Court Opinion

ID: 4096499
Source: CourtListenerOpinion
Date Created: 2016-11-08 22:01:09.857295+00
Date Added: 2024-06-11T14:49:47.908230
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                           NOV 08 2016
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re                                            No.   14-56766
FITNESS HOLDINGS
INTERNATIONAL, INC.,                             D.C. No. 2:14-cv-01059-AG

           Debtor,
________________________________
                                                 MEMORANDUM*
SAM LESLIE, Chapter 7 Trustee of the
estate of Fitness Holdings International,
Inc.,

              Appellant,

  v.

HANCOCK PARK CAPITAL II, L.P., a
Delaware limited partnership; et al.,

              Appellees.

                   Appeal from the United States District Court
                      for the Central District of California
                   Andrew J. Guilford, District Judge, Presiding

                      Argued and Submitted October 21, 2016
                               Pasadena, California

       *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: TALLMAN, PARKER,** and CHRISTEN, Circuit Judges.

      Sam Leslie, chapter 7 trustee (“Trustee”) for the bankruptcy estate of Fitness

Holdings International, Inc. (the “Debtor”), appeals from an order of the district

court affirming the bankruptcy court’s order granting the Appellees’ motions to

dismiss all claims. The Trustee seeks to recover a pre-bankruptcy transfer of

approximately $12 million (the “Transfer”) from the Debtor to Hancock Park

Capital II, LP (“Hancock Park”), the Debtor’s sole shareholder. The Transfer paid

down prior advances from Hancock Park to the Debtor. The advances were

evidenced by promissory notes totaling approximately $25 million. The Trustee

argues that the notes did not create debt and that the pre-bankruptcy transfers were

therefore equity infusions in disguise. Seeking to recover the Transfer, the Trustee

brings claims of constructive and actual fraud, breach of fiduciary duties, and

aiding and abetting breach of fiduciary duties. We have jurisdiction under 28

U.S.C. § 158(d)(1) and 28 U.S.C. § 1291, and we affirm.

      We “review de novo a district court’s judgment on appeal from a bankruptcy

court.” IRS v. Snyder, 343 F.3d 1171, 1174 (9th Cir. 2003). We apply the same

standard of review applied by the district court, “reviewing the bankruptcy court’s

      **
             The Honorable Barrington D. Parker, Jr., United States Circuit Judge
for the U.S. Court of Appeals for the Second Circuit, sitting by designation.
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legal conclusions de novo and its factual determinations for clear error.” Id. To

survive a motion to dismiss, a party must allege “sufficient factual matter, accepted

as true, to state a claim to relief that is plausible on its face.” Telesaurus VPC, LLC

v. Power, 623 F.3d 998, 1003 (9th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009)). “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. In reviewing a dismissal

for failure to state a claim, “[a]ll well-pleaded allegations of material fact in the

complaint are accepted as true and are construed in the light most favorable to the

non-moving party.” Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th

Cir. 2013) (citations omitted).

      The Trustee failed to plausibly allege that the promissory notes from

Hancock Park to the Debtor created equity and not debt. The district court

correctly applied California law in concluding that the notes were contracts that

created a right to payment. See Poseidon Dev., Inc. v. Woodland Lane Estates,

LLC, 62 Cal. Rptr. 3d 59, 63 (Cal. Ct. App. 2007). The Trustee did not allege any

ambiguity in the promissory notes and did not offer any extrinsic evidence that

could have triggered application of the parol evidence rule. See Miller v. Glenn

Miller Prods., Inc., 454 F.3d 975, 989-90 (9th Cir. 2006) (“Because California law

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recognizes that the words of a written instrument often lack a clear meaning apart

from the context in which the words were written, courts may preliminarily

consider any extrinsic evidence offered by the parties.”) (citing Pacific Gas &

Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644-46 (Cal.

1968)) (applying California parol evidence rule).

      We see no basis under California law to ignore basic contract law and to

adopt the Trustee’s proposed usury law approach to determine whether the

promissory notes at issue here were “real” or “sham” transactions. Because the

Trustee failed to show that the promissory notes in question did not create debt, the

constructive fraudulent conveyance claim was properly dismissed. This finding

also compels the dismissal of the Trustee’s claim for actual fraudulent conveyance,

because the Trustee failed to demonstrate that the Transfer was not applied to a

valid, antecedent debt that Fitness Holdings owed to Hancock Park. See Goodman

v. H.I.G. Capital, LLC (In re Gulf Fleet Holdings, Inc.), 491 B.R. 747, 767-68

(W.D. La. 2013) (dismissing claim for actual fraudulent transfer where the transfer

was that of a “debtor attempting to comply with its contractual obligations.”).

      The Trustee’s breach of fiduciary duties and aiding and abetting breach of

fiduciary duties claims were also properly dismissed. The Trustee brought the

breach of fiduciary duties claim as a direct claim, but under Delaware law, the

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Trustee must bring such claims as “derivative claims on behalf of the insolvent

corporation.” N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930

A.2d 92, 103 (Del. 2007). The Trustee had “no right to assert direct claims for

breach of fiduciary duty against corporate directors.” Id. Because a breach of

fiduciary duties is an element of the aiding and abetting a breach of fiduciary duties

claim, see Casey v. U.S. Bank Nat’l Ass’n, 26 Cal. Rptr. 3d 401, 405 (Cal. Ct. App.

2005); Jackson Nat’l Life Ins. Co. v. Kennedy, 741 A.2d 377, 386 (Del. Ch. 1999),

and we hold that the Trustee failed to allege plausibly a breach of fiduciary duties

claim, the aiding and abetting claim was properly dismissed as well.

      Each party shall bear its own costs.

      AFFIRMED.

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