In re: Cascade Ag Services, Inc.
WW-17-1006-BKuF WW-17-1007-BKuF
9th Cir. BAPNov 2, 2017Background
- Cascade Ag Services (Debtor) took over management of a 108-acre blueberry field in 2011 under an oral deal with Sakuma: Debtor would provide labor/materials and receive 1/3 of crop proceeds; Sakuma kept 2/3, credited against Sakuma’s existing advances to Haller Farms.
- Haller Farms owned the land and blueberry plants and previously allowed Sakuma to manage the field on a nonrecourse advance basis; Sakuma’s advances had created a large debt against future crop proceeds.
- Debtor expended $395,159.23 in 2011 to grow the crop; Sakuma paid Debtor (via an affiliated entity) 1/3 of crop proceeds and applied $40,438 (2/3 net after expenses) to reduce the Sakuma debt owed by Haller Farms.
- Trustee sued Haller Farms for fraudulent transfer (actual and constructive) and unjust enrichment; unjust enrichment and actual fraud claims were dismissed on summary judgment, leaving a constructive fraudulent transfer claim to trial.
- Bankruptcy court found Debtor owned the 2011 crop, that the transfer of the 2/3 net proceeds to Sakuma was an avoidable constructive fraudulent transfer made for Haller Farms’ benefit, and entered judgment for $40,438 against Haller Farms; parties cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Debtor own the 2011 blueberry crop? | Trustee: crop belonged to Haller Farms; no evidence Debtor owned it. | Haller Farms: Debtor, as tenant in possession under the 2011 arrangement, owned and controlled the crop. | Court: Debtor owned the 2011 crop (oral agreement valid; cash-lease/possession rule governs). |
| Was Haller Farms the intended beneficiary of the Debtor–Sakuma 2011 Agreement and did it benefit? | Trustee: transfer of Debtor’s labor/materials and especially the 2/3 proceeds applied to Sakuma debt benefitted Haller Farms. | Haller Farms: at most an incidental/remote beneficiary; no direct, foreseeable benefit because large preexisting debt made profit to Haller unlikely. | Court: Haller Farms was an intended beneficiary and did (or was intended to) benefit; liability under §550(a) can attach even if benefit was hypothetical. |
| Was the $395,159 Debtor spent in 2011 an avoidable transfer to Haller Farms? | Trustee: the full unpaid labor/materials constituted the avoidable transfer. | Haller Farms: Debtor invested in its own crop and contracted to receive 1/3; spending was voluntary and not a transfer to Haller. | Court: The avoidable transfer was the 2/3 net proceeds applied to Sakuma debt (resulting benefit $40,438), not the entire $395k spent. |
| Did the bankruptcy court err in dismissing unjust enrichment on summary judgment? | Trustee: evidence supported unjust enrichment elements (benefit, knowledge, inequity). | Haller Farms: Debtor was a volunteer or contracted for 1/3 of proceeds in 2011; retention of benefit not unjust. | Court: Affirmed dismissal—Debtor contracted for 1/3 proceeds and record doesn’t support unjust retention by Haller Farms. |
Key Cases Cited
- Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102 (9th Cir. 2010) (standards: factual findings reviewed for clear error; legal conclusions de novo)
- Retz v. Samson (In re Retz), 606 F.3d 1189 (9th Cir. 2010) (deference to trial court on credibility-based factual findings)
- Barnhill v. Johnson, 503 U.S. 393 (Sup. Ct. 1992) (property and interests in property are governed by state law absent controlling federal law)
- Danning v. Miller (In re Bullion Reserve of N. Am.), 922 F.2d 544 (9th Cir. 1991) (under §550(a) trustee may recover from the entity for whose benefit the transfer was made; intent to benefit required)
- Butner v. United States, 440 U.S. 48 (Sup. Ct. 1979) (property interests are generally determined by state law)