Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, No. BC367750, Elizabeth Allen White, Judge.
Krane & Smith, Marc Smith, Ann Penners Bergen; Akin Gump Strauss Hauer & Feld, Rex S. Heinke, Orly Degani, Katharine J. Galston and Scott J. Street for Plaintiff and Appellant.
Horvitz & Levy, Barry R. Levy, H. Thomas Watson; George Chuang & Associates and George Chuang for Defendants and Respondents.
JOHNSON, J.
Elaine Yaffe filed a motion for new trial after a jury found that the transfer to Aaron Mendelsohn and Michael J. Goldberg of a second trust deed on the home of Eddie Mendelsohn, was not a fraudulent transfer. The trial court denied the motion for new trial, and Yaffe timely appealed. We affirm.
FACTS
I. Early loans and the transfer of ownership of San Diego Pallets.
Eddie Mendelsohn, who is not a party to this lawsuit, had a longstanding habit of borrowing money. As the sole officer, director, and shareholder of a wooden pallet supplier, San Diego Pallets (SDP), from its formation in 1980 until 1996, Eddie borrowed money from family and friends to make the payroll and satisfy SDP’s accounts payable. Between December 1994 and May 1996, SDP borrowed $240,000 from G-G Associates, the general partnership of Eddie’s brother Aaron Mendelsohn and Michael Goldberg.
For the purpose of clarity and ease of identification, we use the first names of the Mendelsohn brothers Aaron and Eddie, and of Aaron’s partner Michael Goldberg. We intend no disrespect.
On May 3, 1996, Eddie executed a promissory note on behalf of SDP for $200,000, consolidating all of G-G’s loans to SDP, and pledging as security his stock in SDP. In exchange, Aaron and Michael agreed to guarantee the repayment of a $200,000 bank loan to SDP. The May 3, 1996 agreement also provided that SDP would assume some of Eddie’s outstanding personal loans, in exchange for Eddie’s cancellation of loans that Eddie had made to SDP. G-G continued to make loans totaling $100,000 to SDP between August 1996 and April 1997.
Eddie also had personally borrowed more than $500,000 from Arthur Kranzler, Lou Rossman, and Jack Farber; he placed those loans on SDP’s books and had SDP’s bookkeeper use his income from SDP to make payments on those loans. Eddie put the loan proceeds into SDP.
On September 15, 1997, because SDP had failed to make payments on the $200,000 promissory note, G-G foreclosed on Eddie’s SDP shares held as security, removed Eddie from his positions at SDP, and Aaron and Michael became the owners and officers of SDP. Aaron served as the president of SDP, and Michael became vice president and chief financial officer. Eddie continued to work in management and sales at SDP.
II. Loans from Yaffe.
Between 1997 and 2002, Eddie went on to borrow a total of $560,000 from Elaine Yaffe. The loans were unsecured, and in September 2002 Eddie signed a single promissory note for the total amount. Yaffe’s lawyer subsequently wrote to Eddie requesting security for the note and asked for information about Eddie’s interest in his home, with the goal of giving Yaffe a collateral interest in the property. On February 13, 2003, Yaffe’s lawyer wrote to Eddie’s lawyer, noting that Eddie had not given Yaffe a secured interest in the home, as he had promised, and stating that Yaffe would have to sue Eddie if he did not provide adequate security.
III. The sale of SDP back to Eddie.
G-G had decided in mid-2001 to sell SDP back to Eddie. Aaron and Michael both were unaware of Eddie’s loans from Yaffe. Michael negotiated the sale price without looking at financial documents or getting an appraisal, considering $1 million to be a fair price for the company because he and Aaron had loaned and invested about that amount over the preceding six years, and the price was fair to Eddie.
On January 1, 2002, G-G resold the shares of SDP to Eddie for $1 million, accepting in payment a $700,000 promissory note secured by the SDP shares and Eddie’s $300,000 interest in a limited liability storage facility corporation. Eddie was to make monthly interest payments on the note beginning July 1, 2002, and principal and interest payments of $5,537 per month from January 2003 to January 2008.
Eddie never made any payments, and by July 2002 he had defaulted on the $700,000 promissory note. Aaron agreed not to foreclose on the SDP stock if Eddie would give Aaron and Michael a security interest in Eddie’s home. On March 13, 2003, Eddie executed a $700,000 second trust deed on his home in favor of Aaron and Michael. Aaron and Michael were still unaware of Eddie’s loans from Yaffe or the promissory note for $560,000.
IV. Stipulated judgment in Yaffe’s favor.
Eddie made payments to Yaffe on the September 2002 promissory note, but in the spring of 2003 he stopped. In October 2003 Yaffe sued to collect on the note, and Eddie stipulated to a $562,000 judgment in her favor. Eddie was to pay $2,000 a month and $25,000 annually. Yaffe recorded the judgment as a lien against Eddie’s home in February 2004. Eddie made a total of $73,000 in payments through November 2005.
After Eddie stopped paying on the stipulated judgment in December 2005, Yaffe sought a writ of execution, seized Eddie’s assets, deposed Aaron, and scheduled Eddie’s debtor’s examination for April 7, 2006.
V. Eddie files for bankruptcy.
Eddie beat Yaffe to the punch and filed for bankruptcy protection on April 6, 2006. He moved to vacate Yaffe’s judgment lien against his home on the ground that there was insufficient equity to support the lien, because the home was subject to a first trust deed to a bank and the second trust deed in favor of Aaron and Michael. The bankruptcy court deferred ruling on the motion pending a state court determination whether the second trust deed in favor of Aaron and Michael was valid.
VI. Yaffe files this lawsuit.
On March 12, 2007, Yaffe filed this lawsuit against Aaron and Michael. The complaint alleged that the March 13, 2003 $700,000 second trust deed was a fraudulent transfer, because when Eddie executed the deed in Aaron and Michael’s favor, Aaron and Michael were aware that he owed Yaffe money. The complaint alleged that the trust deed was entered into for the specific purpose of frustrating Eddie’s creditors, including Yaffe, by putting the home beyond the reach of creditors. The complaint asked for a judgment setting aside the second trust deed as a fraudulent transfer. The complaint also alleged a conspiracy by Aaron and Michael (with Eddie) to defraud Yaffe, and requested a declaration that the second trust deed was a fraud and a fraudulent conveyance, as well as compensatory and punitive damages.
At trial, Aaron and Michael argued that the March 13, 2003 $700,000 second trust deed was not a fraudulent transfer intended to keep the home out of Yaffe’s reach, but that Eddie had transferred the second trust deed to provide additional security for the $700,000 promissory note he gave Aaron and Michael when he bought back SDP on January 1, 2002. Yaffe’s response was that because SDP was not worth the $1 million purchase price for which the promissory note was part of the consideration, Eddie had not transferred the second trust deed for a reasonably equivalent value, and the second trust deed was a fraudulent transfer.
The parties offered two expert witnesses to testify on the value of SDP on January 1, 2002. Yaffe’s expert testified that the liquidation value of SDP was $166,413. Aaron and Michael’s expert testified that the going concern value of SDP was much higher, so that the $1 million purchase price was reasonable. He also calculated the liquidation value of the company as $540,000, by removing Eddie’s loans from Farber, Rossman, and Kranzler from SDP’s liabilities.
The trial court submitted the case to the jury, using Yaffe’s proposed special verdict form. The jury returned a verdict in favor of Aaron and Michael, answering “no” as to Aaron and Michael to the first question: “Was the transfer of the $700,000 Trust Deed on Eddie Mendelsohn’s residence located at 9521 Kirkside Drive, Los Angeles, California 90034 to Defendants Aaron Mendelsohn and Michael Goldberg a fraudulent transfer made in order to avoid paying Yaffe’s judgment against Eddie Mendelsohn?” The special verdict form instructed the jury not to answer any other questions if it answered this question in the negative as to both defendants. The judgment in favor of Aaron and Michael was filed March 24, 2008, with notice of entry given on March 27, 2008.
Yaffe moved for a new trial and for judgment notwithstanding the verdict, and the court denied the motion. Yaffe filed this timely appeal of the denial of the new trial motion.
DISCUSSION
The Uniform Fraudulent Transfer Act (UFTA), in Civil Code section 3439.04, subdivision (a)(1) provides that a transfer made by a debtor (here, Eddie) is fraudulent as to a creditor (here, Yaffe) if the debtor made the transfer “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” Yaffe’s theory in the complaint was that Eddie’s March 2003 transfer of the second trust deed on the house to Aaron and Michael was a fraudulent transfer, because it was made “for the specific purpose to hinder, delay and defraud” Yaffe by putting the equity in the house out of Yaffe’s reach. (The complaint also alleged that Aaron and Michael conspired with Eddie, who was not a party, with the intent to defraud his creditor Yaffe.) The trial court instructed the jury on actual fraud under section 3439.04, subdivision (a)(1), and constructive fraud under section 3439.05.
All subsequent statutory references are to the Civil Code.
The special verdict reached by the jury concluded that as to Aaron and Michael, the transfer was not “a fraudulent transfer made in order to avoid paying” Yaffe, establishing that the jury found that the transfer was not made “with actual intent to hinder, delay, or defraud” as provided in section 3439.04, subdivision (a)(1). The jury thus found no actual fraud in the transfer of the second trust deed. (See Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 122 [section 3934.04, subdivision (a) describes actual fraud].)
At the time of the new trial motion and on this appeal, however, Yaffe argued that a new trial was necessary because there was insufficient evidence to justify a jury verdict in favor of the defense on the theory that Eddie received a “reasonably equivalent value” for the transfer of the second trust deed. This argument is governed by section 3439.05 of the UFTA, which 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.” Yaffe’s argument in the motion for new trial was that the March 2003 transfer was fraudulent because Eddie did not receive a “reasonably equivalent value” for the second trust deed. This was because the $700,000 promissory note secured by the SDP stock (for which the second trust deed was meant to provide additional security) was “not a legitimate debt,” that is, was worth much less than $700,000, because the SDP stock was worth very little when Eddie bought the company back in 2002. For the purposes of section 3439.05, the issue was “reasonably equivalent value,” and the two expert witnesses’ competing valuations of SDP were of central importance. Notably, the intent of the debtor, which is necessary to find actual fraud under section 3439.04, is not an element of the constructive fraud defined in section 3439.05. (Mejia v. Reed (2003) 31 Cal.4th 657, 670 [section 3439.05 of the UFTA defines constructive fraud].) Yaffe also argued that the evidence established actual fraud.
Yaffe’s motion for new trial and the supporting memorandum of points and authorities made a perfunctory argument regarding actual fraud, quoting section 3439.04, subdivision (b) and merely stating “at least 10, if not all 11, indicia of intent to defraud are present with respect to the $700,000 Trust Deed.”
The jury, however, did not return a verdict on the “reasonably equivalent value” issue. The special verdict form, which Yaffe prepared, asked only whether as to Aaron or Michael, the transfer of the second trust deed was a “fraudulent transfer” made in order to avoid paying Yaffe, and the jury answered only this question in the negative. The jury made no factual determination regarding “reasonably equivalent value” or the issue of constructive fraud in the transfer of the second trust deed. Yaffe’s counsel conceded this point in his oral argument on the motion for new trial: “The one thing that special verdict did was prevent the jury from reaching the real question in this case—was San Diego Pallets worth a million dollars. It was a bad question.”
Yaffe thus asked for a new trial on an issue that she had not asked the jury to find on the special verdict form, and on which the jury’s special verdict had made no factual determination: whether Eddie received reasonably equivalent value for the second trust deed on his residence. On appeal, Yaffe makes the same argument, and asks us not only to find that the trial court abused its discretion when it denied her motion for new trial, but also to reverse the judgment.
Neither party raised the issue whether the special verdict determined reasonably equivalent value, and we invited the parties to address the issue in supplemental letter briefs.
We review the special verdict de novo, interpreting it “‘“from its language considered in connection with the pleadings, evidence and instructions.”’” (Zagami, Inc. v. James A. Crone, Inc. (2008) 160 Cal.App.4th 1083, 1091, 1092, fn. 5 (Zagami); Woodcock v. Fontana Scaffolding & Equip. Co. (1968) 69 Cal.2d 452, 456.) The sole question answered by the jury on the special verdict form was whether the transfer was made “in order to avoid paying Yaffe’s judgment against Eddie Mendelsohn,” for a finding that Aaron and Michael committed actual fraud under section 3439.04. The jury was instructed, pursuant to section 3439.04 subsection (b), that whether the value that Eddie received was not reasonably equivalent to the value of the asset transferred (the second trust deed) was one of 11 factors that the jury “may consider, among other factors,” and the instruction also provided that “Evidence of one or more factors does not automatically require a finding [of] intent to hinder, delay, or defraud creditors.” The question of “reasonably equivalent value” thus was only one of many factors the jury could have considered in answering “no” as to both Aaron and Michael to the special verdict form’s question whether the transfer was “made in order to avoid paying” Yaffe.
The jury was also instructed that Aaron and Michael “claim [they are] not liable to plaintiff on the claim for actual fraud because defendants took the property from Eddie Mendelsohn in good faith and for a reasonably equivalent value. [¶] To succeed on this defense, defendants must prove both of the following: [¶] 1. That defendants took the property from Eddie Mendelsohn in good faith; and [¶] 2. That they took the property for a reasonably equivalent value.” (See § 3439.08, subd. (a).) The special verdict form, however, did not ask whether or not the jury credited this affirmative defense, and no inference supporting that conclusion can be made.
In general, we reverse the trial court’s determination of a motion for a new trial only if the trial court abused its discretion. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 859.) It is obviously not an abuse of discretion to deny a new trial motion which argues a theory not presented to or decided by the jury in the verdict form prepared by the party arguing for a new trial. Yaffe’s appeal is entirely without merit.
Yaffe’s appellate brief points out that Yaffe’s new trial motion argued that the special verdict question was erroneous. One claimed factual error was the use of the word “judgment” rather than “claim” and is not relevant to Yaffe’s argument on appeal. Yaffe’s other claim of error (argued in the new trial motion) was that the special verdict form (which, again, Yaffe prepared) was legally incorrect, because it asked the jury to determine actual, not constructive, fraud in the transfer of the second trust deed. She does not repeat this specious argument on appeal. Yaffe made a considered choice to present to the jury in the special verdict form only the issue of actual fraud, and we reject the contention that this choice was error justifying a new trial on a different legal theory. “[T]he verdict here did not suffer from any legal defect—it simply was not specific enough to render it amenable to the type of challenge defendant now raises.... [C]ounsel has no one to blame but herself for a verdict form that was too general to preserve [the] claim.” (Greer v. Buzgheia (2006) 141 Cal.App.4th 1150, 1159.)
To the extent that “the verdict is merely ambiguous, a party’s failure to request a correction or clarification of the verdict before the jury is discharged may amount to a waiver of the ambiguity or defect, particularly if the party’s failure to object was to reap a ‘“technical advantage”’ or to engage in a ‘“litigious strategy.”’” (Zagami, supra, 160 Cal.App.4th at p. 1092, fn. 5.)
Yaffe also argues that the trial court misapprehended its role in considering the motion for new trial by its refusal to act as a “‘thirteenth juror.’” This requires us to resolve a pure question of law, that is, the correctness of the legal standard applied by the trial court. As the court had no discretion to apply an improper legal standard, we would ordinarily scrutinize this initial question de novo. (Aguilar v. Atlantic Richfield Co., supra,25 Cal.4th at859.) Here, we decline to engage in an analysis of the trial court’s legal standard, however, because as we determined earlier, Yaffe’s appeal argues that a new trial should be granted on the basis of an issue which Yaffe did not ask the jury to determine, and which the jury did not determine, in the special verdict. Even if we were to conclude that the court misapprehended its duty in examining the new trial motion, Yaffe would not be entitled to a new trial on a “reasonably equivalent value” issue under section 3439.05 when the only issue presented to and decided by the jury (against Yaffe) was the intent of Aaron and Michael under section 3439.04, subdivision (a)(1).
DISPOSITION
The order denying the motion for new trial is affirmed. Costs are awarded to respondents.
We concur: MALLANO, P. J., CHANEY, J.