Henderson v. Buchanan

• Decision Date: 11 February 1993
• Docket Number: No. 90-16656,90-16656
• Citation: 985 F.2d 1021
• Parties: Timothy J. HENDERSON, Trustee, Plaintiff-Appellant, v. Neil BUCHANAN, Defendant, and Bruno Menicucci, Anna Menicucci, and Menicucci Insurance Services, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1021

985 F.2d 1021

Timothy J. HENDERSON, Trustee, Plaintiff-Appellant, v. Neil BUCHANAN, Defendant and Bruno Menicucci, Anna Menicucci, and Menicucci Insurance Services, Inc., Defendants-Appellees.

No. 90-16656.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 21, 1992.

Decided Feb. 11, 1993.

Lee S. Molof and Robert C. Vohl, Henderson & Nelson, Reno, NV, for plaintiff-appellant.

Vivian E. Lynch, Hamilton & Lynch, Reno, NV, for defendants-appellees.

Appeal from the United States District Court for the District of Nevada.

Before CANBY, REINHARDT, and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

A trustee representing five corporate debtors filed an adversary proceeding in bankruptcy against various individual and corporate defendants. The bankruptcy court found in favor of the trustee and entered judgment against the individual defendants and one corporate defendant. The defendants appealed to the district court, which reversed part of the judgment against two of the individual defendants and the corporate defendant. The trustee has timely appealed, arguing, inter alia, that the district court erred by finding that the two individual defendants were not liable for breaching their fiduciary duty to one of the corporate debtors. We reverse and remand.

FACTS AND PRIOR PROCEEDINGS

The underlying facts in this case have already been set forth at some length in both the bankruptcy court's published decision, see Henderson v. Buchanan (In re Western World Funding, Inc.), 52 B.R. 743, 753-62 (Bankr.D.Nev.1985), and in the district court's published opinion, see Buchanan v. Henderson, 131 B.R. 859, 862-64 (D.Nev.1990). Rather than recapitulate the details of facts that are not in serious dispute, anyway, we confine ourselves to a summary of only the salient points of this case.

Neil Buchanan ("Buchanan") and Clair Vogt ("Vogt") were business partners in some twenty-five companies that Buchanan managed and Vogt funded. Among these companies were four of the five debtor corporations involved in this action, viz., United Securities Systems, Inc. ("USS"), United Securities Systems Leasing, Inc. ("USSL"), United Emergency Services, Inc. ("UES"), and Leasco Financial Corporation ("LFC"). The fifth debtor company, Western World Funding, Inc. ("WWF"), was owned and operated by Bruno Menicucci ("Menicucci"), an insurance broker and former mayor and city councilman of Reno, Nevada, and his wife, Anna (together, "the Menicuccis").

In late 1981 Buchanan went to Menicucci's place of business, Menicucci Insurance Services, Inc. ("MIS"), to purchase insurance for USS and USSL. During the course of his visit, Buchanan discussed the possibility of using WWF, at that time a dormant corporation, as a conduit for obtaining investor capital for USSL.

Under the terms of the agreement he eventually reached with Buchanan and Vogt, Menicucci as president of WWF solicited investors by offering them high rates of return on money deposited with WWF for periods of time ranging between thirty days and nine months. ¹ At the end of each business day Menicucci deposited into WWF's bank account those funds received from investors and wrote a check to USSL for 95% of the day's receipts, retaining the other 5% for WWF's expenses. USSL then forwarded its own promissory notes to the investors and "invested" their money. In fact, the whole operation amounted to a Ponzi scheme.

As the result of disagreements with Buchanan and Vogt, Menicucci withdrew from the WWF-USSL venture in April 1982 and, less than two months later, filed a Chapter 11 petition in bankruptcy on behalf of WWF. USS, USSL, UES, and LFC soon followed suit. In July 1982 the bankruptcy court appointed Timothy Henderson ("trustee") to serve as trustee for all five entities. In April 1983 the Chapter 11 proceedings were consolidated and converted to Chapter 7.

Meanwhile, the trustee filed an adversary proceeding in August 1982 against Buchanan, Vogt, the Menicuccis, and MIS, inter alios, asserting such claims as breach of fiduciary duty, conversion of corporate assets, and receipt of preferential transfers. In September 1985 the bankruptcy court entered judgment against Buchanan and Vogt for more than $5.6 million, and the Menicuccis jointly and severally with Buchanan and Vogt for nearly $3 million, on the breach of fiduciary duty claim. The bankruptcy court also entered judgment against Buchanan, Vogt, the Menicuccis, and MIS on other claims, finding several transfers to have been preferential and/or fraudulent.

Buchanan, Vogt, the Menicuccis, and MIS appealed to the district court. Although it affirmed the bankruptcy court judgment in most respects, the district court reversed that portion of the judgment finding the Menicuccis liable for nearly $3 million on the breach of fiduciary duty claim and for more than $10,000 for preferential transfers. The district court also reversed that portion of the bankruptcy court's judgment against MIS for nearly $31,000 in preferential transfers. As noted, the trustee has timely appealed the district court's decision. ²

JURISDICTION AND REVIEW

This is an appeal from a final judgment of the district court reviewing a decision of the bankruptcy court. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d) and, because we are in as good a position as the district court to examine the bankruptcy court's decision, we review the latter's factual findings for clear error and the district court's legal conclusions de novo. See BFP v. Imperial

                Sav. & Loan Ass'n (In re BFP), 974 F.2d 1144, 1146 (9th Cir.1992).   With respect to the breach of fiduciary duty claim, however, we treat the district court's de novo examination thereof as if it were a review of a magistrate judge's decision under Fed.R.Civ.P. 72(b).   See Castro v. Perez (In re Castro), 919 F.2d 107, 108 (9th Cir.1990) (per curiam) (review of noncore related proceedings under 28 U.S.C. § 157(c)).   Cf. Carter v. McCarthy, 806 F.2d 1373, 1375 (9th Cir.1986) (clearly erroneous standard applies to appellate court's review of district court's de novo examination of magistrate judge's recommended findings), cert. denied, 484 U.S. 870, 108 S.Ct. 198, 98 L.Ed.2d 149 (1987)
                

ANALYSIS

The gist of the trustee's challenge to the district court's rulings is that the bankruptcy court was correct in finding that (1) the Menicuccis breached their fiduciary duty to WWF by rendering the company insolvent, and (2) the Menicuccis were liable for $10,398.74, and MIS for $30,880.05, for preferential transfers. We discuss each argument in turn.

I. Breach of Fiduciary Duty Claim

The trustee's first contention is that the Menicuccis breached their duty of care and loyalty to WWF by rendering it insolvent when they paid out 95% of WWF's deposits to USSL. In support of this argument the trustee contends that WWF was a principal obligor with USSL on the investors' loans, that WWF acted as an agent for an undisclosed principal, viz., USSL, and that the debtor companies were alter egos of each other.

With respect to the first two points, the bankruptcy court concluded from the evidence that WWF was either a principal obligor with USSL on the investors' loans or, in the alternative, that WWF acted as an agent of its undisclosed principal, USSL. In re Western World Funding, Inc., 52 B.R. at 760, 769. The district court rejected this ruling, finding "no evidence in the record from which the bankruptcy court could have concluded that WWF was the principal obligor on the promissory notes" and that the investors knew that USSL, not WWF, was the maker of the promissory notes. Buchanan v. Henderson, 131 B.R. at 865, 866. We disagree with the district court's reading of the record.

WWF's advertisements, including a letter from Menicucci to potential investors, and WWF's rate sheet, all contained explicit promises from WWF to pay investors specific rates of interest over stipulated periods of time. These documents also bore WWF's logo and...