Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County No. BC380987 Michael C. Solner, Judge.
Edward B. Batista and Christine James for Defendant and Appellant.
Lang, Hanigan & Carvalho, Arthur Carvalho, Jr. and Timothy R. Hanigan for Plaintiff and Respondent.
CROSKEY, J.
In November 2005, plaintiff and respondent Mary Scott’s husband, Robert Scott, Jr., (Bob Scott), and his partner David Halliburton sold their interest in the Twin Dolphin Hotel in Mexico, receiving at least $26 million in proceeds. A number of lawsuits regarding the sale were ongoing at that time, so they set aside $12 million of the proceeds to deal with any liabilities. Shortly after receiving his $7 million share of the proceeds, Bob Scott placed $1.3 million of the proceeds in the bank account of his parents, defendants and appellants Laura (“Lorle”) Scott and Robert Scott, Sr. This happened immediately before a court hearing, in which it was possible that a court order would be issued to freeze the funds in plaintiff and Bob Scott’s bank account. Such an order was never issued.
Approximately one year later, Bob Scott died suddenly. Plaintiff subsequently requested that the $1.3 million be returned, but defendants refused to return it. This lawsuit followed, in which plaintiff contended that the money was entrusted to defendants with the agreement that it would be returned upon request. Defendants contended that the money was given to them as repayment for financial assistance provided to Bob Scott throughout his life or that, even if it was originally to be returned to Bob Scott and plaintiff, it should not be returned because plaintiff was attempting to defraud creditors in violation of Civil Code section 3439.04 and had unclean hands. The trial court found that the money was entrusted to defendants and that the transaction was not fraudulent, after which judgment was entered in favor of plaintiff. On appeal, defendants renew their contentions that the transaction was fraudulent and that they are entitled to retain the money. We disagree and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The facts of this case are drawn from the testimony at trial.
David Halliburton’s father originally developed the Twin Dolphin Hotel in Mexico. Near the time of his father’s death, David Halliburton began operating the hotel. His friend and occasional partner Bob Scott provided business and legal advice, in return for which he received an interest in the hotel. The hotel was sold in November 2005, resulting in more than $26 million in proceeds. Several lawsuits regarding the sale were ongoing when the hotel was sold, one of which is pertinent here (hereafter the Twin Dolphin lawsuit). David Halliburton and Bob Scott conducted a worst-case liability scenario for the Twin Dolphin lawsuit and concluded that liability would not exceed $12 million. They set aside $12 million in the account of a hotel entity to cover any liability and each took $7 million as their share of the proceeds.
The record contains neither the total amount of the sale proceeds nor a description of all of the interest holders in the Twin Dolphin Hotel.
The precise subject matter and events of the Twin Dolphin lawsuit do not appear in any detail in the record; the record only discloses that the action arose from a lease dispute during the sale of the Twin Dolphin Hotel.
On November 28, 2005, shortly after the sale of the hotel, there was a court hearing in the Twin Dolphin lawsuit, in which it was possible that plaintiff and Bob Scott’s bank account would be frozen. A few days to a week before the hearing, Bob Scott contacted several people to see if one of them could hold $1.3 million, to be returned at his or plaintiff’s request. Plaintiff was in Missouri visiting her family for Thanksgiving, but she was aware of, and had agreed to, this course of action.
First, Bob Scott’s friend Jeff Marsden agreed to hold the money. However, Jeff Marsden was surfing in a remote part of Mexico when Bob Scott wanted to transfer the money. Bob Scott then considered placing the money with plaintiff’s father, but he decided against it because plaintiff’s father was in the middle of a contentious divorce. Bob Scott then contacted plaintiff’s sister, Christina Stephens, but she did not feel comfortable holding that large a sum of money.
Finally, Bob Scott decided to leave the money with defendants. Shortly before the hearing, he wired $1 million into their bank account. Defendants had been notified beforehand. Defendant Lorle Scott left approximately ten voice messages on the phone that plaintiff shared with Bob Scott. In these messages, Lorle Scott urged Bob Scott and plaintiff to leave the money with defendants because she thought that plaintiff’s family members would steal the money if it was placed with them. After the $1 million had been wired and immediately before the hearing, Bob Scott visited defendants’ home and took his father to defendants’ bank. Once there, he deposited two $150,000 checks into defendants’ bank account.
Plaintiff’s sister testified that she had listened to some of the messages while plaintiff was in Missouri, supporting plaintiff’s testimony.
At the hearing, the parties in the Twin Dolphin lawsuit agreed that the $12 million set-aside was sufficient, and no other assets were frozen. The transfer to Bob Scott’s parents was also disclosed in discovery to the parties in the Twin Dolphin lawsuit. The Twin Dolphin parties did not object to the transfer.
It is unclear from the record whether even the $12 million was frozen.
Bob Scott later told David Halliburton and Arthur Carvalho that he had placed a large sum of money with defendants and that the money was to be returned at his or plaintiff’s request. Bob Scott and plaintiff kept much of the remaining proceeds, at least several million dollars, in their bank account.
In August 2006, while the Twin Dolphin lawsuit was still ongoing, Bob Scott and plaintiff went on a vacation to Hawaii. During the trip, they discussed requesting the return of the $1.3 million, and Bob Scott told plaintiff that he would request the return of the money when they arrived home. Bob Scott died unexpectedly before the end of the vacation. Approximately one month later, Plaintiff asked defendants to return the $1.3 million, but they refused to do so. Several of Bob Scott’s friends visited defendants to try to convince them to return the money without a lawsuit. These visits proved unsuccessful, and this lawsuit followed.
The Twin Dolphin lawsuit settled for approximately $12 million in November of 2007.
The parties agreed to a bench trial. At the trial, defendants contended that the transfer was to repay them for various expenses incurred on behalf of Bob Scott over the course of his life, although they were never expressly told that the money was either reimbursement or a gift. Additionally, defendants raised unclean hands as an affirmative defense. They contended that the transfer was intended to defraud the potential creditors in the Twin Dolphin lawsuit in violation of Civil Code section 3439.04.
Plaintiff had testified that she had placed the money with defendants to ensure that she would have been able to feed her family and to handle any contingencies with the Twin Dolphin lawsuit if her checking account had been frozen. However, plaintiff also testified that she and Bob Scott would never do anything illegal. Defendants argued that, despite plaintiff’s testimony regarding her intent to comply with the law, her admission that she transferred the money to be able to have access to funds if account was frozen established fraudulent intent as a matter of law. As a result, they contended that, even if the money was to be returned at the request of Bob Scott or plaintiff, they were entitled to keep the money because plaintiff could obtain no aid from the courts in furtherance of her allegedly illegal scheme. This affirmative defense was the basis on which defendants filed three motions for nonsuit-one after plaintiff’s opening statement, one after the close of plaintiff’s case in chief, and one at the conclusion of the trial. These motions for nonsuit were all denied by the trial court. The trial court found that the transfer was not fraudulent or otherwise illegal. It also found that the $1.3 million was entrusted to defendants and was to be returned at the request of either plaintiff or Bob Scott. The trial court then entered judgment in favor of plaintiff. Defendants appealed.
Defendants filed their notice of appeal after the trial court issued its ruling on submitted matter. We treat the appeal as timely filed after entry of the judgment. (Cal. Rules of Court, rule 8.104(e); Unterberger v. Red Bull North America, Inc. (2008) 162 Cal.App.4th 414, 419.)
CONTENTIONS ON APPEAL
On appeal, defendants contend that the trial court erred by denying their motions for nonsuit and granting judgment in favor of plaintiff. They contend that the trial court could not reasonably find that plaintiff had not attempted to defraud her potential creditors in violation of Civil Code section 3439.04 given her testimony that she had placed the $1.3 million with defendants to ensure that she would have had adequate money to feed her family and to deal with any contingencies in the Twin Dolphin lawsuit if her checking account had been frozen. As a result, they contend that they established their affirmative defense of unclean hands as a matter of law. In response, plaintiff contends that the judgment should be affirmed because it is supported by substantial evidence.
DISCUSSION
Defendants contend that de novo review is appropriate because plaintiff’s admission establishes that she violated Civil Code, § 3439.04 as a matter of law. As will be explained, we disagree and instead view plaintiff’s intent as a question of fact.
Ordinarily, we review the trial court's decision as to whether or not to apply the unclean hands doctrine under the abuse of discretion standard. (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 446-447; Lovett v. Carrasco (1998) 63 Cal.App.4th 48, 55.) In assessing an abuse of discretion contention on appeal, we may not substitute our judgment for that of the trial court; we may reverse for abuse of the trial court's broad discretion only when it has acted arbitrarily and capriciously, exceeding the bounds of reason and resulting in a manifest miscarriage of justice. (Estate of Gilkison (1998) 65 Cal.App.4th 1443, 1448-1449.) That being said, as a general rule, application of the doctrine of unclean hands is primarily a question of fact. (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978; Insurance Co. of North America v. Liberty Mutual Ins. Co. (1982) 128 Cal.App.3d 297, 306.) The findings of fact on which the trial court relies to reach its decision on whether to apply the unclean hands doctrine must be supported by substantial evidence. (Lovett v. Carrasco, supra, 63 Cal.App.4th at p. 55.)
2. Sufficiency of the Evidence
“A transfer made or obligation incurred by a debtor is fraudulent 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.... ” (Civ. Code, § 3439.04, subd. (a).) “ In determining actual intent under paragraph (1) of subdivision (a), consideration may be given, among other factors, to any or all of the following [pertinent factors]:... (3) Whether the transfer or obligation was disclosed or concealed[;]... (5) Whether the transfer was of substantially all the debtor’s assets[;]... (7) Whether the debtor removed or concealed assets.” (Civ. Code, § 3439.04, subd. (b).)
We note that defendants do not assert that the transfer was fraudulent as to them. Rather, they assert that the transfer, in which they took part, was fraudulent as to the Twin Dolphin lawsuit parties that were creditors of Bob Scott and plaintiff. They make this argument despite the fact that the creditors made no attempt to set aside the transfer.
Defendants contend that the trial court erred when it found that the transfer was not fraudulent, relying solely on plaintiff’s testimony that the money had been placed with them to ensure that she could feed her family and to handle any contingencies that might have arisen with the Twin Dolphin lawsuit in case her checking account had been frozen. While plaintiff’s testimony, viewed in isolation, might be considered some evidence that the transfer was fraudulent, substantial evidence clearly supports the trial court’s contrary conclusion. First, plaintiff also testified that she had no intention of doing anything illegal, qualifying the testimony highlighted by defendants. Second, the transfer was disclosed to the adverse parties in the Twin Dolphin lawsuit. They were made aware of the transfer, and the record discloses no objection to it on their part. Third, Bob Scott, plaintiff, and David Halliburton had already placed $12 million in an account to meet any liabilities that arose from the Twin Dolphin lawsuit. All of the Twin Dolphin parties and the Twin Dolphin court believed that this $12 million was sufficient to cover any liability. Indeed, they ultimately agreed that such was the case. This weighs heavily against defendants’ contention that plaintiff intended to defraud her creditors. Fourth, a considerable portion of the proceeds was retained in plaintiff and Bob Scott’s primary bank account, keeping much of the proceeds easily within the reach of creditors and the court should a freeze have been deemed necessary. Fifth, the manner in which the transfer was undertaken, directly from plaintiff and Bob Scott’s bank account to the bank account of defendants, does not evidence a desire to conceal where the funds had gone.
Plaintiff also requested that defendants return the $1.3 million before the Twin Dolphin lawsuit was resolved, indicating that she intended to have the money to meet any obligations that arose.
The trial court’s finding that the transfer was not fraudulent or otherwise in violation of Civil Code section 3439.04 is supported by substantial evidence. In light of the substantial evidence, the trial court did not abuse its discretion when it rejected defendants’ affirmative defense. Moreover, even if the transfer were fraudulent, the court did not abuse its discretion in rejecting the unclean hands defense. Defendants took part in the transaction aware that any questionable motives that plaintiff and Bob Scott may had with respect to the transfer of the $1.3 million did not harm the Twin Dolphin creditors at all. Under the circumstances, the trial court did not abuse its discretion by refusing to allow defendants to benefit from a claimed “wrongdoing” which caused no harm, and in which they were equally blameworthy as plaintiff. (Cf. Dickson, Carlson & Campillo v. Pole, supra, 83 Cal.App.4th at pp. 446-447 [unclean hands does not apply in every instance where the plaintiff has committed some misconduct, but only where it would be inequitable to grant the plaintiff any relief]; Insurance Co. of North America v. Liberty Mutual Ins. Co., supra, 128 Cal.App.3d at pp. 307-308 [as a general rule, unclean hands is applicable only when the party seeking to invoke it was injured by the alleged wrongful conduct].)
DISPOSITION
The judgment is affirmed. Plaintiff and respondent Mary Scott shall recover her costs on appeal.
We Concur: KLEIN, P. J.KITCHING, J.