Opinion
G062402
12-01-2023
LINDA A. GAVOLA et al., Plaintiffs and Appellants, v. KAREN NOVORR et al., Defendants and Respondents
Susan Barilich for Plaintiffs and Appellants. Law Offices of Karen Novorr and Karen Novorr for Defendants and Respondents Karen Novorr and William Alan Pezzuto. Reid & Hellyer and Michael G. Kerbs for Defendants and Respondents Christene Nicole Asbra, Denise Desmarais, Denise Desmarais as Trustee of the Olive Manford Trust, and CSJ Services, Inc.
NOT TO BE PUBLISHED.
Order Filed date December 12, 2023
Appeal from a judgment of the Superior Court of Riverside County, Super. Ct. No. RIC1901887 Carol A. Greene, Judge.
Susan Barilich for Plaintiffs and Appellants.
Law Offices of Karen Novorr and Karen Novorr for Defendants and Respondents Karen Novorr and William Alan Pezzuto.
Reid & Hellyer and Michael G. Kerbs for Defendants and Respondents Christene Nicole Asbra, Denise Desmarais, Denise Desmarais as Trustee of the Olive Manford Trust, and CSJ Services, Inc.
ORDER MODIFYING OPINION; NO CHANGE IN JUDGMENT
It is ordered that the opinion filed herein on December 1, 2023, be modified as follows:
On page 25, first sentence of the second full paragraph beginning with "The jury found that Novorr," delete the words "and had engaged in actual fraud" so the sentence reads:
"The jury found that Novorr did not receive the property from Jeremy in good faith."
On page 26, first sentence of the second full paragraph beginning with "The jury's award of zero damages," delete the words "the actual fraud in" so the sentence reads:
"The jury's award of zero damages is tantamount to a finding that Gavola suffered no actual injury as a result of the sale of the Gavilan property."
There is no change in the judgment.
OPINION
SANCHEZ, J.
INTRODUCTION
Linda A. Gavola, Robert S. Gavola, and their family trust (the Gavolas) obtained a sizeable arbitration award against Jeremy Asbra (Jeremy). Once the arbitration award was confirmed, the Gavolas commenced proceedings to enforce the resulting judgment. When they ran into roadblocks, they brought a lawsuit for violations of the Uniform Voidable Transactions Act (Civ. Code, § 3439 et seq.; UVTA) and common law fraudulent conveyance against Christene Nicole Asbra (Christene), Denise Desmarais (Desmarais), as trustee of the Olive Manford Trust, Karen Novorr (Novorr), William Alan Pezzuto (Pezzuto), and CSJ Services, Inc. (CSJ). The claims were based on three allegedly fraudulent transactions: (1) a deed of trust unilaterally given by Jeremy and Christene to secure a promissory note held by the Olive Manford Trust, (2) the sale of Jeremy and Christene's home on Gavilan Road in Perris, California to Novorr and Pezzuto, and (3) a reverse stock split by CSJ and reduction of Jeremy's ownership interest in that company.
The Robert S. and Linda A. Gavola Family Trust (the Gavola Trust).
The trial court granted nonsuits in favor of Christene and Desmarais. The jury returned a verdict in favor of Novorr and Pezzuto. Although the jury found that Novorr had not acted in good faith, the jury awarded Linda Gavola and the Gavola Trust zero damages. (Robert S. Gavola passed away before trial). The jury awarded a total of $45,000 in damages against CSJ. Judgment was entered in favor of Christene, Desmarais, Novorr, and Pezzuto, and against CSJ. Linda Gavola and the Gavola Trust appealed.
We reverse the judgment in favor of Desmarais because, we conclude, Gavola submitted evidence legally sufficient to support a finding that the deed of trust was invalid and its subsequent foreclosure wrongful. We reverse the judgment in favor of Christene because, we conclude, Gavola submitted evidence legally sufficient to support a finding that Christene aided and abetted Jeremy in fraudulently conveying assets. The judgment in favor of Novorr was proper because the Gavola did not request nonmonetary remedies and, by finding zero damages, the jury in effect found Gavola had suffered no actual injury.
FACTS
I. Background
A. The Parties
The complaint in this lawsuit was brought by Linda A. Gavola, Robert S. Gavola, and the Gavola Trust. Linda had been married to Robert for 37 years when he died, soon before trial started.
Jeremy and Christene were married to each other at all times relevant to this matter. We refer to Jeremy and Christene together as the Asbras. Desmarais is Christene's mother and Jeremy's mother-in-law. Olive Manford was Desmarais's mother and Christene's grandmother. Manford was trustee of the Olive Manford Trust.
Desmarais became the trustee of the Olive Manford Trust sometime before Manford died on July 4, 2016.
CSJ was a California corporation that was owned by the Asbras. Jeremy and Christene were the only officers and shareholders of CSJ. CSJ was dissolved in 2016.
Novorr is an attorney who has represented Jeremy. Pezzuto is her husband. We refer to Novorr and Pezzuto together as the Novorr-Pezzutos.
B. The Arbitration Award and Judgment
In May 2015, the Gavolas obtained an arbitration award against Jeremy in the amount of $ 605,692. The Gavolas brought a petition to confirm the arbitration award, and it was set to be heard on October 19, 2015. In March 2016, the arbitration award was confirmed by a trial court. On March 14, 2016, a judgment in the amount of about $605,692 (the Judgment) was entered against Jeremy. Novorr represented Jeremy in the arbitration and related postarbitration proceedings.
Once the Judgment was entered, Jeremy became a judgment debtor to the Gavolas, who became the judgment creditors. The Gavolas initiated efforts to collect on the judgment. The Asbras moved to Ohio in 2015.
II. The Promissory Note and Deed of Trust on the Spanish Hills Home
In May 2001, the Asbras purchased a home at 11399 Spanish Hills Drive, Corona, California (the Spanish Hills Home). To purchase the Spanish Hills Home, the Asbras purportedly borrowed $89,000 from Manford. In May 2001, the Asbras purportedly executed a promissory note in the face amount of $89,000 (the Promissory Note) to evidence that debt. The lender was identified as Manford as trustee of the Olive Manford Trust. The Promissory Note charged yearly interest of 7 percent, and monthly payments were $592.12. The maturity date is April 1, 2031. The Promissory Note states that a "Mortgage, Deed of Trust, or Security Deed . . ., dated the same date as this Note, protects the Note Holder from possible losses ...." No deed of trust was given at that time.
The Spanish Hills Home was a double-wide mobile home on a secluded lot, had a storage tank for water, and was accessible only by a dirt road.
The Asbras lived in the Spanish Hills Home for about seven years then moved to another home and rented out the Spanish Hills Home.
On August 25, 2015, three months after rendition of the arbitration award, Jeremy unilaterally and voluntarily produced a deed of trust securing the Promissory Note (the Deed of Trust) signed by both Jeremy and Christene. The Deed of Trust was recorded on the same day. A notation on the Deed of Trust requested that it be returned to Jeremy after recordation. The lender on the Deed of Trust is identified as Manford as trustee of the Olive Manford Trust. The Deed of Trust was second in priority to a first deed of trust securing a different loan from a different lender.
Neither Manford nor Desmarais signed the Deed of Trust. The Deed of Trust was not signed in Desmarais's presence; Desmarais did not receive a copy of it. Neither Desmarais nor Christene could recall having previously seen a deed of trust. After Manford died, Desmarais went through all of her papers and did not find the Promissory Note or any payment records or logs for it.
In April 2017 the Gavolas obtained an order assigning them the right to receive the rents from the Spanish Hills Home. The tenants were notified to make further rent payments to the Gavolas, but the Gavolas never received any rent payments.
In May or June of 2017, Jeremy informed Desmarais that no further payments would be made on the Promissory Note and the amount of delinquency was $2,100. Desmarais did not know the amount that was still owed on the Promissory Note. The Asbras remained current in their payments on the loan secured by the first deed of trust. Jeremy helped Desmarais find a company to handle the foreclosure.
Desmarais initiated foreclosure proceedings. The notice of default and election to sell under deed of trust was recorded in September 2017. The amount of arrearages on the Promissory Note was identified as $2,100. The home was sold at public auction on February 1, 2018. Desmarais, as trustee, bid $62,536.61, which was the only bid, and, according to the trustee's deed upon sale, was the amount of the unpaid indebtedness and costs.
Desmarais placed the Spanish Hills Home on the market at a listing price of $150,000 and the home sold in May 2018 at a price of $140,000. After paying off the first deed of trust, property taxes, and other charges, Desmarais, as trustee, received $82,278.13 from the sale.
III. The Sale of Gavilan Home to the Novorr-Pezzutos
When the Asbras moved out of the Spanish Hills Home in 2007, they moved into a single-family home on a two-acre lot at 19835 Gavilan Road in Perris, California (the Gavilan Home), which they had purchased during the previous year.
In August 2015, three months after rendition of the arbitration award, the Asbras placed the Gavilan Home on the market. The listing price was $575,000 The listing agent believed that was a fair price "based on the comps." Between August 11 and September 23, 2015, the Gavilan Home was shown to one prospective buyer.
On September 23, 2015, the Novorr-Pezzutos made an offer to purchase the Gavilan Home for $520,000. The Asbras rejected the listing agent's suggestion to modestly lower the price and accepted the Novorr-Pezzutos offer instead. Novorr knew the hearing on the Gavolas' petition to confirm the arbitration award was set for October 19, 2015.
Although the Novorr-Pezzutos could afford to buy the Gavilan Home, they did not qualify for a loan. To accommodate the Novorr-Pezzutos, the Asbras agreed to give them a "wraparound" deed of trust in the amount of $368,446.65. That meant that the Novorr-Pezzutos, rather than obtaining a new loan, would take over making payments on the Asbras's existing mortgage. The Novorr-Pezzutos would deposit $151,553.35 into escrow before closing, less a credit of $25,000 for attorney fees that Jeremy supposedly owed to Novorr. The Novorr-Pezzutos executed a promissory note in favor of the Asbras in the face amount of $368,446.65 (the Gavilan Note) for the wraparound deed of trust. Monthly payments on the Gavilan Note were $2,175.27.
Escrow closed on October 8, 2015. Title to the Gavilan Home was conveyed to the Novorr-Pezzutos, as husband and wife, by means of a grant deed signed on October 1 and recorded on October 8, 2015.
Out of the sale of the Gavilan Home, the Asbras received net proceeds of $118,584.33. These proceeds were wire transferred to a bank account that was held in Christene's name only. Christene testified this was her "personal bank account" and she controlled it.
IV. CSJ Reverse Stock Split and Reduction of Jeremy's Ownership Interest
The Asbras were the sole shareholders and officers of CSJ. Continuing up to the time of trial, the Asbras participated fully and jointly in running CSJ: The Asbras were responsible for operating CSJ.
As of June 2016, Jeremy and Christene each owned 5,000 shares of the total of 10,000 shares of stock issued by CSJ. On June 3, 2016, the Asbras authorized a 10:1 reverse stock split, meaning the number of shares of stock was reduced to 1,000 and those shares were evenly divided between them. At the same time, the Asbras decided to change CSJ's domicile from California to Ohio. CSJ's business activities, which included servicing loans in California, remained the same.
On May 29, 2017, the Asbras, as the shareholders and officers of CSJ, decided to reduce Jeremy's ownership in the company by having CSJ purchase 450 of his shares. The minutes of directors and shareholders meeting reads: "In exchange for 450 shares of Jeremy Asbra's Common Stock, the Company has agreed to cover up to $10,000.00 of the legal fees related to Jeremy's appeal, and while admitting no liability, has agreed to take financial responsibility for the above mentioned debts....This leaves Jeremy Asbra with 50 shares of Common Stock." This decision reduced Jeremy's ownership interest in CSJ from 50 percent to 10 percent.
CSJ shareholder distributions were based on the Asbras' respective ownership interests. Accordingly, as a result of the reverse stock split, Christene's share of the CSJ's shareholder distributions increased dramatically while Jeremy's share decreased correspondingly.
In 2015, Jeremy received a monthly salary of $914.50 from CSJ while Christene was receiving a monthly salary of $979.29. After the reverse stock split, Christene's compensation from CSJ ballooned to $35,000 in 2017 and $33,000 in 2018.
V. Jeremy's Bankruptcies
In September 2016, about three months after the Judgment was recognized in Ohio, Jeremy filed a chapter 13 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Ohio. That bankruptcy petition was dismissed in April 2017. In February 2020, he filed a chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Ohio.
Gavola has filed a request for judicial notice of a court document entitled "Stipulated Judgment for Non Dischargeability Debt Owed to Creditors Linda A Gavola and the Robert S. and Linda A. Gavola Family Trust." This judgment was entered in the United States Bankruptcy Court for the Southern District of Ohio on November 16, 2022, after entry of the judgment in the present case. Although we usually do not take judicial notice of matters that were not before the trial court (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3), we grant Gavola's request for judicial notice and consider the stipulated judgment for the limited purpose of showing the present case has not become moot.
PROCEDURAL HISTORY
In March 2019 the Gavolas initiated this lawsuit against the Novorr-Pezzutos, CSJ, Desmarais, and Christene. The Gavolas asserted causes of action for violation of the UVTA, common law fraudulent transfer, conspiracy, and injunctive relief. As remedies, the Gavolas sought money damages (including punitive damages) and an injunction preventing defendants from making further transfers of property, cash, or assets.
Trial by jury was conducted in June 2022. The claims alleged and presented at trial against the Novorr-Pezzutos were based on their participation in the sale of the Gavilan Home. The claims alleged and presented at trial against Desmarais were based on the Deed of Trust and her foreclosure of the Deed of Trust. The claims alleged and presented at trial against CSJ were based on its purchase of 450 shares held by Jeremy and the consequent decrease in his income from the corporation. The claims alleged and presented at trial against Christene were based on the sale of the Gavilan Home, the foreclosure of the Deed of Trust on the Spanish Hills Home, and CSJ's purchase of 450 shares held by Jeremy.
Each defendant moved for a nonsuit at the close of Gavola's case-in-chief. The grounds for the nonsuit motions, to the extent relevant, are recited in the Discussion section.
The trial court granted Desmarais's motion for nonsuit for the following reasons: "There is nothing presented indicating that the [$]89,000 was not received by the Asbras in 2001. There was nothing put forward indicating that the amount received from the sale of the property after it was foreclosed was greater than the amount that the trustee would be entitled to under the foreclosure, basically recovering the cost of foreclosure, attorney fees, and the outstanding underlying debt." The court found there was nothing improper about the Deed of Trust and Desmarais had "no choice but to foreclose" once Jeremy told her he would make no further payments on the Promissory Note.
The trial granted Christene's motion for nonsuit on the ground the evidence showed the proceeds from the sale of the Gavilan Home were transferred into Christene's bank account, where they were subject to levy by the Gavolas. The court stated: "One of these prongs that you have to prove is that the money has been put beyond the reach of the creditor. That has not been shown in any way, shape, or form here."
The trial court denied CSJ's motion for nonsuit and the Novorr Pezzutos' motion for nonsuit. The trial proceeded to verdict as to CSJ and the Novorr-Pezzutos.
The jury returned a series of special verdict forms. The jury returned a special verdict against CSJ and awarded Gavola $10,000 in damages. On a separate special verdict form, the jury awarded Gavola $35,000 in punitive damages against CSJ.
On a special verdict form for "Actual Intent," the jury found, as to Novorr, that Jeremy transferred property to her with the intent to hinder, delay, or defraud creditors; Jeremy's conduct was a substantial factor in causing the Gavolas harm; and Novorr did not receive the property in good faith. But the jury awarded Gavola "$0" in damages. On a special verdict form for "Constructive Fraudulent Transfer-Insolvency," the jury found, as to Novorr, that Jeremy transferred property to her and that Jeremy did not "fail to receive a reasonably equivalent value in exchange for the transfer." The jury found that Jeremy transferred the Gavilan Home to William with the intent to hinder, delay, or defraud creditors, but that William received the property in good faith and for a reasonably equivalent value.
Gavola submitted a proposed judgment. The Novorr-Pezzutos submitted a competing judgment. The court signed the proposed judgment submitted by the Novorr-Pezzutos. The judgment, which was entered in August 2022, was in favor of "Karen Novorr and William Alan Pezzuto," Christene, and Desmarais, and against CSJ in the amount of $35,000 in damages. Gavola timely filed a notice of appeal from the judgment.
Gavola has brought an unopposed motion to augment the appellate record with an amended judgment entered on May 16, 2023 and a notice of entry of that amended judgment. The amended judgment reflects the trial court's award of expert fees and costs after determination of posttrial motions. Although we grant the motion to augment (See Cal. Rules of Court, rule 8.155(a)(1)(A)), we stress that issues regarding postjudgment motions and cost awards are not before us.
DISCUSSION
I. Standard of Review
A trial court may grant a motion for nonsuit only if the plaintiff's evidence is insufficient as a matter of law to support a jury verdict in the plaintiff's favor. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.) We review an order denying a motion for nonsuit de novo by using the same standard as that used by the trial court. (Ibid.; Holistic Supplements, LLC v. Stark (2021) 61 Cal.App.5th 530, 541.)
Evidence is legally insufficient when there is no substantial evidence tending to prove each element of the plaintiff's claim. (Adams v. City of Fremont (1998) 68 Cal.App.4th 243, 263, disapproved on another ground in Brown v. USA Taekwondo (2021) 11 Cal.5th 204, 219; Fountain Valley Chateau Blanc Homeowner's Assn. v. Department of Veterans Affairs (1998) 67 Cal.App.4th 743, 750-751.) In determining whether the plaintiff's evidence is sufficient, the court may not weigh the evidence or assess witness credibility. (Ibid.) The court must accept as true the evidence most favorable to the plaintiff, disregard conflicting evidence, and draw every reasonable inference from the evidence in the plaintiff's favor. (Ibid.; see Castaneda v. Olsher (2007) 41 Cal.4th 1205, 1214.)
A nonsuit may be affirmed on any ground specified in the motion, whether or not the trial court granted the motion on that ground. (Lawless v. Calaway (1944) 24 Cal.2d 81, 92-94; Saunders v. Taylor (1996) 42 Cal.App.4th 1538, 1542.) A nonsuit may be affirmed on a ground not specified by the motion for nonsuit only if it is clear the ground raised an issue that could not have been remedied had the motion called the issue to the plaintiff's attention. (Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 305-306.)
II. Overview of Fraudulent Conveyance Law
"A fraudulent conveyance is 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." (Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13.) "Claims for fraudulent transfer are governed by the UVTA. The purpose of the UVTA is to prevent debtors from placing, beyond the reach of creditors, property that should be made available to satisfy a debt. [Citation.] A creditor may set aside a transfer as fraudulent under Civil Code section 3439.04 by showing actual fraud as defined in subdivision (a)(1) or by showing constructive fraud as defined in subdivision (a)(2)." (Chen v. Berenjian (2019) 33 Cal.App.5th 811, 817.)
Civil Code section 3439.04, subdivision (a) (section 3439.04(a) states: "A transfer made or obligation incurred by a debtor is voidable 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 the debtor would incur, debts beyond the debtor's ability to pay as they became due."
To recover for a violation of the UVTA, a plaintiff must prove: (1) the plaintiff has a right to payment from the debtor; (2) the debtor transferred property or incurred an obligation to the defendant; (3) the debtor transferred the property or incurred the obligation with the intent to hinder, delay, or defraud one or more of the debtor's creditors; (4) the plaintiff was harmed; and (5) the debtor's conduct was a substantial favor in causing the plaintiff's harm. (§ 3934.04(a); see CACI No. 4200 (2023 ed.) p. 670.)
A transfer by a debtor is voidable as to a creditor as the product of actual fraud if the debtor made the transfer "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." (§ 3439.04(a)(1).) Section 3439.04, subdivision (b)(1) lists 11 factors to consider in determining actual intent.
A transfer is voidable as to a creditor as the product of constructive fraud if the debtor made the transfer "[w]ithout 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 the debtor would incur, debts beyond the debtor's ability to pay as they became due. (Civ. Code, § 3439.04, subd. (2)(A)(B).)
In the case of both actual fraud and constructive fraud, a transfer is "voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made (§ 3934.04(a).)
A "transfer" under the UVTA includes the creation of a lien. (Civ. Code, § 3439.01, subd. (m).) An "asset" includes the property of a debtor, but does not include "[p]roperty to the extent it is encumbered by a valid lien." (Id., subd. (a)(1).)
Injury in fact is an essential element of a claim under the UVTA. (Fidelity National Title Ins. Co. v. Schroeder (2009) 179 Cal.App.4th 834, 845.) A creditor has not sustained injury unless the transfer put beyond the creditor's reach property which could have been subject to the payment of the debt. (Ibid.)
Section 3439.07, subdivision (a) sets forth a creditor's remedies, which include avoidance of a transfer, attachment, the equitable remedies of injunction and receivership, and "[a]ny other relief the circumstances may require." (Id., subd. (a)(3)(C).) The remedies of the UVTA are cumulative to the remedies available under a claim for common law fraudulent transfer, which include money damages. (Berger v. Varum (2019) 35 Cal.App.5th 1013, 1020-1022; Wisden v. Superior Court (2004) 124 Cal.App.4th 750, 758.)
Liability under the UVTA may be imposed against persons who are neither transferors nor transferees of the property conveyed under theories of conspiracy or aiding and abetting. (Berger v. Varum, supra, 35 Cal.App.5th at p. 1025.)
III. The Trial Court Erred by Granting a Nonsuit in Favor of Desmarais
A. Gavola Produced Evidence From Which a Jury Could Find the Deed of Trust Did Not Secure a Valid Antecedent Debt
Desmarais moved for a nonsuit on seven grounds. The trial court granted the motion on grounds two (Gavola "failed to establish that the foreclosure of the [Deed of Trust] was fraudulently or improperly declared or a voidable transfer") and five (Gavola failed to establish that "the value of the consideration received by [Jeremy] was not reasonably equivalent to the value of the assets transferred").
Gavola argues the trial court erred because the evidence presented at trial established that the Deed of Trust was a fictitious or fraudulent lien, the Promissory Note was not a legitimate debt, Desmarais did not know about the Deed of Trust, and Desmarais either directly participated in the fraud or aided and abetted Jeremy in committing it by foreclosing on the Deed of Trust at Jeremy's urging. Desmarais counters by arguing the Deed of Trust was a valid preferential transfer to secure an antecedent debt. We conclude Gavola produced sufficient evidence from which a jury could find the Promissory Note was not evidence of a legitimate debt.
Under California law, a debtor is permitted to make preferential transfers; that is, a debtor is permitted to choose to pay one valid debt in preference to paying other creditors. Civil Code section 3432, which codifies this rule, provides that "[a] debtor may pay one creditor in preference to another, or may give to one creditor security for the payment of his demand in preference to another." Thus, a debtor may give a creditor security, such as a deed of trust, for an antecedent unsecured debt in preference to paying another creditor. (Wyzard v. Goller (1994) 23 Cal.App.4th 1183, 1188 ["Even before enactment of [Civil Code section 3432], it had been recognized that a failing or insolvent debtor could prefer one creditor over another"].)
The validity of the Deed of Trust as security for an antecedent unsecured debt depends on whether the Promissory Note was evidence of a valid debt. We therefore address whether Gavola presented evidence that was sufficient to support a jury finding that the Promissory Note was invalid and was not evidence of a valid debt. (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291.)
During Gavola's case-in-chief, the Promissory Note was received into evidence as exhibit 67. The Promissory Note bears the date of May 9, 2001. Although the note appears to be signed by the Asbras, the signatures are undated. Christene testified she could not remember signing the Promissory Note. Jeremy testified that both he and Christene signed the Promissory Note, but he could not remember when. Desmarais was not present when the Promissory Note was signed. She testified that she went through Manford's papers after Manford died and was not sure whether or not she found the Promissory Note. Christene did not know where or when the Promissory Note had been found. The Asbras testified they made payments on the Promissory Note consistently over 15 years, and Desmarais testified she thought she had seen bank statements reflecting those payments. However, Desmarais shredded all bank statements that were over seven years old. Desmarais had no contemporaneous records reflecting payments made on the Promissory Note and found no logs or payment records among Manford's papers.
Accepting as true the evidence favorable to Gavola, disregarding conflicting evidence, and drawing every reasonable inference in the Gavola's favor, we conclude this evidence was legally sufficient to support a finding that the Promissory Note was invalid and was not evidence of a valid debt. If the Deed of Trust did not secure a valid debt, then it would have been given without adequate consideration and its foreclosure would have been wrongful. The trial court therefore erred by granting nonsuit on the ground the Deed of Trust was not fraudulent.
B. Other Grounds for Nonsuit
We address the other five grounds for nonsuit. Those were: Gavola failed to establish that Desmarais "acted with actual intent to hinder, delay, or defraud the plaintiff[s]" (Ground 1); Gavola "failed to establish or prove that Jeremy Asbra retained possession or control of the Spanish Hills property" (Ground 3); Gavola "failed to show that the property transferred was undisclosed or concealed" (Ground 4); Gavola failed to show "by convincing evidence any entitlement to punitive damages" (Ground 6); and Gavola failed to establish "any conspiracy amongst the defendants to hinder, delay or defraud Plaintiff[s]" (Ground 7).
Ground 1 would not apply to Desmarais because she was not the debtor. Under Civil Code section 3439.04(a), a transfer made or obligation incurred is voidable as to a creditor if the debtor made the transfer "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." (Id. subd. (a)(1).) Desmarais is the transferee. Only proof of the debtor-transferor's (Jeremy's) intent is required. (See Directions for Use for. CACI No. 4200 (2023) p. 1088-1089.) Receipt of the property by the transferee in good faith and for a reasonably equivalent value is an affirmative defense for which the transferee (Desmarais) bears the burden of proof. (Civ. Code, § 3439.08, subds. (a), (f)(1); Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 40-41; see CACI No. 4207 (2023) p. 1107.)
As to Ground 3, whether Jeremy retained possession of the Spanish Hills Home is not relevant because Gavola's claim was that the Asbras unilaterally created and transferred the Deed of Trust-a lien-which would not have divested Jeremy of legal title to or possession of the Spanish Hills Home. As to Ground 4, concealment, the Deed of Trust's recordation is of no moment. "Where fraud is involved public records are not constructive notice of the true facts to the defrauded party." (Schaefer v. Berinstein (1956) 140 Cal.App.2d 278, 296.)
As to Ground 6, Gavola has not argued that she produced sufficient evidence to entitle her to punitive damages from Desmarais, and we shall affirm the nonsuit in Desmarais's favor on that limited ground.
Ground 7, sufficient evidence of conspiracy, does not support a nonsuit in favor of Desmarais because she was the transferee of the Deed of Trust (and ultimately of the Spanish Hills Home). As a transferee, she is potentially subject to liability for fraudulent conveyance regardless of whether she conspired with Jeremy. (See Potter v. Alliance United Ins. Co. (2019) 37 Cal.App.5th 894, 904 [under the UVTA, "a creditor may recover against either '[t]he first transferee of the asset or the person for whose benefit the transfer was made'"].) The conspiracy allegations might serve "to bolster and explain" Gavola's fraudulent conveyance claims, but they are unnecessary to impose liability against Desmarais. (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 838.)
Gavola was not required to present evidence of the indicia of fraud identified in Civil Code section 3439.04, subdivision (b) with respect to Desmarais.
Those indicia are: "(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 lienor that transferred the assets to an insider of the debtor." (Civ. Code, § 3439.04, subd. (b)(1)-(11).)
Those indicia are intended as aids in determining the actual intent of the debtor in making the transfer or incurring the obligation claimed to be fraudulent. (Ibid.) As to Jeremy's intent, Gavola produced sufficient evidence indicia of fraud to survive Desmarais's motion for nonsuit. She presented evidence that the transfer of the Deed of Trust was to Jeremy's mother-in-law, an insider (id., subd (b)(1)), the Deed of Trust was not given for reasonably equivalent value (id., subd (b)(8)), and the Deed of Trust was given shortly after rendition of the arbitration award against Jeremy (id., subd (b)(10)). "There is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud." (Filip v. Bucurenciu, supra, 129 Cal.App.4th at p. 834.)
IV. The Trial Court Erred by Granting Christene's Motion for Nonsuit
A. Spanish Hills Home
Christene moved for a nonsuit on these grounds Gavola submitted no evidence to prove: (1) property or assets were transferred to her by Jeremy; (2) if a transfer occurred, she was harmed as a result of the transfer; (3) Jeremy's conduct was a substantial factor in causing that harm; and (4) conspiracy.
Christene was not a transferee of the Deed of Trust or the Gavilan Home. Although she was a transferor of both the Deed of Trust and the Gavilan Home, she was not a debtor. As such, liability against her under the UVTA or for common law fraudulent conveyance could only be based on conspiracy or on a theory of aiding and abetting. (See Berger v. Varum, supra, 35 Cal.App.5th at p. 1024.)
"A conspiracy requires evidence 'that each member of the conspiracy acted in concert and came to a mutual understanding to accomplish a common and unlawful plan, and that one or more of them committed an overt act to further it." (IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 652.) Evidence of a knowing, purposeful agreement to achieve a tortious plan is critical. (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581-1582.) Without "a meeting of the minds" the torts of two individuals, even if apparently acting together, do not amount to conspiracy. (Choate v. County of Orange (2000) 86 Cal.App.4th 312, 333-334.) The requisite agreement may be inferred from conduct, but it must exist. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785.)
As to the Deed of Trust, Gavola identifies the following evidence as proof supporting liability against Christene based on conspiracy: (1) Christene is Jeremy's wife; (2) Desmarais is Christene's mother; (3) Christene was aware of the arbitration award and judgment against Jeremy; (4) Christene signed the Deed of Trust. This evidence is not legally sufficient to support a finding of conspiracy between Jeremy and Christene. An agreement or mutual understanding to defraud creditors cannot be inferred from that evidence. Christene's presence or involvement by signing the Deed of Trust does not establish conspiracy liability. (Harris v. Capitol Records Distributing Corp. (1966) 64 Cal.2d 454, 462.)
In her appellate briefs, Gavola argues that Christene aided and abetted Jeremy in the fraudulent transfer of the Deed of Trust. During argument before the trial court on the nonsuit motions, Gavola's counsel stated: "I'm going to start where I started last week because we have alleged the aiding and abetting claims. And clearly with respect to anybody [who] has been involved in a fraudulent transfer, which [Christene] was in multiple ways and it's demonstrated by all the exhibits, the aiding and abetting is the way, in fact, that a party participating in the transfer is liable in this case."
Gavola's complaint did not allege a separate cause of action for aiding and abetting. Pleading conspiracy to commit an intentional tort does not encompass aiding and abetting because conspiracy and aiding and abetting are different theories of imposing liability with different proof requirements. (American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1474-1475.) At oral argument we asked Gavola's counsel whether aiding and abetting liability had been alleged in the complaint.
After the matter was deemed submitted at oral argument, Gavola's counsel submitted a letter brief asserting that allegations regarding aiding and abetting liability appear at paragraphs 12, 14, 17, and 18 of the complaint "along with the Conspiracy allegations that appear at 4 CT 1088-1089 ¶¶ 52-57." We vacated submission to permit this letter brief to be filed and granted Christene, Desmarais, and Novorr the opportunity to respond. We received a supplemental brief from Christene and Desmarais which argued Gavola had not alleged a cause of action for aiding and abetting.
We note that in the trial court and in the respondents' brief Desmarais, Christene, and CSJ did not argue that Gavola had failed to allege liability under a theory of aiding and abetting.
Liability may be imposed for aiding and abetting an intentional tort under either of two circumstances: (1) the person knows the tortfeasor's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the tortfeasor to so act or (2) the person gives substantial assistance to the tortfeasor toward accomplishing a tortious result and the person's own conduct, separately considered, would constitute a breach of duty to the third person. (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 846.)
The allegations identified by Gavola's counsel are adequate to plead aiding and abetting liability against Christene. As relevant to the Spanish Hills Home and the Gavilan home, the complaint alleges: (1) Christene is Jeremy's wife; (2) Christene was aware of the arbitration award and judgment against Jeremy; (3) Christene knew of and actively participated in the fraudulent, voidable transfers; (4) Christene (and the other defendants) received real property, personal property, investments, and cash from Jeremy with knowledge he intended to hinder, delay, or defraud Gavola in the collection of the Judgment; and (5) Christene "willfully and surreptitiously" concealed the fraudulent transfers. The causes of action for fraud and violations of the UVTA provide any necessary particularities and details.
Although skeletal, those allegations do plead the necessary elements of aiding and abetting-knowledge that Jeremy's conduct constituted a breach of duty and giving substantial assistance or encouragement. Aiding and abetting is not a distinct cause of action but a theory of joint liability for a tort. (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 762.) It therefore was not necessary for Gavola to plead a separate cause of action for aiding and abetting.
Gavola identifies the following as evidence she made a prima case against Christene under a theory of aiding and abetting: Christene signed the Deed of Trust; Christene had never seen a prior deed of trust; Christene was aware of the arbitration award against Jeremy and knew a judgment eventually was entered on that award; Christene was aware of the $89,000 loan from her grandmother, Manford; and Christene signed the 2001 Promissory Note. Accepting this evidence as true, disregarding conflicting evidence, and drawing every reasonable inference in Gavola's favor, we conclude this evidence was sufficient to support a jury verdict in favor of Gavola under the theory that Christene aided and abetted Jeremy.
B. Gavilan Home
Christene was not a transferee of the Gavilan Home and is not the judgment debtor. Her liability for the fraudulent conveyance of the Gavilan Home therefore must be based on conspiracy or aiding and abetting. As we have explained, Gavola alleged that Christene engaged in conduct that would constitute aiding and abetting Jeremy.
As to the sale of Gavilan Home, Gavola identifies the following evidence as proof supporting liability against Christene based on conspiracy or aiding and abetting: (1) Christene is Jeremy's wife; (2) the Gavilan Home was community property and therefore Christene (as a trustee of the family trust) was one of the sellers; (3) Christene is a payee of the purchase money promissory note and a beneficiary of the wrap-around deed of trust, both of which Christene signed; (4) Christene signed the necessary sale documents, including the grant deed conveying the Gavilan Home to the Novorr-Pezzutos; (5) Christene was at all times aware of the arbitration, the arbitration award against Jeremy, and the date of entry of the arbitration award, which was before the sale of the Gavilan Home; (6) the net proceeds from the sale of the Gavilan home were wire transferred to Christene's personal bank account which was held in Christene's name only; (7) an expert witness appraised the value of the Gavilan Home at $570,000 based on 3,441 square feet or $660,000 based on 3,941 square feet.
This evidence is legally sufficient to support a jury verdict against Christene under the theory she aided and abetted Jeremy in selling the Gavilan Home in order to place it beyond reach of the judgment. From the evidence identified, a reasonable inference could be drawn that Christene knew that Jeremy was selling the Gavilan Home to place it beyond Gavola's reach and substantially assisted Jeremy by agreeing to the sale and signing necessary sale documents.
The trial court granted Christene's motion for nonsuit on the ground Gavola had suffered no injury in fact because the net proceeds from the sale of the Gavilan Home were transferred to Christene's bank account, where they were subject to levy. The sale proceeds were indeed community property (Fam. Code, § 760) and were subject to levy to satisfy a debt incurred by Jeremy (Id., § 910; Vest v. Superior Court of San Francisco (1956) 140 Cal.App.2d 91, 95). Because Christene is the wife of the judgment debtor, her bank account was and is subject to levy without the necessity of a court order. (Code Civ. Proc., § 700.160, subd (b)(2).)
Gavola produced evidence during her case-in-chief to show there was additional equity in the Gavilan Home that was placed beyond her reach by the sale to the Novorr-Pezzutos. The evidence established the Gavilan Home was placed on the market in August 2015, only three months after rendition of the arbitration award against Jeremy.
The listing price was $575,000, which the listing agent believed was fair "based on the comps." Just six weeks later, the Asbras accepted the offer from the Novorr-Pezzutos to purchase the home for $520,000-a $55,000 reduction from the listing price. Christene testified that the listing agent suggested lowering the price before accepting the Novorr-Pezzutos' offer, but she "didn't think that was a good idea." The Novorr-Pezzutos could not get a loan on their own, and so the Asbras offered them a wrap-around deed of trust.
Although $25,000 was credited as full payment for attorney fees that Jeremy purportedly owed Novorr, that amount was never invoiced to Jeremy. An invoice from Novorr to Jeremy dated November 16, 2015, shows only $6,821 in fees owed. The November 16, 2015 invoice does not reflect any payments made by Jeremy. Thus, at the time escrow closed on the sale of the Gavilan Home, Jeremy owed, at most, $6,821 in fees to Novorr.
A total of $6,005 in fees were owed to cocounsel, not Novorr.
The $25,000 credit for payment of Novorr's fees does not appear until an invoice dated September 1, 2016 (more than 10 months later). Thus, the evidence most favorable to Gavola shows that at the time escrow closed on the sale of the Gavilan Home, Jeremy owed Novorr $6,821 at most.
At trial, Gavola presented an appraiser, Stephen Smith, to testify as an expert witness. Smith testified that he appraised the value of the Gavilan Home at $570,000 based on 3,441 square feet or $660,000 based on 3,941 square feet. Christene takes issue with Smith's method and conclusions. Her criticisms go to weight rather than admissibility (cf. San Diego Gas &Electric Co. v. Schmidt (2014) 228 Cal.App.4th 1280, 1307), and in reviewing a nonsuit, we do not weigh evidence or assess witness credibility (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291).
Again, we accept as true the evidence most favorable to Gavola, disregard conflicting evidence, and draw all reasonable inferences in her favor. Doing so, we conclude the evidence presented during Gavola's case-in-chief was legally sufficient to support a finding that the Gavilan Home was sold to the Novorr-Pezzutos for less than reasonably equivalent value and, as a consequence, there was equity in the Gavilan Home that was placed beyond Gavola's reach.
On the special verdicts, the jury found that the Gavilan Home was sold for reasonably equivalent value. But we do not consider the jury's finding: Our inquiry is limited to whether there was substantial evidence before the trial court at the time the motion for nonsuit was made and granted. (Richards v. Metropolitan Life Insurance (1941) 19 Cal.2d 236, 244.)
Christene's other grounds for nonsuit have no merit. It was not necessary for Gavola to submit evidence that property or assets were transferred to Christene by Jeremy because the Gavolas sought damages against Christene as an aider and abettor or under a conspiracy theory. The Gavolas presented legally sufficient evidence to prove that Jeremy's conduct regarding the Gavilan Home was a substantial factor in causing her harm.
C. CSJ
In granting nonsuit in favor of Christene, the trial court did not make any findings regarding her role in the CSJ reverse stock split or the reduction in Jeremy ownership interest. The evidence established that as officer and shareholder of CSJ, Christene voted to approve the reduction of Jeremy's ownership interest in the company, which had the result of decreasing his shareholder distributions and increasing those of Christene. Her earnings from CSJ increased dramatically, while Jeremy's plummeted correspondingly.
Those actions have all the hallmarks of a fraudulent transfer but one: Gavola suffered no injury from it. The Asbras owned and operated CSJ. Gavola does not contend that CSJ is separate property. Salaries and income distributions paid to the
Asbras from CSJ are earnings and are therefore community property. "[E]arnings of either the husband or the wife acquired during the marriage constitute community property." (State Bd. of Equalization v. Woo (2000) 82 Cal.App.4th 481, 483.) Thus, whether salaries and income distributions from CSJ were paid to Jeremy or Christene, they were community property and subject to levy to satisfy the judgment against Jeremy. (Fam. Code, § 910; Vest v. Superior Court of San Francisco, supra, 140 Cal.App.2d at p. 95).
In the appellant's opening brief, Gavola argues that, as to the reduction in Jeremy's shares in CSJ, Jeremy "benefits because his income is kept below the statutory minimum and becomes exempt and cannot be garnished." Gavola does not cite legal authority supporting the proposition that Jeremy's income fell below some statutory minimum and therefore was exempt from garnishment.
V. The Judgment Correctly Reflects the Verdict
The jury returned special verdicts for both Novorr and Pezzuto. On each of the special verdicts, the jury found (1) Gavola had a right to payment for Jeremy, (2) Jeremy transferred property to the defendant with the intent to hinder, delay, or defraud one or more of his creditors, and (3) Jeremy's conduct was a substantial factor in causing Gavola harm.
The jury found that Novorr did not receive the property from Jeremy in good faith and had engaged in actual fraud. The jury also found that Jeremy received reasonably equivalent value in exchange and awarded zero damages. The judgment recites that Gavola "shall take nothing" from Novorr and that judgment be entered in her favor. Gavola claims the trial court disregarded the verdict against Novorr and erred by signing a judgment in Novorr's favor because damages are not an essential element of a fraudulent transfer claim.
Although damages are not an essential element of a claim under the UVTA, injury in fact is. (Fidelity National Title Ins. Co. v. Schroeder, supra, 179 Cal.App.4th at p. 845.) Gavola argues that, notwithstanding the jury's award of zero damages, the common law afforded her remedies of constructive trust and avoidance of the transfer that do not require proof of damages. In the body of the complaint, Gavola sought damages and an injunction preventing Defendants from making future transfers of the property and assets that were the subject of the complaint. In the prayer of the complaint, Gavola added a request that the court set aside and declare to be void "the transfers" from Jeremy to the Novorr-Pezzutos. Gavola does not cite to any place in the record showing that her attorney asked the trial court, at any time during or after the trial, to set aside the sale of the Gavilan Home to the Novorr-Pezzutos. Although Gavola's proposed judgment might include relief by way of setting aside the sale of the Gavilan Home, that proposed judgment does not appear in the clerk's transcript.
The Gavolas's complaint did not include a cause of action for constructive trust, nor was constructive trust included among the remedies sought. During trial, the court permitted Gavola to amend the complaint. After granting Christene's motion for nonsuit, the trial court stated, "My understanding was that it was only the stock, and I believe what the plaintiff indicated was that she would want to amend the complaint to conform to proof to have a lien on the stock as opposed to simply the value of the stock, and that is granted." No amendment was sought as to the Gavilan Home.
The jury's award of zero damages is tantamount to a finding that Gavola suffered no actual injury as a result of the actual fraud in the sale of the Gavilan property. The measure of damages for fraudulent conveyance is the amount necessary to compensate the victim for all injury suffered. (Berger v. Varum, supra, 35 Cal.App.5th at p. 1020.) The jury in the present case was instructed, "The amount of damages must include an award for each item of harm that was caused by Defendant's wrongful conduct." (Italics added.) The instruction identified three specific items of harm claimed by Gavola. By finding zero damages, the jury necessarily rejected each of those items of harm and found that Gavola suffered no injury.
Other special verdicts shed light on the jury's reasoning in finding zero damages. On a special verdict form for "Constructive Fraudulent Transfer-Insolvency," the jury found as to Novorr that Jeremy transferred property to her and Jeremy did not "fail to receive a reasonably equivalent value" in exchange for the transfer. On the special verdict absolving Pezzuto of actual fraud and constructive fraud, the jury found that Jeremy had transferred the Gavilan Home to Pezzuto with the intent to hinder, delay, or defraud creditors, but that Pezzuto received the property in good faith and for a reasonably equivalent value. Because the jury found that the Gavilan Home was sold for a reasonably equivalent value, the net proceeds received by the Asbras would represent the actual amount of equity in the home that would have been subject to execution. Gavola suffered no actual injury because the proceeds, while in Christene's account, would have been subject to levy to satisfy the judgment against Jeremy.
VI. Gavola Has Not Met Her Burden of Demonstrating Prejudice From the Claimed Evidentiary Errors
Gavola argues that on 12 occasions during trial the court erred by sustaining objections that the document speaks for itself. We review the trial court's rulings on evidentiary objections under the abuse of discretion standard. (Daimler Trucks North America LLC v. Superior Court (2022) 80 Cal.App.5th 946, 960.) Only prejudicial error warrants reversal, and an erroneous evidentiary ruling is prejudicial only if it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error. (Ibid.) The party claiming error bears the burden of demonstrating prejudice. (Christ v. Schwartz (2016) 2 Cal.App.5th 440, 455.)
Gavola has not met her burden of demonstrating prejudice from any of the evidentiary errors she is claiming. In neither the appellant's opening brief nor the appellant's reply brief does she argue prejudice. "[W]e cannot presume prejudice and will not reverse the judgment in the absence of an affirmative showing there was a miscarriage of justice." (Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 963.)
DISPOSITION
The judgment as to Desmarais and Christene Asbra is reversed except as to Gavola's ability to recover punitive damages from Desmarais. In all respects, the judgment is affirmed and the matter is remanded for further proceedings. Gavola may recover her costs on appeal against Desmarais and Christene. Novorr and Pezzuto may recover costs on appeal.
WE CONCUR: GOETHALS, ACTING P. J. MOTOIKE, J.