Opinion
G036808
4-25-2007
BERNARD FALLON et al., Plaintiffs and Appellants, v. BARRY SHREIAR, Defendant and Respondent.
Jeffrey S. Benice for Plaintiffs and Appellants. Enterprise Counsel Group, David A. Robinson, Jeffrey Lewis, L. Geoffrey Lee for Defendant and Respondent.
NOT TO BE PUBLISHED
Bernard and Kathleen Fallon appeal from a summary judgment entered in favor of Barry Shreiar in their action for fraudulent conveyance and "alter ego." The Fallons believe Shreiar is personally liable for a $72,543.97 judgment entered against Shreiars former real estate brokerage company, Summit Real Estate Group, Inc. They assert triable issues of fact exist about Shreiars fraudulent intent as well as on their separate "alter ego cause of action." We find the Fallons misunderstand how the alter ego doctrine should be applied, and we conclude summary judgment was properly granted. We affirm the judgment.
I
Facts
This appeal follows three lawsuits involving the Fallons. For reasons unknown, neither party on appeal took the time to discuss the basic facts giving rise to the three lawsuits, or explain the history behind the conflict. Each side filed an appendix containing some court documents, but it remains a mystery why neither party included a copy of the motion for summary judgment or the opposition. In any event, we have done our best to create a factual summary by piecing together facts found in the various supporting declarations and the separate statements which were provided to us.
In 1997, Shreiar began investing in D. J. Gordon Real Estate, Inc. He created and became trustee of the Frontier Trust, through which he loaned substantial sums of money to D. J. Gordon Real Estate. Specifically, he loaned $175,000 in 1997, $ 150,000 in 1998, and $200,000 in 1999. The companys founder, Dennis J. Gordon, started the company by loaning it $190,000 in 1997.
In 1998, Shreiar obtained a $300,000 loan from Comerica Bank, which he personally guaranteed. As the company grew, it attracted additional shareholders, Herbert Josepher and Nancy Black. However, by mid-2000, the company was continually operating at a loss. To keep the company going, the Frontier Trust loaned it approximately $975,000. The promissory notes created to memorialize the loan were converted into additional shares of common stock.
The companys board meeting minutes and resolutions reflect the company was run by Gordon, Josepher, Black, Shreiar, John Albano, Wayne Lamb, and Susan Jerram. These individuals would rotate board positions within the company. In 2000, members of the board voted to change the name of the company to Summit Real Estate Group, Inc. (Summit).
In May 2000, Summit filed a lawsuit against the Fallons (Summit I ), based on their purported failure to pay Summit commissions earned from the sale of the Fallons home in 1999. The court denied the Fallons motion for summary judgment, but during the October 2001 trial, granted their nonsuit motion. Judgment was entered accordingly, and on January 15, 2002, the Fallons obtained an order awarding $40,000 for their legal fees. (The Summit Real Estate Group v. Bernard Fallon et al. (Super. Ct. Orange County, 2000, No. 00CC05384) (Summit I).)
Meanwhile, Summit was continuing to have financial difficulties. In March 2001, Shreiar was elected CEO and secretary of Summit. The same month, Shreiar formed the corporation Western Primary Capital (WPC), which allegedly borrowed funds from third parties to invest collectively in Summit. The following month, WPC loaned Summit $1.5 million, which was used to open three more branch offices. This gave Summit a total of 10 offices scattered throughout Orange County, employing approximately 200 real estate agents and over 20 support staff.
Despite the new offices and influx of investment cash, Shreiar claims Summit continued to operate at a loss. Shreiar declared he began considering the option of bankruptcy. However, in October 2001, he was approached by executives from a competitor, Prudential Realty. They were interested in purchasing "Summits equipment, office leases, real estate listings, goodwill and other assets."
The parties executed a purchase agreement on January 14, 2002, having an effective date of December 31, 2001. Summit received $ 2.7 million, which represented (1) the book value of the equipment, (2) 60 to 80 percent of the listings, and (3) 100 percent of listings then in escrow. Also in January 2002, Summit filed an appeal from the judgment entered in favor of the Fallons. Six months later, this court dismissed the appeal after Summit failed to file an opening brief. (Cal. Rules of Court, rule 8.220(a).)
Using the sale proceeds, Summit paid approximately $1.7 million to Comerica Bank. From the remaining balance, it paid "less than half" of the $1.5 million owed to WPC, legal fees to the attorneys involved in the winding up process, office lease payments, vacation benefits to employees, and debts owed to a few other creditors. Shreiar declared he never received any written demand from the Fallons, or their attorney, for payment of the $40,000 attorney fee award.
In November 2002, the Fallons filed a malicious prosecution suit against Summit and Josepher, who they alleged was Summits president and controlling shareholder. (Bernard Fallon et al. v. The Summit Real Estate Group et al. (Super. Ct. Orange County, 2002, No. 02CC17059) (Summit II).) After answering the complaint and asking the Fallons to dismiss their lawsuit, Summits counsel, James W. Lundquist, withdrew from the case. He explained, "Since (1) Summits assets were sold well before the pending action was filed, (2) the [c]ompany is out of business[,] and (3) all Summits income is exhausted, Summit no longer has the financial ability to defend itself. Therefore, our office will be withdrawing from further representation of the [c]ompany."
The Fallons pressed forward and deposed Josepher. They discovered he did not hold any shares when Summit was sold, but rather Shreiar owned nearly 100 percent of the company. The Fallons struck a bargain with Josepher, agreeing to dismiss their claim against him on the condition the parties bear their own fees and costs, and "Josepher agree[s] to reasonably cooperate with the Fallons in pursuing collection from Summit . . . ."
The Fallons then obtained a default judgment against Summit. The court granted their ex parte application to strike Summits answer, and then the court scheduled "a prove up hearing on the judgment." On April 29, 2004, the Fallons obtained a $72,542.97 default judgment against Summit. The award represented $40,000 in attorney fees incurred in Summit I, plus $8,666.66 accrued in postjudgment interest, and $23,547.98 for attorney fees incurred in Summit II.
Two months later, the Fallons filed a lawsuit against Shreiar and Summit for (1) fraudulent conveyance, and (2) "alter ego liability" (Summit III). They alleged Shreiars sale of Summit was a fraudulent conveyance and Shreiar is liable for wrongfully refusing to use the sale proceeds to pay creditors, including the Fallons. The Fallons asserted Shreiar, "wrongfully retained the funds and/or placed the funds beyond the reach of creditors . . . and thereafter engaged in conduct to make Summit appear to be insolvent . . . ." (Italics omitted.) In addition, the Fallons claimed, "Shreiars conduct in selling his stock was a fraudulent conveyance because [he] could have levied execution on the stock to satisfy their judgment against Shreiar as Summits alter ego." (Italics omitted.)
The Fallons claimed the sale funds were inadequate because (1) "at the time of the transfer Summit was involved in a business transaction for which it had insufficient assets, or that it was unable to cover its ensuing debts as a result of the transfer[,]" and (2) "the sum was less than the amounts owed to creditors, . . . and less than the fair market value of Summits tangible and intangible assets." They reasoned Shreiar had "an absolute legal obligation to use the . . . sale proceeds to properly pay all creditors claims and/or to properly reserve funds to pay those claims." (Italics omitted.) The Fallons concluded, "As a consequence of Shreiars active involvement in the fraudulent conveyance of Summits assets, Shreiar is jointly liable with Summit to [the Fallons] for all sums due under the [j]udgment. Shreiars conduct was carried out with actual intent to hinder, delay, or defraud [the Fallons] ability to satisfy their judgment." (Italics omitted.)
The same allegations were included as part of the "alter ego" cause of action. The Fallons also asserted, "there existed a unity of interest between Shreiar and Summit[.]" The Fallons maintained, "Shreiar is and was at all times alleged herein the alter ego of Summit and personally responsible to [the Fallons] for [their] judgment against Summit because inter alia, Shreiar commingled funds and other assets of Summit with his own; diverted corporate funds or assets to non-corporate uses; treated the individual assets of Summit as his own; and failed to adequately capitalize Summit to enable it to pay [the Fallons] judgment." (Italics omitted.)
Shreiar filed a motion for summary judgment (MSJ), and the Fallons opposed it. As noted above, our record does not contain copies of the legal arguments raised or opposed. Fortunately, the courts ruling on the motion is detailed and discusses at length the issues raised by the Fallons. We will repeat the courts ruling in our summary of the facts as a way to disclose the issues raised on appeal.
In granting the motion, the court wrote, "Having considered the pleadings and argument of counsel, the court now rules as follows: 1) [Shreiars] evidentiary objections . . . are all overruled, as they fail to comply with the format requirements of California Rules of Court, rule [3.1354]. . . . (2) The MSJ — reduced to its essence, the [first amended complaint] alleges as follows: [the Fallons] obtained a judgment against [Summit], which judgment has never been satisfied despite their demands. . . . Shreiar was the president and sole shareholder of Summit. After the judgment was entered, [Shreiar] sold his interest and the assets of Summit to Prudential Realty for inadequate consideration and refused to use the sale proceeds to pay off Summits creditors, including [the Fallons]. Thus, the sale of Summit was fraudulent. Moreover, the aforementioned fraudulent conduct rendered [Shreiar] the alter ego of Summit, as do other facts (unity of interest of [Shreiar] and the corporation, etc.)."
The court next determined, "The evidence, however, falls short of supporting these allegations. With respect to the fraudulent conveyance cause of action, the complaint alleges that, after [the Fallons] were awarded judgment against Summit, [Shreiar] sold its assets to Prudential and failed or refused to pay any of Summits creditors. The conveyance to Prudential by Summit was fraudulent because the consideration paid by the former was inadequate, in that it was less than Summits total outstanding obligations and because [Shreiar] had a legal obligation to pay all creditors of Summit. In their opposition to the motion and at the hearing, however, [the Fallons] acknowledged that [Shreiar] did in fact use the sale proceeds to pay off every creditor save one: [The Fallons]. [They] nevertheless contended at the hearing that the conveyance was fraudulent because the price obtained was insufficient to pay off all the creditors and there [were] no assets left for the creditors to go after in order to satisfy the debt. Significantly, [the Fallons] conceded that at the time of the sale, Summit was in dire financial straits and was bleeding money. They also conceded that, but for the subsequent failure to pay off the debt owed to them, [Shreiar] made a sound business decision in selling Summit at the price he negotiated. Put differently, [the Fallons] conceded that the price paid by Prudential reflected Summits then-fair market value (or, at least that they had no evidence to rebut [Shreiars] showing that the price was arrived at in an arms length transaction). Under such circumstances, the court cannot conclude that the conveyance to Prudential was fraudulent."
After reciting the legal definition of fraudulent conveyance, the court determined "[the Fallons] have not rebutted [Shreiars] evidence that the transfer was effected for legitimate business reasons and was not intended to hinder, delay, or defraud them. The reason that Summits debt to them was not repaid was that the sale price was insufficient to repay all of the creditors, and there is simply no evidence that [Shreiar] negotiated a lower sale price to defeat their claim. [The Fallons] have not provided the court with any authority suggesting that [Shreiar] was required to subordinate Comerica [Banks] obligation, for which he was a personal guarantor, to that of [the Fallons]. Because Summit owed no duty to [the Fallons], it matters not whether [Shreiar] [was] its alter ego; judgment must be for [Shreiar] on both causes of action."
Leaving no stone unturned, the court made several observations about the viability of the alter ego claim, stating, "Even if the alter ego cause of action were to survive the failure of [the Fallons] to prove liability on the first cause of action, they have not raised a triable issue of material fact that [Shreiar] was in fact Summits alter ego, and that failure in turn infects the first cause of action. [The Fallons] factual contentions re[garding] alter ego are summarized in the first two pages of their opposition, the court addresses them herein:
"1) [Shreiar] was the CEO of Summit — this fact doesnt support alter ego liability;
"2) [Shreiar] personally controlled Summit during the relevant time period — there is insufficient evidence that he acted other than the trustee of the trust;
"3)[Shreiar], an attorney, personally directed Summits litigation — while he [may] have made decisions re[garding] the litigation, there is no evidence that he did so to benefit himself, as opposed to the corporation;
"4) [Shreiar] held himself out to others as the majority shareholder — the evidence is inadequate to so demonstrate. Moreover, if he did so, that doesnt support [the Fallons] theory;
"5) [Shreiar] personally guaranteed Summits debt to Comerica [Bank]. When the debt was paid from the proceeds of the sale to Prudential, his personal guarantee was released — there is no dispute here, although, as noted, supra, [the Fallons] do not offer any authority for the proposition that paying off the debt under such circumstances reflects a unity of interest between the corporation and the individual or constitutes a fraudulent conveyance;
"6) [Shreiar] authorized and directed the sale of Summits assets at a time he knew it was insolvent — there is no evidence that any fraud was perpetrated either in the sale or in the preference given to Summits numerous creditors. [The Fallons] have not alleged in the [first amended complaint] that they were entitled to priority in payments of Summits debts and, again, have not submitted any authority supporting such contention;
"7) [Shreiar] directed the payment of all sale proceeds and did not satisfy the debt owing to [the Fallons] — thats undisputed but doesnt support [the Fallons] allegation of alter ego liability;
"8) [Shreiar] retained counsel to represent Summit, directed the litigation, and personally paid the legal bills, which were mailed to his residence — the evidence does not demonstrate that [Shreiar] personally paid the legal bills. As for the rest, as a practical matter, some person must retain counsel to act on behalf of a business, and some person must make key litigation decisions on behalf of a business. There is no evidence that, in retaining counsel and directing the litigation, [Shreiar] was acting for his own benefit as opposed to looking out for the interest of the corporation;
"9) [Shreiar] made inconsistent statements regarding the financial health of Summit — again, this standing alone does not support alter ego liability.
"Cumulatively, the facts fall short of demonstrating that [Shreiar] was the alter ego of Summit. The evidence presented by [Shreiar] likewise demonstrates that the doctrine of alter ego ought not to apply. In sum, the court finds that there are no triable issues as to any material facts as to both causes of action and that defendant and moving party is entitled to judgment as a matter of law." (Original indentation not retained.)
II
The Alter Ego Doctrine
In the trial court, and on appeal, the Fallons assert "alter ego liability" is a distinct and independent cause of action. They are wrong. "The figurative terminology `alter ego and `disregard of the corporate entity is generally used to refer to the various situations that are an abuse of the corporate privilege." (Minton v. Cavaney (1961) 56 Cal.2d 576, 579.) As the court explained in Hennesseys Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1358 (Hennesseys Tavern), "The purpose behind the alter ego doctrine is to prevent defendants who are the alter egos of a sham corporation from escaping personal liability for its debts. [Citation.] The device of disregarding the corporate entity is applicable whether the alter ego is an individual or corporation. [Citations.] `Before the courts will disregard the corporate entity of one corporation and treat it as the alter ego of another, even though the latter may own all the stock of the former, it must further appear that there is such a unity of interest and ownership that the individuality of the one corporation and the owner or owners of its stock has ceased and, further, that the observance of the fiction of separate existence would under the circumstances sanction a fraud or promote injustice. In other words, bad faith in one form or another must be shown before the court may disregard the fiction of separate corporate existence. [Citations.] [Citations.]"
The issue of alter ego can be raised in the pleadings, but "even when not pleaded, that issue may be resolved at trial [citations], at a hearing to determine the true identity of the judgment debtor [citations], or even in a separate action subsequent to the action against the fictitious corporate defendant. [Citation.]" (Hennesseys Tavern, supra, 204 Cal.App.3d at p. 1358.)
However, "An alter ego defendant has no separate primary liability to the plaintiff. Rather, plaintiffs claim against the alter ego defendant is identical with that claimed by plaintiff against the already-named defendant. [¶] A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice. [Citations.]" (Hennesseys Tavern, supra, 204 Cal.App.3d at pp. 1358-1359, italics added.)
III
The Fallons Alter Ego Cause of Action
In this case there are two judgments entered against the corporation. In 2002, the Fallons prevailed in the Summit I lawsuit and obtained an award of $40,000 against Summit for legal fees. In 2004, they obtained a default judgment in the Summit II lawsuit and were awarded $72,542.97 representing the legal fees in both actions, plus interest. In the Summit III complaint, the Fallons assert Shreiar is liable for the corporations obligations.
Ordinarily, a judgment against a corporation may be amended to add as a judgment debtor a nonparty alter ego who controlled the underlying litigation and whose interests "were virtually represented in the lawsuit. . . . [Citation.]" (Hall, Goodhue, Haisley & Barker, Inc. v. Marconi Conf. Center Bd. (1996) 41 Cal.App.4th 1551, 1555, internal quotation marks omitted; Code Civ. Proc., § 187.) "This is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. [Citations.]" (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778 (NEC).) "Alternatively, a party may bring a wholly separate action against an individual shareholder on an alter ego theory to enforce a prior judgment against the corporation." (Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc. (1994) 29 Cal.App.4th 1828, 1840 (Brenelli).)
Here, the Fallons chose not to amend the judgment in Summit I. And, we conclude they would not have been permitted to amend the default judgment entered in Summit II because the corporations liability was not actually litigated. (See NEC, supra, 208 Cal.App.3d at p. 779.) Long ago, the California Supreme Court established in Motores De Mexicali v. Superior Court (1958) 51 Cal.2d 172, 175-176 (Motores ), a default judgment cannot be amended to add parties because the new judgment debtors "in no way participated in the defense," and it would violate due process to summarily add new judgment debtors "without allowing them to litigate any questions beyond their relation to the allegedly alter ego corporation."
The Fallons chose the alternative option of suing Shreiar on an alter ego theory in a separate action "to enforce a prior judgment against the corporation." (See Brenelli, supra, 29 Cal.App.4th at pp. 1840-1841.) However, they decided not to seek enforcement of the $40,000 Summit I attorney fee award. Rather, the complaint states the Fallons are seeking damages "in a sum no less than all sums due under the April 29, 2004 [Summit II] Judgment[]" based on the theory Shreiar is Summits alter ego. This tactic raises several problems.
What the Fallons fail to appreciate is the Summit II default judgment cannot be enforced against a purported alter ego without first litigating the corporations underlying liability for malicious prosecution. For the same due process concerns that preclude courts from amending default judgments to add alter ego nonparties, the Fallons separate action must allow Shreiar to litigate more than the question of his alter ego relationship to the corporation. (Cf. Motores, supra, 51 Cal.2d at p. 176.) It is undisputed the default judgment was entered before Summits liability for malicious prosecution was litigated.
The Fallons assert there is evidence Shreiar initially hired an attorney to defend the action, and he could have intervened in the action and defended himself. However, the Supreme Court rejected a similar contention in Motores, holding the alter ego individuals "were under no duty to appear and defend personally in that action, since no claim had been made against them personally." (Motores, supra, 51 Cal.2d at p. 176.) In our case, the record also shows there was no defense for Shreiar to control in Summit II. Early in the proceedings, Summits counsel withdrew from the action due to the corporations insolvency. The court granted the Fallons motion to have the corporations answer stricken and no further effort to defend the case was pursued. In order to hold Shreiar liable for the Summit II judgment, the Fallons would have to litigate more than the alter ego elements. They would have to also prove Summit was liable for malicious prosecution.
Surprisingly, in this third lawsuit (Summit III), the Fallons complaint fails to raise any allegations of malicious prosecution against the corporation or Shreiar. The focus of the complaint is fraudulent conveyance of the corporations money, causing it to become insolvent and unable to pay judgment creditors. Specifically, the Summit III complaint alleges Shreiar, as Summits alter ego, is liable for the corporations fraudulent conveyance. In light of the pleadings, we agree with the trial courts determination the validity of the fraudulent conveyance claim must be addressed first, because absent a valid fraud cause of action against the corporation, there is no reason to address the alter ego theory.
IV
Fraudulent Conveyance
The Fallons argue the trial court erred in determining there were no triable issues of material fact as to whether Shreiar had an actual intent to "hinder, delay, or defraud any creditor" within the meaning of Civil Code section 3439.04, subdivision (a)(1). They claim there are several facts which give rise to an inference of fraud. We disagree.
All further statutory references are the Civil Code, unless otherwise indicated.
"A fraudulent conveyance claim is set forth in the Uniform Fraudulent Transfer Act (UFTA), which is codified in . . . section 3439 et seq. `A fraudulent conveyance is 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.] A transfer under the UFTA is defined as `every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset . . . and includes payment of money, release, lease, and creation of a lien or other encumbrance. (§ 3439.01, subd. (i).) `A transfer of assets made by a debtor is fraudulent as to a creditor, whether the creditors claim arose before or after the transfer, if the debtor made the transfer (1) with an actual intent to hinder, delay, or defraud any creditor, or (2) without receiving reasonably equivalent value in return, and either (a) was engaged in or about to engage in a business or transaction for which the debtors assets were unreasonably small, or (b) intended to, or reasonably believed, or reasonably should have believed, that he or she would incur debts beyond his or her ability to pay as they became due. [Citations.] [Citations.]" (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648, fn. omitted.)
Section 3439.04, subdivision (a), provides: "A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditors claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows: [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor. [¶] (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: [¶] (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction[;] or [¶] (B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they become due."
"Over the years, courts have considered a number of factors, the `badges of fraud [citation] described in a Legislative Committee comment to section 3439.04, in determining actual intent. [Citation.] Effective January 1, 2005, those factors are now
codified at section 3439.04, subdivision (b)[,] and include
considerations such as whether the transfer was made to an insider (§ 3439.04, subd. (b)(1)), whether the transferee retained possession or control after the property was transferred (§ 3439.04, subd. (b)(2)), whether the transfer was disclosed (§ 3439.04, subd. (b)(3)), whether the debtor had been sued or threatened with suit before the transfer was made (§ 3439.04, subd. (b)(4)), whether the value received by the debtor was reasonably equivalent to the value of the transferred asset (§ 3439.04, subd. (b)(8)), and similar concerns. According to section 3439.04, subdivision (c), this amendment `does not constitute a change in, but is declaratory of, existing law." (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.)
Section 3439.04, subdivision (b), provides: "In determining actual intent under paragraph (1) of subdivision (a), consideration may be given, among other factors, to any or all of the following: [¶] (1) Whether the transfer or obligation was to an insider. [¶] (2) Whether the debtor retained possession or control of the property transferred after the transfer. [¶] (3) Whether the transfer or obligation was disclosed or concealed. [¶]
(4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit. [¶] (5) Whether the transfer was of substantially all of the debtors assets. [¶] (6) Whether the debtor absconded. [¶] (7) Whether the debtor removed or concealed assets. [¶] (8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred. [¶] (9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred. [¶] (10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred. [¶]
(11) Whether the debtor transferred the essential assets of the business to a lienholder who transferred the assets to an insider of the debtor."
The presence of one or more of the "`badges of fraud" does not create a presumption of fraud, but is "`evidence from which an inference of actual fraudulent intent may be drawn." (Wyzard v. Goller (1994) 23 Cal.App.4th 1183, 1191 (Wyzard).)
The Fallons assert there are at least three badges of fraud in this case:
First, Shreiar admitted Summit was insolvent before the sale of its assets (§ 3439.04, subd.(b)(9) ["Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred"]). Second, Shreiar admitted all of Summits assets were sold (§ 3439.04, subd. (b)(5) ["Whether the transfer was of substantially all the debtors assets"]). Third, "Shreiar personally directed the Summit I litigation leading to the $40,000 attorney fee award" (§ 3439.04, subd. (b)(4) ["Whether before the transfer was made . . . the debtor had been sued or threatened with suit"]).
We begin by noting the Fallons have misconstrued the purported third "badge." There was no evidence Summits sale and transfer of assets was prompted by fear or anticipation of a hefty lawsuit. Rather, the $40,000 in attorney fees were incurred after Summit lost its lawsuit against the Fallons.
We conclude the other two "badges" cited by the Fallons are insufficient to raise a triable issue of material fact. (See Wyzard, supra, 23 Cal.App.4th at p. 1191.) When considering a summary judgment motion, "the court must `consider all of the evidence and `all of the `inferences reasonably drawn therefrom [citations] . . . ." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843; Code Civ. Proc., § 437c, subd. (c).) However, we also must keep in mind, "`[w]hen opposition to a motion for summary judgment is based on inferences, those inferences must be reasonably deducible from the evidence, and not such as are derived from speculation, conjecture, imagination, or guesswork. [Citation.]" (Waschek v. Department of Motor Vehicles (1997)
59 Cal.App.4th 640, 647.) In this case, the court determined the Fallons presented nothing but speculation. (See Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 864 ["Speculation, however, is not evidence"].)
To defeat the summary judgment motion, the Fallons had the burden of rebutting the evidence proving the transfer was for legitimate business reasons. They attempted to conjure up an inference of fraud by pointing to the undisputed evidence Summit sold all its assets when it was insolvent. In different circumstances, these facts could certainly give rise to an inference of fraud. But, the two "badges" cannot be viewed in a vacuum. As aptly noted by the trial court, the Fallons "conceded that at the time of the sale, Summit was in dire financial straits and was bleeding money. They also conceded that, but for the subsequent failure to pay off the debt owed to them, [Shreiar] made a sound business decision in selling Summit at the price he negotiated. Put differently, [the Fallons] conceded that the price paid by Prudential reflected Summits then-fair market value (or, at least that they had no evidence to rebut [Shreiars] showing that the price was arrived at in an arms length transaction)." Given the above concessions, in addition to the other undisputed facts concerning the circumstances of the buy-out, it would be unreasonable to infer Summits sale of all its assets while insolvent for $2.7 million was a wrongful scheme to preclude the Fallons from being paid $ 40,000.
Finally, we note a fraudulent conveyance cannot be inferred simply from the fact Summit gave other creditors priority over the Fallons. "[F]or over 400 years, the rule has been that an insolvent or failing debtor can prefer one creditor over another. [Citation.] . . . This is because . . . it is difficult to perceive how the payment of a debt which [is] justly owed, and which was past due, can be tortured into an act to hinder, delay, and defraud creditors[.] [Citation.] [Citation.] Therefore, a preferential transfer, made for proper consideration, although made with the recognition that the transfer will prevent another creditor from collecting on his debt, is not for that reason a transfer made to hinder, delay or defraud that creditor. [Citation.]" (Lyons v. Security Pacific Nat. Bank (1995) 40 Cal.App.4th 1001, 1019-1020, internal quotation marks omitted.)
V
Disposition
The judgment is affirmed. The Respondent shall recover its costs on appeal.
We concur:
BEDSWORTH, Acting P. J.
FYBEL, J.