527 B.R. 351
N.D. Cal.2015Background
- R.E. Loans and Mortgage Fund ’08 (MF08) were related entities controlled by Walter and Kelly Ng and a Manager; MF08 raised >$80M from investors and transferred over $66M to R.E. Loans.
- R.E. Loans obtained a $65M line of credit from Wells Fargo Capital Finance in July 2007 under a Loan and Security Agreement (LSA) that gave Wells Fargo a priority security interest and included a lockbox and lien-release mechanics for sales of notes.
- MF08 allegedly funneled investor funds to R.E. Loans to cover R.E. Loans’ obligations and fees (including to Wells Fargo), and R.E. Loans allegedly sold underperforming loans to MF08 at face value; Wells Fargo allegedly released liens on those loans.
- MF08 went into involuntary bankruptcy; Susan Uecker was appointed liquidating trustee and sued Wells Fargo in bankruptcy court for fraudulent transfers and for aiding and abetting breach of fiduciary duty.
- The bankruptcy court dismissed the fraudulent-transfer claims (March 27, 2013) and later dismissed the Third Amended Complaint (aiding and abetting) without leave to amend (Feb. 11 & Feb. 20, 2014). Uecker appealed to district court.
- The district court dismissed Uecker’s appeal as to the March 27, 2013 judgment for lack of timely notice of appeal, and affirmed dismissal of the remaining claims on the merits and on in pari delicto grounds, entering final judgment for Wells Fargo.
Issues
| Issue | Plaintiff's Argument (Uecker) | Defendant's Argument (Wells Fargo) | Held |
|---|---|---|---|
| Timeliness / Subject-matter jurisdiction of appeal | Uecker says claims were preserved (cites Lacey) and appeal should proceed | Appeal was filed 11 months after March 27, 2013 judgment; Rule 8002 14-day deadline not met | Appeal as to March 27, 2013 judgment dismissed for lack of jurisdiction (untimely) |
| Fraudulent-transfer (intended-beneficiary theory) | Transfers to R.E. Loans were made to benefit Wells Fargo by preserving its collateral and ensuring payment of fees/interest | Transfers did not show MF08 acted to benefit Wells Fargo; benefit was incidental or subsequent | Even if jurisdiction existed, FAC failed to plead that transfers were made for Wells Fargo’s benefit; dismissal affirmed |
| Aiding-and-abetting breach of fiduciary duty — actual knowledge & substantial assistance | Alleged Wells Fargo reviewed agreements, knew of transfers (via LSA/NPA/merger), backdated transactions, and released liens — showing knowledge and substantial assistance | Allegations do not plausibly show Wells Fargo actually knew of fiduciary depletion or that lien releases were knowing substantial assistance; many acts were contractually required | TAC fails to plead actual knowledge or substantial assistance; dismissal affirmed |
| In pari delicto / imputation (sole-actor exception) | Trustee not subject to in pari delicto; factual issues exist about imputing manager’s misconduct | Manager was sole owner/manager of MF08; misconduct imputable to MF08 and thus trustee; in pari delicto bars relief | In pari delicto applies: Manager’s fraud imputable to MF08 (sole-actor), defense may be resolved on pleadings here; bars trustee’s claim |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standards; legal conclusions not assumed true)
- Bowles v. Russell, 551 U.S. 205 (timely filing of appeal is jurisdictional)
- Lacey v. Maricopa County, 693 F.3d 896 (9th Cir. en banc) (claims dismissed with prejudice need not be repleaded to preserve appeal)
- Danning v. Miller (In re Bullion Reserve of N. Am.), 922 F.2d 544 (9th Cir.) (intended-beneficiary theory for recovery under § 550)
- In re First Alliance Mortgage Co., 471 F.3d 977 (9th Cir.) (aiding-and-abetting standard; actual knowledge requirement)
- Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton, LLP, 133 Cal.App.4th 658 (Cal. Ct. App.) (in pari delicto can bar trustee claims; sole‑actor imputation)