FILED DEC 13 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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. CC-22-1222-CFL PRIME METALS U.S.A., INC., Debtor. Bk. No. 8:17-bk-14535-SC
RICHARD A MARSHACK, solely in his Adv. No. 8:19-ap-01216-SC capacity as Chapter 7 Trustee of the bankruptcy estate of Prime Metals, U.S.A., Inc., Appellant, v. MEMORANDUM* HYUNDAI STEEL COMPANY, a Korean corporation, Appellee.
Appeal from the United States Bankruptcy Court for the Central District of California Scott C. Clarkson, Bankruptcy Judge, Presiding
Before: CORBIT, FARIS, and LAFFERTY, Bankruptcy Judges.
* 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. INTRODUCTION
Chapter 71 trustee Richard A. Marshack (“Trustee”) appeals the
bankruptcy court’s order granting summary judgment to creditor Hyundai
Steel Company (“Hyundai”). The bankruptcy court did not err. We
AFFIRM.
FACTS
A. Prime’s history prior to bankruptcy.
Prime Metals U.S.A., Inc. (“Prime”) was a California company started
in 2008. Prime was engaged in trading and processing scrap metal. In July
of 2012, Hyundai began purchasing scrap steel from Prime. Hyundai
became Prime’s largest customer, accounting for more than 80% of Prime’s
sales. Thereafter, Prime entered into a series of transactions that had little
apparent business logic and may (or may not) have benefitted Hyundai.
1. Prime acquires the CMI Notes.
In 2014, Prime acquired certain promissory notes (“CMI Notes”)
evidencing loans in a total principal amount of $17 million issued by a
third-party bank to Prime’s competitor Central Metal, Inc. (“CMI
Borrowers”). The CMI Notes were secured by deeds of trust on three pieces
of commercial real estate in California (“Property”). Prime acquired the
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil Procedure, all “Fed. R. Evid.” references are to the Federal Rules of Evidence, and all “Cal. Civ. Code” references are to the California Civil Code. 2 CMI Notes from MKLUS LLC, for $17,717,458.94. At the time Prime
acquired the CMI Notes, the CMI Borrowers were in default.
Prime obtained a bank loan from Shinhan Bank in Seoul, South Korea
in the amount of $17,500,000 to fund the CMI Notes purchase. Hyundai
guaranteed the loan.
In return for the guaranty, Prime agreed to pay Hyundai an annual
fee equal to 0.15% per annum of $17.5 million for the period the guaranty
remained outstanding. Prime’s loan from Shinhan Bank had a variable
interest rate. The original interest rate on the CMI Notes was 9%. However,
after Prime acquired the CMI Notes, Prime reduced the interest rate
charged to the CMI Borrowers to 3.2%.
2. Prime enters into a forbearance agreement with the CMI Borrowers.
The CMI Borrowers did not always make timely payments.
Consequently, Prime and the CMI Borrowers entered into a forbearance
and modification agreement (“Forbearance Agreement”) on February 17,
2015. The Forbearance Agreement further reduced the interest rate charged
and extended the maturity date. The Forbearance Agreement was amended
in October 2015 and again in January 2016.
3. Prime signs a deed of guarantee benefiting Hyundai.
On March 26, 2015, Prime signed a deed of guarantee, guaranteeing
the performance of an unrelated entity, More Steel Co. Ltd. (“More Steel”),
under contracts between Hyundai and More Steel. To secure its obligations
3 under the deed of guarantee, Prime agreed to “transfer, assign, and
convey” a security interest in all of its assets to Hyundai.
4. R-Techo purchases Prime.
On July 30, 2015, for $650,000, R-Techo Co., Ltd. (“R-Techo”), a South
Korean corporation, acquired all the issued and outstanding capital stock
of Prime, and Prime became a wholly owned subsidiary of R-Techo.
5. Prime enters into supply and purchase contracts with Hyundai
Although Hyundai and Prime had been engaging in trade since 2012
without a supply contract, on October 1, 2015, Hyundai and Prime entered
into a one-year supply contract (“Supply Contract”) wherein Hyundai
agreed to purchase, and Prime agreed to sell, scrap metal for a one-year
term. The Supply Contract automatically renewed on an annual basis
unless timely notice of termination was given.
The Supply Contract did not obligate Hyundai to buy any particular
quantity of steel and did not set the price or shipment terms. Instead, those
terms were contained in purchase contracts that the parties negotiated and
entered into each time Hyundai ordered steel from Prime.
From October 2015 through April 2017, Hyundai’s purchases of scrap
metal from Prime were governed by the Supply Contract and separate
purchase agreements for each shipment executed by both Hyundai and
Prime.
4 6. Prime issues a notice of default to the CMI Borrowers.
On October 5, 2016, Prime issued a notice of default and demand for
payment to the CMI Borrowers. The notice of default indicated that the
CMI Borrowers had failed to make the September 22, 2016, quarterly
interest payment.
7. Hyundai acquires the CMI Notes from Prime.
At the same time Prime issued the notice of default, Hyundai was
making efforts to purchase the CMI Notes from Prime. Prime and Hyundai
agreed to use the same attorney, Hansin Scott Kim (“Mr. Kim”), to draft a
CMI Notes purchase agreement. The parties also agreed that Hyundai
would pay all attorney fees related to the transaction.
Additionally, Mr. Kim, on behalf of Hyundai, issued a letter to Bank
of Hope (Prime’s primary lending bank) strongly encouraging the bank to
agree to Prime selling the CMI Notes to Hyundai. The letter warned that
the relationship between Prime and Hyundai would be ruined if Prime did
not sell.
On December 28, 2016, Hyundai purchased the CMI Notes from
Prime, pursuant to a Mortgage Loan Purchase and Sale Agreement. The
aggregate outstanding principal of the CMI Notes was $17,518,141.52.
Hyundai paid the outstanding balance to Shinhan Bank rather than Prime.
Hyundai also paid the other fees related to the transaction.
5 8. Hyundai stops purchasing scrap metal from Prime.
After Hyundai acquired the CMI Notes from Prime, Hyundai
stopped purchasing scrap metal from Prime. Hyundai’s last purchase from
Prime metals was in March 2017. Hyundai did not give Prime notice of any
breach of the Supply Contract.
B. Prime files a chapter 7 bankruptcy petition.
On November 17, 2017, Prime filed a voluntary chapter 7 bankruptcy
petition. The bankruptcy petition, schedules, and statement of financial
affairs were signed by Ik Dong Kim (“I.D. Kim”) as President. I.D. Kim was
also the founder and chairman of R-Techo, Prime’s parent company.
C. Trustee files an adversary complaint against Hyundai.
Trustee filed an adversary complaint (“Complaint”) against Hyundai
that (as amended) alleged eleven claims for relief: (1) avoidance and
recovery of intentional fraudulent transfers pursuant to §§ 544, 548, 550,
and 551; Cal. Civ. Code §§ 3439.04, 3439.07, 3439.08, and 3439.09; (2)
avoidance and recovery of constructive fraudulent transfers pursuant to §§
544, 548, 550, and 551; Cal. Civ. Code §§ 3439.04, 3439.07, 3439.08, and
3439.09; (3) avoidance and recovery of estate property pursuant to § 542; (4)
avoidance of preferential transfers pursuant to § 550; (5) recovery of
avoided transfers pursuant to § 550; (6) declaratory judgment regarding the
existence of an alter ego relationship between Hyundai and Prime; (7) price
fixing and collusion between competitors; (8) attempted monopolization
6 and conspiracy to monopolize; (9) unfair competition; (10) collusion to
restrain trade; and (11) fraud.
Hyundai filed a motion to dismiss the Complaint in its entirety. The
bankruptcy court granted Hyundai’s motion in part, finding that Trustee’s
claims 1-6 were adequately pled but dismissed claims 7-11 without leave to
amend.2
D. Trustee’s claims that are on appeal.
Trustee argued that Hyundai conspired with R-Techo and others to
manipulate and control the scrap metal steel market to the detriment of
Prime. Trustee alleged that because of Hyundai’s actions and control of
Prime, several pre-petition transfers should be avoided as fraudulent.
1. Trustee’s claim that Prime fraudulently transferred the CMI Notes to Hyundai.
The first transfer that Trustee challenged was Prime’s sale of the CMI
Notes to Hyundai (the “CMI Notes Transfer”). Trustee alleged that first
Hyundai caused Prime to borrow over $17 million to acquire the defaulted
CMI Notes. Trustee alleged that Hyundai then forced Prime to transfer the
CMI Notes to Hyundai for inadequate consideration causing Prime to be
overburdened with debt, insolvent, and bankrupt. According to Trustee,
Hyundai’s manipulation effectively forced Prime “out of business.”
2 Trustee does not challenge the dismissal of claims 7-11. 7 2. Trustee’s claim that the R-Techo Transfers were fraudulent.
Trustee also alleged that between August 2015 and December 2016,
under the pretext of legitimate payments and transactions, Prime
transferred $4.8 million to R-Techo, which then transferred $1.8 million of
those funds to Hyundai (“R-Techo Transfers”).3 According to Trustee,
Hyundai orchestrated the R-Techo Transfers for no consideration and no
purpose other than to defraud Prime’s creditors. Trustee alleged that
Hyundai’s reason for using Prime to funnel money to Hyundai was
because of an antecedent debt owed to Hyundai by More Steel, an
unrelated scrap metal company and competitor of Prime.
3. Trustee’s claim that Hyundai was the alter ego, statutory, and/or non-statutory insider of Prime.
Trustee insisted that Hyundai was in control of Prime and qualified
as a statutory insider under § 101(31)(B)(iii), or a non-statutory insider,
sufficient for the bankruptcy court to declare Hyundai the alter ego of
As evidence, Trustee alleged: (1) Hyundai represented up to 90% of
Prime’s business, providing Hyundai significant leverage in its dealings
3 Pursuant to Fed. R. Evid. 201(b), we exercise our discretion to take judicial notice of materials electronically filed in the underlying cases. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). Trustee filed a separate adversary against R-Techo: Richard A. Marshack v. R-Techo, Co., Ltd., Adv. Proc. No. 8:19-ap-01215-SC. Trustee sought to recover approximately $4 million of alleged fraudulent transfers from Prime to R-Techo, the alleged initial transferee. Trustee settled the claim for $50,000 on April 5, 2023. 8 with Prime; (2) Hyundai owned the majority shares of R-Techo, who in
turn owned 100% of Prime’s shares; (3) Hyundai controlled several key
individuals of Prime, including Min Ho An, 4 a former executive at
Hyundai who Hyundai installed at Prime as an executive, I.D. Kim, who
was Prime’s former CEO and also an executive at R-Techo, and Tae-Ho
Cho, R-Techo’s President; (4) Min Ho An relayed insider information to
Hyundai regarding Prime’s finances; (5) Prime’s records were stored at
Hyundai’s office building in Orange County; (6) Hyundai arranged the
formation of MKLUS and “MKLUS was one of many alter ego companies
of Hyundai that Hyundai used . . . to achieve its improper agendas”;
(7) Hyundai and Prime were represented by the same attorneys during the
negotiations for the CMI Notes Transfer; (8) Hyundai paid Prime’s
attorneys’ fees indicating that the negotiations were less than arm’s length;
(9) the CMI Notes Transfer documents were signed by Min Ho An, the
same person that Hyundai placed in Prime who would send weekly
reports back to Hyundai regarding Prime’s financial position; and
(10) Hyundai forced Prime to sign the deed of guarantee to ensure Prime
helped make up for the losses caused by More Steel.
4 Min Ho An was an executive at Hyundai in South Korea from 1996 to the end of 2013 and then joined Prime as an executive and director at the end of 2014. Trustee alleged that “Hyundai had installed Min Ho An as an executive at Prime to facilitate Hyundai’s plan to extract all value from Prime including by price manipulation, indirect ownership of its stock, transfers of assets, and otherwise.” 9 Additionally, Trustee alleged that there was a unity of interest and
ownership that existed between Prime and Hyundai such that any
separateness ceased to exist and that Hyundai used Prime’s assets for its
own personal or distinct business use.
4. Trustee sought to avoid and recover the alleged fraudulent transfers.
Based on the above allegations, Trustee sought to avoid and recover,
for the benefit of the bankruptcy estate, both the CMI Notes Transfer and
the R-Techo Transfers as actual or constructive fraudulent transfers.
According to Trustee, Hyundai facilitated and orchestrated both the CMI
Notes Transfer and the R-Techo Transfers for the benefit of Hyundai
without consideration and with the intent to hinder, delay, or defraud
Prime’s other creditors.
E. Hyundai’s motion for summary judgment
Following the close of discovery, Hyundai filed a motion for
summary judgment (“Summary Judgment Motion”). Hyundai argued that
Trustee had not presented sufficient evidence to raise a triable issue as to
any of the claims.
1. Hyundai argued the CMI Notes Transfer was not fraudulent.
Hyundai argued that there was no evidence to support Trustee’s
assertion that the CMI Notes Transfer should be avoided as an intentional
or constructive fraudulent transfer. As to Hyundai’s purchase of the CMI
Notes from Prime, Hyundai explained that it paid the full par value of the
10 notes plus all costs associated with the transaction (approximately
$17,858,430). Hyundai concluded that because it paid all that Prime was
entitled to, the CMI Notes Transfer could not be deemed fraudulent, and
Hyundai was entitled to summary judgment as a matter of law.
2. Hyundai argued that there was no evidence of the R-Techo Transfers.
Hyundai argued that Trustee failed to establish that Hyundai
received any funds that were transferred fraudulently from Prime to
Hyundai via R-Techo. Hyundai argued that Trustee had not identified, and
could not identify, the specific dates or amounts of the alleged R-Techo
Transfers. Hyundai noted that Trustee failed to provide any documentary
evidence to show that money was transferred from Prime to R-Techo and
then from R-Techo to Hyundai.
Accordingly, Hyundai concluded that Trustee failed to establish the
elements of an actual or constructive fraudulent transfer claim as to the
R-Techo Transfers, and Hyundai was entitled to summary judgment as a
matter of law.
3. Hyundai argued it was not the alter ego of Prime.
Hyundai also disputed Trustee’s allegations regarding any shared
ownership or control by Hyundai. Specifically, Hyundai argued: (1) the
prices negotiated for scrap steel between Prime and Hyundai were similar
to the prices Hyundai paid to other scrap steel suppliers; (2) Hyundai did
not jointly operate Prime in any respect and did not co-mingle funds or
11 assets with Prime; (3) Prime maintained its own books and records, bank
accounts, employees and payroll, and there was no overlap with Hyundai;
(4) Hyundai does not and did not own any stock in Prime; and (5) Hyundai
did not control Prime’s employees or insert Hyundai employees into
Prime’s management.
F. The bankruptcy court’s hearing on the Summary Judgment Motion.
Trustee opposed Hyundai’s Summary Judgment Motion. At the
hearing on the motion, Trustee informed the court and Hyundai that he
was abandoning the preference claims. As to the remaining claims, Trustee
seemed to acknowledge his lack of objective evidence and documents but
argued that this was the very reason a trial was necessary. Trustee opined
that no one was cooperating with his investigation and that getting
testimony and documentary evidence had been difficult given that Prime’s
sole shareholder was R-Techo, and R-Techo was ostensibly acting in
support of Hyundai. Trustee also stated that almost no one was in the
United States: “they’re all in Korea . . . [and] basically immune from being
deposed.”
G. The bankruptcy court grants Hyundai’s Summary Judgment Motion.
On October 28, 2022, the bankruptcy court entered a memorandum
and order granting Hyundai’s Summary Judgment Motion. In a footnote,
the court denied both Trustee’s objections to the court’s tentative ruling
12 and Trustee’s request for a hearing. The court also entered an order on the
parties’ evidentiary objections.
On December 8, 2022, the bankruptcy court entered another order
granting Hyundai’s Summary Judgment Motion for “the reasons set forth”
in the October 28, 2022 memorandum and order (collectively, the
“Summary Judgment Order”).
H. The bankruptcy court’s findings and conclusions.
The bankruptcy court stated that although there were “some factual
issues as to the level of control over which Hyundai (which represented
90% of Prime’s client base) exercised over Prime, its operations, and its
employees,” there was no genuine dispute of material facts as to each of
Trustee’s claims. Therefore, Hyundai was entitled to summary judgment as
a matter of law.
1. Hyundai did not control Prime.
a. Hyundai was not an insider.
The bankruptcy court determined that Trustee failed to present
admissible evidence sufficient to establish a triable issue of material fact as
to Hyundai’s alleged dominance and control over Prime. Accordingly, the
bankruptcy court determined that Trustee failed to establish genuine
disputes of material fact as to Hyundai’s insider status and therefore
Specifically, the bankruptcy court found that: (1) Hyundai did not
own any shares in R-Techo or Prime; (2) Prime’s employee Min Ho An and 13 R-Techo’s employees were not controlled by Hyundai; (3) Prime’s business
records were not stored at a facility Hyundai leased; and Hyundai and
Prime were not represented by the same attorneys during negotiations
relating to the CMI Notes Transfer. The bankruptcy court determined that
although Hyundai was a large customer, received financial reports from
Prime, and paid legal expenses related to the CMI Notes Transfer, those
facts were not sufficient to generate a genuine dispute of material fact
about insider status.
b. Hyundai was not Prime’s alter ego.
The bankruptcy court determined that Trustee’s burden on an alter
ego claim was even higher than Trustee’s burden to establish that Hyundai
was a statutory or non-statutory insider. Because the bankruptcy court had
already determined that Trustee failed to establish that Hyundai was either
a statutory or a non-statutory insider of Prime, the bankruptcy court
determined that Trustee also failed to establish a genuine dispute of fact as
to whether Hyundai was Prime’s alter ego.
2. Trustee failed to establish genuine disputes of material fact regarding the alleged fraudulent transfers.
a. The CMI Notes Transfer was not fraudulent.
The bankruptcy court determined that Trustee failed to establish that
Prime transferred the CMI Notes with the intent to hinder, delay, or
defraud other creditors because Trustee had not established a genuine
14 dispute of material fact as to whether Prime received reasonably equivalent
value when it sold the CMI Notes.
The bankruptcy court found that Prime sold the non-performing CMI
Notes to Hyundai at par value. Because Prime received reasonably
equivalent value for the CMI Notes, the bankruptcy court determined that
Trustee failed to establish a genuine dispute of material fact as to one of the
necessary elements of a fraudulent transfer claim related to the CMI Notes
transfer, and therefore Hyundai was entitled to summary judgment as a
b. Trustee failed to establish the existence of the R-Techo Transfers.
With respect to the alleged R-Techo Transfers, the bankruptcy court
determined that Trustee failed to establish a genuine dispute of material
fact as to whether there was a transfer of Prime’s property. The bankruptcy
court found that Trustee produced no documentary evidence of the alleged
transfers of $1.8 million from Prime to R-Techo and then from R-Techo to
Hyundai. The bankruptcy court determined that because Trustee failed to
establish a genuine dispute of material fact in relation to the dates,
amounts, and reasons why R-Techo allegedly made the R-Techo Transfers,
Hyundai was entitled to summary judgment as a matter of law on the
Trustee’s fraudulent transfer claims related to the R-Techo Transfers.
Trustee timely appealed.
15 JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A), (H). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Did the bankruptcy court err in excluding evidence offered by
Trustee?
Did the bankruptcy court err in granting summary judgment to
Hyundai on Trustee’s claim that the R-Techo Transfers were constructively
fraudulent?
Hyundai on Trustee’s claim that the R-Techo Transfers were actually
Hyundai on Trustee’s claim that the CMI Notes Transfer was
constructively fraudulent?
Hyundai on Trustee’s claim that the CMI Notes Transfer was actually
Hyundai on Trustee’s claim that Hyundai was Prime’s alter ego?
STANDARDS OF REVIEW
We review de novo a bankruptcy court’s decision to grant summary
judgment. Wood v. Stratos Prod. Dev. (In re Ahaza Sys., Inc.), 482 F.3d 1118,
16 1123 (9th Cir. 2007). “De novo review requires that we consider a matter
anew, as if no decision had been made previously.” Francis v. Wallace (In re
Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).
“We review evidentiary rulings for abuse of discretion and reverse if
the exercise of discretion is both erroneous and prejudicial.” Wagner v.
Cnty. of Maricopa, 747 F.3d 1048, 1052 (9th Cir. 2013). To be considered on a
motion for summary judgment, the evidence must be admissible. See Civil
Rule 56(c), (e)(1) (requiring the party asserting a fact to support that fact
with admissible evidence).
DISCUSSION
A. Summary judgment standard.
Civil Rule 56(c) (applicable through Rule 7056) provides that
summary judgment is appropriate when “there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of
law.” A dispute over material facts is “genuine” where a reasonable jury
could return a verdict for the nonmoving party based on the evidence
presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Far Out
Prods., Inc. v. Oskar, 247 F.3d 986, 992 (9th Cir. 2001). A fact is “material” if
it could affect the outcome of the case under the controlling substantive
law. Anderson, 477 U.S. at 248; Far Out Prods., Inc., 247 F.3d at 992.
Hyundai, as the moving party, did not bear the ultimate burden of
persuasion at trial. However, it carried both the burden of production and
the burden of persuasion on its motion for summary judgment. Friedman v.
17 Live Nation Merch., Inc., 833 F.3d 1180, 1188 (9th Cir. 2016) (citing Nissan Fire
& Marine Ins. Co. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000)). To
carry the burden of production, Hyundai had to “either produce evidence
negating an essential element of the nonmoving party’s claim . . . or show
that the nonmoving party does not have enough evidence of an essential
element to carry its ultimate burden of persuasion at trial.” Nissan Fire &
Marine, 210 F.3d at 1102-03. To successfully carry the burden of persuasion,
Hyundai had to show the court that no genuine dispute of material fact
existed. Id. at 1102.
If Hyundai satisfied its initial burdens, then the burden shifted to the
nonmoving party (Trustee) to identify with reasonable particularity
enough admissible evidence supporting its claims to create a genuine
dispute of material fact. Id. To meet that burden, the Trustee’s evidence
must be substantial; a “scintilla of evidence or evidence that is merely
colorable or not significantly probative does not present a genuine issue of
material fact.” Addisu v. Fred Meyer, Inc., 198 F. 3d 1130, 1134 (9th Cir. 2000).
“Where the record taken as a whole could not lead a rational trier of fact to
find for the non-moving party, there is no genuine issue for trial” and
summary judgment is appropriate. Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks and citation
omitted).
When deciding a summary judgment motion, the bankruptcy court
must view the evidence in the light most favorable to the non-moving
18 party. Bell v. Cameron Meadows Land Co., 669 F.2d 1278, 1284 (9th Cir. 1982).
A court “generally cannot grant summary judgment based on its
assessment of the credibility of the evidence presented[.]” Agosto v. Immigr.
& Naturalization Serv., 436 U.S. 748, 756 (1978). “[A]t the summary
judgment stage the judge’s function is not himself to weigh the evidence
and determine the truth of the matter but to determine whether there is a
genuine issue for trial.” Anderson, 477 U.S. at 249. However, even in cases
where elusive concepts such as motive or intent are at issue, summary
judgment may be appropriate if the nonmoving party rests merely upon
conclusory allegations, improbable inferences, and unsupported
speculation. Gertsch v. Johnson & Johnson, Fin. Corp. (In re Gertsch), 237 B.R.
160, 165 (9th Cir. BAP 1999).
B. The bankruptcy court’s evidentiary rulings.
On appeal, Trustee argues that the bankruptcy court’s evidentiary
rulings were erroneous. Trustee’s chief witness was Min Ho An, who was
employed by Hyundai in South Korea as deputy manager from 1996-2013
and then worked for Prime as Secretary and Chief Operating Officer from
2014-2017. Hyundai objected to the majority of Min Ho An’s declaration
and deposition testimony on the basis of hearsay and lack of personal
knowledge, foundation, and relevance.
19 The bankruptcy court sustained most of Hyundai’s evidentiary
objections. 5 The bankruptcy court’s order on evidentiary objections did not
include any reasoning or rationale for its ruling. The bankruptcy court even
sustained Hyundai’s objection to the first paragraph of Min Ho An’s
declaration: “Unless otherwise stated, I have personal knowledge of the
facts set forth herein. I am over 18 years of age, and if called to testify, then
I could and would competently testify hereto.” This is standard verbiage
for an initial statement to a declaration, and without being provided any
rationale or reasoning, we are unable to discern the bankruptcy court’s
basis for sustaining Hyundai’s objection to this paragraph or any of its
other evidentiary rulings.
Because this case was disposed of on summary judgment, the
bankruptcy court was not tasked with determining the credibility or
truthfulness of the declarants or their statements. Indeed, “[t]he evidence of
the non-movant is to be believed” by the court, “and all justifiable
inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255. The
weighing of evidence and the drawing of legitimate inferences are
functions of the trier of fact and are not appropriate for resolution by the
court on summary judgment. See id.
A review of the record reveals that the bankruptcy court likely made
improper determinations regarding credibility, truthfulness, relevance, and
5 Additionally, the bankruptcy court overruled the majority of Trustee’s evidentiary objections. 20 personal knowledge. However, even if we consider all the evidence
submitted by Trustee, Trustee did not offer evidence sufficient to support
every element of any of the claims in the Complaint. Therefore, the
bankruptcy court’s evidentiary rulings, even if erroneous, were “more
probably than not harmless.” Haddad v. Lockheed Cal. Corp., 720 F.2d 1454,
1457 (9th Cir. 1983).
C. The bankruptcy court did not err in granting Hyundai summary judgment on Trustee’s claims of fraudulent transfers.
The Bankruptcy Code permits trustees to enlarge the debtor’s estate
by invalidating fraudulent transfers under both federal and state law,
thereby making the property a part of the debtor’s estate again. 6 See EPD
Inv. Co. v. Bank of Am. Corp. (In re EPD Inv. Co.), 523 B.R. 680, 685 (9th Cir.
BAP 2015). California’s fraudulent transfer act and the federal Bankruptcy
Code’s fraudulent transfer provisions are almost identical in form and
substance; therefore, we draw upon cases interpreting both. Barclay v.
Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700, 703 (9th Cir. 2008). To avoid
a transfer as fraudulent, Trustee bears the burden of proof under the
preponderance of the evidence standard. Gill v. Stern (In re Stern), 345 F.3d
1036, 1043 (9th Cir. 2003).
6 Where a transfer has been avoided under §§ 544 or 548, § 550(a) authorizes the trustee to “recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property . . . .” Section 551 provides that any transfer avoided under §§ 544 or 548 “is preserved for the benefit of the estate but only with respect to property of the estate.” 21 Trustee argues that the CMI Notes Transfer and the R-Techo
Transfers were actually or constructively fraudulent under § 548(a)(1) and
the California Uniform Voidable Transfer Act because the purpose of the
transfers was to keep Prime’s assets beyond creditors’ reach. § 548(a)(1);
Cal. Civ. Code §§ 3439-3439.14. Trustee argues that he offered sufficient
evidence to demonstrate that the transfers involved actual and constructive
fraud.
1. The transfers were not actually fraudulent.
Section 548 allows a trustee to avoid any transfer of an interest of the
debtor in property if the debtor made such transfer with actual intent to
hinder, delay, or defraud any creditor. § 548(a)(1)(A). The elements
necessary for a trustee to establish an avoidance action based on actual
fraud are essentially the same for bankruptcy law and California law. See
§ 548(a)(1)(A); Cal. Civ. Code § 3439.04(a). To prevail, Trustee must prove
that: (1) there was a transfer; (2) of Prime’s property; (3) during the
applicable lookback period – two years prior to the petition date for § 548,
and four years prior to the petition date for Cal. Civ. Code § 3439.04(a); and
(4) Prime made the transfer with actual intent to hinder, delay, or defraud
any of Prime’s creditors. See Argyle Online, LLC v. Nielson (In re GGW
Brands, LLC), 504 B.R. 577, 607 (Bankr. C.D. Cal. 2013).
“Since direct evidence of intent to hinder, delay or defraud is
uncommon, the determination typically is made inferentially from
circumstances consistent with the requisite intent.” Wolkowitz v. Beverly (In
22 re Beverly), 374 B.R. 221, 235 (9th Cir. BAP 2007), aff'd in part, dismissed in
part, 551 F.3d 1092 (9th Cir. 2008). When determining the debtor’s actual
intent, courts may consider certain “badges of fraud.” Ezra v. Seror (In re
Ezra), 537 B.R. 924, 930-31 (9th Cir. BAP 2015); see Cal. Civ. Code
§ 3439.04(b).
a. The CMI Notes Transfer was not actually fraudulent.
To succeed on the avoidance action based on actual fraud as to the
CMI Notes Transfer, Trustee had to demonstrate that Prime transferred the
CMI Notes intending to hinder, delay, or defraud creditors. Trustee argues
the evidence shows that Hyundai wanted the CMI Notes and forced Prime
to first purchase the CMI Notes and then later sell them to Hyundai, rather
than allowing Prime to keep the defaulted notes. According to Trustee,
Prime’s selling of the defaulted CMI Notes was not for any legitimate
purpose, rather it was for the purpose of defrauding Prime’s creditors.
Trustee is correct that it is unclear and perhaps even suspicious that
Prime, a scrap metals business with many outstanding (and defaulted)
loans of its own, decided to purchase defaulted secured loans for $17.5
million. Trustee may also be correct that Prime only made the decision to
acquire the CMI Notes because of Hyundai.7 However, Prime’s business
decision to acquire the CMI Notes and subsequently sell the CMI Notes
7 Hyundai argues that Prime made money on the CMI Notes; however, neither party produced the Shinhan loan documents or any documentary evidence showing the CMI Borrowers’ payments (or lack thereof) to Prime for the period that Prime held the CMI Notes. Thus, there is no objective evidence to support or refute Hyundai’s claim. 23 was not before the bankruptcy court. Rather, the issue was whether Prime
intended to hinder, delay, or defraud other creditors when it sold the CMI
Notes to Hyundai.
A review of the entire record demonstrates that Trustee offered
evidence of the facts of the transfer only. Beyond supposition and
conjecture, Trustee did not proffer objective evidence in support of his
assertion that the purpose or intent of Prime when it sold the CMI Notes to
Hyundai was to hinder, delay, or defraud creditors. Because Trustee failed
to offer evidence sufficient to support such a finding, the bankruptcy court
did not err in granting Hyundai summary judgment on this claim.
b. The R-Techo Transfers were not actually fraudulent.
Similar to Trustee’s argument regarding the CMI Transfers, Trustee
argues that he offered sufficient evidence demonstrating that Prime
transferred $1.8 million to Hyundai via R-Techo for the purpose of
defrauding other creditors.
Importantly, a basic element of a claim for fraudulent transfer is the
actual transfer. At a minimum, for a fraudulent transfer to occur, there
must be a “transfer” of a debtor’s “asset.” 8
8 “‘Transfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.” Stadtmueller v. Sarkisian (In re Medina), 619 B.R. 236, 240 (9th Cir. BAP 2020) (quoting Cal. Civ. Code § 3439.01(m)), aff'd, No. 20-60045, 2021 WL 3214757 (9th Cir. July 29, 2021). “‘Asset’ means property of a debtor,” subject to certain statutory exceptions. Id. (quoting Cal. Civ. Code § 3439.01(a)). 24 We agree that Trustee’s evidence indicates there may have been a
scheme for Hyundai to somehow recoup its alleged losses caused by More
Steel. Indeed, in his deposition, Min Ho An appears to admit to the scheme.
However, his later declaration partially contradicts his deposition
testimony. Nevertheless, even if we do not discount his deposition
testimony, his general averments are “a world apart from” the “‘specific
facts needed to sustain the complaint.” See Lujan v. Nat'l Wildlife Fed'n, 497
U.S. 871, 888 (1990).
Trustee, contrary to his assertions, did not present evidence and did
not allege that he could produce evidence that the scheme was
accomplished or that Prime transferred its assets (as opposed to R-Techo’s)
to Hyundai for the actual purpose of defrauding creditors. Indeed, Trustee
failed to offer evidence of the timing of the alleged transfers, or the manner
or process of the alleged transfers. For example, was it a transfer of money,
or was it an agreement to accept low purchase pricing on scrap iron?
Based on an independent review of the entire record, without making
credibility determinations, and viewing the evidence in the light most
favorable to Trustee, we determine that Trustee failed to offer sufficient
evidence showing “when” and “how” the alleged R-Techo Transfers
occurred. Therefore, Hyundai carried its summary judgment burden by
demonstrating that Trustee failed make a sufficient showing on an essential
element of his case with respect to which Trustee had the burden of proof.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (explaining “a complete
25 failure of proof concerning an essential element of the nonmoving party’s
case necessarily renders all other facts immaterial”). Accordingly, the
bankruptcy court did not err in granting Hyundai summary judgment on
this claim.
2. The transfers were not constructively fraudulent.
A trustee in possession may bring an action to avoid a prepetition
transfer that is alleged to be constructively fraudulent under § 548(a)(1)(B)
or applicable state law as provided in § 544(b)(1). 9 To avoid the transfers,
Trustee had to show: (1) there was a transfer of Prime’s property; (2)
during the applicable lookback period; (3) Prime received less than
reasonably equivalent value in exchange for the transfer; and (4) Prime was
insolvent, made insolvent by the transfers, operating or about to operate
without sufficient capital, or unable to pay its debts as they become due.
See Hasse v. Rainsdon (In re Pringle), 495 B.R. 447, 462-63 (9th Cir. BAP 2013);
§ 548(a)(1)(B)(i)-(ii)(I)-(III); Cal. Civ. Code § 3439.05(a).
a. The CMI Notes Transfer was not constructively fraudulent.
If Prime received reasonably equivalent value for the CMI Notes,
then the CMI Notes Transfer was not constructively fraudulent. The court
employs a two-step process in determining whether a debtor received a
reasonably equivalent value. Jordan v. Kroneberger (In re Jordan), 392 B.R.
9 California law is substantially similar. See Cal. Civ. Code § 3439.05(a). 26 428, 441 (Bankr. D. Idaho 2008). First, the court must determine whether the
debtor received value. If the debtor received value for a transfer, the court
must then determine whether that value was the reasonable equivalent of
what the debtor gave up. Id.
An independent review of the record demonstrates that Trustee
failed to offer any evidence showing that the amount paid for the CMI
Notes was less than the “reasonably equivalent value” of those notes.
Hyundai purchased the CMI Notes from Prime for the outstanding
balance of the CMI Notes along with other fees related to the transaction.
Hyundai paid the funds to Shinhan Bank rather than Prime. Trustee
provided no evidence to the contrary. Regardless that the payment was
made to Shinhan Bank rather than to Prime, Prime received value because
its debt to Shinhan Bank was satisfied. See id. (“[v]alue is defined . . . as
property, or the satisfaction or securing of a present or antecedent debt of
the debtor”) (quotation marks omitted). Furthermore, because Prime
received the par value of the CMI Notes, it is without reasonable doubt that
the value it received was reasonably equivalent to what it gave up. See id.
Therefore, Trustee did not present sufficient evidence for a
reasonable trier of fact to find that Prime received less than reasonably
equivalent value as to the CMI Notes. Accordingly, Hyundai carried its
summary judgment burden by demonstrating that Trustee failed to
produce evidence of one of the necessary elements of a constructive fraud
claim.
27 b. The R-Techo Transfers were not constructively fraudulent.
Trustee also fails to establish a genuine dispute regarding the alleged
constructively fraudulent R-Techo Transfers. Because of the same lack of
evidence discussed in the previous actual fraud section, Trustee has not
established the elements for an avoidance action based on constructive
fraud as to the R-Techo Transfers.
Therefore, based on our independent review of the record, the
bankruptcy court did not err in granting Hyundai summary judgment on
Trustee’s claim of constructive fraud as to the R-Techo Transfers.
D. Hyundai was not Prime’s alter ego.
On appeal, Trustee argues that the bankruptcy court erred in refusing
to declare Hyundai the alter ego of Prime. Alter ego has been described as
“an extreme remedy, sparingly used.” Sonora Diamond Corp. v. Superior Ct.,
83 Cal. App. 4th 523, 539 (2000). It is to be imposed “cautiously” and
“reluctantly.” Highland Springs Conf. & Training Ctr. v. City of Banning, 244
Cal. App. 4th 267, 281 (2016). Among the factors to be considered in
applying the doctrine are commingling of funds and other assets of the two
entities, the identical equitable ownership in the two entities, the use of the
same offices and employees, the lack of segregation of corporate records,
and identical directors and officers. Tomaselli v. Transamerica Ins. Co., 25 Cal.
App. 4th 1269, 1285 (1994).
28 In this case, Trustee provided evidence demonstrating that Hyundai
had some influence over Prime’s business dealings and decisions.
However, this is woefully short of the evidence necessary to establish that
Hyundai was Prime’s alter ego. Based on our independent review of the
record, Trustee did not present evidence sufficient to establish a genuine
dispute of material fact relating to the elements of an alter ego claim.
Accordingly, the bankruptcy court did not err in granting Hyundai
summary judgment on the alter ego claim.
CONCLUSION
Based on our independent review, we conclude that the bankruptcy
court did not err in granting Hyundai’s Summary Judgment Motion. We