FILED
NOT FOR PUBLICATION
MAY 12 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: EDWARD J. STOUT, No. 14-60037
Debtor, BAP No. 13-1045
DOLORES STOUT, an individual; MEMORANDUM*
KAUFMAN GROUP, a California
corporation,
Appellants,
v.
RICHARD ALAN MARSHACK, Chapter
7 Trustee; STEVEN ROOT; JAMES
KERCHNER; ELECTRONIC
CONNECTOR SERVICE, a dissolved
California corporation; QUALTECH
BACKPLANES, INC., a California
corporation; DYNAMIC STAMPING, a
dissolved California corporation,
Appellees.
In re: EDWARD J. STOUT, No. 14-60038
Debtor, BAP No. 13-1257
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
STEVEN ROOT; JAMES KERCHNER,
Appellants,
v.
EDWARD J. STOUT,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kirscher, Dunn, and Taylor, Bankruptcy Judges, Presiding
Argued and Submitted March 11, 2016
Pasadena, California
Before: CLIFTON, CALLAHAN, and IKUTA, Circuit Judges.
These consolidated appeals arise out of the same set of facts involving
Edward Stout (Debtor), his mother Dolores Stout (Dolores), Dolores’s company
Kaufman Group, Inc., and three of Debtor’s creditors, Jim Kerchner, Steve Root,
and Qualtech Backplanes, Inc. (Qualtech) (collectively, the Creditors). Both cases
concern the transfer of equipment (the Business Assets) to Dolores before Debtor
filed a chapter 7 bankruptcy petition. The key issue on appeal in both cases is
whether the Business Assets transferred to Dolores were the property of Debtor or
corporations owned wholly by him. On this issue, the two bankruptcy court
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decisions affirmed by the Bankruptcy Appellate Panel (BAP) are in conflict. In
case number 14-60037, which the parties call the Preference Adversary, the
bankruptcy court found in a partial summary judgment decision that Debtor had a
property interest in the Business Assets; but in case No. 14-60038, called the
Discharge Adversary, the same court found, after a trial, that the Business Assets
were not Debtor’s property. “We review the BAP’s decision de novo and apply
the same standard of review that the BAP applied to the bankruptcy court’s ruling.”
Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009).
We have jurisdiction under 28 U.S.C. § 158(d) and we reverse in part and affirm in
part.
1. The Chapter 7 trustee (Trustee) and Creditors filed the Preference
Adversary against Dolores and Kaufman Group. In relevant part, Trustee and
Creditors seek, under 11 U.S.C. § 547(b), to avoid the transfer of Debtor’s interest
in the Business Assets to Dolores as a “preferential transfer” made by Debtor to an
insider within one year prior to the filing of Debtor’s bankruptcy petition. Under §
547(b), the transfer of a debtor’s interest in property made to an insider within one
year prior to that debtor’s bankruptcy filing may be avoided as a “preferential
transfer” given the following six elements: (1) a transfer of the debtor’s interest in
property; (2) that was to or for a creditor’s benefit; (3) that was for or on account of
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an antecedent debt; (4) that was made while debtor was insolvent; (5) that was
made up to one year prepetition, if such creditor was an insider; and (6) that was a
transfer that enables the creditor to receive more than such creditor would receive
in a Chapter 7 liquidation of the bankruptcy estate. Hansen v. MacDonald Meat
Co. (In re Kemp Pac. Fisheries, Inc.), 16 F.3d 313, 315 n.1 (9th Cir.1994). All six
of these elements must be met, Wind Power Sys., Inc. v. Cannon Fin. Group, Inc.
(In re Wind Power Sys., Inc.), 841 F.2d 288, 290 (9th Cir. 1988), and each must be
proven by a preponderance of the evidence, Arrow Elecs., Inc. v. Justus (In re
Kaypro), 218 F.3d 1070, 1073 (9th Cir. 2000). The bankruptcy court granted
partial summary judgment in favor of Trustee and Creditors on their § 547(b) claim
and the BAP affirmed. Reviewing de novo, see White v. City of Sparks, 500 F.3d
953, 955 (9th Cir. 2007), we reverse.
Reviewing the evidence before the bankruptcy court in the light most
favorable to Dolores, we conclude that a genuine dispute of material fact exists as
to the first element of § 547(b), whether any interest in the Business Assets
transferred to Dolores were the property of Debtor. Read together and in the light
most favorable to Dolores, the two loan agreements between Dolores and Debtor,
the purchase agreement of the Qualtech assets, the assignment and assumption
agreement, the bill of sale, and other documents supported the contention that
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Debtor’s corporations, not Debtor, owned the Business Assets. The testimony of
Dolores, Debtor, and Robert Cayford also supports the view that the corporations
owned the Business Assets. A jury could credit this testimony, which cannot be
dismissed as self-serving because it is corroborated by the evidence referenced
above. See Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1059 n.5, 1061
(9th Cir. 2002).
While the transfer of assets owned by a corporation normally does not
constitute a transfer by a debtor of his or her own property, property owned by a
corporation may be considered a debtor’s property where the corporation was the
debtor’s alter ego. See Miller Ave. Acquisition Partners v. Brady (In re Enter.
Acquisition Partners, Inc.), 319 B.R. 626, 634 (9th Cir. BAP 2004). However,
here evidence before the bankruptcy court creates a genuine dispute as to whether
Debtor’s wholly owned corporations were his alter egos. For example,
documentary evidence and Debtor’s declaration supported the propositions that the
corporations maintained separate records, filed separate tax returns, and did not
commingle funds. Given such evidence, a reasonable trier of fact could conclude
that the businesses were not Debtor’s alter egos, but were what they purported to
be: separate corporations that were wholly owned by Debtor. The Business Assets
did not revert to Debtor upon dissolution of the corporations because the assets had
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previously been transferred from the corporations to Dolores. We therefore
conclude that the bankruptcy court erred in granting partial summary judgment to
the Trustee and Creditors on the § 547(b) claim.1
2. In the Discharge Adversary, Creditors seek, under 11 U.S.C. §
727(a)(2)(A), to deny Debtor’s discharge from their claims against him. Under §
727(a)(2)(A), a debtor may not receive a discharge if the debtor transferred his or
her property within one year before filing for bankruptcy with the intent to hinder,
delay, or defraud a creditor. After a four-day trial, the bankruptcy court entered
judgment in Debtor’s favor, finding that Creditors had not shown that the Business
Assets were Debtor’s property or that his corporations were his alter egos. We
affirm because the evidence, including the evidence referenced above relevant to
the Preference Adversary, does not show that the bankruptcy court clearly erred.
In sum, we affirm in part and reverse in part the BAP’s affirmance of the
bankruptcy court’s decisions in the Preference and Discharge Adversaries. We
hold that the BAP erred in affirming the bankruptcy court’s partial summary
1
We do not reach the question of whether summary judgment was also
precluded by genuine disputes of material fact regarding other disputed elements of
the § 547 claim. These elements only matter if the property in question was
Debtor’s property. It follows from our conclusion that genuine issues of material
fact existed as to whether Debtor owned the Business Assets, that the bankruptcy
court erred to the extent that it found, at the summary judgment stage, that the
assets were property of the estate within the meaning of 11 U.S.C. § 541.
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judgment decision on the § 547(b) claim in the Preference Adversary because a
genuine dispute of material fact exists as to whether the Business Assets were
Debtor’s property. We hold that the BAP appropriately affirmed the bankruptcy
court’s judgment after trial on the § 727(a)(2)(A) claim in the Discharge
Adversary.
AFFIRMED in part and REVERSED in part. Appellees shall bear the costs
on appeal in the Preference Adversary. Appellants shall bear the costs on appeal in
the Discharge Adversary.
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