Brower et al v. MUFG Union Bank, N.A., No. 5:2019cv08135 - Document 16 (N.D. Cal. 2020)
Court Description: ORDER Affirming United States Bankruptcy Court's Order Granting in Part and Denying in Part Appellee MUFG Union Bank, N.A.'s Motion for Summary Judgment. Signed by Judge Edward J. Davila on June 15, 2020. The Clerk shall close the file. (ejdlc2S, COURT STAFF) (Filed on 6/15/2020)
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Brower et al v. MUFG Union Bank, N.A. Doc. 16 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 SAN JOSE DIVISION 8 9 10 IN RE: Case No. 5:19-cv-08135-EJD ROBERT BROWER, SR., Debtor. United States District Court Northern District of California 11 12 ROBERT BROWER, SR. et al., Appellants, 13 ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT v. 14 15 MUFG UNION BANK, N.A., Appellee. 16 In November 2019, the Bankruptcy Court granted in part Appellee MUFG Union Bank, 17 18 N.A.’s motion for summary judgment. Appellants Robert Brower Sr. (“Brower”), Coastal 19 Cypress Corporation, a California corporation, Coastal Cypress Corporation, a Delaware 20 corporation, Wilfred “Butch” Lindley, Patricia Brower (“Patty”), the Patricia Brower Trust (“the 21 Patty Trust”), American Commercial Properties, Inc., Richard Babcock, and Anthony Nobles 22 appeal the Bankruptcy Court’s decision. Having considered the Parties’ briefing, and for the 23 below reasons, the Court AFFIRMS the Bankruptcy Court’s grant of summary judgment. 24 25 I. BACKGROUND A. Factual Background 26 Brower and Patty married in 1980. They purportedly entered into a pre-nuptial agreement 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 1 28 Dockets.Justia.com 1 on June 11, 1980 (the “Pre-Nup”), which states that, at the time of the agreement, Patty had 2 “property and investments in an amount in excess of $15,000.” See Appellee MUFG Union Bank, 3 N.A.’s Appendix Volume 1 (“AA1”) at 39, Dkt. 12; Appellee MUFG Union Bank, N.A.’s 4 Appendix Volume 2 (“AA2”) at 91, Dkt. 13 (copy of the Pre-Nup). The Pre-Nup also states that 5 property acquired during the marriage is the separate property of the acquirer. See AA2 at 95, 96. 6 In 1982, Brower founded Coastal Cypress Corporation (“Coastal”) as a California 7 corporation. Coastal initially issued 105,000 shares of stock in 1982—it issued 80,000 shares to 8 Brower and 25,000 to Patty. In 1984, Patty received an additional 125,000 shares of Coastal 9 stock, which were subsequently placed in the Patty Trust after its creation in 2015. United States District Court Northern District of California 10 Until 2015, Coastal owned the real property at 8890 and 8940 Carmel Valley Road in 11 Carmel, California. This property was a wine estate; it consisted of roughly 16-acres that included 12 a wine tasting room, wine production facility, barrel aging room, offices, outdoor event venues, 13 and vineyards. The Wine Estate Property was the former site of the Chateau Julien Wine Estate, 14 which Brower oversaw for decades as President of Chateau Julien, Inc. (“CJ”), Great American 15 Wineries, Inc., and Coastal. 16 In 1983, Brower formed American Commercial Properties, Inc. (“ACP”) using money that 17 he saved prior to his marriage with Patty. According to the property agreement with Patty, ACP 18 was the sole and separate property of Brower. On November 8, 2000, however, Brower gifted all 19 of the ACP stock to Patty as an anniversary gift. This was memorialized by: (i) a transfer of stock 20 certificate, (ii) a notation in the ACP stock register, and (iii) a personal note and card from Brower 21 to Patty. Patty later transferred ownership of the ACP shares into the Patty Trust. 22 In 1987, Coastal issued 335,000 shares to Chualar Canyon Ranch Supply, a company 23 owned by Wilfred “Butch” Lindley. Lindley provided goods and services in exchange for the 24 shares. In 2011, Coastal further issued 50,000 shares to Richard Babcock and 200,000 shares to 25 Anthony Nobles, who paid a combined $250,000 for the shares. 26 27 28 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 2 In 2017, two years after Brower filed for bankruptcy, Coastal executed a merger (“Coastal 1 2 Merger”) and transformed from a California corporation to a Delaware corporation. Defendants 3 exchanged their shares in the California corporation for new shares in the Delaware corporation. 4 Appellants contend that Coastal’s stock ownership is as follows: (1) Brower (as his sole and 5 separate property) owns 230,000 shares (approximately 24%); (2) the Patty Trust owns 125,000 6 shares (approximately 13%); (3) Mr. Lindley owns 355,000 shares (approximately 37%); (4) Mr. 7 Nobles owns 200,000 shares (approximately 21%); and (5) Mr. Babcock owns 50,000 shares 8 (approximately 5%). However, the Bankruptcy Court determined that some of these stock 9 transfers lacked consideration and, as a result, at least 57% of Coastal is the property of Brower’s 10 bankruptcy estate. United States District Court Northern District of California 11 B. Procedural History On November 20, 2019, the Bankruptcy Court granted Appellee’s request for summary 12 13 judgment and held, among other things, that: 14 • Lindley did not provide consideration to or for the benefit of Coastal in exchange for his 15 purported 335,000 shares, which rendered them void. See Appellee MUFG Union Bank, 16 N.A.’s Appendix Volume 3 (“AA3”) at 535, Dkt. 14.1 17 • Because Brower did not sufficiently transmute the ACP shares into Patty’s sole and 18 separate property, 100% of the ACP shares are the property of Brower’s bankruptcy estate. 19 Id. at 541–43. 20 • Brower owned at least 57% of Coastal’s shares at the time of the post-bankruptcy-merger 21 of Coastal California into Coastal Delaware. Brower merged the companies without 22 authorization. Thus, as a result, the merger must be set aside as a violation of Bankruptcy 23 Code § 549. Id. at 544–45. 24 25 26 27 28 1 The Bankruptcy Court also determined that the 50,000 Coastal shares purportedly owned by Richard Babcock and the 150,000 Coastal shares purportedly owned by Nobles were void for lack of consideration. AA3 at 535–37. Those rulings, however, are not identified as issues on appeal in Appellant’s Opening Brief. Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 3 On March 27, 2020, Appellant filed their opening brief. Appellant’s Opening Brief 1 2 3 (“Brief”), Dkt. 8. In this brief, Appellant presented five issues on appeal: 1. Whether the Bankruptcy Court erred in finding that Lindley’s shares are void for lack of consideration. 4 5 2. Whether the Bankruptcy Court erred in finding that Brower owns 100% of ACP’s shares as his separate or community property. 6 7 3. Whether the Bankruptcy Court erred in finding that the merger of Coastal California into Coastal Delaware is void pursuant to 11 U.S.C. § 549. 8 9 4. Whether the Bankruptcy Court erred in finding that Appellee’s claims were not timebarred. 10 United States District Court Northern District of California 11 5. Whether the Bankruptcy Court erred in resolving disputed issues of fact and disputed 12 issues of credibility at the summary judgment phase. 13 On April 24, 2020, Appellee filed their opening brief, which argues that the Bankruptcy 14 Court properly resolved the above issues. See Appellee MUFG Union Bank, N.A.’s Opening 15 Brief (“Opp. Brief”), Dkt 11. Subsequently, on May 14, 2020, Appellants filed their reply brief. 16 Appellants’ Reply Brief (“Reply”), Dkt. 15. 17 18 19 20 II. LEGAL STANDARD “[A] bankruptcy court’s grant of summary judgment [is reviewed] de novo.” In re Christoff, 527 B.R. 624, 628 (9th Cir. BAP 2015). A court must grant summary judgment if the movant shows “that there is no genuine 21 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 22 Civ. P. 56(a). In order to satisfy this burden, “the moving party must either produce evidence 23 negating an essential element of the nonmoving party’s claim or defense or show that the 24 nonmoving party does not have enough evidence of an essential element to carry its ultimate 25 burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 26 1099, 1102 (9th Cir. 2000). “In order to carry its ultimate burden of persuasion on the motion, the 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 4 28 1 moving party must persuade the court that there is no genuine issue of material fact.” Id. If the 2 moving party meets its burden of production, the nonmoving party must produce evidence to 3 support its claim or defense. Id. at 1103. If the nonmoving party fails to produce enough evidence 4 to create a genuine issue of material fact, Rule 56(c) mandates the moving party win the motion 5 for summary judgment. See id. 6 7 8 United States District Court Northern District of California 9 III. DISCUSSION As noted, Appellants present five issues on appeal. The Court addresses each in turn. A. Lindley’s Coastal Shares The Bankruptcy Court held that Lindley did not provide valid consideration for his Coastal 10 shares and, as a result, his interest in Coastal is void. See AA3 at 534. Appellants argue that 11 Lindley’s Coastal shares are not void because (1) he traded his old Coastal California stock for 12 new shares of Coastal Delaware shares, which is sufficient consideration, and (2) the services 13 rendered by Lindley were sufficient consideration for the Coastal California shares. Brief at 15. 14 This, however, flips the relevant analysis—if Lindley’s shares were void ab initio for lack of 15 consideration, they were likewise void at the time of the Coastal California/Coastal Delaware 16 stock exchange and Lindley would not have had a valid property interest in the Coastal California 17 shares and thus would lack consideration for the Coastal Delaware shares. Accordingly, the Court 18 must first determine whether Lindley gave valid consideration for his Coastal California shares. 19 Under California law, a corporation may issue shares for consideration “consisting of any 20 or all of the following: money paid; labor done; services actually rendered to the corporation or for 21 its benefit or in its formation or reorganization; debts or securities canceled; and tangible or 22 intangible property actually received by the issuing corporation or by a wholly owned subsidiary; 23 but neither promissory notes of the purchaser (unless adequately secured by collateral other than 24 the shares acquired or unless permitted by Section 408) nor future services shall constitute 25 payment or part payment for shares of the corporation.” Cal. Corp. Code § 409(a). The 26 consideration is determined by the board of directors, or by the shareholders if the articles so 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 5 28 1 provide. Id. § 409(e). If the consideration is anything other than money for which the shares are 2 issued, the board of directors must state by resolution its determination of the consideration’s fair 3 value to the corporation in monetary terms. Id. § 409(e). Shares issued in violation of these 4 parameters are “void” and “the parties receiving them do not . . . become shareholders.” 5 Cortelyou v. Imperial Land Co., 156 Cal. 373, 376 (1909). United States District Court Northern District of California 6 As the Bankruptcy Court noted, the undisputed facts are that Lindley provided services for 7 his shares. AA3 at 534. Specifically, Lindley contends that: (1) he provided grape crops to be 8 used in the production of wine; (2) he assisted Coastal and CJ in CJ’s efforts to lease land, grow 9 grapes and produce wine; (3) through his network in the wine industry he helped obtain and install 10 necessary equipment; and (4) due to his reputation in the wine industry, he lent credibility to 11 Coastal and CJ. This, Lindley argues, constitute services of benefit and sufficient consideration to 12 justify the issuance of shares. As support, he cites cases that allow consideration to be valuable 13 services and labor. See Brief at 16; see also AA2 at 169 (Lindley admitting during a deposition 14 that he did not pay money for Coastal California shares). Appellant Lindley misunderstands the 15 issue; the Bankruptcy Court held only in this case the valuable services and labor Lindley 16 performed were insufficient consideration. The Bankruptcy Court noted two problems with 17 Lindley’s claimed consideration. First, the issuance of shares to Lindley did not meet the 18 requirements of Cal. Corp. Code § 409(e) because Coastal’s board did not determine the fair value 19 of Lindley’s non-monetary consideration and state its determination by board resolution. AA3 at 20 535. Second, even assuming Cal. Corp. Code § 409(e) was followed, the services and labor 21 performed by Lindley did not benefit Coastal. Id. 22 The Bankruptcy Court’s first finding remains true—Lindley again provides no evidence 23 that the Coastal California’s board determined the monetary value of his services. Likewise, the 24 Bankruptcy Court’s second finding remains true. The services allegedly provided by Lindley were 25 provided to Great American Wineries, Inc. See id. It was Great American Wineries, Inc., not 26 Coastal, who made the wine. AA2 at 151. Coastal only owned the Wine Estate Property. Hence, 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 6 28 United States District Court Northern District of California 1 providing Coastal with grapes, assistance in acquiring grapes, and helping the winery and 2 winemaker with the process of making wine did not benefit Coastal. As the Bankruptcy Court 3 noted, even assuming Coastal owned the winemaking equipment, the benefit it derived from 4 “mere ownership was tangential at best.” AA3 at 535. Indeed, Appellants provide no evidence 5 that Lindley rendered his services to Coastal or for Coastal’s benefit. Accordingly, Lindley’s 6 services did not constitute valid consideration. It is of no consequence that Lindley did not 7 understand the various corporate structures. See AA2 at 169–71 (“In my mind [Coastal, CJ, and 8 GAW] were -- were all one entity, if you will . . . .”); see also Las Palmas Assocs. v. Las Palmas 9 Ctr. Assocs., 235 Cal. App. 3d 1220, 1249 (1991) (“[I]t would be unjust to permit those who 10 control companies to treat them as a single or unitary enterprise and then assert their corporate 11 separateness in order to commit frauds and other misdeeds with impunity.”). 12 For these reasons, Lindley’s Coastal California Shares were void before he attempted to 13 surrender the shares in for new shares of Coastal Delaware stock. Hence, Lindley did not give 14 consideration for the Coastal Delaware stock as he had no interest to exchange. Cf. 8 Del. Code 15 § 152 (“[T]he board of directors may authorize capital stock to be issued for consideration 16 consisting of cash, any tangible or intangible property or any benefit to the corporation, or any 17 combination thereof.” (emphasis added)); Shanik v. White Sewing Mach. Corp., 19 A.2d 831, 837 18 (Del. 1941) (finding that old stock is “personal property” within the meaning of Section 152). 19 Lindley’s Coastal shares are thus void for lack of consideration. 20 In the alternative, Lindley argues that even in the absence of sufficient consideration, the 21 “bona fide purchaser” defense applies to preserve his shareholder status. Lindley again relies on 22 Cortelyou, 156 Cal. 373 and Michaels v. Pacific Soft Water Laundry, 104 Cal. App. 349 (Ct. App. 23 1930). Neither case supports Lindley’s bona fide purchaser defense. 24 In Cortelyou, Cortelyou, a third-party, purchased invalid stock. 156 Cal. at 376. The court 25 upheld Cortelyou’s stock purchase on the basis that a subsequent bona fide purchaser should not 26 have his shareholder’s rights hindered if a prior transaction was invalid for lack of consideration. 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 7 28 1 Id. There was no dispute that Cortelyou paid valid consideration for the stock. There are two 2 distinctions in this case. First, Lindley received the stock directly from Coastal and was thus not a 3 third-party purchaser. Second, as determined above, Lindley did not provide valid consideration 4 for the stock. United States District Court Northern District of California 5 Michaels is similarly unpersuasive. There, the corporation initiated an action to cancel a 6 contract for the sale of corporate stock on the ground that the sale violated the conditions 7 contained in the permit issued by the commissioner of corporations. Michaels, 104 Cal. App. at 8 361–62. The court denied this attempt, because the equities of the case did not favor a corporation 9 benefitting from its own misrepresentation and fraud. Id. at 357. Importantly, the corporation 10 received and retained the shareholder’s money and used the money to pay outstanding debts with 11 the knowledge and consent of the full board of directors. Id. Here, in contrast, Coastal neither 12 received funds (or some other type of consideration) for the shares in question nor engaged in 13 fraud. Michaels is thus inapplicable. For these reasons, the “bona fide purchaser” defense does 14 not apply, and the Bankruptcy Court correctly determined that Lindley’s interest in Coastal was 15 void. The Court thus AFFIRMS the Bankruptcy Court’s finding as to Lindley. 16 B. ACP Shares 17 The Bankruptcy Court next found that Brower owns 100% of the ACP shares as his 18 separate or community property. Appellants argue that Brower validly transmuted the ACP shares 19 from his separate property into Patty’s separate property. Brief at 17. Appellee disagrees. Opp. 20 Brief at 31–32. 21 Married persons may by agreement or transfer, with or without consideration, transmute 22 community property to separate property, or transmute the separate property of one spouse to 23 separate property of the other spouse. Cal. Fam. Code § 850. A transmutation of real or personal 24 property is not valid unless made in writing by an express declaration that is made, joined in, 25 consented to, or accepted by the spouse whose interest in the property is adversely affected. Cal. 26 Fam. Code § 852. 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 8 28 1 2 states that the characterization or ownership of the property is being changed. In re Marriage of 3 Valli, 58 Cal. 4th 1396, 1400 (2014) (citing Estate of MacDonald, 51 Cal. 3d 262, 272 (1990)). 4 The declaration must also include “a clear and unambiguous expression of intent to transfer an 5 interest in the property.” Estate of Bibb, 87 Cal. App. 4th 461, 468 (Ct. App. 2001). 6 United States District Court Northern District of California To qualify as an “express declaration,” the writing must contain language which expressly While the statute does not require any particular words of transmutation, Estate of 7 MacDonald, 51 Cal. 3d at 273, courts more frequently find that an “express declaration” is present 8 when the writing at issue is within a formally drafted document such as a deed or contract. See 9 Estate of Bibb, 87 Cal. App. 4th at 462 (holding that grant deed conveying real property from one 10 spouse to both spouses as joint tenants was an “express declaration”); In re Marriage of Lund, 174 11 Cal. App. 4th 40, 51 (Ct. App. 2009) (holding that “Agreement to Establish Interest in Property” 12 unambiguously effected a transmutation of a spouse’s separate property into community property); 13 In re Marriage of Holtemann, 166 Cal. App. 4th 1166, 1172 (Ct. App. 2008) (finding a 14 transmutation agreement where trust stated that spouse’s property was “hereby transmuted from 15 his separate property to the community property”). 16 When such formality is lacking, courts generally find that an “express declaration” is not 17 established. See In re Marriage of Barneson, 69 Cal. App. 4th 583, 591 (Ct. App. 1999) (holding 18 that husband’s written instructions to “transfer” stock into his spouse’s name was not an 19 expression that ownership of the property was being changed); In re Marriage of Leni, 144 Cal. 20 App. 4th 1087, 1096 (Ct. App. 2006) (holding that escrow instructions that community proceeds 21 of a house sale were to be split “50/50” did not expressly declare that the character of the property 22 was being changed); Estate of Petersen, 28 Cal. App. 4th 1742, 1744 (Ct. App. 1994) (holding 23 that mere reference of a joint tenancy on an account statement was insufficient for transmutation). 24 Brower contends that he originally owned 100% of ACP as his separate property but 25 transferred his interest to Patty on November 8, 2000. The Browers rely on the following 26 writings: (i) a gift card that reads “ACP is now yours,” (ii) a signed note that includes the 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 9 28 1 statement “I am proud to give you all my interest in that company to do as you choose,” and (iii) a 2 stock transfer. See Brief at 18–19. Before the Bankruptcy Court, Patty’s counsel conceded that 3 the signed note is inadmissible (yet, before this Court, Patty curiously attempts to use the signed 4 note as evidence of a transmutation). AA3 at 542. United States District Court Northern District of California 5 The Court agrees with the Bankruptcy Court’s analysis that the gift card “ACP is now 6 yours” may be interpreted in several ways and is thus like the informal written instructions 7 discussed in Barneson and Leni. This card may indicate Brower’s intent to transfer ACP to Patty, 8 but it does not expressly state that the characterization or ownership of the property is changed. A 9 valid transmutation requires a clear expression that the giving spouse’s interest in the property is 10 being changed; merely expressing an intent to transfer property is insufficient. See In re Marriage 11 of Barneson, 69 Cal. App. 4th at 590 (“Transfer is clearly not synonymous with transmutation.”). 12 Likewise, the stock transfer alone does not provide an “express declaration” sufficient for 13 transmutation. As the Bankruptcy Court noted, the share certificates were endorsed to Patty by 14 Brower, but the mere act of transferring shares does not express an intent to change the character 15 or ownership of the property. See In re Marriage of Barneson, 69 Cal. App. 4th at 590 (finding 16 that placement of stock belonging to one spouse in the stock brokerage account of the other spouse 17 was not sufficient to establish a transmutation); Estate of Bibb, 87 Cal. App. 4th at 469 (finding 18 that DMV printout reflecting the re-registration of an automobile in the name of one spouse to the 19 name of either spouse did not show intent to transmute). 20 Accordingly, the Bankruptcy Court properly determined that Brower did not transmute his 21 separate (or community) property into Patty’s separate property. Both the gift card and stock 22 transfer do not evince a clear expression by Brower to change the characterization or ownership of 23 the ACP shares and thus do not support Brower and Patty’s transmutation theory. Cf. Reply at 12. 24 The Court thus AFFIRMS the Bankruptcy Court’s holding that ACP was not Patty’s separate 25 property. 26 27 28 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 10 1 2 Bankruptcy Code § 549 provides that a trustee may avoid a transfer of property of the 3 estate that (1) occurs after the commencement of the case and (2) is not authorized by the court. 4 Pursuant to the above findings, Brower owned at least 57% of Coastal at the time of the Coastal 5 Merger. AA3 at 545. Hence, at the time of the merger, Brower owned more than 50% of Coastal 6 and, as such, violated § 549 by executing a merger without the Bankruptcy Court’s authorization 7 and in a manner not otherwise allowed by the Bankruptcy Code. Accordingly, the Court 8 AFFIRMS the Bankruptcy Court’s decision to set aside the Coastal merger. 9 United States District Court Northern District of California C. Merger of Coastal California into Coastal Delaware D. California Civil Procedure Code § 338(a) Time-Bar 10 Appellants last argue that the applicable statute of limitations has expired and thus 11 Appellee’s lawsuit is barred. Brief at 19–20. The Bankruptcy Court determined that Appellee’s 12 claims are not time-barred. AA3 at 544. 13 California Civil Procedure Code § 338(a) provides a three-year statute of limitations for 14 bringing “[a]n action upon a liability created by statute, other than a penalty or forfeiture.” 15 Appellants maintain that this statute bars Appellee’s claims. Brief at 22. The Court disagrees. 16 Other bankruptcy courts have held that the court may determine that certain property belongs to 17 the bankruptcy estate notwithstanding time limitations under state law. In re Blasingame, 598 18 B.R. 864, 875 (BAP 6th Cir. 2019). As in Blasingame, Appellee seeks a declaratory judgment 19 that certain property (specifically Coastal and ACP stock) is the property of Brower’s bankruptcy 20 estate. Pursuant to Blasingame, it is irrelevant how long a third-party has supposedly held 21 property of the bankruptcy estate in its own name. The date on which the third-party acquired the 22 property does not affect the bankruptcy court’s ability to determine whether that property belongs 23 to the bankruptcy estate. See id. at 869. 24 In an attempt to evade Blasingame, Appellants rely on In re Reuter, 499 B.R. 655 (W.D. 25 Mo. 2013) to show that there is a “general rule that ‘if a claim for declaratory relief could have 26 been resolved through another form of action which has a specific limitations period, that specific 27 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 11 28 1 period of time will govern.’” Brief at 20. This misreads Reuter. The cited text reflects the court 2 acknowledging, but not adopting, the debtor’s argument. Reuter, 499 B.R. at 667. In fact, like the 3 Bankruptcy Court in this case, the Reuter court determined that so long as the case does not 4 involve “a fraudulent transfer claim disguised as a declaratory action claim,” the relevant statute of 5 limitations is irrelevant. Id. As in Reuter, Appellee “does not seek to void the alleged stock 6 transfers. Rather, Plaintiff seeks a finding that no transfers occurred at all.” AA3 at 544. This is a 7 determination the court may make at any time. Id.; see also In re Blasingame, 598 B.R. at 875. 8 Accordingly, the Court AFFIRMS the Bankruptcy Court’s finding that Appellee’s claims are not 9 time-barred. 10 IV. United States District Court Northern District of California 11 CONCLUSION For the foregoing reasons, this Court AFFIRMS the Bankruptcy Court’s findings that: 12 (1) Lindley’s interest in Coastal is void; (2) the ACP shares are the property of Brower’s 13 bankruptcy estate; (3) the Coastal California and Coastal Delaware merger is void; and (4) 14 Appellee’s claims are not time-barred. The Court thus rejects Appellants’ argument that the 15 Bankruptcy Court improperly resolved disputed issues of fact and disputed issues of credibility at 16 the summary judgment phase. The Clerk shall close the file. 17 18 19 20 IT IS SO ORDERED. Dated: June 15, 2020 ______________________________________ EDWARD J. DAVILA United States District Judge 21 22 23 24 25 26 27 28 Case No.: 5:19-cv-08135-EJD ORDER AFFIRMING UNITED STATES BANKRUPTCY COURT’S ORDER GRANTING IN PART AND DENYING IN PART APPELLEE MUFG UNION BANK, N.A.’S MOTION FOR SUMMARY JUDGMENT 12
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