Marshack v. Hyundai Steel Company

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 6, 2024
• Docket: 24-53
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 6 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: PRIME METALS U.S.A., INC., No. 24-53 Debtor, BAP No. 22-1222 ---------------------------- RICHARD A. MARSHACK, solely in his capacity as Chapter 7 Trustee of the MEMORANDUM* bankruptcy estate of Prime Metals, U.S.A., Inc.,

Appellant,

v.

HYUNDAI STEEL COMPANY, a Korean corporation,

Appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Corbit, Faris, and Lafferty, Bankruptcy Judges, Presiding

Submitted December 4, 2024** Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Before: OWENS, LEE, and KOH, Circuit Judges.

This appeal arises from an adversary proceeding in Prime Metals U.S.A., Inc.’s

(“Prime”) bankruptcy proceedings. Richard Marshack, in his capacity as Chapter 7

Trustee of the bankruptcy estate, (“Trustee”) seeks to avoid and recover, for the

benefit of the estate, two sets of allegedly fraudulent transfers between Prime and

Hyundai Steel Co. (“Hyundai”). The bankruptcy court granted Hyundai’s motion

for summary judgment as to each of Trustee’s claims, and the Bankruptcy

Appellate Panel (“BAP”) affirmed. We have jurisdiction under 28 U.S.C. § 158(d).

We affirm.

“We review decisions of the [BAP] de novo and apply the same standard of

review that the [BAP] applied to the bankruptcy court’s ruling.” Wolfe v. Jacobson

(In re Jacobson), 676 F.3d 1193, 1198 (9th Cir. 2012) (citation omitted). A

bankruptcy court’s order granting summary judgment is reviewed de novo on

appeal. Lovering Tubbs Trust v. Hoffman (In re O’Gorman), 115 F.4th 1047, 1054

(9th Cir. 2024).

At summary judgment, movant Hyundai bears the initial burdens of production

and persuasion. Nissan Fire & Marine Ins. Co. v. Fritz Cos., Inc., 210 F.3d 1099,

1102 (9th Cir. 2000). To carry its production burden, Hyundai must “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

2 24-53 element to carry its ultimate burden of persuasion at trial.” Id. To carry its

persuasion burden, Hyundai must show that no genuine dispute of material fact

exists as to those essential elements. Id. If Hyundai carries these initial burdens, the

burden then shifts to Trustee to identify enough specific evidence supporting his

claims to raise a genuine dispute of material fact. Id. at 1103.

We conclude that Hyundai carried its burdens by showing that Trustee lacks

sufficient evidence on essential elements of each of his claims and that there are no

genuine disputes of material fact as to those elements. We also conclude that

Trustee failed to carry his burden to identify enough specific evidence supporting

his claims to raise a genuine dispute of material fact. Therefore, Hyundai is entitled

to summary judgment on all of Trustee’s claims.

1. As an initial matter, Trustee challenges the bankruptcy court’s

exclusion of certain evidence offered in opposition to Hyundai’s motion for

summary judgment, specifically portions of the declaration of Trustee’s primary

fact witness, Min Ho An. We review the bankruptcy court’s evidentiary rulings for

abuse of discretion. Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir.

2008). “To reverse 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.” Id. (citation omitted).

3 24-53 Here, even if the bankruptcy court erred in excluding portions of the An

declaration, any erroneous evidentiary rulings were not prejudicial to Trustee. As

discussed below, even if the An declaration is considered in full, Hyundai has

carried its summary judgment burdens of production and persuasion, and Trustee

failed to identify specific evidence raising a genuine dispute of material fact as to

essential elements of his fraudulent transfer claims.

2. The first allegedly fraudulent transfer involved the sale of several

promissory notes from Prime to Hyundai. Trustee alleges that the transfer should

be avoided as either an intentional or constructive fraudulent transfer. As to the

intentional fraudulent transfer claim, Hyundai met its summary judgment

production burden by showing that Trustee does not have enough evidence to

establish an essential element of his claim: Prime’s “actual intent to hinder, delay,

or defraud” its creditors. 11 U.S.C. § 548(a)(1)(A); Cal. Civ. Code § 3439.04(a).

Hyundai also met its persuasion burden by showing that no genuine dispute of

material fact exists as to this element.

On appeal, Trustee does not argue that Prime itself transferred the notes with

the requisite intent. Rather, Trustee argues that Hyundai is a statutory or non-

statutory insider of Prime whose intent can be imputed to Prime. See Acequia, Inc.

v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 806 (9th Cir. 1994) (recognizing that

fraudulent intent can be imputed where a person exercises requisite control over

4 24-53 the debtor). However, Trustee failed to identify specific evidence raising a genuine

dispute of material fact as to whether Hyundai had the requisite control over Prime

to qualify as a statutory or non-statutory insider, which is fatal to Trustee’s claim

of intentional fraudulent transfer. Trustee’s assertions, even if taken as true,

suggest only that Hyundai was able to exert economic pressure on Prime, not that

Hyundai was able to dictate Prime’s corporate policy or the disposition of its

assets. See Acequia, 34 F.3d at 806.

As to the constructive fraudulent transfer claim, Hyundai met its summary

judgment burden of production by showing that Trustee does not have enough

evidence to establish an essential element of his claim: Hyundai’s failure to

provide Prime with “reasonably equivalent value” in exchange for the notes. 11

U.S.C. § 548(a)(1)(B); Cal. Civ. Code § 3439.05(a). Hyundai also met its burden

of persuasion by showing that there is no genuine dispute of material fact as to this

essential element, and Trustee in turn failed to identify specific evidence raising a

genuine factual dispute.

The record shows that, in exchange for the notes, Hyundai paid the

outstanding balance of the notes (along with certain transaction fees) to Shinhan

Bank to pay off a loan that Prime had incurred when it originally purchased the

notes. Trustee does not challenge whether the amount of the Shinhan Bank

payment was “reasonably equivalent” to the value of the notes and concedes that

5 24-53 the fact that Hyundai’s consideration was paid to a third party, rather than to Prime

directly, does not itself mean that Prime failed to receive “reasonably equivalent

value” in the transfer. See Frontier Bank v. Brown (In re N. Merch.), 371 F.3d

1056, 1058 (9th Cir. 2004) (“It is well settled that reasonably equivalent value can

come from one other than the recipient of the payments, a rule which has become

known as the indirect benefit rule.” (citation and internal quotation marks

omitted)).

However, Trustee argues that because Prime did not receive payment

directly from Hyundai, Hyundai bears the burden to establish that it provided

Prime with reasonably equivalent value indirectly and that Hyundai failed to meet

this burden. Trustee acknowledges that, ordinarily, a trustee must prove each

element of a fraudulent transfer claim under the preponderance of the evidence

standard. See Gill v. Stern (In re Stern), 345 F.3d 1036, 1043 (9th Cir. 2003);

Whitehouse v. Six Corp., 48 Cal. Rptr. 2d 600, 604 (Cal. Ct. App. 1995), as

modified on denial of reh’g (Dec. 19, 1995). Nevertheless, Trustee cites several

Bankruptcy Court cases for the proposition that in cases where consideration is

paid to a third party, the burden shifts to the defendant to establish the sufficiency

of “indirect benefits.” See, e.g., Cooper v. Centar Invs. (Asia) Ltd. (In re TriGem

Am. Corp.), 431 B.R. 855, 868 (Bankr. C.D. Cal. 2010); Leonard v. Norman

Vinitsky Residuary Trust (In re Jolly’s Inc.), 188 B.R. 832, 843 (Bankr. D. Minn.

6 24-53 1995). However, even if we were to assume arguendo that a burden-shifting

framework is appropriate here, Hyundai has met any such burden. There is ample

evidence in the record that shows that Hyundai did in fact make payment to

Shinhan Bank to pay off Prime’s loan.

3. The second alleged fraudulent transfer involved indirect transfers of

$1.8 million to Hyundai via Prime’s sole shareholder, R-Techo, Co. Ltd. (“R-

Techo”). A basic element of a claim for fraudulent transfer, either actual or

constructive, is the actual transfer of the debtor’s assets. See 11 U.S.C. § 548(a)(1);

Cal. Civ. Code §§ 3439.04(a), 3439.05(a).

Hyundai carried its summary judgment burdens by showing that Trustee

does not have enough evidence to establish that the $1.8 million allegedly

transferred through R-Techo to Hyundai were Prime’s assets and that there is no

genuine factual dispute as to this essential element. Even when the portions of the

An declaration excluded by the bankruptcy court are considered, Trustee failed to

meet his burden to identify enough specific evidence to raise a genuine dispute of

material fact. Trustee has provided no documentary evidence of the alleged R-

Techo transfers, and instead relies on the testimony of three witnesses. This

testimony, however, is both conclusory and incomplete. The witnesses only

testified that $1.8 million was transferred from R-Techo to Hyundai. No witness

7 24-53 explained how these transfers were linked to Prime’s assets, or provided any

details on the timing, manner, or process of the alleged transfers.

4. Finally, the bankruptcy court did not err in determining that Hyundai

was not the alter ego of Prime. Under California law, there are two general

requirements for alter ego liability: “(1) that there be such unity of interest and

ownership that the separate personalities of the corporation and the [alter ego] no

longer exist and (2) that, if the acts are treated as those of the corporation alone, an

inequitable result with follow.” Mesler v. Bragg Mgmt. Co., 702 P.2d 601, 606

(Cal. 1985) (quoting Automotriz del Golfo de Cal. v. Resnick, 306 P.2d 1, 3 (Cal.

1957)). Hyundai carried its summary judgment burdens by showing that Trustee

lacks sufficient evidence to establish either element and that there is no genuine

dispute of material fact as to either element. Trustee, in turn, failed to identify

enough specific evidence to raise a genuine factual dispute. “Alter ego is an

extreme remedy, sparingly used,” Sonora Diamond Corp. v. Superior Ct., 99 Cal.

Rptr. 2d 824, 836 (Cal. Ct. App. 2000) (citation omitted), and, as discussed above,

Trustee failed identify specific evidence raising a genuine dispute of material fact

as to whether Hyundai controlled Prime’s corporate policy or decisionmaking.

Trustee has not, for example, identified admissible evidence showing that Prime

and Hyundai commingled funds and assets; had identical ownership; used the same

offices; used identical employees, directors, or officers; or disregarded corporate

8 24-53 formalities. See Troyk v. Farmers Grp., Inc., 90 Cal. Rptr. 3d 589, 619 (Cal. Ct.

App. 2009). Additionally, Trustee failed to identify specific evidence raising a

genuine dispute of material fact as to whether inequitable results would follow

from recognizing Prime as a separate corporate entity from Hyundai.

AFFIRMED.

9 24-53