Opinion
A155419 A155423
12-13-2019
COREY CASILIO et al., Plaintiffs and Respondents, v. JOHN VALENTINE et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG15792469)
Defendants John Valentine (John) and Daniel Valentine (Daniel) appeal from a judgment after bench trial. They do not challenge the trial court's finding that John fraudulently transferred his assets in order to avoid execution of judgments held by plaintiffs Corey Casilio (Casilio), William Leitch (Leitch), and Casilio Leitch Investments, LLC, but contend the court should have awarded plaintiffs a money judgment and lien for the value of the assets at the time of transfer instead of "entirely void[ing]" the transfers by setting them aside. We affirm the judgment.
To avoid confusion and repetition of last names, and with no disrespect intended, we refer to the individuals who share the last name Valentine by their first names.
FACTUAL AND PROCEDURAL BACKGROUND
In June 2014, Casilio and Leitch obtained an arbitration award of over 3 million dollars against John. The San Diego Superior Court confirmed the arbitration award as a judgment. In November 2015, Casilio Leitch Investments, LLC, obtained a judgment against John in an action in Santa Clara Superior Court.
At the time Casilio and Leitch obtained the arbitration award, John was the trustor and sole trustee of the John L. Valentine Trust (Valentine Trust), which owned two real properties in Alameda County—one on Valley Oak Road and the other on Grappa Place. The Trust also owned 1,307,692 shares of stock in Geneos Wealth Management, Inc. (Geneos stock).
In July 2014, just a little over a month after the arbitration award was entered, John transferred three real properties including Valley Oak Road and Grappa Place from the Valentine Trust to his brother Daniel as trustee of four trusts whose beneficiaries were John Valentine's children (Children's Trusts). In May 2015, John transferred all of his Geneos stock to the Children's Trusts. John received no consideration for the transfers, and he retained management and control of both Valley Oak Road and Grappa Place after the transfers.
The third real property that John transferred was not included in this action because it is located in Contra Costa County, not Alameda County.
Casilio and Leitch filed a complaint against John and Daniel (together, defendants) alleging defendants fraudulently transferred their assets in order to avoid execution of the San Diego Superior Court judgment. They sought to have the transfers of Valley Oak Road, Grappa Place, and the Geneos stock set aside to the extent necessary to satisfy their judgment. Daniel, as trustee of the Children's Trusts, filed a cross-complaint seeking to quiet title Valley Oak Road and Grappa Place in favor of the Children's Trusts and a declaration that the transfers may not be set aside, that Casilio, Leitch, and Casilio Leitch Investments, LLC (together, plaintiffs) have no interest in either real property, and that the abstracts of judgment recorded by plaintiffs did not attach to either real property. Casilio Leitch Investments, LLC, filed a cross-complaint mirroring Casilio and Leitch's complaint except that the debt asserted was the Santa Clara Superior Court judgment. Whitney Valentine (Whitney), John's former spouse, filed an action—later consolidated with the other actions—seeking a partition by sale of Valley Oak Road and Grappa Place based on her position that she had a 30% interest in each of those real properties.
Whitney is not a party to this appeal.
The trial court conducted a bench trial and found in favor of plaintiffs and against defendants and Whitney. The court found defendants' claim that John and Whitney signed and intended to record the Valley Oak Road and Grappa Place deeds in 2010 was not credible. The court found it "astounding" that John's long-term financial partner and notary public would claim he witnessed and notarized John and Whitney's signatures in 2010 but could not present his notary journal as evidence because he accidentally "destroyed the integrity of this notary journal" while trying to make copies of it " 'using a sheet feeder of a copy machine.' " The court found John and Whitney were "entirely unbelievable"; they "appear to have no regard for the truth in their testimony, crafting testimony in this case that is contrary to prior testimony/positions in the tax court, prior SEC filings, prior sworn testimony and prior divorce filings."
The trial court also found defendants' claim that they transferred the Geneos stock to the Children's Trusts in 2008 or 2010 to be "manifestly unbelievable." "The testimony of [John's child] that he actually saw the stock book records reflecting 'his' irrevocable trust's ownership of the stock on [a] computer screen . . . when he was nine years old suffers from a fatal flaw," and it is a "shame" when parties "drag their children into court to testify" and "make up something that . . . appears to be categorically false." The court found John's claim that he transferred the stock in 2010 by signing and endorsing stock certificates was also not credible and not supported by the record.
The trial court found Whitney had no interest in Valley Oak Road or Grappa Place and that John transferred the assets "intentionally . . . in order to hinder, delay, and defeat [plaintiffs'] collection of the judgments." "The transfers of the two properties and the stock . . . have harmed [plaintiffs] in that John . . . thereafter became de-facto judgment proof with regard to the ownership of any other assets that might be available to satisfy the outstanding judgment." "On the dates of the transfer, . . . each of the [three] assets had value. The real properties had equity value after reducing the fair market value by the liens and encumbrances. . . [T]here is evidence that the stock has some value . . . and that no Geneos shareholders . . . have ever encumbered their Geneos shares . . . ." "The remedy granted by the court will be that the transfers [of the three assets] from the . . . Valentine Trust to the [Children's Trusts] are voided to the extent necessary to satisfy the . . . judgments and that the plaintiffs . . . may pursue collection of the two judgments by execution against those assets."
DISCUSSION
Defendants contend the trial court should have awarded plaintiffs a money judgment and lien for the value of the assets at the time of transfer instead of "entirely void[ing]" the transfers by setting them aside. We disagree.
The Uniform Voidable Transactions Act, Civ. Code, § 3439 et seq., (UVTA) " 'declares rights and provides remedies for unsecured creditors against transfers that impede them in the collection of their claims.' " (Renda v. Nevarez (2014) 223 Cal.App.4th 1231, 1235 (Renda).) Its purpose is "to protect creditors by authorizing them to set aside transfers of property by which debtors try to avoid paying debts by putting assets beyond creditors' reach. [Citations.]." (Ibid.) Thus, under the UVTA, when a debtor transfers property "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor" (§ 3439.04, subd. (a)(1)), the creditor may obtain "[a]voidance of the transfer . . . to the extent necessary to satisfy the creditor's claim." (§ 3439.07, subd. (a)(1).) In addition to having the fraudulent transfer set aside, a creditor may also obtain "[a]n attachment or other provisional remedy against the asset" (§ 3439.07, subds. (a)(2)) or, "[s]ubject to applicable principles of equity," an "injunction against further disposition by the debtor or a transferee, or both, of the asset," "[a]ppointment of a receiver," and "[a]ny other relief the circumstances may require." (§ 3439.07, subd. (a)(3)(A)-(C).)
All further undesignated statutory references are to the Civil Code.
In some circumstances, a creditor may obtain a money judgment against a transferee. Under section 3439.08 subdivisions (b)(1)(A) and (b)(1)(B), a creditor "may recover judgment for the value of the asset transferred . . . or the amount necessary to satisfy the creditor's claim, whichever is less," "against" "[t]he first transferee of the asset or the person for whose benefit the transfer was made" or "[a]n immediate or mediate transferee of the first transferee," unless the transferee was a "good faith transferee" who in good faith took the asset "for value."
The trial court has "discretion in fashioning relief to remedy [a debtor/defendant's] fraudulent conduct." (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 840 [the trial court acted within its discretion by setting aside fraudulent transfers, authorizing foreclosure, and entering money judgment]; Renda, supra, 223 Cal.App.4th at p. 1235.) Thus, we will not disturb the court's decision on what remedy to award a creditor absent an abuse of discretion.
Here, during closing argument, counsel for Daniel argued that plaintiffs' remedy, if any, should be limited to a money judgment in the amount of the value of the three assets at the time of transfers. The trial court asked, "Are you telling me that making those assets available for collection is not an option, that I have to give a money judgment only?" Counsel responded, "even if [a set aside] is allowed, is it necessary or appropriate?" "I'm pointing out that the statute allows for the Court to enter a judgment against my client, the money judgment, in my view, for the lesser of the value of the asset transfer or the amount of the claim." The court explained why a money judgment would not be necessary or appropriate in this case: "If . . . I void the transfers, then your client [Daniel] has no further interest in the property . . . . And my understanding of what the law would do to that is that [the property] would go back into [the Valentine Trust]. And because it's a revocable trust, it could be attached for the debts of John Valentine to the full extent of whatever is due on whatever judgment."
The trial court properly exercised its discretion in setting aside the fraudulent transfers. There was overwhelming evidence to support the court's finding that John did not transfer his assets to Daniel in 2008 or 2010 for the benefit of the children, but that he fraudulently transferred the assets "[w]ith actual intent to hinder, delay, or defraud" (§ 3439.04, subd. (a)(1)) so that he could become "de-facto judgment proof" and plaintiffs would be precluded from collecting on their judgments. The court used terms such as "manifestly unbelievable," "entirely unbelievable," "no regard for the truth," "astounding," and "shame" to describe defendants' claims and testimony and left no doubt as to its view of defendants' veracity. Under these circumstances, and in light of the UVTA's purpose, which is "to protect creditors by authorizing them to set aside transfers of property by which debtors try to avoid paying debts," (Renda, supra, 223 Cal.App.4th at p. 1235, italics added), the court was well within its discretion in denying defendants' request for a remedy of their choice (i.e., a money judgment in lieu of a set-aside) and setting aside the fraudulent transfers so that plaintiffs could collect on their judgments.
Defendants rely on section 3439.08 subdivision (b)(1) to argue that plaintiffs' recovery should have been limited to the lesser of "the value of the asset transferred" as proven by plaintiffs "or the amount necessary to satisfy [plaintiffs'] claim." As noted, the statute provides that "a creditor may recover judgment" from a "transferee," other than a "good faith transferee," "for the value of the asset transferred . . . or the amount necessary to satisfy the creditor's claim, whichever is less." (§ 3439.08, subd. (b)(1).) The statute is "permissive, not mandatory, and grants the court" the discretion to award a money judgment against a transferee when it is appropriate to do so. (Renda, supra, 223 Cal.App.4th at p. 1237; see also Bakwin v. Mardirosian (2014) 467 Mass. 631, 637 [Massachusetts court explaining that a money judgment in lieu of a set-aside may be appropriate against a transferee under the UVTA where "the transferee has disposed of the asset transferred."].) Here, the court stated, "If . . . I void the transfers, then your client [Daniel] has no further interest in the property. . . . And . . [the assets] would go back into the [Valentine Trust] . . . [which] could be attached for the debts of John Valentine to the full extent of whatever is due on whatever judgment." Because the court declined to exercise its discretion to award a money judgment in favor of plaintiffs and against Daniel under section 3439.08, the provisions of that section did not apply.
Defendants also cite a legislative comment to section 3439.08 in arguing that a creditor is not entitled to recover increases in value that occur after the date of transfer. The comment states that "if the value of the asset at the time of levy and sale to enforce the judgment of the creditor has been enhanced by improvements of the asset transferred or discharge of liens on the property, a good faith transferee should be reimbursed for the outlay for such a purpose to the extent the sale proceeds were increased thereby." (Quoting Legis. Com., West's Ann. Cal. Civ. Code § 3439.08, italics added.) As emphasized, this comment refers to situations in which the value of an asset has increased because of improvements to the asset made by a good faith transferee. Here, there was no finding that there was any good faith transferee; in fact, during a discussion about section 3439.08 subdivision (b)(1), the court asked Daniel's attorney, "Well, your client's not a bona fide purchaser, is he?" Counsel acknowledged the section applies to "a person who's a bona fide purchaser. I admit my client doesn't fit the concept of the bona fide purchaser. . . ." Thus, the legislative comment on which defendants apply is inapposite and does not support their position that the court should have limited plaintiffs' recovery to a money judgment or lien for the value of the assets at the time of transfer. --------
Defendants rely on Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75 (Mehrtash) to argue that plaintiffs had the burden of proving the amount of equity in the assets at the time of transfer, and that their relief should have been limited to "a lien on the [assets] for the amount of that equity." The Mehrtash case does not support defendants' position. There, the plaintiff brought an action under the UVTA claiming the defendant fraudulently transferred his house to his stepsons in order to avoid paying the plaintiff's judgment. (Id. at p. 80.) The trial court denied the plaintiff relief on the ground that she had failed to prove injury, i.e., that the house, which had multiple encumbrances, had any value when it was transferred. (Id. at pp. 79-81.) The Court of Appeal affirmed: "Even assuming the allegedly fraudulent conveyance were set aside and the property were hypothetically available to enforce [the] plaintiff's money judgment," the plaintiff "produced no evidence that the value of the property could support any net recovery for her in the event the conveyance were set aside." (Id. at p. 81.)
Here, the trial court found plaintiffs met their burden of showing injury: "On the dates of the transfer, . . . each of the [three] assets had value. The real properties had equity value after reducing the fair market value by the liens and encumbrances. . . [T]here is evidence that the stock has some value . . . and that no Geneos shareholders . . . have ever encumbered their Geneos shares . . . ." Mehrtash did not hold that a plaintiff is required to prove the precise value of a fraudulently transferred asset as of the date of the transfer in order to obtain relief from the transfer.
Finally, defendants attempt to make an equitable argument as to why the trial court's judgment must be reversed. They argue that the court's decision not to limit plaintiffs' relief to the amount of equity they can prove has "deprived Defendant Daniel Valentine, Trustee, of a substantial portion of these assets." It appears their position is that, to the extent the assets have increased in value since the transfer, Daniel, as trustee for the Children's Trusts, has an interest in the increased portion of the assets. Defendants also claim it is "inequitable to [John's] children to saddle them with [the] award of relief" that the court has provided to plaintiffs in this case. This line of argument fails to acknowledge the central fact that the court found the transfers were fraudulent and must be set aside, i.e., that the assets were transferred for the purpose of hindering and delaying plaintiffs' recovery, not for the benefit of Daniel as trustee for the Children's Trusts. Thus, neither Daniel nor John's children ever had a legitimate interest in any of the assets, and the court's judgment has not unfairly "deprived Daniel" of, nor "saddle[d]" the children with, anything. Hence, equitable principles do not justify reversal.
DISPOSITION
The judgment is affirmed. Plaintiffs and respondents Corey Casilio, William Leitch, and Casilio Leitch Investments, LLC, shall recover their costs on appeal from defendants and appellants John Valentine and Daniel Valentine.
/s/_________
Petrou, J. WE CONCUR: /s/_________
Siggins, P.J. /s/_________
Fujisaki, J.