869 F.3d 839
9th Cir.2017Background
- Louis Meyer was sole owner of Meyer Insurance (MI) and manager of Choice Cash Advance, which borrowed from Brooke; Brooke’s loan to Choice was later assigned to DZ Bank, and the Meyers personally guaranteed the note.
- Beginning in 2008–2011, Louis Meyer caused a series of transfers: Choice -> MI (assets worth $123,200), MI -> IC4U (for no consideration; total MI assets then valued at $385,000), and IC4U -> Connect, leaving Choice, MI, and IC4U insolvent.
- DZ Bank obtained a judgment against Choice but could not collect because Choice was insolvent; DZ Bank then brought an adversary action in the Meyers’ bankruptcy alleging the transfers were fraudulent under the Washington Uniform Fraudulent Transfer Act (WUFTA) and thus constituted "actual fraud" under 11 U.S.C. § 523(a).
- The bankruptcy court found fraudulent transfers (actual fraud) but limited nondischargeable recovery to $123,200—the portion traceable to DZ Bank’s security interest; the district court affirmed on the ground WUFTA applies only to property of the debtor and MI’s non-collateral assets were titled to MI.
- The Ninth Circuit reversed, holding WUFTA does not require that the debtor hold legal title to the transferred assets when the transfers operated to defeat collection and that DZ Bank was entitled to recover the full $385,000 value that MI’s assets had before the transfer.
Issues
| Issue | Plaintiff's Argument (DZ Bank) | Defendant's Argument (Meyers) | Held |
|---|---|---|---|
| Does WUFTA require legal title in the debtor for a transfer to be fraudulent? | No — WUFTA covers transfers of assets that could have been applied to pay the debt even if titled to a closely held corporation. | Yes — WUFTA applies only to "property of a debtor," so assets titled in MI are not subject unless MI is pierced/alter ego. | WUFTA does not require legal title in the debtor; transfers by a debtor that deprive creditors of assets applicable to the debt can be fraudulent. |
| Is DZ Bank’s recoverable nondischargeable debt limited to the collateral-traceable portion ($123,200) or can it include the full value of MI’s assets ($385,000)? | Recovery should include the full $385,000 that DZ Bank would have been able to reach via execution on Meyer’s ownership interest in MI. | Recovery should be limited to the value of assets actually traceable to DZ Bank’s security interest ($123,200). | The court held DZ Bank may recover the full $385,000; limiting relief to the traceable collateral portion was error. |
Key Cases Cited
- Husky Int'l Elecs., Inc. v. Ritz, 136 S. Ct. 1581 (U.S. 2016) (actual fraud under § 523(a) can include fraudulent conveyances)
- Thompson v. Hanson, 239 P.3d 537 (Wash. 2009) (UFTA’s purpose is to prevent debtors from placing assets beyond creditors’ reach)
- Wiand v. Lee, 753 F.3d 1194 (11th Cir. 2014) (UFTA does not require legal title; assets need only be ones that could have been applied to pay the debt)
- Reilly v. Antonello, 852 N.W.2d 694 (Minn. Ct. App. 2014) (courts should not allow a sole owner to hide fraudulent transfers behind closely held corporate form)