FILED APR 19 2024 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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-23-1171-SGF PROFESSIONAL FINANCIAL INVESTORS, INC., Bk. No. 20-30604 Debtor. Adv. No. 22-03058 RICHARD MCAVOY; KATHRYN MCAVOY, Appellants, v. MEMORANDUM* MICHAEL GOLDBERG, Trustee of the PFI Trust, Appellee.
Appeal from the United States Bankruptcy Court for the Northern District of California Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
Before: SPRAKER, GAN, and FARIS, Bankruptcy Judges.
INTRODUCTION
Richard and Kathryn McAvoy appeal from the bankruptcy court’s
summary judgment in favor of Michael Goldberg, as trustee of the PFI
Trust. The bankruptcy court determined as a matter of undisputed fact and
* 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. law that the McAvoys were liable under Cal. Civ. Code § 3439.04(a)(1) and
(2) for $323,397.30 in “fictitious profits” they received from debtor
Professional Financial Investors, Inc. (“PFI”) and its affiliates, who were
running a massive Ponzi scheme.
Using an alternative methodology for calculating the amount of their
fraudulent transfer liability, the McAvoys assert that their liability should
have been zero. But their methodology is inconsistent with binding Ninth
Circuit law. They also complain that the bankruptcy court should have
excluded as inadmissible a declaration submitted in support of Goldberg’s
summary judgment motion. But the contents of this declaration were
cumulative of other evidence in the record.
Because neither of the McAvoys’ arguments justifies reversal, we
AFFIRM.
FACTS1
A. The Debtors, their bankruptcy filings, and the formal Ponzi scheme determination.
The underlying bankruptcy case is one of many arising from a
massive Ponzi scheme orchestrated by Ken Casey and Lewis Wallach
through debtors PFI and Professional Investors Security Fund, Inc.
(“PISF”). When a group of investors discovered the Ponzi scheme, they
1 We exercise our discretion to take judicial notice of documents electronically filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 2 filed an involuntary chapter 112 petition against PISF in July 2020. Shortly
thereafter, PISF consented to entry of an order for relief, and PFI filed a
voluntary petition. Eventually, virtually all of PFI’s and PISF’s affiliates
became debtors as well (collectively with PFI and PISF, the “Debtors”).
In April 2021, the official committee of unsecured creditors filed a
complaint for declaratory relief seeking a determination that the Debtors
had been operating a Ponzi scheme. A month later, the bankruptcy court
entered a stipulated judgment formally determining that Debtors’
”businesses were all part of an overarching Ponzi scheme that began no
later than January 1, 2007.”
B. Plan confirmation and Goldberg’s commencement of avoidable transfer litigation.
In November 2021, the bankruptcy court confirmed the modified
second amended joint chapter 11 plan proposed by the Debtors and the
official committee of unsecured creditors (“Plan”). The Plan appointed
Goldberg to serve as trustee of the “PFI Trust” and authorized him to
pursue avoidance actions on its behalf. With the assistance of FTI
Consulting, Inc. (“FTI”), Goldberg ascertained whether each investor who
invested in the Debtors received a net negative or net positive return on
their investment. The “Net Losers” were entitled to a restitution claim for
2 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, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 3 the balance of their investment, which the Plan converted into interests in
the PFI Trust. The “Net Winners” were subject to being sued by Goldberg
for avoidance and recovery of their “Fictitious Profits” in excess of the
balance of their investment.
In July 2022, Goldberg commenced sixty-seven separate adversary
proceedings against Net Winners, including the McAvoys. Goldberg’s
complaint against the McAvoys stated four avoidance claims for relief—
two under § 548(a)(1)(A) and (B) and two under Cal. Civ. Code
§ 3439.04(a)(1) and (2). The complaint also stated a claim for relief for
unjust enrichment.
C. The McAvoys’ summary judgment motions.
In March 2023, the McAvoys moved for summary judgment. They
asserted that the claims were time barred and the unjust enrichment claim
was facially invalid. In April 2023, the bankruptcy court approved the
parties’ stipulation granting the McAvoys summary judgment on
Goldberg’s two § 548 claims and on his unjust enrichment claim. As for the
two remaining avoidable transfer claims under California law, the court
denied the motion.
In July 2023, the McAvoys again moved for summary judgment,
claiming that their avoidable transfer liability was zero. In support of this
argument they submitted a forensic accounting prepared by FTI on
Goldberg’s behalf detailing four separate Debtor accounts held in the
McAvoys’ names (“FTI Report”). According to the McAvoys, facts
4 sufficient to authenticate the FTI Report were obtained during the
McAvoys’ deposition of Goldberg. More specifically, the McAvoys
submitted deposition transcript excerpts with their second summary
judgment motion, in which Goldberg testified that Deposition Exhibit “L”
—the FTI Report—was a report for the McAvoys’ accounts with the
Debtors FTI prepared showing transfers in and transfers out of the
McAvoys’ accounts and was part of FTI’s larger, global forensic accounting
of the Debtors’ finances.
The FTI Report included a one-page “Schedule A: Summary of
Clawback Liability” and a nine-page “Schedule B1: Detailed Report of
Account Activity.” For the McAvoys’ four accounts, Schedule A showed
total cash in of $940,628.08 and total cash out of $1,392,784.23. Thus,
Schedule A reflected that the McAvoys recovered $452,157.15 over and
above their total investment. In turn, Schedule B1 showed the total
transfers out of the McAvoys’ accounts during the seven-year avoidable
transfer limitations period, beginning on July 26, 2013 and ending on July
26, 2020. The net total received by the McAvoys within this period was
$323,397.30.
Critically, the McAvoys did not challenge the authenticity or
accuracy of the FTI Report. Nor did they dispute the specific amounts it
detailed as transferred into and out of the McAvoys’ accounts with the
Debtors. To the contrary, the McAvoys relied on the FTI Report to support
their arguments regarding the dates and amounts of transfers into and out
5 of their accounts with the Debtors. For example, using the FTI Report’s
transfer amounts and transfer dates for Account Nos. 1000723 and 300112,
the McAvoys claimed that none of the amounts transferred out of these
accounts should be considered in figuring their potential avoidable transfer
liability because all transfers out of these two accounts occurred before July
26, 2013, the earliest date within the applicable period for avoidance claims
under California law. At the same time (again using the FTI Report’s
amounts), they claimed that the aggregate amount of “starting balances”
deposited into these two accounts ($344,620.44) should offset any potential
avoidable transfer liability arising from their other two accounts (Account
Nos. 1001915 and 3000110).
They then calculated their potential avoidable transfer liability with
respect to the two accounts that existed during at least part of the avoidable
transfer period—Account Nos. 1001915 and 3000110. Again, using dates
and amounts from the FTI Report, they asserted that their maximum
potential liability from Account No. 1001915 was $141,213.49, and their
maximum potential liability from Account No. 3000110 was $63,109.67, for
an aggregate maximum potential liability of $204,323.16. Given their
alleged right to offset up to $344,620.44 they deposited into Account Nos.
1000723 and 300112, they claimed that their actual avoidable transfer
liability was zero. The McAvoys offered no evidence other than the FTI
Report to establish the dates and amounts of transfers into and out of their
accounts with the Debtors.
6 Goldberg opposed the McAvoys’ second summary judgment motion.
He pointed out that the McAvoys had not disputed the FTI Report. Instead,
as Goldberg noted, the McAvoys had used the FTI Report’s transfer dates
and amounts to calculate their avoidable transfer liability—but did so in a
manner inconsistent with binding Ninth Circuit case law. As part of this
argument, Goldberg relied on the exact same FTI Report that the McAvoys
had relied on. Goldberg’s copy of the FTI Report was attached as Exhibit
“2” to the declaration of his counsel Christopher D. Sullivan filed in
support of Goldberg’s summary judgment opposition (“First Sullivan
Declaration”). The declaration additionally summarized the FTI Report’s
contents. It also included as a separate exhibit—Exhibit “1”—a copy of the
declaration of FTI senior managing director Michelle Herman (“Herman
Declaration”). She explained how FTI for each investor accounted for their
cash transfers into and out of the Debtors.
As Goldberg explained, the FTI Report established that the McAvoys
were Net Winners in the amount of $452,157.15 based on their transactions
between January 1, 2007 and July 26, 2020. However, Goldberg limited his
damages for the avoidable transfers under the applicable statute of
limitations to $323,397.30, calculated on those amounts transferred out of
the McAvoys’ accounts between July 26, 2013 and July 26, 2020. Citing
Donell v. Kowell, 533 F.3d 762, 772-73 (9th Cir. 2008), Goldberg insisted that
his method of calculating the McAvoys’ liability was consistent with Ninth
Circuit law and the McAvoys’ was not.
7 The McAvoys did not file a reply in support of their second summary
judgment motion. Nor did they object to any of the evidence presented
with Goldberg’s summary judgment opposition (including the First
Sullivan Declaration, the Herman Declaration, and the FTI Report).
On August 25, 2023, the bankruptcy court issued a written tentative
ruling (“First Tentative Ruling”). Initially, the court acknowledged the
Debtors’ Ponzi scheme and the “more than $300 million in investor funds
[that] had been lost.” The court noted FTI’s role in assisting Goldberg in
analyzing individual investor accounts and determining which investors
had received a net positive return on their investments. The court then
concluded that the existence of the Debtors’ Ponzi scheme was sufficient to
establish actual fraudulent transfers to the Net Winners under Cal. Civ.
Code § 3439.04(a)(1) and constructive fraudulent transfers to the Net
Winners under Cal. Civ. Code § 3439.04(a)(2). It also held that the
McAvoys’ good faith was not a complete defense in the context of a Ponzi
scheme but rather limited Goldberg’s recovery to the McAvoys’ Fictitious
Profits, which were to be calculated by “netting” the aggregate amount
they paid into the Ponzi scheme against the total amount they received.
Any recovery against a Net Winner, therefore, was limited to the amounts
in excess of the “initial investment,” but further capped to those excess
amounts received within the applicable statute of limitations period.
The court then rejected the McAvoys’ calculation of their
(non)liability. As the court explained, their calculation was inconsistent
8 with the Ninth Circuit’s methodology for calculating Ponzi scheme
avoidable transfer liability and factually meritless because it incorrectly
assumed that Goldberg’s calculation failed to account for money rolled
over from the two accounts that were closed in 2010 (Account Nos. 1000723
and 3000112).
But the bankruptcy court did not stop there. Relying on the FTI
Report, the court stated that the McAvoys paid into the Ponzi scheme a
total of $940,628.00 and received $1,392,785.23, for a total net profit of
$452,157.15. Again relying on the FTI Report, the court then calculated the
total cash transferred out of the McAvoys’ accounts within the applicable
limitations period to be $323,397.30, and stated that their liability was
capped at that amount. The court later reiterated that this was “the amount
Mr. Goldberg may recover.”
Importantly, the court observed that the McAvoys had not
challenged the accuracy of the transfer dates and amounts in the FTI
Report supporting the identical calculations made by the court and
Goldberg to reach an identical liability amount of $323,397.30.
The First Tentative Ruling advised the parties that the court was
inclined to deny the McAvoys’ second summary judgment motion and
gave the parties until August 30, 2023, to inform the court whether or not
they accepted the First Tentative Ruling. After both parties accepted the
tentative ruling, the court entered a Docket Text Order denying the second
summary judgment motion “for the reasons stated in the tentative ruling.”
9 D. Goldberg’s summary judgment motion.
Within a week of the Docket Text Order, Goldberg moved for
summary judgment. Goldberg relied on the stipulated judgment entered in
the creditors committee’s declaratory relief action to establish the existence
of the Debtors’ Ponzi scheme. He also relied on the same FTI Report and
calculations to establish that the McAvoys were Net Winners who should
be ordered to disgorge $323,397.30 in Fictitious Profits they received
between July 26, 2013 and PFI’s petition date of July 26, 2020.
To further support his summary judgment motion, Goldberg
included a “new” declaration from his counsel Christopher D. Sullivan
(“Second Sullivan Declaration”). The Second Sullivan Declaration was new
in the sense that it contained one new paragraph and one slightly altered
paragraph that were not part of the First Sullivan Declaration. The newly
added and amended paragraphs are largely immaterial to our resolution of
this appeal. But Exhibits “1” and “2” to the Second Sullivan Declaration
(the Herman Declaration and the FTI Report) were identical to Exhibits “1”
and “2” attached to the First Sullivan Declaration.
The McAvoys opposed Goldberg’s summary judgment motion and
objected to the Second Sullivan Declaration. They claimed that Sullivan
lacked personal knowledge to authenticate the previously authenticated
FTI Report. They further pointed out that the Herman Declaration attached
as Exhibit “1” to the Second Sullivan Declaration similarly could not
authenticate the FTR Report attached as Exhibit “2” to the Second Sullivan
10 Declaration. The McAvoys also objected to the Second Sullivan Declaration
as, in part, presenting inadmissible lay opinion testimony in violation of
Federal Rules of Evidence 701 and 702 to the extent it described FTI’s
methodology for calculating the McAvoys’ fraudulent transfer liability.
Additionally, the McAvoys claimed that paragraphs 4, 7, and 8 of the
Second Sullivan Declaration were inadmissible hearsay.
The McAvoys then reiterated their calculations and analysis from
their second summary judgment motion (again relying on the FTI Report),
which led them to conclude that they had zero liability for fraudulent
transfers. They also asserted that there remained triable issues of fact
regarding amounts deposited before the period covered by FTI’s netting
analysis (which covered between 2007 and 2020), the specific timing of
such deposits, and the McAvoys’ motivation or purpose for making such
deposits.
Goldberg filed a reply in support of his summary judgment motion.
He argued that the McAvoys’ evidentiary objections were baseless because
they presented the FTI Report in support of their second summary
judgment motion and admitted its authenticity and admissibility for
summary judgment purposes. He noted that, based on this admission and
all parties’ factual reliance on the FTI Report, the court concluded that the
McAvoys were Net Winners in the amount of $452,157.15 and were subject
to disgorging $323,397.30 in Fictitious Profits. Using the correct
methodology as recognized in Donnell for calculating the McAvoys’
11 fraudulent transfer liability, Goldberg contended that as matter of law the
McAvoys were liable for $323,397.30, and their claimed genuine issues of
material fact were irrelevant under the binding Donnell methodology.3
On October 2, 2023, the bankruptcy court issued a new tentative
ruling expressing its inclination to grant Goldberg’s summary judgment
motion (“Second Tentative Ruling”). The vast majority of this ruling
referenced the same undisputed facts and reiterated the same analysis set
forth in the First Tentative Ruling. In relevant part, the court specifically
noted that in its First Tentative Ruling, “the court determined that the
McAvoys are liable for Fictitious Profits during the Relevant Period in the
amount of $323,397.30.” The court explained that it previously had rejected
the McAvoys’ calculation of their liability and their claim that there were
triable issues of fact regarding the amount of its liability. As the court
stated, “[t]he court will not repeat itself or afford the McAvoys a second
bite at this apple, particularly where they accepted the court’s rationale as
set forth in the [First] Tentative Ruling and as incorporated into the court’s
order denying the Prior MSJ.”
As for the McAvoys’ evidentiary objections, the court deemed them
3 The McAvoys filed a three-page surreply in support of their summary judgment opposition. They claimed that Goldberg’s reply impermissibly attempted to reference “new evidence” in the form of materials submitted in support of the McAvoys’ second summary judgment motion that were not mentioned in Goldberg’s initial moving papers. The bankruptcy court struck the surreply as an unauthorized filing. 12 “waived.” According to the court, the McAvoys’ failure to object to the
First Sullivan Declaration and their reliance on, and prior authentication of,
the FTI Report waived their evidentiary objections to the Second Sullivan
Declaration.
After holding a hearing at which the McAvoys re-argued their
evidentiary objections, the court entered an order adopting its Second
Tentative Ruling and granting Goldberg’s summary judgment motion. On
October 9, 2023, the court entered final judgment against the McAvoys for
$323,397.30. The McAvoys timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334. We
have jurisdiction under 28 U.S.C. § 158.
ISSUES
1. Did the bankruptcy court err when it granted summary judgment in
favor of Goldberg?
2. Did the bankruptcy court commit reversible error when it overruled
the McAvoys’ evidentiary objections to the Second Sullivan Declaration?
STANDARDS OF REVIEW
We review de novo appeals from summary judgments. Orr v. Bank of
Am., NT & SA, 285 F.3d 764, 772 (9th Cir. 2002). Evidentiary rulings made
in the summary judgment context are reviewed for an abuse of discretion
and only support reversal when they might have affected the outcome of
the summary judgment motion. Id. at 773; see also Defenders of Wildlife v.
13 Bernal, 204 F.3d 920, 927–28 (9th Cir. 2000) (“Evidentiary rulings are
reviewed for an abuse of discretion and should not be reversed absent
some prejudice.”). The bankruptcy court abused its discretion if it applied
an incorrect legal rule or its factual findings were illogical, implausible, or
without support in the record. TrafficSchool.com v. Edriver Inc., 653 F.3d 820,
832 (9th Cir. 2011).
DISCUSSION
A. Summary judgment standards.
Civil Rule 56 is made applicable in adversary proceedings by Rule
7056. Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir.
2008). Under Civil Rule 56, summary judgment is appropriate when “the
pleadings, the discovery and disclosure materials on file, and any affidavits
show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” Id. “An issue is
‘genuine’ only if there is sufficient evidence for a reasonable fact finder to
find for the non-moving party.” Far Out Prods., Inc. v. Oskar, 247 F.3d 986,
992 (9th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49
(1986)). And, “[a] fact is ‘material’ if the fact may affect the outcome of the
case.” Id.
“The moving party bears the initial burden to demonstrate the
absence of any genuine issue of material fact.” Horphag Rsch. Ltd. v. Garcia,
475 F.3d 1029, 1035 (9th Cir. 2007). However, when the moving party meets
this initial burden, “the burden shifts to the non-moving party to set forth,
14 by affidavit or as otherwise provided in [Civil] Rule 56, specific facts
showing that there is a genuine issue for trial.” Id. (cleaned up).
In meeting these respective “burdens,” the parties may rely on a
broad range of “materials in the record.” See Civil Rule 56(c)(1).4 The court
may consider any such materials in the record but only is required to
consider those that the parties cite. See Civil Rule 56(c)(3). The opposing
party “may object that the material cited to support or dispute a fact cannot
be presented in a form that would be admissible in evidence.” Civil Rule
56(c)(2). But such objections are waived if the opposing party does not raise
them. Orr, 285 F.3d at 773 n.5; see also Hoye v. City of Oakland, 653 F.3d 835,
841 n.3 (9th Cir. 2011) (“Defects in evidence submitted in opposition to a
motion for summary judgment are waived absent . . . objection.” (citation
omitted)).
B. Analysis and calculation of the amount of the McAvoys’ liability.
The McAvoys have not disputed that the Debtors operated a Ponzi
4 Civil Rule 56(c)(1) states: (1) Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact. 15 scheme from at least January 1, 2007, until PFI filed bankruptcy on July 26,
2020. Nor have they disputed that the existence of this Ponzi scheme is
sufficient to establish an actual fraudulent transfer under Cal. Civ. Code
§ 3439.04(a)(1) and a constructively fraudulent transfer under Cal. Civ.
Code § 3439.04(a)(2). This conclusion follows from Donell v. Kowell, 533 F.3d
762, 770–71 (9th Cir. 2008), which construed claims for avoidable transfers
under California law to recover payments made as part of a Ponzi scheme.
Donell makes clear that, “[i]n the context of a Ponzi scheme, whether the
receiver [or trustee] seeks to recover from winning investors under the
actual fraud or constructive fraud theories generally does not impact the
amount of recovery from innocent investors.” Id. at 771. In general, an
innocent or “good faith” investor may retain under either fraudulent
transfer theory the amount of their initial investment. Thus, they only must
disgorge what amounts to “profit” on their investment. Id.
Donell set forth the specific methodology that courts should employ
to determine the amount of a Ponzi scheme investor’s fraudulent transfer
liability:
Drawing from [avoidable transfer] theory, federal courts have generally followed a two-step process. First, to determine whether the investor is liable, courts use the so-called “netting rule.” Amounts transferred by the Ponzi scheme perpetrator to the investor are netted against the initial amounts invested by that individual. If the net is positive, the receiver has established liability, and the court then determines the actual amount of liability, which may or may not be equal to the net
16 gain, depending on factors such as whether transfers were made within the limitations period or whether the investor lacked good faith. . . .
Second, to determine the actual amount of liability, the court permits good faith investors to retain payments up to the amount invested, and requires disgorgement of only the “profits” paid to them by the Ponzi scheme.
Id. at 771-72 (cleaned up). Donell further explained: “Although all payments
of fictitious profits are avoidable as fraudulent transfers, the appropriate
statute of limitations restricts the payments the Ponzi scheme investor may
be required to disgorge. Only transfers made within the limitations period
are avoidable.” Id. at 772 (citing Warfield v. Alaniz, 453 F. Supp. 2d 1118,
1131 (D. Ariz. 2006), aff’d 569 F.3d 1015 (9th Cir. 2009)).
The bankruptcy court here followed this methodology. Because there
was no dispute that the McAvoys qualified as good faith investors, the
court netted the total amounts paid in against the total amounts they
actually received. The McAvoys initially invested $940,628.08 from and
after January 1, 2007—when the Ponzi scheme was determined to have
started. The McAvoys received the aggregate amount of $1,392,785.23 from
the Ponzi scheme perpetrators during the pendency of the scheme. Netted
together, the McAvoys received $452,157.15 in “net profits” from the Ponzi
scheme. The court then capped the McAvoys’ liability at $323,397.30,
representing the aggregate amount of payments from the Ponzi scheme
perpetrators to the McAvoys within the applicable statute of limitations
17 period, July 26, 2013 through July 26, 2020. See Cal. Civ. Code § 3439.09(a),
(c). 5
The bankruptcy court’s analysis and calculations are consistent with
Donell. See Donell, 533 F.3d at 773-74. The McAvoys have not argued that
the bankruptcy court misapplied Donell or that Donell’s “netting rule” is
incorrect and should not be followed. Nor did they argue in their appeal
briefs that the amounts from the FTI Report the bankruptcy court relied on
are inaccurate. Instead, they make calculations consistent with their own
methodology, and then conclude that the amount of their liability is zero.
These are the same calculations the bankruptcy court rejected in its denial
of the McAvoys’ second summary judgment motion. As the bankruptcy
court pointed out, the McAvoys cite no authority supporting their
methodology, which is inconsistent with the “netting rule” set forth in
Donell.
The McAvoys additionally contend:
The evidence presented by the Complaint in this case and the FTI report provide[s] no explanation for where the prior deposits came [from], the source of those funds, or why they were deposited into accounts held with PFI. Instead, they appear without any account history or other information, and then are transferred into other accounts again without any explanation.
The parties apparently agree that the applicable limitations period began on 5
July 26, 2013, and ended on July 26, 2020, when PFI filed bankruptcy. Consequently, we also accept this as the applicable limitations period. 18 Aplt. Opn. Br. at p. 21 of 25.
However, as the bankruptcy court pointed out, much of the
McAvoys’ analysis and their purported identification of genuine issues of
material fact are based on a false premise: that the court should have traced
each amount invested and should have identified and followed the
Debtors’ and investors’ original intent in making the transfers in question.
Donell explicitly rejected any sort of tracing requirement in favor of the
“netting rule” it adopted. 533 F.3d at 773-74. Put bluntly, the “netting rule”
is fundamentally inconsistent with any sort of tracing requirement:
What the [netting] rule means as a practical matter is that a trustee need only determine whether an investor was a net- winner or net-loser when ascertaining whether the investor received profit; the trustee need not match up each investment with each payment made by the debtor and follow the parties’ characterizations of the transfers. This may be the only workable rule in the typical Ponzi-scheme case, where documentation of transfers is less than complete, payments are sporadic and not always in accordance with the documentation of the investment, and neither the investor nor the debtor can recall precisely what the parties intended.
Fisher v. Sellis (In re Lake States Commodities, Inc.), 253 B.R. 866, 872 (Bankr.
N.D. Ill. 2000) (quoting Mark A. McDermott, Ponzi Schemes and the Law of
Fraudulent and Preferential Transfers, 72 Am. Bankr. L. J. 157, 167 (1998)),
quoted with approval in Donell, 533 F.3d at 774.
When we review a matter de novo, we give no deference to the
bankruptcy court’s decision. de Jong v. JLE-04 Parker, L.L.C. (In re de Jong),
19 588 B.R. 879, 888 (9th Cir. BAP 2018), aff'd, 793 F. App’x 659 (9th Cir. 2020).
But in this instance, having reviewed the same undisputed facts and the
same legal authority the bankruptcy court reviewed, we come to the same
conclusion. The bankruptcy court correctly and properly determined on
summary judgment that the McAvoys were liable for $323,397.30 in
Fictitious Profits they received from the Debtors between July 26, 2013 and
July 26, 2020.
C. The McAvoys’ evidentiary objections do not justify reversal.
According to the McAvoys, “[t]he only supporting evidence that
[Goldberg] presented in support of [his] motion for summary judgment
was the [Second] Sullivan Declaration.” The McAvoys argue that most of
the Second Sullivan Declaration was inadmissible. They point to Civil Rule
56(c)(4), which states that “[a]n affidavit or declaration used to support or
oppose a motion must be made on personal knowledge, set out facts that
would be admissible in evidence, and show that the affiant or declarant is
competent to testify on the matters stated.” They also note that under
Federal Rule of Evidence 602, “[a] witness may testify to a matter only if
evidence is introduced sufficient to support a finding that the witness has
personal knowledge of the matter.” The McAvoys further contend that
portions of the Second Sullivan Declaration are inadmissible as
impermissible opinion testimony of a lay witness under Federal Rule of
Evidence 701, as hearsay under Federal Rule of Evidence 802, or both.
There is a fatal, overarching problem with the McAvoys’ evidentiary
20 arguments. Evidentiary issues on appeal only are grounds for reversal
when they might have affected the outcome of the summary judgment
motion. See Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir. 2008)
(“To reverse [summary judgment] on the basis of an erroneous evidentiary
ruling, we must conclude not only that the bankruptcy court abused its
discretion, but also that the error was prejudicial.”); see also Orr, 285 F.3d at
773 (stating that “we must affirm the district court unless its evidentiary
ruling was manifestly erroneous and prejudicial”).
The evidentiary issues the McAvoys have raised did not affect the
outcome. Utilizing the First Sullivan Declaration, the Herman Declaration,
and most importantly the FTI Report, the bankruptcy court already had
determined as a matter of undisputed fact and law that the McAvoys were
liable for $323,397.30 in false profits. These materials already were “in the
record” as provided by Civil Rule 56(c)(1). The McAvoys did not object to
this evidence under Civil Rule 56(c)(2). By not objecting to any of these
items, the McAvoys waived any evidentiary objections they might have
raised, and the bankruptcy court permissibly could rely on them. Orr, 285
F.3d at 774 n.5; FDIC v. N.H. Ins. Co., 953 F.2d 478, 484-85 (9th Cir. 1991).
When one of the parties has authenticated a document in summary
judgment proceedings, all parties may use that document for summary
judgment purposes. Orr, 285 F.3d at 776; see also Cristobal v. Siegel, 26 F.3d
1488, 1494 (9th Cir. 1994) (holding that it is not reversible error for the
district court to admit for summary judgment purposes evidence that the
21 opposing party already has authenticated); Hal Roach Studios, Inc. v. Richard
Feiner & Co., 896 F.2d 1542, 1550–51 (9th Cir. 1990) (same). This is exactly
what happened here with respect to the FTI Report. The McAvoys
presented Goldberg’s deposition testimony to demonstrate that this report
is what it purports to be: an accurate accounting of the transfers into and
out of the McAvoys’ accounts with the Debtors between January 1, 2007
and July 26, 2020. Then they repeatedly and affirmatively relied on the FTI
Report to advance their alternative theory for calculating the amount of
their liability. Goldberg used this report for the same purpose.
The McAvoys placed the FTI Report into the record and have never
contested the accuracy of the evidence or its sufficiency to establish the
amount of their liability under the “netting rule.” In short, under these
circumstances, the Second Sullivan Declaration was cumulative of the other
“materials in the record” to which the McAvoys never objected and
permitted both Goldberg and the court to complete the “netting rule”
analysis set forth in Donell. Consequently, the McAvoys’ challenge to the
admissibility of the Second Sullivan Declaration did not affect the outcome
of the summary judgment motion.6
6 Though we do not need to reach the merits of the McAvoys’ evidentiary arguments, it is worth noting that their arguments betray a fundamental misunderstanding of how many evidentiary issues “play out” in the summary judgment context. Once an evidentiary objection is properly raised, the proponent has the burden “to show that the material is admissible as presented or to explain the admissible form that is anticipated.” Civil Rule 56(c)(2) (Advisory Committee Notes accompanying 2010 amendments) (emphasis added). In other words, “authentication 22 Finally, the McAvoys contend that Goldberg presented “new
evidence” in support of his summary judgment motion in his reply brief.
Citing Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996), the McAvoys
argue that Goldberg’s reference in his reply to the materials from the
McAvoys’ second summary judgment motion—and to the court’s ruling
thereon—constituted “new evidence” and that the bankruptcy court
impermissibly considered these materials without giving them a chance to
respond.
We disagree. This so-called “new evidence” was not new at all.
Goldberg merely referenced the materials from the prior summary
judgment proceedings. This was a timely and appropriate response to the
McAvoys’ evidentiary objections. See, e.g., Anigbogu v. Mayorkas, 2023 WL
8115046, at *3 (N.D. Cal. Nov. 22, 2023) (citing cases and explaining that the
proponent of summary judgment evidence must be given an opportunity
to respond to summary judgment evidentiary objections and to show that
the materials challenged as inadmissible could be submitted in an
admissible form at trial); SE Prop. Holdings, LLC v. Stewart (In re Stewart),
and hearsay” objections made during summary judgment proceedings should be overruled, “where the evidence could be presented in an admissible form at trial.” Hodges v. Hertz Corp., 351 F. Supp. 3d 1227, 1232 (N.D. Cal. 2018) (citing Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th Cir. 2003)). While the bankruptcy court here did not need to specifically address it, the prospective admissibility at trial of the key piece of evidence—the FTI Report—was sufficiently demonstrated by the materials submitted in support of the McAvoys’ second summary judgment motion, particularly the Goldberg deposition excerpts. 23 2022 WL 3135293, at *3-4 (Bankr. W.D. Okla. Aug. 3, 2022) (same).
In their opposition to Goldberg’s summary judgment motion, the
McAvoys had the opportunity to come forward with evidence, facts, and
law to demonstrate a triable issue of fact notwithstanding the bankruptcy
court’s ruling on their second summary judgment motion. Instead, they
chose to ignore their second summary judgment motion as if it never
occurred.
Based on its ruling denying the McAvoys’ second motion for
summary judgment, the bankruptcy court could have sua sponte granted
summary judgment in favor of Goldberg as the nonmovant under Civil
Rule 56(f)(1)—subject to assuring itself that the McAvoys had a full and fair
opportunity to present and support their positions. The explicit authority
to grant summary judgment in favor of a nonmovant was only added to
Civil Rule 56 in 2010, but it has long been the practice of the Ninth Circuit
and other circuits to grant summary judgment for a nonmovant in
appropriate circumstances. See Albino v. Baca, 747 F.3d 1162, 1176–77 (9th
Cir. 2014) (en banc) (listing cases); Wright & Miller, 10A FEDERAL PRACTICE
AND PROCEDURE, Civil § 2720.1 (4th ed. 2023) (same).
The bankruptcy court opted not to follow the path of Civil Rule
56(f)(1). Instead, Goldberg filed his own summary judgment motion. But he
relied on the exact same law, undisputed facts, and key evidence (the FTI
Report) to support his position. Under these circumstances, there can be no
legitimate question that Goldberg met his summary judgment burden and
24 that the burden shifted to the McAvoys to demonstrate the existence of one
or more genuine issues of material fact. This they failed to do. In the
procedural context the McAvoys created, the bankruptcy court did not
commit reversible error when it granted Goldberg’s summary judgment
motion.
CONCLUSION
In sum, the McAvoys never disputed that Goldberg established the
elements of his avoidable transfer claims under California law based on the
debtors’ Ponzi scheme. Rather, they took issue with the calculation of
damages resulting in their liability. Their calculations are contrary to the
netting of monies in and out required under Donell. The McAvoys did not
present any evidence contradicting the FTI Report, which Goldberg relied
on to calculate his avoidable transfer damages. Instead, they attempted to
challenge its authenticity by objecting to the Second Sullivan Declaration.
But the McAvoys had already placed the FTI Report into the record for
purposes of summary judgment, and the evidence they presented in their
second summary judgment motion demonstrated that the applicable
accounting from the FTI Report could be presented in admissible form at
trial. Thus, the bankruptcy court could consider the accounting from the
FTI Report on Goldberg’s motion for summary judgment. Because the
McAvoys have failed to establish reversible error in the bankruptcy court’s
grant of summary judgment, we AFFIRM.