Dz Bank Ag Deutsche Zentral v. Louis Meyer
15-35086
| 9th Cir. | Jul 11, 2017Background
- Louis and Lynn Meyer guaranteed a $1,728,834.65 promissory note held by DZ Bank and later defaulted and filed bankruptcy.
- In October 2008 Louis caused his insurance company to transfer $123,200 to Meyer Insurance (MI), a corporation he wholly owned; MI’s assets increased to $385,000.
- MI then transferred the $385,000 without consideration to another Meyer-controlled corporation, Insurance Choices 4 U (IC4U), which agreed to pay Meyer personally over time.
- DZ Bank sued in the bankruptcy court under the Washington Uniform Fraudulent Transfer Act (WUFTA), alleging the $385,000 transfer was an "actual fraud" and thus the debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A).
- The bankruptcy court found fraudulent transfer liability but limited recovery to $123,200 (the portion traceable to DZ Bank’s security interest); the district court affirmed on the alternative ground that WUFTA only covers property legally titled to the debtor absent an alter-ego finding.
- The Ninth Circuit reversed, holding the corporate form could not shield the Meyers from WUFTA liability and concluding the full $385,000 was a non-dischargeable debt arising from actual fraud.
Issues
| Issue | Plaintiff's Argument (DZ Bank) | Defendant's Argument (Meyers) | Held |
|---|---|---|---|
| Whether WUFTA requires the debtor to have legal title to the transferred assets for a transfer to be "property of the debtor" | WUFTA covers transfers that deplete assets a creditor could reach; legal title is not required if the assets were effectively applicable to satisfy the debtor’s obligations | WUFTA applies only to property legally titled to the debtor; because MI held title DZ Bank needed to pierce the corporate veil or prove alter ego | Reversed district court: legal title is not dispositive; transfers that render the debtor’s assets unavailable to creditors can be fraudulent under WUFTA without a separate alter-ego ruling |
| Whether the Meyers’ transfers constitute "actual intent to hinder, delay, or defraud" creditors making the debt non-dischargeable under § 523(a)(2)(A) | The series of insider transfers depleted the value of Meyer’s ownership in MI and diverted $385,000 to his benefit; this meets WUFTA’s actual intent standard and § 523 actual fraud requirement | The transfers were corporate acts by MI (not the individual), so they cannot be treated as the Meyers’ fraudulent transfers absent veil-piercing | Court held the conduct sufficed as actual fraud under WUFTA and § 523(a)(2)(A); the full $385,000 is non-dischargeable |
Key Cases Cited
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (2016) (discusses history and meaning of "actual fraud" in fraudulent-transfer contexts)
- Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014) (UFTA does not require the transferor to hold legal title if assets could have been applied to debt)
- Reilly v. Antonello, 852 N.W.2d 694 (Minn. Ct. App. 2014) (sole owner cannot hide fraudulent depletion of assets behind closely held corporate form)
- Thompson v. Hanson, 239 P.3d 537 (Wash. 2009) (en banc) (UFTA’s overriding purpose is to give creditors relief when debtors place assets beyond reach)