In re Medina

Case Type:
Case Status:
Affirmed in part and Reversed in part
BAP No. SC-19-1299-FSG (9th Circuit, Aug 14,2020) Published
The Uniform Voidable Transfer Act does not require require a creditor to prove actual harm in order for the transfer to be voidable as an actually fraudulent transfer under California Civil Code § 3439.04(a)(1).
Procedural context:
The debtor's chapter 7 trustee appealed the bankruptcy court's order granting the defendants' motion for summary judgment on the Trustee's action to set aside a judgment debtor's property agreement with his spouse as a fraudulent transfer.
Rudolph Medina filed a chapter 11 bankruptcy petition while he was litigating a state court lawsuit against John Sarkisian. The bankruptcy court authorized Medina to continue litigating the state court action. Medina ultimately obtained a nearly $1.4 million judgment against Sarkisian. Sarkisian appealed the judgment. Medina's case was then converted to a chapter 7 proceeding. The chapter 7 trustee obtained approval to pursue the state court litigation. The trustee conducted a judgment creditor examination of Sarkisian. Sarkisian informed the trustee that he did not have a pre- or post-marital agreement with his wife. Sarkisian, however, entered into such an agreement (the "Transmutation Agreement") with his wife less than a month after the examination by the trustee. The Transmutation Agreement provided that each spouse would obtain a 50% interest in each item of community property and that each spouse's share would be converted (transmuted) into separate property. The state court judgment was slightly modified on appeal, and Medina obtained a final judgment of more than $1.7 million against Sarkisian and Sarkisian obtained a final judgment of $200,000 against Medina. The trustee conducted another judgment creditor examination of Sarkisian and then learned of the Transmutation Agreement. The trustee sued the Sarkisians for actual fraud, seeking to avoid the Transmutation Agreement under §§ 349 to 349.14 of the California Civil Code. The Sarkisians defended the suit in part by arguing that the evidence showed that the bankruptcy estate could show no harm because Mr. Sarkisian had unencumbered assets from which Medina's judgment could be satisfied, despite the Transmutation Agreement. The bankruptcy court granted the Sarkisians' second motion for summary judgment. The bankruptcy court agreed that the trustee had failed to prove that he had suffered actual damages because of the Transmutation Agreement, as required by Mehrtash v. Mehrtash, 93 Cal. App. 4th 75, 80 (2001).
FARIS, SPRAKER, and GAN, Bankruptcy Judges

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