Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Marin County Super. Ct. No. CV011146
Siggins, J.
Plaintiffs Alan Schwartz, Lloyd Cymrot, Mark Robbins and Harvey Lerchin filed suit, pursuant to the Uniform Fraudulent Transfer Act, to recover monies paid by a third party to defendant Dell Furano. The parties appeal and cross-appeal from a judgment in favor of plaintiffs for $375,000, plus prejudgment interest compounded annually. We remand the matter for the recalculation of prejudgment interest. In all other respects, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The facts are taken, in part, from the court’s statement of decision and the undisputed documents in the parties’ appendices. We construe any disputed facts in the light most favorable to the party who prevailed on the issue at trial.
In late 1999 and through the middle of 2000, Guindi N. Guindi promised investors including plaintiffs and Furano that he would acquire for their benefit large amounts of stock sold in initial public offerings (IPOs) of various companies. The investors were to pay Guindi the sale price and the stock would be placed in Guindi’s brokerage holding account for six months after purchase. At the end of the six months, the investors were to get either the shares of stock or the proceeds from sale of the stock. When some of the plaintiffs questioned Guindi about the status of their stock purchases, Guindi showed them falsified statements from his Charles Schwab brokerage account listing IPO stock he had purportedly purchased on their behalf.
While raising money through the IPO scheme, Guindi founded defendant corporation Netcap Holdings, Inc. (Netcap) in the middle of 2000, and he began selling Netcap stock to investors. Although plaintiffs and Furano knew about Netcap, only plaintiffs invested in Netcap. Plaintiffs did so based upon written private placement memoranda and Guindi’s oral representations concerning the company’s bright prospects.
Contrary to the private placement memoranda and Guindi’s oral representations, the moneys plaintiffs and others invested in Netcap were not used by the company to conduct its proposed business. Plaintiffs had also discovered that Guindi did not buy the IPO stocks purportedly purchased by them and other investors including Furano.
In June and July 2000, Guindi gave Furano three checks totaling $541,000. The checks were to represent a return of Furano’s investment of $166,000 and profits of $375,000 from the alleged sale of IPO stocks. In reality, the funds came from Guindi’s personal bank account after he transferred funds into that account from Netcap’s bank account that contained only investor moneys.
In 2001, plaintiffs sued Guindi, Netcap, and several of Netcap’s directors or employees (William (sued as Bill) Wisialowski, Candice O’Denver, Lisa Middleton, Jeff Smith, Georges Daou, Reza Vakili, and James Ghafourpour). In their second amended complaint, plaintiffs sought the principal sum of $2,596,000, alleging losses of not less than (a) $735,000 invested in IPO stocks, (b) $1,425,000 profits that would have been earned on the sale of the stocks; and (c) $436,000 invested in Netcap stock. Although Guindi and Netcap appeared in the action, plaintiffs obtained terminating sanctions against them for their failures to provide discovery. On July 25, 2003, the court granted plaintiffs’ requests for default judgment against Guindi and Netcap, and awarded the indivisible principal sum of $2,596,000, together with interest of $519,200, and attorney fees of $29,285, for a total recovery of $3,144,485, plus costs of $8,534.43. The court clerk complied with the court’s directive to enter the judgments as evidenced by the file stamp on the orders. Plaintiffs’ claims against the other named defendants were resolved by motion or through settlement.
On August 31, 2004, Guindi filed a chapter 11 bankruptcy petition in the bankruptcy court for the Southern District of Texas. In his petition, Guindi listed plaintiffs as four of his 20 largest unsecured creditors, asserting that they were jointly owed $3.5 million. On February 18, 2005, Guindi’s case was converted to a chapter 7 bankruptcy, and on May 26, 2005, he was discharged in bankruptcy and the case closed. No part of plaintiffs’ judgment against Guindi was satisfied through the bankruptcy.
This lawsuit continued solely against Furano. Two causes were alleged against him in the second amended complaint. There was a cause of action for a constructive trust, an accounting, and disgorgement of fraudulently transferred funds; and a cause of action to recover the fictitious profits that had been paid to Furano by Guindi pursuant to California’s Uniform Fraudulent Transfer Act (UFTA) (Civ. Code, §§ 3439-3439.12). During trial, plaintiffs were permitted to add another cause of action pursuant to the UFTA, which substituted Netcap for Guindi as the transferor of the moneys to Furano. The relief requested on this Netcap cause of action was recovery of the full amount paid to Furano, $541,000, without any setoff for the amount he invested with Guindi.
All further statutory references are to the Civil Code unless otherwise specified.
At a bench trial, the court heard the testimony of the four plaintiffs, Furano, Netcap former employee Stan Jackson, plaintiffs’ expert witnesses forensic accountant Ralph Cotton and computer forensic analyst Jon Berryhill, and Furano’s expert witness certified public accountant Timothy Jorstad. Excerpts of deposition testimony of plaintiffs Schwartz and Robbins, defendants Wisialowski, Vakili, Ghafourpour, Daou, O’Denver, and nonparties Sheri Bellin and Nancy Zanoletti, were also received in evidence.
The court awarded judgment in favor of plaintiffs on both UFTA causes of action. In its statement of decision, the court found plaintiffs had met their burden of proving that Guindi’s transfer of $541,000 to Furano was fraudulent under the UFTA. The court based its ruling on the testimony of Ralph Cotton, the plaintiffs’ expert forensic accountant, who “gave convincing evidence that both Guindi and Netcap were engaged in defrauding their investors and running a Ponzi scheme.” “Guindi was not using the IPO money to buy stocks as promised,” and “Netcap was not conducting business or investing its funds as represented in its offering materials.”
Although the transfer from Guindi to Furano was a fraudulent transfer that could be recovered by the plaintiffs, Furano at all times acted in good faith in his dealings with Guindi. Accordingly, the court allowed him to keep $166,000, which represented the return of his total investment in IPO stocks. Furano was ordered to disgorge the excess funds of $375,000 he received from Guindi that Guindi paid him as profits on his investment. Furano was also ordered to pay prejudgment interest on the $375,000 from the dates he received the fraudulent transfers with interest to be compounded annually.
The court denied plaintiffs’ request for relief on their constructive trust cause of action. The court explained its ruling as follows: “Defendant Furano’s testimony at trial was that the Wells Fargo account in which the $541,000 received from Guindi and Netcap was deposited has been closed. Therefore, there is no res. Considering the Court’s finding that defendant Furano at all times acted in good faith, the award of pre-judgment interest from the date of receipt at seven percent (7%) compounded annually is an adequate remedy. To order the formation of a constructive trust, and an accounting and disgorgement of the fraudulently obtained mon[eys] is an excessive remedy. Defendant Furano is a man of substantial means, and the rendition of a monetary judgment against him with pre-judgment and post-judgment interest is an adequate remedy.”
Plaintiffs and Furano timely appeal from the judgment.
DISCUSSION
I. Furano’s Appeal
A. The UFTA
The UFTA provides a mechanism for defrauded creditors to reach property of a debtor that is in the hands of a debtor’s transferee. (Mejia v. Reed (2003) 31 Cal.4th 657, 663.) A “creditor” is a person or entity with a “claim,” and a “debtor” is a person or entity liable on a claim. (§ 3439.01, subds. (c), (e).) A “claim” is “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).) The terms of the UFTA “are abstract in order to protect defrauded creditors, no matter what form a Ponzi scheme or other financial fraud might take.” (Donell v. Kowell (9th Cir. 2008) 533 F.3d 762, 774, cert. den. (2008) __ U.S. __[129 S.Ct. 640].)
An action to set aside a fraudulent transfer under the UFTA is not an action upon a creditor’s secured claim or judgment that has been obtained against a debtor. “It is really an action for equitable relief against the obstruction caused by a transfer which hinders” satisfaction of the “claim by the ordinary process of law, that is to say, by an execution” or otherwise. (Sewell v. Price (1912) 164 Cal. 265, 270, overruled on another ground in Flores v. Arroyo (1961) 56 Cal.2d 492, 497.) Consequently, “[a] creditor is not required to obtain a judgment against the debtor-transferor or to have a matured claim in order to” seek equitable relief for a fraudulent transfer against a transferee. (Legis. Com. com., West’s Ann. Civ. Code § 3439.07 (1997 ed.) p. 341; see Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc. (1994) 29 Cal.App.4th 1828, 1843, see also Weisenburg v. Cragholm (1971) 5 Cal.3d 892, 896.) And, given the broad definitions of creditor and claim, “the holder of an unliquidated tort claim or a contingent claim may be a creditor protected by this Act.” (Legis. Com. com., West’s Ann. Civ. Code, § 3439.01, supra, p. 273.)
B. Plaintiffs are Creditors of Debtor-Transferors Guindi and Netcap
Furano argues that plaintiffs are not creditors within the meaning and scope of the UFTA because they did not secure judgments or have viable tort claims against Guindi and Netcap. He says the orders awarding default judgments in favor of plaintiffs and against Guindi and Netcap were not valid judgments, and he summarily argues plaintiffs were not tort creditors. Furano’s arguments miss their mark.
On July 25, 2003, the trial court issued orders awarding plaintiffs judgments by default against Guindi and Netcap in the principal sum of $2,596,000. These were not “order[s] for judgment[s]” as Furano claims. Despite their title, the orders were final judgments that were entered and effective when they were stamped filed by the court clerk. (Palmer v. GTE California, Inc. (2003) 30 Cal.4th 1265, 1267-1268, fn. 2; San Joaquin County Dept. of Child Support Services v. Winn (2008) 163 Cal.App.4th 296, 300; Code Civ. Proc., §§ 680.230, 668.5.) The court clerk’s failure to record entry of the judgments in the court’s register of actions did not make them either invalid or unenforceable. (County of Los Angeles v. Ranger Ins. Co. (1994) 26 Cal.App.4th 61, 65; see Alioto Fish Co. v. Alioto (1994) 27 Cal.App.4th 1669, 1687; Code Civ. Proc., § 668.5.)
“Where a judgment creditor attacks his debtor’s [transfer] as fraudulent his judgment against the debtor is prima facie evidence of his claim as against the grantees of the debtor.” (Ohio Electric Car Co. v. Duffet (1920) 48 Cal.App. 674, 677.) Furano’s additional contention that the orders should be given no evidentiary weight because they were “subject to being set aside as a matter of law” is unavailing. These default judgments are not void on their face in any way that makes them vulnerable to a collateral attack. (See generally Armstrong v. Armstrong (1976) 15 Cal.3d 942, 950.) The court had both subject matter jurisdiction over the controversy and personal jurisdiction over the parties when it rendered the judgments. Any error in the entry of either default judgment is “committed in the performance of an act within [the court’s] jurisdiction to perform, which could be corrected on motion . . . or on appeal, but which would not vitiate the judgment if not corrected. There is no want of jurisdiction over the subject matter, but only an error in its exercise. Until modified or reversed, the judgment[s] [are] valid.” (Bond v. Pacheco (1866) 30 Cal. 530, 536, italics added.) Even if the court exceeded its jurisdiction by granting relief in excess of that requested in the second amended complaint, the entire judgments are not void. (Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 495.) At a minimum, the judgments would be valid to the extent the monetary awards represent an indivisible recovery of $1,171,000 for plaintiffs’ lost investments in the IPOs and Netcap as requested in the second amended complaint.
Furano’s conclusory argument that plaintiffs are not “tort creditors” of Guindi or Netcap is also unavailing. Plaintiffs had a right to recover their investments “from the moment that [they were] deceived into” giving money to Guindi to purchase shares of stock in IPOs and Netcap. (Eby v. Ashley (4th Cir. 1924) 1 F.2d 971, 973; see In re Independent Clearing House Company (Bankr. D. Utah 1987) 77 B.R. 843, 857.) “[T]hey were not actually investors, but rather tort creditors” of Guindi and his corporate entity Netcap, with “fraud claim[s] for restitution equal to the amount they gave,” (Donell v. Kowell, supra, 533 F.3d at p. 775) and plaintiffs “were, of course . . . harmed” (Scholes v. Lehmann (7th Cir. 1995) 56 F.3d 750, 754). Guindi as the fraudulent transferor “and all those in privity with him—which certainly includes [Netcap]—are bound” by the transfers. (Scholes, supra, at p. 754, see also Taylor v. S & M Lamp Co. (1961) 190 Cal.App.2d 700, 706 [“a debtor and those who conspire with him to conceal his assets for the purpose of defrauding creditors are guilty of committing a tort and each is liable in damages”].) Plaintiffs’ lack of awareness that they were being victimized by Guindi does not “detract from their status as tort creditors.” (Scholes, supra, at p. 762; see Rosenberg v. Collins (5th Cir. 1980) 624 F.2d 659, 664-665; In re Bayou Group, LLC (Bankr. S.D.N.Y. 2007) 372 B.R. 661, 665; In re Independent Clearing House Company, supra, 77 B.R. at p. 857.)
“While it is the general rule that a corporation is an entity separate and distinct from its stockholders, with separate, distinct liabilities and obligations, nevertheless there is a well-recognized and firmly settled exception to this general rule, that, when necessary to redress fraud, protect the rights of third parties, or prevent a palpable injustice, the law and equity will intervene and cast aside the legal fiction of independent corporate existence, as distinguished from those who hold and own the corporate capital stock, and deal with the corporation and stockholders as identical entities with identical duties and obligations.” (Wenban Estate, Inc. v. Hewlett (1924) 193 Cal. 675, 696.) Consequently, we reject Furano’s argument that the tenth cause of action could only be pursued by plaintiffs in a derivative claim brought on behalf of Netcap. (See Sutter v. General Petroleum Corp. (1946) 28 Cal.2d 525, 530 [“a stockholder may sue as an individual where he is directly and individually injured although the corporation may also have a cause of action for the same wrong”]; see also Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106-107 [“The individual wrong necessary to support a suit by a shareholder need not be unique to that plaintiff. The same injury may affect a substantial number of shareholders”].)
We also disagree with Furano’s argument that plaintiffs’ action is barred because their creditor claims were discharged in Guindi’s bankruptcy. Although Guindi’s bankruptcy case closed, his discharge did not affect plaintiffs’ ability to pursue their action against persons like Furano, who were not debtors in bankruptcy. This is particularly true where, as here, the trustee has declined to assert rights to the funds as property of the bankruptcy estate. (See Brenelli v. Amedeo, S.P.A. v. Bakara Furniture, Inc., supra, 29 Cal.App.4th at p. 1843.)
Because Guindi’s bankruptcy is not relevant to the issues raised on this appeal and cross-appeal, we deny as moot plaintiffs’ request that we take judicial notice of certain documents that were submitted in Guindi’s bankruptcy proceeding but not presented at trial in this lawsuit. We have not considered the proffered documents in resolving the issues before us.
C. Guindi Was Operating a Ponzi Scheme
Other bases for Furano’s appeal are challenges to the trial court’s finding that Guindi was operating a Ponzi scheme and to the determination that Guindi was guilty of actual fraud. Furano argues that plaintiffs did not prove a Ponzi scheme because there was no evidence that Guindi’s payments to Furano, or anyone else for that matter, were made to induce anyone to invest money in Guindi’s ventures. Furano also argues that there was no evidence of Guindi’s actual intent to support a finding of fraud. Neither challenge has merit.
The trial court found that Guindi was operating his Ponzi scheme through the use of two investment vehicles, one concerning the sale of IPO stocks and one concerning the sale of shares in Netcap. The typical Ponzi scheme “is a financial fraud that induces investment by promising extremely high, risk-free returns, usually in a short time period, from an allegedly legitimate business venture. ‘The fraud consists of funnelling [sic] proceeds received from new investors to previous investors in the guise of profits from the alleged business venture, thereby cultivating an illusion that a legitimate profit-making business opportunity exists and inducing further investment.’ ” (Donell v. Kowell, supra, 533 F.3d at p. 767, fn. 2, quoting In re United Energy Corp. (9th Cir. 1991) 944 F.2d 589, 590, fn. 1, and citing to Cunningham v. Brown (1924) 265 U.S. 1, 7-9 [detailing “the remarkable criminal financial career of Charles Ponzi”].) That is exactly what Guindi did. Reversal is not warranted because Guindi’s scheme may have “differed from the pure investment Ponzi scheme in which the funds invested by later investors are used to pay continuing dividends to earlier investors.” (In re Cohen (Bankr. 9th Cir. B.A.P. 1996) 199 B.R. 709, 717.) By his activities, Guindi “cultivate[d] an illusion” that the purchase of IPO and Netcap stock were “legitimate profit-making business opportunit[ies].” (In re United Energy Corp., supra, at p. 590, fn. 1.) As applied to the law of fraudulent transfer, “[t]he Ponzi scheme operator is the ‘debtor,’ and each investor is a ‘creditor.’ [Citation.] The profiting investors are the recipients of the Ponzi scheme operator’s fraudulent transfer.” (Donell v. Kowell, supra, at p. 767.)
In order to prove actual fraud, the creditor must establish that “the debtor (Ponzi scheme operator) made transfers to the transferee (the winning investor) ‘[w]ith actual intent to hinder, delay, or defraud’ the creditors (the losing investors).” (Donell v. Kowell, supra, 533 F.3d at p. 770.) Here, the court had a factual basis to find that as to the IPO scheme, Guindi knew his investors were his creditors because he owed them either the IPO stock or the proceeds from the sale of the stock. Having failed to purchase the IPO stock, Guindi founded Netcap and used the funds invested in Netcap to repay previous investors in the IPO scheme. Guindi had to know, however, that as he continued to pay off investors of the IPO stocks with moneys from the Netcap investors, while not pursuing any legitimate business ventures on behalf of Netcap, both business ventures would eventually collapse. Netcap would lose its appearance as a viable entity and investors would stop investing in it. Thus, as occurred, there were no funds available to pay the purchasers of IPO stocks. (In re Independent Clearing House Company, supra, 77 B.R. at p. 860.) “[A] transfer is fraudulent, both as to present and future creditors, if it is made ‘[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.’ ” (Mejia v. Reed, supra, 31 Cal.4th at p. 664; see § 3439.04, subd. (a)(1).) “The focus in the inquiry into actual intent is on the state of mind of the debtor. Neither malice nor insolvency are required. Culpability on the part of the . . . transferee[ ] is not essential. . . . [And,] the adequacy or equivalence of consideration provided for the actually fraudulent transfer is not material to the question whether the transfer is actually fraudulent.” (In re Cohen, supra, 199 B.R. at pp. 716-717.) Actual intent to defraud “may be inferred from the mere existence of a Ponzi scheme,” or “knowledge that a transaction will operate to the detriment of creditors.” (In re Agricultural Research and Technology Group (9th Cir. 1990) 916 F.2d 528, 535; see Donell v. Kowell, supra, 533 F.3d at p. 770; In re Independent Clearing House Company, supra, 77 B.R. at p. 860.)
Although we need not address the issue, “Even without actual fraudulent intent, a transfer may be fraudulent as to present creditors if the debtor did not receive ‘a reasonably equivalent value in exchange for the transfer’ and ‘the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer . . . .’ ” (Mejia v. Reed, supra, 31 Cal.4th at p. 664; see § 3439.04, subd. (b).)
Substantial evidence showed that plaintiffs were deceived into buying shares of stock in IPOs and Netcap. Despite plaintiffs’ purported investment knowledge, there is no evidence that they would have invested their money with Guindi had they known he would not invest their money as promised, but instead was going to use their funds to repay investors in his IPO scheme. “Distributing funds to earlier investors from the receipt of [moneys] from later investors is the hallmark of Ponzi schemes.” (In re Agricultural Research and Technology Group, supra, 916 F.2d at p. 536.) Guindi surely knew that his failure to purchase the IPO stocks and his transferring of funds from Netcap’s bank account to his personal bank account to pay investors in the IPO scheme “would ultimately operate to the detriment of [his] creditors,” which included investors in IPOs and Netcap. (Ibid.) Guindi was a Ponzi operator and guilty of actual fraud.
We see no reason to reverse based upon Furano’s challenge to the admission of testimony from plaintiffs’ expert Ralph Cotton regarding his understanding of a Ponzi scheme. “ ‘A trial court’s exercise of discretion in admitting . . . evidence is reviewable for abuse [citation] and will not be disturbed except on a showing the trial court exercised its discretion in an arbitrary, capricious, or patently absurd manner that resulted in a manifest miscarriage of justice.’ ” (People v. Brown (2003) 31 Cal.4th 518, 534.) Furano has not shown any prejudice resulted from the admission of Cotton’s testimony. Cotton was an experienced forensic accountant. Furano does not contend that Cotton was incompetent to testify regarding his understanding of Ponzi schemes. (Evid. Code, § 720.) Furano had ample opportunity to cross-examine Cotton and to otherwise challenge Cotton’s opinions through his own expert witness. Even without considering Cotton’s descriptions of Ponzi schemes, his testimony regarding the sources and uses of funds received by Guindi and Netcap was substantial evidence from which the court could conclude that Guindi transferred funds to Furano with actual intent to hinder, delay, or defraud his investors in IPOs and Netcap. Any error regarding the admission of Cotton’s testimony regarding his knowledge of Ponzi schemes was harmless.
We also see no reason to reverse the judgment because the court’s statement of decision does not set forth the exact amount of each plaintiff’s net investment loss that was still outstanding at the time of trial. Plaintiffs had valid claims as creditors against Guindi when he transferred money to Furano in June and July 2000. “[T]he money judgment thereafter rendered [against Guindi and Netcap] constituted no more than a judicial determination of the validity of said existing claim[s].” (Adams v. Bell (1936) 5 Cal.2d 697, 701.) The judgments entered against Guindi and Netcap show a principal sum of $2,596,000 that includes both joint lost investments of at least $1,171,000 (IPO and Netcap stocks) and joint lost profits of at least $1,425,000 (IPO stocks). Plaintiffs’ testimony also indicates that despite receipt of some moneys from Guindi before the lawsuit and settlements with some defendants, at the time of the trial, they still had a joint net investment loss in IPO and Netcap stock in excess of $375,000. Furano has the burden in this appeal to show that the trial court’s failure to specifically determine each plaintiff’s net investment loss was prejudicial error. He has failed to meet his burden. The isolated portions of testimony that Furano relies upon do not show that after crediting plaintiffs with moneys they recovered from either Guindi or other defendants, their joint net losses were less than $375,000.
D. Award of Prejudgment Interest
The trial court, citing sections 3287 and 3288, awarded plaintiffs prejudgment interest compounded annually from June and July 2000 when Furano received the fraudulent transfers from Guindi. We conclude that it was permissible for the court to award plaintiffs prejudgment interest under section 3287, subdivision (a), and to annually compound the award. But the prejudgment interest should be calculated to run from June 13, 2003, the date that plaintiffs served their proposed second amended complaint, instead of the earlier dates when Furano received the fraudulent transfers from Guindi. Furano did not have actual notice of plaintiffs’ demands or a basis to compute the measure of their damages until they served him with their proposed amended complaint. In light of our conclusion that the award of interest was proper under section 3287, we will not consider whether the court could have also properly awarded interest under section 3288.
Addressing Furano’s overarching challenge to an award of prejudgment interest, we conclude that the court’s finding that Furano acted in good faith does not make the award of prejudgment interest inequitable or render it an abuse of discretion. The imposition of prejudgment interest does not turn on whether Furano realized he was a victim of Guindi’s fraudulent investment scheme or had any part in it. (See Bass v. Youngblood (1963)221 Cal.App.2d 278, 289; Jud Whitehead Heater Co. v. Obler (1952) 111 Cal.App.2d 861, 871-872.)
Section 3287, subdivision (a) states, in pertinent part: “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, . . . is entitled also to recover interest thereon . . . .” Furano challenges the application of section 3287 in this case with three arguments. He says that section 3287 applies only to contract claims, and a cause of action challenging a fraudulent conveyance does not arise in contract. He also argues that the absence of any finding that a plaintiff incurred a specific loss precludes an award of prejudgment interest. His final challenge to the application of section 3287 is that the damages sought by plaintiffs were neither certain nor capable of being made certain.
By its terms section 3287 is not limited to contract claims. Prejudgment interest may be awarded to “[e]very person who is entitled to recover damages certain, or capable of being made certain by calculation.” (§ 3287, subd. (a).) Neither do the cases interpreting section 3287 limit its application only to contract claims. (See Olson v. Cory (1983) 35 Cal.3d 390, 401-402 [mandamus claim for wages and benefits]; Tripp v. Swoap (1976) 17 Cal.3d 671, 681-682 [denial of government benefits]; Macy’s Dept. Stores, Inc. v. City and County of San Francisco (2006) 143 Cal.App.4th 1444, 1456-1458 [tax refund claim].) Prejudgment interest may be awarded under section 3287 in an action to set aside a fraudulent transfer.
We also reject Furano’s contention that the award of prejudgment interest pursuant to section 3287 cannot be sustained because the court made no finding that any plaintiff incurred actual damages. “ ‘Damages,’ for purposes of Civil Code section 3287, are simply the monetary relief a person is entitled to recover in ‘compensation’ for ‘detriment from the unlawful act or omission of another.’ (Civ. Code, § 3281.)” (Currie v. Workers’ Comp. Appeals Bd. (2001) 24 Cal.4th 1109, 1116, fn. 3.) The court awarded plaintiffs $375,000 as damages for which prejudgment interest is allowed.
Finally, we disagree with Furano’s argument that the plaintiffs’ damages were not certain or capable of being made certain by calculation within the meaning of section 3287. “The test for recovery of prejudgment interest under section 3287, subdivision (a) is whether ‘defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount.’ ” (Cassinos v. Union Oil Co. (1993) 14 Cal.App.4th 1770, 1789.) On June 13, 2003, plaintiffs gave actual notice to Furano, in their motion to amend their complaint, that they were seeking to recover monies paid to Furano by Guindi as fraudulent transfers. Their proposed second amended complaint that was attached to their motion included a method for computing damages. Although Furano disagrees with the sufficiency of the court’s findings to award damages to the plaintiffs, he does not dispute his ability to calculate how much money he gave to Guindi for the purchase of IPO stocks and how much money Guindi gave to him after the purported sale of his shares. (Ibid.) Guindi’s payments were fraudulent to the extent that he was insolvent when he made them and they exceeded any “reasonably equivalent value” he received from Furano. (§§ 3439.05, 3439.08, subd. (a).) Thus, the amount of money Guindi paid to Furano that exceeded the amount Furano gave Guindi to invest was the amount of the fraudulent transfer to be recovered by the plaintiffs. These amounts were established at trial. The court determined them to be precisely the measure of the harm sustained by plaintiffs, their damages, which were easily calculated. (See National Farm Workers Service Center, Inc. v. M. Caratan, Inc. (1983) 146 Cal.App.3d 796, 809-810.)
It was also within the trial court’s discretion to order that the prejudgment interest be compounded annually. (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1587.) In his challenge to the compounded interest, Furano misconstrues Westbrook v. Fairchild (1992) 7 Cal.App.4th 889, 892. As the court noted in Michelson, supra, at pp. 1587-1588: “In [Westbrook], the jury awarded compound prejudgment interest, which was affirmed on appeal. The issue addressed in the published portion of the opinion was whether the trial court had discretion to order postjudgment compound interest.” Westbrook does not require us to vacate the compounding of prejudgment interest. Furano’s reliance on an isolated portion of Douglas v. Westfall (1952) 113 Cal.App.2d 107 does not help him either. There, the court discusses the rules for awarding simple or compound interest on surcharged fees after an accounting by an executor or trustee. (Id. at pp. 112-113.)
Although the court was correct to award prejudgment interest and within its discretion to order that the interest be compounded annually, we agree with Furano that the prejudgment interest could run no sooner than the time he was provided actual notice of the plaintiffs’ claims. We acknowledge that federal courts have exercised their discretion to permit receivers of a bankrupt Ponzi scheme operator to recover prejudgment interest on moneys paid to innocent investors from the date of the fraudulent transfers. (See, e.g., Donell v. Kowell, supra, 533 F.3d at pp. 768-769, 772.) However, in the circumstances of this case, the award of prejudgment interest was improperly computed from the various dates that Furano received the fraudulent transfers. As we later discuss, the trial court reasonably found that Furano acted in good faith at the time he both invested his money and received his purported profits. He did not know of the Ponzi scheme and he did not know or have reason to know that his receipt of the funds breached any obligation he had to plaintiffs as his fellow victims.
It is not generally improper for a creditor to receive a preference from a debtor. (§ 3432.) What made it improper in this case was Guindi’s financial machinations and his insolvency. Furano received actual notice of those circumstances, plaintiffs’ demands and their victimization on June 13, 2003, and prejudgment interest should be computed to run from that date. (See Levy-Zentner Co. v. Southern Pac. Transportation Co. (1977) 74 Cal.App.3d 762, 769-770.)
E. Furano’s Other Contention
Finally, we reject Furano’s argument that he cannot be required to disgorge the fictitious profits paid to him by Guindi because the court found that he acted in good faith. Furano relies on the equitable principle that “[b]etween those who are equally in the right, or equally in the wrong, the law does not interpose.” (§ 3524.)
While Furano could innocently accept Guindi’s payments, having done so, he was no longer “equally in the right” with plaintiffs. As explained by the court in Donell v. Kowell, supra, 533 F.3d at pp. 774-775: “When [plaintiffs and Furano] gave money to [Guindi], they were not actually investors, but rather tort creditors with a fraud claim for restitution equal to the amount they gave. [Citation.] At that point, [Guindi] was in fact a ‘debtor,’ and [plaintiffs and Furano] were ‘creditors.’ [Citation.] [Guindi] then began making payments to [Furano], not because [Furano’s] money had actually been profitably invested, but because [Guindi] had the ‘actual intent to hinder, delay, or defraud [the other tort] creditor[s],’ i.e., the [other] victims of the scheme. [Citation.] At the point at which the payments to [Furano] exceeded the amount of [Furano’s] claim for restitution, [Furano] was no longer a creditor of [Guindi]. His initial, fraudulently obtained payment had been restored. Thus, [Furano] is incorrect when he argues that all innocent investors are similarly situated. . . . Once [Furano] . . . regained his initial ‘investment,’ he is no longer a creditor—his claim has been repaid. The other victims who did not receive payments in excess of the initial amount they were fraudulently induced to put into the scheme are the ‘creditors’ that UFTA protects.”
“Payouts of ‘profits’ made by Ponzi scheme operators are not payments of return on investment from an actual business venture. Rather, they are payments that deplete the assets of the scheme operator for the purpose of creating the appearance of a profitable business venture.” (Donell v. Kowell, supra, 533 F.3d at pp. 777-778.) Plaintiffs’ evidence showed that Guindi never purchased IPO stock for Furano. There were no legitimate trades. Although Furano gave “real money” to Guindi, and “was getting what looked like real profits in return, in fact he never received ‘reasonably equivalent value’ for his investment, just cash that was moved around in an elaborate shell game.” (Id. at p. 778.) “The hardship visited on innocent investors who are later required to disgorge their profits has been widely reported as yet another common tragic result of a Ponzi scheme.” (Id. at p. 776, fn. 9.)
Furano moves to strike plaintiffs’ reply brief relating to their cross-appeal on the ground that their brief is not limited to the issues raised on their cross-appeal. However, the reply brief does address Furano’s response to the cross-appeal. Consequently, we deny Furano’s motion to strike.
Plaintiffs argue the judgment should be amended to provide that they recover $541,000 on their tenth cause of action because the evidence showed that Furano did not act in good faith or give Guindi reasonably equivalent value. We disagree.
A. Furano Acted in Good Faith
Where creditors, such as plaintiffs, prove fraudulent intent, “and thus ‘fraud in fact,’ ” then under the UFTA, “the transfer is deemed fraudulent even if it is in exchange for ‘valuable’ consideration.” (Scholes v. Lehmann, supra, 56 F.3d at p. 757; see § 3439.04, subd. (a)(1).) However, the UFTA proves a defense to the return of all money received by the transferee even where fraudulent intent is proved. “A transfer . . . is not voidable under subdivision (a) of Section 3439.04, against a person who took in good faith and for a reasonably equivalent value . . . .” (§ 3439.08, subd. (a).)
“Good faith” is not specifically defined under the UFTA. The legislative comment to section 3439.08, subdivision (a), states that “good faith,” as used in the section, “means that the transferee . . . did not collude with the debtor or otherwise actively participate in the fraudulent scheme of the debtor.” (Legis. Com. com., West’s Ann. Civ. Code § 3439.08, supra, p. 359.) The comment also states: “[E]vidence of the transferee’s knowledge of the transferor’s insolvency at the time of the transfer . . . is not relevant on the issue of the transferee’s good faith.” (Ibid.) Any requirement that “a transferee be ‘without knowledge of the voidability of the transfer’ in order to be protected has been omitted as inappropriate. Knowledge of the facts rendering the transfer voidable would be inconsistent with the good faith that is required of a protected transferee. Knowledge of the voidability of a transfer would seem to involve a legal conclusion. Determination of the voidability of the transfer ought not to require the court to inquire into the legal sophistication of the transferee.” (Ibid.)
“Courts have been candid in acknowledging that good faith ‘is not susceptible of precise definition,’ ” usually when they discuss acts that would not constitute good faith. (In re Agricultural Research and Technology Group, supra, 916 F.2d at p. 536.) Thus, it has been held that a transferee lacks good faith if he either (1) “colludes with the debtor or otherwise actively participates in the debtor’s fraudulent scheme” (Cybermedia, Inc. v. Symantec Corp. (N.D. Cal. 1998) 19 F.Supp.2d 1070, 1075; Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1856); or (2) “has actual knowledge of facts which would suggest to a reasonable person that the transfer was fraudulent” (Cybermedia, supra, at p. 1075; see Lewis, supra, at p. 1856; see also In re Cohen, supra, 199 B.R. at p. 719 [a transferee lacks good faith “if possessed of enough knowledge of the actual facts to induce a reasonable person to inquire further about the transaction”]).
As noted by the court in Cybermedia, “The Cohen court’s statement[ ] regarding inquiry notice w[as] based upon the same excerpt from the Legislative Committee Comment cited above, which refers to ‘knowledge of facts rendering the transfer voidable.’ ” (Cybermedia, Inc. v. Symantec Corp., supra, 19 F.Supp.2d at p. 1075, fn. 7.) Thus, Cohen would not support an argument that “a transferee must inquire further into the transaction if he or she has knowledge that the transferor has been accused of wrongful conduct in any of the transferor’s prior dealings.” (Ibid.) Similarly, the court in Lewis v. Superior Court, supra, 30 Cal.App.4th at page 1858 held, “The fraudulent conveyance statute requires actual, subjective knowledge by the alleged fraudulent transferee. The fiction of constructive knowledge is not enough.”
Plaintiffs argue that Furano had actual knowledge of facts which would suggest to a reasonable person that the transfers were fraudulent. However, plaintiffs cite to no evidence in the record that would compel the trial court to reach that conclusion. The evidence indicates that Guindi informed Furano that IPO shares were purchased on Furano’s behalf, and that Furano had given Guindi permission to hold some of the shares in a Netcap account. But Guindi was to transfer those shares to his own account and then to Furano’s brokerage account. The evidence does not prove that Furano knew or had reason to know that personal checks he received from Guindi were funded by moneys taken from Netcap’s bank account and not from the proceeds of stocks purportedly purchased by Guindi on Furano’s behalf.
Similarly unpersuasive is plaintiffs’ reliance on Furano’s awareness of Guindi’s financial problems, that Guindi’s checks were not valid when delivered and were for odd amounts of money. Once Guindi paid Furano and the checks cleared Furano’s account, Furano was “under no duty to scrutinize [Guindi’s] creditworthiness further or to inquire as to the source of his funds.” (In re Cohen, supra, 199 B.R. at p. 719.)
Plaintiffs’ argument ignores the court’s discretion to reject evidence that might have supported a finding that Furano had not acted in good faith. “[I]n accordance with established principles of appellate review, we must presume on appeal that the [trier of fact] found disputed issues of fact in favor of the prevailing party at trial . . . .” (Sprague v. Equifax, Inc. (1985) 166 Cal.App.3d 1012, 1028.) “[T]he fact that inconsistencies may occur in the testimony of a given witness does not . . . mean that such testimony is necessarily insufficient to support the verdict. It is for the trier of fact to consider internal inconsistencies in testimony, to resolve them if this is possible, and to determine what weight should be given to such testimony.” (Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 878.) These rules “will obtain even though to some triers of fact the evidence in th[is] . . . case would have seemed so improbable, impossible and unbelievable that a judgment contrary to that now on appeal would have inevitably followed.” (Romero v. Eustace (1950) 101 Cal.App.2d 253, 254.)
B. Furano Gave Reasonably Equivalent Value for His Investment
In their ninth cause of action, plaintiffs alleged that Furano received moneys from Guindi “without giving reasonably equivalent value,” and that Furano was liable to plaintiffs “in the amount equal to Furano’s alleged ‘profit,’ which is believed to be not less than $490,000.” During the trial, plaintiffs presented evidence that the $541,000 Guindi transferred from his personal bank account to Furano actually came from Netcap. The court granted plaintiffs’ motion to add a tenth cause of action “to conform [the] complaint to proof.” In that tenth cause of action, plaintiffs alleged that Netcap had conveyed not less than $541,000 to Furano, that Furano had received the money “without giving reasonably equivalent value,” and “at no time did Furano give anything of value to Netcap or to the investors in Netcap.” Furano was therefore liable to plaintiffs “for the entire amount paid to him, which is believed to be not less than $541,000, plus interest thereon at the legal rate.”
The court found in favor of plaintiffs on the ninth and tenth causes of action, but concluded that the measure of damages for each cause of action was the same. The court determined that although Furano had received $541,000 from Guindi, he was entitled to retain $166,000 that equaled a return of his investment in IPO stock. Thus, plaintiffs were entitled to recover only $375,000, representing Guindi’s payment of fictitious profits to Furano. The court rejected plaintiffs’ contention that the measure of damages for the ninth and tenth causes of action was different. The trial court explained its ruling as follows: “If the measure of damages for the Ninth and Tenth Causes of Action are different, it may have been error for the Court to grant Plaintiff[s’] eleventh hour motion to amend and bring in the Tenth Cause of Action. Defendant Furano has never been given the opportunity to conduct discovery and plead a defense regarding the Tenth Cause of Action. Plaintiff[s’] argument that Defendant Furano is not entitled to a set-off for the money he received from Netcap may or may not be correct, but if [the argument is correct], it is inconsistent with the Court’s intent as set forth in the Intended Decision.”
Plaintiffs now argue that notwithstanding the court’s order, the court would not have erred in allowing the tenth cause of action and, at the same time, deny any setoff because Furano never invested any funds in Netcap. However, plaintiffs’ argument is premised on treating Guindi and Netcap as separate transferors, and neither we nor the trial court are required to do so. (See fn. 4, ante.) In light of plaintiffs’ evidence of a combined Ponzi scheme that involved the sale of shares in IPOs and Netcap and included tracing Netcap’s funds to Guindi’s bank account, the court properly treated Guindi and Netcap as a single transferor and concluded that Furano had given “reasonably equivalent value” to Guindi for $166,000 of the transferred funds. (§ 3439.08, subd. (a).)
Because the trial court appropriately concluded that plaintiffs were entitled to only a single recovery of $375,000, we need not address Furano’s arguments that the trial court abused its discretion (1) in granting plaintiffs’ motion to add the tenth cause of action; and (2) in denying Furano’s demurrer and motion to strike the tenth cause of action.
DISPOSITION
The judgment in favor of plaintiffs for $375,000 is affirmed and the matter is remanded for the recalculation of prejudgment interest from June 13, 2003 to April 11, 2007, compounded annually, at the statutory rate of seven percent. The trial court shall issue a new judgment nunc pro tunc to April 11, 2007, reflecting the proper amount of prejudgment interest so calculated. In all other respects, the judgment is affirmed. Each party to bear their own costs on the appeal and cross-appeal.
We concur: McGuiness, P.J., Jenkins, J.