FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In Re,
ALEXIS HILL SCHWARZKOPF, AKA
Alexis Michaels, AKA Alex
Michaels; JOANNE LOUISE
MICHAELS, AKA Joanne Louise
Schwarzkopf,
Debtors,
ROBERT L. GOODRICH, Chapter 7 No. 08-56974
Trustee,
Appellant,
D.C. No.
5:07-cv-01547-SJO
v.
JUAN BRIONES, Trustee for Kokee
Family Trust 1992, AKA The
Apartment Trust; ALEXIS HILL
SCHWARZKOPF, AKA Alexis
Michaels, AKA Alex Michaels;
JOANNE LOUISE MICHAELS, AKA
Joanne Louise Schwarzkopf,
Appellees.
18709
18710 IN RE SCHWARZKOPF
In the Matter of: JOANNE LOUISE
MICHAELS, AKA Joanne Louise
Schwarzkopf and ALEXIS HILL
SCHWARZKOPF, AKA Alexis
Michaels, AKA Alex Michaels,
Debtors,
JUAN BRIONES, Trustee for Kokee No. 08-57026
Family Trust 1992, AKA The
Apartment Trust; ALEXIS HILL D.C. No.
5:07-cv-01547-SJO
SCHWARZKOPF, AKA Alexis
Michaels, AKA Alex Michaels; OPINION
JOANNE LOUISE MICHAELS, AKA
Joanne Louise Schwarzkopf,
Appellants,
v.
ROBERT L. GOODRICH, Chapter 7
Trustee,
Appellee.
Appeal from the United States District Court
for the Central District of California
S. James Otero, District Judge, Presiding
Argued and Submitted
June 9, 2010—Pasadena, California
Filed November 23, 2010
IN RE SCHWARZKOPF 18711
Before: Alfred T. Goodwin and Johnnie B. Rawlinson,
Circuit Judges, and Algenon L. Marbley, District Judge.*
Opinion by Judge Goodwin
*The Honorable Algenon L. Marbley, District Judge for the Southern
District of Ohio, sitting by designation.
IN RE SCHWARZKOPF 18713
COUNSEL
Gary A. Pemberton, Shulman Hodges & Bastian, Foothill
Ranch, California, for the plaintiff-appellant-cross-appellee.
Martha A. Warriner, Reid & Hellyer, Riverside, California,
for the defendants-appellees-cross-appellants.
18714 IN RE SCHWARZKOPF
OPINION
GOODWIN, Senior Circuit Judge:
Robert L. Goodrich, the Chapter 7 trustee for the bank-
ruptcy estates of Alex Michaels, aka Alexis Michaels, aka
Alex Schwarzkopf (“Michaels”), and Joanne Louise
Michaels, aka Joanne Louise Schwarzkopf (collectively, “the
Debtors”), seeks to recover for the estates’ benefit approxi-
mately $4 million in assets. Goodrich alleges that the Debtors
fraudulently transferred those assets to two irrevocable trusts
known as the Apartment Trust and the Grove Trust and that
the district court erred in holding that neither trust is
Michaels’s alter ego. On cross-appeal, the Debtors contend
that the district court erred in holding that the Apartment
Trust is invalid and may therefore be disregarded.
“We apply the same standard of review to the bankruptcy
court findings as does the district court: findings of fact are
reviewed under the clearly erroneous standard, and conclu-
sions of law, de novo.” Christensen v. Tucson Estates, Inc. (In
re Tucson Estates, Inc.), 912 F.2d 1162, 1166 (9th Cir. 1990).
On de novo review of the district court’s decision, id., we
conclude that the Apartment Trust is invalid and that the
Grove Trust is Michaels’s alter ego. We therefore affirm the
district court’s decision in part and reverse it in part.
I. FACTUAL AND PROCEDURAL BACKGROUND
The Debtors created both the Apartment Trust and the
Grove Trust on June 15, 1992. They named their minor child,
Sydnee Michaels (“Sydnee”), beneficiary and appointed Juan
Briones (“Briones”) trustee.
Simultaneously with the creation of the Apartment Trust,
Michaels transferred all the stock of Kokee Woods Apart-
ments, Inc. (“Kokee Woods”), of which he was the sole share-
holder, to the Apartment Trust. The bankruptcy court found
IN RE SCHWARZKOPF 18715
that a Texas state-court verdict rendered against Kokee
Woods made the stock potentially worthless at the time of the
transfer. It also found, however, that the Debtors were insol-
vent and that “Michaels devised [the transfer] to avoid his
creditors’ ability to recover the asset because [he] intended to
pursue an appeal of the Texas Verdict and he did not want to
go through all the effort of an appeal only to have his credi-
tors pursue the Corporation’s stock.” Therefore, it concluded,
the transfer “was made for the fraudulent purpose of avoiding
the Debtors’ creditors.” After the transfer, Michaels success-
fully appealed the verdict, winning a judgment of
$8,096,120.45 plus interest. The trust paid Michaels consult-
ing fees of $3,000 per week to collect the judgment.
The only asset placed into the Grove Trust at its inception
was $25.00. In December 1997, however, Michaels’s com-
pany Impetrol Corporation purchased four lots of land con-
taining avocado groves (“the Grove Lots”) for the Grove
Trust. The bankruptcy court noted that the assets used to
acquire the Grove Lots belonged to Michaels and that “Im-
petrol was nothing but a shell . . . to put properties in the cor-
porate name.” It found that the Debtors were insolvent at the
time of the purchase and that “[t]he Grove Trust’s acquisition
of the Grove Lots was a fraud on the creditors of the Debt-
ors.” It also found that Michaels dominated and controlled all
decisions related to both the Grove Lots and the Grove Trust
and that “Briones had no role nor took any action . . . other
than to write checks as demanded by Michaels.” The Grove
Trust paid Michaels at least $105,000 in unexplained fees
from February to September 2002.
Although the trusts paid for Sydnee’s education, clothing,
medical care, car, and golf lessons and tournament expenses,
the Debtors also benefitted from both trusts. The bankruptcy
court found that “Mr. Briones provided payments to Mr.
Michaels from both the Grove Trust and the Apartment Trust
without complete documentation” and that, “[t]hrough his
influence over Mr. Briones, Mr. Michaels received advances
18716 IN RE SCHWARZKOPF
and expedited payments from either the Apartment Trust
and/or the Grove Trust to avoid a creditor about to levy on a
judgment against him.” Michaels asked for and received reim-
bursement from one of the trusts for another daughter’s wed-
ding and for a life insurance policy; Briones testified that he
did not know who Michaels named as the policy’s benefi-
ciary. The Debtors lived rent-free with Sydnee in a manufac-
tured home that the Grove Trust purchased after acquiring the
Grove Lots and in a house in Temecula, California that the
Apartment Trust purchased in 2003.
Briones maintained no books or records for either trust
prior to 2000 and often intermingled their funds. The trusts
shared a bank account from October 2002 through January
2003, Briones transferred money between the trusts when he
determined that one needed more, and the Apartment Trust
made purported “loans” to the Grove Trust that were not doc-
umented, had no terms for repayment, and were never repaid.
The trusts also paid each other’s expenses. For example, the
parties stipulated that the Grove Trust paid “various amounts
for the maintenance” of the Temecula, California property
held by the Apartment Trust, and that the Apartment Trust
paid water bills and trustee fees for the Grove Trust.
In October 2003, the Debtors filed bankruptcy petitions
seeking to discharge approximately $5.4 million in debt.
Goodrich, as trustee for the consolidated bankruptcy estates,
filed an adversary complaint seeking to recover approxi-
mately $4 million in assets from the Apartment Trust and the
Grove Trust. Following a bench trial, the bankruptcy court
initially concluded that both trusts are valid and that neither
is the alter ego of the Debtors. On Goodrich’s motion for
reconsideration, however, the court partially reversed its ear-
lier ruling, holding that the Grove Trust is Michaels’s alter
ego. As to the Apartment Trust, it reaffirmed its earlier rulings
that the trust is valid because it was created for the benefit of
a minor child and that it is not Michaels’s alter ego.
IN RE SCHWARZKOPF 18717
The district court affirmed the judgment of the bankruptcy
court in part and reversed it in part. First, the district court
held that the Apartment Trust is invalid because one of the
Debtors’ purposes in creating it was to defraud creditors, but
it remanded for the bankruptcy court to determine whether
that issue is time-barred, noting that Goodrich had failed to
argue before the bankruptcy court that the seven-year statute
of limitations did not begin to run until Briones repudiated the
trust. Second, relying on S.E.C. v. Hickey, 322 F.3d 1123 (9th
Cir. 2003), the court held that legal ownership is a prerequi-
site to alter ego liability in California and that, because
Michaels was neither trustee nor beneficiary of the trusts, they
were not his alter ego. Goodrich appealed to this court, and
the Debtors cross-appealed.
II. DISCUSSION
1. The Apartment Trust
Goodrich argues that the district court erred in holding that
the Apartment Trust is not Michaels’s alter ego, while the
Debtors, on cross-appeal, contend that it erred in holding that
the Apartment Trust is invalid. We agree with the district
court’s conclusion that the Apartment Trust is invalid, and we
further hold that Goodrich’s claim to invalidate it is not time-
barred.1 Because we hold that the Apartment Trust is invalid
and may therefore be disregarded, we need not address
whether it is Michaels’s alter ego.
1
The district court remanded on the statute of limitations issue, noting
that Goodrich had failed to argue before the bankruptcy court that the
seven-year statute of limitations did not begin to run until Briones repudi-
ated the trust. Although the bankruptcy court did not address that precise
question, however, the parties sufficiently raised the issue—when the stat-
ute of limitations began to run—before the bankruptcy court, and the issue
therefore is not new on appeal. Moreover, we note that “[w]e may con-
sider an issue conceded or neglected below if the issue is purely one of
law and the pertinent record has been fully developed,” as is the case here.
United States v. Gabriel, 625 F.2d 830, 832 (9th Cir. 1980).
18718 IN RE SCHWARZKOPF
[1] “It is well-settled that a trust created for the purpose of
defrauding creditors or other persons is illegal and may be
disregarded.” In re Marriage of Dick, 18 Cal. Rptr. 2d 743,
752 (Cal. Ct. App. 1993); see also Cal. Prob. Code § 15203
(“A trust may be created for any purpose that is not illegal or
against public policy”). Properly designating a minor child as
a beneficiary does not validate a trust that was created with
an improper purpose. See 1A Scott on Trusts § 63 (4th ed.
2001) (“Although the terms of the trust in themselves are per-
fectly lawful, the trust is illegal where the motive of the settlor
for creating the trust is to defraud creditors or other persons”).
Here, the bankruptcy court found that Michaels transferred
the Kokee Woods stock simultaneously with the creation of
the Apartment Trust and that the transfer “was made for the
fraudulent purpose of avoiding the Debtors’ creditors.” Those
findings are sufficient to establish that Michaels’s purpose in
creating the trust was to defraud creditors. The Apartment
Trust is therefore an invalid trust.
[2] Moreover, even to the extent it alleges fraudulent trans-
fer, Goodrich’s claim is not time-barred by the seven-year
statute of limitations set forth in California Civil Code
§ 3439.09(c).2 If an express trust fails—if, for instance, it was
formed for a fraudulent purpose—the trustee holds legal title
to the property on a resulting trust for the trustor and his or
her heirs. See Bainbridge v. Stoner, 106 P.2d 423, 429 (Cal.
1940) (In Bank). “[T]he trustee of a resulting trust is consid-
ered a voluntary trustee and . . . the statute of limitations does
not begin to run in favor of a voluntary trustee until he repudi-
ates the trust.” Davenport v. Davenport Found., 222 P.2d 11,
16 (Cal. 1950). Because the Apartment Trust is invalid,
Briones is a voluntary trustee on a resulting trust for Michaels
and his heirs. The statute of limitations did not begin to run
2
California Civil Code § 3439.09(c) states that “a cause of action with
respect to a fraudulent transfer or obligation is extinguished if no action
is brought or levy made within seven years after the transfer was made or
the obligation was incurred.”
IN RE SCHWARZKOPF 18719
until Briones repudiated the trust, that is, until he answered
Goodrich’s complaint and denied that the Apartment Trust’s
assets are property of the bankruptcy estate. We therefore
conclude that Goodrich’s claim is not time-barred, and we
affirm the district court’s judgment that the Apartment Trust
is invalid.
2. The Grove Trust
Goodrich also argues that Michaels is an equitable owner
of the Grove Trust and that equitable ownership is sufficient
to confer alter ego liability. The Debtors respond that the
Grove Trust is not Michaels’s alter ego because he is not its
legal owner, and that allowing alter ego liability would consti-
tute reverse piercing—that is, “pierc[ing] the corporate veil to
reach corporate assets to satisfy a shareholder’s personal
liability”—which the California Court of Appeal has prohib-
ited in the corporate context. Postal Instant Press, Inc. v.
Kaswa Corp., 77 Cal. Rptr. 3d 96, 97 (Cal. Ct. App. 2008).
In determining whether alter ego liability applies, we apply
the law of the forum state. Towe Antique Ford Found. v.
I.R.S., 999 F.2d 1387, 1391 (9th Cir. 1993). Under California
law, the Grove Trust is Michaels’s alter ego.
[3] California recognizes alter ego liability where two con-
ditions are met: First, where “there is such a unity of interest
and ownership that the individuality, or separateness, of the
said person and corporation has ceased;” and, second, where
“adherence to the fiction of the separate existence of the cor-
poration would . . . sanction a fraud or promote injustice.”
Wood v. Elling Corp., 572 P.2d 755, 761 n.9 (Cal. 1977). Fac-
tors suggesting an alter ego relationship include
“[c]ommingling of funds and other assets [and] failure to seg-
regate funds of the separate entities . . . ; the treatment by an
individual of the assets of the corporation as his own . . . ; the
disregard of legal formalities and the failure to maintain arm’s
length relationships among related entities . . . ; [and] the
diversion [of assets from a corporation by or to a] stockholder
18720 IN RE SCHWARZKOPF
or other person or entity, to the detriment of creditors, or the
manipulation of assets . . . between entities so as to concen-
trate the assets in one and the liabilities in another.” Associ-
ated Vendors, Inc. v. Oakland Meat Co., Inc., 26 Cal. Rptr.
806, 813-15 (Cal. Ct. App. 1962) (citations omitted). Califor-
nia courts have applied the alter ego doctrine to trusts. See,
e.g., Torrey Pines Bank v. Hoffman, 282 Cal. Rptr. 354, 359
(Cal. Ct. App. 1991) (holding guarantors of a family trust lia-
ble for the trust’s debts under an alter ego theory).
[4] We first address the Debtors’ reverse piercing argu-
ment. As they correctly note, the California Court of Appeal
held in Postal Instant Press, Inc. that “a third party creditor
may not pierce the corporate veil to reach corporate assets to
satisfy a shareholder’s personal liability.” 77 Cal. Rptr. 3d at
97. We “must follow the decision of the intermediate appel-
late courts of the state unless there is convincing evidence that
the highest court of the state would decide differently.” Owen
By and Through Owen v. United States, 713 F.2d 1461, 1464
(9th Cir. 1983) (citations and internal quotation marks omit-
ted). In the context of trusts, however, the California Supreme
Court has allowed alter ego claims where a trust is alleged to
be a debtor’s alter ego. Thus, in Wood v. Elling Corp., the
California Supreme Court gave leave to amend a complaint to
assert alter ego claims, concluding, “If it were alleged and
proven that the two trusts in question were themselves alter
egos of the [defendants], those trusts would essentially drop
out as independent legal entities.” 572 P.3d at 762. In the
absence of further guidance from California courts, therefore,
we cannot extend the prohibition on reverse piercing to the
trust context.
[5] Second, we address the Debtors’ contention that legal
ownership is an absolute requirement for alter ego liability.
No California case explicitly addresses the question, but in
Hickey the Ninth Circuit interpreted California law as imply-
ing that ownership is a prerequisite. 322 F.3d at 1128-29.
Hickey addressed the ownership requirement in the corporate
IN RE SCHWARZKOPF 18721
context, concluding that stock ownership is a requirement for
the imposition of alter ego liability. Id. In so concluding, how-
ever, Hickey cited with approval Firstmark Capital Corp. v.
Hempel Financial Corp., an earlier Ninth Circuit opinion
applying California law and holding that a wife’s “community
property interest in [her husband’s] stock holdings . . . is suffi-
cient to satisfy the ownership requirement.” 859 F.2d 92, 94
(9th Cir. 1988). Hickey therefore did not foreclose the possi-
bility that equitable ownership might be sufficient in some
contexts.
[6] California case law suggests that equitable ownership
is sufficient. The California Supreme Court has noted that an
individual’s expectation that he would received shares of a
corporation “supports an inference that he was an equitable
owner” and justifies imposition of alter ego liability. Minton
v. Cavaney, 364 P.2d 473, 475 (Cal. 1961). And in Troyk v.
Farmers Group, Inc., the California Court of Appeal imposed
alter ego liability on a managing agent and attorney-in-fact
although it did not own the interinsurance exchange at issue.
90 Cal. Rptr. 3d 589, 620 (Cal. Ct. App. 2009). Legal owner-
ship was not necessary because, although “[a]n insurance
exchange is ‘owned’ by the subscribers, . . . given that the
subscribers are required to appoint the attorney-in-fact as
managerial agent, the ‘ownership’ element of the alter ego
doctrine is not applicable in this context.” Id. at 620 n.27
(citation and internal quotation marks omitted). In essence,
the managing agent was the equitable owner. See also Sonora
Diamond Corp. v. Superior Court, 99 Cal. Rptr. 2d 824, 836
(Cal. Ct. App. 2000) (where the alter ego doctrine applies,
“courts will ignore the corporate entity and deem the corpora-
tion’s acts to be those of the persons or organizations actually
controlling the corporation, in most instances the equitable
owners”).
[7] In the context of trusts, moreover, equitable interest is
traditionally sufficient to confer ownership rights. Thus, under
California law, trust beneficiaries hold an equitable interest in
18722 IN RE SCHWARZKOPF
trust property and are “ ‘regarded as the real owner[s] of [that]
property.’ ” Steinhart v. County of L.A., 223 P.3d 57, 72 (Cal.
2010) (alterations in original; citation omitted); see also 76
Am. Jur. 2d Trusts § 258 (2010) (the creation of a trust places
legal title in the trustee and equitable title in the beneficiary;
courts will enforce a beneficiary’s equitable interest). We
conclude that, under California law, equitable ownership in a
trust is sufficient to meet the ownership requirement for pur-
poses of alter ego liability.
[8] Here, Michaels is an equitable owner of the Grove
Trust because he acted as owner of the trust and its assets. See
In re Marriage of Dick, 18 Cal. Rptr. 2d 743, 752-53 (Cal. Ct.
App. 1993) (inferring from husband’s use of assets not in his
name that, “notwithstanding his absence of legal title, hus-
band controlled ownership of [the assets] through the fiction
of a trust”). Having used his own assets and a corporation that
the bankruptcy court termed “nothing but a shell” to acquire
the Grove Lots, Michaels continued to act as owner of the
trust assets and as trustee; Briones, the named trustee, “had no
role nor took any action . . . other than to write checks as
demanded by Michaels.” Michaels also acted as a beneficiary
of the Grove Trust, which purchased a home where he lived
rent-free, paid maintenance expenses for another home where
he lived, again rent-free, and paid Michaels at least $105,000
in unexplained fees. The trusts also paid for a wedding, at
Michaels’s request, and for a life insurance policy with an
unknown beneficiary. Those facts suggest that Michaels is an
equitable owner of the Grove Trust.
[9] Given that Michaels’s equitable ownership is sufficient
to meet the ownership requirement, the bankruptcy court did
not clearly err in finding an alter ego relationship. See Towe
Antique Ford Found., 999 F.2d at 1391 (alter ego determina-
tions are typically findings of fact reviewed for clear error).
As the bankruptcy court found, Michaels “dominated and
controlled all decisions of the Grove Trust.” He also received
payments from the trusts without documentation and to avoid
IN RE SCHWARZKOPF 18723
a creditor and diverted assets to the detriment of his creditors,
using his assets to acquire the Grove Lots at a time when he
was insolvent. Given that the bankruptcy court called the
acquisition of the Grove Lots “a fraud on the creditors of the
Debtors,” failure to find alter ego liability would sanction a
fraud or promote injustice. The bankruptcy court did not err
in finding that the Grove Trust is Michaels’s alter ego.
III. CONCLUSION
[10] We therefore hold that the Apartment Trust is an
invalid trust and that Goodrich’s action to invalidate it is not
time-barred. We also hold that the Grove Trust is Michaels’s
alter ego.
Costs are awarded to appellant Goodrich.
AFFIRMED IN PART AND REVERSED IN PART.