Marty Goldsmith v. James Zazzali ( 2020 )

FILED
NOT FOR PUBLICATION
JUN 12 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MARTY GOLDSMITH, No. 19-35629
Appellant, D.C. No. 1:19-cv-00002-WBS
v.
MEMORANDUM*
JAMES R. ZAZZALI, as Trustee for the
Debtors’ Jointly-Administered Chapter 11
Estates and/or as Litigation Trustee for the
DBSI Estate Litigation Trust,
Appellee.
Appeal from the United States District Court
for the District of Idaho
William B. Shubb, District Judge, Presiding
Submitted May 12, 2020**
Portland, Oregon
*
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).
Before: BYBEE and VANDYKE, Circuit Judges, and CARDONE,*** District
Judge.
Appellant seeks to prevent the trustee of a bankruptcy estate (Trustee) from
avoiding certain payments under 11 U.S.C. § 548(a)(1)(A). The bankruptcy court
concluded that the Trustee could avoid payments of proceeds exceeding the market
value of purchased real property because the transaction was connected to a Ponzi
scheme. The district court affirmed. Because no legal error is apparent, we
likewise affirm.
We assume the parties’ familiarity with the facts and will only discuss them
where necessary. We independently review the bankruptcy court’s legal
conclusions de novo and its factual findings for clear error. Rosson v. Fitzgerald
(In re Rosson), 545 F.3d 764, 770–71 (9th Cir. 2008).
1. Appellant first contends that he was not the initial transferee for the
closing payment of $25,400,000. He claims that DBSI-TV, an entity affiliated
with DBSI, was the initial transferee. Qualifying as an initial transferee requires
enjoying “dominion over the money or other asset,” that is, “the right to put the
money to one’s own purposes.” Henry v. Official Comm. of Unsecured Creditors
of Walldesign, Inc. (In re Walldesign, Inc.), 872 F.3d 954, 962 (9th Cir. 2017)
***
The Honorable Kathleen Cardone, United States District Judge for the
Western District of Texas, sitting by designation.
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(citation omitted). In other words, an entity must have possessed “legal title and
the ability . . . to freely appropriate the transferred funds.” Mano-Y & M, Ltd. v.
Field (In re The Mortg. Store, Inc.), 773 F.3d 990, 996 (9th Cir. 2014).
The bankruptcy court concluded that DBSI-TV “never received or held legal
title to the funds” and could not “freely appropriate those funds as they were
committed to the closing agent.” Nothing in the record contradicts these findings.
DBSI-TV was formed only for the purchase of the Tanana Valley Property, never
held any other assets, never generated revenue, and had no employees of its own.
Most notably, DBSI-TV did not have a bank account. Appellant makes no effort to
explain how an entity could acquire legal title if it had no way of possessing the
funds. Thus, the bankruptcy court did not err in finding that Appellant was the
initial transferee of the closing payment.
2. Appellant next argues that none of the money is reachable because the
earnest-money payment and the closing payment constituted two separate
transactions, each protected by different provisions in the statute. No one disputes
that the approximately $2.98 million earnest-money payment is unreachable by the
Trustee. The bankruptcy court found that the property’s fair-market value at the
time of the transaction was $25,480,000. Appellant argues that because he was a
good-faith seller, he can therefore keep the $25,400,000, notwithstanding the fact
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that the sum of both payments for the property was approximately $28,380,000
inclusive of the earnest-money payment.
Appellant’s argument is unsupported by the facts and the statute. The two
payments constituted a single transaction to purchase the property because both
payments were necessary to purchase the property. Aggregating both payments
does not eliminate a statutory defense as Appellant contends. Appellant’s status as
a secondary transferee shields the $2.98 million earnest-money payment per 11
U.S.C. § 550(b). And his selling the property in good faith protects the difference
between the earnest-money payment and the $25,480,000 market-value of the
property per 11 U.S.C. § 548(c). The bankruptcy court, therefore, did not err in
adding the two payments together and holding Appellant liable for the amount
exceeding the market value.
3. Lastly, Appellant challenges the application of the Ponzi presumption to
this case. Per the Ponzi presumption, “the mere existence of a Ponzi scheme” is
“sufficient to establish the actual intent to hinder, delay, or defraud creditors under
11 U.S.C. § 548(a).” Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 814 (9th
Cir. 2008). The evidence sufficiently shows that the purchase of the Tanana
Valley Property was connected with DBSI’s broader Ponzi scheme. Kastera and
DBSI-TV were not independent of DBSI. Evidence at trial also showed that
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Douglas Swenson was orchestrating the allocation of money throughout DBSI’s
related entities—including Kastera. Testimony established that Kastera never used
“non-DBSI third-party financing” in acquiring investment properties. Funds for
the purchase of properties by Kastera would come from tenancy-in-common sales
or other sources of DBSI revenue. And six months after closing, Tanana Valley
real estate started getting used for tenancy-in-common sales. Finally, expert
testimony at trial established that “as early as January 2005,” the company
“became dependent upon new investor money” to pay existing investors. Given
these links, the bankruptcy court did not err in applying the Ponzi presumption.
AFFIRMED.
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