Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC377400, Kenneth R. Freeman, Judge.
Barnes, Crosby, FitzGerald & Zeman, Michael J. FitzGerald, and Eric P. Francisconi for Defendants and Appellants.
John C. Torjesen & Associates and John C. Torjesen for Plaintiff and Respondent.
SUZUKAWA, J.
INTRODUCTION
Plaintiff XTC Investments, LLC (XTC or plaintiff) made a series of loans to Fortuna Investment, Inc. (Fortuna), which defendant Sanford Gaum (Gaum) personally guaranteed. The loans were not repaid, and XTC obtained a default judgment in federal district court against Gaum and Fortuna. XTC then initiated the present action against Gaum and defendant Bluenose Trading, Inc. (Bluenose), asserting that Gaum created and used Bluenose to conceal his assets from creditors. After a three-day bench trial, the trial court entered judgment for XTC.
Defendants Gaum and Bluenose (collectively, defendants) contend on appeal that (1) they were prejudiced by posttrial amendments to the complaint, (2) substantial evidence does not support the verdict and the verdict is against the law, (3) the damages are excessive, and (4) the trial court erred in denying their motion to abate. We affirm.
STATEMENT OF FACTS AND OF THE CASE
I. The Underlying Action
On January 12, 2005, XTC sued Gaum, Fortuna, and others in federal district court. (XTC Investments, LLC v. Fortuna Investment, Inc., U.S.D.C. Case No. CV 05 272 NM (MANx).) On April 6, 2006, the federal court entered a default judgment against Gaum, Fortuna, and the other federal defendants for $628,051.31. The judgment was not paid.
II. The Present Complaint
XTC filed the present action against Gaum and Bluenose on September 13, 2007. It asserted four causes of action: (1) fraudulent conveyance; (2) tortious interference with business; (3) willful misconduct; and (4) constructive trust. It alleged that prior to the entry of judgment in the federal action, Gaum transferred a commercial property located in Pico Rivera, California (the property), to Bluenose. It further alleged that Bluenose was the alter ego of Gaum; Gaum created and used Bluenose to conceal his assets from creditors; and Gaum and Bluenose “gained and held any interest in the property, including interest, rents and profits arising from that property, ... by fraud, accident, mistake, undue influence, violation of trust, and other wrongful acts, so as to become trustees of that property and equity for the benefit of plaintiff... and they otherwise... have duties to provide an accounting as to all funds received by or as a result of the property.”
On September 26, 2008, defendants brought an ex parte application to abate the action, contending that XTC was not legally capable of maintaining this action because it was not qualified to conduct intrastate business in California. The trial court denied the motion on October 9, 2008.
III. Trial and Decision
The court conducted a bench trial on October 29-31, 2008. At the conclusion of trial, the court issued a statement of decision, as follows.
A. Factual Findings
“In 1993 Sanford Gaum (‘Gaum’) acquired commercial property located at 6620 6708 El Paseo Plaza in Pico Rivera. The property consisted of a mini mall and professional offices. Twelve tenants occupied 20, 000 square feet of space. In early 1994, Gaum transferred the property to Bluenose Trading, Inc. (‘Bluenose’), in exchange for [an] eighty percent interest in Bluenose. Bluenose’s sole business was, and is, the ownership and management of the Pico Rivera property.
“On April 15, 1994, Gaum transferred his eighty percent interest in Bluenose to Nova Gold, a corporation owned entirely by Gaum. On May 15, 1995, Gaum transferred his interest in Nova Gold to his brother, Errol, a resident of Canada. No money changed hands for this transaction. The consideration was the cancellation of a moral debt Gaum owed to Errol.
“Gaum’s arrangement with his brother and Nova Gold is as follows: Gaum is the Chief Financial Officer, and his brother is [the] President. As CFO, Gaum controls all finances for Nova Gold, has the sole check-writing and signing authority, sees to it that state and federal income tax returns are filed properly, and makes sure that state licenses and foreign designations are up-to-date. On behalf of Nova Gold, Gaum writes checks to himself for salary (which he says is $2800 monthly), but does not issue himself a W2 or 1099 statement. In addition, Gaum writes checks for his health insurance premiums, all of his living and day-to-day travel expenses (including automobile expenses) and the rent for his residence (which is owned by another corporate entity associated with Gaum). Once a year, Gaum wires money to a Canadian bank. The amount wired represents Nova Gold’s profits after all expenses have been deducted.
“In addition to the above, Nova Gold has issued Gaum two powers of attorney. One of these provides Gaum with power over all outstanding Nova Gold [s]hares, including the right to vote as a 100% shareholder at Nova Gold shareholder meetings. The second provides Gaum with the power to control the 80% ownership interest Nova Gold has in Bluenose, including the right to vote those shares at the Bluenose shareholder meetings.
“Nova Gold does no management services for Bluenose and does not charge [Bluenose] for any of the work done by Gaum.
“Bluenose’s current shareholders are Mike Irwin (ten percent), Fred Jacobson (ten percent) and Nova Gold (eighty percent). Its officers are: Gaum (Chief Financial Officer and Property Manager), Jacobson (President) and Irwin (Secretary). As Property Manager, Gaum collects and deposits rents, negotiates leases and does all other things an onsite manager does, although he has no office at the property. As Chief Financial Officer, he prepares all income/expense statements, manages expenses, keeps records for federal and state tax returns and pays California State licensing fees. He writes ‘all or almost all of the checks pretty much most of the time.’ Gaum is not paid for his work as CFO and Property Manager, but Gaum does write Bluenose checks to himself for what he terms ‘expense reimbursement.’
“Jacobson, although president, isn’t certain of whether or not Gaum is an officer, and is not certain what Gaum’s compensation is, but thinks it’s seventy-five percent of Bluenose’s income. Likewise, Jacobson does not know exactly what percentage of Bluenose that Gaum owns, but thinks it’s maybe seventy-five percent of Bluenose Trading.
“On April 6, 2006 XTC Investments, LLC (‘XTC’) obtained a judgment against Gaum in the federal court, for $612,207.19....
“....
“The Pico-Rivera property owned by Bluenose is, and has been, quite profitable. Its income for 2002, 2003, 2004, 2005[] was, respectively, $83,585, $98,620, $142,312, $159,381. For 2006, its income was $154,956, or $12,913 per month. Eighty percent of this income, or $10,330 per month[, ] was paid to Nova Gold. Gaum was paid nothing.”
B. Legal Conclusions
“Gaum, his brother Errol, Bluenose and Nova Gold all worked together under a conspiracy whereby Gaum maintained absolute and total control over the Pico Rivera property and all income from the property, while at the same time shielding Gaum from any of his personal creditor claims. Gaum maintained an image to the outside world that he had substantial real property assets and income, permitting him to enter into investments on the strength of his perceived credit-worthiness, while concealing from potential investors the fact that he had structured his assets so that he would be judgment-proof.
“Gaum worked as a property manager, utilizing his special knowledge and management skills. But under this conspiracy, Bluenose did not pay Gaum for his special skills. Instead, the money which would be due Gaum[] was funneled into a Nova Gold bank account that Gaum at all times controlled. From that account, Gaum paid all his personal living expenses, including his housing costs and his automobile and transportation costs, and gave him a monthly stipend, all without W2s or 109[9]s.
“This procedure had the effect of concealing Gaum’s earnings from creditors, making it impossible for them to learn about, attach or garnish the monies that were due Gaum. At the same time, Gaum held himself out to the plaintiff (and the community he lived in) as having title to all the assets that he had transferred to Nova Gold, creating the impression that he was a sound investment partner.
“‘By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of the other coconspirators within the ambit of the conspiracy.... In such an action the major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity.’ Applied Equipment [C]orporation v. Litton Saudi Arabia Limited [(1994)] 7 Cal.4th 503, 511.
“Accordingly, the court finds that Gaum and his brother Errol, Bluenose, and Nova Gold all participated in a conspiracy in violation of Civil Code §§ 3439 et seq., and that all funds that were paid to Nova Gold by Bluenose were funds that would have been paid directly to Gaum as his earnings for his special knowledge as Bluenose’s CFO and Property Manager, and would have been subject to the claims of plaintiff XTC. The court specifically finds that defendants engaged in that conduct with malice, oppression and fraud. The court finds that based upon the facts presented during the trial that Bluenose possesses sufficient assets in the Pico-Rivera property and derives sufficient income to support punitive damages in an amount equal to the actual damages and that a multiplier of 1 to 1 is entirely appropriate and reasonable.”
C. Rulings
After plaintiff’s opening statement, the court granted defendants’ motion for nonsuit as to the second and third causes of action (tortious interference with business and willful misconduct), but denied it as to the first and fourth causes of action (fraudulent conveyance and constructive trust).
At the conclusion of plaintiff’s case-in-chief, the court granted defendants’ motion for nonsuit as to plaintiff’s prayer for a declaration that Bluenose is the alter ego of Gaum, for cancellation of deeds to the Pico Rivera property, and for attachment and injunction against those properties because “[t]hese properties were transferred from defendant [Gaum] years prior to the entry of the judgment.” It denied the nonsuit motion as to the first cause of action (fraudulent conveyance). Subsequently, the court granted plaintiff’s motion to amend the complaint to conform to proof.
At the conclusion of trial, the court entered judgment for plaintiff and against all defendants, jointly and severally, on the first cause of action for fraudulent conveyance. It awarded plaintiff $318,551 in general damages and $318,551 in punitive damages, for a total of $637,102 plus statutory interest from April 7, 2006, to present. As to the fourth cause of action for declaratory relief, the court entered judgment for the defendants.
D. Findings Re Specific Controverted Issues
The basis for the court’s determination that Nova Gold was paid management fees of $318,551 was as follows: “The relevant times in question were from April 7, 2006 until October 31, 2008. The first date is the date of the federal judgment; the second date is the last day of trial. The court took the figures testified to by accountant Bernard Grace, who stated that during 2006, the profit for Bluenose was $154,956. During the five years testified to, the profits rose significantly every year with the exception of 2006, where there was a small drop. Taking 2006, the monthly profit was $12,913 per month. Prorating April and adding it to eight monthly amounts added to $114,104. Nova Gold was paid eighty percent of this or $91,283. Assuming that 2007 and 2008 would generate no less than 2006, and therefore using the same monthly rate, yields $123,964 in 2007 and $103,304 for ten months of 2008. All three years add to $318,551.”
The evidence supporting the damages award of $637,102 was as follows: “The court has found that all money paid to Nova Gold was in fact money due to Gaum as compensation for being CFO and Property Manager, and that, pursuant to the conspiracy described herein, it was illegally diverted to Nova Gold to prevent the plaintiff and other creditors from learning about, attaching or garnishing Gaum’s compensation.”
IV. Judgment, New Trial Motion, and Appeal
Judgment was entered on April 30, 2010, and notice of entry of judgment was served on May 10, 2010. Defendants timely filed a motion for new trial on May 25, 2010, which the trial court denied on July 1, 2010. Defendants appealed from the judgment and order denying the new trial motion on July 22, 2010.
DISCUSSION
Defendants contend: (1) they were prejudiced by a last-minute, nonspecific amendment of the pleadings; (2) substantial evidence does not support the verdict and the verdict is against the law; (3) the damages award is excessive; and (4) the trial court erred in denying the motion to abate. We consider these issues below.
“‘“A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.” [Citations.]’ [Citations.]” (People v. Nitschmann (2010) 182 Cal.App.4th 705, 708-709.) “‘“[W]e review the trial court’s findings of fact to determine whether they are supported by substantial evidence. [Citation.] To the extent the trial court drew conclusions of law based upon its findings of fact, we review those conclusions of law de novo. [Citation.]”’ (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.)” (Palm Property Investments, LLC v. Yadegar (2011) 194 Cal.App.4th 1419, 1425-1426.)
I. Defendants Were Not Prejudiced by Posttrial Amendments to the Complaint
Defendants contend that the complaint alleged only that Gaum fraudulently transferred the property to Bluenose, but that to their surprise, “the trial focused not on the allegations of the Complaint that focused on the transfer of the Pico Rivera Property, but instead focused on the unpled relationship of the Appellants with non-parties — Nova Gold and Errol Gaum — and the payments made to those and other entities of proceeds from the Pico Rivera Property.” Defendants urge that the trial court should not have permitted the plaintiff to present evidence of these unpled issues or to amend its pleadings to conform to proof. Plaintiff disagrees, contending that the complaint’s allegations were not limited to the transfer of the property, but also alleged that the ongoing transfer of interest, rents, and profits from the property was improper.
We do not agree with defendants that the complaint’s allegations were limited to Gaum’s transfer of the property to Bluenose. Paragraph 12 of the complaint alleges that Gaum “has absconded and concealed himself subsequent to the purported transfer of the property, and has removed and concealed his other assets.” (Italics added.) Paragraphs 19 and 20 allege that “[a]t all times herein material, there existed a unity of interest and ownership” between Gaum and Bluenose, and that recognizing Bluenose as a separate entity will “allow[] defendant Sanford Gaum to avoid personal liability for his debts through the fiction of defendant Bluenose.” And paragraph 36 alleges that “defendants’... conduct was and is in violation of Civil Code, section 2224, in that they gained and held any interest in the property, including interest, rents and profits arising from that property, ... by fraud, accident, mistake, undue influence, violation of trust, and other wrongful acts, so as to become trustees of that property and equity for the benefit of plaintiff XTC Investments, LLC.” (Italics added.)
In view of the quoted language, we reject defendants’ contention that the complaint’s allegations were limited to the transfer of the Pico Rivera property to Bluenose. Rather, the complaint alleged ongoing fraudulent transfers of Gaum’s assets, including rents and profits from the property. The trial court did not err in permitting XTC to introduce evidence of alleged fraudulent transfers of these assets, rents, and profits.
Having so concluded, we need not reach defendants’ contention that the trial court erred in allowing XTC to amend the complaint to conform to proof.
II. Substantial Evidence Supports the Verdict and the Verdict Is Not Against the Law
Defendants contend that the trial court found that Gaum, his brother Errol Gaum (Errol), Bluenose, and Nova Gold participated in a conspiracy to defraud XTC by fraudulently transferring funds to Nova Gold that should have been paid directly to Gaum. Defendants assert that this finding is erroneous for several reasons; none has merit.
First, defendants urge that the evidence does not support the court’s determination of a conspiracy among Gaum, Bluenose, Errol, and Nova Gold, because “[w]hile the Superior Court was concerned about the payment of monies to Nova Gold from the operation of the Pico Rivera Property somehow constituting a ‘fraudulent transfer, ’ those payments were made pursuant to transactions [that] took place at least 10 years before the judgment in the Federal Court Action. [Internal record citation omitted.] The payments of the proceeds from the Pico Rivera Property were not the subject of last-minute maneuvering to deprive Plaintiff of executable assets for Gaum, but were merely the continued practice of distribution based upon ownership interests in place for over a decade.” Defendants do not support their factual contentions with any citations to the record, and they do not support their legal contentions—including their central contention that a fraudulent conveyance cannot exist so long as transfers of money were made pursuant to relationships established prior to the creation of a debt—with citations to any legal authority. The contentions therefore are forfeited. (Berger v. California Ins. Guarantee Assn. (2005) 128 Cal.App.4th 989, 1007 [argument forfeited where parties “fail[ed] to make a coherent argument or cite any authority to support their contention”]; Interinsurance Exchange v. Collins (1994) 30 Cal.App.4th 1445, 1448 [“[P]arties are required to include argument and citation to authority in their briefs, and the absence of these necessary elements allows this court to treat appellant[s’] [contentions] as waived.”].)
Next, defendants contend that the verdict is against the law because the trial court found two nonparties, Errol and Nova Gold, to be coconspirators and thus “reached beyond its jurisdiction and deprived Errol Gaum and Nova Gold [of] due process of law.” Defendants cite no authority for the proposition that the court’s finding is in excess of its jurisdiction or against the law—or, indeed, that they have standing to raise the issues on Errol’s and Nova Gold’s behalf. Again, the issue is forfeited.
Finally, defendants contend that the trial court’s finding of a conspiracy was legally erroneous because “in order to have a conspiracy, there must first be an unlawful purpose.” Defendants’ implicit contention that there was no evidence of an unlawful purpose is not supported by any citations to the record, and thus this contention, too, is forfeited.
III. The Trial Court Did Not Award Excessive Damages
Defendants contend that the trial court erred in failing to grant the motion for a new trial because the damages awarded were clearly excessive. For the reasons that follow, their claim is without merit.
Defendants urge that the trial court erred in awarding XTC compensatory and punitive damages because the only remedies available to a creditor in a fraudulent conveyance cause of action are those set out in the California Uniform Fraudulent Transfer Act (UFTA), Civil Code sections 3439-3439.12, which provides for equitable remedies only. Defendants are mistaken: While the UFTA provides exclusively for equitable remedies, “‘[t]he remedies of the UFTA and its predecessor... are cumulative to the remedies applicable to fraudulent conveyances that existed before the uniform laws went into effect.’ (Cortez v. Vogt (1997) 52 Cal.App.4th 917, 929; see also Macedo v. Bosio (2001) 86 Cal.App.4th 1044, 1051 [‘the UFTA is not the exclusive remedy by which fraudulent conveyances and transfers may be attacked’; they ‘may also be attacked by, as it were, a common law action’].)” (Wisden v. Superior Court (2004) 124 Cal.App.4th 750, 758.)
Defendants also assert that the damages award is excessive for other reasons, including that it was based on speculation, included an award of prejudgment interest from April 2006, rather than October 2008, and assumed that all money Nova Gold received belonged to Gaum. None of these contentions is supported by legal authority; thus, each is forfeited. (Berger v. California Ins. Guarantee Assn., supra, 128 Cal.App.4th at p. 1007; Interinsurance Exchange v. Collins, supra, 30 Cal.App.4th at p. 1448.)
Defendants assert finally that the trial court erred in awarding XTC punitive damages because there was no evidence of Gaum’s or Bluenose’s financial condition. We disagree. The trial court found that “[t]he Pico-Rivera property owned by Bluenose is, and has been, quite profitable. Its income for 2002, 2003, 2004, 2005[] was, respectively, $83,585, $98,620, $142,312, $159,381. For 2006, its income was $154,956, or $12,913 per month.” Defendants cite no authority to suggest that evidence of Bluenose’s income and of the value of real property it owns is insufficient to support a punitive damages award.
For all of these reasons, we affirm the damages award.
IV. Motion to Abate
Defendants urge that the trial court erred in denying their motion to abate the action. We disagree.
Defendants’ request to abate this case was based upon Corporations Code section 2203, which provides in pertinent part that a foreign corporation that transacts business without first obtaining a certificate of qualification from the Secretary of State “shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state.” (§ 2203, subd. (c).) Defendants assert that the trial court erred in failing to abate the present action because the action arose out of “intrastate business” within the meaning of section 2203, and XTC had not obtained a certificate of qualification. Specifically, defendants note that the promissory notes forming the transaction that were the subject of the underlying federal court judgment were negotiated and signed in California; payments on the notes were to XTC’s bank account in California; XTC’s principals are California residents; and the underlying federal court judgment was obtained in California.
All further undesignated statutory references are to the Corporations Code.
We do not agree with defendants that the trial court erred in failing to abate this action. Section 2203 provides that a foreign corporation that is not qualified to conduct business in California may not maintain an action in California courts “upon any intrastate business.” (Italics added.) The relevant inquiry, therefore, is whether the present suit is based on “intrastate business.” Defendants urge that plaintiff’s action concerns intrastate business because the underlying notes and guaranties were negotiated and signed in California, but this action does not seek to enforce those notes and guaranties. Instead, the action seeks to enforce the federal court judgment. Such an enforcement action is not based on intrastate business because, under section 191, “[m]aintaining or defending any action or suit” is not “intrastate business.” (§ 191, subd. (c)(1); see also Indian Ref. Co., Inc. v. Royal Oil Co., Inc. (1929) 102 Cal.App. 710, 714 [“the filing of... an action does not constitute doing business within the meaning of the statute”].)
As a preliminary matter, we are not persuaded that XTC is subject to section 2203 at all. XTC is a limited liability company, not a corporation, and thus on its face section 2203 does not apply to it. (§ 2203, subd. (c) [“A foreign corporation subject to the provisions of Chapter 21... which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state....”].) However, as neither party raised the issue, we will not address it.
Further, even if the subject of litigation were the notes and guaranties, we are not persuaded that the trial court was required to abate the action. The burden of proving the applicability of section 2203 is upon the party asserting it. (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 794; Thorner v. Selective Cam Transmission Co. (1960) 180 Cal.App.2d 89, 90.) That party must prove: “(1) the action arises out of the transaction of intrastate business by a foreign corporation; and (2) the action was commenced by the foreign corporation prior to qualifying to transact intrastate business.” (United Medical Management Ltd. v. Gatto (1996) 49 Cal.App.4th 1732, 1740.)
Here, although the notes and guaranties were negotiated and signed in California, they were among a Nevada limited liability company (XTC), a Delaware corporation (Fortuna), and Gaum. By their terms, they were to be repaid “at Las Vegas, Nevada, or at such other place as designated in writing by XTC.” Disputes arising under the notes and guaranties were to be decided under Nevada law. In view of these facts, the trial court did not abuse its discretion in concluding that defendants failed to meet their burden of proving that the action arose out of the transaction of intrastate business.
Our conclusion is consistent with that of Thorner v. Selective Cam Transmission Co., supra, 180 Cal.App.2d 89 (Thorner). There, the plaintiff sued to recover the balance due on five promissory notes. The trial court dismissed the action under former section 6203, the predecessor to section 2203, on the grounds that the action was based on intrastate business and plaintiff’s assignor was not qualified to do business in California. (Id. at p. 90.) The Court of Appeal reversed, concluding that the defendant had not satisfied its burden of proof: “Even though negotiations are carried on within the State by an agent of a foreign corporation which lead to the making of a contract with the foreign corporation the corporation is not ‘transacting intrastate business’ within the state where the final acceptance of the offer which results from the negotiations is made by the foreign corporation at its office outside of the State of California. (Charlton Silk Co. v. Jones [(1923)] 190 Cal. 341.)... The rule, supported by citation of authorities is thus stated in 20 Corpus Juris Secundum, Corporations, section 1839, page 55: ‘... a foreign corporation is not doing, transacting, carrying on, or engaging in business in a state, by making loans outside the state to residents thereof, on applications obtained by agents of the corporation acting within the state, where the application is transmitted to the foreign corporation at a point outside the state for acceptance or rejection, and the loan is made payable outside the domestic state.’ [Citations.]... [¶] The single answer of [a party] that the negotiations were carried on in all cases in California fails to negative, and is perfectly consistent with, the fact that the agreement to make the loans may have been finally effected by the officers of the foreign corporation outside of the State of California. The pleading that the notes were made, executed and delivered in California does not negative, and is perfectly consistent with, the fact that the notes may have been delivered in California by the maker depositing them in the mail in California addressed to the foreign corporation at its office outside the State or by delivering them to some banking institution for transfer to the payee pursuant to a previous agreement. [Citation.] [¶]... It lay within respondent’s power to prove exactly how the several transactions were negotiated and consummated but it elected for some reason not to do so. Since the burden of proof on this issue was on the respondent the proof made was insufficient to support a finding that the transactions fell within the ambit of the sections of the Corporations Code relied upon.” (Thorner, supra, 180 Cal.App.2d at pp. 91-92.)
In the present case, as in Thorner, defendants’ evidence that the notes and guaranties were negotiated and executed in California is not sufficient to carry defendants’ burden of proof. The trial court did not err in denying defendants’ motion.
DISPOSITION
The judgment is affirmed. XTC shall recover its costs on appeal.
We concur: WILLHITE, Acting P.J. MANELLA, J.