FILED DEC 13 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-22-1222-CFL PRIME METALS U.S.A., INC., Debtor. Bk. No. 8:17-bk-14535-SC

RICHARD A MARSHACK, solely in his Adv. No. 8:19-ap-01216-SC capacity as Chapter 7 Trustee of the bankruptcy estate of Prime Metals, U.S.A., Inc., Appellant, v. MEMORANDUM* HYUNDAI STEEL COMPANY, a Korean corporation, Appellee.

Appeal from the United States Bankruptcy Court for the Central District of California Scott C. Clarkson, Bankruptcy Judge, Presiding

Before: CORBIT, FARIS, and LAFFERTY, Bankruptcy Judges.

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. INTRODUCTION

Chapter 71 trustee Richard A. Marshack (“Trustee”) appeals the

bankruptcy court’s order granting summary judgment to creditor Hyundai

Steel Company (“Hyundai”). The bankruptcy court did not err. We

AFFIRM.

FACTS

A. Prime’s history prior to bankruptcy.

Prime Metals U.S.A., Inc. (“Prime”) was a California company started

in 2008. Prime was engaged in trading and processing scrap metal. In July

of 2012, Hyundai began purchasing scrap steel from Prime. Hyundai

became Prime’s largest customer, accounting for more than 80% of Prime’s

sales. Thereafter, Prime entered into a series of transactions that had little

apparent business logic and may (or may not) have benefitted Hyundai.

1. Prime acquires the CMI Notes.

In 2014, Prime acquired certain promissory notes (“CMI Notes”)

evidencing loans in a total principal amount of $17 million issued by a

third-party bank to Prime’s competitor Central Metal, Inc. (“CMI

Borrowers”). The CMI Notes were secured by deeds of trust on three pieces

of commercial real estate in California (“Property”). Prime acquired the

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code,

, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil Procedure, all “Fed. R. Evid.” references are to the Federal Rules of Evidence, and all “Cal. Civ. Code” references are to the California Civil Code. 2 CMI Notes from MKLUS LLC, for $17,717,458.94. At the time Prime

acquired the CMI Notes, the CMI Borrowers were in default.

Prime obtained a bank loan from Shinhan Bank in Seoul, South Korea

in the amount of $17,500,000 to fund the CMI Notes purchase. Hyundai

guaranteed the loan.

In return for the guaranty, Prime agreed to pay Hyundai an annual

fee equal to 0.15% per annum of $17.5 million for the period the guaranty

remained outstanding. Prime’s loan from Shinhan Bank had a variable

interest rate. The original interest rate on the CMI Notes was 9%. However,

after Prime acquired the CMI Notes, Prime reduced the interest rate

charged to the CMI Borrowers to 3.2%.

2. Prime enters into a forbearance agreement with the CMI Borrowers.

The CMI Borrowers did not always make timely payments.

Consequently, Prime and the CMI Borrowers entered into a forbearance

and modification agreement (“Forbearance Agreement”) on February 17,

2015. The Forbearance Agreement further reduced the interest rate charged

and extended the maturity date. The Forbearance Agreement was amended

in October 2015 and again in January 2016.

3. Prime signs a deed of guarantee benefiting Hyundai.

On March 26, 2015, Prime signed a deed of guarantee, guaranteeing

the performance of an unrelated entity, More Steel Co. Ltd. (“More Steel”),

under contracts between Hyundai and More Steel. To secure its obligations

3 under the deed of guarantee, Prime agreed to “transfer, assign, and

convey” a security interest in all of its assets to Hyundai.

4. R-Techo purchases Prime.

On July 30, 2015, for $650,000, R-Techo Co., Ltd. (“R-Techo”), a South

Korean corporation, acquired all the issued and outstanding capital stock

of Prime, and Prime became a wholly owned subsidiary of R-Techo.

5. Prime enters into supply and purchase contracts with Hyundai

Although Hyundai and Prime had been engaging in trade since 2012

without a supply contract, on October 1, 2015, Hyundai and Prime entered

into a one-year supply contract (“Supply Contract”) wherein Hyundai

agreed to purchase, and Prime agreed to sell, scrap metal for a one-year

term. The Supply Contract automatically renewed on an annual basis

unless timely notice of termination was given.

The Supply Contract did not obligate Hyundai to buy any particular

quantity of steel and did not set the price or shipment terms. Instead, those

terms were contained in purchase contracts that the parties negotiated and

entered into each time Hyundai ordered steel from Prime.

From October 2015 through April 2017, Hyundai’s purchases of scrap

metal from Prime were governed by the Supply Contract and separate

purchase agreements for each shipment executed by both Hyundai and

Prime.

4 6. Prime issues a notice of default to the CMI Borrowers.

On October 5, 2016, Prime issued a notice of default and demand for

payment to the CMI Borrowers. The notice of default indicated that the

CMI Borrowers had failed to make the September 22, 2016, quarterly

interest payment.

7. Hyundai acquires the CMI Notes from Prime.

At the same time Prime issued the notice of default, Hyundai was

making efforts to purchase the CMI Notes from Prime. Prime and Hyundai

agreed to use the same attorney, Hansin Scott Kim (“Mr. Kim”), to draft a

CMI Notes purchase agreement. The parties also agreed that Hyundai

would pay all attorney fees related to the transaction.

Additionally, Mr. Kim, on behalf of Hyundai, issued a letter to Bank

of Hope (Prime’s primary lending bank) strongly encouraging the bank to

agree to Prime selling the CMI Notes to Hyundai. The letter warned that

the relationship between Prime and Hyundai would be ruined if Prime did

not sell.

On December 28, 2016, Hyundai purchased the CMI Notes from

Prime, pursuant to a Mortgage Loan Purchase and Sale Agreement. The

aggregate outstanding principal of the CMI Notes was $17,518,141.52.

Hyundai paid the outstanding balance to Shinhan Bank rather than Prime.

Hyundai also paid the other fees related to the transaction.

5 8. Hyundai stops purchasing scrap metal from Prime.

After Hyundai acquired the CMI Notes from Prime, Hyundai

stopped purchasing scrap metal from Prime. Hyundai’s last purchase from

Prime metals was in March 2017. Hyundai did not give Prime notice of any

breach of the Supply Contract.

B. Prime files a chapter 7 bankruptcy petition.

On November 17, 2017, Prime filed a voluntary chapter 7 bankruptcy

petition. The bankruptcy petition, schedules, and statement of financial

affairs were signed by Ik Dong Kim (“I.D. Kim”) as President. I.D. Kim was

also the founder and chairman of R-Techo, Prime’s parent company.

C. Trustee files an adversary complaint against Hyundai.

Trustee filed an adversary complaint (“Complaint”) against Hyundai

that (as amended) alleged eleven claims for relief: (1) avoidance and

recovery of intentional fraudulent transfers pursuant to §§ 544, 548, 550,

and 551;

, 3439.07, 3439.08, and 3439.09; (2)

avoidance and recovery of constructive fraudulent transfers pursuant to §§

544, 548, 550, and 551;

, 3439.07, 3439.08, and

3439.09; (3) avoidance and recovery of estate property pursuant to § 542; (4)

avoidance of preferential transfers pursuant to § 550; (5) recovery of

avoided transfers pursuant to § 550; (6) declaratory judgment regarding the

existence of an alter ego relationship between Hyundai and Prime; (7) price

fixing and collusion between competitors; (8) attempted monopolization

6 and conspiracy to monopolize; (9) unfair competition; (10) collusion to

restrain trade; and (11) fraud.

Hyundai filed a motion to dismiss the Complaint in its entirety. The

bankruptcy court granted Hyundai’s motion in part, finding that Trustee’s

claims 1-6 were adequately pled but dismissed claims 7-11 without leave to

amend.2

D. Trustee’s claims that are on appeal.

Trustee argued that Hyundai conspired with R-Techo and others to

manipulate and control the scrap metal steel market to the detriment of

Prime. Trustee alleged that because of Hyundai’s actions and control of

Prime, several pre-petition transfers should be avoided as fraudulent.

1. Trustee’s claim that Prime fraudulently transferred the CMI Notes to Hyundai.

The first transfer that Trustee challenged was Prime’s sale of the CMI

Notes to Hyundai (the “CMI Notes Transfer”). Trustee alleged that first

Hyundai caused Prime to borrow over $17 million to acquire the defaulted

CMI Notes. Trustee alleged that Hyundai then forced Prime to transfer the

CMI Notes to Hyundai for inadequate consideration causing Prime to be

overburdened with debt, insolvent, and bankrupt. According to Trustee,

Hyundai’s manipulation effectively forced Prime “out of business.”

2 Trustee does not challenge the dismissal of claims 7-11. 7 2. Trustee’s claim that the R-Techo Transfers were fraudulent.

Trustee also alleged that between August 2015 and December 2016,

under the pretext of legitimate payments and transactions, Prime

transferred $4.8 million to R-Techo, which then transferred $1.8 million of

those funds to Hyundai (“R-Techo Transfers”).3 According to Trustee,

Hyundai orchestrated the R-Techo Transfers for no consideration and no

purpose other than to defraud Prime’s creditors. Trustee alleged that

Hyundai’s reason for using Prime to funnel money to Hyundai was

because of an antecedent debt owed to Hyundai by More Steel, an

unrelated scrap metal company and competitor of Prime.

3. Trustee’s claim that Hyundai was the alter ego, statutory, and/or non-statutory insider of Prime.

Trustee insisted that Hyundai was in control of Prime and qualified

as a statutory insider under § 101(31)(B)(iii), or a non-statutory insider,

sufficient for the bankruptcy court to declare Hyundai the alter ego of

Prime.

As evidence, Trustee alleged: (1) Hyundai represented up to 90% of

Prime’s business, providing Hyundai significant leverage in its dealings

3 Pursuant to Fed. R. Evid. 201(b), we exercise our discretion to take judicial notice of materials electronically filed in the underlying cases. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003). Trustee filed a separate adversary against R-Techo: Richard A. Marshack v. R-Techo, Co., Ltd., Adv. Proc. No. 8:19-ap-01215-SC. Trustee sought to recover approximately $4 million of alleged fraudulent transfers from Prime to R-Techo, the alleged initial transferee. Trustee settled the claim for $50,000 on April 5, 2023. 8 with Prime; (2) Hyundai owned the majority shares of R-Techo, who in

turn owned 100% of Prime’s shares; (3) Hyundai controlled several key

individuals of Prime, including Min Ho An, 4 a former executive at

Hyundai who Hyundai installed at Prime as an executive, I.D. Kim, who

was Prime’s former CEO and also an executive at R-Techo, and Tae-Ho

Cho, R-Techo’s President; (4) Min Ho An relayed insider information to

Hyundai regarding Prime’s finances; (5) Prime’s records were stored at

Hyundai’s office building in Orange County; (6) Hyundai arranged the

formation of MKLUS and “MKLUS was one of many alter ego companies

of Hyundai that Hyundai used . . . to achieve its improper agendas”;

(7) Hyundai and Prime were represented by the same attorneys during the

negotiations for the CMI Notes Transfer; (8) Hyundai paid Prime’s

attorneys’ fees indicating that the negotiations were less than arm’s length;

(9) the CMI Notes Transfer documents were signed by Min Ho An, the

same person that Hyundai placed in Prime who would send weekly

reports back to Hyundai regarding Prime’s financial position; and

(10) Hyundai forced Prime to sign the deed of guarantee to ensure Prime

helped make up for the losses caused by More Steel.

4 Min Ho An was an executive at Hyundai in South Korea from 1996 to the end of 2013 and then joined Prime as an executive and director at the end of 2014. Trustee alleged that “Hyundai had installed Min Ho An as an executive at Prime to facilitate Hyundai’s plan to extract all value from Prime including by price manipulation, indirect ownership of its stock, transfers of assets, and otherwise.” 9 Additionally, Trustee alleged that there was a unity of interest and

ownership that existed between Prime and Hyundai such that any

separateness ceased to exist and that Hyundai used Prime’s assets for its

own personal or distinct business use.

4. Trustee sought to avoid and recover the alleged fraudulent transfers.

Based on the above allegations, Trustee sought to avoid and recover,

for the benefit of the bankruptcy estate, both the CMI Notes Transfer and

the R-Techo Transfers as actual or constructive fraudulent transfers.

According to Trustee, Hyundai facilitated and orchestrated both the CMI

Notes Transfer and the R-Techo Transfers for the benefit of Hyundai

without consideration and with the intent to hinder, delay, or defraud

Prime’s other creditors.

E. Hyundai’s motion for summary judgment

Following the close of discovery, Hyundai filed a motion for

summary judgment (“Summary Judgment Motion”). Hyundai argued that

Trustee had not presented sufficient evidence to raise a triable issue as to

any of the claims.

1. Hyundai argued the CMI Notes Transfer was not fraudulent.

Hyundai argued that there was no evidence to support Trustee’s

assertion that the CMI Notes Transfer should be avoided as an intentional

or constructive fraudulent transfer. As to Hyundai’s purchase of the CMI

Notes from Prime, Hyundai explained that it paid the full par value of the

10 notes plus all costs associated with the transaction (approximately

$17,858,430). Hyundai concluded that because it paid all that Prime was

entitled to, the CMI Notes Transfer could not be deemed fraudulent, and

Hyundai was entitled to summary judgment as a matter of law.

2. Hyundai argued that there was no evidence of the R-Techo Transfers.

Hyundai argued that Trustee failed to establish that Hyundai

received any funds that were transferred fraudulently from Prime to

Hyundai via R-Techo. Hyundai argued that Trustee had not identified, and

could not identify, the specific dates or amounts of the alleged R-Techo

Transfers. Hyundai noted that Trustee failed to provide any documentary

evidence to show that money was transferred from Prime to R-Techo and

then from R-Techo to Hyundai.

Accordingly, Hyundai concluded that Trustee failed to establish the

elements of an actual or constructive fraudulent transfer claim as to the

R-Techo Transfers, and Hyundai was entitled to summary judgment as a

matter of law.

3. Hyundai argued it was not the alter ego of Prime.

Hyundai also disputed Trustee’s allegations regarding any shared

ownership or control by Hyundai. Specifically, Hyundai argued: (1) the

prices negotiated for scrap steel between Prime and Hyundai were similar

to the prices Hyundai paid to other scrap steel suppliers; (2) Hyundai did

not jointly operate Prime in any respect and did not co-mingle funds or

11 assets with Prime; (3) Prime maintained its own books and records, bank

accounts, employees and payroll, and there was no overlap with Hyundai;

(4) Hyundai does not and did not own any stock in Prime; and (5) Hyundai

did not control Prime’s employees or insert Hyundai employees into

Prime’s management.

F. The bankruptcy court’s hearing on the Summary Judgment Motion.

Trustee opposed Hyundai’s Summary Judgment Motion. At the

hearing on the motion, Trustee informed the court and Hyundai that he

was abandoning the preference claims. As to the remaining claims, Trustee

seemed to acknowledge his lack of objective evidence and documents but

argued that this was the very reason a trial was necessary. Trustee opined

that no one was cooperating with his investigation and that getting

testimony and documentary evidence had been difficult given that Prime’s

sole shareholder was R-Techo, and R-Techo was ostensibly acting in

support of Hyundai. Trustee also stated that almost no one was in the

United States: “they’re all in Korea . . . [and] basically immune from being

deposed.”

G. The bankruptcy court grants Hyundai’s Summary Judgment Motion.

On October 28, 2022, the bankruptcy court entered a memorandum

and order granting Hyundai’s Summary Judgment Motion. In a footnote,

the court denied both Trustee’s objections to the court’s tentative ruling

12 and Trustee’s request for a hearing. The court also entered an order on the

parties’ evidentiary objections.

On December 8, 2022, the bankruptcy court entered another order

granting Hyundai’s Summary Judgment Motion for “the reasons set forth”

in the October 28, 2022 memorandum and order (collectively, the

“Summary Judgment Order”).

H. The bankruptcy court’s findings and conclusions.

The bankruptcy court stated that although there were “some factual

issues as to the level of control over which Hyundai (which represented

90% of Prime’s client base) exercised over Prime, its operations, and its

employees,” there was no genuine dispute of material facts as to each of

Trustee’s claims. Therefore, Hyundai was entitled to summary judgment as

a matter of law.

1. Hyundai did not control Prime.

a. Hyundai was not an insider.

The bankruptcy court determined that Trustee failed to present

admissible evidence sufficient to establish a triable issue of material fact as

to Hyundai’s alleged dominance and control over Prime. Accordingly, the

bankruptcy court determined that Trustee failed to establish genuine

disputes of material fact as to Hyundai’s insider status and therefore

Hyundai was entitled to summary judgment as a matter of law.

Specifically, the bankruptcy court found that: (1) Hyundai did not

own any shares in R-Techo or Prime; (2) Prime’s employee Min Ho An and 13 R-Techo’s employees were not controlled by Hyundai; (3) Prime’s business

records were not stored at a facility Hyundai leased; and Hyundai and

Prime were not represented by the same attorneys during negotiations

relating to the CMI Notes Transfer. The bankruptcy court determined that

although Hyundai was a large customer, received financial reports from

Prime, and paid legal expenses related to the CMI Notes Transfer, those

facts were not sufficient to generate a genuine dispute of material fact

about insider status.

b. Hyundai was not Prime’s alter ego.

The bankruptcy court determined that Trustee’s burden on an alter

ego claim was even higher than Trustee’s burden to establish that Hyundai

was a statutory or non-statutory insider. Because the bankruptcy court had

already determined that Trustee failed to establish that Hyundai was either

a statutory or a non-statutory insider of Prime, the bankruptcy court

determined that Trustee also failed to establish a genuine dispute of fact as

to whether Hyundai was Prime’s alter ego.

2. Trustee failed to establish genuine disputes of material fact regarding the alleged fraudulent transfers.

a. The CMI Notes Transfer was not fraudulent.

The bankruptcy court determined that Trustee failed to establish that

Prime transferred the CMI Notes with the intent to hinder, delay, or

defraud other creditors because Trustee had not established a genuine

14 dispute of material fact as to whether Prime received reasonably equivalent

value when it sold the CMI Notes.

The bankruptcy court found that Prime sold the non-performing CMI

Notes to Hyundai at par value. Because Prime received reasonably

equivalent value for the CMI Notes, the bankruptcy court determined that

Trustee failed to establish a genuine dispute of material fact as to one of the

necessary elements of a fraudulent transfer claim related to the CMI Notes

transfer, and therefore Hyundai was entitled to summary judgment as a

matter of law.

b. Trustee failed to establish the existence of the R-Techo Transfers.

With respect to the alleged R-Techo Transfers, the bankruptcy court

determined that Trustee failed to establish a genuine dispute of material

fact as to whether there was a transfer of Prime’s property. The bankruptcy

court found that Trustee produced no documentary evidence of the alleged

transfers of $1.8 million from Prime to R-Techo and then from R-Techo to

Hyundai. The bankruptcy court determined that because Trustee failed to

establish a genuine dispute of material fact in relation to the dates,

amounts, and reasons why R-Techo allegedly made the R-Techo Transfers,

Hyundai was entitled to summary judgment as a matter of law on the

Trustee’s fraudulent transfer claims related to the R-Techo Transfers.

Trustee timely appealed.

15 JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(A), (H). We have jurisdiction under

.

ISSUES

Did the bankruptcy court err in excluding evidence offered by

Trustee?

Did the bankruptcy court err in granting summary judgment to

Hyundai on Trustee’s claim that the R-Techo Transfers were constructively

fraudulent?

Did the bankruptcy court err in granting summary judgment to

Hyundai on Trustee’s claim that the R-Techo Transfers were actually

fraudulent?

Did the bankruptcy court err in granting summary judgment to

Hyundai on Trustee’s claim that the CMI Notes Transfer was

constructively fraudulent?

Did the bankruptcy court err in granting summary judgment to

Hyundai on Trustee’s claim that the CMI Notes Transfer was actually

fraudulent?

Did the bankruptcy court err in granting summary judgment to

Hyundai on Trustee’s claim that Hyundai was Prime’s alter ego?

STANDARDS OF REVIEW

We review de novo a bankruptcy court’s decision to grant summary

judgment. Wood v. Stratos Prod. Dev. (In re Ahaza Sys., Inc.),

,

16 1123 (9th Cir. 2007). “De novo review requires that we consider a matter

anew, as if no decision had been made previously.” Francis v. Wallace (In re

Francis),

(9th Cir. BAP 2014).

“We review evidentiary rulings for abuse of discretion and reverse if

the exercise of discretion is both erroneous and prejudicial.” Wagner v.

Cnty. of Maricopa,

(9th Cir. 2013). To be considered on a

motion for summary judgment, the evidence must be admissible. See Civil

Rule 56(c), (e)(1) (requiring the party asserting a fact to support that fact

with admissible evidence).

DISCUSSION

A. Summary judgment standard.

Civil Rule 56(c) (applicable through Rule 7056) provides that

summary judgment is appropriate when “there is no genuine dispute as to

any material fact and the movant is entitled to judgment as a matter of

law.” A dispute over material facts is “genuine” where a reasonable jury

could return a verdict for the nonmoving party based on the evidence

presented. Anderson v. Liberty Lobby, Inc.,

(1986); Far Out

Prods., Inc. v. Oskar,

, 992 (9th Cir. 2001). A fact is “material” if

it could affect the outcome of the case under the controlling substantive

law. Anderson,

; Far Out Prods., Inc., 247 F.3d at 992.

Hyundai, as the moving party, did not bear the ultimate burden of

persuasion at trial. However, it carried both the burden of production and

the burden of persuasion on its motion for summary judgment. Friedman v.

17 Live Nation Merch., Inc.,

(9th Cir. 2016) (citing Nissan Fire

& Marine Ins. Co. v. Fritz Cos., Inc.,

, 1102 (9th Cir. 2000)). To

carry the burden of production, Hyundai had to “either produce evidence

negating an essential element of the nonmoving party’s claim . . . or show

that the nonmoving party does not have enough evidence of an essential

element to carry its ultimate burden of persuasion at trial.” Nissan Fire &

Marine, 210 F.3d at 1102-03. To successfully carry the burden of persuasion,

Hyundai had to show the court that no genuine dispute of material fact

existed. Id. at 1102.

If Hyundai satisfied its initial burdens, then the burden shifted to the

nonmoving party (Trustee) to identify with reasonable particularity

enough admissible evidence supporting its claims to create a genuine

dispute of material fact. Id. To meet that burden, the Trustee’s evidence

must be substantial; a “scintilla of evidence or evidence that is merely

colorable or not significantly probative does not present a genuine issue of

material fact.” Addisu v. Fred Meyer, Inc.,

(9th Cir. 2000).

“Where the record taken as a whole could not lead a rational trier of fact to

find for the non-moving party, there is no genuine issue for trial” and

summary judgment is appropriate. Matsushita Elec. Indus. Co., Ltd. v. Zenith

Radio Corp.,

(1986) (internal quotation marks and citation

omitted).

When deciding a summary judgment motion, the bankruptcy court

must view the evidence in the light most favorable to the non-moving

18 party. Bell v. Cameron Meadows Land Co.,

(9th Cir. 1982).

A court “generally cannot grant summary judgment based on its

assessment of the credibility of the evidence presented[.]” Agosto v. Immigr.

& Naturalization Serv.,

(1978). “[A]t the summary

judgment stage the judge’s function is not himself to weigh the evidence

and determine the truth of the matter but to determine whether there is a

genuine issue for trial.” Anderson,

. However, even in cases

where elusive concepts such as motive or intent are at issue, summary

judgment may be appropriate if the nonmoving party rests merely upon

conclusory allegations, improbable inferences, and unsupported

speculation. Gertsch v. Johnson & Johnson, Fin. Corp. (In re Gertsch),

(9th Cir. BAP 1999).

B. The bankruptcy court’s evidentiary rulings.

On appeal, Trustee argues that the bankruptcy court’s evidentiary

rulings were erroneous. Trustee’s chief witness was Min Ho An, who was

employed by Hyundai in South Korea as deputy manager from 1996-2013

and then worked for Prime as Secretary and Chief Operating Officer from

2014-2017. Hyundai objected to the majority of Min Ho An’s declaration

and deposition testimony on the basis of hearsay and lack of personal

knowledge, foundation, and relevance.

19 The bankruptcy court sustained most of Hyundai’s evidentiary

objections. 5 The bankruptcy court’s order on evidentiary objections did not

include any reasoning or rationale for its ruling. The bankruptcy court even

sustained Hyundai’s objection to the first paragraph of Min Ho An’s

declaration: “Unless otherwise stated, I have personal knowledge of the

facts set forth herein. I am over 18 years of age, and if called to testify, then

I could and would competently testify hereto.” This is standard verbiage

for an initial statement to a declaration, and without being provided any

rationale or reasoning, we are unable to discern the bankruptcy court’s

basis for sustaining Hyundai’s objection to this paragraph or any of its

other evidentiary rulings.

Because this case was disposed of on summary judgment, the

bankruptcy court was not tasked with determining the credibility or

truthfulness of the declarants or their statements. Indeed, “[t]he evidence of

the non-movant is to be believed” by the court, “and all justifiable

inferences are to be drawn in his favor.” Anderson,

. The

weighing of evidence and the drawing of legitimate inferences are

functions of the trier of fact and are not appropriate for resolution by the

court on summary judgment. See

A review of the record reveals that the bankruptcy court likely made

improper determinations regarding credibility, truthfulness, relevance, and

5 Additionally, the bankruptcy court overruled the majority of Trustee’s evidentiary objections. 20 personal knowledge. However, even if we consider all the evidence

submitted by Trustee, Trustee did not offer evidence sufficient to support

every element of any of the claims in the Complaint. Therefore, the

bankruptcy court’s evidentiary rulings, even if erroneous, were “more

probably than not harmless.” Haddad v. Lockheed Cal. Corp.,

(9th Cir. 1983).

C. The bankruptcy court did not err in granting Hyundai summary judgment on Trustee’s claims of fraudulent transfers.

The Bankruptcy Code permits trustees to enlarge the debtor’s estate

by invalidating fraudulent transfers under both federal and state law,

thereby making the property a part of the debtor’s estate again. 6 See EPD

Inv. Co. v. Bank of Am. Corp. (In re EPD Inv. Co.),

(9th Cir.

BAP 2015). California’s fraudulent transfer act and the federal Bankruptcy

Code’s fraudulent transfer provisions are almost identical in form and

substance; therefore, we draw upon cases interpreting both. Barclay v.

Mackenzie (In re AFI Holding, Inc.),

(9th Cir. 2008). To avoid

a transfer as fraudulent, Trustee bears the burden of proof under the

preponderance of the evidence standard. Gill v. Stern (In re Stern),

(9th Cir. 2003).

6 Where a transfer has been avoided under §§ 544 or 548, § 550(a) authorizes the trustee to “recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property . . . .” Section 551 provides that any transfer avoided under §§ 544 or 548 “is preserved for the benefit of the estate but only with respect to property of the estate.” 21 Trustee argues that the CMI Notes Transfer and the R-Techo

Transfers were actually or constructively fraudulent under § 548(a)(1) and

the California Uniform Voidable Transfer Act because the purpose of the

transfers was to keep Prime’s assets beyond creditors’ reach. § 548(a)(1);

. Trustee argues that he offered sufficient

evidence to demonstrate that the transfers involved actual and constructive

fraud.

1. The transfers were not actually fraudulent.

Section 548 allows a trustee to avoid any transfer of an interest of the

debtor in property if the debtor made such transfer with actual intent to

hinder, delay, or defraud any creditor. § 548(a)(1)(A). The elements

necessary for a trustee to establish an avoidance action based on actual

fraud are essentially the same for bankruptcy law and California law. See

§ 548(a)(1)(A);

(a). To prevail, Trustee must prove

that: (1) there was a transfer; (2) of Prime’s property; (3) during the

applicable lookback period – two years prior to the petition date for § 548,

and four years prior to the petition date for

(a); and

(4) Prime made the transfer with actual intent to hinder, delay, or defraud

any of Prime’s creditors. See Argyle Online, LLC v. Nielson (In re GGW

Brands, LLC),

(Bankr. C.D. Cal. 2013).

“Since direct evidence of intent to hinder, delay or defraud is

uncommon, the determination typically is made inferentially from

circumstances consistent with the requisite intent.” Wolkowitz v. Beverly (In

22 re Beverly),

(9th Cir. BAP 2007), aff'd in part, dismissed in

part,

(9th Cir. 2008). When determining the debtor’s actual

intent, courts may consider certain “badges of fraud.” Ezra v. Seror (In re

Ezra),

(9th Cir. BAP 2015); see

(b).

a. The CMI Notes Transfer was not actually fraudulent.

To succeed on the avoidance action based on actual fraud as to the

CMI Notes Transfer, Trustee had to demonstrate that Prime transferred the

CMI Notes intending to hinder, delay, or defraud creditors. Trustee argues

the evidence shows that Hyundai wanted the CMI Notes and forced Prime

to first purchase the CMI Notes and then later sell them to Hyundai, rather

than allowing Prime to keep the defaulted notes. According to Trustee,

Prime’s selling of the defaulted CMI Notes was not for any legitimate

purpose, rather it was for the purpose of defrauding Prime’s creditors.

Trustee is correct that it is unclear and perhaps even suspicious that

Prime, a scrap metals business with many outstanding (and defaulted)

loans of its own, decided to purchase defaulted secured loans for $17.5

million. Trustee may also be correct that Prime only made the decision to

acquire the CMI Notes because of Hyundai.7 However, Prime’s business

decision to acquire the CMI Notes and subsequently sell the CMI Notes

7 Hyundai argues that Prime made money on the CMI Notes; however, neither party produced the Shinhan loan documents or any documentary evidence showing the CMI Borrowers’ payments (or lack thereof) to Prime for the period that Prime held the CMI Notes. Thus, there is no objective evidence to support or refute Hyundai’s claim. 23 was not before the bankruptcy court. Rather, the issue was whether Prime

intended to hinder, delay, or defraud other creditors when it sold the CMI

Notes to Hyundai.

A review of the entire record demonstrates that Trustee offered

evidence of the facts of the transfer only. Beyond supposition and

conjecture, Trustee did not proffer objective evidence in support of his

assertion that the purpose or intent of Prime when it sold the CMI Notes to

Hyundai was to hinder, delay, or defraud creditors. Because Trustee failed

to offer evidence sufficient to support such a finding, the bankruptcy court

did not err in granting Hyundai summary judgment on this claim.

b. The R-Techo Transfers were not actually fraudulent.

Similar to Trustee’s argument regarding the CMI Transfers, Trustee

argues that he offered sufficient evidence demonstrating that Prime

transferred $1.8 million to Hyundai via R-Techo for the purpose of

defrauding other creditors.

Importantly, a basic element of a claim for fraudulent transfer is the

actual transfer. At a minimum, for a fraudulent transfer to occur, there

must be a “transfer” of a debtor’s “asset.” 8

8 “‘Transfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.” Stadtmueller v. Sarkisian (In re Medina),

, 240 (9th Cir. BAP 2020) (quoting

(m)), aff'd, No. 20-60045,

(9th Cir. July 29, 2021). “‘Asset’ means property of a debtor,” subject to certain statutory exceptions.

(quoting

(a)). 24 We agree that Trustee’s evidence indicates there may have been a

scheme for Hyundai to somehow recoup its alleged losses caused by More

Steel. Indeed, in his deposition, Min Ho An appears to admit to the scheme.

However, his later declaration partially contradicts his deposition

testimony. Nevertheless, even if we do not discount his deposition

testimony, his general averments are “a world apart from” the “‘specific

facts needed to sustain the complaint.” See Lujan v. Nat'l Wildlife Fed'n,

(1990).

Trustee, contrary to his assertions, did not present evidence and did

not allege that he could produce evidence that the scheme was

accomplished or that Prime transferred its assets (as opposed to R-Techo’s)

to Hyundai for the actual purpose of defrauding creditors. Indeed, Trustee

failed to offer evidence of the timing of the alleged transfers, or the manner

or process of the alleged transfers. For example, was it a transfer of money,

or was it an agreement to accept low purchase pricing on scrap iron?

Based on an independent review of the entire record, without making

credibility determinations, and viewing the evidence in the light most

favorable to Trustee, we determine that Trustee failed to offer sufficient

evidence showing “when” and “how” the alleged R-Techo Transfers

occurred. Therefore, Hyundai carried its summary judgment burden by

demonstrating that Trustee failed make a sufficient showing on an essential

element of his case with respect to which Trustee had the burden of proof.

Celotex Corp. v. Catrett,

(1986) (explaining “a complete

25 failure of proof concerning an essential element of the nonmoving party’s

case necessarily renders all other facts immaterial”). Accordingly, the

bankruptcy court did not err in granting Hyundai summary judgment on

this claim.

2. The transfers were not constructively fraudulent.

A trustee in possession may bring an action to avoid a prepetition

transfer that is alleged to be constructively fraudulent under § 548(a)(1)(B)

or applicable state law as provided in § 544(b)(1). 9 To avoid the transfers,

Trustee had to show: (1) there was a transfer of Prime’s property; (2)

during the applicable lookback period; (3) Prime received less than

reasonably equivalent value in exchange for the transfer; and (4) Prime was

insolvent, made insolvent by the transfers, operating or about to operate

without sufficient capital, or unable to pay its debts as they become due.

See Hasse v. Rainsdon (In re Pringle),

(9th Cir. BAP 2013);

§ 548(a)(1)(B)(i)-(ii)(I)-(III);

(a).

a. The CMI Notes Transfer was not constructively fraudulent.

If Prime received reasonably equivalent value for the CMI Notes,

then the CMI Notes Transfer was not constructively fraudulent. The court

employs a two-step process in determining whether a debtor received a

reasonably equivalent value. Jordan v. Kroneberger (In re Jordan),

California law is substantially similar. See

(a). 26 428, 441 (Bankr. D. Idaho 2008). First, the court must determine whether the

debtor received value. If the debtor received value for a transfer, the court

must then determine whether that value was the reasonable equivalent of

what the debtor gave up.

An independent review of the record demonstrates that Trustee

failed to offer any evidence showing that the amount paid for the CMI

Notes was less than the “reasonably equivalent value” of those notes.

Hyundai purchased the CMI Notes from Prime for the outstanding

balance of the CMI Notes along with other fees related to the transaction.

Hyundai paid the funds to Shinhan Bank rather than Prime. Trustee

provided no evidence to the contrary. Regardless that the payment was

made to Shinhan Bank rather than to Prime, Prime received value because

its debt to Shinhan Bank was satisfied. See

(“[v]alue is defined . . . as

property, or the satisfaction or securing of a present or antecedent debt of

the debtor”) (quotation marks omitted). Furthermore, because Prime

received the par value of the CMI Notes, it is without reasonable doubt that

the value it received was reasonably equivalent to what it gave up. See

Therefore, Trustee did not present sufficient evidence for a

reasonable trier of fact to find that Prime received less than reasonably

equivalent value as to the CMI Notes. Accordingly, Hyundai carried its

summary judgment burden by demonstrating that Trustee failed to

produce evidence of one of the necessary elements of a constructive fraud

claim.

27 b. The R-Techo Transfers were not constructively fraudulent.

Trustee also fails to establish a genuine dispute regarding the alleged

constructively fraudulent R-Techo Transfers. Because of the same lack of

evidence discussed in the previous actual fraud section, Trustee has not

established the elements for an avoidance action based on constructive

fraud as to the R-Techo Transfers.

Therefore, based on our independent review of the record, the

bankruptcy court did not err in granting Hyundai summary judgment on

Trustee’s claim of constructive fraud as to the R-Techo Transfers.

D. Hyundai was not Prime’s alter ego.

On appeal, Trustee argues that the bankruptcy court erred in refusing

to declare Hyundai the alter ego of Prime. Alter ego has been described as

“an extreme remedy, sparingly used.” Sonora Diamond Corp. v. Superior Ct.,

(2000). It is to be imposed “cautiously” and

“reluctantly.” Highland Springs Conf. & Training Ctr. v. City of Banning,

(2016). Among the factors to be considered in

applying the doctrine are commingling of funds and other assets of the two

entities, the identical equitable ownership in the two entities, the use of the

same offices and employees, the lack of segregation of corporate records,

and identical directors and officers. Tomaselli v. Transamerica Ins. Co.,

(1994).

28 In this case, Trustee provided evidence demonstrating that Hyundai

had some influence over Prime’s business dealings and decisions.

However, this is woefully short of the evidence necessary to establish that

Hyundai was Prime’s alter ego. Based on our independent review of the

record, Trustee did not present evidence sufficient to establish a genuine

dispute of material fact relating to the elements of an alter ego claim.

Accordingly, the bankruptcy court did not err in granting Hyundai

summary judgment on the alter ego claim.

CONCLUSION

Based on our independent review, we conclude that the bankruptcy

court did not err in granting Hyundai’s Summary Judgment Motion. We

AFFIRM.

29