FILED MAR 29 2019 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. NC-18-1042-KuFB
CECCHI GORI PICTURES; CECCHI Bk. Nos. 16-53499-MEH GORI USA, INC., 16-53500-MEH
Debtors. Adv. No. 17-05007-MEH G&G PRODUCTIONS, LLC; GABRIELE ISRAILOVICI; GIOVANNI NAPPI,
Appellants, v. MEMORANDUM* CECCHI GORI PICTURES; CECCHI GORI USA, INC.,
Appellees.
Argued on November 29, 2018 at San Francisco, California
Submitted on March 28, 2019
Filed – March 29, 2019
Appeal from the United States Bankruptcy Court
* This disposition is not appropriate for publication. 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 Cir. BAP Rule 8024-1. for the Northern District of California
Honorable M. Elaine Hammond, Bankruptcy Judge, Presiding
Appearances: Michael H. Weiss of Weiss & Spees, LLP argued for appellants G&G Productions, LLC, Gabriel E. Israilovici, and Giovanni Nappi; Ori Katz of Sheppard Mullin Richter & Hampton LLP argued for appellees Cecchi Gori Pictures and Cecchi Gori USA, Inc.
Before: KURTZ, FARIS, and BRAND, Bankruptcy Judges.
Cecchi Gori Pictures (CGP) and Cecchi Gori USA, Inc. (CGUSA)
(collectively Debtors) filed an adversary complaint against G&G
Productions, LLC (G&G) and Gabriele Israilovici (collectively Defendants),1
alleging claims for, among others, avoidance and recovery of a constructive
fraudulent transfer under § 548(a)(1)(B)2 and California law. Debtors
moved for partial summary judgment on these claims. The bankruptcy
court granted Debtors' motion and ordered turnover of the transferred
property. Defendants appeal from this ruling. For the reasons explained
1 Debtors also named Giovannie Nappi and Vittorio Cecchi Gori as defendants. Mr. Gori defaulted on all claims against him. Mr. Nappi was not named in the constructive fraudulent transfer claims at issue in this appeal. 2 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, "Rule" references are to the Federal Rules of Bankruptcy Procedure, and "Civil Rule" references are to the Federal Rules of Civil Procedure.
2 below, we REVERSE.
FACTS
A. Prepetition Events
Debtors, both California corporations, were part of a corporate family
of various entities that were owned or controlled by Mr. Gori, an Italian
film producer and politician. Debtors produced and developed motion
pictures and also held rights to scripts and other intellectual property that
potentially could be made into movies. CGUSA served as the holding
company, owning the various script related rights; CGP also had some
interest in those rights.
In 2006, Mr. Gori's large production holding company Fin.Ma.Vi
S.p.A (FINMAVI) filed bankruptcy in Italy with $927 million in debt.
Mr. Gori was indicted for criminal fraud in Italy in connection with
FINMAVI's collapse.
While Mr. Gori was preoccupied with FINMAVI's bankruptcy, he
became involved in a dispute with Gianni Nunnari, Debtors' CEO. Mr. Gori
alleged that Mr. Nunnari had engaged in self-dealing and violated his
fiduciary obligations to Debtors by trying to divert film projects to his own
production company. Mr. Gori terminated Mr. Nunnari. In turn,
Mr. Nunnari sued for wrongful termination in the California court, and
Mr. Gori filed claims against him for fraud, breach of fiduciary duty and
others.
3 Since Mr. Gori's assets were frozen due to FINMAVI's bankruptcy
and the Nunnari litigation was on-going, Mr. Gori turned to Mr. Israilovici
to provide consulting services for Debtors and for financial help. In July
2009, Debtors entered into a consulting agreement with Mr. Israilovici
whereby he was to act as a liaison between Debtors and Mr. Gori because
Mr. Gori seldom traveled to the United States and had little command of
the English language.
1. The Loan
From November 2009 to October 2, 2011, Mr. Israilovici lent Debtors
a total of $1.5 million. For each loan, Mr. Gori signed and dated receipts
personally and in the name of, and on behalf of, Debtors, which he
delivered to Mr. Israilovici. Mr. Gori represented to Mr. Israilovici that
Debtors would use the advances to cover the attorney's fees and expenses
to the law firm Wolf, Rifkin, Shapiro, Schulman & Rabkin, LLP (Wolf
Rifkin) in connection with the Nunnari litigation and pay certain operating
expenses. Mr. Gori later admitted that he did not use the funds for those
purposes and that Debtors received none of the funds.
2. The Promissory Note
A promissory note dated November 20, 2012 (Note) evidencing the
loan defined the "Borrower" as Mr. Gori, CGP and CGUSA. The Borrower
granted Mr. Israilovici a security interest in "scripts, contracts, brands"
(Security) until the Note was paid in full. The Note had a maturity date of
4 January 15, 2015. If the Borrower defaulted in payment under the terms of
the Note or after demand for ten days, the Security would be immediately
provided to the lender, Mr. Israilovici. Mr. Gori signed the Note in his
individual capacity and on behalf of Debtors. Mr. Israilovici later testified
that he documented the loan at this time because Mr. Gori failed to pay
him for consulting services that he provided to Debtors even though the
Nunnari litigation had settled for over $5.45 million.
3. The Private Agreement
On November 29, 2012, Mr. Gori, personally and as CEO of Debtors,
entered into a private agreement with Mr. Israilovici (Private Agreement).
Mr. Gori acknowledged the $1.5 million loan made by Mr. Israilovici and
promised to pay that loan and the $1 million owed to Mr. Israilovici for
consulting services. Mr. Gori also gave Mr. Israilovici the authority to
operate Debtors for the purpose of making a number of films abroad and
transferred the "Cecchi Gori" trademark "immediately" to Mr. Israilovici.
The Private Agreement stated that if Mr. Gori did not pay Mr. Israilovici
$2.5 million by January 15, 2015, Mr. Gori would transfer to Mr. Israilovici
(1) all the rights pertaining to the scripts listed in the attachment to the
agreement; (2) all the rights pertaining to remakes of the films produced by
Mr. Gori or his companies; and (3) the rights deriving from the film entitled
Silence.
Mr. Israilovici later declared in connection with the summary
5 judgment proceedings that the Cecchi Gori trademark rights and rights
pertaining to the remakes of Mr. Gori's films that were transferred to him
in the Private Agreement had not been previously transferred to Debtors.
Accordingly, Mr. Israilovici maintained that these rights were the separate
rights of Mr. Gori (Separate Gori Property) and did not belong to Debtors.
4. The First Assignment
Mr. Gori did not pay Mr. Israilovici by the January 15, 2015 due date.
Accordingly, on April 1, 2015, Mr. Gori, acting for Debtors, transferred
some or all of Debtors' assets consisting of (1) forty-two film projects
(Assets); (2) film rights pertaining to the remakes of films produced by
Mr. Gori or his companies; (3) all Mr. Gori's rights derived from the film
entitled Silence, including but not limited to all Mr. Gori's rights pertaining
to a purchase agreement dated August 9, 2013, between Mr. Gori, as
owner, and Georgia Film Fund Twenty One, LLC, as purchaser;
(4) intellectual property rights including the trademark and brand name
Cecchi Gori; and (5) Mr. Gori's contractual rights arising out of certain
settlement agreements (First Assignment).
The First Assignment acknowledged that the parties entered into the
Private Agreement dated November 29, 2012, whereby Mr. Gori, CGP and
CGUSA, defined as the "Assignor," agreed to repay Mr. Israilovici certain
monies by January 15, 2015 and, if they failed to make that payment, the
transfer of the assets reflected in the Private Agreement became effective
6 January 15, 2015. The First Assignment further stated that it was an
agreement to "formally codify the transfer of any and all rights held by the
Assignor in those assets described in the 2012 [Private] Agreement, as well
as any and all rights held by Assignor in certain other assets," a complete
list of which was attached as Exhibit A. That exhibit listed forty-two scripts,
film rights, intellectual property rights, and contractual rights.
The First Assignment further stated:
[F]or good and valuable consideration, the mutual receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows: ... 2. Consideration: In consideration for Assignor's assignment of the Assets, Assignee has paid to Assignor as full compensation One Dollar ($1.00), the receipt and sufficiency of which is hereby acknowledged. ... 8. Entire Agreement: This Agreement (together with all attachments hereto) expresses the entire understanding of the parties hereto with respect to the matters contained herein and supersedes any former agreements, understandings and representations relating to the subject matter hereof. This Agreement cannot be modified or amended except by an instrument in writing signed by the parties hereto. This agreement may be executed in counterparts, and faxed or electronic signatures are effective.
5. The Second Assignment
On the same day as the First Assignment, Mr. Israilovici and
Mr. Gori's personal attorney, Mr. Nappi, formed G&G. Mr. Israilovici then
7 immediately re-transferred the Assets and Separate Gori Property to G&G
under an assignment and assumption agreement.
G&G's operating agreement showed that Mr. Israilovici and
Mr. Nappi were the sole members of G&G, with Mr. Israilovici acting as
manager (Operating Agreement). Mr. Israilovici and Mr. Nappi each held
50% of the membership interests in G&G. Mr. Israilovici's contribution of
the Assets was valued at $2 million and Mr. Nappi's contribution,
consisting of all his rights to a Jean-Michel Basquiat painting entitled Wine
of Babylon, was also valued at $2 million.
6. Sale of the Assets to Fabrica Services, Inc.
A year after the First and Second Assignments, on April 16, 2016,
G&G sold the Assets and Separate Gori Property to Fabrica Services, Inc.
(Fabrica) for $300,000, with additional payments to follow per agreement
between the parties (Fabrica Agreement).
Fabrica's initial $300,000 payment was allocated as follows: $150,000
for a 50% interest in one asset (the project known as The Easy Life), $30,000
for the rights to the Cecchi Gori Name, and $120,000 for exclusivity for five
years in connection with the licensing to third parties or acquisition by
Fabrica of certain rights to the Assets.
B. Bankruptcy Events
CGP and CGUSA filed their chapter 11 petitions in December 2016.
The bankruptcy court entered an order directing the joint administration of
8 the estates.
On April 6, 2017, Mr. Israilovici filed a proof of claim for $2.5 million
based on the $1 million due to him for consulting services and the $1.5
million due under the Note.
1. The Adversary Proceeding
In February 2017, Debtors filed an adversary proceeding against the
Defendants. Debtors alleged eight claims for relief, only two of which are
relevant here. In the third claim for relief, Debtors alleged that the transfer
of the Assets was constructively fraudulent under § 548(a)(1)(B). In the fifth
claim for relief, Debtors alleged that the transfer of the Assets was
constructively fraudulent under Cal. Civ. Code §§ 3439.04(a)(2). In both
claims, Debtors sought to avoid and recover the Assets from Mr. Israilovici,
the initial transferee, and G&G, the subsequent transferee.
Defendants answered the complaint with blanket denials and
asserted numerous affirmative defenses, including that Mr. Israilovici
cancelled his prior $1.5 million loan to Debtors in exchange for the transfer
of the Assets.
2. Debtors' Motion For Partial Summary Judgment
Debtors moved for partial summary judgment on their constructive
fraudulent transfer claims. Debtors maintained that it was undisputed that
there was a transfer from Debtors to Defendants and that Debtors were
rendered insolvent on the date of and after the transfer of the Assets.
9 They further argued that there was no dispute that Debtors received
$1.00 in consideration of the transfer as stated in the First Assignment, and
that this was essentially "no value." Debtors argued that the analysis for
"reasonably equivalent value" began and ended with the First Assignment
because it was fully integrated by its terms and made no mention of the
satisfaction of any present or antecedent debt owing by Debtors to
Mr. Israilovici. Debtors maintained that the bankruptcy court was
prohibited from considering any extrinsic evidence to the contrary.
Debtors further asserted that the conduct and admissions of both
G&G and Mr. Israilovici showed that the value of the Assets was materially
in excess of $1.00. They pointed to the Operating Agreement where the
Assets were given a fair market value of $2 million at the time of the
transfer. They further noted that the Fabrica Agreement showed that
$150,000 was allocated for a 50% interest in one of the Assets (The Easy Life).
According to Debtors, this evidence established that the fair valuation of a
small portion of the Assets was worth more than $1.00.
Finally, Debtors maintained that the transfer of the Assets did not
result in payment of pre-existing debt allegedly owed by Debtors to
Mr. Israilovici and that his loans neither directly nor indirectly benefitted
Debtors since none of the monies went to them.
Debtors submitted several declarations in support of their motion.
Declaration of Mr. Katz: The declaration of Mr. Ori Katz, counsel for
10 Debtors, attached a copy of (1) Mr. Israilovici's declaration filed in the
adversary proceeding; (2) the First Assignment; (3) the agreement that
G&G entered into with Fabrica; (4) the Operating Agreement of G&G;
(5) an accounting of the initial $300,000 payment Fabrica made to G&G in
connection with the Fabrica Agreement; (7) the specific pages of
Mr. Israilovici's deposition taken March 24, 2016 filed in G&G Prods., LLC v.
Rusic, No. 15-02796, 2016 WL 38803032 (C.D. Cal. July 6, 2016); and (8) the
specific pages of Mr. Nappi's deposition taken May 7, 2016, filed in the
Rusic matter.
Declaration of Mr. de Camara: Andrew de Camara, the chief
executive officer for both Debtors, testified that Debtors had no assets of
material value after the transaction on April 1, 2015, whereby Debtors
assigned the Assets to Mr. Israilovici. He further testified that a review of
all deposits to Debtors of $10,000 or more showed that none of the money
made its way directly from Mr. Israilovici or in the form of transfer through
Mr. Gori, to either debtor or Wolf Rifkin for purposes of the Nunnari
litigation.
Declaration of Mr. Rosenbaum: Mark Rosenbaum, a partner with the
law firm of Wolf Rifkin, acted as counsel to Debtors and Mr. Gori during
the period from April 2009 to November 2012 in connection with the
Nunnari litigation. Mr. Rosenbaum declared that after June 24, 2009, Wolf
Rifkin received no payments in connection with the Nunnari litigation
11 from Mr. Gori or Debtors.
Declaration of Mr. Jayarantna: Padmal Jayarantna, an employee of
City National Bank (CNB) filed a declaration pertaining to the bank
accounts of Debtors and attached statements, checks and wires for the time
periods reflected. This declaration was submitted to show that Debtors'
bank account at CNB had a de minimis balance at all relevant times until it
was closed in July 2015.
3. Defendants' Opposition
In their opposition, Defendants conceded the following: (1) there was
a transfer; (2) Debtors were or were rendered insolvent at the time of the
transfer; and (3) despite Mr. Gori's representations, they could locate no
evidence that the funds advanced by Mr. Israilovici benefitted Debtors.
Defendants did not claim that Debtors received an "indirect benefit" from
the advances.
Defendants argued, however, that there were triable issues of fact on
whether Mr. Israilovici had given reasonably equivalent value to Debtors
in exchange for the Assets. First, Defendants asserted that the transfer was
in satisfaction of a valid obligation of Debtors to Mr. Israilovici for $1.5
million. Defendants further explained that Mr. Israilovici initially did not
recall that he had surrendered the original Note to Mr. Gori when he filed
his proof of claim. However, Mr. Gori confirmed that he obtained the
original Note shortly after the First Assignment. According to Defendants,
12 once the bankruptcy court took the surrender of the Note into account, an
issue of fact arose as to whether Debtors received value for the Assets.
Defendants also maintained that there was a triable issue of fact as to
whether the Assets had any value for Debtors' creditors. Defendants
argued that if the $1.5 million debt was discharged, the alleged $2 million
value as reflected in the G&G contribution agreement might still be
considered reasonably equivalent. Defendants further pointed out that
Debtors submitted no expert evidence on the value of the Assets.
According to Defendants, the Assets had almost no independent value to
creditors of Debtors unless coupled with the Separate Gori Property which
was transferred to Mr. Israilovici in the 2012 Private Agreement; i.e., the
trademark rights to the Cecchi Gori name and rights pertaining to the
remake of over three hundred films produced by Mr. Gori or his
companies. Defendants argued that these separate rights, which were
transferred to Fabrica, did not belong to Debtors. Defendants pointed to the
declaration of Mr. Pavlovich, the principal of Fabrica, who declared that
the Assets had no value to Fabrica without the Separate Gori Property; i.e.,
use of the Cecchi Gori trademark.
Next, Defendants asserted that the script rights Debtors transferred to
Mr. Israilovici were "contingent" and thus it was necessary to discount the
face value of the Assets, if any, by the probability that the contingency
would occur. Defendants explained that whether the Assets could be
13 turned into cash depended upon whether a production company agreed to
buy a script or project for which production financing had been arranged
and the script becomes a successful film. Defendants argued that Debtors
had to show whether any such contingency might occur at the time of the
First Assignment on April 1, 2015. Without evidence that the contingency
might occur, Defendants contended that the expected value was zero,
citing Hayden v. Denos (In re Hayden), Bankr. No. 1:14-BK-11187-MT, Adv.
No. 1:14-ap-01182-MT, 2015 WL 9491310, at *11 (Bankr. C.D. Cal. Dec. 28,
2015)(in insolvency analysis, the court observed that if there was a
contingent asset or contingent liability, that asset or liability must be
reduced to its present, or expected value) (citing Sierra Steel, Inc. v. Totten
Tubes, Inc. (In re Sierra Steel, Inc.), 96 B.R. 275, 278 (9th BAP Cir.1989)
(reducing value of a contingent liability to a present value of zero where
evidence shows zero liability on claim) (citing In re Xonics Photochemical,
Inc., 841 F.2d 198, 200 (7th Cir. 1988) (hypothesizing that where there was a
1% chance that a contingency would occur, the liability is discounted to
reflect that chance)).
Lastly, Defendants asserted that unless Debtors had a clear chain of
title to the scripts, they had no value. Defendants maintained that of the
forty-two film projects transferred, thirteen of those projects had no value
since they had been made and Debtors expected no further payments. For
fifteen of the projects, Debtors lacked a clear chain of title and thus were
14 worthless. Defendants conceded that Debtors may have owned fourteen
projects with clear title, but explained that independent film projects have
value only if the chain of title analysis is performed by independent
persons such as Thomson Compumark or Dennis Angel. Neither of these
independent persons provided a chain of title analysis. Defendants
complained that the limited chain of title analysis was done by a lawyer
that worked for Mr. Gori or Debtors. According to Defendants, without
proof that Debtors had clear title to the fourteen projects, it was impossible
to specify a value.
Defendants submitted the following declarations in support of their
opposition:
Declaration of Brian L. Berlandi: Brian L. Berlandi served as
transactional counsel to Mr. Gori and Debtors from June 2013 to February
2015. Mr. Berlandi declared that there were only twelve titles with
apparently clear chain of title transferred to G&G through the April 2015
transfer, but the exhibit attached to his declaration showed fourteen scripts
were owned by Debtors. Mr. Berlandi further opined that Debtors did not
own thirteen of the titles and that ownership of fifteen scripts were unclear
because there were no chain of title documents.
Declaration of Mr. Pavlovich: Mr. Pavlovich testified that the primary
motive of Fabrica in entering into the Fabrica Agreement was to acquire the
rights to remake The Easy Life, one of Mr. Gori's separate rights. According
15 to Mr. Pavlovich, Fabrica believed that the rights to remake The Easy Life
belonged to Mr. Gori. Without the remake rights to The Easy Life and the
use of the "Cecchi Gori" likeness, Fabrica viewed the film projects as having
no independent value.
Declaration of Mr. Gori: Mr. Gori's declaration verified the amounts
loaned by Mr. Israilovici for the purpose of funding the Nunnari litigation
and Debtors' operations. He declared that he did not use the money to fund
Debtors' operations or the Nunnari litigation. He further declared that the
Private Agreement showed that the Assets and Separate Gori Property
would be transferred to Mr. Israilovici if the Note and $1 million owed for
Mr. Israilovici's consulting fees were not paid by January 15, 2015.
According to Mr. Gori, the amounts were not paid by that date and thus
the parties entered into the First Assignment. Finally, Mr. Gori declared
that shortly after the execution of the First Assignment on April 1, 2015,
someone from Mr. Israilovici's office delivered the original Note to him in
Rome.
Supplemental Declaration of Mr. Israilovici: Mr. Israilovici's
declaration reiterated much of what was said by Mr. Gori with respect to
their various agreements. Mr. Israilovici further declared that when he had
filed his proof of claim he did not know that he had surrendered the
original Note or that possession of the original was necessary to enforce it.
Mr. Israilovici also explained that developing script rights entails
16 numerous costs which can be recouped only if a production company
decides to move forward with the project and obtains financing. Even then,
there was no guarantee that the script rights owner will receive full
reimbursement for its sunk costs. Mr. Israilovici declared that there were
vast uncertainties of getting a film produced and even greater uncertainty
that the film would succeed. Accordingly, he concluded that the value of a
script right was highly contingent.
Mr. Israilovici further declared that absent independent proof that
Debtors had clean title to each of the film projects, it was impossible to
value these assets.
Finally, he declared that Mr. Gori's personal right to remake over
three hundred films already produced was included in the rights
transferred in the First Assignment. Mr. Israilovici declared that Mr. Gori
had not previously transferred these rights to Debtors prior to their
November 29, 2012 agreement. He stated that the part of the remake rights
to The Easy Life belonged to him because he acquired them from Mr. Gori
on November 29, 2012; whereas, Debtors' rights were limited to a new
script based on the concept of the earlier movie. According to
Mr. Israilovici, without both rights, neither party could claim clear title and
thus could not make the movie.
Mr. Israilovici also declared that the $2 million value attributed to the
Assets and other rights contributed to G&G represented his approximate
17 "cost basis" or "book value" of those assets; i.e., the approximate amount he
had paid for or invested in them, not his assessment of the then-current fair
market of the Assets. According to Mr. Israilovici, the value assigned was
attributed to a combination of Debtors' Assets with the Separate Gori
Property which substantially enhanced their value.
4. The Bankruptcy Court's Ruling
After a hearing, the bankruptcy court took the matter under
submission. On February 2, 2018, the bankruptcy court granted Debtors'
motion for partial summary judgment finding that Debtors had shown
there was no genuine dispute of material fact on any element of a
constructive fraudulent transfer claim under § 548(a)(1)(B).
The court first noted that Defendants conceded that Debtors
transferred substantially all of their assets to Mr. Israilovici on April 1,
2015, less than two years from the petition date, and that Debtors were
insolvent on the date of that transfer.
In addition, the bankruptcy court found that Debtors did not receive
reasonably equivalent value for the transfer of the Assets. Using the two-
step analysis for determining reasonable equivalent value that is employed
in this Circuit, the bankruptcy court considered whether value was given
in exchange for substantially all of Debtors' Assets. Ultimately, the court
concluded that the value given was $1.00 as reflected in the First
Assignment.
18 The court reached this conclusion for two reasons. First, it rejected
Defendants' argument that more than $1.00 value was given because
Defendants surrendered the Note to Mr. Gori thereby suggesting that the
$1.5 million debt was satisfied. The bankruptcy court reasoned that the
First Assignment was a fully integrated agreement and thus parol evidence
was inadmissible. Without parol evidence, the court found that there was
no evidence to support Defendants' assertion that the Assets were
transferred in satisfaction of a debt.
Next, the court held, as a matter of law, that the underlying Note was
not discharged by surrender to Mr. Gori as it was not a negotiable
instrument under California law. The bankruptcy court noted that Cal.
Com. Code § 3604 permits a lender to discharge an instrument by
surrender. An instrument is defined in Cal. Com. Code § 3104(b) as a
negotiable instrument. Cal. Comm. Code § 3104(a) defines a negotiable
instrument as, among other things, an unconditional promise or order to
pay a fixed amount of money, payable to a bearer or to order at the time it
is issued or first comes into possession of a holder.
The bankruptcy court held that the Note was not made payable to
bearer. The court also noted that to qualify as made "to order," the Note
must contain the language "payable to the order of" or similar language. See
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. v. Baily, 710 F. Supp. 737,
738-39 (C.D. Cal. 1989); Banco Mercantil S.A. v. Sauls, Inc., 140 Cal. App. 2d
19 316, 318-19 (1956); Cal. Com. Code § 3109. Since the Note merely stated that
it was payable to Lender, it was not a negotiable instrument and its
surrender, without more, did not constitute discharge. Accordingly, the
only value given by Mr. Israilovici in exchange for the Assets was $1.00 as
reflected in the First Assignment.
Turning to the second step of the analysis, the bankruptcy court
considered whether the $1.00 value given was reasonably equivalent to the
value of the Assets. There was no direct evidence of the value of the Assets.
Instead, the court relied upon circumstantial evidence from which it made
inferences of value. The bankruptcy court observed that Mr. Israilovici's
contemporaneous capital contribution of the Assets to G&G which were
valued at $2 million was evidence that the Assets were worth more than
$1.00. The bankruptcy court rejected Defendants' argument that
Mr. Israilovici's contribution was not reflective of market value, but instead
based on book value, because this was contrary to the language in the
Operating Agreement and Contribution Agreement which referred to fair
market value of the property contributed.
The bankruptcy court also considered whether the Separate Gori
Property, which was part of Mr. Israilovici's capital contribution to G&G,
was worth $2.0 million thereby leaving the Assets worth nothing or close to
$1.00, or whether the value of the separate property was inseparable from
the Assets such that one could not determine if they were worth more than
20 $1.00. The bankruptcy court found that per the terms of the Fabrica
Agreement, Fabrica paid $30,000 for use of the Cecchi Gori name in 2016.
According to the court, if the Cecchi Gori name was only worth $30,000 in a
subsequent sale to Fabrica, Defendants' argument meant that the Separate
Gori Property was worth about $1,970,000.00. The court found no evidence
showing, directly or indirectly, that these various rights were worth that
amount.
In addition, the court noted that the Fabrica Agreement delineated a
$5,000 payment for each one of the Assets that held "activity or interest,"
which was further indication that the Assets themselves held some value,
whether it be $5,000 per project as decided by the Fabrica Agreement, or
some other amount.
In the end, the court concluded that the First Assignment's net effect
was a drain on the estate, as it resulted in all of Debtors' assets being
transferred away. Moreover, the bankruptcy court noted that the question
before it was merely whether the Assets were worth more than $1.00.
Mr. Israilovici's capital contribution and amounts received from the Fabrica
Agreement were probative evidence that the Assets were worth more than
$1.00 and this evidence was undisputed. Accordingly, the bankruptcy court
found that Debtors did not receive reasonably equivalent value for the
Assets.
The bankruptcy court then found that the Fabrica Agreement showed
21 there was a market for the Assets and that the market was willing to offer
more than $1.00. Although the court found that the Fabrica Agreement was
relevant to the finding of value, the court noted that it was not dispositive
because it occurred over a year after the First Assignment and Operating
Agreement. Nonetheless, the subsequent sale to Fabrica indicated that the
Assets were not blindly unloaded to G&G in an effort to lighten a sinking
ship - clearly, the Assets were worth a second marketing and sale effort.
In addition, the bankruptcy court found no evidence in the record
indicating that the Assets were worthless or should be discounted to zero
to reflect their contingent value at the time of the transfer; i.e., that their
value was dependent on their future purchase by a production company or
on other development. The court distinguished the various cases cited and
noted that although the full potential of the Assets' value may only be
realized upon sale and production, they retained some value independent
of these events.
The bankruptcy court also rejected Defendants' argument that the
value of the Assets should be discounted to nothing because at least
twenty-eight of the film rights lacked a clear chain of title. The court found
that, even assuming that the twenty-eight projects were wholly worthless,
at least fourteen of the remaining projects were free from title issues. The
bankruptcy court noted that a limited chain of title analysis had been
performed on these projects and that they were later sold under the Fabrica
22 Agreement, which was further evidence of some value.
Finally, the bankruptcy court found that Mr. Pavlovich's declaration
was not admissible to re-interpret the values assigned within the Fabrica
Agreement because the agreement was integrated and there were no
ambiguities.
In sum, the bankruptcy court found that Defendants had not shown
any disputed issues of material fact regarding the value of the Assets.
Therefore, as a matter of law, it was reasonable to infer from the evidence
provided by Debtors that the Assets transferred were worth more than
$1.00 and thus Debtors did not receive reasonably equivalent value in
exchange.
On February 8, 2018, the bankruptcy court entered judgment in favor
of Debtors. The judgment, which contained a Civil Rule 54(b) certification,
stated that the transfer of the Assets to Defendants was found fraudulent
under § 548(a)(1)(B) and Cal. Civ. Code § 3439.04(a)(2). Defendants filed a
timely appeal.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy court erred in finding that, as a matter of
law, Mr. Israilovici gave $1.00 in "value" in exchange for the Assets; and
23 Whether the bankruptcy court erred in finding that, as a matter of
law, the $1.00 given in value was not reasonably equivalent to what
Defendants received.
STANDARD OF REVIEW
We review de novo a bankruptcy court's decision to grant summary
judgment. Marciano v. Fahs (In re Marciano), 459 B.R. 27, 35 (9th Cir. BAP
2011), aff'd, 708 F.3d 1123 (9th Cir. 2013). De novo review requires that "we
consider a matter anew, as if no decision had been rendered previously."
Mele v. Mele (In re Mele), 501 B.R. 357, 362 (9th Cir. BAP 2013).
DISCUSSION
A. Legal Standards: Summary Judgment
In reviewing the bankruptcy court's decision on a motion for
summary judgment, we apply the same standards as the bankruptcy court.
Summary judgment is properly granted when no genuine and disputed
issues of material fact remain, and, when viewing the evidence most
favorably to the non-moving party, the movant is entitled to prevail as a
matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Material
facts which would preclude entry of summary judgment are those which,
under applicable substantive law, could affect the outcome of the case. The
substantive law will identify which facts are material. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). At the summary judgment stage, the
court does not weigh the evidence and determine the truth of the matter,
24 but determines whether there is a genuine issue for trial. Id. at 249.
The moving party bears the initial burden of showing that there is no
material factual dispute. If the moving party meets its initial burden, the
burden then shifts to the non-moving party to set out, by affidavits or
admissible discovery material, specific facts showing a genuine issue for
trial. Celotex, 477 U.S. at 324. The party opposing summary judgment must
produce affirmative evidence that is sufficiently probative on the issue that
a jury reasonably could rely on that evidence to decide the issue in his
favor at trial. Matsushita Elec. Indust. Co., Inc. v. Zenith Radio Corp., 475 U.S.
574, 588 (1986). Without such evidence, there is no reason for a trial. Celotex,
477 U.S. at 323.
Finally, the evidence presented by the parties must be admissible. Orr
v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) ("A trial court can
[ ] consider [only] admissible evidence in ruling on a motion for summary
judgment.").
B. Whether Summary Judgment Was Appropriate
Section 548(a)(1)(B) of the Bankruptcy Code provides that a transfer
of property of the debtor can be avoided by the trustee if (1) it occurred
within two years of the petition date; (2) the debtor was insolvent on the
date that such transfer was made or such obligation incurred, or became
insolvent as a result of it; and (3) the debtor received less than reasonably
equivalent value in exchange. See § 548(a)(1)(B); see also Official Comm. of
25 Unsecured Creditors v. Hancock Park Capital II, L.P. (In re Fitness Holdings
Int'l, Inc.), 714 F.3d 1141, 1145 (9th Cir. 2013).
Here, it is undisputed that Debtors had some interest in the forty-two
scripts which were transferred to Mr. Israilovici on April 1, 2015, through
the First Assignment.3 This was less than two years from the petition date,
and Debtors were insolvent on or after that date. Therefore, only the third
element, whether Debtors received less than reasonably equivalent value in
exchange for the transfer, is at issue.
An examination into reasonably equivalent value includes two
inquires: (1) whether value was given in exchange for the transfer and
(2) whether the value of what was transferred was reasonably equivalent to
what the debtor received. Greenspan v. Orrick, Herrington & Sutcliffe LLP (In
re Brobeck, Phleger & Harrison LLP), 408 B.R. 318, 341 (Bankr. N.D. Cal. 2009).
"By its terms and application, the concept of 'reasonably equivalent value'
does not demand a precise dollar-for-dollar exchange." Hasse v. Rainsdon
(In re Pringle), 495 B.R. 447, 463 (9th Cir. BAP 2013).
3 We observe that under the terms of the Note, Debtors gave Mr. Israilovici a security interest in the Assets. The bankruptcy court did not avoid this transfer or decide that the security interest was unenforceable. A transfer of collateral to a secured creditor is not a fraudulent transfer, so long as the security interest is enforceable and the debtor gets appropriate credit against the debt. See In re Fitness Holdings Int'l, Inc., 714 F.3d at 1145-46 ("to the extent a transfer constitutes repayment of the debtor’s antecedent or present debt, the transfer is not constructively fraudulent").
26 1. Value
As to the first inquiry, "value" for purposes of fraudulent transfer law
means "property, or satisfaction or securing of a present or antecedent debt
of the debtor." § 548(d)(2). The parties dispute the amount Mr. Israilovici
gave in exchange for the Assets. Debtors take the position that
Mr. Israilovici gave $1.00 in exchange for the Assets as a matter of law
because that amount was reflected in the First Assignment—an integrated
agreement, which made no mention that the transfer was made in
satisfaction of a debt. Defendants argue that the parol evidence rule does
not bar evidence that a particular transaction is a fraudulent transfer. They
further contend that once all the admissible evidence is considered, it
shows there is a genuine dispute for trial as to whether Debtors' transfer of
the Assets was in satisfaction of the $1.5 million debt owed to
Mr. Israilovici.
Before considering the summary judgment evidence, we address the
applicability of the parol evidence rule. According to the First Assignment,
California law governs the interpretation and enforcement of the
agreement between the parties. The parol evidence rule, codified in
California Code of Civil Procedure §§ 18564 and 1625,5 generally prohibits
4 Cal. Code Civ. Proc. § 1856 entitled "Terms in writing intended as final expression of agreement; exclusion of parol evidence; exceptions" provides:
(continued...)
27 the introduction of either oral or written extrinsic evidence to vary, alter, or
add to the terms of an integrated written agreement. Casa Herrera, Inc. v.
Beydoun, 32 Cal. 4th 336, 343 (2004). The rule is one of substantive law
based on the concept that a written integrated contract establishes the
terms of the agreement between the parties and evidence that contradicts
the written terms is irrelevant. Id. at 343–44.
The parol evidence rule has no applicability under these
circumstances. First, this is not a contract action. The bankruptcy court was
not required to interpret the First Assignment to determine the rights and
liabilities of the parties. Instead, the court was required to determine
whether Debtors' transfer of the Assets to Mr. Israilovici was for reasonably
equivalent value. The bankruptcy court could admit any testimony and
extrinsic evidence that was probative on this inquiry. See In re Brobeck,
Phleger Harrison LLP, 408 B.R. at 341 (in constructive fraudulent transfer
4 (...continued) (a) Terms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement. 5 Cal. Code Civ. Proc. § 1625 entitled "Written contracts; effect on negotiations or stipulations" provides:
The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.
28 analysis, the court examines all the circumstances surrounding the
transaction); see also Brown v. Raygoza (In re Addinton), Bankr. No. 12-10029,
2015 WL 3404505, at *4 (Bankr. E.D. Ky. May 27, 2015) (noting that a
fraudulent transfer adversary proceeding goes to the substance of the
transaction, not the interpretation of the parties' contract).
Second, the existence of an integration clause in a contract does not,
in and by itself, exclude parol evidence. California law provides an
exception to the parol evidence rule that allows parties to contradict a
recital of executed consideration, i.e., money which the contract states has
been received. Doria v. Int'l Union, Allied Ind. Workers of Am., AFL-CIO, 196
Cal. App. 2d 22, 39 (1961); see also Shiver v. Liberty Bldg.-Loan Assn., 16
Cal.2d 296, 299 (1940); Simmons v. Cal. Inst. of Tech., 34 Cal. 2d 264, 272
(1949). Here, the $1.00 shown as consideration is a recital or mere statement
of the receipt of money and not a contract term. Accordingly, the $1.00
consideration is not conclusive and Mr. Israilovici may present extrinsic
evidence to show the true value exchanged. In sum, the bankruptcy court
erred by excluding admissible evidence on the issue of "value" by
application of the parol evidence rule.
Moreover, "a contract may validly include the provisions of a
document not physically a part of the basic contract. . . .'It is, of course, the
law that the parties may incorporate by reference into their contract the
terms of some other document.'" Shaw v. Regents of Univ. of Cal., 58 Cal.
29 App. 4th 44, 54 (1997). "The contract need not recite that it 'incorporates'
another document, so long as it 'guide[s] the reader to the incorporated
document.'" Id.
Here, the First Assignment refers to the Private Agreement. In that
agreement, the parties agreed that Debtors would pay Mr. Israilovici $1.5
million for his loan and $1 million for his consulting services no later than
January 15, 2015. And, if they failed to make that payment, the transfer of
the assets reflected in the Private Agreement became effective January 15,
2015. The First Assignment goes on to say that it is an agreement to
"formally codify" the transfer of those assets in the 2012 Private Agreement
as well as others. It is unclear whether the bankruptcy court considered this
language and the Private Agreement which showed the transfer of the
Assets was in satisfaction of a debt owed by Debtors to Mr. Israilovici if not
repaid by January 15, 2015.
Finally, Defendants argue that delivery of the original Note to
Mr. Gori shows that Mr. Israilovici intended the transfer of the Assets to
satisfy the $1.5 million debt. Defendants argue that combined with other
admissible evidence such as Mr. Israilovici's lien on the Assets as
evidenced by the Note, and Mr. Gori's testimony that the original Note was
surrendered at or around the time of the First Assignment, a trier of fact
could reasonably infer that Mr. Israilovici intended to cancel the debt by
delivering the Note.
30 Granted, there is contrary evidence in the record from which a trier of
fact could also reasonably infer that Mr. Israilovici did not intend to cancel
the debt in exchange for the Assets. He filed a proof of claim showing that
he was owed the debt and declared that he did not remember delivering
the Note to Mr. Gori at the time he filed his claim. Further, Mr. Israilovici
did not submit a declaration in opposition to the summary judgment
stating that he intended to cancel the Note in exchange for the Assets.
Presented with the contrary evidence, a court's role is only to
determine whether a genuine issue of material facts exists, not to make
determinations of credibility or weigh conflicting evidence. Anderson, 477
U.S. at 255. And the court is required to draw all justifiable inferences in
favor of the nonmovants. Id. Here, a genuine triable issue remains as to
whether the "value" given for the transfer was satisfaction of the $1.5
million debt. If the underlying debt is valid, delivery of the Note coupled
with the transfer of the Assets to Mr. Israilovici as contemplated by the
First Assignment, Mr. Israilovici's lien on the Assets, and the subsequent
delivery of the Note to Mr. Gori, provide sufficient evidence to raise an
inference that Debtors' transfer of the Assets to Mr. Israilovici was in
satisfaction of the $1.5 million debt. Because of this evidence, a contrary
inference from Mr. Israilovici's proof of claim and the lack of a declaration
regarding intent cannot be made as a matter of law. Accordingly, summary
judgment was not appropriate.
31 2. Reasonably Equivalent to What Was Received
Because of our decision to reverse the bankruptcy court's ruling with
respect to the "value" prong of the reasonably equivalent value analysis, it
is premature to address any remaining issues relevant to the second prong
- whether the value of what was transferred was reasonably equivalent to
what Debtors received. Although the bankruptcy court correctly found that
the forty-two scripts had value over $1.00, a more precise value may be
required.
CONCLUSION
For the reasons explained above, we REVERSE.