case 2:19-ap-01383-sk doc 121 filed 04/30/20 entered 04/30 ... · lead case no.: 2:17-bk-21386-sk...

DLA PIPER LLP (US)LOS A NG EL ES

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ROBBIN L. ITKIN (SBN 117105) [email protected] DLA PIPER LLP (US) 2000 Avenue of the Stars Suite 400 North Tower Los Angeles, California 90067-4704 Tel: (310) 595-3000 Fax: (310) 595-3300

JOHN K. LYONS (Pro Hac Vice) [email protected] JEFFREY S. TOROSIAN (Pro Hac Vice) [email protected] JOSEPH A. ROSELIUS (Pro Hac Vice) [email protected] DLA PIPER LLP (US) 444 West Lake Street, Suite 900 Chicago, Illinois 60606-0089 Tel: (312) 368-4000 Fax: (312) 236-7516

Attorneys for Jonathan D. King as Chapter 7 Trustee

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION

In re:

ZETTA JET USA, INC., a California corporation,

Debtor.

Lead Case No.: 2:17-bk-21386-SK

Chapter 7

Jointly Administered With: Case No.: 2:17-bk-21387-SK

Adv. Proc. No. 2:19-ap-01383-SK

OPPOSITION TO DEFENDANT EXPORT DEVELOPMENT CANADA’S (A) MOTION TO DISMISS COUNTS IX AND XV OF ADVERSARY COMPLAINT AND (B) PARTIAL JOINDER TO YUNTIAN 4 LEASING COMPANY’S MOTION TO DISMISS COUNTS IX AND XV OF ADVERSARY COMPLAINT

Hearing Date: July 22 2020 Time: 9:00 a.m. (PDT) Courtroom: 1575

255 East Temple Street Los Angeles, CA 90012

[Related to Dkt. No. 88]

In re:

ZETTA JET PTE, LTD., a Singaporean corporation,

Debtor.

JONATHAN D. KING, solely in his capacity as Chapter 7 Trustee of Zetta Jet USA, Inc. and Zetta Jet PTE, Ltd.

Plaintiff,

v.

YUNTIAN 3 LEASING COMPANY f/k/a Yuntian 3 Leasing Company Limited, et al.

Defendants.

Case 2:19-ap-01383-SK Doc 121 Filed 04/30/20 Entered 04/30/20 18:57:13 DescMain Document of 23


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TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................1

FACTS AND PROCEDURAL HISTORY .......................................................................................2

A. Cassidy’s Ponzi-like Scheme ........................................................................2

B. The Debtors’ Purchase of Plane 12 ...............................................................3

C. The U.S. focus of the Plane 12 Master Lease and Plane 12 Sublease ..........4

PLEADING STANDARD ................................................................................................................5

ARGUMENT ....................................................................................................................................6

I. Count IX Pleads the Elements of a Preference Claim Under Section 547(b). ..........6

II. EDC’s Affirmative Defenses Under Section 547(c) of the Bankruptcy Code Fail. .7

A. EDC Cannot Establish an Ordinary Course of Business Defense. ...............7

B. EDC Cannot Establish a Contemporaneous Exchange for New Value Defense or a Subsequent New Value Defense Because the Lease was not a True Lease. .......................................................................10

III. EDC is the Initial Transferee of the Preference Transfer Under Section 550(a)(1). .................................................................................................................................13

IV. Dismissal of Count XV of the Complaint against EDC is Premature. ...................17

CONCLUSION ...............................................................................................................................17



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TABLE OF AUTHORITIES

Page(s)

Cases

Abele v. Modern Fin. Plans Services, Inc. (In re Cohen), 300 F.3d 1097 (9th Cir. 2002) .............................................................................................16, 17

In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267 (3d Cir. 2004) ........................................................................................................7

Addison & Leyen v. Nucorp Liquidating Trust (In re Nucorp Energy), 1989 WL 207914 (B.A.P. 9th Cir. Dec. 21, 1989) ...................................................................12

Adelphia Commc’ns Corp. v. Bank of Am., N.A.,365 B.R. 24 (Bankr. S.D.N.Y. 2007) ..........................................................................................7

In re Arcapita Bank B.S.C., 575 B.R. 229 (Bankr. S.D.N.Y. 2017) ........................................................................................6

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ....................................................................................................................5

In re Autobacs Strauss, Inc., 473 B.R. 525 (Bankr. D. Del. 2012) ...........................................................................................7

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ....................................................................................................................5

Bonded Fin. Servs. Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir. 1988) ...............................................................................................14, 15

Brocato v. Dept. of Corrections, 2009 WL 3489367 (C.D. Cal. Oct. 26, 2009) ...................................................................5, 8, 10

Buchwald v. Williams Energy Mktg. & Trading Co. (In re Magnesium Corp. of Am.), 460 B.R. 360 (Bankr. S.D.N.Y. 2011) ......................................................................................10

Commercial Ins. Co. of Newark v. P. Peru Const. Corp., 558 F.2d 948 (9th Cir.1977) ......................................................................................................12

In re Computer World Solution, Inc., 427 B.R. 680 (Bankr. N.D. Ill. 2010) ..........................................................................................9

Cutler v. Rancher Energy Corp., 2014 WL 12599602 (C.D. Cal. June 2, 2014) ............................................................................5



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Danning v. Bozek (In re Bullion Reserve of N. Am.), 836 F.2d 1214 (9th Cir. 1988) ...........................................................................................................9

Danning v. Miller (In re Bullion of North America), 922 F.2d 544 (9th Cir. 1991) ...............................................................................................15, 16

Diamond v. The Gemmel Pharmacy Grp. (In re Inland Global Med. Grp., Inc.), 362 B.R. 459 (Bankr. C.D. Cal. 2006) ........................................................................................9

Drabkin v. A.I. Credit Corp., 800 F.2d 1153 (D.C. Cir. 1986) ................................................................................................12

In re Eagle Enterprises, Inc., 237 B.R. 269 (E.D. Pa. 1999) ...................................................................................................12

Elvig v. Calvin Presbyterian Church, 375 F.3d 951 (9th Cir. 2004) .................................................................................................9, 11

First Guaranty Bank v. Pioneer Health Services, Inc. (In re Pioneer Health Services, Inc.), 739 Fed.Appx. 240 (5th Cir. 2018) ..................................................................13

In re Enron Creditors Recovery Corp., 376 B.R. 442 (S.D.N.Y. 2007) ....................................................................................................9

In re FirstPay, Inc., 2012 WL 3778952 (Bankr. D. Md. Aug. 30, 2012) ....................................................................9

General Elec. Capital Auto Lease, Inc. v. Broach (In re Lucas Dallas, Inc.), 185 B.R. 801 (9th Cir. BAP 1995) ............................................................................................15

In re Gluth Bros. Const., Inc., 424 B.R. 379 (Bankr. N.D. Ill. 2009) ..........................................................................................7

Henry v. Official Comm. of Unsecured Creditors of Walldesign, Inc. (In re Walldesign, Inc.), 872 F.3d 954 (9th Cir. 2017) ...................................................................................13, 15, 16, 17

Imagine Fulfillment Services, LLC v. DC Media Capital, LLC (In re Imagine Fulfillment Services, LLC), 489 B.R. 136 (Bankr. C.D. Cal. 2013) ........................................................................................7

Interpool Ltd. v. Char Yigh Marine (Panama) S.A., 890 F.2d 1453 (9th Cir. 1989) .............................................................................................11, 12

In re J.A. Thompson & Son, Inc., 665 F.2d 941 (9th Cir. 1982) ...........................................................................................2, 11, 12

Lee v. City of Los Angeles, 250 F.3d 668 (9th Cir. 2001) .......................................................................................................5



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M.M. v. Cnty. of San Mateo, 2019 WL 414962 (N.D. Cal. Feb. 1, 2019).................................................................................5

Mano-Y&M, Ltd. v. Field (In re The Mortg. Store, Inc.), 773 F.3d 990 (9th Cir. 2014) .........................................................................................14, 16, 17

Milbeck v. TrueCar, Inc., 2019 WL 476004 (C.D. Cal. Feb. 5, 2019) .................................................................................5

Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007) .......................................................................................................5

Official Comm. of Unsecured Creditors of The IT Grp., Inc. v. Anderson Equip. Co. (In re The IT Grp., Inc.), 332 B.R. 673 (Bankr. D. Del. 2005) .........................................................................................10

Richardson v. FDIC (In re M. Blackburn Mitchell Inc.), 164 B.R. 117 (Bankr. N.D. Cal. 1994) ......................................................................................15

Schafter v. Las Vegas Hilton Corp. (In re Video Depot, Ltd.), 127 F.3d 1195 (9th Cir. 1997) .............................................................................................14, 16

In re Stac Elec. Sec. Litig., 89 F.3d 1399 (9th Cir. 1996) .......................................................................................................5

Stahl v. Whelan Elec., Inc. (In re Modtech Holdings, Inc.), 503 B.R. 737 (Bankr. C.D. Cal. 2013) ....................................................................................7, 8

Tamayo v. Blagojevich, 526 F.3d 1074 (7th Cir. 2008) .....................................................................................................7

In re The Russ Cos., Inc., 2013 WL 4028098 (Bankr. D.N.J. Aug. 6, 2013) .......................................................................7

United Airlines, Inc. v. HSBC Bank USA, N.A., 416 F.3d 609, 613 (7th Cir. 2005) .......................................................................................12, 13

Universal Serv. Admin. Co. v. Post-Confirmation Comm. of Unsecured Creditors of Incomnet Commc’n Corp. (In re Incomnet), 463 F.3d 1064 (9th Cir. 2006) .............................................................................................13, 14

Statutes

11 U.S.C. §§ 547(c)(2) ......................................................................................................................7

11 U.S.C. § 547(b) ............................................................................................................................6

11 U.S.C. § 550(a)(1) .............................................................................................................. passim



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INTRODUCTION

The Trustee filed the Adversary Complaint (“Complaint”) 1 to avoid and recover fraudulent

transfers of more than $100 million from various intertwined defendants. As illustrated by the

Complaint, Geoff Cassidy, the Debtors’ former board member and managing director, ran a

complicated Ponzi-like operation. This scheme involved complex disguised financings, purchases

of overpriced airplanes, kickbacks to Cassidy, and the embezzlement of millions of dollars. EDC’s

Motion to Dismiss Counts IX and XV and Partial Joinder to Yuntian 4 Leasing Company’s Motion

to Dismiss Counts IX and XV of Adversary Complaint (the “Motion”) addresses only one relatively

straightforward preference claim.

Zetta PTE made a transfer of $956,244.53 to EDC on July 26, 2017 (the “Preference

Transfer”) towards the purchase of Plane 12, which Zetta PTE acquired as part of the Minsheng

Refinancing in Fall 2016. See Complaint at Schedule C; (¶¶ 122-23.) Exhibit C submitted by EDC

in support of its Motion indicates that this transfer was made to EDC’s bank account in New York.

See Motion, Exhibit C. Plane 12 was ultimately financed by EDC through Yuntian 4, the Debtors’

direct lender under a disguised financing and the nominal “lessor” under the Plane 12 Master Lease.

Count IX seeks to avoid the Preference Transfer under 11 U.S.C. § 547 and recover it from either

EDC (as the initial transferee of the Preference Transfer) or Yuntian 4 (as the entity for whose

benefit the Preference Transfer was made) under 11 U.S.C. § 550(a)(1).

EDC first attempts to avoid liability for the Preference Transfer by asserting that the Trustee

fails to plead the elements of the preference claim. The Trustee has pleaded the requisite elements.

EDC next asserts three affirmative defenses under Section 547: ordinary course of business,

contemporaneous exchange for new value, and subsequent new value. All three defenses are

inappropriate for a motion to dismiss because affirmative defenses such as these cannot be resolved

on a motion to dismiss before discovery, EDC relies on its own conclusory allegations and factual

assertions from outside the Complaint, and EDC attaches only portions of the relevant documents.

Even assuming that the Court reaches the merits of the defenses, EDC’s “ordinary course

1 Terms not defined herein have the same meaning as those given in the Complaint. All paragraph references are to the Complaint, unless otherwise noted.



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of business” defense fails because the Court will need to resolve disputed facts about whether the

transactions were part of the ordinary course of business or Cassidy’s fraudulent aircraft purchasing

scheme.

EDC’s “contemporaneous exchange for new value” or “subsequent new value” affirmative

defenses are not sustainable as a matter of law because the Plane 12 Master Lease (the operative

document under which the payment was made) was a disguised financing, negating EDC’s

contention that it provided new value by failing to receive subsequent “lease” payments which

were, as matter of law, debt service payments. The Plane 12 Master Lease, which EDC submits in

support of its Motion, granted an option to the Debtors to buy the aircraft for one dollar at the end

of the “lease” term. Controlling Ninth Circuit precedent dictates that a fixed purchase option “for

no additional consideration or for nominal consideration” conclusively renders such arrangement

to be a disguised financing, and not a true lease. In re J.A. Thompson & Son, Inc., 665 F.2d 941,

43-44 (9th Cir. 1982). Thus, any value provided by Yuntian, EDC’s borrower and the Debtors’

direct lender, to the estates was at the inception and funding of the disguised financing, and not at

time of, or after, the Preference Transfer, and any failure to pay “lease” payments (debt service

payments) did not confer any value to the estates.

Finally, EDC attempts to redefine “initial transferee” under Section 550(a)(1) to insulate

itself from liability. Under clear and controlling Ninth Circuit law, EDC is the initial transferee of

the Preference Transfer under Section 550(a)(1). The Motion should be denied.

FACTS AND PROCEDURAL HISTORY

A. Cassidy’s Ponzi-like Scheme

Cassidy ran the Debtors’ business as a Ponzi-like scheme. He ultimately caused the Debtors

to purchase or agree to purchase 16 aircraft (including Plane 12) and incur almost half-a-billion

dollars in debt. (¶ 69) While James Seagrim and Matt Walter ran the operations from California,

Cassidy controlled the Debtors’ combined finances in Singapore. (¶¶ 19-20, 68.)

Cassidy caused the Debtors to incur this enormous debt, even in a down market. (¶ 63.) It

was this debt that allowed Cassidy to receive at least $1 million in kickbacks and other bribes, and

allowed him to steal millions of dollars from the Debtors, their investors, and their customers.



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Cassidy’s Ponzi-like scheme operated in two parts. First, Cassidy would purchase overpriced

aircraft, accepting bribes and other kickbacks for these purchases along the way. (¶¶ 1, 76.) Then,

he would seek out funding for these overpriced planes, skimming millions of dollars off the top in

the process. (¶ 3.)

Payments on the debt would primarily come from new aircraft loans and new investments.

Most of these funds came from Li Qi, a businessman from China. For instance, in 2016 Cassidy

“refinanced” Plane 6 and Plane 7. (¶¶ 127, 132.) This transaction, known as the Minsheng

Refinancing, resulted in millions of dollars of additional debt for the Debtors without adding any

incremental value. In fact, the net result of the Minsheng Refinancing was to add over $20 million

in incremental debt to the Debtors’ balance sheet. (¶ 97.) Unlike the Debtors, Cassidy did benefit

from the Minsheng Refinancing – he stole at least $3.67 million in closing proceeds.2 (¶¶ 106, 113-

16.) The purchase of Plane 12 was directly tied to the Minsheng Refinancing: $6,852,560 of the

Minsheng Refinancing proceeds was applied towards the purchase of Plane 12. (¶ 120.)

Cassidy further fed the Ponzi scheme by selling “block hours”: cash up front for the

promise of flights later. (¶ 81.) But because the kickback-induced prices required almost double the

debt service he advertised, and the rates were 25 percent lower, each plane was a net loser from the

beginning. (¶¶ 81-84.) In fact, Cassidy’s initial purchases in December 2015 made the Debtors

insolvent, and they never recovered despite additional cash infusions from Li Qi. (¶¶ 85-88.)

B. The Debtors’ Purchase of Plane 12

On October 26, 2016, pursuant to the aircraft purchases contemplated under the Minsheng

Refinancing, Zetta PTE purchased Plane 12 through a leveraged lease finance arrangement. (¶ 123.)

EDC is the leveraged financier of Plane 12. Id. First, EDC made a loan to Yuntian 4. Id. Then

Yuntian 4 (by and through its trustee Wells Fargo, a US organized trustee) and Zetta PTE’s

subsidiary Zetta Jet 650-1 (by and through its trustee TVPX, another US organized trustee) entered

into the Plane 12 Master Lease, whereby Zetta PTE would repay Yuntian 4 the amount Yuntian 4

2 Li Qi also benefitted from the Minsheng Refinancing, as set forth in the Combined Opposition to Motions to Dismiss Adversary Complaint by Defendants Yuntian 3 Leasing Company Designated Activity Company, Yuntian 4 Leasing Company Designated Activity Company, Minsheng Business Aviation Limited, Universal Leader Investment Limited, Glove Assets Investment Limited, and Truly Great Global Limited (the “Combined Opposition”). [Docket No. 55].



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borrowed from EDC. (¶ 124, 153, 156.) TVPX then sub-leased Plane 12 to Zetta USA pursuant

to the Plane 12 Sublease. Id.

Zetta PTE made two “rent” payments towards its purchase of Plane 12 during the preference

period. One of these was the Preference Transfer. The Trustee seeks to avoid the Preference

Transfer and recover it from EDC (as the initial transferee) or Yuntian 4 (as the entity for whose

benefit the transfer was made) under Sections 547 and 550(a)(1).

C. The U.S. focus of the Plane 12 Master Lease and Plane 12 Sublease

The focus of the Preference Transfer was the United States. Zetta USA’s Part 135

certificate, issued by the FAA and required to operate commercial charter flights in the United

States, was critical to the leveraged financing transaction for Plane 12. (¶ 55.) The Plane 12 Master

Lease required Plane 12 to be FAA registered.3 The Master Leases required the planes to be

immediately subleased to Zetta USA and operated under its Part 135 certificate. (¶¶ 112, 124.)4

The Plane 12 Master Lease also required Plane 12 to be maintained at a U.S. base.5 “Rent”

payments had to be made in U.S. dollars,6 thereby requiring all payments to be routed through U.S.

banks, either directly or through correspondent banks. The Debtors and Yuntian 4 used U.S.

corporate trusts and U.S. trustees to act as nominal owners and lessees and to register aircraft in the

U.S. with the FAA, as is common in the industry. (¶¶ 49-50, 108, 124.)

Moreover, EDC was a secured lender. It obtained a New York mortgage and registered the

mortgage with the FAA.7 Therefore, EDC purposefully availed itself of U.S. law to perfect its

security interest in Plane 12.

3 The Plane 12 Master Lease defines the “State of Registration” as the United States, (see Plane 12 Master Lease at Ex. A at Sch. 2), and required as a condition precedent that each plane be validly registered under the laws of the “State of Registration” (see id. Ex. A at Sch. 3 § 1(v)).

4 Yuntian 4 demanded a “duly executed” sub-lease to Zetta USA as a condition precedent in the Plane 12 Master Lease. (See Plane 12 Master Lease at Sch. 3 § 1(k)(ii).)

5 The Plane 12 Master Lease provides that the Lessee shall “ensure that operational control over the Aircraft is maintained in the Aircraft Base,” which is “the principal place of business of the Operator in the United States of America.” (See Plane 12 Master Lease at § 12.6 and Sch. 2.)

6 Under the Plane 12 Master Lease, all “rent” payments had to be made in U.S. dollars. (See id. at § 6.3.)

7 The Plane 12 Master Lease defines “Mortgage” as the “first priority New York Law mortgage and security agreement . . . between Owner . . . and the Financier [EDC] as mortgagee and which shall be registered at the FAA.” (See Plane 12 Master Lease at Ex. A. at Sch. 2.)



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The Preference Payment was made to EDC’s bank account at Citibank in New York. See

Motion to Dismiss, Exhibit C (transfer instruction for payment amount of $945,364.97 to EDC

states: “Citibank NA, Domestic Bank Customer Service,111 Wall Street, Fifth Floor/Zone 4, New

York, New York 10043, ABA: 021000089, Swift: CITBUS33, Account Number: 36236357,

Account, Name: Export Development Canada”).

PLEADING STANDARD

“To survive a motion to dismiss, a complaint ‘must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face.’” Milbeck v. TrueCar, Inc.,

2019 WL 476004, at *1 (C.D. Cal. Feb. 5, 2019) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009)). A “claim is plausible on its face when the plaintiff pleads factual content that allows the

court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

In making this determination, the court “accepts as true a plaintiff’s well-pled factual allegations

and construes all factual inferences in the light most favorable to the plaintiff.” Cutler v. Rancher

Energy Corp., 2014 WL 12599602, at *1 (C.D. Cal. June 2, 2014). “Allegations in the complaint,

together with reasonable inferences therefrom, are assumed to be true for purposes of the motion.”

Odom v. Microsoft Corp., 486 F.3d 541, 545 (9th Cir. 2007). A complaint must only “proffer

enough facts on its face to nudge the plaintiff’s ‘claims across the line from conceivable to

plausible’” in order to survive a motion to dismiss. M.M. v. Cnty. of San Mateo, 2019 WL 414962,

at *2 (N.D. Cal. Feb. 1, 2019) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007)).

In addition, “the Court must limit its review to the four corners of the operative complaint

and may not consider facts presented in briefs or extrinsic evidence.” Brocato v. Dept. of

Corrections, 2009 WL 3489367 at * 4 (C.D. Cal. Oct. 26, 2009). However, “[m]aterials submitted

as part of the complaint are not ‘outside’ the complaint and may be considered.” Id. (quoting Lee

v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). The Court may also consider

“documents whose contents are alleged in a complaint and whose authenticity no party questions,

but which are not physically attached to the pleading[.]” Id. (quoting In re Stac Elec. Sec. Litig.,

89 F.3d 1399, 1405 n. 4 (9th Cir. 1996)).

EDC has filed attached partial excerpts from certain documents. See Motion at Exhibits B



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and C. But a party may not attach a few excerpted paragraphs from a lengthy contract referenced

in a complaint. Rather, the complete document must be attached for the Court’s consideration. See

Tentative Ruling on “Motion to Dismiss Counts 1-VI, X-XI, XIII-XIV, XVII of Adversary

Complaint,” Docket #76, which was Adopted as the Court's Final Ruling at the Conclusion of the

Hearing (the “Bombardier Ruling”) at 5, Docket No. 109 in King v. Jetcraft Corp., et al., Adv.

Proc. No. 2:19-ap01382-SK. To address EDC’s failure to attach the complete documents, the

Trustee references the complete Plane 12 Master Lease filed by Yuntian in this adversary case. See

Supplemental Declaration of David S. Torborg in Support of Defendants Yuntian 3 Leasing

Company Limited Designated Activity Company and Yuntian 4 Leasing Company Limited

Designated Activity Company’s Motion to Dismiss Counts II, III, VI, VII, IX, X, XI, XII, and XV of

Adversary Complaint (the “Torborg Declaration”) [Docket No. 95] at Exhibit H (attaching Plane

12 Master Lease).

ARGUMENT

I. Count IX Pleads the Elements of a Preference Claim Under Section 547(b).

EDC incorporates the Motion to Dismiss filed by Yuntian 4 “to the extent relevant to

Counts IX and XV” of the Complaint. (Motion at 10.) In particular, EDC incorporates Yuntian 4’s

arguments that Trustee has “failed to establish the required elements for an avoidable preference”

and that “there is insufficient nexus between the transactions relating to the [EDC Preference

Transfer] and the United States[.]” Id. As set forth in the Trustee’s Combined Opposition,8 these

arguments should be rejected.

The documents attached to EDC’s Motion negate the “insufficient nexus” argument. EDC

received the payment in its Citibank NA account in New York. (See Motion at Exhibit C.) Receipt

of a preference transfer into a transferee’s U.S. bank account negates the presumption against

extraterritoriality. See, e.g., In re Arcapita Bank B.S.C., 575 B.R. 229, 245 (Bankr. S.D.N.Y. 2017)

(“[C]ourts have found the use of bank accounts in the United States to be sufficient to displace the

presumption against extraterritoriality.”). This is especially true when viewed in the context of the

other U.S. aspects of the Plane 12 disguised financing transaction (see Section C, infra). Thus, the

8 The Trustee incorporates by reference the Combined Opposition [Docket No. 55].



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presumption against extraterritoriality does not apply.

II. EDC’s Affirmative Defenses Under Section 547(c) of the Bankruptcy Code Fail.

EDC argues that the Preference Transfer is protected from avoidance and recovery under

the “contemporaneous exchange of new value,” “subsequent new value,” and “ordinary course of

business” exceptions codified in Section 547(c). See Motion at 11-17. However, those exceptions

are affirmative defenses, making such an argument “irrelevant for purposes of a motion to dismiss.”

In re Gluth Bros. Const., Inc., 424 B.R. 379, 398 (Bankr. N.D. Ill. 2009); see also Tamayo v.

Blagojevich, 526 F.3d 1074, 1090 (7th Cir. 2008)); Adelphia Commc’ns Corp. v. Bank of Am., N.A.,

365 B.R. 24, 79 (Bankr. S.D.N.Y. 2007). “Affirmative defenses . . . notwithstanding their likelihood

of success, cannot be used to dismiss a plaintiff’s complaint under Rule 12(b)(6).” In re The Russ

Cos., Inc., 2013 WL 4028098, at *5 (Bankr. D.N.J. Aug. 6, 2013) (citing In re Adams Golf, Inc.

Sec. Litig., 381 F.3d 267, 277 (3d Cir. 2004)); In re Autobacs Strauss, Inc., 473 B.R. 525, 571

(Bankr. D. Del. 2012) (rejecting motion to dismiss based on subsequent new value defense).

However, even if these affirmative defenses were appropriate for consideration, EDC has failed to

carry its burden in proving these defenses for the reasons set forth below. See, e.g., Imagine

Fulfillment Services, LLC v. DC Media Capital, LLC (In re Imagine Fulfillment Services, LLC),

489 B.R. 136, 153 (Bankr. C.D. Cal. 2013) (“The creditor bears the burden of proof of these

defenses.”).

A. EDC Cannot Establish an Ordinary Course of Business Defense.

EDC argues that the Preference Transfer was made in the ordinary course of business

between Zetta PTE and Yuntian 4, and is therefore protected from avoidance and recovery under

Section 547(c)(2). To establish this defense, EDC must show that (1) the Preference Transfer was

in payment of a debt incurred by Zetta PTE in the ordinary course of its business and (2) that the

Preference Transfer was made in the ordinary course of business of Zetta PTE and Yuntian 4 (the

“subjective” prong) or according to ordinary business terms in the industry (the “objective” prong).

See 11 U.S.C. §§ 547(c)(2).

“To meet Ninth Circuit standards for . . . the subjective test . . . the creditor must demonstrate

that the relevant payments were ordinary in relation to past practices between the debtor and the



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creditor.” Stahl v. Whelan Elec., Inc. (In re Modtech Holdings, Inc.), 503 B.R. 737, 743 (Bankr.

C.D. Cal. 2013). To do so, the creditor must show (1) “a baseline of past practices between itself

and the debtor” and (2) “that the relevant payments were ordinary in relation to these past

practices.” Id. The creditor typically must show that “the relevant payments did not differ from past

payments in amount or form, were not the result of unusual collection or payment activities, or did

not come as a result of the creditor taking advantage of the debtor’s deteriorating financial

condition.” Id. The Court cannot look outside the four corners of the Complaint and the documents

incorporated therein in determining whether EDC has met its burden of proof on this defense. See

Brocato, 2009 WL 3489367 at * 4.

The Complaint does not allege any facts that support a finding that the Preference Transfer

was in accordance with the payment history between Zetta PTE and Yuntian 4 or that the Preference

Transfer was timely. Indeed, the Complaint supports the conclusion that the Preference Transfer

does not meet the subjective test for ordinary course of business because the Trustee alleges that

Zetta USA and the subsidiary Zetta Jet 650-1 were contractually obligated to make the “rent”

payments – not Zetta PTE. (¶ 124.)

EDC makes numerous allegations regarding the parties’ payment history and timeliness of

the Preference Transfer that are outside the Complaint and either wholly unsupported, or rely

entirely on hearsay. (See, e.g., Mot. at 6 (alleging facts “as the Yuntian 4 Parties have informed

EDC”); 6-7 (alleging, without support, that the “exact same payment mechanics” were used for all

payments); 7 (alleging, without support, that one payment was 19 days late and the others were

made on their due dates).) These allegations fall woefully short of satisfying EDC’s burden under

the subjective test of this defense.

The facts alleged in the Complaint also support a finding that the Preference Transfer was

not made in the ordinary course of business under the objective test. The Trustee alleges that

Cassidy was running a Ponzi-like scheme. ( ¶¶ 64-78.) More specifically, the Trustee alleges that

Cassidy caused the Debtors to purchase overpriced planes in exchange for kickbacks and to steal

money from the Debtors. (¶¶ 65, 76.) The Trustee also alleges that the price the Debtors sold block

hours for was insufficient to cover the debt service on the overpriced planes. (¶¶ 68, 72.)



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Accordingly, the Debtors were refinancing planes to use new money to pay off old debt – an

unsustainable business practice that is at the heart of all Ponzi schemes. These allegations must be

accepted as true for purposes of ruling on the Motion. See, e.g., Elvig v. Calvin Presbyterian

Church, 375 F.3d 951, 955 (9th Cir. 2004) (“At this stage in the proceedings, we accept as true all

allegations in [the plaintiff’s] complaint and treat as false all those allegations in the answer that

contradict [the plaintiff’s] allegations.”).

“Transfers made in a ‘Ponzi’ scheme are not made in the ordinary course of business.”

Danning v. Bozek (In re Bullion Reserve of N. Am.), 836 F.2d 1214, 1219 (9th Cir. 1988)). Contrary

to EDC’s position, this rule is not limited to “true” Ponzi schemes devoid of any legitimate business

operations. This rule has also been applied “to an enterprise that is fraudulent, like a Ponzi scheme,

or to an enterprise that is partially conducted in an illegal manner.” In re Enron Creditors Recovery

Corp., 376 B.R. 442, 462 (S.D.N.Y. 2007); see also In re FirstPay, Inc., 2012 WL 3778952 at *9

(Bankr. D. Md. Aug. 30, 2012) (holding that the same rule applies “where the debtor engaged in

fraudulent conduct” outside of a true Ponzi scheme, specifically a scheme where the debtor took

customer funds to pay the tax obligations of prior customers); In re Computer World Solution, Inc.,

427 B.R. 680, 690 (Bankr. N.D. Ill. 2010) (noting that the ordinary course defense only “applies to

payments made by a legitimate business, not payments made by a fraudulent business” and

applying the rule in the context of account receivable fraud and loans disguised as payment for

accounts receivable). Accordingly, the Preference Transfer was not made in the ordinary course of

business.

EDC’s unsupported allegations are insufficient to overcome the allegations in the

Complaint. EDC alleges that “quarterly payments of rent is fully in accord with the standards

utilized in aircraft transactions in which there is Canadian export credit involved.” (Mot. at 13.)9

This unsupported factual assertion, not based on any allegation in the Complaint, is insufficient to

support a motion to dismiss. See, e.g., Diamond v. The Gemmel Pharmacy Grp. (In re Inland Global

Med. Grp., Inc.), 362 B.R. 459, 465 (Bankr. C.D. Cal. 2006) (finding insufficient evidence to

9 EDC also claims that facts sufficient to establish this prong “will be demonstrated at the hearing.” Motion at 13. The hearing on the Motion is not an evidentiary hearing. EDC will not be able to “demonstrate” this alleged fact at the hearing because no fact witnesses or evidence will be introduced.



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establish the ordinary course of business in the industry where defendant “did not offer any expert

testimony concerning the credit arrangements between other similarly situated debtors and creditors

in the industry nor any expert opinion as to whether [the debtor’s] payment practices were

consistent with what takes place in the industry”). Regardless, the Court cannot consider any

allegation EDC might make regarding the business practices in the aviation industry because such

allegations would be outside the four corners of the Complaint. See, e.g., Brocato, 2009 WL

3489367 at * 4.

Finally, it is well-recognized that the ordinary course of business defense is fact-intensive

and generally not appropriate for a motion to dismiss. See, e.g., Official Comm. of Unsecured

Creditors of The IT Grp., Inc. v. Anderson Equip. Co. (In re The IT Grp., Inc.), 332 B.R. 673, 676

n. 7 (Bankr. D. Del. 2005) (“the ordinary course of business defense is a highly fact-intensive issue,

and it is rare indeed for it to be resolved in defendant’s favor on a motion for summary judgment”);

Buchwald v. Williams Energy Mktg. & Trading Co. (In re Magnesium Corp. of Am.), 460 B.R.

360, 366 (Bankr. S.D.N.Y. 2011) (“[T]he ordinary course defense, by its nature, is a fact-intensive

one. Here, as in the great majority of the cases in which it is raised, it should be decided only after

trial.”). The Court should reject EDC’s supposed defense based upon factual assertions outside the

Complaint.

B. EDC Cannot Establish a Contemporaneous Exchange for New Value Defense or a Subsequent New Value Defense Because the Lease was not a True Lease.

EDC argues that the Preference Transfer is protected from avoidance and recovery under

Section 547(c)(1) because the Preference Transfer was a contemporaneous exchange for new value.

See Motion at 15-16. EDC also argues that the Preference Transfer is protected from avoidance and

recovery under Section 547(c)(4) because EDC provided the Debtors new value after receiving the

Preference Transfer. Id. at 16-17. For both defenses, EDC argues that the continued use and

possession of Plane 12 constituted new value. Id.

First, for the reasons stated above, the new value and contemporaneous exchange arguments

are defenses based upon factual assertions entirely outside the four corners of the Complaint and

should be rejected in the context of a motion to dismiss.

Second, EDC’s reliance on the contemporaneous exchange and subsequent new value



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defenses depend entirely on its assertion that the Plane 12 Master Lease constitutes a true lease,

and not a disguised financing. Because the Plane 12 Master Lease constitutes a disguised financing

as a matter of law under controlling Ninth Circuit precedent, EDC’s assertion that it provided value,

either contemporaneously or subsequently, fails since any value was provided at the time the Plane

12 Master Lease was entered (i.e., when the financing was provided), not at the time of, or after,

the Preference Transfer. Accordingly, as set forth below, the Debtors’ use and possession of Plane

12 after the disguised financing was incurred does not constitute “new value” nor a

“contemporaneous exchange” under Section 547(c).

The Trustee alleges in the Complaint that “Zetta PTE purchased Plane 12 through a

leveraged lease arrangement.” (¶ 123.) This allegation must be accepted as true for purposes of

EDC’s Motion. See, e.g., Elvig, 375 F.3d at 955. In addition, as set forth in the Plane 12 Master

Lease, “rent” payments were to be made for a fixed period of 84 months.10 The total amount of rent

paid over this period corresponds to Yuntian’s debt service obligation to EDC.11 Zetta USA was

obligated to make these “rent” payments for the entire lease term even if there upon a total loss of

the aircraft.12 Most importantly, at the end of the lease period Zetta PTE (by and through its trustee

TVPX) had the option to purchase Plane 12 for one dollar.13 A nominal fixed purchase option under

a “lease” is the hallmark of a disguised financing that renders such an arrangement as a disguised

financing as a matter of law. See In re J.A. Thompson & Son, Inc., 665 F.2d 941, 43-44 (9th Cir.

1982); Interpool Ltd. v. Char Yigh Marine (Panama) S.A., 890 F.2d 1453, 1459 (9th Cir. 1989)

(“Whether a lease agreement is a true lease or one intended for security depends on the intention

of the parties at the time of execution of the agreement . . . [A] provision for purchase for no

additional consideration or for nominal consideration renders the agreement a security instrument

as a matter of law[.]”).

EDC states that English law governs the Plane 12 Master Lease and Plane 12 Sublease.

10 See Plane 12 Master Lease at ¶ 3.1.

11 See Plane 12 Master Lease at Sections 5.2 and 5.3 and Schedule 2 (defining “Aircraft Purchase Price,” “Facility,” and “Facility Agreement”).

12 See Plane 12 Master Lease at Section 19.3.1.

13 See Plane 12 Master Lease at Schedule 2.



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However, EDC offers no evidence or argument on whether English law would dictate a different

result than that required under J.A. Thompson and Interpool. Even if it did, English law would be

disregarded, as the Court cannot enforce a choice of law provision that contradicts a fundamental

policy of the Bankruptcy Code or U.S. law. In re Eagle Enterprises, Inc., 237 B.R. 269 (E.D. Pa.

1999).14 In any event, where no authority, or insufficient authority, is presented by the movant

about foreign law, a court may conclude that the movant has acquiesced in the application of the

law of the forum, here, the state of California. See Interpool, 890 F.2d at 1458; Commercial Ins.

Co. of Newark v. P. Peru Const. Corp., 558 F.2d 948, 952 (9th Cir.1977).

Because the Plane 12 Master Lease and Plane 12 Sublease are not true leases, neither EDC

nor Yuntian provided any “new value” to the Debtors.15 The Ninth Circuit has held that an

agreement by an undersecured creditor (like EDC)16 to “forego his right to foreclose on collateral”

does not constitute new value. Addison & Leyen v. Nucorp Liquidating Trust (In re Nucorp

Energy), 1989 WL 207914 at *4 (B.A.P. 9th Cir. Dec. 21, 1989) (citing Drabkin v. A.I. Credit

Corp., 800 F.2d 1153, 1159 (D.C. Cir. 1986)). Adopting the reasoning in Drabkin, the Ninth

Circuit explained that if payments to undersecured creditors to avoid foreclosure were treated as

new value, it would unfairly prejudice general creditors because “a secured creditor is protected

only to the extent of his security interest[.]” Id.

Likewise, missed “lease payments” under a disguised financing arrangement to acquire a

capital asset do not provide any new value to a debtor or its estate. The Seventh Circuit in United

Airlines distinguished payments under a true lease that reflect compensation for current use of an

asset and payments under a disguised financing to repay obligations incurred to acquire a capital

14 In In re Eagle Enterprises, Inc., 237 B.R. 269 (E.D. Pa. 1999), the court considered whether the debtor’s lease was a true lease or disguised financing. The parties had agreed that German law would govern the agreement. The Eagle Enterprises court disregarded the parties’ contractual choice of law because applying it “would completely undermine the Uniform Commercial Code” and “substantially undermine the bankruptcy process[.]” Id. at 273. Importantly, the Eagle Enterprises court found that the debtor could take title to the “leased” equipment for the payment of one dollar at the end of the lease term. Under German law, the contract qualified as a true lease. The Eagle Enterprises court refused to apply the parties’ contractual choice of law because doing so would “prejudice the rights under United States bankruptcy law of [the trustee], who never agreed to the choice-of-law provision.” Id. at 271.

15 None of the cases cited by EDC for its alleged new value defense involve disguised financings.

16 See ¶ 156 (alleging that EDC was undersecured).



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asset. United Airlines, Inc. v. HSBC Bank USA, N.A., 416 F.3d 609, 617 (7th Cir. 2005). The United

Airlines court held that a debtor was not required to assume a disguised financing lease under

Section 365 of the Bankruptcy Code and pay post-assumption “rent” for what were, in reality,

obligations incurred to acquire a capital asset. Id. Rather, the future obligation to pay “rent” under

a disguised financing was no different than a debtor’s obligation to pay principal and interest under

a prepetition asset acquisition loan which is dealt with, along with other prepetition claims, under

a plan of reorganization. Id. Similarly, the Fifth Circuit has held that payments due under an

disguised equipment financing are not entitled to administrative priority because the debtor’s

obligations arose before the bankruptcy and are an “‘old’ expense.” See First Guaranty Bank v.

Pioneer Health Services, Inc. (In re Pioneer Health Services, Inc.), 739 Fed.Appx. 240, 245 (5th

Cir. 2018) (quoting United Airlines, 416 F.3d at 613).

The same rationale applies to negate the “contemporaneous exchange” and “subsequent

new value” affirmative defenses advanced by EDC. Yuntian provided value to the Debtors when it

funded the loan to purchase Plane 12 under the leverage lease financings, not when the Debtors

missed so-called “rent” (actually debt service) payments under the leveraged lease financings

following the Preference Transfer. Likewise, with respect to the contemporary exchange of new

value, the value provided by CAVIC to the Debtors occurred at the time of delivery of Plane 12

and effective date of the Plane 12 Master Lease and Plane 12 Sublease. The timing of this value

was months prior to the Preference Transfer; it was certainly not “contemporaneous.”

Accordingly, EDC’s “contemporaneous exchange of value” or “subsequent new value”

defenses fail as a matter of law.

III. EDC is the Initial Transferee of the Preference Transfer Under Section 550(a)(1).

Section 550(a)(1) provides that if a transfer is avoided under Section 547, a trustee may

recover the transfer from “the initial transferee of such transfer or the entity for whose benefit such

transfer was made.” 11 U.S.C. § 550(a)(1). A trustee has an “absolute right of recovery against the

‘initial transferee’ and ‘any entity for whose benefit such transfer was made.’” Henry v. Official

Comm. of Unsecured Creditors of Walldesign, Inc. (In re Walldesign, Inc.), 872 F.3d 954, 962 (9th

Cir. 2017); see also Universal Serv. Admin. Co. v. Post-Confirmation Comm. of Unsecured



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Creditors of Incomnet Commc’n Corp. (In re Incomnet), 463 F.3d 1064, 1071 (9th Cir. 2006)

(“Under § 550(a), ‘the trustee’s right to recover from an initial transferee is absolute.’”) (quoting

Schafter v. Las Vegas Hilton Corp. (In re Video Depot, Ltd.), 127 F.3d 1195, 1197-98 (9th Cir.

1997)). The Complaint seeks recovery of the Preference Transfer from EDC as the initial

transferee. (¶¶ 277, 279.) However, EDC argues that it is not liable for return of the Preference

Transfer because it is not the “initial transferee” of the transfer. (Mot. at 18-21.)

The Ninth Circuit applies “the so-called ‘dominion test’ to determine whether a party is the

initial transferee.” Mano-Y&M, Ltd. v. Field (In re The Mortg. Store, Inc.), 773 F.3d 990, 995 (9th

Cir. 2014). “Under the dominion test, ‘a transferee is one who . . . has dominion over the money

or other asset [and] the right to put the money to one’s own purposes.’” In re Incomnet, Inc., 463,

F.3d at 1070. “The dominion test focuses on whether the recipient of the funds has legal title to

them and the ability to use them as he sees fit.” Id. at 1071. “As the Seventh Circuit explained in

the widely-cited case Bonded Financial Services, Inc. v. European American Bank, an individual

will have dominion over a transfer if, for example, he is ‘free to invest the whole [amount] in lottery

tickets or uranium stocks.’” In re Mortg. Store, Inc., 773 F.3d at 995 (quoting Bonded Fin. Servs.

Inc. v. European Am. Bank, 838 F.2d 890, 894 (7th Cir. 1988)).

EDC ignores that Bonded Financial Services, on which the Ninth Circuit developed the

dominion test,17 directly addressed the scenario here. In that case, the debtor sent a bank a check

payable to the bank’s order. Bonded Fin. Servs., 838 F.2d at 891. The check had a note directing

the bank to deposit the funds into the account of Michael Ryan, a third party. Id. The bank did.

Id. Ryan then instructed the bank to debit his account to reduce the outstanding balance of his loan

to the bank. Id. The trustee argued that the bank, not Ryan, was the initial transferee under Section

550(a)(1). The Seventh Circuit rejected the trustee’s argument:

If the note accompanying Bonded’ check had said: ‘use this check to reduce Ryan’s loan’ instead of ‘deposit this check into [Ryan]’s account,’ § 550(a)(1) would provide a ready answer. The Bank would be the ‘initial transferee’ and Ryan would be the ‘entity for whose benefit [the] transfer was made. The trustee could recover the $200,000 from the Bank, Ryan, or both, subject to the rule of § 550(c) that there may be but one recovery.

17 The Ninth Circuit recognizes that it “relied . . . heavily” on Bonded Financial Services “in adopting the dominion test[.]” In re Walldesign, Inc., 872 F.3d at 966.



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Id. at 892 (alteration in original). See also Incomnet, 463 F.3d at 1070, 1074 n. 12 (citing Bonded

Financial Services as the “leading” case on dominion test and discussing quoted language).

The situation here is remarkably similar to what the Seventh Circuit considered a

straightforward application of Section 550(a)(1). EDC is the hypothetical bank and Yuntian takes

the place of Ryan. There is no allegation that Zetta PTE instructed EDC to hold the funds for

Yuntian 4 such that Yuntian 4 could use it for “lottery tickets or uranium stocks” or as Yuntian 4

otherwise saw fit. Rather, the Trustee alleges that the Preference Transfer was made from Zetta

PTE to EDC and, under its leveraged loan agreement, EDC had to apply the amount of this payment

to reduce the balance of Yuntian 4’s loan with EDC. (¶¶ 123-24, 271.) Under the hypothetical in

Bonded Financial Services, EDC is the initial transferee of the Preference Transfer and Yuntian 4

is the entity for whose benefit the transfer was made. This was a one-step transaction under Bonded

Financial Services, not a two-step transaction.

Cases in the Ninth Circuit also support this conclusion. First, “[t]he use of the word

‘transferee’ necessarily implies that the party receives the property.” General Elec. Capital Auto

Lease, Inc. v. Broach (In re Lucas Dallas, Inc.), 185 B.R. 801, 809 (9th Cir. BAP 1995). In other

words, “receipt of the transferred property is a necessary element for that entity to be a transferee

under § 550. Simply directing a transfer, such as by directing a debtor to transfer its funds, is not

enough.” Id. (quoting Richardson v. FDIC (In re M. Blackburn Mitchell Inc.), 164 B.R. 117, 126

(Bankr. N.D. Cal. 1994)). Thus, even if a contractual obligation between Yuntian 4 and EDC could

be deemed to a “direction” to EDC to reduce Yuntian 4’s loan balance upon receipt of the funds,

this does not negate “dominion.” As the Ninth Circuit has explained:

[I]f the distinction between an initial and a subsequent transferee turns on whether the party benefiting from the transfer ‘forced’ the debtor to make the transfer, then the scope of liability under section 550 is unduly narrowed. Section 550(a)(1) subjects to strict liability not only the initial transferee, but also ‘the entity for whose benefit such transfer was made.’ 11 U.S.C. § 550(a)(1). The party who forces a debtor to make a transfer is almost always ‘the entity for whose benefit such transfer was made,’ and thus is generally always subject to strict liability. Yet Congress intended to make initial transferees also strictly liable . . . . ‘The implication is that the entity for whose benefit the transfer was made is different from a transferee, immediate or otherwise.’ Bullion Reserve, 922 F.2d at 548. Consideration of whether the beneficiary of the transfer ‘forced’ the debtor to make the transfer would collapse the two prongs of strict liability into a single party. . . .There is



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nothing in the statute or otherwise to justify this result.

In re Walldesign, Inc., 872 F.3d at 965 (quoting In re Lucas Dallas, 185 B.R. at 809-10).

There is no allegation that Yuntian 4 ever received the Preference Transfer, nor that EDC

was a mere conduit for the payment to Yuntian 4 that would be ultimately transferred to Yuntian

4. EDC had full control of the transfer in its own account. It could use the funds as it wished.18

The receipt of these funds may have required a reduction of the loan balance owed by Yuntian 4 to

EDC but this does not negate EDC’s dominion over these funds. To hold otherwise would

impermissibly collapse “initial transferee” and “entity for whose benefit such transfer was made”

into a single party – Yuntian 4 – depriving the Trustee of an important source of recovery for the

bankruptcy estate and creditors.

Second, “[l]egal title is the starting point to the dominion inquiry, not an afterthought.” In

re Walldesign, Inc., 872 F.3d at 969. Yuntian 4 “may have had some equitable interest in the funds”

transferred to EDC, but the Ninth Circuit has found “that interest too constrained to satisfy the

dominion test.” In re Mortg. Store, Inc., 773 F.3d at 997. Yuntian 4 never had possession of the

transferred funds, let alone legal title to them. Accordingly, Yuntain 4 cannot be the “initial

transferee” of the funds as a matter of law.19

Finally, it is irrelevant that EDC was obligated to reduce the amount of Yuntian 4’s

outstanding indebtedness to it upon receipt of the transfer. In applying the dominion test, courts

have routinely found that the recipient of a debtor’s funds is the “initial transferee” of the transfer

even though the recipient is instructed to use the funds to reduce a third party’s debt to the recipient.

See, e.g., In re Video Depot, 127 F.3d at 1199 (rejecting defendant’s argument that it was not the

“initial transferee” where the debtor’s principal caused the debtor to purchase a cashier’s check

payable to the defendant to pay down the principal’s gambling debt); Abele v. Modern Fin. Plans

Services, Inc. (In re Cohen), 300 F.3d 1097, 1107 (9th Cir. 2002) (finding that defendant was the

18 EDC’s reliance on Danning v. Miller (In re Bullion of North America), 922 F.2d 544 (9th Cir. 1991) is misplaced. There, the Court recognized that the defendant never had “beneficial interest” in the property transferred. Id. at 549. Here, there can be no doubt that EDC had a beneficial interest in the Preference Transfer.

19 Because Yuntian 4 cannot be the initial transferee, EDC’s argument would leave the Preference Transfer without any initial transferee at all – an impossibility.



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“initial transferee” where the debtor purchased a cashier’s check payable to the defendant to pay

off a settlement owed by the debtor’s husband); In re Mortg. Store, 773 F.3d 990 (finding that

defendant was the “initial transferee” where the debtor’s funds were used to satisfy its former

president’s obligations to the defendant under a contract); In re Walldesign, 872 F.3d at 967

(finding that the defendants/appellants were the “initial transferees” of transfers that the debtor’s

director had made to them from the debtor’s secret bank account to benefit the director personally).

EDC received the Preference Transfer from Zetta PTE. (¶ 271.) EDC immediately had legal

title to the funds. Despite EDC’s protest that it had to reduce Yuntian 4’s indebtedness to it, EDC

was free to invest the funds in “lottery tickets or uranium stocks.” Yuntian 4 was not. Under

controlling Ninth Circuit law, EDC was the initial transferee of the Preference Transfer.

IV. Dismissal of Count XV of the Complaint against EDC is Premature.

Yuntian 4 filed various proof of claims against the Debtors with respect to amounts

allegedly owed on Plane 12.20 As alleged in the Complaint, EDC is the leveraged financier of the

purchase of Plane 12 and made a loan to Yuntian 4. (¶ 45.) Therefore, the only logical inference

that can be drawn from this allegation is that EDC holds a significant economic interest under

Section 502(d) of the Bankruptcy Code in the Yuntian 4 proof of claim. EDC has done nothing

formally to disprove that inference, which must be taken as true.21

CONCLUSION

The Trustee thus respectfully requests that the Court deny the Motion.

20 The Trustee will be filing a Request for Judicial Notice of the proof of claims filed by Yuntian 4.

21 The Trustee has sought confirmation from EDC that it does not have an ownership interest in the claim filed by Yuntian 4, and has informed EDC that if such confirmation were received the Trustee would dismiss Count XV of the Complaint against it. EDC has not provided this confirmation. Until EDC disclaims any economic interest in the Yuntian 4 proof of claim, the inferences drawn from the Complaint on this issue must stand, allowing the Trustee’s ability to disallow the proof of claim to proceed so that the Trustee may engage in discovery on the merits of the 502(d) claim against Yuntian 4 and EDC.



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EAST\173912543.418

DATED: April 30, 2020 DLA PIPER LLP (US)

By: /s/ John K. LyonsROBBIN L. ITKIN JOHN K. LYONS (Pro Hac Vice) JEFFREY S. TOROSIAN (Pro Hac Vice) JOSEPH A. ROSELIUS (Pro Hac Vice)

Attorneys for the Chapter 7 Trustee


This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE EAST\173929894.1

PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: DLA Piper LLP (US)

2000 Avenue of the Stars, Suite 400 North Tower Los Angeles, CA 90067-4704

A true and correct copy of the foregoing document entitled Opposition to Defendant Export Development Canada’s (A) Motion to Dismiss Counts IX and XV of Adversary Complaint and (B) Partial Joinder to Yuntian 4 Leasing Company’s Motion to Dismiss Counts IX and XV of Adversary Complaint will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner stated below:

1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to controlling General Orders and LBR, the foregoing document will be served by the court via NEF and hyperlink to the document. On April 30, 2020, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following persons are on the Electronic Mail Notice List to receive NEF transmission at the email addresses stated below: Aaron S. Craig [email protected]; [email protected] United States Trustee [email protected] Matthew S. Walker [email protected];

[email protected]; [email protected]

Scott H. Olson [email protected]; [email protected]; [email protected]; [email protected]

☐ Service information continued on attached page

2. SERVED BY UNITED STATES MAIL: On April 30, 2020, I served the following persons and/or entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.

☐ Service information continued on attached page

3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on April 30, 2020, I served the following persons and/or entities by personal delivery, overnight mail service, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight mail to, the judge will be completed no later than 24 hours after the document is filed.

VIA HAND DELIVERY

VIA ELECTRONIC MAIL

(Party, who is being served if different, and email address for each)

☒ Service information continued on attached page

I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.

April 30, 2020 William L. Countryman, Jr. /s/ William L. Countryman, Jr.Date Printed Name Signature

Case 2:19-ap-01383-SK Doc 121-1 Filed 04/30/20 Entered 04/30/20 18:57:13 DescProof of Service Page 1 of 2

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

June 2012 F 9013-3.1.PROOF.SERVICE EAST\173929894.1

Service via Electronic Mail

Li Qi, Truly Great Global, Ltd., Universal Leader Investment Ltd., and Glove Assets Investment Ltd.

Attn.: Michael L. Bernstein Email: [email protected]

Attn.: Charles A. Malloy Email: [email protected]

Attn.: Lisa Hill Fenning Email: [email protected]

Yuntian 3 Leasing Company Designated Activity Company f/k/a Yuntian 3 Leasing Company Limited, Yuntian 4 Leasing Company Designated Activity Company f/k/a Yuntian 4 Leasing Company Limited and Minsheng Business Aviation Limited

Attn.: Dan T. Moss Email: [email protected]

Attn.: Joshua M. Mester Email: [email protected]

Attn.: David S. Torborg Email: [email protected]

United States Trustee

Attn.: Dare Law Email: [email protected]

Attn.: Ron Maroko Email: [email protected]

Attn.: Jill Sturtevant Email: [email protected]

Attn.: Peter C. Anderson Email: [email protected]

Export Development Canada Limited

Attn.: Scott H. Olson Email: [email protected]

Attn.: Michael J. Edelman Email: [email protected]

Service via Mail

Minsheng Financial Leasing Co., Ltd.

Floor 3-6, Distinguished Guest Building Beijing Friendship Hotel One South Zhongguancun Street HaidianHaidian District Beijing, 100873

and

Zhongguancun South Street Beijing Friendship Hotel Guest House 1 2-6 Beijing, 100873

Case 2:19-ap-01383-SK Doc 121-1 Filed 04/30/20 Entered 04/30/20 18:57:13 DescProof of Service Page 2 of 2

case 2:19-ap-01383-sk doc 121 filed 04/30/20 entered 04/30 ... · lead case no.: 2:17-bk-21386-sk...

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