Nagel v. Westen

Filed 2/1/21 (unmodified opinion attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
NICOLE NAGEL ET AL., 2d Civil No. B300552
(Super. Ct. No. 15CV01178)
Plaintiffs and Appellants, (Santa Barbara County)
v. ORDER DENYING PETITION
FOR REHEARING AND
TRACY A. WESTEN ET AL., MODIFYING OPINION
(No Change in Judgment)
Defendants and Respondents.
THE COURT:
It is ordered that the opinion filed herein on January 7,
2021, be modified as set forth below:
1. On page 1, the second sentence in the first paragraph is
modified to read as follows: They sold it to appellants Nicole
Nagel and “ESY Investments” (Nagel) in 2011 for $4.12 million.
2. On page 1 and 2, the second sentence in the second
paragraph is modified to read as follows: It awarded Nagel over
$4.5 million for the loss of the home, which it held added no value
to the land on which it stands.
3. On page 2, the second sentence in the first full
paragraph is modified to read as follows: By the time ensuing
and relatively fruitless efforts at collection were undertaken,
Sellers had allegedly sent the bulk of their assets out of
California including applying the proceeds of the sale to an
expensive home in Texas to take advantage of that state’s
unlimited homestead exemption; and, with aid and counsel of
Tracy Westen’s siblings, placing additional assets in a variety of
funds, annuities and investments in Nevada and Minnesota.
No change in judgment.
Appellants’ petition for rehearing is denied.
GILBERT, P.J. YEGAN, J. PERREN, J.
2
Filed 1/7/21 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
NICOLE NAGEL et al., 2d Civil No. B300552
(Super. Ct. No. 15CV01178)
Plaintiffs and Appellants, (Santa Barbara County)
v.
TRACY A. WESTEN et al.,
Defendants and Respondents.
In the early 1990’s, Tracy Westen and Linda Lawson
(Sellers) built and lived in an architecturally significant home in
the Brentwood area of West Los Angeles. They sold it to
appellants Nicole Nagel and “ESY Investments” (Nagel) in 2011
for $2.2 million. Shortly after the sale Nagel learned that over
the 19 years Sellers owned the home it had suffered extensive
water intrusion, that Sellers knew this and that the home was
uninhabitable despite Nagel's best efforts to repair and to save it.
Nagel sued.
In the ensuing arbitration, the arbitrator found that Sellers
had failed to disclose material facts regarding the water damage,
that the house was worthless and its only value was the land. It
awarded Nagel over $4.5 million for the loss of the home, the
futile efforts to repair it, plus attorney fees and costs. This,
however, was just the beginning, not the end of the litigation.
As the arbitration was winding down, the likely result
became clear to Sellers. By the time ensuing and relatively
fruitless efforts at collection were undertaken, Sellers had sent
the bulk of their assets out of California including applying the
proceeds of the sale to an expensive home in Texas to take
advantage of that state’s unlimited homestead exemption; and,
with aid and counsel of Tracy Westen’s siblings, masking
additional assets in a variety of funds, annuities and investments
in Nevada and Minnesota.
This appeal is from a subsequent lawsuit filed by Nagel to
unwind these transfers under the Uniform Voidable Transactions
Act (UVTA). (Civil Code, § 3439 et seq.) 1 The action was
dismissed, however, because Nagel could not identify a “third-
party transferee” who received Westen and Lawson’s assets; or as
respondents describe it, “a meritless attempt to raid deeper
pockets.” The Court reasoned that no transfer had occurred
when Westen and Lawson simply converted their assets from
non-exempt to exempt but did not relinquish ownership or
control.
The order dismissing the case is reversed in part and
affirmed in part. We reverse the order to the extent it dismissed
plaintiffs’ causes of action for statutory fraudulent transfer and
the companion claims for conspiracy and aiding and abetting. We
1Unlabeled statutory references in this opinion are to the
Civil Code.
2
affirm the order’s dismissing of plaintiff’s common law cause of
action for fraudulent transfer.
FACTUAL AND PROCEDURAL BACKGROUND
Nagel bought the Brentwood house of Westen and Lawson
in 2011. Westen and Lawson had commissioned Los Angeles-
based Eric Owen Moss, a renowned avant-garde architect, to
design the structure in the early 1990s. It served as the couple’s
primary residence until the sale.
Nagel later discovered pervasive mold and structural
damage caused by long term water intrusion. An arbitrator
awarded her over $4.5 million for repairs, attorney’s fees, costs,
and interest. The Los Angeles Superior Court confirmed the
award and entered judgment against Westen and Lawson. 2
In the instant matter, Nagel alleges Lawson and Westen
enlisted Westen’s brothers, attorneys Derek and Peter Westen, to
help them design and implement an “Asset Protection plan” when
it became apparent the arbitrator would rule in Nagel’s favor.
The plan had three components. First, they converted
respondent Westen Family Group, LLC (“WFG”), of which
Lawson and Westen held a 20.7 percent membership interest,
from a California LLC into a Nevada LLC. Second, they placed a
portion of the Brentwood sale proceeds into an annuity. Third,
they bought a house in Texas and improved it with the balance of
their sale proceeds. Nagel further alleges Lawson and Westen
promptly moved to Texas upon receiving the arbitrator’s
preliminary award so they could invoke the state’s unlimited
2Nicole Nagel et al v. Tracy A. Westen et al. (Super. Ct. Los
Angeles County, 2013, No. SS023693).
3
homestead exemption to shield the new house and annuity from
creditors.
Nagel filed this action when she learned about these asset
protection measures. She named Lawson and Westen as
defendants along with Derek Westen, Peter Westen, WFG, and
two Westen family trusts. Her first amended complaint included
three causes of action at issue here: (1) to set aside fraudulent
transfer of assets under both the UVTA 3 and common law (as to
WFG only); (2) civil conspiracy (as to all parties); and (3) aiding
and abetting (as to Derek Westen, Peter Westen, WFG, and the
family trusts). 4 Nagel sought to annul the transfers and to
restrain Lawson and Westen from disposing of their assets,
among other remedies.
Nearly four years of pleading challenges, discovery
disputes, and law and motion proceedings followed. Nagel
supplemented her complaint with allegations about post-filing
conduct, including Lawson’s and Westen’s petitioning for
bankruptcy in Texas. 5 A sojourn to Minnesota courts yielded
3Nagel pleaded her claim under the UVTA’s former title,
the “Uniform Fraudulent Transfers Act” or “UFTA.” The
Legislature retitled the UFTA as the UVTA effective January 1,
2016. We use the current title throughout this opinion.
4 Nagel dismissed her fourth cause of action for imposition
of constructive trust.
5 We granted the request of respondents WFG, Derek
Westen, Peter Westen, and both Westen trusts for judicial notice
of Lawson’s and Westen’s order of discharge in bankruptcy,
among other materials. (In re Tracy A. Westen and Linda
Lawson, No. 17-40030 (E.D.Tex. Jan. 3, 2017.) We take judicial
notice on our own motion of the bankruptcy court’s order dated
4
partial satisfaction of the arbitration award when Nagel collected
the proceeds of the couple’s annuity. She also obtained a charge
order directing WFG to direct the couple’s share of membership
proceeds to her. This brought the Texas house purchase to center
stage as trial approached.
The trial court received 42 motions in limine and competing
versions of nearly all pre-trial filings, including witness lists,
verdict forms, and jury instructions. It heard argument in the
course of conducting nine pre-trial conferences over a two month
period. The instructions for Nagel’s first cause of action for
fraudulent transfer, particularly CACI 4200, “Actual Intent to
Hinder, Delay, or Defraud a Creditor,” were hotly contested.
Nagel proposed modifying CACI 4200 to include not just
third-party transfers but any transaction intended to evade
creditors. Defining “transfer” more broadly, she argued, was
“entirely harmonious with the premise of fraudulent transfer
theory under California common law and as reflected in its
statutory embodiment.” WFG and Derek Westen proposed CACI
4200 in its standard configuration. Their version instructed the
jury to decide whether Lawson and Tracy Westen “transferred
the property [to WFG] with the intent to hinder, delay, or defraud
one or more of their creditors.” They argued Nagel could not
maintain a cause of action for fraudulent transfer without
identifying a third party transferee who received their assets.
Defining internal asset shifts like a house purchase for one’s self
as actionable transfers, they contended, strayed far beyond the
UVTA and what little case law informed the issue. The court
September 18, 2017 granting Nagel’s motion for relief from
automatic stay to continue the case giving rise to this appeal.
5
invited the parties to offer modifications to CACI 4200 and other
4200-series instructions to better reflect the current state of law.
Shortly after this pre-trial conference, Nagel sought to
amend her first amended complaint by adding Lawson and
Westen as defendants to her first cause of action for fraudulent
transfer. She described the amendment as correcting a “labeling
oversight.” The couple would suffer no prejudice, she reasoned,
because her prior pleading clearly described their role in the
scheme. In opposition, Lawson and Westen described the
proposed amendment as a belated about-face with a profound
conceptual flaw – the couple would need to wear the hats of both
“transferor” and “transferee” of their own assets at trial.
At the final pre-trial conference, the trial court said it had
not yet decided the third-party transferee issue. The court told
the parties it would consider supplemental briefing and directed
them to return a week later prepared to select a jury. The parties
promptly submitted briefs reiterating their positions.
The court issued a tentative ruling the day before trial
denying leave to amend. It found Nagel could not maintain a
cause of action under the UVTA against Lawson and Westen
without identifying a third party transferee who benefitted from
the debtor’s transfer. While their establishing a Texas
homestead affected Nagel’s ability to enforce her judgment, the
court reasoned, the purchase did not convey assets to a third
party or otherwise alter the couple’s rights with respect to their
property. It refrained from deciding whether a common law
cause of action existed because Nagel could not articulate its
elements or explain how to instruct the jury on such a claim.
The parties appeared for trial the next day. Nagel’s counsel
explained how the court’s tentative ruling would eliminate a
6
critical component of his client’s case and leave little incentive to
proceed with trial if adopted. He requested a stay to seek writ
relief of the third-party transferee issue as a matter of first
impression in California. The court expressed concern that writ
review would result in a “postcard” denial and leave the case in
the same position four or five weeks later. Defendants shared
this concern. After a brief recess, WFG and Derek Westen moved
to dismiss on the grounds they, like Lawson and Westen, could
not face liability under the UVTA in the absence of an actionable
transfer. Peter Westen joined the motion. The court granted it
as both a common law motion for judgment on the pleadings and
a dispositive motion in limine. In addition, it granted a separate
motion in limine filed by Lawson and Westen to preclude all
evidence relating to Nagel’s first cause of action for fraudulent
transfer.
The clerk entered an order dismissing the entire action on
July 9, 2019. Nagel appealed.
DISCUSSION
A. Standard of Review
We review the first amended complaint de novo, assuming
the truth of all factual allegations, “‘to determine whether it
alleges facts sufficient to state a cause of action under any legal
theory.’” (Committee for Green Foothills v. Santa Clara County
Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) We review the trial
court’s rulings on the pre-trial motions for abuse of discretion.
(Freeny v. City of San Buenaventura (2013) 216 Cal.App.4th
1333, 1339; Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1493.)
B. The Uniform Voidable Transactions Act
The UVTA is a contemporary retooling of the common law
remedies available to unsecured creditors seeking payment from
7
debtors who evade collection. (See Chen v. Berenjian (2019) 33
Cal.App.5th 811, 817 [“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”].) Originally enacted
as the “Uniform Fraudulent Transfer Act” in 1986, its retitling in
2016 reflected the Legislature’s intent to “reduce misconceptions
that the law requires proof of fraudulent intent.” (Sen. Com. on
Judiciary, Analysis of Sen. Bill. No. 161 (2015-2016 Reg. Sess.) p.
2.) Little else changed in substance. (See § 3439.14, subd. (d)
[“The provisions of this chapter, insofar as they are substantially
the same as the provisions of this chapter in effect on December
31, 2015, shall be construed as restatements and continuations,
and not as new enactments”].)
The UVTA provides a variety of tools to achieve its ends.
For example, the court may void a transfer of assets, attach
assets, or employ equitable remedies such as injunctive relief or
receivership. (§ 3439.07.) A creditor may also supplement the
UVTA’s remedies with any others available at law or in equity.
(§ 3439.12 [“Unless displaced by the provisions of this chapter,
the principles of law and equity, . . . supplement its provisions”].)
The UVTA enumerates eleven characteristics or “‘badges of
fraud’” to help the trier of fact discern when a debtor has crossed
the often blurry line between legitimate asset protection planning
and voidable maneuvering. (PGA West Residential Assn., Inc. v.
Hulven Internat., Inc. (2017) 14 Cal.App.5th 156, 174 (PGA West);
§ 3439.04, subd. (b).)
C. Nagel Stated a Cause of Action for Fraudulent Transfer
Under the Plain Language of the UVTA
Nagel alleges respondents’ asset protection efforts bear the
hallmarks of a fraudulent transfer. We are, however, confronted
8
with a narrower and more foundational question – did a
“transfer” under the UVTA occur in the first place? Specifically,
do Nagel’s allegations give rise to a cause of action for fraudulent
transfer if Lawson and Westen, in essence, transferred assets to
themselves? We look to the UVTA’s text for our answer. (See
Ceja v. Rudolph & Sletten, Inc. (2013) 56 Cal.4th 1113, 1119 [a
statute’s words “‘“‘generally provide the most reliable indicator of
legislative intent’”’”]; Estate of Griswold (2001) 25 Cal.4th 904,
910 [“In statutory construction cases, our fundamental task is to
ascertain the intent of the lawmakers so as to effectuate the
purpose of the statute”].) “‘“We give the words their usual and
ordinary meaning [citation], while construing them in light of the
statute as a whole and the statute’s purpose [citation].”’” (Ceja,
at p. 1119, quoting Pineda v. Williams-Sonoma Stores, Inc. (2011)
51 Cal.4th 524, 529-530.) “‘“‘If there is no ambiguity in the
language, we presume the Legislature meant what it said and
the plain meaning of the statute governs.’”’” (Ceja, at p. 1119
quoting In re Ethan C. (2012) 54 Cal.4th 610, 627.)
“‘In order for a fraudulent transfer to occur, among other
things, there must be a transfer of an asset as defined in the
UFTA.’” (PGA West, supra, 14 Cal.App.5th at p. 169, quoting
Fidelity National Title Ins. Co. v. Schroeder (2009) 179
Cal.App.4th 834, 841.) “‘Transfer’ under the [UVTA] has a broad
meaning.” (Sturm v. Moyer (2019) 32 Cal.App.5th 299, 308.) The
term is defined as “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.” (§ 3439.01, subd. (m).) The law defines “‘[a]sset’”
broadly as well. An asset includes the “property of a debtor” with
9
just three exceptions: (1) property encumbered by a valid lien; (2)
property exempt under nonbankruptcy law; and (3) property held
in tenancy in the entireties “to the extent it is not subject to
process by a creditor holding a claim against only one tenant.”
(§ 3439.01, subd. (a).) The UVTA uses the term “transferee”
throughout its text but does not define it. (E.g., §§ 3439.06 to
3439.08.)
The first amended complaint alleges Lawson and Westen
moved their personal belongings and financial assets, including a
portion of the Brentwood sale proceeds, to a foreign jurisdiction.
It further alleges they used the Brentwood sale proceeds to buy
and improve foreign real estate for the purpose of shrinking the
corpus of assets available for collection. We hold that under the
UVTA, physically relocating personal property and transmitting
or transporting sale proceeds out of state, then transmuting them
into a different legal form, may constitute a direct or indirect
mode of parting with assets or one’s interest in those assets. As
such, Nagel adequately alleged a “transfer” under the UVTA. In
this posture the trier of fact must now determine if grantor’s title
is but, “a mere cloak under which is hidden the hideous skeleton
of deceit . . . .” 6
The issue as framed is a matter of first impression. (See
Renda v. Nevarez (2014) 223 Cal.App.4th 1231, 1236, italics
omitted [“Although these cases suggest the UFTA does not
authorize entry of a money judgment against a debtor under any
circumstances, we need not (and do not) decide that broad issue
to resolve this appeal”].) We recognize most authorities concern
transactions in which a third party received the debtor’s assets.
6 Cortez v. Vogt (1997) 52 Cal.App.4th 917, 936.
10
We also note the term “‘third party’” embedded in high court dicta
defining “fraudulent conveyance.” (See Kirkeby v. Superior Court
(2004) 33 Cal.4th 642, 648, quoting Yaesu Electronics Corp. v.
Tamura (1994) 28 Cal.App.4th 8, 13 [“‘A fraudulent conveyance is
a transfer by the debtor of property to a third person undertaken
with the intent to prevent a creditor from reaching that interest
to satisfy its claim’”].) The existing landscape of authorities left
the trial court few clear reference points. However, this did not
warrant grafting a third-party transferee requirement onto a
broad but plainly worded statute.
Reading the definition of “transfer” in context with other
UVTA provisions leads us to the same conclusion. Section
3439.04(b) anticipates imaginative debtors will employ an array
of tactics to evade payment obligations. For example, the trier of
fact may look to whether “the transfer or obligation was to an
insider”; “the debtor retained possession or control of the property
transferred after the transfer”; or “the debtor removed or
concealed assets.” These badges of fraud indicate one’s liability
under the UVTA is not contingent upon recruiting conspirators.
It may include situations in which the debtor “parts” with
property without alienating ownership rights or possession.
Further, the UVTA does not limit its enforcement measures to
third parties. (See § 3439.07, subd. (a)(3)(C) [creditor may obtain
avoidance, injunctive relief, receivership, or “[a]ny other relief the
circumstances may require”].)
D. Limiting the UVTA to Third-Party Transfers Would Neither
Conform to Legislative Intent nor Serve the Public’s Interest
Resolving this appeal does not require us to look beyond the
UVTA’s text. (See In re Ethan C. (2012) 54 Cal.4th 610, 627
[court turns to extrinsic aids “‘“[o]nly when the statute’s language
11
is ambiguous or susceptible of more than one reasonable
interpretation”’”].) If it did, however, we would again arrive at
the same result. 7
“[A] creditor-debtor relationship can alter an owner’s power
over the property owned.” (Sen. Com. on Judiciary, Analysis of
Sen. Bill. No. 161 (2015-2016 Reg. Sess.) p. 2.) “Unsecured
creditor-debtor relationships necessarily raise questions as to a
creditor’s rights and remedies when the debtor manipulates
property to defeat the creditor’s potential interest in that
property.” (Ibid.) It is not surprising the UVTA defines the term
“asset” not from the debtor’s perspective, but from that of a
creditor with a potential interest in any property that could
satisfy the underlying debt. (See, e.g., Yaesu Electronics Corp. v.
Tamura, supra, 28 Cal.App.4th at p. 13 [“a conveyance will not be
considered fraudulent if the debtor merely transfers property
which is otherwise exempt from liability for debts”]; Tassone v.
Tovar (1994) 28 Cal.App.4th 765, 769 [“The February 1986
conveyance of the property by grant deed to appellant . . . did not
affect respondents’ rights. Respondents were left in the same
position as they were in before the conveyance: with no claim to
the property.”].)
Nagel alleges Lawson and Westen transferred property
during the closing stages of arbitration that otherwise would
have been available to satisfy her judgment. Her interest had
already arisen at the time of transfer. Creating a bright line
7Nagel requests judicial notice of the UFTA and UVTA as
approved by the NCCUSL in 1984 and 2016, respectively, in
addition to legislative history materials for Senate Bills 2150
(1985-1986 Reg. Sess.) and 161 (2015-2016 Reg. Sess.). We grant
appellants’ request. (Evid. Code, §§ 452, subds. (c) & (h), 453.)
12
“third-party transferee” requirement would allow debtors to
unilaterally extinguish this interest, and, it follows, their UVTA
liability, by simply manipulating an asset’s form or location
without vesting legal title or ownership in a third party. This
result would contravene the UVTA’s stated purpose: “to prevent
debtors from placing, beyond the reach of creditors, property that
should be made available to satisfy a debt.” (Chen v. Berenjian,
supra, 33 Cal.App.5th at p. 817.) Statutes such as the Fair Debt
Collections Practices Act (28 U.S.C. § 3001 et seq.) and Rosenthal
Fair Debt Collection Practices Act (§ 1788 et seq.) focus on
protecting debtors’ rights and restraining creditors’ collection
practices. The UVTA does not. It focuses on creditors’ rights and
restraining debtors’ evasive maneuvering. We decline to
interpret the statute in a way that not only subordinates
creditors’ interests to debtors, but encourages debtors to devise
new and more creative ways to circumvent valid obligations.
PGA West, supra, 14 Cal.App.5th 156 presented the Fourth
District with a situation similar in concept (if not fact) to ours.
Debtor recorded a deed of trust on his condominium. He named
an unincorporated sham entity as the deed’s beneficiary and then
foreclosed to insulate his equity from a creditor’s claims. Many
years later the creditor tried to avoid the UVTA’s seven-year
period of repose by arguing a transfer did not occur until debtor
incorporated the sham entity. Prior to then, the creditor argued,
debtor had effectively given a property interest to himself. The
Fourth District declined to adopt the creditor’s rigid
characterization of the term “transfer” by focusing on the legal
distinctions between the debtor and the purported transferee.
The debtor’s intent to insulate his assets and defraud creditors
brought the transaction within the UVTA. (See id. at p. 174
13
[“although Mork never incurred a real obligation to Hulven under
the deed of trust and note, and Hulven apparently never really
existed as a corporate entity, Mork’s fraudulent attempt to
transfer the equity in his condominium to Hulven to insulate that
asset from potential creditors constitutes a ‘transfer’ as defined in
section 3439.01, subdivision (m)”].) We agree. The creditor’s
interests should drive the court’s interpretation of the term
“transfer” rather than the form of debtors’ asset manipulations.
E. Nagel’s Common Law Cause of Action for Fraudulent Transfer
Nagel styles her first cause of action as one for fraudulent
transfer under both the UVTA and common law. The trial court
remarked in its ruling that “[p]recisely what the Plaintiff claims
to be the elements of a common law cause, and how such would
be reflected in jury instruction, remains unclear.” Perhaps
Nagel’s allegations do give rise to such a claim. 8 We decline to
decide the issue where, as here, the opening brief does not
address this part of the trial court’s ruling. (Tisher v. California
Horse Racing Bd. (1991) 231 Cal.App.3d 349, 361, citing Balboa
Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010 [“plaintiffs’
failure to raise an issue in their opening brief waives the issue on
appeal”].)
CONCLUSION
We reverse the order dismissing Nagel’s causes of action for
fraudulent transfer under the UVTA, for conspiracy, and for
aiding and abetting. We affirm the order to the extent it
8See Berger v. Varum (2019) 35 Cal.App.5th 1013, 1019
(“Traditionally, creditors could bring fraudulent transfer cases
under common law. [Citations.] Because the UVTA is not
intended to replace such common law but merely supplement it,
we conclude Berger may bring such a claim under common law.”).
14
dismisses Nagel’s common law cause of action for fraudulent
transfer. Appellants shall recover their costs on appeal.
CERTIFIED FOR PUBLICATION.
PERREN, J.
We concur:
GILBERT, P. J.
YEGAN, J.
15
Colleen K. Sterne, Judge
Superior Court County of Santa Barbara
______________________________
Valle Makoff, Jeffrey B. Valle and Jennifer Laser, for
Plaintiffs and Appellants.
The Law Office of John Derrick, John Derrick, for
Defendants and Respondents, Westen Family Group, LLC, Derek
Westen, Peter K. Westen & Westen Family Trust.
Schley Look Guthrie & Locker, Ian M. Guthrie, for
Defendants and Respondents Tracy A. Westen, Linda Lawson,
and the Westen-Lawson Trust.
Rogers, Sheffield & Campbell, Scott B. Campbell and
Nathan C. Rogers, for Defendant and Respondent Westen Family
Group, LLC, Derek Westen, and Westen Family Trust
16