Goodrich v. Briones (In re Schwarzkopf)

Summarized by Thomas Phinney , Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP
15 years 3 months ago

Citation:

Robert L. Goodrich v. Juan Briones (In Re: Alexis Hill Schwarzkopf), No. 08-56974, (Nov. 23, 2010, 9th Cir); 2010 U.S. App. LEXIS 24046

Tag(s):

9th Circuit

Ruling:

Debtors’ Two Irrevocable Trusts Were Invalid The Debtors set up two irrevocable trusts in 1992 (collectively, “Trusts”), naming as beneficiary their minor child. The first trust (the “Apartment Trust”) was funded with assets in 1992, and the second trust (“Grove Trust”) was funded in 1997. The Debtors installed a friendly trustee of both Trusts (“Briones”). The Debtors filed a chapter 7 petition in 2003. They scheduled $5.4 million in debt, and at that time the trusts collectively held approximately $4 million in assets. The chapter 7 Trustee (“Trustee”) sought to recover the trust assets for the benefit of the estate. The bankruptcy court held a trial and made findings, among other things, that the Debtors were insolvent at the time they made transfers to the trusts; that the transfers were made in fraud of creditors; that Briones followed all instructions of the Debtors; and that the Trusts paid personal expenses of the Debtors. Notwithstanding these findings, the bankruptcy court held that (1) the Apartment Trust was a valid trust created for the benefit of the Debtor’s minor child, and not an alter ego of the Debtors; but (2) the Grove Trust was the alter ego of the Debtor. On appeal, the district court held that (1) the Apartment Trust was invalid because it was created with the purpose of defrauding creditors, but remanded the appeal for a determination of whether the Trustee’s claim was time-barred; and (2) neither Trust could be the “alter ego” of the Debtors because the Debtors did not own the Trusts and were not trustees. On appeal, the Ninth Circuit affirmed the district court ruling that the Apartment Trust was invalid because it was created to defraud creditors. The Ninth Circuit also held that there was no statute of limitations problem because the fraudulent transfer of assets into the Apartment Trust created a “resulting trust” whereby the Trust assets were held by Briones for the benefit of the Debtors and their creditors, and the 7-year statute of limitations under California Civil Code § 3439.09(c) did not begin to run until Briones “repudiated” the resulting trust by answering the Trustee’s complaint and contending that the Apartment Trust was valid. Finally, reversing the district court, the Ninth Circuit held that Grove Trust was the alter ego of the Debtors, and that while “ownership” may be required to find a corporation to be the alter ego of a debtor, this rule did not apply to trusts, and that the Debtor’s domination and equitable ownership of the Grove Trust resulted in an alter ego finding.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!