Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: July 27, 2007
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA 05-43980-AA, Adv. No. LA 06-01481-AA. Honorable Alan M. Ahart, Bankruptcy Judge, Presiding.
Before: BRANDT, PAPPAS and MARLAR, [ Bankruptcy Judges.
Hon. James M. Marlar, U.S. Bankruptcy Judge for the District of Arizona, sitting by designation.
MEMORANDUM
The bankruptcy court granted the chapter 7 trustee's motion for summary judgment setting aside as a fraudulent conveyance the transfer of debtor's condominium to a Nevada irrevocable trust.
Absent contrary indication, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23, as the case from which this appeal arises was filed before its effective date (generally 17 October 2005).
I. FACTS
In May 2000 Shanel Stasz and Hugo Quackenbush entered into a settlement agreement. Almost immediately, the parties began to disagree about compliance with its terms, and Quackenbush initiated arbitration proceedings to enforce the confidentiality clause of the agreement. The arbitrator issued an interim restraining order in November 2000.
In July 2001, Stasz executed a series of estate planning documents, including the Alta Loma Ultra Trust dated July 10, 2001 (" Trust), a Private Annuity Agreement, and a quitclaim deed conveying her condominium located at West Hollywood, California (" Property") to the Trust. The deed was recorded in November 2001.
In September 2002 Quackenbush obtained a judgment against Stasz for approximately $1.5 million, confirming the arbitrator's award. That judgment was later determined nondischargeable by the bankruptcy court.
We recently affirmed that judgment. BAP No. CC-06-1202-KMoD. An appeal to the Ninth Circuit is pending.
On 1 July 2005 Quackenbush sued Stasz and Carl E. Lovell, Jr., trustee of the Trust, in Los Angeles County Superior Court, seeking to set aside as fraudulent Stasz's 2001 conveyance of the Property to the Trust. Stasz filed a chapter 7 petition on 13 October 2005. The fraudulent conveyance action was removed to the bankruptcy court, and the chapter 7 trustee, Rosendo Gonzalez (" Trustee"), substituted as plaintiff.
The complaint was timely under CCC § 3439.09, which sets a four-year statute of limitations on fraudulent conveyance actions. The Property was transferred 10 July 2001 and the deed recorded in November 2001; the complaint was filed 1 July 2005.
The Trustee is authorized under § 544(b) to pursue state fraudulent transfer actions.
On 12 July 2006 the Trustee moved for summary judgment, which the bankruptcy court granted. Debtor and transferee filed timely separate notices of appeal but filed joint briefs. They did not appear for argument. We AFFIRM.
II. JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(H), and we do under 28 U.S.C. § 158(c).
III. ISSUE
Whether the bankruptcy court erred in granting summary judgment to Trustee.
IV. STANDARD OF REVIEW
We review the bankruptcy court's grant of summary judgment de novo. In re Jung Sup Lee, 335 B.R. 130, 135 (9th Cir. BAP 2005). Viewing the evidence in the light most favorable to the non-moving party, we must determine whether there are any genuine issues of material fact and whether the bankruptcy court correctly applied relevant substantive law. In re Bishop, Baldwin, Rewald, Dillingham, & Wong, Inc., 819 F.2d 214, 215 (9th Cir. 1987).
V. DISCUSSION
Trustee sought summary judgment under CCC § 3439.04, which defines actually and constructively fraudulent transfers:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor.
(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:
(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.
(B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
CCC § 3439.04(a).
Appellants argue that summary judgment was inappropriate because there were issues of material fact with respect to reasonably equivalent value and intent.
A. Actually Fraudulent Transfer
It is undisputed that Stasz transferred assets, and that Quackenbush was a creditor, either at the time of or shortly after the transfer. Trustee therefore needed only to show that the transfer was made with actual intent to hinder, delay, or defraud to prove an actually fraudulent transfer. See Kirkeby v. Superior Court of Orange County , 33 Cal.4th 642, 648, 15 Cal.Rptr.3d 805, 93 P.3d 395 (2004) (" A fraudulent conveyance is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim.")
Intent may be shown by circumstantial evidence. Factors the court may consider include:
(1) Whether the transfer or obligation was to an insider.
(2) Whether the debtor retained possession or control of the property transferred after the transfer.
(3) Whether the transfer or obligation was disclosed or concealed.
(4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
(5) Whether the transfer was of substantially all the debtor's assets.
(6) Whether the debtor absconded.
(7) Whether the debtor removed or concealed assets.
(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
(9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
(10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.
(11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor.
CCC § 3439.04(b).
Several of these factors are undisputed in the record and support a finding of actual intent: First, after transferring the Property to the Trust, Stasz continued to live there rent-free and pay taxes (through her LLC) (factor #2). Second, at the time of the transfer, Stasz was involved in litigation with Quackenbush (factor #4). Third, the transfer was of substantially all of her assets (factor #5). Fourth, the transfer of all her assets likely rendered her insolvent, but even if it did not, the arbitrator made the first interim arbitration award of $400,000 four months later (factors #9 and #10).
The only CCC § 3439.04(b) factor at issue is whether Stasz received reasonably equivalent value. Appellants also dispute Trustee's evidence of Stasz's statements indicating an intent to protect her assets from creditors.
1. Reasonably equivalent value
Although the record contains no evidence of the value of the Property (Stasz did not list it on Schedule A), the fact that Stasz was paying property taxes on it, via a limited liability company she owned, as she testified at her 341 meeting, establishes that it had some value.
It is undisputed that the sole consideration for the transfer of the Property was the Private Annuity Agreement (" PAA"). Paragraph 2.4 of the PAA provides that Stasz will not receive any payments until she reaches age 85, more than 47 years after the transfer. As the trial judge noted, Stasz valued the PAA at $0 in her schedules. Transcript, 30 August 2006, page 4. Nevertheless, appellants argue that there was evidence the PAA constituted " valid consideration": namely, the 9 August 2006 declaration of Carl E. Lovell, Jr., opining that " the private annuity was worth the fair market value of the said real property at the time of the sale, July 10, 2001 . . . ." But, of course, he assigned no monetary value to either the annuity or the Property, nor did he show any foundation for his valuation of either.
Upon presentation of Trustee's evidence of the PAA's lack of value (debtor's schedules, and the Trust itself), the burden shifted to appellants to present significant probative evidence raising a genuine issue of material fact. " A motion for summary judgment may not be defeated . . . by evidence that is 'merely colorable' or 'is not significantly probative.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The inquiry is " whether the evidence presents a sufficient disagreement to require submission to a [factfinder] or whether it is so one-sided that one party must prevail as a matter of law." Id . at 251-52.
Appellants also argue that the PAA was " valid consideration" as a matter of law, citing Stern v. C.I.R., 747 F.2d 555 (9th Cir. 1984) (" Stern II") and Stern v. United States, 650 F.Supp. 16 (D. Nev. 1986). The cited cases support the general proposition that a private annuity may be valid consideration and/or treated as an equal exchange for tax purposes. Their applicability in this context is questionable: the issue is not whether a private annuity could be valid consideration, but whether the one at issue here was reasonably equivalent in value to the Property.
Appellants do not address the rule that reasonably equivalent value is evaluated from the point of view of creditors. See In re Prejean, 994 F.2d 706, 708-09 (9th Cir. 1993); In re Roosevelt, 176 B.R. 200, 207-08 (9th Cir. BAP 1994). They did not come forward with any evidence of the present value of the annuity other than Lovell's circular and conclusory statement, which was devoid of any analysis or foundation, insufficient to defeat a motion for summary judgment. See In re Lewis, 97 F.3d 1182, 1187 (9th Cir. 1996). A trier of fact, on that evidence, could not find the present value of an annuity with payments commencing 47 years in the future was reasonably equivalent in value to the Property from the standpoint of creditors.
2. Intent
Summary judgment is seldom granted when intent is at issue. However, " summary judgment is appropriate if all reasonable inferences defeat the claims of one side, even when intent is at issue." In re Gertsch, 237 B.R. 160, 165 (9th Cir. BAP 1999) (citations omitted). See also Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990) (" Even in cases where elusive concepts such as motive or intent are at issue, summary judgment may be appropriate if the non-moving party rests merely upon conclusory allegations, improbable inferences, and unsupported speculation.")
Appellants argue that Trustee did not meet his burden because he relied solely on Stasz's " misquoted" § 341 meeting testimony. The Trustee submitted a transcript of Stasz's § 341 meeting in which Stasz acknowledged that one of the purposes of the estate planning was to protect assets from creditors:
McClellan: For estate planning, what does that mean to you?
Pat McClellan, counsel for the Trustee.
Stasz: It means that assets that I . . . had would transfer to my . . . beneficiaries, with minimal tax invasion, and yes they would be protected from creditors . . . .
Section 341 Meeting Transcript, 10 March 2006, page 15. Appellants argue that this statement is misleading because Stasz also indicated that that was not the primary purpose for the transfer. But Appellants cite no authority for the proposition that protection of assets from creditors must be the sole or primary purpose for a fraudulent transfer, and we know of none. And Stasz's testimony can fairly be read as acknowledging a purpose to protect assets from creditors -- the " they" in the passage quoted logically refers to " assets, " not " beneficiaries, " who need no protection from Stasz's creditors.
Appellants also argue that the § 341 meeting transcript was improperly used as evidence on summary judgment. But they cite to no authority prohibiting consideration of § 341 testimony, only legislative history stating that the purpose of the meeting is " informational; it is not intended to be an interrogation to which the debtor must give specific answers which could be used against the debtor in some later proceeding." H.R. Rep. No. 103-835, at 43 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3351.
We could find no Ninth Circuit authority considering the admissibility of § 341 testimony, but the Eleventh Circuit has held that a bankruptcy court erred by not admitting § 341 testimony in ruling on a creditor's objection to exemptions. In re Jost, 136 F.3d 1455, 1459 (11th Cir. 1998); see also In re Hardy, 319 B.R. 5, 6 (Bankr. M.D. Fla. 2004) (noting that § 341 testimony is admissible as a rebuttal or impeachment tool, but questioning its admissibility as substantive evidence).
In any event, we need not determine the appropriateness or admissibility of the transcript. It is not the sole evidence relied upon by Trustee. The circumstantial evidence supports a finding of the requisite intent even without Stasz's statements, and it is not clear from the record that the bankruptcy court relied on those statements. If it did, and if that consideration was error, it was harmless. See 28 U.S.C. § 2111; FRCP 61, incorporated by Rule 9005. We do not reverse for harmless error. In re Maximus Computers, Inc., 278 B.R. 189, 194 (9th Cir. BAP 2002).
Appellants also object to any consideration of Statsz' state court complaint filed 24 November 2004 against Lovell and others which contains statements indicating one of the purposes of the trust was to protect her assets from creditors. Appellants indicate the complaint was never verified by Stasz and was ultimately dismissed because it was defective. This complaint does not seem to have formed a basis for the bankruptcy court's ruling, but even if it did, the harmless error analysis above would apply, as there was enough circumstantial evidence of intent without it.
Finally, as noted above, we review summary judgment de novo. Only Stasz's bare assertion to the contrary in her declaration in support of Lovell's opposition to summary judgment controverts the reasonable inference from the Trustee's showing that she intended to hinder or delay her creditors. That is not sufficient to raise an issue of material fact respecting her intent, Gertsch, 237 B.R. at 165; Medina-Munoz, 896 F.2d at 8, and thus summary judgment that there was an actually fraudulent transfer was proper.
B. Constructively Fraudulent Transfer
The bankruptcy court concluded that the transfer of the Property was also constructively fraudulent because Stasz did not receive reasonably equivalent value for the Property, and because she was made insolvent by the transfer (" reasonably should have believed that he or she would incur debts beyond his or her ability to pay as they became due").
The reasonably equivalent value analysis set forth above applies equally in this context, and appellants do not dispute insolvency. The bankruptcy court did not err in ruling that the transfer was constructively fraudulent.
C. Additional issues
We need not reach the Trustee's argument that the Trust was a sham, nor appellants' that the bankruptcy court erred in " not applying Nevada law." They articulate no basis for the application of Nevada law: the Property is located in California, Stasz resides there, and filed her bankruptcy petition there: while the trust instrument provides that the " validity, construction, and all rights under the trust" are to be governed by the laws of the United States and the state of Nevada, those are not the issues in this adversary proceeding.
VI. CONCLUSION
The bankruptcy court did not err in granting summary judgment. Trustee sustained his burden of coming forward with evidence to support the fraudulent transfer claims; appellants did not come forward with evidence sufficient to show a genuine issue of material fact.
Accordingly, we AFFIRM.
All " Rule" references are to the Federal Rules of Bankruptcy Procedure, and all " FRCP" references are to the Federal Rules of Civil Procedure. " CCC" references are to the California Civil Code.