In re: Clifford Allen Brace, Jr.
CC-16-1041-LNTa
| 9th Cir. BAP | Mar 15, 2017Background
- Husband (Debtor) and wife held three properties as joint tenants; in 2004 Debtor created the irrevocable "Crescent Trust," naming his wife sole beneficiary, and recorded deeds transferring his interests in two California properties into the trust (one Arizona deed was prepared but not recorded).
- At the time of the transfers Debtor faced pending litigation; a $60,000 default judgment was entered against him about one month after the transfers.
- After the transfers, the couple continued to occupy and use the properties, and Debtor did not treat the trust as distinct (no trust tax returns; deeds inaccurately recited a revocable trust; wife did not record transfers of her interests).
- Debtor filed Chapter 7 in 2011; the trustee brought an adversary proceeding seeking avoidance of the transfers under the California Uniform Fraudulent Transfer Act (CUFTA), turnover, and related relief.
- The bankruptcy court (after a one-day trial) found the transfers actually fraudulent, that the Crescent Trust was Debtor’s alter ego, and that the wife was not a good-faith transferee; the panel affirmed these findings on appeal.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Brace) | Held |
|---|---|---|---|
| Were the transfers actually fraudulent under Cal. Civ. Code § 3439.04(a)? | Transfers were made with actual intent to hinder/delay/defraud — multiple "badges of fraud" (insider transferee, retention of control, concealment, timing before judgment, removal of assets). | Transfers were legitimate estate planning, part of longstanding agreement that wife would own those properties; Debtor lacked actual knowledge of litigation. | Affirmed. Court found numerous badges of fraud, rejected creditors-avoidance defense arguments, and deferred to trial court credibility findings. |
| Was the Crescent Trust Debtor’s alter ego so it could be disregarded? | Trust was a sham created for fraudulent purpose; Debtor treated trust assets as his own; legal formalities were ignored. | Trust was a valid estate-planning vehicle. | Affirmed. Court found unity of interest and that ignoring the trust’s separateness was necessary to prevent injustice. |
| Was Mrs. Brace a good-faith transferee or did she give reasonably equivalent value? | N/A (Trustee argued she lacked good faith and gave no equivalent value). | Mrs. Brace claimed she acted in good faith per marital agreement and received property as intended separate property. | Affirmed. Court found Mrs. Brace not credible, on inquiry notice, did not prove good faith or reasonably equivalent value. |
Key Cases Cited
- Carrillo v. Su (In re Su), 290 F.3d 1140 (9th Cir. 2002) (standard of review: bankruptcy fact findings for clear error; law de novo)
- Anderson v. City of Bessemer City, 470 U.S. 564 (U.S. 1985) (credibility-based factual findings entitled to deference)
- Retz v. Samson (In re Retz), 606 F.3d 1189 (9th Cir. 2010) (deference to bankruptcy court credibility findings)
- Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221 (9th Cir. BAP 2007) (use of CUFTA "badges of fraud" to infer intent)