United States Small Business Administration v. Bensal
2017 U.S. App. LEXIS 5789
| 9th Cir. | 2017Background
- Bensal personally guaranteed an SBA‑guaranteed commercial loan made to his company (BCI); BCI defaulted and a state court entered a default judgment against BCI and Bensal.
- The private lender assigned its judgment to the SBA after the SBA paid a partial guaranty claim.
- Bensal inherited a 40% share of his father’s trust but executed a California statutory disclaimer, which by state law redirected the share to his children and declared a disclaimer "not a voidable transfer."
- The SBA sued in federal court under the Federal Debt Collection Procedures Act (FDCPA), seeking to void the disclaimer as a fraudulent transfer and attach the trust share to satisfy the judgment assigned to the SBA.
- The district court granted the SBA summary judgment; the Ninth Circuit affirmed, holding (1) the FDCPA displaces California’s disclaimer rule and treats the disclaimer as a voidable transfer, and (2) the assigned default judgment (or at least the portion based on the SBA‑guaranteed loan) is a “debt” under the FDCPA.
Issues
| Issue | Plaintiff's Argument (SBA) | Defendant's Argument (Bensal) | Held |
|---|---|---|---|
| Whether Bensal’s post‑judgment disclaimer is a “transfer” under the FDCPA | The disclaimer disposed of a present/future trust interest and is a transfer the FDCPA can void; FDCPA preempts inconsistent state law | California Probate Code says a disclaimer is not a voidable transfer and bars creditor access | Held: FDCPA displaces California law; the disclaimer is a transfer subject to FDCPA avoidance (Drye framework) |
| Whether state law disclaimer defeats federal collection when federal interest preexists | Federal law governs when a federal debt preexisted the transfer; the government’s collection scheme controls | State law controls property rights and prevents creditors from reaching disclaimed property | Held: When the debt preexisted the disclaimer, Drye controls; state law rights are property for federal law purposes and do not bar FDCPA relief |
| Whether the default judgment assigned to SBA qualifies as a “debt” under FDCPA §3002(3) | The judgment (especially the portion based on the SBA‑guaranteed loan/guaranty) is an "other source of indebtedness" to the U.S. under §3002(3)(B) | The judgment arose from purely private contracts; §3002(3)(B) excludes amounts owing under contracts originally entered into only by private parties | Held: Look to the source of the obligation; SBA was effectively a party to the guaranteed‑loan transaction (SBA Note/Guaranty/Authorization), so the judgment portion is a FDCPA debt (Sobranes approach) |
| Whether SBA may collect full judgment though it paid only part as guarantor | SBA is subrogated and has statutory authority to pursue assigned claims and collection | Recovering full judgment is a windfall since SBA paid only a fraction | Held: SBA may pursue full recovery via assignment/subrogation and statutory collection authority; payment amount does not bar FDCPA action |
Key Cases Cited
- Drye v. United States, 528 U.S. 49 (Sup. Ct. 1999) (state‑law disclaimer may be treated as federal "property" when federal interest preexisted disclaimer)
- In re Costas, 555 F.3d 790 (9th Cir. 2009) (distinguishing Drye where disclaimer preceded creation of federal estate interest; Drye not extended to different bankruptcy context)
- Sobranes Recovery Pool I, LLC v. Todd & Hughes Const. Corp., 509 F.3d 216 (5th Cir. 2007) (interpretation of FDCPA §3002(3)(B) limiting coverage when obligation originates in contracts to which the U.S. was not originally a party)
- United States v. Gianelli, 543 F.3d 1178 (9th Cir. 2008) (FDCPA enacted to create a uniform federal framework for collecting government debts)