Goodrich v. Briones
626 F.3d 1032
9th Cir.2010Background
- Debtors created the Apartment Trust and Grove Trust on June 15, 1992, naming Sydnee Michaels as beneficiary and Briones as trustee.
- Michaels transferred Kokee Woods Apartments stock to the Apartment Trust simultaneous with its creation, following a Texas verdict against Kokee Woods that rendered the stock potentially worthless.
- Michaels was insolvent; transfer aimed to avoid creditors while appealing the Texas verdict, and the transfer preceded an eventual favorable judgment for Michaels.
- Grove Trust initially held $25; in December 1997 Impetrol Corp. purchased Grove Lots, funded by assets Michaels controlled via a shell entity; critics described the acquisition as a fraud on creditors.
- The Grove and Apartment Trusts were controlled by Michaels; Briones wrote checks as demanded and lacked independent books and records; funds and expenses circulated between trusts.
- Bankruptcy proceedings sought to recover roughly $4 million; the bankruptcy court found the Apartment Trust invalid for improper purpose and the Grove Trust to be Michaels’s alter ego.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Apartment Trust invalid for fraud on creditors? | Michaels created the trust to defraud creditors. | Trust created for a minor beneficiary is valid; no improper purpose shown. | Apartment Trust invalid; disregard permitted. |
| Is the claim to invalidate the Apartment Trust time-barred? | Seven-year statute did not bar since repudiation occurred later. | Limitations period applies; timing disputed. | Not time-barred; claim timely. |
| Is the Grove Trust Michaels's alter ego under California law? | Michaels’s equitable ownership and domination render the Grove Trust his alter ego. | Legal ownership required; reverse piercing not appropriate; no alter ego by ownership alone. | Grove Trust is Michaels's alter ego. |
| Does equitable ownership suffice for alter ego ownership in trusts? | Equitable ownership can satisfy ownership requirement under California law. | Only legal ownership qualifies; California cases are unclear on trusts. | Equitable ownership suffices; alter ego established. |
Key Cases Cited
- In re Tucson Estates, Inc., 912 F.2d 1162 (9th Cir. 1990) (standard of review for bankruptcy findings and conclusions)
- Wood v. Elling Corp., 572 P.2d 755 (Cal. 1977) (alter ego liability for trusts; ownership considerations)
- Hickey, 322 F.3d 1123 (9th Cir. 2003) (ownership prerequisite for alter ego in corporate context)
- Minton v. Cavaney, 56 Cal.2d 576 (Cal. 1961) (equitable ownership can justify ownership for alter ego liability)
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (Cal. App. 2009) (managing agent as equitable owner; alter ego liability context)
- Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523 (Cal. App. 2000) (courts ignore corporate form where controlling ownership exists)
- Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal.App.4th 1510 (Cal. App. 2008) (reverse piercing prohibition in corporate context)
- Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d 92 (9th Cir. 1988) (equitable ownership recognized where appropriate)
- Steinhart v. County of L.A., 47 Cal.4th 1298 (Cal. 2009) (trust beneficiaries hold equitable interest in trust property)
- Davenport v. Davenport Found., 36 Cal.2d 67 (Cal. 1950) (trusts and resulting trust principles; statute of limitations considerations)
- Bainbridge v. Stoner, 16 Cal.2d 423 (Cal. 1940) (trusts and resulting trusts doctrine)