Kendall v. Carbaat et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 06-40029 TK
Chapter 7
MICHAEL ANGELO CARBAAT,
Debtor.
___________________________/
JOHN T. KENDALL, Trustee, 	A.P. No. 06-4092 AT
Plaintiff,
vs.
SILVIA CARBAAT, SUSAN HESTER
NEWCOMB,
Defendants.
___________________________/
MEMORANDUM OF DECISION
In 	this 	adversary 	proceeding, 	plaintiff 	John 	T. 	Kendall, 	the
duly appointed chapter 7 trustee, (the “Trustee”) seeks to avoid the
pre-petition 	transfer 	by 	the 	debtor 	(the 	“Debtor”) 	to 	his 	former
wife, defendant Silvia Carbaat (“Silvia”), of his interest in their
family 	home 	(the 	“House”) 	and 	in 	an 	unsecured 	promissory 	note 	(the
“Note”) pursuant to 11 U.S.C. § 548(a) and § 544(b). 	He also seeks
to 	recover 	the 	transfers 	or 	their 	value 	from 	Silvia 	pursuant 	to 	11
Signed: December 19, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
December 19, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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U.S.C. 	§ 	550(a)(1) 	and, 	with 	respect 	to 	his 	interest 	in 	the 	House,
from defendant Susan Hester Newcomb (“Newcomb”), Silvia’s mother, as
a 	subsequent 	transferee 	pursuant 	to 	11 	U.S.C. 	§ 	550(a)(2). 	The
proceeding 	was 	tried 	to 	the 	Court 	on 	December 	11, 	2006 	and, 	at 	the
conclusion 	of 	the 	trial, 	was 	taken 	under 	submission. 	The 	Court’s
findings and conclusions are set forth below.
SUMMARY OF FACTS
The 	Debtor 	and 	Silvia 	were 	married 	on 	May 	20, 	2000. 	They
separated on October 19, 2003 and were divorced on October 29, 2004.
During their marriage, they had two children, who are currently five
and 	seven 	years 	old, 	respectively. 	They 	purchased 	the 	House 	in
February 2002. 	Newcomb loaned them the money for the down payment:
i.e., approximately $25,000.
The marital settlement agreement (the “MSA”) provided that the
Debtor 	would 	transfer 	his 	interest 	in 	the 	House 	to 	Silvia. 	She
agreed 	to 	refinance 	the 	mortgage 	within 	90 	days 	to 	remove 	the
Debtor’s name from the underlying promissory note. 	The Debtor also
transferred 	to 	Silvia 	a 	promissory 	note 	for 	$15,600 	owed 	to 	the
couple 	by 	third 	parties 	(the 	“Note”). 	The 	Debtor 	received 	sole
ownership 	of 	three 	vehicles. 	Silvia 	waived 	the 	right 	to 	future
spousal support. 	Each party agreed to bear his or her own attorneys’
fees. 	The MSA was incorporated into the divorce decree.
Silvia 	was 	unable 	to 	obtain 	the 	refinancing 	based 	on 	her 	own
credit. 	Consequently, in November 2003, she transferred the House to
Newcomb as trustee of a family trust (the “Trust”). 	Silvia and her
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brother were the sole beneficiaries of the Trust. 	Newcomb’s credit
permitted her to refinance the mortgage.
On 	January 	12, 	2006, 	the 	Debtor 	filed 	a 	chapter 	7 	petition,
commencing this case. 	Thus, this case is governed by the amendments
to 	the 	Bankruptcy 	Code 	made 	by 	the 	Bankruptcy 	Abuse 	Prevention 	and
Consumer 	Protection 	Act 	of 	2005 	(“BAPCPA”). 	This 	adversary
proceeding was commenced on March 5, 2006.
DISCUSSION
A. 	OVERVIEW
The Trustee’s First Amended Complaint (the “Complaint”) stated
seven claims for relief: (1) fraudulent conveyance under 11 U.S.C. §
548(a)(1), (2) fraudulent conveyance under 11 U.S.C. § 548(a)(2), (3)
fraudulent conveyance under 11 U.S.C. § 544(b) and Cal. Civ. Code §
3439.04, (4) fraudulent conveyance under 11 U.S.C. § 544(b) and Cal.
Civ. Code § 3439.05, (5) to recover the avoided transfer or its value
from Newcomb under 11 U.S.C. § 550(a)(2), (6) objecting to any claims
filed by defendants under 11 U.S.C. § 502(d), and (7) for sale of co-
owner’s interests pursuant to 11 U.S.C. § 363(h).
No 	evidence 	was 	provided 	on 	the 	sixth 	and 	seventh 	claims, 	and
they were not discussed in the trial briefs. 	Therefore, these claims
will be dismissed without prejudice. 	The Court will address together
the 	first 	and 	third 	claims, 	on 	the 	one 	hand, 	and 	the 	second 	and
fourth 	claims, 	on 	the 	other, 	as 	they 	are 	substantially 	the 	same
claims. 	Thereafter, 	the 	Court 	will 	address 	the 	fifth 	claim 	for
relief.
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A. 	AVOIDANCE OF TRANSFERS AS ACTUALLY FRAUDULENT
1. Applicable Law
As applicable to this case, 11 U.S.C. § 548(a)(1)(A) provides,
in pertinent part, as follows:
The 	trustee 	may 	avoid 	any 	transfer...of 	an
interest 	of 	the 	debtor 	in 	property...that 	was
made...within 	2 	years 	before 	the 	date 	of 	the
filing 	of 	the 	petition, 	if 	the 	debtor
voluntarily or involuntarily–
(A) 	made 	such 	transfer...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...indebted....
11 U.S.C. § 548(a)(1)(2005).
Section 3439.04(a)(1) of the California Civil Code provides, in
pertinent part, as follows:
A 	transfer 	made...by 	a 	debtor 	is 	fraudulent 	as
to 	a 	creditor, 	whether 	the 	creditor’s 	claim
arose before or after the transfer was made...,
if the debtor made the transfer...as follows:
(1) 	With 	actual 	intent 	to 	hinder, 	delay, 	or
defraud any creditor of the debtor.
Cal. 	Civ. 	Code 	§ 	3439.04(a)(1). 	Section 	3439.07(a)(1) 	provides 	as
follows:
In 	an 	action 	for 	relief 	against 	a
transfer...under 	this 	chapter, 	a 	creditor,
subject 	to 	the 	limitations 	in 	Section 	3439.08,
may obtain:
(1) Avoidance of the transfer...to the extent
necessary to satisfy the creditor’s claim.
Cal. 	Civ. 	Code 	§ 	3439.07(a)(1). 	Section 	3439.08(a) 	provides, 	in
pertinent part, as follows:
A transfer...is not voidable under paragraph (1)
of subdivision (a) of Section 3439.04 against a
person 	who 	took 	in 	good 	faith 	and 	for 	a
reasonably 	equivalent 	value 	or 	against 	any
subsequent transferee.
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Section 3439.09(a) provides, in pertinent part, as follows:
A 	cause 	of 	action 	with 	respect 	to 	a 	fraudulent
transfer...under 	this 	chapter 	is 	extinguished
unless action is brought pursuant to subdivision
(a) of Section 3439.07...:
(a) Under paragraph (1) of subdivision (a) of
Section 	3439.04, 	within 	four 	years 	after 	the
transfer was made....
With 	exceptions 	not 	relevant 	to 	this 	proceeding, 	11 	U.S.C. 	§
544(b) of the Bankruptcy Code provides that:
...the 	trustee 	may 	avoid 	any 	transfer 	of 	an
interest 	of 	the 	debtor 	in 	property...that 	is
voidable 	under 	applicable 	law 	by 	a 	creditor
holding an [allowable] unsecured claim....
11 U.S.C. § 544(b)(1). 	As relevant to this proceeding, 11 U.S.C. §
546(a)(1) requires a trustee to file an avoidance action under either
11 U.S.C. § 544 or 548 within two years after the entry of the order
for relief.
2. 	Decision
The Trustee contends that the transfer of the Debtor’s interests
in 	the 	Note 	and 	the 	House 	were 	actually 	fraudulent 	and 	should 	be
avoided pursuant to the statutes recited above. 	The proceeding was
timely 	filed 	pursuant 	to 	11 	U.S.C. 	§ 	546(a)(1). 	In 	addition, 	the
transfers 	occurred 	within 	the 	time 	frame 	established 	by 	the
applicable 	version 	of 	11 	U.S.C. 	§ 	548(a)(1) 	and 	Cal. 	Civ. 	Code 	§
3439.09(a). 	The 	only 	issue 	presented 	for 	this 	Court 	is 	whether,
based on the evidence presented, the transfers were made with actual
intent to hinder, delay, or defraud a creditor.
At the conclusion of the trial, the Court made an oral ruling on
these claims. 	The Court stated that the evidence was not sufficient
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to 	establish 	that 	the 	transfers 	were 	made 	with 	actual 	intent 	to
hinder, delay, or defraud a creditor. 	The Trustee asserted that the
Court should find sufficient to establish actual intent the fact that
several 	badges 	of 	fraud 	were 	present. 	See 	Cal. 	Civ. 	Code 	§
3439.04(b): e.g., the transfer was made to an insider. 	He contended
that the MSA was collusive.
The 	Court 	was 	not 	persuaded. 	Assuming 	a 	divorce 	is 	not
collusive, 	the 	Court 	does 	not 	consider 	a 	spouse 	an 	insider 	of 	the
divorcing 	spouse. 	The 	Court 	was 	persuaded 	by 	the 	demeanor 	of 	the
parties 	that 	the 	divorce 	was 	not 	collusive. 	The 	only 	suspicious
aspect 	of 	the 	transaction 	was 	Silvia’s 	subsequent 	transfer 	of 	the
House to Newcomb, as trustee of the Trust. 	However, the reason for
this subsequent transfer was explained to the Court’s satisfaction:
i.e., 	to 	permit 	Newcomb 	to 	refinance 	the 	House 	as 	required 	by 	the
MSA. 	Thus, the Court finds for Silvia on the first and third claims
and will not avoid the transfers as actually fraudulent.
B. 	AVOIDANCE OF TRANSFERS AS CONSTRUCTIVELY FRAUDULENT
1. 	Applicable Law
As applicable to this case, 11 U.S.C. § 548(a)(1)(B) provides,
in pertinent part, as follows:
The 	trustee 	may 	avoid 	any 	transfer...of 	an
interest 	of 	the 	debtor 	in 	property...that 	was
made...within 	2 	years 	before 	the 	date 	of 	the
filing 	of 	the 	petition, 	if 	the 	debtor
voluntarily or involuntarily–
... (B)(i) 	received 	less 	than 	a 	reasonably
equivalent 	value 	in 	exchange 	for 	such 	transfer
or obligation; and
(ii)(I) 	was 	insolvent 	on 	the 	date 	that
such transfer was made...or became insolvent as
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a result of such transfer...;
11 	U.S.C. 	§ 	548(a)(1)(B)(2005). 	As 	relevant 	here, 	“insolvent” 	is
defined as a:
financial condition such that the sum of...[the
debtor’s] 	debts 	is 	greater 	than 	all 	of...[the
debtor’s] 	property, 	at 	a 	fair 	valuation,
exclusive of–
(i) property transferred, concealed or removed
with 	intent 	to 	hinder, 	delay, 	or 	defraud 	such
entity’s creditors, and
(ii) 	property 	that 	may 	be 	exempted 	from
property 	of 	the 	estate 	under 	section 	522
of...[the Bankruptcy Code.]
11 U.S.C. § 101(32)(A).
Section 548(d)(2)(A) states as follows:
“[v]alue” 	means 	property, 	or 	satisfaction 	or
securing of a present or antecedent debt of the
debtor, 	but 	does 	not 	include 	an 	unperformed
promise to furnish support to the debtor or to a
relative of the debtor....
11 U.S.C. § 548(d)(2)(A).
Section 	3439.05 	of 	the 	California 	Civil 	Code 	provides, 	in
pertinent part, as follows:
A 	transfer 	made...by 	a 	debtor 	is 	fraudulent 	as
to 	a 	creditor 	whose 	claim 	arose 	before 	the
transfer 	was 	made...if 	the 	debtor 	made 	the
transfer...without 	receiving 	a 	reasonably
equivalent 	value 	in 	exchange 	for 	the
transfer...and the debtor was insolvent at that
time or the debtor became insolvent as a result
of the transfer....
Cal. Civ. Code § 3439.05. 	Section 3439.01(a) states as follows:
“Asset” means property of a debtor, but the term
does not include, the following:
(1) Property to the extent it is encumbered by
a valid lien.
(2) 	Property 	to 	the 	extent 	it 	is 	generally
exempt under nonbankruptcy law.
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Cal. 	Civ. 	Code 	§ 	3439.01(a). 	Section 	3439.02, 	in 	pertinent 	part,
states as follows:
(a) 	A 	debtor 	is 	insolvent 	if, 	at 	fair
valuations, 	the 	sum 	of 	the 	debtor’s 	debts 	is
greater than all of the debtor’s assets.
...
(c) 	A 	debtor 	who 	is 	generally 	not 	paying 	his
or 	her 	debts 	as 	they 	become 	due 	is 	presumed 	to
be insolvent.
...
(e) Debts under this section do not include an
obligation 	to 	the 	extent 	it 	is 	secured 	by 	a
valid 	lien 	on 	property 	of 	the 	debtor 	not
included as an asset.
Cal. 	Civ. 	Code 	§ 	3439.02. 	Section 	3439.03, 	in 	pertinent 	part,
states as follows:
Value 	is 	given 	for 	a 	transfer...if, 	in
exchange 	for 	the 	transfer...property 	is
transferred or an antecedent debt is secured or
satisfied 	but 	value 	does 	not 	include 	an
unperformed 	promise 	made 	otherwise 	than 	in 	the
ordinary 	course 	of 	the 	promisor’s 	business 	to
furnish support to the debtor or another person.
Cal. Civ. Code § 3439.03. 	This type of claim is also extinguished
if 	an 	action 	is 	not 	filed 	within 	four 	years 	of 	when 	the 	transfer
occurred. 	See Cal. Civ. Code § 3439.09(b).
As 	set 	forth 	in 	the 	preceding 	section, 	Cal. 	Civ. 	Code 	§
3439.07(a)(1) provides as follows:
In 	an 	action 	for 	relief 	against 	a
transfer...under 	this 	chapter, 	a 	creditor,
subject 	to 	the 	limitations 	in 	Section 	3439.08,
may obtain:
(1) Avoidance of the transfer...to the extent
necessary to satisfy the creditor’s claim.
Cal. 	Civ. 	Code 	§ 	3439.07(a)(1). 	Section 	3439.08(a) 	provides, 	in
pertinent part, as follows:
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1Since all of the transfers made and value received were part
of the MSA, there is no question concerning whether the value
received was “in exchange” for the transfers made as required by
both statutes.
9
A transfer...is not voidable under paragraph (1)
of subdivision (a) of Section 3439.04 against a
person 	who 	took 	in 	good 	faith 	and 	for 	a
reasonably 	equivalent 	value 	or 	against 	any
subsequent transferee.
Finally, as also set forth in the preceding section, 11 U.S.C.
§ 544(b) permits a chapter 7 trustee to file an avoidance action that
could 	have 	been 	filed 	by 	a 	creditor 	under 	nonbankruptcy 	law. 	11
U.S.C. § 544(b). 	The Trustee has two years from the date of entry of
the order for relief to file the action. 	See 11 U.S.C. § 546(a)(1).
2. 	Decision
The only issues presented by these two claims are: (1) whether
the Debtor received reasonably equivalent value for the transfers and
(2) 	if 	not, 	whether 	the 	Debtor 	was 	insolvent 	at 	the 	time 	of 	the
transfers or was rendered insolvent by the transfers.
(1) Reasonably Equivalent Value
As set forth above, both 11 U.S.C. § 548(a)(1)(B) and Cal. Civ.
Code 	§ 	3439.05 	define 	a 	constructively 	fraudulent 	transfer 	as 	a
transfer for which the debtor did not receive “reasonably equivalent
value.” 	To determine whether the transfers sought to be avoided by
the Trustee were constructively fraudulent, the Court must determine
the 	value 	of 	what 	the 	Debtor 	transferred 	and 	the 	value 	of 	what 	he
received. 1 	The Court must then determine whether the latter value is
reasonably equivalent to the former. 	“Reasonable equivalence” does
not 	require 	exact 	equality 	in 	value. 	In 	re 	Food 	& 	Fibre 	Prot.,
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2Silvia contended that the value of the Note should be reduced
by the costs incurred to collect the balance due. 	She contended
that these costs totaled approximately $1,800. 	The Court was not
persuaded. 	It was not inevitable that these costs would be
incurred in order to realize the value of the Note.
10
Ltd., 	168 	B.R. 	408, 	417 	(Bankr. 	D. 	Ariz. 	1994); 	see 	also 	BFP 	v.
Resolution Trust Corp., 511 U.S. 531, 540 n.4 (1994).
(a) Value of Transferred Property
The complaint seeks to avoid two transfers: (1) the transfer of
the 	Debtor’s 	interest 	in 	the 	House 	and 	(2) 	the 	transfer 	of 	the
Debtor’s 	interest 	in 	the 	Note. 	The 	balance 	due 	on 	the 	Note 	was
$15,800. 	Thus, 	the 	value 	of 	the 	Debtor’s 	interest 	in 	the 	Note 	was
$7,900. 2
The value of the Debtor’s interest in the House at the time of
the transfer was disputed. 	The Debtor listed the value of the House
as $290,000 in his bankruptcy schedules. 	However, at the trial, the
Trustee called an appraiser as an expert witness who valued the House
at 	$372,000. 	Silvia 	contended 	that 	the 	value 	of 	the 	House 	was
$320,000.
The Court concludes that the House should be valued at $350,000.
The 	closest 	comparable 	house 	in 	size, 	age, 	and 	location 	sold 	for
$372,000 in approximately the same time frame. 	However, evidence was
presented 	that 	this 	house 	had 	been 	remodeled 	recently 	whereas 	the
House had deferred maintenance. 	The appraiser admitted that he did
not inspect the inside of the House. 	The balance of the secured debt
was approximately $290,000. 	As a result, the net equity in the House
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was approximately $60,000 and the Debtor’s share of that was $30,000.
Thus, the total value of these two transfers was $37,900.
(b) Value of Property Received
In 	return 	for 	these 	transfers, 	the 	Debtor 	received 	sole
ownership 	of 	three 	vehicles 	with 	a 	net 	equity 	of 	$3,500. 	On 	his
bankruptcy schedules, he listed other personal property with a total
value 	of 	approximately 	$6,500. 	Presumably, 	at 	the 	time 	of 	the
transfers 	he 	owned 	the 	same 	assets 	or 	others 	of 	the 	same 	type 	of 	a
similar value. 	The MSA gave him the sole ownership of these assets
as well, thus increasing the total value of property he received to
approximately $6,750.
Silvia 	also 	agreed 	to 	refinance 	the 	home 	mortgage 	so 	as 	to
obtain 	a 	release 	of 	the 	Debtor’s 	liability 	on 	the 	underlying 	note.
This agreement had no value. 	A debtor has no personal liability on
a 	note 	secured 	by 	a 	purchase 	money 	mortgage 	on 	his 	residence. 	See
Cal. 	Civ. 	Proc. 	Code 	§ 	580b. 	Silvia 	also 	agreed 	to 	assume 	the
$25,000 	debt 	to 	Newcomb 	for 	the 	down 	payment 	on 	the 	House. 	This
agreement had a value to him of $12,500, thus increasing the value of
the 	property 	he 	received 	to 	approximately 	$19,250. 	The 	Trustee
contends that this is the full extent of the property received by the
Debtor in exchange for the transfers. 	The Court finds $19,205
to be less than reasonably equivalent in value to $37,900. 	It finds
that the minimum amount of value that would be reasonable equivalent
is 	$26,530: 	i.e., 	70 	percent 	of 	the 	value 	transferred. 	The 	value
received that has been discussed thus far falls short of this number
by $7,325.
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3The definition contemplates a scenario whereby the debtor
transfers property of tangible value to a third party in return for
the third party’s agreement to provide support to him in the
future.
12
Silvia contends that the Court should consider two other items
given to the Debtor to be of value in excess of this figure: (1) her
agreement 	to 	pay 	her 	own 	attorneys’ 	fees 	and 	(2) 	her 	waiver 	of
spousal 	support. 	The 	Court 	concludes 	that 	a 	waiver 	of 	spousal
support cannot serve as value in this context.
As 	noted 	above, 	the 	definition 	of 	value 	in 	both 	11 	U.S.C. 	§
548(d)(2)(A) 	and 	Cal. 	Civ. 	Code 	§ 	3439.03 	excludes 	an 	unperformed
promise to provide future support to the debtor or to another person.
The 	rationale 	of 	these 	provisions, 	although 	not 	their 	precise
language, 	precludes 	treating 	the 	Debtor’s 	waiver 	of 	future 	spousal
support as value. 3 	The rationale behind the statutory exclusion is
that an unperformed promise to provide future support to the debtor
does 	not 	benefit 	creditors 	in 	a 	liquidation. 	In 	re 	Lucas 	Dallas,
Inc., 	185 	B.R. 	801, 	807 	(Bankr. 	9 th 	Cir. 	1995)(citing 	California
legislative history); see In re Agric. Research & Tech. Group, Inc.,
916 	F.2d 	528, 	540 	(9th 	Cir. 	1990)(citing 	comment 	to 	Uniform
Fraudulent Transfer Act). Similarly, in a chapter 7 case, the waiver
of a debtor’s obligation to pay future spousal support from his post-
petition income does not create value from a creditor’s perspective.
However, the Court concludes that the Debtor’s agreement to pay
her 	own 	attorneys’ 	fees 	did 	constitute 	value 	for 	purposes 	of 	this
proceeding. 	If 	the 	Debtor 	had 	been 	ordered 	to 	pay 	Silvia’s
attorneys’ 	fees, 	those 	fees 	would 	constitute 	a 	claim 	against 	his
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bankruptcy estate. 	By eliminating this claim, other creditors would
be 	benefitted 	by 	having 	fewer 	creditors 	with 	which 	to 	share 	any
proceeds from the estate.
There 	are 	two 	admitted 	weaknesses 	in 	the 	Court’s 	conclusion.
First, 	the 	family 	law 	court 	had 	not 	yet 	ordered 	the 	Debtor 	to 	pay
Silvia’s attorneys’ fees when she entered into the MSA. 	However, the
Court finds that it is more likely than not that the family law court
would have made such an order. 	The evidence established a dramatic
disparity 	in 	the 	parties’ 	incomes. 	Silvia 	had 	the 	primary
responsibility 	for 	the 	care 	of 	the 	couple’s 	two 	young 	children 	and
worked a waitress for minimum wage plus tips. 	The Debtor worked for
a 	company 	that 	performed 	industrial 	painting, 	e.g., 	on 	bridges,
earning as much as $21 an hour. 	He had had an income of $100,000 in
2005 although he testified without contradiction that he was likely
to earn substantially less in 2006.
Second, 	no 	evidence 	was 	presented 	establishing 	the 	precise
amount 	of 	the 	attorneys’ 	fees 	that 	had 	been 	incurred 	by 	Silvia.
However, 	evidence 	was 	provided 	that 	the 	dissolution 	proceeding 	had
been 	litigious. 	An 	evidentiary 	hearing 	was 	required 	in 	connection
with 	the 	temporary 	support 	order. 	A 	final 	evidentiary 	hearing 	had
been 	scheduled 	to 	resolve 	all 	the 	marital 	issues. 	The 	MSA 	was
settled shortly before the trial date after considerable negotiation.
Based on this evidence, the Court finds it more likely than not that
Silvia 	had 	incurred 	substantially 	more 	than 	$7,325 	in 	attorneys’
fees.
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(2) Insolvency
Having concluded that the Debtor received reasonably equivalent
value in exchange for the transfers, the Court need not address the
issue 	of 	whether 	the 	Debtor 	was 	insolvent 	at 	the 	time 	of 	the
transfers or was rendered insolvent by them. 	Nevertheless, the Court
will do so to establish a record in the event of an appeal. 	Based on
the evidence presented, the Court finds and concludes that the Debtor
was 	either 	insolvent 	at 	the 	time 	of 	the 	transfers 	or 	was 	rendered
insolvent as a result of the transfers.
The 	Trustee 	contended 	that, 	as 	a 	result 	of 	the 	transfers, 	the
Debtor was left with only three vehicles, the unencumbered value of
which totaled $3,500. 	The evidence established that, at the time of
the transfers and thereafter, the Debtor had unsecured debt on three
credit 	cards 	totaling 	over 	$17,000. 	Therefore, 	even 	if 	the 	Debtor
was 	not 	insolvent 	at 	the 	time 	of 	the 	transfers, 	the 	Debtor 	was
rendered insolvent as a result of the transfers.
C. 	RECOVERY OF AVOIDED TRANSFER OR ITS VALUE
1. 	Applicable Law
Section 	550(a) 	of 	the 	Bankruptcy 	Code 	provides, 	in 	pertinent
part, that:
Except 	as 	provided 	in 	this 	section, 	to 	the
extent that a transfer is avoided under section
544...of 	this 	title, 	the 	trustee 	may 	recover,
for 	the 	benefit 	of 	the 	estate, 	the 	property
transferred, 	or, 	if 	the 	court 	so 	orders, 	the
value of such property, from–
(1) 	the 	initial 	transferee 	of 	such
transfer...
(2) any immediate or mediate transferee of
such initial transferee.
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4As with the issue of insolvency, since the Court has
concluded that the transfers are not avoidable, the Court need not
address this issue and does so only to create a record.
15
Section 550(b)(1) of the Bankruptcy Code provides, in pertinent part,
that:
The trustee may not recover under section (a)(2)
of this section from–
(1) 	a 	transferee 	that 	takes 	for 	value,
including satisfaction or securing of a present
or 	antecedent 	debt, 	in 	good 	faith, 	and 	without
knowledge 	of 	the 	voidability 	of 	the 	transfer
avoided....
11 U.S.C. § 550(b)(1).
2. 	Decision
The 	Trustee 	seeks 	to 	recover 	the 	avoided 	transfers 	or 	their
value from Silvia and Newcomb. 4 	Silvia is the immediate transferee
of both transfers and thus, if the transfers were avoidable, would be
absolutely liable for their value: 	i.e., $37,900. 	See 11 U.S.C. §
550(a)(1).
Newcomb is a subsequent transferee of the Debtor’s interest in
the 	House 	pursuant 	to 	11 	U.S.C. 	§ 	550(a)(2). 	Section 	550(b)(1)
provides a defense to the recovery action for a subsequent transferee
who 	gave 	value 	for 	the 	transfer, 	including 	the 	satisfaction 	or
securing of an antecedent debt, in good faith, without knowledge of
the avoidability of the transfer to the extent of the value given.
Based 	on 	the 	evidence 	presented, 	the 	Court 	finds 	that 	Newcomb
acted 	in 	good 	faith 	without 	knowledge 	of 	the 	avoidability 	of 	the
transfer. 	However, the Court finds that Newcomb did not give value
for the transfer. 	Although the evidence established that Newcomb had
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loaned 	the 	couple 	$25,000 	for 	the 	down 	payment 	for 	the 	House, 	no
evidence was presented that Silvia transferred title to the House to
Newcomb to satisfy or secure that debt. 	Therefore, if the transfers
were avoidable, the Court would find Newcomb liable to transfer the
Debtor’s interest in the House to the bankruptcy estate.
CONCLUSION
The 	Court 	finds 	for 	Silvia 	on 	the 	first 	and 	third 	claims,
seeking 	to 	avoid 	the 	transfers 	as 	actually 	fraudulent. 	The 	Court
also finds for the Silvia on the second and fourth claims, seeking to
avoid the transfers as constructively fraudulent. 	Consequently, the
Court also finds for the defendants Silvia and Newcomb on the fifth
claim, to recover the avoided transfers. 	No evidence was presented
on 	the 	six 	and 	seventh 	claims. 	As 	a 	result, 	they 	are 	dismissed
without prejudice. 	Counsel for the defendants is directed to submit
a proposed form of judgment in accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Gerald C. Vanoli
3445 Golden Gate Way
P.O. Box 479
Lafayette, CA 94549-0479
Joanne LaFreniere
Stromsheim & Associates
201 California St., Ste. 350
San Francisco, CA 94111
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