Court Opinion

ID: 4541268
Source: CourtListenerOpinion
Date Created: 2020-06-12 21:00:25.483621+00
Date Added: 2024-06-11T08:49:31.087873
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                               JUN 12 2020
                    UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

MARTY GOLDSMITH,                                 No.   19-35629

              Appellant,                         D.C. No. 1:19-cv-00002-WBS

 v.
                                                 MEMORANDUM*
JAMES R. ZAZZALI, as Trustee for the
Debtors’ Jointly-Administered Chapter 11
Estates and/or as Litigation Trustee for the
DBSI Estate Litigation Trust,

              Appellee.

                    Appeal from the United States District Court
                              for the District of Idaho
                    William B. Shubb, District Judge, Presiding

                             Submitted May 12, 2020**
                                 Portland, Oregon

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: BYBEE and VANDYKE, Circuit Judges, and CARDONE,*** District
Judge.

      Appellant seeks to prevent the trustee of a bankruptcy estate (Trustee) from

avoiding certain payments under 11 U.S.C. § 548(a)(1)(A). The bankruptcy court

concluded that the Trustee could avoid payments of proceeds exceeding the market

value of purchased real property because the transaction was connected to a Ponzi

scheme. The district court affirmed. Because no legal error is apparent, we

likewise affirm.

      We assume the parties’ familiarity with the facts and will only discuss them

where necessary. We independently review the bankruptcy court’s legal

conclusions de novo and its factual findings for clear error. Rosson v. Fitzgerald

(In re Rosson), 545 F.3d 764, 770–71 (9th Cir. 2008).

      1. Appellant first contends that he was not the initial transferee for the

closing payment of $25,400,000. He claims that DBSI-TV, an entity affiliated

with DBSI, was the initial transferee. Qualifying as an initial transferee requires

enjoying “dominion over the money or other asset,” that is, “the right to put the

money to one’s own purposes.” Henry v. Official Comm. of Unsecured Creditors

of Walldesign, Inc. (In re Walldesign, Inc.), 872 F.3d 954, 962 (9th Cir. 2017)

      ***
            The Honorable Kathleen Cardone, United States District Judge for the
Western District of Texas, sitting by designation.
                                          2
(citation omitted). In other words, an entity must have possessed “legal title and

the ability . . . to freely appropriate the transferred funds.” Mano-Y & M, Ltd. v.

Field (In re The Mortg. Store, Inc.), 773 F.3d 990, 996 (9th Cir. 2014).

      The bankruptcy court concluded that DBSI-TV “never received or held legal

title to the funds” and could not “freely appropriate those funds as they were

committed to the closing agent.” Nothing in the record contradicts these findings.

DBSI-TV was formed only for the purchase of the Tanana Valley Property, never

held any other assets, never generated revenue, and had no employees of its own.

Most notably, DBSI-TV did not have a bank account. Appellant makes no effort to

explain how an entity could acquire legal title if it had no way of possessing the

funds. Thus, the bankruptcy court did not err in finding that Appellant was the

initial transferee of the closing payment.

      2. Appellant next argues that none of the money is reachable because the

earnest-money payment and the closing payment constituted two separate

transactions, each protected by different provisions in the statute. No one disputes

that the approximately $2.98 million earnest-money payment is unreachable by the

Trustee. The bankruptcy court found that the property’s fair-market value at the

time of the transaction was $25,480,000. Appellant argues that because he was a

good-faith seller, he can therefore keep the $25,400,000, notwithstanding the fact

                                             3
that the sum of both payments for the property was approximately $28,380,000

inclusive of the earnest-money payment.

      Appellant’s argument is unsupported by the facts and the statute. The two

payments constituted a single transaction to purchase the property because both

payments were necessary to purchase the property. Aggregating both payments

does not eliminate a statutory defense as Appellant contends. Appellant’s status as

a secondary transferee shields the $2.98 million earnest-money payment per 11

U.S.C. § 550(b). And his selling the property in good faith protects the difference

between the earnest-money payment and the $25,480,000 market-value of the

property per 11 U.S.C. § 548(c). The bankruptcy court, therefore, did not err in

adding the two payments together and holding Appellant liable for the amount

exceeding the market value.

      3. Lastly, Appellant challenges the application of the Ponzi presumption to

this case. Per the Ponzi presumption, “the mere existence of a Ponzi scheme” is

“sufficient to establish the actual intent to hinder, delay, or defraud creditors under

11 U.S.C. § 548(a).” Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 814 (9th

Cir. 2008). The evidence sufficiently shows that the purchase of the Tanana

Valley Property was connected with DBSI’s broader Ponzi scheme. Kastera and

DBSI-TV were not independent of DBSI. Evidence at trial also showed that

                                           4
Douglas Swenson was orchestrating the allocation of money throughout DBSI’s

related entities—including Kastera. Testimony established that Kastera never used

“non-DBSI third-party financing” in acquiring investment properties. Funds for

the purchase of properties by Kastera would come from tenancy-in-common sales

or other sources of DBSI revenue. And six months after closing, Tanana Valley

real estate started getting used for tenancy-in-common sales. Finally, expert

testimony at trial established that “as early as January 2005,” the company

“became dependent upon new investor money” to pay existing investors. Given

these links, the bankruptcy court did not err in applying the Ponzi presumption.

      AFFIRMED.

                                          5