Katayone Adeli v. Richard Sachs

FILED
JUN 17 2010
NOT FOR PUBLICATION
MOLLY C. DWYER, CLERK
U .S. C O U R T OF APPE ALS
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: KATAYONE ADELI, No. 09-60017
Debtor, BAP No. CC-08-1098-MoPaD
MEMORANDUM *
KATAYONE ADELI,
Appellant,
v.
RICHARD B. SACHS,
Appellee.
In re: KATAYONE ADELI, No. 09-60020
Debtor, BAP No. CC-08-1098-MoPaD
KATAYONE ADELI,
Appellant,
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
v.
RICHARD B. SACHS,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Pappas, Montali, and Dunn, Bankruptcy Judges, Presiding
Argued and Submitted May 5, 2010
Pasadena, California
Before: B. FLETCHER and PAEZ, Circuit Judges, and EZRA, ** District Judge.
Katayone Adeli appeals a decision of the Bankruptcy Appellate Panel for the
Ninth Circuit (“BAP”) reversing and remanding the bankruptcy court’s prior
judgment for Adeli in an adversary proceeding filed by creditor Richard B. Sachs.
Sachs’ adversary proceeding sought, inter alia, to deny Adeli discharge pursuant to
11 U.S.C. § 727(a)(2)(A) due to Adeli’s intentional transfer of her assets allegedly
to hinder or delay Sachs’ recovery. We review the bankruptcy court’s decision
“independently, without deference to the BAP.” Ting v. Chang (In re Chang), 163
F.3d 1138, 1140 (9th Cir. 1998). We affirm the BAP’s reversal of the bankruptcy
court’s judgment and remand to the bankruptcy court to deny discharge.
**
The Honorable David Alan Ezra, United States District Judge for the
District of Hawaii, sitting by designation.
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This case involves two sets of pre-petition transfers by Adeli. The first set
of transfers consisted of: (1) the Equity Line Deposit; (2) the $33,000 Valley
National Transfer; (3) the $58,000 Wire Transfer; and (4) the Bear Stearns
Withdrawal (collectively, the “First 2005 Transfers”), as referenced by the
bankruptcy court. We do not address the bankruptcy court’s determination as to
the second set of transfers, because a debtor who transfers any property within one
year before filing for bankruptcy with the intent penalized by § 727(a)(2)(A) is
denied discharge. 11 U.S.C. § 727(a)(2)(A); First Beverly Bank v. Adeeb (In re
Adeeb), 787 F.2d 1339, 1342 (9th Cir. 1986).
The only factual dispute before the bankruptcy court and on appeal is
whether Adeli had the intent to hinder, delay or defraud Sachs prohibited by
§ 727(a)(2)(A). On this record, we find that Sachs made out a prima facie case
against Adeli under § 727(a)(2)(A) because Adeli admitted that she intended to
move nearly all of her available funds into a friend’s name with the express
purpose of protecting her property from Sachs and because the transfers bear
“badges of fraud,” as detailed by the BAP. See Aubrey v. Thomas (In re Aubrey),
111 B.R. 268, 273 (B.A.P. 9th Cir. 1990); Roberts v. Erhard (In re Roberts), 331
B.R. 876, 884-85 & n.5 (B.A.P. 9th Cir. 2005). Because Sachs has made out a
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prima facie case, Adeli must respond with “credible evidence” in order to prevail.
In re Aubrey, 111 B.R. at 273.
Here, the bankruptcy court relied on two grounds to support its finding that
Adeli lacked the requisite intent under § 727(a)(2)(A). First, the bankruptcy court
found that Adeli made the First 2005 Transfers with the purpose of protecting her
assets from the misconduct of a creditor—Sachs—and that she therefore lacked the
requisite intent under § 727(a)(2)(A). Second, the bankruptcy court additionally
held that Adeli lacked the requisite intent under § 727(a)(2)(A) because she relied
in good faith upon the advice of her attorneys in making the subject transfers. We
find that neither of these grounds is supported by “credible evidence” with which
to rebut Sachs’ prima facie case.
First, the bankruptcy court clearly erred in holding that Adeli lacked the
intent to hinder, delay or defraud a creditor under § 727(a)(2)(A) because she acted
to protect her assets from creditor misconduct. The record in this case provides no
factual basis on which to support a finding of any improper or wrongful behavior
by Sachs or his lawyers other than Adeli’s unsupported self-serving allegations.
See In re Aubrey, 111 B.R. at 273 (declining to find a debtor’s “self-serving
statement of his intent as the best evidence of that intent”). In fact, the bankruptcy
court made an express factual finding that “Sachs did not levy on any Adeli assets,
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which he was entitled to pursue, at any time prior to Adeli’s bankruptcy.”
Accordingly, we find that the bankruptcy court clearly erred in finding that Adeli’s
allegations of potential misconduct by Sachs negated her intent under
§ 727(a)(2)(A). See Beauchamp v. Hoose (In re Beauchamp), 236 B.R. 727, 731
(B.A.P. 9th Cir. 1999) (affirming a finding of intent to hinder or delay where the
bankruptcy court found that the debtor’s prepetition transfer of assets was not for
the purpose of “thwarting a perceived pattern of improper harassment” and the
record did not support a finding of any such harassment), aff’d, 5 Fed. App’x 743
(9th Cir. 2001).
Second, the bankruptcy court clearly erred in holding that Adeli lacked the
intent to hinder, delay or defraud a creditor under § 727(a)(2)(A) based upon her
good faith reliance on the advice of counsel. Where a bankruptcy court finds that
the debtor knew that “the purpose of the transfers was to hinder or delay creditors
of the debtor[,] [s]uch a finding precludes the defense of good faith reliance on the
advice of an attorney even if the client is otherwise innocent of any improper
purpose.” In re Adeeb, 787 F.2d at 1343. Here, Adeli admitted, and the
bankruptcy court found, that she transferred funds into her friend’s name with the
express purpose of “protecting” the money from Sachs. Thus, by Adeli’s own
admissions both she and her New York counsel knew that the purpose of the First
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2005 Transfers was to keep Adeli’s assets away from Sachs, i.e., to hinder or delay
Sachs’ collection efforts. Therefore, under In re Adeeb, Adeli’s reliance on the
advice of counsel could not have been in “good faith” because the record shows
that she had actual knowledge that the subject transfers were made to hide assets
from a creditor. Accordingly, the bankruptcy court clearly erred in finding that
Adeli’s reliance on the advice of counsel negated her intent under § 727(a)(2)(A).
The bankruptcy court further relied on In re Adeeb’s disclose-and-recover
defense as an additional ground on which to deny Sachs’ § 727(a)(2)(A) challenge
to Adeli’s bankruptcy petition. In doing so, the bankruptcy court argued that the
holding of In re Adeeb should be expanded to apply to the facts of the instant case.
We disagree and conclude that the disclose-and-recover defense recognized in In
re Adeeb should not be extended to the situation here, where Adeli, in reliance on
the mistaken advice of counsel, failed to recover the First 2005 Transfers’ assets
until some time after she filed her voluntary bankruptcy petition. Cf. In re Adeeb,
787 F.2d at 1344-46.
AFFIRMED.
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