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January 8, 2009

Schizophrenic 9th Circuit Punts on In re Beverly

I can't post a brief on the new 9th Circuit published case of In re Beverly because the opinion says "see the BAP opinion - it's so good we didn't bother."  The same 9th Circuit that ruled in Kagenveama that if the BAPCPA amendments, read literally (who are we anyway? - just the judge), lead to a ridiculous result, well who are we anyway?  "Congress - you wrote it buddy!"  But in Beverly where the BAP reversed the trial court after a lengthy trial and put doubt into many divorce settlements and other prepetition planning, the 9th couldn't be bothered. 

In In re Beverly, the debtor and wife were in a nasty divorce.  The debtor transferred his interest in a big house to his wife in exchange for her interest in his pension.  Those were really their only two assets.  As was made clear during the divorce, the two hated each other.  The deal was made as part of a mediation, approved by the family court, and no one in the bankruptcy arena even suggested that the deal was not a fundamentally equal exchange or a fair result.  The problem you say?  Hubby, an attorney with a former client suing him for malpractice, had made several (written) comments to his wife's attorney that we need to get this deal done because I need to file bankruptcy and my creditors will get nothing because the pension will not be property of the estate, see Shumate v. Paterson.  The trustee said this shows "actual intent" on his part to hinder creditors and that makes the transfer avoidable and is grounds for denial of the discharge.

So I repeat, "actual intent."  Judge Donovan listened to everyone at trial at great length and made factual findings that there was no actual intent.  The BAP reversed, see Wolkowitz v. Beverly (In re Beverly),  374 B.R. 221  (9th Cir. BAP  July, 2007).  On December 24, 2008, the 9th Circuit said, "1. Good job BAP" on the 548 fraudulent transfer issue," and "2. the 727 issue is not ripe so we won't decide that."  I can't blame them on the 727 issue.  If it's not final its not, but it's a shame that they could not have made that determination a year ago.  But the conveyance issue is on the basis of actual intent which seems to me to lead to denial of the discharge (some day) and certainly another round of appeals and certainly more litigation in family court since wife will have to give her half of the house to the trustee.

The BAP opinion discusses California FTA law at length and how there is no "one free fraudulent conveyance" because it's a divorce.  This was a great chance for the 9th Circuit to straighten that out but it just punted.               

January 8, 2009 in 9th Circuit Briefs | Permalink

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Comments

It's not the 9th Circuit's job to "straighten out" California law.

Posted by: | Jan 9, 2009 12:02:40 PM

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