Hernandez v. Hernandez

Filed 8/27/07 Hernandez v. Hernandez CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Bernardino County, Hon. A. Rex Victor, Judge. (Retired judge of the San Bernardino Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.) Affirmed.

In this action for fraudulent conveyance, defendant Lucia Hernandez (Lucia)^[1]appeals a judgment awarding plaintiff Roberto Hernandez (Roberto) $86,034.02 in damages, $25,643.64 in attorney fees, and $10,979.46 in prejudgment interest. The court also found Lucia liable for payment of a prior $65,114.61 judgment, plus interest in the amount of $11,816.31, entered against her former husband Lenin Hernandez (Lenin).

Lucia contends the judgment should be reversed because (1) Lenin was an indispensable party to the action and should not have been dismissed, and (2) Roberto's claims in this action were litigated in a prior lawsuit and barred by collateral estoppel. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

While he was married to Lucia, Lenin entered a contract to purchase Roberto's business distribution route (Route 594) for $50,000 in November 1998. The agreement excluded sales to Stater Brothers stores within the territory of Route 594. Prior to filing this action, Roberto sued Lenin for breach of contract because he failed to pay the purchase price. Lucia filed for dissolution of marriage in November 2002. In July 2003 Roberto obtained a judgment against Lenin in the amount of $65,114.61. According to the judgment of dissolution, most of the assets of the marriage were transferred to Lucia. These assets included two duplex homes, two mobile homes, rights to Route 594, and two cars.

Roberto filed this action against Lenin and Lucia in November 2003. The complaint asked the court to enforce the prior judgment against Lenin and Lucia, and alleged claims for fraudulent conveyance, breach of contract, and unjust enrichment. Roberto claimed Lenin and Lucia fraudulently conveyed marital assets for the sole purpose of avoiding payment of the $65,114.61 judgment. He also alleged Lucia and Lenin violated the Route 594 purchase agreement because they sold to Stater Brothers stores in breach of the contract.

In their answer to the complaint, Lenin and Lucia raised no affirmative defenses. However, they brought a cross-complaint that alleged fraud. Lenin filed for bankruptcy in October 2004, and the action was stayed against him. Lucia made an ex parte motion to stay the entire proceeding while the bankruptcy stay was in effect. After a hearing on the motion, the court determined Roberto could proceed against Lucia. Roberto dismissed Lenin without prejudice on the first day of trial.

A bench trial was held, and the court dismissed the cross-complaint against Roberto because Lenin and Lucia failed to establish the damages element of fraud. The court found Lenin fraudulently transferred assets to Lucia. The court also found she breached the purchase agreement by selling to Stater Brothers stores. The court awarded Roberto $86,034.02 in damages, $25,643.64 in attorney fees, $10,979.46 in prejudgment interest, and also held Lucia liable for payment of the $65,114.61 judgment, plus interest in the amount of $11,816.31, from the prior lawsuit. The total award was $199,588.04.

DISCUSSION

Lucia contends the judgment of the court should be reversed because (1) Lenin was an indispensable party to the lawsuit, and (2) collateral estoppel should have prevented the court from deciding issues previously adjudicated in the prior lawsuit. We reject these contentions.

A. Lenin Was Not an Indispensable Party

Lucia asserts the judgment should be reversed because Lenin was an indispensable party under Code of Civil Procedure^[2]section 389. "'[F]ailure to join an indispensable party constitutes a jurisdictional defect that may be raised initially on appeal.'" (Kraus v. Willow Park Public Golf Course (1977) 73 Cal.App.3d 354, 364 citing King v. King (1971) 22 Cal.App.3d 319, 325.) Here, the trial court did not decide whether Lenin was an indispensable party.

Section 389, which governs the joinder of parties, provides:

"(a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.

"(b) If a person as described in paragraph (1) or (2) of subdivision (a) cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable. The factors to be considered by the court include: (1) to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence will be adequate; (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder." (Italics added.)

"Subdivision (a) of section 389 defines 'persons who ought to be joined if possible (sometimes referred to as "necessary" parties).' [Citation.] A determination that the persons are necessary parties is the predicate for the determination whether they are indispensable parties." (Deltakeeper v. Oakdale Irrigation Dist. (2001) 94 Cal.App.4th 1092, 1100.) "A court must consider fairness and equity" when it decides whether a party is indispensable. (County of Imperial v. Superior Court (2007) 152 Cal.App.4th 13, 26.)

1. Necessary Party

Lucia contends Lenin was a necessary party under section 389, subdivision (a). However, Roberto argues Lenin cannot be a necessary party under the statute because he filed for bankruptcy, and thus he is not amenable to service of process within the meaning of section 389, subdivision (a).

Section 362, subdivision (a) of title 11 of the United States Code provides that, with certain exceptions not applicable here, the filing of a chapter 7 bankruptcy petition "operates as a stay . . . of . . . the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor . . . ." "When a debtor files a bankruptcy petition, an automatic stay immediately arises." (Valencia v. Rodriguez (2001) 87 Cal.App.4th 1222, 1226.) While the stay does not divest the court of jurisdiction (David v. Hooker, Ltd. (1977) 560 F.2d 412, 418), the debtor is not subject to service of process. (Orix Credit Alliance, Inc. v. First Florida Bank, N.A. (1992) 147 B.R. 594, 595.) "The automatic stay does not necessarily prevent all activity outside the bankruptcy forum." (The First National Bank of Anchorage and Alaska Title Guaranty Company v. Roach (1981) 660 F.2d 1316, 1319.)

Roberto argues that Lenin is not a necessary party because section 362, subdivision (a) of title 11 of the United States Code prohibits issuance of process against the debtor while the bankruptcy proceeding is ongoing. Roberto asserts that Lenin must be "subject to service of process" to be a necessary party under section 389, subdivision (a). We reject this assertion.

If Lenin had filed for bankruptcy before Roberto commenced the action, Roberto's analysis would be correct. However, Lenin filed for bankruptcy in October 2004, almost 11 months after Roberto filed the complaint in November 2003. Moreover, Roberto named him as a defendant in the lawsuit because Lenin was a party to the contract for purchase of Route 594, and Roberto alleged he fraudulently conveyed assets to Lucia. Lenin was subject to service of process in accordance with section 389, subdivision (a) at the time the lawsuit was filed, and the subsequent bankruptcy stay did not preclude Lenin from being a necessary party as a matter of law. Thus, we conclude Lenin was a necessary party.

2. Indispensable Party

As already noted, Lucia also contends Lenin is an indispensable party. The only argument Lucia asserts to support her claim that Lenin is an indispensable party is that both she and Lenin were prejudiced because the court entered a judgment against Lucia in Lenin's absence. However, while we agree Lenin is a necessary party under section 389, subdivision (a), he is not an indispensable party under section 389, subdivision (b).

Section 389, subdivision (b) requires us to consider "'to what extent a judgment rendered in [Lenin's] absence might be prejudicial to him or [Lucia].'" "'This is essentially the same assessment that must be made under [section 389,] subdivision (a) in determining whether a party's absence would impair or impede that party's ability to protect his or her interests, and determining whether proceeding to judgment would subject existing parties to inconsistent obligations.'" (Deltakeeper v. Oakdale Irrigation Dist., supra, 94 Cal.App.4th at p. 1107, quoting People ex rel. Lungren v. Community Redevelopment Agency (1997) 56 Cal.App.4th 868, 880.)

Lucia claims she was prejudiced because the court's judgment holds her liable for the amount due to Roberto from the prior lawsuit even though she was not a party to the disputed agreement for purchase of Route 594. However, section 910, subdivision (a) of the Family Code provides:

"Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt."

Section 903, subdivision (a) of the Family Code specifies that "[i]n the case of a contract," a "debt" is "'incurred' . . . at the time the contract is made."

Although Lucia was not a party to the contract for purchase of Route 594, it became a community asset when Lenin entered the agreement. Since Lenin did not pay the purchase price, a judgment was entered against him. The judgment against Lenin applied to the community estate because the debt was incurred at the time the contract was entered. Thus, under section 910, subdivision (a), the judgment applied to the community estate, and Lucia and Lenin were jointly liable for the entire amount of the community debt. (See In re Marriage of Feldner (1995) 40 Cal.App.4th 617.)

Moreover, the absence of Lenin did not impair or impede Lucia's ability to protect her interests. After Lenin was dismissed, the court held a bench trial. Six witnesses testified, including Lenin and Lucia. The court found by clear and convincing evidence that Lenin fraudulently transferred assets and Lucia breached the Stater Brothers exclusion in the contract for purchase of Route 594. Principles of equity and fairness lead us to the conclusion Lucia was not prejudiced, and it was proper for the action to proceed against her after Lenin was dismissed.

Furthermore, Lucia's claim that Lenin was prejudiced by the court's judgment is also unavailing. The judgment was not against Lenin; it was against Lucia. Roberto dismissed Lenin with the understanding Roberto would not pursue a separate action against him. Although Lenin was no longer a defendant in the lawsuit, his interests were adequately represented by Lucia. She and Lenin did not separate their financial affairs after the divorce became final. The same attorney who represented both Lenin and Lucia at the commencement of the lawsuit continued to represent Lucia at trial. Moreover, Lenin remained a party to the cross-complaint for fraud, but it was dismissed during the trial because Lucia and Lenin failed to prove the damages element. We conclude Lenin's interests were adequately represented by Lucia, and thus he was not prejudiced.

Lucia does not contend the other factors of section 389, subdivision (b) support her assertion that Lenin was an indispensable party. However, those additional factors also buttress our conclusion that Lenin was not an indispensable party. The court clearly indicated it was concerned about Roberto bringing a separate action against Lenin. It emphasized the case should not be relitigated under any circumstances. Also, the judgment rendered in Lenin's absence is adequate because it provides Roberto with a complete remedy. Therefore, Lenin was not an indispensable party.

B. Collateral Estoppel

Lucia contends the judgment should be reversed because collateral estoppel precludes Roberto from relitigating issues decided in the first action. Specifically, she contends the issue of whether Lenin breached the Stater Brothers exclusion of the Route 594 purchase agreement was previously adjudicated in the prior action. These contentions are unavailing.

The elements of collateral estoppel are: "(1) the issue sought to be precluded from relitigation is identical to that decided in the former proceeding; (2) the issue was actually litigated and necessarily decided in the former proceeding; and (3) the party against whom preclusion is sought was a party, or in privity with a party, to the former proceeding." (People v. Gillard (1997) 57 Cal.App.4th 136, 159.) However, collateral estoppel "must be raised in the trial court by a timely objection [citation] and is waived if not raised below." (Id. at p. 160; Ponce v. Tractor Supply Co. (1972) 29 Cal.App.3d 500, 508.)

Here, Lucia knew about the prior lawsuit when she was sued as a named defendant in this action. However, she raised no affirmative defenses in her answer. Since she did not raise the collateral estoppel defense in her answer, it is waived. Moreover, the record is insufficient to determine whether the elements of collateral estoppel are satisfied. Lucia urges this Court to take judicial notice of the statement of decision from the prior action. However, it does not appear in the record. For these reasons, we do not reach the merits of Lucia's collateral estoppel argument.

DISPOSITION

The judgment is affirmed.

NARES, Acting P. J.

WE CONCUR:

HALLER, J.

AARON, J.

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^[1] We refer to the parties by first names for clarity only and intend no disrespect.

^[2] All further statutory references are to the Code of Civil Procedure unless otherwise specified.