Los Angeles Federal Credit Union v. Ahmad CA2/8

Filed 11/8/22 Los Angeles Federal Credit Union v. Ahmad CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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 EIGHT
LOS ANGELES FEDERAL B320843
CREDIT UNION,
Los Angeles County
Plaintiff and Respondent,
Superior Ct. No. 18TRCV00201
v.
TANVIR M. AHMAD et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of Los
Angeles County, Deirdre Hill, Judge. Affirmed.
Yates Litigation and John R. Yates for Defendants and
Appellants.
Anaya Law Group, Alana B. Anaya and Joseph P. Graziano
for Plaintiff and Respondent.
_______________________
Brothers Tanvir and Wasim Ahmad (the Ahmads) obtained
a judgment in their favor in the underlying action. Los Angeles
Federal Credit Union (LAFCU) had sued them to recover funds
transferred to them by their now deceased father Chaudhry
Muhammad. The Ahmads sought attorney fees as the prevailing
parties pursuant to loan and credit card agreements between
Muhammad and LAFCU. The trial court denied their motion,
and the Ahmads now appeal, contending the trial court erred.
We see no error and affirm the trial court’s order.
BACKGROUND
After suffering a serious illness in his old age, Muhammad
transferred about $229,000 in cash to the Ahmads and placed
three pieces of real property in an irrevocable trust. Then
Muhammad and his new wife incurred approximately $32,000 in
debt with LAFCU. In 2018, Muhammad stopped making
payments on that debt to LAFCU. LACFU obtained a default
judgment against Muhammad, who later died with no assets. In
the action underlying this appeal, LAFCU then sought to collect
the judgment from the Ahmads, on the theory that Muhammad’s
transfers to them were fraudulent within the meaning of the
Uniform Fraudulent Transfers Act, specifically Civil Code section
3439.04.1 Following a bench trial, the trial court found LAFCU
had failed to prove Muhammad had an actual intent to hinder,
delay or defraud LAFCU and entered judgment in favor of the
Ahmads. The Ahmads then sought attorney fees pursuant to
section 1717. The trial court denied their motion, finding that
the Ahmads had not shown any contractual or statutory
1 Further undesignated statutory references are to the Civil
Code.
2
authority allowing them to recover attorney fees from LACFU as
the prevailing parties. The court also found that claims under
the Uniform Fraudulent Transfer Act are considered tort, not
contract, claims.
DISCUSSION
Section 1717 allows contract signatories to recover attorney
fees in an action on the contract where they are the prevailing
parties and the contract includes an attorney fees provision. If a
contract only permits only one signatory to recover attorney fees,
our Supreme Court has held that principles of mutuality permit
any signatory to recover fees as the prevailing party. (Reynolds
Metals Co. v. Alperson (1979) 25 Cal.3d 124,128–129.)
The Ahmads go further, contending that section 1717
applies not only to signatories but also to non-signatories who are
sued in an enforcement action to collect a judgment obtained
against a contract signatory. As support, the Ahmads rely on
MSY Trading, Inc. v. Saleen Automotive, Inc. (2020)
51 Cal.App.5th 395 (MSY Trading); 347 Group, Inc. v. Philip
Hawkins Architect, Inc. (2020) 58 Cal.App.5th 209 (Hawkins);
Babcock v. Omansky (1973) 31 Cal.App.3d 625, 633–634
(Babcock); and Brown Bark III, L.P. v. Haver (2013)
219 Cal.App.4th 809 (Brown Bark). We do not find these cases
relevant as they involve non-signatories who step into the shoes
of the contract signatory by virtue of their status as alter egos,
agents or successors in interest.
As the court explained in MSY Trading, “The reason an
alter ego can be added to a judgment is because, in the eyes of the
law, the alter ego was a party, albeit by a different name. (See
Misik v. D'Arco, supra, 197 Cal.App.4th 1065, 1075, 130
Cal.Rptr.3d 123 [“Amendment of a judgment to add an alter ego
3
is a proper procedure where it can be shown that the alter ego of
the corporate entity had control of the litigation and was virtually
represented in the lawsuit”].)” The court found “it is as though
the alleged alter ego was a party to the original lawsuit, and
prevailed. Consequently, a postjudgment, independent action to
establish alter ego liability for a judgment on a contract is itself
an action on the contract.” (MSY Trading, supra, 51 Cal.App.5th
at p. 403.)
Similarly, Hawkins also involved a defendant
unsuccessfully sued as an alleged alter ego of the contracting
party. The Hawkins court held: “Accordingly, because [plaintiff’s]
alter ego action was on the contract and Architect, Inc., the party
Hawkins was alleged to be the alter ego of, was liable for attorney
fees under the contract, Hawkins is entitled to attorney fees.”
(Hawkins, supra, 58 Cal.App.5th at p. 215.) We see nothing in
these discussions that treat fraudulent conveyance (or
conspiracy) theories as the equivalent of alter ego theories. In
these cases the courts of appeal awarded attorney fees based
solely on the principle that alleged alter egos always stand in the
shoes of the contract signatories.
Here the Ahmads were not alleged to be alter egos of
Muhammad, even assuming such a doctrine could be applied to
an individual person such as Muhammad. Instead, the Ahmads
are subject to the general merger rule, recognized in both cases,
that “ ‘ “when a judgment is rendered in a case involving a
contract that includes an attorney fees and costs provision, the
‘judgment extinguishes all further contractual rights, including
the contractual attorney fees clause.’ ” ’ ” (MSY Trading, supra,
51 Cal.App.5th at p. 403; Hawkins, supra, 58 Cal.App.5th at
p. 215.) Under this general rule, LAFCU’s enforcement action on
4
its theory of fraudulent transfer of assets cannot be deemed an
action on the contract.
Alternatively, the Ahmads more generally contend that
Babcock and Brown Bark show that theories of successor liability
in a follow-on action to enforce a judgment are not limited to an
alter ego theory, and are “on the contract,” rendering the merger
doctrine inapplicable. We read these cases differently.
Babcock does not involve a follow-on collection action or a
theory of successor liability. The plaintiff sued both the signatory
on the promissory note and the non-signatories in the same
action and sought to hold the non-signatories liable on the
promissory note. The plaintiff sought recovery against the
signatory debtor’s non-signatory wife on the theory that she was
“a co-adventurer and partner” with her husband and the other
defendants, and that each defendant “was also the agent and
employee of the others” and so “ ‘by reason of said agency and . . .
joint venture and partnership of the defendants . . . , defendants,
and each of them, became indebted on said promissory note and
are now indebted to plaintiffs.’ ” (Babcock, supra, 31 Cal.App.3d
at p. 633.) As the court explained: “It seems clear, by virtue of
the above, that plaintiffs were thus seeking recovery on the notes;
having won an order of nonsuit as to this tenth cause of action,
[defendant wife] Bertha was the ‘prevailing party’ and entitled to
attorney's fees under section 1717.” (Ibid.)
LAFCU did not claim the Ahmads had any principal-agent,
employer-employee, joint venture or partnership relationship
with Muhammad, nor did LAFCU claim the Ahmads were
indebted to it on its loan and credit agreements with Muhammad.
There is simply no similarity between this case and Babcock.
5
Brown Bark does involve successor liability, but not a
follow-on collection action. The plaintiff there sued the successor
of the signatory defendant directly for breach of line of credit
agreements. Those agreements not only included an attorney
fees provision, but also bound the signatory parties’ successors to
the attorney fee provision. As the court explained: “[Plaintiff]
Brown Bark would have recovered its attorney fees if it had
prevailed on its successor liability theory against Westover
Capital because the line of credit contracts made their fee
provisions binding on the contracting parties’ successors. Section
1717 therefore allows Westover Capital to recover its attorney
fees because it defeated claims for breach of the line of credit
contracts that would have exposed Westover Capital to attorney
fee liability had it lost.” (Brown Bark, supra, 219 Cal.App.4th at
p. 815.)
Notably, plaintiff Brown Bark had also unsuccessfully sued
an individual, Jaime Haver, in an attempt to recover its funds.
The court of appeal affirmed the trial court's order denying the
individual’s motion for attorney fees because “[s]he was not a
party to the line of credit contracts and Brown Bark did not sue
her for breaching those contracts. Because [she] never faced
attorney fee liability under the line of credit contracts, she may
not invoke section 1717 to recover her fees.” (Brown Bark, supra,
219 Cal.App.4th at p. 815.)
The Ahmads are in a position similar to Haver’s in Brown
Bark. LAFCU did not sue the Ahmads for breach of its loan and
credit card agreements with Muhammad and did not contend the
Ahmads were directly indebted to LACFU on those agreements.
Because they never faced liability under Muhammed’s contracts
6
with LACFU, they may not invoke section 1717 to recover their
fees.
We find the trial court properly denied attorney fees
because appellants faced no liability on the underlying contracts.
Consequently, we need not and do not consider whether the trial
court also properly denied attorney fees on the alternate ground
that a section 3439.04 claim is a tort action.
DISPOSITION
The trial court’s order is affirmed. Parties to bear their
own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
STRATTON, P. J.
We concur:
WILEY, J.
HARUTUNIAN, J.
 Judge of the San Diego Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
7