[00:00:00] Speaker 05:
Because it's for appellant now, yes.

[00:00:03] Speaker 04:
Good morning.

[00:00:03] Speaker 04:
Good morning, Your Honors, and may it please the Court.

[00:00:05] Speaker 04:
My name is Jessica Bagdanov.

[00:00:06] Speaker 04:
I represent Michael Kosolis, the appellant and liquidating trustee for the estate of Robert Brower Sr.

[00:00:12] Speaker 04:
I'd like to reserve maybe three minutes if I can get there.

[00:00:17] Speaker 04:
OK, thank you.

[00:00:18] Speaker 04:
You can proceed.

[00:00:19] Speaker 04:
Thank you, Your Honors.

[00:00:21] Speaker 04:
By this appeal, the trustee asks this panel to reverse a partial judgment of the Bankruptcy Court, which dismissed the trustee's second amended complaint without leave to amend.

[00:00:31] Speaker 04:
This is a certified partial judgment under Rule 54B, and this panel reviews the Bankruptcy Court's decision de novo on all matters.

[00:00:41] Speaker 04:
At a high level, this case is about a Chapter 11 debtor in possession

[00:00:46] Speaker 04:
He was the sole shareholder of a corporation organized in California, I'll call Coastal.

[00:00:53] Speaker 04:
That company, as pled in the complaint, was post-petition liquidated.

[00:01:00] Speaker 04:
It sold substantially all of its assets, which was a wine estate in Northern California.

[00:01:07] Speaker 04:
It paid all of its then existing creditors.

[00:01:10] Speaker 04:
It took all of the steps to liquidation except distributing remaining proceeds.

[00:01:14] Speaker 05:
Well, let me ask you this just hypothetically.

[00:01:17] Speaker 05:
If we find that Section 549 claims are barred by the statute of limitations, what's left?

[00:01:26] Speaker 05:
Well ... You lose them, right?

[00:01:30] Speaker 04:
I don't believe so.

[00:01:31] Speaker 05:
Well, there's ... This case is ... Because you want to pierce the veil or whatever.

[00:01:39] Speaker 05:
make them one and the same, and so you want us to look at the cases on that.

[00:01:43] Speaker 05:
But if you blew the statute of limitations, that doesn't really matter, right?

[00:01:48] Speaker 04:
I think it does matter.

[00:01:49] Speaker 04:
There's various ways that we have tried to plead this case three different times to plead a right that the estate can assert.

[00:02:00] Speaker 05:
Right, but you haven't claimed that this was a fraud.

[00:02:03] Speaker 05:
It's not here as a fraudulent transfer, correct?

[00:02:06] Speaker 04:
The original complaint and First Amendment complaint did bring Section 340.

[00:02:10] Speaker 05:
But what we have here, what do we have here?

[00:02:12] Speaker 05:
We don't have a fraudulent transfer here, right?

[00:02:14] Speaker 04:
On the Second Amendment complaint, no, Your Honor.

[00:02:16] Speaker 05:
Okay.

[00:02:17] Speaker 05:
So that's, we're reviewing, that's what we're reviewing.

[00:02:21] Speaker 05:
So that being said, if you, and the statute of limitations, I know that you're asking to toll and all of that, but if you did have a fraud claim, it would be a different situation of when the statute starts to run, right?

[00:02:36] Speaker 04:
Sure.

[00:02:37] Speaker 04:
But there's also conversion that's been claimed in this version of the complaint.

[00:02:43] Speaker 04:
There is 542 turnover.

[00:02:45] Speaker 04:
There is the 549 transfers, as you mentioned.

[00:02:50] Speaker 04:
And then, of course, the claims against the attorneys.

[00:02:52] Speaker 05:
Well, if we say you're barred by the statute of limitations, hypothetically, you wouldn't have anything left, right?

[00:03:00] Speaker 05:
I think that's probably true.

[00:03:01] Speaker 05:
OK.

[00:03:02] Speaker 05:
So now go back on what your argument is on

[00:03:05] Speaker 05:
how we get to this and how you aren't barred by the statute.

[00:03:10] Speaker 04:
Yes, Your Honor.

[00:03:12] Speaker 04:
How we get here is a few different ways.

[00:03:16] Speaker 04:
Number one, I think the Bankruptcy Court made a few critical errors of law.

[00:03:21] Speaker 04:
Number one, in its application of the Rule 12b6 standard, because again, we're here at the pleading stage.

[00:03:29] Speaker 04:
Many of the cases cited in our briefs are

[00:03:33] Speaker 04:
post-summary judgment or even post-trial matters, this is the pleading stage where a trustee is seeking the balance of proceeds left in a bank account to have that debtor turn it over to his bankruptcy estate.

[00:03:51] Speaker 04:
And interestingly, in bankruptcy, this is a kind of a strange creature, the Chapter 11 debtor, because he wears three hats, seemingly all at the same time.

[00:04:01] Speaker 04:
He wears his hat as an individual person.

[00:04:03] Speaker 04:
He wears his hat as Coastal's sole shareholder and only person in charge.

[00:04:10] Speaker 04:
But he also has his debtor in possession hat.

[00:04:13] Speaker 04:
Under the Bankruptcy Code, that's the same thing as a trustee.

[00:04:17] Speaker 04:
It cannot be removed.

[00:04:18] Speaker 04:
He is the fiduciary for the bankruptcy estate at all times.

[00:04:22] Speaker 02:
But we have to look to California law to see, to recognize these property interests.

[00:04:27] Speaker 02:
And as the BAP mentioned below, there are these corporate forms.

[00:04:33] Speaker 02:
And when Coastal sold its assets and did not distribute, that would have given rise to a claim for those assets.

[00:04:41] Speaker 02:
But why does that amount to something that is a property of the estate itself?

[00:04:47] Speaker 04:
That's absolutely right, Your Honor.

[00:04:48] Speaker 04:
And I'd ask the BAP, what claim?

[00:04:52] Speaker 04:
The claim, Your Honor, is Section 542— Or distribution, for example.

[00:04:57] Speaker 04:
—turnover of an estate asset, because it belongs to no one else but the estate.

[00:05:02] Speaker 04:
It cannot be the case in this circuit that a debtor can set up a corporation

[00:05:07] Speaker 04:
keep it open, it does nothing, there's no creditors, and it has $6 million in the bank account, and it can hide that money from the bankruptcy court and the debtor's creditors for perpetuity.

[00:05:19] Speaker 04:
That cannot be the law.

[00:05:21] Speaker 05:
Well, can you cite a Ninth Circuit decision or a BAP decision that holds that an alter ego analysis can be used to find corporate assets or property of the debtor and therefore property of the estate?

[00:05:33] Speaker 04:
A Ninth Circuit level decision, Your Honor?

[00:05:36] Speaker 04:
Yes, in racing is a BAP decision, your honor.

[00:05:39] Speaker 04:
And it held in the context of section 727, which is denial of a debtor's discharge.

[00:05:46] Speaker 04:
The code provides that a debtor is not entitled to a discharge where it can be shown that, among other things, that he concealed or transferred away property of the estate with, I think there's a mens rea element to certain of the subsections.

[00:06:02] Speaker 02:
And Singh involved a corporation?

[00:06:04] Speaker 04:
Yes.

[00:06:05] Speaker 04:
The debtor was an individual.

[00:06:07] Speaker 04:
stashed money in his corporation, and he was denied a discharge for it.

[00:06:12] Speaker 03:
Why?

[00:06:13] Speaker 03:
But the property didn't come back in the estate, did it?

[00:06:16] Speaker 04:
No, but the element.

[00:06:17] Speaker 03:
That's what you're arguing, is the property needs to go back in the estate.

[00:06:21] Speaker 03:
Singh was a discharge case, and they denied the discharge.

[00:06:24] Speaker 03:
Am I understanding?

[00:06:25] Speaker 04:
That's correct.

[00:06:26] Speaker 04:
And the element that's most important.

[00:06:27] Speaker 03:
So why is that relevant here in the context of getting the property?

[00:06:31] Speaker 04:
because the code language is identical.

[00:06:34] Speaker 04:
It's a twin element.

[00:06:35] Speaker 04:
727 requires an element.

[00:06:37] Speaker 04:
You can either be denied a discharge for something you do pre-petition and the code calls it property of the debtor.

[00:06:43] Speaker 04:
You can be denied a discharge for something you do post-petition and it's called property of the estate.

[00:06:47] Speaker 04:
It's property of the estate.

[00:06:49] Speaker 04:
That is the twin language that exists in 549 and 727.

[00:06:53] Speaker 04:
That is an alter ego case primarily.

[00:06:56] Speaker 04:
I think the best case is actually a ninth circuit case

[00:07:01] Speaker 04:
that's less about alter ego specifically and more about control.

[00:07:04] Speaker 04:
Your Honor, DZ Bank versus Meyer is a Ninth Circuit decision where the issue was, did the debtor have sufficient control over this non-debtor corporation that that corporate money would be liable on a judgment of the debtor?

[00:07:25] Speaker 04:
And the answer is absolutely yes.

[00:07:27] Speaker 04:
Would this money have been liable for debts of the debtor?

[00:07:31] Speaker 04:
Absolutely.

[00:07:32] Speaker 04:
Who else would it belong to but the estate?

[00:07:35] Speaker 04:
The importance of this case, Your Honor, and for the implications of what it has on bankruptcy in this circuit is, honestly, it's frightening.

[00:07:48] Speaker 04:
This is a license to steal that debtors can come

[00:07:51] Speaker 04:
set up corporations and hide money.

[00:07:55] Speaker 04:
That is, now DZ Bank was a fraudulent transfer case and the BAP considered it but disregarded it because it was under Washington Uniform Fraudulent Transfer Act.

[00:08:04] Speaker 02:
However, the California... So I guess I go back to my... So are we to look at California cases in resolving this issue about alter ego piercing or Ninth Circuit and BAP cases that involve other state law?

[00:08:16] Speaker 04:
Well, the...

[00:08:18] Speaker 04:
I think the answer to your question is twofold.

[00:08:22] Speaker 04:
At the federal level, we're looking at the bankruptcy code that defines property rights that looks to state law.

[00:08:30] Speaker 04:
But Whiting Pools, for example, the seminal case on property, talks about the broad scope of property rights.

[00:08:38] Speaker 04:
And this is where I think there's another legal error by the bankruptcy court in too narrowly constricting that idea, because Whiting Pools and

[00:08:47] Speaker 04:
case after case talk about how the Bankruptcy Code envisions a scenario where you don't have to have possession of an asset of cash for it to be your property in your bankruptcy estate.

[00:09:01] Speaker 04:
And again, this is a Chapter 11 debtor who's a fiduciary for his creditors at all times.

[00:09:07] Speaker 04:
And Whiting Poole says, nothing requires that the debtor has a possessory interest, yet the Bankruptcy Court and the BAP appear to require that.

[00:09:18] Speaker 04:
That's incorrect.

[00:09:19] Speaker 04:
Now, to the second layer, you look to California law on the breadth of contractual rights or how alter ego works and in California, there is piercing the corporate veil and as Postal Instant Press, the case talks about, there is reverse piercing.

[00:09:38] Speaker 04:
I think of reverse piercing as somewhat of a misnomer in this case because it's really asking the question, and the court in postal talks about this, would the assets that are legally titled in the name of the corporation be liable for the individual's debts?

[00:09:54] Speaker 04:
Could, in this instance, MUFG Bank have outside of bankruptcy and a hypothetical situation attached and gotten that money?

[00:10:02] Speaker 04:
Absolutely.

[00:10:03] Speaker 05:
Well, okay, so I think the argument that they're making is that the distribution of the net proceeds here were used to pay out Coastal's contractual obligations.

[00:10:19] Speaker 05:
Your beef with that is that they somehow got a preferential payout, not that they couldn't have gotten a payout if it were part of the estate.

[00:10:29] Speaker 04:
My beef with that, your honor, is that it's contrary to what is pled in the trustee's complaint.

[00:10:36] Speaker 04:
The trustee's complaint alleges that all then existing creditors of Coastal were paid.

[00:10:42] Speaker 04:
These appellees and the other defendants received and then some.

[00:10:48] Speaker 04:
They received money because they were not existing creditors.

[00:10:52] Speaker 04:
The debtor, instead of putting this money in to pay his creditors,

[00:10:56] Speaker 04:
paid his friends, paid his family, bought a house, loaned his son some money.

[00:11:03] Speaker 04:
And unfortunately, he's deceased and we don't have him here today.

[00:11:07] Speaker 04:
But in this instance, these are not then existing creditors.

[00:11:12] Speaker 04:
This liquidation was all but done.

[00:11:15] Speaker 04:
And not to mention the fact that the debtor lied to the bankruptcy court under penalty of perjury at least four times.

[00:11:22] Speaker 02:
But it sounds like you're re-arguing fraudulent conveyance theories that were already dismissed.

[00:11:27] Speaker 02:
I mean, that would seem to make sense if you had a traction with the fraudulent conveyance side of this.

[00:11:34] Speaker 02:
But we're here on these more limited issues about alter ego piercing and whether this was property of the estate or not.

[00:11:42] Speaker 04:
Yes, and I think something that may, I think this case is easy, myself included, to lose some of the big picture in the details.

[00:11:52] Speaker 04:
But the details are important, and in this case, we also pledged inversion.

[00:11:57] Speaker 05:
Your obvious view is that the person that is deceased scammed the court and hid assets and did whatever as far as that.

[00:12:07] Speaker 05:
But I think what Judge Shantzis is saying, while all that may be true on some level, the courts never have exactly bought your argument on this.

[00:12:16] Speaker 05:
And now we're here on a more limited review.

[00:12:19] Speaker 05:
And we have to decide it based on that.

[00:12:22] Speaker 05:
You lost on those issues, basically.

[00:12:24] Speaker 04:
Yes.

[00:12:25] Speaker 04:
And it's important.

[00:12:28] Speaker 04:
I think it's critical to note that these appellees are not innocent.

[00:12:32] Speaker 04:
The complaint alleges that the debtor did not act alone.

[00:12:37] Speaker 04:
happenstance.

[00:12:38] Speaker 04:
This was orchestrated.

[00:12:40] Speaker 04:
They knew what was going on.

[00:12:41] Speaker 04:
Even the lawyers were involved, Your Honors.

[00:12:44] Speaker 05:
Okay, so how does that figure into our analysis here, that you don't think that they were innocent and that they were all in cahoots?

[00:12:51] Speaker 05:
How does that figure into the analysis that we have to do here?

[00:12:56] Speaker 05:
It figures in because— Other than that, obviously,

[00:13:02] Speaker 05:
It's sort of like someone could be really seriously injured in an accident, and there's no doubt about that.

[00:13:07] Speaker 05:
But then the liability still has to be proven.

[00:13:10] Speaker 05:
And you're in the having to prove the liability part of it.

[00:13:17] Speaker 04:
Yes, Your Honor.

[00:13:19] Speaker 04:
Under any theory, alter ego, Section 549, avoidance and recovery of transfers, or conversion,

[00:13:27] Speaker 04:
the trustee may recover from third parties, either as initial transferees or even subsequent transferees.

[00:13:32] Speaker 05:
Well, you're clawing back here, right?

[00:13:34] Speaker 05:
Excuse me, Your Honor?

[00:13:35] Speaker 05:
You're clawing back, because the money's gone.

[00:13:37] Speaker 05:
You're wanting to claw it back.

[00:13:39] Speaker 04:
Yes.

[00:13:39] Speaker 04:
The conversion claim is not a clawback claim under Section 500 of the Bankruptcy Code, but yes, that is the gravamen of the complaint.

[00:13:47] Speaker 03:
Well, let's assume that the money hadn't been transferred.

[00:13:52] Speaker 03:
And this is a liquidating 11, correct?

[00:13:56] Speaker 04:
Yes.

[00:13:57] Speaker 03:
It's not a plan of reorganization where they're trying to keep in business.

[00:14:00] Speaker 03:
They're liquidating as they would under Chapter 7, right?

[00:14:03] Speaker 04:
The creditor in this case proposed the plan at MUFG Bank, and so I believe that you are correct that it was a plan of liquidation, and this was the main asset that everybody was looking to, and then it was gone.

[00:14:15] Speaker 03:
All right.

[00:14:16] Speaker 03:
For simplicity, let's assume it's a Chapter 7.

[00:14:19] Speaker 04:
Yes.

[00:14:20] Speaker 03:
The trustee in a Chapter 7 would be entitled to the stock and nothing else, correct?

[00:14:27] Speaker 04:
I don't agree under these facts as pled.

[00:14:30] Speaker 03:
As pled, Your Honor, in this case

[00:14:44] Speaker 04:
All of the assets were liquidated already, and all there was.

[00:14:47] Speaker 03:
Well, I'm saying that.

[00:14:48] Speaker 03:
I'm just saying, in the ordinary course, if the asset is a stock in a corporation, you just liquidate the stock.

[00:14:56] Speaker 03:
You don't liquidate the corporation.

[00:14:59] Speaker 04:
There may be a practical disconnect, because as a Chapter 7 trustee, he would walk into the bank and take the money from the bank account and put it into his trustee account.

[00:15:11] Speaker 03:
Not if the corporation is not the debtor.

[00:15:14] Speaker 04:
Not if the corporation has... Is not the debtor.

[00:15:17] Speaker 03:
I mean, if it's just the debtor who owns stock, you liquidate the stock, you don't liquidate the corporation.

[00:15:23] Speaker 03:
The debtor owns stock in General Motors, you don't liquidate General Motors.

[00:15:26] Speaker 04:
That's absolutely right.

[00:15:28] Speaker 04:
And that's a difference.

[00:15:29] Speaker 03:
Well, I understand.

[00:15:30] Speaker 03:
I'm just saying.

[00:15:31] Speaker 04:
Because this wasn't an operating company.

[00:15:33] Speaker 04:
It was a holding company that only had a bank account at this point as pled.

[00:15:38] Speaker 04:
All creditors were paid.

[00:15:39] Speaker 04:
all then existing creditors were paid.

[00:15:42] Speaker 04:
I'm over my time.

[00:15:43] Speaker 03:
I don't want to... I've taken you over your time, so go ahead.

[00:15:46] Speaker 05:
Okay.

[00:15:47] Speaker 05:
Well, unless we have additional questions right now, I'll give you two minutes for rebuttal.

[00:15:51] Speaker 05:
I appreciate that, Your Honor.

[00:15:52] Speaker 05:
Thank you.

[00:15:53] Speaker 05:
Thank you.

[00:15:53] Speaker 05:
Thank you, Your Honors.

[00:16:04] Speaker 01:
Good morning, Your Honors.

[00:16:05] Speaker 01:
May it please the Court, Ryan O'Day of Shulman-Bash and Friedman and Bowie on behalf of the Pellies, Aurora Capitol, Richard Babcock, and Anthony Nobles.

[00:16:13] Speaker 01:
In preparing for the oral argument today, I looked at just a mountain of papers, a stack of documents, and tried to figure out how we got here, how we got to this Court today.

[00:16:23] Speaker 01:
And the best analogy I can make is we started off with just a litany of moving targets, moving procedural or statutory targets,

[00:16:31] Speaker 01:
in a procedural hallway and at each turn from the first complaint to the motion to dismiss that was granted to the first amended complaint and then the second motion to dismiss that was granted, what we had that first iteration was not moving of targets but painting them perhaps a different color.

[00:16:49] Speaker 01:
After we went over the threshold of the first amended complaint, that is when targets fell permanently and the procedural hallway narrowed further.

[00:16:58] Speaker 01:
Going then to the second amended complaint, what we had was the claim under 549 for avoidance of post-petition transfer, we had rescission, and we had conversion.

[00:17:08] Speaker 01:
Those were the three main claims against all of the appellees.

[00:17:12] Speaker 01:
After the second amended complaint and the motion to dismiss that complaint was granted, we get in front of the bankruptcy appellate panel.

[00:17:17] Speaker 01:
In front of the bankruptcy appellate panel, the only things on review was the propriety of the ruling under 549, as well as the ruling on rescission.

[00:17:27] Speaker 01:
Further narrowing that hallway, we're in front of this court today.

[00:17:30] Speaker 01:
We have now just the 549 issue, and we have the conversion claim not raised in front of the bankruptcy appellate panel, but raised in front of the bankruptcy court.

[00:17:38] Speaker 05:
With those two targets that we have to- If the statute of limitations is run, is all this gone?

[00:17:45] Speaker 05:
Absolutely, Your Honor.

[00:17:46] Speaker 01:
Okay.

[00:17:47] Speaker 05:
But it, you know, listening to your friend on the other side, that obviously the view is that, you know, something's rotten in the state of Denmark here, or that there's been, you know, trying to hide assets, and that the debtor just paid off his friends, or, and gave them, kind of just handled it that way, and so why

[00:18:14] Speaker 05:
Do we just have to put that aside and not worry about it?

[00:18:17] Speaker 01:
The purported malfeasance, Your Honor?

[00:18:19] Speaker 01:
Is that the question?

[00:18:20] Speaker 05:
Well, it seems like that certainly there's allegations that there was fraud, but it's not here on fraud.

[00:18:28] Speaker 05:
So what do we?

[00:18:29] Speaker 01:
Correct, Your Honor.

[00:18:30] Speaker 01:
It's all right.

[00:18:31] Speaker 01:
I didn't mean to cut you off.

[00:18:32] Speaker 05:
Well, it just doesn't, you know, what really happened here?

[00:18:35] Speaker 05:
The winery got sold, and then the debtor just paid off the people that

[00:18:41] Speaker 05:
He wanted to pay off outside the bankruptcy estate, right?

[00:18:46] Speaker 01:
What happened here in the confines of a Rule 12 analysis is what is alleged.

[00:18:50] Speaker 01:
And we've heard many times from opposing counsel as alleged in the complaint.

[00:18:55] Speaker 01:
Well, the glaring problem with that issue is as alleged in the complaint cannot survive Rule 12 as a matter of law.

[00:19:01] Speaker 01:
Going back to Your Honor's first question of purported malfeasance or allegations of fraud, and how does it bear upon the issues before Your Honors today?

[00:19:09] Speaker 01:
It doesn't.

[00:19:10] Speaker 01:
A 549 analysis is in a vacuum, very clinical.

[00:19:15] Speaker 01:
All of the color commentary falls by the wayside.

[00:19:17] Speaker 01:
We have, was there a post petition transfer of estate property not authorized?

[00:19:25] Speaker 01:
It is that middle element, and I'll call it the gating issue of this entire point, that the trustee cannot survive.

[00:19:32] Speaker 01:
going to Judge Sanchez's point about the applicability of state law.

[00:19:38] Speaker 01:
Yes.

[00:19:39] Speaker 01:
So we have the bankruptcy code under 541, and I know Your Honors have heard a lot of discussion today about property of the estate.

[00:19:45] Speaker 01:
Property of the estate is exceedingly broad, admitted.

[00:19:49] Speaker 01:
However, the breadth of the concept of 541 is to be analyzed in the context of applicable state law.

[00:19:56] Speaker 01:
In this instance, the case of Miller.

[00:19:58] Speaker 01:
Miller is a 91-year-old case, good law and has been applied across the board for the understanding that corporate assets are not owned by a shareholder.

[00:20:08] Speaker 01:
There are numerous steps or a selection of a couple steps that can be utilized to make corporate assets the assets of a shareholder.

[00:20:17] Speaker 01:
You have- Well, he's the only shareholder though, right?

[00:20:20] Speaker 05:
That is correct.

[00:20:21] Speaker 05:
The debtor's the only shareholder here.

[00:20:22] Speaker 05:
So in the cases that pierced the veil, that seems to be if you're trying to hide something or you're, you know, that is, you know, what

[00:20:33] Speaker 05:
He's the only shareholder.

[00:20:34] Speaker 05:
It's really just his.

[00:20:35] Speaker 05:
It's his.

[00:20:36] Speaker 05:
And he wants to give it to his friends first or some contractual obligations that he has that might not be in the same order that would be done by the bankruptcy court.

[00:20:48] Speaker 01:
Correct.

[00:20:49] Speaker 01:
Trustee uses the concept of alter ego as a means or an attempt to satisfy the property of the estate component under Miller.

[00:20:57] Speaker 01:
However, it falls flat on its face.

[00:21:00] Speaker 01:
As noted by the bankruptcy appellate panel, the Supreme Court case of Dole clearly states that the corporate assets are not owned by a subsidiary or shareholder, even if it is wholly owned by that subsidiary or shareholder.

[00:21:13] Speaker 01:
Meaning, what we have before us today is no different than that very issue.

[00:21:17] Speaker 05:
If it had been a fraudulent transfer or something, that would be different here?

[00:21:21] Speaker 01:
No, it would not because fraudulent transfer still needs the hook of a state property.

[00:21:25] Speaker 01:
But let me dig in.

[00:21:27] Speaker 01:
It's not briefed in front of your honors because it wasn't raised as an issue on appeal.

[00:21:30] Speaker 01:
But to dig into why

[00:21:32] Speaker 01:
the fraudulent transfer actions were dismissed with prejudice after that first narrowing of the procedural hallway.

[00:21:41] Speaker 01:
The issue is twofold.

[00:21:42] Speaker 01:
One, applicable law is clear that a trustee only has authority to avoid post-petition transfers pursuant to 11 USC 549, making 544 bringing in 3439 at sequence under the California law.

[00:21:56] Speaker 01:
or alternatively 548 of the Bankruptcy Code, is inapplicable to post-pedition transfers.

[00:22:01] Speaker 01:
Third reason it was dismissed with prejudice after the first amendment complaint is these would be derivative in nature, realizing again that it is the shareholder standing in the shoes of a shareholder that is suing to bring back money into a corporation.

[00:22:14] Speaker 01:
This is not a unique harm to that shareholder.

[00:22:16] Speaker 01:
It is purportedly a systemic harm to the corporation itself.

[00:22:20] Speaker 01:
For those reasons, the court denied

[00:22:22] Speaker 01:
and did not give leave to amend on the fraudulent transfer claim.

[00:22:25] Speaker 01:
So I will submit to your honors.

[00:22:27] Speaker 01:
All of these questions, while nice and interesting, are addressing things that are categorically irrelevant to a 549 claim.

[00:22:36] Speaker 05:
Again- So one argument made against the Trustee's conversion claim is that the transfers were payment of contractual obligations.

[00:22:43] Speaker 05:
Can you explain what contracts were paid out?

[00:22:46] Speaker 01:
Absolutely, Your Honor.

[00:22:47] Speaker 01:
My clients had pre-pedition contracts to serve as brokers or sale advisors on the sale of the winery itself.

[00:22:54] Speaker 01:
They were executed in the name of the corporation before

[00:22:56] Speaker 01:
Mr. Brower even filed bankruptcy.

[00:22:59] Speaker 01:
Going forward in time, when the wine estate was sold, the primary payment to my clients was made through escrow on the closing of the sale pursuant to the contract that was executed pre-petition.

[00:23:11] Speaker 01:
So we have the sale of the winery in April of 2015.

[00:23:13] Speaker 01:
That day when it closed, the largest amount of the payment was paid to my client, an existing creditor with a contract.

[00:23:22] Speaker 01:
Secondarily, in December of 2015, the second transfer to Aurora was made.

[00:23:26] Speaker 01:
Again, based upon a pre-petition contract executed by the corporation.

[00:23:31] Speaker 01:
So to me, the idea that while the complaint alleges that all creditors were paid or provided for, that is absolute sophistry if you were to ignore the fact that of course my clients needed to be paid because they were known existing creditors of the corporate entity.

[00:23:50] Speaker 01:
It is not for the trustee, and again, I'll back up a little bit.

[00:23:54] Speaker 01:
sort of turns on its head this whole order of operation here.

[00:23:58] Speaker 01:
If the trustee doesn't have rights to the proceeds of the corporation until all debts have been paid or provided for under CalCorp Code 2004 and Miller and its progeny, how can the trustee, when he finally gets these rights, look back in time to events that occurred before he had the right to pursue any of these?

[00:24:20] Speaker 01:
That is exactly what we have today.

[00:24:21] Speaker 03:
I think the argument on the other side is that in this unique circumstance, the debtor in possession then liquidates and waits the two years and the statute's run, and then the trustee's forced into the position of trying to get back those assets that the debtor in possession has liquidated and distributed.

[00:24:43] Speaker 03:
There's a fair tolling argument on that.

[00:24:48] Speaker 01:
From a statute of limitations point, your honor, perhaps that is a basis or grounds to toll the applicable statute of limitation, which is two years under 549 D. However, the statute of limitation issue, while I believe it is a sufficient basis to summarily

[00:25:04] Speaker 01:
uphold the lower court's rulings is not the only issue here today.

[00:25:09] Speaker 01:
Again, assuming for the sake of argument, you know, statute of limitation has some equitable tolling component to it, that is where the rest of this argument flows from.

[00:25:17] Speaker 03:
Right, I understand that, but if in fact it had been, say, a Chapter 7, the trustee liquidating Chapter 7, the trustee would have

[00:25:27] Speaker 03:
perhaps liquidated the corporation as part of the assets of the estate and received the money in the estate.

[00:25:34] Speaker 03:
So I think the argument on the other side is this is basically a shell game to try to get some preferential transfers that would not be otherwise authorized in bankruptcy theory.

[00:25:45] Speaker 01:
Perhaps the result may have been different in a chapter 11 your honor but again it would be speculative at best to say what could have happened what would have happened what should have happened.

[00:25:54] Speaker 01:
Again, we do have, and I think it bears directly upon your honor's point on the statute limitation.

[00:26:01] Speaker 01:
Almost seven years after the subject transfers to my client is when the suit was brought.

[00:26:06] Speaker 01:
We have a two-year statute of limitation.

[00:26:08] Speaker 01:
We have a three-year statute of limitation under applicable state law for conversion.

[00:26:11] Speaker 01:
So by any stretch of the temporal imagination, all of these claims are timely.

[00:26:17] Speaker 02:
But to me, that cuts against you, perhaps, because if the sale of the property was in April of 2015 and the trustee wasn't authorized to bring claims until September of 2020, so almost five years, if the statute of limitations isn't told, the trustee could not have been able to bring any claims at that point, could they?

[00:26:39] Speaker 02:
I mean, it would have been an empty gesture to have appointed the trustee at that point.

[00:26:42] Speaker 01:
Well, the the issue, I think, is a bit more nuanced.

[00:26:47] Speaker 01:
As I see it, we have the plan language that says, and I'll paraphrase essentially all claims for relief or cause of action shall survive the confirmation order.

[00:26:57] Speaker 01:
and the effective date to inorder the benefit of the liquidating trustee.

[00:27:02] Speaker 01:
It's a pretty close quote, I'm sure.

[00:27:06] Speaker 01:
If you look at that as the predicate for tolling, what is missing in the entirety of the plan are the words toll, told, or tolling.

[00:27:14] Speaker 01:
And again, we have applicable California law that says that if there's an enforceable, because again, a tolling agreement is a contract.

[00:27:20] Speaker 01:
So you have a contract to be interpreted

[00:27:23] Speaker 01:
there has to be a sense of privity.

[00:27:25] Speaker 01:
Number one, my clients were not planned proponents.

[00:27:29] Speaker 01:
There was no ability to oppose that plan of reorganization.

[00:27:33] Speaker 01:
For all intents and purposes, we are an absolute third party to a document.

[00:27:37] Speaker 01:
The debtor, the court, and the bank all agreed or fought and ultimately got agreed to be approved.

[00:27:43] Speaker 01:
So we are holding third parties without notice who were not signatories to this contract

[00:27:49] Speaker 01:
to the terms of a contract under this large umbrella of tolling without ever using the word tolling a single time.

[00:27:55] Speaker 02:
But tolling often has consequences toward third parties that are not involved in the proceedings themselves.

[00:28:01] Speaker 02:
That's not a new concept.

[00:28:03] Speaker 02:
I guess going back to my earlier question, if the statute of limitations isn't told, is there a single claim that the trustee could have brought that wouldn't already have lapsed in the almost intervening five years?

[00:28:15] Speaker 01:
The answer is no, but again, having the keys to your own jail cell, Your Honor, someone could have gone into court and said, we have a statute of limitation looming.

[00:28:24] Speaker 01:
We need to amend the plan.

[00:28:25] Speaker 01:
We need to accelerate our authority to bring claims.

[00:28:28] Speaker 01:
There are things that could have been done that were not done.

[00:28:32] Speaker 01:
So at the end of the day, there might be great claims that the trustee has against Coastal.

[00:28:36] Speaker 01:
There might be great claims that someone has against whoever missed the statute of limitation, but it's not my client's fault.

[00:28:42] Speaker 01:
My clients, again, are creditors, non-debtors, of a corporation that is a non-debtor.

[00:28:49] Speaker 01:
And we're being roped into all of these procedural issues in bankruptcy and a tolling, if you will, of a statute of limitation that we didn't participate in.

[00:28:58] Speaker 01:
I'm well out of time.

[00:29:00] Speaker 05:
We took you out of time, so that'll conclude.

[00:29:04] Speaker 05:
Unless my colleagues have any questions, then we'll hear the five minutes from Mr. Goss.

[00:29:09] Speaker 05:
Thank you very much.

[00:29:10] Speaker 05:
I appreciate your understanding.

[00:29:17] Speaker 00:
Good morning.

[00:29:17] Speaker 05:
Good morning.

[00:29:19] Speaker 00:
Good morning, Your Honor, as it may please the court.

[00:29:21] Speaker 00:
My name is Arthur Gause from Kauffman-Dolowich on behalf of Appellee Oldfield-Creeley.

[00:29:26] Speaker 00:
And I think I just want to touch on a few points that are still sort of outstanding.

[00:29:32] Speaker 00:
The appellant is essentially claiming an equitable interest in the equitable value of perspective value of shares of a corporation.

[00:29:47] Speaker 00:
It's inappropriate to grant the contemplated relief because, first of all, we've talked in our briefing about why the citations applied by the appellant are inapplicable.

[00:30:02] Speaker 00:
Singh, for example, is a 727A action, DZ.

[00:30:07] Speaker 00:
That case evaluated state law fraudulent transfer act claims.

[00:30:13] Speaker 00:
And while the Washington and California statutory language is the same,

[00:30:17] Speaker 00:
It still is inapplicable because, as we've noted in our briefing, Miller governs the consideration of property interests.

[00:30:26] Speaker 00:
And specifically, when the property interest at issue is shares in a corporation, what we have is differentiation between the share value and the assets of the corporation.

[00:30:40] Speaker 00:
That is a well-established principle.

[00:30:42] Speaker 00:
And doing it the way that the appellate

[00:30:43] Speaker 00:
the appellants would ask us to do, they can direct us to cursey and they can say, well, cursey contemplates a scenario where reverse piercing is permitted in the scenario described here with respect to a corporation because of some sort of bad intent on behalf of the corporate actors as demonstrated by sole control or sole ownership in the issues that they point to elsewhere.

[00:31:10] Speaker 00:
And we can infer bad intent.

[00:31:13] Speaker 00:
from that.

[00:31:15] Speaker 00:
What we're asking the court to do is not do that.

[00:31:18] Speaker 00:
And the reason that the court should not do that is that it would invalidate, for example, 11 U.S.C.

[00:31:24] Speaker 00:
549, the bankruptcy fraudulent transfer statute.

[00:31:28] Speaker 00:
It would also invalidate California statutory law on the value of corporate shares.

[00:31:34] Speaker 00:
That would be California Corporation's Code 2004.

[00:31:37] Speaker 00:
which addresses distribution of corporate assets upon a lawful liquidation, which is to be distinguished from a contractual liquidation described as the liquidation event in the pleadings.

[00:31:52] Speaker 00:
It also bears on California Corporation's Code Section 500.

[00:31:55] Speaker 05:
Well, the BAP has applied reverse-fail piercing in some circumstances, correct?

[00:32:02] Speaker 00:
It has in some circumstances.

[00:32:07] Speaker 05:
So why isn't it here?

[00:32:08] Speaker 00:
It isn't here because looking back at the full specter of the instant action is that there was a fraudulent transfer.

[00:32:21] Speaker 00:
We did attempt to characterize this as a fraudulent transfer.

[00:32:24] Speaker 00:
It was not a fraudulent transfer.

[00:32:25] Speaker 00:
If we were to apply all the bad intent in the world to these actions,

[00:32:33] Speaker 00:
The recourse for the trustee would be the fraudulent transfer section of the bankruptcy code, not the California fraudulent transfer act, and certainly not the Washington fraudulent transfer act, as applied by a court.

[00:32:56] Speaker 00:
Moving on, addressing the conversion issue,

[00:33:01] Speaker 00:
Conversion as a theory of recovery here.

[00:33:04] Speaker 03:
Do you have a case that says that the existence of the fraudulent transfer section under the bankruptcy code completely supplants state law?

[00:33:15] Speaker 03:
I don't think that's the case.

[00:33:17] Speaker 03:
But that's your argument, isn't it?

[00:33:19] Speaker 00:
That is my argument.

[00:33:20] Speaker 00:
And I think that, just given the parties involved, that this is a avoidance action.

[00:33:27] Speaker 00:
based on an equitable notion in property.

[00:33:32] Speaker 00:
The equitable notion in property derives from the idea that the net proceeds of a sale were misdistributed and leaving the shares of the corporation valueless.

[00:33:48] Speaker 00:
The idea that there could be a conversion theory here

[00:33:57] Speaker 00:
As same with the idea of an equitable dividend, which is expressed in the pleadings, both contemplate a fixed non-zero amount.

[00:34:06] Speaker 00:
The problem is that when you're dealing with corporate shares, specifically during the course of a liquidation, it contemplates both the finality being a non-zero sum and a

[00:34:19] Speaker 00:
zero or less than zero sum, which is to say that the idea of an equitable interest based on a vested notion in the value of the shares runs counter to section 2004, 500, and California notions of the distinction between shareholder ownership of shares and share ownership of assets.

[00:34:44] Speaker 00:
That's the balance of my time.

[00:34:46] Speaker 05:
Thank you.

[00:34:50] Speaker 05:
All right, I gave you two minutes for rebuttal.

[00:34:53] Speaker 04:
Yes, you did, and I greatly appreciate that, Your Honor.

[00:34:55] Speaker 04:
Thank you.

[00:34:57] Speaker 04:
To briefly touch on something I misspoke on is you asked me, Judge Callahan, are we done if we rule that the statute of limitations has passed?

[00:35:09] Speaker 04:
The one claim remaining, Your Honor, would be turnover.

[00:35:11] Speaker 04:
Section 542 does not have the same statute of limitations issues as 549 or other transfer claims.

[00:35:19] Speaker 04:
That said, in our briefing, we've argued three different ways that this is not barred by the statute of limitations.

[00:35:27] Speaker 04:
And the bankruptcy judge interpreted the plan that she confirmed correctly, that there was tolling despite the absence of the word tolling, and that potential adversary defendants in the future are not entitled to notice.

[00:35:41] Speaker 04:
That's correct.

[00:35:42] Speaker 04:
With respect to my friend's arguments on conversion, that his clients were paid through escrow and therefore

[00:35:49] Speaker 04:
had contracts.

[00:35:51] Speaker 04:
This is a 12b6 motion.

[00:35:53] Speaker 04:
We've alleged that they were not legitimate creditors.

[00:35:58] Speaker 04:
Prove it.

[00:35:59] Speaker 04:
If they were legitimate creditors, prove it.

[00:36:02] Speaker 04:
Show me some discovery, because as pled, they're not.

[00:36:07] Speaker 04:
On the issue of this distinction between fraudulent transfer and post-petition transfers,

[00:36:18] Speaker 04:
If it's a pre-petition fraudulent transfer, property of the estate is certainly equal, if not broader, post-petition.

[00:36:29] Speaker 04:
The law here, Your Honors, mandates a remedy.

[00:36:32] Speaker 04:
Could a trustee do this?

[00:36:34] Speaker 04:
A Chapter 11 trustee?

[00:36:35] Speaker 04:
Absolutely not, because we know he tried in the Inray Baker case, and those funds were prohibited to be given out just because they were not legally titled in the debtor's name.

[00:36:47] Speaker 04:
This is an equitable interest case, and property of the estate includes equitable interests under the Bankruptcy Code.

[00:36:53] Speaker 04:
And I thank you very much, Your Honors.

[00:36:55] Speaker 05:
Thank you both for your argument in this matter.

[00:36:57] Speaker 05:
This case will stand submitted.