NAMA Holdings v. Dorsey & Whitney
Filed 8/7/13 NAMA Holdings v. Dorsey & Whitney CA2/4
NOT TO BE PUBLISHED IN THE
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opinion has not been certified for publication or ordered published for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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
NAMA HOLDINGS,
LLC,
Plaintiff and Appellant,
v.
DORSEY &
WHITNEY LLP,
Defendant and Respondent;
RONALD P. SLATES,
P.C., et al.,
Objectors and Appellants.
B238449
(Los Angeles County
Super. Ct. No. BS133153)
APPEAL from orders of the Superior Court of
County, Barbara M. Scheper, Judge. Affirmed in part, reversed in part.
Horvitz & Levy, Jeremy B.
Rosen, and John F. Querio for Plaintiff and Appellant and Objectors and
Appellants.
Greines, Martin, Stein &
Richland, Robert A. Olson; Dorsey & Whitney, Kent J. Schmidt, and Jill Hammerbeck for
Defendant and Respondent.
INTRODUCTION
Plaintiff and appellant NAMA Holdings, LLC (NAMA) sought
permission, pursuant to Civil Code section 1714.10 (section 1714.10), to file a
complaint against defendant law firm, Dorsey & Whitney LLP (Dorsey), for
accepting funds from a client against whom NAMA had a substantial judgment. NAMA alleged Dorsey was guilty of fraudulent
transfer of funds and conversion. Dorsey
filed opposition and also filed a special motion
to strike pursuant to the anti-SLAPP statute, Code of Civil Procedure
section 425.16 (section 425.16). The
trial court refused permission to file the complaint under section 1714.10,
granted the anti-SLAPP motion, and sanctioned NAMA and/or its counsel
(appellants Ronald P. Slates, P.C., Ronald P. Slates, J. Steven Bingman, and
Johnny Kim) under Code of Civil Procedure section 128.7.
NAMA
and its counsel appeal from the trial court’s orders. Because we conclude that NAMA’s complaint
related to protected activity and NAMA failed to demonstrate a likelihood of
prevailing on the merits, we affirm the order granting the anti-SLAPP motion
and striking the complaint. That order
being dispositive, we do not find it necessary to consider the order pursuant
to section 1714.10. We reverse the order
imposing sanctions, concluding that counsel for NAMA did not engage in
egregious conduct justifying sanctions.
factual and procedural
background
the Project
The World Market Center (the project) is a real
estate development in Las Vegas, conceived by Shawn Samson
and Jack Kashani. As originally planned,
the project was to consist of eight buildings and was to be constructed in
eight phases. NAMA, the investment
entity of Nigel and Mousa Alliance, became an investor in the project. An operating agreement dated July 20, 2000,
created Alliance Network, which was comprised of three members: NAMA, Prime Associates Group, LLC (Prime) (an
entity owned by Samson and Kashani), and Crescent Nevada Associates, LLC
(Crescent). Seventy percent of the
capital contributions were to come from NAMA, 20 percent from Crescent, and
10 percent from Prime. Samson and
Kashani were to provide “sweat equity†and serve together as Alliance Network’s
managers. Samson’s and Kashani’s powers
and responsibilities were detailed in the operating agreement. Phases 1 and 2 were completed in July 2005
and January 2007, respectively.
Settlement Agreement and the Creation of
As
the project progressed, disputes arose among the members of Alliance Network,
which were temporarily resolved pursuant to a settlement agreement executed in
April 2004 by the members of Alliance Network (NAMA, Crescent, and Prime), and
Samson and Kashani. The settlement
agreement provided a mutual release of any prior claims among members of
Alliance Network and the managers. It
also created Alliance Network Holdings, LLC (Alliance Holdings), a wholly-owned
subsidiary of Alliance Network, and Network World Market Center, LLC (Network),
a wholly-owned subsidiary of Alliance Holdings (collectively, the Alliance
Companies). The settlement agreement
also admitted Related World Market Center, LLC (Related) into the
project, with Related agreeing to become a 50 percent equity participant in the
project. Related’s participation in the
project was memorialized in the WMCV operating agreement, which formed and
governed World Market Center Venture, LLC (WMCV). The members of the WMCV operating agreement
were affiliated with Related and Network.
III. Phase 3 of the Project
In
October 2006, WMCV tendered to Alliance Network’s managers a proposed funding
notice for phase 3 of the project. The
managers forwarded the notice to the members of Alliance Network (Prime,
Crescent, and NAMA), and each member was required to approve or disapprove of
the notice. Alliance Network’s
affiliate, Network, was required to inform WMCV whether it would contribute its
proportionate share of the phase 3 funding.
NAMA
and the other members of Alliance Network unconditionally elected to invest in
phase 3. However, when the time came for
funding to be made, NAMA placed numerous conditions on its tender. Accordingly, Samson and Kashani refused the
tender from NAMA.
Fordgate
World Market Center, LLC (Fordgate), purchased NAMA’s interest in phase 3. In December 2006, Crescent assigned its
interest in phase 3 and subsequent phases to Fordgate. NAMA disputed the purchase of its interest by
Fordgate and Crescent’s assignment of its interest to Fordgate because NAMA was
not allowed to exercise its right of first refusal.
IV. The Demand to Arbitrate
The
Alliance Companies (Alliance Network, Alliance Holdings, and Network), and
Samson and Kashani (sometimes collectively referred to hereafter as the
claimants), filed a demand to arbitrate.
The claimants stated that because of NAMA’s failure to contribute its
share of capital as promised in connection with phase 3, they suffered millions
of dollars in damages. They further
alleged that NAMA had no further right, title, or interest in Alliance Network
or its affiliates or in any phase of the project “other than having only a
Distribution Interest and Percentage Interest in Phase 1 and Early Stage
Ancillary Businesses.†They sought a
declaration to that effect, and another that the claimants did not breach any
duties or contractual obligations and acted appropriately under the operating
agreements.
In
November 2007, NAMA denied the claimants’ allegations and asserted claims for
itself and derivatively on behalf of Alliance Network. It named Samson, Kashani, Prime, Crescent,
and Fordgate as counter-respondents.
NAMA alleged that Samson and Kashani and the other counter-respondents
had misappropriated income and assets properly belonging to Alliance Network,
had wrongfully purported to transfer NAMA’s interests in Alliance Network, and
had withheld and diverted payments and distributions due to NAMA. As a result, Alliance Network and NAMA were
deprived of their rightful interests.
NAMA specifically alleged that Samson and Kashani improperly refused to
distribute $19 million of funds held by Alliance Network, and instead used the
money to fund their litigation against NAMA.
The
arbitrators dismissed Samson and Kashani, as individuals, from the matter in
November 2008 without deciding whether the two individuals were in fact
subject to arbitration and without determining on the merits the underlying
claims against them. The entity they controlled, Prime, remained a
party to the arbitration. In January
2009, NAMA filed an amended statement of defense and counter-demand for
arbitration that contained causes of action for declaratory relief and for an
accounting. NAMA sought a declaration
that, among other things, pursuant to the parties’ agreements, the net proceeds
of capital transactions were to be considered part of cash available for
distribution and all such proceeds had to be distributed quarterly to the
members of Alliance Network.
V. The Arbitration Hearing and the
Arbitration Panel’s Final Award
The
arbitration hearing took place from January through March of 2009. Ultimately, the arbitration panel concluded
that when the proposed funding notice was delivered to Alliance Network and
NAMA for construction of phase 3 in October 2006, Samson and Kashani “failed to
conduct any sort of meaningful or adequate review of Related’s Funding Notice
to determine whether it was in the best interests, or ‘inimical’ to the best
interests, of Alliance Network or its affiliates. . . . In general, the evidence established that, subsequent
to the formation of WMCV, Samson and Kashani largely abdicated their
contractual duties to act on behalf of Alliance Network, and instead shifted
their allegiance to protecting Prime’s interests and deferring to the wishes of
Related. [¶] In addition, as of the time NAMA was called
upon to determine its response to the Funding Notice, Samson and Kashani had
failed to provide NAMA with information respecting the Project required under
the relevant agreements and necessary to NAMA’s ability to rationally evaluate
its options for responding to the Funding Notice.†The panel found that Samson and Kashani
breached their contractual obligations by failing to review the funding notice
and instead approving it even though it contained terms that were inimical to the
interests of Alliance Network and NAMA.
The inimical terms included a provision that retained as reserves $18
million that would otherwise have been available for distribution. The panel noted that the parties’ dispute
included “an $18,214,865.95 distribution paid to Alliance Network in June 2005
arising out of the refinancing of the Phase 1 construction loan. . . . Samson and Kashani refused to
make the distribution, . . . on the theory that these funds
could be used to fund Claimants’ litigation activities against NAMA.â€
panel concluded that every explanation offered by Samson and Kashani of their
decision to reserve the distribution violated NAMA’s rights.
The
panel also found that a provision approved by Samson and Kashani to include a
$7 million salary distribution for themselves was inimical to Alliance
Network’s interests. The panel
said: “It understates matters to say
that the Managers wronged NAMA in this instance by approving a Funding Notice
containing this investor-funded salary distribution. That approval was just the final act needed
to bring to fruition their own wrongful plan, begun much earlier, to take from
the investors a salary distribution for themselves to which they were not then
contractually entitled. The evidence
established that this plan was the work of the Managers.â€
The
panel concluded that NAMA would have been within its rights to reject the
notice or accept it conditionally on the ground that performance on its part
was excused by the managers’ antecedent breaches. However, NAMA unconditionally accepted the
funding notice and then imposed substantial conditions when called upon to
tender its contribution for phase 3, with the result that the tender was
rendered ineffective and constituted a default.
As a result of that default, NAMA lost any rights associated with phase
3. However, the panel concluded that
NAMA continued to own its former interests in phases 1 and 2 and, contrary to
the claimants’ arguments, remained a member of Alliance Network with full rights
to participate in future phases after phase 3.
As
“other relief,†the panel ordered as follows:
“Claimant Alliance Network shall pay to NAMA, within thirty days of the
date of this Final Award, $12,750,405.00 (
$18,214,865.95 of proceeds distributed to Alliance Network in June,
Network received these monies until the date of payment.†(Italics added.)
NAMA
was also granted monetary relief against claimants Alliance Network, Alliance
Holdings, and Network as sanctions for discovery misconduct. Those claimants were ordered to reimburse
NAMA for the administrative fees and expenses paid to the American Arbitration
Association and the arbitrators in the amount of $414,211.68.
Petitions to Correct/Vacate the Award, NAMA’s Petition to Confirm the Award,
and the Appeal
Claimants
filed petitions to correct or vacate the arbitration award. NAMA filed opposition and also filed a
petition to confirm the arbitration award.
The
court denied the claimants’ petitions to correct or vacate the arbitration
award, granted NAMA’s petition to confirm the arbitration award, and entered
judgment in its favor, concluding that the arbitration panel did not exceed its
powers. NAMA then filed a motion for
attorney fees and costs which the court granted, awarding NAMA $591,818.18.
The claimants filed notices
of appeal from the judgment and order confirming the award and denying the
petition to vacate or correct the award, and from the postjudgment order
awarding attorney fees and costs.
We
affirmed the trial court’s judgment in a nonpublished opinion filed on June 19,
2012, Prime Associates Group,
to Collect on the Judgment
NAMA
attempted to collect the damages awarded by the arbitration panel, but by April
2011 it had succeeded in recovering only $1,885,882.76 from Alliance Network.
VIII. The Present Action
Dorsey
represented Samson, Kashani, and Prime in the underlying arbitration (which
commenced with the demand to arbitrate in 2007) and other related proceedings.
Alliance Network deposited in a client trust account established by Samson and
Kashani. From March 2008 through October
2009, Samson and Kashani directed Alliance Network to transfer approximately
$6.5 million from Alliance Network’s bank account to an account entitled
“Alliance Network LLC Benef Client Lawyer Trust Account Dorsey & Whitney LLP
Trustee.†Some of the transfers were in
payment of previous Dorsey invoices, while other transfers were designated as
replenishment of Dorsey’s retainer. In
June 2009 alone, Samson and Kashani caused Alliance Network to pay into the
trust account maintained by Dorsey $3 million to replenish Samson and Kashani’s
retainer for future work in representing Samson, Kashani, and Prime in the
litigation against NAMA. Shortly
thereafter, on July 28, 2009, the arbitrators entered their award. At that time, $3 million remained in the
Alliance Network trust account maintained by Dorsey. Dorsey continued to periodically withdraw funds from the
trust account for fees incurred from December 2009 through September 2010.
On
August 3, 2011, NAMA filed a petition pursuant to section 1714.10 seeking the
trial court’s permission to file a complaint against Dorsey in order to recover
some of the funds still owed by Alliance Network. The proposed complaint contained causes of
action for fraudulent transfer (Civ. Code, §§ 3439.04 & 3439.05), common
law fraudulent transfer, conversion, intentional interference with contract,
and unjust enrichment. Specifically,
NAMA alleged that Dorsey participated in a scheme to defraud and conceal funds
from NAMA by creating a trust account for Alliance Network where Samson and
Kashani could hide assets from NAMA.
NAMA alleged that the transfers made by Alliance Network to Dorsey were
made with Samson’s, Kashani’s, and Dorsey’s actual intent to hinder, delay
and/or defraud NAMA.
A status
conference was held on August 24, 2011, at which the trial court stated it had
reviewed the matter and tentatively considered the petition as falling under
one of the exceptions found in section 1714.10.
Dorsey
filed opposition to the section 1714.10 petition, an anti-SLAPP motion
(§ 425.16), and a motion for sanctions (Code Civ. Proc., § 128.7).
Ultimately
the trial court denied NAMA permission to file the complaint, concluding that
it did not fall under either of the exceptions in section 1714.10, subdivision
(c). It also granted Dorsey’s anti-SLAPP
motion, finding all of NAMA’s claims arose out of petitioning activity by
Dorsey and NAMA had failed to establish a probability of prevailing on any of
its claims, and dismissed the complaint on that basis. Finally, the court granted Dorsey’s motion
for sanctions, finding that NAMA’s claims were not warranted by existing law
and its factual assertions were not supported by the evidence, and ordered
NAMA’s counsel to pay sanctions to the court of $5,000. NAMA’s counsel paid the sanctions and also
responded to the trial court’s order to show cause, asserting that counsel did
not misrepresent the facts in the record or advance frivolous claims that were
not warranted by existing law.
This
timely appeal followed.
discussion
I. Standards of Review
An
order granting or denying an anti-SLAPP motion is reviewed de novo. (Cole
v. Patricia A. Meyer & Associates,
APC (2012) 206 Cal.App.4th 1095, 1105.)
An order granting or denying a petition to file a complaint under
section 1714.10 is also reviewed de novo.
(Berg & Berg Enterprises,
822.) An order imposing sanctions under
Code of Civil Procedure section 128.7 is reviewed for abuse of discretion. (Guillemin
v. Stein (2002) 104 Cal.App.4th 156, 167.)
II. Anti-SLAPP Motion
The
anti-SLAPP statute allows a court to promptly dismiss unmeritorious actions or
claims that are brought to chill another’s valid exercise of his or her
constitutional rights of freedom of speech and petition for the redress of
grievances. (§ 425.16, subd. (a); see
The statute requires a two-step analysis. “First, the court decides whether the defendant
has made a threshold showing that the challenged cause of action is one
‘arising from’ protected activity. (§
425.16, subd. (b)(1).) If the court
finds such a showing has been made, it then must consider whether the plaintiff
has demonstrated a probability of prevailing on the claim.†(City
of Cotati v. Cashman (2002) 29 Cal.4th 69, 76.) As stated in the language of the anti-SLAPP
statute, “[a] cause of action against a person arising from any act of that
person in furtherance of the person’s right of petition or free speech under
the United States Constitution or the California Constitution in connection
with a public issue shall be subject to a special motion to strike, unless the
court determines that the plaintiff has established that there is a probability
that the plaintiff will prevail on the claim.â€
(§ 425.16, subd. (b)(1).) The
Legislature has mandated that the provisions of section 425.16 be broadly
construed. (§ 425.16, subd. (a);
Activity
As
relevant here, subdivision (e) of section 425.16 provides that, “As used in
this section, ‘act in furtherance of a person’s right of petition or free
speech under the United States or California Constitution in connection with a
public issue’ includes: . . .
(2) any written or oral statement or writing made in connection with an issue
under consideration or review by a legislative, executive, or judicial body, or
any other official proceeding authorized by law.â€
“As
our Supreme Court has stressed, ‘the critical point is whether the plaintiff’s
cause of action itself was based
defendant’s right of petition or free speech.
[Citations.]’ (
underlying the plaintiff’s cause of action must itself have been an act in furtherance of the right of petition or
free speech. [Citation.]â€â€™ (Peregrine
Funding, Inc. v. Sheppard Mullin
Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 670.)†(Tuszynska
v. Cunningham (2011) 199 Cal.App.4th 257, 267 (Tuszynska).) “‘If the
mention of protected activity is “only incidental to a cause of action based
essentially on nonprotected activity,†then the anti-SLAPP statute does not
apply.’†(Aguilar v. Goldstein (2012) 207 Cal.App.4th 1152, 1160 (
NAMA
argued below that subdivision (e)(1) through (e)(3) cannot apply because its
complaint does not seek to impose liability on Dorsey for any statement or writing;
it seeks to hold Dorsey liable for the act of retaining funds. The trial court concluded, however, that
section 425.16 applied because, quoting from Flores v. Emerich & Fike (E.D. Cal. 2006) 416 F.Supp.2d 885,
908, “‘[t]he alleged acts [in NAMA’s complaint] are all related to the
. . . defendants’ right to petition the courts to represent
clients as attorneys.’†NAMA argues this
is not the correct test. It argues that
the plaintiff’s claims must be based on
the defendant’s protected activity as defined by subdivision (e), not simply
related to that activity in some general sense.
(Citing Aguilar,
distinguish between speech or petitioning activity that is mere evidence related
to liability, on the one hand, and liability that is based on speech or
petitioning activity, on the other. (
Cal.App.4th 1207, 1214-1215.) “Not all
attorney conduct in connection with litigation, or in the course of
representing clients, is protected by section 425.16.†(California
Back Specialists Medical Group v. Rand (2008) 160 Cal.App.4th 1032, 1037.)
NAMA
argues that its claims are not based on Dorsey’s representation of Samson,
Kashani, and Prime or any other aspects of its litigation activity in the
arbitration, post-arbitration court proceedings, or the New York
litigation. Instead, its claims are
based on Dorsey’s acceptance and conversion of funds fraudulently transferred
by Alliance Network without the latter receiving reasonably equivalent value in
return. NAMA argues that Dorsey’s
litigation activity itself is not a necessary element of NAMA’s claims.
We
agree with the trial court’s conclusion that although the complaint was based
on a challenge to retaining funds, the anti-SLAPP statute nonetheless
applies. Samson’s and Kashani’s attorney
selection and litigation funding decisions and any communications made in
connection with those decisions constitute statements or writings “made in
connection with an issue under consideration or review by a legislative,
executive, or judicial body, or any other official proceeding authorized by
law.†(§ 425.16, subd. (e)(2). See Tuszynska,
supra, 199 Cal.App.4th at p. 268;
1056.) Samson’s and Kashani’s attorney
selection, litigation funding decisions, and the communications made in
connection with those decisions were not mere evidence related to liability. Rather, they constituted speech or
petitioning activity that formed the basis for liability. While Dorsey’s identity as attorneys was not
an element of NAMA’s claims, their
activities in allegedly conspiring with Samson and Kashani and/or sanctioning
Samson’s and Kashani’s improper conduct in funding the litigation against NAMA
form the crucial basis of the present lawsuit.
of Prevailing on the Merits
In
determining whether a claim “lacks even minimal merit†(Navellier v. Sletten (2002) 29 Cal.4th 82, 89), “the appropriate
inquiry is whether the plaintiff has stated and substantiated a legally
sufficient claim. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th
394, 411-412.) [¶] In deciding this question the court again
considers the pleadings and evidentiary submissions of both the plaintiff and
the defendant (§ 425.16, subd. (b)(2)); however, it may not weigh the
credibility or comparative probative strength of competing evidence. (Wilson
[v. Parker, Covert & Chidester (2002)] 28 Cal.4th [811,] 821.) Rather, the court considers whether the
plaintiff has made a prima facie showing of facts based on competent admissible
evidence that would, if proved, support a judgment in the plaintiff’s favor. (Church
of Scientology v. Wollersheim (1996) 42 Cal.App.4th 628, 646, disapproved
on other grounds in Equilon [
58-59.)†(Mann, supra, 120
Cal.App.4th at p. 105.)
NAMA
contends that Dorsey is liable for accepting fraudulent transfers of funds from
Alliance Network and for conversion of those funds. It argues the transfers of funds were
fraudulent because the transferor (Alliance Network) was or was about to become
insolvent and did not receive reasonably equivalent value for the transfer and
because the transfers were made with the intent to evade a creditor, namely
NAMA.
1. Fraudulent Conveyance Under UFTA
The
Uniform Fraudulent Transfer Act (UFTA) specifies a transfer is fraudulent if,
among other things, it is made (1) “[w]ith actual intent to hinder, delay, or
defraud any creditor of the debtor†(Civ. Code, § 3439.04, subd. (a)(1))
(referred to as involving “actual fraudâ€), or (2) where the transferor is or
will likely become insolvent and the transfer is made “[w]ithout receiving a
reasonably equivalent value in exchange†(Civ. Code, §§ 3439.04, subd. (a)(2)
& 3439.05) (referred to as involving “constructive fraudâ€).
fraudulent transfer, attach an asset in the possession of a transferee, obtain
an injunction against the transferee prohibiting further disposition of a
fraudulently transferred asset, or obtain any other relief the circumstances
require. (Civ. Code, § 3439.07, subd.
(a)(1)-(3).)
Even
if a showing of actual intent to hinder, delay, or defraud a creditor is made,
a statutory exception exists as follows:
“A transfer or an obligation is not voidable under [Civ. Code, §
3439.04, subd. (a)(1), the actual fraud provision] against a person who took in
good faith and for a reasonably
equivalent value . . . .â€
(Civ. Code, § 3439.08, subd. (a), italics added.) Likewise, as noted above, to establish
constructive fraud a creditor must demonstrate that the transfer was made or
the obligation was incurred without the transferor receiving “
exchange. (Civ. Code, §§ 3439.04,
subd. (a)(2) & 3439.05, italics added.)
Thus, where the transfer was made for a reasonably equivalent value,
under either the actual or the constructive fraud test, a creditor such as NAMA
cannot prevail.
name="_ftnref4" title="">[4]
NAMA
contends its evidence established that Alliance Network did not receive
reasonably equivalent value from Dorsey in exchange for the attorney fees it
paid Dorsey. It reasons as follows. All of the payments made by Alliance Network
were for attorney fees incurred by Samson, Kashani, and Prime in the
arbitration, post-arbitration enforcement proceedings, the federal court
action, and the New York litigation. The
only consideration to Alliance Network in return for these payments was the
fulfillment of its obligation under the operating agreement to pay Samson’s and
Kashani’s attorney fees in litigation arising out of their role as managers of
Alliance Network. To wit, section
4.01(g) of the operating agreement provided that Alliance Network “shallâ€
defend and indemnify Samson and Kashani “against any and all claims, liability,
damages, losses, costs and expenses (including, without limitation, attorneys’
fees and costs) arising out of any and all acts of [Samson and Kashani] and
officers taken in good faith in connection with [Alliance Network] or its
business activities.†NAMA argues that
Alliance Network was not obligated to indemnify Samson’s and Kashani’s legal
fees because the fees were incurred litigating over activities the latter did not
take in good faith. They point to the
following evidence as demonstrating Samson and Kashani did not act in good
faith: (1) the arbitrators found
Samson’s and Kashani’s refusal to distribute funds and their use of that money
instead for a litigation reserve fund was self-dealing; (2) the district
court found that Samson’s and Kashani’s attempt to thwart NAMA from arbitrating
its claims against them was bad faith conduct that smacked of chicanery; (3)
the Ninth Circuit’s opinion adopted the district court’s opinion; and (4) the
arbitrators found Samson and Kashani guilty of discovery misconduct and imposed
sanctions. NAMA concludes that Alliance
Network therefore had no obligation to pay those attorney fees for Samson and
Kashani and the funds it transferred to Dorsey were not exchanged for
consideration of reasonably equivalent value.
It had no contractual obligation under any circumstances to pay for
Prime’s attorney fees. As to the legal
fees Dorsey charged Samson and Kashani for representing them in the New York
action, NAMA argues that it sued Samson and Kashani derivatively on behalf of
Alliance Network and its affiliates, and thus Samson and Kashani were
effectively Alliance Network’s opposing parties.
The
trial court concluded Alliance Network funds were transferred to Dorsey in
exchange for legal services rendered to Samson and Kashani, such that Samson
and Kashani, and by extension Alliance Network, received reasonably equivalent
value for the payments. NAMA contends
this constituted error. We disagree.
The
UFTA does not define “reasonably equivalent value.†It provides that “[v]alue is given for a
transfer or an obligation if, in exchange for the transfer or obligation,
property is transferred or an antecedent debt is secured or satisfied†(Civ.
Code, § 3439.03), but that offers little or no guidance here. The crux of NAMA’s argument is that there was
in fact no obligation on Alliance Network’s part to pay Samson’s and Kashani’s
legal fees, let alone Prime’s. While we
agree that ultimately courts,
including this one, concluded in effect that Samson and Kashani acted in bad
faith in some respects, the legal fees paid to Dorsey were incurred in
significant part in an effort, albeit an unsuccessful one, to defeat a finding
of bad faith conduct. This court’s
opinion affirming the trial court’s order confirming the arbitration panel’s
award was filed in June 2012, long after the challenged transfers to Dorsey of
legal fees from Alliance Network took place.
We cannot view the transfers retrospectively from the knowing vantage
point of hindsight and conclude that Alliance Network should not have paid
Samson’s and Kashani’s legal fees.
Although Alliance Network might now justly claim that it should be reimbursed
for the legal fees it paid on behalf of Samson and Kashani where instances of
the managers’ conduct have been found to have been in bad faith, it does not
follow that those transfers did not represent an exchange of reasonably
equivalent value at the time they were made.
NAMA does not contend that Dorsey overcharged for its services or did
not rightfully account for its efforts on behalf of Samson and Kashani. It concedes for our present purposes that the
fees were appropriate.
We
agree with Dorsey that when it undertook the representation it should not have
had to guess or engage in a lengthy analysis to determine whether Alliance
Network did or did not have an indemnity obligation. All that was required was that Dorsey provide
reasonable value to satisfy Alliance Network’s putative indemnity obligation.
Nor did Dorsey have a duty to withdraw from the litigation and return
the fees previously paid by Alliance Network once the arbitration panel found
that Samson and Kashani had acted inimically to the interests of Alliance
Network and abdicated their duties as managers; Dorsey was entitled to continue
to represent its clients in attempting to challenge first in the trial court
and then on appeal the arbitration panel’s conclusions. Were we to decide otherwise and find that
Dorsey’s acceptance of payment from Alliance Network for Samson’s and Kashani’s
legal fees constituted Dorsey’s collusion in receipt of fraudulent transfers, we would be creating a significant obstacle
to attorneys’ ability to represent clients in such matters, where a third
party’s indemnity obligation might later
be found to have been defeated by a client’s conduct. Attorneys must be free to put forth their
best efforts in representing such a client and attempting to secure findings in
the client’s favor. It would place an
undue burden on attorneys and clients to require attorneys to evaluate the
likelihood of potential clients prevailing in a case-in-chief and the
contractual indemnity theories before ever agreeing to represent a client
have engaged in a fraudulent transfer merely for accepting payment of their
fees. That cannot be what the
Legislature contemplated when it provided in Civil Code section 3439.08,
subdivision (a), that a transfer that would otherwise be voidable (such as
where the debtor made the transfer with actual intent to defraud another
creditor) is not voidable against one who took in good faith for a reasonably
equivalent value. Rather, we conclude
the definition of “reasonably equivalent value†is more straightforward: whether the value of the legal services
provided by Dorsey was worth what it charged for those services. The answer here is yes. Viewed objectively, Dorsey’s services were
worth the amount it charged for those services, and thus reasonably equivalent
value existed. NAMA does not contend
otherwise. In this instance, Alliance
Network could reasonably conclude at the outset of the case that it had an
indemnity obligation to pay Samson’s and Kashani’s legal fees unless and until
findings were conclusively made that negated that obligation, and it therefore
received reasonably equivalent value in exchange for what it paid for those
services.
NAMA
accurately points out that Alliance Network had no contractual obligation to
pay the legal fees incurred by Prime, the member of Alliance Network wholly
owned and controlled by Samson and Kashani, and therefore Alliance Network
received no consideration in return for any money it paid on behalf of Prime
toward its representation by Dorsey. The
point, however, is that “reasonably equivalent value†refers to the objective
value of the legal services, not to the subjective value of what the services
were ultimately worth to Alliance Network.
It stretches too thin both logic and fairness to chill Dorsey’s ability
to represent Prime, whose interests were in almost every respect aligned with
those of Samson and Kashani (as NAMA strenuously argued in the trial court) by
requiring it to finely parse the specifics of the contractual indemnity provision
and refuse to represent Prime for fear of being found to have engaged in
fraudulent transfers.
name="_ftnref5" title="">[5] NAMA’s remedy is to seek disgorgement of the
fees paid on behalf of Prime from Samson and Kashani, not from Dorsey. We recognize of course that NAMA has attempted
to collect its judgment but found Samson and Kashani to be judgment proof
because it first paid Dorsey’s fees. Be
that as it may, Dorsey’s actions were not blameworthy.
Dorsey’s
actions were not wrongful because “[a] debtor may pay one creditor in preference
to another, or may give to one creditor security for the payment of his demand
in preference to another.†(Civ. Code, §
3432.) Case law has similarly held that
a debtor may prefer one creditor over another.
In Wyzard v. Goller (1994) 23
Cal.App.4th 1183, 1189, this court held that a preferential transfer, if made
for proper consideration but with recognition that the transfer will
effectively prevent another creditor from collecting on its debt, is not one
made with actual intent to hinder, delay, or defraud that creditor. More specifically, a client’s payment of the
client’s money to his attorney for legal services provided to him, in
preference to his other creditors, is not a fraudulent transfer. The trial court here relied heavily on
We agree that the principles stated in Wyzard are applicable here.
NAMA
accurately points out that some transfers occurred when Dorsey knew the
arbitrators had condemned Samson’s and Kashani’s creation of a litigation
reserve using money they should have distributed to NAMA and the other members
of Alliance Network. Dorsey nonetheless
continued to represent Samson’s, Kashani’s, and Prime’s interests by
challenging the arbitration panel’s award first in the trial court and then on
appeal, as well as in related actions in different forums. However, as we have discussed above, Dorsey
was not obligated to discontinue its representation when an adverse finding was
made. As a matter of policy, we conclude
that it was entitled to continue representing its clients without being guilty
of engaging in fraudulent transfers.
2. Conversion
NAMA
also asserted a cause of action against Dorsey for conversion. The trial court rejected the claim because
the money that was the object of the conversion claim was not in the form of a
specific sum capable of identification.
NAMA contends on appeal that the trial court was wrong. We agree with the trial court.
Conversion
requires an “act of dominion wrongfully exerted over the personal property of
another.†(Software Design & Application, Ltd. v. Hoefer & Arnett,
Inc. (1996) 49 Cal.App.4th 472, 485.)
It also requires plaintiff’s showing of ownership or a right to
possession of the property and defendant’s wrongful act inconsistent with such
property rights. (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1065.) Money cannot be the subject of a conversion
claim unless a specific sum capable of identification is involved. (Software
Design, supra, 49 Cal.App.4th at
p. 485.)
Dorsey
contends that while the arbitrators found that Alliance Network should not have
retained funds as a litigation reserve on Dorsey’s clients’ behalf and instead
should have distributed the funds to the members of Alliance Network, the
arbitrators did not hold that NAMA had any direct property interest in the
funds so retained. The roughly $13
million awarded to NAMA was merely a damages award.
The
arbitration panel ordered as follows:
“Claimant Alliance Network shall pay to NAMA . . .
$12,750,405.00 (representing NAMA’s 70% share of the $18,214,865.95 of proceeds
distributed to Alliance Network in June,
2006) . . . .â€
(Italics added.) Alliance Network
filed a petition to correct or vacate the award, arguing that NAMA had asserted
no claim that gave rise to a damage award, instead seeking only a monetary
distribution of its share of the reserve fund, not monetary damages. (B226167, at p. 12.) The trial court rejected that assertion,
denying the petition to correct or vacate the arbitration award and granting
NAMA’s petition to confirm it. (B226167,
at p. 14.) The nature of the arbitration
panel’s award, whether it was an award of damages or an order for a monetary
distribution of NAMA’s portion of the reserve fund, was a primary topic of
discussion in the ensuing appeal. We
observed that “[t]he [arbitration] panel was entirely clear in its
interpretation of the award that it was awarding monetary damages against
Alliance Network.†(B226167, at p.
17.) We upheld the trial court’s order
confirming the arbitration award, noting that “[t]he provision in the final
award of ‘damages to be paid to NAMA in the amount of $12,750,405 was intended
by the Tribunal as an appropriate award of monetary relief to NAMA
. . . , and to constitute one component of the total package of
relief awarded in the Final Award in resolution of all of the parties’ various
claims and defenses. Of these, the Panel
regarded the “failure to distribute†the $18,214,865.95 of proceeds paid to
Alliance Network in June, 2006 and the inappropriate use of such funds for other
purposes such as Phase 3 as the most significant, although not the only, basis for awarding monetary compensation to
NAMA. The Tribunal did not, and did not purport
to, undertake the task of calculating what amount of distributive share
NAMA would have received had Alliance timely distributed those reserves in
accordance with the contractually-specified “waterfall†at the time those funds
were received instead of using them for other, inappropriate, purposes.’†We continued, “‘the Tribunal regarded application
of NAMA’s ownership interest against the reserve amount as an appropriate
amount of monetary relief to be awarded to NAMA . . . . [T]he Final Award was not intended to limit
the basis for the monetary award only to Alliance Network’s failure to
distribute the $18,214,865.95, nor to limit the Final Award’s determination of
the appropriate monetary award to NAMA to a lesser net amount derived by
. . . application of the various distribution-related provisions contained
in the parties’ agreement . . . .’†(B226167, at pp. 21-22.) We upheld the amount of the monetary relief
awarded to NAMA as appropriate, despite the fact the amount was not
“‘“susceptible to precise determinationâ€â€™â€ and instead “used the amount
available for distribution and the parties’ percentage interests as a
‘benchmark,’ or starting point, on which to base its calculation of
damages.†(B226167, at p. 23.)
In
light of these observations in our previous opinion, NAMA cannot successfully
contend that there was a specific sum capable of identification as being
“owned†by NAMA on which to base a cause of action for conversion. The arbitrators did not declare NAMA owned
funds held by Alliance Network in the amount of its distributive share. The panel awarded monetary damages, using
NAMA’s percentage interest as a starting point in setting the amount of
damages. NAMA was a judgment creditor of
Alliance Network, not a holder of title or of a right to possession of Alliance
Network’s funds.
Likewise,
the fact that the New York court granted a temporary restraining order (TRO)
barring Alliance Network from authorizing Dorsey to take money from the client
trust account held by Dorsey does not establish the existence of a specific sum
of money constituting the property of NAMA.
Even if NAMA’s assertions are true that Dorsey withdrew fees from the
Alliance Network client trust account while the TRO was in effect, the means of
redressing that wrong is not an action for conversion in California state
court.
Thus,
NAMA has not demonstrated a likelihood of prevailing on the merits of its
conversion claim. This cause of action
was also properly disposed of by way of Dorsey’s anti-SLAPP motion.
That
being the case, and because the court’s order granting the special motion to
strike under section 425.16 is entirely dispositive of the matter, it is not
necessary for us to discuss the trial court’s reliance on section 1714.10 in
dismissing NAMA’s complaint.
III. Sanctions Award
The
trial court sanctioned NAMA’s counsel $5,000, payable to the court. NAMA contends that the court abused its
discretion in awarding sanctions because its assertions of fact and law did not
meet the high standard of frivolousness required to justify imposition of
sanctions. We agree.
The
standard for imposing sanctions has been described as whether any reasonable
attorney indisputably would agree the claims are totally and completely without
merit. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 649.) “Counsel and their clients have a right to
present issues that are arguably correct, even if it is extremely unlikely that
they will win . . . .†(
deter only the most egregious conduct. (
NAMA’s
fraudulent transfer and conversion claims were not totally and completely
without merit. While we conclude as to
the fraudulent transfer claim that “reasonably equivalent value†was exchanged,
NAMA made a colorable argument that it was not.
That term has not been well defined and NAMA was permitted to make the
legal assertions it did. Likewise with
the conversion claim, while we conclude there was not a specific, definable sum
capable of identification, NAMA’s argument was not outlandish. The arbitration panel specified that the
particular funds Samson and Kashani withheld should have been distributed; it
was only the fact that the award was for monetary damages rather than
distribution qua distribution that the conversion argument could not succeed.
NAMA
has not pressed on appeal its claim for intentional interference with contract,
and we have not considered it here. On
its face, however, we again find that while the argument was unlikely to
succeed, NAMA could argue that the arbitration award was akin to a judgment
with which Samson and Kashani, and by extension Dorsey, could interfere. Samson and Kashani were not parties to the
arbitration, having been dismissed as individuals early on, and thus were arguably
liable for interfering with implementation of the award. It cannot be said that no reasonable attorney
would agree the claim was totally and completely without merit. Similarly, NAMA’s assertion of a claim of unjust
enrichment was not an example of egregious conduct. It had some arguable basis upon which to
contend that Dorsey was not entitled to obtain the Alliance Network funds.
Dorsey
contends the sanctions were premised mainly on a finding that NAMA
misrepresented the nature of the arbitration award. The trial court indicated that in its view
NAMA had misrepresented prior findings and had “premise[d] its complaint on the
assertion that the Operating Agreement, Arbitration Award and a temporary
restraining order each prohibit Samson and Kashani from paying their own legal
fees with Alliance funds.†It said
NAMA’s assertions were “at best, a strained interpretation of the relevant
orders and at worst an effort to mislead the court.†The arbitration award did not prohibit Samson
and Kashani from paying past or future attorney fees and did not order Dorsey
to refuse any payments from Samson and Kashani unless and until NAMA’s judgment
was satisfied.
The
trial court pointed out that the arbitrators had refused NAMA’s request to
order disgorgement of attorney fees.
NAMA had also previously made a turnover application relating to funds
held by Alliance Network’s counsel, Greenberg Traurig, which Commissioner St.
George had recently denied. The trial
court here admonished NAMA’s counsel that “the arbitration award did not say
what he was representing and that in any case, the Wyzard case precluded [NAMA’s] claim.â€
It is
true that the arbitration award, confirmation of which this court previously
upheld and with which we are therefore well acquainted, did not prohibit Samson
and Kashani from paying past or future attorney fees and did not order Dorsey
to refuse any payments from Samson and Kashani unless and until NAMA’s judgment
was satisfied. It did, however, strongly
condemn Samson and Kashani for withholding from the members of Alliance Network
distribution of over $18 million on the theory that Samson and Kashani could
retain those funds to pay their own attorneys in anticipated litigation against
one of the members, and awarded as monetary damages to NAMA its percentage
interest in that distribution fund.
(B226167, at pp. 9-10.) The
arbitration award also specified that Alliance Network could not satisfy the
monetary judgment by any means that would require NAMA to pay, directly or
indirectly, any portion of the obligation.
(B226167, at p. 11.) It was at
least a colorable argument for NAMA to contend that an identifiable fund was
involved, and that it was wrongful for Samson and Kashani to pay their attorney
fees before and to the exclusion of paying the damage award.
As to
NAMA’s contention that Dorsey violated the New York court’s TRO by withdrawing
funds from the Alliance Network client trust account after the date the TRO was
entered, the trial court concluded the TRO enjoined only prospective
distributions by Alliance Network of funds received from WMCV, Related, or its
affiliates, not funds Dorsey received from Alliance Network out of the $18
million that was not distributed as it should have been in June 2005. NAMA argued that the funds in the trust
account remained the property of Alliance Network, and thus any withdrawals
from the trust account after the effective date of the TRO did in fact violate
the TRO. We did not find it necessary to
reach the merits of this issue, and merely note for purposes of the sanctions
award that NAMA’s position was at least debatable.
Just
as Dorsey was permitted to zealously represent the interests of its clients and
continue to do so even after those individuals were found to have engaged in
self-dealing and violations of NAMA’s contractual rights without fear of being
found to have engaged in fraudulent transfers or other wrongful conduct by
receiving payment for their legal services, so too was NAMA’s counsel entitled
to ardently present factual assertions and legal
arguments that pushed the edge of the envelope without fear of incurring
monetary sanctions. The litigation
arising out of the real estate development at issue here has been lengthy and
highly contentious, and understandably frustrating for NAMA, which recovered
only a fraction of the considerable damages it was awarded based on the
arbitrators’ finding that Samson and Kashani unquestionably and flagrantly
breached their fiduciary duties to NAMA.
Part of the breach of fiduciary duty was their decision to reserve money
they should have distributed to members of Alliance Network to use instead to
fund litigation against NAMA, the owner of the largest percentage
interest. Counsel for NAMA has attempted
to employ creative methods to secure NAMA’s recovery, but in our view has not
stepped beyond the bounds of reason by making assertions that are totally and
completely without merit. We therefore
conclude that the $5,000 sanction award must be reversed.
disposition
The
order granting Dorsey’s anti-SLAPP motion to strike the proposed complaint
filed by NAMA is affirmed. The order
granting Dorsey’s motion for sanctions pursuant to Code of Civil Procedure
section 128.7 is reversed. Costs on
appeal are awarded to Dorsey.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
SUZUKAWA,
J.
We concur:
EPSTEIN, P.
J. WILLHITE,
J.
name="_ftn1" title="">[1] This
court also decided a related case involving NAMA’s collection efforts in a
nonpublished case filed on June 19, 2012, Network
World Market Center, LLC v. NAMA Holdings, LLC (B233397).
name="_ftn2" title="">[2] Shortly before the arbitration hearing was to
begin, Samson and Kashani moved to be dismissed from the arbitration, claiming
the panel did not have jurisdiction over them as individuals. The panel granted the motion over NAMA’s
objection and dismissed Samson and Kashani from the arbitration with prejudice;
Prime, the entity they controlled, remained a party to the arbitration. NAMA added Samson and Kashani as defendants
in a case already pending in New York against other parties who were not
subject to arbitration. Dorsey also
represented Samson, Kashani, and Prime in the New York action. Samson and Kashani filed a petition and
complaint in the United States District Court for the Central District of
California, seeking to enjoin the New York action and to compel their
participation in the arbitration. They
waited until after the arbitration hearing had concluded before moving on that
petition. (See Samson v. NAMA Holdings, LLC (9th Cir. 2011) 637 F.3d 915.) The district court denied their petition and
dismissed their complaint, specifically finding their conduct to be in bad
faith, labeling it as “chicanery.†The
Ninth Circuit affirmed, finding that NAMA was significantly prejudiced by
Samson’s and Kashani’s actions. (
