## Facts

- Acequia, Inc., a closely held Idaho farming and management corporation, was founded and controlled by Vernon B. Clinton.
- After Clinton’s divorce from Rosemary Haley, each held 50% of Acequia’s shares; Acequia later filed for Chapter 11 protection.
- Before the bankruptcy filing, Clinton caused Acequia to transfer substantial corporate assets to himself while Acequia was past due on obligations, facing lawsuits, and nearing bankruptcy.
- The transfers allegedly depleted Acequia’s assets to a minimal balance and were poorly documented or inconsistently described in corporate records.
- As debtor-in-possession, Acequia sued Clinton to avoid and recover transfers as intentional fraudulent transfers under 11 U.S.C. § 548 and, via 11 U.S.C. § 544(b), under Idaho fraudulent conveyance law.
- After a bench trial before a magistrate judge (by consent), the court found Clinton liable for intentional fraudulent transfers but limited recovery on the § 544(b) theory to the amount of unsecured claims.
- Clinton appealed the liability findings; Acequia cross-appealed the limitation on recovery.

## Issues

1. Whether the trial court clearly erred in finding that Clinton caused transfers with actual intent to hinder or delay creditors under 11 U.S.C. § 548(a)(1) and Idaho fraudulent conveyance law.
2. Whether recovery of transfers avoided under 11 U.S.C. § 544(b), through 11 U.S.C. § 550(a), is limited to the aggregate amount of unsecured claims against the estate, particularly where the plan contemplated full payment of unsecured creditors.
3. Whether the “benefit of the estate” requirement in § 550(a) permits recovery beyond amounts necessary to satisfy unsecured creditors, subject to remand issues involving setoff and property characterization.

## Decision

- The Ninth Circuit affirmed the finding that Clinton made transfers with actual intent to hinder or delay Acequia’s creditors and upheld fraudulent-transfer liability.
- The court reversed the damages limitation, holding it was improper to cap recovery under § 544(b) by the total amount of unsecured claims.
- The court held that, after avoidance, § 550(a) governs recovery and permits recovery of the transferred property or its value to the extent recovery benefits the estate.
- The case was remanded to recalculate liability and determine recovery consistent with § 550(a), including consideration of remaining accounting and related issues.

## Legal Principles

- Actual intent to hinder, delay, or defraud creditors may be inferred from circumstantial evidence, including financial distress, depletion of assets, insider self-dealing, and inadequate documentation.
- A debtor-in-possession (or trustee) may proceed under § 544(b) if at least one unsecured creditor existed at the time of the challenged transfer with a claim actionable under applicable nonbankruptcy law; later plan treatment of creditors does not extinguish the avoidance action.
- Section 544(b) addresses avoidance, while § 550(a) separately governs transferee liability and the extent of recovery after avoidance.
- Recovery under §§ 544(b) and 550(a) is not categorically capped by the amount of unsecured claims; the controlling limitation is whether recovery is “for the benefit of the estate.”
- The “benefit of the estate” inquiry focuses on concrete estate benefits (including plan performance and litigation costs) and may allow recovery exceeding unsecured claims, especially where an insider acted with actual fraudulent intent.

## Conclusion

The Ninth Circuit upheld findings that an insider intentionally diverted corporate assets to hinder or delay creditors and clarified that, once a transfer is avoidable under § 544(b), § 550(a) permits recovery of the transferred property or its value to the extent recovery benefits the bankruptcy estate, without an automatic cap at the amount of unsecured claims.


In re Acequia, Inc., 34 F.3d 800 (9th Cir. 1994)