                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


In the Matter of: FITNESS HOLDINGS       No. 11-56677
INTERNATIONAL, INC.,
                            Debtor,        D.C. No.
                                        2:10-cv-00647-
                                              AG
OFFICIAL COMMITTEE OF
UNSECURED CREDITORS, of the
ESTATE OF FITNESS HOLDINGS                 OPINION
INTERNATIONAL, INC.,
                       Appellant,

                v.

HANCOCK PARK CAPITAL II, L.P., a
Delaware Limited Partnership;
PACIFIC WESTERN BANK; KENTON
VAN HARTEN ; MICHAEL FOURTICQ ,
SR.; HANCOCK PARK ASSOCIATES,
III; HANCOCK PARK ASSOCIATES,
                         Appellees.


     Appeal from the United States District Court
        for the Central District of California
     Andrew J. Guilford, District Judge, Presiding

                Argued and Submitted
        February 4, 2013—Pasadena, California
2       IN THE MATTER OF: FITNESS HOLDINGS INT ’L

                       Filed April 30, 2013

       Before: Consuelo M. Callahan, Sandra S. Ikuta,
          and Andrew D. Hurwitz, Circuit Judges.

                     Opinion by Judge Ikuta


                           SUMMARY*


                            Bankruptcy

    The panel vacated the district court’s judgment affirming
the bankruptcy court’s dismissal of a complaint alleging that
a debtor’s pre-bankruptcy transfer of funds to its sole
shareholder, in repayment of a purported loan, was a
constructively fraudulent transfer under 11 U.S.C.
§ 548(a)(1)(B).

    The panel held that a court has the authority to
recharacterize a purported loan as an equity investment for
purposes of § 548, and that a transaction creates a debt if it
creates a “right to payment” under state law. Because the
district court concluded that it lacked the authority to make
this determination, the panel remanded the case for further
proceedings.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
       IN THE MATTER OF: FITNESS HOLDINGS INT ’L            3

                        COUNSEL

Richard D. Burstein and Robyn B. Sokol, Ezra Brutzkus
Gubner, LLP, Woodland Hills, California; Larry W. Gabriel
(argued), Jenkins Mulligan & Gabriel, LLP, Woodland Hills,
California; David J. Richardson, The Creditors’ Law Group,
APC, Los Angeles, California, for Appellants.

David K. Eldan (argued), Parker, Milliken, Clark, O’Hara &
Samuelian, Los Angeles, California; Ralph F. Hirschmann
(argued) and Shane W. Tseng, Hirschmann Law Group, Los
Angeles, California; Lawrence C. Barth and M. Lance Jasper
(argued), Munger, Tolles & Olson, LLP, Los Angeles,
California, for Appellees.


                         OPINION

IKUTA, Circuit Judge:

    This case presents the question whether a debtor’s pre-
bankruptcy transfer of funds to its sole shareholder, in
repayment of a purported loan, may be a constructively
fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). In order
to answer this question, we must determine whether a
bankruptcy court has the power to recharacterize the
purported loan as an equity investment. We hold that a court
has the authority to determine whether a transaction creates
a debt or an equity interest for purposes of § 548, and that a
transaction creates a debt if it creates a “right to payment”
under state law. See 11 U.S.C. §§ 101(5), (12); Butner v.
United States, 440 U.S. 48, 54 (1979) (noting that “Congress
has generally left the determination of property rights in the
assets of a bankrupt’s estate to state law”). Because the
4        IN THE MATTER OF: FITNESS HOLDINGS INT ’L

district court concluded that it lacked authority to make this
determination, we vacate the decision below and remand for
further proceedings.1

                                    I

    Fitness Holdings International, Inc., the debtor in this
bankruptcy case, was a home fitness corporation. Before
declaring bankruptcy, the company received significant
funding from two entities: Hancock Park, its sole shareholder,
and Pacific Western Bank. Defendants Kenton Van Harten
and Michael Fourticq both served on Fitness Holdings’ board
of directors. Fourticq was also a manager of Hancock Park.

    Between 2003 and 2006, Fitness Holdings executed
eleven separate subordinated promissory notes to Hancock
Park for a total of $24,276,065. Each note required Fitness
Holdings to pay a specified principal amount to Hancock
Park, plus interest of ten percent per year, on or before the
note’s maturity date.2

    In July 2004, Pacific Western Bank made a $7 million
revolving loan and a $5 million installment loan to Fitness
Holdings, both of which were secured by all of Fitness
Holdings’ assets. Hancock Park guaranteed these loans.
Fitness Holdings and Pacific Western Bank amended the loan

    1
   In this opinion, we address only the trustee’s claim for avoidance of a
constructively fraudulent transfer under § 548(a)(1)(B) and his request for
declaratory relief (claims 2 and 7 of the First Amended Complaint). W e
resolve the remaining claims in a memorandum disposition filed
concurrently with this opinion.

  2
    The maturity dates of the eleven notes were set for September 30,
2006, November 5, 2006, and October 1, 2009.
       IN THE MATTER OF: FITNESS HOLDINGS INT ’L             5

agreement multiple times. The amendments eased Fitness
Holdings’ obligations in various ways, for example, by
extending the maturity dates on the revolving loan and
waiving past breaches.

    Finally, in June 2007, Fitness Holdings and Pacific
Western Bank agreed to refinance Fitness Holdings’ debt.
Under the terms of the agreement, Pacific Western Bank
made two loans to Fitness Holdings: a $17 million term loan,
and an $8 million revolving line of credit. These loans were
also secured by all of Fitness Holdings’ assets. The loan
agreement provided that upon closing, $8,886,204 would be
disbursed to pay off Pacific Western Bank’s original secured
loan, and $11,995,500 would be disbursed to Hancock Park
to pay off its unsecured promissory notes. The payoff of
Pacific Western Bank’s prior secured loan had the effect of
releasing Hancock Park from its guarantee.

    These attempts to save Fitness Holdings proved
unsuccessful, and the company filed for Chapter 11
bankruptcy on October 20, 2008. A committee of unsecured
creditors, acting on behalf of Fitness Holdings and its estate,
filed a complaint against Hancock Park, Pacific Western
Bank, Van Harten, and Fourticq to recover the payments
made to Hancock Park as a result of the refinancing
transaction with Pacific Western Bank. The complaint also
requested declaratory relief, asking the court to characterize
the financing Hancock Park provided to Fitness Holdings in
connection with the promissory notes as equity investments
in Fitness Holdings, rather than extensions of credit. As a
result, the complaint alleged, the transfer of $11,995,500 to
Hancock Park was constructively fraudulent.
6        IN THE MATTER OF: FITNESS HOLDINGS INT ’L

    On January 15, 2010, the bankruptcy court dismissed all
claims against Hancock Park with prejudice. The case was
subsequently converted to a Chapter 7 filing on April 6, 2010,
In re Fitness Holdings Int’l, Inc., No. 2:08-bk-27527-BR,
Dkt. # 291 (Bankr. C.D. Cal. April 6, 2010). The following
month, the bankruptcy court appointed a trustee for Fitness
Holdings, who replaced the committee of unsecured creditors
in the litigation.

    The trustee appealed the bankruptcy court’s dismissal of
the complaint to the district court, which affirmed the
bankruptcy court and dismissed the case for failure to state a
claim. In re Fitness Holdings Int’l, Inc. (Fitness I), No. CV
10-0647 AG, 2011 WL 7763674, *1 (C.D. Cal. Aug. 31,
2011). The district court held that, under longstanding
precedent of the Ninth Circuit Bankruptcy Appellate Panel,
Hancock Park’s advances to Fitness Holdings were loans and,
as a matter of law, it was barred from recharacterizing such
loans as equity investments. Id. at *5 (citing In re Pacific
Express, 69 B.R. 112, 115 (B.A.P. 9th Cir. 1986)).3

    The trustee timely appealed, claiming that the district
court should have: (1) recharacterized Hancock Park’s
payment of $11,995,500 to Fitness Holdings as a payment in
satisfaction of an equity interest rather than a debt, and then
(2) avoided Fitness Holdings’ $11,995,500 transfer to
Hancock Park as a constructively fraudulent transfer under
§ 548(a)(1)(B) of the Bankruptcy Code.


    3
    The district court erred in holding it was bound by a decision of the
Bankruptcy Appellate Panel. See Bank of Maui v. Estate Analysis, Inc.,
904 F.2d 470, 472 (9th Cir. 1990) (“As article III courts, the district courts
must always be free to decline to follow BAP decisions and to formulate
their own rules within their jurisdiction.”).
         IN THE MATTER OF: FITNESS HOLDINGS INT ’L                       7

                                    II

    We have jurisdiction under 28 U.S.C. §§ 158(d)(1) and
1291. Because the district court dismissed the trustee’s
complaint for failure to state a claim, we review de novo.
Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir.
2010). In order to survive a motion to dismiss, a party must
allege “‘sufficient factual matter, accepted as true, to state a
claim to relief that is plausible on its face.’” Id. (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal,
556 U.S. at 678. In reviewing a dismissal for failure to state
a claim, “[a]ll well-pleaded allegations of material fact in the
complaint are accepted as true and are construed in the light
most favorable to the non-moving party.” Faulkner v. ADT
Sec. Servs. Inc., 706 F.3d 1017, 1019 (9th Cir. 2013).

                                    A

    We begin by setting forth the legal framework for
fraudulent transfers under § 548(a)(1)(B) of the Bankruptcy
Code.4

    Filing a petition in bankruptcy creates an estate made up
of the debtor’s assets. Schwab v. Reilly, 130 S. Ct. 2652,
2657 (2010). In a Chapter 7 bankruptcy, a trustee is


 4
   The trustee brought a “recharacterization” claim as a separate cause of
action (claim 7 of the First Amended Complaint). W e interpret this claim
as a request for a determination that Fitness Holdings’ transfer to Hancock
Park was not made in repayment of a “debt” as that term is defined in the
Code. 11 U.S.C. § 101(12).
8       IN THE MATTER OF: FITNESS HOLDINGS INT ’L

appointed or elected to administer the estate. 11 U.S.C.
§§ 701–04. In order to protect the interests of the estate, a
bankruptcy trustee may bring an action to avoid a transfer
made before the bankruptcy that is allegedly either
intentionally fraudulent, 11 U.S.C. § 548(a)(1)(A), or
constructively fraudulent, § 548(a)(1)(B); BFP v. Resolution
Trust Corp., 511 U.S. 531, 535 (1994). A transfer is
constructively fraudulent, and thus can be avoided by the
trustee, 11 U.S.C. § 550, if the debtor made the transfer on or
within two years before the date of filing the bankruptcy
petition, the debtor “received less than a reasonably
equivalent value in exchange for such transfer or obligation,”
§ 548(a)(1)(B)(i), and one of four circumstances obtains.5


    5
    11 USC § 548(a)(1)(B) (defining constructive fraudulent transfers)
provides in pertinent part:

        (a)(1) The trustee may avoid any transfer (including any
        transfer to or for the benefit of an insider under an
        employment contract) of an interest of the debtor in
        property, or any obligation (including any obligation to
        or for the benefit of an insider under an employment
        contract) incurred by the debtor, that was made or
        incurred on or within 2 years before the date of the
        filing of the petition, if the debtor voluntarily or
        involuntarily—

        ....

               (B) (i) received less than a reasonably equivalent
               value in exchange for such transfer or obligation;
               and

                   (ii) (I) was insolvent on the date that such
                   transfer was made or such obligation was
                   incurred, or became insolvent as a result of
                   such transfer or obligation;
       IN THE MATTER OF: FITNESS HOLDINGS INT ’L               9

    In construing the statutory requirement that the debtor
“received less than a reasonably equivalent value in exchange
for such transfer or obligation,” § 548(a)(1)(B)(i), we must
turn to a series of interlocking statutory definitions. The key
phrase in § 548(a)(1)(B)(i), “reasonably equivalent value,” is
not defined in the Code. BFP, 511 U.S. at 535. “Value” is
defined, however, and includes the “satisfaction or securing
of a present or antecedent debt of the debtor.”
§ 548(d)(2)(A). Under this definition, “[p]ayment of a pre-
existing debt is value, and if the payment is dollar-for-dollar,
full value is given.” 5 Collier on Bankruptcy ¶ 548.03[5]
(16th ed. 2012). Therefore, to the extent a transfer constitutes
repayment of the debtor’s antecedent or present debt, the
transfer is not constructively fraudulent. See Freeland v.
Enodis Corp., 540 F.3d 721, 735 (7th Cir. 2008) (holding that
there is “reasonably equivalent value” where “payment of the
accrued interest constituted ‘dollar-for-dollar forgiveness of



                   (II) was engaged in business or a
                   transaction, or was about to engage in
                   business or a transaction, for which any
                   property remaining with the debtor was
                   an unreasonably small capital;

                   (III) intended to incur, or believed that
                   the debtor would incur, debts that would
                   be beyond the debtor’s ability to pay as
                   such debts matured; or

                   (IV) made such transfer to or for the
                   benefit of an insider, or incurred such
                   obligation to or for the benefit of an
                   insider, under an employment contract
                   and not in the ordinary course of
                   business.
10     IN THE MATTER OF: FITNESS HOLDINGS INT ’L

a contractual debt.’”) (quoting In re Carrozzella &
Richardson, 286 B.R. 480, 491 (D. Conn. 2002)).

    We next address the definition of the term “debt.” The
Bankruptcy Code defines “debt” to mean “liability on a
claim.” 11 U.S.C. § 101(12); see also Johnson v. Home State
Bank, 501 U.S. 78, 84 n.5 (1991) (noting that “‘debt . . . has
a meaning coextensive with that of ‘claim.’”) (citing Penn.
Dept. of Public Welfare v. Davenport, 495 U.S. 552, 558
(1990)). “Claim” is defined, in relevant part, to mean “a right
to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” 11 U.S.C. § 101(5)(A). The Code thus broadly
defines “debt” as liability on virtually any type of “right to
payment.”

    Under these interlocking definitions, to the extent a
transfer is made in satisfaction of a “claim” (i.e., a “right to
payment”), that transfer is made for “reasonably equivalent
value” for purposes of § 548(a)(1)(B)(i).               And a
determination that a transfer was made for “reasonably
equivalent value” precludes a determination that it was
constructively fraudulent under § 548(a)(1)(B). See In re
United Energy Corp., 944 F.2d 589, 595–96 (9th Cir. 1991).

                               B

    This analysis raises the further question of how courts are
to determine whether there is a “right to payment” that
constitutes a “claim” under the Code. Supreme Court
precedent establishes that, unless Congress has spoken, the
nature and scope of a right to payment is determined by state
        IN THE MATTER OF: FITNESS HOLDINGS INT ’L                     11

law.6 The Supreme Court has “long recognized that the basic
federal rule in bankruptcy is that state law governs the
substance of claims, Congress having generally left the
determination of property rights in the assets of a bankrupt’s
estate to state law.” Travelers Cas. & Sur. Co. of Am. v. Pac.
Gas & Elec. Co., 549 U.S. 443, 450 (2007) (internal
quotation marks omitted). This principle was given its
clearest statement in Butner, 440 U.S. 48, which held that
because “[p]roperty interests are created and defined by state
law,” id. at 55, “[u]nless some federal interest requires a
different result, there is no reason why such interests should
be analyzed differently simply because an interested party is
involved in a bankruptcy proceeding.” Id. This means that
“when the Bankruptcy Code uses the word ‘claim’—which
the Code itself defines as a ‘right to payment,’—it is usually
referring to a right to payment recognized under state law.”
Travelers, 549 U.S. at 451 (internal citation omitted).

     Relying on the Butner principle, the Supreme Court held
in Travelers that a court should not use a federal rule to
determine whether a pre-petition contract guaranteeing
attorneys’ fees created a “right to payment” giving rise to a
“claim” under the Code. Id. at 446–47, 453–54. Travelers
arose from a Ninth Circuit case in which we had relied on
circuit precedent holding that attorneys’ fees are not
recoverable in bankruptcy “for litigating issues peculiar to
federal bankruptcy law.” Id. at 451 (internal quotation
omitted). In a unanimous reversal, the Supreme Court
criticized us for relying “solely on a rule of [our] own


  6
    The term “state law” is often used “expansively . . . to refer to all
nonbankruptcy law that creates substantive claims.” Grogan v. Garner,
498 U.S. 279, 284 n.9 (1991). “W e thus mean to include in this term
claims that have their source in substantive federal law.” Id.
12     IN THE MATTER OF: FITNESS HOLDINGS INT ’L

creation.” Id. According to the Court, because the creditor’s
contractual right to attorneys’ fees could be enforceable under
the law of California, the pre-petition contract could give rise
to a “claim” in bankruptcy, and so the Ninth Circuit erred in
holding that, as a per se rule, a right to attorneys’ fees for
litigating bankruptcy issues never gives rise to a claim in
bankruptcy. Id. at 450–52; see also Raleigh v. Illinois Dept.
of Revenue, 530 U.S. 15, 21 (2000) (holding that where there
was “no sign that Congress meant to alter” a state substantive
right, the Butner rule required a creditor’s claim to be
assessed in light of state law, including the allocation of the
burden of proof).

     Under the Butner principle, therefore, a court may not
fashion a rule “solely of its own creation” in determining
what constitutes a “claim” for purposes of bankruptcy.
Rather, “subject to any qualifying or contrary provisions of
the Bankruptcy Code,” Raleigh, 530 U.S. at 20, a court must
determine whether the asserted interest in the debtor’s assets
is a “right to payment” recognized under state law, id.

    We now construe § 548(a)(1)(B) in light of the Butner
principle. Because the Code defines debt as “liability on a
claim,” § 101(12), and defines “value” as including
“satisfaction or securing of a . . . debt,” § 548(d)(2)(A), we
conclude that a transfer is for “reasonably equivalent value”
for purposes of § 548(a)(1)(B)(i) if it is made in repayment of
a “claim,” i.e., a “right to payment” under state law.
Therefore, in an action to avoid a transfer as constructively
fraudulent under § 548(a)(1)(B), if any party claims that the
transfer constituted the repayment of a debt (and thus was a
transfer for “reasonably equivalent value”), the court must
determine whether the purported “debt” constituted a right to
payment under state law. If it did not, the court may
         IN THE MATTER OF: FITNESS HOLDINGS INT ’L                    13

recharacterize the debtor’s obligation to the transferee under
state law principles.

    Because we hold that a court may recharacterize an
obligation that does not constitute “debt” under state law, we
disagree with In re Pacific Express, Inc., which held that the
Code did not authorize courts to characterize claims as equity
or debt, but limited courts to the statutory remedy of equitable
subordination under 11 U.S.C. § 510. 69 B.R. 112, 115
(B.A.P. 9th Cir. 1986).           This is incorrect, because
“recharacterization and equitable subordination address
distinct concerns.” In re SubMicron Sys., 432 F.3d 448, 454
(3d Cir. 2006). Under the Code, the statutory equitable
subordination remedy allows a court, under equitable
principles, to subordinate “all or part of an allowed claim to
all or part of another allowed claim.” § 510(c)(1). In
contrast, a court considering a motion to avoid a transfer as
constructively fraudulent under § 548(a)(1)(B) must
determine whether the transfer is for the repayment of a
“claim” at all. Therefore Pacific Express erred in holding
that the “characterization of claims as equity or debt” is
governed by § 510(c). 69 B.R. at 115.7

                                   C

    In concluding that the Bankruptcy Code gives courts the
authority to recharacterize claims in bankruptcy proceedings,
we join our sister circuits, which have reached the same
conclusion. See In re Lothian Oil, 650 F.3d 539, 542–43 (5th
Cir. 2011); SubMicron, 432 F.3d at 454; In re Dornier


  7
   In this opinion, we do not address whether the trustee has adequately
pleaded a claim for equitable subordination. W e resolve this issue in the
memorandum disposition filed concurrently with this opinion.
14     IN THE MATTER OF: FITNESS HOLDINGS INT ’L

Aviation, 453 F.3d 225, 231 (4th Cir. 2006); In re Hedged-
Investments Associates, Inc., 380 F.3d 1292, 1298 (10th Cir.
2004); In re Autostyle Plastics, Inc., 269 F.3d 726, 748 (6th
Cir. 2001). But despite their broad agreement that the Code
authorizes courts to recharacterize claims, the circuits have
taken different approaches in identifying the legal framework
for this recharacterization. Compare Lothian Oil, 650 F.3d at
543 (holding that, under the Butner principle, courts are
required to define claims by reference to state law, and are
thus required to recharacterize purported “debt” as equity
where state law would treat the asserted interest as an equity
interest) with SubMicron, 432 F.3d at 454–56 (holding that a
court has the equitable authority to recharacterize a
transaction and determine if it is more like “debt” or
“equity”) and Autostyle Plastics, 269 F.3d at 749–50
(announcing an eleven-factor test, derived from federal tax
law, for determining whether a purported “debt” is in fact
“equity”).

    We agree with the approach adopted by the Fifth Circuit
in Lothian Oil, 650 F.3d at 543, which is consistent with the
Butner principle. Lothian Oil considered two pre-bankruptcy
loan agreements which stated that the debtor would repay the
loan in the form of equity interests and royalties, and did not
specify interest rates or maturity dates. 650 F.3d at 541.
When the debtor asked the court to recharacterize the loans as
equity interests, the court construed this as a request to
disallow the lender’s claim under 11 U.S.C. § 502 on the
ground that the purported loans were “unenforceable against
the debtor and property of the debtor, under any agreement or
applicable law.” Id. at 543 (quoting 11 U.S.C. § 502(b)(1)).
Recognizing the Supreme Court’s determination in Butner
that “‘applicable law’ is state law,” id. at 543, Lothian Oil
looked to Texas law, which employed a multi-factor test to
          IN THE MATTER OF: FITNESS HOLDINGS INT ’L                 15

“distinguish between debt and equity,” id. at 544 (quoting
Arch Petrol., Inc. v. Sharp, 958 S.W.2d 475, 477 n.3 (Tex. Ct.
App. 1997)). Under Texas law, the interests created by the
lender’s agreements with the debtor constituted “common
equity interests at best,” and not debt. Id. Therefore, the
court disallowed the claims and recharacterized them as
equity interests. Id.

    We believe the Fifth Circuit’s approach is more consistent
with Supreme Court precedent than that of the circuits that
have fashioned a federal test for recharacterizing an alleged
debt in reliance on their general equitable authority under
11 U.S.C. § 105(a).8 See, e.g., Autostyle, 269 F.3d at 749–50;
Hedged-Investments, 380 F.3d at 1298–99. Such an equitable
approach is inconsistent with Supreme Court precedent
requiring us to determine whether a party has a “right to
payment,” i.e., a “claim,” § 101(5), by reference to state law,
see Butner, 440 U.S. at 55; Travelers, 549 U.S. at 451. Given
the Supreme Court’s direction, courts may not rely on
§ 105(a) and federal common law rules “of [their] own
creation” to determine whether recharacterization is
warranted. Travelers, 549 U.S. at 451; cf. James M. Wilton
& Stephen Moeller-Sally, Debt Recharacterization Under


 8
     11 U.S.C. § 105(a) provides:

          The court may issue any order, process, or judgment
          that is necessary or appropriate to carry out the
          provisions of this title. No provision of this title
          providing for the raising of an issue by a party in
          interest shall be construed to preclude the court from,
          sua sponte, taking any action or making any
          determination necessary or appropriate to enforce or
          implement court orders or rules, or to prevent an abuse
          of process.
16       IN THE MATTER OF: FITNESS HOLDINGS INT ’L

State Law, 62 Bus. Law. 1257, 1278 (Aug. 2007) (“Federal
courts, if they are to follow Supreme Court precedent, cannot
create a separate legal standard for the enforceability of
insider debt in bankruptcy and should follow the state law of
debt recharacterization.”). Therefore, we agree with Lothian
Oil that in order to determine whether a particular obligation
owed by the debtor is a “claim” for purposes of bankruptcy
law, it is first necessary to determine whether that obligation
gives the holder of the obligation a “right to payment” under
state law.

                                   III

    We now consider the application of these principles to
this case. The question before the district court was whether
the trustee’s complaint plausibly alleged that Fitness
Holdings’ transfer of $11,995,500 to Hancock Park was a
constructively fraudulent transfer under § 548(a)(1)(B). As
explained in our decision today, to survive a motion to
dismiss, the trustee was required to plausibly allege that the
interests created by Hancock Park’s agreements with Fitness
Holdings constituted equity investments (rather than debt)
under applicable state law, and that therefore Hancock Park
had no “right to payment” of $11,995,500 from Fitness
Holdings. By making such allegations, the trustee could then
claim that Fitness Holdings’ transfer was not for reasonably
equivalent value. See § 548(d)(2)(A).9 Such allegations,

     9
      The trustee also contends that Fitness Holdings did not receive
“reasonably equivalent value” because it paid down unsecured pre-
existing debt with newly acquired secured financing. We reject this
argument, because it is not supported by either the Code or our case law.
Section 548(d)(2)(A) defines “value” to include the “satisfaction or
securing of a present or antecedent debt.” Under this definition, a debtor
who grants a security interest in its property in exchange for funds has
        IN THE MATTER OF: FITNESS HOLDINGS INT ’L                     17

combined with plausible allegations of the other elements of
a claim for a constructively fraudulent transfer under
§ 548(a)(1)(B), could potentially “nudge” the trustee’s claims
“across the line from conceivable to plausible,” Iqbal,
556 U.S. at 680 (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2006)), and show an entitlement to relief
sufficient to withstand a motion to dismiss under Rule
12(b)(6) of the Federal Rules of Civil Procedure.

    The district court did not view the trustee’s constructively
fraudulent transfer claim through this lens. Because the court
erroneously concluded that it was barred from considering
whether the complaint plausibly alleged that the promissory
notes could be recharacterized as creating equity interests
rather than debt, it failed to apply the correct standard in
considering whether the trustee’s allegation that Fitness
Holdings did not receive reasonably equivalent value for its
transfer of $11,995,500 to Hancock Park plausibly gave rise
to a claim for relief under § 548(a)(1)(B).

    Analyzing the trustee’s constructive fraudulent transfer
claim under the proper legal framework requires the
identification of the pertinent legal principles under
applicable state law. Rather than ruling on these issues in the


received reasonably equivalent value, see In re Northern Merch., Inc.,
371 F.3d 1056, 1059 (9th Cir. 2004), as has a debtor who pays down pre-
existing debt. W e therefore see no basis for holding that a debtor who
takes both actions simultaneously (obtaining a secured loan and
simultaneously paying down pre-existing debt) has received something
less than “reasonably equivalent value.” The trustee’s reliance on In re
Superior Stamp & Coin Co., 223 F.3d 1004, 1008 n.3 (9th Cir. 2000), is
misplaced, because that case considered the circumstances that might give
rise to a voidable preference under § 547(b), not whether the debtor
obtained reasonably equivalent value under § 548.
18     IN THE MATTER OF: FITNESS HOLDINGS INT ’L

first instance, see Salmon Spawning & Recovery Alliance v.
Gutierrez, 545 F.3d 1220, 1230 n.6 (9th Cir. 2008), we vacate
the district court’s dismissal of the complaint’s constructive
fraudulent transfer claim and remand for further proceedings
consistent with this opinion. Each party will bear its own
costs on appeal.

     VACATED AND REMANDED.
