Opinion
D071254
08-18-2017
MEDIVAS, LLC, Plaintiff and Respondent, v. MARUBENI CORPORATION, Defendant and Respondent, ARE-SD REGION NO. 25, LLC, Claimant and Appellant.
Paul Hastings and Elizabeth L. Brann for Claimant and Appellant. Dillon Gerardi Hershberger Miller & Ahuja, Timothy P. Dillon and Christopher J. Beal for Plaintiff and Respondent. Mintz Levin Cohn Ferris Glovsky and Popeo, Natalie A. Prescott, Antony D. Nash and James Q. Taylor-Copeland for Defendant 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 37-2010-00090830-CU-CO-CTL) APPEAL from an order of the Superior Court of San Diego County, John S. Meyer, Judge. Affirmed. Paul Hastings and Elizabeth L. Brann for Claimant and Appellant. Dillon Gerardi Hershberger Miller & Ahuja, Timothy P. Dillon and Christopher J. Beal for Plaintiff and Respondent. Mintz Levin Cohn Ferris Glovsky and Popeo, Natalie A. Prescott, Antony D. Nash and James Q. Taylor-Copeland for Defendant and Respondent.
Judgment creditor ARE-SD Region No. 25, LLC (ARE) obtained an approximately $3.4 million judgment against MediVas, LLC (MediVas) and filed a corresponding notice of lien in litigation pending between MediVas and Marubeni Corporation (Marubeni). Over ARE's objection, the trial court approved MediVas and Marubeni's settlement, which the court found to be "a walkaway" with "no money or property . . . being exchanged," with "no evidence" the settlement was structured to "evade ARE's judgment." ARE appeals this ruling. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In 2010, MediVas (and nine of its officers and employees) sued Marubeni in San Diego County Superior Court over a dispute that arose after MediVas borrowed and defaulted on $5,000,000 in unsecured loans from Marubeni. MediVas alleged that as a condition of its obtaining Marubeni's approval of a critical corporate merger, Marubeni improperly coerced MediVas to execute several agreements (the Forbearance Agreements) that granted Marubeni a first priority security interest in all of MediVas's assets; in exchange, Marubeni agreed not to exercise any remedies available to it based on MediVas's loan default. MediVas sought to void the underlying agreements, asserting a variety of contract, tort, and declaratory relief claims.
The individual plaintiffs' claims are not at issue in this appeal. However, as background, they arise from allegations regarding Marubeni's treatment of certain promissory notes the individuals signed as part of a MediVas incentive program designed to retain key personnel.
Extensive procedural maneuvering ensued. Marubeni removed the lawsuit to federal court and successfully moved to compel arbitration of the majority of MediVas's claims. MediVas tried to appeal the order compelling arbitration, but the appeal was dismissed as premature. (See MediVas, LLC v. Marubeni Corp. (9th Cir. 2014) 741 F.3d 4, 5.) Meanwhile, Marubeni commenced an arbitration proceeding on its own claims against MediVas. Following an arbitration proceeding in Japan, the arbitral panel entered a final award in Marubeni's favor in excess of $5.1 million. The federal court confirmed the arbitration award, which MediVas unsuccessfully challenged on appeal. (See MediVas, LLC v. Marubeni Corp. (9th Cir. 2015) 592 Fed.Appx. 642, 643-644.)
Meanwhile, MediVas's and the individual plaintiffs' nonarbitrable claims were remanded to the superior court. After two more years of litigation, on June 1, 2016, the matter came before Judge John Meyer for an estimated nine-day jury trial. The following day, Marubeni reached "walkaway" settlements with three of the individual plaintiffs. A few days later, Marubeni reached similar settlements with the remaining individual plaintiffs. That same day, after conducting an evidentiary hearing, the trial court excluded the anticipated testimony of MediVas's damages expert. MediVas's counsel requested a recess. About 35 minutes later, counsel notified the court that MediVas and Marubeni had settled their remaining claims. The court placed the case on the 45-day dismissal calendar.
The following day (June 8, 2016), Marubeni and MediVas entered into a "Settlement Agreement and Release" (the Settlement). Under the Settlement, Marubeni released all its claims against MediVas, including the judgment that resulted from the arbitration proceedings and "any and all UCC-1 filings on MediVas'[s] assets." In exchange, MediVas released all its claims against Marubeni. The Settlement does not include any express provision for the transfer of money or property.
While the MediVas-Marubeni litigation was pending, and years before the Settlement, ARE obtained an approximately $3.4 million summary judgment against MediVas for nonpayment under a real property lease under which ARE was the landlord and MediVas was the tenant. Based on this judgment, ARE filed a notice of lien in the MediVas-Marubeni litigation a few months later.
The day MediVas and Marubeni entered into the Settlement, ARE's counsel contacted MediVas's counsel and asserted that, in light of ARE's lien notice, MediVas could not settle without ARE's consent or court approval. (See Code Civ. Proc., § 708.440, subd. (a).) Both MediVas's and Marubeni's counsel engaged in meet-and-confer efforts with ARE's counsel, providing a copy of the Settlement, various pleadings, and other information concerning the status of the litigation at the time of settlement. However, ARE would not consent to the Settlement.
All undesignated statutory references are to the Code of Civil Procedure.
Section 708.440, subdivision (a) provides: "[U]nless the judgment creditor's money judgment is first satisfied or the lien is released, . . . no compromise, dismissal, settlement, or satisfaction of the pending action . . . may be entered into by or on behalf of the judgment debtor, without the written consent of the judgment creditor or authorization by order of the court . . . ."
MediVas applied ex parte for an order from the trial court approving the Settlement over ARE's objection. MediVas provided the court with a copy of the Settlement and argued it was "fair and reasonable" because MediVas had only one claim remaining after the arbitral proceedings, and "by the time of trial it was clear that MediVas would not be allowed to proceed . . . ." MediVas characterized the Settlement as a " 'walkaway,' " asserting "no money or property is being exchanged between MediVas and Marubeni." MediVas's counsel, who negotiated the Settlement on its behalf, confirmed in a declaration that, "[t]o be clear, MediVas received no money or property from Marubeni as a result of this litigation."
ARE responded that MediVas's application was improperly brought as an ex parte application. (See § 708.440, subd. (b) ["The application for an order under this subdivision shall be made on noticed motion."], italics added.) The court set the matter for a hearing on notice, but indicated it agreed with MediVas's characterization of the settlement as a walkaway:
"[ARE's COUNSEL]: Your Honor, my client, they're seeking to recover this money. They're being told . . . it's a walkaway, they had no case. We don't have any actual evidence of that."
"THE COURT: Let me tell you what the situation looks like at this point. The defendant in this case had an action to recover 6-plus million dollars based on a loan that occurred many years ago. MediVas filed a lawsuit for damages. As it turned out, they didn't have a case. They didn't have a basis for the lawsuit in [sic] just the way things are. And they determined, along with the defendant, to just walk away. And they—both sides are essentially calling it a day after many, many years of litigation. So nobody's getting anything. And you are . . . just a creditor."
In its opposition filed in advance of the noticed hearing, ARE argued MediVas's claim of a walkaway settlement was contradicted by the Forbearance Agreements, "which raise serious questions regarding what was exchanged between the parties and the final disposition of MediVas's assets, including its intellectual property." More specifically, ARE argued Marubeni's release of its claims "would constitute a significant flow of value towards MediVas—value that ARE should recover pursuant to its judgment lien." ARE argued MediVas had not provided the court with enough information about the Settlement for MediVas to meet its "burden to prove that its settlement with Marubeni has not been structured to evade ARE's rights."
In reply, MediVas argued that the relevant statutes allow a judgment creditor to satisfy its judgment from money or property obtained by the judgment debtor as a result of litigation, but not from the value the judgment debtor derives from the settlement.
After hearing argument on MediVas's motion, the trial court issued an order approving the settlement:
"The settlement between MediVas and Marubeni does not involve transfers of money or property interests, and it is not a structured settlement. It is straightforward: This is a walkaway settlement, with a release of all claims, a [Civil Code section] 1542 waiver and each side to bear their own fees and costs. Although Marubeni agreed to release any and all UCC-1 filings on MediVas'[s] assets, no money or property is being exchanged in the settlement. This settlement comes at the end of a rather lengthy litigation between the parties, with both parties avoiding another costly trial between them.
"ARE questions Marubeni's reasons or motives for entering into the settlement, but this speculation does not have any application as to whether MediVas is receiving money or property in some manner that would evade ARE's judgment. There is no evidence of such evasion."
ARE appeals this order.
DISCUSSION
ARE contends the trial court erred in two ways by approving the Settlement. First, ARE contends the court lacked sufficient information on which to base a proper exercise of discretion. Second, ARE contends the court erred in concluding Marubeni's release of its security interest in MediVas's assets did not constitute a transfer of property. We disagree.
I. Relevant Legal Principles
Sections 708.410 through 708.440, part of California's Enforcement of Judgments Law (the EJL), "govern[] the lien a judgment creditor may obtain against a judgment debtor who is a party to a pending action or proceeding." (Oldham v. California Capital Fund, Inc. (2003) 109 Cal.App.4th 421, 429 & fn. 7 (Oldham).) Under these provisions, "a judgment creditor may place a lien on the rights of the judgment debtor to receive money, property or both by way of a settlement or judgment entered in that action." (Id. at p. 429; see § 708.410, subds. (a)(1)-(2), (b).)
Section 708.410, subdivision (a) provides: "A judgment creditor who has a money judgment against a judgment debtor who is a party to a pending action or special proceeding may obtain a lien under this article, to the extent required to satisfy the judgment creditor's money judgment, on both of the following: [¶] (1) Any cause of action of such judgment debtor for money or property that is the subject of the action or proceeding. [¶] (2) The rights of such judgment debtor to money or property under any judgment subsequently procured in the action or proceeding."
If the parties to litigation in which a notice of lien has been filed wish to settle the litigation, they must obtain either the consent of the lienholder or approval of the court. (§ 708.440, subd. (a); see Oldham, supra, 109 Cal.App.4th at p. 429.) One purpose for this requirement is to "prevent the judgment debtor, with or without the active assistance of other parties to the settlement agreement, from structuring a settlement so it receives benefits while evading the lien of the judgment creditor, absent appropriate equitable considerations." (Oldham, at p. 430.) The reason for allowing court approval as an alternative to obtaining the judgment creditor's consent is to "prevent . . . the judgment creditor from forcing the judgment debtor to proceed with the action when the court concludes that it is in the best interests of the parties to settle." (Cal. Law Revision Com. com., foll. § 708.440.)
To effectuate the EJL's anticollusion purpose, "facts regarding whether a settlement was structured to evade the lien of the judgment creditor are material to the approval of a settlement under section 708.440. The particular facts relevant to evasion of the lien will vary from case to case because of differences in the property interests involved, variations in the relationships among the entities involved, and differences in the way transfers of interests in property are structured. To make an informed and intelligent decision about the settlement, the superior court should have sufficient information to understand who benefits from the transfers contemplated by the proposed settlement and how they are benefited. In other words, the superior court must understand the size of the settlement pie, how the pie is sliced, and who is getting which slice." (Oldham, supra, 109 Cal.App.4th at p. 432.) The judgment debtor bears the burden of ensuring the trial court has sufficient evidence. (Id. at p. 434.)
"Once the superior court knows if the judgment debtor or an entity closely connected to the judgment debtor is getting a settlement slice beyond the reach of the judgment creditor's lien, the court can then determine if equitable considerations justify the evasion of the lien, if terms and conditions should be imposed upon the settlement, or if approval of the settlement should be withheld." (Oldham, supra, 109 Cal.App.4th at p. 432.)
If the trial court has sufficient information on which to make a reasoned judgment, the court's approval of a settlement is subject to review for an abuse of discretion. (Oldham, supra, 109 Cal.App.4th at p. 430; Pangborn Plumbing Corp. v. Carruthers & Skiffington (2002) 97 Cal.App.4th 1039, 1048.) The trial court's construction of the statutes governing judgment creditors' liens in pending litigation is subject to de novo review. (Bruns v. E-Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724.)
II. Analysis
We conclude the trial court had sufficient information on which to properly exercise its discretion in approving the Settlement. The court was familiar with the two parties to the Settlement. The court stated at the ex parte hearing that it was aware the parties had been involved in "many, many years of litigation." Judge Meyer presided over the litigation for several years, including the first few days of the aborted trial. The court knew the terms of the Settlement, which included no express transfer of money or property, but rather, consisted of mutual releases of claims and a release of any UCC-1 filings by Marubeni. The court also had before it a declaration from MediVas's counsel who had negotiated the Settlement and confirmed it "involved no exchange of money or property." The court was also advised that MediVas and Marubeni had met and conferred with ARE's counsel to provide transparency regarding the bases and terms of the Settlement. Taken as a whole, this information enabled the trial court to make a reasoned judgment about the fairness of the Settlement and to ensure it was not structured so as to evade ARE's lien.
ARE's heavy reliance on Oldham, supra, 109 Cal.App.4th 421 is misplaced because the case is readily distinguishable. There, the judgment debtor-plaintiff and the defendants tentatively negotiated a settlement that would have required the defendants to transfer $75,000 cash and a majority interest in certain real property to the plaintiff. (Id. at p. 426.) The parties' final settlement still provided for a cash payment of $75,000, but now provided for the real property interest to be transferred to the plaintiff "as trustee for investors of" a purported corporation. (Ibid.) The trial court approved the settlement over the judgment creditor's objection, but the Court of Appeal reversed.
The Oldham court explained "the record lack[ed] basic information about who actually benefits from the transfers of interests in the [real property] contemplated by the settlement agreement." (Oldham, supra, 109 Cal.App.4th at p. 432.) Specifically, the court cited the total lack of information about whether the trust actually existed and the identity of its purported beneficiaries. (Id. at p. 433 ["the record on appeal does not reveal anything about [the purported corporation], its investors, or a trust that may have been established for the investors"].) Without this information about "who was getting what slice of the settlement pie" (id. at pp. 433-434), the appellate court concluded the trial court could not have properly determined whether the plaintiff was receiving the property "for his sole benefit," or whether other beneficiaries were receiving it to the detriment of the judgment creditor without considering the equities of such a result (id. at p. 433).
In contrast to Oldham, here there is no express transfer of money or property to some mysterious third party that may or may not exist, and in which the plaintiff may or may not have some ownership interest. Rather, as the trial court was aware, the Settlement involved only MediVas and Marubeni. ARE complains that the trial court lacked information about the value of the Settlement to MediVas. This complaint is unwarranted, as ARE's lien covered only "money or property" obtained by MediVas in the litigation (§ 708.410, subd. (a)(2), italics added), not the abstract value MediVas realized from settling.
ARE also challenges the parties'—and primarily Marubeni's—motives for settling. However, the trial court considered this challenge and found "[t]here is no evidence" the parties structured the Settlement "in some manner that would evade ARE's judgment." We agree. As for MediVas's motivations, the court explained its view at the ex parte hearing that, "[a]s it turned out, [MediVas] didn't have a case" and "determined, along with [Marubeni], to just walk away." The Settlement achieved MediVas's litigation goal of freeing itself from Marubeni's judgment and security interests. And regardless of Marubeni's motivations for settling, the fact remains that ARE also benefitted from the Settlement—Marubeni's release of its claims and security interests left MediVas's assets less encumbered and, therefore, more available to satisfy ARE's judgment. On this record, the trial court did not abuse its discretion in "prevent[ing] . . . the judgment creditor from forcing the judgment debtor to proceed with the action when the court conclude[d] that it is in the best interests of the parties to settle." (Cal. Law Revision Com. com., foll. § 708.440.)
ARE alternatively contends the trial court, in characterizing the Settlement as a walkaway, necessarily and erroneously construed "property" as excluding a security interest documented by a UCC-1 filing. ARE notes that statutory provisions outside the EJL recognize security interests as interests in property. (§ 1235.170 [" 'Property' includes real and personal property and any interest therein."]; Com. Code, § 1201, subd. (b)(35) [" 'Security interest' means an interest in personal property or fixtures which secures payment or performance of an obligation."].) Marubeni counters that a UCC-1 filing is not, in and of itself, a property interest, but instead " 'indicates merely that a person may have a security interest in the collateral indicated.' " (See Official Comment 2 on Cal. U. Com. Code, foll. § 9502.) Regardless of whether a UCC-1 filing constitutes a property interest within the meaning of section 708.410, ARE has cited no authority supporting its proposition that a release of such an interest constitutes a transfer of the underlying interest from the secured party to the released party. It is ARE's burden, as the appellant, to supply this authority. (See Hodjat v. State Farm Mut. Auto. Ins. Co. (2012) 211 Cal.App.4th 1, 10 ["an appellant is required to not only cite to valid legal authority, but also explain how it applies in his case"].)
MediVas undoubtedly obtained value from settling years-long litigation that resulted in a multi-million-dollar judgment against it. But on the record before us, where the Settlement involved mutual releases and no express transfers of money or property from Marubeni to MediVas, we find no error in the trial court's finding that the Settlement was a walkaway, involving no transfer of money or property subject to ARE's lien.
I. DISPOSITION
The order is affirmed. Respondents are entitled to their costs on appeal.
HALLER, Acting P. J. WE CONCUR: O'ROURKE, J. AARON, J.