Opinion ID: 3048909
Heading Depth: 3
Heading Rank: 3

Heading: Merits of the Motion for Summary Judgment

Text: [10] We now turn to the merits of the motion for summary judgment in the preference action. The earmarking doctrine applies “when a third party lends money to a debtor for the specific purpose of paying a selected creditor.” Superior Stamp, 223 F.3d at 1008 (quoting In re Kemp Pac. Fisheries, Inc., 16 F.3d 313, 316 (9th Cir. 1994)). In Superior Stamp, we identified the key question for the applicability of earmarking: “whether the debtor had the right to disburse the funds to whomever it wished, or whether their disbursement was limited to a particular creditor or creditors under the agreement with the new creditor.” Id. at 1009. [11] Under Superior Stamp, the Metcalfs’ claim fails because they have not raised a genuine issue as to whether the lender (Accenta/Ernetoft) and debtor (Adbox/Wernerdal) agreed that the loan must be used to pay the antecedent debt to the Metcalfs. Because the loaned funds traced to Adbox’s general account, the burden to establishing earmarking shifted to the Metcalfs, and the Metcalfs admit that there is no direct evidence of any agreement with the lender requiring that the funds be used to satisfy the debt to them. [12] The Metcalfs argue, however, that the existence of such an agreement may be inferred from the surrounding factual circumstances. In support of this assertion, the Metcalfs cite Ernetoft’s testimony that “Christer [Wernerdal] came to me and he needed . . . some money. I think it was for paying Mr. Metcalf,” that Adbox needed the loan because “they had this [sic] $22,000 as they said they will use to pay off Mr. Metcalf,” and that it was his understanding that Whitburn used the loan proceeds “to pay the amount that was owing [sic] to Mr. Metcalf.” However, the Metcalfs identify no evidence that the loan was in any way conditioned on its being used to pay the debt to them; no direct evidence of any agreement between Ernetoft, Wernerdal, or Whitburn that the funds be so used; and no evidence that Wernerdal’s (and Adbox’s) IN RE ADBOX, INC. 6687 use of and control over the funds was in any way constrained. Because the Metcalfs bore the burden of proof on their earmarking defense, it was their burden at the summary judgment stage to identify “specific facts showing that there is a genuine issue for trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (internal quotation marks omitted). The Metcalfs have not met this burden, and the district court properly affirmed the grant of summary judgment in the trustee’s favor.