Yan v. Hearst CA1/5

Filed 9/1/21 Yan v. Hearst CA1/5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
TINA YAN et al.,
Plaintiffs and Appellants,
A161732
v.
JOSEPH HEARST, (Alameda County
Super. Ct. No. RG19017165)
Defendant and Respondent.
Attorney Joseph Hearst represented Tina Yan and Thai Ming
Chiu in an appeal from a judgment against them in an action to set
aside Demas Yan’s fraudulent transfers of real property.1 Tina and
Chiu then sued Hearst for professional negligence, and the trial court
entered judgment in Hearst’s favor. On appeal, Tina and Chiu contend
the trial court erred in concluding they could not state a cause of action.
We disagree and affirm.
Because Tina and Demas share the same last name, we refer to
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each by first name only.
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BACKGROUND
A.
The Uniform Voidable Transactions Act (the Act; Civ. Code,
§ 3439 et seq.) permits defrauded creditors to reach property that a
debtor has transferred to a third party with actual fraudulent intent.2
(§ 3439.04, subd. (a)(1) [transfer made by debtor is voidable as to
creditor if debtor made transfer “[w]ith actual intent to hinder, delay,
or defraud any creditor of the debtor”]; see Kirkeby v. Superior Court
(2004) 33 Cal.4th 642, 648; Mejia v. Reed (2003) 31 Cal.4th 657, 663,
664.) Section 3439.08, subdivision (a), provides that an otherwise
fraudulent transfer is not voidable “against a person that took in good
faith and for a reasonably equivalent value . . . .”
An aggrieved creditor may also obtain relief for constructive
fraud, without the need to prove the debtor’s actual intent. (§ 3439.05,
subd. (a).) The statute provides: “A transfer made or obligation
incurred by a debtor is voidable 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.” (Ibid.)
B.
This dispute has a long procedural history. It originates in a
previous professional negligence action that Charles Li filed against
Demas in 2010, involving Demas’s representation of Li in lawsuits
2 Undesignated statutory references are to the Civil Code.
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concerning property ownership rights. We draw the background facts
largely from appellate decisions authored by our colleagues in Division
Three of this court—in Li v. Chiu (May 31, 2018, A149849 [nonpub.
opn.] (Li v. Chiu I)) and Li v. Chiu (Dec. 22, 2020, A156760 [nonpub.
opn.] (Li v. Chiu II))—which we judicially notice on our own motion.
(Evid. Code, §§ 452, subd. (d), 459, subd. (a).)
Following a bench trial on Li’s malpractice action, the trial court
found that Demas had engaged in the unauthorized practice of law and
was liable to Li for professional negligence, breach of fiduciary duty,
breach of contract, and fraud. Division Two of this court affirmed the
judgment against Demas. (See Li v. Yan (2016) 247 Cal.App.4th 56, 59,
62.) A judgment was entered against Demas totaling $1,086,001.12.
C.
Through efforts to enforce the judgment, Li learned that Demas
had transferred certain residential property to a wholly owned limited
liability company in 2007 and then, after trial commenced in the
professional negligence action, Demas transferred his ownership
interest in the LLC to relatives, purportedly to repay debts Demas
owed. After the LLC was ordered to appear for a judgment debtor
examination, the property was transferred yet again to a newly formed
LLC.
In February 2014, after learning of the suspicious transactions
involving the property, Li filed a complaint to set aside the transfers for
actual fraud (§ 3439.04, subd. (a)(1)) as well as constructive fraud (§
3439.05). Li alleged the conveyances were made to prevent him from
satisfying his judgment against Demas, and named as defendants
Demas, Tina and Cheuk Tin Yan (Demas’s parents), Chiu and Kaman
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Liu (Demas’s brothers-in-law), and the two LLCs that had held title to
the property.
Li entered defaults against Demas and the two LLCs. A jury
trial proceeded against Demas’s parents and his brothers-in-law (the
“transferee defendants”). At the same time, a bench trial was
conducted on the transferee defendants’ equitable title affirmative
defense. Demas testified that he had not paid any of Li’s judgment and
that he had essentially no assets or income (despite supporting himself
and his children). He originally bought the property in 2000. Twelve
years later, he transferred his ownership in the first LLC (holding title
to the property) as follows: 68.43 percent to his mother, Tina; 25.83
percent to Chiu; and 5.74 percent to Liu. After Demas failed to appear
for a debtor’s exam as an agent for the LLC, the property was again
transferred to a new LLC owned by the transferee defendants in the
same percentages. Around the same time, the property was publicly
offered for sale at the price of $1,925,000.
The jury returned special verdicts against all of the defendants,
finding each liable for actual and constructive fraud. The jury also
found that Tina and Chiu did not take their interests in the property in
good faith or for reasonably equivalent value. Concluding that the
transferee defendants failed to prove they made investments or
purchased an ownership interest in the property, the trial court denied
their request for equitable relief.
The trial court entered default judgments against Demas and the
two LLCs and, consistent with the special verdicts returned by the jury,
entered judgment against each of the transferee defendants in the
following amounts: $824,180.57 jointly against Demas’s parents, Tina
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and Cheuk Tin (who is now deceased); $324,167.58 against Chiu; and
$72,037.24 against Liu. The judgment also declared Demas to be the
sole owner of all legal and equitable interest in the property. The trial
court also granted Li’s request for attorney fees and entered a first
amended judgment that incorporated an award of attorney fees of
$802,059.50 and costs of $11,527.19.
D.
In their appeal from the first amended judgment entered in the
fraudulent conveyance case (Li v. Chiu I, supra, A149849), Hearst
represented the transferee defendants. They raised two issues on
appeal: (1) that the trial court erred in granting Li’s motions in limine
preventing them from presenting certain evidence; and (2) that it was
error to award attorney fees against the transferee defendants because
they were not parties to the earlier action between Li and Demas and
cannot be liable for attorney fees incurred to enforce the judgment in
that earlier action. (Li v. Chiu I, supra, A149849.)
Our colleagues in Division Three found in favor of the transferee
defendants on the second issue only. Noting that there had been no
finding that the transferee defendants conspired with Demas to engage
in the fraudulent transfers for the purpose of evading Li’s enforcement
of his judgment, Division Three concluded there was no basis to impose
an attorney fee award against anyone other than Demas. The trial
court was directed to enter a new amended judgment providing that the
fees award was imposed solely against Demas. The judgment was
otherwise affirmed. (Li v. Chiu I, supra, A149849.)
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E.
On remand, the trial court entered the second amended
judgment. In accordance with the Li v. Chiu I decision, the trial court
modified the judgment to state that the attorney fees award may be
recovered only against Demas.3 The second amended judgment also
provides:
“A. Judgment of $824,180.57 is hereby entered jointly
against Cheuk Tin Yan and Tina Yan.
“B. Judgment of $324,167.58 is hereby entered against
Thai Ming Chiu.
“C. Judgment of $72,037.24 is hereby entered against
KaMan Liu. [¶ . . . ¶]
“E. Default judgment is hereby entered against defendants
Demas Yan and 547 23rd Avenue, LLC. The transfer of the
Subject Property from defendant Demas Yan to defendant 547
23rd Avenue, LLC . . . is fraudulent, void, and hereby set aside to
the extent necessary to satisfy plaintiff’s judgment against
defendant Demas Yan in Charles Li v. Demas Yan, San
Francisco Superior Court No. CGC-10-497990 . . . (‘Underlying
Judgment’) . . . .
“F. The transfer of Demas Yan’s membership interests in
547 23rd Avenue, LLC, from defendant Demas Yan to
defendants Thai Ming Chiu, Kaman Liu, and Tina Yan was
made with the intent to hinder, delay, or defraud plaintiff; was
received without good faith and not in exchange for reasonably
3Tina and Chiu filed a request for judicial notice of the second
amended judgment. We originally deferred ruling on their unopposed
request but now grant it. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).)
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equivalent value; and is hereby set aside to the extent necessary to
satisfy plaintiff’s Underlying Judgment along with the costs and
attorneys’ fees specified in this Judgment;
“G. Default judgment is hereby entered against defendants
547 23rd Avenue, LLC and 547 Investments, LLC. The
conveyance of the Subject Property from 547 23rd Avenue, LLC
to defendant 547 Investments LLC . . . is fraudulent, void, and
hereby set aside to the extent necessary to satisfy plaintiff’s
Underlying Judgment along with the costs and attorneys’ fees
specified in this Judgment.
“H. For the purpose of satisfying plaintiff’s Underlying
Judgment, along with the costs and attorneys’ fees specified in
this Judgment, and for that purpose only, Demas Yan is
DECLARED the sole owner of all legal and equitable title or
interest in the Subject Property. Plaintiff may execute or
foreclose on the Subject Property to satisfy plaintiff’s Underlying
Judgment along with the costs and attorneys’ fees specified in
this Judgment.
“I. Plaintiff may seize, execute on, or foreclose on any real
or personal property of any defendant provided that recovery
against any defendant shall not exceed the money judgment
amount entered above against that specific defendant, and
further provided that plaintiff’s aggregate recovery shall not
exceed plaintiff’s Underlying Judgment.” (Italics added.)
The transferee defendants then filed a motion to set aside and/or
modify the second amended judgment, arguing it is void because it
grants Li a double recovery. The trial court denied the motion.
In their appeal from the trial court’s order denying their motion
(Li v. Chiu II, supra, A156760), the transferee defendants argued the
second amended judgment was void because, in both setting aside the
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fraudulent transfers and awarding a money judgment, it granted relief
beyond that authorized by the Act. Our colleagues in Division Three
affirmed the order denying the motion to set aside the judgment,
concluding that the transferee defendants forfeited their “ ‘dual
remed[ies]’ ” argument by failing to raise it in Li v. Chiu I, that the
judgment was not void, and that the appellants failed to provide an
adequate record for review. (Li v. Chiu II, supra, A156760.) Although
the Li v. Chiu II court did not need to reach the merits of the transferee
defendants’ double recovery argument (because it had been forfeited),
the court observed that the argument was not supported by the record
or by the Act.
F.
In the meantime, Tina and Chiu had also filed a complaint for
professional negligence against Hearst—the attorney who represented
them in the Li v. Chiu I appeal. They alleged Hearst had negligently
failed to press their “double recovery” argument—that the trial court
exceeded its jurisdiction, under the Act, by entering a money judgment
and setting aside the fraudulent transactions. Had Hearst raised the
argument, Tina and Chiu argued the Li v. Chiu I appeal would have
brought a more favorable result.
Hearst filed a motion for judgment on the pleadings, which the
court granted without leave to amend. The trial court entered
judgment in Hearst’s favor.
DISCUSSION
A.
Tina and Chiu contend Hearst violated his professional duty
because, had he performed diligent research, Hearst “would have
8
discovered that the money judgments against [them] were rendered
erroneously and in excess of authority.” After independently reviewing
the question (Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82
Cal.App.4th 592, 602-603), we agree with the trial court that Tina and
Chiu’s complaint does not state a cause of action. (See Code Civ. Proc.,
§ 438, subd. (c)(1)(B)(ii).)
The remedies imposed in this case do not exceed the Act’s
authority. The Act allows a creditor to, among other remedies, void a
transfer of real property to the extent necessary to satisfy the creditor’s
claim, obtain “[a]n attachment or other provisional remedy against the
asset transferred,” and “[s]ubject to applicable principles of equity and
in accordance with applicable rules of civil procedure . . .[¶] . . . [¶] [to
obtain a]ny other relief the circumstances may require.” (§ 3439.07,
subds. (a)(1)-(2), (a)(3)(C).) In addition, to the extent a transfer is
avoidable, “the creditor may recover judgment for the value of the asset
transferred, [subject to adjustment as equity requires], or the amount
necessary to satisfy the creditor’s claim, whichever is less.” (§ 3439.08,
subd. (b)(1).) Such a judgment may be entered against the “first
transferee of the asset or the person for whose benefit the transfer was
made” and any subsequent transferee other than “[a] good faith
transferee that took for value” and her subsequent transferee.
(§ 3439.08, subd. (b)(1)-(2).)
Thus, in addition to setting aside the fraudulent transfers, the
trial court had discretion to enter a money judgment against Tina and
Chiu. (See §§ 3439.07, subd. (a), 3439.08, subd. (b)(1)(A); Filip v.
Bucurenciu (2005) 129 Cal.App.4th 825, 839-840 [trial court “acted well
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within its discretion” by setting aside fraudulent transfers and entering
money judgment against transferee defendants].)
Contrary to Tina and Chiu’s implicit assertion, Li did not file an
action under the common law; Li sought relief under the Act. (See
Berger v. Varum (2019) 35 Cal.App.5th 1013, 1019.) The Act does not
incorporate a common law rule that, before entering a money judgment
against a transferee, the court must make a preliminary finding of
conspiracy or unavailability of the transferred property. (Compare §
3439.08, subd. (b)(1)-(2) and Filip v. Bucurenciu, supra, 129
Cal.App.4th at pp. 838-840 with Hy-Lo Unit & Metal Products Co. v.
Ryon (1937) 21 Cal.App.2d 38, 43.) Even if the Legislature had
incorporated such common law rules, Tina and Chiu have not
demonstrated neither exception applies. (See Osgood v. Landon (2005)
127 Cal.App.4th 425, 435 [appellant must affirmatively show error by
adequate record].)
The courts’ remedial discretion may be constrained by the
equitable principle that a creditor cannot obtain a double recovery for
the same harm. (See Renda v. Nevarez (2014) 223 Cal.App.4th 1231,
1237; id. at p. 1238 [“ ‘defrauded creditor is not entitled to an
enhancement of position beyond what it was before the fraud’ ”].)
Renda involved a judgment creditor that had obtained a money
judgment in a prior action but had difficulty collecting because the
debtor transferred assets to sham entities. The creditor then brought a
second action to set aside the transfers and obtain money damages.
The trial court voided the transfers but refused to award money
damages because they would duplicate damages that the creditor had
been awarded in the first action. (Id. at p. 1234.) The court of appeal
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affirmed the trial court’s ruling, concluding that a creditor cannot
recover duplicative judgments against the debtor. (Id. at pp. 1236-
1237.)
This case does not present duplicative judgments. Li did not
have a preexisting judgment against Tina and Chiu. Moreover, the
trial court ensured that Li would not be unjustly enriched by providing
that Li’s “ ‘aggregate recovery shall not exceed [his] underlying
judgment.’ ” The second amended judgment merely gave Li alternative
means to recover no more than the amount of his underlying judgment.
Hearst was not negligent in failing to press the “double recovery”
argument.
B.
Nor did the trial court abuse its discretion in denying leave to
amend. (Ludgate Ins. Co. v. Lockheed Martin Corp., supra, 82
Cal.App.4th at p. 602.) It is Tina and Chiu’s burden to show the defects
in their complaint can be cured by amendment. (Pang v. Beverly
Hospital, Inc. (2000) 79 Cal.App.4th 986, 989.) By failing to address
the issue in their opening brief, they concede the complaint’s flaws
cannot be cured. (Julian v. Hartford Underwriters Ins. Co. (2005) 35
Cal.4th 747, 761, fn. 4.)
DISPOSITION
The judgment is affirmed. Hearst shall recover his costs on
appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
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_______________________
BURNS, J.
We concur:
____________________________
SIMONS, ACTING P.J.
____________________________
NEEDHAM, J.
A161732
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