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The Bankruptcy Appellate Panel of the Ninth Circuit Upholds Bankruptcy Court’s Dismissal of Debtor’s Fraudulent Transfer Claims Due to Inconsistency With Statutory Language

April 8, 2014

E-Bulletin Prepared by Rika Kido for the Insolvency Law Committee


The United States Bankruptcy Appellate Panel (the “BAP”) upheld a bankruptcy court’s dismissal of the debtors’ claims against Wells Fargo Bank (“WFB”) without leave to amend. The claims sought to invalidate a trust deed against the debtors’ residence relating to a refinance transaction. The BAP found that: (1) any amended allegations in regard to the fraudulent transfer claims were preempted as inconsistent with the Home Owners’ Loan Act of 1933 (“HOLA”); (2) the actual fraudulent transfer allegations improperly focused on the transferee’s intent; and (3) the constructive fraudulent transfer claims could not survive given that the satisfaction of an antecedent debt through a refinance transaction would constitute reasonably equivalent value. Menjivar v. Wells Fargo Bank, N.A. (9th Cir. BAP January 28, 2014)(Unpublished). To read the opinion, click here.


In October 2005, Benjamin and Sarah Menjivar (“Debtors”) obtained a loan from WFB’s predecessor, World Savings Bank (“World Savings”), to refinance the first and second deeds of trust on their residence. The Debtors refinanced again in January 2007, using most of the loan proceeds to pay off their 2005 home loan.

In July 2007, World Savings persuaded the Debtors to refinance their residence for a third time. The Debtors alleged that World Savings represented they would receive a home loan with a fixed interest rate. The loan documents the Debtors executed stated otherwise. The Debtors claimed World Savings pressured them to close quickly and that the stress of the refinancing resulted in personal tragedies.

WFB became the successor by merger to World Savings. As part of an effort to obtain yet another refinance, the Debtors defaulted on their 2007 loan. WFB recorded a notice of default in August 2010 and a notice of trustee’s sale in November 2010.

After filing and dismissing an initial lawsuit against WFB, the Debtors filed a second action against WFB in state court seeking a temporary restraining order (“TRO”) to stop a sale of the property. Ultimately, after two earlier filings, the Debtors filed their third bankruptcy case and removed the state court action to the bankruptcy court, commencing the adversary proceeding at issue.

On July 31, 2012, the Debtors filed their First Amended Complaint (“FAC”). Among the multiple claims for relief, the Debtors alleged: (1) that the 2007 notes and trust deeds were constructive fraudulent transfers under California’s Uniform Fraudulent Transfer Act (“UFTA”); (2) that the 2007 notes and trust deeds were actual fraudulent transfers under UFTA; and (3) Word Savings gave them no consideration in exchange for the 2007 notes and trust deeds. The bankruptcy court dismissed all claims, with prejudice.

Ruling and Reasoning:

The BAP affirmed the bankruptcy court’s ruling. First, the BAP held that the Debtor’s UFTA claims were inconsistent with the HOLA. In Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th Cir. 2008), the Ninth Circuit held that claims for relief based on the California Business and Professions Code were preempted by HOLA. In holding the California statutes were preempted, the Ninth Circuit in Silvas found that the specific factual allegations contained in the complaint referenced activities and conduct subject to the exclusive regulation of the Office of Thrift Supervision (“OTS”). Applying the reasoning in Silvas, the BAP concluded that the factual allegations supporting the UFTA claims – that World Savings misrepresented the terms of the 2007 loans, overcharged for settlement fees, and ultimately extended credit to the Debtors under terms they considered unfavorable – constituted conduct and activities exclusively regulated by the OTS and, in turn, were preempted by HOLA.

Second, as to the Debtors’ actual fraudulent transfer claims, the BAP held that, whereas UFTA focuses on the transferor’s intent, the Debtors focused on the transferee’s intent (see Cal. Civ. Code § 3934.04(a)(1)). More specifically, the Debtors alleged World Savings duped them into entering into the refinance; not that the Debtors effectuated the transfers at issue with any fraudulent intent.

Finally, the BAP held that the Debtors’ constructive fraudulent transfer claims were fatally inconsistent with the UFTA, which requires an absence of reasonably equivalent value. The determination of reasonably equivalent value is determined objectively, from the perspective of the transferor’s creditors. The BAP found that, from the creditors’ perspective, the satisfaction of an antecedent debt through a refinance transaction constituted reasonably equivalent value.

Author’s Comment:

This case provides an important extension to the Ninth Circuit’s Silvas opinion that could impact many fraudulent transfer claims in the consumer debtor arena. It is not surprising that the BAP upheld the bankruptcy court’s finding that the Debtors’ fraudulent transfer allegations were factually inconsistent with the UFTA. This opinion offers an important reminder to practitioners to pay very close attention to ensure that their claims are consistent with the statutes they are relying on, and to ensure that their claims are not preempted by other statutes.