In re: Doron Ezra Nava Tomer Ezra , 537 B.R. 924 ( 2015 )

FILED
SEP 22 2015
1
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-14-1563-KuPeTa
)
6 DORON EZRA; NAVA TOMER EZRA, ) Bk. No. 1:11-12168-MT
)
7 Debtors. ) Adv. No. 1:12-01001-MT
______________________________)
8 )
SHOSHANA EZRA, )
9 )
Appellant, )
10 )
v. ) OPINION
11 )
DAVID SEROR, Chapter 7 )
12 Trustee, )
)
13 Appellee. )
______________________________)
14
15 Argued and Submitted on July 23, 2015
at Pasadena, California
16
Filed – September 22, 2015
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding
20
21 Appearances: Shalem Shem-Tov of Netzah & Shem-Tov, Inc. argued
for appellant Shoshana Ezra; Richard D. Burstein
22 of Ezra Brutzkus Gubner LLP argued for appellee
David Seror, chapter 7 trustee.
23
24
25 Before: KURTZ, PERRIS* and TAYLOR, Bankruptcy Judges.
26
27
*
Hon. Elizabeth L. Perris, United States Bankruptcy Judge
28 for the District of Oregon, sitting by designation.
1 KURTZ, Bankruptcy Judge:
2
3 INTRODUCTION
4 Shoshana Ezra appeals from the bankruptcy court’s judgment
5 avoiding as fraudulent transfers two deeds of trust the debtors
6 Doron Ezra and Nava Tomer-Ezra executed in her favor. Shoshana1
7 contends that at least some of the avoidance claims brought
8 against her by the chapter 72 trustee David Seror were time
9 barred, that there was insufficient evidence the debtors made the
10 transfers with the intent to hinder, delay or defraud their
11 creditors, and that there was no evidence of the debtors’
12 insolvency.
13 We disagree with Shoshana’s position on intent. As for the
14 specific limitations defense she discusses in her opening appeal
15 brief, it differs from the statute of repose issue she raised in
16 the bankruptcy court. We decline to address the limitations
17 defense on appeal because it was not sufficiently raised in the
18 bankruptcy court for the bankruptcy court to decide it. As for
19 her statute of repose issue, she did not raise it in her opening
20 appeal brief; she only raised it in her appellate reply brief.
21 This is improper, and we similarly decline to address it. On
22 these grounds, we AFFIRM.
23
24
1
25 For the sake of clarity, we refer to the Ezras by their
first names. No disrespect is intended.
26
2
Unless specified otherwise, all chapter and section
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
all “Rule” references are to the Federal Rules of Bankruptcy
28
Procedure, Rules 1001-9037.
2
1 FACTS
2 Doron and Nava purchased their residence in 1996. Since
3 then, the residence has been the subject of several transactions
4 involving various Ezra family members. On October 17, 2001,
5 Doron quitclaimed his interest in the residence to Nava in her
6 name alone, but a week later Nava executed a new quitclaim deed
7 transferring title to the residence back to her and Doron as
8 husband and wife. In January 2010, Doron once again quitclaimed
9 his interest to Nava in her name alone. At the time of their
10 joint bankruptcy filing in February 2011, Nava still held title
11 to the residence in her name alone.
12 In addition to the title transfers, four deeds of trust were
13 of record at the time of the commencement of the debtors’
14 bankruptcy case. Of these four, the first and third deeds of
15 trust were held by banks and were not contested by Seror in the
16 debtors’ bankruptcy case. The other two deeds of trust of record
17 were both held by Shoshana and are described as follows:
18 1. A second deed of trust recorded in April 2004 in favor of
19 Doron’s mother Shoshana, as beneficiary, purportedly securing a
20 debt in the amount of $500,000; and
21 2. A fourth deed of trust recorded in June 2009 in favor of
22 Shoshana, as beneficiary, purportedly securing a debt in the
23 amount of $500,000.
24 In January 2012, Seror filed his complaint seeking to avoid
25 as fraudulent transfers the 2004 and 2009 deeds of trust in favor
26 of Shoshana. He also sought to recover the transfers for the
27 benefit of the estate pursuant to § 550(a). In relevant part,
28 Seror alleged that the debtors did not receive reasonably
3
1 equivalent value in exchange for the 2009 deed of trust and that
2 the debtors were insolvent at the time or that the 2009 deed of
3 trust rendered them insolvent. Seror further alleged that, at
4 the time both transfers were made, the debtors faced “demands
5 and/or potential or pending litigation” and that the debtors made
6 the transfers for the purpose of shielding from creditors any
7 equity in their residence. Based on these and other allegations,
8 Seror asserted that he was entitled to avoid the 2009 deed of
9 trust as an actual and constructive fraudulent transfer either
10 under § 548(a)(1)(A) and (B) or under § 544(b) and Cal. Civ. Code
11 §§ 3439.04(a) and 3439.05. Seror further claimed that he was
12 entitled to avoid the 2004 deed of trust as an actual fraudulent
13 transfer under § 544(b) and Cal. Civ. Code § 3439.04(a).
14 Shoshana filed a summary judgment motion seeking dismissal
15 of Seror’s lawsuit. Shoshana primarily argued that Seror’s
16 claims seeking avoidance of the 2004 deed of trust under
17 California law were time barred under the seven year statute of
18 repose set forth in Cal. Civ. Code § 3439.09(c), which states:
19 (c) Notwithstanding any other provision of law, a cause
of action with respect to a fraudulent transfer or
20 obligation is extinguished if no action is brought or
levy made within seven years after the transfer was
21 made or the obligation was incurred.
22 Cal. Civ. Code § 3439.09(c).3 According to Shoshana, because
23 more than seven years had elapsed between the recording of the
24
3
25 Recently, the California legislature amended the
California Uniform Fraudulent Transfer Act. The amendments make
26 relatively minor changes to the Act, and none of those changes
affect our analysis in this appeal. Moreover, the amendments
27 generally do not apply to transfers made before the effective
date of the amendments. See 2015 Cal. Legis. Serv. Ch. 44 (S.B.
28
161).
4
1 (April) 2004 deed of trust and Seror’s January 2012 filing of his
2 complaint, Seror’s fraudulent transfer claims arising from the
3 2004 deed of trust had been extinguished by operation of law.
4 The bankruptcy court denied Shoshana’s summary judgment motion,
5 holding that the seven years provided by California’s statute of
6 repose had not been exceeded because the debtors had commenced
7 their February 2011 bankruptcy case within seven years of the
8 transfer.
9 Presumably because the statute of repose issue under Cal.
10 Civ. Code § 3439.09(c) was decided as a matter of law in the
11 summary judgment motion, Shoshana did not raise any factual or
12 legal issues regarding this defense in the pretrial stipulation
13 or in her trial documents. Nor did she raise during the pretrial
14 or trial proceedings any issue related to the statute of
15 limitations defense set forth in Cal. Civ. Code § 3439.09(a),
16 which provides:
17 A cause of action with respect to a fraudulent transfer
or obligation under this chapter is extinguished unless
18 action is brought pursuant to subdivision (a) of
Section 3439.07 or levy made as provided in subdivision
19 (b) or (c) of Section 3439.07:
20 (a) Under paragraph (1) of subdivision (a) of Section
3439.04, within four years after the transfer was made
21 or the obligation was incurred or, if later, within one
year after the transfer or obligation was or could
22 reasonably have been discovered by the claimant.
23 Cal. Civ. Code § 3439.09(a).4
24
4
25 Shoshana’s answer to Seror’s complaint included an
affirmative defense alleging that Seror’s claims were barred
26 under the “applicable statute of limitations.” Nonetheless, the
(continued...)
27
28 5
1 At the conclusion of trial, the bankruptcy court stated
2 its findings of fact and conclusions of law on the record. The
3 court found not credible Doron’s testimony that his mother
4 Shoshana and his (now) deceased father Shlomo expected repayment
5 of amounts Doron and Nava spent on family trips to Israel and on
6 groceries while in Israel and that the two deeds of trust secured
7 repayment of those amounts. According to the court, Doron’s
8 testimony was both bizarre and inconsistent regarding whether
9 these amounts were gifts or loans. The court further found that
10 Doron’s “gifts and Israel” explanation did not jibe with Doron’s
11 alternate story that his parents lent him the money for various
12 real estate transactions. In fact, the court explained, Doron’s
13 vague and inconsistent testimony about the bank accounts he used
14 to partially fund some of his real estate transactions led the
15 court to conclude that all of the accounts Doron referenced
16 effectively belonged to Doron – even those bank accounts he
17 claimed belonged to his parents. As the bankruptcy court put it:
18 . . . he just used those accounts of his parents for
his own purposes and they were effectively his accounts
19 and was not clear that the money coming out of the
accounts was even from the parents or something that he
20 had put in earlier. There was no attempt to show the
funds supplied by the parents. The statements all came
21 to [Doron’s] address, either the home or the business
address.
22
23 4
(...continued)
24 parties’ pretrial stipulation, approved by the court, did not
reference this defense, and the stipulation explicitly provided
25 that it superseded the pleadings and was to govern the course of
trial. See Patterson v. Hughes Aircraft Co., 11 F.3d 948, 950
26 (9th Cir. 1993) (“A pretrial order generally supersedes the
pleadings, and the parties are bound by its contents.”).
27
28 6
1 Tr. Trans. (Nov. 3, 2014) at p. 35:10-17.
2 The bankruptcy court also did not believe Doron’s statements
3 that his father Shlomo had kept ledgers and that he (Doron) lost
4 the two promissory notes memorializing the loans supposedly
5 secured by the two deeds of trust. As the bankruptcy court
6 explained, Doron was an experienced businessman who had made a
7 living engaging in sophisticated real estate transactions. In
8 light of this background, the court found it exceptionally hard
9 to believe (and did not believe) in the existence of the ledger
10 and the notes given Doron’s inability to produce them. The court
11 found that Doron had not credibly reconciled his 20 years of
12 experience as a real estate investment professional - who owned
13 interests in and/or partially controlled a number of real estate
14 investment entities – with his apparently nonchalant attitude
15 with respect to the financing of one of his family’s most
16 important assets: the family residence.
17 As for the intent to hinder, delay or defraud their
18 creditors, the court found that the debtors’ intent largely was
19 established by their pattern and practice of: (1) ensuring that
20 assets of value were kept in the name of other family members,
21 even though they continued to exercise control over the assets;
22 and (2) ensuring that any current or future equity the debtors
23 may have had in their residence was fully encumbered. The court
24 inferred that the debtors’ practice was initially motivated by
25 Doron’s concern over the litigious nature of the business he was
26 engaged in and later by actual demands and lawsuits the debtors
27 faced.
28 The bankruptcy court also found that the debtors received
7
1 less than reasonably equivalent value in exchange for both deeds
2 of trust. The court further found, with respect to the 2009 deed
3 of trust, that the debtors were insolvent at the time of the
4 transaction or were rendered insolvent by the transaction, were
5 left with insufficient assets in light of the business or
6 transaction in which they were engaged, and intended to incur or
7 reasonably should have believed they would incur debts beyond
8 their ability to pay as they came due. However, the court
9 answered each of these financial status questions in the negative
10 with respect to the 2004 deed of trust.
11 Based on these findings, the bankruptcy court entered
12 judgment against Shoshana avoiding the 2004 deed of trust as an
13 actual fraudulent transfer under § 544(b) and Cal. Civ. Code
14 § 3439.04(a)(1) and avoiding the 2009 deed of trust as both an
15 actual and constructive fraudulent transfer under 11 U.S.C.
16 §§ 544(b) and 548, as well as Cal. Civ. Code §§ 3439.04(a)(1),
17 (a)(2)(A), (a)(2)(B) and 3439.05. The bankruptcy court further
18 ordered both transfers recovered for the benefit of the estate
19 pursuant to § 550(a). On November 26, 2014, Shoshana timely
20 filed her notice of appeal.
21 JURISDICTION
22 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
23 §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C.
24 § 158.
25 ISSUE
26 Did the bankruptcy court correctly rule that the 2004 and
27 2009 deeds of trust were fraudulent transfers?
28
8
1 STANDARD OF REVIEW
2 In appeals from judgments disposing of fraudulent transfer
3 claims, the bankruptcy court’s findings of fact are reviewed
4 under the clearly erroneous standard and its conclusions of law
5 are reviewed de novo. Decker v. Tramiel (In re JTS Corp.), 617
6 F.3d 1102, 1109 (9th Cir. 2010).
7 A bankruptcy court’s factual findings are not clearly
8 erroneous unless they are illogical, implausible or without
9 support in the record. Retz v. Samson (In re Retz), 606 F.3d
10 1189, 1196 (9th Cir. 2010).
11 DISCUSSION
12 A. Overview
13 As set forth above, the bankruptcy court avoided both the
14 2004 deed of trust and the 2009 deed of trust as actual
15 fraudulent transfers under § 544(b) and California Civil Code
16 § 3439.04(a)(1). To the extent we can uphold the bankruptcy
17 court’s actual fraudulent transfer determination, we need not
18 reach the court’s constructive fraudulent transfer determination,
19 which only pertained to the 2009 deed of trust.
20 Under § 544(b), a chapter 7 trustee may exercise the
21 avoiding powers conferred upon creditors by California’s version
22 of the Uniform Fraudulent Transfer Act, Cal. Civ. Code § 3439, et
23 seq., to the same extent those powers could have been exercised
24 by a creditor holding an allowable unsecured claim against the
25 debtor’s bankruptcy estate. Wolkowitz v. Beverly (In re
26 Beverly), 374 B.R. 221, 232 (9th Cir. BAP 2007), aff’d in part
27 and adopted, 551 F.3d 1092 (9th Cir. 2008); see also In re JTS
28 Corp., 617 F.3d at 1111 (“Section 544 enables a bankruptcy
9
1 trustee to avoid any transfer of property that an unsecured
2 creditor with an allowable claim could have avoided under
3 applicable state law.”).
4 To decide whether a transfer is avoidable under California’s
5 Uniform Fraudulent Transfer Act, we must interpret California
6 law. In re Beverly, 374 B.R. at 232. We must answer any
7 questions of law arising from the Act based on how the California
8 Supreme Court would decide them. Id. If the California Supreme
9 Court has not yet reached the issue in question, our job is to
10 predict how the California Supreme Court would decide it.
11 Kekauoha–Alisa v. Ameriquest Mortg. Co. (In re Kekauoha–Alisa),
12 674 F.3d 1083, 1087-88 (9th Cir. 2012) (citing Sec. Pac. Nat’l
13 Bank v. Kirkland (In re Kirkland), 915 F.2d 1236, 1239 (9th Cir.
14 1990)).
15 B. Intent to Hinder, Delay or Defraud
16 The Act provides in relevant part that a transfer is
17 fraudulent as to a creditor, regardless of when the creditor’s
18 claim arose, if the debtor made the transfer with the actual
19 intent to hinder, delay, or defraud any creditor. Cal. Civ. Code
20 § 3439.04(a)(1). Bankruptcy courts examining transfers under
21 this provision must focus on the debtor’s state of mind. In re
22 Beverly, 374 B.R. at 235. As long as the debtor had the
23 requisite intent, a transfer will qualify as actually fraudulent
24 even if reasonably equivalent value was provided. Id. Because
25 § 3439.04(a)(1)’s language regarding the debtor’s state of mind
26 is stated in the disjunctive, intent to defraud a creditor is not
27 required. Either an intent to hinder or an intent to delay a
28 creditor also will suffice. Id.
10
1 As the plaintiff, Seror had the burden of proof to establish
2 by a preponderance of the evidence the existence of the requisite
3 state of mind. Id. Because direct evidence regarding the
4 debtor’s fraudulent or obstructive intent rarely is available,
5 courts typically infer the debtor’s intent from the surrounding
6 circumstances. Id. To facilitate this process, the Act
7 enumerates eleven non-exclusive “badges of fraud” – factors the
8 court can consider in deciding whether the requisite intent
9 existed. Cal. Civ. Code § 3439.04(b). These factors include the
10 following:
11 (1) Whether the transfer or obligation was to an
insider.
12 (2) Whether the debtor retained possession or control
of the property transferred after the transfer.
13 (3) Whether the transfer or obligation was disclosed or
concealed.
14 (4) Whether before the transfer was made or obligation
was incurred, the debtor had been sued or threatened
15 with suit.
(5) Whether the transfer was of substantially all the
16 debtor’s assets.
(6) Whether the debtor absconded.
17 (7) Whether the debtor removed or concealed assets.
(8) Whether the value of the consideration received by
18 the debtor was reasonably equivalent to the value of
the asset transferred or the amount of the obligation
19 incurred.
(9) Whether the debtor was insolvent or became
20 insolvent shortly after the transfer was made or the
obligation was incurred.
21 (10) Whether the transfer occurred shortly before or
shortly after a substantial debt was incurred.
22 (11) Whether the debtor transferred the essential
assets of the business to a lienholder who transferred
23 the assets to an insider of the debtor.
24 Cal. Civ. Code § 3439.04(b).
25 Notwithstanding the inclusion of this list in the statute,
26 the list does not set in concrete the factors the trier of fact
27 can or must consider to ascertain the debtor’s intent. No single
28 factor necessarily is determinative, and no minimum or maximum
11
1 number of factors dictates a particular outcome. As we explained
2 in In re Beverly, the list should not be applied formulaically.
3 In re Beverly, 374 B.R. at 236. Instead, the trier of fact
4 should consider all of the relevant circumstances surrounding the
5 transfer. Id. (citing Filip v. Bucurenciu, 129 Cal. App. 4th 825,
6 834 (2005)).
7 Shoshana argues on appeal that the bankruptcy court’s intent
8 findings were clearly erroneous. With respect to the 2004 deed
9 of trust, she states that the evidence regarding value given in
10 exchange for the 2004 deed of trust might have been equivocal,
11 but inadequate consideration alone cannot support a finding of
12 actual intent to hinder, delay or defraud creditors. Shoshana
13 also points to other “badges of fraud” factors and correctly
14 notes that there is no evidence in the record that the debtors
15 were insolvent in 2004 or that they were plagued by pending
16 lawsuits at that time. In fact, while Shoshana did not mention
17 it in her appeal brief, we further note that there was no
18 evidence of concealment of the 2004 deed of trust, no evidence
19 that the 2004 deed of trust transferred substantially all of the
20 debtors’ assets, and no evidence that the debtors were in the
21 process of absconding at the time.
22 Even so, Shoshana’s intent argument completely (and fatally)
23 ignores the key findings on which the bankruptcy court based its
24 intent determination. The bankruptcy court found that the
25 debtors, particularly Doron, were engaged in a pattern and
26 practice of shielding their assets from creditors. The court
27 inferred from the entirety of the debtors’ conduct that the
28 various transfers the debtors made affecting title to and
12
1 encumbrances against their residence – including the 2004 deed of
2 trust – were made for the purpose of keeping any equity in their
3 residence as far away from their creditors as possible. The
4 bankruptcy court acknowledged the absence of evidence of pending
5 or imminently threatened litigation at the time of the 2004 deed
6 of trust. The court nonetheless inferred from all of the
7 circumstances that Doron realized at the time of the 2004 deed of
8 trust that he was engaged in lines of business – real estate
9 lending and real estate investment – that were inherently
10 litigious and that this generic litigation risk constantly placed
11 his family’s assets at risk. As a result, the court concluded,
12 this generic litigation risk motivated the debtors to execute and
13 record the 2004 deed of trust.
14 Shoshana has not offered us any reason why we should
15 conclude that the bankruptcy court’s intent-related findings with
16 respect to the 2004 deed of trust were illogical, implausible or
17 without support in the record. Nor are we aware of any such
18 reasons. Therefore, these intent-related findings were not
19 clearly erroneous.
20 Shoshana offers even less argument in her opening brief
21 challenging the bankruptcy court’s intent-related findings
22 pertaining to the 2009 deed of trust. Indeed, her argument is
23 limited to a single paragraph, as follows:
24 There was likewise no evidence of bad faith as to
the 2009 Deed of Trust. That deed of trust was created
25 by the Debtor because he erroneously believed that the
2004 Deed of Trust had been reconveyed. For the same
26 reasons the 2004 Deed of Trust has no indicia of bad
faith or fraudulent intent, the 2009 Deed of Trust,
27 intended merely to replace it, likewise could not have
been the product of any bad faith or fraudulent intent.
28
13
1 Aplt. Opn. Br. at 27 (citation omitted).
2 The bankruptcy court’s intent-related findings pertaining to
3 the 2009 deed of trust generally hinged on the same circumstances
4 the court relied upon in finding the requisite intent with
5 respect to the 2004 deed of trust. However, in addition to the
6 generic litigation risk noted above, the bankruptcy court also
7 found that, by the time of the 2009 deed of trust, the debtors’
8 financial condition had deteriorated and the threat of litigation
9 arising from specific claims had significantly increased, which
10 only served to reinforce the bankruptcy court’s determination
11 that the debtors executed the 2009 deed of trust for the purpose
12 of keeping any equity in their residence as far away from their
13 creditors as possible. For the same reasons we conclude that the
14 bankruptcy court’s intent-related findings with respect to the
15 2004 deed of trust were not clearly erroneous, we similarly
16 conclude that its intent-related findings with respect to the
17 2009 deed of trust were not clearly erroneous.
18 C. Limitations Defense Under Cal. Civ. Code § 3439.09(a) - Does
the One Year Limitation Run from Discovery of the Transfer
19 or Discovery of the Fraud?
20 The only other challenge of Shoshana’s that we need to
21 discuss concerns the timeliness of Seror’s claim under § 544(b)
22 and Cal. Civ. Code § 3439.04(a)(1) with respect to the 2004 deed
23 of trust. In her opening appeal brief, Shoshana argues for the
24 first time that this claim of Seror’s was untimely under Cal.
25 Civ. Code § 3439.09(a).
26 Neither in her summary judgment motion nor at trial did
27 Shoshana defend against Seror’s claim based on Cal. Civ. Code
28 § 3439.09(a). Nor did the parties’ pretrial stipulation identify
14
1 any issue of law or fact that required the bankruptcy court to
2 address the statute of limitations set forth in Cal. Civ. Code
3 § 3439.09(a).
4 Ordinarily, federal appellate courts will not consider
5 issues not properly raised in the trial courts. O’Rourke v.
6 Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957
7 (9th Cir. 1989); see also Moldo v. Matsco, Inc. (In re Cybernetic
8 Servs., Inc.), 252 F.3d 1039, 1045 n.3 (9th Cir. 2001)(stating
9 that appellate court would not explore ramifications of argument
10 because it was not raised in the bankruptcy court); Scovis v.
11 Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001)
12 (stating that court would not consider issue raised for first
13 time on appeal absent exceptional circumstances). An issue only
14 is “properly raised” if it is raised sufficiently to permit the
15 trial court to rule upon it. In re E.R. Fegert, Inc., 887 F.2d
16 at 957.
17 Notwithstanding this general rule, “[a] reviewing court may
18 consider an issue raised for the first time on appeal if
19 (1) there are exceptional circumstances why the issue was not
20 raised in the trial court, (2) the new issue arises while the
21 appeal is pending because of a change in the law, or (3) the
22 issue presented is purely one of law and the opposing party will
23 suffer no prejudice as a result of the failure to raise the issue
24 in the trial court.” Franchise Tax Bd. v. Roberts (In re
25 Roberts), 175 B.R. 339, 345 (9th Cir. BAP 1994) (internal
26 quotations omitted) (citing United States v. Carlson, 900 F.2d
27 1346, 1349 (9th Cir. 1990)).
28 Shoshana has not identified any exceptional circumstances
15
1 that prevented her from raising the statute of limitations issue
2 under Cal. Civ. Code § 3439.09(a) in the bankruptcy court. Nor
3 did a change in law spawn the issue. Nor is the issue “purely”
4 one of law. The statute of limitations issue raises the
5 subsidiary question of when the fraudulent transfer “could
6 reasonably have been discovered.” Cal. Civ. Code § 3439.09(a).
7 According to Shoshana, as a matter of law, because the 2004 deed
8 of trust was recorded in 2004, any and all creditors of the
9 debtors reasonably should have discovered the transfer within one
10 year of the 2004 recordation. But we do not read the discovery
11 provision contained in Cal. Civ. Code § 3439.09(a) as literally
12 as Shoshana does. We believe that the one-year period under Cal.
13 Civ. Code § 3439.09(a)’s discovery rule does not commence until
14 the plaintiff has reason to discover the fraudulent nature of the
15 transfer.
16 The California Supreme Court has not yet construed the
17 discovery provision as set forth in Cal. Civ. Code § 3439.09(a).
18 Nor have we found any published decisions from the California
19 Courts of Appeal on this issue.5 Consequently, as noted above,
20 we must predict how the California Supreme Court will decide this
21 issue. In interpreting California’s version of the Uniform
22
23 5
We are aware of one unpublished California Court of
24 Appeal decision, Hu v. Wang, 2009 WL 1919367, at *6 (Cal. Ct.
App. July 6, 2009), which held in part that Cal. Civ. Code
25 § 3439.09(a)’s discovery rule means and refers to discovery of
the fraudulent nature of the transfer and not just discovery of
26 the transfer itself. In predicting the California Supreme
Court’s interpretation of Cal. Civ. Code § 3439.09(a), we do not
27
rely upon Hu because it is an unpublished decision, and it may
28 not be cited by California state courts. See Cal. Rules of Court
Rule 8.1115.
16
1 Fraudulent Transfer Act, the California Supreme Court has said
2 that courts should primarily focus on the statutory text Mejia
3 v. Reed, 31 Cal. 4th 657, 663 (2003). As Mejia explained, giving
4 the text its usual, ordinary and contextual meaning is the first
5 and most important part of the statutory construction process.
6 Id. As Mejia put it:
7 Because the statutory language is generally the most
reliable indicator of legislative intent, we first
8 examine the words themselves, giving them their usual
and ordinary meaning and construing them in context.
9 Every statute should be construed with reference to the
whole system of law of which it is a part, so that all
10 may be harmonized and have effect.
11 Id. (citations and internal quotation marks omitted). Mejia
12 further indicated that, when the contextual meaning of the
13 statutory text is sufficient to answer the statutory construction
14 question presented, it generally is unnecessary to consider
15 secondary statutory construction aids like maxims of
16 construction, legislative history and public policy. Id.
17 Even though the California courts have not addressed the
18 question of the meaning of the discovery provision set forth in
19 Cal. Civ. Code § 3439.09(a), we are not working in a vacuum. A
20 number of courts from other jurisdictions have construed the same
21 language in their versions of the Uniform Fraudulent Transfer
22 Act. See Field v. Estate of Kepoikai (In re Maui Indus. Loan &
23 Fin. Co.), 454 B.R. 133, 137 (Bankr. D. Haw. 2011) (listing
24 cases). Some of these courts have strictly construed the
25 statutory text and have held that the literal language of the
26 Act’s discovery provision requires courts to focus solely on
27 discovery of the transfer itself. See id. (listing cases).
28 Other courts have more liberally construed the text and have held
17
1 that a contextual reading of the statute requires courts to focus
2 on discovery of the fraudulent nature of the transfer; mere
3 discovery of the transfer itself is not enough. See, e.g.,
4 Schmidt v. HSC, Inc., 319 P.3d 416, 426-27 (Haw. Ct. 2014);
5 Freitag v. McGhie, 947 P.2d 1186, 1189-90 (Wash. Ct. 1997).
6 We find the reasoning of the Schmidt-Freitag line of cases
7 compelling. As explained in detail in Schmidt, a contextual
8 reading of the statute as well as common sense and the purpose of
9 the Uniform Fraudulent Transfer Act – to provide relief to
10 victims of fraudulent transfers – all militate in favor of a
11 liberal construction of the discovery rule. Schmidt, 319 P.3d at
12 426-27 (citing Freitag, 47 P.2d at 1189-90).
13 With the exception of different statute numbering, the
14 Hawaii discovery provision at issue in Schmidt and the Washington
15 discovery provision at issue in Freitag are identical to
16 California’s discovery provision as set forth in Cal. Civ. Code
17 § 3439.09(a). Nor do we perceive any material difference in
18 underlying purpose between California’s version of the Uniform
19 Fraudulent Transfer Act and the versions of the Act codified in
20 Washington and Hawaii. Compare Schmidt, 319 P.3d at 426 (“the
21 obvious purpose of the UFTA is to prevent fraud and to provide a
22 remedy to those who are victims of fraudulent transfers”) with
23 Mejia v. Reed, 31 Cal. 4th 657, 664 (2003) (“This Act, like its
24 predecessor and the Statute of 13 Elizabeth, declares rights and
25 provides remedies for unsecured creditors against transfers that
26 impede them in the collection of their claims.”) (quoting Legis.
27 Comm. Cmt. accompanying Cal. Civ. Code § 3439.01).
28 Furthermore, adoption of the liberal interpretation of Cal.
18
1 Civ. Code § 3439.09(a) would be consistent with California case
2 law before the enactment of the Uniform Fraudulent Transfer Act,
3 which applied the generic fraud discovery rule contained in Cal.
4 Code Civ. Proc. § 338(4) – now § 338(d) – to pre-Act fraudulent
5 transfer actions. See Adams v. Bell, 5 Cal. 2d 697, 703 (1936)
6 (citing Cal. Code Civ. Proc. § 338(4) and stating “if the
7 creditor knows nothing about the fraudulent conveyance, the cause
8 (in the absence of laches) does not arise until he discovers the
9 fraud by which his rights have been invaded.”) (emphasis added).
10 Based on the persuasiveness of cases like Schmidt and
11 Freitag, supra, we predict that the California Supreme Court
12 ultimately will hold that the one-year period under Cal. Civ.
13 Code § 3439.09(a)’s discovery rule does not commence until the
14 plaintiff has reason to discover the fraudulent nature of the
15 transfer. Thus, any question regarding discovery of the
16 fraudulent nature of the 2004 deed of trust is a factual
17 question, and so the exception permitting consideration of
18 “purely” legal issues raised for the first time on appeal does
19 not apply here. Accordingly, we decline to resolve Shoshana’s
20 Cal. Civ. Code § 3439.09(a) issue for the first time on appeal.
21 D. Limitations Defense Under Cal. Civ. Code § 3439.09(c) -
Statute of Repose
22
23 We acknowledge that Shoshana did argue in the bankruptcy
24 court, in her summary judgment motion, that the statute of repose
25 set forth in Cal. Civ. Code § 3439.09(c) barred Seror from
26 pursuing this claim. However, the statute of repose issue under
27 Cal. Civ. Code § 3439.09(c) and the statute of limitations issue
28 under Cal. Civ. Code § 3439.09(a) are factually and legally
19
1 distinct issues. See Rund v. Bank of Am. Corp. (In re EPD Inv.
2 Co., LLC), 523 B.R. 680, 685-88 (9th Cir. BAP 2015).
3 Shoshana did not discuss her argument under Cal. Civ. Code
4 § 3439.09(c) in her opening appeal brief. Instead, she waited
5 until her reply brief to address the Cal. Civ. Code § 3439.09(c)
6 statute of repose issue. This would be sufficient grounds for us
7 to decline to consider the statute of repose issue. See
8 Christian Legal Soc’y v. Wu, 626 F.3d 483, 487–88 (9th Cir.
9 2010); Brownfield v. City of Yakima, 612 F.3d 1140, 1149 n.4 (9th
10 Cir. 2010).
11 In any event, even if we were to consider this issue, this
12 panel recently held that Cal. Civ. Code § 3439.09(c)’s seven-year
13 statute of repose does not bar a claim under § 544(b) and Cal.
14 Civ. Code § 3439.04 so long as the claim arose less than seven
15 years before the debtor’s bankruptcy filing. In re EPD Inv. Co.,
16 LLC, 523 B.R. at 691-92. Here, the debtor’s February 2011
17 bankruptcy case was filed within seven years of the April 2004
18 deed of trust, so Cal. Civ. Code § 3439.09(c)’s statute of repose
19 did not bar Seror’s Cal. Civ. Code § 3439.04 claim with respect
20 to the 2004 deed of trust.
21 CONCLUSION
22 For the reasons set forth above, we AFFIRM the bankruptcy
23 court’s judgment avoiding the 2004 deed of trust and the 2009
24 deed of trust and recovering those transfers for the benefit of
25 the estate.
26
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28
20