Tracht Gut, LLC v. Los Angeles County Treasurer & Tax Collector (In Re Tracht Gut, LLC)
836 F.3d 1146
| 9th Cir. | 2016Background
- Tracht Gut, LLC owned two Los Angeles County properties with unpaid taxes since 2008; the county conducted statutory tax sales in Oct. 2012.
- The properties were sold at public auction: Hatteras for $300,000 and San Fernando for ≈$100,000.
- Tracht Gut filed Chapter 11 in Nov. 2012 and soon after sued the county and purchasers, alleging the tax sales were fraudulent transfers under 11 U.S.C. § 548(a) because sale prices were below market value.
- The original adversary complaint pleaded only legal conclusions without factual detail; Tracht Gut later sought to amend to add market-value allegations.
- The bankruptcy court dismissed the complaint with prejudice and denied leave to amend as futile; the BAP affirmed.
- The Ninth Circuit affirmed, holding that a California tax sale conducted according to state law conclusively establishes that the sale price was reasonably equivalent value under § 548(a), so low sale price alone cannot show a fraudulent transfer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a prepetition California tax sale can be avoided as a fraudulent transfer under 11 U.S.C. § 548(a) when sale price is below fair market value | Tracht Gut: Sales were for far less than market value and thus avoidable | County: Sales conducted under California law with public auction and statutory safeguards conclusively establish reasonably equivalent value | Held: Price at a California tax sale conducted in accordance with state law conclusively establishes reasonably equivalent value, so § 548(a) avoidance fails absent procedural defects |
| Whether dismissal for failure to plead facts was proper | Tracht Gut: Complaint raised claims and could be supported by later amendment | County: Complaint contained only conclusory recitals of elements, lacking plausible factual allegations | Held: Dismissal under Rule 12(b)(6) proper because complaint lacked factual matter to state a plausible claim |
| Whether leave to amend should have been granted | Tracht Gut: Should be allowed to amend to plead market-value allegations and other facts | County: Amendment would be futile because BFP rationale defeats any claim based solely on low price | Held: Denial of leave to amend not an abuse of discretion because proposed amendment was futile (no alleged procedural defects) |
| Whether reconsideration under Rule 60(b) based on excusable neglect was warranted | Tracht Gut: Excusable neglect justified reconsideration to allow amendment | County: No excusable neglect shown and amendment would not change outcome | Held: Denial of reconsideration affirmed; Tracht Gut did not show excusable neglect and proposed amendment would be futile |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (price from a state-law-compliant mortgage foreclosure sale conclusively establishes reasonably equivalent value)
- Batlan v. Bledsoe (In re Bledsoe), 569 F.3d 1106 (9th Cir. 2009) (extended BFP to state-court dissolution judgments after regularly conducted proceedings)
- T.F. Stone Co. v. Harper (In re T.F. Stone Co.), 72 F.3d 466 (5th Cir. 1995) (applied BFP to tax sales)
- Kojima v. Grandote Int’l Ltd. Liab. Co. (In re Grandote Country Club, Ltd.), 252 F.3d 1146 (10th Cir. 2001) (applied BFP to tax sales where state law requires competitive bidding)