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other creditors." Because the value of the Property was not enough to satisfy the three mortgages filed prior to the Lien, the Lien had no value because there were no assets to secure it. Thus, the entire Payment is an avoidable preference since releasing the Lien did not provide the bankruptcy estate with new value.
Facts: Prepetition, beginning in January 2005, the plaintiffs invested with the Debtor. Each plaintiff provided the Debtor with a number of loans (the "Loans"), which were secured by a second deed of trust in favor of Cedar Funding against certain real property. The Debtor's principal tendered a number of documents to the plaintiffs, including unsigned promissory note endorsements and assignments of deeds of trust. The Debtor's principal assured the plaintiffs that when the Loans were funded the promissory notes and the assignments would be executed and recorded. The Debtor did not record the assignments until May 16, 2008. On May 26, 2008, the debtor declared bankruptcy and a trustee (Nielson) was appointed. On June 18, 2008, the plaintiffs filed a complaint requesting a declaration that (i) they have either an equitable or legal interest in the notes and deeds and (ii) that their lien interests are not avoidable as a preferential transfer. Nielson moved to dismiss the complaint. Issues: Whether the plaintiffs' complaint should be dismissed under Rule 12(b)(6). Rules: In bankruptcy, the Ninth Circuit requires that courts use their equitable powers to establish constructive trusts very sparingly and in connection with the policies of the bankruptcy code. Despite this rule, "it is enough if the complaint alleges facts plausibly suggesting that plaintiffs and Cedar Funding intended to create a lien in plaintiffs' favor, but for some reason failed to do so, or that Cedar Funding would be unjustly enriched absent imposition of a lien. California law recognizes equitable liens in both sets of circumstances."
Holding: the complaint survives Rule 12(b)(6).
Reasoning: The allegations as pled in the complaint were sufficient under California law to establish an equitable lien and therefore defeat dismissal. Further, that the liens were actually recorded on May 16 did not preclude the imposition of an equitable lien since the equitable lien would relate back to the date the transaction or conduct created it and would defeat any liens that attached between the time of the imposition of the equitable lien and May 16. Additionally, the complaint alleges enough facts to raise at least a question as to whether the trustee would be unable to recover the plaintiffs' equitable interests pursuant to § 541(d). The complaint sufficiently alleged facts so that it was at least plausible that the transfer occurred during the preference period or whether the Loans were a contemporaneous exchange for new value.
Facts: This claim is related to the bankruptcy of the Bennett Funding Group, Inc. and its related companies (the "Bennett Group"). Breeden, the chapter 11 trustee, had previously filed a complaint against Sphere Drake Insurance PLC and its related company to recover the proceeds of a reinsurance policy issued to the Bennett Group. Breeden also sought a declaration that he, as trustee, and not the Bennett Group investors was the sole rightful recipient of the insurance proceeds. Ultimately, Breeden and Sphere Drake settled the case and Sphere Drake paid $27.5 million to the trustee for distribution to creditors. Prior to the settlement Ades and Berg Group Investors ("Ades-Berg") had, among other things, filed a counter-claim against Breeden asking that a constructive trust be imposed over the insurance proceeds. The bankruptcy court denied the imposition of a constructive trust and the district court affirmed.
Issues: Whether the Supreme Court's ruling in Travelers Casualty & Surety Co. of America v. Pacific
