FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: JTS
CORPORATION,
Debtor,
SUZANNE L. DECKER,
Plaintiff-Appellee,
v.
JACK TRAMIEL,
Defendant-Appellant,
and No. 07-15970
ROGER W. JOHNSON; JEAN D. D.C. No.
DELEAGE; AMBER ARBITRAGE LDC, CV-05-04709-JF
a private investment fund
incorporated in the Cayman
Islands,
Defendants,
OFFICE OF THE U.S. TRUSTEE,
Trustee,
v.
LIP-BU TAN,
Third-party-defendant.
11345
11346 IN THE MATTER OF JTS CORPORATION
In the Matter of: JTS
CORPORATION,
Debtor,
SUZANNE L. DECKER,
Plaintiff-Appellant,
v.
JACK TRAMIEL,
Defendant-Appellee, No. 07-16004
and
ROGER W. JOHNSON; JEAN D. D.C. No.
CV-05-04709-JF
DELEAGE; AMBER ARBITRAGE LDC, OPINION
a private investment fund
incorporated in the Cayman
Islands,
Defendants,
OFFICE OF THE U.S. TRUSTEE,
Trustee,
v.
LIP-BU TAN,
Third-party-defendant.
Appeal from the United States District Court
for the Northern District of California
Jeremy D. Fogel, District Judge, Presiding
Argued and Submitted
November 6, 2009—San Francisco, California
Filed August 10, 2010
Before: Procter Hug, Jr., Pamela Ann Rymer, and
M. Margaret McKeown, Circuit Judges.
IN THE MATTER OF JTS CORPORATION 11347
Opinion by Judge Hug
11350 IN THE MATTER OF JTS CORPORATION
COUNSEL
Christian B. Nielsen, San Jose, California, and G. Larry
Engel, Morrison & Foerster LLP, San Francisco, California,
for the appellant.
Jeffrey C. Wurms, Wendel, Rosen, Black & Dean, LLP, Oak-
land, California, for the appellee.
OPINION
HUG, Circuit Judge:
This case involves a bankruptcy appeal. Appellant Jack
Tramiel, a member of the JTS Corporation board of directors,
attempted to assist the debtor, JTS Corporation (“JTS”), and
purchased real property from JTS. It was held that this pur-
chase was a constructive fraudulent conveyance and that
Tramiel was liable for the value of the property. The major
issues in this case are what the fair market value of the real
property is, whether Tramiel is entitled to an offset for the
value he paid for the property as a good faith transferee, and
whether Tramiel is entitled to a credit for the amount that his
codefendants paid in a settlement agreement. We have juris-
diction under 28 U.S.C. § 158(d)(1), and we affirm.
I. Factual Background
In 1994, JTS Corporation (“JTS”) was formed to design,
manufacture, and market hard disks for personal computers.
By 1996, after a contract with JTS was terminated, JTS
needed additional working capital to continue. At that time,
JTS determined that it was not able to go public to acquire the
additional funds that it needed and agreed to merge with Atari
Corporation (“Atari”) to obtain the funds. Through the
merger, JTS received $15 million in cash, $55 million in intel-
IN THE MATTER OF JTS CORPORATION 11351
lectual property, eight separate real properties located in Cali-
fornia and Texas, and a $25 million loan which JTS hoped
would carry it through September 1996. In addition, Tramiel,
the defendant, who was the chairman of Atari’s board of
directors, was brought onto the JTS board of directors.
Since the funds acquired through the merger were only
intended to carry JTS through September, Virginia Walker,
JTS’s chief financial officer, began to search for additional
capital. After Walker failed to secure funds from several
banks, she approached Tramiel and suggested that he buy the
eight separate real properties (“real property”) that JTS would
acquire as a result of the Atari merger. In response, Tramiel
suggested that he buy the real property for $10 million and
permit JTS to retain an option to repurchase the real property
for the same $10 million for one year. If JTS exercised the
option, Tramiel would keep the greater of $1 million or the
rental income generated by the property for a one-year period.
In June 1996, JTS’s board of directors approved the sale of
the real property to Tramiel and authorized Walker to work
with an attorney to implement the sale. Evidence showed that
the JTS board believed that the real property sale to Tramiel
was the quickest way of raising the necessary funds to keep
the company running and that the repurchase option would
allow a year to regain the real property if it decided to do so.
One director recalled a discussion that although JTS might
receive a greater price for the real property under other cir-
cumstances, in light of the immediate need for funds, Tram-
iel’s offer was fair. Tramiel removed himself from the
boardroom and abstained from all voting during the sale dis-
cussions.
By July 1996, JTS’s debt exceeded its assets by $23 mil-
lion. In September 1996, the real property sale closed. Still
struggling, JTS liquidated other property acquired from the
merger. Despite these and other efforts, JTS was unable to
recover and in November 1998, was forced into bankruptcy
11352 IN THE MATTER OF JTS CORPORATION
through an involuntary petition. Later, JTS filed a Chapter 11
petition, scheduling assets of $4.2 million and liabilities of
$136 million. In 1999, the case converted to Chapter 7.
II. Procedural Background
In 2003, the trustee, Suzanne L. Decker filed a complaint
against JTS’s directors (including Tramiel), its attorneys, and
a shareholder, alleging fraudulent conveyance and other
claims. In 2004, Tramiel’s co-defendants, i.e., the attorney
defendants and two members of the JTS board of directors,
reached a settlement with Decker in which they agreed to pay
the JTS bankruptcy estate $4.5 million. The bankruptcy court
issued an order approving the settlement and trial proceeded
against only Tramiel.
In 2005, the bankruptcy court held inter alia that the sale
of the real property to Tramiel was avoided as a constructive
fraudulent conveyance under 11 U.S.C. § 544(b) of the Bank-
ruptcy Code and California Civil Code § 3439.04. The bank-
ruptcy court stated that under § 544(b) a trustee may avoid
transfers of a debtor’s property that would be avoidable under
state law. Under California Civil Code § 3439.04, a transfer
is avoidable if the debtor completed the property transfer
without receiving a reasonably equivalent value in exchange
for the property and the debtor intended to incur or believed
or reasonably should have believed that it would incur debts
beyond its ability to pay. In determining reasonably equiva-
lent value, the bankruptcy court found that the fair market
value of the eight separate real properties which Tramiel
bought from JTS was $15,760,000 if the properties had been
individually exposed to the market for one year and sold sepa-
rately. Because the property was sold as a bundled portfolio
and it was a quick sale, the court held that a 5% reduction
should apply for a quick sale and a 20% reduction should
apply for a bundled sale. Thus, the bankruptcy court held that
the reasonably equivalent value of the real property was
$11,820,000.
IN THE MATTER OF JTS CORPORATION 11353
The bankruptcy court determined that the value of the
option to repurchase the real property was $432,815. The
bankruptcy court stated that the value of the repurchase option
is determined by subtracting the strike price of the repurchase
option from the fair market value of the real property. The
bankruptcy court held that the stated strike price, $10 million,
should be added to the loss of rental income for the real prop-
erty for one year, which was $1,387,185, to equal a total
$11,387,185 strike price. The bankruptcy court subtracted the
strike price of $11,387,185 from the reasonably equivalent
value of the real property, i.e., $11,820,000, and held that the
value of the repurchase option was $432,815. The bankruptcy
court held that Tramiel paid a total consideration of
$10,432,815 for the real property by adding the value of the
repurchase option to the $10 million purchase price.
In addition, the bankruptcy court held Tramiel was a good
faith transferee under California Civil Code § 3439.08(d)(3).
The bankruptcy court determined that under California Civil
Code § 3439.07(a)(1) the ability of a trustee to avoid a trans-
fer is subject to the limitations under California Civil Code
§ 3439.08. Under § 3439.08(d)(3), a good faith transferee is
entitled to a reduction in liability to the extent of the value
given to the debtor. The bankruptcy court held that Tramiel
was a good faith transferee entitled to a reduction of the $10
million consideration paid for the real property plus the value
of the repurchase option, i.e., $432,815. The bankruptcy court
held that subtracting the good faith transferee reduction of
$10,432,815 from the $11,820,000 reasonably equivalent
value left Tramiel with a liability of $1,387,185. After deter-
mining that Tramiel was not entitled to a settlement credit, the
bankruptcy court held that Tramiel’s liability was $1,387,185
plus interest.
Tramiel filed a motion in bankruptcy court to amend the
judgment in order to grant him a settlement credit under Cali-
fornia Civil Procedure Code § 877. The bankruptcy court
amended its judgment and held that Tramiel was entitled to a
11354 IN THE MATTER OF JTS CORPORATION
settlement credit against his liability in the amount paid by the
settling defendants to the bankrupt estate, i.e., $4.5 million.
Because this settlement credit exceeded Tramiel’s liability,
the bankruptcy court held that Decker could not recover any
amount from Tramiel.
On appeal, the district court affirmed in part and reversed
in part the bankruptcy court’s judgment. The district court
affirmed the bankruptcy court’s determination that Tramiel
was liable for constructive fraudulent conveyance under
§ 544(b) and § 3439.04(a). The district court held, however,
that the fair market value of the real property was
$15,760,000 and the rents were $1,387,185, creating a total
fair market value of $17,147,185 for the real property. Unlike
the bankruptcy court, the district court concluded that the
appropriate measure of liability is the fair market value.
The district court affirmed the bankruptcy court’s determi-
nation that Tramiel was a good faith transferee under Califor-
nia Civil Code § 3439.08(d)(3) and thus reduced his liability
by $10,432,815, i.e., the $10 million purchase price and value
of the repurchase option, $432,815. The district court sub-
tracted $10,432,815 from the fair market value of the real
property, i.e., $17,147,185, and held that Tramiel’s liability
was $6,714,370.
The district court reversed the bankruptcy court’s holding
that Tramiel was entitled to a settlement credit of the $4.5
million paid by his co-defendants. The district court held that
under California Civil Procedure Code § 877, a settlement
bars nonsettling defendants from seeking contribution from
the settling defendants, but the nonsettling defendant’s liabil-
ity may be reduced by the settlement amount if all of the
defendants are joint tortfeasors. The district court held that
Tramiel was not a joint tortfeasor because (1) there was no
evidence that Tramiel had requested a finding of joint liabil-
ity; (2) the written settlement agreement between the co-
defendants and bankrupt estate allocated liability for each co-
IN THE MATTER OF JTS CORPORATION 11355
defendant for certain torts and did not address the fraudulent
conveyance; and (3) the written settlement agreement con-
tained an integration clause, stating that the agreement was
the complete expression of the parties’ intent. Thus, the dis-
trict court held that Tramiel was liable for the fraudulent con-
veyance in the amount of $6,714,370.
III. Discussion
A. Standard of Review
We review de novo a district court’s decision on appeal
from a bankruptcy court. In re Greene, 583 F.3d 614, 618 (9th
Cir. 2009). We apply the same standard of review applied by
the district court. Id. We review a bankruptcy court decision
independently and without deference to the district court’s
decision. In re Strand, 375 F.3d 854, 857 (9th Cir. 2004).
“The bankruptcy court’s findings of fact are reviewed for
clear error, while its conclusions of law are reviewed de
novo.” Id. (citing Galam v. Carmel (In re Larry’s Apt.,
L.L.C.), 249 F.3d 832, 836 (9th Cir. 2001)). We must accept
the bankruptcy court’s findings of fact, unless “the court is
left with the definite and firm conviction that a mistake has
been committed.” Greene, 583 F.3d at 618. “Mixed questions
of law and fact are reviewed de novo.” In re Chang, 163 F.3d
1138, 1140 (9th Cir. 1998).
B. Fraudulent Conveyance & Value of Real Property
[1] Tramiel argues that the district court erred when it
determined with regard to the fraudulent conveyance claim
that the value of the real property was its fair market value
$17,147,185. Under § 544(b)(1) of the Bankruptcy Code, a
“trustee may avoid any transfer of an interest of the debtor in
property or any obligation incurred by the debtor that is void-
able under applicable law.” Under California Civil Code
§ 3439.04(a), a transfer is avoidable if the debtor made the
transfer without receiving a reasonably equivalent value in
11356 IN THE MATTER OF JTS CORPORATION
exchange for the transfer and the debtor intended to incur, or
believed or reasonably should have believed that it would
incur debts beyond its ability to pay as they became due. Rea-
sonably equivalent value is the value of the property on the
date of the transfer from the perspective of the creditors. In re
Prejean, 994 F.2d 706, 708 (9th Cir. 1993); In re Fairchild
Aircraft Corp., 6 F.3d 1119, 1125-26 & n.5 (5th Cir. 1993).
Courts may consider the fair market value or what would be
the fairly equivalent value of the property, taking into consid-
eration all of the specific circumstances of each case affecting
the value of the asset. Hansen v. Cramer, 245 P.2d 1059 (Cal.
1952); Bailey v. Leeper, 298 P.2d 684 (Cal. Ct. App. 1956).
A finding of what constitutes the value of real property is a
finding of fact which may be reversed only if it is shown that
it was clearly erroneous. In re Arnold, 85 F.3d 1415, 1421
(9th Cir. 1996); In re Tuma, 916 F.2d 488, 491 (9th Cir.
1990).
[2] In this case, we conclude that the district court erred in
holding that the fair market value which it fixed at
$17,147,185 was determinative. The bankruptcy court’s find-
ing that the reasonably equivalent value was $11,820,000 was
not clearly erroneous. The bankruptcy court found that the fair
market value of the property was $15,760,000 without apply-
ing quick and bundled sale reductions. Both parties’ experts
agreed that $15,760,000 would be the value of the property if
it had been sold individually and exposed to the market for a
year and that this was thus an appropriate starting point. The
bankruptcy court then applied reductions of 5% for a quick
sale and 20% for a bundled sale to the $15,760,000, reducing
the fair market value to $11,820,000 (the reasonably equiva-
lent value). This was not clearly erroneous. Evidence showed
that JTS wanted immediate cash and was willing to take a
reduced price for the real property to obtain the funds quickly.
JTS wanted a quick and bundled sale and even Decker’s
expert agreed that reductions for a quick and bundled sale
were proper if a seller required those terms. For a bundled
sale, Tramiel’s expert testified that a 20 to 30% reduction was
IN THE MATTER OF JTS CORPORATION 11357
proper and Decker’s expert testified that a 5.5% reduction was
proper. The bankruptcy court found Tramiel’s expert more
persuasive and imposed the lowest percentage that he recom-
mended. For a quick sale, Decker’s expert testified that if a
discount was applied that he would apply 1% per month, i.e.,
a total of five percent. The bankruptcy court applied this per-
centage. No evidence shows that the bankruptcy court’s rea-
sonably equivalent value determination of $11,820,000 was
clearly erroneous. Accordingly, we disagree with the district
court’s determination based entirely on fair market value, and
affirm the bankruptcy court’s reasonably equivalent value
determination. In re Tuma, 916 F.2d at 491 (holding bank-
ruptcy judge’s determination was not clearly erroneous even
though there were many different methods of determining
value); Sammons v. Comm’r, 838 F.2d 330, 334 (9th Cir.
1988) (holding court did not abuse its discretion in rejecting
certain appraisals regarding valuation); Anderson v. City of
Bessemer City, N.C., 470 U.S. 564, 574 (1985) (stating if
there are two views of the evidence, a court’s choice between
them is not clearly erroneous). Accordingly, we hold, as the
bankruptcy court held, that the reasonably equivalent value of
the real property was $11,820,000.
[3] The bankruptcy court also did not clearly err in deter-
mining that the fair market value of the repurchase option was
$432,815. The question of whether JTS received a reasonably
equivalent value also turns on the value of the repurchase
option that Tramiel gave to JTS. Tramiel’s expert correctly
testified that the value of the repurchase option was the differ-
ence between the reasonably equivalent value of the property
and the fixed strike price. See In re Calvillo, 263 B.R. 214
(W.D. Tex. 2000). Here, the bankruptcy court properly con-
cluded that the strike price was $10 million plus $1,387,185
for rents, for a total of $11,387,185. Subtracting that total
from the reasonably equivalent value of $11,820,000 equaled
a total of $432,815 for the value of the repurchase option.
Because there is no evidence that this determination was
11358 IN THE MATTER OF JTS CORPORATION
clearly erroneous, the bankruptcy court properly found that
the value of the repurchase option was $432,815.
C. Good Faith Transferee
Decker argues that the bankruptcy and district courts erred
by holding that Tramiel was a good faith transferee under Cal-
ifornia Civil Code § 3439.08(d)(3) and reducing his liability
by the value he paid for the property, i.e., $10,432,815.
Decker argues that § 544(b) and § 550(a) claims are only sub-
ject to state laws that determine voidability. Decker argues
that § 3439.08(d)(3) does not determine voidability and is
therefore inapplicable to § 544(b) and § 550(a) claims.
i. Sections 544 and 550 of the Bankruptcy Code
[4] Under § 544(b) and § 550(a) of the Bankruptcy Code,
a trustee may avoid a fraudulent transfer of property if that
transfer is voidable under applicable state law. In re United
Energy Corp., 944 F.2d 589, 593 (9th Cir. 1991). Fraudulent
transfer law has been a part of debtor-creditor relations since
1571. 5 Collier on Bankruptcy § 548.01[1][a], [b] at 548-8, 11
(Alan N. Resnick & Henry J. Sommer 16th Ed.). Such laws
were enacted to allow a creditor to avoid an improper transac-
tion by a debtor who attempts to unjustly reduce assets and
avoid his creditors’ claims. Id. Prior to 1938, however, federal
bankruptcy law only addressed a small number of fraudulent
transfer cases in which there was actual intent to defraud and
the transfer occurred within four months of the bankruptcy.
Id. at 548-11-12. In 1938, Congress enacted amendments to
the Chandler Act and fully absorbed fraudulent transfer laws
into federal bankruptcy law. Id. These 1938 amendments
“brought the full panoply of fraudulent transfer law into fed-
eral law, including the ability to avoid constructively fraudu-
lent transfers.” Id. “Given the elemental nature of fraudulent
transfer law, however, there was no preemption [of states]
intended, and states (as well as the federal government) con-
IN THE MATTER OF JTS CORPORATION 11359
tinued to adapt parts of fraudulent transfer law for their own
purposes.” Id. at 548-12.
Sections 548 and 544 of the Bankruptcy Code were enacted
by Congress to allow a trustee the option of avoiding a fraud-
ulent transfer under either state law or federal law. Section
548 was adopted in 1978. Section 548 allows a trustee to
avoid a transfer if it is made within two years of filing a bank-
ruptcy petition and the debtor either had actual intent to
defraud or received less than reasonably equivalent value in
exchange for the transfer. 11 U.S.C. § 548(a)(1)(A), (B). Sub-
section (c) of § 548 provides that a trustee’s recovery may be
reduced by the value given for the transfer if the transferee
made the transfer in good faith.
In 1978, § 544 of the Bankruptcy Code was enacted in rec-
ognition of the growth of state fraudulent transfer laws. Col-
lier on Bankruptcy § 548.01[2] at 548-12. Section 544 enables
a bankruptcy trustee to avoid any transfer of property that an
unsecured creditor with an allowable claim could have
avoided under applicable state law. 11 U.S.C. § 544(b)(1);
Alan Resnick, Finding the Shoes That Fit: How Derivative is
the Trustee’s Power to Avoid Fraudulent Conveyances Under
Section 544(b) of the Bankruptcy Code?, 31 Cardozo L. Rev.
205 (2009). The purpose of this section was to recognize the
body of state laws addressing fraudulent transfers and allow
a trustee the choice of avoiding transfers under § 544 and the
applicable state fraudulent transfer law, or under only federal
law pursuant to § 548. Collier on Bankruptcy § 548.01[2] at
548-12.
[5] Section 550 of the Bankruptcy Code authorizes a
trustee, after avoiding a fraudulent transfer under § 544 or
§ 548, to recover the property transferred or the value of the
property for the benefit of the bankrupt estate. 11 U.S.C.
§ 550(a). Section 550(a) provides that “to the extent that a
transfer is avoided under section 544 . . . [ or] 548 . . . the
trustee may recover, for the benefit of the estate, the property
11360 IN THE MATTER OF JTS CORPORATION
transferred, or, if the court orders, the value of such property.”
The purpose of § 550 is “to restore the estate to the financial
condition it would have enjoyed if the transfer had not
occurred.” In re Acequia, 34 F.3d 800, 812 (9th Cir. 1994)
(internal quotation marks omitted). The primary goal is equity
and restoration, i.e., “putting the estate back where it would
have been but for the transfer.” Collier on Bankruptcy
§ 550.02[3][a] at 550-10; 11 U.S.C. § 550(e)(1)(A); In re
Integra Realty Res., Inc., 354 F.3d 1246, 1266 (10th Cir.
2004); In re American Way Serv. Corp., 229 B.R. 496, 530-31
(Bankr. S.D. Fla. 1999). Abiding its equitable underpinnings,
a trustee’s recovery under § 550 is limited if the transferee
took the transfer for value in good faith without knowledge of
its voidability. 11 U.S.C. § 550(b)(1). A good faith transferee
is also permitted under § 550 to recover the value of any
improvements that were made after the transfer. 11 U.S.C.
§ 550(e)(1)(A).
ii. Cases Involving Sections 544 and 550
[6] The Supreme Court and this court have interpreted
claims under § 544 and § 550 of the Bankruptcy Code to
require that once avoidance is shown, the trustee’s recovery
cannot be limited in certain situations. In Moore v. Bay, 284
U.S. 4, 5 (1931), the Supreme Court addressed whether a
bankruptcy trustee’s recovery was limited on a fraudulent
transfer claim under § 70e of the Bankruptcy Act, the precur-
sor to § 544 of the Bankruptcy Code.1 11 U.S.C. § 110e
(1976) (repealed); 11 U.S.C. § 544(b), Notes (stating § 544(b)
is derived from former § 70e and that § 544(b) follows the
rule of Moore v. Bay); Sherwood Partners, Inc. v. Lycos, Inc.,
1
Section 70e(1) provided that a “transfer made or suffered or obligation
incurred by a debtor adjudged a bankrupt under this Act which, under any
Federal or State law applicable thereto, is fraudulent as against or voidable
for any other reason by any creditor of the debtor, having a claim provable
under this Act, shall be null and void as against the trustee of such debtor.”
Miller v. Sulmeyer, 263 F.2d 513, 515 (9th Cir. 1959)
IN THE MATTER OF JTS CORPORATION 11361
394 F.3d 1198, 1201 (9th Cir. 2005) (stating that § 70e is the
precursor of § 544(b)). In Moore, the “bankrupt executed a
mortgage of automobiles, furniture, show room and shop
equipment” and later recorded the mortgage. 284 U.S. at 4.
Under California Civil Code § 3440, a transfer of personal
property made by one who has the property and does not
immediately deliver it, was void against those who were cred-
itors at the time of the transfer and those who became credi-
tors while the transferor still possessed the property. Because
of § 3440’s application, the mortgage was void against credi-
tors who were such on the date of the mortgage and those who
became creditors between the date of the mortgage and the
date it was recorded. Id. at 4-5. The Supreme Court, thus, had
to address the issue of whether the mortgage was also void
against creditors who gave the bankrupt credit after the date
the mortgage was recorded. Id. at 5.
The Supreme Court held that for fraudulent transfer claims
asserted by a bankruptcy trustee under § 70e “the right of the
trustee to recover is dependent upon just one creditor with a
cause of action and [is] not dependent at all upon the size of
the creditor’s claim against the debtor.” Collier on Bank-
ruptcy § 544.06[4] at 544-23. The Supreme Court held that a
trustee could “avoid an entire transfer without regard to the
size of the claim of the unsecured creditor whose rights and
power the trustee [is] asserting.” Helen Ryan Frazer, Laurel
R. Zaeske, and Lynda T. Bui, Fraudulent Transfer: Litigation
Under the Bankruptcy Code and State Law, 29 Cal. Bankr. J.
255, 269 (2007) (internal quotation marks omitted). “In other
words, an entire transfer can be set aside even though the
creditor’s claim is nominal and, moreover, the recovery of the
trustee is for the benefit of all creditors including those who
had no right to avoid the transfer.” Id. (internal quotation
marks omitted). Thus, the Supreme Court held that the credi-
tor with a cause of action under § 70e would share any recov-
ery equally with unsecured creditors who otherwise could not
recover. Moore, 284 U.S. at 5.
11362 IN THE MATTER OF JTS CORPORATION
Following the rule of Moore v. Bay, in Miller v. Sulmeyer,
263 F.2d 513, 516 (9th Cir. 1959) we held that a bankruptcy
trustee asserting a claim under § 70e of the Bankruptcy Act
could recover on a chattel mortgage even though under Cali-
fornia Civil Code § 2957 the mortgage was void as against
any creditor after the date that the mortgage was recorded. In
Miller, the Millers sold a business to the now bankrupt Del-
con Corporation. Id. at 514. In return, the Millers “took back
from Delcon a purchase money mortgage on chattels trans-
ferred to Delcon.” Id. The Millers did not record the mortgage
for 79 days. Id. A creditor filed a claim against the mortgage
for $8,906.95 during that time. Id. The Millers later fore-
closed on the mortgage, repossessed the chattel under the
terms of the mortgage, and resold the property for $82,500.
Id. Delcon was bankrupt at the time of the sale. Id.
Under California Civil Code § 2957, the mortgage and the
Miller’s receipt of the $82,500 was void as against any credi-
tors whose debts arose after the date that the mortgage was
recorded. Id. at 515. We held, however, that § 70e controlled,
that the facts were similar to Moore, i.e., the cases addressed
chattel mortgages and § 70e claims, and stated that we were
unable to distinguish Moore from that case. Id. at 515. We
held therefore that the trustee was entitled to the $82,500,
despite the invalidity of a creditor’s claim against the Millers
under California law. Id.
Many years later in In re Acequia, Inc., 34 F.3d 800, 804
(9th Cir. 1994), we addressed whether a bankruptcy trustee’s
recovery for fraudulent transfers under § 544(b) (which
replaced former § 70e) and § 550(a) could be limited to the
amount of the unsecured claims against the bankrupt estate.
In Acequia, Vernon Clinton formed Acequia, Inc. to conduct
farming operations on his land in Idaho. Id. Later, Acequia
filed for bankruptcy. Id. The bankruptcy trustee for Acequia
filed suit, asserting that Clinton had fraudulently conveyed
Acequia’s assets to himself and was liable under § 544(b) and
§ 550. Id. at 803-04, 808. Clinton argued that the § 544(b)
IN THE MATTER OF JTS CORPORATION 11363
claim was “moot because the corporation [had] paid all [of
its] unsecured creditors in its plan of reorganization.” Id. at
807.
In Acequia, we held that it was improper to limit a trustee’s
recovery under § 544(b) and § 550(a) based on the total
amount of unsecured claims against the bankrupt estate. Id.
We held that the existence of a § 544(b) claim requires only
that one creditor exist at the time that the transfer was made
and that that creditor have an actionable claim against the
estate. Id. We held that a trustee must establish the following
to recover under § 544(b) and § 550(a): 1) fraud or illegality
under applicable law; 2) voidness of the transfer under
§ 544(b) and applicable law; and 3) liability of the particular
transferee under § 550. Id. at 809. Once fraud and voidness
are shown, a trustee may recover under § 550 to the extent it
“benefits the estate,” i.e., even if there is a right to avoid a
transfer, it does not mean that a right to recover on every
transfer is automatic. Id. at 811.
Applying such rules in Acequia, we held that the bank-
ruptcy trustee had a right to assert claims under § 544(b)
because there were unsecured claims against the estate at the
time that bankruptcy was filed. Id. at 807. We held that the
trustee was entitled to fully recover, even if it received a
windfall, because (1) recovery would ensure that Acequia
would perform its obligations under its reorganization; (2)
recovery would allow the estate to be reimbursed for pursuing
the fraudulent transfer action; and (3) Clinton had actual
fraudulent intent and did not deserve between the two parties
to receive a benefit. Id. at 811-12.
iii. Good Faith Transferee
[7] The trustee’s position is that the interplay of §§ 544(b)
and 550 requires full avoidance, and that California Civil
Code § 3439.08(d)(3) is not applicable because Tramiel is not
a good faith purchaser and § 3439.08(d)(3) cannot limit the
11364 IN THE MATTER OF JTS CORPORATION
transferee’s avoidance. Both the bankruptcy court and the dis-
trict court thought otherwise, as do we: § 3439.07, which
allows relief of avoidance “to the extent necessary to satisfy
the creditor’s claim” is expressly made “subject to the limita-
tions in Section 3439.08” — and those limitations include a
reduction for what a good faith transferee paid.
While we held in Miller and Acequia that a trustee’s recov-
ery cannot be limited by certain factors when asserting a
§ 544(b) claim, those cases did not address the issue of good
faith or this statutory provision, and we have held in other
cases that certain factors — like good faith — apply as a mat-
ter of law when such a claim is raised. In In re Agricultural
Research and Technology Group, Inc. (“Agretech”), 916 F.2d
528, 531 (9th Cir. 1990), we addressed whether the bank-
ruptcy trustee for Agricultural Research and Technology
Group, Inc. (“Agretech”) could avoid fraudulent transfers
made by Agretech to Palm Seedlings Partners-A (“Palm”)
under § 544(b) and § 550(a) and whether Palm was a good
faith transferee under state law. Id. at 539. Agretech was a
Hawaii corporation that took plant seeds, cultivated them and
marketed the mature plants. Id. at 532. Several shipments of
seeds were made to Agretech pursuant to an agreement with
Palm in which Agretech paid for the seeds and Palm agreed
to pay a certain amount for the plants once they were grown.
Id. at 533. Throughout its business dealings, however, Agre-
tech was running a Ponzi scheme and distributing “funds to
earlier investors from the receipt of monies from later inves-
tors.” Id. at 536. Agretech’s president plead guilty to operat-
ing a Ponzi scheme for several years, including years
spanning the Palm agreement. Id. at 533.
We held that the transfers from Agretech to Palm were
fraudulent and avoidable under § 544(b) and Hawaii Revised
Statute § 651C-4(a)(1) and that Palm was not a good faith
transferee under Hawaii Revised Statute § 651C-8. Under
§ 651C-4(a), a transfer is fraudulent as to a creditor if it was
made with the intent to defraud or without receiving a reason-
IN THE MATTER OF JTS CORPORATION 11365
ably equivalent value in exchange. Under § 651C-8, any
transferee who received a transfer in good faith may recover
the value he gave in a transaction which is avoidable under
Hawaii Revised Statute § 651C-4(a)(1). Id. at 535. Because
the record demonstrated that Agretech had actual intent to
defraud its creditors by transferring the sums, we held that the
transfers were avoidable under § 651C-4(a)(1). Id. at 538-39.
We concluded that Palm did not constitute a good faith trans-
feree under § 651C-8(a) because it should have known that
Agretech was running a Ponzi scheme based on statements it
made to Palm and from Agretech’s willingness to accept little
value in exchange for the transfer. Id. at 538-540. We held
that this evidence showed Palm “not only knew of the fraud,
but was an active participant.” Id. at 539. Thus, Palm was not
a good faith transferee.
In In re AFI Holding, Inc. (“AFI”), 525 F.3d 700, 701-02
(9th Cir. 2008), we addressed whether the trustee for Advance
Finance Incorporated (“AFI”) could avoid transfers from AFI
to one of its investors, Keith Mackenzie, under § 548 and
§ 550 and whether Mackenzie was a good faith transferee
under California Civil Code § 3439.08. Id. at 708-09. Mac-
kenzie invested $73,400 with AFI in 1995 and 1996 as a pur-
ported limited partner in exchange for a proportionately
reduced restitution claim. Id. at 702, 708. Mackenzie with-
drew from AFI and received $89,824.18, which constituted
his initial principal of $73,400 and a fictitious gain on his
investment of $16,424. Id. at 702. Later, the founder of AFI
pled guilty to federal securities and mail fraud charges and
admitted to operating a Ponzi scheme. Id. at 704. The bank-
ruptcy trustee sought to avoid the $89,824.18 transfer from
AFI to Mackenzie and Mackenzie argued that he was a good
faith transferee and entitled to a reduction on that basis. Id.
We held that the transfer from AFI to Mackenzie was an
actual fraudulent transfer under § 548 and that the good faith
transferee exception under California Civil Code § 3439.08
was not barred as a matter of law. Id. at 704-09. With regard
11366 IN THE MATTER OF JTS CORPORATION
to the fraud, we held that evidence of the Ponzi scheme and
the guilty plea by AFI’s founder sufficiently established
actual intent to defraud creditors. Id. at 704. Regarding the
good faith exception under § 3439.08, we stated that Macken-
zie had exchanged a reasonably equivalent value for the trans-
fer so that the good faith exception for the fraudulent transfer
was not barred as a matter of law. Id. at 709. We held that if
on remand the district court determined that Mackenzie took
the transfer in good faith, then Mackenzie would be entitled
to the amount he gave AFI, i.e., $73,400, but not to the ficti-
tious gain of $16,424.18. Id. at 709.
[8] In this case, based on Acequia, Agretech and AFI, we
hold that the trustee may recover under § 544(b) and § 550,
but that Tramiel has shown he is a good faith transferee under
California Civil Code § 3439.08. First, the trustee has estab-
lished recovery under the three-part Acequia test. Acequia, 34
F.3d at 811. The Acequia test requires that the trustee show
(1) fraud or illegality; (2) voidness of the transfer under
§ 544(b) and applicable law; and (3) liability of the particular
transferee under § 550. Id. at 809. In this case, the trustee has
satisfied steps one and two by showing that the real property
transfer from JTS to Tramiel was a constructive fraudulent
conveyance and was void under § 544(b) and California Civil
Code § 3439.04(a). The trustee has also shown that Tramiel
has liability for the transfer, but the amount of recovery must
be calculated to the extent that it benefits the estate, as § 550
expressly requires, and must further the intent of § 550 to pro-
mote equity and restore the estate to its prior condition.
[9] To calculate the amount of recovery and abide by the
intent of § 550, we hold that California Civil Code
§ 3439.08(d), the good faith transferee exception, applies in
§ 544(b) cases and, if satisfied, allows for a reduction in the
trustee’s recovery. Section 3439.08(d) provides that
“[n]otwithstanding voidability of a transfer or an obligation
under this chapter, a good faith transferee or obligee is enti-
tled, to the extent of the value given the debtor for the transfer
IN THE MATTER OF JTS CORPORATION 11367
or obligation, to . . . [a] reduction in the amount of the liability
on the judgment.” Here, the record establishes that Tramiel
was objectively a good faith transferee who gave JTS $10
million in exchange for real property to enable JTS to survive
financially. JTS had no source for capital and it was JTS who
approached Tramiel and suggested that they do the real prop-
erty transfer. To protect the company, Tramiel agreed to the
deal, but gave JTS an option to repurchase the property at the
exact same price for a period of a year. If JTS exercised the
option, Tramiel would keep the greater of $1 million or the
property’s rental income and retain a return on his investment.
Tramiel instructed board members that they should get an
independent appraisal of the property and removed himself
from all board discussions and votes regarding the transfer.
Tramiel was not aware of any appraisals of the property and
testified that he may have stated they were worth $12 to $13
million at the time of the merger. Finally, JTS board members
stated that given the circumstances, and JTS’s dire need for
cash, the real property transaction was fair.
[10] In total, the evidence shows that Tramiel entered the
transaction in good faith to enable the company to survive and
proposed a repurchase option to protect the company.
Because Tramiel is thus a good faith transferee under Califor-
nia Civil Code § 3439.08(d), his liability of $11,820,000 is
reduced by any value that he gave in exchange for the real
property. Tramiel gave $10 million to purchase the property
and a repurchase option valued at $432,815, meaning that the
total consideration provided for the property was
$10,432,815. Deducting the amount of consideration, i.e.
$10,432,815, from the amount of liability, i.e., $11,820,000,
leaves Tramiel with a liability of $1,387,185.
This conclusion effectuates the intent of § 550 to restore the
bankrupt estate to the financial condition it enjoyed prior to
the transfer. Acequia, 34 F.3d at 812. Allowing the estate to
profit by taking value that should be returned to a good faith
transferee does not promote the purpose of § 550 to restore
11368 IN THE MATTER OF JTS CORPORATION
equity. Id. Moreover, allowing state law good faith transferee
exceptions in cases asserting § 544 claims permits a symme-
try with the Bankruptcy Code: § 548 of the Bankruptcy Code,
which voids fraudulent transfers under federal law, allows for
a reduction in recovery due to a good faith transferee. Section
544(b), which allows for avoidance of fraudulent transfers
under state law, should reflect this symmetry.
Thus, we hold that Tramiel is a good faith transferee under
California Civil Code § 3439.08(d) and entitled to a reduction
in liability of $10,432,815.
D. Settlement Credit
[11] Tramiel argues that he is entitled to a settlement credit
pursuant to California Civil Procedure Code § 877 in the
amount that his co-defendants paid to the estate to settle their
claims, which was $4.5 million. Under § 877, where a cove-
nant not to sue is given in good faith before a judgment “to
one or more of a number of tortfeasors claimed to be liable
for the same tort. . .it shall reduce the claims against the oth-
ers in the amount stipulated by. . .the covenant, or in the
amount of consideration paid for it whichever is greater.” Sec-
tion 877 allows joint tortfeasors to equitably share damages if
they have committed the same tort. Wakefield v. Bohlin, 145
Cal. App. 4th 963, 979 (Cal. Ct. App. 2006), overruled on
other grounds by Goodman v. Lozano, 47 Cal. 4th 1327, 1334
(2010); May v. Miller, 228 Cal. App. 3d 404, 407 (Cal. Ct.
App. 1991). Its fundamental purpose “is to preclude a double
recovery arising out of the same wrong.” Vesey v. United
States, 626 F.2d 627, 633 (9th Cir. 1980).
i. Same Injury
[12] Whether individuals are joint tortfeasors under § 877
depends upon whether they caused “one indivisible injury” or
“the same wrong.” May, 228 Cal. App. 3d at 409-10; Lafay-
ette v. County of Los Angeles, 162 Cal. App. 3d 547, 554 (Cal.
IN THE MATTER OF JTS CORPORATION 11369
Ct. App. 1984). The “same wrong” may emanate from two
successive independent torts and does not require unity of
purpose, action, or intent by the two or more tortfeasors. Id.
at 554; Kohn v. Superior Court of San Mateo, 142 Cal. App.
3d 323, 328 (Cal. Ct. App. 1983). Also, the plaintiff need not
allege the same tort against the tortfeasors, but must only
claim that the tortfeasors caused the same harm. Lafayette,
162 Cal. App. 3d at 555-56.
In Lafayette v. County of Los Angeles, 162 Cal. App. 3d
547 (1984), for example, plaintiff sued the county for medical
malpractice and his attorney for legal malpractice in the han-
dling of his medical malpractice action. Id. at 550, 553. The
attorney settled before trial and paid plaintiff $15,000. Id. at
554. At trial, the jury found that the county was liable in the
amount of $84,000. Id. at 550. The court held that plaintiff’s
injury by the county and his attorney were the “same wrong”
and allowed a reduction by the $15,000 settlement paid to
plaintiff by his attorney under § 877. Id. at 555. The court
stated that “two tortfeasors can both be liable for the same tort
without being joint tortfeasors in the sense of concert of
action and unity of purpose.” Id. at 554. The court explained
that
In Helling v. Lew (1972) 28 Cal. App. 3d 434, 104
Cal. Rptr. 789, tortfeasor 1 caused injury to plaintiff
who was required to seek medical care from tortfea-
sor 2 who malpracticed the plaintiff. The plaintiff, of
course would be entitled under recognized principles
of proximate causation to recover against tortfeasor
1 for the damages caused by tortfeasor 2. Therefore,
an offset was allowed to tortfeasor 1 for a settlement
made with tortfeasor 2. Specifically, tortfeasor 1 and
tortfeasor 2 were both liable for damages from the
second tort-medical malpractice. To avoid double
recovery, tortfeasor 1 was entitled to an offset for the
settlement with tortfeasor 2.
11370 IN THE MATTER OF JTS CORPORATION
Id. at 555 (internal quotation marks omitted). The court also
stated that it is not necessary that plaintiff allege the same tort
against the joint tortfeasors. Id. at 555-56. The court held that
§ 877 applies if the plaintiff claimed that the tortfeasors were
liable for the same wrong and here plaintiff “clearly claimed
Rose was liable for the damages resulting from the County’s
tort.” Id. at 556.
Similarly, in Knox v. County of Los Angeles, 109 Cal. App.
3d 825 (Cal. Ct. App. 1980), plaintiffs who claimed that they
were unlawfully arrested in front of a market while picketing
it sued the market and the county for damages. Id. at 828-29.
Plaintiffs alleged they were arrested at the instigation and
direction of the market defendants which then proximately
caused the unlawful arrests and false imprisonment. Id. at
829. Prior to trial, plaintiffs settled with the market for $4,000
per plaintiff. Id. at 830-31. At trial, the jury found that the
county was liable for $17,500 damages to each plaintiff. Id.
The court held that the county was entitled to a setoff of
$4,000 per plaintiff under § 877 because both parties were
claimed to have been liable for the unlawful arrests and false
imprisonment. Id. at 831-32.
In Kohn v. Superior Court of San Mateo, 142 Cal. App. 3d
323, 328 (Cal. Ct. App. 1983), the plaintiffs sued a pest con-
trol company, construction company, and the sellers of a
house for negligence and fraud. Plaintiffs bought a house for
$60,500 and the sellers failed to disclose that the home had
been involved in a fire. Id. at 325. The construction company
defendant repaired the fire damage to the home and the pest
control company conducted an inspection while the house was
in escrow. Id. at 325. Prior to trial, the pest control company
and construction company settled with plaintiff with each
defendant paying $6,000. Id. at 325. Plaintiffs sought $500,00
from the remaining seller defendants who attacked the valid-
ity of the settlement agreement because it was a markedly low
amount. Id.
IN THE MATTER OF JTS CORPORATION 11371
The court held that the settlement agreement was valid and
that § 877 applied. Id. at 328-30. The court held that the “al-
leged tortious activities by the contractor, pest control inspec-
tor and seller were not independent, but combined to create
one indivisible injury which took place when the sale [of the
house] was consummated.” Id. at 329. The court also held that
although plaintiff alleged that the settling defendants were lia-
ble for failure to inspect and repair properly, and alleged that
the nonsettling sellers were liable for fraud, that did not alter
the outcome since there was but one injury, i.e., the purchase
of a home which was worth less than its value. Id. at 328-29.
In this case, the bankruptcy court properly determined that
Tramiel and the settling co-defendants committed the “same
injury” pursuant to § 877. The trustee asserted in her com-
plaint that Tramiel was liable for breach of fiduciary duty
based on the real property transfer and constructive fraudulent
conveyance based on the real property transfer. The trustee
asserted that the settling attorney defendants were liable for
inter alia breach of fiduciary duty and aiding and abetting in
breach of fiduciary duty related to the real property transfer.
The trustee asserted that the settling director defendants were
liable for knowingly approving the real property transfer
despite knowledge that it was fraudulent. In the complaint, the
trustee alleged that all defendants were jointly liable for the
concerted and separate acts which culminated in the real prop-
erty transfer to Tramiel and that they knew of the disparity
between the purchase price and fair market value of the real
property.
[13] Here, the trustee alleged Tramiel and the settling
defendants combined to carry out the same injury, i.e., the
fraudulent transfer of the real property. The settling attorneys,
other directors, and Tramiel all acted to further the transaction
which is the harm that the trustee alleges. It is irrelevant that
the trustee alleged different torts against Tramiel and the set-
tling defendants since their concerted conduct produced the
same injury and the decision to sell the property by the set-
11372 IN THE MATTER OF JTS CORPORATION
tling directors with the aid of the attorneys proximately
caused the actual harm of the real property transaction. See
Knox, 109 Cal. App. 3d at 832-33; Kohn, 142 Cal. App. 3d
at 329; Lafayette, 162 Cal. App. 3d at 555-56. Thus, the bank-
ruptcy court properly found that § 877 was applicable in this
case because the separate conduct of Tramiel and the settling
defendants combined to create the same indivisible injury,
which was the sale of the real property at less than its value.
ii. Amount of Offset
[14] Under § 877, the amount of plaintiff’s recovery is
“ ‘diminished only by the amount plaintiff actually recovered
in a good faith settlement rather than by an amount measured
by the settling tortfeasor’s proportionate responsibility for the
injury.’ ” Knox, 109 Cal. App. 3d at 834 (quoting McGee v.
Cessna Aircraft Co., 82 Cal. App. 3d 1005, 1022 (1978)). In
Alcal Roofing & Insulation v. Superior Court of San Mateo,
8 Cal. App. 4th 1121, 1123 (Cal. Ct. App. 1992), a condomin-
ium association asserted a construction defect case against the
developer, roofing-related subcontractors, and a roofer. All
parties agreed to a settlement amount of $4.4 million, except
the roofer. In the settlement agreement, the parties allocated
$100,000 for roofing claims. The roofer argued that the court
should not have approved the settlement because this was far
less than his possible liability and would lessen the amount of
offset applicable to any judgment against him. The court held
that if each settling defendant allocated its settlement to pri-
marily nonroofing issues the roofer could “obtain an offset for
the settlement of each of the other defendants, limited only by
the amount of each settlement.” Id. at 1127.
Similarly, in L.C. Rudd & Son, Inc. v. Superior Court of
Alameda, 52 Cal. App. 4th 742 (Cal. Ct. App. 1997), a home-
owners association brought a construction defects case against
various developers, a contractor, and a rough grader. There,
the developers agreed to “settle with plaintiff for a total cash
consideration of $90,000 plus assignment of developers’
IN THE MATTER OF JTS CORPORATION 11373
indemnity rights against the nonsettling parties.” Id. at 745.
The nonsettling defendant, the contractor, brought suit argu-
ing that the agreement was not in good faith. The court held
that where “parties to a lawsuit settle ‘in good faith before
verdict or judgment’ the settling tortfeasor is released from all
liability for any contribution to any other tortfeasors and the
claims against the nonsettling tortfeasors will be reduced by
the amount of the contribution paid for the release of the set-
tling tortfeasor.” Id. at 747. The court stated that § 877 favors
settlement and that to preserve the incentive to settle, “ ‘a
plaintiff’s recovery from nonsettling tortfeasors should be
diminished only by the amount that the plaintiff has actually
recovered in a good faith settlement, rather than by an amount
measured by the settling tortfeasor’s proportionate responsi-
bility for the injury.’ ” Id. at 751 (quoting Am. Motorcycle
Ass’n v. Superior Court, 20 Cal. 3d 578, 604 (Cal. 1978)).
The court held that the plaintiff was entitled to an offset of the
entire amount of the settlement and not just an amount attrib-
utable to his liability. Id. at 752.
[15] In this case, the settlings defendants agreed to settle
with the trustee for the amount of $4.5 million. In the settle-
ment agreement, the attorney defendants agreed to pay
$3,075,000 and the directors agreed to pay $825,000 and
$600,000. The agreement also provided that the trustee allo-
cate the $3,075,000 to malpractice claims, and the directors’
payments to forgiveness of promissory notes and repurchase
of shares. In approving the settlement, the bankruptcy court
reserved the right to find Tramiel a joint tortfeasor, which it
did orally, and it found no stipulated good faith allocation
given that the agreement merely recites that the trustee
assigned the settlement to the non-joint claims. Although the
settlement agreement does not allocate an amount of liability
for Tramiel’s harm, based on Alcal, Tramiel is entitled to an
offset under § 877 of the entire settlement amount paid to the
trustee. Thus, Tramiel is entitled to a settlement credit of $4.5
million. 8 Cal. App. 4th at 1127-28.
11374 IN THE MATTER OF JTS CORPORATION
E. Director Preferences
[16] Decker argues that the repayment of a $3 million loan
plus interest in the amount of $40,201 to the Amber Group,
consisting of several directors including Tramiel, was a per se
illegal director preference under Delaware law. See Pennsyl-
vania Co. for Insurances on Lives & Granting Annuities v.
South Broad St. Theatre Co., 174 A. 112, 116 (Del. Ch. 1934)
(indicating impossibility of reconciling conduct of stockhold-
ers of a failing corporation who favor themselves as against
creditors with honesty and good faith). However, Penn. Co.
did not adopt a per se rule, and we believe there are special
circumstances in this case that tip in favor of Tramiel as a
director-creditor. Amber Group made the $3 million loan for
a purpose not motivated by self-interest — to help JTS main-
tain operations while it negotiated a sale of intellectual prop-
erty. The loan was secured by this intellectual property. When
JTS sold the property of $5 million, it paid off the $3 million,
while leaving JTS with $2 million more in revenue than it
would have had — and with the purpose of the loan fulfilled.
As a result, this was not an unlawful director preference.
Conclusion
[17] Accordingly, we hold that Tramiel’s liability for the
constructive fraudulent conveyance is $11.8 million, that this
amount is reduced by $10,432,815 million because Tramiel is
a good faith transferee under California Civil Procedure Code
§ 3439.08, and that Tramiel is entitled to a settlement credit
of $4.5 million under California Civil Code § 877. Thus,
Tramiel has no liability to the trustee for the conveyance.
AFFIRMED.