Leslie v. Hancock Park Capital II, L.P. (In Re Fitness Holdings International, Inc.) , 660 F. App'x 546 ( 2016 )

FILED
NOT FOR PUBLICATION
NOV 08 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re No. 14-56766
FITNESS HOLDINGS
INTERNATIONAL, INC., D.C. No. 2:14-cv-01059-AG
Debtor,
________________________________
MEMORANDUM*
SAM LESLIE, Chapter 7 Trustee of the
estate of Fitness Holdings International,
Inc.,
Appellant,
v.
HANCOCK PARK CAPITAL II, L.P., a
Delaware limited partnership; et al.,
Appellees.
Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding
Argued and Submitted October 21, 2016
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: TALLMAN, PARKER,** and CHRISTEN, Circuit Judges.
Sam Leslie, chapter 7 trustee (“Trustee”) for the bankruptcy estate of Fitness
Holdings International, Inc. (the “Debtor”), appeals from an order of the district
court affirming the bankruptcy court’s order granting the Appellees’ motions to
dismiss all claims. The Trustee seeks to recover a pre-bankruptcy transfer of
approximately $12 million (the “Transfer”) from the Debtor to Hancock Park
Capital II, LP (“Hancock Park”), the Debtor’s sole shareholder. The Transfer paid
down prior advances from Hancock Park to the Debtor. The advances were
evidenced by promissory notes totaling approximately $25 million. The Trustee
argues that the notes did not create debt and that the pre-bankruptcy transfers were
therefore equity infusions in disguise. Seeking to recover the Transfer, the Trustee
brings claims of constructive and actual fraud, breach of fiduciary duties, and
aiding and abetting breach of fiduciary duties. We have jurisdiction under 28
U.S.C. § 158(d)(1) and 28 U.S.C. § 1291, and we affirm.
We “review de novo a district court’s judgment on appeal from a bankruptcy
court.” IRS v. Snyder, 343 F.3d 1171, 1174 (9th Cir. 2003). We apply the same
standard of review applied by the district court, “reviewing the bankruptcy court’s
**
The Honorable Barrington D. Parker, Jr., United States Circuit Judge
for the U.S. Court of Appeals for the Second Circuit, sitting by designation.
2
legal conclusions de novo and its factual determinations for clear error.” Id. To
survive a motion to dismiss, a party must allege “sufficient factual matter, accepted
as true, to state a claim to relief that is plausible on its face.” Telesaurus VPC, LLC
v. Power, 623 F.3d 998, 1003 (9th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. In reviewing a dismissal
for failure to state a claim, “[a]ll well-pleaded allegations of material fact in the
complaint are accepted as true and are construed in the light most favorable to the
non-moving party.” Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th
Cir. 2013) (citations omitted).
The Trustee failed to plausibly allege that the promissory notes from
Hancock Park to the Debtor created equity and not debt. The district court
correctly applied California law in concluding that the notes were contracts that
created a right to payment. See Poseidon Dev., Inc. v. Woodland Lane Estates,
LLC, 62 Cal. Rptr. 3d 59, 63 (Cal. Ct. App. 2007). The Trustee did not allege any
ambiguity in the promissory notes and did not offer any extrinsic evidence that
could have triggered application of the parol evidence rule. See Miller v. Glenn
Miller Prods., Inc., 454 F.3d 975, 989-90 (9th Cir. 2006) (“Because California law
3
recognizes that the words of a written instrument often lack a clear meaning apart
from the context in which the words were written, courts may preliminarily
consider any extrinsic evidence offered by the parties.”) (citing Pacific Gas &
Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644-46 (Cal.
1968)) (applying California parol evidence rule).
We see no basis under California law to ignore basic contract law and to
adopt the Trustee’s proposed usury law approach to determine whether the
promissory notes at issue here were “real” or “sham” transactions. Because the
Trustee failed to show that the promissory notes in question did not create debt, the
constructive fraudulent conveyance claim was properly dismissed. This finding
also compels the dismissal of the Trustee’s claim for actual fraudulent conveyance,
because the Trustee failed to demonstrate that the Transfer was not applied to a
valid, antecedent debt that Fitness Holdings owed to Hancock Park. See Goodman
v. H.I.G. Capital, LLC (In re Gulf Fleet Holdings, Inc.), 491 B.R. 747, 767-68
(W.D. La. 2013) (dismissing claim for actual fraudulent transfer where the transfer
was that of a “debtor attempting to comply with its contractual obligations.”).
The Trustee’s breach of fiduciary duties and aiding and abetting breach of
fiduciary duties claims were also properly dismissed. The Trustee brought the
breach of fiduciary duties claim as a direct claim, but under Delaware law, the
4
Trustee must bring such claims as “derivative claims on behalf of the insolvent
corporation.” N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930
A.2d 92, 103 (Del. 2007). The Trustee had “no right to assert direct claims for
breach of fiduciary duty against corporate directors.” Id. Because a breach of
fiduciary duties is an element of the aiding and abetting a breach of fiduciary duties
claim, see Casey v. U.S. Bank Nat’l Ass’n, 26 Cal. Rptr. 3d 401, 405 (Cal. Ct. App.
2005); Jackson Nat’l Life Ins. Co. v. Kennedy, 741 A.2d 377, 386 (Del. Ch. 1999),
and we hold that the Trustee failed to allege plausibly a breach of fiduciary duties
claim, the aiding and abetting claim was properly dismissed as well.
Each party shall bear its own costs.
AFFIRMED.
5