FILED NOV 02 2017 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP Nos. WW-17-1006-BKuF ) WW-17-1007-BKuF 6 CASCADE AG SERVICES, INC., ) (Cross-Appeals) ) 7 Debtor. ) Bk. No. 12-18366-MLB ) 8 ) Adv. No. 15-01060-MLB VIRGINIA A. BURDETTE, Chapter ) 9 7 Trustee, ) ) 10 Appellant/Cross-Appellee, ) ) 11 v. ) M E M O R A N D U M1 ) 12 EMERALD PARTNERS, LLC, a ) Washington Limited Liability ) 13 Company; MELANIE S. BRUCH, as ) Trustee for the Melanie Bruch ) 14 Living Trust; CHRISTOPHER H. ) SHEAFE; R. KEITH STOREY, as ) 15 Trustee of the Storey Family ) Living Trust; NANCY C. STOREY,) 16 as Trustee of the Storey ) Family Living Trust, ) 17 ) Appellees/Cross-Appellants.) 18 ______________________________) 19 Argued and Submitted on September 28, 2017, at Seattle, Washington 20 Filed - November 2, 2017 21 Appeal from the United States Bankruptcy Court 22 for the Western District of Washington 23 Honorable Marc L. Barreca, Bankruptcy Judge, Presiding 24 Appearances: Kevin Arnold Bay of Tousley Brian Stephens PLLC 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 28 Cir. BAP Rule 8024-1. 1 argued for appellant/cross-appellee; Danial D. Pharris of Lasher, Holzapfel, Sperry & Ebberson 2 argued for appellees/cross-appellants. 3 4 Before: BRAND, KURTZ and FARIS, Bankruptcy Judges. 5 Chapter 72 trustee Virginia A. Burdette ("Trustee") appeals a 6 judgment against Emerald Partners, LLC, Melanie S. Bruch, 7 Christopher H. Sheafe, R. Keith Storey and Nancy C. Storey 8 (collectively "Haller Farms"), ruling that the debtor's transfer 9 of 2/3 of its 2011 blueberry crop proceeds to Sakuma Brothers 10 Farms, Inc. ("Sakuma") was an avoidable fraudulent transfer under 11 both federal and state law and awarding Trustee $40,438 against 12 Haller Farms — the intended beneficiary of that transfer. Trustee 13 maintains that the avoidable fraudulent transfer by the debtor was 14 the $395,159 it expended for growing blueberries for the 2011 15 growing season without payment from Haller Farms. 16 Haller Farms cross-appeals the court's ruling that it was the 17 intended beneficiary of, and did benefit from, the debtor's 18 contract with Sakuma to manage and control the blueberry operation 19 in 2011 and the debtor's transfer of the 2/3 portion of the 20 blueberry crop proceeds to Sakuma, which ultimately reduced the 21 debt Haller Farms owed to Sakuma by $40,438. 22 We AFFIRM. 23 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 24 A. Background of the parties and their relationship 25 Cascade Ag Services, Inc. ("Debtor") is the surviving 26 27 2 Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
-2- 1 corporation of four entities which were merged approximately two 2 weeks before Debtor's chapter 11 bankruptcy filing on August 13, 3 2012. The four predecessor entities were (1) Cascade Ag Services, 4 Inc. ("Cascade Ag"), (2) Staffanson Harvesting, LLC, (3) Mountain 5 View Produce, Inc., and (4) Sterling Investment Group, LLC. One 6 or more of Debtor's predecessor entities was wholly or partially 7 owned by Craig Staffanson, an experienced farmer.3 Prior to the 8 bankruptcy filing, Cascade Ag did business under the trade name 9 "Pleasant Valley Farms." Its primary business was the growing and 10 processing of cucumbers and cabbage into pickles and sauerkraut 11 and selling its food products. Debtor's case was converted to 12 chapter 7 on August 8, 2014. 13 The members of Haller Farms are tenants in common owners of 14 agricultural land in Skagit County, Washington, which is leased to 15 farmers.4 Haller Farms has never been in the agricultural 16 business as either growers or processors. 17 Cascade Ag and Staffanson Harvesting leased land from Haller 18 Farms for its operations. The only formal business or legal 19 relationship Debtor's predecessor entities had with Haller Farms 20 was as lessees of its land. Other than Mr. Staffanson attending 21 the Haller family's annual meetings to discuss generally the 22 status of the entities' various farming operations, Haller Farms 23 24 3 Going forward, all references to "Debtor" include Cascade 25 Ag Services, Inc. (as merged) and any of Debtor's predecessor entities. 26 4 The individual members of Haller Farms are absentee owners 27 of the land, residing in Washington, California and Arizona. They are the descendants of Granville and Henrietta Haller. The Haller 28 family has continuously owned the land since the 1800s.
-3- 1 was not provided with ongoing farming updates or financial 2 information concerning Debtor's predecessor entities. 3 B. The Blueberry Field: 2002 through 2010 and 2012 through 2015 4 In 2002, Staffanson Farms, Inc., a non-debtor entity that was 5 co-owned by Mr. Staffanson, leased approximately 108 acres of land 6 from Haller Farms and planted blueberry plants (the "Blueberry 7 Field"). The blueberry plants, planting and related installation 8 costs totaled $434,158, owed to Oregon Blueberry Farms & Nursery. 9 By the end of 2003, Staffanson Farms could not pay for the plants 10 or field improvements and went out of business. Haller Farms 11 entered into an agreement with Oregon Blueberry that the $434,158 12 could be paid on a non-recourse basis from the net profit of each 13 year's crop (to be farmed by others) but only after payment of all 14 costs of maintaining the field and producing the harvest. At all 15 times relevant to this lawsuit, Haller Farms owned the blueberry 16 plants and the land on which they were planted.5 17 Around 2004-2005,6 Sakuma, a berry grower and processor owned 18 by Steve Sakuma, began managing the Blueberry Field and farming 19 blueberries. Sakuma entered into an agreement with Haller Farms 20 to advance all costs of management, maintenance, and further 21 establishment and improvement of the Blueberry Field in exchange 22 for the right to purchase the fruit from each year's harvest. 23 Sakuma agreed to pay market prices for the fruit from each harvest 24 25 5 Staffanson Harvesting's 2009 lease with Haller Farms was revised to reflect that Haller Farms owned both the blueberry 26 plants and the land on which they were planted. 27 6 From 2003-2004, a company called Delta Breeze, Inc. managed the Blueberry Field and farmed blueberries. It then 28 decided to terminate its involvement.
-4- 1 at the prices Sakuma paid its growers. The parties agreed that 2 Sakuma's expenditures for the Blueberry Field would be non- 3 recourse and unsecured, to be repaid only to the extent there were 4 eventual profits realized — i.e., the difference between each 5 year's annual costs and the value of the blueberries purchased by 6 Sakuma. Thus, Haller Farms would receive no money from the 7 blueberry crops until the debts to Sakuma and Oregon Blueberry 8 were paid in full, with Sakuma being paid first. Mr. Sheafe, who 9 was responsible for informing the other Haller family members of 10 the Blueberry Field's progress, testified that "Sakuma essentially 11 owned the revenue stream coming off the field until that was 12 reduced to zero. . . . [Sakuma] got all the fruit. He sold it 13 and kept the money." 14 With the exception of 2011, discussed below, Sakuma farmed, 15 managed and paid all costs for the Blueberry Field from 2005 16 through 2015. Haller Farms gave Sakuma complete control over 17 management of the Blueberry Field and all decisions regarding the 18 amount and types of expenditures made. Sakuma neither consulted 19 nor advised Haller Farms of day-to-day or ongoing expenses that 20 were incurred for the blueberry operation. Haller Farms would 21 typically not know until the end of each calendar year whether 22 Sakuma's blueberry operation generated a profit or loss that would 23 reduce or increase the Sakuma debt. All Sakuma provided Haller 24 Farms regarding the Blueberry Field was an annual income statement 25 showing expenses, income and total annual profits or losses. 26 During Sakuma's management, one or more of Debtor's 27 predecessor entities provided Sakuma with labor and materials for 28 the blueberry operation and were paid by Sakuma when billed for
-5- 1 the work and materials provided. Sakuma's payments to the 2 entities were added to the Blueberry Field expenses, and 3 ultimately increased the Sakuma debt owed by Haller Farms. 4 Under the agreement between Sakuma and Haller Farms, each 5 year, except for 2011, when Sakuma harvested the blueberries it 6 credited itself for the market price based on prices Sakuma paid 7 to other growers. Any revenue that exceeded annual costs was 8 applied to reduce the Sakuma debt; any losses incurred increased 9 the Sakuma debt. 10 Overall, farming blueberries on the Blueberry Field from 2005 11 through 2010 was unprofitable. By 2010, the Sakuma debt was 12 nearly $1.3 million.7 Haller Farms was concerned about the 13 Blueberry Field's accumulating losses and its likelihood of 14 profitability. In an April 2009 email, Mr. Sheafe expressed to 15 the other Haller family members that "cost reduction" would be 16 their focus for the 2009 growing season. In a March 2010 email 17 from Mr. Sheafe to Mr. Storey, Mr. Sheafe stated that it was time 18 to focus on controlling costs, noting that Haller Farms was 19 "dangerously close to the point where we can not catch the expense 20 of accruing payables due to the amount of money due to Sakuma." 21 Mr. Sheafe indicated that blueberry operation costs had been 22 reduced by using Debtor's labor instead of Sakuma's, noting that 23 much of the labor provided by Debtor in 2009 "was not billed to 24 Sakuma" and that "[g]oing forward, [Mr. Staffanson] anticipates 25 providing all labor except harvest labor without requesting 26 27 7 The blueberry operation accrued losses of $274,532 in 2005, $291,788 in 2006, $216,583 in 2007, $298,846 in 2008, 28 $108,703 in 2009 and $39,230 in 2010.
-6- 1 reimbursement from Sakuma." 2 At the end of 2015, Sakuma terminated its management of the 3 Blueberry Field. At the time of trial, a different, unrelated 4 entity was growing blueberries there. 5 C. The Blueberry Field - 2011 6 The focus of these cross-appeals lies in the transactions 7 that occurred between the parties for the Blueberry Field's 2011 8 crop year. In 2011, Sakuma was facing financial difficulties and 9 did not want to work the Blueberry Field that year. Deciding that 10 the Blueberry Field "had turned the corner" and was "ready to 11 generate substantial profit," Mr. Staffanson (on behalf of Debtor) 12 negotiated with Sakuma to manage and control the blueberry 13 operation, providing all labor and materials free of charge in 14 exchange for 1/3 of the proceeds of the blueberry harvest based on 15 the prices Sakuma paid to growers (the "2011 Agreement"). The 16 other 2/3 of the proceeds, after deductions for Sakuma's expenses, 17 were to be credited to the accumulated Sakuma debt. Debtor had no 18 obligation to expend any particular amount in growing the 2011 19 blueberry crop under the 2011 Agreement; it was entirely in 20 Debtor's discretion. 21 Mr. Sakuma, Mr. Sheafe and Mr. Staffanson all testified that 22 they believed the 2011 Agreement gave Debtor the right to 23 exclusive control over the Blueberry Field and crop, to contract 24 with third parties and to make all decisions on expenditures for 25 farming the field — the same rights Sakuma had in the years 2005- 26 2010 and 2012-2015. 27 In performing the 2011 Agreement, Debtor expended $395,159.23 28 on farming blueberries. Following the 2011 blueberry harvest,
-7- 1 Debtor transferred the blueberries to Sakuma. Pursuant to the 2 2011 Agreement, Sakuma valued the crop based on the prices it paid 3 to growers and paid 1/3 of that amount ($39,451) to Fairhaven 4 Farms, an entity the bankruptcy court found sufficiently 5 affiliated with Debtor so as to constitute a payment to Debtor. 6 After deducting its expenses of $38,465 from 2/3 of the proceeds, 7 Sakuma applied the remaining proceeds — $40,438 — to reduce the 8 Sakuma debt. 9 D. Trustee's claims against Haller Farms 10 Trustee filed an adversary proceeding against Haller Farms 11 asserting claims for (1) declaratory judgment, (2) breach of 12 contract, (3) fraudulent transfer (both actual and constructive) 13 and (4) unjust enrichment. For her first two claims, Trustee 14 alleged that Haller Farms was engaged in a joint venture, 15 partnership agreement or crop share agreement with Debtor to farm 16 blueberries. She further alleged that Haller Farms was in breach 17 of the parties' agreement by failing to pay Debtor all of the 18 proceeds to which it was entitled. Trustee later dismissed these 19 claims with prejudice, because she could not prove that a joint 20 venture or crop share agreement to farm blueberries existed 21 between Debtor and Haller Farms. 22 Haller Farms later moved for summary judgment on Trustee's 23 remaining fraudulent transfer and unjust enrichment claims. 24 Initially, for her unjust enrichment claim, Trustee had alleged 25 that Haller Farms was unjustly enriched by receiving from Debtor 26 at least $1.9 million in contributions to the alleged joint 27 blueberry venture with Haller Farms (which did not exist) without 28 paying over to Debtor any of the business's proceeds. In
-8- 1 opposition to Haller Farms' summary judgment motion, Trustee 2 alleged $395,195 in free labor and materials Debtor provided to 3 Sakuma for the Blueberry Field in 2011 benefitted Haller Farms by 4 reducing the Sakuma debt with no payment from Haller Farms. 5 Trustee argued that Haller Farms had unquestionably received 6 a benefit as a result of Debtor's uncompensated contributions of 7 labor and materials, which served to support either her unjust 8 enrichment or fraudulent transfer claims. As Trustee explained, 9 Haller Farms would begin to make a profit on the blueberry 10 operation once the advances made by Sakuma were paid off. Thus, 11 anything Haller Farms could do to lower production costs was a 12 direct and tangible benefit to Haller Farms; it decreased the 13 amounts owed to Sakuma and advanced the time at which it would 14 begin to see profits from blueberry operations. Therefore, argued 15 Trustee, persuading Debtor to provide free labor instead of having 16 to pay Sakuma for its labor was a direct benefit to Haller Farms. 17 Trustee asserted that Haller Farms was aware of the free labor 18 arrangement with Sakuma based on the correspondence between its 19 members. 20 Haller Farms argued that Trustee's claim for unjust 21 enrichment failed because no benefit had been conferred upon it. 22 The Blueberry Field had produced only losses, a total of 23 $1.75 million between Sakuma's losses and the $434,158 still owed 24 to Oregon Blueberry. Haller Farms argued that it had never 25 received, and would never receive, any profits or rent proceeds 26 from blueberry operations. At best, argued Haller Farms, it may 27 have been an incidental beneficiary of some nominal, uncompensated 28 labor or services provided by Mr. Staffanson or Debtor to Sakuma,
-9- 1 but that did not obligate Haller Farms to make restitution. 2 Mr. Staffanson stated that any use of labor or materials by Debtor 3 for the Blueberry Field without reimbursement from Sakuma was 4 limited and done only because he felt a moral obligation to the 5 Haller family for getting them involved in the unprofitable 6 blueberry crop, and because Debtor's successful pickle and cabbage 7 operations were dependant on Haller Farms' continued willingness 8 to lease land to Debtor. Haller Farms further argued that Trustee 9 could not sue on the equitable theory of unjust enrichment for any 10 unpaid-for labor or materials, because that was the subject matter 11 of express contracts between Debtor and Sakuma for the years 2005- 12 2010 and 2012; for 2011, Debtor's contract with Sakuma was 1/3 of 13 the blueberry crop proceeds. 14 The bankruptcy court granted Haller Farms' first motion for 15 summary judgment as to Trustee's claims for unjust enrichment and 16 actual fraudulent transfer. However, it denied the motion as to 17 Trustee's claim for constructive fraudulent transfer. 18 With the dismissal of Trustee's claims for unjust enrichment 19 and actual fraudulent transfer, the only issue remaining for trial 20 was whether Trustee could establish a constructive fraudulent 21 transfer claim against Haller Farms based on the alleged transfers 22 of labor and materials to it by Debtor. 23 E. Trial on Trustee's remaining claim for constructive fraudulent transfer 24 25 After a second round of unsuccessful summary judgment 26 motions, the bankruptcy court conducted a two-day trial. 27 Mr. Staffanson testified extensively about the blueberry 28 operation for 2011. He testified that 2011 appeared to be a good
-10- 1 year for Debtor to take over management of the Blueberry Field; 2 the price of blueberries was on the rise and the plants had 3 matured greatly due to Sakuma's efforts in prior years. 4 Mr. Staffanson testified that he was optimistic about the 2011 5 blueberry crop, and he believed the 2011 Agreement would be 6 financially beneficial for Debtor. However, Mr. Staffanson 7 testified that, between lower-than-expected prices received, the 8 massive "shock" disease that detrimentally affected the plants 9 that year and Debtor doing "a bad job on cost control," blueberry 10 operations for 2011 were not as profitable as everyone had hoped. 11 Mr. Staffanson testified that Debtor, not Haller Farms, was 12 the intended beneficiary of the 2011 Agreement. Both 13 Mr. Staffanson and Mr. Sakuma testified that Haller Farms was not 14 consulted before Sakuma and Debtor entered into the 2011 15 Agreement, and that neither expected Haller Farms to receive any 16 direct monetary benefit from it because Sakuma and Oregon 17 Blueberry had to be paid off before Haller Farms would receive any 18 profits from blueberry operations. However, Mr. Sakuma testified 19 that, ultimately, getting Haller Farms "in a positive cash 20 position to allow that farm to be run by [Mr. Staffanson]" and for 21 Sakuma "to no longer be farmers but the receivers of a raw product 22 that [Sakuma] would turn into market profit" was the "long-term 23 goal" of all three parties. 24 Finally, Mr. Sheafe testified that Haller Farms did not learn 25 of the 2011 Agreement between Debtor and Sakuma until early 2012. 26 He testified that Haller Farms received no monetary benefit as a 27 result of the 2011 Agreement. 28 After testimony from the witnesses, the court expressed its
-11- 1 concern over exactly "what" constituted the transfer or transfers 2 that Trustee was alleging. Was it the entire $395,159 Debtor 3 spent on blueberry operations for 2011, or was it the 2/3 net 4 return on the fruit that went toward reducing the Sakuma debt? 5 Furthermore, was Haller Farms alleged to be the initial 6 transferee, the intended beneficiary or an immediate transferee? 7 The court ordered post-trial briefing on these issues, heard 8 closing argument and took the matter under submission. 9 F. The court's ruling 10 The bankruptcy court entered its written Findings of Fact and 11 Conclusions of Law.8 The court found that Haller Farms was the 12 intended beneficiary of the 2011 Agreement, and the transfer which 13 was intended to and did benefit Haller Farms was the 2/3 in net 14 proceeds Sakuma received from the 2011 blueberry harvest and 15 applied to reduce the Sakuma debt owed by Haller Farms. 16 Accordingly, judgment was entered in favor of Trustee and 17 against Haller Farms, jointly and severally, for $40,438.00. 18 II. JURISDICTION 19 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 20 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158. 21 III. ISSUES 22 1. Did the bankruptcy court err in determining that Debtor owned 23 the 2011 blueberry crop? 24 2. Did the bankruptcy court err in finding that Haller Farms was 25 the intended beneficiary of, and did benefit from, the 2011 26 27 8 The bankruptcy court found that Debtor was insolvent at the time of the transfer in question. No party has appealed that 28 ruling.
-12- 1 Agreement? 2 3. Did the bankruptcy court err by dismissing Trustee's unjust 3 enrichment claim on summary judgment? 4 IV. STANDARDS OF REVIEW 5 We review the bankruptcy court's findings of fact for clear 6 error and its conclusions of law de novo. Decker v. Tramiel 7 (In re JTS Corp.), 617 F.3d 1102, 1109 (9th Cir. 2010). Factual 8 findings are clearly erroneous if they are illogical, implausible 9 or without support in the record. Retz v. Samson (In re Retz), 10 606 F.3d 1189, 1196 (9th Cir. 2010). Whether a party is a 11 "transferee" is a question of fact. See First Nat'l Bank of 12 Barnesville v. Rafoth (In re Baker & Getty Fin. Servs., Inc.), 13 974 F.2d 712, 722 (6th Cir. 1992). 14 We review de novo the bankruptcy court's decision to grant 15 summary judgment. Salven v. Galli (In re Pass), 553 B.R. 749, 756 16 (9th Cir. BAP 2016). 17 V. DISCUSSION 18 A bankruptcy trustee may bring an action to avoid a 19 prepetition transfer that is alleged to be constructively 20 fraudulent under § 548(a)(1) or applicable state law as provided 21 in § 544(b). In relevant part, § 548(a) provides: 22 (a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made or 23 incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or 24 involuntarily — 25 . . . . 26 (B)(I) received less than a reasonably equivalent value in exchange for such transfer or obligation; 27 and 28 (ii)(I) was insolvent on the date that such
-13- 1 transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or 2 obligation . . . . 3 § 548(a)(1). In other words, to avoid a constructively fraudulent 4 transfer under § 548(a)(1)(B), the trustee must prove: (1) the 5 transfer involved property of the debtor; (2) the transfer was 6 made within two years of the bankruptcy filing; (3) the debtor did 7 not receive reasonably equivalent value for the property 8 transferred; and (4) the debtor was insolvent, made insolvent by 9 the transaction, operating or about to operate without sufficient 10 capital or unable to pay debts as they become due. Hasse v. 11 Rainsdon (In re Pringle), 495 B.R. 447, 462-63 (9th Cir. BAP 12 2013). Washington law is substantially similar. See 13 RCW 19.40.041(a)(2) and RCW 19.40.051(a).9 14 15 16 9 RCW 19.40.041(a)(2) provides for avoidance if the debtor made the transfer or incurred the obligation: 17 (2) without receiving reasonably equivalent value in exchange 18 for the transfer or obligation, and the debtor 19 (I) was engaged or was about to engage in a business or a transaction for which the remaining assets of the 20 debtor were unreasonably small in relation to the business or transaction, or 21 (ii) intended to incur, or believed or reasonably should 22 have believed that he or she would incur, debts beyond his or her ability to pay as they become due. 23 RCW 19.40.041(a)(2)(I) and (ii). 24 RCW 19.40.051(a) provides that the trustee may avoid a 25 transfer or obligation if the debtor: 26 Made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the 27 transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the 28 transfer or obligation.
-14- 1 A. The bankruptcy court did not err in determining that Debtor owned the 2011 blueberry crop. 2 3 Neither party contests the bankruptcy court's finding that 4 Debtor was insolvent at the time of the transfer at issue or that 5 the transfer was made within two years of the bankruptcy filing. 6 The dispute lies in "what" Debtor transferred and whether Haller 7 Farms was the "entity for whose benefit the transfer was made." 8 The bankruptcy court found that, by Debtor taking over the 9 role of farmer, managing and controlling the blueberry operation 10 for 2011, as Sakuma had done in years prior, Debtor owned and 11 controlled the disposition of the 2011 blueberry crop it produced. 12 Trustee contends the bankruptcy court erred when it found that 13 Debtor, as opposed to Haller Farms, owned the 2011 blueberry crop. 14 She maintains that no evidence in the record existed to support 15 this finding. We disagree. 16 As a threshold matter for her constructive fraudulent 17 transfer claim, Trustee had to prove that "property of the debtor" 18 was transferred. A transfer of the debtor's property that 19 otherwise would have been property of the estate is a prerequisite 20 for a fraudulent transfer action under either § 544 or § 548. 21 Wood v. Bright (In re Bright), 241 B.R. 664, 666 n.3 (9th Cir. BAP 22 1999); Greenspan v. Orrick, Herrington & Sutcliffe LLP 23 (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318, 337 (Bankr. 24 N.D. Cal. 2009) ("both the 'property' and 'transfer' elements 25 apply whether the claim is one for actual or constructive 26 fraudulent transfer"). The existence of an interest in "property" 27 is a question of state law, while the issue of whether such 28 property was "transferred" is one of federal law. In re Bright,
-15- 1 241 B.R. at 666 n.3. See also Barnhill v. Johnson, 503 U.S. 393, 2 398 (1992) (in the absence of controlling federal law, "property" 3 and "interests in property" are creatures of state law); Butner v. 4 United States, 440 U.S. 48, 55 (1979). Therefore, to determine 5 whether the 2011 blueberry crop was property of Debtor, we turn to 6 Washington law. 7 No written contract existed between Sakuma and Haller Farms 8 for any of the years when Sakuma managed and controlled the 9 Blueberry Field. Further, the 2011 Agreement between Sakuma and 10 Debtor was not memorialized by a written contract. Nonetheless, 11 Mr. Sakuma and Mr. Sheafe testified that Sakuma had complete and 12 exclusive control over the Blueberry Field and resulting crops — 13 the actual fruit harvested, not the plants — from 2005-2010 and 14 2012-2015, and they and Mr. Staffanson testified that Debtor, by 15 obtaining Sakuma's rights over the Blueberry Field in 2011, had 16 complete and exclusive control over it and the resulting crop for 17 2011. No party testified to the contrary. At one point, as 18 Trustee notes, Mr. Sakuma also testified that the harvested fruit 19 belonged to Haller Farms. However, which entity owned the fruit 20 is a legal conclusion for the court to determine. See Cermak v. 21 Babbitt, 234 F.3d 1356, 1361 (Fed. Cir. 2000) (nature of property 22 interests is a question of law); Tarabishi v. McAlester Reg'l 23 Hosp., 827 F.2d 648, 652 (10th Cir. 1987) ("Whether the facts 24 establish a property interest is a question of law."). Therefore, 25 the bankruptcy court was free to disregard Mr. Sakuma's contrary 26 testimony. 27 Washington recognizes oral contracts. Lopez v. Reynoso, 28 129 Wash. App. 165, 171 (2005) (In Washington, an agreement "can
-16- 1 be entirely oral, entirely in writing, or partly oral and partly 2 in writing."). Further, the oral agreements here do not fall 3 within the Statute of Frauds. See RCW 19.36.010.10 Thus, the oral 4 agreements between the parties were valid and enforceable and gave 5 Debtor a property interest in the 2011 blueberry crop. 6 Moreover, because Debtor was a cash lessee of the Blueberry 7 Field from Haller Farms and a rightful tenant in possession, 8 Debtor held title to, and the absolute right to sell, the 9 blueberry crop it grew and harvested in 2011.11 See Loudon v. 10 11 10 RCW 19.36.010. Contracts, etc., void unless in writing. 12 In the following cases, specified in this section, any 13 agreement, contract, and promise shall be void, unless such agreement, contract, or promise, or some note or memorandum 14 thereof, be in writing, and signed by the party to be charged therewith, or by some person thereunto by him or her lawfully 15 authorized, that is to say: (1) Every agreement that by its terms is not to be performed in one year from the making 16 thereof; (2) every special promise to answer for the debt, default, or misdoings of another person; (3) every agreement, 17 promise, or undertaking made upon consideration of marriage, except mutual promises to marry; (4) every special promise 18 made by an executor or administrator to answer damages out of his or her own estate; (5) an agreement authorizing or 19 employing an agent or broker to sell or purchase real estate for compensation or a commission. 20 11 Although the parties did not offer into evidence a written 21 lease for the Blueberry Field from 2011 between Debtor and Haller Farms as they did with other years, it appears the parties did 22 enter into a lease for that year based on correspondence between them. The language in the leases between the parties for the 23 years 2007-2009 states that the amount of rent to be paid by Debtor was "an amount calculated as the result of blueberry crop 24 proceeds from fruit sales less repayment of Sakuma paid field expense for maintenance and improvements and after repayment of 25 accrued payables due Sakuma and Oregon Blueberry, if any." Thus, these prior leases were "cash" leases as opposed to "crop share 26 agreement" leases, which could result in a different outcome as to ownership of the fruit once harvested. See 21A Am. Jur. 2d Crops 27 § 23 (2017). Presumably, and no one has shown otherwise, the 2011 Blueberry Field lease was also a "cash" lease with the same 28 payment terms as prior leases.
-17- 1 Cooper, 3 Wash. 2d 229, 240 (1940) (occupier of land is the owner 2 of all crops harvested during the term of his occupancy, whether 3 the occupant be a purchaser in possession, a tenant in possession, 4 or a mere trespasser in possession, holding adversely); Benhart v. 5 Gorham, 14 Wash. App. 723, 724 (1976) ("As between lessor and 6 lessee, it is the general rule in Washington that title to the 7 crops follows actual possession of the land"); 21A Am. Jur. 2d 8 Crops § 23 (2017) ("Tenants who rent land for cash are owners of 9 the crops and have an absolute right to sell them"). 10 Accordingly, the bankruptcy court did not err when it 11 determined that Debtor owned the 2011 blueberry crop and had 12 exclusive control over its disposition. 13 Trustee further argues that, because the bankruptcy court 14 erred in determining that Debtor owned the 2011 blueberry crop, it 15 erroneously concluded that the $395,159 it expended in labor and 16 materials for the Blueberry Field in 2011 was not a fraudulent 17 transfer to Haller Farms but rather an investment of its own labor 18 and materials into its own blueberry crop. Because we conclude 19 that the court did not err in determining that Debtor owned the 20 2011 blueberry crop, Trustee's argument necessarily fails. 21 B. The bankruptcy court did not err in finding that Haller Farms was the intended beneficiary of the 2011 Agreement between 22 Debtor and Sakuma. 23 To the extent a transfer is avoided under § 548, a trustee 24 may recover the property or the value of the property from "the 25 entity for whose benefit such transfer was made." § 550(a)(1).12 26 12 27 Section 550(a)(1) provides, in relevant part: 28 (continued...)
-18- 1 "The phrase 'or the entity for whose benefit such transfer was 2 made' refers to those who receive a benefit as a result of the 3 initial transfer from the debtor — not as the result of a 4 subsequent transfer." Danning v. Miller (In re Bullion Reserve of 5 N. Am.), 922 F.2d 544, 547 (9th Cir. 1991). "[I]n transferring 6 the avoided funds, the debtor must have been motivated by an 7 intent to benefit the individual or entity from whom the trustee 8 seeks to recover. It is not enough that an entity benefit from 9 the transfer; the transfer must have been made for his benefit." 10 Id. (emphasis in original). Additionally, "an entity need not 11 actually benefit, so long as the transfer was made for his 12 benefit." Id. (emphasis in original). 13 Haller Farms contends the bankruptcy court erred in 14 concluding that the 2011 Agreement between Debtor and Sakuma was 15 intended to benefit, and did benefit, Haller Farms. Haller Farms 16 maintains that it was merely an incidental and remotely contingent 17 beneficiary of the 2011 Agreement and therefore not liable to 18 Trustee. We disagree. 19 At trial, Mr. Staffanson and Mr. Sakuma testified that they 20 believed and intended that Debtor and Sakuma would be the only 21 intended beneficiaries of the 2011 Agreement, because Haller Farms 22 23 12 (...continued) 24 (a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 25 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property 26 transferred, or, if the court so orders, the value of such property, from — 27 (1) the initial transferee of such transfer or the 28 entity for whose benefit such transfer was made[.]
-19- 1 could not receive any revenue from the Blueberry Field until 2 approximately $1.7 million in debt was repaid to Sakuma and Oregon 3 Blueberry from crop revenues. The men also testified that they 4 caused their companies to enter into the 2011 Agreement because 5 they believed the blueberry operation would be profitable in 2011 6 and both would make money on the deal. 7 Based on the evidence that blueberry yields were trending 8 upward, that net losses from blueberry operations were decreasing 9 from 2008-2010 and that it was anticipated that 2011 would be a 10 good crop year, the bankruptcy court found Mr. Staffanson's belief 11 that operating expenses for 2011 would be less than the value of 12 the blueberry harvest was optimistic, but reasonable. However, to 13 the extent Mr. Staffanson believed that under the terms of the 14 2011 Agreement Debtor could profit from or break even on the 2011 15 blueberry harvest, the court found his testimony not credible. 16 The court found it was not at all reasonable for a sophisticated 17 farmer to believe that 1/3 of the blueberry harvest proceeds would 18 equal or exceed the costs of producing the 2011 blueberry harvest. 19 Furthermore, Mr. Staffanson had testified that he entered into the 20 2011 Agreement, at least in part, due to a moral obligation he 21 felt to the Haller family. For these reasons, the court found 22 that the 2011 Agreement was intended to benefit Haller Farms and 23 that Haller Farms did benefit from Debtor's transfer of the 2/3 of 24 net proceeds from the 2011 blueberry crop to Sakuma. 25 Where two views of the evidence are possible, the trial 26 judge's choice between them cannot be clearly erroneous. Anderson 27 v. City of Bessemer City, 470 U.S. 564, 573-75 (1985); Ng v. 28 Farmer (In re Ng), 477 B.R. 118, 132 (9th Cir. BAP 2012). In
-20- 1 addition, we give great deference to the bankruptcy court's 2 factual findings when based upon its determinations as to the 3 credibility of witnesses. In re Retz, 606 F.3d at 1196. Past 4 history reveals that the blueberry operation was a financial 5 failure. Even though losses were declining marginally from 2008- 6 2010, the chance of Debtor actually making money under the 2011 7 Agreement was remote. Moreover, Mr. Staffanson admitted that he 8 felt a moral obligation to the Haller family to help curb their 9 losses on the failing blueberry venture that his former business 10 partner got them involved in. Considering this and the testimony 11 from Mr. Sakuma and Mr. Staffanson, some of which the bankruptcy 12 court found not credible, we cannot conclude that the court's 13 finding that Haller Farms was the intended beneficiary of the 2011 14 Agreement and that it benefitted from Debtor's transfer of the 15 2/3 portion of net crop proceeds to Sakuma by reducing the Sakuma 16 debt was illogical, implausible or without support in the record. 17 Even if the debt reduction here was a "hypothetical" benefit 18 to Haller Farms, as it contends, because it made a small dent in a 19 massive debt that will never be repaid to Sakuma, we must uphold 20 the bankruptcy court's finding. Haller Farms did not actually 21 have to benefit from the 2011 Agreement and the transfer of the 22 2/3 of net crop proceeds to Sakuma to be liable to Trustee. The 23 fact that the 2011 Agreement and transfer to Sakuma was made for 24 Haller Farms' benefit is sufficient to establish its liability 25 under § 550(a). In re Bullion Reserve of N. Am., 922 F.2d at 547 26 (entity need not actually benefit as long as the transfer was made 27 for its benefit). 28
-21- 1 C. The bankruptcy court did not err by dismissing Trustee's unjust enrichment claim on summary judgment. 2 3 Trustee contends the bankruptcy court erred by dismissing her 4 unjust enrichment claim on summary judgment because she offered 5 evidence supporting each of the claim's elements under Washington 6 law. The bankruptcy court determined that the record lacked any 7 evidence that Debtor requested or expected either Sakuma or Haller 8 Farms to pay for any uninvoiced labor and materials it provided. 9 Because of this, the court found that Debtor was nothing more than 10 a mere "volunteer" to the blueberry operation with respect to any 11 uninvoiced, uncompensated services, which precluded a claim for 12 unjust enrichment for the years other than 2011. 13 As for 2011, the court found that Debtor did not expect to be 14 compensated for anything beyond the 1/3 sale proceeds split it 15 contracted for. Therefore, regardless of whether Haller Farms 16 benefitted from Debtor's uninvoiced, uncompensated services for 17 that year, the court found that retention of the benefit was not 18 unjust under the circumstances. Trustee contests only the court's 19 decision respecting the $395,159 Debtor expended in labor and 20 materials for the Blueberry Field in 2011. 21 "Unjust enrichment is the method of recovery for the value of 22 the benefit retained absent any contractual relationship because 23 notions of fairness and justice require it." Young v. Young, 24 164 Wash. 2d 477, 484 (2008). To prevail on her unjust enrichment 25 claim, Trustee had to establish that: (1) Debtor conferred a 26 benefit on Haller Farms; (2) Haller Farms knew of the benefit; and 27 (3) Haller Farms accepted or kept the benefit under inequitable 28 circumstances. Bailie Commc'ns, Ltd. v. Trend Bus. Sys., Inc.,
-22- 1 61 Wash. App. 151, 159-60 (1991). 2 "A person can be enriched by merely receiving a benefit. 3 However, the mere fact that a person benefits another is not 4 sufficient to require the other to make restitution. It is well 5 established that unjust enrichment and liability only occur where 6 money or property has been placed in a party's possession such 7 that in equity and good conscience the party should not retain 8 it." Lynch v. Deaconess Med. Ctr., 113 Wash. 2d 162, 165-66 9 (1989) (internal citations omitted). To be unjust as between the 10 two parties, the party conferring the benefit must not be a 11 volunteer. Id. at 165 (the enrichment of the defendant must be 12 unjust and the plaintiff cannot be a mere volunteer). 13 Trustee makes much of the bankruptcy court's finding that 14 Debtor was a "volunteer" to the blueberry operation with respect 15 to any uninvoiced, uncompensated services. However, that does not 16 appear to be the court's ruling with respect to the $395,159 17 Debtor expended in labor and materials for the Blueberry Field in 18 2011. Furthermore, whether the court should have made that 19 factual finding on summary judgment is debatable. In any event, 20 the record does not support Trustee's unjust enrichment claim. 21 Under the 2011 Agreement, Debtor provided $395,159 in labor 22 and materials for the Blueberry Field. The record and the law at 23 the time of Haller Farms' first summary judgment motion reflect 24 that Debtor owned and controlled the blueberry crop for that year. 25 Its application of labor and materials to the Blueberry Field was 26 for the purpose of producing its own blueberry crop. Debtor 27 received payment for that labor and materials in the form of 1/3 28 of the 2011 crop proceeds, which is exactly what it contracted for
-23- 1 with Sakuma. Even though in hindsight Debtor overspent to grow 2 the 2011 crop, the record does not support the inference that, 3 whatever benefit Haller Farms may have received from Debtor's 4 labor and materials on the Blueberry Field that year (which would 5 not be the entire $395,159 Trustee was requesting in any event), 6 it would be unjust or inequitable for Haller Farms to retain it 7 without payment. 8 Accordingly, because the elements of Trustee's unjust 9 enrichment claim were not genuinely disputed, the bankruptcy court 10 did not err by granting Haller Farms' first summary judgment 11 motion and dismissing Trustee's claim. 12 VI. CONCLUSION 13 For the foregoing reasons, we AFFIRM. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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