Kilker v. Stillman

















Filed 11/26/12 Kilker v. Stillman CA4/3













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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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



FOURTH
APPELLATE DISTRICT



DIVISION
THREE




>

TERENCE A. KILKER et al., Plaintiffs and Respondents, v. FRANK C. STILLMAN, Defendant and Appellant; LUIS ARRIAGA, as Trustee, etc., Third Party Claimant and Appellant.

G045813 (Super. Ct. No. 30-2008-00106524) O P I N I O N

Appeal from a judgment
of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, Franz E. Miller, Judge. Affirmed.

Law Offices of Jefford
C. Davis and Jefford C. Davis for Defendant and Appellant and for Third Party
Claimant and Appellant.

Rutan & Tucker and
Thomas S. Salinger for Plaintiffs and Respondents.

* * *



INTRODUCTION

Plaintiffs Terence A.
Kilker and Paula J. Kilker (the Kilkers) attempted to enforce a $92,500
judgment, which had been entered in their favor and against defendant Frank C.
Stillman in connection with their negligence claim against him. The Kilkers executed a levy on real property
that had been owned by Stillman. A day
or two before the date scheduled for the sheriff’s sale of that property, Luis
Arriaga, as successor trustee of the Walla Walla Group Trust (WWG), filed a
third party claim, asserting that Stillman had conveyed the subject property to
WWG years earlier. The Kilkers petitioned
the trial court to determine that WWG’s third party claim was invalid because
the transfer of the subject property was fraudulent within the meaning of the
Uniform Fraudulent Transfer Act (UFTA) (Civ. Code, § 3439 et seq.). (All further statutory references are to the
Civil Code unless otherwise specified.)
The Kilkers also asserted WWG’s claim was invalid because Stillman
remained the equitable owner of the property as the alter ego of WWG.

Following a bench trial
on the Kilkers’ petition, the court found WWG’s third party claim to the
property invalid. On appeal, Stillman
and Arriaga, as successor trustee of WWG (collectively, appellants), argue the
trial court misinterpreted the UFTA, and insufficient evidence showed Stillman
had the actual intent to hinder, delay, or defraud any creditor by transferring
the subject property to WWG.

We affirm. “A fraudulent conveyance under the UFTA
involves ‘“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.”’” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) Substantial evidence, most notably Stillman’s
testimony, showed Stillman transferred the property to WWG with the actual
intent to hinder, delay, or defraud any creditor, within the meaning of
section 3439.04. Because WWG’s
third party claim was invalid based on the application of the UFTA, we do not
decide whether the claim was invalid based on an alter ego theory as well.



BACKGROUND

I.

The Kilkers Attempt to Collect on Their
Judgment Against Stillman by Levying the Railroad Street Property; Arriaga
Files a Third Party Claim on Behalf of WWG, Claiming Ownership of the Railroad
Street Property; the Kilkers File a Petition to Establish the Invalidity of the
Third Party Claim.

In 2000, the Kilkers
hired Curcies Coordinated Construction, Inc., to build a swimming pool on their
property. Curcies hired Stillman to
perform soil testing in connection with the pool’s construction. Stillman prepared a soils report, and Curcies
built the pool. In 2008, the Kilkers
sued Curcies, Stillman, and others for damages they sustained due to a
separation in the mastic seal of the pool.
The Kilkers and Stillman entered into a settlement agreement whereby
Stillman agreed to pay $92,500 to the Kilkers.
After Stillman failed to pay the settlement amount by the agreed‑upon
date, the trial court entered judgment in favor of the Kilkers and against
Stillman for the amount of $92,500.

The Kilkers tried to
collect on the judgment by levying on the property referred to as the Railroad
Street property. A day or two before the
date that had been noticed for the sheriff’s sale of the Railroad Street
property, Arriaga, as successor trustee of WWG, an irrevocable trust, tendered
a third party claim to the sheriff, asserting that WWG owned the Railroad
Street property. The sheriff’s sale was
cancelled.

The Kilkers filed a
petition to establish the invalidity of WWG’s third party claim (the petition),
in which they contended Stillman’s transfer of the Railroad Street property to
WWB in 2004 constituted a fraudulent conveyance under the UFTA.



II.

The Trial Court Concludes the Third Party
Claim Is Invalid; Judgment Is Entered; Appellants Appeal.

The trial court held a
bench trial on the petition. The parties
stipulated that certain portions of Stillman’s prior judgment debtor exam and
deposition would be admitted into evidence.
Stillman was the sole witness at the bench trial.

A.

Summary of Stillman’s Trial Testimony

Stillman testified that
in 2004, he had formed three trusts:
WWG, the Soils and Geology Group,href="#_ftn1" name="_ftnref1" title="">^[1] and the Washington Group. He stated he transferred to WWG virtually all
of his assets, including four properties, his bank accounts, certificates of
deposit, and some vehicles. One of the
properties he transferred to WWG was the Railroad Street property, which was an
office building on Railroad Street in the City of Industry. Stillman testified that after he made
transfers to those trusts, he was “left personally with no assets worth more
than $500.” He received no consideration
for the transfers. Stillman stated that
his intent in transferring the Railroad Street property to WWG was for “[a]sset
protection” and so that his “creditors could not go after any equity that
[Stillman’s] trust, [his] personal trust, owned in that property.”

Stillman operated his
business out of the Railroad Street property, rent free. Stillman, his 15‑year employee,
Arriaga, and Arriaga’s family lived at another property owned by WWG, rent
free.

Stillman has been the
managing director of WWG since its inception; he has also been the managing
director of the other two trusts. He
makes deposits and withdrawals; writes checks; opens bank accounts; buys,
sells, and trades real property and other property of WWG; lends or borrows
money in the name of WWG; and buys, sells, and trades stocks and bonds, and
performs other securities activities.
Stillman selects tenants and signs leases for the rental of the Railroad
Street property on WWG’s behalf.

The original trustees of
WWG worked for the accounting firm that set up that trust; Stillman’s brother
is the beneficiary. Stillman has not
been in contact with WWG’s original trustees since 2005. He selected his long‑term employee and friend,
Arriaga, and another friend to be successor trustees to WWG; Stillman did not
seek or obtain any approval from WWG before naming them as successor
trustees.

Stillman uses WWG funds
to pay his personal expenses, including his cell phone bills, credit card
bills, personal attorney fees, XM radio bills, and Los Angeles Times and
National Geographic subscriptions.

B.

The Trial Court Issues Minute Order.

Following trial, the
court found WWG’s third party claim to the Railroad Street property was invalid. The court issued a minute order stating WWB’s
third party claim was therefore denied because Stillman’s transfer of the
Railroad Street property constituted a fraudulent transfer within the meaning
of the UFTA, and because Stillman was the alter ego of WWG. The court found that Stillman transferred the
Railroad Street property with the actual intent to hinder, delay, or defraud
any creditor. The court did so on the
ground Stillman testified he transferred the Railroad Street property because
soils engineers are frequently sued. The
court found the Kilkers were reasonably foreseeable as future judgment
creditors under the UFTA. The court also
found Stillman had the requisite intent because he retained control of the
Railroad Street property, transferred assets to WWG, and did not receive any
consideration for such transfers (§ 3439.04, subd. (b)).

The trial court also
stated it found WWG’s third party claim invalid based on the alter ego theory
that Stillman was the equitable owner of WWG.
No statement of decision was requested by any party or issued by the
trial court.

C.

Judgment
Is Entered; Appellants Appeal.

Judgment was entered on
the petition, which stated in relevant part:
“This Court issued its Order as to this petition on June 28, 2011,
ruling, inter alia, that: (1) the real property commonly known as
17231 Railroad Street, City of Industry, California . . . was
fraudulently conveyed by Mr. Stillman to the Walla Walla Group pursuant to the
Uniform Fraudulent Transfer Act (Civil Code Sections 3429, >et seq.); and (2) an alter ego
relationship was established between Mr. Stillman and one of the trusts he
created, namely the Walla Walla Group; as a consequence, Mr. Stillman should be
treated as the equitable owner of the assets held by the Walla Walla Group
and/or held by Mr. Arriaga on behalf of the Walla Walla Group. [¶] Based upon these rulings, IT IS HEREBY
ORDERED, ADJUDGED AND DECREED that: [¶]
(1) The Third Party Claim submitted by Mr. Arriaga, on behalf of the Walla
Walla Group, is invalid; and [¶] (2) The Los Angeles County Sheriff’s
Department shall proceed with the execution sale of the Railroad Street
Property levied upon by [the Kilkers].”

Appellants
appealed.



DISCUSSION

I.

Standard of Review

No
statement of decision was requested by any party and the trial court’s minute
order was not a statement of decision.
No party raised any objections to the minute order.

“Without
a statement of decision, and timely objections to any ambiguities or omissions
in it, the doctrine of implied findings applies.” (County
of Orange v. Barratt American, Inc. (2007) 150 Cal.App.4th 420, 438.) “The doctrine of implied findings requires
the appellate court to infer the trial court made all factual findings
necessary to support the judgment.
[Citation.] The doctrine is a
natural and logical corollary to three fundamental principles of appellate
review: (1) a judgment is presumed
correct; (2) all intendments and presumptions are indulged in favor of
correctness; and (3) the appellant bears the burden of providing an
adequate record affirmatively providing error.
[Citations.]” >(Fladeboe v. American Isuzu Motors Inc. (2007)
150 Cal.App.4th 42, 58.)

“We
review the trial court’s express factual findings, and any implied findings,
for substantial evidence.
[Citations.] [¶] We review legal
issues, such as statutory interpretation, under a de novo or independent
standard. [Citations.] ‘In theory, a determination is one of
ultimate fact if it can be reached by logical reasoning from the evidence, but
one of law if it can be reached only by the application of legal principles.’
[Citation.]” (Apex LLC v. Sharing World, Inc. (2012) 206 Cal.App.4th 999, 1009.)

II.

The Trial Court Did Not Err by Concluding
Stillman’s Transfer of the Railroad Street Property to WWG Constituted a
Fraudulent Conveyance Within the Meaning of the UFTA.

Appellants contend the
trial court erred by finding Stillman’s conveyance of the Railroad Street
property to WWG constituted a fraudulent conveyance under the UFTA. They argue (1) the trial court erred in
its analysis of “present and future creditors” in considering the application
of section 3439.04, subdivision (a); and (2) insufficient
evidence supported the court’s finding Stillman transferred the Railroad Street
property with the actual intent to “hinder, delay, or defraud any creditor,”
within the meaning of section 3439.04, subdivision (a)(1). For the reasons we will explain, appellants’
arguments are without merit.

“In construing statutes,
we aim ‘to ascertain the intent of the enacting legislative body so that we may
adopt the construction that best effectuates the purpose of the law.’ [Citations.]
We look first to the words of the statute, ‘because the statutory
language is generally the most reliable indicator of legislative intent.’ [Citations.]
[¶] When the statutory text is ambiguous, or it otherwise fails to
resolve the question of its intended meaning, courts look to the statute’s
legislative history and the historical circumstances behind its enactment. [Citation.]
Finally, the court may consider the likely effects of a proposed
interpretation because ‘“[w]here uncertainty exists consideration should be
given to the consequences that will flow from a particular
interpretation.”’” (Klein v. United States of America (2010) 50 Cal.4th 68, 77.)

Section 3439.04,
subdivision (a) provides: “A
transfer made or obligation incurred by a debtor is fraudulent 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 he or she would
incur, debts beyond his or her ability to pay as they became due.” (Italics added.)

The UFTA defines
“‘Claim’” as “a right to payment, whether or not the right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured” (§ 3439.01,
subd. (b)); “‘Creditor’” as “a person who has a claim, and includes an
assignee of a general assignment for the benefit of creditors” (§ 3439.01,
subd. (c)); “‘Debtor’” as “a person who is liable on a claim”
(§ 3439.01, subd. (e)); and “‘Transfer’” 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, and creation of a lien or other encumbrance”
(§ 3439.01, subd. (i)).

Appellants do not
challenge the findings that Stillman is a “‘Debtor,’” each of the Kilkers is a
“‘Creditor’” with a “‘Claim,’” and that Stillman’s conveyance of the Railroad
Street property to WWG constituted a “‘Transfer,’” within the meanings of
section 3439.01, subdivisions (b), (c), (e), and (i). Appellants argue “that for fraudulent
transfer purposes the world of creditors must be divided into three
classes: 1) present creditors,
2) future creditors, and 3) future potential creditors.” They argue:
“There is no dispute between the parties or in the evidence presented
that the Kilkers were not present creditors in 2004 the year that Mr. Stillman
transferred his assets to the trust in question. The question actually turns on whether the
Kilkers can be truly considered actual future creditors.” Their argument continues: “A future creditor should be defined as a
creditor whose claim arises after the transfer in question, but where there was
a foreseeable connection between the creditor and the debtor at the time of the
transfer.”

Appellants’ argument is
not supported by the language of section 3439.04,
subdivision (a). The statute does
not include the terms “future creditor” or “future potential creditors.” Section 3439.04. subdivision (a)
does not require that, from the debtor’s perspective, a creditor who challenges
a transfer as fraudulent under the UFTA to have been reasonably foreseeable as
the debtor’s creditor before pursuing remedies under the UFTA. Furthermore, the statute does not require
that the debtor intended to hinder, delay, or defraud the specific creditor who
challenges a transfer of an asset as violative of the UFTA. On the contrary, section 3439.04,
subdivision (a) provides that a current creditor can challenge a transfer
as fraudulent, regardless whether that creditor had a claim at the time of the
transfer, if that creditor can prove, inter alia, the transfer was made to
hinder, delay, or defraud any
creditor.

In Severance v Knight‑Counihan
Co. (1947) 29 Cal.2d 561, 567‑568, the California Supreme Court held
that a debtor’s future creditors were protected against fraudulent conveyances
under former section 3439.7 of the Uniform Fraudulent Conveyance Act
(former § 3439 et seq.), stating:
“It is clear that under these circumstances, [the parties] were
concerned with the possibility that the sales volume would undergo a further
decrease and that additional indebtedness would accumulate so that defendant
would be unable to pay the full amount of its indebtedness, which would include
the claims of both present and future creditors. Hence, even if it be assumed that the
creditors at the time of the agreement could have been satisfied, the agreement
would still have been fraudulent as impairing the rights of future
creditors. Future creditors as well as
present creditors are protected by the legislation relating to fraudulent
conveyances. Such protection is extended
not only under the Uniform Fraudulent Conveyance Act, which was adopted in this
state in 1939 [citation], but under the law as it stood in 1938 when the
agreement was made.” Appellants do not
cite any legal authority showing the Legislature intended to change this
unrestricted interpretation of “future creditors” with the passage of the UFTA
in 1986.

Stillman testified
during his deposition (as read into the record during the hearing on the
petition), that he transferred the Railroad Street property to WWG for the
purpose of protecting it from the reach of creditors. During his deposition, when asked whether the
transfer was done “[s]o your creditors could not get at any equity that you
held in that property,” Stillman answered, “[y]es.” At the hearing on the petition, he was asked
whether that part of his deposition testimony was honest. Stillman answered, “[y]eah.” Stillman thus admitted he intended, at a
minimum, to hinder creditors from collecting from him, by transferring the
Railroad Street property to WWG.

The trial court’s
finding Stillman had the requisite actual intent at the time he transferred the
Railroad Street property is further supported by substantial evidence of the
factors set forth in section 3439.04, subdivision (b). That section provides: “In determining actual intent under
paragraph (1) of subdivision (a), consideration may be given, among
other factors, to any or all of the following:
[¶] (1) Whether the transfer or obligation was to an insider. [¶] (2) Whether the debtor retained
possession or control of the property transferred after the transfer. [¶] (3) Whether the transfer or
obligation was disclosed or concealed.
[¶] (4) Whether before the transfer was made or obligation was
incurred, the debtor had been sued or threatened with suit. [¶] (5) Whether the transfer was of
substantially all the debtor’s assets.
[¶] (6) Whether the debtor absconded. [¶] (7) Whether the debtor removed or
concealed assets. [¶] (8) Whether
the value of the consideration received by the debtor was reasonably equivalent
to the value of the asset transferred or the amount of the obligation
incurred. [¶] (9) Whether the
debtor was insolvent or became insolvent shortly after the transfer was made or
the obligation was incurred. [¶]
(10) Whether the transfer occurred shortly before or shortly after a
substantial debt was incurred. [¶]
(11) Whether the debtor transferred the essential assets of the business
to a lienholder who transferred the assets to an insider of the debtor.” (See Filip
v. Bucurenciu, supra, 129
Cal.App.4th at p. 834 [no minimum number of “‘badges of fraud’” set forth
in section 3439.04, subdivision (b) is required to support a finding
of actual intent].)

Substantial evidence
showed that Stillman transferred his real property and almost all of his
personal property to WWG.
(§ 3439.04, subd. (b)(5).)
At the hearing on the petition, Stillman testified he transferred
hundreds of thousands of dollars from his personal account to WWG as well as four
properties, including the Railroad Street property. He stated he transferred all his assets,
including bank accounts, certificates of deposit, and “some vehicles” when WWG
was formed. He transferred his soils and
engineering business to another trust he formed in 2004. Following those transfers, Stillman had “no
assets worth more than $500.”

Stillman’s testimony
established that he maintained possession and control of the Railroad Street
property that was transferred to WWG, within the meaning of section 3439.04,
subdivision (b)(2). Stillman was
the managing director of WWG and was fully authorized to make deposits and
withdrawals, write checks, and buy and sell real property. Stillman used WWG’s funds to pay his personal
expenses, including his XM radio bills, newspaper and National Geographic
subscriptions, and personal attorney fees.
Stillman conducted his soils and engineering business out of the
Railroad Street property, rent free.
Stillman, along with one of his employees, and that employee’s family,
lived at another property owned by WWG, rent free. He chose successor trustees without
authority, and he selected tenants for the Railroad Street property without
seeking or obtaining authorization from WWG.


Furthermore, Stillman
admitted, at the hearing on the petition, that he did not receive any
consideration for transferring the Railroad Street property to WWG. (§ 3439.04, subd. (b)(8).)

In sum, the record amply
supports the trial court’s finding that Stillman’s transfer of the Railroad Street
property to WWG was a fraudulent transfer in violation of section 3439.04,
subdivision (a).

In their opening brief,
appellants argue that WWG was formed under Nevada law, which, they assert,
authorized the type of transfer at issue in this case. Appellants further assert that Stillman’s
“reasonable belief” that “he was engaging in lawful ass[e]t protection” by
forming WWB “negate[d] the requisite intent for a transfer to defraud
creditors.”

Nevada, however, “has
also enacted the UFTA (Nev. Rev. Stat., § 112.140 et seq.) ‘to further the
substantive social policy of assuring that the efforts of judgment creditors
and others to satisfy their claims will not be defeated by fraudulent
transfers.’ [Citation.] As part of that statutory scheme, Nevada Revised
Statutes section 112.250 provides that the UFTA ‘must be applied and
construed to effectuate its general purpose to make uniform the law with
respect to the subject of this chapter among states enacting it.’” (Filip
v. Bucurenciu, supra, 129 Cal.App.4th
at p. 839.)

Nevada Revised Statutes
section 112.180(1) generally tracks the language of Civil Code
section 3439.04, subdivision (a), and provides: “A transfer made or obligation
incurred by a debtor is fraudulent 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: [¶]
(a) With actual intent to hinder, delay or defraud any creditor of the
debtor; or [¶] (b) Without
receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor: [¶] (1) 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; or
[¶] (2) Intended to incur,
or believed or reasonably should have believed that the debtor would incur,
debts beyond his or her ability to pay as they became due.” (Nev. Rev. Stat., § 112.180(1), italics
added.)

Thus, Stillman’s
argument that the transfer was valid under Nevada law is also without
merit. The trial court properly
concluded WWG’s claim to the Railroad Street property was invalid because
Stillman’s transfer of the Railroad Street property to WWG constituted a
fraudulent transfer. Therefore, we do
not reach the issue whether the transfer was also invalid on the separate
ground that Stillman was the equitable owner of WWG under the alter ego
doctrine.



DISPOSITION

The judgment is
affirmed. Respondents shall recover
costs on appeal.







FYBEL,
J.



WE CONCUR:







MOORE, ACTING P. J.







ARONSON, J.