payments pursuant to the guaranty are, of course, included. (footnote omitted)). The FDIC is unable to effectively rebut our reading of § 1828(u) as barring only claims based on transfers of assets. It attempts to argue that the term asset in § 1828(u) should be defined broadly as something of value, but fails to support its interpretation with any statutory text, legislative history or case law. The FDIC also puts forth a policy argument, contending that if § 1828(u) is limited to transfers of assets, then it will render performance guaranties effectively unenforceable against insolvent parent companies of federally insured banks. This argument is flawed, though, because it assumes that if the Trustee's fraudulent conveyance claim survived dismissal, it would necessarily prevail on the merits, when the next step would be for a court to determine whether the performance guaranty represented a fraudulent conveyance that could be avoided under 11 U.S.C. § 548. In light of the above, we reverse the district court's dismissal of the fraudulent conveyance claim as barred by § 1828(u), and remand for further proceedings.