In re Castiglione

          MEMORANDUM DECISION REGARDING MOTION TO DISMISS FIRST AMENDED COMPLAINT

          W. Richard Lee, United States Bankruptcy Judge

         Before the court is the Mr. C Defendants' motion for an order dismissing the Trustee's first amended complaint (the "Complaint") for failure to state a claim for relief (the "Motion"). The Motion presents two issues which would significantly limit the scope of this adversary proceeding: (1) The Trustee's ability to capture the assets of the corporate defendant for the benefit of the bankruptcy estate using California's "alter ego" and "reverse piercing" doctrines; and (2) The statute of limitations applicable to a bankruptcy trustee who wishes to prosecute a claim under California's Uniform Fraudulent Transfer Act. For the reasons set forth below, the Mr. C Defendants' Motion will be granted with prejudice as to the "alter ego" and "reverse piercing" claims and the claims for relief derived therefrom. The Motion will be granted with leave to amend as to the fraudulent transfer claim.

         This memorandum decision contains the court's findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52(a), made applicable to this contested matter by Federal Rule of Bankruptcy Procedure 7052. The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334, 11 U.S.C. §§ 544 & 548, and General Orders 182 and 330 of the U.S. District Court for the Eastern District of California. This is a core proceeding as defined in 28 U.S.C. subsections 157(b)(2)(H) & (O).

Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated after October 17, 2005, the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.

         Standard of Review.

         This Motion is brought under Fed. Rule of Civ. P. 12(b)(6) (made applicable to this adversary proceeding by Fed. Rule of Bankr. P. 7012(b)). A motion under Rule 12(b)(6) allows the defendant to challenge the formal sufficiency of the complaint. See Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9^thCir. 1987). When considering a Rule 12(b)(6) motion to dismiss for failure to state a claim, the complaint should be construed in a light most favorable to the nonmoving party and all allegations of material fact must be taken as true. See Busseto Foods, Inc. v. Laizure (In re Laizure), 349 B.R. 604, 606 (9^th Cir. BAP 2006). "A complaint should not be dismissed under Rule 12(b)(6) 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' " Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9^th Cir. 1990), quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957). However, a dismissal is proper where the complaint fails to state either a "cognizable legal theory" or "sufficient facts alleged under a cognizable legal theory." Balistreri, 901 F.2d at 699. A complaint may be dismissed without leave to amend where it appears from the pleadings that further amendment would be futile. Rutman Wine Co., 89 F.2d at 738.

         In reviewing the Complaint, the court need not accept as true unwarranted deductions of fact, legal characterizations, nor conclusory allegations or unreasonable inferences. See Western Mining Council v. Watt, 643 F.2d 618, 624 (9^th Cir. 1981). The court may consider documents and facts which are subject to judicial notice. The court may not consider extrinsic facts, or make findings of fact that are unsupported in the record. The following background summary is taken from allegations in the Complaint, which the court will accept as true, and from the record in this bankruptcy case, which is subject to judicial notice.

         Background.

         In or about 1986, the Debtor was under federal indictment for tax evasion and crop insurance fraud. On the advice of his legal counsel, the Debtor created a corporation, defendant Mr. C Investment (now known as Deville Enterprises; hereafter the "Corporation"). The Trustee acknowledges that the Corporation is a "California Corporation." (Complaint, ¶¶ 7 & 8.) However, he contends that the Corporation is a sham, and that the Debtor formed the Corporation "as a shelter for his funds and his business dealings and as a vehicle for conducting his personal affairs." (Complaint, ¶ 15.)

         The shares of stock in the Corporation were issued to a trust, which was also created by the Debtor pursuant to an Agreement dated January 22, 1986 (the "Trust"), for the benefit of the Debtor's three minor children, defendants Sean, Michael, and Krista Castiglione (the "Defendant Children"). The Trust is not a defendant in this adversary proceeding. However, the Trustee contends that the Trust is also a sham. In an ambiguous and internally contradictory passage, the Trustee alleges:

[T]he debtor did not effectively place the shares [of the Corporation] in the trust, or, in the alternative, if said shares were placed in a trust, said trust was simply a sham and alter ego of the debtor as alleged herein, or, in the alternative, if said shares were effectively conveyed to a trust or third parties, said transfer constituted a fraudulent conveyance as alleged herein. . . . Debtor treated the trust as his own with the consent of all involved . . . . (Complaint, ¶ 15.)

         From 1986 to 2006, the Debtor conducted virtually all of his business affairs through the Corporation generating profits and assets in the Corporation worth between $6 and $8 million. In 1987, Bank of America foreclosed on the Debtor's ranch properties. However, the Bank allowed the Debtor, through the Corporation, to lease back the ranch properties and he successfully farmed those properties for the benefit of the Corporation. (Complaint, ¶ 17.) Through the Corporation, the Debtor expanded his farming operations, leasing additional foreclosed properties from other banks. The Corporation eventually purchased some of the leased properties and began developing them for residential purposes. (Complaint, ¶ 18.)

         The Debtor initially contributed between $6,000 and $10,500 to fund the Trust without receiving any consideration for that transfer. At the time (1986), the Debtor was insolvent and the Debtor has remained insolvent ever since. The Debtor served as the sole director of the Corporation and trustee of the Trust until sometime in 2006 when he resigned both positions on the advice of his legal counsel.

         The Debtor allegedly withdrew money (or used the Corporation's accounts) to pay for virtually all of his personal and family living expenses, including over $1 million of personal legal fees. The Corporation even owned the Debtor's family residence. (Complaint, ¶ 19.) This bankruptcy was filed as a voluntary petition under chapter 7 on May 3, 2007.

         The Adversary Proceeding.

         This adversary proceeding was filed on September 22, 2008. The original complaint sought relief under the "alter ego" theory. That complaint was dismissed without prejudice on the Mr. C Defendants' motion after court determined that the first (alter ego) claim failed to state a claim for relief. This represents the Trustee's second attempt to plead a claim for relief under the "alter ego" theory.

         The Trustee alleges that both the Corporation and the Trust were created to shield the Debtor's assets from his creditors. The Complaint is separated into four claims for relief. In the first claim, the Trustee pleads, inter alia, that the Debtor created and used the Corporation in bad faith, commingled his assets with the Corporation, and failed to observe the corporate formalities, rendering the Corporation "as a mere shell, instrumentality, and conduit through which debtor carried on his business . . . ." (Complaint, ¶ 26.) The Trustee pleads that the Corporation and the Trust "were in fact sham entities which Debtor treated as his own with the knowledge and consent of each of the Defendants. (Complaint, ¶ 26.) Based thereon, the Trustee contends that the assets of the Corporation actually belonged to the Debtor at the commencement of the case.

The Trustee pleads virtually the same allegations against the Trust. (Complaint, ¶ 27.) However, this memorandum focuses solely on the Trustee's claims for relief against the Corporation because the Trust has not been served and is not a defendant in this adversary proceeding.

         The second claim for relief is derived from the first claim. The Trustee alleges that the Defendant Children raided the assets of the Corporation after the Debtor resigned his position as a director of the Corporation in 2006. He contends that the Defendant Children violated a "confidential relationship" (without alleging the basis for that relationship) and prays for the imposition of a constructive trust on all of those unidentified assets.

The Trustee also alleges, without specifics, that the Corporation owes the Debtor a "substantial severance package." (Complaint, ¶¶ 31 & 32.) If this is true, then the Debtor's "severance package" would be an asset of this bankruptcy estate. However, the Complaint does not pray for enforcement of any agreement to pay a "severance package" and that issue is not before the court. The Complaint is otherwise silent with regard to how the Corporation compensated the Debtor for services rendered.

         The third claim for relief is again derived from the first and the second claims for relief. It is predicated on the Trustee's conclusion that the assets of the Corporation always belonged to the Debtor. The Trustee prays for an accounting of all assets allegedly "raided" from the Corporation by the Defendant Children.

         The fourth claim for relief is a fraudulent conveyance claim brought under California's Uniform Fraudulent Transfer Act (Cal. Civ. Code § 3439-3439.12; the "UFTA"). Without identifying any specific transfers made after 1986, the Trustee contends that each of the "capital and asset contributions" which the Debtor transferred to the Corporation, from 1986 to the commencement of the bankruptcy case, was made with "actual intent to hinder, delay or defraud Debtor's creditors." (Complaint, ¶ 39.) He also alleges that (1) the Debtor was insolvent at the time each of the transfers was made, (2) the Debtor did not receive reasonably equivalent value for the transfers, and (3) the transfers rendered the Debtor unable to pay his debts as they came due. (Complaint, ¶ 41.) The Trustee prays that all of said unidentified transfers be returned to the bankruptcy estate under the UFTA.

The Trustee does not assert any fraudulent transfer claims under § 548 and relies solely upon the Trustee's derivative right as a hypothetical creditor under § 544 to pursue a state law claim under the UFTA. From this, the court infers that all of the alleged "fraudulent transfers" were made or incurred more than two years before commencement of this bankruptcy case. § 548(a)(1).

         Issues Presented.

         Based on the "alter ego" doctrine and general "equitable considerations," the Trustee prays that the Corporation should be totally dissolved and disregarded, ab initio, such that all of the assets in the Corporation would be deemed "property" of the bankruptcy estate. Alternatively, the Trustee seeks to recover every asset transferred to the Corporation since its inception under the UFTA. The Mr. C Defendants contend that the "alter ego" doctrine is not applicable to the facts of this case. The Mr. C Defendants also contend that the UFTA claims are barred by the seven-year statute of limitations. Based thereon, they move to dismiss the Complaint under Rule 12(b)(6) on the grounds that it fails to state a claim for relief.

         Analysis and Conclusions of Law.

         The Bankruptcy Estate.

         Under Bankruptcy Code § 541(a), the commencement of a bankruptcy case creates an estate comprised of specific categories of property, wherever located and by whomever held. Under § 704, the Trustee has authority to collect and administer the property of the estate. Property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." § 541(a)(1). "Property of the estate" does not include "any power that the debtor may exercise solely for the benefit of an entity other than the debtor." § 541(b)(1).

         The trustee in chapter 7 stands in the shoes of the debtor. With a few enumerated exceptions, he holds all of the property and rights of the debtor. The bankruptcy court must look to state law to determine what property interest the bankruptcy estate may hold. Keller v. Keller (In re Keller), 185 B.R. 796, 800 (9th Cir. BAP 1995), citing Butner v. United States, 440 U.S. 48, 55 (1979). The bankruptcy trustee has no greater rights than the debtor in whose shoes he stands. Id. at 800-01, citing Matter of Paderewski, 564 F.2d 1353, 1356 (9^th Cir. 1977). For purposes of this adversary proceeding, property of the bankruptcy estate also includes any interest in property that the Trustee is able to acquire through the exercise of his avoiding powers found specifically in §§ 544 & 550. § 541(a)(3).

Section 550 provides the remedies for the Trustee's avoiding powers under § 544. It states in pertinent part:

         Here, it is clear from the Complaint that the Debtor did not hold any direct legal or equitable interest in the Corporation at the commencement of the case. The Complaint acknowledges that the Corporation was formed and existed as a Corporation under California Law. At all times since its formation in 1986, the shares of stock of the Corporation were held by the Trust. The Debtor served as a director of the Corporation until he resigned in 2006, but that did not give the Debtor any interest in the assets of the Corporation and his "director" powers would not have been property of the estate even if he had not resigned. § 541(b)(1).

         There is nothing in the Complaint to suggest that the Corporation was not properly formed or that it has ever been properly dissolved. However, the Trustee wants this court to declare that the Corporation does not exist and that the bankruptcy estate is the actual owner of all of the Corporation's assets. California has a definite statutory scheme for the dissolution of a corporation formed under California law. Dissolution of a corporation requires action by the shareholders or directors. Here, the Trustee holds the powers of neither.

By a vote of shareholders holding shares representing at least 50 percent of the voting power, a corporation may voluntarily elect to wind up and dissolve. Cal. Corp.Code § 1900. A corporation which has no outstanding shares may dissolve by a vote of the board of directors. Cal. Corp. Code § 1900.5.

         Since the Corporation was not owned by the Debtor at the commencement of the case, the Complaint does not allege any basis upon which the court could judicially dissolve the Corporation and simply declare the bankruptcy estate to be the resulting owner of its assets. Since the Trustee has no direct right to reach or control any assets of the Corporation under § 541(a)(1), the court must determine if the Trustee can recover any property of, or interest in the Corporation through the exercise of his avoiding powers. § 541(a)(3).

         Application of the "Alter Ego" Doctrine.

         The Mr. C Defendants move to dismiss the first claim for relief based on the manner in which the Trustee seeks to use the doctrine of "alter ego." The "alter ego" doctrine is a remedial doctrine by which a creditor can seek to hold a third party liable for its claim. The bankruptcy court must apply the law of the forum state in determining whether a corporation is the alter ego of an individual. Securities and Exchange Commission v. Hickey, 322 F.3d 1123, 1128 (9^th Cir. 2003) (citation omitted).

         Under California law, an alter ego relationship may exist, "such that a corporation's liabilities may be imposed on an individual, only when two conditions are met: (1) 'there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased,' " and (2) " 'an adherence to the fiction of the separate existence of the corporation would . . . sanction a fraud or promote injustice.' " Id. at 1128 (emphasis in original), citing Firstmark Capital Corp. v. Hempel Fin. Corp., 859 F.2d 92, 94 (9^th Cir. 1988), (quoting Wood v. Elling Corp., 20 Cal.3d 353 n.9 (1977).

         There is no "litmus test" for an alter ego relationship under California law, but all the California courts that have dealt with the issue have recognized two general requirements: "ownership and the specter of fraud." S.E.C. v. Hickey, 322 F.3d at 1128-29 (California citations omitted).

         Here, the first claim for relief is pled as an "alter ego" claim against the Corporation, however, the "alter ego" remedy is not applicable on the facts of this case. The Debtor has never owned any interest in the Corporation so there was no "unity of ownership" between the Debtor and the Corporation. Further, the Corporation is not a judgment debtor so there is no reason to pierce the Corporation for the benefit of its creditors. Finally, the Trustee is a fiduciary for the benefit of the Debtor's creditors. Although the Corporation's creditors may have hypothetical claims against the Debtor for alleged misuse of the Corporation's assets, the Trustee has no authority to prosecute claims for the benefit of the Corporation's creditors.

         Application of the "Reverse Piercing" Doctrine.

         Having determined that "alter ego" is not applicable to the facts as alleged, the court must determine if those facts could support a claim for relief on any other cognizable theory. The corollary to the "alter ego" doctrine is "reverse piercing." The doctrine of reverse piercing applies when the judgment debtor is the shareholder of a corporation. It allows the judgment creditor to satisfy its claim from the assets of a corporation owned by the shareholder. S.E.C. v. Hickey, 322 F.3d at 1130 (citations omitted). When the court engages in reverse piercing, it imposes the shareholder's liability directly on the corporation. Id.

         Like the "alter ego" doctrine, the creditor must show that the shareholder failed to maintain the corporation's separateness. As a remedial doctrine, the "reverse piercing" doctrine has been narrowly construed. No court has applied the "reverse piercing" doctrine where there was not an ownership relationship between the shareholder/judgment debtor and the third party corporation. At least one California court has refused to apply the "reverse piercing" doctrine altogether because the third party judgment creditor already had an adequate remedy under California law through judgment collection procedures and actions for conversion and fraudulent conveyance.

The true issue that outside reverse piercing seeks to address is not the misuse of the corporate form to shield the shareholder from personal liability. Rather, the issue addressed by outside reverse piercing is the shareholder's transfer of personal assets to the corporation to shield the assets from collection by a creditor of the shareholder. In other words, outside reverse piercing seeks to protect the judgment creditor from the shareholder's fraudulent transfer of assets to the corporation. But, as explained in [ Cascade Energy and Metals Corp. v. Banks, 896 F.2d 1557, 1576-77 (10 ^th Cir. 1990) and Floyd v. IRS, 151 F.3d 1295 (10 ^th Cir. 1998)], conversion and fraudulent conveyance already afford judgment creditors protection in that situation.

Postal Instant Press, Inc. v. Kaswa Corporation, 162 Cal. App.4th 1510, 1523-24 (2008).

         Here, the Trustee alleges that the Debtor misused the corporate form and conducted all of his personal business affairs through the Corporation. However, the Trustee's "reverse piercing" claim against the Corporation is defective for three reasons. First, the proper remedy for that situation would be through conversion and fraudulent conveyance claims. Id. Second, the Trustee has not, and apparently cannot, plead that the Debtor has, or ever had, any ownership interest in the Corporation. The shares of the Corporation were initially issued to the Trust and have been held continuously by the Trust for about 24 years. The lack of an ownership interest is fatal to a "reverse piercing" claim.

         The third problem lies in the purpose for which Trustee seeks to invoke "reverse piercing"; the result which the Trustee seeks to achieve through this adversary proceeding. The Trustee is not seeking a determination that the assets of the Corporation should be held liable for a particular debt. Instead, the Trustee seeks (1) to collapse or dissolve the Corporation, and (2) to thereby bring all of the assets of the Corporation into this bankruptcy estate where they will be subject to the jurisdiction of this court and available for administration using the powers vested in the Trustee under the Bankruptcy Code. As noted above, the state of California has a statutory scheme for the dissolution of a corporation which must be instigated by the shareholders or directors of the corporation. (See footnote 6, supra.) The Trustee is neither a shareholder nor a director of the Corporation and the Trustee's efforts to judicially dissolve the Corporation represent a radical extension of the "reverse piercing" doctrine.

         The Trustee contends that his "reverse piercing" claim is supported by the California Supreme Court's decision in Wood v. Elling Corp., 20 Cal.3d 353. The court disagrees. The plaintiff in Wood had obtained a substantial judgment against the defendant Wencke in a prior action based on a promissory note. At the time, Wencke was the trustee of two family trusts established for the benefit of the Wencke children. In a subsequent civil action, Wood alleged that Wencke had transferred real property assets into two corporations, Elling Corp. and Adele Corp. in 1969 and 1970, respectively. However, the shares of the corporations were issued to the family trusts. Wencke did not immediately hold any interest in the corporations. Wood sought (1) to avoid the property transfers to the corporations under a fraudulent conveyance theory and (2) "a declaration that the corporate existences of both Elling and Adele should be disregarded for the purpose of ascertaining their liability [for the prior judgment]." 20 Cal.3d at 363 (emphasis added).

         The Supreme Court affirmed the trial court's dismissal of the fraudulent conveyance claim on statute of limitations grounds. 20 Cal.3d at 362. The court also affirmed dismissal of the "reverse piercing" claims against the corporations because there was no unity of ownership between Wencke and the corporations, "such ownership residing wholly in the two trusts created by the Wenckes for the benefit of their children and Adel Wencke." 20 Cal.3d at 364-65. The court did remand the complaint for leave to amend the "reverse piercing" claim against the trusts. In so doing, the court stated:

In the circumstances of this case, however, we believe that plaintiff should have been given the opportunity to further amend his complaint. If it were alleged and proven that the two trusts in question were themselves alter egos of the Wenckes, those trusts would essentially drop out as independent legal entities, and the general allegations relating to interest and ownership would find support in specific allegations consistent with the specific allegations presently appearing in the complaint. Our review of the record in this case leads us to believe that plaintiff may be able to make and support such further allegations; he should be given the opportunity to do so.

Id. at 365 (emphasis in original).

         Based on the above language in Wood v. Elling, the Trustee contends that the doctrines of alter ego and reverse piercing can be used to terminate and collapse the Corporation. However, the Trustee completely misconstrues the holding in Wood v. Elling. The plaintiff in Wood v. Elling never sought the relief which the Trustee seeks here; dissolution of a corporation. He merely sought a way to make the two corporations liable for his judgment. Nothing in the Wood v. Elling decision suggests that all of the assets of the corporations could be merged or substantively consolidated with the assets of the Wenckes, or liquidated by a bankruptcy trustee, for the general benefit of all of the Wenckes' creditors.

         Based on the Trustee's inability to plead any ownership interest between the Debtor and the Corporation, and his inability to dissolve the Corporation under applicable law, this court is satisfied that the Trustee cannot plead any facts to support the "reverse piercing" claim, or to achieve the result contemplated in the first claim for relief. Under California law, the Trustee has an adequate remedy through the established "fraudulent conveyance" theory.

         Application of the UFTA.

         One of the Trustee's powers is the right to prosecute claims which a hypothetical creditor could prosecute under California law, specifically here the UFTA. § 544. In the fourth claim for relief, the Trustee seeks to recover all property which the Debtor ever transferred to the Corporation dating back to its creation in 1986. He contends that all such transfers were fraudulent transfers made either without consideration while the Debtor was insolvent, or made to hinder, delay and defraud the Debtor's creditors, or both. The Mr. C Defendants raise the obvious statute of limitations defense. They contend that the seven-year statute of limitations codified in Cal.Civ.Code § 3439.09(c) applies. The court agrees.

Civil Code § 3439.04 states in pertinent part:

Cal. Civ. Code § 3439.09 states:

         The Trustee argues that he did not obtain his status as a "hypothetical creditor" until the bankruptcy petition was filed. Based on that, he contends that the statute of limitations did not begin to run until the bankruptcy case was filed. The Trustee relies on Cortez v. Vogt, 52 Cal. App.4th 917 (1997), to support his theory that the statute of limitations under the UFTA is somehow not applicable to a bankruptcy trustee. The issue in Cortez bears no resemblance to the issue in this case. In Cortez, the plaintiff brought an action against two corporations for wrongful termination. During the pendency of an appeal, the defendant corporations' assets were transferred to another corporation that did not assume the potential liability for the judgment. Because of the appeal, a final judgment in the plaintiff's favor was not entered until more than four years after the transfer of assets occurred. When the plaintiff sought to recover the assets under the UFTA, the trial court granted summary judgment against the plaintiff based on a statute of limitations prescribed in Cal.Civ.Code § 3439.09. The court of appeals reversed, stating:

In the context of the scheme of law of which section 3934.09 is a part, where an alleged fraudulent transfer occurs while an action seeking to establish the underlying liability is pending, and where a judgment establishing the liability later becomes final, we construe the four-year limitation period . . . to accommodate a tolling until the underlying liability becomes fixed by a final judgment. Thus, in this case the four-year period did not commence to run until the judgment became final . . . .

Id. at 920 (emphasis added).

         Here, the Trustee is not seeking to toll the statute of limitations based on some pending prepetition litigation. He seeks to redefine the law which determines when the statute of limitations should start to run for a bankruptcy trustee. The Cortez court, at 926 n.6, adopts its own description of the UFTA as laid out in Monastra v. Konica Business Machines, U.S.A., Inc., 43 Cal.App.4th 1628, 1635-36 (1996). In Monastra, the court described the seven-year maximum statute of limitations under § 3439.09 as follows:

The statute of limitations for an action for relief from a transfer proscribed under section 3439.04, subdivision a [transfer made with intent to defraud creditor], is four years after the transfer or, if later, one year after the transfer was or could reasonably have been discovered by the claimant, up to a maximum of seven years after the transfer . . . .

Id. at 1645 (emphasis added).

         The Trustee suggests an interpretation of the applicable law which would effectively abolish § 3439.09(c) once a chapter 7 bankruptcy is filed. The Trustee parses § 3439.09(c) and contends that the term "within seven years after the transfer was made" is a separate temporal determination than the term "the obligation was incurred." He argues that the date the "obligation was incurred" in this case was the date the Trustee was appointed and took on the powers of a hypothetical creditor under § 544.

         The Trustee also argues that the seven-year limitations period in § 3439.09(c) is applicable only to actions brought under the UFTA and that it does not limit actions brought under common law fraud; that actions under common law fraud are subject to a three-year statute which begins only upon discovery by the creditor. The Trustee cites Macedo v. Bosio, 86 Cal.App.4th 1044 (2001), to support his theory of a statute of "non limitations." Macedo was a fraudulent transfer case in which the defendants transferred their interest in real property to a revocable trust in 1993. A judgment had been entered against the defendants in 1996 and, in 1999, a court entered a contribution order against them. Their only defense was the statute of limitations: the transfer occurred in 1993, and the action to avoid it was brought in 1999, six years later. The trial court entered a summary judgment for the defendants. On appeal, the court reversed, following the reasoning of Cortez, that the UFTA is a cumulative and additional remedy and that such claims may be brought under the common law as well. Notwithstanding Cal.Civ.Code § 3439.09, the plaintiffs could bring an action within three years after the judgment was obtained. The Macedo court did not determine that an action could be brought beyond the seven-year statute in § 3934.09(c). Indeed, in dicta, the court suggested just the opposite, Macedo v. Bosio, 86 Cal.App.4th at 1051 n.4.

The Trustee cites Macedo for the proposition that: "In a common law cause of action, the applicable statute of limitation is CCP § 338, and the cause of action accrues not when the fraudulent transfer occurs, but when the judgment against the debtor is secured (or maybe even later, depending upon the belated discovery issue"). The Trustee did not deem it necessary to include the language at 1051 n.4 which was picked up and adopted by the Ninth Circuit in Slatkin, which makes it clear that the Macedo court interpreted the seven-year statute of limitations of Cal. Civ. Code § 3439.09(c) to apply to common law causes of action as well as actions brought pursuant to UFTA.

In Macedo the court stated: "Although . . . we agree with appellant's basic premise that section 3439.09 subdivision (a) is not the exclusive statute of limitations applicable to actions to set aside fraudulent transfers, we disagree that section 3439.09 subdivision (c) supports that conclusion. We think its meaning is far more limited, to wit, that even if belated discovery can be pleaded and proven as suggested in section 3439.09 subdivision (a), in any event the maximum elapsed time for a suit under either the UFTA or otherwise is seven years after the transfer. . . . [W]e think that, by its use of the term '[n]otwithstanding any other provision of law,' the Legislature clearly meant to provide an overarching, all-embracing maximum time period to attack a fraudulent transfer, no matter whether brought under the UFTA or otherwise." Macedo v. Bosio, 86 Cal. App.4th at 1051 n.4 (emphasis in original).

         The reasoning in Macedo was subsequently adopted by the Ninth Circuit Court of Appeals in the bankruptcy case, Slatkin v. Neilson (In re Slatkin), 222 Fed. Appx. 545 (9^th Cir. 2007). In Slatkin, the court cited Cal.Civ.Code §3439.09(c) and stated:

Because this statute of repose "provide[s] an overarching, all-embracing maximum time period to attack a fraudulent transfer," it extinguished the Trustee's ability to reach the transfers that occurred more than seven years prior to the date upon which the Trustee filed the claim . . . .

Id. at 547 (citation omitted).

         It has been firmly established in both California state law and in the Ninth Circuit that the powers of a bankruptcy trustee in California who seeks to avoid a fraudulent transfer under either the UFTA or the common law, are limited to those transfers which occur not more than seven years prior to the date that the trustee is appointed. See In re Slatkin, 222 Fed.Appx. at 547.

         Conclusion.

         Based on the foregoing, the Mr. C Defendants' Motion will be granted. Based on the facts alleged in the Complaint, the court is persuaded that the Trustee can plead no other set of facts to state a claim under the "alter ego" and "reverse piercing" theories. Further amendment of those claims would be futile. Accordingly, the first claim for relief will be dismissed with prejudice to the extent the Trustee seeks to dissolve the Corporation and take control of its assets based on the "alter ego" and "reverse piercing" doctrines. To the extent that the second and third claims for relief are derivatives of the first claim, they too will be dismissed without leave to amend. Based on the allegations in the Complaint, the court is not yet persuaded that the Trustee cannot plead a claim under the UFTA based on fraudulent transfers occurring within the applicable statute of limitation. Accordingly, the fourth claim for relief will be dismissed with leave to amend consistent with this memorandum.

Liability of transferee of avoided transfer

(a) Except as otherwise 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 or the entity for whose benefit such transfer was made; or

(2) any immediate or mediate transferee of such initial transferee.

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows:

(1) With actual intent to hinder, delay, or defraud any creditor of the debtor.

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:

(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.

(B) Intended to incur or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

Civil Code § 3439.05 states:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

A cause of action with respect to a fraudulent transfer or obligation under this chapter is extinguished unless action is brought pursuant to subdivision (a) of Section 3439.07 or levy made as provided in subdivision (b) or (c) of Section 3439.07:

(a) Under paragraph (1) of subdivision (a) of Section 3439.04, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.

(b) Under paragraph (2) of subdivision (a) of Section 3439.04 or Section 3439.05, within four years after the transfer was made or the obligation was incurred.

(c) Notwithstanding any other provision of law, a cause of action with respect to a fraudulent transfer or obligation is extinguished if no action is brought or levy made within seven years after the transfer was made or the obligation was incurred. (Emphasis added.)