Court Opinion

ID: 4192847
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:57.540895+00
Date Added: 2024-06-11T14:40:22.186858
License: Public Domain

FILED
                                                         SEP 04 2015
 1                       NOT FOR PUBLICATION
                                                     SUSAN M. SPRAUL, CLERK
 2                                                     U.S. BKCY. APP. PANEL
                                                       OF THE NINTH CIRCUIT
 3               UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                         OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No. SC-14-1287-JuKlPa
                                   )     BAP No. SC-14-1320-JuKlPa
 6   UC LOFTS ON 4TH, LLC; UC LOFTS)     (related appeals)
     ON 5TH, LLC;                  )
 7                                 )     Bk. No. 05-15409-CL7
                    Debtors.       )
 8   ______________________________)     Adv. No. 07-90139-CL
     LESLIE T. GLADSTONE, Chapter 7)
 9   Trustee,                      )
                                   )
10             Appellant,          )
                                   )
11   v.                            )     M E M O R A N D U M*
                                   )
12   FRANK SCHAEFER; FRANK SCHAEFER)
     CONSTRUCTION CO.; FRANK       )
13   SCHAEFER CONSTRUCTION, INC.   )
     PENSION PLAN; SHEILA LEMIRE, )
14                                 )
               Appellees.          )
15   ______________________________)
     HALIFAX INVESTMENTS, LLC;     )
16   JOHN SCAFANI,                 )
                                   )
17             Appellants,         )
                                   )
18   v.                            )
                                   )
19   LESLIE T. GLADSTONE, Chapter 7)
     Trustee,                      )
20                                 )
                    Appellee.**    )
21   ______________________________)
22                Argued and Submitted on July 23, 2015
                         at Pasadena, California
23
24
        *
           This disposition is not appropriate for publication.
25 Although it may be cited for whatever persuasive value it may
26 have (see Fed. R. App. P. 32.1), it has no precedential value.
   See 9th Cir. BAP Rule 8024-1.
27
        **
            NOTE TO CLERK: please change the caption to reflect the
28 above.

                                   -1-
 1                          Filed - September 4, 2015
 2               Appeal from the United States Bankruptcy Court
                     for the Southern District of California
 3
       Honorable Christopher B. Latham, Bankruptcy Judge, Presiding
 4                       _________________________
 5   Appearances:      Jeffry A. Davis of Mintz Levin Cohn Ferris
                       Glovsky & Popeo argued for appellant/appellee
 6                     Leslie T. Gladstone, Chapter 7 Trustee; Gregg A.
                       Johnson argued for appellant Halifax Investments,
 7                     LLC and appellant John Scafani; James Jay Stoffel
                       of Beberman Stoffel & Beberman argued for
 8                     appellees Frank Schaefer, Frank Schaefer
                       Construction Co., and Frank Schaefer
 9                     Construction, Inc. Pension Plan.***
                         ______________________________
10
11   Before:     JURY, Klein,**** and PAPPAS, Bankruptcy Judges.
12           Chapter 71 trustee, Leslie A. Gladstone (Trustee), filed an
13   adversary proceeding against Frank Schaefer, Frank Schaefer
14   Construction, Inc., Frank Schaefer Construction, Inc. Pension
15   Plan (collectively, the Schaefer Entities), John Scafani, Sheila
16   Lemire, Halifax Investments, LLC, and others,2 seeking to avoid
17
         ***
18             Appellee Sheila Lemire has not participated in this
     appeal.
19
        ****
             Hon. Christopher M. Klein, Chief United States
20 Bankruptcy Judge for the Eastern District of California, sitting
   by designation.
21
         1
22        Unless otherwise indicated, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
23 “Rule” references are to the Federal Rules of Bankruptcy
   Procedure and “Civil Rule” references are to the Federal Rules of
24 Civil Procedure.
25       2
          Trustee named others as defendants in the adversary
26 proceeding including Charles McHaffie who is mentioned below. On
   March 23, 2011, the bankruptcy court approved Trustee’s
27 settlement with James Warner and the Law Offices of James Warner,
   and with Broadsmore Capital, LLC, Centaur Construction, Matthew
28                                                    (continued...)

                                       -2-
 1   several transfers arising out of a series of loan transactions
 2   to finance the acquisition and initial development of real
 3   property held by debtors, UC Lofts on 4th, LLC and UC Lofts on
 4   5th, LLC (Debtors or UC Lofts).   Trustee also asserted claims
 5   against the Schaefer Entities seeking to avoid preferential
 6   transfers and equitable subordination of the proof of claim
 7   filed by Frank Schaefer Construction, Inc. (Schaefer
 8   Construction).
 9        The bankruptcy court bifurcated the issues for trial into
10   (1) insolvency; and (2) all others.    The court held a trial in
11   February 2012 on insolvency and issued a memorandum decision
12   finding that Trustee failed to prove debtors were insolvent on
13   February 12, 2004.3   The bankruptcy court later conducted an
14   eight day bench trial in which it considered the issue of
15   Debtors’ insolvency at the time of the various transfers and all
16   remaining issues.
17        After trial, the court issued its findings of fact and
18   conclusions of law in a single judgment.   The bankruptcy court
19   granted judgment in favor of the Schaefer Entities, Scafani, and
20   Lemire on the ground that Trustee had failed to meet her burden
21   of proof on all claims against them.   As to Halifax, the
22   bankruptcy court awarded judgment in Trustee’s favor on the
23
24        2
          (...continued)
   Gordon and Peter Kostopoulous. On October 24, 2011, the
25 bankruptcy court approved Trustee’s settlement with McHaffie
26 which included a stipulated judgment in the sum of $375,000.
   Other defendants were dismissed.
27
        3
          This decision was issued by Judge Meyers who has since
28 retired from the bench.

                                     -3-
 1   fraudulent transfer claim in the amount of $1,100,000 plus
 2   $537,734.25 in prejudgment interest.
 3            Trustee appeals from the bankruptcy court’s ruling in favor
 4   of the Schaefer Entities, Scafani, and Lemire, contending that
 5   the court erred in numerous ways relating to her various claims
 6   (BAP No. 14-1287).      Halifax appeals from the judgment against it
 7   on the fraudulent transfer claim (BAP No. 14-1320).         For the
 8   reasons set forth below, we AFFIRM the judgment in all respects.
 9                                  I.   FACTS4
10   A.       Charles McHaffie’s Purchase of Urban Coast
11            Urban Coast, LLC (“Urban Coast”) was the sole owner and
12   managing member of Debtors.      The sole asset of each debtor was
13   contiguous real property near downtown San Diego, California
14   (Lofts Property), which was to be developed for mixed use and
15   known as the Atmosphere Project.          McHaffie acquired 100% of the
16   membership interests of Urban Coast in two contemporaneous
17   transactions.
18            He purchased forty-nine percent of Urban Coast from Halifax
19   for $1,600,000 which was evidenced by a sale agreement (Halifax
20   Sale Agreement) and a promissory note secured by a deed of trust
21   on the Lofts Property.      The Halifax Sale Agreement listed
22   McHaffie as the “Buyer,” Scafani as the “Broker,” Urban Coast as
23   the “Company” and Halifax as the “Seller.”         The terms of the
24   sale agreement required McHaffie and Urban Coast to execute the
25   promissory note.      McHaffie executed the promissory note on
26
27
          4
          We borrow heavily from the facts set forth in the
28 bankruptcy court’s memorandum decision entered March 27, 2014.

                                         -4-
 1   behalf of Urban Coast but did not sign in his individual
 2   capacity.   Although McHaffie pledged the Lofts Property as
 3   collateral for the note, the UC Lofts entities were not parties
 4   to the Halifax Sale Agreement.    Halifax and Scafani promised to
 5   refrain from recording the deed of trust until Urban Coast
 6   obtained construction financing.       McHaffie signed the deed of
 7   trust against the Lofts Property but never delivered it to
 8   Halifax, so it remained unrecorded.
 9        Scafani, a licensed real estate broker, wholly owned and
10   managed Halifax.   Under the terms of the sale agreement, Scafani
11   was to receive real estate brokerage representation rights in
12   connection with offering the finished condominium units for sale
13   and preferential rights in purchasing condominium units in the
14   Atmosphere Project.
15        A consortium known as the Broadsmore Group owned the
16   majority fifty-one percent interest in Urban Coast.       McHaffie
17   paid $2,452,803 for the Broadsmore Group’s interests:
18   $1,899,625 in cash and $552,803 in a promissory note secured by
19   a deed of trust on real property held by La Bella Vida, L.P.
20        To fund the purchase of Urban Coast, McHaffie caused
21   Debtors to obtain a $4,000,000 loan from the Barth Family (Barth
22   Loan) which was evidenced by a promissory note and secured by a
23   first priority trust deed on the Lofts Property.       Debtors also
24   obtained a loan from the Frank Schaefer Construction Inc.
25   Pension Plan (Schaefer Pension) in the amount of $1,750,000
26   which was evidenced by a promissory note and secured by a junior
27   trust deed on the Lofts Property (Schaefer Initial Loan).
28        McHaffie applied $4,527,600 from the Barth and Schaefer

                                      -5-
 1   Loans to purchase Urban Coast and pay various loan fees,
 2   appraisal fees, commission, taxes and other expenses.     He
 3   deposited $1,222,400 into a fund control account (First Fund
 4   Control) controlled by the Schaefer Pension.     Around the same
 5   time, the parties entered into an agreement to govern
 6   disbursements out of the fund control account (Fund Control
 7   Agreement).     Under the agreement, funds would be disbursed to
 8   McHaffie upon written order for payment of items relating to the
 9   development of the Lofts Property.     The $1,222,400 amount was
10   based on a proposed budget for the project which consisted of
11   various line item costs related to, among other things, shoring
12   and concrete, excavation, equipment rental, and the like.
13           When McHaffie acquired Urban Coast there were two deeds of
14   trust against the Lofts Property which were unrecorded.     One
15   deed of trust allegedly secured a $3,400,000 obligation to Urban
16   Coast (UC DOT) and the other allegedly secured a $100,000
17   obligation to SD Lofts, LLC (SD Lofts DOT).5    Those debts were
18   not paid off with the Barth and Schaefer Loans.
19           McHaffie’s transactions for the purchase of Urban Coast
20   closed on February 12, 2004.     At that time, Debtors’ total
21   assets were the Lofts Property and $1,224,900 held in the First
22   Fund Control account.
23           Between February 12, 2004 and April 2, 2004, Debtors made
24   numerous transfers from the First Fund Control:     $20,000 on
25   February 23, 2004 to the Schaefer Pension Plan for
26
         5
27        As further discussed below, whether or not these deeds of
   trust secured valid and enforceable obligations of Debtors was a
28 contested issue at trial relating to the issue of insolvency.

                                      -6-
 1   “Reimbursement–Management;” $5,000 on March 5, 2004 to James
 2   Warner, Esq. for “Legal;” $20,000 on March 5, 2004 to
 3   Charlemagne McHaffie6 for “Funds to Borrower;” $50,000 on
 4   March 8, 2004 to Ron Bedell for “Commission;” and $20,000 on
 5   April 1, 2004 to Charlemagne McHaffie with no stated purpose.
 6   B.       The Schaefer Construction April 2, 2004 loan for $1,200,000
 7            On April 2, 2004, Debtors borrowed $1,200,000 from Schaefer
 8   Construction (April 2, 2004 Loan) which was evidenced by a
 9   straight note and secured by a third position deed of trust on
10   the Lofts Property.      The UC and SD Lofts DOTs were subordinated
11   to the April 2, 2004 Loan.
12            McHaffie used the April 2, 2004 Loan proceeds to exercise
13   an option to purchase a Nevada limited liability company,
14   Tropicana Partners, LLC (Tropicana).      Tropicana’s primary asset
15   was commercial real property in Las Vegas, Nevada.      Debtors made
16   the following additional payments to acquire Tropicana:
17   $100,000 on May 20, 2004 to Santoro, Driggs for legal fees;
18   $1,000 on May 24, 2004 to Lawyer’s Title for title fees; $50,000
19   on May 26, 2004 to Fred Young for “Deposit, per borrower;”
20   $5,010 on June 17, 2004 to Santoro, Driggs for legal fees;
21   $10,000 on July 21, 2004 to Santoro, Driggs for legal fees;
22   $300,000 on July 21, 2004 to Joy Turner for “Deposit, per
23   borrower;” and $60,000 on July 21, 2004 to Santoro, Driggs for
24   legal fees.
25            During this time period, Debtors also made the following
26   transfers from the First Fund Control that were unrelated to the
27
28        6
              Charlemagne was evidently Charles’ son.

                                       -7-
 1   Tropicana acquisition or the Atmosphere Project:     $10,000 on
 2   May 14, 2004 to James Warner for legal fees; $46,666.67 on
 3   July 8, 2004 to Pacific Horizon Financial for “Interest payment,
 4   1st TD;” and $20,416.67 on July 8, 2004 to Action Loan Servicing
 5   for “Interest payment; 2nd TD.”    The last two transfers went to
 6   pay down interest on McHaffie’s personal residence.
 7        On August 17, 2004, Debtors made a $36,000 interest payment
 8   toward the April 2, 2004 Loan.
 9        On August 20, 2004, Schaefer Construction initiated a
10   nonjudicial foreclosure on the Lofts Property by recording a
11   notice of default and sale.   The notice of sale was subsequently
12   rescinded in January 2005.
13   C.   The Schaefer Entities September 24, 2004 loan for
          $2,500,000
14
15        On September 24, 2004, the Schaefer Entities loaned Debtors
16   another $2,500,000 (Second Loan).      The Second Loan was secured
17   by an assignment of the $3,400,000 UC DOT which was property of
18   Urban Coast, not Debtors.    Frank Schaefer later testified that
19   there was no note in connection with the UC DOT:     “[i]t was a
20   bogus deal.   That note actually didn’t exist.    The deed of trust
21   did, but there was no note.   So there was nothing owing on it.
22   So I took something of no value.”
23        The Schaefer Entities initially funded the Second Loan
24   with $500,000 and charged $35,312 as a loan origination fee.
25   Debtors directed $100,000 of the Second Loan proceeds to pay
26   Hawkins & Hawkins Architects, Inc. to maintain the necessary
27   building permits on the Lofts Property and deposited the
28   remaining $365,688 into a second fund control account (Second

                                      -8-
 1   Fund Control).
 2        After receiving the Second Loan proceeds, Debtors made the
 3   following transfers from the First Fund Control:   $37,000 on
 4   October 8, 2004 to Charlemagne Ed. Trust for “Funds to
 5   Borrower;” $35,000 on October 8, 2004 to WH-TH for “Funds to
 6   Borrower;” $10,000 on October 8, 2004 to Charlemagne McHaffie
 7   Trust for “Funds to Borrower;” and $4,097.83 on October 15, 2004
 8   to the City of San Diego to fund a bond.   After these transfers,
 9   the First Fund Control was overdrawn by $2,179.50.
10   D.   The Schaefer Entities November 19, 2004 loan for $4,000,000
          and Halifax Settlement for $1,100,000
11
12        Scafani discovered that the Schaefer Entities trust deed in
13   relation to the April 2, 2004 Loan had been recorded on
14   April 10, 2004, making it senior to Halifax’s yet-to-be
15   delivered and recorded deed of trust.   Because this was contrary
16   to the terms of the parties’ agreement, on June 25, 2004,
17   Halifax and Scafani filed a lawsuit against McHaffie and Urban
18   Coast for breach of contract and fraud seeking rescission of the
19   Halifax Sale Agreement.   Halifax did not name Debtors as
20   defendants.   Halifax and Scafani also recorded a lis pendens
21   against the Lofts Property in connection with the state court
22   lawsuit.
23        On November 18, 2004, McHaffie, Halifax, Scafani, Urban
24   Coast, the Schaefer Entities, and others entered into a
25   settlement agreement and mutual release (Halifax Settlement
26   Agreement).   According to the settlement, Halifax and Scafani
27   agreed to dismiss the lawsuit against McHaffie and Urban Coast
28   and withdraw the lis pendens against Debtors.   In exchange, they

                                    -9-
 1   would receive payment of $1,100,000 million which reflected a
 2   $500,000 discount on the promissory note executed by McHaffie on
 3   behalf of Urban Coast.
 4        By mid-November 2004, the First Fund Control displayed a
 5   negative balance, the Schaefer Entities had filed a notice of
 6   default related to the April 2, 2004 Loan, and Debtors had no
 7   other sources of capital.    At the time, Schaefer and McHaffie
 8   were negotiating the transfer of the Tropicana property to
 9   satisfy the April 2, 2004 Loan and they also discussed a
10   possible new loan.    Eventually, McHaffie agreed to assign the
11   interest in the Tropicana property to Schaefer Construction in
12   full payment and cancellation of the April 2, 2004 note executed
13   in the sum of $1,200,000.
14        These events converged to precipitate an immediate need for
15   capital.    On November 19, 2004, Schaefer Construction loaned
16   Debtors an additional $4,000,000 (Third Loan), which was
17   evidenced by a promissory note and secured by the Lofts
18   Property.    This loan was arranged by a licensed real estate
19   broker, Edward Spooner of Lending Associates, and funded in the
20   initial amount of $1,165,000.    The escrow instructions routed
21   $1,100,000 of the loan proceeds directly to Halifax, charged a
22   $210,500 loan origination fee and charged $52,500 as an
23   extension fee for the Schaefer Initial Loan.    Scafani testified
24   at trial that Halifax disbursed the $1,100,000 to its creditors.
25   The withdrawal of the lis pendens was also part of the escrow
26   agreement.    When the funds were distributed by escrow, the
27   Notice of Withdrawal of the Notice of Pendency Of Action was
28   recorded.

                                     -10-
 1            The Third Loan also extinguished the Second Loan.    Debtors
 2   transferred $206,552.65 from the Second Fund Control and
 3   $299,447.35 from the Third Loan proceeds to pay off the $500,000
 4   funded under the Second Loan.      This transfer left the Second
 5   Fund Control with a zero balance.        Schaefer Construction
 6   advanced another $111,600 under the Third Loan on November 22,
 7   2004 to replenish the deficiency.        This left a $6,413.69 balance
 8   in the Second Fund Control.      After the Third Loan, the Schaefer
 9   Entities made no new loans to Debtors.
10            On December 30, 2004, at McHaffie’s request, Schaefer
11   Construction assigned the April 2004 note and deed of trust to
12   Lemire.7     On April 18, 2005, Lemire executed and recorded a
13   Substitution of Trustee and Full Reconveyance of the April 2,
14   2004 deed of trust.
15   E.       The April 2005 global settlement
16            In April 2005, Debtors and Schaefer Construction entered
17   into a workout agreement whereby Schaefer Construction agreed to
18   provide $1,130,000 in additional funding under the terms of the
19   Third Loan.      The agreement reinstated and extended the Third
20   Loan’s maturity date and paid delinquent real property taxes.
21   Under the agreement, Debtors were also required to reconvey all
22   deeds of trust junior to the Third Loan, which included the
23   deeds of trust securing the $3,400,000 debt owed to Urban Coast,
24   the $100,000 debt owed to SD Lofts, and the April 2, 2004 Loan
25   deed of trust that Schaefer had assigned to Lemire.        The only
26
          7
27        Trustee argues that this assignment of the deed of trust
   made Lemire a subsequent transferee liable for $1,200,000 arising
28 out of the April 2, 2004 Loan.

                                       -11-
 1   advances that the Schaefer Entities made after April 15, 2004
 2   under the Third Loan went to pay off the $1,750,000 Schaefer
 3   Initial Loan.
 4   F.   The sale of Tropicana by Lemire
 5        In September of 2005, Lemire paid Schaefer Construction
 6   $70,000 for a lease option to purchase the Tropicana property.
 7   In April 2006, after substantial work in repairing and releasing
 8   the individual units, Lemire was able to generate approximately
 9   $200,000 to $500,000 in net income on the sale of the Tropicana
10   property.
11   G.   Involuntary Chapter 11
12        On October 25, 2005, three unsecured creditors of Debtors
13   filed involuntary chapter 11 petitions against them.       Debtors
14   initially contested the petition.       In January 2006, they
15   withdrew their answers to the involuntary petitions and an order
16   for relief was entered.
17        On April 17, 2006, Gladstone was appointed the chapter 11
18   trustee for both debtors.   The bankruptcy court later entered an
19   order directing the joint administration of the related
20   chapter 11 cases.
21        In early September 2006, the bankruptcy court entered an
22   order terminating the automatic stay in favor of Schaefer
23   Construction.   Schaefer Construction foreclosed on the Lofts
24   Property and became the owner.    Schaefer then sold the Lofts
25   Property through an LLC to Alpha and Omega Development, LLC for
26   $6,000,000 and paid $5,312,330.37 out of escrow to First
27   National Bank, the successor beneficiary to the Barth note.       The
28   Schaefer Pension Plan also made an additional $1,250,000 hard

                                      -12-
 1   money loan to Alpha and Omega Development, LLC secured behind a
 2   purchase money loan from Dunham & Associates of $3,700,000
 3   secured by a first deed of trust.          Ultimately, the holder of the
 4   first trust deed foreclosed out the Schaefer Entities’ interest
 5   in the Lofts Property.
 6            Schaefer Construction filed a secured proof of claim in
 7   Debtors’ case alleging that the amount it was owed on account of
 8   the Third Loan was $5,678,351.50.
 9            On October 20, 2006, Debtors’ cases were converted to
10   chapter 7 and Gladstone was appointed the chapter 7 trustee.
11   H.       The Adversary Proceeding
12            On April 2, 2007, Trustee filed the adversary complaint
13   which is the subject of this appeal.         Trustee asserted claims
14   against the Schaefer Entities for: (1) avoidance and recovery of
15   fraudulent transfers; (2) avoidance and recovery of preferential
16   transfers; (3) aiding and abetting breach of fiduciary duty;
17   (4) declaratory relief that Frank Schaefer was a partner of
18   Debtors; (5) equitable subordination of Schaefer Construction's
19   claims; (6) breach of fiduciary duty to Debtors; and
20   (7) conversion.8     Trustee also sought to avoid allegedly
21   fraudulent transfers to, or for the benefit of, defendants
22
          8
23          The Schaefer Entities filed a motion for summary judgment
     which was granted in part and denied in part. The bankruptcy
24   court granted summary judgment in their favor as to Trustee’s
     eleventh and thirteenth claims for relief on usury relating to
25   the first loan, first loan extensions and the third November 2004
26   loan of $4,000,000. Trustee withdrew the twelfth claim for usury
     in connection with the September 24, 2004 loan for $2,500,000
27   which was funded in the amount of $500,000. Trustee also
     withdrew her tenth claim for relief for alter ego prior to the
28   hearing on the motion for summary judgment.

                                         -13-
 1   Lemire, Scafani and Halifax.
 2           The adversary proceeding was assigned to Judge James M.
 3   Meyers.     Judge Meyers bifurcated the trial, with the initial
 4   session on whether Debtors were insolvent as of February 12,
 5   2004 (the date McHaffie acquired 100% membership interest in
 6   Urban Coast).     At the trial on insolvency, Judge Meyers
 7   concluded that the value of Debtors’ assets on that date was “in
 8   the range of $8 million to $9.5 million,” and the liabilities
 9   were $6,154,531.     The bankruptcy court did not explain how it
10   reached its decision.     In an April 17, 2012 status report,
11   Trustee requested the court to issue a supplemental decision
12   with specific findings regarding the value.     No supplemental
13   decision was issued.     Judge Meyers retired and the case was
14   reassigned to Judge Christopher Latham.
15           Following an eight day trial, the bankruptcy court issued
16   its memorandum decision on March 27, 2014.     The court found that
17   the value of the Lofts Property was $7,366,306 as of April 2004,
18   and $8,225,954 as of November 24, 2004.     The court also found
19   that the Schaefer Entities were not insiders of the Debtors.       In
20   ruling on the fraudulent transfer claims, the court found that:
21   (1) after the April 2, 2004 Loan, Debtors’ liabilities were
22   $7,118,385.52 and, therefore, Debtors’ assets9 exceeded their
23   debts by $1,205,920.48; (2) the Third Loan and the $1,100,000
24   payment to Halifax ultimately rendered Debtors insolvent because
25   by November 22, 2004, Debtors’ liabilities greatly exceeded
26
27
         9
             Debtors’ assets also included monies in the First Control
28 Fund.

                                      -14-
 1   their assets and they were balance sheet insolvent by at least
 2   $964,797.33; (3) the Third Loan and the $1,100,000 payment to
 3   Halifax left Debtors with unreasonably small assets;
 4   (4) transfers related to Tropicana and the April 2, 2004 Loan
 5   were not fraudulent as to the Schaefer Entities; (5) transfers
 6   related to the Second and Third Loans and Halifax payment were
 7   not fraudulent as to the Schaefer Entities; (6) Trustee failed
 8   to meet her burden that Lemire was a subsequent transferee of
 9   the Tropicana property or that she did not provide reasonably
10   equivalent value; (7) the payment to Halifax was constructively
11   fraudulent and should be avoided; and (8) neither Scafani nor
12   Halifax provided reasonably equivalent value for the $1,100,000
13   transfer.
14        Trustee had also sought to avoid as preferential transfers
15   two payments totaling $506,000 made by Debtors to the Schaefer
16   Entities.   The bankruptcy court found the Schaefer Entities were
17   not insiders and thus the extended preference period did not
18   apply.   Therefore, the transfers were not recoverable as
19   preferences.
20        Finally, on the equitable subordination claim, the
21   bankruptcy court found Trustee had not met her burden to
22   equitably subordinate Schaefer Construction’s proof of claim.
23   Since the court found that none of the Schaefer Entities were
24   insiders or partners of Debtors, the burden remained with
25   Trustee to prove circumstances justifying subordination.    In the
26   end, the court found that the evidence did not establish
27   inequitable conduct.
28        The bankruptcy court entered judgment on the adversary

                                    -15-
 1   complaint on the same date it issued its memorandum decision,
 2   awarding judgment as to all claims in favor of the Schaefer
 3   Entities, Scafani, and Lemire and awarding judgment against
 4   Halifax in the amount of $1,100,000, plus interest.
 5        Trustee filed a motion to amend the judgment on April 10,
 6   2014.     The Schaefer defendants filed a response.
 7        On June 6, 2014, the bankruptcy court issued an order on
 8   Trustee’s motion resulting in a two page revision of the
 9   memorandum decision with no change in the judgment.         On the same
10   day, Trustee filed her notice of appeal.10        On June 20, 2014,
11   Halifax filed its related appeal.
12                             II.   JURISDICTION
13        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
14   §§ 1334 and 157(b)(2)(A) and (H).         We have jurisdiction under
15   28 U.S.C. § 158.
16                               III.    ISSUES
17   FRAUDULENT TRANSFER CLAIMS: SCHAEFER ENTITIES AND LEMIRE
18        1.      Did the bankruptcy court err by considering parol
19   evidence to explain or construe the payment provision in the
20   November 2004 Halifax Settlement Agreement which stated that
21   Frank Schaefer Construction “shall pay” to Halifax the sum of
22   $1,100,000?
23        2.      Did the bankruptcy court err by not including the
24   $3,400,000 Urban Coast obligation and $100,000 SD Lofts
25   obligation in its insolvency analysis as of April 2, 2004 when
26
27
         10
          Trustee subsequently filed two amended notices of appeal
28 with no substantive changes.

                                        -16-
 1   those obligations were “stipulated facts” in the pretrial order?
 2          3.   Did the bankruptcy court err by determining that
 3   Schaefer Construction gave reasonably equivalent consideration
 4   for the April 2, 2004 Loan?
 5          4.   Did the bankruptcy court err by failing to place the
 6   burden of proof on Sheila Lemire to establish her good faith
 7   defense as a subsequent transferee?
 8   FRAUDULENT TRANSFER CLAIM: HALIFAX
 9          1.   Did the bankruptcy court err by determining that the
10   $1,100,000 payment from Debtors to Halifax was a fraudulent
11   transfer because Halifax was not a secured creditor based on the
12   filing of the lis pendens?
13          2.   Did the bankruptcy court err in determining that
14   Halifax did not give reasonably equivalent value for the
15   $1,100,000 payment by releasing its $1,600,000 note, dismissing
16   its lawsuit, and withdrawing the lis pendens against the Lofts
17   Property?
18          3.   Did the bankruptcy court err in determining that
19   Scafani was not liable for receiving a fraudulent transfer
20   because the entire $1,100,000 transfer went to Halifax’s
21   creditors and Scafani did not receive any of the funds?
22   AIDING AND ABETTING BREACH OF FIDUCIARY DUTY: SCHAEFER ENTITIES
23          Did the bankruptcy court err by finding that the Schaefer
24   Entities did not have actual knowledge of McHaffie’s
25   defalcations as they occurred for purposes of aiding and
26   abetting McHaffie’s breach of fiduciary duty under California
27   law?
28

                                     -17-
 1   PREFERENTIAL TRANSFER CLAIM: SCHAEFER CONSTRUCTION
 2        Did the bankruptcy court err by determining that the
 3   Schaefer Entities were not “insiders” within the meaning of
 4   §§ 101(1) and 547?
 5   EQUITABLE SUBORDINATION: SCHAEFER CONSTRUCTION
 6        Did the bankruptcy court err by determining that the
 7   Schaefer Entities had not engaged in inequitable conduct?
 8                        IV.    STANDARDS OF REVIEW
 9        We review findings of fact for clear error and conclusions
10   of law and mixed questions of law and fact de novo.    Banks v.
11   Gill Distrib. Ctrs., Inc., 263 F.3d 862, 867 (9th Cir. 2001).
12         A bankruptcy court’s factual determination is clearly
13   erroneous if it is illogical, implausible, or without support in
14   the record.   United States v. Hinkson, 585 F.3d 1247, 1261-62 &
15   n.21 (9th Cir. 2009) (en banc) (quoting Anderson v. City of
16   Bessemer City, N.A., 470 U.S. 564, 577 (1985)) (explaining that
17   the clearly erroneous standard of review is an element of the
18   clarified abuse of discretion standard).    Where there is
19   admitted evidence in the record to support the bankruptcy
20   court’s fact findings, an appellate court cannot substitute its
21   views of the facts for those of the bankruptcy court.    Anderson,
22   470 U.S. at 573.   “Where there are two permissible views of the
23   evidence, the factfinder’s choice between them cannot be clearly
24   erroneous.”   Id. at 574.
25        The determination of insider status is a question of fact
26   to be reviewed under the clearly erroneous standard.    Friedman
27   v. Sheila Plotsky Brokers, Inc. (In re Friedman), 126 B.R. 63,
28   67 (9th Cir. BAP 1991).

                                      -18-
 1        The bankruptcy court’s decision regarding equitable
 2   subordination is reviewed for abuse of discretion.    Paulman v.
 3   Gateway Venture Partners III (In re Filtercorp, Inc.), 163 F.3d
 4   570, 587 (9th Cir. 1998).    A court abuses its discretion when it
 5   fails to identify and apply “the correct legal rule to the
 6   relief requested,” or if its application of the correct legal
 7   standard was “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without
 8   ‘support in inferences that may be drawn from the facts in the
 9   record.’”   Hinkson, 585 F.3d at 1262-63.
10        We may affirm the bankruptcy court’s decision on any ground
11   supported by the record.    Olsen v. Zerbetz (In re Olsen),
12   36 F.3d 71, 73 (9th Cir. 1994).
13                               V.   DISCUSSION
14   A.   Fraudulent Transfers: Schaefer Entities and Lemire
15        Section 544(b)(1) provides that a trustee “may avoid any
16   transfer of an interest of the debtor in property or any
17   obligation incurred by the debtor that is voidable under
18   applicable law by a creditor holding an unsecured claim . . . .”
19   Trustee, acting in her capacity as an unsecured creditor, seeks
20   to avoid certain transfers to the Schaefer Entities and Lemire
21   under California’s Uniform Fraudulent Transfer Act (UFTA).    See
22   Cal. Civ. Code § 3439 et. seq.; see also Gen. Elec. Capital Auto
23   Lease, Inc. v. Broach (In re Lucas Dallas, Inc.), 185 B.R. 801
24   (9th Cir. BAP 1995) (noting that the California UFTA “only
25   confers standing upon a ‘creditor’ of the debtor” citing Cal.
26   Civ. Code § 3439.07(a)).
27        Under California’s UFTA, a transfer is constructively
28   fraudulent if the debtor made the transfer without receiving

                                       -19-
 1   reasonably equivalent value in exchange and the debtor either:
 2   (1) was engaged or was about to engage in a business or a
 3   transaction for which the remaining assets of the debtor were
 4   unreasonably small in relation to the business or transaction;
 5   or (2) intended to incur, or believed or reasonably should have
 6   believed that he or she would incur, debts beyond his or her
 7   ability to pay as they became due; or (3) was insolvent at the
 8   time, or was rendered insolvent by the transfer or obligation.
 9   Cal. Civ. Code §§ 3439.04(a), 3439.05.
10        1.   The bankruptcy court did not err by considering parol
               evidence to construe the payment provision contained
11             in the November 2004 Halifax Settlement Agreement.
12        The Halifax Settlement Agreement provides in relevant part:
13        SETTLEMENT TERMS: CASH. In full and final settlement
          of all claims, whether or not said claims have been
14        set forth in the LITIGATION, SCHAFFER [sic]
          [Construction] shall pay to HALIFAX, in cash, the sum
15        of One Million One Hundred Thousand Dollars
          ($1,100,000).
16
17        “Schaefer” is defined in the settlement as “Frank Schaefer
18   Construction, Inc.” and the agreement contained an integration
19   clause.
20        Trustee contends on appeal, as she did at trial, that
21   Schaefer Construction did not pay the $1,100,000 as required
22   under the settlement agreement, instead requiring Debtors to use
23   proceeds from the Third Loan to pay Schaefer Construction’s
24   obligation.   According to Trustee, because Debtors were
25   insolvent on the date of the transfer, the payment of $1,100,000
26   by Debtors to Halifax to satisfy the debt of Schaefer
27   Construction was fraudulent.   In addressing these arguments, the
28   bankruptcy court found:

                                    -20-
 1        The Trustee contends that this provision shifts the
          obligations owed by Urban Coast and McHaffie under the
 2        Halifax Sale Agreement onto Schaefer. The court
          disagrees. None of the Schaefer Entities was a party
 3        to either the Halifax Sale Agreement or the lawsuit
          filed by Scafani and Halifax. Rather than imposing a
 4        legal obligation on the Schaefer Entities, the court
          interprets this provision—which, like the rest of the
 5        document, was quite loosely drafted—as merely
          recognizing the source of payment.
 6
 7   Trustee contends that the court’s ruling was erroneous because
 8   an unambiguous contract is interpreted as a matter of law
 9   without the use of parol evidence.     Trustee argues that the
10   payment provision here was unambiguous and susceptible to only
11   one interpretation — Schaefer Construction was the party
12   obligated to pay the $1,100,000 — “pay means pay.”     In finding
13   otherwise, the court had inappropriately relied on evidence not
14   on the face of the agreement.
15        The parol evidence rule has no applicability in this case
16   for two reasons.   First, Trustee stepped into the shoes of an
17   unsecured creditor of the estate by invoking § 544(b).     The
18   parol evidence rule does not apply to disputes with third
19   parties.
20        In an action between a party to a contract and a third
          party the rule that parol evidence cannot be received
21        to contradict or vary a written contract does not
          apply, as the estoppel on which the rule rests must be
22        mutual, and, since the third person is not bound by
          the contract as written, neither is his adversary in
23        the action.
24   Penberthy v. Vahl, 101 Cal.App.2d 1, 4 (1950); see also Alberts
25   v. HCA Inc. (In re Greater Se. Cmty. Hosp. Corp. I), 365 B.R.
26   315, 318–19 (Bankr. D.D.C. 2007) (noting that a creditor would
27   be “a third person, not a party to, nor representing a party to,
28   the act.”).   Second, regardless of whether this rule applies in

                                     -21-
 1   this case, “the ‘very essence’ of a fraudulent transfer suit is
 2   to identify the ‘true nature’ of a transaction, and ‘the parol
 3   evidence rule can[not] function as a false prophet to preclude
 4   consideration of evidence of the true nature of the transaction
 5   in question.”   In re Greater Se. Cmty. Hosp. Corp. I, 365 B.R.
 6   at 318 (citing Gaudet v. Babin (In re Zedda), 103 F.3d 1195,
 7   1206 (5th Cir. 1997) (holding that trustee could not use parol
 8   evidence to exclude evidence in fraudulent conveyance suit
 9   brought under § 548)).   Accordingly, this assignment of error is
10   not grounds for reversal.
11        2.   The bankruptcy court did not err by determining that
               Debtors’ assets exceeded their liabilities as of
12             April 2, 2004.
13        Under Cal. Civ. Code § 3439.02(a), “[a] debtor is insolvent
14   if, at fair valuations, the sum of the debtor’s debts is greater
15   than all of the debtor’s assets.”     For purposes of the
16   fraudulent transfer claims, the bankruptcy court examined
17   Debtors’ financial condition from February 13, 2004 to
18   November 24, 2004 (Relevant Period).11    Regarding Debtors’
19   liabilities, the bankruptcy court found:
20        Defendant Scafani testified credibly that no
          accompanying note existed to support the UC DOT. Nor
21        did Plaintiff provide any evidence of a signed note.
          Further, McHaffie signed for SD Lofts, LLC in all
22        relevant transactions. Ultimately, both the SD Lofts
          DOT and the UC DOT were reconveyed. Neither SD Lofts,
23        LLC nor Urban Coast ever demanded payment on these
          purported obligations during the relevant period
24        between February 13, 2004 and November 24, 2004. The
          court therefore finds that the UC DOT and SD Lofts DOT
25        were not liabilities owed by Debtors. Nevertheless,
26
         11
27        This period starts the day after McHaffie’s purchase of
   100% of Urban Coast closed and ends on the date the Schaefer
28 Entities made their last loan to Debtors.

                                    -22-
 1        to facilitate the First Loan transaction, Urban Coast
          and SD Lofts, LLC agreed to subordinate their
 2        respective trust deeds.
 3   Accordingly, the bankruptcy court did not include the UC or SD
 4   Lofts debts when calculating Debtors’ liabilities at the time of
 5   the April 2, 2004 Loan and found Debtors were solvent.
 6        Trustee argues on appeal that the bankruptcy court’s
 7   decision to exclude these debts from its solvency calculation
 8   was based on her not producing any signed notes.   Trustee
 9   asserts that she did not need to produce the notes because the
10   pretrial order contained stipulated facts which conclusively
11   established the existence of both a loan and note in favor of
12   Urban Coast in the amount of $3,400,000 and a loan and note in
13   favor of SD Lofts in the amount of $100,000.   Therefore,
14   according to Trustee, the bankruptcy court was required as a
15   matter of law to consider these obligations in its insolvency
16   analysis.   Finally, Trustee maintains there was a “mountain of
17   evidence” establishing these debts.
18        The undisputed facts in the pretrial order relied upon by
19   Trustee are:
20        (10) On February 11, 2004, SD Lofts, LLC executed a
          Subordination Agreement, subordinating a note in its
21        favor in the sum of $100,000 dated October 16, 2003,
          in favor of Urban Coast and secured by the UC Lofts
22        Real Property to the Barth Note.
23        (11) On February 11, 2004, Urban Coast executed a
          subordination agreement, subordinating a note held by
24        it and secured by the UC Lofts Real Property in the
          amount of $3,400,000 dated August 1, 2003 to a
25        $4,000,000 [sic] by the Barths.
26        (12) On April 2, 2004, Schaefer Construction extended
          UC Lofts a loan in the amount of $1,200,000, secured
27        by a junior deed of trust on the UC Lofts Real
          Property . . . .
28

                                    -23-
 1        . . . .
 2        (14) On April 13, 2004, Urban Coast executed a
          Subordination Agreement, subordinating a loan in the
 3        amount of $3,400,000 dated August 1, 2003, in favor of
          Urban Coast and secured by UC Lofts Real Property, to
 4        the April 2, 2004 Note in favor of Schaefer
          Construction.
 5
          (15) On April 13, 2004, SD Lofts executed a
 6        Subordination Agreement, subordinating a loan in the
          sum of $100,000 dated as of October 16, 2003, in favor
 7        of Urban Coast and secured by UC Lofts Real Property
          to the April 2, 2004 Note in favor of Schaefer
 8        Construction.
 9        Generally, “parties are bound by stipulated facts in a
10   pretrial order.”    E.H. Boly & Son, Inc. v. Schneider, 525 F.2d
11   20, 23 n.5 (9th Cir. 1975) (citing Civil Rule 16).    But here
12   the language used in the stipulated facts does not clearly show
13   that the parties agreed that there were underlying and
14   enforceable debts owed by Debtors to Urban Coast and SD Lofts.
15   Rather, under a plain language interpretation these stipulated
16   facts at most show that the parties acknowledged the four
17   recorded subordination agreements.     Indeed, the pretrial order
18   preserved the issue of Debtors’ insolvency, and facts and
19   evidence supporting the parties’ positions were before the
20   bankruptcy court.   Trustee had an opportunity to rebut the
21   evidence which refuted the existence of the UC and SD Lofts
22   obligations.   Moreover, she did not refer us to any portion of
23   the record where she objected to the court’s consideration of
24   this evidence, asserting it was not relevant because the debt
25   was “admitted” in the pretrial order.    Accordingly, nothing in
26   the record shows Trustee was relying on the pretrial order to
27   establish the existence of these obligations.
28        The record shows that Scafani testified that the

                                     -24-
 1   transaction that would have resulted in the $3,400,000
 2   obligation was never consummated and the bankruptcy court found
 3   his testimony credible.   “When factual findings are based on
 4   determinations regarding the credibility of witnesses, we give
 5   great deference to the bankruptcy court’s findings, because the
 6   bankruptcy court, as the trier of fact, had the opportunity to
 7   note ‘variations in demeanor and tone of voice that bear so
 8   heavily on the listener’s understanding of and belief in what is
 9   said.’”   Anderson, 470 U.S. at 575.   We thus defer to the
10   bankruptcy court’s reasonable assessment of Scafani’s
11   credibility.   In addition, although the Schaefer Entities
12   acknowledged the existence of the Urban Coast and SD Lofts debts
13   each time they made a loan to Debtor, this acknowledgment does
14   not show that such debts were valid.    Frank Schaefer also
15   testified that there was no note in connection with the
16   $3,400,000 million Urban Coast obligation.    In short, other than
17   the subordination agreements regarding the UC DOT, there is no
18   evidence in the record that refutes Scafani’s or Schaefer’s
19   testimony.
20        Trustee also points to no evidence in the record - other
21   than the subordination agreements - that establishes the
22   SD Lofts debt.   The bankruptcy court noted that McHaffie had
23   signed the deed of trust on behalf of SD Lofts but there was no
24   demand for payment on the underlying note between February 12,
25   2004 and November 24, 2004.
26        Simply put, Trustee’s “mountain of evidence” is not in the
27   record.   Accordingly, the bankruptcy court committed no clear
28   error by excluding the Urban Coast or SD Lofts debts when

                                    -25-
 1   calculating Debtors’ liabilities during the Relevant Period.
 2        3.      The transfer of the deed of trust in connection with
                  the April 2, 2004 Loan was not fraudulent.
 3
 4        Under Cal. Civ. Code § 3439.04(a)(2)(A), “[a] transfer made
 5   or obligation incurred by a debtor is fraudulent as to a
 6   creditor . . . if the debtor made the transfer or incurred the
 7   obligation [w]ithout receiving a reasonably equivalent value in
 8   exchange for the transfer or obligation, and the debtor . . .
 9   [w]as engaged or was about to engage in a business or a
10   transaction for which the remaining assets of the debtor were
11   unreasonably small in relation to the business or transaction.”
12        Trustee seeks to avoid as fraudulent transfers the deed of
13   trust Debtors gave to Schaefer Construction in connection with
14   the April 2, 2004 Loan and the later transfers of Tropicana to
15   Schaefer and Lemire.     Trustee contends that because the loan
16   funds went to purchase Tropicana, the deed of trust given to
17   Schaefer Construction was a “transfer” of Debtors’ property for
18   no consideration and thus was fraudulent.     Trustee further
19   asserts that “since proper recognition of the stipulated Urban
20   Coast and SD Lofts debts establishes that Debtors were insolvent
21   as of April 2, 2004, the granting of a deed of trust on the
22   Lofts Property was without question a fraudulent transfer that
23   should be avoided.”
24        As previously discussed, the bankruptcy court did not err
25   by omitting the Urban Coast and SD Lofts debts when determining
26   Debtors’ assets and liabilities at the time of the April 2, 2004
27   Loan.     Therefore, as the bankruptcy court found, Debtors were
28   balance sheet solvent on and after the April 2, 2004 Loan and

                                      -26-
 1   were not left with unreasonably small assets as a result.
 2   Because Trustee failed to prove an essential element of her
 3   fraudulent transfer claim related to the April 2, 2004 Loan, the
 4   claim fails and we need not resolve the other related elements,
 5   including whether reasonably equivalent value existed.
 6   Accordingly, there is no basis to reverse the bankruptcy court’s
 7   judgment in favor of Schaefer Construction on this fraudulent
 8   transfer claim.
 9        4.   The bankruptcy court did not err by misapplying the
               burden of proof with respect to the fraudulent
10             transfer liability of Lemire.
11        Cal. Civ. Code § 3439.08(a) states that “[a] transfer or an
12   obligation is not voidable under subdivision (a) of [Cal. Civ.
13   Code section] 3439.04, against a person who took in good faith
14   and for a reasonably equivalent value. . . .”   Thus, a showing
15   of good faith and reasonably equivalent value is all that is
16   required to defeat a creditor’s action based on Cal. Civ. Code
17   § 3439.04(a).   Obviously, if a transfer is made both in good
18   faith and for a reasonably equivalent value, then the transfer
19   is not a fraudulent transfer under Cal. Civ. Code § 3439.04(b)
20   either, since subdivision (b) applies only to transfers made
21   without receipt of reasonably equivalent value.   Cal. Civ. Code
22   § 3439.08(b)(2) authorizes the creditor to obtain judgment
23   against a subsequent transferee.
24        In its memorandum decision, the bankruptcy court found:
25        The Trustee's remaining fraudulent transfer claim
          against Lemire derives from her claim against the
26        Schaefer Entities arising out of the Tropicana
          transaction. Specifically, the Trustee seeks to
27        recover whatever profit Lemire gained from her sale of
          the Tropicana property.
28

                                    -27-
 1        As noted above, the Tropicana LLC interests or the
          underlying real property never belonged to the
 2        Debtors. Further, Lemire contributed value for the
          property. She paid $70,000 for an option to purchase
 3        it from Schaefer. She then borrowed funds to improve
          the property and reduced the vacancy rate through her
 4        own labors. Lemire sold the Tropicana real property
          for $5,750,000. But she could not state with
 5        certainty the amount she received from the transaction
          after accounting for payments to Schaefer and the
 6        liens against property. And the Trustee did not offer
          any evidence on the amount Lemire may have personally
 7        profited from the sale.
 8        The court therefore finds that the Trustee has failed
          to meet her burden of showing that Lemire was a
 9        subsequent transferee of property of the Debtors or
          that she did not provide reasonably equivalent value.
10        The court will enter judgment in Lemire's favor.
11        As discussed above, Trustee asserted Debtors’ transfer of
12   the deed of trust to Schaefer Construction was fraudulent.
13   Schaefer Construction later assigned the April 2, 2004 note and
14   deed of trust to Lemire on December 30, 2004.    Therefore,
15   Trustee contends that Lemire is a subsequent transferee who is
16   liable, the same as Schaefer Construction, for the fraudulent
17   transfer of the $1,200,000 trust deed.   Trustee further argues
18   that Lemire had the defense, if she could establish it, that she
19   took the transfer for value and in good faith.    Cal. Civ. Code
20   § 3439.08(b)(2).   Trustee asserts that the bankruptcy court
21   improperly placed the burden on her, rather than Lemire, to
22   prove value and good faith.
23        The bankruptcy court found that the deed of trust recorded
24   on April 14, 2004, in connection with the April 2, 2004 Loan by
25   Schaefer Construction, could not be avoided as a fraudulent
26   transfer since Debtors were balance sheet solvent on and after
27   the April 2, 2004 Loan and were not left with unreasonably small
28   assets as a result.   Thus, Trustee failed to prove an essential

                                    -28-
 1   element of her fraudulent transfer claim against Schaefer
 2   Construction.    If Trustee could not avoid the transfer of the
 3   deed of trust as to Schaefer Construction on this ground,
 4   Trustee could not recover from Lemire as a subsequent
 5   transferee.    It follows that there was no need for Lemire to
 6   prove that she took the transfer for value and in good faith
 7   when there was no fraudulent transfer in the first place.
 8   Accordingly, to the extent the bankruptcy court misapplied the
 9   burden of proof, it is harmless error.
10   B.   Fraudulent Transfer - Halifax
11        Trustee successfully avoided the fraudulent transfer of
12   $1,100,000 from Debtors to Halifax as constructively fraudulent
13   under Cal. Civ. Code § 3439.04(a)(2), which Halifax challenges
14   on appeal.    Under this section, there must be a transfer of
15   property of the debtor; constructive fraud is defined simply as
16   transactions in which the debtor receives less than reasonably
17   equivalent value for this transfer at a time when the debtor is
18   insolvent.    Trustee bears the burden of proving all these
19   elements.
20        In its memorandum decision, the bankruptcy court found that
21   the $1,100,000 payment from Debtors to Halifax was
22   constructively fraudulent and should be avoided:    “The Halifax
23   payment left the Debtors with [unreasonably small assets] and
24   rendered them insolvent.    Moreover, neither Halifax nor Scafani
25   provided reasonably equivalent value for this transfer.”
26        1.     The lis pendens did not make Halifax a fully secured
                 creditor.
27
28        Halifax argues on appeal, as it did at trial, that it was

                                     -29-
 1   fully secured by virtue of recording the lis pendens.     Thus,
 2   because it received payment from Debtors as a fully secured
 3   creditor, the transfer was not fraudulent under the holding in
 4   Henry v. First All. Mortg. Co. (In re First All. Mortg. Co.),
 5   471 F.3d 977, 1008 (9th Cir. 2006)(“‘[r]epayments of fully
 6   secured obligations—where a transfer results in a dollar for
 7   dollar reduction in the debtor’s liability—do not hinder, delay,
 8   or defraud creditors because the transfers do not put assets
 9   otherwise available in a bankruptcy distribution out of their
10   reach.’”).
11        Halifax offers no persuasive authority to support its
12   argument that its notice of lis pendens operated as an
13   “encumbrance” which made it a fully secured creditor.     This is
14   not surprising since, under California law, a notice of lis
15   pendens does not make the person who recorded it a secured
16   creditor.    Cal–Western Reconveyance Corp. v. Reed,
17   152 Cal.App.4th 1308, 1318-19 (2007) (citing Campbell v. Super.
18   Ct., 132 Cal.App.4th 904, 914 (2005) (“true purpose of the lis
19   pendens statute is to provide notice of pending litigation and
20   not to make plaintiffs secured creditors of defendants nor to
21   provide plaintiffs with additional leverage for negotiating
22   purposes.”)); see also Cal. Code Civ. Proc. § 405.20 (lis
23   pendens serves as notice that litigation regarding the property
24   is being pursued).
25        Halifax’s reliance on Hurst Concrete Products, Inc. v. Lane
26   (In re Lane), 980 F.2d 601 (9th Cir. 1992) is misplaced.       The
27   facts in Lane are distinguishable.     The issue in Lane was
28   whether the filing of a lis pendens was a transfer within the

                                     -30-
 1   definition of transfer set forth in § 547(e)(1)(A).     The
 2   question of whether the filing of a lis pendens creates a lien
 3   is missing from the court’s analysis.
 4        In sum, the filing of the lis pendens did not make Halifax
 5   fully secured.   Therefore, the rule espoused in In re First All.
 6   Mortg. Co. has no applicability to this case.   Accordingly, the
 7   bankruptcy court did not err on this basis.
 8        2.   The bankruptcy court did not err in determining that
               Halifax did not give reasonably equivalent value for
 9             payment of $1,100,000 by releasing its $1.6 million
               note, dismissing its lawsuit, and withdrawing the lis
10             pendens against the Lofts Property.
11        Under Cal. Civ. Code § 3439.04(a), a transfer is avoidable
12   if the debtor made the transfer without receiving a reasonably
13   equivalent value in exchange for the transfer and the debtor
14   intended to incur, or believed or reasonably should have
15   believed that it would incur debts beyond its ability to pay as
16   they became due.   See also Cal. Civ. Code § 3439.05.
17        With respect to the reasonably equivalent value
18   requirement, the bankruptcy court found:
19        In this case, McHaffie, Urban Coast, Halifax and
          Scafani executed the Halifax Sale Agreement. One
20        component of this agreement required Urban Coast or
          McHaffie to pay $1,600,000 to Halifax. This secured
21        McHaffie's acquisition of Urban Coast and through it,
          the UC Lofts Real Property. McHaffie and Urban Coast
22        also owed brokerage rights and purchase options to
          John Scafani. The Debtors were not signatories to the
23        Halifax Sale Agreement. That the UC Lofts Real
          Property secured those obligations did not transform
24        them into the Debtors' liabilities. Nor is it
          apparent that the change in leadership from Scafani to
25        McHaffie provided any value to the Debtors to support
          granting a security interest in their property. Thus,
26        under the indirect benefit rule stated in Northern
          Merchandise and Pajaro Dunes, Defendants must
27        demonstrate that Debtor's received a direct, tangible
          benefit from paying Urban Coast and McHaffie's
28        obligation.

                                    -31-
 1        Defendants offered substantial testimony emphasizing
          that Scafani agreed to relinquish his purchase options
 2        and brokerage rights and that Halifax agreed to a
          $500,000 reduction on its note. But the testimony
 3        from Warner and Schaefer established that they
          believed the lis pendens was improperly recorded and
 4        could have been expunged for a fraction of the
          settlement price. The court accepts this
 5        characterization. Thus, the Debtors can hardly be
          said to have received reasonably equivalent value by
 6        paying $1,100,000 for its removal. Moreover, the
          upstream benefit Urban Coast and McHaffie received by
 7        being relieved from obligations under the Halifax Sale
          Agreement did not provide a sufficiently tangible
 8        benefit to the Debtors to allow the court to conclude
          they received reasonably equivalent value.
 9
10        Halifax challenges these findings on appeal and argues that
11   we should review these findings under a de novo standard of
12   review rather than a clearly erroneous standard.   In support of
13   this contention, Halifax relies on Maddox v. Robertson
14   (In re Prejean), 994 F.2d 706, 708 (9th Cir. 1993).
15        In Prejean, the Ninth Circuit considered whether California
16   case law which held that the release of time-barred debt was
17   consideration to avoid a fraudulent transfer was abrogated in
18   light of California’s recent adoption of the California
19   Fraudulent Transfer Act (CFTA).   The CFTA substituted the term
20   “reasonably equivalent value” for “fair consideration.”   As
21   noted by the Ninth Circuit, the facts in Prejean were
22   undisputed.   Id. at 707.   Ursula Maddox lent her brother, Joseph
23   Prejean, $40,000 between 1968 and 1971 to assist him in
24   attending medical school.   The two did not memorialize the loan
25   in writing.   Between 1974 and 1984, Maddox also cared for
26   Prejean’s child.   Nothing was set down in writing during that
27   period either to value those services or to establish terms of
28   payment.   Maddox and Prejean agreed in 1985 upon a figure of

                                     -32-
 1   $200,000 as representing the aggregate value of the child care
 2   services and the loan.   They did not record that figure in
 3   writing.    In September 1987, Prejean gave Maddox a $100,000 note
 4   that he secured with a deed of trust upon his home.   The deed
 5   was recorded in January 1988.
 6        Seventeen months later Prejean filed a chapter 7 bankruptcy
 7   petition.   The trustee brought an action in the bankruptcy court
 8   to set aside the transfer of the interest in Prejean's home
 9   under § 544.   The trustee alleged that the transfer of the home
10   violated the CFTA.   The primary issue was whether the
11   satisfaction of a time-barred debt was “reasonably equivalent
12   value” for a transfer, thus precluding the transfer from being
13   avoidable under Cal. Civ. Code § 3439.04.
14        The bankruptcy court refused to set aside the transfer.     It
15   found that the note and transfer had been made in good faith,
16   and that finding was not challenged on appeal.   Citing United
17   States Fid. & Guar. Co. v. Postel, 64 Cal.App.2d 567 (Cal. Ct.
18   App. 1944), the bankruptcy court reasoned that the discharge of
19   a moral obligation is “reasonable consideration” for a new
20   promise to repay a time-barred debt.   In United States Fidelity,
21   the California Court of Appeal determined that the payment of an
22   antecedent debt that is partially time-barred is “fair
23   consideration.”    United States Fidelity had been decided under
24   the California Fraudulent Conveyance Act, the predecessor of the
25   CFTA.
26        The BAP reversed the judgment of the bankruptcy court. It
27   held, among other things, that United States Fidelity was no
28   longer good law.   Analogizing Cal. Civ. Code § 3439.04 to § 548,

                                     -33-
 1   the federal “strong-arm” statute that contains “reasonably
 2   equivalent value” language, the BAP said:
 3        The switch from ‘fair consideration’ to ‘reasonably
          equivalent value’ directs attention away from what is
 4        fair as between the parties and instead measures
          consideration in terms of its objective worth to all
 5        the transferor’s creditors.
 6        Maddox appealed.   On appeal the Ninth Circuit couched the
 7   issues as legal ones requiring de novo review.   The court first
 8   considered the question whether California’s recent adoption of
 9   the UFTA, which substituted “reasonably equivalent value” for
10   “fair consideration,” implied a rejection of the rule set forth
11   in United States Fidelity.   The Ninth Circuit held that the
12   Panel had read United States Fidelity too narrowly:
13        We discern nothing in the language or history of the
          CFTA that would lead us to conclude that a time-barred
14        debt that was a ‘fair equivalent’ from the viewpoint
          of the creditors under the prior law is not also
15        ‘reasonably equivalent value’ under the CFTA. There
          has been no showing that the California legislature
16        intended to abrogate the rule of United States
          Fidelity in enacting the current statute.
17
18   The Ninth Circuit noted that under both prior law and the CFTA
19   reasonably equivalent value must be determined from the
20   creditors’ standpoint, not the debtor’s.
21        The court observed that Prejean gave Maddox a security
22   interest in satisfaction of an antecedent obligation, arising
23   from cash loans and valuable services, that, but for the statute
24   of limitations, was enforceable.   Therefore, since United States
25   Fidelity remained good law, the court concluded that the
26   transfer satisfied the requirement of “reasonably equivalent
27   value” contained in the CFTA and reversed the Panel’s decision.
28        As this recitation shows, the issue before the Ninth

                                    -34-
 1   Circuit in Prejean was not a factual one where consideration for
 2   a transfer was to be weighed, but rather was a determination of
 3   whether a type of consideration — release of time-barred debt —
 4   was still to be considered of value after a change in California
 5   law.    The Ninth Circuit appropriately applied de novo review to
 6   its determination of this legal issue.    However, we are not
 7   persuaded that the Ninth Circuit held that a factual
 8   determination of reasonably equivalent value requires de novo
 9   review.    See Ehrenberg v. Tenzer (In re Heartbeat of the City,
10   N.W., Inc.), 2006 WL 6810939, at *5 (9th Cir. BAP April 6, 2006)
11   (stating that there was no clear statement in the Ninth Circuit
12   case law concerning whether determining if reasonably equivalent
13   value has been given for a transfer for purposes of § 548 is a
14   question of law).
15          Indeed, the Ninth Circuit later applied the clearly
16   erroneous standard of review to the bankruptcy court’s
17   determination of reasonably equivalent value in Decker v.
18   Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109 (9th Cir. 2010).
19   In JTS, after the district court reversed the bankruptcy court’s
20   determination that the defendant had paid reasonably equivalent
21   value when purchasing real property, the Ninth Circuit found
22   error in the District Court’s ruling.    It determined that the
23   bankruptcy court’s finding of reasonably equivalent value “was
24   not clearly erroneous” since the evidence supported that
25   conclusion, clearly applying this deferential standard of review
26
27
28

                                     -35-
 1   to the trial court’s factual finding.   Id. at 1109-10.12
 2         Accordingly, because we are not convinced otherwise, we
 3   follow the clearly erroneous standard adopted in JTS and the
 4   weight of authority in other circuits and consider the issue a
 5   question of fact.   In re Heartbeat of the City, 2006 WL 6810939,
 6   at *5 n.8 (noting that eight other circuits and a leading
 7   treatise consider the issue a question of fact).13
 8         We now reach the merits of Halifax’s various arguments.
 9   Halifax contends that the $1,100,000 payment it received matched
10   more than a dollar for dollar benefit to Debtors.    Halifax
11   asserts that in addition to having the $1,600,00 lien against
12   the Lofts Property extinguished, “they” obtained a discount of
13
14        12
          California case law is in accord. See Patterson v.
15 Missler, 238 Cal.App.2d 759, 766-67 (Cal. Ct. App. 1966).
          13
16          Tex. Truck Ins. Agency v. Cure (In re Dunham), 110 F.3d
     286, 288–89 (5th Cir. 1997) offered the following survey of
17   circuit cases determining whether reasonable equivalency is a
     question of law, subject to de novo review, or a question of
18   fact: Consove v. Cohen (In re Roco Corp.), 701 F.2d 978, 982
19   (1st Cir. 1983) (factual issue to be reviewed for clear error);
     Klein v. Tabatchnick & Emmer, 610 F.2d 1043, 1047 (2nd Cir. 1979)
20   (fairness of consideration is generally a question of fact);
     Morrison v. Champion Credit Corp. (In re Dewey Barefoot),
21   952 F.2d 795, 800 (4th Cir. 1991)(factual determination that can
     only be set aside if clearly erroneous); Bundles v. Baker
22
     (In re Bundles), 856 F.2d 815, 825 (7th Cir. 1988)(great
23   deference to the district court); Jacoway v. Anderson
     (In re Ozark Rest. Equip. Co., Inc.), 850 F.2d 342, 344 (8th Cir.
24   1988) (question of fact reversible only if clearly erroneous);
     Clark v. Sec. Pac. Bus. Credit, Inc. (In re Wes Dor, Inc.),
25   996 F.2d 237 (10th Cir. 1993)(suggesting fact question); and
26   Nordberg v. Arab Banking Corp. (In re Chase & Sandborn Corp.),
     904 F.2d 588, 593 (11th Cir. 1990)(fair consideration is largely
27   a question of fact). The Dunham court noted that in the Ninth
     Circuit, according to Prejean, reasonable equivalency is subject
28   to de novo review.

                                    -36-
 1   $500,000 on the lien, and the withdrawal of the lis pendens
 2   which allowed Debtors to resume development of the Lofts
 3   Property.
 4        Halifax also maintains that the only defect in the lis
 5   pendens was that it was recorded against the property of a
 6   non-party.   However, James Warner testified unequivocally that
 7   this minor defect could be corrected by amending the complaint
 8   to add Debtors as named defendants, an amendment which the trial
 9   judge would “never, never” deny.   Halifax points out that Warner
10   was the attorney of record for Debtors at the time of the
11   Halifax Settlement Agreement and thus he was in a position to
12   value the settlement and agreed that withdrawing the lis pendens
13   and discounting the note constituted valuable consideration to
14   Debtors.
15        Contrary to Halifax’s assertion, we discern no error with
16   the bankruptcy court’s analysis.   The reasonably equivalent
17   value analysis “is directed at what the debtor surrendered and
18   what the debtor received irrespective of what any third party
19   may have gained or lost.”   Wyle v. C.H. Rider & Family
20   (In re United Energy Corp.), 944 F.2d 589, 597 (9th Cir. 1991);
21   see also Frontier Bank v. Brown (In re N. Merch., Inc.),
22   371 F.3d 1056, 1059 (9th Cir. 2004)(the “primary focus . . . is
23   on the net effect of the transaction on the debtor’s estate and
24   the funds available to the unsecured creditors.”); Roosevelt v.
25   Ray (In re Roosevelt), 176 B.R. 200, 206 and 208 (9th Cir. BAP
26   1994) (same).
27        “Beyond looking at what is exchanged in a quid pro quo
28   transaction, it is important to examine the value of all

                                    -37-
 1   benefits inuring to a debtor by virtue of the transaction in
 2   question, directly or indirectly.”      In re Fox Bean Co., Inc.,
 3   287 B.R. 270 (Bankr. D. Idaho 2002)(citing Pummill v.
 4   Greensfelder, Hemker & Gale (In re Richards & Conover Steel,
 5   Co.), 267 B.R. 602, 612–13 (8th Cir. BAP 2001); see also
 6   In re N. Merch., Inc., 371 F.3d at 1058 (“It is well settled
 7   that reasonably equivalent value can come from one other than
 8   the recipient of the payments, a rule which has become known as
 9   the indirect benefit rule.”).    “Under [the indirect benefit
10   rule], some clear and tangible benefit to the debtor must still
11   consequently result from the payment by the transferee.”      Pajaro
12   Dunes Rental Agency, Inc. v. Spitters (In re Pajaro Dunes Rental
13   Agency, Inc.), 174 B.R. 557, 579 (Bankr. N.D. Cal. 1994).
14        There is a two step process required to determine whether a
15   debtor received a reasonably equivalent value.      Greenspan v.
16   Orrick (In re Brobeck, Phleger, & Harrison, LLP, 408 B.R. 318,
17   341 (Bankr. N.D. Cal. 2009).     First, it must be determined that
18   the debtor received value.   Id.   Value is defined under Cal.
19   Civ. Code § 3439.03 as follows:
20        Value is given for a transfer or an obligation if, in
          exchange for the transfer or obligation, property is
21        transferred or an antecedent debt is secured or
          satisfied, but value does not include an unperformed
22        promise made otherwise than in the ordinary course of
          the promisor’s business to furnish support to the
23        debtor or another person.
24   Value is similarly defined for purposes of § 548.      Id. (citing
25   In re United Energy Corp., 944 F.2d at 595).      Second, the court
26   must determine whether that value was reasonably equivalent to
27   what the debtor gave up.   Id.   Reasonable equivalence can
28   include the elimination of claims or litigation.      In re United

                                      -38-
 1   Energy, 944 F.2d at 595-96.    Finally, the determination of
 2   reasonable equivalence must be made as of the time of the
 3   transfer.   BFP v. Resolution Trust Corp., 511 U.S. 531, 546
 4   (1994).   Trustee had the burden of showing that Debtors did not
 5   receive reasonably equivalent value in exchange.    In re Pajaro
 6   Dunes Rental Agency, Inc., 174 B.R. at 578.
 7        Here, the bankruptcy court considered what Debtors received
 8   and what they gave up when determining whether there was
 9   reasonably equivalent value.    As noted by the bankruptcy court,
10   Debtors were not obligated on the underlying note.    Therefore,
11   reducing the amount owed on the note by $500,000 cannot be said
12   to have benefitted Debtors directly or indirectly.    Generally
13   speaking, a debtor’s payment of the debt of another does not
14   constitute a reasonably equivalent value when the debtor is not
15   obligated on the debt.   Wood v. Delury, Pomares & Co.
16   (In re Fair Oaks, Ltd.), 168 B.R. 397, 402 (9th Cir. BAP 1994).
17        Further, while the $1,100,000 payment to Halifax satisfied
18   the lien against the Lofts Property, the bankruptcy court found
19   that Debtors had received no value in connection with the
20   transfer of the deed of trust in the first place; i.e., they
21   were not obligated on the loan.    Additionally, the court found
22   no indirect benefit to Debtors since the transfer in leadership
23   from Scafani to McHaffie did not provide any value for the
24   security obligation.   Halifax does not point to any evidence in
25   the record that would contradict the bankruptcy court’s finding
26   of no value.
27        Further, although Debtors transferred $1,100,000 to Halifax
28   in settlement of the litigation, Debtors were not named as

                                     -39-
 1   defendants in the litigation.   It follows that none of the
 2   claims were asserted against them.     Nor is it apparent from the
 3   record that Debtors’ future was dependent upon the resolution of
 4   the lawsuit rather than on the withdrawal of the lis pendens.
 5   Although the withdrawal of the lis pendens was beneficial to
 6   Debtors so they could resume development, the bankruptcy court
 7   quantified that benefit as being worth at most $10,000.    Thus,
 8   Debtors payment of $1,100,000 to Halifax for that benefit cannot
 9   be reasonably equivalent.   See BFP, 511 U.S. at 540 n.4 (“. . .
10   the phrase ‘reasonably equivalent’ means ‘approximately
11   equivalent,’ or ‘roughly equivalent.’”).    Accordingly, the
12   bankruptcy court properly found that Debtors did not receive
13   reasonably equivalent value for the $1,100,000 payment and that
14   finding was not clearly erroneous.
15        3.     The bankruptcy court did not err in determining that
                 John Scafani was not liable for receiving a fraudulent
16               transfer because the entire $1,100,000 transfer went
                 to Halifax’s creditors and Scafani did not receive any
17               of the funds.
18        Scafani’s unrebutted testimony was that the $1,100,000
19   payment from Debtors to Halifax went to Halifax’s creditors.
20   Trustee did not trace the funds nor has she pointed out any
21   evidence in the record showing otherwise.    See In re Pajaro
22   Dunes Rental Agency, Inc., 174 B.R. at 583 (“Tracing of funds
23   has often been a part of fraudulent transfer litigation.”).
24   Accordingly, the bankruptcy court’s finding that Scafani did not
25   receive any of the $1,100,000 from Debtors was supported by
26   inferences drawn from the facts in the record.    We thus discern
27   no error.
28

                                     -40-
 1   C.   Aiding and abetting breach of fiduciary duty: Schaefer
          Entities
 2
 3        In connection with Trustee’s claim against the Schaefer
 4   Entities for aiding and abetting McHaffie’s breach of fiduciary
 5   duty, the bankruptcy court found:
 6        Under California law, “[l]iability may ... be imposed
          on one who aids and abets the commission of an
 7        intentional tort if the person ... knows the other's
          conduct constitutes a breach of a duty and gives
 8        substantial assistance or encouragement to the other
          to so act.'” In re First All. Mortg Co., 471 F.3d at
 9        993 (quoting Casey v. U.S. Bank Nat'l Assn.,
          127 Cal.App. 4th 1138, 1144 (2005)); see also Fiol v.
10        Doellstedt, 50 Cal.App. 4th 1318, 1325–26 (1996).
          “[A]iding and abetting liability ... requires a
11        finding of actual knowledge, not specific intent.”
          In re First All. Mortg. Co., 471 F.3d at 993.
12
          In First Alliance Mortgage, a jury found Lehman
13        Brothers, Inc. and its subsidiary (“Lehman”) liable
          for aiding and abetting the debtor's fraudulent
14        lending practices. Id. at 983. The finding relied on
          Lehman’s eventual relationship as the debtor's only
15        lender, its intimate knowledge of the debtor's lending
          practices and its substantial assistance in furthering
16        the scheme by continuing to lend. Id. at 986–87,
          994–95. In fact, Lehman warned the debtor that if it
17        did “not change its business practices, it [would] not
          survive scrutiny.” Id. at 994.
18
          Here, the Schaefer Entitles, like Lehman, at some
19        point became the Debtors' only source of financing
          such that they provided substantial assistance.
20        Further, it is apparent that Schaefer at least had the
          opportunity to scrutinize each disbursement from the
21        fund controls. But distinct from the situation in
          First Alliance, Schaefer credibly testified that his
22        primary, if not sole, focus was the equity in the
          property—not the Debtors’ progress on the Atmosphere
23        Project. Moreover, the Fund Control Agreement gave
          him the contractual right to presume that each
24        disbursement request was actually what the borrower
          requested and related to the project. Finally, the
25        proposed budget negotiated between the Schaefer
          Entities and McHaffie contemplated management and
26        contingency line items, for which they allotted over
          $400,000.
27
          Thus, the court cannot conclude that the Schaefer
28        Entities had actual knowledge of McHaffie's

                                   -41-
 1        defalcations as they occurred. The Trustee has
          therefore failed to meet her burden on this claim, and
 2        judgment for the Schaefer Entities is appropriate.
 3        Trustee argues that the bankruptcy court’s finding that the
 4   Schaefer Entities did not have actual knowledge of McHaffie’s
 5   defalcations as they occurred was clear error.    According to
 6   Trustee, the court’s conclusion ignores “substantial amounts of
 7   uncontroverted evidence and the court’s own findings.”
 8   Specifically, the court found that “the Schaefer Entities
 9   possessed a significant degree of control over the Debtors” and
10   “Schaefer had the opportunity to scrutinize each disbursement
11   from the fund controls.”   These findings, Trustee argues, show
12   that Schaefer could not have been unaware that $570,000 or more
13   taken out of the First Fund Control account was misdirected
14   towards Tropicana.   Trustee also asserts that the Fund Control
15   Agreement does not allow the Schaefer Entities to avoid
16   liability.   The agreement provides:
17        Control shall conclusively presume that any written
          order of an authorized person is (1) given for the
18        purposes stated in the order; and (2) authorized by
          the owner and contractor.
19
20   Because Schaefer failed to produce any written order for the
21   misdirected payments, Trustee argues that he may not rely upon
22   any presumption that these payments were intended for completion
23   of the Atmosphere Project.
24        We disagree that this constitutes error.    The bankruptcy
25   court’s finding that the Schaefer Entities had no actual
26   knowledge of McHaffie’s breach of fiduciary duty is plausible in
27   light of the evidence presented.   Although the court found that
28   the Schaefer Entities exercised a significant degree of control

                                    -42-
 1   over Debtors and that they had the opportunity to scrutinize
 2   each disbursement from the fund control accounts, the bankruptcy
 3   court also relied on Schaefer’s testimony in making its ruling.
 4   Schaefer testified that his primary focus was on the equity in
 5   the Lofts Property and not Debtors’ progress on the completion
 6   of the Atmosphere Project.   Thus, even if Schaefer was aware
 7   that McHaffie was not using the April 2, 2004 loan proceeds for
 8   the development of the Lofts Property, a reasonable inference
 9   from his testimony is that he did not make a conscious choice to
10   make loans to Debtors knowing that McHaffie was engaging in
11   improper conduct.   See Lomita Land & Water Co. v. Robinson,
12   154 Cal. 36, 47 (1908) (The defendant must have acted to aid the
13   primary tortfeasor “with knowledge of the object to be
14   attained.”).   Moreover, “[m]ere knowledge that a tort is being
15   committed and the failure to prevent it does not constitute
16   aiding and abetting.”   Fiol v. Doellstedt, 50 Cal.App.4th 1318,
17   1326 (1996).
18        In short, the bankruptcy court was free to accept
19   Schaefer’s testimony and draw any reasonable inferences
20   therefrom to support its ruling.   It is not the province of the
21   appellate court to reweigh the evidence and choose between
22   competing inferences.   See Anderson, 470 U.S. at 573–74 (“[i]f
23   the [trial] court’s account of the evidence is plausible in
24   light of the record viewed in its entirety, the court of appeals
25   may not reverse it even though convinced that had it been
26   sitting as the trier of fact, it would have weighed the evidence
27   differently”).   Despite Trustee’s argument to the contrary, we
28   see nothing that requires a difference result.

                                    -43-
 1   D.   Preferential Transfer Claim: Schaefer’s Insider Status
 2        Section 547(b) authorizes a trustee to avoid preferential
 3   transfers made by a debtor within certain periods of time before
 4   the bankruptcy filing.   Miller v. Schuman (In re Schuman),
 5   81 B.R. 583, 585 (9th Cir. BAP 1987).    Where a creditor is an
 6   insider, the preference period is one year.    Id.
 7        Trustee seeks to recover a $506,000 payment on the Second
 8   Loan to Schaefer Construction within one year of the
 9   commencement of the bankruptcy case.    The trustee bears the
10   burden of proof to establish each and every element under
11   § 547(b) in order to avoid a transfer as a preference.    Batlan
12   v. TransAmerica Commercial Fin. Corp. (In re Smith’s Home
13   Furnishings, Inc.), 265 F.3d 959, 963 (9th Cir. 2001).
14        The bankruptcy court found:
15        The court accepts Schaefer's testimony as credible in
          all respects and finds that neither he nor Frank
16        Schaefer Construction, Inc. nor Frank Schaefer
          Construction, Inc. Pension Plan was an insider of the
17        Debtors. The Schaefer Entities exerted considerable
          control over Debtors and McHaffie. But this control
18        never extended beyond that of a secured
          lender-to-borrower relationship.
19
          Significantly, the court notes that Schaefer
20        faithfully acted according to the terms of the various
          promissory notes and deeds of trust. He also never
21        refused a disbursement request from McHaffie. And
          with the exception of the Halifax payment, Schaefer
22        did not advocate that the Debtors pay certain
          creditors or forego payments to others. Ultimately,
23        the evidence did not establish that Schaefer was ever
          able to pressure Debtors in such a way as to
24        substitute his own decision making power for
          McHaffie’s.
25
26        Trustee challenges these findings, contending that the
27   bankruptcy court applied the wrong legal test for determining
28   non-statutory insider status.   According to Trustee, there are

                                     -44-
 1   different legal standards applied when considering statutory
 2   insiders under § 101(31) and non-statutory insiders.   While the
 3   “person in control” test may apply to statutory insiders,
 4   Trustee argues that with non-statutory insiders actual control
 5   is not required:   “it is not necessary that a non-statutory
 6   insider have actual control; rather the question is whether
 7   there is a close relationship [between debtor and creditor] and
 8   . . . anything other than closeness to suggest that any
 9   transactions were not conducted at arm’s length.”   See Shubert
10   v. Lucent Techs. Inc. (In re Winstar Comm’ns, Inc.), 554 F.3d
11   382, 396-97 (3d Cir. 2009).
12        First of all, we are not bound by Third Circuit case law,
13   but by Ninth Circuit case law and our own prior decisions.     See
14   State v. Rowley (In re Rowley), 208 B.R. 942, 944 (9th Cir. BAP
15   1997) (stating that we are bound by prior Panel decisions).
16   Second, our reading of the relevant legal authorities indicates
17   that the bankruptcy court did not apply the wrong legal test as
18   demonstrated below.
19        The Bankruptcy Code provides a definition of insider that
20   varies based on the type of debtor and includes different
21   individuals who are insiders depending on whether the debtor is
22   a person, corporation, partnership, or municipality.
23   § 101(31).14   However, “the respective insider definitions do not
24
25       14
           Section (31) provides in relevant part:
26   The term “insider” includes--
         (A) if the debtor is an individual--
27       (i) relative of the debtor or of a general partner of
         the debtor;
28                                                     (continued...)

                                    -45-
 1   attempt or purport to be all inclusive.”    In re Friedman,
 2   126 B.R. at 69.   An insider can either fall into one of these
 3   per se classifications listed in the statute, or be a
 4   non-statutory insider who has a “professional or business
 5   relationship with the debtor . . . where such relationship
 6   compels the conclusion that the individual or entity has a
 7   relationship with the debtor, close enough to gain an advantage
 8   attributable simply to affinity rather than to the course of
 9   business dealings between the parties.”    Id. at 70.   A
10   non-statutory insider is one “who has a sufficiently close
11   relationship with the debtor that his conduct is made subject to
12   closer scrutiny than those dealing at arms [sic] length with the
13
14        14
           (...continued)
15       (ii) partnership in which the debtor is a general
         partner;
16       (iii) general partner of the debtor; or
         (iv) corporation of which the debtor is a director,
17       officer, or person in control;
         (B) if the debtor is a corporation--
18       (i) director of the debtor;
19       (ii) officer of the debtor;
         (iii) person in control of the debtor;
20       (iv) partnership in which the debtor is a general
         partner;
21       (v) general partner of the debtor; or
         (vi) relative of a general partner, director, officer,
22
         or person in control of the debtor;
23       (C) if the debtor is a partnership--
         (i) general partner in the debtor;
24       (ii) relative of a general partner in, general partner
         of, or person in control of the debtor;
25       (iii) partnership in which the debtor is a general
26       partner;
         (iv) general partner of the debtor; or
27       (v) person in control of the debtor;

28       . . . .

                                    -46-
 1   debtor.”   Vill. at Lakeridge, LLC v. United States Bank N.A.
 2   (In re Vill. at Lakeridge, LLC), 2013 WL 1397447, at *5 (9th
 3   Cir. BAP Apr. 5, 2013) (citing In re Friedman, 126 B.R. at 70);
 4   see also Miller Ave. Prof’l & Promotional Servs. v. Brady
 5   (In re Enter. Acquisition Partners, Inc.), 319 B.R. 626, 631
 6   (9th Cir. BAP 2004) (citing Wilson v. Huffman, 712 F.2d 206, 210
 7   (5th Cir. 1983)).
 8        In determining whether a creditor qualifies as a
 9   non-statutory insider, courts look at “the closeness of the
10   parties and the degree to which the transferee is able to exert
11   control or influence over the debtor.”   In re Vill. at
12   Lakeridge, LLC, 2013 WL 1397447, at *5 (citing In re Enter.
13   Acquisition Partners, Inc., 319 B.R. at 626 and Miller v.
14   Schuman (In re Schuman), 81 B.R. 583, 586 (9th Cir. BAP 1987)).
15   The primary test of a non-statutory insider is whether the
16   creditor “exercises such control or influence over the debtor as
17   to render their transaction not arms-length.”   Id.
18        Here, the bankruptcy court implicitly applied the legal
19   test for determining whether the Schaefer Entities were non-
20   statutory insiders espoused in our precedent.   The court
21   determined that there was “closeness” because the Schaefer
22   Entities exerted considerable control over Debtors.   However,
23   the bankruptcy court quantified that control by stating that it
24   never extended beyond a secured lender to borrower relationship.
25   In addition, the court implicitly found no other evidence to
26   suggest the transactions were not conducted at arm’s length:
27   (1) Schaefer faithfully acted according to the terms of the
28   various promissory notes and deeds of trust; (2) Schaefer never

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 1   refused a disbursement request from McHaffie; and (3) with the
 2   exception of the Halifax payment, Schaefer did not advocate that
 3   the Debtors pay certain creditors or forego payments to others.
 4   Again, the bankruptcy court’s findings came down to Schaefer’s
 5   credibility:   “[w]hen factual findings are based on
 6   determinations regarding the credibility of witnesses, we give
 7   great deference to the bankruptcy court’s findings . . . .”
 8   Anderson, 470 U.S. at 575.   Accordingly, we discern no error in
 9   the bankruptcy court’s decision that the Schaefer Entities were
10   not insiders for purposes of § 547.
11   E.    Equitable subordination of Schaefer Construction’s proof of
           claim
12
13         “The subordination of claims based on equitable
14   considerations generally requires three findings: ‘(1) that the
15   claimant engaged in some type of inequitable conduct, (2) that
16   the misconduct injured creditors or conferred unfair advantage
17   on the claimant, and (3) that subordination would not be
18   inconsistent with the Bankruptcy Code.’”   In re First All.
19   Mortg. Co., 471 F.3d at 1006.   “Where non-insider, non-fiduciary
20   claims are involved, as is the case here, the level of pleading
21   and proof is elevated: gross and egregious conduct will be
22   required before a court will equitably subordinate a claim.”
23   Id.   “Although equitable subordination can apply to an ordinary
24   creditor, the circumstances are ‘few and far between.’”    Id.
25         Here, the bankruptcy court found no inequitable conduct.
26   The Schaefer Entities were not insiders and the relationship
27   between Debtors and the Schaefer Entities never extended beyond
28   those of a borrower-lender relationship.   Furthermore, because

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 1   the Halifax payment was not an obligation of the Schaefer
 2   Entities, Trustee did not show how their conduct depleted or
 3   otherwise adversely impacted Debtors’ assets.   Trustee points to
 4   no evidence in the record which the bankruptcy court allegedly
 5   overlooked which would demonstrate an abuse of discretion.
 6   Accordingly, there is no basis for reversal on this assignment
 7   of error.
 8                           VI.   CONCLUSION
 9        For the reasons stated above, we AFFIRM the judgment in all
10   respects.
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