BFP, In re

• Decision Date: 08 September 1992
• Docket Number: 91-54480,Nos. 91-55632,s. 91-55632
• Citation: 974 F.2d 1144
• Parties: 27 Collier Bankr.Cas.2d 1417, 23 Bankr.Ct.Dec. 705, Bankr. L. Rep. P 74,837 In re BFP, a Partnership, Debtor. BFP, a Partnership, Plaintiff-Appellant, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, Defendant, and Paul Osborne; William Little; Dennis Roy; Arthur Ritz; Jose Cruz; Richard Marcz, Defendants-Appellees. In re BFP, a Partnership, Debtor. BFP, Appellant, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1144

974 F.2d 1144

27 Collier Bankr.Cas.2d 1417, 23 Bankr.Ct.Dec. 705,

Bankr. L. Rep. P 74,837

In re BFP, a Partnership, Debtor.

BFP, a Partnership, Plaintiff-Appellant, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, Defendant, and Paul Osborne; William Little; Dennis Roy; Arthur Ritz;

Jose Cruz; Richard Marcz, Defendants-Appellees.

In re BFP, a Partnership, Debtor.

BFP, Appellant, v. IMPERIAL SAVINGS & LOAN ASSOCIATION, Appellee.

Nos. 91-55632, 91-54480.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 9, 1992.

Decided Sept. 8, 1992.

Roy B. Woolsey, Newport Beach, Cal., for plaintiff-appellant.

Michael R. Sment, Rich & Ezer, Los Angeles, Cal., Robert F. Kidd, Graham & James, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before: SNEED and D.W. NELSON, Circuit Judges, and ROLL ^*, District Judge.

SNEED, Circuit Judge:

This is a consolidated appeal by BFP, a California partnership, from an adversary proceeding in the bankruptcy court instituted to avoid a transfer of property under the avoiding powers of 11 U.S.C. § 548(a)(2)(A). We affirm.

I. FACTS AND PROCEEDINGS BELOW

In July of 1987, Wayne and Marlene Pedersen and Russell Barton entered into a written arrangement involving the purchase of a home in Newport Beach, California owned by Sheldon and Ann Foreman. The Pedersens were to buy the Foreman home for $356,250 plus some rare coins, whose value is not disclosed in the pleadings. The Pedersens planned to raise the $356,250 from a bank loan, itself to be secured by a first deed of trust on the property. It is reasonable to assume that the Foremans believed their home had a value in excess of $356,250. The precise extent to which the Pedersens and Barton shared that view is less certain.

The Pedersens also agreed to give Barton a 180-day option to purchase the home, after the Pedersens themselves effected its purchase from the Foremans. Barton planned to remodel. In exchange for the option to buy, Barton agreed to pay the Pedersens 25% of any profits earned on the home's resale.

In August of 1987, after the property went into escrow, a shadow passed over the transaction. Local newspapers reported that Wayne Pedersen was under investigation for fraudulent sales of rare coins. This caused the Foremans some trepidation, and all the parties agreed orally to structure a somewhat different arrangement. Instead of the Pedersens being the buyers, a partnership, BFP, was formed. Its sole partners were Wayne and Marlene Pedersen and Russell Barton. Similar to the prior agreement between the Pedersens and Barton, the partnership agreed to divide profits from the resale of the Foreman home 75% to Barton and 25% to the Pedersens. The following transactions then took place.

On August 27, 1987, the Foremans deeded the property to the Pedersens. On the same day, the Pedersens then deeded the property over to BFP, the partnership. The Pedersens borrowed $356,250 from appellee Imperial Federal Savings Association ¹ and BFP "borrowed" $200,000, in the form of a six-month promissory note, from the Foremans. Ostensibly, the note served as replacement value for the rare coins. Both loans were secured by deeds of trust on the home, Imperial's being a first, the Foremans' a second.

The Foremans' earlier misgivings proved well founded. Despite their initial conveyance to BFP, the Pedersens conveyed the property a second time to a concern called Off Road Vehicles--Recreation and Family Campground, Inc. BFP and the Foremans sued in state court to quiet title to the property.

While the state court suit was pending, Imperial, whose loan was not being serviced, instituted foreclosure proceedings on the property. Off Road then filed an involuntary bankruptcy petition on behalf of BFP in order to secure an automatic stay of the foreclosure. BFP moved to dismiss the involuntary petition, and Imperial moved to lift the automatic stay. The bankruptcy court granted both motions; it lifted the stay on June 12, 1989, and dismissed the involuntary case on June 14, 1989.

With the stay lifted, Imperial continued its foreclosure of the property. On July 12, 1989, Imperial conducted a foreclosure sale and sold the property to appellee Paul Osborne for $433,000. Osborne had no notice of the title dispute, and bought the property in good faith. BFP alleges that the property was actually worth over $725,000 at the time of the sale to Osborne. As a result, BFP claims that its equity in the property was lost.

On July 21, 1989, the state court in the suit to quiet title announced its intended ruling. The court decided to rescind the 1987 conveyance from the Foremans to the Pedersens and to award both the Foremans and Barton damages against the Pedersens. The court entered final judgment on October 12, 1989.

On August 18, 1989, after the state court announced its quiet title decision, BFP filed a second state court action which sought to rescind Imperial's conveyance to Osborne. The Foremans joined this action because, while their initial conveyance had been rescinded by the quiet title action, their ownership interest in the property stood to be destroyed by Osborne's good faith purchase of the property at Imperial's foreclosure sale. The stated grounds of this second state court action were that Imperial did not comply with the foreclosure procedures set forth in California Civil Code §§ 2924 et seq.

On October 25, 1989, BFP filed for Chapter 11 bankruptcy, which caused the second state court suit to be stayed. BFP then instituted the adversary proceeding that is the subject of this appeal.

The bankruptcy court on March 6, 1990 dashed BFP's and, no doubt, the Foremans' hopes when it dismissed the adversary complaint against Osborne for failure to state a claim. The court noted that BFP did not make any allegation that Imperial's trustee sale was in violation of California law, nor did BFP assert that the sale was conducted fraudulently or collusively. The court also found that Osborne was a bona fide purchaser for value, without notice, and ruled that there was no legal authority to set aside the sale as to Osborne. The district court summarily affirmed this dismissal, and BFP appealed on May 9, 1991.

The adversary proceeding continued to the summary judgment stage against Imperial and on July 10, 1990, the bankruptcy judge granted summary judgment in favor of Imperial. It based its decision on two grounds. First, it held that there was no transfer of an interest in property by virtue of the first state court judgment, which rescinded the deed from the Foremans to the Pedersens. Wrote the court: "[T]he Pedersons [sic ] did not have an interest in property when they purported to transfer the title to the property to BFP. Therefor [sic ], BFP never received good title." Alternatively, the bankruptcy court ruled that Imperial's sale to Osborne could not be avoided under 11 U.S.C. § 548(a)(2)(A) because "a reasonably equivalent value was received in exchange for the transfer, [and] the nonjudicial foreclosure sale was non-collusive and regularly conducted."

In a published opinion, In re BFP, 132 B.R. 748 (Bankr.9th Cir.1991), the bankruptcy appellate panel affirmed. The court applied its previous decision, In re Madrid, 21 B.R. 424 (Bankr.9th Cir.1982), aff'd on other grounds, 725 F.2d 1197 (9th Cir.), cert. denied, 469 U.S. 833, 105 S.Ct. 125, 83 L.Ed.2d 66 (1984), which held that the sale price in a noncollusive, regularly conducted foreclosure sale is, as a matter of law, reasonably equivalent value for purposes of 11 U.S.C. § 548(a)(2)(A). Judge Volinn, who had dissented in Madrid, once more dissented. See In re BFP, 132 B.R. at 751-52 (Volinn, J., dissenting). This time he argued that Madrid should be overruled in light of more recent decisions from courts of appeals in other circuits, which themselves followed the suggested course of his earlier Madrid dissent. BFP appeals the bankruptcy appellate panel decision. We must now decide whether the bankruptcy court, the district court, and the bankruptcy appellate panel were correct in letting Imperial's foreclosure and Osborne's purchase of the Foreman home stand.

II. JURISDICTION AND STANDARDS OF REVIEW

We have jurisdiction pursuant to 28 U.S.C. § 158(d).

The bankruptcy appellate panel's decision in the Imperial case and the district court's summary affirmance in the Osborne case are reviewed de novo. Findings of fact in the bankruptcy court are reviewed for clear error. We may affirm on any ground finding support in the record. See In re Siriani, 967 F.2d 302, 303-04 (9th Cir.1992).

III.

FRAUDULENT TRANSFERS UNDER SECTION 548(a)(2)

Section 548(a)(2) of the Bankruptcy Code sets forth the avoiding powers of a bankruptcy trustee as they relate to fraudulent transfers of a debtor's interest in property. To avoid a transfer under this section, four elements must be satisfied:

(1) the debtor must have an interest in the property;

(2) the debtor must have been insolvent at the time of the transfer or become insolvent as a result of the transfer;

(3) the transfer must have occurred within one year of the bankruptcy filing; and

(4) the debtor must have received "less than a reasonably equivalent value" for the transfer.

See In re Bundles, 856 F.2d 815, 816-17 (7th Cir.1988). Only the first and last elements are disputed on this appeal.

A. Did BFP have a property interest in the Foreman home?

Whether a debtor has a property interest under 11 U.S.C. § 548 is a question determined by state law. See In re Torrez, 63 B.R. 751, 754 (9th Cir. BAP 1986). As noted above, the bankruptcy court found that BFP did not obtain good title to the Foreman home by virtue of the state court ruling rescinding the deed from the Foremans to the Pedersens. Imperial contends that the bankruptcy court was correct, and offers a number of...