Rund v. Bank of Am. Corp. (In re EPD Inv. Co.)

• Decision Date: 07 January 2015
• Docket Number: 2:12–ap–02596–ER.,CC–13–1375–KiKuDa.,BAP Nos. CC–13–1374–KiKuDa,Bankruptcy No. 2:10–bk–62208–ER.,Adversary Nos. 2:12–ap–02576–ER
• Citation: 523 B.R. 680
• Parties: In re EPD INVESTMENT COMPANY, LLC and Jerrold S. Pressman, Consolidated Debtors. Jason M. Rund, Chapter 7 Trustee, Appellant, v. Bank of America Corporation; Bank of America, N.A.; FIA Card Services, N.A. fka MBNA America Bank, Appellees. Jason M. Rund, Chapter 7 Trustee, Appellant, Countrywide Home Loans, Inc. and Bank of America, N.A., Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

523 B.R. 680

In re EPD INVESTMENT COMPANY, LLC and Jerrold S. Pressman, Consolidated Debtors.

Jason M. Rund, Chapter 7 Trustee, Appellant

v.Bank of America Corporation; Bank of America, N.A.; FIA Card Services, N.A. fka MBNA America Bank, Appellees.

Jason M. Rund, Chapter 7 Trustee, Appellant

Countrywide Home Loans, Inc. and Bank of America, N.A., Appellees.

BAP Nos. CC–13–1374–KiKuDa

CC–13–1375–KiKuDa.

Bankruptcy No. 2:10–bk–62208–ER.

Adversary Nos. 2:12–ap–02576–ER

2:12–ap–02596–ER.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted Sept. 18, 2014.

Filed Jan. 7, 2015.

Corey R. Weber, Esq. of Ezra Brutzkus Gubner LLP argued for appellant Jason M. Rund, Chapter 7 Trustee.

Zareh A. Jaltorossian, Esq. argued for appellees Bank of America, N.A., Bank of America Corporation and FIA Card Services, N.A.

Before KIRSCHER, KURTZ and DAVIS,¹ Bankruptcy Judges.

OPINION

KIRSCHER, Bankruptcy Judge.

Chapter 7² trustee Jason M. Rund (“Trustee”) appeals orders granting the motions of Bank of America Corporation, Bank of America, N.A. and FIA Card Services, N.A. fka MBNA America Bank (together “Bank of America”) and Countrywide Home Loans, Inc., Bank of America, N.A. successor by merger to BAC Home Loans Servicing, LP fka Countrywide Home Loans Servicing, LP (together “Countrywide”) (collectively “Defendants” or “Appellees”) to dismiss Trustee's claims against Appellees for certain fraudulent transfers.

Under § 544(b) and Cal. Civ.Code §§ 3439 –3439.12, Trustee sought to avoid certain fraudulent transfers to Appellees that occurred up to seven years prior to the debtors' petition date. Trustee filed his complaints against Appellees within the two years prescribed in § 546(a)(1)(A). Finding that the California fraudulent transfer statute, Cal. Civ.Code § 3439.09(c), is a statute of repose, the bankruptcy court, relying on an unpublished Ninth Circuit decision, ruled that Trustee could reach back only to those transfers occurring up to seven years prior to the filing of his complaint, not the petition date. In other words, the bankruptcy court determined that § 546(a) has no effect on the seven-year limitations period set forth in Cal. Civ.Code § 3439.09(c) ; it runs concurrently with the two year statute of limitations set forth in § 546(a). Trustee appeals, contending that the filing of a bankruptcy petition tolls the California statute and gives a trustee an additional two years to investigate and file an avoidance action, regardless of whether Cal. Civ.Code § 3439.09(c) is a statute of repose.

The narrow question of whether § 546(a) preempts a state-law statute of repose such as Cal. Civ.Code § 3439.09(c) is an issue of first impression in this circuit. At least no published decisions have addressed it. While relatively few courts have addressed this particular issue, virtually all have held in favor of Trustee. We conclude that the bankruptcy court erred in its application of § 546(a), and we REVERSE.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

EPD Investment Company, LLC (“Debtor”) was operated by Jerrold S. Pressman (together “Debtors”)³ as a sole proprietorship between the 1970s and June 27, 2003. On June 27, 2003, when Debtor was formed as a California limited liability company, Pressman transferred the sole proprietorship's assets to Debtor.

Trustee filed his complaints against Defendants on November 30 and December 2, 2012 (the “Complaints”). Trustee alleged that Debtor operated as a Ponzi scheme between 2003 and the petition date. Pursuant to § 544(b) and Cal. Civ.Code §§ 3439.04(a) and 3439.07, Trustee's first claim for relief sought to avoid transfers from Debtors to Defendants occurring up to seven years prior to the petition date: December 7, 2003 through December 7, 2010 (the “First Claim”).⁴ As to Bank of America, Trustee sought to avoid transfers made between December 24, 2003 and December 18, 2009. Trustee sought to avoid transfers to Countrywide made between December 15, 2003 and June 11, 2009.

Defendants moved to dismiss Trustee's Complaints under Civil Rule 12(b)(6) (“Motions to Dismiss”). Citing Cal. Civ.Code § 3439.09(a) and (b),⁵ Defendants argued that Trustee's recovery was limited to transfers made within four years preceding the date the bankruptcy court entered the order for relief, or February 9, 2011. Thus, argued Defendants, all transfers made prior to February 9, 2007, were time-barred and should be dismissed. Based on their arguments, Defendants maintained that the time limitations in Cal. Civ.Code § 3439.09(a) and (b) were “tolled” as of the date of the order for relief, and that Trustee could reach back to any transfers within the four-year period preceding February 9, 2011.

Trustee opposed the Motions to Dismiss. Citing Von Gunten v. Neilson (In re Slatkin), 243 Fed.Appx. 255, 258 (9th Cir.2007) (“Slatkin II ”), an unpublished Ninth Circuit case, Trustee argued that §§ 544(b) and 546(a) effectively preempted the statute of limitations set forth in Cal. Civ.Code § 3439.09, including the seven-year period in subdivision (c).⁶ Trustee argued Slatkin II, relying on Acequia, Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800 (9th Cir.1994), held that the filing of a bankruptcy petition tolls the limitations period on a creditor's state-law fraudulent transfer action and permits a trustee up to two years to file an avoidance action, even if the state's limitations period has otherwise expired. Therefore, argued Trustee, because he filed his Complaints within the two years required under § 546(a), Defendants had failed to show his claims were time-barred.

Defendants argued that Cal. Civ.Code § 3439.09(c) was a statute of repose, not limitations, and was not subject to tolling. To support their argument, Defendants cited Jenner v. Neilson (In re Slatkin), 222 Fed.Appx. 545, 547 (9th Cir.2007) (“Slatkin I ”), another unpublished Ninth Circuit case issued six months prior to Slatkin II, for the proposition that the seven year reach back period should be measured from the date of the filing of the complaint, not the petition date. Thus, argued Defendants, to the extent Trustee sought to avoid transfers made more than seven years prior to the date of the filing of the Complaints, such claims should be dismissed with prejudice.

In its decision, the bankruptcy court identified Cal. Civ.Code § 3439.09(a) and (c) as the applicable “statute of limitations” for a fraudulent transfer claim under Cal. Civ.Code § 3439.04(a). Relying on Slatkin I, the court dismissed Trustee's First Claim against Defendants, with prejudice, to the extent it sought to avoid transfers occurring more than seven years prior to the date he filed his Complaints. After considering the parties' arguments at the hearing on the Motions to Dismiss, the court added:

First, I believe that the Slatkin I case better reflects the application of relevant California law. And so I think it's a better—it's not binding on the Court, but I think it reflects appropriately what the state of the law is in California with respect to that statute of repose.

Hr'g Tr. (July 16, 2013) 13:2–7 (emphasis added). We granted Trustee's motion for leave to file interlocutory appeals. Rule 8004.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUE

Does § 546(a) preempt a state-law fraudulent transfer statute of repose such as Cal. Civ.Code § 3439.09(c) ?

IV. STANDARDS OF REVIEW

The bankruptcy court's dismissal of an adversary complaint for failure to state a claim under Civil Rule 12(b)(6) is reviewed de novo. Barnes v. Belice (In re Belice), 461 B.R. 564, 572 (9th Cir. BAP 2011). A dismissal without leave to amend is reviewed for abuse of discretion. Ditto v. McCurdy, 510 F.3d 1070, 1079 (9th Cir.2007). A bankruptcy court abuses its discretion if it applies an incorrect legal standard or its factual findings are illogical, implausible or without support from evidence in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir.2011).

We review a bankruptcy court's conclusions of law, including its interpretations of provisions of the Bankruptcy Code and state law, de novo. See New Falls Corp. v. Boyajian (In re Boyajian), 367 B.R. 138, 141 (9th Cir. BAP 2007), aff'd, 564 F.3d 1088 (9th Cir.2009).

V. DISCUSSION

A. Civil Rule 12(b)(6) standards

Under Civil Rule 12(b)(6), made applicable in adversary proceedings through Rule 7012, a bankruptcy court may dismiss a complaint if it fails to “state a claim upon which relief can be granted.” In reviewing a Civil Rule 12(b)(6) motion, the trial court must accept as true all facts alleged in the complaint and draw all reasonable inferences in favor of the plaintiff. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). However, the trial court need not accept as true conclusory allegations in a complaint or legal characterizations cast in the form of factual allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Hartman v. Gilead Scis., Inc. (In re Gilead Scis. Sec. Litig.),

536 F.3d 1049, 1055 (9th Cir.2008).

We do not ignore affirmative defenses to a claim; if the allegations show that relief is barred as a matter of law, the complaint is subject to dismissal. Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007) (dismissal is appropriate under Civil Rule 12(b)(6) if the allegations show that relief is barred by the applicable statute of limitations).

To avoid dismissal under Civil Rule 12(b)(6), a plaintiff must aver in the complaint “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ). It is axiomatic that a claim cannot be plausible when it has no legal basis. A dismissal under Civil Rule 12(b)(6) may be based either on the lack of a cognizable legal theory...