David Abreu v. Brian Weiss

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 26, 2020
• Docket: 18-56673
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 26 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT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.

2 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

3 “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

4 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.