MacKenzie v. Barclay ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: AFI HOLDING, INC., 
Debtor,
No. 06-55033
CHRISTOPHER R. BARCLAY, D.C. Nos.
Successor Trustee,  CV-05-03232-PA
Appellant, CV-05-04275-PA
v.
KEITH MACKENZIE,
Appellee.

In re: AFI HOLDING, INC., 
Debtor,
No. 06-55070
KEITH MACKENZIE
Appellant,  D.C. No.
CV-05-03232-PA
v.
OPINION
CHRISTOPHER R. BARCLAY,
Successor Trustee,
Appellee.

Appeal from the United States District Court
for the Central District of California
Percy Anderson, District Judge, Presiding
Argued and Submitted
February 12, 2008—Pasadena, California
Filed April 16, 2008
4079
4080 IN RE AFI HOLDING, INC.
Before: Stephen S. Trott, Richard R. Clifton, and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Trott
4082 IN RE AFI HOLDING, INC.
COUNSEL
David R. Weinstein, Sharon Z. Weiss, Weinstein, Weiss &
Ordubegian LLP, Los Angeles, California, for the appellant/
cross-appellee.
Paul J. Laurin, Weiner & Laurin, LLP, Encino, California, for
the appellee/cross-appellant.
OPINION
TROTT, Circuit Judge:
The bankruptcy court granted summary judgment in favor
of the Trustee for Advance Finance Incorporated (“AFI”),
avoiding transfers from AFI to Keith Mackenzie under CAL.
CIV. CODE § 3439.04(a), and holding that the good faith
exception to fraudulent transfers under CAL. CIV. CODE
§3439.08(a) was barred as a matter of law because no “rea-
sonably equivalent value” was exchanged for the transfers.
The district court reversed and remanded, holding that the
IN RE AFI HOLDING, INC. 4083
good faith exception was not barred as a matter of law. We
have jurisdiction pursuant to 28 U.S.C. § 158(d),1 and we
affirm.
I
BACKGROUND
Keith Mackenzie, like many others, invested funds in AFI.
AFI was operated by Gary Eisenberg who entered a guilty
plea to federal securities and mail fraud charges in 2002 and
is currently serving a 63-month prison sentence. In that plea,
he conceded that he operated AFI as a Ponzi scheme—paying
investors purported profits with funds raised from other inves-
tors.
Mackenzie invested $73,400 with AFI in 1995 and 1996 as
a purported limited partner. In connection with his subsequent
withdrawal from AFI, he received payments totaling
$89,824.18 between 1996 and 1997. Of the total payments,
$73,400 was a return of Mackenzie’s principal investment.
The rest, roughly $16,424, was a fictitious gain on the princi-
pal investment.
AFI’s bankruptcy proceedings commenced on October 22,
2001. In October of 2003, the Trustee, Carolyn A. Dye, com-
menced adversary proceedings against approximately 170 of
AFI’s investors, including Mackenzie, to avoid transfers made
to them by AFI.2 The Trustee claimed avoidance and recovery
1
Although the district court’s order remanded the case to the bankruptcy
court for further factual findings, and thus was not final, we have jurisdic-
tion to hear the appeal. The Ninth Circuit has taken a flexible approach to
finality in the context of bankruptcy proceedings, and where, as here, the
issues raised are legal in nature and a resolution could “dispose of the case
or proceedings and obviate the need for fact finding,” the court will retain
jurisdiction in order to address the issues on appeal. In re Emery, 317 F.3d
1064, 1069 (9th Cir. 2003) (citation omitted).
2
While the suit was pending in the district court, Carolyn Dye was
removed as the trustee and replaced by successor trustee Christopher R.
Barclay.
4084 IN RE AFI HOLDING, INC.
of fraudulent transfers pursuant to 11 U.S.C. §§ 544(b) and
550 and CAL. CIV. CODE §§ 3439.04 and 3439.09.
The bankruptcy court granted the Trustee’s summary judg-
ment motion seeking to avoid transfers made by AFI to Mac-
kenzie. Mackenzie appealed the judgment to the district court,
which reversed in part. The reversal was limited to the
amount of principal initially “invested” by Mackenzie. The
district court reasoned that Mackenzie had exchanged his pur-
ported partnership interest for a proportionately reduced resti-
tution claim, distinguishing the facts of the transaction from
a simple receipt of money on account of an equity interest as
a limited partner. The district court affirmed the bankruptcy
court as to the remaining $16,424, the fictitious gain on Mac-
kenzie’s principal investment, as it was in excess of Macken-
zie’s restitution claim, and it was not transferred in connection
with Mackenzie’s withdrawal from the partnership.
The district court ordered the matter remanded to the bank-
ruptcy court to determine whether Mackenzie had received
the $73,400 transfer in good faith and to determine also how
much, if any, prejudgment interest was payable to the Trustee.
The Trustee appeals, arguing that the debtor’s estate is enti-
tled to the entire amount transferred from AFI to Mackenzie,
principal and the fictitious gain, as well as prejudgment inter-
est. Mackenzie cross appeals, arguing that he is entitled to the
entire amount transferred from AFI to him.
II
DISCUSSION
A. Standard of Review.
We review de novo the district court’s decision on an
appeal from a bankruptcy court. In re Raintree Healthcare
Corp., 431 F.3d 685, 687 (9th Cir. 2005). Thus, we apply the
IN RE AFI HOLDING, INC. 4085
same standard of review applied by the district court. Id. at
687. No deference is given to the district court’s decision. In
re Salazar, 430 F.3d 992, 994 (9th Cir. 2005). Summary judg-
ment is to be granted if the pleadings and supporting docu-
ments, viewed in the light most favorable to the non-moving
party, show that there is no genuine issue as to a material fact
and the moving party is entitled to judgment as a matter of
law. FED. R. CIV. P. 56(c).
B. This is a Fraudulent Transfer Case.
As an initial matter, it is important to recognize that this
case implicates only fraudulent transfer law. Our concern here
is not the law of preferences under 11 U.S.C. § 547, because
we are years removed from that section’s ninety-day reach
back period. See 11 U.S.C. § 547(b)(4)(A). Similarly, we are
not concerned with the law of subordination under 11 U.S.C.
§ 510(b), because we are a step removed from distribution of
the bankruptcy estate under § 510(b).3 See Wyle v. C.H. Rider
& Family (In re United Energy Corp.), 944 F.2d 589, 597
(9th Cir. 1991) (“United Energy”). Instead, this case is driven
by California state fraudulent transfer law. As a result, our
“analysis is directed at what the debtor surrendered and what
the debtor received irrespective of what any third party may
have gained or lost.” Id. (emphasis added and internal quota-
tion marks omitted).
3
We find unsupported the Trustee’s argument that the limited partner-
ship interest should be subordinated because of the single unsecured credi-
tor in this case. Although the Trustee represented to this court at oral
argument that there are unsecured claims “at least in the low six figures,”
the record, and attempted augmentation of the record by the Trustee, fail
to show evidence of any unsecured creditor beyond the one minimal unse-
cured creditor identified in the parties’ briefs. Such argument and unsup-
ported representation cause us to view this argument with doubt.
4086 IN RE AFI HOLDING, INC.
C. Applicable Law.
[1] An action to recover fraudulent transfers under 11
U.S.C. § 548(a)(1) of the Bankruptcy Code is time barred
because the transfers from AFI to Mackenzie occurred more
than one year before bankruptcy proceedings commenced.4
Section 544(b) of the Bankruptcy Code, however, allows a
bankruptcy trustee to avoid any transfer of a debtor’s property
that would be avoidable by an unsecured creditor under appli-
cable state law. See In re Acequia, Inc., 34 F.3d 800, 809 (9th
Cir. 1994). One creditor of any amount will suffice for the
purposes of § 544(b). Id. 809-10. In this case, at least one
unsecured creditor existed, and CAL. CIV. CODE §§ 3439.04(a)
and 3439.08(a) provide California state law allowing an unse-
cured creditor to reach the transfers made by AFI to Macken-
zie in 1996 and 1997.
[2] Where state statutes are similar to the Bankruptcy Code,
cases analyzing the Bankruptcy Code provisions are persua-
sive authority. Hayes v. Palm Seedlings Partners-A (In re
Agric. Research and Tech. Group, Inc.), 916 F.2d 528, 534
(9th Cir. 1990) (“Agretech”). Here, California’s fraudulent
transfer statutes are similar in form and substance to the
Bankruptcy Code’s fraudulent transfer provisions. United
Energy, 944 F.2d at 594. Compare 11 U.S.C. § 548(a)(1) with
CAL. CIV. CODE § 3439.04(a) (allowing a transfer to be
avoided when the debtor acted with “actual intent to hinder,
delay, or defraud” an entity or creditor, or where indicia of
constructive fraud are present); compare also 11 U.S.C.
§ 548(c) with CAL. CIV. CODE §3439.08(a) (providing a safe
harbor/good faith exception to transferees who took in good
faith and for value).
4
The adversary proceeding from which this case arose was filed before
the effective date of the Bankruptcy Abuse Prevention and Consumer Pro-
tection Act of 2005, Pub. L. No. 109-8, 199 Stat. 23. That Act extended
the one-year period for avoidance of fraudulent transfers under the Code
to two years.
IN RE AFI HOLDING, INC. 4087
D. Mackenzie’s Cross-Appeal: The Transfer From AFI
to Mackenzie was an Actually Fraudulent Transfer
Under 548(a)(1)(A).
Mackenzie argues that he may be entitled to the entire
transfer, including the fictitious gain made on account of his
“investment.” The thrust of that argument is that genuine
issues of material fact exist as to whether AFI transferred the
$89,824.18 to Mackenzie with the “actual intent to hinder,
delay, or defraud” an entity or creditor under § 548(a)(1)(A).
We do not find that argument persuasive.
[3] We allow “a finding of fraudulent intent under section
548(a)(1) [the analog to §3439.04(a)] on the basis of circum-
stantial evidence.” Agretech, 916 F.2d at 534. Furthermore,
“the mere existence of a Ponzi scheme” is sufficient to estab-
lish actual intent under § 548(a)(1) or a state’s equivalent to
that section. Id. at 535. Here, Eisenberg’s plea demonstrates
the existence of fraudulent intent and a Ponzi scheme, and
Mackenzie failed to identify evidence in the record that cre-
ated a genuine issue of material fact as to either issue. Eisen-
berg admitted the following in his plea:
Eisenberg solicited investors for partnerships know-
ing that the businesses of AFI, AFHI, and the part-
nerships were not profitable from inception. As early
as 1996, Eisenberg knew that the factoring business
of AFI, AFHI, and the partnerships had already
incurred $4 million to $5 million in operating losses
and that he was running a ponzi scheme, that is, pay-
ing investors purported interest payments with funds
raised from other investors, rather than from the
profits of the factoring business as Eisenberg repre-
sented to investors.
(emphasis added). Thus, the record shows Eisenberg’s opera-
tion was a Ponzi scheme before Mackenzie “invested” in the
partnership, well before the transfers were made from AFI to
4088 IN RE AFI HOLDING, INC.
Mackenzie. That by itself is enough to establish the transfers
were made with actual fraudulent intent. See Agretech, 916
F.2d at 535.
[4] We find Mackenzie’s cross-appeal without merit, and
we continue to the issue in the Trustee’s appeal: the applica-
tion of the good faith exception under CAL. CIV. CODE
§3439.08(a), which is the equivalent to 11 U.S.C. § 548(c).
E. The Good Faith Exception Under CAL. CIV. CODE
§3439.08(a) is Not Barred as a Matter of Law.
We have twice addressed the application of the phrase “rea-
sonably equivalent value” related to fraudulent transfer law in
the context of a Ponzi scheme.5 The first time was in Agre-
tech, where we held that a distribution on account of a part-
nership interest relative to an investor’s capital contribution
was not “reasonably equivalent value” as defined by the
Bankruptcy Code and Hawaii’s analog. Agretech, 916 F.2d at
540. The second was in United Energy, where we held that a
transfer in exchange for a proportionally reduced restitution
claim was “reasonably equivalent value” as defined by the
Bankruptcy Code and California’s analog. United Energy,
944 F.2d at 596. The question before us today is whether the
transfer from AFI to Mackenzie was a distribution under
Agretech, or a transfer in exchange for a proportionally
reduced restitution claim under United Energy. A recitation of
the relevant facts of each case is appropriate.
5
The Bankruptcy Appellate Panel (“BAP”) has decided a sister case to
the present case. See Elite Pers., Inc. v. Barclay, No. 05-1483 (9th Cir.
BAP Oct. 16, 1998). The facts of that case are substantially similar to the
facts of the case before this court. The only major differences are the
names of the investors, and the amounts invested into the debtor’s limited
partnership. We have considered the disposition of that panel and disagree
with its conclusion.
IN RE AFI HOLDING, INC. 4089
1. Agretech.
In Agretech, the debtor, Agretech, made a fraudulent trans-
fer to one of its investors Palm Seedlings-A, (“Palm-A”). The
bankruptcy trustee for Agretech brought an action against
Palm-A, Palm-A’s general partner, and Palm-A’s limited part-
ners to avoid transfers from the debtor to Palm-A pursuant to
11 U.S.C. § 544(b) and the applicable Hawaii state statutes.
Agretech, 916 F.2d at 534. The district court found that Palm-
A was a transferee in bad faith and avoided all of the trans-
fers, ruling that the trustee could recover all monies from
Palm-A and its limited partners. Id. at 531.
On appeal, we agreed with the district court. We concluded
that Agretech transferred money to Palm-A by means of a
Ponzi scheme, and as a result, HAW. REV. STAT. § 651C-
4(a)(1), Hawaii’s equivalent of 11 U.S.C. § 548(a)(1)(A),
applied. Id. at 531. We then analyzed the good faith exception
under HAW. REV. STAT. § 651C-8, Hawaii’s equivalent of 11
U.S.C. § 548(c), and concluded also that the transferee, Palm-
A, did not take in good faith. As a result, we held that the
transfer of funds from Agretech to Palm-A was avoidable
because the good faith exception did not apply. Id. at 539-40.
The funds, however, had been passed from Palm-A to
Palm-A’s limited partners relative to their capital contribu-
tions. In analyzing this subsequent transfer, we held that
under 11 U.S.C. § 550(a)(1) and (2) and HAW. REV. STAT.
§ 651C-8 the trustee was permitted to recover the conveyed
funds from the initial transferee and any subsequent transfer-
ees. We held further that the good faith exception did not
apply because limited partnership interests are “equity securi-
ties” under 11 U.S.C. § 101(15)6 and not “value,” which is
defined in the Code as securing or satisfaction of debt. Id. at
540.
6
Since changed to 11 U.S.C. § 101(16).
4090 IN RE AFI HOLDING, INC.
At no time did we analyze the relationship between the lim-
ited partners and Palm-A, including any fraud that may or
may not have taken place between the general partner and the
limited partners. As a result, we addressed only “reasonably
equivalent value” in terms of the “equity interest” created by
the capital contributions made by the limited partners. We did
not address any rescission or restitution rights held by the lim-
ited partners.
In the end, we allowed the Trustee to avoid the transfers to
the limited partners because the transfers were merely a
receipt of money on account of the limited partners’ equity
interests held because of their capital contributions.
2. United Energy.
In United Energy, United Energy Corporation (“UEC”)
manufactured and marketed solar modules to the public. From
1982 to 1985, UEC sold 5,323 modules to 4,500 purchasers
for $30,000 to $40,000 each. Roughly one third of the pur-
chase price was a down payment, and the remaining balance
was paid in installments secured by the modules themselves.
United Energy, 944 F.2d at 591.
At the time of each sale, purchasers were offered a contract
called a “Power Purchase Agreement,” to sell the electric and
thermal power generated by the modules to Renewable Power
Corporation (“RPC”). RPC was owned by the same individual
as UEC. The modules only produced a negligible amount of
power. However, to attract more purchasers, UEC and RPC
made it appear that the business venture was a success. The
two companies fabricated fictitious kilowatt hours of produc-
tion for each module. RPC then paid module owners for the
phony production. Id.
After bankruptcy proceedings commenced, the trustee for
UEC and RPC filed adversary proceedings against many
module purchasers seeking to avoid the fictitious power pay-
IN RE AFI HOLDING, INC. 4091
ments. In each of the adversary proceedings, partial summary
judgment was granted by the bankruptcy court allowing the
trustee to recover the power payments as fraudulent transfers
under CAL. CIV. CODE § 3439.04, California’s equivalent of 11
U.S.C. § 548(a)(1)(B). The bankruptcy court concluded as a
matter of law that neither UEC nor RPC received reasonably
equivalent value, or any value, in property or satisfaction of
a present or antecedent debt, in exchange for the power pay-
ments paid to the module purchasers. Id. at 592.
The BAP consolidated the cases and reversed the bank-
ruptcy court. In re United Energy Corp., 102 B.R. 757 (9th
Cir. BAP 1989). The BAP held that the power payments
given to the defrauded investors would be deemed to partially
satisfy or release fraud or restitution claims.
The trustee then appealed to this court. We noted, “the only
issue for our determination, in connection with the fraudulent
transfer question, is whether the investors gave reasonably
equivalent value in exchange for the power payments they
received.” United Energy, 944 F.2d at 594-95. We then
focused directly on the language of 11 U.S.C. § 548(d)(2)(A),
which defines “value.” See id. at 595.
We found that the investors were duped into buying mod-
ules, and because of that, they had claims for rescission and
restitution which arose at the time of purchase. Id. at 596.
In the end, we did not allow the Trustee to avoid the trans-
fers made on account of the power payments because the “in-
vestors exchanged reasonably equivalent value when their
rights to restitution were proportionately reduced by the
power payments they received.” Id.
3. The Trustee’s Arguments that Agretech Should
Control Fail.
The Trustee uses Agretech as a springboard for two argu-
ments. First, he argues that this case, like Agretech, is about
4092 IN RE AFI HOLDING, INC.
affirmative defenses to actually fraudulent transfers under
CAL. CIV. CODE § 3439.04(a)(1), not about establishing a
prima facie claim for constructive fraud under
§ 3439.04(a)(2). Second, the Trustee argues that both Agre-
tech and this case involve a limited partnership, which by def-
inition is an “equity security” interest. Although both
assertions are correct, neither persuade us that Agretech
should control the outcome in this case. The Trustee’s argu-
ments are taken one at a time.
i) The Distinction Drawn Between “Reasonably
Equivalent Value” in the Context of an Affirma-
tive Defense and in the Context of Establishing a
Prima Facie Claim is a Distinction Without a Dif-
ference.
The Trustee notes a distinction between Agretech and
United Energy. He says that Agretech dealt with affirmative
defenses to actually fraudulent transfers, whereas United
Energy dealt with the prima facie case for constructively
fraudulent transfers. He then argues that, because of the dis-
tinction, the case at bar, a case dealing with actually fraudu-
lent transfers, should be decided under Agretech.
The distinction drawn, however, is of no significance. This
is because in both analyses, a determination of “reasonably
equivalent value” is necessary. In fact, it is United Energy,
not Agretech, that provides the more complete reasonably
equivalent value analysis for an initial transferee.
The Trustee argues also that “reasonably equivalent value”
is irrelevant to § 3439.04(a)(1) given the following quoted
language from Agretech:
United Energy is distinguishable because the issue
before that court concerned payment of an anteced-
ent debt under 11 U.S.C. § 548(a)(2), the equivalent
of HAW. REV. STAT. §651C-4(a)(2). The present
IN RE AFI HOLDING, INC. 4093
issue, in contrast, concerns the avoidance of fraudu-
lent transfers under HAW. REV. STAT. 651C-4(a)(1),
the equivalent of 11 U.S.C. §548(a)(1), where the
entire transfer may be avoided, even if reasonably
equivalent value was given . . . .
Agretech, 916 F.2d at 538. However, the Trustee does not
provide the rest of the paragraph which reads, “so long as the
transferor actually intended to hinder, delay or defraud its
creditors and the transferee accepted the transfer without
good faith.” Id. (emphasis added).
[5] For a transfer to be avoided under § 3439.04(a)(2), the
equivalent of § 548(a)(1)(B), a trustee must show that the
“debtor made the transfer . . . without receiving reasonably
equivalent value in exchange for the transfer.” For a transfer
to be avoided under § 3439.04(a)(1), the equivalent of
§ 548(a)(1)(A), a trustee does not have to show that the debtor
received less than reasonably equivalent value. The trans-
feree, however, may be entitled to keep the transfer if she can
show she is “a person who took in good faith and for a rea-
sonably equivalent value . . . .” CAL. CIV. CODE § 3439.08
(emphasis added).
In Agretech, we properly refused to apply the “reasonably
equivalent value” analysis in the prima facie case because the
evidence showed actual intent to defraud under
§ 548(a)(1)(A). Agretech, 916 F.2d at 539-40. We then pro-
ceeded to the good faith defense, in which “reasonably equiv-
alent value” analysis is proper. Id. at 539-40. However, we
never reached the reasonably equivalent value analysis for the
initial transfer because the initial transfer failed on the good
faith prong of Hawaii’s equivalent to § 548(c). Id.
[6] We find no reason, in statute or case law, to treat “rea-
sonably equivalent value” differently for each of the Code’s
provisions. Both the prima facie case for constructively fraud-
ulent transfers under § 3439.04(a)(2), and the affirmative
4094 IN RE AFI HOLDING, INC.
defense to actually fraudulent transfers under § 3439.08
require the determination of whether “reasonably equivalent
value” was transferred from the transferee to the debtor.
ii) Although Limited Partnership Interests are Pres-
ent in Agretech and In This Case, Mackenzie was
Defrauded by Eisenberg, Creating Rights Differ-
ent Than the Rights Held by the Limited Partners
in Agretech.
The first sentence of the “Limited Partners” section of our
Agretech opinion says, “The monies which Palm Seedlings-A
allegedly received as a fraudulent conveyance was transferred
to its limited partners in respect to their capital contribu-
tions.” Agretech, 916 F.2d at 540. The three-paragraph section
of that opinion dealing with the limited partnership issue
operates from that premise. At no time did we discuss any
fraud between Palm-A and the limited partners. See id. As a
result, we never reached the question we answered in United
Energy—whether a restitution claim qualified as “reasonably
equivalent value.” Instead, as noted above, the analytical ful-
crum driving our decision in Agretech was the other prong of
§ 548(c)—whether the initial transferee took in good faith. Id.
at 539-540.
Our discussion of “reasonably equivalent value” was only
relevant in the initial transfer from Agretech to Palm-A in
terms of measuring the good faith of Palm-A, the initial trans-
feree. Id. at 539. As far as the secondary transfer, from Palm-
A to the limited partners, we held that those “distributions
were not for value because Palm Seedlings-A made the distri-
butions on account of the partnership interests and not on
account of debt or property transferred to the partnership in
exchange for the distribution.” Id. at 540 (emphasis added).
Although Agretech and the case at bar both involve limited
partnerships, the posture of the limited partners makes the
cases distinguishable. The limited partners in the case at bar
IN RE AFI HOLDING, INC. 4095
were defrauded into their limited partnership role by the oper-
ator of the Ponzi scheme, creating rights different than the
rights held by the limited partners in Agretech. The Trustee’s
argument that Agretech should control because both cases
involve limited partners overly simplifies the cases and is not
persuasive.7
4. United Energy Controls.
The district court correctly concluded that the good faith
exception is not barred as a matter of law. In reversing the
bankruptcy court, the district court held that Mackenzie “ex-
changed his partnership interest for a proportionately reduced
restitution claim.” Although we agree with the district court
in its ultimate conclusion, we wish to clarify further because
we recognize the potential effect this case will have on a num-
ber of other AFI fraudulent transfer cases.
The Trustee argues that the parties did not expressly
exchange the restitution claim for the $89,824.18, and instead,
AFI transferred the money on account of Mackenzie’s part-
nership interest. Although circumstances of the exchange
were cloaked in terms of a partnership interest, we delve
beyond the “form” to the “substance” of the transaction. See
United Energy, 944 F.2d at 596.
[7] As noted above, the record demonstrates that Eisen-
berg’s operation was a Ponzi scheme before Mackenzie pro-
vided his principal “investment,” and thus well before the
transfers were made from AFI to Mackenzie. Because of this,
Mackenzie acquired a restitution claim at the time he bought
into Eisenberg’s Ponzi scheme, just as the investors in United
7
Evidence of the Trustee’s oversimplification of the role the limited
partnership interest plays in this case is evident in his citation to In re
Riverside-Linden Investment Co., 925 F.2d 320, 323 (9th Cir. 1991) (not-
ing only that a legitimate partnership interest is not a claim contemplated
by the bankruptcy code).
4096 IN RE AFI HOLDING, INC.
Energy acquired a restitution claim at the time they bought
their solar modules. Id. at 596. It is this restitution claim, in
toto, that Mackenzie exchanged when AFI returned Macken-
zie’s principal “investment” amount. If AFI had only pro-
vided Mackenzie a portion of his initial investment, as a
fictitious gain or otherwise, Mackenzie would be entitled also
to keep that amount as an exchange for a proportionate reduc-
tion in his restitution claim. See id.
Even if Mackenzie did not acquire a restitution claim at the
time he bought into AFI, the unique facts of this case still pro-
vide us grounds to hold that he exchanged reasonably equiva-
lent value for return of his principal “investment.” Mackenzie
was not being paid on account of an equity position as were
the investors in Agretech. Instead, he was ending his interest
in the so-called partnership, creating something more than a
simple equity payment in proportion to a capital contribution.
Either way we skin this cat, Agretech is distinguishable, and
United Energy is the more appropriate precedent.
As a result, the district court was correct to determine that
the good faith exception is not barred as a matter of law. If,
on remand, the bankruptcy court concludes that Mackenzie
took the transfer in good faith, Mackenzie is entitled only to
the amount he initially provided to AFI. United Energy, 944
F.2d at 595 n.6. The fictitious gain, however, amounting to
$16,424.18, is in excess of his restitution claim, and was not
returned on account of his withdrawal from the partnership.
Therefore the district court was correct to find that the Trustee
was entitled to have that amount avoided.
E. Prejudgment Interest.
We agree with the district court, and conclude that any dis-
cussion of the bankruptcy court’s discretion to award prejudg-
ment interest is premature. We therefore decline to address
that part of the Trustee’s appeal. That issue is left for the
IN RE AFI HOLDING, INC. 4097
bankruptcy court once the application of the good faith excep-
tion has been adjudicated.
III
CONCLUSION
[8] Mackenzie’s cross-appeal argument that AFI’s transfers
were not actually fraudulent fail because Eisenberg’s declara-
tion, coupled with our treatment of Ponzi schemes in the con-
text of fraudulent transfers, dictates to the contrary.
Furthermore, the district court was correct to conclude that the
good faith exception to actually fraudulent transfers is not
barred as a matter of law because Mackenzie’s right to rescis-
sion and restitution were “reasonably equivalent value” as
described by United Energy.
AFFIRMED and REMANDED.