United States Small Business Administration, an agency of the government of the United States of America, Plaintiff-Appellee,
Michael D. Bensal, an individual, Defendant-Appellant, and Susan J. Bensal, as trustee of the Edward D. Bensal Trust; Michael Edward Bensal, an individual; Sophia Bensal, an individual, Defendants.
and Submitted December 12, 2016 San Francisco, California
from the United States District Court No. 3:13-cv-02263-WHO
for the Northern District of California William Horsley
Orrick, District Judge, Presiding
D. Seibel (argued), Seibel & Finta LLP, Concord,
California, for Defendant-Appellant.
M. Wiseblood (argued), San Francisco, California, for
Before: Michael Daly Hawkins, Marsha S. Berzon, and Mary H.
Murguia, Circuit Judges.
Debt Collection Procedures Act
panel affirmed the district court's judgment in favor of
the United States Small Business Administration
("SBA") in the SBA's action seeking to satisfy
a default judgment assigned to SBA, arising after the default
on a loan that SBA guaranteed between a private bank and
appellant Michael Bensal's company.
Bensal did not accept an inheritance in his deceased
father's trust, and instead signed a disclaimer, which
transferred his trust share to his children and prevented
creditors from accessing his trust share under California
Federal Debt Collection Procedures Act
("FDCPA")'s "fraudulent transfer"
provision allows the federal government to void a fraudulent
transfer by a debtor owing a debt to the United States. The
SBA sought to void Bensal's disclaimer under the FDCPA as
a fraudulent transfer that prevented SBA from collecting the
debt Bensal owed on the default judgment.
panel held that the FDCPA displaced California's
disclaimer law, California Probate Code § 283. The panel
concluded that Bensal's disclaimer constituted a transfer
of property under the FDCPA, and California disclaimer law
did not operate to prevent the SBA from reaching Bensal's
panel held that Bensal owed a "debt" to the United
States. The panel concluded that the portion of the default
judgment based on a second loan, which was guaranteed by the
SBA, was a "debt" within the meaning of the FDCPA.
MURGUIA, Circuit Judge.
case requires us to interpret two provisions of the Federal
Debt Collection Procedures Act ("FDCPA"), which
Congress enacted "to create a comprehensive statutory
framework for the collection of debts owed to the United
States government." United States v. Gianelli,
543 F.3d 1178, 1183 (9th Cir. 2008) (quoting H.R. Rep. No.
101-736, at 32 (1990)).
United States Small Business Administration ("SBA")
guaranteed a loan between a private bank and Appellant
Michael Bensal's ("Bensal") company, Bensal
& Coburn Investments LLC ("BCI"). After BCI
defaulted on the loan, the private bank sued BCI as the
borrower and Bensal as a personal guarantor. The private bank
recovered a default judgment and assigned that judgment to
years later, Bensal inherited a share in his deceased
father's trust. Bensal did not accept his inheritance;
instead, he signed a disclaimer, which legally passed his
trust share to his two children and prevented creditors from
accessing his trust share under California law. After Bensal
executed his disclaimer, the SBA filed a lawsuit seeking to
satisfy its default judgment. The district court held that:
(1) the SBA is allowed to recover from Bensal's trust
share under the FDCPA despite contrary California law, and
(2) the default judgment was a debt within the meaning of the
FDCPA. We affirm.
1999, BCI sought to establish TransWorld Burgers, a fast-food
restaurant with an airline-inspired theme and decor. To
finance this operation, BCI took out two loans from
Millennium Bank ("Millennium"). In connection with
the second loan, but not the first, BCI sought a guaranty
from the SBA.
is a federal government agency that assists small businesses
by, among other things, guaranteeing commercial loans from
private banks. By providing its guaranty that a commercial
loan will be repaid, the SBA eliminates some of the risk
private lenders face and encourages private lenders to extend
more loans to small businesses. 15 U.S.C. § 636(a)
("The [SBA] is empowered . . . to make loans to any
qualified small business . . . either directly or in
cooperation with banks or other financial institutions
through agreements to participate on an immediate or deferred
(guaranteed) basis."); see also United States v.
Kimbell Foods, Inc., 440 U.S. 715, 719 n.3 (1979)
(noting that "[t]he SBA prefers to guarantee private
loans rather than to disburse funds directly").
SBA Guaranty and BCI's Default
the course of several months, the parties signed several
documents as part of the SBA's guaranty of the second
loan between BCI and Millennium. First, Millennium submitted
an application to the SBA for an SBA guaranty of 75% of a
proposed $250, 000 loan to BCI. In a signed document
("SBA Authorization"), the SBA reduced the loan
amount to $175, 000, but otherwise approved the bank's
application, agreeing to guarantee up to 75% of the loan.
Next, BCI and Millennium executed a standard loan contract
("Business Loan Agreement"), in which BCI borrowed
$175, 000 from Millennium. BCI signed a form ("SBA
Note") acknowledging its second loan with Millennium,
and Bensal signed a form ("SBA Guaranty")
personally guaranteeing repayment of the second loan if BCI
defaulted. Both the SBA Note and the SBA Guaranty appeared on
SBA letterhead, referenced the same SBA loan-identifying
information, and defined rights SBA held against Bensal and
January 2000, BCI defaulted on its payment obligations under
both loans; some time before the default, Millennium had
assigned both loans to First Bank & Trust
("FBT"). FBT filed suit in California state court
and alleged, among other claims, that BCI had breached the
SBA Note and Bensal had breached the SBA Guaranty. The state
court entered default judgment against BCI and Bensal in the
following sums: (1) $95, 576.66 in principal and interest
owed on the first loan, (2) $140, 905.63 in principal and
interest owed on the second loan, (3) $50, 257.92 in attorney
fees, and (4) $902.50 in costs.
neither BCI nor Bensal satisfied the default judgment, FBT
requested that the SBA honor its guaranty of the second loan.
In 2005, the SBA negotiated a monetary adjustment with FBT
and ultimately paid $54, 027.39 to satisfy its obligations as
a guarantor on the second loan. In 2011, FBT assigned to the
SBA its right to collect the entire amount owing on the
default judgment (over $300, 000) from BCI and Bensal.
Bensal's Inheritance and Disclaimer
2011, Bensal's father died, leaving behind the Edward D.
Bensal Trust ("EDB Trust"), which consisted of cash
and securities valued at $400, 692.94. The trust document
awarded Bensal 40% of the EDB Trust. In October 2011, Bensal
executed a "Disclaimer of Interest in Trust, "
which means he renounced-refused to accept-his 40% share of
the trust. The legal effect of the disclaimer under
California law was that Bensal's trust share passed to
his two children. Cal. Prob. Code § 282.
Bensal executed the disclaimer, the SBA filed suit in federal
district court against the EDB Trust, Bensal, and
Bensal's two children. The SBA sought to void
Bensal's disclaimer under the FDCPA. In its complaint,
the SBA claimed that Bensal had fraudulently transferred his
trust share to his children by executing the disclaimer,
thereby preventing the SBA from collecting the debt Bensal
owed on the default judgment.
advanced two arguments in response. First, he asserted that
his disclaimer was not a fraudulent transfer because the
California Probate Code provides that "[a] disclaimer is
not a voidable transfer." Cal. Prob. Code § 283.
Second, he maintained that the default judgment assigned ...