59 F.3d 942 (9th Cir. 1995), 92-55224, In re Lindsay
|Docket Nº:||92-55224, 92-55227, 92-55266, 92-55268 and 92-55270.|
|Citation:||59 F.3d 942|
|Party Name:||95 Cal. Daily Op. Serv. 5376, 95 Daily Journal D.A.R. 9173 In re John R. LINDSAY, Debtor. John R. LINDSAY; Lindsay Enterprises, Inc., A California Corporation; IMA 79-6, A California Limited Partnership; and, IMA 81-3, A California Limited Partnership, Plaintiffs-Appellants, v. BENEFICIAL REINSURANCE COMPANY, A Corporation; Beneficial Standard Life|
|Case Date:||July 12, 1995|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Submission Deferred July 9, 1993 [*].
Resubmitted June 24, 1994.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Michael Busch, Page, Polin, Busch & Boatwright, San Diego, CA, for defendants-appellees-cross-appellants.
Jeffrey C. Krause, Stutman, Treister & Glatt, Los Angeles, CA, for defendants-appellees-cross-appellants.
Phillip M. Adleson and Patric J. Kelly, Adleson, Hess, Christensen & Kelly, for the amicus curiae, California Trustee's Ass'n and California Land Title Ass'n, in support of cross-appellants.
Robert L. Rentto, San Diego, CA, for plaintiffs-appellants-cross-appellees.
Appeals from the United States District Court for the Southern District of California.
Before: FLOYD R. GIBSON [**], HALL and KLEINFELD, Circuit Judges.
KLEINFELD, Circuit Judge:
This case requires us to construe the "reasonably equivalent value" standard in bankruptcy law for determining whether a conveyance is fraudulent. We deferred submission before the case was scheduled to be argued because the Supreme Court had granted certiorari in a case which would resolve the controlling issue. After the Supreme Court decision came down, BFP v. Resolution Trust Corporation, --- U.S. ----, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), we obtained supplemental briefs from the parties on its effect, and now apply it to the case at bar. Because the Supreme Court rejected the doctrine applied by the bankruptcy court in its published decision at In re Lindsay, 98 B.R. 983 (Bankr.S.D.Cal.1989), we must reverse.
John Lindsay was the president of Lindsay Enterprises, Inc., which itself was the general partner in two limited partnerships, called IMA 79-6 and IMA 81-3. The limited partnerships borrowed $1.4 million from Beneficial Reinsurance Company to invest in an apartment complex in Texas called Greenway Plaza Apartments. The limited partnerships' note to Beneficial was secured by a deed of trust.
The limited partnerships sold the real estate to Greenway Plaza Investment Company. Greenway's note for $2.1 million was secured by a second deed of trust on the real estate, junior to Beneficial's. The Texas real estate market declined, and Greenway defaulted on its note to the limited partnerships and filed for bankruptcy in Texas.
Beneficial successfully moved for relief from the automatic stay so that it could foreclose. Its lawyers negotiated with the limited partnerships' lawyers about how they would proceed, because both had an interest in the property. Beneficial sent its notice of the foreclosure to the address it had in its records for the general partner and the limited partnership, but they had moved and did not receive the notice.
About seven months before the foreclosure, the debtors' lawyer sent Beneficial's
lawyer a letter asking for a copy of any order Beneficial and Greenway agreed upon to modify the automatic stay, and Beneficial's lawyer agreed to send it to him when received. The order modifying the automatic stay in bankruptcy would enable Beneficial to foreclose. The bankruptcy court noted that debtors' lawyers could have obtained notice from the bankruptcy court in Texas by filing a request there, but did not.
When Beneficial gave notice of foreclosure, it did not send notice to the debtors' lawyers. Beneficial's trustee was its lawyer, in the same firm as the lawyer who six months before had undertaken to send a copy of any agreed order vacating the stay. He did not cross copy the debtors' lawyers on the notice of foreclosure. At the foreclosure sale, Beneficial bid the property in for $1.5 million, about $100,000 less than the balance due on its note plus additional chargeable items. At all relevant times since, Beneficial has operated the property, spending substantial amounts on refurbishing and collecting the rents itself as owner.
The limited partnerships, the general partner and Lindsay sued in bankruptcy court on numerous grounds, seeking to have the foreclosure sale to Beneficial set aside as a fraudulent conveyance, and other relief. Beneficial won summary judgment on all the claims except for fraudulent conveyance and improper notice of the sale. Those two claims went to trial. The bankruptcy court granted a declaratory judgment that the foreclosure sale "was regularly conducted under Texas law," but granted a money judgment to the plaintiffs for about $836,000, the difference between fair market value of the real estate and the amount of Beneficial's bid, on the ground that the conveyance was fraudulent.
On appeal, the district court affirmed the bankruptcy court's judgment in favor of the limited partnerships on the fraudulent conveyance issue, but reversed the declaratory judgment in favor of Beneficial on compliance with Texas law, and remanded for consideration "as to whether Beneficial's imputed knowledge of other IMAs' address constituted knowledge of the plaintiff IMAs' address, thereby rendering Beneficial's notice of foreclosure sale insufficient under Texas law." (emphasis in original). The district court also reversed the summary judgment on plaintiffs' other claims on the ground that there were genuine issues of material fact.
Numerous other parties and issues have also been the subject of bankruptcy court and district court decisions in this group of cases, which are also on appeal. These other disputes will be set out in the analysis sections dealing with them.
Beneficial appeals, in No. 92-55268, the fraudulent conveyance judgment. The decision in BFP v. Resolution Trust Corporation, --- U.S. ----, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), affirming our decision in BFP v. Imperial Sav. & Loan Ass'n (In re BFP), 974 F.2d 1144 (9th Cir.1992), requires us to reverse.
The Statute of 13 Elizabeth invalidated transfers "to delay, hinder or defraud creditors." Among what came to be recognized as "badges of fraud" was "grossly inadequate consideration." BFP, --- U.S. at ----, 114 S.Ct. at 1763. The bankruptcy law codifies fraudulent conveyance law by providing that the trustee may avoid a transfer within a year prior to filing, if the debtor made the transfer "to hinder, delay, or defraud" creditors, or the debtor "received less than a reasonably equivalent value in exchange":
(a) The trustee may avoid any transfer of an interest of the debtor in the property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily--
(1) made such transfer or incurred such obligation with the actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
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