- BAP Nos. CC-13-1045-DKiTa and CC-13-1257-DKiTa
- The Ninth Circuit BAP affirmed that Bankruptcy Court’s decision that Delores’ security interest through filing of a UCC-1 financing statement on May 27, 2009 constituted a transfer within 1 –year pre-Petition, and that Delores was an “insider”. The BAP further stated that Delores seeks to manufacture a genuine issue of material fact from her subjective intent. The pre-Petition loan agreement was between Delores and the Debtor. The Ninth Circuit BAP further affirmed the Bankruptcy Court's decision that the Creditors did not meet their burden to establish that the Debtor owned the business assets. The Bankruptcy Court specifically distinguished that his ruling was based solely on the evidence presented in this separate adversary and not based on evidence presented in the Trustee's adversary against Delores. The BAP based its decision on the finding that the Bankruptcy Court did not clearly err in its decision that the Creditors did not meet their burden.
- Procedural context:
- Both appeals relate to Chapter 7 consumer bankruptcy filed in the Central District of California. The two appeals concern transfers of assets by the Debtor to the Debtor’s Motion, Dolores Stout (“Dolores”). The first appeal is regarding the Chapter 7 Trustee’s adversary to avoid a pre-Petition transfer to Dolores. The Bankruptcy Court granted the Trustee and Creditor’s Motion for Partial Summary Judgment and Dolores appealed. The second appeal is regarding a creditor’s adversary against the Debtor to prevent the entry of the Debtor’s discharge. The Bankruptcy Court denied the creditor’s Motion for New Trial and entered a judgment in favor of the Debtor.
- Pre-Petition, the Debtor was the sole owner of Dynamic Stamping, Inc. (“Dynamic”); Electronic Connector Service, Inc. (“Electronic”); and Qualtech Applied Engineering Corp. (“Applied”) (collectively the “Businesses”). Two Creditors owned an entity named Qualtech Backplanes, Inc. (“Qualtech”). Around September 18, 2006, the Creditors and Debtor entered into an Asset Purchase Agreement (“Agreement”). However, within the Agreement there was a provision that stated the Debtor was not purchasing the assets; rather, an entity to be formed later was purchasing the assets. Shortly after the Agreement, the Creditors dissolved Qualtech [but filed a “reviver” on July 10, 2009]. Dolores assisted the Debtor daily operations of the Business. Within 2 separate loan agreements dated June 20, 2005, Dolores loaned the Debtor and the businesses a total of $250,000. On November 1, 2006; Applied, Electronic, and the Debtor borrowed $1 million dollars from Vineyard Bank (“Bank”). The Bank filed a UCC-1 financing statement perfecting is security interest in the assets of Applied and Electronic. On January 8, 2008, Dolores made requiring the Debtor to make full payment by March 15, 2008. Eventually, on March 31, 2008, the Debtor and Delores entered into an agreement wherein Delores was to take immediate possession of “her collateral” [there was no evidence in the record evidencing the Delores had a lien on any assets at this time]. However, Delores agreed to lease the assets surrendered by the Debtor back to the Debtor. In the early part of 2009, the Businesses started to default on other obligations (e.g. commercial lease payments). On April 30, 2009, Delores sent another demand letter conveying she would take immediate possession of all of Dynamic’s equipment because the Debtor had failed to make monthly loan payments. On June 8, 2009, the Debtor and Delores entered into a “voluntary foreclosure and repossession agreement.” The Debtor filed for voluntary relief on July 15, 2009. The Chapter 7 Trustee and Creditors commenced an adversary against Delores and her entity Kaufman Group to avoid the pre-Petition transfer. The Chapter 7 Trustee asserted that the transfer of assets to Delores should be avoided. Delores opposed the Trustee’s Motion for Summary Judgment asserting that the “transfer” occurred more than 1 year prior to the Petition Date and the “transfer” represented contemporaneous exchange for new value. The Creditors commenced an adversary against the Debtor pursuant to Sec. 727(a)(2)(A) initially; later, through stipulation the Creditors were permitted to Amend the Complaint to include a count pursuant to Sec. 523(a)(6). Debtor moved for summary judgment on the primary basis that the Creditor were time barred from filing the Complaint and the Creditors had not met their burden in either claim.
- Honorable Dunn, Kirscher, and Taylor
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