Opinion
NOT FOR PUBLICATION
ORDER ON MOTION FOR SUMMARY JUDGMENT
PETER W. BOWIE, CHIEF JUDGE UNITED STATES BANKRUPTCY COURT.
Prior to filing this bankruptcy case, debtor and/or debtor's principals borrowed money from the bank. Debtor repaid the borrowed funds. The trustee brought an action to recover the funds against the bank and debtor's principals alleging preference and fraudulent transfer. The trustee proposed a settlement with the bank, acknowledging that debtor received reasonably equivalent value in exchange for the payment to bank, which the Court approved.
The trustee now seeks summary judgment on his action to recover from debtor's principals on the ground that the payments were made for the benefit of the principals and were fraudulent transfers under California Civil Code § 3439.04 and/or § 3439.05. A required element of both sections is that the transferor debtor did not receive reasonably equivalent value in exchange for the transfer. In light of the fact that the trustee has acknowledged in this action that debtor received reasonably equivalent value in exchange for the payment, the trustee has no claim for fraudulent transfer as against the principals or anyone else in this action. The motion is denied.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding under 28 U.S.C. § 157(b)(2)(H).
DISCUSSION
The crux of the Trustee's case is the allegation, as set out in the Complaint, that in 2004, AMC Partners, LLC's (Debtor) principals, Thomas A. Waltz, deceased, Bruner Bosio, Jr., and Steven Salisbury borrowed $250,000 from California Bank & Trust (CB&T). Then, between January 28, 2005 and May 11, 2005, Waltz, Bosio and Salisbury caused Debtor to repay $256,001.74 to CB&T.
The Trustee brought the Complaint against the representative of the estate of Waltz, Waltz's wife Nell, and his Family Partnership (the Waltz Defendants), Bosio, Salisbury and CB&T, seeking to recover the transferred funds under four Claims for Relief:
First: preference under Bankruptcy Code § 547 against all defendants except CB&T;
Second: fraudulent transfer under California Civil Code § 343 9.04 against all defendants;
Third: fraudulent transfer under California Civil Code § 3439.05 against all defendants; and
Fourth: fraudulent transfer under Bankruptcy Code § 54 8 as against all defendants.
On or about April 22, 2009, the Trustee served and filed a Notice of Intended Action, whereby he noticed his intent to enter into a Settlement Agreement with CB&T. In Attachment "A" to the Notice of Intent, the Trustee explained:
CB&T has provided evidence that the Debtor received the transferred funds identified in the Complaint and therefore, received reasonably equivalent value from CB&T in exchange for the transfers identified in the Complaint.
In support of the Intended Action the Trustee declared:
For the reasons indicated in Attachment "A" to the Notice of Intended Action and Opportunity for Hearing ... I believe that the Settlement Agreement is in the best interest of the estate.
Based upon the Trustee's representations, on June 3, 2009, the Court approved the settlement with CB&T and the dismissal of the Complaint as to CB&T.
In the present motion, the Trustee seeks summary judgment on his Second and Third Claims for Relief as against the Waltz Defendants. As noted above, the Second and Third Claims for Relief are brought under California Civil Code §§ 3439.04 and 3439.05. The Trustee has an insurmountable problem.
A required element of both § 3439.04 and § 3439.05 is that the debtor made the transfer "without receiving a reasonably equivalent value in exchange for the transfer..." As noted above, the Trustee took the position in his Notice of Intended Action and settlement with CB&T, that the Debtor "received reasonably equivalent value from CB&T in exchange for the transfers identified in the Complaint." Based upon Trustee's assertion, the Court approved the settlement with CB&T. The Trustee is judicially estopped from now taking an inconsistent position. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001); U.S. v. Lence, 466 F.3d 721, 726 (9th Cir. 2006). The doctrine of judicial estoppel is "applied to bar a party from making a factual assertion in a legal proceeding which directly contradicts an earlier assertion made in the same proceeding or a prior one." Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990) .
The Trustee attempts to avoid this conclusion by directing the Court's attention away from the transferor, Debtor, and to the alleged transferees. The Trustee then differentiates CB&T on the on hand as the direct transferee and the Waltz Defendants (and Bosio and Salisbury) on the other as the indirect transferees. The Trustee argues that the settlement with CB&T had nothing to do with the case against the indirect transferees. The Trustee is wrong. In a fraudulent transfer action, the issue is not whether the transferee gave reasonably equivalent value, but whether the transferor received reasonably equivalent value. An express element of both § 3439.04 and § 3439.05 is that the debtor made the transfer "without receiving a reasonably equivalent value in exchange for the transfer . . .." (Emphasis added). The focus of this element is not on what the transferee gave up, but what the transferor debtor received. Thus, the Trustee's admission that Debtor received reasonably equivalent value in exchange for the payment to CB&T applies to the direct transferee, CB&T, as well as the alleged indirect transferees, the Waltz Defendants (and Bosio and Salisbury).
Similarly, it does not avail the Trustee to argue that CB&T "got as good as it gave." That fact, if established, may have given rise to a defense in favor of CB&T. However, a possible defense was not the basis of the CB&T Settlement. Rather, the CB&T Settlement was based upon the acknowledgment by the Trustee that Debtor received reasonably equivalent value, and thus there was no fraudulent transfer in the first place.
The same is true of the Trustee's suggestion that the settlement was merely an acknowledgment by the Trustee that CB&T had no knowledge of the improper use of Debtor's funds. Again, CB&T's knowledge or lack thereof may have supported a defense, but it has nothing to do with the Trustee's case in chief -whether Debtor received reasonably equivalent value.
Because a lack of receipt by the Debtor of reasonably equivalent value in exchange for the transfer is a required element under Trustee's Second and Third Claims for Relief, the Trustee's motion for summary judgment on those claims is denied. Rather, the Court will grant the Waltz Defendants request for summary judgment on those claims.
The Waltz Defendants also sought summary judgment on the Fourth Claim for Relief under Bankruptcy Code § 548. A claim under § 548 can be established either upon a showing of "intent to hinder, delay or defraud..." or a lack of reasonably equivalent value. Accordingly, the Trustee's admission that Debtor received reasonably equivalent value does not preclude his claim under § 548 entirely. Summary judgment will not be granted on the Fourth Claim for Relief.
CONCLUSION
For the foregoing reasons, the Court denies the Trustee's motion for Summary Judgment on the Second and Third Claims for Relief. The Court grants Summary Judgment in favor of the Waltz Defendants on the Second and Third Claims for Relief, but denies their request for Summary Judgment on the Fourth Claim for Relief.
IT IS SO ORDERED.