A-List v. Salus Capital Partners CA2/7 ( 2022 )

Filed 8/12/22 A-List v. Salus Capital Partners CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
A-LIST INC. et al., B306617
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC630062)
v.
SALUS CAPITAL PARTNERS,
LLC,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Teresa A. Beaudet, Judge. Affirmed.
Brown, Neri, Smith, & Khan, Amjad M. Khan and Patricia
E. Tenenbaum for Plaintiffs and Appellants.
Greenberg Traurig, LLP, Scott D. Bertzyk, John F.
Farraher Jr., Adil M. Khan and Michael E. McCarthy for
Defendant and Respondent.
___________________________________
INTRODUCTION
A-List Inc. and another corporation A-List later acquired,
H-List Inc. (collectively, A-List), owned a retail brand called
Kitson. A-List and its founder, Fraser Ross, sued one of A-List’s
lenders, Salus Partners LLC, alleging Salus took control of and
mismanaged A-List’s business operations. The trial court
granted Salus’s motion for summary judgment for one of the two
reasons Salus argued it was entitled to judgment as a matter of
law. The court ruled that, because Ross no longer owned shares
in A-List, he did not have “standing” or “authority” to direct
A-List to file the lawsuit and that therefore neither Ross nor
A-List had standing to assert the causes of action in the
complaint. A-List (but not Ross) appeals from the ensuing
judgment in favor of Salus. We affirm the judgment, but for the
other reason Salus moved for summary judgment, which the trial
court did not reach: A-List lacked standing to bring its causes of
action because it had assigned them to a third party.
FACTUAL AND PROCEDURAL BACKGROUND
A. A-List Struggles Financially and Enters into an
Assignment for the Benefit of Creditors
Ross founded the Kitson retail brand in 2000 and formed
A-List to operate Kitson fashion boutique stores. According to
Ross and A-List, the company began to suffer financially after
Ross had a serious illness in 2012. A-List and Salus
subsequently entered into a credit agreement, in which Salus
agreed to loan A-List up to $15 million, depending on the value of
A-List’s inventory and intellectual property.
2
Ross eventually transferred his shares in A-List to
Christopher Lee, who was A-List’s chief executive officer at the
time. After Lee left A-List (Lee says he resigned; Salus says he
was fired), A-List hired James Wong as chief financial officer and
chief restructuring officer and passed a resolution authorizing
Wong to “determine . . . whether it [was] desirable and in the best
interest” of A-List and its creditors to “commence a sale or
liquidation process, including . . . entering into an Assignment for
the Benefit of Creditors with a company of Wong’s choosing . . . .”
In December 2015 Wong signed, on behalf of A-List, an
assignment for the benefit of creditors with Winter Harbor LLC.
As part of the agreement, A-List assigned “in trust for the benefit
of [A-List’s] creditors generally, all of [A-List’s] property and
assets of every kind and nature . . ., including but not limited to
. . . all choses in action (personal or otherwise) that are legally
assignable together with the proceeds of any existing
non-assignable choses in action” A-List later received.
B. Ross Files This Action Against Lee; Winter Harbor
Files a Lawsuit Against Salus
In August 2016 Ross (but not A-List) filed this action,
initially naming Lee as the only defendant. Ross alleged Lee
made “false representations to induce [Ross] to forego . . .
opportunities” that would have been “beneficial to [Ross] and
Kitson and instead, enter into a series of transactions” that
benefitted Lee. Ross also alleged Lee mismanaged the Kitson
businesses, causing the value of the companies to decrease.
Two months later Winter Harbor, in its capacity as A-List’s
assignee, sued Salus in the United States District Court for the
Central District of California. Winter Harbor alleged Salus
3
breached a funding agreement that required Salus to pay, using
proceeds obtained from liquidating A-List’s assets, $2.3 million
A-List owed the federal taxing authorities. Winter Harbor and
Salus ultimately settled that action and, as part of the
settlement, Winter Harbor and Salus released each other from all
known and unknown claims they had against each other “with
respect to [A-List] or the Assignment for the Benefit of Creditors
related thereto . . . .”
C. Ross Adds Salus as a Defendant and Settles With Lee;
A-List Joins as a Plaintiff
After Winter Harbor and Salus settled their lawsuit, Ross
added Salus as a defendant in this action, along with two entities
related to Salus, HGI Management Holdings, LLC, Salus’s parent
company, which Ross claimed “directed Salus’s operations,” and
Spencer Spirit Holdings, Inc., which Ross alleged loaned A-List
an additional $4 million after A-List obtained the loan from
Salus.1 Ross alleged Salus and Spencer later “assert[ed] direct
operational control over Kitson,” “failed to act in a commercially
reasonable manner,” and ran “the [c]ompany to ruin.” In
particular, Ross claimed that the two lenders engaged in a
“strategy to pump up Kitson’s inventory before liquidating” the
company’s assets by ordering “more inventory than Kitson could
sell” and promising “the vendors that they would be paid upon
the sale of their merchandise,” but that the lenders instead
1 Ross later added as a defendant BHK Investments, LLC,
an alleged alter ego of Spencer created to fund Spencer’s loan to
A-List.
4
“closed all Kitson stores, hired liquidation firms to monetize the
inventory, and never paid the vendors . . . .”2
In July 2018 Ross and Lee reached a settlement where Lee
agreed to transfer back to Ross some of the shares Lee claimed he
still owned in A-List,3 and Ross agreed to dismiss his causes of
action against Lee. After the settlement, A-List joined the
lawsuit as a plaintiff and with Ross filed the operative, third
amended complaint. As relevant to this appeal, A-List asserted
causes of action for negligence, breach of fiduciary duty, and
constructive fraud against Salus (as well as the other lenders),
based on the same alleged scheme by Salus and Spencer to
increase Kitson’s inventory and liquidate the business’s assets.
2 A-List contends this type of scheme is “common among
asset-based lenders” and is “known in the retail industry as
‘pump and dump.’” The more common use of the phrase “pump
and dump” is a kind of securities fraud where shareholders
“[m]ake claims that artificially inflate (‘pump up’) the value of
stock [they] own,” “[g]ullible investors then buy the stock at
inflated prices,” and the original shareholders “sell high and bug
out with the inflated difference in value.” (Kruss v. Booth (2010)
185 Cal.App.4th 699, 703; see United States v. Zolp (9th Cir.
2007) 479 F.3d 715, 717 fn. 1 [“‘Pump and dump’ schemes ‘involve
the touting of a company’s stock (typically microcap companies)
through false and misleading statements to the marketplace.
After pumping the stock, fraudsters make huge profits by selling
their cheap stock into the market.’”].) A-List does not use the
term in this sense.
3 As we will discuss, A-List and Salus dispute whether Lee
still owned any shares to transfer to Ross.
5
D. The Court Grants Summary Adjudication on A-List’s
Causes of Action and Later Enters Judgment in Favor
of Salus
Salus and the other lenders filed a motion for summary
adjudication on each of A-List’s causes of action, asserting they
were entitled to judgment as a matter of law for two reasons.
First, they argued A-List did not have standing to assert its
causes of action because it had assigned them to Winter Harbor
as part of the assignment for the benefit of creditors. Second,
they argued A-List did not have standing to assert its causes of
action because Ross did not own shares in A-List and “therefore
has no authority to direct Kitson to assert any claims.” The
lenders contended that, when Lee left A-List in 2015, A-List
reacquired all of Lee’s shares pursuant to a stockholders’
agreement between Lee and A-List. Therefore, according to the
lenders, Lee did not have any A-List shares to transfer to Ross
when he agreed to do so in his settlement agreement with Ross.
The trial court granted the motion on the second ground.
The court ruled that A-List reacquired Lee’s shares when his
employment ended and that Lee had no shares in A-List “to
transfer to Ross in 2018 . . . .” Therefore, the court ruled, Ross
did not have “the requisite authority to direct the claims asserted
by” A-List against the lenders. The court declined to consider the
lenders’ alternative argument that, because A-List had assigned
its causes of action to Winter Harbor, A-List lacked standing to
assert those claims in this action.
Meanwhile, Salus had filed a cross-complaint against
A-List, seeking to recover money A-List allegedly failed to repay
under their credit agreement. After the court granted summary
adjudication on A-List’s causes of action, Salus’s cross-complaint
6
remained pending. A-List and Salus, however, agreed to a
stipulated judgment in favor of Salus and against A-List on the
cross-complaint. In June 2020 the trial court entered the
stipulated judgment on the cross-complaint, and in July 2020 the
court entered judgment in favor of Salus and against A-List on
the third amended complaint.4 A-List timely filed a notice of
appeal from the judgment on the third amended complaint.5
DISCUSSION
A. Applicable Law and Standard of Review
“Summary judgment is appropriate only where no triable
issue of material fact exists and the moving party is entitled to
judgment as a matter of law.’” (Regents of University of
California v. Superior Court (2018) 4 Cal.5th 607, 618; see Code
Civ. Proc., § 437c, subd. (c); Valdez v. Seidner-Miller, Inc. (2019)
33 Cal.App.5th 600, 607.) “A defendant moving for
summary adjudication of a cause of action must show that one or
more elements cannot be established or,” as relevant here, “that
there is a complete defense.” (Clark v. Superior Court (2021)
62 Cal.App.5th 289, 298; see Regents, at p. 618; Mattei v.
4 We augment the record pursuant to California Rules of
Court, rule 8.155(a)(1)(A) to include the parties’ stipulation and
court’s judgment in this action.
5 Spencer, BHK, and HGI are not parties to this appeal; they
still have claims pending against A-List, and the trial court has
not entered a judgment on any of those claims.
7
Corporate Management Solutions, Inc. (2020) 52 Cal.App.5th 116,
122.)
A “‘“defendant moving for summary judgment based upon
the assertion of an affirmative defense . . . ‘has the initial burden
to show that undisputed facts support each element of the
affirmative defense’ . . . .”’” (Shiver v. Laramee (2018)
24 Cal.App.5th 395, 400; see Severin Mobile Towing, Inc. v.
JPMorgan Chase Bank, N.A. (2021) 65 Cal.App.5th 292, 302;
Sumner v. Simpson University (2018) 27 Cal.App.5th 577, 580.)
If “the defendant meets that burden, the burden shifts to the
plaintiff to show a triable issue of material fact regarding the
defense.” (Filosa v. Alagappan (2020) 59 Cal.App.5th 772, 778;
see Shiver, at p. 400.)
We review a ruling on a motion for summary adjudication
de novo (Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248,
273; Michaels v. Greenberg Traurig, LLP (2021) 62 Cal.App.5th
512, 520) and “decide independently whether the facts not subject
to triable dispute warrant judgment for the moving party as a
matter of law” (Mattei v. Corporate Management Solutions, Inc.,
supra, 52 Cal.App.5th at p. 122; see Regents of University of
California v. Superior Court, supra, 4 Cal.5th at p. 618). We
consider “‘“‘“all the evidence set forth in the moving and opposing
papers except that to which objections were made and
sustained.”’”’” (Hampton v. County of San Diego (2015)
8
62 Cal.4th 340, 347; see Sharufa v. Festival Fun Parks, LLC
(2020) 49 Cal.App.5th 493, 497.)
B. The Trial Court Did Not Err in Granting Salus’s
Motion for Summary Adjudication
As discussed, the trial court ruled A-List “lacked standing”
to bring its causes of action because Ross did not own shares in
A-List and therefore did not have authority to direct A-List to
bring this action. The trial court’s ruling on this issue was
flawed. Generally, “[p]ersons have standing to sue when they are
real parties in interest.” (Amstone v. Peninsular Fire Ins. Co.
(1991) 226 Cal.App.3d 1019, 1023; see Pacific Gas & Electric Co.
v. Superior Court (2006) 144 Cal.App.4th 19, 23 [“Standing in a
lawsuit is governed by Code of Civil Procedure section 367, which
provides: ‘Every action must be prosecuted in the name of the
real party in interest, except as otherwise provided by statute.’”].)
Where a cause of action seeks redress for damage to a
corporation, the corporation is the real party in interest and the
proper party to assert the cause of action. (See Bader v.
Anderson (2009) 179 Cal.App.4th 775, 788 [“where conduct,
including mismanagement by corporate officers, causes damage
to the corporation, it is the entity that must bring suit”]; PacLink
Communications Intern., Inc. v. Superior Court (2001)
90 Cal.App.4th 958, 965 [“‘“a corporation which suffers damages
through wrongdoing by its officers and directors must itself bring
the action to recover the losses thereby occasioned’””]; see also
Schuster v. Gardner (2005) 127 Cal.App.4th 305, 312 [even in a
shareholder derivative action, the corporation “is the real party
in interest to which any recovery usually belongs”].) Here,
A-List—the corporate entity—claimed Salus’s mismanagement of
9
A-List’s operations harmed the corporation. Regardless of
whether Ross, A-List’s alleged shareholder, is a real party in
interest and has standing to bring claims under such a theory,
A-List is and does.
Salus’s challenge is actually not to A-List’s standing, but to
Ross’s authority to manage A-List’s affairs. Salus, however, cites
no authority (and, as the trial court observed, Salus cited none in
its motion) for the proposition a defendant may raise as a defense
to a cause of action asserted by a corporation (which is the real
party in interest) that a shareholder or other person “directed”
the corporation to file the lawsuit without proper authorization.
Indeed, California law does not allow such a defense.
Corporations Code section 208, subdivision (a), states: “No
limitation upon the business, purposes or powers of the
corporation or upon the powers of the shareholders, officers or
directors, or the manner of exercise of such powers, contained in
or implied by the articles or . . . by any shareholders’ agreement
shall be asserted as between the corporation . . . and any third
person . . . .” As the California Supreme Court has explained,
this statute “restricts third parties from questioning the manner
in which the corporate directors have exercised their powers,
unless the third parties fall within” one of the exceptions listed in
the statute, “such as the state when it is seeking to enjoin the
continuation of unauthorized business, or the corporation is being
dissolved” (Snukal v. Flightways Mfg., Inc. (2000) 23 Cal.4th 754,
787, fn. 14), neither of which applies here. Otherwise, “[o]nly a
shareholder, officer, or director” may “bring suit to challenge a
corporation’s management or control.” (Korean Philadelphia
Presbyterian Church v. California Presbytery (2000)
77 Cal.App.4th 1069, 1083.) No purported shareholder, officer, or
10
director of A-List has filed a lawsuit, or sought to intervene in
this one, to prevent A-List from asserting its claims against
Salus. Salus has no basis to question the authority on which
A-List brings this action. (See id. at pp. 1082-1083 [religious
association could not challenge a preliminary injunction
requested by a church on the ground the church’s pastor “acted in
excess of [his] authority” in seeking the injunction, where no
“member of [the] board, nor any other member of the Church who
oppose[d] [the pastor’s] control of the board [was] a party to [the]
case”].)
We can affirm the trial court’s order granting summary
adjudication, however, “‘if it is correct on any ground the parties
had an adequate opportunity to address in the trial court,
regardless of the reasons the trial court gave.’” (Wolf v.
Weber (2020) 52 Cal.App.5th 406, 410; see Levya v. Crockett &
Co. (2019) 7 Cal.App.5th 1105, 1108-1109 [“‘“we must affirm so
long as any of the grounds urged by [defendants], either here or
in the trial court, entitle [them] to summary judgment”’”].) And
Salus’s second argument entitled it to judgment as a matter of
law: A-List lacked standing to bring its causes of action against
11
Salus because A-List previously assigned those causes of action to
Winter Harbor.6
1. Salus Met Its Burden To Show A-List Was Not
the Real Party in Interest Because It Assigned
Its Causes of Action to Winter Harbor
As stated, Code of Civil Procedure section 367 provides that
“[e]very action must be prosecuted in the name of the real party
in interest, except as otherwise provided by statute.” (See Doe v.
Regents of University of California (2022) 80 Cal.App.5th 282, ___
[2022 WL 2286393, p. 8] [a “real party in interest is a ‘person who
possesses the right to sue under the substantive law’”].) The
real party in interest may assign to another person a right to
assert a cause of action. (Civ. Code, § 954; see Casa Eva I
6 Code of Civil Procedure section 437c, subdivision (m)(2),
provides that, “[b]efore a reviewing court affirms an order
granting . . . summary adjudication on a ground not relied upon
by the trial court, the reviewing court shall afford the parties an
opportunity to present their views on the issue by submitting
supplemental briefs.” Here, because the parties addressed the
issue in their appellate briefs, supplemental briefing is not
required. (See Hooked Media Group, Inc. v. Apple Inc. (2020)
55 Cal.App.5th 323, 336, fn. 1 [“Because [the appellant] has been
afforded an opportunity to present its views, no supplemental
briefing is required.”]; Goddard v. Department of Fish &
Wildlife (2015) 243 Cal.App.4th 350, 359, fn. 5 [“supplemental
briefing is not required” because the “plaintiffs directly addressed
the issue in their briefs, and the [defendant] addressed it in its
reply brief”]; Bains v. Moores (2009) 172 Cal.App.4th 445, 471,
fn. 39 [where “defendants directly addressed the issue in their
briefs, and plaintiffs addressed it in their reply brief,” the
“purpose of section 437c, subdivision (m)(2)” was “fully met”].)
Nor has A-List requested supplemental briefing.
12
Homeowners Assn. v. Ani Construction & Tile, Inc. (2005)
134 Cal.App.4th 771, 782 [causes of action “are assignable when
they arise out of an obligation or out of the violation of a right of
property,” italics omitted].) Once the assignor has assigned a
cause of action, “‘“the assignee is the owner and has the right to
sue on it,”’” and “‘“the assignor lacks standing to sue on the
claim.”’” (California Bank & Trust v. Piedmont Operating
Partnership, L.P. (2013) 218 Cal.App.4th 1322, 1347; accord,
Searles Valley Minerals Operations Inc. v. Ralph M. Parson
Service Co. (2011) 191 Cal.App.4th 1394, 1402; see Botsford v.
Haskins & Sells (1978) 81 Cal.App.3d 780, 784 [“‘An assignor
may not maintain an action upon a claim after making an
absolute assignment of it to another; his right to demand
performance is extinguished, the assignee acquiring such
right.’”]; McCown v. Spencer (1970) 8 Cal.App.3d 216, 225
[same].)
Salus presented undisputed evidence A-List transferred its
causes of action to Winter Harbor in December 2015, eight
months before Ross (initially without A-List) filed this action. In
the assignment for the benefit of creditors, A-List assigned to
Winter Harbor “all of [A-List’s] property and assets of every
kind,” including “all choses in action (personal or otherwise) that
are legally assignable. . . .” A-List did not join this lawsuit and
assert its causes of action against Salus until nearly three years
later, well after it assigned its causes of action (and in fact after
Winter Harbor, pursuant to the assignment, filed and settled a
lawsuit against Salus).7 Therefore, Salus met its moving burden
7 Salus also contends the general release in the Salus-Winter
Harbor settlement agreement bars the claims asserted by A-List
13
to show A-List lacked standing. (See Botsford v. Haskins & Sells,
supra, 81 Cal.App.3d at pp. 783-784 [trial court properly granted
summary judgment against a corporation where the corporation
executed an agreement assigning to a trustee “all of its right, title
and interest in and to all of its assets, of whatsoever nature and
wheresoever situated,” fn. omitted].)
2. A-List Did Not Create a Triable Issue of
Material Fact Regarding Whether Its Causes of
Action Accrued After the Assignment
A-List’s primary argument is that it did not assign its
causes of action to Winter Harbor (or that there are triable issues
of fact regarding whether it did) because it assigned only causes
of action that “existed” as of the date of the assignment and that
its causes of action against Salus did not “accrue” until after it
executed the assignment for the benefit of creditors. Even
assuming A-List intended to assign only “existing” causes of
action, however, each of the causes of action A-List asserted in
this action existed when A-List entered into the assignment for
the benefit of creditors.8
“A cause of action is a legal obligation the plaintiff seeks to
enforce against the defendant” that comes “into existence
in this action. While A-List challenges the validity and scope of
the assignment, as we discuss, A-List does not dispute that, if the
assignment was valid, the release covered its claims.
8 As stated, the assignment provided that A-List was
assigning, among other things, “all choses in action (personal or
otherwise) that are legally assignable together with the proceeds
of any existing non-assignable choses in action that be hereafter
14
or arise[s]” when “all the elements have been established.” (In re
Marriage of Klug (2005) 130 Cal.App.4th 1389, 1398; see Aryeh v.
Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191
[“Traditionally at common law, a ‘cause of action accrues “when
[it] is complete with all of its elements”—those elements being
wrongdoing, harm, and causation.’”]; Cline v. Yamaga (1979)
97 Cal.App.3d 239, 245 [“A cause of action arises when the
liability or obligation is established and suit may be brought.”].)
“As a practical matter, a cause of action generally arises for the
first time when the injury is suffered. [Citation.] Once injury
occurs, the injured party has a property interest . . . .” (Marriage
of Klug, at p. 1398.)
In each of its causes of action, A-List sought redress for
wrongdoing by Salus, and for injury to A-List, that occurred
before the December 2015 assignment. For example, in support
of each cause of action, A-List alleged that in May 2013 (when
Salus agreed to loan money to A-List) Salus failed to disclose it
“lacked the commercial lending license required to lend in
California,” which caused A-List to agree to borrow money from
Salus rather than pursue or accept a more lucrative purchase
offer. A-List also alleged in support of each cause of action that
Salus’s scheme to pump up Kitson’s inventory began immediately
after A-List obtained the loan from Spencer in April 2015, which
“culminated in the Fall of 2015” and caused damage to A-List by
no later than several weeks before Christmas 2015.
A-List does not dispute that the elements of its causes of
action existed when it entered the assignment agreement. A-List
received by [A-List].” Salus did not argue in the trial court, and
does not argue on appeal, this language covers assignable claims
that did not yet exist.
15
argues instead that, under the discovery rule, a cause of action
does not accrue until a plaintiff knows or has reason to know of
the cause of action and that there are triable issues of material
fact regarding when A-List’s officers and shareholders discovered
Salus’s wrongdoing. A-List conflates when a cause of action
“comes into existence or arises,” i.e., when the party in interest
“has a property interest” (In re Marriage of Klug, supra,
130 Cal.App.4th at p. 1398), with when the limitations period for
bringing that cause of action begins to run. “[A]ccrual of a cause
of action in the sense of creation of an actionable claim is not the
same as accrual for purposes of the statute of limitations.
‘[A] cause of action may be viewed in the eyes of the law as
“accruing” for different purposes on different dates, depending on
the purpose for which the accrual determination is being sought.’”
(Vanhooser v. Superior Court (2012) 206 Cal.App.4th 921, 929;
see Nelson v. Flintkote Co. (1985) 172 Cal.App.3d 727, 733
[“a statute of limitations is procedural; it affects the remedy only,
not the substantive right or obligation”]; Piazza Properties, Ltd. v.
Department of Motor Vehicles (1977) 71 Cal.App.3d 622, 628
[same].) A-List’s causes of action against Salus existed when
A-List assigned all “legally assignable” causes of action to Winter
Harbor, and A-List cites no authority for the proposition that a
corporation may not or did not assign an existing cause of action
solely because the corporation claims it didn’t know of the cause
of action’s existence. (See Webb v. Pillsbury (1943) 23 Cal.2d 324,
327 [“‘assignability of things [in action] is now the rule;
nonassignability, the exception’”]; Times Out, LLC v.
Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1011 [same].)
The analogous rules governing causes of action held by a
trustee in bankruptcy are instructive. “[W]hen a bankruptcy
16
petition is filed,” an “‘estate’ is created” (Cusano v. Klein (9th Cir.
2001) 264 F.3d 936, 945), and such an estate is similar to the
trust created by an assignment for the benefit of creditors. (See
Sherwood Partners, Inc. v. EOP-Marina Business Center, L.L.C.
(2007) 153 Cal.App.4th 977, 981-982 [“‘[a]n assignment for
benefit of creditors is a business liquidation device available to an
insolvent debtor as an alternative to formal bankruptcy
proceedings,’” where “‘an insolvent debtor transfers his or her
assets in trust to an assignee’”]; Credit Managers Assn. v.
National Independent Business Alliance (1984) 162 Cal.App.3d
1166, 1169 [same].) The “[a]ssets of the estate properly include
any of the debtor’s existing causes of action” (Cusano, at p. 945),
including “all causes of action that hypothetically could have been
brought pre-petition,” “even if the debtor[ ] w[as] unaware of the
claim.’” (Tyler v. DH Capital Management, Inc. (6th Cir. 2013)
736 F.3d 455, 462; see March et al., Cal. Practice Guide:
Bankruptcy (The Rutter Group 2021) ¶ 6:58 [“a cause of action is
considered estate property even where the debtor is unaware of
[the] claim during the course of the bankruptcy case”]; cf. Essex
Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1259
[“Under bankruptcy law, the trustee in bankruptcy receive[s] all
causes of action that the bankrupt could have assigned.”].) As
one bankruptcy court has explained, there is a “distinction
between the claim and substantive rights coming into existence
(‘acquired’), and the ‘accrual’ for the statute of limitations
computation . . . . [¶] The application of [California’s] Discovery
Rule . . . does not determine whether the interest of the [d]ebtor
(the rights against the third-party) exist, just that the
(procedural) statute of limitations would not begin to run until
the [d]ebtor and her [b]ankruptcy [e]state knew of the pre-
17
existing rights. . . .” (In re Carroll (Bankr. E.D.Cal. 2018) 586
B.R. 775, 789-790.) While a debtor may not “realize[ ] that she
[has] a valid claim, . . . the claim (the legal interest) exist[s]
nonetheless” and becomes “part of the [e]state.” (Id. at p. 790; see
Cusano, at p. 947 [“It is important . . . to distinguish principles of
accrual from principles of discovery and tolling . . . for purposes of
ownership in a bankruptcy proceeding.”].) Here, too, A-List’s
causes of action against Salus existed when A-List assigned its
causes of action to Winter Harbor, even if A-List did not know
about them.
A-List also argues that Salus’s allegedly wrongful conduct
“continued” after the assignment and that A-List did not assign
to Winter Harbor causes of action arising from conduct by Salus
that occurred after the assignment. A-List cites no authority in
support of this argument. Nor is it persuasive. Even if Salus’s
alleged misconduct continued after the assignment, Salus’s
claims arise from a single course of conduct by Salus that violated
a single right of A-List; namely, Salus’s scheme to take “direct
operations control” over A-List “in a way that privileged [Salus’s]
interests” as a “lender[ ] and liquidator[ ] over the interests” of
A-List. (See Crowley v. Katleman (1994) 8 Cal.4th 666, 681 [A
“‘cause of action’ is comprised of a ‘primary right’ of the plaintiff,
a corresponding ‘primary duty’ of the defendant, and a wrongful
act by the defendant constituting a breach of that duty.
[Citation.] The most salient characteristic of a primary right is
that it is indivisible: the violation of a single primary right gives
rise to but a single cause of action.”].) Where, as here, “the series
of injuries claimed . . . all trace to the same underlying conduct
committed by the same defendant[ ], there is no basis to assign
a later accrual date” to conduct that occurred after the initial
18
wrongdoing and injury. (Choi v. Sagemark Consulting (2017)
18 Cal.App.5th 308, 338.) A-List’s causes of action were complete
with all of their elements before the assignment; A-List cannot
split its causes of action to avoid the effect of the assignment.
(See id. at p. 336 [“that damages accrued in stages, does not
transform one primary right into many”]; Panakosta Partners, LP
v. Hammer Lane Management, LLC (2011) 199 Cal.App.4th 612,
634 [“‘“[a] single cause of action cannot be split either as to relief
demanded or grounds on which recovery is sought”’”].)
3. A-List Did Not Create a Triable Issue of
Material Fact Regarding Validity of the
Assignment
Finally, A-List contends the assignment for the benefit of
creditors was invalid (or at least there were triable issues
regarding whether it was invalid) on two grounds. First, A-List
argues that the assignment was “approved by a Board of
Directors comprised of only one director,” in violation of A-List’s
by-laws, and that the director “was conflicted because he [was]
affiliated with the vendor hired to perform the liquidation sales”
pursuant to the assignment. A-List cites no authority for the
proposition that an assignment for the benefit of creditors
approved by a sole director is “invalid” in either circumstance.9
9 Under certain conditions, a corporation may set aside
contracts between the corporation and a third party in which a
director of the corporation has a material financial interest. (See
Corp. Code, § 310, subd. (a).) A-List, however, does not contend
and did not present evidence its director in 2015 had a material
financial interest in Winter Harbor, the entity to which A-List
assigned its causes of action. Therefore, even if A-List’s director
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And California law is to the contrary. Corporations Code section
208, subdivision (b), provides: “Any contract or conveyance made
in the name of a corporation which is . . . done within the scope of
the authority, actual or apparent, conferred by the board or
within the agency power of the officer executing it . . . binds the
corporation, . . . .” More succinctly, “an officer can bind the
corporation in dealings with third parties in which the officer has
actual or apparent authority.” (GAB Business Services, Inc. v.
Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th
409, 421.) A-List presented no evidence that Wong, acting as
A-List’s chief financial and restructuring officer under a
resolution passed by the board, lacked apparent authority when
he executed the assignment for the benefit of creditors. Nor did
A-List present evidence Winter Harbor knew any of A-List’s
directors had a purported conflict or were acting outside the scope
of his or her authority under A-List’s bylaws. (See Newton v.
Johnson Organ & Piano Mfg. Co. (1919) 180 Cal. 185, 191 [“by-
laws . . . are of no binding force upon third persons having no
knowledge of them”]; Aitken v. Stewart (1933) 129 Cal.App. 38, 46
[same]; see Friedman et al., California Practice Guide:
Corporations (The Rutter Group 2022) ¶¶ 4:342, 4:345 [“bylaw
limitations generally have no effect on the rights of third parties
dealing with the corporation,” but are “effective in determining
the liabilities of the officers to the corporation”])
Second, A-List argues the assignment for the benefit of
creditors was invalid because Winter Harbor did not give notice
was “conflicted” because of his affiliation with a party hired to
perform the liquidation sales, A-List did not create triable issues
of material fact regarding whether the assignment for the benefit
of creditors was invalid.
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of the assignment to some of A-List’s creditors, in violation of
Code of Civil Procedure section 1802.10 A-List yet again cites no
authority for its contention that failure to comply with section
1802 renders an assignment for the benefit of creditors invalid—
at least as to the corporation.11 And again California law is to the
contrary. (See Bumb v. Bennett (1958) 51 Cal.2d 294, 299
[because assignments for the benefit of creditors “existed at
common law, . . . it follows that” such assignments are not
“invalid because they do not conform to the provisions of the Civil
Code relating to statutory assignments for the benefits of
creditors”];12 cf. Smith v. Harris (1954) 127 Cal.App.2d 311, 316
[“[t]he general rule supported by the weight of authority holds
10 Code of Civil Procedure section 1802, subdivision (a),
provides: “In any general assignment for the benefit of
creditors, . . . the assignee shall, within 30 days after the
assignment has been accepted in writing, give written notice of
the assignment to the assignor’s creditors, equity holders, and
other parties in interest . . . .”
11 A-List cites one case suggesting the assignment “would be
void as to nonconsenting creditors” who did not receive the
required notice (Bernstein v. Equitable Discount Corp (1935)
8 Cal.App.2d 265, 269), but no authority suggesting the
corporation may invalidate the assignment and recover the
assigned assets from the assignee.
12 The assignment between A-List and Winter Harbor states:
“It is understood and agreed that this Assignment is a common
law assignment for the general benefit of [A-List’s] creditors.”
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that notice . . . to creditors of the assignor is not essential to
complete the assignment” of a cause of action].)
DISPOSITION
The judgment is affirmed. Salus is to recover its costs on
appeal.
SEGAL, J.
We concur:
PERLUSS, P. J.
FEUER, J.
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