THE LOVERING TUBBS TRUST, ET AL V. TIMOTHY W. HOFFMAN

Summarized by Bradley Pearce , Pearce Law PLLC
1 year 5 months ago

Case Type:

Consumer

Case Status:

Affirmed

Citation:

23-60005 (9th Circuit, Sep 09,2024) Published

Tag(s):

Ruling:

The chapter 7 trustee (i) had Article III standing to bring a fraudulent transfer avoidance action because the trustee represents the bankruptcy estate, not the debtor's creditors; and (ii) did not have to prove injury to a creditor to avoid a fraudulent transfer under 11 U.S.C. § 548. Further, the bankruptcy court properly granted summary judgment on the § 548 action because the appellants failed to submit any evidence -- or provide any factual support for their argument that discovery would likely reveal evidence -- that would rebut the debtor's admission of fraudulent intent.

Procedural context:

The debtor's chapter 7 trustee sought to avoid the transfer of property from the debtor to an irrevocable land trust in which the debtor was granted a 20% beneficial interest and the right to receive $235,000 if the property was sold. The trustee's motion for summary judgment was granted. The land trust and affiliated entities, which had opposed the trustee's summary judgment motion, appealed. The bankruptcy appellate panel affirmed the bankruptcy court, and the land trust and affiliated entities appealed to the United States Court of Appeals for the Ninth Circuit.

Facts:

Faced with the prospect of foreclosure by a creditor, Debbie O’Gorman turned to attorney William Utnehmer to help her save her home. Utnehmer offered a questionable asset protection strategy: transfer the property to an irrevocable land trust in which Utnehmer’s company held an 80% beneficial interest in exchange for a 20% beneficial interest in the trust and a priority distribution of $235,000 if the property sold. The trust allowed Utnehmer to advance the funds necessary to repair and ready the property for its eventual sale. (Utnehmer, however, never transferred any funds to O'Gorman for the property's repair, clean-up, or development.)O’Gorman accepted Utnehmer’s offer and transferred the property to the Lovering Tubbs Trust for no consideration. O’Gorman estimated that the property's value was $2.5 million when she entered into the agreement with Utnehmer. After terminating her relationship with Utnehmer, O'Gorman filed a chapter 7 bankruptcy petition. O'Gorman declared that she entered into the land trust arrangement with Utnehmer because she understood that the transfer would prevent or delay the foreclosure. Relying on O'Gorman's declaration, the chapter 7 trustee sought to avoid the transfer from O'Gorman to the Lovering Tubbs Trust ("Trust"). The trustee argued that the transfer was intended to hinder or delay the foreclosure. The trustee moved for summary judgment, relying on O'Gorman's declaration. The Utnehmer entities that were created to facilitate the transfer -- the Trust, Pacific Equities, LLC, and CLC Compliance, Inc. (the trustee of Trust) (collectively, the "Utnehmer Entities") -- opposed the trustee's motion for summary judgment. The Utnehmer Entities offered no evidence to contest O'Gorman's admission that she transferred the property to hinder foreclosure efforts. The Utnehmer Entities also failed to submit an affidavit or declaration supporting their request for a continuance so they could conduct discovery. The bankruptcy court granted the trustee's motion for summary judgment on the avoidance action. On appeal to the Ninth Circuit Court of Appeals, the Utnehmer Entities argued that the chapter 7 trustee did not have Article III standing because none of O'Gorman's creditors were harmed by the transfer of her property to the Trust because (i) the foreclosing creditor was later determined not to have a valid claim to the property and (ii) the $235,000 residual interest from the Trust was sufficient to pay all of O'Gorman's unsecured creditors' claims in full.

Judge(s):

Carlos T. Bea, David F. Hamilton,* and Morgan Christen, Circuit Judges (*United States Court of Appeals for the Seventh Circuit, sitting by designation)

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