>Flores v.
Hagobian



















Filed
1/24/13 Flores v. Hagobian CA5







NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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

FIFTH APPELLATE DISTRICT


>

CONNIE FLORES, Plaintiff and Appellant, v. DENNIS HAGOBIAN et al., Defendants and Respondents.

F063571 (Super. Ct. No. 08CECG03585) >OPINION

APPEAL from
a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Fresno
County. Donald S. Black, Judge.

Connie
Flores, in pro. per., for Plaintiff and Appellant.

Berliner
Cohen, Ralph J. Swanson and Laura Palazzolo for Defendants and Respondents
Dennis Hagobian, Victoria Hagobian, The Victoria Hagobian Residential Trust,
The Dennis Hagobian Residential Trust, and Yosemite Technologies, Inc.

The Crone
Law Group and Jaime J. Santos for Defendants and Respondents Russell Davidson,
William Davidson and Michael Hedberg.

No
appearance for Defendants and Respondents Sandy L. Vartan, Judith Yeramian, The
Dennis Vartan Family Trust, The Dennis and Sandy L. Vartan Family Trust, The
Lee Yeramian Family Trust, The Lee Yeramian Exempt QTIP Trust, The Judith Mary
Yeramian Family Trust, Rod Christensen, Taft & Traner, Inc., ECO Farms
Field, Inc., ECO Farms Sales, Inc., Norman Traner, Steven Taft, C. Russell
Georgeson, Richard A. Belardinelli, and Georgeson & Belardinelli.

-ooOoo-

Article VI,
section 13 of the href="http://www.adrservices.org/neutrals/frederick-mandabach.php">California
Constitution provides, in part: “No
judgment shall be set aside, or new trial granted, in any cause, … for any
error as to any matter of pleading, or for any error as to any matter of
procedure, unless, after an examination of the entire cause … the court shall
be of the opinion that the error complained of has resulted in a miscarriage of
justice.” While the procedures involved
in the present case have, in some instances, been unusual, upon review of the
entire record we are satisfied that there has been no miscarriage of
justice. That is, the net result of
dismissal of appellant Connie Flores’s causes of action against Dennis Hagobian
and the other respondents could have been accomplished pursuant to regular
procedures and, in the proceedings that actually occurred, appellant had a full
and fair opportunity to be heard. We
also conclude the superior court correctly decided appellant did not have
standing to pursue any cause of action in the second amended complaint, and the
complaint was properly dismissed.
Accordingly, we affirm the superior court’s order of August 24, 2011,
denying appellant’s motion to vacate the clerk’s dismissal of this action.

FACTS AND PROCEDURAL HISTORY

This is the
fifth time some aspect of the present litigation has been before this court.href="#_ftn1" name="_ftnref1" title="">^[1] We briefly recount the history.

Appellant
and her husband, Joe Flores, who is not a party to this appeal, recovered
judgment in federal court in 2004 against DDJ, Inc. and DDJ, LLC (the DDJ
entitieshref="#_ftn2" name="_ftnref2" title="">^[2]). When appellant sought to collect on that
judgment, the DDJ entities filed for bankruptcy. After that point, appellant tried in state
and federal court to collect the judgment on a variety of theories and from a
variety of persons and entities who, according to appellant, had fraudulently
received property rightfully belonging to the DDJ entities, property that
should have been available to appellant to satisfy the underlying judgment.

The present
case was initiated in state court in 2008 by James E. Salven as bankruptcy
trustee for the DDJ entities, W.D. Farming, Joe Flores, and appellant.href="#_ftn3" name="_ftnref3" title="">^[3] The Floreses were named as plaintiffs
pursuant to a September 5, 2007, settlement agreement in bankruptcy court. That stipulation included a handwritten
portion executed by the parties and the transcript of a confirmation hearing,
each page of which was initialed by the parties. The handwritten portion of the stipulation
provided, in part: “Joe Flores and
Connie Flores will continue to be party plaintiffs in the cases Flores I and
Flores II and will jointly prosecute the cases with Trustee Salven to their
conclusion.” In the transcript of the
oral confirmation of the settlement, the settlement judge asked: “[W]hat about the fraudulent conveyance
claims?” An attorney replied: “With respect to the fraudulent conveyance
claims, Flores, whatever rights or claims they have as individuals, they will
retain.” The settlement judge
added: “Whatever they may be.”href="#_ftn4" name="_ftnref4" title="">^[4]

Flores II
proceeded in state court and eventually the operative second amended complaint
was filed by appellant, Salven, and W.D. Farming. The complaint listed 24 defendants connected
with the DDJ entities in various ways.
(Of those defendants, eight have appeared as respondents in this appeal.href="#_ftn5" name="_ftnref5" title="">^[5]) The second amended complaint alleged eight
causes of action for fraudulent conveyance of property belonging to the DDJ
entities or similar conveyances in violation of various provisions of the
Corporations Code; two other causes of action were against attorneys for the
DDJ entities, for breach of contract and legal malpractice; and the final cause
of action was for constructive trust as a means to enforce liability under the
remaining causes of action. Appellant is
alleged in the second amended complaint to be a creditor of the DDJ entities
who holds an outstanding judgment against them.
The requested relief in part seeks disgorgement of fraudulently obtained
benefits “to Connie Flores and other non-consenting creditors.” In part, the relief requested is general
damages of $2,100,000 to the DDJ bankruptcy estates and $1,450,000 to
appellant. Appellant’s only asserted
interest in the various causes of action is alleged to arise as a result of her
status as a creditor of the DDJ entities.

At some
point in 2010, Salven determined that the present litigation should be
abandoned. After negotiations with
Salven, appellant offered to buy the bankruptcy estate’s litigation rights in
return for a promise to pay the estate a portion of any recovery in the
case. Thereafter, however, the trustee
determined that it was of greater benefit to the estate to accept an offer from
respondents in the present case to purchase those litigation rights for
$55,000. The bankruptcy judge approved
this sale of litigation rights. The
Floreses appealed that order and, as far as our record shows, that appeal is
still pending.href="#_ftn6" name="_ftnref6"
title="">^[6] After payment of the settlement amount to
Salven and after notice by respondents to appellant of the proposed dismissal,
Salven filed a request in superior court for dismissal of the “[f]raudulent
transfer and other avoidance claims.”
The clerk entered the dismissal.
Appellant thereafter filed an objection to the dismissal, a request for
stay pending determination of the appeal of the sale of litigation rights in
the bankruptcy case, and, subsequently, a motion to set aside the dismissal as
to appellant’s interest in the case.
After receiving opposition to the motion to set aside, and appellant’s
replies to the opposition, the superior court denied the motion by minute order
dated August 24, 2011. In its tentative
decision, subsequently adopted by the superior court as reflected in the minute
order, the court held, in essence, that appellant’s claims in the second
amended complaint were derivative of the claims of the bankruptcy estate and
that appellant’s participation in the action had been only to obtain damages
for the estate, which might result in eventual payment of her claims against
the DDJ entities in the bankruptcy case.
Appellant filed a notice of appeal.


DISCUSSION

Appellant
has broken her argument down into 17 separate points, and we will address most
of those points specifically (albeit, briefly).
Her most important contention, which we address both first and most
extensively, is that she had substantive rights in the various causes of action
stated in the second amended complaint, and she was entitled to prosecute that
action even if the bankruptcy trustee no longer desired to do so. Appellant cites to Shaoxing County Huayue Import & Export v. Bhaumik (2011) 191
Cal.App.4th 1189 (Shaoxing) in her
supplemental authorities as support for her position. Shaoxing,
however, does not support the conclusion that a creditor, who has a judgment
against a bankrupt entity, has standing to sue third parties to set aside
fraudulent transfers or for an action for conversion to recover assets of the
bankrupt entity.

In >Shaoxing, the plaintiff sought to hold
the defendant liable as an alter ego of a bankrupt corporation (ITC), of which
the plaintiff was a creditor. (>Shaoxing, supra, 191 Cal.App.4th at p.
1193.) In January 2007, the plaintiff
sued ITC after the latter failed to pay for goods delivered by the
plaintiff. In February, the plaintiff
amended its complaint to add Bhaumik as a defendant, alleging he was the alter
ego of ITC. (Ibid.) Almost two years
later, ITC filed its bankruptcy petition.
(Id. at p. 1194.) Thereafter, the plaintiff voluntarily
dismissed ITC from the action. Bhaumik
filed a motion contending that the case was subject to the automatic bankruptcy
stay, that any alter ego claim should be pursued only by the bankruptcy
trustee, and that voluntary dismissal of ITC mooted plaintiff’s claim against
the alter ego. (Ibid.) The trial court
rejected these claims. On the merits, it
found that ITC owed money to the plaintiff and that Bhaumik “failed to maintain
the corporate existence of [ITC] in anything but its name.” (Id.
at p. 1195.) Judgment was “entered
against [] Bhaumik individually ….” (>Ibid.)

The appellate court in >Shaoxing stated the basic rules for
applicability of the bankruptcy stay, including the rule that the stay applied
to “‘any act to obtain possession of property of the estate or of property from
the estate or to exercise control over property of the estate.’” (Shaoxing,
supra, 191 Cal.App.4th at p. 1196, quoting from 11 U.S.C.
§ 362(a)(3).) The estate
encompassed any claim that the trustee would be entitled to prosecute, which
includes any “‘suit that the bankrupt corporation could have instituted had it
not petitioned for bankruptcy’ [citation omitted]” (Shaoxing, supra, at p. 1197); in other words, any claim held by the
bankrupt entity (ibid.). In such a case, the trustee’s standing “‘is
exclusive and divests all creditors of the power to bring the claim. [Citation.]’”
(Ibid.) This includes an action brought against a
defendant based on an alter ego theory when there is an allegation of injury to
the corporation, “including an action to set aside fraudulent transfers or an
action for conversion to recover assets of the bankrupt corporation.” (Id.
at pp. 1998-1999.)

On the other hand, a “creditor’s
action to hold the individual liable as an alter ego for a creditor’s
substantive causes of action against a bankrupt corporation [is] not the
property of the bankruptcy estate.” (>Shaoxing, supra, 191 Cal.App.4th at p.
1193.) So, the Shaoxing court concluded, “Shaoxing’s claims were not stayed by the
ITC’s bankruptcy filing.” (>Id. at p. 1197.)

In this
case, each cause of action sought to benefit the debtor corporation (and its
bankruptcy estate) by recovering funds diverted by the corporation’s owners to
third party recipients who were alleged to have received the corporate assets
without payment of equivalent value.
Under the Uniform Fraudulent Transfer Act, Civil Code section 3439.07,
most of the remedies to a creditor who successfully attacks a fraudulent
transfer involve restoration of the money or property to the debtor corporation.
(See id., subd. (a).) If a creditor’s claim against the debtor is
reduced to a judgment, the creditor “may levy execution on the asset
[fraudulently] transferred or its proceeds.”
(Id., subd. (c).) The remedy of execution on behalf of a
judgment creditor, while authorized under state law when the creditor is not
under the protection of the bankruptcy court, is, however, precluded after the
debtor/transferor has filed for bankruptcy and such proceedings stayed. (Shaoxing,
supra, 191 Cal.App.4th at p. 1196.)
The purpose for the stay, and the limitation on an individual creditor’s
right to execute upon assets of, or owed to, the bankrupt debtor, is
specifically to prevent an inequitable preference for one creditor over other
creditors of the debtor and to prevent piecemeal diminution of the debtor’s
estate. (Ibid.)

Accordingly,
appellant did not have an independent right to sue third parties to set aside
fraudulent transfers from the DDJ entities, directly or indirectly, to the
third-party recipients. All causes of
action to set aside any such transfers (as alleged in the first eight causes of
action in the second amended complaint), belonged solely and exclusively to the
bankruptcy trustee.

Our
conclusion largely resolves three additional contentions appellant makes. First, it is true that a bankruptcy trustee
is permitted by bankruptcy law to abandon a particular cause of action—that is,
in effect, to re-assign the cause of action to a creditor of the bankrupt
debtor. This option is particularly
appropriate where the trustee determines it is not economical to prosecute the
cause of action, and a creditor, who would particularly benefit by the cause of
action, disagrees as to its potential value.
(2 Bankr. Desk Guide (2012) § 12:116, pp. 12-122, 12-123.) In fact, in the present bankruptcy, as part
of the September 5, 2007, settlement, the trustee specifically abandoned to
appellant a different federal court case known as Flores III.href="#_ftn7" name="_ftnref7" title="">^[7] In other instances, however, the trustee may
enlist the assistance of creditors in pursuing litigation on behalf of the
bankruptcy estate. (Id., § 19:123, p. 19-128.)
In that circumstance, as opposed to the abandonment circumstance, the
trustee and the estate continue to be the owners of the cause of action, and
the creditor is merely assisting in prosecution of the action. That is what happened here with respect to
Flores II, the present state court action.
The settlement provided, in language very different from that disposing
of Flores III: “Joe Flores and
Connie Flores will continue to be party plaintiffs in the cases Flores I and
Flores II and will jointly prosecute the cases with Trustee Salven to their
conclusion.”href="#_ftn8" name="_ftnref8"
title="">^[8] The September 5, 2007, settlement agreement
did not constitute an abandonment by the trustee of the Flores II causes of
action, nor an assignment to appellant of any portion of those causes of action.href="#_ftn9" name="_ftnref9" title="">^[9]

Appellant
argues at length that this court, the superior court, the other parties, and
the bankruptcy court have recognized her as a “plaintiff” in this case and,
accordingly, the superior court must have erred when it concluded it was
“without jurisdiction” to grant relief from the judgment of dismissal because
appellant was not the real party in interest, a term she equates with
“plaintiff.” As the superior court
correctly explained in its minute order, however, appellant was properly a
plaintiff, even though her interest was derivative of the interest of the
bankruptcy estate, and even though her interest was terminable by the actions
of the bankruptcy trustee.

The question is not whether
appellant had an interest in restoring money and property to the bankruptcy
estate. She unquestionably did, since no
one disputes that she had filed a valid creditor’s claim in the bankruptcy
proceeding. That interest in restoring
property to the estate, however, was always subject to the trustee’s management
of the estate under the supervision of the bankruptcy court. When the trustee, in effect, compromised the
very claims that constituted the subject matter of the Flores II litigation for
the sum of $55,000, and when that compromise was approved by the bankruptcy
court, appellant’s right in the Flores II causes of action similarly became a
right to her claimant’s share (if any) of the $55,000 in the trustee’s
estate. That concrete sum became, in
law, the full equal of, and replacement for, the more nebulous claims
comprising the Flores II causes of action.
The trustee’s decision to, in effect, compromise and settle the Flores
II claims, when confirmed by the bankruptcy court, operated to foreclose
appellant’s (and, indeed, the trustee’s) remaining rights in the Flores II
litigation.

Appellant’s
remaining contentions all go to the form and formalities of the proceedings
below. For example, she contends the
clerk of the superior court should not have entered a dismissal of the entire
action (as opposed to merely Salven’s interest in the action) without notice
and “input” from appellant. Similarly,
she complains that Salven, a non-attorney, was not entitled to act on behalf of
the bankruptcy estates except through counsel, which he did not have at relevant
times. She contends that after the
settlement transferring the causes of action to respondents, Salven had no
continuing right to support his exercise of the power of dismissal of this
case. Conversely, she argues that some
of the causes of action, because they involved statutes that are penal in
nature or are otherwise non-assignable as a matter of state law, were not
properly subject to the settlement agreement at all. Each of these arguments fails because appellant
has failed to demonstrate that the error, if any, resulted in a miscarriage of
justice, a constitutional precondition to reversal of the order refusing to set
aside the judgment in this case. (See
Cal. Const., art. VI, § 13.)

Thus, in the case of the clerk’s
dismissal of the action without notice to her, appellant had a full and fair
opportunity to present her arguments about her independent interest as
plaintiff, to the superior court in her motion to set aside the judgment. The court fully determined appellant’s
contentions in a manner that preserved those contentions for appellate review,
which we have undertaken above. We have
found that the superior court’s analysis of appellant’s legal rights was
correct. Accordingly, appellant has not
established that the clerk’s earlier actions resulted in a miscarriage of
justice.

With respect to the remainder of
appellant’s contentions, our review of the record discloses that the errors of
which she complains did not affect appellant’s rights in any manner. If the trustee was not permitted to act on
behalf of the estate without counsel, his actions in doing so did not change
the fact that appellant had no right to stop the trustee from dismissing the
case; he could have accomplished the same thing with and through counsel, and
appellant could not legally have prevented it.
Similarly, if some of the causes of action were not assignable, as she
contends, the bankruptcy settlement could have been structured simply as
compromise and settlement of those claims (instead of being a sale and assignment
of the claims), with the same net effect of dismissal of the present
action. The structure of the bankruptcy
settlement was a matter between the trustee and defendants (subject to
oversight by the bankruptcy court), and those details had no effect whatsoever
on the ultimate disposition of the present case, namely, its dismissal on the
merits. None of the procedural
deficiencies appellant identifies have been shown to be prejudicial to
appellant. Appellant has not shown an
entitlement to reversal of the order of the superior court.




DISPOSITION

The
judgment is affirmed. Appellant’s
request for judicial notice filed March 23, 2012, is granted in part and denied
in part, as stated in footnote 1, ante. Respondents are awarded costs on appeal.







_____________________

DETJEN,
J.

WE CONCUR:





_____________________

WISEMAN, Acting P.J.





_____________________

LEVY, J.