Opinion
A149849
05-31-2018
CHARLES LI, Plaintiff and Respondent, v. THAI MING CHIU et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (City & County of San Francisco Super. Ct. No. CGC-14-537574)
This appeal is from a judgment setting aside a fraudulent transfer of real property that defendant Demas Yan made to his relatives in order to avoid paying a money judgment owed to plaintiff Charles Li. Yan and the other defendants challenge the judgment, arguing the trial court erred in granting motions in limine that they claim had the effect of preventing the relatives to whom Yan transferred the property from presenting evidence of their equitable interest in the property. In addition, they claim the court erred in awarding attorney fees against all defendants on the ground the fees were incurred by Li to enforce his previous money judgment against Yan. They contend that defendants who were not parties to the earlier action between Li and Yan cannot be liable for attorney fees incurred in enforcing the judgment against Yan absent an express finding that they conspired with Yan to evade enforcing the judgment.
We conclude the attorney fee award should be modified to apply solely against Yan. Because we reject the other contentions on appeal, we shall affirm the judgment as modified.
FACTUAL AND PROCEDURAL BACKGROUND
Prior Litigation and the Judgment in Li v . Yan II
The property at issue in this fraudulent transfer action—a three-unit residential building on 23rd Avenue in San Francisco (hereafter, the "property")—is also the genesis of the original dispute between Li and Yan. Yan entered into an agreement in 2000 to develop the property with a third party, Tony Fu. The agreement gave Fu an ownership interest in the property. Fu assigned his interest in the property to Li, who met Yan and Fu when he was hired to perform some engineering work on the property.
The facts relating to the prior judgment against Yan are largely taken from the trial court's statement of decision from the earlier action. That statement of decision was read to the jury in this fraudulent transfer action.
Li first filed suit against Yan in 2004 in Li v. Yan I to enforce his rights under the assignment from Fu. Yan filed for bankruptcy in December 2004. Yan listed Li as an " 'assignee of a disputed claim.' " In the bankruptcy proceedings, Yan asserted the assignment to Li was invalid and the underlying contract with Fu was unenforceable.
After Li learned that Yan was disputing the validity of the assignment from Fu, Li filed a lawsuit against Fu alleging fraud in the inducement. Yan contacted Li and urged him to dismiss Li v. Yan I so that they could join forces against Fu. Yan, who was at that point a law student, began giving legal advice to Li. As more fully detailed in Li v. Yan (2016) 247 Cal.App.4th 56, 60, at Yan's instruction and with his assistance, Li dismissed Li v. Yan I with prejudice and dismissed his bankruptcy claim against Yan. Yan thereafter filed a malicious prosecution lawsuit against Li and Li's former attorney. (Ibid.) Li represented himself in the lawsuit against Fu, with Yan's assistance, until Yan was admitted to the bar in late 2008. (Id. at p. 61.) In January 2009, after Yan was licensed to practice law, Li retained Yan to represent him in the lawsuit against Fu despite the fact that Yan had a pending malicious prosecution lawsuit against Li. During a settlement conference in the action against Fu, a mediator opined that the assignment from Fu was enforceable against Yan and that Yan necessarily had a conflict of interest in his representation of Li. The mediator identified a further conflict of interest in that Yan had named Li as a defendant in a pending malicious prosecution action. Yan had never disclosed the conflicts to Li or obtained a written conflict waiver from him. Following these disclosures, Li terminated Yan and hired new counsel in an attempt to reinstate Li v. Yan I and Li's bankruptcy claim against Yan. Li was unsuccessful in attempting to revive his claims against Yan due to the passage of time. (Ibid.)
In March 2010, Li filed an action for professional negligence and related claims against Yan in Li v. Yan II. Following a bench trial conducted in 2012, the court found that Yan had engaged in the unauthorized practice of law and was liable for professional negligence, breach of fiduciary duty, breach of contract, and fraud. The court concluded that Yan's actions resulted in the loss of Li's meritorious claim for recovery on the assignment from Fu. Division Two of this court affirmed the judgment in Li v. Yan II. (See Li v. Yan, supra, 247 Cal.App.4th at p. 62.) In June 2016, a fourth amended judgment against Yan was entered in Li v. Yan II totaling $1,086,001.12, inclusive of damages, attorney fees, costs, and interest.
Fraudulent Transfer Action
Through efforts to enforce the judgment in Li v. Yan II, Li learned that Yan had transferred the property to a wholly owned limited liability company (LLC) in 2007. After trial had commenced in Li v. Yan II in 2012, Yan transferred his ownership interest in the LLC to relatives, purportedly to repay debts Yan owed. In November 2013, when the LLC was ordered to appear for an examination in connection with the enforcement of the Li v. Yan II judgment, the property was transferred yet again to a newly formed LLC with the same ownership as the original LLC. Li's counsel interpreted these transactions as efforts by Yan to protect his main asset from being used to satisfy the judgment against him in Lin v. Yan II.
On the court's own motion, we take judicial notice of our prior opinion in Li v. Chiu (Jun. 30, 2016, A145509 [nonpub. opn.]), from which we draw background facts.
After learning of the various suspicious transactions involving the property, in February 2014 Li filed the complaint to set aside fraudulent transfers that gives rise to this appeal. He named Yan as a defendant along with Yan's parents, Tina Yan and Cheuk Tin Yan, and two brothers-in-law, Thai Ming Chiu and Kaman Liu. He also named as defendants the two LLCs that had held title to the property—547 23rd Avenue, LLC and 547 Investments LLC. According to the complaint, the various conveyances of the property were made to prevent Li from satisfying his judgment against Yan in Li v. Yan II. Li asserted three causes of action for fraudulent transfer and alleged both actual fraud (Civ. Code, § 3439.04, subd. (a)(1)) as well as constructive fraud (Civ. Code, § 3439.05).
To avoid confusion, we will refer to Demas Yan as "Yan" and use the full names of his parents when we refer to them.
Li entered defaults against Yan and the two LLCs. The action proceeded against the remaining defendants—i.e., Yan's parents and his brothers-in-law. We will hereafter refer to the defendants who proceeded to trial simply as "defendants," unless the context requires clarification that the term encompasses the defendants that defaulted.
During the pendency of the case, the parties filed cross-motions for summary judgment. In his motion, Li focused upon whether Yan received "reasonably equivalent value" for his transfer of the property to his relatives. The defendants had repeatedly claimed the property was transferred to discharge specific debts Yan owed to his relatives. However, Li argued that the federal bankruptcy courts had already found that the alleged debts were not valid or enforceable. He established that the relatives' claims had been disallowed in Yan's bankruptcy, meaning that the underlying debt was determined to be invalid. Li contended the defendants were collaterally estopped from claiming the discharge of the invalid debts was "reasonably equivalent value" given in exchange for the property.
In their response to Li's summary judgment motion, the defendants took the position that the monies provided by Yan's relatives were investments and not loans. In essence, defendants laid out their affirmative defense that Yan's parents and brothers-in-law held equitable title to the property before transfer of legal title to them. Yan claimed he obtained two loans secured by the property in 2004 and that he effectively withdrew his equitable interest in the property by taking the proceeds of the loans, thereby leaving him with "bare legal title" to the property. According to Yan, as of 2004 his parents and brothers-in-law were left as the property's sole equitable owners based upon their earlier investments.
The trial court denied Li's summary judgment motion, concluding there was a triable issue of fact regarding Yan's equitable interest in the property prior to transfer, "i.e., were the amounts provided by relatives to [Yan] investments or loans." (Italics added.) The court likewise denied defendants' summary judgment motion, again focusing on the existence of a triable issue as to whether the funds provided by relatives constituted "investment in a joint venture or personal loans." (Italics added.)
When the matter was called for trial, the trial court granted Li's motion in limine to bar Yan's parents as well as another witness from testifying due to their failure to be deposed. The court indicated its willingness to consider a motion for terminating sanctions based upon defendants' noncompliance with discovery obligations. Li filed such a motion, which the court granted. Based in part on its finding that defendants "failed to comply with numerous requests to produce discovery," the court entered judgment in favor of Li.
Following entry of judgment, defendants moved for a new trial. In ruling on the motion, the court noted that Yan's discovery misconduct and abuse was the foundation of the order granting terminating sanctions. The court agreed to vacate the judgment and the order granting terminating sanctions to permit Yan's parents and his brothers-in-law an opportunity to explain why Yan's actions should not be imputed to them. The court eventually set the matter for trial but still barred Yan's parents from testifying.
Li filed two motions in limine that are the subject of this appeal. The first motion sought to exclude evidence of purported loans owed by Yan to defendants on the ground the bankruptcy courts had adjudicated them to be invalid. Li contended the defendants were collaterally estopped from claiming the property was transferred to them in satisfaction of the debts the bankruptcy courts had found to be invalid. The second motion in limine sought exclusion of evidence during the jury trial purporting to prove the defendants' equitable title theory of defense. Li claimed that because the defense is equitable in nature, the issue was one for the court and not the jury to decide. The trial court granted both motions in limine.
The matter proceeded to a jury trial, which was conducted in tandem with a court trial on the defendants' equitable title affirmative defense. There was some dispute about whether defendants could introduce evidence of loans purportedly made to Yan in light of the in limine rulings. The court ultimately relented, stating that, "just in an abundance of caution," the court would allow testimony about the loans in the jury trial, with the caveat that Li's counsel would be able to introduce the bankruptcy court orders disallowing the claims that were premised on the alleged loans. Nevertheless, the court did not permit the defendants to introduce documentary evidence of the loans during the jury trial. However, the court permitted defendants to introduce documentary evidence supporting their claimed investments in the property during the court trial phase. The court consistently took the position that defendants' equitable claims could not be presented or argued to the jury. Therefore, during the jury trial, defendants were allowed to introduce testimony but not documentary evidence about loans that were supposedly made by Yan's relatives to Yan, and they were restricted from raising the issue before the jury of whether the relatives held equitable title to the property as a result of their investments. During the court trial, defendants were allowed to introduce testimonial and documentary evidence supporting their claim that they had made investments in the property.
Yan testified in the jury trial but not in the court trial. He confirmed he had not paid any part of the judgment in Li v. Yan II. He testified that he essentially had no assets or income, but he acknowledged that he supported himself and his children, including paying for their rent. He claimed there is no record of his income and expenses because he deals almost exclusively in cash.
According to Yan, he bought the property in 2000. Title was in his name alone. In 2003, he applied to refinance the property. He was the only one who signed the loan papers. He subsequently took out an equity line of credit against the property. Again, he was the sole grantor of the deed of trust securing the line of credit. Yan claimed that, with the proceeds from the refinance and the line of credit, he basically cashed out his equity interest in the property.
In April 2004, Yan transferred title to the property to his parents. Later that year, he filed for bankruptcy. In 2006, the bankruptcy trustee filed an adversary proceeding seeking to recover the property from Yan's parents. In October 2006, Yan's parents signed a quitclaim deed transferring the property back to Yan.
Yan formed 547 23rd Avenue, LLC in October 2007. Yan was the sole owner of the LLC, the only function of which was to own the property. Yan transferred the property to 547 23rd Avenue, LLC in December 2007. The transfer took place five days after a bankruptcy ruling directed Yan to pay a creditor. Also in December 2007, Yan recorded a deed of trust against the property for $1.5 million in favor his wife, even though he admitted at trial that there was no debt owed to his wife. Yan claimed he created the LLC and transferred the property to it for liability reasons in light of the fact there were tenants residing at the property.
Shortly after the conclusion of the trial testimony in Li v. Yan II, in July 2012, Yan transferred his ownership in 547 23rd Avenue, LLC to his mother and his brothers-in-law, Chiu and Liu. He justified the timing of the transfer by claiming that his bankruptcy case had concluded and there was no longer any restriction on his ability to dispose of the property. Yan's mother received a 68.43 ownership interest in the LLC, with Chiu receiving 25.83 percent and Liu receiving 5.74 percent. At the time Yan transferred his interest in the LLC to his relatives, he had no assets and virtually no income.
In September 2013, Yan, as agent for 547 23rd Avenue, LLC, failed to appear for an examination in connection with Li's attempts to enforce the judgment in Li v. Yan II. The court issued an order to show cause and a warrant for Yan's arrest. Shortly thereafter, in November 2013, the property was transferred to another business entity, 547 Investments LLC, that Yan had formed. The newly formed entity, 547 Investments, LLC, was owned by the same individuals, with the same percentage interests, as the pre-existing entity, 547 23rd Avenue, LLC. Yan justified creating the new LLC with the same owners because the books from 2007 were "not clear" and he wanted to start with a "clean slate." Despite the facts that the property was owned by an LLC since 2007 and Yan purportedly had no ownership interest in the business entities that held title to the property after July 2012, until at least May 2014 Yan continued to receive rent checks made out to his name from tenants at the property. At around the time the property was transferred to 547 Investments LLC in December 2013, it was publicly offered for sale at an asking price of $1,925,000.
Yan's brother-in-law, Liu, testified that he wrote a $40,000 check as an investment in the property in 2000. He also claimed he loaned $40,000 to Yan a few years later, in 2005 or 2006. Liu admitted that the second $40,000 purportedly given to Yan was in the form of a check made out to Yan's father. In 2009, Liu filed a claim for $40,000 in Yan's bankruptcy proceeding. He testified that the only evidence of the loan was an email; there was no promissory note and the parties did not fix an amount of interest or repayment schedule. In the court trial phase, outside the presence of the jury, Liu authenticated emails purporting to document his investment. In the emails, Liu was given the option to have his contribution treated as a loan or as an ownership stake in the property. Liu never asked to be a part owner of the property or to be placed on the title prior to his receipt of an ownership share in 547 23rd Avenue, LLC, in 2012.
Chiu, Yan's other brother-in-law, also testified. He claimed that Yan asked family members to make an investment in the property in 2000. There was no written agreement memorializing the investment because, according to Chiu, Yan was a "family member." Chiu claimed to have invested $100,000 in the property. He admitted filing a claim in Yan's bankruptcy but acknowledged it was disallowed. His claim in the bankruptcy was for $180,000. In the court trial phase, outside the presence of the jury, Chiu authenticated emails purporting to establish his investment. Like Liu, Chiu was given the option to treat the sums he gave to Yan as either a loan or an equity stake in the property. He explained that he made a claim for $180,000 in Yan's bankruptcy because he had loaned Yan $80,000 in addition to the $100,000 investment he made in the property. Chiu testified that if the bankruptcy court had allowed his $180,000 claim to be satisfied, he would have relinquished any claim of ownership in the property. He was aware that Yan had transferred the property to Yan's parents in 2004 but acknowledged he did not ask to be placed on the title at that time.
Although Yan's parents were barred from testifying at trial, defendants nonetheless introduced checks made out by the parents to Yan in the amounts of $100,000 and $67,773, purportedly representing sums for the initial purchase of the property and for construction expenses, respectively. Yan's counsel made an offer of proof that Yan could authenticate the checks. The checks were admitted into evidence solely for the equitable portion of the trial before the court.
The jury returned special verdicts against all of the defendants, finding each defendant liable for actual as well as constructive fraud. The court subsequently filed a statement of decision in which it adopted the jury's factual determinations, as reflected in the special verdict forms. The court made additional findings of fact as a court sitting in equity. Among other things, the court found that the defendants' claims regarding investments and transactions with Yan could not be reconciled with prior sworn statements and filings. It concluded the defendants had failed to prove they made investments or purchased an ownership interest in the property. As a separate and independent ground for denying equitable relief, the court cited the disallowed claims in Yan's bankruptcy, concluding the defendants were collaterally estopped from rearguing the existence, validity, or import of the alleged transactions.
The court entered a judgment on the same day it filed its statement of decision. The court entered default judgments against Yan and the two LLCs. Consistent with the special verdicts returned by the jury, the court entered judgments against each of the remaining defendants in the following amounts: $824,180.57 jointly against Yan's parents, Cheuk Tin Yan and Tina Yan; $324,167.58 against Chiu; and $72,037.24 against Liu. The court declared Yan to be the sole owner of all legal and equitable title or interest in the property.
Defendants filed a motion for new trial, which was denied. All defendants, including Yan and the two LLCs, filed a notice of appeal.
Li filed a request for attorney fees. The court granted the request and awarded attorney fees of $802,059.50. The court subsequently entered a first amended judgment that incorporated the attorney fee award. Defendants filed an amended notice of appeal incorporating the attorney fee award in the appeal.
While the matter was on appeal, this court received notice that Yan's father, Cheuk Tin Yan, died shortly after the judgment was entered. The decedent's wife, Tina Yan, sought to be substituted in place of her husband as his successor in interest. We granted the motion to substitute.
DISCUSSION
Defendants basically raise two arguments on appeal. First, they argue the court erred in granting motions in limine that effectively prevented them from presenting evidence that Yan received "reasonably equivalent value" in exchange for the property. Second, they claim it was error to award attorney fees in this action against all the defendants. They also urge that the defaulted defendants—Yan and the two LLCs—are entitled to a reversal if we reverse the judgment as to the defendants that appeared at trial. We address these claims in turn after briefly setting forth the statutory scheme underlying Li's fraudulent transfer claims.
1. Uniform Voidable Transactions Act
The Uniform Voidable Transactions Act, formerly known as the Uniform Fraudulent Transfer Act, is found at section 3439 et seq. of the Civil Code. (See Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1294.) Under subdivision (a)(1) of Civil Code section 3439.04, a transfer made by a debtor 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." This statutory provision involves actual fraud since it requires proof of the debtor's intent. A good faith defense to a claim of actual fraud under this statute is set forth in Civil Code section 3439.08, subdivision (a), which provides that an otherwise fraudulent transfer is not voidable "against a person that took in good faith and for a reasonably equivalent value . . . ." (Italics added.) A party seeking to rely on the good faith defense bears the burden of proving the defense. (Civ. Code, § 3439.08, subd. (f)(1); Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 36 & fn. 6.)
Civil Code section 3439.05, subdivision (a) allows for an aggrieved creditor to recover for constructive fraud without the need to prove the debtor's actual intent. The statute provides as follows: "A transfer made or obligation incurred by a debtor is voidable as to creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at the time or the debtor became insolvent as a result of the transfer or obligation." (Ibid., italics added.)
In this action, Li asserted claims for both actual fraud under Civil Code section 3439.04, subdivision (a)(1), and constructive fraud under Civil Code section 3439.05. The jury returned special verdicts in favor of Li as to both actual and constructive fraud. As to both claims, the question of whether Yan received "reasonably equivalent value" from defendants in exchange for the property was key to the defendants' case. The issue was one that Li needed to prove to establish constructive fraud, and it was also part of the good faith defense the defendants had the burden to prove to avoid liability for actual fraud.
2. Judgment Against Yan's Parents
Before addressing defendants' challenge to the in limine rulings, we first consider Li's claim that the judgment against Yan's parents, Cheuk Tin Yan and Tina Yan, must be affirmed irrespective of how we may rule on other claims of error asserted by defendants. For the reasons that follow, we agree that the judgment against Yan's parents must be affirmed.
The jury received evidence that Yan's parents quitclaimed any interest that they might have had in the property in 2006, when they transferred the property back to Yan. A quitclaim deed transfers all interests, legal and equitable, that the grantor may have. (City of Manhattan Beach v. Superior Court (1996) 13 Cal.4th 232, 239; Rosenthal v. Landau (1949) 90 Cal.App.2d 310, 312-313.)
The only evidence presented at trial relating to anything of value that Yan's parents may have had to exchange for the property was their purported investments of $100,000 toward the purchase of the property and $67,773 for construction expenses. Those claimed investments were necessarily made no later than 2003, when development of the property was completed. Insofar as Yan's parents claim they had an equitable interest in the property as a result of those investments, that equitable interest was extinguished when they quitclaimed the property back to Yan in 2006. Consequently, there was nothing of "reasonably equivalent value" given in exchange for the property by the parents in 2012 when Yan gave his mother an ownership interest in the LLC that held title to the property. Yan's parents necessarily could not meet their burden to establish a good faith defense to the claim of actual fraud under Civil Code section 3439.04, subdivision (a). Likewise, they could not meet their burden to prove an equitable title defense.
Defendants dispute this conclusion, reasoning that Yan's parents quitclaimed the property to Yan with the expectation that it would be reconveyed to them after Yan emerged from bankruptcy. They rely on a series of cases that they claim stand for the proposition that delivery of a deed is ineffective unless the grantor has a present intention to convey all the grantor's interest in the property. (See Williams v. Kidd (1915) 170 Cal. 631, 638; Miller v. Jansen (1943) 21 Cal.2d 473, 477.) The problem with defendants' argument is that there is nothing in the trial record supporting their claim about the parents' intentions. Instead, they cite to documents that were not part of the evidentiary record before the trier of fact. The only citation defendants make to the trial record with respect to this issue is Yan's testimony that he considered himself under an obligation to repay his relatives. But that does not bear upon the intention of Yan's parents, who were the grantors of the quitclaim deed. There was no evidence before the trier of fact that Yan's parents intended to convey something less than all their legal and equitable interests in the property when it was quitclaimed to Yan.
In its statement of decision, the trial court concluded that the parents' quitclaim of the property to Yan in 2006 "established that they had no interest, equitable or otherwise," in the property after that transfer. For the reasons we have explained, the court did not err in reaching that conclusion. In the absence of evidence that the parents gave Yan reasonably equivalent value in exchange for an ownership interest in the property, judgment against Yan's parents for actual fraud must be affirmed.
Defendants contend there is no basis for a judgment against Yan's father because he did not possess any legal interest in the property. They claim Yan transferred shares in 547 23rd Avenue, LLC to his mother and not to his father. And, they argue there was no evidence the ownership shares of the LLC were held as community property by the parents. We are not persuaded. Both the court and the parties assumed the property was held as community property by the parents. Indeed, in response to a question from the jury, the court read a statement without objection from defendants' counsel describing the community property nature of the parents' interest. The parties agreed the judgment against the parents would be a joint obligation. Moreover, since Cheuk Tin Yan is now deceased and Tina Yan is his successor in interest, we fail to see how removing him as a judgment debtor would have any practical effect. Tina Yan will still be liable for the full amount of the spouses' joint obligation irrespective of whether the judgment against Cheuk Tin Yan is reversed.
3. In Limine Rulings
Defendants contend the court's in limine rulings prevented them from establishing they had an equitable interest in the property and thus gave reasonably equivalent value to Yan in exchange for the transfer of the property to them. They claim the court erred in granting the in limine motions because they were improper motions for reconsideration of the court's denial of Li's summary judgment motion. They also argue the court erred as a matter of law in concluding that the bankruptcy court's rulings disallowing the relatives' claims should be given collateral estoppel effect.
"We review a trial court's ruling on a motion in limine to exclude evidence for abuse of discretion." (McCoy v. Pacific Maritime Association (2013) 216 Cal.App.4th 283, 295.) The issue of whether collateral estoppel applies is generally a question of law that we review de novo. (Samara v. Matar (2017) 8 Cal.App.5th 796, 803.) However, when application of the doctrine turns on factual as well as legal issues, the trial court's determination of the factual issues "is binding upon this court unless a contrary conclusion is the only one that can reasonably be drawn from the evidence." (Elena v. State of California (1977) 69 Cal.App.3d 245, 254.)
A. Improper Reconsideration of Summary Judgment Denial
Defendants claim the in limine motions improperly sought reconsideration of the denial of Li's summary judgment motion, which turned on the collateral estoppel effect of the bankruptcy court rulings disallowing defendants' claims. They rely on case law establishing that a party cannot renew a summary judgment motion that was previously denied by another judge (Kerns v. CSE Insurance Group (2003) 106 Cal.App.4th 368, 390) or file repetitive motions without complying with Code of Civil Procedure section 1008, which limits a court's jurisdiction to reconsider prior orders. (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1107.) We are not convinced that the trial court's orders granting Li's in limine motions violate these principles.
The court's analysis in Salehi v. Surfside III Condominium Owners' Assn. (2011) 200 Cal.App.4th 1146 is squarely on point. There, a trial judge granted a motion in limine to exclude all evidence of fraud and misrepresentation before the date a release was signed. (Id. at p. 1158.) The plaintiff appealed on the ground that another judge had denied summary adjudication on the release issue. The plaintiff argued that by granting the motion in limine the court had in effect reversed the summary adjudication ruling without requiring compliance with Code of Civil Procedure section 1008. In rejecting the claim of error, the Court of Appeal reasoned that the plaintiff had " 'cited no case, and we know of none, suggesting that [Code of Civil Procedure] section 1008 bars the judge to whom a case is assigned for trial from ruling on an issue of law as to which another judge denied summary adjudication. To read the statute that broadly would be a prescription for calcified and pointless trial proceedings grinding inexorably toward reversal on appeal for errors that could easily have been corrected but for a perceived lack of power to do so.' " (Ibid.)
Defendants argue that the in limine motions were in effect disguised motions for summary judgment that sought to relitigate the same issue that was previously decided in the summary judgment denial. We disagree. The order denying Li's summary judgment motion did not identify a triable issue of fact as to whether the bankruptcy court previously adjudicated the intra-family transactions to be invalid loans. Instead, the sole triable issue identified by the court was whether the amounts provided by relatives to Yan could be characterized as investments or loans. Thus, the court's summary judgment ruling left open the question of whether defendants could classify the amounts paid to Yan as investments in order to sustain an equitable title defense. The ruling barring defendants from presenting evidence of loans to the jury was not inconsistent with the order denying summary judgment.
Further, defendants were permitted to present evidence supporting their equitable title defense to the court sitting as the trier of fact. Thus, defendants were not denied the opportunity to have the trier of fact decide the triable issue identified in the summary judgment denial. The denial order says nothing about whether any triable issue must be tried before a jury or a court. Here, the court determined that the equitable title defense premised upon purported investments was properly left to the trial judge to decide sitting as a court in equity. That ruling was well within the bounds of the court's discretion. Equitable defenses are properly heard by the court and not the jury. (Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 155-156.)
Accordingly, we conclude the motions in limine did not improperly seek reconsideration of the prior summary judgment denial.
B. Collateral Estoppel
Defendants next contend the trial court erred as a matter of law in giving collateral estoppel effect to the prior bankruptcy rulings. They argue that the requisites of collateral estoppel are not met because (1) the validity of Yan's debt to the defendants was not actually litigated in the bankruptcy court, and (2) there was no evidence the bankruptcy court had adjudicated the same issue that was before the trial court.
The doctrine of res judicata promotes judicial economy by precluding piecemeal litigation that may occur if a single cause of action is split into more than one lawsuit or if a particular issue has already been decided in an earlier lawsuit. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 897.) In its primary aspect, known as claim preclusion, the doctrine bars a second suit between the same parties on the same cause of action. (People v. Barragan (2004) 32 Cal.4th 236, 252.) In its secondary aspect, known as collateral estoppel or issue preclusion, the prior judgment acts as a "conclusive adjudication as to such issues in the second action as were actually litigated and determined in the first action." (Id. at p. 253.)
We are concerned here with collateral estoppel, which "applies when (1) the party against whom the plea is raised was a party or was in privity with a party to the prior adjudication, (2) there was a final judgment on the merits in the prior action and (3) the issue necessarily decided in the prior adjudication is identical to the one that is sought to be relitigated." (Roos v. Red (2005) 130 Cal.App.4th 870, 879.)
In Yan's bankruptcy proceeding, Tina Yan, Liu, and Chiu filed creditor's claims in October 2009. Tina Yan filed a claim for $338,665, Liu filed a claim for $40,000, and Chiu filed a claim for $180,000. The bankruptcy trustee filed objections to the claims, asserting that all three claimants had failed to substantiate their claims. The trustee also asserted that Tina Yan's and Chiu's claims were untimely. In March 2010, the bankruptcy court disallowed all three claims based upon the trustee's objections. Later that same month, Chiu filed a motion to reconsider and Cheuk Tin Yan filed a new creditor's claim for $194,000. The trustee objected to Cheuk Tin Yan's claim as untimely and unsubstantiated. In November 2010, the bankruptcy court denied Cheuk Tin Yan's claim and denied reconsideration of Chiu's claim.
Cheuk Tin Yan and Chiu filed an appeal to the Ninth Circuit Bankruptcy Appellate Panel. The Bankruptcy Appellate Panel affirmed the orders disallowing the claims in July 2011. The court concluded the creditors' claims could not be disallowed as untimely under the particular circumstances. Nevertheless, the Bankruptcy Appellate Panel affirmed the orders disallowing the claims on the ground the claimants had failed to prove the amount and validity of their asserted claims.
The requisites for collateral estoppel are met here. First, it is undisputed that Tina Yan, Cheuk Tin Yan, Liu, and Chiu were parties to the bankruptcy proceeding as creditor claimants. Second, there was a final judgment on the merits for purposes of applying collateral estoppel. "[A]n order disallowing a claim in bankruptcy is binding and conclusive on all parties or their privies, and being in the nature of a final judgment, furnishes a basis for a plea of res judicata." (U.S. v. Coast Wineries (9th Cir. 1942) 131 F.2d 643, 648.) Further, the judgment was on the merits. The Bankruptcy Appellate Panel did not affirm the orders disallowing Cheuk Tin Yan's and Chiu's claims on the basis of untimeliness but instead considered the evidence and concluded the claims were invalid. Although Tina Yan and Liu did not appeal the orders disallowing their claims, those orders were likewise based in part on the invalidity of the claims.
Even if the bankruptcy court orders disallowing Tina Yan's and Liu's claims are not entitled to collateral estoppel effect, any error in granting the motion in limine as to them was harmless. First, as discussed above, the judgment is affirmed as to Tina Yan without regard to the motions in limine in light of the 2006 quitclaim deed. Second, as to Liu, he was allowed to present the evidence of his purported loans and investments and have his claims heard by the trial court sitting in equity, as explained in the next section.
Finally, the issue necessarily decided in the bankruptcy proceedings is identical to the one that defendants sought to relitigate at trial—i.e., the validity of the purported debts Yan owed to his relatives. Defendants dispute that the issues are identical, claiming it is unclear whether the debts considered in the bankruptcy are the same as the loans that defendants claim in this action that they made to Yan. They point out that the amounts of the bankruptcy claims do not match the loan amounts asserted in this action. However, even in the bankruptcy proceeding, the claimants presented different and conflicting claims at various times. The trial court could have reasonably concluded that the debts claimed in the bankruptcy proceeding encompassed the loans asserted in this proceeding, notwithstanding the fact that the amounts were not identical. Because a contrary conclusion is not the only one that can be drawn from the evidence, we are bound by the trial court's implied finding that the bankruptcy court considered the same issue presented to this court. (See Elena v. State of California, supra, 69 Cal.App.3d at p. 254.)
In light of our conclusion that the requisites of collateral estoppel are satisfied, the trial court did not err in granting Li's motion in limine and giving preclusive effect to the bankruptcy court rulings disallowing defendants' creditor claims.
C. Harmless Error
Defendants contend the court's purported error in granting the motions in limine is reversible per se because it deprived them of the opportunity to offer evidence and left them without a defense to the fraudulent conveyance claims. (See Kelly v. New West Federal Savings (1996) 49 Cal.App.4th 659, 677.) We disagree. In Kelly, the trial court foreclosed an entire theory of liability and summarily entered nonsuit. (Id. at p. 669.) By contrast, where "rulings simply precluded certain arguments or discrete items of evidence," the per se rule does not apply. (Tudor Ranches, Inc. v. State Comp. Ins. Fund (1998) 65 Cal.App.4th 1422, 1432.) In a case such as this one, where the court precluded discrete items of evidence, reversal is not warranted unless there is a reasonable probability a result more favorable to the defendants would have been reached in the absence of the error. (Kelly v. New West Federal Savings, supra, at p. 677.)
Even if the court erred in granting the motions in limine, any error was harmless in light of the fact defendants were able to fully present their evidence of loans and investments in the equitable portion of the trial. The trial court admitted into evidence and considered documents presented by Liu and Chiu that were excluded from the jury portion of the trial.
Defendants claim that being afforded the ability to present their claims in the equitable portion of the trial before the court was insufficient. They contend the court's determination of the equitable title issue was tainted by the jury verdict because the court was required to accept the jury's findings. But the issues considered by the jury and the court were distinct. The jury did not consider or make findings concerning whether defendants had an equitable interest in the property as a result of any investments. In its statement of decision, the court set out the jury's findings and separately stated its own findings bearing upon defendants' claims that they had invested in the property. Nothing in the jury's verdict precluded the trial judge from separately finding based upon evidence presented at the court trial that defendants had an equitable interest in the property.
Defendants also urge that the court trial was an inadequate substitute for the jury trial because they faced a higher burden in establishing the equitable claims. They are mistaken. In order to avoid liability for actual fraud under Civil Code section 3439.04, subdivision (a)(1), defendants bore the burden of establishing a good faith defense, including proving that Yan received reasonably equivalent value for the property. (§ 3439.08, subd. (f)(1).) Likewise, defendants bore the burden of proof on their equitable title affirmative defense. Thus, defendants had the burden of proof regardless of whether the matter was heard as a good faith defense in the jury trial or an equitable title defense in the court trial.
We conclude there is no reasonable probability the defendants would have achieved a more favorable result even if they had been allowed to present their documentary evidence to the jury.
4. Attorney Fees
The trial court awarded $802,059.50 in attorney fees to Li. Li based his claim for attorney fees upon Code of Civil Procedure section 685.040 (hereafter section 685.040), which generally provides that a party may recover attorney fees incurred in enforcing a judgment if there is a contractual or statutory basis for awarding attorney fees in the underlying action. (See Rosen v. LegacyQuest (2014) 225 Cal.App.4th 375, 381-382.) Our Supreme Court has acknowledged that fees incurred in prosecuting a fraudulent transfer action may come within the scope of section 685.040 when they are expended in an effort to satisfy a separate judgment. (In re Conservatorship of McQueen (2014) 59 Cal.4th 602, 612-613.)
In Li v. Yan II, Li was awarded statutory attorney fees on the basis of Code of Civil Procedure section 1029.8, subdivision (a), which authorizes a court to award attorney fees to a person injured as a result of an unlicensed person providing goods or services for which a license is required.
Defendants do not dispute that Li is entitled to attorney fees incurred in prosecuting this fraudulent transfer action. Nor do they dispute the amount of the fees claimed. Instead, they claim that an award of attorney fees may be made only in Li v. Yan II, and they contend the award may not be assessed against persons or entities who were not parties to Li v. Yan II. As we explain, we disagree agree with the former contention but agree with defendants that the fees may not be assessed against anyone other than Yan, the judgment debtor in Li v. Yan II.
Although defendants concede they have not uncovered an opinion addressing the issue, they claim that fees incurred to enforce a judgment must be awarded as costs in the action in which the judgment was entered and not in a separate action to enforce the judgment, such as this fraudulent transfer action. We fail to see why attorney fees incurred in prosecuting this fraudulent transfer lawsuit cannot be awarded as costs in this action, as long as the requirements of section 685.040 are satisfied. The court below had jurisdiction over the parties as well as statutory authority to award attorney fees as costs under section 685.040.
The trial judge in Li v. Yan II specifically declined to hear a motion to award attorney fees incurred in prosecuting this fraudulent transfer action. The court directed the parties to have the matter heard in this case.
In Cardinale v. Miller (2014) 222 Cal.App.4th 1020, 1022-1023, 1025 (Cardinale), this court affirmed an award of attorney fees under section 685.040 in a fraudulent transfer action, even though the fees were incurred in an attempt to enforce earlier judgments. "[U]nder California state law, attorneys' fees can attach under Section 685.040 on subsequent actions to enforce a judgment." (Donshen Textile (Holdings) Ltd. v. Rabinowitz (C.D. Cal. Apr. 24, 2014, No. CV 13-09030 SJO), 2014 WL 12638885, at *4.) Cardinale and Donshen provide authority for awarding attorney fees in this action under section 685.040. It would be wasteful to require the parties to relitigate the attorney fee issue in Li v. Yan II unless there was some jurisdictional or other bar to awarding the fees in this action. Defendants have not identified any such proscription or principle that would preclude an award of fees in this action.
Defendants contend that section 685.040 authorizes the recovery of fees only from Yan, the original judgment debtor, and that nonparties to the underlying judgment in Li v. Yan II are beyond the statute's reach. We agree that, under the circumstances presented here, it is inappropriate to impose a fee award against defendants other than Yan.
In Cardinale, we held that section 685.040 may authorize an award of fees against "third parties who conspired with the judgment debtor to evade its enforcement." (Cardinale, supra, 222 Cal.App.4th at p. 1025.) We explained: " 'By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability co-equal with the immediate tortfeasors.' " (Id. at p. 1026.) The third parties in Cardinale were found by a jury to have conspired to engage in fraudulent transfers to avoid enforcement of the judgment against the judgment debtor. (Id. at pp. 1022-1023.) The conspiracy findings supported the imposition of attorney fees against the third parties. Cardinale does not suggest that persons or entities who were not parties to the original judgment can be held liable for attorney fees in a fraudulent transfer action absent a finding that they conspired with the judgment debtor to evade enforcement of the judgment.
Here, there was no finding that defendants other than Yan conspired with him to engage in fraudulent transfers for the purpose of evading enforcement of the judgment in Li v. Yan II. Absent such a finding, there is no basis to impose an attorney fee award against anyone other than Yan. The judgment must be modified accordingly to provide that the defendants other than Yan are not liable to pay the attorney fee award.
DISPOSITION
The trial court is directed to enter a new amended judgment providing that the attorney fee award is to be imposed solely against defendant Demas Yan. In all other respects, the judgment is affirmed. Li shall be entitled to recover his costs on appeal.
/s/_________
McGuiness, Acting P.J. We concur: /s/_________
Pollak, J. /s/_________
Jenkins, J.
Retired Presiding Justice of the Court of Appeal, First Appellate District, Division Three, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.