Decker v. Tramiel (In re JTS Corp.)

Summarized by Louis Bubala , Kaempfer Crowell
15 years 7 months ago

Citation:

Ninth Circuit, Case No. 07-15970, Opinion, Aug. 10, 2010

Tag(s):

9th Circuit

Ruling:

The Court affirmed that a defandant in a fraudulent conveyance action under Sections 544(b) and 550 and state law is entitled to a reduction in damages based on his original payment as a good faith transferee under California state law. The Circuit rejected the trustee argument that the Bankruptcy Code's incorporation of state law on avoidability does not extend to state law on mitigation of damages for fraudulent conveyances.

Procedural context:

Appeal from District Court for Northern District of California, affirming in part on trial holding by Bankruptcy Court of fraudulent conveyance under Sec. 544(b) and credit as good faith transferee under state law, reversing in part on damage calculation and settlement credit under California state law, reviewed de novo.

Facts:

Appellant/director assisted debtor corporation pre-petition with cash flow by purchasing real property from debtor. Debtor retained option to repurchase property after one year for same price, but appellant would retain up to the greater of $1 million or the rents. Chapter 7 trustee filed action for fraudulent conveyance against directors, counsel and shareholder on ground that debtor did not receive reasonably equivalent value based on sale of bundled assets and speed of sale. All other defendants settled, and trustee obtained trial judgment against appellant. Bankruptcy Court determined damages, mitigated by (1) appellant's original payment as a good faith purchaser under state law and (2) credit for prior settlement by co-defendants.

Judge(s):

Hug (on panel Rymer, McKeown)

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