Court Opinion

ID: 148844
Source: CourtListenerOpinion
Date Created: 2010-06-17 22:17:42+00
Date Added: 2024-06-11T17:24:08.718753
License: Public Domain

FILED
                                                                            JUN 17 2010
                           NOT FOR PUBLICATION
                                                                        MOLLY C. DWYER, CLERK
                                                                         U .S. C O U R T OF APPE ALS

                    UNITED STATES COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re: KATAYONE ADELI,                           No. 09-60017

             Debtor,                             BAP No. CC-08-1098-MoPaD

                                                 MEMORANDUM *
KATAYONE ADELI,

             Appellant,

  v.

RICHARD B. SACHS,

             Appellee.

In re: KATAYONE ADELI,                           No. 09-60020

             Debtor,                             BAP No. CC-08-1098-MoPaD

KATAYONE ADELI,

             Appellant,

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
  v.

RICHARD B. SACHS,

             Appellee.

                         Appeal from the Ninth Circuit
                          Bankruptcy Appellate Panel
             Pappas, Montali, and Dunn, Bankruptcy Judges, Presiding

                         Argued and Submitted May 5, 2010
                               Pasadena, California

Before: B. FLETCHER and PAEZ, Circuit Judges, and EZRA, ** District Judge.

       Katayone Adeli appeals a decision of the Bankruptcy Appellate Panel for the

Ninth Circuit (“BAP”) reversing and remanding the bankruptcy court’s prior

judgment for Adeli in an adversary proceeding filed by creditor Richard B. Sachs.

Sachs’ adversary proceeding sought, inter alia, to deny Adeli discharge pursuant to

11 U.S.C. § 727(a)(2)(A) due to Adeli’s intentional transfer of her assets allegedly

to hinder or delay Sachs’ recovery. We review the bankruptcy court’s decision

“independently, without deference to the BAP.” Ting v. Chang (In re Chang), 163

F.3d 1138, 1140 (9th Cir. 1998). We affirm the BAP’s reversal of the bankruptcy

court’s judgment and remand to the bankruptcy court to deny discharge.

       **
             The Honorable David Alan Ezra, United States District Judge for the
District of Hawaii, sitting by designation.

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      This case involves two sets of pre-petition transfers by Adeli. The first set

of transfers consisted of: (1) the Equity Line Deposit; (2) the $33,000 Valley

National Transfer; (3) the $58,000 Wire Transfer; and (4) the Bear Stearns

Withdrawal (collectively, the “First 2005 Transfers”), as referenced by the

bankruptcy court. We do not address the bankruptcy court’s determination as to

the second set of transfers, because a debtor who transfers any property within one

year before filing for bankruptcy with the intent penalized by § 727(a)(2)(A) is

denied discharge. 11 U.S.C. § 727(a)(2)(A); First Beverly Bank v. Adeeb (In re

Adeeb), 787 F.2d 1339, 1342 (9th Cir. 1986).

      The only factual dispute before the bankruptcy court and on appeal is

whether Adeli had the intent to hinder, delay or defraud Sachs prohibited by

§ 727(a)(2)(A). On this record, we find that Sachs made out a prima facie case

against Adeli under § 727(a)(2)(A) because Adeli admitted that she intended to

move nearly all of her available funds into a friend’s name with the express

purpose of protecting her property from Sachs and because the transfers bear

“badges of fraud,” as detailed by the BAP. See Aubrey v. Thomas (In re Aubrey),

111 B.R. 268, 273 (B.A.P. 9th Cir. 1990); Roberts v. Erhard (In re Roberts), 331

B.R. 876, 884-85 & n.5 (B.A.P. 9th Cir. 2005). Because Sachs has made out a

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prima facie case, Adeli must respond with “credible evidence” in order to prevail.

In re Aubrey, 111 B.R. at 273.

      Here, the bankruptcy court relied on two grounds to support its finding that

Adeli lacked the requisite intent under § 727(a)(2)(A). First, the bankruptcy court

found that Adeli made the First 2005 Transfers with the purpose of protecting her

assets from the misconduct of a creditor—Sachs—and that she therefore lacked the

requisite intent under § 727(a)(2)(A). Second, the bankruptcy court additionally

held that Adeli lacked the requisite intent under § 727(a)(2)(A) because she relied

in good faith upon the advice of her attorneys in making the subject transfers. We

find that neither of these grounds is supported by “credible evidence” with which

to rebut Sachs’ prima facie case.

      First, the bankruptcy court clearly erred in holding that Adeli lacked the

intent to hinder, delay or defraud a creditor under § 727(a)(2)(A) because she acted

to protect her assets from creditor misconduct. The record in this case provides no

factual basis on which to support a finding of any improper or wrongful behavior

by Sachs or his lawyers other than Adeli’s unsupported self-serving allegations.

See In re Aubrey, 111 B.R. at 273 (declining to find a debtor’s “self-serving

statement of his intent as the best evidence of that intent”). In fact, the bankruptcy

court made an express factual finding that “Sachs did not levy on any Adeli assets,

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which he was entitled to pursue, at any time prior to Adeli’s bankruptcy.”

Accordingly, we find that the bankruptcy court clearly erred in finding that Adeli’s

allegations of potential misconduct by Sachs negated her intent under

§ 727(a)(2)(A). See Beauchamp v. Hoose (In re Beauchamp), 236 B.R. 727, 731

(B.A.P. 9th Cir. 1999) (affirming a finding of intent to hinder or delay where the

bankruptcy court found that the debtor’s prepetition transfer of assets was not for

the purpose of “thwarting a perceived pattern of improper harassment” and the

record did not support a finding of any such harassment), aff’d, 5 Fed. App’x 743

(9th Cir. 2001).

      Second, the bankruptcy court clearly erred in holding that Adeli lacked the

intent to hinder, delay or defraud a creditor under § 727(a)(2)(A) based upon her

good faith reliance on the advice of counsel. Where a bankruptcy court finds that

the debtor knew that “the purpose of the transfers was to hinder or delay creditors

of the debtor[,] [s]uch a finding precludes the defense of good faith reliance on the

advice of an attorney even if the client is otherwise innocent of any improper

purpose.” In re Adeeb, 787 F.2d at 1343. Here, Adeli admitted, and the

bankruptcy court found, that she transferred funds into her friend’s name with the

express purpose of “protecting” the money from Sachs. Thus, by Adeli’s own

admissions both she and her New York counsel knew that the purpose of the First

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2005 Transfers was to keep Adeli’s assets away from Sachs, i.e., to hinder or delay

Sachs’ collection efforts. Therefore, under In re Adeeb, Adeli’s reliance on the

advice of counsel could not have been in “good faith” because the record shows

that she had actual knowledge that the subject transfers were made to hide assets

from a creditor. Accordingly, the bankruptcy court clearly erred in finding that

Adeli’s reliance on the advice of counsel negated her intent under § 727(a)(2)(A).

      The bankruptcy court further relied on In re Adeeb’s disclose-and-recover

defense as an additional ground on which to deny Sachs’ § 727(a)(2)(A) challenge

to Adeli’s bankruptcy petition. In doing so, the bankruptcy court argued that the

holding of In re Adeeb should be expanded to apply to the facts of the instant case.

We disagree and conclude that the disclose-and-recover defense recognized in In

re Adeeb should not be extended to the situation here, where Adeli, in reliance on

the mistaken advice of counsel, failed to recover the First 2005 Transfers’ assets

until some time after she filed her voluntary bankruptcy petition. Cf. In re Adeeb,

787 F.2d at 1344-46.

      AFFIRMED.

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