Kahn v. Humphries
Filed 10/19/10 Kahn v. Humphries CA4/1
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and parties from citing or relying on opinions not certified for publication or
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COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
REINALDO KAHN,
Plaintiff and Appellant,
v.
STEPHANIE HUMPHRIES et al.,
Defendants and Respondents.
D056355
(Super. Ct.
No. GIS25016)
APPEAL from
a judgment of the Superior Court
of San Diego
County, William S. Cannon, Judge. Affirmed.
New
Frontier Trading Corporation filed this lawsuit alleging that a quitclaim deed,
signed by Cory Humphries (Cory) in favor of Stephanie Humphries (Stephanie)
conveying Cory's record interest in a residence (the home) to Stephanie, was a
transfer in fraud of creditors. The
matter was tried to the court and, after the plaintiff[1]
rested his case-in-chief, the court granted the defense motion under Code of
Civil Procedure section 631.8 for judgment in favor of defendants. After judgment was entered, Kahn timely
appealed. On appeal, Kahn argues the
court made numerous legal errors requiring reversal of the judgment.
I
FACTUAL
AND PROCEDURAL BACKGROUND
A. Facts
Stephanie
and her former husband acquired the home in 1978. When they divorced in 1996, Stephanie
received the home as her separate property.
Cory and
Stephanie married in 1999, and Cory moved into Stephanie's home. At the time of their marriage, Cory owned a
business (Ace Metal Trading (Cory's business)) as a sole proprietor. Because both Cory and Stephanie had
previously suffered through difficult divorces, they agreed Stephanie would
retain the home as her separate property and Cory would retain the business as
his separate property.
The home
remained vested in Stephanie's separate name until 2003 when she and Cory
decided to refinance the home to obtain cash to pay bills. They were told that Stephanie's credit was
bad and, to obtain the refinance loan, it would be necessary to place Cory's
name on the title to the home.
Accordingly, Stephanie signed a quitclaim deed to add Cory on the title
to the home, and the deed was recorded in April 2003. Cory did not pay any consideration for adding
his name to the title. They agreed the
transfer was solely for purposes of the refinance and that he would transfer
his interest in the home back to Stephanie in keeping with their agreement that
the home was her separate property and the business was his separate property.
Cory and
Stephanie began experiencing marital problems in 2004, and Cory moved out for a
period and gave up his keys to the home.
On November 30, 2004,
he signed a quitclaim deed to Stephanie removing his name from title to the
home. However, they reconciled and Cory resumed
living with Stephanie, and Stephanie did not record the quitclaim deed at that
time. However, when they experienced
another downturn in their relationship in the spring of 2005, Stephanie
recorded the quitclaim on April 1, 2005.
During the
time frame that the 2004 quitclaim was signed and later recorded, Cory's
business maintained between $35,000 and $40,000 in the bank, as well as
equipment and inventory valued at nearly $200,000.
B. The Legal Actions
In November
2004, Kahn's assignor filed a legal action
against Cory and Cory's business seeking damages for breach of contract (the
underlying action). The underlying
action was served on Cory on November
30, 2004. Stephanie was
unaware of the underlying action at the time Cory executed the 2004 quitclaim
deed. The sole purpose of the 2004
quitclaim deed was to insure that title to the home reflected the agreement of
Stephanie and Cory that the home was her separate property.
In 2006,
Kahn filed the current action against Cory and Stephanie, alleging Kahn had
obtained a July 2005 default judgment against Cory for approximately
$33,000. Kahn alleged, among other
things, that the transfer of title to the home accomplished by the 2004
quitclaim deed (conveying title from Cory and Stephanie as joint tenants to
Stephanie as her separate property) was fraudulent and made with the actual
intent to hinder and delay Kahn as a creditor of Cory.
C. The Judgment
After Kahn
rested his evidentiary presentation at trial, the court granted the defense
motion, made pursuant to Code of Civil Procedure section 631.8, rejecting
Kahn's claim that the 2004 quitclaim deed was a fraudulent transfer. The court found there was no intent to
hinder, delay or defraud creditors when the quitclaim deed was signed and later
recorded, because it credited the defense testimony regarding the innocent
explanation for why the parties had engaged in the original 2003 transfer and
the subsequent 2004 retransfer of title, and inferred (from the fact Cory's
business had ample assets to satisfy the judgment even after the transfer) the
transfer was unrelated to any effort to avoid payment by Cory to Kahn.
II
LEGAL
PRINCIPLES
A. Standards for Evaluating a Fraudulent Transfer
Claim
In 1986, California
adopted the updated version of the Uniform Fraudulent Transfer Act (UFTA),
enacting revised Civil Code[2]
section 3439 et seq. (
1183, 1189.) "The UFTA permits
defrauded creditors to reach property in the hands of a transferee." (Mejia
v. Reed (2003) 31 Cal.4th 657, 663.)
The UFTA, "like its predecessor and the Statute of 13 Elizabeth,
declares rights and provides remedies for unsecured creditors against transfers
that impede them in the collection of their claims." (Legis. Com. com., 12A West's Ann. Civ. Code
(1997 ed.) foll. § 3439.01, p. 272.)
"Under the UFTA, a transfer can be invalid either because of actual
fraud [§ 3439.04, subd. (a)(1)] or constructive fraud [§§ 3439.04, subd.
(a)(2), 3439.05]." (
explained at page 664 that:
"Under the UFTA, a transfer is fraudulent, both as
to present and future creditors, if it is made '[w]ith actual intent to hinder,
delay, or defraud any creditor of the debtor.'
(Civ. Code, § 3439.04, [subd. (a)(1 )].)
Even without actual fraudulent intent, a transfer may be fraudulent as
to present creditors if the debtor did not receive 'a reasonably equivalent
value in exchange for the transfer' and 'the debtor was insolvent at that time
or the debtor became insolvent as a result of the transfer or obligation.' (Civ. Code, § 3439.05.)"
"Whether
a conveyance was made with fraudulent intent is a question of fact, and proof
often consists of inferences from the circumstances surrounding the transfer." (Filip
v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.) Regarding those circumstances,
"Over the years, courts have considered a number of
factors, the 'badges of fraud' [citation] described in a Legislative Committee
comment to section 3439.04, in determining actual intent. [Citation.]
Effective January 1, 2005, those factors are now codified at section
3439.04, subdivision (b) and include considerations such as whether the
transfer was made to an insider (§ 3439.04, subd. (b)(1)), whether the
transferee retained possession or control after the property was transferred (§
3439. 04, subd. (b)(2)), whether the transfer was disclosed (§ 3439.04, subd.
(b)(3)), whether the debtor had been sued or threatened with suit before the
transfer was made (§ 3439.04, subd. (b)(4)), whether the value received by the
debtor was reasonably equivalent to the value of the transferred asset
(§ 3439.04, subd. (b)(8)), and similar concerns. According to section 3439.04, subdivision
(c), this amendment 'does not constitute a change in, but is declaratory of,
existing law.' " (
Cal.App.4th at p. 834.)
However,
the presence of one or more of the "badges of fraud" does not create
a presumption of fraud, but instead provides evidence from which an inference
of actual fraudulent intent may, but need not, be drawn. (Wyzard
v. Goller, supra, 23 Cal.App.4th at p. 1191.)
B. Standards of Appellate Review
Kahn
challenges the court's decision to grant the defense motion for judgment under
Code of Civil Procedure section 631.8.
In a nonjury trial, like the one held in this case, a motion for nonsuit
is no longer recognized; the correct motion is a motion for judgment under Code
of Civil Procedure section 631.8. (
Society of America (1976) 63 Cal.App.3d 867, 869, fn. 1.) A party may move for judgment in its favor
under that section after the opposing party has completed presentation of its
evidence. (Code Civ. Proc., § 631.8,
subd. (a).) The judge, sitting as trier
of fact, may weigh the evidence and order judgment in favor of the moving
party. (Ibid.)
" ' "The purpose of Code of Civil Procedure section
631.8 is . . . to dispense with the need for the defendant to produce
evidence" ' " where the court is persuaded that the
plaintiff has failed to sustain its burden of proof. (Roth
v. Parker (1997) 57 Cal.App.4th 542, 549.)
Because the trial court evaluates the evidence as a trier of fact, it
may refuse to believe some witnesses while crediting the testimony of
others. (Jordan v. City of Santa Barbara (1996) 46 Cal.App.4th 1245, 1255.)
On appeal,
we apply the substantial evidence standard of review to a judgment entered
under Code of Civil Procedure section 631.8, reviewing the record most favorably
to the judgment and making all reasonable inferences in favor of the prevailing
party. (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc.
(1999) 73 Cal.App.4th 517, 528.) We will
not reverse the trial court's order granting the motion if its findings are
supported by substantial evidence,
even if there is other conflicting evidence in the record. (Roth
v. Parker, supra, 57 Cal.App.4th at pp. 549-550.)
III
ANALYSIS
The
determination of whether a conveyance was made " 'with actual intent
to defraud creditors is not a question of law but one of fact to be determined
by the trial court' " (Neumeyer
v. Crown Funding Corp. (1976) 56 Cal.App.3d 178, 183), and if substantial
evidence exists to support the determination that the transfer was not made
with actual intent to defraud, we must uphold the determination even though
contrary inferences could have been drawn from the circumstantial
evidence. (Estate of Cook (1976) 64 Cal.App.3d 852, 862-863.) The evidence given by Stephanie and
Cory--explaining why Cory was given a record interest in the home and later
reconveyed that interest--provides substantial evidence to support the
determination that the reconveyance was for legitimate reasons rather than with
the actual intent to defraud creditors.[3]
On appeal,
Kahn contends there were numerous legal errors committed by the trial court
when it evaluated the evidence and concluded there was no actual intent to
hinder, delay or defraud creditors by the execution and recording of the
quitclaim deed in late 2004 and early 2005.
We examine Kahn's claims serially.
Kahn
contends it was error for the trial court to consider the fact that Cory had
other assets from which Kahn could have satisfied the judgment. Kahn asserts this was error because (1) the
presence of ample assets to satisfy a creditor's claim is not a factor listed
under section 3439.04, subdivision (b), to be considered in determining
such as Fross v. Wotton (1935) 3
Cal.2d 384 and Adams v. Bell (1936) 5
Cal.2d 697 teach that the presence of ample assets to satisfy a creditor's
claim does not bar a creditor from setting aside a fraudulent transfer.[4] However, section 3439.04, subdivision (b),
states that, "[i]n determining actual intent [to defraud], consideration
may be given" to numerous factors, including "[w]hether the transfer
was of substantially all the debtor's assets" (§ 3439.04, subd. (b)(5)),
and "[w]hether the debtor was insolvent or became insolvent shortly after
the transfer was made . . . ." (§ 3439.04, subd. (b)(9)). Both factors necessarily involve
consideration of whether the debtor had other assets after the challenged
transfer, and therefore consideration of Cory's remaining assets was
proper. Kahn's reliance on
Those cases merely hold that "[w]here an actual intent to defraud is
satisfactorily shown, the conveyance may be set aside even though the debtor
has not entirely stripped himself of assets" (Adams v. Bell, supra, 5 Cal.2d at pp. 700-701), but those cases do
not hold that evidence of the debtor's remaining assets may not be considered
on the predicate issue of actual intent.[5]
Kahn next
argues the court erred as a matter of law by finding that the oral agreement
between Stephanie and Cory, which showed they intended the 2003 quitclaim deed
to be for convenience only and not to convey any joint tenancy ownership
interest in the home by Cory, controlled over the presumption (raised by the
recorded 2003 quitclaim deed) that Cory did acquire an ownership interest in
the home. However, the statutes relied
on by Kahn are inapplicable. Certainly,
Family Code section 2581 specifies that property
acquired by the parties during marriage in joint form, including property held
in tenancy in common, joint tenancy, or tenancy by the entirety, or as
community property, is presumed to be community property, and that presumption is a presumption affecting the burden of proof
that may be rebutted by certain types of evidence. However, section 2581 states that the
specified presumption applies "[f]
dissolution of marriage or legal separation of the
parties . . . ."
The present action does not
involve the division of property on dissolution of marriage.[6] Kahn also argues the recording statutes make
recorded title determinative of whether Cory acquired an ownership interest in
the home. However, the purposes of the
recording statutes are to provide protection for bona fide purchasers for value
(see generally Melendrez v. D & I
Investment, Inc. (2005) 127 Cal.App.4th 1238, 1250-1252), which is
inapplicable to this action. Finally,
even assuming the trial court did err in concluding Cory acquired no interest
in the home by the 2003 quitclaim deed, we are convinced that error was
harmless because he divested himself of that interest in 2004 without any
actual intent to defraud creditors, which is fatal to Kahn's claim under
section 3439.04, subdivision (a)(1).
In
Kahn's final two claims of error, he asserts the trial court erred in
concluding that (1) the 2003 quitclaim deed conveyed a de minimus interest in
the home to Cory and that levy on such interest would produce little value for
Kahn, and (2) Cory did not remove or conceal this asset in any way. We need not decide whether these findings
were legally erroneous because, even assuming error, Kahn has made no effort to
satisfy his burden of showing how these alleged errors were prejudicial. (Paterno
v. State of California (1999) 74 Cal.App.4th 68, 105-106.) The appellate courts have repeatedly
cautioned that, even assuming error, we "cannot presume prejudice and will
not reverse the judgment in the absence of an affirmative showing there was a
miscarriage of justice.
[Citations.] Nor will this court
act as counsel for appellant by furnishing a legal argument as to how the trial
court's ruling was prejudicial.
[Citation] Because [Kahn] has
failed to establish prejudice, [his] claim of error fails." (Century
Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 963.)
DISPOSITION
The
judgment is affirmed. Defendants are
entitled to costs on appeal.
McDONALD,
J.
WE CONCUR:
McCONNELL, P. J.
AARON,
J.
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[1] The
original plaintiff was New Frontier Trading Corporation. However, by the time of trial, Reinaldo Kahn
(Kahn) had become the named plaintiff in this action as assignee of New
Frontier Trading Corporation's rights against Cory. Accordingly, all further references to the
plaintiff are to Kahn.
[2] All
further statutory references are to the Civil Code unless otherwise specified.
