FOR THE NORTHERN DISTRICT OF CALIFORNIA In re MUSKIN, INC.,                                       No. 1-90-01332      Debtor. ___________________________/ OFFICIAL UNSECURED CREDITORS' COMMITTEE,      Plaintiff,    v.                                                                              A.P. No. 92-1017 SECURITY PACIFIC BUSINESS CREDIT, INC., and JACKSON NATIONAL LIFE INSURANCE COMPANY,      Defendants. ______________________________/ Memorandum of Decision I. Introduction      Debtor Muskin, Inc., is a wholly owned subsidiary of U.S. Leisure, Inc., which is itself in bankruptcy. Before 1982, Muskin and its sister subsidiaries were divisions of U.S. Leisure; around 1982, they were made separate corporations. Before the sale of its assets in bankruptcy, Muskin was a manufacturer of above-ground swimming pools.      In 1984, U.S. Leisure established a line of credit with the predecessor interest of defendant Security Pacific Business Credit, Inc. The line of credit was secured by the inventory and receivables of U.S. Leisure and all its subsidiaries. Each subsidiary was jointly and severally liable for the entire debt.      In early July, 1988, the credit line was restructured, and a portion of the entire pre-restructuring debt was assigned to Muskin on the basis of its assets. Muskin also remained a guarantor of the entire debt. Thereafter, the business of the other subsidiaries suffered large losses resulting in the bankruptcy of all of them even though Muskin itself remained viable and profitable. In the last few months before bankruptcy, Security Pacific advanced $10.3 million through Muskin to the other subsidiaries, so that there are now no unsecured assets remaining in the Muskin estate to pay its unsecured creditors.      By this adversary proceeding, the Muskin Creditors' Committee seeks to have the court avoid the debt restructuring as a fraudulent transfer, so that all of the Muskin estate funds will not go to the secured defendants but may be used to pay Muskin's unsecured debt. Muskin had been sold, with the proceeds held pending the outcome of this adversary proceeding. U.S. Leisure and its other subsidiaries are no longer in business and their assets are insufficient to pay Security Pacific and defendant Jackson National Life Insurance, which became a participant in the loan at the time of the restructuring.      Since the restructuring took place more than two years before bankruptcy, and none of Muskin's debts as of the bankruptcy filing appear to relate back to the date of the restructuring, the Committee attacks the transaction under California Civil Code section 3439.04, which makes a transfer fraudulent as to future creditors if made with intent to defraud or made without receiving a reasonably equivalent value if the assets remaining after the transfer were unreasonably small in relation to the debtor's business. It also attacks advances made just before bankruptcy under section 548 of the Bankruptcy Code.      The court finds that neither defendants had any intent to defraud anyone, nor did U.S. Leisure or Muskin. The court does not find, as urged by the Creditors' Committee, that in 1988 defendants knew U.S. Leisure was likely to go under and were trying to improve their position in the face of anticipated liquidation. In fact, Jackson's participation was brand new, and made with the full expectation that it was entering into a profitable arrangement.
II. Date of the Transfer
     There are three possible dates which the court might find for the transfer which the Committee seeks to avoid as fraudulent. The first date is in 1984, when Muskin first pledged its assets to secure the joint debt of all the affiliates. The second is in 1988, when the debt was restructured. The third is just before bankruptcy, when Security Pacific advanced large sums to the other subsidiaries through Muskin.      If the transfer was in 1984, then it is not avoidable because the statute of limitations has expired. If it was in 1988, the transfer is avoidable pursuant to California Civil Code section 3439.04 if Muskin did not receive reasonably equivalent value and was rendered insolvent by it. If it was just before bankruptcy, section 548 of the Bankruptcy Code applies.      The court believes that the proper ruling is that the transfer took place in 1984. As of that date, unsecured creditors were put on open notice that Muskin's assets were pledged to Security Pacific for the debts of Muskin and its affiliates. Nothing of substance happened in 1988 to alter that fact. Both Civil Code section 3439.06(a)(2) and Bankruptcy Code section 548(d)(1) provide that a transfer is made when the interest in the collateral is perfected.      The Committee cites Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2nd Cir.1981), for the proposition that the transfers took place either in 1988 or in the months just before bankruptcy when Security Pacific advanced funds to the other affiliates through Muskin. However, the court in Rubin indicated that where there had been a series of modifications to the security agreement the last modification should be deemed the date of transfer to the extent that new collateral was given. 661 F.2d at 990. Here, Muskin gave no new collateral in 1988. Moreover, the court in Rubin avoided the question of when a transfer is deemed made if a debtor grants a security interest in its assets to guarantee the obligations of an affiliate. See Carl, "Fraudulent Transfer Attacks on Guaranties in Bankruptcy," 60 Am.Bankr.L.J. 109, 118-19.
III. Reasonably Equivalent Value
     Assuming for the sake of argument that the transfer is deemed to have occurred in 1988, the next issue becomes whether Muskin received reasonably equivalent value for the pledge of its assets. Under a traditional view of the law, a transfer is not fraudulent just because the consideration passed to a third party instead of the debtor. Williams v. Twin City Company, 251 F.2d 678, 681 (9th Cir.1958). No fraudulent conveyance is found when a debtor borrows for the benefit of its owners, even if the lender is fully aware of the purpose of the loan. See Jones v. National City Bank of Rome, 722 F.2d 659 (11th Cir.1984). However, the Committee cites Rubin as requiring the court to focus much more closely on the economic effect of the transaction on the individual affiliate rather than the effect on the affiliated entities as a whole.      Without deciding that Rubin is the law in this circuit, the court finds that is not applicable in situations where the affiliates were so closely related that they constituted a single economic unit. The court finds itself in substantial agreement with Telefest, Inc. v. Vu-Tv, Inc., 591 F.Supp. 1368 (D.N.J.1984), which takes a position somewhere between Rubin and Jones. In Telefest, the court held that the finding of a fraudulent conveyance is not justified where a subsidiary has participated in a joint financing arrangement with its parent company if the parent and the subsidiary were for practical purposes a single economic unit. In refusing to find a fraudulent transfer, the court quoted with approval passages from two law review articles:
       Where there are indicia of a bona fide financing arrangement, not designed as a shield against other        creditors, the lack of perceptible "direct" benefit to        a subsidiary guaranteeing the loan of its parent should        not be viewed as tantamount to a lack of "fair considera-        tion" under the UFCA. . . .
       Because Parent and Subsidiary are part of a single        economic unit, it is both logical and desirable that        Parent be able to borrow based on the value of of its        subsidiaries' property and assets and that lenders be able        to enjoy the full amount of protection which the borrower        can make available.
     591 F.Supp. at 1379. See also In re Miami General Hospital, Inc., 124 B.R. 383 (Bankr.S.D.Fla.1991). As in Telefest, Muskin and its parent were in essence part of one single economic unit, and shared common officers, interests and goals. In fact, Muskin had been just a division of U.S. Leisure just a few years before. The court agrees with Telefest and the authorities it cited that there is no fraudulent transfer under these circumstances.
IV. Solvency
     Assuming that the transfer is deemed to have occurred in 1988, and assuming that the "single economic unit" doctrine does not apply and the court must look solely at Muskin in determining whether there was reasonably equivalent value for the transfer, the Committee can prevail only if it proved that Muskin was rendered insolvent by the 1988 restructuring. The Committee has not met its burden of proof on this issue.      Even under the Committee analysis, Muskin was solvent after the 1988 transaction unless a significant liability is attributed to the guarantee. With perfect hindsight, the Committee's expert attributed a large amount to this guarantee on the basis that it was clearly foreseeable that Muskin would be called upon to bail out the other affiliates. While this is very true with the benefit of hindsight, the Committee has not convinced the court that as of 1988 there was a significant liability which should have been attributed to the guarantee for solvency purposes. The court finds from the evidence presented that Muskin was solvent immediately after the 1988 restructuring, even taking into account its exposure under its guarantee.
V. Policy and Equity
     On an equitable basis, the court does not believe it is appropriate to apply fraudulent conveyance law to undo Security Pacific's lien. Where there is no evidence of fraud and the transaction was done openly, so that all subsequent creditors had the opportunity to learn of Muskin's debt structure before extending credit, asking Security Pacific and Jackson National to underwrite the creditors' losses is not just. See Kupetz v. Wolf, 845 F.2d 842, 847-50 (9th Cir.1988).      While policy matters are generally beyond the concern of trial courts, the court cannot help noting that the interests of unsecured creditors generally are probably better served by allowing affiliated entities liberal access to financing than by allowing the bankruptcy courts to play Robin Hood after a failure. The essential basis of all secured transactions is that unsecured creditors are not justified in looking to a debtor's assets for payment if those assets are publicly pledged to a secured creditor. As long as there was a legitimate business reason for the transaction, the courts should not be eager to set it aside as fraudulent.
VI. Subordination
     Needless to say, there is no basis for subordinating defendants' claims. The court's finding of good faith on the part of the lenders defeats this claim. Where all of the creditors' claims arose after the guarantee and pledge were made public, it would be a windfall for them to be given priority over the secured creditors.
VII. Conclusion
     For the foregoing reasons, the Committee shall take nothing by its complaint. Defendants shall recover their reasonable attorneys' fees and costs of suit, which may be recovered from their collateral to the extent possible; any excess shall be allowable as a general unsecured claim.      This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for Security Pacific shall submit an appropriate form of judgment.
Dated: November 26, 1992                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy