## Facts

- Adamson Apparel, Inc. borrowed several million dollars from CIT Group Commercial Services, Inc., secured by liens on inventory and receivables.
- Arnold H. Simon, Adamson’s president and CEO, personally guaranteed the CIT debt and executed related pledge/guaranty documents.
- The guaranty and pledge documents included an express waiver of Simon’s rights to indemnification, subrogation, reimbursement, and any other repayment from Adamson tied to the guaranty.
- In late 2003, BP Clothing LLC bought nearly $5 million in Adamson merchandise; Adamson directed BP to pay approximately $4.99 million directly to CIT, reducing Adamson’s loan balance.
- In March 2004, Simon paid the remaining balance to CIT (over $3.5 million) from personal funds and did not seek repayment from Adamson.
- Adamson filed for bankruptcy in September 2004; the unsecured creditors’ committee (later succeeded by the Chapter 7 trustee) sought to avoid the BP-to-CIT payment as a preferential transfer benefiting Simon as an insider guarantor.

## Issues

1. Whether an insider who guaranteed the debtor’s loan, but absolutely and in good faith waived all indemnification/subrogation/reimbursement rights against the debtor and did not later negate that waiver, is a “creditor” for purposes of 11 U.S.C. §§ 547(b) and 101(10).
2. Whether a payment to a lender that reduces an insider’s guaranty exposure is avoidable “for the benefit of” that insider under § 547(b) when the insider holds no right to payment from the debtor.

## Decision

- The Ninth Circuit affirmed judgment for Simon.
- The court held that preference liability under § 547(b) requires a transfer “to or for the benefit of a creditor.”
- Because Simon’s waiver eliminated any right to payment from Adamson tied to the guaranty, Simon held no “claim” and therefore was not a “creditor” under the Bankruptcy Code.
- The court treated the waiver as bona fide and economically real, relying on Simon’s conduct (including not filing a proof of claim and paying CIT without seeking reimbursement).
- Any ambiguity in the documents was resolved by extrinsic evidence of Simon’s understanding and performance consistent with an absolute waiver.
- The court rejected treating Simon as having a “constructive” contingent claim based solely on the economic fact of guaranty exposure.

## Legal Principles

- A § 547(b) preference requires a transfer “to or for the benefit of a creditor”; “creditor” status turns on whether the person holds a “claim,” meaning a “right to payment.”
- An insider-guarantor who absolutely and in good faith waives indemnification, subrogation, reimbursement, and similar repayment rights against the debtor, and honors that waiver in practice, holds no claim against the debtor on the guaranteed obligation.
- Reduction of a guarantor’s exposure, without an accompanying right to payment from the debtor, does not create creditor status for § 547(b) purposes.
- Courts should apply the Bankruptcy Code’s text to the creditor/claim inquiry; policy concerns about insider structuring cannot supply creditor status absent a right to payment.

## Conclusion

The Ninth Circuit held that a genuine, absolute waiver of all reimbursement-related rights by an insider guarantor removes the guarantor’s “creditor” status, so a debtor’s payment to the lender that reduces the guaranteed debt is not avoidable as a preference “for the benefit of” the insider under § 547(b).


Stahl v. Simon (In re Adamson Apparel, Inc.), 785 F.3d 1285 (9th Cir. 2015)