Lead Opinion
Oрinion by Judge GRABER; Partial Concurrence and Partial Dissent by Judge O’SCANNLAIN.
We must decide under what circumstances a federal bankruptcy court may avoid a transfer made pursuant to a state-court judgment dissolving the marriage of the debtor. We hold that, under Oregon law, a party who challenges a dissolution judgment must allege and prove “extrinsic fraud.” Following the lead of the Fifth Circuit in Ingalls v. Erlewine (In re Erlewine),
FACTUAL AND PROCEDURAL HISTORY
Debtor Jennifer Jan Bledsoe and Defendant Ryan Curtis Bledsoe married in 1994. Defendant filed for divorce in Oregon state court in 2002. Debtor filed an appearance, and the parties did not enter into a settlement.
In 2003, the Oregon court struck Debt- or’s appearance and entered a default judgment. The court found that Debtor had “failed to comply with the discovery and production requirements” of Oregon law; that she had “ignored the discovery process and that her disobedience [was] willful and in bad faith”; that she had “failed to comply with[one of] the Court’s order[s]”; and that she had “indicated no willingness, despite repeated opportunity and while represented by a variety of eounsel[,] to produce the documentation necessary for a meaningful trial.” According to Trustee Michael B. Batían, who is seeking to avoid the transfers made pursuant to the dissolution judgment, the state-court judgment granted Defendant items valued at $93,737, while Debtor received items valued at only $788.
Debtor filed for bankruptcy in 2004. Thereafter, Trustee brought an adversary action against Defendant, asserting claims under 11 U.S.C. §§ 544(b)(1) and 548(a)(1)(B). The bankruptcy court granted summary judgment to Defendant on all claims, concluding:
Because [Trustee] does not allege any facts which may constitute “extrinsic fraud” under Oregon law, his claims under the Uniform Fraudulent Transfer Act constitute an impermissible collateral attack against the dissolution judgment entered by the state court and the state law claims [which underlie the § 544 claims] must therefore be dismissed. Because there are no allegations of collusion, actual intent to defraud, or that the dissolution judgment was not obtained pursuant to a regularly conducted proceeding under state law, the transfers made pursuant to the dissolution judgment conclusively establish reasonably equivalent value for purposes of Bankruptcy Code § 548(a)(1)(B).
The district court summarily affirmed, and Trustee timely appealed.
We review de novo the district court’s decision on appeal from a decision of the bankruptcy court. Johnson v. Neilson (In re Slatkin),
DISCUSSION
Federal bankruptcy law, like state fraudulent transfer laws, generally allows a creditor to ask the court to void certain transfers if the creditor can establish either actual fraud or constructive fraud. An actual fraud theory alleges that the debtor transferred assets within a specified period before filing for bankruptcy and that the debtor did so with a fraudulent intent. Constructive fraud proceeds on the theory that, although the debtor may not have had a fraudulent intent, the court nevertheless should void the transfer, usually because the debtor recеived inadequate consideration.
In this case, Trustee makes only a constructive fraud claim. That is, he does not argue that the dissolution judgment was obtained in order to thwart Debtor’s creditors. He argues instead that the transfers pursuant to the dissolution judgment must be voided because Defendant received much more than Debtor.
Under 11 U.S.C. § 544(b)(1), a trustee “may avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law.” Here, Trustee argues that the transfers made under the dissolution judgment are voidable as fraudulent transfers under Oregon law, specifically its version of the Uniform Fraudulent Transfer Act (“UFTA”), Or.Rev.Slat. §§ 95.200-.310. See Kupetz v. Wolf,
A. Section 511 Claim
In Johnson v. Johnson,
We begin by observing that nothing in Johnson suggests that its rule is not one of general applicability; that is, nothing suggests that the rule would not apply to all collateral attacks on judgments. Additionally, Trustee has failed to explain persuasively why UFTA fraudulent trans
In Greeninger v. Cromwell,
According to Trustee, the Greeninger court failed to appreciate the difference between UFTA fraudulent transfer claims and other collateral attacks. Trustee’s argument begins with the unobjectionable observation that, generally speaking, a party may seek avoidance of transfers under either an actual fraud theory or a constructive fraud theory. According to Trustee, the Greeninger rule eviscerates the second half of that proposition, because it disallows all claims under a constructive fraud theory.
Trustee reads the Greeninger rule too broadly. A party may not proceed under а constructive fraud theory when challenging a state-court judgment collaterally, but constructive fraud is still a viable theory for challenging all other types of transfers. See, e.g., Or.Rev.Stat. § 95.230(l)(b). Most constructive fraud cases do not involve transfers that have received a judicial imprimatur, and even fewer involve transfers effected through marriage dissolution judgments. With respect to the class of cases like this one, involving transfers under a regularly obtained dissolution judgment following a contested proceeding, we think that the Oregon Supreme Court would hold, as did Greeninger, that allegations of extrinsic fraud are required.
In conclusion, in Johnson the Oregon Supreme Court announced a rule of general applicability that a party must allege
B. Section 548 Claim
As we have explained, a trustee may avoid certain transfers if the debtor “received less than a reasonably equivalent value in exchange for such transfer.” 11 U.S.C. § 548(a)(1)(B)(I). Defendant argues, and the bankruptcy court agreed, that a dissolution judgment following a regularly conducted state-court proceeding conclusively establishes “reasonably equivalent value.” For the following reasons, we also agree.
In BFP v. Resolution Trust Corp.,
The Court first rejected, primarily for textual reasons, the conclusion of some appellate courts that the term “reasonably equivalent value” meant “fair market value.” Id. at 536-40,
This conclusion does not render § 548(a)(2)[3 ] superfluous, since the “reasonably equivalent value” criterion will continue to have independent meaning (ordinarily a meaning similar to fair market value) outside the foreclosure context. Indeed, § 548(a)(2) will even continue to be an exclusive meаns of invalidating some foreclosure sales. Although collusive foreclosure sales are likely subject to attack under § 548(a)(1), which authorizes the trustee to avoid transfers “made ... with actual intent to hinder, delay, or defraud” creditors, that provision may not reach foreclosure sales that, while not intentionally fraudulent, nevertheless fail to comply with all governing state laws. Any irregularity in the conduct of the sale that would permit judicial invalidation of the sale under applicable state law deprives the sale price of its conclusive force under § 548(a)(2)(A) ....
Id. at 545-46,
We agree with the Fifth Circuit. At the outset, we share the policy concern that it voiced: “The Trustee’s argument, if adopted, would apparently subject every divorce decree to scrutiny in the bankruptcy court, so long as the divorce court divided the community property unequаlly.” Id. at 212.
Turning to BFP, we observe what animated the Court’s decision: that foreclosure sales touch on traditional state interests. Although the Court clearly limited its holding to mortgage foreclosure sales, the same basic principle applies here. The state’s traditional interest in the regulation of marriage and divorce is at least as powerful as its traditional interest in regulating sales of real property. See, e.g., Attorney Gen. of N.Y. v. Soto-Lopez,
Oregon law requires an equitable distribution of the parties’ assets in a marital dissolution. [Or.Rev.Stat. § 107.15(l)(f).] Like property that is subject to foreclosure, the economic value of the assets is questionable and difficult to ascertain, so long as it is subject to the competing claims of the parties in the divorce. The divorce resolves these matters, and furthers the state’s interests by dividing property in a manner that gives due consideration to the economic interests of the parties and their dependants, given the circumstances of the case. This process should be deemed to provide reasonably equivalent value to the same extent that a foreclosure does.
In conclusion, we hold that a state court’s dissolution judgment, following a regularly conducted contested proceeding, conclusively establishes “reasonably equivalent value” for the purpose of § 548, in the absence of actual fraud.
Trustee argues in the alternative that, even under that rule, his § 548 claim must proceed because the dissolution judgment at issue here was a default judgment. We disagree. A default judgment has “the same solemn character as [a] judgment[]
The special concurrence would hold that a marriage dissolution judgment does not effect a “transfer,” as that term is defined by the Bankruptcy Code. Concurrence at 1117-20. But the special concurrence fails to explain how we may reach that argument. Defendant did not raise that argument before us, before the district court, or before the bankruptcy court. The argument is therefore waived. See Smith v. Marsh,
The parties’ position is not surprising. Although we are hesitant to address an issue without the benefit of any briefing from the parties, we do note our deep skepticism of the special concurrence’s position. “ ‘What constitutes a transfer and when it is complete’ is a matter of federal law.” Barnhill v. Johnson,
Notwithstanding the “extremely broad” federal definition of transfer, id., we note that the terms “ ‘property” and‘interest in property’ are creatures of state law,” Barnhill,
AFFIRMED.
Notes
. The dollar figures are those alleged by the Trustee. Defendant disputes the allegedly inequitable distribution; he asserts that Debtor depleted the marital assets during the dissolution proceedings and hid assets from him and from the state court. Those factual disputes are not material to the legal issues in this case. For purposes of this appeal, we assume without deciding that Trustee's factual assertions are correct.
. Trustee also relies on several cases that he urges support his position. None of the cases applies Oregon law, and each is otherwise inapposite or of no help to Trustee.
For example, Britt v. Damson,
Other cases involved a marital settlement agreement, rather than a dissolution judgment entered at thе conclusion of a regularly conducted state-court proceeding. See Beverly v. Wolkowitz (In re Beverly),
. The statute's numbering has changed, but its substance remains materially the same.
Concurrence Opinion
specially concurring in part and concurring in the result:
I concur in the judgment of the Court and agree entirely with the majority’s cogent analysis and rejection of the bankruptcy trustee’s claim under 11 U.S.C. § 544, which would avoid the effect of the marriagе dissolution judgment. Although
I
Michael Batían is the trustee of the bankruptcy estate of Jennifer Jan Bledsoe, who filed for Chapter 7 protection. Before she filed, the now formеr Mrs. Bledsoe had divorced her husband, Ryan Bledsoe, in a contested proceeding. The appropriate Oregon court adjudicated the divorce; over time Jennifer stopped participating, and the court divided the marital assets between the two former spouses in a default judgment. According to Batían, Ryan received far more under the marriage dissolution judgment than Jennifer did. As the trustee of Jennifer’s Chapter 7 estate, Batían has the right to avoid, or set aside, certain transfers that she made during and shortly before bankruptcy. See 11 U.S.C. §§ 544-49 (establishing and limiting the trustee’s “avoidance powers”); see also 11 U.S.C. § 550 (establishing the liability of a transferee of an avoided transfer). Batían seeks to avoid the effect of the marriage dissolution judgment as a fraudulent conveyance under two provisions of the Bankruptcy Code— §§ 544 and 548. Becаuse I agree with the majority’s discussion of the § 544 claim, I address only the § 548 claim.
II
A
Section 548 allows the trustee to avoid transfers, made on the eve of bankruptcy, because they are said to defraud creditors. The law governing so-called fraudulent conveyances has a long pedigree in the common law, and it has generally recognized two types of fraud. First, a transfer is fraudulent if made “with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted.” § 548(a)(1)(A) (emphasis added). This is the classic fraudulent conveyance, as English law has recognized it since the Statute of 13 Elizabeth I. See An Act Against Fraudulent Deeds, Gifts, and Alienations, 1571, 13 Eliz. c. 5, s. 2 (nullifying as against third parties conveyances with the “Purpose and Intent to delaye hynder or defraude Creditоrs”), cited in Donell v. Kowell,
Second, transfers can be constructively fraudulent where courts infer fraudulent intent without direct evidence of it. These transfers bear one of the so-called “badges of fraud” traditionally associated with the classic fraudulent conveyance. See Twyne’s Case, 76 Eng. Rep. 809, 810-11 n. B (1601) (listing examples of “badges” or “marks” of fraud); see also BFP,
B
Here we have a proceeding by the bankruptcy trustee in a Chapter 7 case to recover assets pursuant to § 548 that a debtor’s former spouse received in the dissolution of their marriage. The trustee, Batían, claims that there is a constructively fraudulent conveyance because the debt- or spouse received significantly less in the dissolution than the non-debtor spouse received. In other words, he alleges that the dissоlution judgment effected a transfer for less than reasonably equivalent value. Under fraudulent conveyance law, if Bat-ían is correct that the values are not reasonably equivalent, then he can avoid the transfer.
The bankruptcy court analogized from BFP to conclude that where a transfer occurs pursuant to a non-collusive, contested divorce proceeding, it is presumed to be for “reasonably equivalent value” and therefore precludes an action by the trustee to recover the assets transferred as a constructively fraudulent conveyance. See Batlan v. Bledsoe (In re Bledsoe),
Although this approach is reasonable and its policy concerns sensible, I prefer to reach the same conclusion by a different route. In particular, I worry that the majority has inadvertently interpreted BFP too broadly in applying it directly to marriage dissolution judgments. It is odd to presume that two values are reasonably equivalent when they are numerically far apart, but that is what the majority’s opinion does. I agree with the majority that there is an analogy to be drawn between this case and BFP, but not the one the majority draws.
Ill
In BFP, the Supreme Court held that “a fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with.”
I prefer to place the holding of BFP in its theoretical context. The Supreme Court emphasized that § 548(a)(l)(B)(i) always “directs an inquiry into the relationship of the value received by the debtor to the worth of the property transferred.” Id. at 546,
To put it another way, “[t]he [central] question” in BFP was: “What is a foreclosed property worth?” Id. at 547,
IV
I have dwelled on this point because I believe it is the aspect of the BFP opinion that the majority has overlooked. In doing so, I fear it has weakened the “reasonably equivalent value” standard for purposes of § 548’s version of a constructively fraudulent conveyance.
Nothing in BFP suggested that a court need not compare the property transferred with the property received and determine whether they are “reasonably equivalent.” Indeed, BFP insisted on that inquiry.
Understood this way, we cannot directly apply the BFP Court’s reasoning, that a mortgage foreclosure price reveals the value of foreclosed property, to state court marriage dissolution judgments without undermining the statutory language to which that case applied. This is because
But such realization does not mean that we must rule for the trustee. This becomes clear if one attempts the inquiry that § 548 compels: “an inquiry into the relationship of the value received by the debtor to the worth of the property transferred.” Id. at 546,
I believe it makes more sense to say that both spouses owned the property before dissolution, but that, because they were getting divorced, the dissolution judgment assigned the assets of the marital res to each spouse individually as the state court found to be equitable. That is to say, a dissolution judgment determines, for the first time, what each spouse owns on an individual basis. Therefore, the debtor ex-spouse does not transfer or receive anything, because there is no transfer for fraudulent conveyance purposes. A divorce court simply determines that, in equity, each ex-spouse owns a certain share of the marital res.
Thus the real analogy to BFP is that a marriage dissolution judgment, like a mortgage foreclosure sale, discovers a piece of information crucial to the inquiry, though not the same piece. Foreclosure sales discover the value of property; dissolution judgments discover, or assign, the individual ownership of property. This is the meaning of the otherwise cryptic remark by our Bankruptcy Appellate Panel in Roosevelt v. Ray (In re Roosevelt), cited by the parties in this case, that “[wjhen viewed from the perspective of the debtor-creditor relationship, it is appropriate to perceive the dissolving spouses as mutual creditor-debtors, because the law requires a fair and equitable settlement of their claims against the marital res and one another.”
In other words, as one half of a married couple, each individual spouse held a bundle of assets and liabilities, including claims against the marital res (e.g., wages contributed to the marital household) and against the other spouse (e.g., loans from
I recognize that excluding dissolution judgments from the reach of § 548 on the ground that they do not effect transfers seems at odds with the broad definition of transfer under the Bankruptcy Code. See 11 U.S.C. § 101(54)(D) (“The term ‘transfer’ means ... each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with (i) property; or (ii) an interest in property.”).
Furthermore, it is a cardinal principle— the so-called “Butner principle” — that bankruptcy law takes applicable nonbank-ruptcy law as it finds it, particularly when it comes to the definition of property interests. See BFP,
As I pointed out above, in BFP the Supreme Court interpreted the term “reasonably equivalent value” in such a way as to avoid upsetting an official state legal procedure. BFP is not the only time the Court has favored such an approach. See, e.g., Kelly v. Robinson,
Furthermore, the characterization I recommend would not insulate from collateral attack a divorce settlement agreement, adopted by a state court, that the spouses negotiated between themselves in order to divide their assets. My reasoning, that a dissolution judgment, reached after a contested divorce proceeding, operates as a determination of the individual ownership of the former spouses without any transfer having taken place, plainly does not apply to a dissolution settlement agreement. For in that case the state court has not determined ownership, but simply ratified the parties’ allocation of assets. When the parties allocate the assets, the transaction is akin to a contractual exchange, in which each gives up something to get something. See In re Marriage of Lynch-Kirby,
V
Perhaps it seems overly technical to insist on the proper doctrinal approach in
. This is consistent with the definition, under Oregon law, of a dissolution judgment as “a partitioning of jointly owned property.” Or. Rev.Stat. § 107.105(1)(1). In other words, the married spouses jointly owned the whole, but after divorce individually own only a part. See id. (‘‘Subsequent to the filing of a petition for annulment or dissolution of marriage or separation, the rights of the parties in the marital assets shall be considered a species of coownership, and a transfer of marital assets under a judgment of annulment or dissolution of marriage or of separation ... shall be considered a partitioning of jointly owned property.”). Because the partition is equitable and therefore not always 50/50, see id., it is unclear ex ante how much each spouse owns individually. The dissolution judgment answers that question.
Of course, the fact that Oregon describes the process as a transfer does not control the definition of the term "transfer” under federal bankruptcy law. See Barnhill v. Johnson,
. I presume that the Bankruptcy Appellate Panel in In re Roosevelt used the phrase “equal value,” because under California law, which governed the dispute in that case, community property typically must be divided equally in the event of dissolution. See Cal. Fam.Code § 2550. I discuss the implications of the California rule infra, at note 4.
. I also note that my interpretation is consistent with the effect, if not the exact language, of the Internal Revenue Code, which treats “transfers [between former spouses] incident to [a! divorce” as non-taxable events. 26 U.S.C. § 1041(a). Contrast how the Internal Revenue Code would have treated the transaction at issue in BFP, in which the debtor gave up the foreclosed property in exchange for cancellation of some of his debts. “Income from discharge of indebtedness” is explicitly listed in the definition of “gross income” and its receipt is, generally, a taxable event. 26 U.S.C. § 61(a)(12).
. The distinction I draw between establishing ownership and value may have, admittedly, little practical effect in those community property states, such as California, which mandate an equal division of community assets at divorce. See supra, at note 2. This is because where all dissоlutions divide community property equally anyway, it does not matter whether there has been a transfer or not for purposes of fraudulent conveyance law. Even if there were a transfer, it would always be for reasonably equivalent — indeed, equal— value.
However, the distinction I draw does matter in the vast majority of states, in which the divorce court equitably divides the property, because in those states the division can often be unequal. This description covers all non-community property states, such as Oregon, and those community property states in which the law does not mandate a 50/50 division, such as Washington. See, e.g., Or. Rev.Stat. § 107.105(1 )(f); Wash. Rev.Code § 26.09.080.
.The majority argues that we should not reach whether the dissolution judgment is a transfer because we do not reach issues that the parties have not briefed. That is the usual rule, of course, but there is an exception when “the issue presented is purely one of law and the opposing party will suffer no prejudice as a result of the failure to raise the issue.” United States v. Carlson,
. I recognize my interpretation is in tension with our interpretation of the Bankruptcy Act (the predecessor to the modem Bankruptcy Code) in Britt v. Damson,
. The same, it seems to me, would be true of a secret, collusive agreement whereby the parties trick a court into issuing a particular dissolution judgment.