In Re Schwarzkopf
626 F.3d 1032
| 9th Cir. | 2010Background
- Debtors created the Apartment Trust and the Grove Trust on June 15, 1992, naming Sydnee Michaels as beneficiary and Briones as trustee.
- Michaels transferred Kokee Woods Apartments, Inc. stock to the Apartment Trust concurrently with its creation, after a Texas verdict made the stock potentially worthless, to defraud creditors and pursue an appeal.
- Michaels successfully appealed the verdict and the trust paid Michaels substantial consulting fees to collect the judgment.
- The Grove Trust began with $25, but later, in 1997, Impetrol Corporation purchased Grove Lots using assets deemed Michaels’s, with Briones having little independent role.
- The estates found that both trusts were dominated by Michaels, with intermingling of funds, undocumented loans, and payments benefitting Michaels and his family, while Briones largely acted on Michaels’s instruction.
- bankruptcy proceedings in October 2003 led Goodrich to seek to recover about $4 million, with the district court and bankruptcy court issuing conflicted rulings on the validity of the trusts and alter ego liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Apartment Trust invalid for fraudulent purpose? | Goodrich contends trust created to defraud creditors invalid. | Schwarzkopfs contend trust valid as a trust for a minor, not a fraud. | Apartment Trust invalid; fraud motive established. |
| Is Goodrich's fraud claim on the Apartment Trust time-barred? | Seven-year limitations did not bar claim because trust invalid and Briones repudiated when responding to suit. | Statute began earlier; time-bar may apply. | Not time-barred; claim timely. |
| Is the Grove Trust Michaels's alter ego under California law? | Equitable ownership suffices; Michaels controlled assets and used Grove Trust to benefit himself. | No legal ownership; cannot pierce veil; reverse piercing may be improper. | Grove Trust is Michaels's alter ego. |
| Is equitable ownership sufficient to establish ownership for alter ego liability in trusts? | Equitable ownership can satisfy ownership requirement. | Ownership must be legal title under some authorities. | Equitable ownership is sufficient for alter ego in trusts. |
Key Cases Cited
- In re Tucson Estates, Inc., 912 F.2d 1162 (9th Cir. 1990) (standard for reviewing bankruptcy findings; de novo on law, clear error on facts)
- S.E.C. v. Hickey, 322 F.3d 1123 (9th Cir. 2003) (ownership prerequisite for alter ego in corporate context)
- Wood v. Elling Corp., 572 P.2d 755 (Cal. 1977) (California law allowing alter ego when trusts could be disregarded as independent entities)
- Davenport v. Davenport Found., 222 P.2d 11 (Cal. 1950) (trust mechanics and resulting trusts when fraud present)
- Bainbridge v. Stoner, 106 P.2d 423 (Cal. 1940) (trust as resulting trust when legitimate purpose fails)
- Firstmark Capital Corp. v. Hempel Financial Corp., 859 F.2d 92 (9th Cir. 1988) (community property ownership can satisfy ownership requirement)
- Minton v. Cavaney, 15 Cal.Rptr.3d 641 (Cal. 1961) (equitable ownership can justify ownership in alter ego analysis)
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (Cal. Ct. App. 2009) (managing agent can be equitable owner for alter ego purposes)