San Remo Funding Group v. Mako Fund, Inc.

Filed 6/19/07 San Remo Funding Group v. Mako Fund, Inc. CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County.

Patrick T. Madden and Margaret M. Hay, Judges. Reversed with directions.

Brian J. Jacobs for Plaintiff and Appellant.

Ropers, Majeski, Kohn & Bentley and Richard L. Charnley for Defendants and Respondents.

Plaintiff San Remo Funding Group appeals from a judgment for Mako Fund, Inc. (Mako), Philip Markowitz, Rail Prop, LLC, and Douglas Kramer, entered after the trial court sustained without leave to amend demurrers to three causes of action in plaintiffs original complaint (complaint), and then sustained demurrers without leave to the remaining claims in plaintiffs amended complaint (AC). We reverse with directions to reinstate all but one cause of action.^[1]

FACTS

Plaintiffs complaint consisted of five causes of action. The first, for fraudulent conveyance, alleged that plaintiff and Mako were parties to a joint venture (venture), and that in December 2001 Mako and defendant Markowitz transferred three parcels of venture property, without notice to or consent of plaintiff and without consideration. The transfers were made to defendant Rail Prop, allegedly an alter ego of Markowitz. Plaintiff termed them fraudulent under the Uniform Fraudulent Transfer Act (Civ. Code,  3934 et seq; UFTA), and prayed for their cancellation. Attached to the complaint were deeds to Rail Prop by the venture, signed by Mako via Markowitz. A second cause of action, for conspiracy, alleged that all defendants had conspired and agreed to defraud plaintiff of its interest in the property. Plaintiff prayed compensation of at least $70,000, and also punitive damages.

In a third cause of action, for conversion, the complaint alleged Mako had borrowed $15,000 from the ventures bank account for one month, but had not repaid it. Markowitz then had withdrawn the balance of the bank account, $37,324, without authority, and had refused to return it. Consequently, plaintiff had lost half of the amounts so converted.

A fourth of action, for accounting, sought an accounting from Mako and Markowitz, for money and property taken from the venture. Finally, the fifth cause, for breach of fiduciary duty, alleged that Mako and Markowitz had breached such duty by their misappropriations from the venture. Plaintiff prayed compensatory and punitive damages.

Defendants demurred to all causes of action on grounds of uncertainty and failure to state a cause of action. In addition, defendants challenged the third through fifth causes on grounds of another action pending. In this regard, defendants referred to a cross-complaint by plaintiff in a pending action by Mako.

With regard to the fraudulent transfer claim, defendants argued that the pleading did not invoke the prerequisites of the UFTA, such as that the parties be creditors or debtors. Defendants also contested the claim for conspiracy, asserting that none was alleged.

The court sustained the demurrers to all causes of action, the first two with leave to amend, but the other three (conversion, accounting, fiduciary duty) without leave. The minute order did not state the grounds of these rulings. (But see Code Civ. Proc.,  472d; undesignated section references are to that code.)

Plaintiff filed its AC, reasserting the causes of action for fraudulent transfer and conspiracy. The expanded first cause attached the joint venture agreement, reflecting that the parties purpose had been to acquire and then sell certain real property. In May 2001, Makos owner had disclosed to plaintiff that he had sold his entire interest in Markowitz. There followed several instances of mishandling of venture property by Mako, and as a result of Makos default on a loan, the ventures property faced sale.

Plaintiff then realleged Mako and Markowitzs transfer of the three lots to Rail Prop, which transfer plaintiff alleged was fraudulent because made without authority or plaintiffs knowledge and consent, without consideration, and contrary to the ventures objectives. The same was true of the transfer and closing of the ventures bank account. Plaintiff alleged that the real estate transfers were void or voidable under the UFTA, and that plaintiff had been damaged at least $70,000.

The conspiracy claim incorporated the allegations of the first cause, and alleged that defendants had conspired to defraud and divest plaintiff of its interest in the three lots. Pursuant to the conspiracy, the defendants had transferred the property to Markowitzs alter ego, Rail Prop. All acts alleged were done pursuant to the conspiracy, and plaintiff again suffered at least $70,000 damages. Plaintiff also prayed punitive damages.

Defendants again demurred. They challenged the fraudulent transfer claim as not reflecting any of the elements of such a claim under UFTA, and as praying only for monetary relief. In addition, defendants asserted that the claim was barred by judicial estoppel, because of plaintiffs cross-complaint in the other action. That cross-complaint allegedly included a claim seeking to void the venture, assertedly contradictory of plaintiffs present effort to enforce it. Summarily, defendants argued that the conspiracy claim lacked facts depicting a conspiracy.

The trial court sustained the demurrers without leave to amend, and entered judgment for defendants.

DISCUSSION

We consider the causes of action in numerical order, beginning with the ACs first cause, for fraudulent transfer. Among the defects in this claim that defendants advanced was that it alleged and prayed for monetary damages, rather than any of the equitable remedies for which the UFTA provides. (Civ. Code,  3439.07.) Plaintiff rejoins that the omission of a prayer that the original complaint had contained was curable by amendment, and with that we would agree. However, there are other defects in the fraudulent transfer claim that are not susceptible to rectification.

Under the UFTA, [a] fraudulent conveyance is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim. (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648; see Civ. Code,  3439.04.)

Plaintiffs theory was that Mako transferred the ventures properties to Rail Prop, with intent to defraud plaintiff, and that plaintiff became a creditor (Civ. Code.  3439.01, subd. (c)) of debtor Mako (id., subd. (e)), by and upon the breach of fiduciary duty that the transfer constituted. This is not, however, a situation for which the UFTA provides a remedy. The UFTA concerns transfers by debtors of their own property, in derogation of creditors. Under the UFTA, a transfer means every mode . . . of disposing of or parting with an asset . . . (Civ. Code,  3439.01, subd. (i)), and an Asset means property of a debtor . . . (id., subd. (a)). But the property that was transferred here was not Makos; it was the ventures. (Corp. Code,  16203; see Victor Valley Transit Authority v. Workers Comp. Appeals Bd. (2000) 83 Cal.App.4th 1068, 1076.) Mako transferred it expressly on behalf of the venture. Although Mako may have caused or effected a transfer of the ventures properties, in such a manner as to give rise to a tort claim, Mako did not transfer property of its own, such as could be reached to satisfy plaintiffs claim against it. (See Kirkeby v. Superior Court, supra, 33 Cal.4th at p. 648.) Plaintiffs attempt to invoke the UFTA to restore the ventures property therefore fails. The ACs second cause of action was for conspiracy, by all defendants, to defraud and divest plaintiff of its interest in the properties that were transferred from the venture to Rail Prop. If one liberally reads defraud as referring to constructive fraud and breach of fiduciary duty, this pleading would state the rudiments of a claim arising out of the joint venture relationship, even though plaintiffs interest in the properties was indirect. Under the rule of liberal construction, the demurrer to the conspiracy cause of action should have been overruled.

We turn to the three causes of action in the original complaint to which demurrers were sustained without leave at the outset. As noted, contrary to section 472d the courts minute order does not set forth the grounds or reasons for these dispositions. One ground that defendants advanced as to these causes of action was that another action was pending between the parties on the same cause ( 430.10, subd. (c)). However, as we explain, the record on appeal does not enable affirmance on that ground.

The record as originally presented to us did not contain any copy of the cross-complaint in the other action, or of any formal request for judicial notice of it (former rule 313(k)). In their brief, defendants argue that plaintiffs failure to include the cross-complaint in the record warrants affirmance of the dismissal of the three causes of action, for failure to procure a complete record on appeal. This argument, however, is incorrect, by virtue of rule 8.163. Nevertheless, in order to consider the other action question, we directed defendants to provide us copies of the requests for judicial notice on the demurrers (which the superior court docket indicated had been filed), as well as the matter of which such notice had been requested.

Defendants response was neither timely nor helpful. They first lodged unauthenticated copies of the cross-complaint, lacking any showing of its having been filed in this action, and without the requests for judicial notice. When we again solicited those requests, defendants provided a declaration of counsel stating their requests for judicial notice had been limited to footnotes in the demurrer memoranda, with no separate or formal requests having been submitted. However, the footnote in the first demurrer states, See also defendants Request for Judicial Notice, served and filed herewith. And despite counsels declaration that the docket does not reflect documents entitled request for judicial notice, the docket does, and does so separately with respect to the original demurrer.

We are thus left with an insufficiently inclusive and reliable record on which to assess the issue of another action pending. We therefore examine the causes of action on their own.^[2] We note, however, that documentation presented on a motion to consolidate reflects that trial court proceedings in the other action have concluded, and the judgment is now on appeal. To the extent and at the juncture appropriate, Mako will be entitled to assert that judgment as res judicata in defense of any claim in this case that has already been adjudicated in the other case.

The third cause of action, for conversion, alleged that Mako and Markowitz had taken specific sums from a venture bank account and had not returned them despite plaintiffs demands. Plaintiff alleged that at least half of [each amount] belong[ed] to it, and prayed an award accordingly. Plaintiff also alleged that the withdrawals breached fiduciary duties.

Plaintiffs allegation of ownership spares this cause of action a fate similar to that of the UFTA claim. A suit for conversion requires that the plaintiff own, or have a right to possession of, the property taken. (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.) Ordinarily venture property would be owned not by a venturer but by the venture itself. (Corp. Code, 16203.) However, in light of plaintiffs assertion of ownership of part of the bank account, this conversion claim is sufficient. Moreover, the allegation of breach of fiduciary duty in the alleged conduct will also be reachable under the fifth cause of action.

The complaints fourth cause of action contained a request for an accounting by plaintiffs co-venturer Mako (and its president Markowitz) of all funds and property taken. An accounting of affairs with respect to property is a traditional and familiar remedy between fiduciaries, including joint venturers. (See 5 Witkin, Cal. Procedure (4th ed. 1997) Pleading,  775-778, pp. 233-235.) With respect to Mako, this claim was sufficient as against demurrer.

The fifth and final cause of action was for breach of fiduciary duty. Although generally worded, by its incorporation of the rest of the complaint this claim assigned as fiduciary breaches the various property and monetary takings from the venture previously alleged. A claim for breach of fiduciary duty is appropriate for a joint venturer to claim compensation for takings of venture property by a co-venturer. Therefore, the fifth claim was actionable as against Mako.

Plaintiff finally contends that Mako was entitled to no relief, because throughout the litigation below Makos corporate status in its home state of Utah had expired, and Mako was not registered in California. The evidentiary materials plaintiff has submitted, however, do not sufficiently establish these circumstances.

DISPOSITION

The judgment is reversed, with directions to enter a new order, sustaining without leave to amend the demurrer of Mako Fund, Inc., to the first cause of action of the amended complaint, and overruling the demurrers to the second cause of action of that complaint and to the third through fifth causes of action of the original complaint. Plaintiff shall recover costs.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

COOPER, P.J.

We concur:

BOLAND, J.

FLIER, J.

Publication courtesy of California pro bono lawyer directory.

Analysis and review provided by Chula Vista Property line attorney.

^[1] Plaintiffs alleged failure to serve the notice of appeal on defendants Rail Prop and Kramer did not exclude them from the appeal. (Cal. Rules of Court (hereafter cited as rules), rule 8.100(a)(3).)

^[2] Citing Mattco Forge, Inc. v. Arthur Young& Co.(1997) 52 Cal.App.4th 820, 847, defendants contend that plaintiff should not be entitled to raise any arguments because it did not file opposition to the demurrers below. The same citation states that consideration of new issues on appeal is permissible under present circumstances.