Memorandum of Decision Re: Insider Preference

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re LENDVEST MORTGAGE, INC.,                                                                              No. 1-88-01058        Debtor. ___________________________/ CHARLES E. SIMS, Trustee,        Plaintiff,    v.                                                                                                                             A.P. No. 1-90-0148 ARDIS E. WOONING,        Defendant. ______________________________/
Memorandum of Decision
     The facts in this matter are the subject of a written stipulation, so there is no need to restate them here. The salient facts are that defendant Ardis Wooning made a $90,000.00 unsecured loan to the debtor in 1986. During the year before bankruptcy, and while the debtor was insolvent, she was repaid $37,322.19 and loaned $6,000.00 more. Even though most of the payments to Wooning were made more than 90 days before the bankruptcy, the Trustee argues that they are recoverable because the debtor's president was a co-obligor on the note to Wooning.      Wooning defends on grounds that payments made to her more than 90 days before bankruptcy are not recoverable from her. She further argues that even if they were otherwise recoverable, the personal bankruptcy of the debtor's president, filed some nine months after the corporate bankruptcy, terminated any liability based on his insider status.      The Trustee relies on In re DePrezio Construction Co., 874 F.2d 1186 (7th Cir. 1989), to establish that payments made to Wooning within one year of the filing are recoverable from her because an insider of the debtor was a co-obligor. While this decision, arising in another circuit, may not be binding on a Ninth Circuit court, this court must give it great deference unless it appears clearly erroneous. Quite the contrary, that decision makes good sense to this court and it will accordingly be followed.      The court does not see how the personal bankruptcy of the debtor's president, filed nine months after the corporate bankruptcy, changes the rule set forth in DePrezio. Each payment the debtor made on its note to Wooning benefitted the president, in that it reduced his personal exposure to Wooning. That those benefits were not enough to allow him to avoid subsequent personal bankruptcy hardly seems relevant; they were of some benefit, and that is all DePrezio seems to require. The president's personal bankruptcy would seem to be relevant only if it had been filed before the payments had been made. Only then would they have been of no benefit to him.      Even if the court were to treat this matter as having no precedent, it would still rule in favor of the Trustee. Insiders are liable for preferences over an extended period because they control the debtor, and are therefore able to manipulate its payments to protect themselves at the expense of other creditors. If the extended preference period applies to those who control the debtor, it seems only fair that it also apply to those who arrange financial transactions so as to compel those in control to prefer them to other creditors. In other words, a creditor who uses an insider to gain advantage over other creditors should be himself treated as an insider. When Wooning insisted that her note be signed by both the debtor and its president, she was using his insider status to gain advantage over other creditors. Accordingly, she herself should be treated as an insider.      For the foregoing reasons, judgment shall be entered in favor of the Trustee and against Wooning in the amount of $31,322.19, which is calculated by deducting from the amount of the payments the $6,000.00 allowable as a setoff pursuant to section 547(c)(4) of the Code. The Trustee shall also recover his costs of suit. This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and Bankruptcy Rule 7052. Counsel for the Trustee shall submit an appropriate form of judgment.
Dated: February 12, 1991                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy