Opinion
G053993
02-14-2018
HENRY D. FLORES, Plaintiff and Respondent, v. SUZANNA HAUGHEY et al., Defendants and Appellants.
Berger Harrison and Benjamin Berger; AlvaradoSmith and William M. Hensley for Defendants and Appellants. Richard V. McMillan for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00720564) OPINION Appeal from a judgment of the Superior Court of Orange County, Richard W. Luesebrink, Judge. (Retired judge of the Orange Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed as modified. Berger Harrison and Benjamin Berger; AlvaradoSmith and William M. Hensley for Defendants and Appellants. Richard V. McMillan for Plaintiff and Respondent.
INTRODUCTION
The parties to this appeal, appellants Suzanna and Jason Haughey, and respondent Henry Flores, are all involved in the T-shirt industry. The other participants in this dispute also make and sell T-shirts.
There is an empty chair, which should be occupied by one Chad Schoeman. Schoeman has disappeared, leaving a trail of debts and unsatisfied judgments behind him. Flores has a substantial judgment against Schoeman that he has been unsuccessful in collecting from the judgment debtor himself. Flores therefore directed his collection efforts against entities that owed Schoeman money.
The appellants in the present appeal, the Haugheys, became involved in Flores' collection efforts when they unwisely joined forces with Schoeman in 2011. At that time, the Haugheys incorporated a new business, MM4U, Inc., and engaged Schoeman to sell T-shirts designed by Jason Haughey. In June 2012, Schoeman sold a trademark he owned - Mob Inc. - to MM4U and the Haugheys for $1,500.
Schoeman filed for Chapter 7 bankruptcy protection in October 2013. He received his discharge, and his present whereabouts are unknown.
Flores sued the Haugheys, and MM4U. His theory was that the sale of the Mob Inc. trademark was a fraudulent transfer. Flores obtained a judgment against the Haugheys and MM4U in the amount of $89,506, from which judgment the Haugheys have appealed.
We affirm the judgment, but reduce the amount. Flores failed to present sufficient evidence of the value of the Mob Inc. trademark to obtain a judgment in the amount awarded. His expert opined at trial that the trademark was worth more than $1,500, but he was unable to say how much more. The applicable code section is clear that a money judgment for a fraudulent transfer is limited to the amount owing to the judgment creditor or the value of the thing transferred, whichever is less. The court had no evidence from which it could determine that the Mob Inc. trademark was worth more than the amount of Flores' judgment and therefore no basis for awarding Flores that amount.
Appellants also complain that the court did not follow the required procedure for issuing a statement of decision before entering judgment. Although this was error, a recent California Supreme Court case instructs that the failure to issue a statement of decision before a judgment is not reversible per se but is reviewable for prejudice. As the record does not indicate prejudice against the Haugheys or a miscarriage of justice, especially in light of the reduction of Flores' judgment, we decline to reverse on that basis.
FACTS
Flores and Schoeman did business together during the mid-2000's. The relationship soured, and by 2009, Flores had a judgment from the Orange County Superior Court against Schoeman for $51,493 plus interest and costs of suit.
In 2011, the Haugheys were looking to start their own T-shirt business, with Jason Haughey doing designs and production and Suzanna Haughey handling administrative matters. Jason Haughey knew Schoeman because of Haughey's former work as a T-shirt buyer for other companies. The Haugheys incorporated their business, MM4U, Inc., on August 31, 2011. Schoeman came aboard in the fall of 2011 to sell MM4U's T-shirts. The Haugheys testified at trial that Schoeman was an independent contractor for sales. In some prior e-mails, however, Suzanna Haughey had referred to Schoeman as a "partner."
In June 2012, Schoeman transferred the Mob Inc. trademark, including "the goodwill associated therewith," to MM4U and the Haugheys for $1,500. Ownership of the mark was recorded with the United States Trademark Office in November 2012.
A year later, in October 2013, Schoeman filed a no-asset bankruptcy petition. An amended schedule, filed in March 2014, revealed the sale of the Mob Inc. trademark. As a creditor, Flores received notice of the bankruptcy and learned of the trademark sale. According to information provided at trial, Schoeman was discharged in bankruptcy in June 2014 and disappeared.
Flores filed a suit against the Haugheys and MM4U in August 2014. The case was tried to the court in March 2016. The result was a judgment against MM4U and the Haugheys for $89,506. The Haugheys have appealed from this judgment.
The same suit named World of Jeans and Tops, dba Tilly's, as a defendant, alleging that Tilly's had thwarted Flores' efforts to levy on money Tilly's owed Schoeman for his T-shirts. Flores also received a judgment against Tilly's, and Tilly's appealed. Flores settled with Tilly's, and Tilly's is no longer a party to this appeal .
The Haugheys represented themselves at trial, and there was no counsel for MM4U. The court entered the company's default.
Flores' theory against the Haugheys was that the sale of the Mob Inc. trademark was a fraudulent transfer, in that Schoeman expressly intended to hinder Flores' efforts to collect his judgment. He also alleged that the trademark was worth $150,000 and its transfer left Schoeman insolvent.
Flores' expert testified that the Mob Inc. trademark was worth more than $1,500, but he did not opine as to its actual worth, either precisely or within a range. He based his opinion on monthly revenues and post-transfer sales between 2013 and 2015. He had sales figures for 2006 and 2007, but nothing for sales between 2008 and 2010. The sales figures for 2012 were $300,000. He did not know the amount of Schoeman's sales just prior to the trademark transfer. The expert based his opinion of Schoeman's insolvency on his no-asset bankruptcy filing of October 2013.
These sales figures were from one customer of Schoeman, Tilly's.
When he was asked about his actual estimate of the trademark's value, the expert responded, "That was not my task. My task was to determine whether the value was fair at $1,500. I did not go through the process of determining, and I didn't have the information necessary to go through a full valuation. But it was not my assignment." When asked what his assignment was, the expert responded, "To determine whether [or] not $1,500 represented the fair value."
The court issued its tentative decision on May 26, 2016, finding against the Haugheys and MM4U on Flores' fraudulent transfer cause of action. The Haugheys requested a statement of decision on June 6, 2016. Judgment against the Haugheys and MM4U jointly and severally in the amount of $89,506 was entered on July 19, 2016. Counsel served the notice of entry of this judgment on the Haugheys on July 23. The court signed a statement of decision dated August 16, 2016. The Haugheys' notice of appeal was filed on September 2, 2016.
The statement of decision was not entered in the register of actions on or about August 16. The court held a hearing on September 23, 2016 (after the notice of appeal was filed), to consider, among other things, what had happened to the statement of decision and whether it could be entered retroactively. The court set another hearing for a few days later (September 29), at which time the court showed counsel the statement of decision signed in August. The court ordered the statement deemed filed as of August 16.
The statement of decision, dated August 16, 2016, is found in the court's docket between an entry dated September 30, 2016, and an entry dated October 3, 2016.
DISCUSSION
The Haugheys have identified two issues on appeal. They argue that the lack of evidence of the value of the Mob Inc. trademark precluded a money judgment against them. They also maintain that the court's failure to issue a timely statement of decision constitutes reversible error.
I. Award of Money Judgment
Civil Code section 3439.04, subdivision (a), provides, "A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows: [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor. [¶] (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: [¶] (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction. [¶] (B) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due."
All further statutory references are to the Civil Code unless otherwise indicated.
The existence of actual intent to hinder, delay, or defraud creditors is a question of fact. (Bulmash v. Davis (1979) 24 Cal.3d 691, 699; Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834; Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1294.) "'Its proof is peculiarly dependent upon the circumstances which surround the questioned transaction, and the inferences which the trier of the facts may reasonably draw therefrom.'" (T W M Homes, Inc. v. Atherwood Realty & Inv. Co. (1963) 214 Cal.App.2d 826, 844-845, quoting Heffernan v. Bennett & Armour (1952) 110 Cal.App.2d 564, 578-579.) Since debtors - if they can be found - are unlikely to admit to intending to defraud creditors, section 3439.04, subdivision (b), provides a list of "badges of fraud" that can support an inference of bad intent.
A transfer need not be motivated by bad intent to be voidable, however. A transfer made without receiving reasonably equivalent value in return is voidable if (1) the debtor's remaining assets were too small for an existing or forthcoming business or transaction or (2) the debtor meant to incur debt he or she could not repay.
Section 3439.04, subdivision (c), places the burden on the creditor to prove the elements of actual intent to defraud or the elements of section 3439.04, subdivision (a)(2). The burden shifts to the party defending the transfer if the creditor shows the debtor made it without fair consideration. (Whitehouse v. Six Corp. (1995) 40 Cal.App.4th 527, 534.)
In addition, if a creditor had a claim before the transfer and the transfer without reasonably equivalent value rendered the debtor insolvent, then the transfer is voidable. (§ 3439.05, subd. (a).)
The Uniform Fraudulent (now Voidable) Transfer Act gives a creditor several remedies. Under section 3439.07, the creditor who proves such a transfer can obtain an avoidance, an injunction, an attachment, the appointment of a receiver, or "[a]ny other relief the circumstances may require." (Id., subd. (3)(C).)
The remedy of a monetary judgment for a fraudulent transfer is set forth in section 3439.08, subdivision (b): "To the extent a transfer is avoidable in an action by a creditor under paragraph (1) of subdivision (a) of Section 3439.07, the following rules apply: [¶] (1) Except as otherwise provided in this section, the creditor may recover judgment for the value of the asset transferred, as adjusted under subdivision (c), or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against the following: [¶] (A) The first transferee of the asset or the person for whose benefit the transfer was made. [¶] (B) An immediate or mediate transferee of the first transferee, other than either of the following: [¶] (i) A good faith transferee that took for value. [¶] (ii) An immediate or mediate good faith transferee of a person described in clause (i)." (Italics added.) As the creditor, Flores had the burden of proving each applicable element of subdivision (b). (§ 3439.08, sub. (f)(2).)
Section 3439.07, subdivision (a)(1), provides: "In an action for relief against a transfer or obligation under this chapter, a creditor, subject to the limitations in Section 3439.08, may obtain: [¶] (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim."
Under section 3439.08, subdivision (b), Flores was entitled to a money judgment against the Haugheys as first transferees in an amount that was the lesser of (1) the value of the Mob Inc. trademark or (2) the amount of his judgment. Flores had the burden of proving the value of the trademark, so that its value could be compared to the amount of his judgment to determine which was smaller. He also had the burden of proving the value of the trademark "at the time of transfer." (§ 3439.08, subds. (c), (f)(2).)
Flores argues that the Haugheys had this burden, citing Evidence Code sections 500 and 550. As the provisions of section 3439.08 are specific to a cause of action for fraudulent transfer, they would override any conflicting Evidence Code sections. (See DeJung v. Superior Court (2008) 169 Cal.App.4th 533, 546.)
The evidence Flores presented at trial did not allow the court to make this determination. He presented evidence of the amount necessary to satisfy his judgment, but the best he could do with regard to the Mob Inc. trademark was to establish it was worth more than $1,500. Only if he could establish that the trademark's value exceeded the amount of his judgment could the court properly award him the latter amount. Flores' expert, however, carefully disclaimed any opinion as to the value of the trademark, other than that it was worth more than $1,500. (See Aceituno v. Vowell (E.D. Cal. 2014) 518 B.R. 579, 593 [even if avoidable transfer shown, no award without valuation evidence].)
At oral argument, Flores' counsel asserted that he could pick between establishing the value of the trademark and establishing the value of the judgment. In other words, he did not need to compare the two amounts to find out which was less. Having put on evidence of the value of the judgment, he had carried his burden of proof.
Flores made a similar argument in the respondent's brief.
This interpretation would erase the statutory language restricting the plaintiff seeking a money judgment to the lesser of the two amounts. (§ 3439.08, subd. (b).) Moreover, this interpretation would frequently, as here, give the plaintiff with a large judgment a tremendous windfall. The best Flores could do with respect to the value of the trademark was to prove that it was worth at least $1,501. But he obtained a judgment of nearly $90,000. That is why the statute specified that a money judgment is the lesser of the two values.
Flores also argued he did not need evidence of the actual value of the trademark itself because his expert testified about the revenues both before and after the Mob Inc. trademark transfer, and this evidence was sufficient for the court to infer that the value of the trademark was more than the amount of the judgment. This argument assumes that yearly or monthly revenues can be used to determine the value of a trademark, an assumption that, it appears to us, would require some expert bolstering. If the assumption is correct, why was Flores' expert unable to testify about the value of the Mob Inc. trademark with more precision? Even though he gave extensive testimony regarding revenues, the expert specifically stated he did not have "the information necessary to go through a full valuation" of the trademark. In his opinion, the information he presented at trial regarding revenues was not sufficient to determine the trademark's value.
II. Statement of Decision
The statement of decision in the docket is dated nearly a month after judgment was entered. It was actually entered over two months after the judgment was entered, and after the Haugheys filed their notice of appeal. This reversal of sequence upset a clearly defined procedure designed to aid both the litigants and the reviewing court. (See Slavin v. Borinstein (1994) 25 Cal.App.4th 713, 718 [statement of decision is appellate court's "touchstone"]; Whittington v. McKinney (1991) 234 Cal.App.3d 123, 127 [allows parties less expensive review and assists losing party in motion for new trial].)
Both the Code of Civil Procedure and the California Rules of Court deal with statements of decision. California Rules of Court, rule 3.1590 sets out the initial procedure. First, the court issues a tentative decision. A party who wants a statement of decision has 10 days to request one. If a timely request is made, either the court or one of the parties prepares a proposed statement of decision, which must be prepared and served within 30 days of the tentative decision. Then a party opposing the proposed statement of decision has 15 days to object. (See 7 Witkin, Cal. Procedure (5th ed. 2008) Trial, § 393, p. 461.)
The rules of court do not specifically prescribe a time limit for signing and entering a statement of decision. California Rules of Court, rule 3.1590(l), however, requires the court to sign and file the judgment within 50 days of the tentative decision, so there is a deadline of sorts. If the statement is defective in one of two ways, a party must inform the court that it has failed to resolve a controverted issue or that the statement is ambiguous (1) before entry of judgment, (2) in conjunction with a motion for a new trial, or (3) in conjunction with a motion to vacate the judgment. (Code Civ. Proc., § 634.)
The failure to follow this process has serious consequences for the losing party. Among them, as our Supreme Court explained in In re Marriage of Arceneaux (1990) 51 Cal.3d 1130 (Arceneaux), is the inability to counteract the presumption on appeal that a judgment is correct. (Id. at p. 1133.) After a statement of decision is issued, a party who is dissatisfied with it (usually the losing party) must specify any unresolved controverted issue or any omission or ambiguity in the statement either before entry of judgment or through one of the designated procedures. (Code of Civ. Proc., § 634.) If the party complies with this statute, "it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or that issue." (Ibid.; see Arceneaux, supra, 51 Cal.3d at p. 1134.) By short-circuiting this process in this case - entering judgment before issuing the final statement of decision - the trial court deprived the Haugheys of their opportunity to avoid the presumptions and intendments that would otherwise accompany a judgment.
A recently issued California Supreme Court decision has addressed the trial court's failure to issue a requested statement of decision before filing the judgment. (F.P. v. Monier (2017) 3 Cal.5th 1099, 1104.) The court determined that the failure to abide by the proper sequence is not reversible per se but is subject to harmless error review. That is, reversal is required only if the failure to issue a requested statement of decision in a timely manner was prejudicial or resulted in a miscarriage of justice. (Id. at pp. 1107-1109.)
Although it was improper, the failure to issue a timely statement of decision did not prejudice the Haugheys or cause a miscarriage of justice. They have, in effect, carried the only substantive (as opposed to procedural) point they made in their appeal, namely, that Flores' evidence did not support the judgment against them. The tardy statement of decision was part of the record on appeal, and we were able to consult it to determine the factual and legal basis for the trial court's decision. (See In re Marriage of Williamson (2014) 226 Cal.App.4th 1303, 1318.) We were therefore able to determine where the court went off the track. The Haugheys have not explained what they would have done differently if the statement of decision had been issued on time, and the record does not suggest a different course of action that could have influenced the appeal process. Accordingly we decline to reverse the judgment because of the untimely statement of decision.
DISPOSITION
The amount of the judgment against the Haugheys and MM4U is reduced to $1,501 and is affirmed in all other respects. Appellants are to recover their costs on appeal.
BEDSWORTH, ACTING P. J. WE CONCUR: FYBEL, J. THOMPSON, J.