Court Opinion

ID: 2645594
Source: CourtListenerOpinion
Date Created: 2013-12-12 01:01:22.88733+00
Date Added: 2024-06-11T12:33:35.055445
License: Public Domain

FILED
                           NOT FOR PUBLICATION                                DEC 11 2013

                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS
                    UNITED STATES COURT OF APPEALS

                           FOR THE NINTH CIRCUIT

In re: BELLA VISTA BY PARAMONT,                  No. 11-60022
LLC,
                                                 BAP No. 10-1191
              Debtor,

                                                 MEMORANDUM*
GARY FARRAR, Chapter 7 Trustee,

              Appellant,

  v.

WARDA & YONANO, LLP,

              Appellee.

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

                     Argued and Submitted November 4, 2013
                            San Francisco, California

Before: REINHARDT, NOONAN, and WATFORD, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
      This appeal grows out of an adversary proceeding in the Chapter 7

bankruptcy of Bella Vista by Paramont, LLC (“Bella Vista”). Gary Farrar

(“Farrar”), the trustee for Bella Vista, sued Warda & Yonano (“W&Y”), Bella

Vista’s counsel, to avoid and recover payments made by Bella Vista to W&Y for

legal services rendered to Bella Vista and entities related to Bella Vista. Farrar

sought to set aside the payments as preferential transfers under 11 U.S.C. § 547

and fraudulent conveyances under 11 U.S.C. § 548. Judge Ronald H. Sargis of the

U.S. Bankruptcy Court for the Eastern District of California (the “bankruptcy

court”) entered judgment for Farrar. The Bankruptcy Appellate Panel (“BAP”)

reversed.

      Preferential Transfer. The Bankruptcy Code permits trustees to recover

“preferential transfers,” or “preferences,” made between the debtor and its creditors

before the debtor filed a bankruptcy petition. In re Schuman, 81 B.R. 583, 585

(9th Cir. BAP 1987); 11 U.S.C. § 547. To be avoidable, a preference must, among

other things, be made within a specified period — often termed the “reach-back

period” — before the bankruptcy filing. In most cases, the reach-back period is 90

days; however, where the creditor is deemed to be an “insider,” the reach-back

period is extended to one year. In re Schuman, 81 B.R. at 585; 11 U.S.C. §

547(b)(4)(A), (B). Entities related by blood or marriage are deemed insiders. In re

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Friedman, 126 B.R. 63, 69–70 (9th Cir. BAP 1991). Insiders are also those whose

relationship with the debtor “compels the conclusion that the individual or entity

has a relationship with the debtor, close enough to gain an advantage attributable

simply to affinity rather than to the course of business dealings between the

parties.” Id. at 70.

      The bankruptcy court determinated that W&Y was an insider because W&Y

had access to insider information and because the timing of the bankruptcy —

which W&Y, as Bella Vista’s counsel, helped file — was suspicious. The BAP

was not persuaded and neither are we. Insider status is a question of control, see In

re Schulman, 81 B.R. at 586, and there is nothing in the record that suggests that

Bella Vista and W&Y shared bank accounts or any other property, or were

personally rather than professionally involved. The indicia of control bespeaking

insider status are missing. On this issue, the BAP is affirmed.

      Fraudulent Conveyance. The Bankruptcy Code permits trustees to recover

“fraudulent conveyances”: certain transfers made by the debtor within two years of

the date of the bankruptcy petition. 11 U.S.C. § 548(a)(1). The bankruptcy court

determined that Farrar had established each element of 11 U.S.C. § 548 — had

established, in other words, that certain payments from Bella Vista to W&Y were

fraudulent conveyances. But the bankruptcy court failed (or declined) to determine

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the precise value of the conveyances. The BAP reversed, finding that the

bankruptcy court erred for failing to quantify the conveyance. The bankruptcy

court did err; but the case ought to have been remanded, not simply reversed. For

there was enough evidence to resolve the matter, including allowing the

bankruptcy court to quantify the conveyance. What is missing is simply the

necessary findings. The BAP ought to have remanded for further findings. We do

so now.

      Initial Transferee. Trustees may only recover preferences and fraudulent

conveyances from certain parties, among them the “initial transferee.” 11 U.S.C. §

550(a)(1). In this circuit, an initial transferee is one who has “dominion” over the

money. In re Incomnet, Inc., 463 F.3d 1064, 1069–70 (9th Cir. 2006). One who

has dominion has the “legal authority over the money and the right to use the

money however [one] wishe[s].” Id. at 1070. The BAP found that the bankruptcy

court failed to determine whether W&Y was the initial transferee. On that basis,

the BAP reversed. Contrary to the BAP, we believe that the bankruptcy court did

address the initial transferee issue when it stated: “I find that, under . . . Section

550, the trustee is entitled to judgment.” We also believe that the bankruptcy

court’s legal determination was correct. W&Y has not advanced a credible

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argument that it was not the initial transferee. Accordingly, we reverse the BAP on

this issue.

       AFFIRMED in part; REVERSED and REMANDED in part.

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