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Fleet Credit Corp. v. TML Bus Sales Inc.

filed: May 23, 1995.

FLEET CREDIT CORPORATION, A RHODE ISLAND CORPORATION, PLAINTIFF-APPELLEE,
v.
TML BUS SALES, INC., APPLICANT-APPELLANT.



Appeal from the United States District Court for the Northern District of California. D.C. No. CV-92-1410-WHO. William H. Orrick, Jr., District Judge, Presiding.

Before: Alfred T. Goodwin, Cecil F. Poole and Andrew J. Kleinfeld, Circuit Judges. Opinion by Judge Kleinfeld.

Author: Kleinfeld

KLEINFELD, Circuit Judge:

We decide a question of lien priorities arising out of a bankruptcy and a fraudulent conveyance.

I. Facts.

Berthold owned Taylor Bus Service, which filed chapter 11 bankruptcy. TML Bus Sales secured a judgment for more than $17 million against Berthold personally for embezzlement and conversion of TML's funds. Fleet Credit obtained a default judgment against Berthold personally in the amount of $153,275.89 plus interest.

After the bankruptcy filing, two longtime friends and employees of Berthold's incorporated Victory Enterprises as a Nevada Corporation. Taylor Bus Service emerged from the bankruptcy and received $1.9 million from the bankruptcy trustee. Taylor Bus loaned the $1.9 million to Victory, using falsified dates on documents to hide the true nature of the transaction. The district court found that the promissory note was a falsely dated instrument drafted to "disguise a fraudulent transfer."

Victory deposited the $1.9 million into a Schwab brokerage account. Fleet believed that the money in the Schwab account really belonged to its judgment debtor, Berthold, and filed a lien against the Schwab account on March 30, 1992, in order to satisfy the judgment. Schwab refused to turn the money over to Fleet, because the account was Victory's corporate account.

Fleet then filed this diversity suit in federal court. The court determined that Taylor Bus Service was an alter ego of Berthold, and Taylor Bus's conveyance to Victory was a fraudulent conveyance, so Fleet could reach the money in Victory's Schwab account:

The $1.9 million transfer to Victory was made 'with actual intent to hinder, delay, or defraud' Taylor's and Berthold's creditors. Cal. Civ. Code. § 3439.04(a)

The avoidance of the transfer to Victory effectively 'revests' in Taylor the property transferred.

Berthold operated Taylor as an extension of himself. He personally directed the transfer of large sums of money, and did so for reasons that had nothing whatsoever to do with the operation of the corporate entity. Based on all the facts presented to the Court, it is clear beyond cavil that an inequitable result would follow were the Court to permit Berthold to shield himself with Taylor's corporate form.

Meanwhile, TML sued Victory in state court to establish its own rights to the money in the Schwab account. The state court likewise held that Berthold's creditor, TML, could reach the money in what was nominally Victory's Schwab account.

TML filed a notice of lien in Fleet's federal case, claiming a right under California Code of Civil Procedure ยง 708.410 to all amounts remaining after Fleet satisfied its state court judgment for $153,274.89 plus interest. Fleet moved for attorneys' fees as well, as a priority ahead of TML's lien. The district court held that TML ...


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