FILED SEP 22 2015 1 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-14-1563-KuPeTa ) 6 DORON EZRA; NAVA TOMER EZRA, ) Bk. No. 1:11-12168-MT ) 7 Debtors. ) Adv. No. 1:12-01001-MT ______________________________) 8 ) SHOSHANA EZRA, ) 9 ) Appellant, ) 10 ) v. ) OPINION 11 ) DAVID SEROR, Chapter 7 ) 12 Trustee, ) ) 13 Appellee. ) ______________________________) 14 15 Argued and Submitted on July 23, 2015 at Pasadena, California 16 Filed – September 22, 2015 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding 20 21 Appearances: Shalem Shem-Tov of Netzah & Shem-Tov, Inc. argued for appellant Shoshana Ezra; Richard D. Burstein 22 of Ezra Brutzkus Gubner LLP argued for appellee David Seror, chapter 7 trustee. 23 24 25 Before: KURTZ, PERRIS* and TAYLOR, Bankruptcy Judges. 26 27 * Hon. Elizabeth L. Perris, United States Bankruptcy Judge 28 for the District of Oregon, sitting by designation. 1 KURTZ, Bankruptcy Judge: 2 3 INTRODUCTION 4 Shoshana Ezra appeals from the bankruptcy court’s judgment 5 avoiding as fraudulent transfers two deeds of trust the debtors 6 Doron Ezra and Nava Tomer-Ezra executed in her favor. Shoshana1 7 contends that at least some of the avoidance claims brought 8 against her by the chapter 72 trustee David Seror were time 9 barred, that there was insufficient evidence the debtors made the 10 transfers with the intent to hinder, delay or defraud their 11 creditors, and that there was no evidence of the debtors’ 12 insolvency. 13 We disagree with Shoshana’s position on intent. As for the 14 specific limitations defense she discusses in her opening appeal 15 brief, it differs from the statute of repose issue she raised in 16 the bankruptcy court. We decline to address the limitations 17 defense on appeal because it was not sufficiently raised in the 18 bankruptcy court for the bankruptcy court to decide it. As for 19 her statute of repose issue, she did not raise it in her opening 20 appeal brief; she only raised it in her appellate reply brief. 21 This is improper, and we similarly decline to address it. On 22 these grounds, we AFFIRM. 23 24 1 25 For the sake of clarity, we refer to the Ezras by their first names. No disrespect is intended. 26 2 Unless specified otherwise, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure, Rules 1001-9037.
2 1 FACTS 2 Doron and Nava purchased their residence in 1996. Since 3 then, the residence has been the subject of several transactions 4 involving various Ezra family members. On October 17, 2001, 5 Doron quitclaimed his interest in the residence to Nava in her 6 name alone, but a week later Nava executed a new quitclaim deed 7 transferring title to the residence back to her and Doron as 8 husband and wife. In January 2010, Doron once again quitclaimed 9 his interest to Nava in her name alone. At the time of their 10 joint bankruptcy filing in February 2011, Nava still held title 11 to the residence in her name alone. 12 In addition to the title transfers, four deeds of trust were 13 of record at the time of the commencement of the debtors’ 14 bankruptcy case. Of these four, the first and third deeds of 15 trust were held by banks and were not contested by Seror in the 16 debtors’ bankruptcy case. The other two deeds of trust of record 17 were both held by Shoshana and are described as follows: 18 1. A second deed of trust recorded in April 2004 in favor of 19 Doron’s mother Shoshana, as beneficiary, purportedly securing a 20 debt in the amount of $500,000; and 21 2. A fourth deed of trust recorded in June 2009 in favor of 22 Shoshana, as beneficiary, purportedly securing a debt in the 23 amount of $500,000. 24 In January 2012, Seror filed his complaint seeking to avoid 25 as fraudulent transfers the 2004 and 2009 deeds of trust in favor 26 of Shoshana. He also sought to recover the transfers for the 27 benefit of the estate pursuant to § 550(a). In relevant part, 28 Seror alleged that the debtors did not receive reasonably
3 1 equivalent value in exchange for the 2009 deed of trust and that 2 the debtors were insolvent at the time or that the 2009 deed of 3 trust rendered them insolvent. Seror further alleged that, at 4 the time both transfers were made, the debtors faced “demands 5 and/or potential or pending litigation” and that the debtors made 6 the transfers for the purpose of shielding from creditors any 7 equity in their residence. Based on these and other allegations, 8 Seror asserted that he was entitled to avoid the 2009 deed of 9 trust as an actual and constructive fraudulent transfer either 10 under § 548(a)(1)(A) and (B) or under § 544(b) and Cal. Civ. Code 11 §§ 3439.04(a) and 3439.05. Seror further claimed that he was 12 entitled to avoid the 2004 deed of trust as an actual fraudulent 13 transfer under § 544(b) and Cal. Civ. Code § 3439.04(a). 14 Shoshana filed a summary judgment motion seeking dismissal 15 of Seror’s lawsuit. Shoshana primarily argued that Seror’s 16 claims seeking avoidance of the 2004 deed of trust under 17 California law were time barred under the seven year statute of 18 repose set forth in Cal. Civ. Code § 3439.09(c), which states: 19 (c) Notwithstanding any other provision of law, a cause of action with respect to a fraudulent transfer or 20 obligation is extinguished if no action is brought or levy made within seven years after the transfer was 21 made or the obligation was incurred. 22 Cal. Civ. Code § 3439.09(c).3 According to Shoshana, because 23 more than seven years had elapsed between the recording of the 24 3 25 Recently, the California legislature amended the California Uniform Fraudulent Transfer Act. The amendments make 26 relatively minor changes to the Act, and none of those changes affect our analysis in this appeal. Moreover, the amendments 27 generally do not apply to transfers made before the effective date of the amendments. See 2015 Cal. Legis. Serv. Ch. 44 (S.B. 28 161).
4 1 (April) 2004 deed of trust and Seror’s January 2012 filing of his 2 complaint, Seror’s fraudulent transfer claims arising from the 3 2004 deed of trust had been extinguished by operation of law. 4 The bankruptcy court denied Shoshana’s summary judgment motion, 5 holding that the seven years provided by California’s statute of 6 repose had not been exceeded because the debtors had commenced 7 their February 2011 bankruptcy case within seven years of the 8 transfer. 9 Presumably because the statute of repose issue under Cal. 10 Civ. Code § 3439.09(c) was decided as a matter of law in the 11 summary judgment motion, Shoshana did not raise any factual or 12 legal issues regarding this defense in the pretrial stipulation 13 or in her trial documents. Nor did she raise during the pretrial 14 or trial proceedings any issue related to the statute of 15 limitations defense set forth in Cal. Civ. Code § 3439.09(a), 16 which provides: 17 A cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless 18 action is brought pursuant to subdivision (a) of Section 3439.07 or levy made as provided in subdivision 19 (b) or (c) of Section 3439.07: 20 (a) Under paragraph (1) of subdivision (a) of Section 3439.04, within four years after the transfer was made 21 or the obligation was incurred or, if later, within one year after the transfer or obligation was or could 22 reasonably have been discovered by the claimant. 23 Cal. Civ. Code § 3439.09(a).4 24 4 25 Shoshana’s answer to Seror’s complaint included an affirmative defense alleging that Seror’s claims were barred 26 under the “applicable statute of limitations.” Nonetheless, the (continued...) 27 28 5 1 At the conclusion of trial, the bankruptcy court stated 2 its findings of fact and conclusions of law on the record. The 3 court found not credible Doron’s testimony that his mother 4 Shoshana and his (now) deceased father Shlomo expected repayment 5 of amounts Doron and Nava spent on family trips to Israel and on 6 groceries while in Israel and that the two deeds of trust secured 7 repayment of those amounts. According to the court, Doron’s 8 testimony was both bizarre and inconsistent regarding whether 9 these amounts were gifts or loans. The court further found that 10 Doron’s “gifts and Israel” explanation did not jibe with Doron’s 11 alternate story that his parents lent him the money for various 12 real estate transactions. In fact, the court explained, Doron’s 13 vague and inconsistent testimony about the bank accounts he used 14 to partially fund some of his real estate transactions led the 15 court to conclude that all of the accounts Doron referenced 16 effectively belonged to Doron – even those bank accounts he 17 claimed belonged to his parents. As the bankruptcy court put it: 18 . . . he just used those accounts of his parents for his own purposes and they were effectively his accounts 19 and was not clear that the money coming out of the accounts was even from the parents or something that he 20 had put in earlier. There was no attempt to show the funds supplied by the parents. The statements all came 21 to [Doron’s] address, either the home or the business address. 22 23 4 (...continued) 24 parties’ pretrial stipulation, approved by the court, did not reference this defense, and the stipulation explicitly provided 25 that it superseded the pleadings and was to govern the course of trial. See Patterson v. Hughes Aircraft Co., 11 F.3d 948, 950 26 (9th Cir. 1993) (“A pretrial order generally supersedes the pleadings, and the parties are bound by its contents.”). 27 28 6 1 Tr. Trans. (Nov. 3, 2014) at p. 35:10-17. 2 The bankruptcy court also did not believe Doron’s statements 3 that his father Shlomo had kept ledgers and that he (Doron) lost 4 the two promissory notes memorializing the loans supposedly 5 secured by the two deeds of trust. As the bankruptcy court 6 explained, Doron was an experienced businessman who had made a 7 living engaging in sophisticated real estate transactions. In 8 light of this background, the court found it exceptionally hard 9 to believe (and did not believe) in the existence of the ledger 10 and the notes given Doron’s inability to produce them. The court 11 found that Doron had not credibly reconciled his 20 years of 12 experience as a real estate investment professional - who owned 13 interests in and/or partially controlled a number of real estate 14 investment entities – with his apparently nonchalant attitude 15 with respect to the financing of one of his family’s most 16 important assets: the family residence. 17 As for the intent to hinder, delay or defraud their 18 creditors, the court found that the debtors’ intent largely was 19 established by their pattern and practice of: (1) ensuring that 20 assets of value were kept in the name of other family members, 21 even though they continued to exercise control over the assets; 22 and (2) ensuring that any current or future equity the debtors 23 may have had in their residence was fully encumbered. The court 24 inferred that the debtors’ practice was initially motivated by 25 Doron’s concern over the litigious nature of the business he was 26 engaged in and later by actual demands and lawsuits the debtors 27 faced. 28 The bankruptcy court also found that the debtors received
7 1 less than reasonably equivalent value in exchange for both deeds 2 of trust. The court further found, with respect to the 2009 deed 3 of trust, that the debtors were insolvent at the time of the 4 transaction or were rendered insolvent by the transaction, were 5 left with insufficient assets in light of the business or 6 transaction in which they were engaged, and intended to incur or 7 reasonably should have believed they would incur debts beyond 8 their ability to pay as they came due. However, the court 9 answered each of these financial status questions in the negative 10 with respect to the 2004 deed of trust. 11 Based on these findings, the bankruptcy court entered 12 judgment against Shoshana avoiding the 2004 deed of trust as an 13 actual fraudulent transfer under § 544(b) and Cal. Civ. Code 14 § 3439.04(a)(1) and avoiding the 2009 deed of trust as both an 15 actual and constructive fraudulent transfer under 11 U.S.C. 16 §§ 544(b) and 548, as well as Cal. Civ. Code §§ 3439.04(a)(1), 17 (a)(2)(A), (a)(2)(B) and 3439.05. The bankruptcy court further 18 ordered both transfers recovered for the benefit of the estate 19 pursuant to § 550(a). On November 26, 2014, Shoshana timely 20 filed her notice of appeal. 21 JURISDICTION 22 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 23 §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. 24 § 158. 25 ISSUE 26 Did the bankruptcy court correctly rule that the 2004 and 27 2009 deeds of trust were fraudulent transfers? 28
8 1 STANDARD OF REVIEW 2 In appeals from judgments disposing of fraudulent transfer 3 claims, the bankruptcy court’s findings of fact are reviewed 4 under the clearly erroneous standard and its conclusions of law 5 are reviewed de novo. Decker v. Tramiel (In re JTS Corp.), 617 6 F.3d 1102, 1109 (9th Cir. 2010). 7 A bankruptcy court’s factual findings are not clearly 8 erroneous unless they are illogical, implausible or without 9 support in the record. Retz v. Samson (In re Retz), 606 F.3d 10 1189, 1196 (9th Cir. 2010). 11 DISCUSSION 12 A. Overview 13 As set forth above, the bankruptcy court avoided both the 14 2004 deed of trust and the 2009 deed of trust as actual 15 fraudulent transfers under § 544(b) and California Civil Code 16 § 3439.04(a)(1). To the extent we can uphold the bankruptcy 17 court’s actual fraudulent transfer determination, we need not 18 reach the court’s constructive fraudulent transfer determination, 19 which only pertained to the 2009 deed of trust. 20 Under § 544(b), a chapter 7 trustee may exercise the 21 avoiding powers conferred upon creditors by California’s version 22 of the Uniform Fraudulent Transfer Act, Cal. Civ. Code § 3439, et 23 seq., to the same extent those powers could have been exercised 24 by a creditor holding an allowable unsecured claim against the 25 debtor’s bankruptcy estate. Wolkowitz v. Beverly (In re 26 Beverly), 374 B.R. 221, 232 (9th Cir. BAP 2007), aff’d in part 27 and adopted, 551 F.3d 1092 (9th Cir. 2008); see also In re JTS 28 Corp., 617 F.3d at 1111 (“Section 544 enables a bankruptcy
9 1 trustee to avoid any transfer of property that an unsecured 2 creditor with an allowable claim could have avoided under 3 applicable state law.”). 4 To decide whether a transfer is avoidable under California’s 5 Uniform Fraudulent Transfer Act, we must interpret California 6 law. In re Beverly, 374 B.R. at 232. We must answer any 7 questions of law arising from the Act based on how the California 8 Supreme Court would decide them. Id. If the California Supreme 9 Court has not yet reached the issue in question, our job is to 10 predict how the California Supreme Court would decide it. 11 Kekauoha–Alisa v. Ameriquest Mortg. Co. (In re Kekauoha–Alisa), 12 674 F.3d 1083, 1087-88 (9th Cir. 2012) (citing Sec. Pac. Nat’l 13 Bank v. Kirkland (In re Kirkland), 915 F.2d 1236, 1239 (9th Cir. 14 1990)). 15 B. Intent to Hinder, Delay or Defraud 16 The Act provides in relevant part that a transfer is 17 fraudulent as to a creditor, regardless of when the creditor’s 18 claim arose, if the debtor made the transfer with the actual 19 intent to hinder, delay, or defraud any creditor. Cal. Civ. Code 20 § 3439.04(a)(1). Bankruptcy courts examining transfers under 21 this provision must focus on the debtor’s state of mind. In re 22 Beverly, 374 B.R. at 235. As long as the debtor had the 23 requisite intent, a transfer will qualify as actually fraudulent 24 even if reasonably equivalent value was provided. Id. Because 25 § 3439.04(a)(1)’s language regarding the debtor’s state of mind 26 is stated in the disjunctive, intent to defraud a creditor is not 27 required. Either an intent to hinder or an intent to delay a 28 creditor also will suffice. Id.
10 1 As the plaintiff, Seror had the burden of proof to establish 2 by a preponderance of the evidence the existence of the requisite 3 state of mind. Id. Because direct evidence regarding the 4 debtor’s fraudulent or obstructive intent rarely is available, 5 courts typically infer the debtor’s intent from the surrounding 6 circumstances. Id. To facilitate this process, the Act 7 enumerates eleven non-exclusive “badges of fraud” – factors the 8 court can consider in deciding whether the requisite intent 9 existed. Cal. Civ. Code § 3439.04(b). These factors include the 10 following: 11 (1) Whether the transfer or obligation was to an insider. 12 (2) Whether the debtor retained possession or control of the property transferred after the transfer. 13 (3) Whether the transfer or obligation was disclosed or concealed. 14 (4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened 15 with suit. (5) Whether the transfer was of substantially all the 16 debtor’s assets. (6) Whether the debtor absconded. 17 (7) Whether the debtor removed or concealed assets. (8) Whether the value of the consideration received by 18 the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation 19 incurred. (9) Whether the debtor was insolvent or became 20 insolvent shortly after the transfer was made or the obligation was incurred. 21 (10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred. 22 (11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred 23 the assets to an insider of the debtor. 24 Cal. Civ. Code § 3439.04(b). 25 Notwithstanding the inclusion of this list in the statute, 26 the list does not set in concrete the factors the trier of fact 27 can or must consider to ascertain the debtor’s intent. No single 28 factor necessarily is determinative, and no minimum or maximum
11 1 number of factors dictates a particular outcome. As we explained 2 in In re Beverly, the list should not be applied formulaically. 3 In re Beverly, 374 B.R. at 236. Instead, the trier of fact 4 should consider all of the relevant circumstances surrounding the 5 transfer. Id. (citing Filip v. Bucurenciu, 129 Cal.App.4th 825, 6 834 (2005)). 7 Shoshana argues on appeal that the bankruptcy court’s intent 8 findings were clearly erroneous. With respect to the 2004 deed 9 of trust, she states that the evidence regarding value given in 10 exchange for the 2004 deed of trust might have been equivocal, 11 but inadequate consideration alone cannot support a finding of 12 actual intent to hinder, delay or defraud creditors. Shoshana 13 also points to other “badges of fraud” factors and correctly 14 notes that there is no evidence in the record that the debtors 15 were insolvent in 2004 or that they were plagued by pending 16 lawsuits at that time. In fact, while Shoshana did not mention 17 it in her appeal brief, we further note that there was no 18 evidence of concealment of the 2004 deed of trust, no evidence 19 that the 2004 deed of trust transferred substantially all of the 20 debtors’ assets, and no evidence that the debtors were in the 21 process of absconding at the time. 22 Even so, Shoshana’s intent argument completely (and fatally) 23 ignores the key findings on which the bankruptcy court based its 24 intent determination. The bankruptcy court found that the 25 debtors, particularly Doron, were engaged in a pattern and 26 practice of shielding their assets from creditors. The court 27 inferred from the entirety of the debtors’ conduct that the 28 various transfers the debtors made affecting title to and
12 1 encumbrances against their residence – including the 2004 deed of 2 trust – were made for the purpose of keeping any equity in their 3 residence as far away from their creditors as possible. The 4 bankruptcy court acknowledged the absence of evidence of pending 5 or imminently threatened litigation at the time of the 2004 deed 6 of trust. The court nonetheless inferred from all of the 7 circumstances that Doron realized at the time of the 2004 deed of 8 trust that he was engaged in lines of business – real estate 9 lending and real estate investment – that were inherently 10 litigious and that this generic litigation risk constantly placed 11 his family’s assets at risk. As a result, the court concluded, 12 this generic litigation risk motivated the debtors to execute and 13 record the 2004 deed of trust. 14 Shoshana has not offered us any reason why we should 15 conclude that the bankruptcy court’s intent-related findings with 16 respect to the 2004 deed of trust were illogical, implausible or 17 without support in the record. Nor are we aware of any such 18 reasons. Therefore, these intent-related findings were not 19 clearly erroneous. 20 Shoshana offers even less argument in her opening brief 21 challenging the bankruptcy court’s intent-related findings 22 pertaining to the 2009 deed of trust. Indeed, her argument is 23 limited to a single paragraph, as follows: 24 There was likewise no evidence of bad faith as to the 2009 Deed of Trust. That deed of trust was created 25 by the Debtor because he erroneously believed that the 2004 Deed of Trust had been reconveyed. For the same 26 reasons the 2004 Deed of Trust has no indicia of bad faith or fraudulent intent, the 2009 Deed of Trust, 27 intended merely to replace it, likewise could not have been the product of any bad faith or fraudulent intent. 28
13 1 Aplt. Opn. Br. at 27 (citation omitted). 2 The bankruptcy court’s intent-related findings pertaining to 3 the 2009 deed of trust generally hinged on the same circumstances 4 the court relied upon in finding the requisite intent with 5 respect to the 2004 deed of trust. However, in addition to the 6 generic litigation risk noted above, the bankruptcy court also 7 found that, by the time of the 2009 deed of trust, the debtors’ 8 financial condition had deteriorated and the threat of litigation 9 arising from specific claims had significantly increased, which 10 only served to reinforce the bankruptcy court’s determination 11 that the debtors executed the 2009 deed of trust for the purpose 12 of keeping any equity in their residence as far away from their 13 creditors as possible. For the same reasons we conclude that the 14 bankruptcy court’s intent-related findings with respect to the 15 2004 deed of trust were not clearly erroneous, we similarly 16 conclude that its intent-related findings with respect to the 17 2009 deed of trust were not clearly erroneous. 18 C. Limitations Defense Under Cal. Civ. Code § 3439.09(a) - Does the One Year Limitation Run from Discovery of the Transfer 19 or Discovery of the Fraud? 20 The only other challenge of Shoshana’s that we need to 21 discuss concerns the timeliness of Seror’s claim under § 544(b) 22 and Cal. Civ. Code § 3439.04(a)(1) with respect to the 2004 deed 23 of trust. In her opening appeal brief, Shoshana argues for the 24 first time that this claim of Seror’s was untimely under Cal. 25 Civ. Code § 3439.09(a). 26 Neither in her summary judgment motion nor at trial did 27 Shoshana defend against Seror’s claim based on Cal. Civ. Code 28 § 3439.09(a). Nor did the parties’ pretrial stipulation identify
14 1 any issue of law or fact that required the bankruptcy court to 2 address the statute of limitations set forth in Cal. Civ. Code 3 § 3439.09(a). 4 Ordinarily, federal appellate courts will not consider 5 issues not properly raised in the trial courts. O’Rourke v. 6 Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 7 (9th Cir. 1989); see also Moldo v. Matsco, Inc. (In re Cybernetic 8 Servs., Inc.), 252 F.3d 1039, 1045 n.3 (9th Cir. 2001)(stating 9 that appellate court would not explore ramifications of argument 10 because it was not raised in the bankruptcy court); Scovis v. 11 Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001) 12 (stating that court would not consider issue raised for first 13 time on appeal absent exceptional circumstances). An issue only 14 is “properly raised” if it is raised sufficiently to permit the 15 trial court to rule upon it. In re E.R. Fegert, Inc., 887 F.2d 16 at 957. 17 Notwithstanding this general rule, “[a] reviewing court may 18 consider an issue raised for the first time on appeal if 19 (1) there are exceptional circumstances why the issue was not 20 raised in the trial court, (2) the new issue arises while the 21 appeal is pending because of a change in the law, or (3) the 22 issue presented is purely one of law and the opposing party will 23 suffer no prejudice as a result of the failure to raise the issue 24 in the trial court.” Franchise Tax Bd. v. Roberts (In re 25 Roberts), 175 B.R. 339, 345 (9th Cir. BAP 1994) (internal 26 quotations omitted) (citing United States v. Carlson, 900 F.2d 27 1346, 1349 (9th Cir. 1990)). 28 Shoshana has not identified any exceptional circumstances
15 1 that prevented her from raising the statute of limitations issue 2 under Cal. Civ. Code § 3439.09(a) in the bankruptcy court. Nor 3 did a change in law spawn the issue. Nor is the issue “purely” 4 one of law. The statute of limitations issue raises the 5 subsidiary question of when the fraudulent transfer “could 6 reasonably have been discovered.” Cal. Civ. Code § 3439.09(a). 7 According to Shoshana, as a matter of law, because the 2004 deed 8 of trust was recorded in 2004, any and all creditors of the 9 debtors reasonably should have discovered the transfer within one 10 year of the 2004 recordation. But we do not read the discovery 11 provision contained in Cal. Civ. Code § 3439.09(a) as literally 12 as Shoshana does. We believe that the one-year period under Cal. 13 Civ. Code § 3439.09(a)’s discovery rule does not commence until 14 the plaintiff has reason to discover the fraudulent nature of the 15 transfer. 16 The California Supreme Court has not yet construed the 17 discovery provision as set forth in Cal. Civ. Code § 3439.09(a). 18 Nor have we found any published decisions from the California 19 Courts of Appeal on this issue.5 Consequently, as noted above, 20 we must predict how the California Supreme Court will decide this 21 issue. In interpreting California’s version of the Uniform 22 23 5 We are aware of one unpublished California Court of 24 Appeal decision, Hu v. Wang, 2009 WL 1919367, at *6 (Cal. Ct. App. July 6, 2009), which held in part that Cal. Civ. Code 25 § 3439.09(a)’s discovery rule means and refers to discovery of the fraudulent nature of the transfer and not just discovery of 26 the transfer itself. In predicting the California Supreme Court’s interpretation of Cal. Civ. Code § 3439.09(a), we do not 27 rely upon Hu because it is an unpublished decision, and it may 28 not be cited by California state courts. See Cal. Rules of Court Rule 8.1115.
16 1 Fraudulent Transfer Act, the California Supreme Court has said 2 that courts should primarily focus on the statutory text Mejia 3 v. Reed, 31 Cal. 4th 657, 663 (2003). As Mejia explained, giving 4 the text its usual, ordinary and contextual meaning is the first 5 and most important part of the statutory construction process. 6 Id. As Mejia put it: 7 Because the statutory language is generally the most reliable indicator of legislative intent, we first 8 examine the words themselves, giving them their usual and ordinary meaning and construing them in context. 9 Every statute should be construed with reference to the whole system of law of which it is a part, so that all 10 may be harmonized and have effect. 11 Id. (citations and internal quotation marks omitted). Mejia 12 further indicated that, when the contextual meaning of the 13 statutory text is sufficient to answer the statutory construction 14 question presented, it generally is unnecessary to consider 15 secondary statutory construction aids like maxims of 16 construction, legislative history and public policy. Id. 17 Even though the California courts have not addressed the 18 question of the meaning of the discovery provision set forth in 19 Cal. Civ. Code § 3439.09(a), we are not working in a vacuum. A 20 number of courts from other jurisdictions have construed the same 21 language in their versions of the Uniform Fraudulent Transfer 22 Act. See Field v. Estate of Kepoikai (In re Maui Indus. Loan & 23 Fin. Co.), 454 B.R. 133, 137 (Bankr. D. Haw. 2011) (listing 24 cases). Some of these courts have strictly construed the 25 statutory text and have held that the literal language of the 26 Act’s discovery provision requires courts to focus solely on 27 discovery of the transfer itself. See id. (listing cases). 28 Other courts have more liberally construed the text and have held
17 1 that a contextual reading of the statute requires courts to focus 2 on discovery of the fraudulent nature of the transfer; mere 3 discovery of the transfer itself is not enough. See, e.g., 4 Schmidt v. HSC, Inc., 319 P.3d 416, 426-27 (Haw. Ct. 2014); 5 Freitag v. McGhie, 947 P.2d 1186, 1189-90 (Wash. Ct. 1997). 6 We find the reasoning of the Schmidt-Freitag line of cases 7 compelling. As explained in detail in Schmidt, a contextual 8 reading of the statute as well as common sense and the purpose of 9 the Uniform Fraudulent Transfer Act – to provide relief to 10 victims of fraudulent transfers – all militate in favor of a 11 liberal construction of the discovery rule. Schmidt, 319 P.3d at 12 426-27 (citing Freitag, 47 P.2d at 1189-90). 13 With the exception of different statute numbering, the 14 Hawaii discovery provision at issue in Schmidt and the Washington 15 discovery provision at issue in Freitag are identical to 16 California’s discovery provision as set forth in Cal. Civ. Code 17 § 3439.09(a). Nor do we perceive any material difference in 18 underlying purpose between California’s version of the Uniform 19 Fraudulent Transfer Act and the versions of the Act codified in 20 Washington and Hawaii. Compare Schmidt, 319 P.3d at 426 (“the 21 obvious purpose of the UFTA is to prevent fraud and to provide a 22 remedy to those who are victims of fraudulent transfers”) with 23 Mejia v. Reed, 31 Cal. 4th 657, 664 (2003) (“This Act, like its 24 predecessor and the Statute of 13 Elizabeth, declares rights and 25 provides remedies for unsecured creditors against transfers that 26 impede them in the collection of their claims.”) (quoting Legis. 27 Comm. Cmt. accompanying Cal. Civ. Code § 3439.01). 28 Furthermore, adoption of the liberal interpretation of Cal.
18 1 Civ. Code § 3439.09(a) would be consistent with California case 2 law before the enactment of the Uniform Fraudulent Transfer Act, 3 which applied the generic fraud discovery rule contained in Cal. 4 Code Civ. Proc. § 338(4) – now § 338(d) – to pre-Act fraudulent 5 transfer actions. See Adams v. Bell, 5 Cal.2d 697, 703 (1936) 6 (citing Cal. Code Civ. Proc. § 338(4) and stating “if the 7 creditor knows nothing about the fraudulent conveyance, the cause 8 (in the absence of laches) does not arise until he discovers the 9 fraud by which his rights have been invaded.”) (emphasis added). 10 Based on the persuasiveness of cases like Schmidt and 11 Freitag, supra, we predict that the California Supreme Court 12 ultimately will hold that the one-year period under Cal. Civ. 13 Code § 3439.09(a)’s discovery rule does not commence until the 14 plaintiff has reason to discover the fraudulent nature of the 15 transfer. Thus, any question regarding discovery of the 16 fraudulent nature of the 2004 deed of trust is a factual 17 question, and so the exception permitting consideration of 18 “purely” legal issues raised for the first time on appeal does 19 not apply here. Accordingly, we decline to resolve Shoshana’s 20 Cal. Civ. Code § 3439.09(a) issue for the first time on appeal. 21 D. Limitations Defense Under Cal. Civ. Code § 3439.09(c) - Statute of Repose 22 23 We acknowledge that Shoshana did argue in the bankruptcy 24 court, in her summary judgment motion, that the statute of repose 25 set forth in Cal. Civ. Code § 3439.09(c) barred Seror from 26 pursuing this claim. However, the statute of repose issue under 27 Cal. Civ. Code § 3439.09(c) and the statute of limitations issue 28 under Cal. Civ. Code § 3439.09(a) are factually and legally
19 1 distinct issues. See Rund v. Bank of Am. Corp. (In re EPD Inv. 2 Co., LLC), 523 B.R. 680, 685-88 (9th Cir. BAP 2015). 3 Shoshana did not discuss her argument under Cal. Civ. Code 4 § 3439.09(c) in her opening appeal brief. Instead, she waited 5 until her reply brief to address the Cal. Civ. Code § 3439.09(c) 6 statute of repose issue. This would be sufficient grounds for us 7 to decline to consider the statute of repose issue. See 8 Christian Legal Soc’y v. Wu, 626 F.3d 483, 487–88 (9th Cir. 9 2010); Brownfield v. City of Yakima, 612 F.3d 1140, 1149 n.4 (9th 10 Cir. 2010). 11 In any event, even if we were to consider this issue, this 12 panel recently held that Cal. Civ. Code § 3439.09(c)’s seven-year 13 statute of repose does not bar a claim under § 544(b) and Cal. 14 Civ. Code § 3439.04 so long as the claim arose less than seven 15 years before the debtor’s bankruptcy filing. In re EPD Inv. Co., 16 LLC, 523 B.R. at 691-92. Here, the debtor’s February 2011 17 bankruptcy case was filed within seven years of the April 2004 18 deed of trust, so Cal. Civ. Code § 3439.09(c)’s statute of repose 19 did not bar Seror’s Cal. Civ. Code § 3439.04 claim with respect 20 to the 2004 deed of trust. 21 CONCLUSION 22 For the reasons set forth above, we AFFIRM the bankruptcy 23 court’s judgment avoiding the 2004 deed of trust and the 2009 24 deed of trust and recovering those transfers for the benefit of 25 the estate. 26 27 28