David Abreu v. Brian Weiss ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 26 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: WALLDESIGN, INC., No. 18-56673
Debtor, D.C. No. 8:18-cv-00379-VAP
______________________________
DAVID ABREU; DAVID ABREU MEMORANDUM*
VINEYARD MANAGEMENT, INC.,
Appellants,
v.
BRIAN WEISS, as Trustee of the
Walldesign Liquidation Trust,
Appellee.
Appeal from the United States District Court
for the Central District of California
Virginia A. Phillips, Chief District Judge, Presiding
Submitted April 3, 2020**
Pasadena, California
Before: PAEZ and CALLAHAN, Circuit Judges, and LYNN,*** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Barbara M. G. Lynn, United States Chief District
Appellants, David Abreu and David Abreu Vineyard Management, Inc.
(collectively, “Abreu Vineyard Management”), appeal the bankruptcy court’s
summary judgment in favor of Appellee, Brian Weiss (“Weiss”), trustee in the
Chapter 11 bankruptcy estate of Walldesign, Inc. (“Walldesign”). Prior to its
bankruptcy, Walldesign’s sole shareholder, sole director, and president, Michael
Bello (“Bello”), covertly deposited Walldesign funds into a secret bank account he
had opened in Walldesign’s name. Bello spent those funds on his personal
expenses, which included payments for services provided by Abreu Vineyard
Management in connection with Bello’s personal vineyard. Weiss filed an
adversary proceeding to avoid the payments to Abreu Vineyard Management as
fraudulent transfers under the California Uniform Fraudulent Transfers Act
(CUFTA) and the federal Bankruptcy Code. We have jurisdiction under 28 U.S.C.
§ 158 and affirm the grant of summary judgment for Weiss.
1. Appellants argue that the bankruptcy court clearly erred in finding that
the transfers to Abreu Vineyard Management were fraudulent because Weiss failed
to provide proof of actual fraudulent intent pursuant to Cal. Civ. Code
§ 3439.04(a)(1). We disagree. The lower court’s finding is supported by several
“badges” or “indicia” of fraud under Cal. Civ. Code § 3439.04(b), which include:
(1) Bello, via Walldesign, actively concealed the Preferred Account and its
Judge for the Northern District of Texas, sitting by designation.
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transactions; (2) Walldesign was insolvent during the period in which Bello
continued to perform transfers from the Preferred Account; and (3) Walldesign did
not receive consideration of reasonably equivalent value from the Preferred
Transfers. Viewing the evidence in the light most favorable to Abreu, there is no
genuine dispute as to whether Bello, as an agent and principal of Walldesign,
possessed “actual intent to hinder, delay, or defraud any creditor of [Walldesign]”
when Bello transferred payments from Walldesign’s bank account to Abreu and
Vineyard Management. Cal. Civ. Code § 3439.04(a)(1). Thus, the bankruptcy
court did not err in granting summary judgment on Weiss’ claims of actual
fraudulent transfers.
2. The bankruptcy court did not commit clear error in finding that Abreu
Vineyard Management was an initial transferee under CUFTA or § 550(b) of the
federal Bankruptcy Code. Our circuit has explicitly adopted the “dominion test” in
addressing this issue, wherein an initial transferee is one who “has ‘dominion over
the money or other asset, the right to put the money to one’s own purposes.’” In re
Cohen, 300 F.3d 1097, 1102 (9th Cir. 2002) (quoting Bonded Fin. Servs., Inc. v.
European Am. Bank, 838 F.2d 890, 893 (7th Cir. 1988)). In Henry v. Official
Committee of Unsecured Creditors of Walldesign, Inc. (In re Walldesign), 872
F.3d 954 (9th Cir. 2017), a similar case involving an adversary proceeding also
stemming from Walldesign’s bankruptcy, we applied the dominion test to reject an
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“initial transferee” argument virtually identical to that raised by appellants. There,
we stated that “a corporate principal (whether a shareholder, director, officer, or
other insider) who effects a transfer of company funds in his or her representative
capacity does not have dominion over those funds in his or her personal capacity”
and thus “does not qualify as an initial transferee.” Id. Appellants fail to
distinguish their case from Henry or otherwise persuade us that the legal analysis
in Henry should not control.
3. The bankruptcy court did not improperly apply the statutory defenses
under 11 U.S.C. § 550(b)(2) and Cal. Civ. Code § 3439.08. Given that Abreu
Vineyard Management is an initial transferee under Henry, the good faith defenses
under § 550(b) and Cal. Civ. Code § 3439.08(b) are not available as a matter of
law. The affirmative defense under Cal. Civ. Code § 3439.08(a) is likewise
unavailable because Walldesign, as the debtor, did not receive “reasonably
equivalent value” for the payments made to Abreu Vineyard Management. See In
re AFI Holding, Inc., 525 F.3d 700, 707 (9th Cir. 2008) (“[T]he affirmative
defense to actual fraudulent transfers under § 3439.08 require[s] the determination
of whether ‘reasonably equivalent value’ was transferred from the transferee to the
debtor.”).
4. We also reject appellants’ argument that the bankruptcy court abused its
discretion in its evidentiary rulings. The declarations by Jack Reitman and Brian
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Weiss were properly considered at summary judgment because both declarations
comply with Fed. R. Civ. 56(c)(4) and the district court did not abuse its discretion
in ruling that they would be admissible under Fed. R. Evid. 1006. The bankruptcy
court’s factual findings regarding the existence of creditors and the official date of
insolvency are also supported by the record. To any extent they may be in dispute,
appellants fail to demonstrate that either fact is material to defeating Weiss’ claims.
5. Finally, the bankruptcy court did not abuse its discretion in awarding
prejudgment interest. Under California law, a court may award prejudgment
interest under Cal. Civ. Code § 3287(a) only if one of two conditions is met: (1)
“the defendant actually know[s] the amount owed” or (2) “from reasonably
available information could the defendant have computed that amount.”
Chesapeake Indus., Inc. v. Togova Enters., Inc., 197 Cal. Rptr. 348, 351 (Cal. Ct.
App. 1983). Here, the “amount of fraudulent transfer liability was easily
calculable by examining the checks” from Walldesign’s account to Abreu. In re
Acequia, Inc., 34 F.3d 800, 818 (9th Cir. 1994). Abreu’s equities argument is
insufficiently persuasive to render the bankruptcy court’s award an abuse of
discretion.
AFFIRMED.
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