Court Opinion

ID: 4707736
Source: CourtListenerOpinion
Date Created: 2021-07-29 20:02:07.492735+00
Date Added: 2024-06-11T08:06:45.510217
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUL 29 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

In re: RUDOLPH MEDINA, AKA Rudy                 No. 20-60045
Medina,
                       Debtor,                  BAP No.
 ------------------------------                 SC-19-1299
JOHN SARKISIAN; BERNADETTE
SARKISIAN,
                       Appellants,              MEMORANDUM*

v.

RONALD E. STADTMUELLER, Chapter 7
Trustee,
             Appellee.

                    Appeal from the United States Bankruptcy
                      Appellate Panel of the Ninth Circuit

                             Submitted July 27, 2021**
                               Pasadena, California

Before: M. SMITH and OWENS, Circuit Judges, and ROBRENO,*** District
Judge.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes that this case is suitable for
decision without oral argument. See Fed. R. App. P. 34(a)(2).
      ***
             The Honorable Eduardo C. Robreno, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
      John and Bernadette Sarkisian (“John” and “Bernadette” individually, and

“the Sarkisians” jointly) appeal the decision of the bankruptcy appellate panel

(“BAP”) reversing the bankruptcy court’s grant of summary judgment in their

favor and against Ronald Stadtmueller, trustee for the bankruptcy estate of

Rudolph Medina (“Trustee”).

                           I.    Facts and Background

      Trustee attempted to enforce a money judgment against John. The Sarkisians

then transmuted their community property into separate property. John argued that

Trustee could not enforce the judgment against Bernadette’s now separately owned

property. Trustee filed an adversarial proceeding, asserting that the transmutation

was voidable as actually fraudulent under the California Uniform Voidable

Transactions Act (“UVTA”), California Civil Code §§ 3439 to 3439.14.

      On November 7, 2019, the bankruptcy court granted summary judgment in

the Sarkisians’ favor, ruling that while the transmutation agreement was a transfer

under the UVTA, Trustee failed to prove the transfer actually injured him or the

estate. Specifically, the bankruptcy court found that Trustee’s contention, “that

because John severed his creditors’ access to half of the pre-Transmutation

Agreement assets, the estate has less to pursue, and therefore must be injured,” was

too hypothetical and generalized to amount to an actual injury.

                                          2                                   20-60045
      On August 14, 2020, the BAP reversed and remanded, holding that

California Civil Code § 3439.04(a)(1) does not require a creditor to prove a

defined injury when alleging an actual intentionally fraudulent transfer. See In re

Medina, 619 B.R. 236 (B.A.P. 9th Cir. 2020). The Sarkisians appealed.

                          II.   Jurisdiction and Standard

      The BAP had jurisdiction pursuant to 28 U.S.C. § 158(b). We have

jurisdiction pursuant to 28 U.S.C. § 158(d).

      We review the appeal of a summary judgment ruling de novo, applying “the

same test that is initially employed by the trial court under Rule 56(c), Federal

Rules of Civil Procedure.” Radobenko v. Automated Equip. Corp., 520 F.2d 540,

543 (9th Cir. 1975). Under Federal Rule of Civil Procedure 56, applicable to

bankruptcy proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056,

summary judgment is appropriate when “the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a); see Fed. R. Bankr. P. 7056.

                                   III.   Discussion

      In order to void the transmutation agreement, Trustee brought an actual

fraudulent transfer claim under the UVTA, which provides in relevant part that “[a]

transfer made or obligation incurred by a debtor is voidable as to a creditor . . . if

the debtor made the transfer or incurred the obligation” “[w]ith actual intent to

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hinder, delay, or defraud any creditor of the debtor.” 1 Cal. Civ. Code §

3439.04(a)(1).

      The BAP construed this statutory language as requiring Trustee to prove

only that the transmutation agreement was a: “(1) ‘transfer’ of an (2) ‘asset’ and

was (3) ‘made . . . with actual intent to hinder, delay, or defraud any creditor of the

debtor.’” In re Medina, 619 B.R. at 241 (quoting Cal. Civ. Code § 3439.04(a)(1)).

It concluded that “[n]o statutory language supports a requirement that the plaintiff

prove damages or actual injury or that the debtor’s remaining assets after the

transfer were insufficient to satisfy the debt without undue burden.” Id. at 241-42

(footnote omitted). As a result, the BAP reversed the bankruptcy court’s grant of

summary judgment in the Sarkisians’ favor. Id. at 238.

      The Sarkisians raise several arguments against the BAP’s interpretation

including that Mehrtash v. Mehrtash, 112 Cal. Rptr. 2d 802 (Ct. App. 2001),

creates an additional unwritten requirement under section 3439.04(a)(1): that the

creditor must establish he or she suffered an actual injury. Specifically, the

Sarkisians point to the language in Mehrtash stating that “[m]ere intent to delay or

defraud is not sufficient; injury to the creditor must be shown affirmatively. In

other words, prejudice to the plaintiff is essential.” 112 Cal. Rptr. 2d at 805

1
       The bankruptcy court previously held that the transmutation agreement was
a transfer under the UVTA. This holding was not appealed. In re Medina, 619 B.R.
at 240 n.3.

                                           4                                      20-60045
(quoting 16 Cal. Jur. 3d Creditors’ Rights and Remedies § 430 (1983)). The

Sarkisians argue Trustee was required to produce evidence of an injury by showing

the transmutation: (1) made his collection efforts more difficult; (2) caused him a

specific financial injury; or (3) prejudiced him in some other way.

      The BAP addressed the Sarkisians’ arguments and found, inter alia, that they

were relying on an incomplete reading of Mehrtash. The full relevant passage is:

      “A transfer in fraud of creditors may be attacked only by one who is
      injured thereby. Mere intent to delay or defraud is not sufficient; injury
      to the creditor must be shown affirmatively. In other words, prejudice
      to the plaintiff is essential. It cannot be said that a creditor has been
      injured unless the transfer puts beyond [her] reach property [she]
      otherwise would be able to subject to the payment of [her] debt.”

Id. (alterations in original) (emphasis added) (quoting 16 Cal. Jur. 3d Creditors’

Rights and Remedies § 430 (1983)). Because the last sentence indicates that the

necessary injury is a transfer of assets beyond the creditor’s reach, the BAP held

that Mehrtash was not inconsistent with its analysis and was not helpful to the

Sarkisians. In re Medina, 619 B.R. at 245-46. The BAP concluded that the only

affirmative injury necessary pursuant to section 3439.04(a)(1) and Mehrtash is

proof that the debtor, with the intent to hinder, delay, or defraud the creditor,

placed property out of the creditor’s reach that could have been used to pay the

debt. Id. We agree with the reasoning of the BAP regarding this argument as well

as the other arguments raised by the Sarkisians. See id. at 241-48 (analyzing the

Sarkisians’ arguments).

                                           5                                        20-60045
      The Sarkisians argue that the construction offered by the BAP creates an

untenable rule that anytime a debtor transfers something of value, there is per se

evidence of an injury to the creditor. But that is not so. Instead, the rule is, if the

debtor transfers something of value, and the creditor proves it was done with the

actual intent to hinder, delay, or defraud the creditor, then the creditor has been

injured.

      The plain language of section 3439.04(a)(1), as well as long-standing case

law, do not require a creditor to prove an additional injury before the court voids a

transfer for actual fraud. See Fross v. Wotton, 44 P.2d 350, 352 (Cal. 1935)

(holding that an actual fraudulent transfer claimant need not prove there were no

other assets that would satisfy the debt and concluding that “this is in accordance

with the long-established rule in this state that where there is actual fraud it is

immaterial that the debtor does not entirely strip himself of his assets and there is

other property from which the creditor may be satisfied”); see also Hager v.

Shindler, 29 Cal. 47, 59 (1865) (providing that “[a] rich man may make a

fraudulent deed as well as one who is insolvent”). Instead, the only harm a creditor

must show is that the debtor concealed assets that could have been used to settle

the debt with the intention of making it more difficult for the creditor to collect.

                                            6                                      20-60045
      Thus, the BAP correctly concluded that the bankruptcy court erred by

finding that Trustee’s failure to provide evidence of a specific injury entitled the

Sarkisians to summary judgment, since no such evidence was required.

      AFFIRMED.

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