Opinion
G030610.
11-3-2003
THOMAS W. BERTHOLD, Plaintiff and Respondent, v. ROBERT E. MAYFIELD, Defendant and Appellant.
Albert Perez, Jr. for Defendant and Appellant. Stanley R. Jones for Plaintiff and Respondent.
We affirm a judgment following a bench trial that plaintiff owned all the stock in a Nevada corporation, notwithstanding his transfer of nominal ownership to defendant in an effort to outwit potential creditors. Plaintiffs unclean hands bar him from upsetting this deceptive transfer, but the doctrine of implied findings supports the judgment on other grounds. There was substantial evidence that plaintiff later obtained the very same stock through valid foreclosure proceedings arising from an unsatisfied debt.
I
The record in this case "does not afford pleasant reading." (Cf. Birney v. Birney (1933) 217 Cal. 353, 355.) Plaintiff was the sole owner of all the shares of Taylor Bus Service, Inc. The bus company fell on hard times and filed for bankruptcy. In 1989, plaintiff was convicted of bankruptcy fraud for knowingly and fraudulently concealing some $1.7 million in the bus companys assets. His conviction was affirmed by the Ninth Circuit in an unpublished opinion, with the court noting that even during the prosecution he "continued to refuse to disclose in open court the location of the untraced proceeds of the sale." He was sentenced to two years in federal prison. (United States v. Berthold (9th Cir. Jan. 28, 1993, No. 92-55765) 1993 WL 18101.)
We take judicial notice of the Ninth Circuit Court of Appeals unpublished decision on our own motion to determine what issues were actually litigated and determined. (Evid. Code, §§ 452(d), 459(a); cf. Cal. Rules of Court, rule 977, subd. (b)(1).)
In May 1991, plaintiff (while still in prison) decided, as a "holding arrangement," to transfer his stock in the bus company to defendant and a third person because he "had creditors that were looking for him." He established a Nevada corporation (Victory Enterprises) to formally hold the stock.
The transactions were a sham. Plaintiff never was paid for the stock. He admitted that the transfer "would not survive a challenge by a legitimate creditor who had not been otherwise satisfied." But no creditors challenged the arrangement.
In February 1999, the bus company came into possession of over $260,000 after the State of California condemned some of its property to widen the Santa Ana Freeway near the Disneyland Resort area. A year later, plaintiff brought this action for declaratory relief to establish that he was the sole owner of both the bus company and the Nevada corporation.
Following a two-day trial, the court agreed with plaintiff. The court invalidated the 1991 stock purchase agreement because it "lacked any consideration and was merely an accommodation to [plaintiff] in order to protect his assets from potential creditors." The court alternatively found that plaintiff validly foreclosed upon the stock when the bus company defaulted on a 1995 loan. Judgment was entered for plaintiff.
II
The trial court abused its discretion in allowing plaintiff to set aside his own fraudulent stock purchase agreement. Like the mobster who cannot use judicial processes to enforce illegal gambling debts, plaintiff rightly is hoisted by his own petards. As a California appellate court stated nearly 60 years ago, "One who transfers his property for the purpose of cheating his creditors will plead in vain for relief from his own chosen distress." (Morrison v. Willhoit (1944) 62 Cal.App.2d 830, 838.)
Declaratory relief — an equitable remedy — may be refused "where its declaration or determination is not necessary or proper at the time under all the circumstances." (Code Civ. Proc., § 1061.) Among such grounds for refusal are illegality and unclean hands. (Moss v. Moss (1942) 20 Cal.2d 640 [refusing declaratory relief to party of equal fault in illegal transaction].) The doctrine of unclean hands "demands that a plaintiff act fairly in the matter for which he seeks a remedy. He must come into court with clean hands, and keep them clean, or he will be denied relief, regardless of the merits of his claim. [Citations.]" (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978.) The misconduct at issue need not constitute a crime or even an actionable tort. The doctrine may be triggered by conduct that violates the conscience, or good faith, or other equitable standards of conduct. (DeRosa v. Transamerica Title Ins. Co. (1989) 213 Cal.App.3d 1390, 1395-1396.)
Whether the underlying facts justify the defense of unclean hands usually rests within the sound discretion of the trial court. (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 447 .) That discretion, however, may be abused, and subject to reversal "`for the protection of the integrity of the court." (Katz v. Karlsson (1948) 84 Cal.App.2d 469, 474.) "If the record shows upon its face that the moving party has failed to act in good faith with the court, that is, has instituted a proceeding or motion with unclean hands, it is the duty of a reviewing court in the interest of justice to determine the propriety of the judgment, decree or order of the trial court." (Id. at p. 473.)
Even after being convicted of concealing assets from creditors, plaintiff concocted a new scheme in 1991 to continue to conceal his ownership of the bus companys assets. Clearly, the creditors — plaintiffs intended victims — should be able to pierce through this scam. But should plaintiff — the perpetrator — be able to recover what he once sought to hide? Like other courts, we refuse to open our good offices to "adjust differences between wrongdoers." (Katz v. Karlsson, supra, 84 Cal.App.2d at p. 476; cf. U.S. v. Rodriguez-Estrada (1st Cir. 1989) 877 F.2d 153, 158 [". . . it strikes a jarring note when the pot proposes to call the kettle black"].) There is some rough justice in leaving the parties where we find them.
Application of the unclean hands doctrine will not deprive unsatisfied, defrauded creditors of access to their funds. As plaintiff himself points out, defendant is equally liable to any defrauded creditors "as a co-conspirator in the alleged plot." The fact that no creditors have stepped forward does not necessarily exonerate plaintiff; it may simply be a sign of the success of his scheme.
Judicial abstinence also furthers public policy. Perhaps people who plot new stings will contemplate the risks of themselves being ensnared. Neither public resources nor public integrity should be squandered in opprobrious efforts to enforce the code of "honor among thieves."
III
Our conclusion regarding plaintiffs unclean hands does not end the matter. There is an alternative basis for the trial courts ruling that is separate and independent from the fraudulent stock transfer that took place in 1991.
In 1995, defendant signed three written promissory notes referencing a $700,000 loan from plaintiff to the bus company. Defendant pledged his stock shares in the Nevada corporation as security, and assigned his shares to plaintiff. He executed the assignment on the back of the certificates and delivered the original stock certificates to plaintiff as collateral. After the bus company failed to satisfy the loan, plaintiff foreclosed on the stock.
Defendant denies that these loans ever were made. He contends that plaintiffs testimony regarding the loans "should be viewed with distrust, where neither Berthold, a former CPA, or [Barbara] Overley, former entity president, could testify to either the source or destination of the loan monies, and neither had any records." Defendant also claims that Bertholds written notice of foreclosure of the loans was sent under "highly suspicious" circumstances to an improper place, the law offices of an attorney (Douglas Broomell) retained to represent him on a different matter.
Plaintiffs unsavory role in the 1991 stock transfer may call his credibility into question. But aside from the identity of the players, the 1995 loan made by plaintiff to the bus company was not part and parcel of the 1991 stock purchase agreement between plaintiff and defendant. Defendant did sign three written promissory notes regarding the notes, pledged his stock shares in the Nevada corporation as security, and assigned them to plaintiff. The court similarly heard evidence that Broomell did represent defendant regarding the "attempt to have paid to him some of the money held on deposit with the court for the benefit of Taylor Bus in the condemnation action . . . ." The court issued findings of fact that that plaintiff validly foreclosed upon the stock when the bus company defaulted on the 1995 loans.
Ultimately, defendant raises factual, not legal issues, which the trial court resolved against him. The promissory notes, corporate minutes and Overleys testimony provide evidence of the 1995 loan. Substantial evidence thus supports plaintiffs arguments that the loan was legitimate, actually advanced, and legally foreclosed.
Plaintiffs security interest and its foreclosure in February 2000 are governed by the provisions of former Commercial Code section 9505(2), which was repealed and replaced in mid-1991. (See Stats. 1999, ch. 991, eff. Jul. 1, 2001.)
If there is any doubt, under the doctrine of implied findings, we infer that the trial court made whatever findings of fact are necessary to support the judgment for which there is substantial evidence. (Michael U. v. Jamie B. (1985) 39 Cal.3d 787, 792-793; see Code Civ. Proc., §§ 632, 634.) Defendant cannot overcome this presumption of correctness by asking us to reweigh conflicting evidence, or to reevaluate witness credibility — weak as that evidence may be.
We invited supplemental briefing regarding the application of the doctrine of implied findings given defendants failure to request a statement of decision. In response, defendant claims that he orally requested a statement of decision "in an unrecorded argument . . ." (Italics added.) Obviously nothing in the record supports this.
Alternatively, defendant contends that the March 1, 2002 minute order should be considered as the courts statement of decision. But even were we to do so, defendants failure to file any objections to the March 1 order precludes him from arguing that the court omitted findings on critical issues, or issued ambiguous findings. (See Code Civ. Proc., § 634.) If a party fails to bring omissions or ambiguities to the attention of the trial court, then "that party waives the right to claim on appeal that the statement was deficient in these regards," and the appellate court will infer the trial court made implied findings to support the decision. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.)
Section 634 provides: "When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court either prior to entry of judgment or in conjunction with a motion under Section 657 or 663, it shall not be inferred on appeal or upon a motion under Section 657 or 663 that the trial court decided in favor of the prevailing party as to those facts or on that issue."
The judgment is affirmed. In the interests of justice, the parties shall bear their own costs on appeal.
WE CONCUR BEDSWORTH, J. and FYBEL, J.