Opinion
NOT TO BE PUBLISHED
APPEALS from orders of the Superior Court of San Diego County Nos. GIC765205, GIC803609, Yuri Hoffman, Judge.
AARON, J.
I.
INTRODUCTION
The California Uniform Fraudulent Transfer Act (UFTA) (Civ. Code, § 3439 et seq.) provides that a creditor may recover property that a debtor has fraudulently transferred in order to avoid a debt. In this case, William Revelle, a judgment creditor, claimed that plaintiff and judgment debtor, John L. Gregg as trustee under the Will of J. Lee Gregg (The Trust), engaged in a fraudulent scheme to transfer the Trust's interest in certain settlement proceeds to another plaintiff in this action, DM Partners (DM). The trial court determined that Revelle was entitled to settlement proceeds in the amount of $472,500 in partial satisfaction of his judgment. On appeal, DM claims that the trial court erred in awarding the settlement proceeds to Revelle. We affirm the trial court's order.
Unless otherwise specified, all subsequent statutory references are to the Civil Code.
John L. Gregg is both the trustee of the Trust and a general partner of DM.
II.
FACTUAL AND PROCEDURAL BACKGROUND
We base this summary in part on this court's opinions in two prior appeals in this case. (DM Partners v. San Dieguito Partnership (Apr. 17, 2008, D049774) [nonpub. opn.] (DM Partners I) and Gregg v. Baker & McKenzie (Aug. 10, 2004, D041547) [nonpub. opn.].)
A. The Cisterra Action
The orders that are at issue in these appeals had their genesis in a related proceeding, Cisterra Partners v. San Dieguito Partnership, San Diego Superior Court case No. GIC746055 (the Cisterra Action). The Cisterra Action arose from a prospective sale of valuable real property by the San Dieguito Partnership (SDP) to Cisterra Partners (Cisterra). Cisterra filed suit against various SDP partners, including the Trust and Revelle. As part of the Cisterra litigation, the Trust filed a cross-complaint against Revelle. Revelle obtained summary judgment on the Trust's amended cross-complaint, and the trial court entered an order in August 2005 directing that the Trust pay Revelle $475,000 in attorney fees and costs. The Trust filed a timely notice of appeal of this award in September 2005. This court affirmed the fee award in an opinion filed in October 2006. (Gregg v. Revelle (Oct. 4, 2006, D047212) [nonpub. opn.].)
B. The Consolidated Action
In 2001, while the Cisterra Action was pending, J. Lee Gregg, DM, and John L. Gregg, both individually and as trustee of the Trust, (collectively plaintiffs) brought an action against the law firm of Baker & McKenzie (Baker). (Gregg v. Baker & McKenzie (Super. Ct. San Diego County, 2001, No. GIC765205) (the Baker Action).) Plaintiffs' complaint contained allegations related to Baker's actions in the Cisterra Action, among other matters. The complaint contained three causes of action: professional negligence, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty.
In 2003, plaintiffs brought a separate action against Revelle and SDP (Gregg v. San Dieguito Partnership (Super. Ct. San Diego County, 2003, No. GIC 803609) (the SDP Action)). The SDP Action was consolidated with the Baker Action (collectively the Consolidated Action); these appeals arise from the trial court's orders in the Consolidated Action.
C. Revelle's efforts to enforce the attorney fees and costs award from the Cisterra Action in the Consolidated Action
1. Baker's settlement in the Consolidated Action
On March 23, 2006, Baker filed a notice of motion and motion for a determination of a good faith settlement in the Consolidated Action. In its notice of motion, Baker stated that it had reached a settlement with "Plaintiffs J. Lee Gregg, John L. Gregg, both individually and in his capacity as Trustee under the Will of J. Lee Gregg, and DM Partners...." In a declaration offered in support of its motion, Baker's counsel stated that plaintiffs and Baker had agreed to settle the case on or about March 9, 2006. Baker's counsel also stated that the settlement required Baker to pay $675,000 to the plaintiffs, and that the plaintiffs had complete discretion as to how to allocate the $675,000 among themselves.
Also on March 23, the Trust filed a request to dismiss its complaint against Baker, with prejudice.
On March 28, Revelle filed a notice of lien in the Consolidated Action pursuant to Code of Civil Procedure section 708.410, based on the judgment he obtained in the Cisterra Action awarding him his attorney fees.
Code of Civil Procedure section 708.410 provides in relevant part: "(a) 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:
On March 29, J. Lee Gregg, John L. Gregg, individually, and DM joined in Baker's motion for determination of a good faith settlement.
On April 6, the clerk entered the Trust's dismissal in the Consolidated Action.
On April 7, the court held a hearing on Baker's motion for determination of a good faith settlement. At the hearing, Baker's counsel noted that Revelle had filed a judgment lien in the Consolidated Action. Baker's counsel requested that all of the parties in the case agree to allow Baker to pay the settlement amount into a fund, release Baker from any further liability in the case, and allow the court to resolve the validity of Revelle's judgment lien at a later time.
Revelle's counsel opposed Baker's counsel's request, but stated that he would have no objection to continuing the good faith hearing. Revelle's counsel also stated that Revelle had filed a valid lien in the Consolidated Action. Plaintiffs' counsel responded that the Trust had dismissed its claims against Baker prior to Revelle's filing the lien, and that the Trust was not a party to the settlement with Baker.
At the conclusion of the good faith hearing, the court stated that it would address "the motion that is before the court, " and that the court would approve the settlement as being in good faith. The court invited Baker to file an ex parte application for the purpose of considering Baker's proposal that it be permitted to deposit the settlement proceeds into a fund, and thereafter be discharged from liability. The court stated, "It seems that depositing the funds into someone's account would be a reasonable mechanism by which an orderly distribution can be made and all of these things can be considered."
On April 12, Baker filed an ex parte application in which it requested a hearing date and briefing schedule for an order approving the settlement agreement, or in the alternative, discharging Baker from liability. In its application, Baker stated that it would seek an order pursuant to Code of Civil Procedure section 708.440, subdivision (b) approving the terms of the settlement and payment of the settlement funds to the plaintiffs' counsel.
Code of Civil Procedure section 708.440 provides in relevant part: "(a) Except as provided in subdivision (c) of Section 708.410, unless the judgment creditor's money judgment is first satisfied or the lien is released, the judgment recovered in the action or special proceeding in favor of the judgment debtor may not be enforced by a writ or otherwise, and no compromise, dismissal, settlement, or satisfaction of the pending action or special proceeding or the judgment procured therein 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 obtained under subdivision (b). [¶] (b) Upon application by the judgment debtor, the court in which the action or special proceeding is pending or the judgment procured therein is entered may, in its discretion, after a hearing, make an order described in subdivision (a) that may include such terms and conditions as the court deems necessary. The application for an order under this subdivision shall be made on noticed motion. The notice of motion shall be served on the judgment creditor. Service shall be made personally or by mail."
The following day, the trial court held a hearing on Baker's application. Baker's counsel again stated that Baker was seeking an order discharging it from any further liability in the case upon its payment of the settlement proceeds into a fund. Plaintiffs' counsel supported Baker's request. Revelle's counsel requested that the settlement funds be placed in his client trust account. The court ruled that it would order Baker to deposit the funds into plaintiffs' counsel's client trust account, and that it would discharge Baker from further liability. The court stated that it would consider at a later date which party or parties were to receive the settlement funds.
Although in its application, Baker had requested only that the trial court set a briefing schedule and hearing date on the issue, the court ruled on the merits of Baker's request at the April 12 hearing.
On May 12, the trial court entered an order directing Baker to pay the settlement proceeds to plaintiffs' counsel for deposit into his client trust fund. The court stated that upon payment of the settlement proceeds, Baker would be discharged from any further liability in the case, including any potential liability arising from Revelle's judgment lien. The order also stated that the settlement proceeds were not to be distributed to any person without further order of the court.
2. DM's and Revelle's competing motions to release the settlement proceeds
On June 14, DM filed a motion for release of the settlement proceeds. In its motion, DM requested that the court allow plaintiffs' counsel to distribute the proceeds to DM and to plaintiffs' counsel for payment of his contingency fee in the case. DM stated that DM, J. Lee Gregg, and John L. Gregg, individually, had entered into a settlement agreement with Baker, and that pursuant to that agreement, DM was entitled to receive $675,000―the entire amount of the settlement proceeds. DM argued that the Trust was not a party to the settlement agreement, and that neither the Trust nor Revelle was entitled to any portion of the settlement funds. Plaintiffs' counsel offered a declaration in support of DM's motion, and attached a copy of the settlement agreement to which DM referred in its motion. That settlement agreement is between Baker, as defendant, and DM, J. Lee Gregg, and John L. Gregg, individually, as plaintiffs, and provides that Baker is to pay DM $675,000 in settlement of those three plaintiffs' claims against Baker in the Consolidated Action. The settlement agreement was signed by DM, J. Lee Gregg, and John L. Gregg on April 7, and by Baker on April 26.
In the alternative, DM argued that, assuming that Revelle was entitled to the Trust's portion of the settlement funds, the most that Revelle could possibly receive would be $118,125, representing the Trust's 25 percent share of the settlement proceeds. DM reasoned that plaintiffs' counsel was entitled to $202,500 for attorney fees, and that each of the four plaintiffs would be entitled to receive one-fourth of $472,500, or $118,125.
On June 14, Revelle filed a motion to release $503,524 of the settlement funds to him, in satisfaction of the judgment lien that he filed in the Consolidated Action. Revelle claimed that the Trust had dismissed its claims against Baker in bad faith, and that the dismissal was therefore invalid. Revelle also filed an opposition to DM's motion. In his opposition, Revelle contended, "At a minimum, the Gregg Trust's attempted dismissal of its claims without consideration hints strongly at a violation of the [UFTA]." Revelle also filed a reply brief in support of his motion to release the funds. In his reply, Revelle argued that the Trust's dismissal of its claims against Baker for no consideration constituted a fraudulent transfer, pursuant to section 3439.05. Specifically, Revelle contended that pursuant to section 3439.05, a debtor's transfer is fraudulent if the debtor is insolvent and the debtor did not receive reasonably equivalent value in exchange for the transfer; Revelle argued that the Trust was insolvent at the time it dismissed its claims against Baker, and that it had received no consideration for its dismissal.
After further briefing and oral argument on the competing motions for release of the settlement funds, the trial court entered an order on July 19 in which the court found that the Trust's dismissal of Baker constituted a fraudulent transfer pursuant to section 3439.05. The court reasoned in part that the Trust's "dismissal amounted to the Trust foregoing its claims against Baker for no consideration, even though the Trust possessed the same legal claims against Baker that DM had." The court ordered that $202,500 of the settlement proceeds be paid to plaintiffs' attorney, and that the remaining $472,500 be paid to Revelle.
In August 2006, DM filed a motion for new trial. In September 2006, the trial court denied the motion. Revelle subsequently sought to levy on the settlement proceeds, which remained in plaintiffs' counsel's client trust account. The trial court issued an order authorizing the levy. DM filed a third party claim in which it asserted that it was entitled to the settlement proceeds. After further proceedings, the trial court denied DM's third party claim and issued a turnover order directing plaintiffs' counsel to deliver $478,454.70 to Revelle. On November 8, 2006, DM filed a notice of appeal pertaining to the trial court's initial July 19, 2006 order directing that plaintiffs' counsel release $472,500 in settlement funds to Revelle, the trial court's order denying DM's motion for a new trial, and the trial court's denial of DM's third party claim. Shortly thereafter, plaintiffs' counsel paid Revelle $478,454.70.
This amount included the original award, $472,500, and interest in the amount of $5,954.70.
D. DM Partners I
In April 2008, this court filed its opinion in DM's initial appeal. (DM Partners I, supra, D049774 .) In our opinion, we held that the trial court had erred in enforcing the fee award in the Consolidated Action because the Trust's appeal from the attorney fees and costs order in the Cisterra Action had divested the trial court of jurisdiction. (Ibid.) Accordingly, we reversed the trial court's July 19, 2006 order directing that the $472,500 in settlement funds be released to Revelle. (Ibid.) However, in our opinion, we noted that Revelle could renew his attempt to enforce his attorney fees and costs award on remand, stating, "We recognize that because the underlying order awarding fees and costs is now final and apparently fully enforceable on remand, Revelle will be able to renew his attempt to satisfy the award from the settlement proceeds." (Ibid.) Further, we made clear that our reversal was based solely on the jurisdictional issue described above, stating, "We express no opinion with respect to the parties' principal contention on the merits, to wit: whether in dismissing its claims against Baker the [T]rust engaged in a fraudulent transfer which subjected the funds paid to DM to Revelle's claims. Moreover, we express no opinion as to the validity of the judgment lien Revelle filed in the Baker action." (Ibid.)
E. Proceedings on remand from DM Partners I
1. Revelle's motion to confirm the release of the settlement funds
On remand from DM Partners I, Revelle filed a motion for an order confirming the release of the settlement funds. In his motion, Revelle claimed that he was entitled to retain the settlement proceeds, for several reasons, including that the Trust's dismissal of its claims in the Baker Action constituted a fraudulent transfer within the meaning of section 3439.05.
DM filed an opposition to Revelle's motion. In its opposition, DM contended that Revelle had not followed the proper procedures that are required to invoke the protections of the UFTA. In addition, DM argued that Revelle had failed to establish that he was entitled to the settlement proceeds pursuant to section 3439.05.
The trial court held a hearing on Revelle's motion and granted the motion. The trial court's order states in relevant part:
"The motion of Defendant and Judgment Creditor William R. Revelle for an order confirming release of funds subject to lien is granted based on the Court's review of the file and all arguments, authority, and evidence in support of the original motion, as well as the current motion and offer of proof of new evidence. The Court was not persuaded by Plaintiff DM Partners' opposition arguments and found the authority inapplicable. Accordingly, the court grants the motion."
On March 6, 2009, DM filed an appeal from the court's January 2 order.
2. DM's motion requesting return of the settlement proceeds
On December 30, 2008, DM filed an ex parte application requesting both an order shortening time to file a motion requesting return of the settlement proceeds, and an order continuing Revelle's motion to confirm the release of the proceeds. On December 31, the trial court denied the ex parte application in its entirety. That same day, DM filed a notice of motion and motion requesting return of the settlement proceeds.
In its March 6, 2009 notice of appeal (see II.E.1., ante), DM appealed the trial court's December 31, 2008 order denying its ex parte application.
On April 3, the trial court entered an order concluding that it lacked jurisdiction to consider DM's motion for return of the settlement proceeds in light of DM's March 6 appeal from the trial court's order granting Revelle's motion to confirm the release of the proceeds.
On May 21, DM filed an appeal from the trial court's April 3 order.
III.
DISCUSSION
A. DM's procedural arguments are without merit
DM claims that the trial court abused its discretion by the manner in which the court conducted proceedings on remand from DM Partners I. Specifically, DM contends that the trial court erred in granting Revelle's motion to confirm the release of the settlement proceeds without first requiring Revelle to "prove his case and present evidence, " and also contends that the trial court erred in denying DM's request to present "additional evidence" regarding the issue.
1. Factual and procedural background
On remand from DM Partners I, Revelle filed a notice of motion for an order confirming the release of the settlement proceeds. In his December 8, 2008 notice of motion, Revelle stated that his motion was based upon "the entire court file in this matter, " among other items. Revelle's notice stated that the hearing on the motion would be held on January 2, 2009.
On December 18, 2008, DM filed an opposition to Revelle's motion. On December 30, DM filed an ex parte application seeking both an order shortening time to file a motion requesting a return of the settlement proceeds, and an order continuing the hearing on Revelle's motion to confirm the release of the proceeds. On December 31, the court held a hearing on DM's application. At the hearing, the trial court asked DM's counsel, "Why should we suddenly stop the motion that has been filed and has been on calendar for a long period of time, be continued [sic] based on [DM's] intention to file the motion in the future?" DM's counsel responded:
"Certainly, Your Honor. The specific facts of that I'm not 100 percent aware of, but I do know that I think the parties have been in this holding pattern of waiting to see what happens to the funds. And now that the matter is before the Court vis-á-vis Mr. Revelle's motion, these motions really should be heard concurrently."
DM's counsel continued:
"I guess that's the good cause. And, of course, with the motion, as soon as we received Mr. Revelle's motion we started the wheels in motion of getting the necessary evidence and paperwork together for [DM's] motion. And this was the earliest date that we were able to come before the Court to raise the matter of filing our motion."
At the conclusion of the hearing, the trial court denied DM's request to continue Revelle's motion and stated that DM could obtain a date from the clerk for a hearing on its prospective motion to return the settlement funds.
That same day, December 31, DM filed a motion requesting return of the settlement proceeds. In its notice of motion, DM indicated that the hearing on its motion would be held on March 27, 2009. With its motion, DM lodged four volumes of exhibits that contained numerous documents. The reporter's transcript for the April 7, 2006 good faith hearing and Revelle's counsel's billing records for April 6, 2006 were among the documents contained in DM's lodgment.
On January 2, 2009, the trial court held a hearing on Revelle's motion to confirm the release of the settlement proceeds. At the hearing, DM's counsel expressed her view that the proper procedure on remand would be to "have another evidentiary hearing, " and stated that new evidence had been discovered while the appeal in DM Partners I was pending. The court asked DM's counsel to provide an offer of proof as to the substance of the newly discovered evidence. DM argued that at the time of the trial court's July 2006 ruling, the court had been under the misimpression that Revelle had not been aware that the Trust had filed a dismissal of its claims against Baker until after the good faith settlement determination hearing. DM's counsel stated that what was newly discovered was the fact that "everybody knew about [the Trust's] dismissal and still went forward at the motion for good faith hearing...." DM's counsel noted that the reporter's transcripts from the good faith hearing demonstrated that all parties and the court were aware of the dismissal at that time, and that Revelle's counsel's billing records demonstrated that he was aware of the dismissal as of the day before the good faith hearing, yet did not object to proceeding with the good faith hearing. DM's counsel suggested that by agreeing to proceed with the hearing, Revelle had forfeited any argument that the Trust's dismissal constituted fraud.
That same day, January 2, the trial court granted Revelle's motion to confirm the release of the settlement proceeds. In its order granting the motion, the trial court stated that it was basing its ruling "on the Court's review of the file and all arguments, authority, and evidence in support of the original motion, as well as the current motion and offer of proof of new evidence."
2. Governing law and standard of review
"A [trial] court has wide discretion in controlling the manner in which evidence is presented." (Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1285.) "Continuances are granted only on an affirmative showing of good cause requiring a continuance. [Citations.] Reviewing courts must uphold a trial court's choice not to grant a continuance unless the court has abused its discretion in so doing. [Citations.]" (In re Marriage of Falcone (2008)164 Cal.App.4th 814, 823 [affirming denial of continuance of hearing on contempt motion].)
3. Application
In DM Partners I, this court expressly acknowledged Revelle's right to "renew his attempt to satisfy the award from the settlement proceeds." (DM Partners I, supra, D049774.) We did not specify any particular manner by which Revelle would be required to accomplish this. On remand, Revelle filed a motion in which he requested that the court issue an order confirming the propriety of his receipt of the settlement funds, based on all of the evidence in the case. In its January 2 order granting Revelle's motion, the trial court stated that it was basing its order on all of the evidence in the court's file, and stated that it had considered DM's counsel's offer of proof related to DM's alleged newly discovered evidence. DM cites no authority, and we are aware of none, that would indicate that the procedure that the trial court employed on remand was in any way improper. We therefore reject DM's claim that the trial court erred in granting Revelle's motion based on a review of the trial court's files.
With respect to DM's request to present additional evidence, DM did not lodge any evidence in connection with its opposition to Revelle's motion. The trial court thus did not err in failing to consider any such evidence in ruling on Revelle's motion. DM did lodge additional evidence in connection with the filing of its December 31 motion. However, DM's motion, which was filed on the last court day before the hearing on Revelle's motion, was not filed in sufficient time to allow the trial court to consider DM's motion concurrently with Revelle's motion. Further, DM did not file its application to continue the hearing on Revelle's motion until two court days before the hearing on the Revelle's motion, and at the hearing on its application for a continuance, DM's counsel failed to present any compelling basis for continuing Revelle's motion. We conclude that the trial court did not abuse its discretion in denying DM's request to continue the hearing on Revelle's motion in order to allow the trial court to consider DM's additional evidence lodged in connection with DM's motion.
As noted above (pt. II.E.2., ante), DM also filed an appeal from the trial court's April 3, 2009 order, in which the court concluded that it lacked jurisdiction to consider DM's December 31, 2008 motion in light of DM's appeal from the court's ruling on Revelle's motion. However, DM does not raise any argument on appeal with respect to the trial court's ruling in this regard.
B. Revelle established that he is entitled to the settlement proceeds pursuant to the UFTA
DM claims that Revelle failed to demonstrate that in dismissing its claims in the Consolidated Action, the Trust engaged in a fraudulent transfer of its interest in the settlement proceeds to DM.
In addition to claiming that Revelle failed to prove his claims, DM suggests that Revelle's claim is procedurally barred. Specifically, DM argues, "The [Civil] Code requires that Revelle either bring an action to avoid the transfer or levy upon the transferred property. [(§ 3439.07.)] Revelle did neither. Therefore, the alleged transfer may not be set aside sua sponte by the trial court."
1. Standard of review
In Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829 (Filip), the court applied the substantial evidence standard of review to a defendant's claim that the trial court had erred in granting relief under the UFTA. The Filip court described that standard of review as follows:
" '[W]e may not confine our consideration to isolated bits of evidence, but must view the whole record in a light most favorable to the judgment, resolving all evidentiary conflicts and drawing all reasonable inferences in favor of the decision of the trial court. [Citation.] We may not substitute our view of the correct findings for those of the trial court; rather we must accept any reasonable interpretation of the evidence which supports the trial court's decision. However, we may not defer to that decision entirely. "[I]f the word 'substantial' means anything at all, it clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with 'any' evidence. It must be reasonable in nature, credible, and of solid value; it must actually be 'substantial' proof of the essentials which the law requires in a particular case." ' [Citation.]" (Id. at p. 833.)
2. Governing law
a. Overview of the UFTA
"The UFTA was enacted in 1986; it is the most recent in a line of statutes dating to the reign of Queen Elizabeth I." (Mejia v. Reed (2003) 31 Cal.4th 657, 664 (Mejia).) The statute was "designed... for the protection of creditors. ([Citation].)" (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1873; accord Mejia, supra, at p. 668 ["The California Legislature has a general policy of protecting creditors from fraudulent transfers"].) The statute " 'is remedial and as such should be liberally construed....' " (Cortez v. Vogt (1997) 52 Cal.App.4th 917, 936 (Cortez), citation omitted.)
The UFTA "permits defrauded creditors to reach property in the hands of a transferee." (Mejia, supra, 31 Cal.4th at p. 663.) A fraudulent transfer under the UFTA involves " ' "a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim." ' [Citation.]" (Filip, supra, 129 Cal.App.4th at p. 829.) The transferee "holds only an apparent title [to the transferred property], a mere cloak under which is hidden the hideous skeleton of deceit, the real owner being the scheming and shifty judgment debtor...." (Cortez, supra, 52 Cal.App.4th at p. 936.)
b. Relevant statutory provisions
"Under the UFTA, a transfer can be invalid... because of... constructive fraud [citations]; one form of constructive fraud is a transfer by a debtor, without receiving equivalent value in return, if the debtor is insolvent at the time of transfer or rendered insolvent by the transfer (§ 3439.05)." (Mejia, supra, 31 Cal.4th at p. 661.) Section 3439.05 provides:
"A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation."
The UFTA broadly and inclusively defines a "transfer" as follows:
" 'Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." (§ 3439.01, subd. (i).)
Section 3439.01, subdivision (a) defines an "asset" as "property of a debtor...."
(See also Assem. Com. on Finance and Insurance, Rep. on Sen. Bill No. 2150 (1985-1986 Reg. Sess.) published in 5 Assem. J. (1985-1986 Reg. Sess.) p. 8572 [describing definition of transfer as "comprehensive" and stating that "the definition of 'transfer' is derived principally from [former] Section 101(48) of the Bankruptcy Code."])
The legislative history of the definition of "transfer" in the relevant federal Bankruptcy Code provision (11 U.S.C.A. § 101(54)) also refers to the breadth of the definition. (See Sen. Rep. No. 95-989, 2d Sess. (1978), reprinted in 1978 U.S. Code Cong. & Admin. News, p. 5813 ["A transfer is a disposition of an interest in property. The definition of transfer is as broad as possible"].)
c. Remedies under the UFTA
Section 3439.07 provides in relevant part, "(a) 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." Section 3439.07, subdivision (c) provides, "If a creditor has obtained a judgment on a claim against the debtor, the creditor may levy execution on the asset transferred or its proceeds."
Section 3439.08, subdivision (b) provides that "to the extent a transfer is voidable in an action by a creditor under paragraph (1) of subdivision (a) of Section 3439.07, 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 "transferee of the asset or the person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1).) "If the judgment under subdivision (b) is based upon the value of the asset transferred, the judgment shall be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require." (§ 3439.08, subd. (c).)
3. Application
DM raises several contentions in support of its claim that Revelle failed to prove that he is entitled to the settlement proceeds pursuant to the UFTA. We consider each of DM's arguments below.
a. Revelle is a creditor of the Trust whose claim arose before the March 2006 transfer
DM contends that the trial court's order must be reversed because Revelle failed to demonstrate that he is a "creditor whose claim arose before the transfer" under section 3439.05. DM bases its argument on the fact that Revelle's judgment against the Trust in the Cisterra Action was not affirmed on appeal until after the Trust's March 2006 dismissal of its claims against Baker in the Consolidated Action.
Section 3439.01, subdivision (c) provides, " 'Creditor' means a person who has a claim...." Section 3439.01, subdivision (b) provides, " 'Claim' means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured."
In light of these statutory definitions, Revelle was unquestionably a "creditor" who had a "claim" against the Trust as least as early as August 2005, when the trial court entered an attorney fee award in Revelle's favor against the Trust. Section 3439.01 does not provide that a creditor's claim ripens only after the determination of an appeal from a final judgment. On the contrary, section 3439.01, subdivision (b) expressly provides that a creditor has a claim, "whether or not the right [to payment] is reduced to judgment...." (Italics added.)
b. There is substantial evidence in the record that the Trust's dismissal of its claims against Baker constituted a fraudulent transfer under section 3439.05
DM claims that Revelle did not establish that the Trust committed a fraudulent transfer under section 3439.05 in dismissing its claims against Baker in the Consolidated Action. We disagree.
DM argues that the Trust had an absolute right to dismiss its claims against Baker at any time prior to Revelle filing a proper lien in the action. Although the basis for this contention is not entirely clear from DM's brief, to the extent that DM intends to suggest that the Trust did not possess a property interest in its claims against Baker that could be subject to the protections of the UFTA, we disagree. It is well established that "[a] cause of action to recover money damages, as well as the money recovered is a chose in action and therefore a form of personal property. [Citations.]" (Vick v. DaCorsi (2003) 110 Cal.App.4th 206, 212, fn. 35.) The UFTA applies to the transfers of the "property of a debtor" (§ 3439.01, subd. (a); see § 3439.05), which occur under certain qualifying conditions. The Trust's cause of action against Baker thus constituted property subject to the protections of the UFTA. (Compare with Cabral v. Soares (2007) 157 Cal.App.4th 1234, 1240 [mother's decision to alter will to leave property to daughter rather than son did not constitute fraudulent transfer as to son's creditors because son had no interest in property at time of the transfer].)
DM argues "the Trust had 'an absolute right' to dismiss the action...."
Among those conditions are that the debtor not have received "reasonably equivalent value in exchange for the transfer, " and that the debtor be insolvent at the time of, or because of, the transfer. (§ 3439.05.) DM does not raise any challenge as to these elements of section 3439.05 on appeal.
DM also claims that the Trust's dismissal of its claims against Baker was not a "transfer" within the meaning of the UFTA. Specifically, DM argues, "[S]ection 3439.05 applies to fraudulent transfers, not to voluntary waivers of unproven claims such as the [Trust's] dismissal." For the following reasons, we conclude that there is substantial evidence to support a determination that the Trust's dismissal of its claims against Baker constituted a transfer within the meaning of the UFTA.
There can be little doubt that the Trust would have committed a fraudulent transfer vis-á-vis Revelle, if the Trust, being insolvent, had settled with Baker, received settlement proceeds, and then, without receiving anything in return, given those proceeds to DM. Under those circumstances, the Trust would have made a transfer "without receiving a reasonably equivalent value in exchange for the transfer... [while] the [Trust] was insolvent...." (§ 3439.05.) We see no reason why there should be a different result under the circumstances of this case. "[A] party is forbidden to do indirectly that which he is forbidden to do directly." (Shenson v. Fresno Meat Packing Co. (1950) 96 Cal.App.2d 725, 731.)
It bears repeating that the definition of "transfer" under the UFTA is quite broad, encompassing "every mode, direct or indirect, ... of disposing of or parting with an asset or an interest in an asset, and includes... [a] release...." (§ 3439.01, subd. (i).) Since a dismissal is a manner of "disposing of" a cause of action, and a cause of action is property, and therefore, an "asset" (§ 3439.01, subd. (a)) under the UFTA, the trial court could have reasonably determined that the Trust's dismissal of its claims against Baker constituted "disposing of or parting with an asset" (§ 3439.05). Thus, the trial court could have reasonably determined that in dismissing its claims against Baker, the Trust transferred its property.
The record further supports the conclusion that the Trust indirectly transferred property to DM. The Trust did not dismiss its claims prior to the point in time when the Trust and DM reached an agreement with Baker to settle the action. Rather, the Trust dismissed its claims against Baker only after Baker's attorney had stated under penalty of perjury that Baker had reached a settlement with all of the plaintiffs, including the Trust, for a payment in the amount of $675,000. Based on these facts, the trial court could have reasonably found that the Trust dismissed its claims for no consideration at a time when the Trust's interest in the litigation had ripened into a prospective right to defined settlement proceeds. However, rather than receiving any portion of the settlement proceeds, the Trust dismissed its cause of action against Baker, and did not oppose Baker's request to be discharged from liability in the case upon its payment of the settlement amount. Further, it is undisputed that Baker subsequently agreed to pay the full settlement amount that it had initially agreed to pay to all of the plaintiffs, solely to DM, instead. Baker therefore did not benefit from the Trust's dismissal of its claims, because Baker would have paid the same settlement amount, with or without the Trust's dismissal.
We reject DM's argument that we must reverse the trial court's order because "there was no evidence before the trial court that DM Partners, Baker, or the other parties to the Settlement Agreement would consent to the Trust being joined as a party." As noted previously, in its motion for a good faith settlement determination, Baker stated that the settlement was between "Baker and Plaintiffs J. Lee Gregg, John L. Gregg, both individually and in his capacity as Trustee under the Will of J. Lee Gregg, and DM Partners, " and DM and the other parties to the settlement agreement joined in Baker's motion.
The trial court's order stated, "Upon Baker's payment of the settlement fund to Plaintiffs' counsel, Baker is discharged from further liability...." The trial court's order forbade plaintiffs' counsel from distributing the funds without filing a noticed motion and obtaining a final order of the court, thereby acknowledging that the court would determine who would be the ultimate recipient of the funds at a later time.
Under these circumstances, the trial court could have reasonably found that the Trust dismissed its claims against Baker in order to permit DM to secure the Trust's interest in the settlement proceeds. The trial court also could have reasonably found that the Trust dismissed its claims against Baker for the purpose of ultimately benefitting DM, and that the dismissal thus constituted an indirect transfer of the Trust's interest in the settlement proceeds to DM, within the meaning of the UFTA. (§ 3439.01, subd. (i) [" 'Transfer' means every mode, direct or indirect... of disposing of or parting with an asset or an interest in an asset, " italics added], § 3439.08, subd. (b)(1) [permitting that judgment in UFTA action may be entered against "[t]he first transferee of the asset or the person for whose benefit the transfer was made, " italics added]; In re Craig (8th Cir. 1998) 144 F.3d 587, 592 (Craig) ["An indirect transfer [under the Uniform Fraudulent Transfer Act] occurs when the debtor surrenders an asset or interest to a third party for the ultimate benefit of the alleged transferee"].) In this case, the Trust surrendered an asset to Baker for the ultimate benefit of DM.
Under these circumstances, the trial court could permit Revelle to recover the proceeds that the Trust indirectly transferred to DM. (See § 3439.07, subd. (c) [permitting a judgment debtor to "levy execution on the asset transferred or its proceeds, " italics added];see also Brunvold v. Victor Johnson & Co. (1943) 59 Cal.App.2d 75, 80-81 [rejecting fraudulent transferee's claim that an apartment house purchased by the transferee could not be reached by transferor's creditor because transferor had not conveyed the apartment house to the transferee and reasoning "[e]quity... can follow [fraudulently conveyed] assets into whatever form of property they may, after the fraudulent conveyance, have been converted"].)
We consider whether the trial court erred in determining the value of the Trust's interest in the settlement proceeds in part III.B.3.e., post.
In Craig, supra, 144 F.3d 587, a debtor (James) secured the right to receive certain cash loan proceeds. (Id. at p. 592.) Rather than receiving the loan proceeds, James directed the lender to pay the proceeds to the sellers of certain real property. (Ibid.) The sellers in turn deeded the property to James's wife, Anne. (Ibid.) A bankruptcy trustee claimed that Anne's ownership of the real property was based on James's fraudulent transfer of assets to Anne, and that the real property or its equivalent in value should be included in the bankruptcy estate. (Id. at p. 591.) The bankruptcy court disagreed, reasoning that James had not transferred either the loan proceeds or the real property to Anne. (Ibid.)
The Eighth Circuit reversed, concluding that the bankruptcy court had too narrowly interpreted the definition of "transfer" in the North Dakota version of the Uniform Fraudulent Transfer Act. (Craig, supra, 144 F.3d at p. 592.) The Craig court held, "James's allocation of the loan funds to pay for the residence was an indirect fraudulent transfer to Anne and... the Trustee accordingly has the same power to reach the property as he would if the property had been placed in James's name." (Id. at p. 593.) In reaching this conclusion, the Craig court reasoned in part:
The definition of "transfer" in California's UFTA is identical to the definition of "transfer" in the North Dakota version of the Uniform Fraudulent Transfer Act at issue in Craig. (Compare § 3439.01, subd. (i) with Craig, supra, 144 F.3d at p. 591.)
"[T]he Trustee could have avoided a transaction in which James purchased the real estate and subsequently placed the property in Anne's name. By instead signing a note for funds which were disbursed to the seller to pay for property conveyed to Anne, James merely altered the form and not the substance of the transaction." (Id. at p. 592.)
Similarly, in this case, as we discussed previously in the text, Revelle clearly could have avoided a transaction in which the Trust received the settlement proceeds and thereafter, gave the proceeds to DM.
Citing the fact that the broad definition of "transfer" under the Uniform Fraudulent Transfer Act included both " 'direct and indirect' modes of parting with an asset or an interest in an asset" (Craig, supra, 144 F.3d at p. 592), the Craig court concluded that although James had directly transferred his interest in the loan proceeds to the sellers, James had effectuated an indirect transfer to Anne:
"James directly transferred his interest in most of the loan monies to the sellers of the real estate. His admitted purpose, however, was to give Anne title to the real estate and thereby shield the asset from his creditors." (Id. at pp. 592-593.)
Similarly, in the present case, although the Trust's dismissal of its claims against Baker may have been a direct transfer to Baker, the trial court could have reasonably found that in dismissing its claims, the Trust effected an indirect transfer to DM, thereby shielding the proceeds from the Trust's creditor, Revelle.
c. The fact that Revelle knew that the Trust had dismissed its claims against Baker does not require reversal
DM maintains that we must reverse the trial court's order because the record establishes that Revelle's counsel was aware, prior to the April 7, 2006 hearing on the motion for a determination of a good faith settlement, that the Trust had dismissed its claims against Baker. This argument fails because DM has presented no statutory language or case law indicating that a creditor's knowledge that a fraudulent transfer has occurred precludes the creditor from voiding the fraudulent transfer. (See also Fitch v. Corbett (1883) 64 Cal. 150, 151 [creditor's right to avoid fraudulent conveyance is not defeated by creditor's knowledge of the fraudulent conveyance].) Further, while DM argues, "Revelle's counsel had an opportunity to invalidate any purported fraudulent transfer at the motion for determination of good faith settlement, " DM presents no authority that Revelle's counsel was required to present his fraudulent transfer claim at that time or forever forfeit such a claim. Moreover, Revelle's counsel did object at the good faith hearing to Baker's counsel's proposal that the settlement proceeds be paid into a fund, and Baker be released from any further liability in the case.
d. Revelle adequately established that he was injured by the Trust's transfer
Citing Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75, 80 (Mehrtash), DM claims that Revelle failed to make an "affirmative showing, " that he was injured by the Trust's transfer of its interest in the settlement proceeds. The Mehrtash court held that the UFTA implicitly requires that a creditor demonstrate that he has been injured by a transfer. (Id. at pp. 80-81.) The Mehrtash court explained, "It cannot be said that a creditor has been injured unless the transfer puts beyond [her] reach property [she] otherwise would be able to subject to the payment of [her] debt." (Id. at p. 80.) In Mehrtash, the property subject to the allegedly fraudulent conveyance was "heavily mortgaged" real property subject to the claims of numerous creditors other than the plaintiff. (Id. at p. 81.) The Mehrtash court concluded that the plaintiff failed to demonstrate that she had been injured by the allegedly fraudulent conveyance because, "Plaintiff produced no evidence that the value of the property could support any net recovery for her in the event the conveyance were set aside." (Ibid.)
In this case, in contrast to Mehrtash, it is undisputed that the property at issue is cash settlement proceeds. Other than the plaintiffs' attorney's lien, which the trial court ordered to be fully satisfied from the settlement proceeds, there was no evidence presented in the trial court that any other creditor had any interest in the settlement proceeds. Therefore, if the Trust had not fraudulently transferred its interest in the settlement proceeds to DM, Revelle would have been able to levy execution on the settlement proceeds upon their transfer to the Trust. (See Code Civ. Proc., § 700.140.) Accordingly, we conclude that Revelle adequately established that he was injured by the March 2006 transfer.
On appeal, neither party contests the trial court's July 19, 2006 order insofar as it awarded $202,500 of the settlement proceeds to the plaintiffs' attorney in satisfaction of his lien for attorney services.
e. The trial court did not abuse its discretion in awarding Revelle $472,500
DM argues that, assuming that Revelle was entitled to some portion of the settlement proceeds, the trial court "abused its discretion" in awarding Revelle "more than the Trust's proportionate share of the settlement proceeds...." Specifically, DM contends that after subtracting plaintiffs' attorney fees, which totaled $202,500, the Trust was entitled to, at most, approximately 29.94 percent of the remaining $472,500 in settlement proceeds (i.e. $141,466.50), and that the trial court abused its discretion in ordering DM to pay the entire $472,500 to Revelle.
We assume for purposes of this opinion that the abuse of discretion standard of review applies to our consideration of this claim.
(i) Governing law
As noted above, section 3439.08 provides that a judgment in a UFTA action may be entered against the "transferee of the asset or the person for whose benefit the transfer was made" (§ 3439.08, subd. (b)(1)), for "the value of the asset transferred, as adjusted under subdivision (c)" (§ 3439.08, subd. (b)). Subdivision (c) in turn provides that "the judgment shall be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require." (§ 3439.08, subd. (c).)
(ii) Application
We concluded in part III.B.3.c., ante, that the Trust's dismissal of its claims against Baker constituted an indirect transfer of the Trust's interest in the settlement proceeds to DM. It was therefore proper for the trial court to enter an order under the UFTA against DM "as the person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1).)
DM also claims that the trial court violated DM's constitutional right to due process when the court "effectively found [DM] to be the judgment debtor." The trial court never found that DM was Revelle's judgment debtor. Further, we conclude that we may affirm the trial court's order under section 3439.08, subdivision (b)(1) of the UFTA, since, as stated in the text, DM is the transferee of the asset. DM does not contend that section 3439.08, subdivision (b)(1) is unconstitutional.
With respect to the dollar amount of the judgment, the trial court had the authority to enter a judgment against DM for "the value of the asset at the time of the transfer, subject to adjustment as the equities may require." (§ 3439.08, subd. (c).) In view of all of the circumstances of this case, we reject DM's claim that the court abused its discretion in ordering DM to pay Revelle the full $472,500 in settlement proceeds.
Although it is clear that DM's claim is based on its assertion that the Trust owned a 29.94 percent share of SDP, DM has not established that the Trust's proportionate ownership of SDP is the proper measure by which to determine the Trust's share of the Baker settlement proceeds. DM's calculation appears to be premised on the theory that Baker had harmed SDP, and that each of the plaintiffs in the Baker action―including DM and the Trust―was a partial owner of SDP. Assuming that this is the basis for DM's calculation, DM's claim fails because it has presented no evidence or argument demonstrating that the Trust and DM were litigating claims on behalf of SDP in the Baker action.
Nor has DM presented any other argument, or cited any evidence, that would support its contention that the Trust's proportionate ownership of SDP is the only reasonable basis by which the trial court could determine "the value of the asset transferred...." (§ 3439.08, subd. (b).)
In fact, in a prior appeal in the Baker Action, DM and the Trust made clear that their claims stemmed from duties that Baker allegedly owed directly to DM and the Trust. This court reversed summary judgment in favor of Baker on this very ground, reasoning in part:
"In Plaintiffs' [J. Lee Gregg, John. L. Gregg, the Trust, and DM] separate statement of disputed and undisputed material facts, they disputed many of Baker's purportedly undisputed facts in its separate statement in support of its argument that it had no attorney-client relationship with Plaintiffs. Furthermore, Plaintiffs' separate statement asserted that Baker 'handled personal legal matters on behalf of [Plaintiffs].' That statement was supported by references to declarations of John L. Gregg and J. Lee Gregg, which were submitted in opposition to Baker's summary judgment motion. On the record before us, we cannot conclude, as a matter of law, that Baker did not have an attorney-client relationship with Plaintiffs or otherwise owed no duty to Plaintiffs for which it could be found liable for breach on any of the Complaint's three causes of action. Rather, there appears to be triable issues of fact on the circumstances relating to the relationship between Baker and Plaintiffs and, in particular, on the issue of whether Baker, as SDP's attorney, owed an implied duty of loyalty to Plaintiffs, as one of SDP's limited partners, in terms of Plaintiffs' entitlement to benefits from the partnership. [Citation.]" (Gregg v. Baker & McKenzie, supra, D041547, italics omitted.)
Accordingly, we conclude that DM has failed to demonstrate that the trial court was required to determine each plaintiff's proportionate share of the settlement proceeds based on its percentage ownership of SDP.
Second, there is no evidence in the record that would support DM's contention that the Trust's interest in the settlement proceeds was a defined percentage of those proceeds. Further, given that DM's principal argument in the trial court and on appeal is that it is entitled to receive 100 percent of the settlement proceeds under the theory that the parties were free to allocate all of the settlement proceeds to DM, we see no basis for holding that the trial court was not permitted to effectuate an identical allocation, but in favor of the Trust rather than DM-and ultimately, to the Trust's creditor, Revelle.
Finally, even assuming that the "value of the asset transferred" (§ 3439.08, subd. (b)) was some amount less than $472,500, in adjusting that amount "as the equities may require" (§ 3439.08, subd. (c)), the trial court could have reasonably found that DM participated in a fraudulent scheme pursuant to which DM attempted to obtain all of the settlement proceeds for itself, in order to entirely shield those proceeds from the reach of the Trust's creditor. Further, in view of the fact that all of the Trust's beneficiaries and all of the partners of DM are members of the Gregg family, and that John L. Gregg is both the Trustee of the Trust and a partner in DM, the trial court could have concluded that the beneficiaries of the Trust and the partners of DM colluded to prevent Revelle from obtaining any portion of the settlement proceeds.
Under these circumstances, and because the trial court possesses broad equitable power in this area, we conclude that the trial court did not abuse its discretion in determining that Revelle was entitled to receive $472,500. We therefore conclude that the trial court did not err in confirming the propriety of the prior release of the $472,500 in settlement funds to Revelle pursuant to the UFTA.
DM also argues that Revelle was not entitled to the settlement proceeds to satisfy his judgment lien (Code Civ. Proc., § 708.410). In addition, DM contends that Revelle failed to establish that DM was the alter ego of the Trust. Specifically, DM argues, "Because the lien in the action was invalid, in order to keep the settlement funds, Revelle was required to prove (1) a fraudulent transfer or (2) DM [] was the alter ego of the [] Trust." In light of our conclusion that Revelle proved the existence of a fraudulent transfer, we need not consider DM's arguments regarding the validity of Revelle's lien or whether Revelle established that DM was the alter ego of the Trust.
IV.
DISPOSITION
The trial court's December 31, 2008, January 2, 2009, and April 3, 2009 orders are affirmed. Revelle is entitled to costs on appeal.
WE CONCUR: BENKE, Acting P. J. HUFFMAN, J.
"(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."
Although Revelle did not bring a separate action to avoid the transfer, in his briefing in support of his motion to release the settlement funds, he did specifically allege that the Trust committed a fraudulent transfer. In addition, in September 2006, Revelle requested, and the trial court issued, an order authorizing a levy on the settlement proceeds. (See pt. II.C.2., ante.) Revelle subsequently received the settlement funds. On remand, the trial court confirmed the propriety of Revelle's receipt of the settlement funds. Thus, the trial court did not act "sua sponte" in awarding the settlement funds to Revelle. Further, in the trial court's order on remand, the court confirmed the propriety of its previous order allowing Revelle to levy on the settlement proceeds. Accordingly, we conclude that DM has failed to demonstrate that it is entitled to reversal on the ground that Revelle failed to properly "invoke the trial court's jurisdiction to find that [the Trust] engaged in a fraudulent transfer."