Court Opinion

ID: 3203179
Source: CourtListenerOpinion
Date Created: 2016-05-12 20:01:04.136152+00
Date Added: 2024-06-11T09:21:16.586867
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                            MAY 12 2016
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re: EDWARD J. STOUT,                          No. 14-60037

              Debtor,                            BAP No. 13-1045

DOLORES STOUT, an individual;                    MEMORANDUM*
KAUFMAN GROUP, a California
corporation,

              Appellants,

 v.

RICHARD ALAN MARSHACK, Chapter
7 Trustee; STEVEN ROOT; JAMES
KERCHNER; ELECTRONIC
CONNECTOR SERVICE, a dissolved
California corporation; QUALTECH
BACKPLANES, INC., a California
corporation; DYNAMIC STAMPING, a
dissolved California corporation,

              Appellees.

In re: EDWARD J. STOUT,                          No. 14-60038

              Debtor,                            BAP No. 13-1257

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
STEVEN ROOT; JAMES KERCHNER,

              Appellants,

 v.

EDWARD J. STOUT,

              Appellee.

                         Appeal from the Ninth Circuit
                          Bankruptcy Appellate Panel
            Kirscher, Dunn, and Taylor, Bankruptcy Judges, Presiding

                      Argued and Submitted March 11, 2016
                              Pasadena, California

Before: CLIFTON, CALLAHAN, and IKUTA, Circuit Judges.

      These consolidated appeals arise out of the same set of facts involving

Edward Stout (Debtor), his mother Dolores Stout (Dolores), Dolores’s company

Kaufman Group, Inc., and three of Debtor’s creditors, Jim Kerchner, Steve Root,

and Qualtech Backplanes, Inc. (Qualtech) (collectively, the Creditors). Both cases

concern the transfer of equipment (the Business Assets) to Dolores before Debtor

filed a chapter 7 bankruptcy petition. The key issue on appeal in both cases is

whether the Business Assets transferred to Dolores were the property of Debtor or

corporations owned wholly by him. On this issue, the two bankruptcy court

                                          2
decisions affirmed by the Bankruptcy Appellate Panel (BAP) are in conflict. In

case number 14-60037, which the parties call the Preference Adversary, the

bankruptcy court found in a partial summary judgment decision that Debtor had a

property interest in the Business Assets; but in case No. 14-60038, called the

Discharge Adversary, the same court found, after a trial, that the Business Assets

were not Debtor’s property. “We review the BAP’s decision de novo and apply

the same standard of review that the BAP applied to the bankruptcy court’s ruling.”

Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009).

We have jurisdiction under 28 U.S.C. § 158(d) and we reverse in part and affirm in

part.

        1.   The Chapter 7 trustee (Trustee) and Creditors filed the Preference

Adversary against Dolores and Kaufman Group. In relevant part, Trustee and

Creditors seek, under 11 U.S.C. § 547(b), to avoid the transfer of Debtor’s interest

in the Business Assets to Dolores as a “preferential transfer” made by Debtor to an

insider within one year prior to the filing of Debtor’s bankruptcy petition. Under §

547(b), the transfer of a debtor’s interest in property made to an insider within one

year prior to that debtor’s bankruptcy filing may be avoided as a “preferential

transfer” given the following six elements: (1) a transfer of the debtor’s interest in

property; (2) that was to or for a creditor’s benefit; (3) that was for or on account of

                                           3
an antecedent debt; (4) that was made while debtor was insolvent; (5) that was

made up to one year prepetition, if such creditor was an insider; and (6) that was a

transfer that enables the creditor to receive more than such creditor would receive

in a Chapter 7 liquidation of the bankruptcy estate. Hansen v. MacDonald Meat

Co. (In re Kemp Pac. Fisheries, Inc.), 16 F.3d 313, 315 n.1 (9th Cir.1994). All six

of these elements must be met, Wind Power Sys., Inc. v. Cannon Fin. Group, Inc.

(In re Wind Power Sys., Inc.), 841 F.2d 288, 290 (9th Cir. 1988), and each must be

proven by a preponderance of the evidence, Arrow Elecs., Inc. v. Justus (In re

Kaypro), 218 F.3d 1070, 1073 (9th Cir. 2000). The bankruptcy court granted

partial summary judgment in favor of Trustee and Creditors on their § 547(b) claim

and the BAP affirmed. Reviewing de novo, see White v. City of Sparks, 500 F.3d

953, 955 (9th Cir. 2007), we reverse.

      Reviewing the evidence before the bankruptcy court in the light most

favorable to Dolores, we conclude that a genuine dispute of material fact exists as

to the first element of § 547(b), whether any interest in the Business Assets

transferred to Dolores were the property of Debtor. Read together and in the light

most favorable to Dolores, the two loan agreements between Dolores and Debtor,

the purchase agreement of the Qualtech assets, the assignment and assumption

agreement, the bill of sale, and other documents supported the contention that

                                          4
Debtor’s corporations, not Debtor, owned the Business Assets. The testimony of

Dolores, Debtor, and Robert Cayford also supports the view that the corporations

owned the Business Assets. A jury could credit this testimony, which cannot be

dismissed as self-serving because it is corroborated by the evidence referenced

above. See Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1059 n.5, 1061

(9th Cir. 2002).

      While the transfer of assets owned by a corporation normally does not

constitute a transfer by a debtor of his or her own property, property owned by a

corporation may be considered a debtor’s property where the corporation was the

debtor’s alter ego. See Miller Ave. Acquisition Partners v. Brady (In re Enter.

Acquisition Partners, Inc.), 319 B.R. 626, 634 (9th Cir. BAP 2004). However,

here evidence before the bankruptcy court creates a genuine dispute as to whether

Debtor’s wholly owned corporations were his alter egos. For example,

documentary evidence and Debtor’s declaration supported the propositions that the

corporations maintained separate records, filed separate tax returns, and did not

commingle funds. Given such evidence, a reasonable trier of fact could conclude

that the businesses were not Debtor’s alter egos, but were what they purported to

be: separate corporations that were wholly owned by Debtor. The Business Assets

did not revert to Debtor upon dissolution of the corporations because the assets had

                                          5
previously been transferred from the corporations to Dolores. We therefore

conclude that the bankruptcy court erred in granting partial summary judgment to

the Trustee and Creditors on the § 547(b) claim.1

      2.     In the Discharge Adversary, Creditors seek, under 11 U.S.C. §

727(a)(2)(A), to deny Debtor’s discharge from their claims against him. Under §

727(a)(2)(A), a debtor may not receive a discharge if the debtor transferred his or

her property within one year before filing for bankruptcy with the intent to hinder,

delay, or defraud a creditor. After a four-day trial, the bankruptcy court entered

judgment in Debtor’s favor, finding that Creditors had not shown that the Business

Assets were Debtor’s property or that his corporations were his alter egos. We

affirm because the evidence, including the evidence referenced above relevant to

the Preference Adversary, does not show that the bankruptcy court clearly erred.

      In sum, we affirm in part and reverse in part the BAP’s affirmance of the

bankruptcy court’s decisions in the Preference and Discharge Adversaries. We

hold that the BAP erred in affirming the bankruptcy court’s partial summary

      1
              We do not reach the question of whether summary judgment was also
precluded by genuine disputes of material fact regarding other disputed elements of
the § 547 claim. These elements only matter if the property in question was
Debtor’s property. It follows from our conclusion that genuine issues of material
fact existed as to whether Debtor owned the Business Assets, that the bankruptcy
court erred to the extent that it found, at the summary judgment stage, that the
assets were property of the estate within the meaning of 11 U.S.C. § 541.

                                          6
judgment decision on the § 547(b) claim in the Preference Adversary because a

genuine dispute of material fact exists as to whether the Business Assets were

Debtor’s property. We hold that the BAP appropriately affirmed the bankruptcy

court’s judgment after trial on the § 727(a)(2)(A) claim in the Discharge

Adversary.

      AFFIRMED in part and REVERSED in part. Appellees shall bear the costs

on appeal in the Preference Adversary. Appellants shall bear the costs on appeal in

the Discharge Adversary.

                                         7