Chen v. Berenjian

Filed 3/28/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
PANG YEN CHEN,
Plaintiff and Appellant, G055496
v. (Super. Ct. No. 30-2016-00872443)
SHARMAD BERENJIAN, OPINION
Defendant and Respondent.
Appeal from a judgment of the Superior Court of Orange County, James
Crandall, Judge. Reversed and remanded.
Gary Hollingsworth for Plaintiff and Appellant.
Ostergar Law Group, Allen C. Ostergar III and Treg A. Julander for
Defendant and Respondent.
* * *
INTRODUCTION
After obtaining money judgments against Shazad Berenjian, Pang Yen
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Chen sued him and his brother Sharmad Berenjian for fraudulent transfer under the
Uniform Voidable Transactions Act (UVTA), Civil Code section 3439 et seq., formerly
known as the Uniform Fraudulent Transfer Act (see Stats. 2015, ch. 44, § 3). Chen
alleged Shazad and Sharmad had attempted to thwart Chen’s attempts to execute on the
judgments by colluding in a sham lawsuit, stipulating to a judgment, and allowing
Sharmad to execute on the judgment. The trial court sustained a demurrer with leave to
amend, but Chen allowed dismissal to be entered against him and pursued this appeal.
The primary issue presented by this appeal is whether, on the face of
Chen’s complaint, the litigation privilege of Civil Code section 47, subdivision (b)
(section 47(b)) barred the cause of action for fraudulent transfer under the UVTA.
Exercising de novo review (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal. 4th 412,
415), we conclude the litigation privilege of section 47(b) does not bar the fraudulent
transfer cause of action as alleged because the gravamen of that cause of action is the
noncommunicative act of transferring assets by executing on a judgment. We therefore
reverse.
ALLEGATIONS
We accept as true all of the material allegations of Chen’s complaint and
facts that reasonably can be inferred from those expressly pleaded. (King v.
CompPartners, Inc. (2018) 5 Cal.5th 1039, 1049, fn. 2; Schifando v. City of Los Angeles
(2003) 31 Cal. 4th 1074, 1081.)
Chen alleged:
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Shazad Berenjian is not a party to this appeal. For clarity and concision we refer to
Shazad Berenjian and Sharmad Berenjian by first names.
2
Shazad and Sharmad are brothers. Shazad owns and operates a business
called Digital Ear, Inc. In September 2012, Chen paid Shazad $32,952.22 for goods
which Shazad did not deliver. Chen filed a lawsuit against Shazad and obtained a
judgment against him for that amount.
In August 2014, Shazad became indebted to Chen for an additional $50,000
for goods that were never delivered. In September 2015, Chen filed a second lawsuit
against Shazad and obtained a judgment against him for $57,997.26.
In June 2015, after the judgment in the first lawsuit was entered and before
the second lawsuit was filed, Shazad and Sharmad entered into an agreement by which
Sharmad would file a lawsuit against Shazad and Shazad would allow a default judgment
to be taken. The agreement enabled Sharmad to obtain title to or a lien against all of
Shazad’s assets. Sharmad and Shazad intended “to create a shield against claims of other
creditors, including [Chen].”
Pursuant to this agreement, Sharmad filed a lawsuit against Shazad. The
allegations of Sharmad’s complaint were false. In October 2015, Sharmad and Shazad
entered into a stipulated judgment against Shazad in the amount of $199,900. There were
no “genuine grounds” for that amount.
“The stipulated judgment was not followed by any effort to actually enforce
the judgment or obtain assets from [Shazad] in satisfaction of the judgment. Instead,
[Shazad] continued to operate his business called Digital Ear, Inc., as he had done
previously. However, when an attempt was made to enforce the above mentioned claims
and judgments by [Chen], or any other creditor, [Sharmad] would levy on the property
subject to the claim, pursuant to the sham judgment mentioned above, solely in order to
defeat the attempts by [Chen] to enforce his own judgments.”
When Chen filed his second lawsuit against Shazad, Sharmad levied on two
stereo speakers that were owned by Shazad through Digital Ear and which were being
stored in a warehouse. The speakers had been previously sold to Chen and were the basis
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of his second lawsuit against Shazad. Sharmad levied on the speakers to defeat Chen’s
claims. Shazad has transferred other assets to Sharmad without reasonable consideration
in order to conceal them from Chen.
PROCEDURAL HISTORY
Chen filed a complaint against Shazad, Sharmad, and others asserting two
causes of action: (1) fraudulent transfer under the UVTA; and (2) common counts. The
common counts are irrelevant to this appeal.
The trial court sustained Sharmad’s demurrer to the first cause of action
with leave to amend. The court concluded the fraudulent transfer cause of action was
barred by the litigation privilege of section 47(b) and was uncertain because it alleged
Shazad transferred assets other than the speakers but did not identify those assets.
Chen did not amend the complaint but allowed the first cause of action to
be dismissed as to Sharmad. Chen filed a request for dismissal of the second cause of
action. After Chen filed a notice of appeal, he obtained a signed order of dismissal of
Sharmad.
DISCUSSION
I.
The Litigation Privilege Does Not Bar Chen’s Cause of
Action for Fraudulent Transfer.
A. The UVTA
Claims for fraudulent transfer are governed by the UVTA. The purpose of
the UVTA is to prevent debtors from placing, beyond the reach of creditors, property that
should be made available to satisfy a debt. (Lo v. Lee (2018) 24 Cal.App.5th 1065,
1071.) A creditor may set aside a transfer as fraudulent under Civil Code section 3439.04
by showing actual fraud as defined in subdivision (a)(1) or by showing constructive fraud
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2
as defined in subdivision (a)(2). (See Lo v. Lee, supra, 24 Cal.App.5th at p. 1071;
Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal. App. 4th 1388, 1401-1402.) As a
remedy, the creditor may obtain avoidance of the transfer, an attachment or other
provisional remedy, and, subject to applicable principles and rules, an injunction or a
receiver. (Civ. Code, § 3439.07, subd. (a).)
The UVTA applies on its face to all transfers. (Mejia v. Reed (2003) 31
Cal. 4th 657, 664.) Civil Code section 3439.01, subdivision (m) broadly defines
“transfer” to mean “every mode, direct or indirect, absolute or conditional, voluntary or
involuntary, of disposing of or parting with an asset or an interest in an asset, and
includes payment of money, release, lease, license, and creation of a lien or other
encumbrance.” (See Sturm v. Moyer (2019) 32 Cal.App.5th 299, 308 [“‘transfer’ under
the UFTA has a broad meaning”].) This definition is broad enough to include transfers of
assets by means of executing on a judgment obtained by fraud or collusion. (See Miller
v. Turner (1932) 121 Cal. App. 365, 366 [“where a debtor has by fraud and collusion
permitted a judgment to be obtained against him for the purpose of defrauding his
creditors, the latter may obtain relief against it in equity”].)
B. The Litigation Privilege
“The litigation privilege of [section 47(b)] ‘applies to any publication
required or permitted by law in the course of a judicial proceeding to achieve the objects
of the litigation, even though the publication is made outside the courtroom and no
2
Civil Code section 3439.04, subdivision (a) states: “A transfer made or obligation
incurred by a debtor is voidable as to a creditor, whether the creditor’s 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. [¶]
(B) Intended to incur, or believed or reasonably should have believed that the debtor
would incur, debts beyond the debtor’s ability to pay as they became due.”
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function of the court or its officers is involved.’ [Citation.] ‘[T]he privilege applies to
any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or
other participants authorized by law; (3) to achieve the objects of the litigation; and
(4) that ha[s] some connection or logical relation to the action.’ [Citation.] Section
47[(b)], is intended to ‘afford litigants and witnesses free access to the courts without fear
of being harassed subsequently by derivative tort actions, to encourage open channels of
communication and zealous advocacy, to promote complete and truthful testimony, [and]
to give finality to judgments.’ [Citation.] The privilege is broadly applied to promote
effective judicial proceedings by encouraging full communication, and applies to civil
actions based upon perjury.” (Optional Capital, Inc. v. DAS Corp., supra, 222
Cal.App.4th at p. 1404.)
As Chen posits, if Shazad had simply transferred his assets and those of
Digital Ear, Inc. to Sharmad, there would be little question the transfer could be voided as
fraudulent. But because the assets were transferred by means of execution of a stipulated
judgment in a sham lawsuit, the litigation privilege potentially bars the fraudulent transfer
claim.
In Rusheen v. Cohen (2006) 37 Cal. 4th 1048 (Rusheen), the California
Supreme Court, in reviewing a judgment arising from an order granting an anti-SLAPP
motion, addressed the issue whether actions taken to collect a judgment, such as
obtaining a writ of execution and levying on the judgment debtor’s property, are
protected by the litigation privilege of section 47(b). (Rusheen, supra, at p. 1052.) The
case has a somewhat complicated fact pattern and procedural history. Attorney Barry
Cohen represented Niki Han and Marice Abikzer (clients) in litigation against Terry
Rusheen. (Id. at pp. 1052-1053.) The clients had purchased a house from Rusheen’s
father; Rusheen, who lived in the house, refused to move out after escrow closed;
Rusheen filed actions against the clients; Cohen obtained an order requiring Rusheen to
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move out; and the trial court denied Rusheen’s application for a restraining order, and
granted motions to declare Rusheen a vexatious litigant. (Id. at p. 1053.)
Cohen, as the clients’ attorney, filed a lawsuit against Rusheen for property
damage and other torts. Cohen filed a declaration of service signed by a process server
who declared under penalty of perjury that he personally served Rusheen with the
summons, complaint, and orders declaring Rusheen a vexatious litigant. (Rusheen,
supra, 37 Cal.4th at p. 1053.) Cohen used the process server’s declaration to obtain
Rusheen’s default. (Ibid.) Rusheen failed to post the cash bond ordered by the trial court
as a precondition to filing any pleadings, and Cohen obtained a default judgment against
him. (Id. at pp. 1053-1054.) The clients, through a Nevada attorney, filed a notice of
foreign judgment in Nevada, where Rusheen had moved, applied for a writ of execution,
and levied on the judgment. (Id. at p. 1054.)
Meanwhile, Rusheen moved to vacate the default judgment and the
vexatious litigant orders on the ground of lack of service. (Rusheen, supra, 37 Cal.4th at
p. 1054.) In opposition, Cohen submitted the process server’s declaration that Rusheen
had been personally served with summons, the complaint, and the vexatious litigant
orders. The trial court denied Rusheen’s motion, but the Court of Appeal reversed on the
ground there was insufficient evidence that Rusheen was a vexatious litigant and the trial
court had no authority to order the posting of a bond. (Ibid.) The Court of Appeal
reversed with directions to vacate the default judgment and the vexatious litigant orders.
(Ibid.)
On remand, Rusheen filed a cross-complaint against Cohen for abuse of
process arising from his legal representation of the clients. (Rusheen, supra, 37 Cal.4th at
p. 1054.) Rusheen alleged Cohen had made an illegal vexatious litigant motion, failed to
properly serve the complaint, obtained an improper default without proper notice,
permitted the clients to execute on the judgment in Nevada, and filed a false declaration
on the issue of service. (Ibid.) Cohen responded with an anti-SLAPP motion asserting
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there was no reasonable probability that Rusheen would prevail because Cohen’s conduct
was protected by the litigation privilege of section 47(b). The trial court granted the
motion and struck Rusheen’s cross-complaint. (Ibid.) The Court of Appeal reversed
however and concluded Cohen could be liable for abuse of process in enforcing a default
judgment through the filing of allegedly false proofs of service. (Id. at pp. 1054-1055.)
The Supreme Court addressed two issues: “(1) whether action taken to
collect a judgment, such as obtaining a writ of execution and levying on the judgment
debtor’s property, are protected by the litigation privilege as communications in the
course of a judicial proceeding; and (2) whether a claim for abuse of process based on the
filing of an allegedly false declaration of service is barred by the litigation privilege on
the ground the claim is necessarily founded on a communicative act.” (Rusheen, supra,
37 Cal.4th at p. 1055, fn. omitted.)
The court explained the litigation privilege protects only acts that are
communicative, and, therefore, the threshold issue in determining whether the litigation
privilege applies is whether the defendant’s alleged conduct is communicative or
noncommunicative. (Rusheen, supra, 37 Cal.4th at p. 1058.) Pleadings and process, as
well as filing false or perjurious testimony or declarations, are considered privileged.
(Ibid.) If the challenged conduct was a noncommunicative physical act, a court must
look to whether the gravamen of the abuse of process cause of action was communicative
or noncommunicative conduct. (Id. at p. 1061.) “The distinction between
communicative and noncommunicative conduct hinges on the gravamen of the action.
[Citations.] That is, the key in determining whether the privilege applies is whether the
injury allegedly resulted from an act that was communicative in its essential nature.” (Id.
at p. 1058.)
The gravamen of Rusheen’s abuse of process cause of action was not the
act of levying on the judgment, “but the procurement of the judgment based on the use of
allegedly perjured declarations of service.” (Rusheen, supra, 37 Cal.4th at p. 1062.) The
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noncommunicative conduct of levying on the judgment was necessarily related to the
communicative act serving as the gravamen of the complaint and therefore was subject to
the litigation privilege. “[B]ecause the execution of the judgment did not provide an
independent basis for liability separate and apart from the filing of the false declarations
of service, the gravamen of the action was the procurement of the judgment, not its
enforcement. Thus, the enforcement of the judgment in reliance on the filing of
privileged declarations of service was itself privileged.” (Id. at p. 1065.)
The Supreme Court held: “[I]f the gravamen of the action is
communicative, the litigation privilege extends to noncommunicative acts that are
necessarily related to the communicative conduct, which in this case included acts
necessary to enforce the judgment and carry out the directive of the writ. [Citations.]
Stated another way, unless it is demonstrated that an independent, noncommunicative,
wrongful act was the gravamen of the action, the litigation privilege applies.” (Rusheen,
supra, 37 Cal.4th at p. 1065.)
C. The Gravamen of the Fraudulent Transfer Cause of Action Is Noncommunicative
Conduct.
As Rusheen instructs, we first determine whether the gravamen of Chen’s
fraudulent transfer cause of action is communicative or noncommunicative conduct. The
term gravamen has been defined as “the ‘material part of a grievance, charge, etc.’”
(Lindros v. Governing Bd. of the Torrance Unified School Dist. (1973) 9 Cal. 3d 524, 540,
fn. 13; Williamson v. Pacific Greyhound Lines (1944) 67 Cal. App. 2d 250, 252.) “The
gravamen, or essential nature . . . of a cause of action is determined by the primary right
alleged to have been violated, not by the remedy sought.” (McDowell v. Watson (1997)
59 Cal. App. 4th 1155, 1159.) For purposes of the litigation privilege, the gravamen is the
act or acts allegedly producing the injury. (Rusheen, supra, 37 Cal.4th at p. 1058.)
In Rusheen, the California Supreme Court concluded the communicative
conduct of procuring a judgment based on the use of allegedly fraudulent declarations of
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service, and not the noncommunicative act of executing on the judgment, was the
gravamen of the abuse of process cause of action. (Rusheen, supra, 37 Cal.4th at
p. 1062.) But here, in contrast, Chen sued for fraudulent conveyance. Under the UVTA,
it is the transfer made or the obligation incurred by the debtor which, when made with
the requisite intent or without sufficient consideration, is wrongful and, therefore,
voidable. (Civ. Code, § 3439.04, subd. (a).) Thus, the acts causing injury to Chen were
the agreement to defraud him and the transfer of the speakers from Shazad to Sharmad by
means of executing on the judgment. The acts of filing the sham complaint and agreeing
to the stipulated judgment, though communicative in nature, were not the gravamen of
Chen’s fraudulent transfer cause of action. Chen’s complaint alleged, “when an attempt
was made to enforce the . . . claims and judgments by [Chen] . . . Sharmad would levy on
the property subject to the claim.” The levy was the allegedly voidable transfer
producing the injury and was, therefore, the gravamen of the cause of action for
fraudulent conveyance.
Levying on property is essentially a taking, a physical act that is not
communicative. (Drum v. Bleau, Fox & Associates (2003) 107 Cal. App. 4th 1009, 1026,
disapproved on another ground in Rusheen, supra, 37 Cal.4th at p. 1065.) In Rusheen,
the court assumed levying on property is a noncommunicative act but noted “the
execution and levying process may also involve communications such as the delivery of
the writ and statements or representations made to the levying officer or other party.”
(Rusheen, supra, 37 Cal.4th at p. 1061 and fn. 3.) Chen’s complaint did not allege that
levying on the property involved any communications that might make the fraudulent
conveyance cause of action subject to the litigation privilege.
Sharmad argues that permitting a creditor, such as Chen, to “circumvent the
litigation privilege” by alleging a sham lawsuit and conspiracy “would frustrate the
purposes of the litigation privilege.” We disagree. The litigation privilege’s purposes are
“to encourage open channels of communication and zealous advocacy, to promote
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complete and truthful testimony,” and “to promote effective judicial proceedings by
encouraging full communication.” (Optional Capital, Inc. v. DAS Corp., supra, 222
Cal.App.4th at p. 1404.) Thus, the privilege does not extend to noncommunicative
conduct that is not of necessity related to communicative conduct. Levying on property
as part of a scheme to defeat a creditor’s rights in violation of the UVTA is not
communicative conduct; therefore, extending the litigation privilege to such conduct
advances none of the privilege’s purposes.
The UVTA serves the valuable purpose of protecting creditors from
schemes to place assets beyond their reach. (Lo v. Lee, supra, 24 Cal.App.5th at
p. 1071.) Were we to extend the litigation privilege to the facts alleged by Chen, we
would be providing a road map to circumventing the UVTA and defeating the rights of
creditors.
II.
The Trial Court Erred by Sustaining the
Demurrer for Uncertainty.
We also conclude the trial court erred by sustaining Sharmad’s demurrer for
uncertainty to the first cause of action. Demurrers for uncertainty under Code of Civil
Procedure section 430.10, subdivision (e) are disfavored. (Lickless v. Financial Industry
Regulatory Authority (2012) 208 Cal. App. 4th 1125, 1135.) “A demurrer for uncertainty
is strictly construed, even where a complaint is in some respects uncertain, because
ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of
California, Inc. (1993) 14 Cal. App. 4th 612, 616.) A demurrer for uncertainty should be
overruled when the facts as to which the complaint is uncertain are presumptively within
the defendant’s knowledge. (5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 976,
p. 389.)
Sharmad argues the first cause of action was uncertain because it alleged
the stereo speakers that were the object of Chen’s levy were the property of Digital Ear,
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Inc., which is not a party to this lawsuit. Chen’s complaint alleged that Sharmad “levied
upon property owned by Shazad Berenjian under the title to his company named Digital
Ear, Inc., namely two Focal Maestro Utopia Speakers.” (Italics added, some
capitalization omitted.) This allegation sufficiently alleges the stereo speakers belonged
to Shazad. Any ambiguity can be clarified through discovery, and the owner of the
speakers is presumptively within Sharmad’s knowledge.
DISPOSITION
The judgment is reversed and the matter is remanded. Appellant shall
recover costs on appeal.
FYBEL, J.
WE CONCUR:
O’LEARY, P. J.
MOORE, J.
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