Creditors Comm Adamson Apparel v. Arnold Simon
785 F.3d 1285
9th Cir.2015Background
- Adamson Apparel borrowed millions from CIT; Arnold H. Simon (president/CEO) personally guaranteed the loan via a Pledge and a Guaranty. Both agreements contained provisions addressing Simon’s right to indemnification; some documents deferred indemnity rights, other documents (Guaranty) contained an unconditional waiver.
- On December 18, 2003 Adamson directed a $4,989,934.65 payment from a third party (BP Clothing) to CIT; Adamson filed Chapter 11 nine months later.
- Simon later paid over $3.5 million personally to satisfy the remaining CIT balance and did not file a proof of claim in Adamson’s bankruptcy.
- The Committee (later Trustee) sued Simon seeking to avoid the December 2003 payment as a preferential transfer under 11 U.S.C. § 547(b), arguing Simon (an insider guarantor) benefited and was therefore a creditor within the one-year insider look‑back period.
- Bankruptcy court found Simon had unambiguously (in effect) waived indemnification and was not a creditor; district court initially remanded for factual development, then later affirmed the bankruptcy court; the court of appeals (majority) affirmed, holding a bona fide, unconditional waiver that has economic effect bars preference liability for an insider guarantor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Simon was a “creditor” under 11 U.S.C. § 101(10) for § 547(b) purposes | Trustee: Pledge language only "defers" indemnity; Simon retained a claim so he is a creditor and the one‑year insider period applies | Simon: He irrevocably waived indemnification in the Guaranty, took no steps to preserve or monetize any claim, and therefore has no right to payment and is not a creditor | Held: Simon validly and unconditionally waived indemnity; because he had no right to payment and took no steps to negate the waiver’s economic impact, he was not a creditor and not subject to preference liability |
| Whether indemnity waivers that defeat insider preference exposure are per se invalid | Trustee: Such waivers can be sham devices to evade the Code and should be rejected (following some bankruptcy courts) | Simon: Bona fide waivers with economic effect are valid; courts must examine facts to detect shams | Held: Waivers are not per se invalid; courts should examine the totality of facts for sham conduct; here waiver was bona fide and not a sham |
| Whether courts may treat multiple contract documents as creating ambiguity | Trustee: Documents conflict (defer vs. waive) so factual resolution required | Simon: The Guaranty contains an unconditional waiver and the surrounding evidence supports waiver | Held: Documents were ambiguous on their face; remand for factual finding was appropriate; bankruptcy court’s factual finding of an effective waiver was not clearly erroneous |
| Whether public‑policy concerns require overriding clear statutory text to impose preference liability | Trustee: Public‑policy and Deprizio lineage justify treating insiders as creditors despite waivers | Simon: Statutory text controls; courts may not rewrite the Code on public‑policy grounds | Held: Court must follow statutory text; equitable/public‑policy concerns should be addressed by Congress, not by judicial deviation from the Code |
Key Cases Cited
- In re Deprizio, 874 F.2d 1186 (7th Cir. 1989) (insider guarantors treated as creditors under the Code absent other limits)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (bankruptcy courts’ equitable powers are limited by the Bankruptcy Code)
- In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012) (standard of review for appeals from bankruptcy court findings)
- Official Unsecured Creditors Comm. v. U.S. Nat’l Bank of Or. (In re Sufolla, Inc.), 2 F.3d 977 (9th Cir. 1993) (discussing treatment of insider guarantees and preference exposure)