Judge Alison Mackenzie, Case Number: 23STCP00999, Date: 2024-02-22 Tentative Ruling

Judge: Alison Mackenzie, Case: 23STCP00999, Date: 2024-02-22 Tentative Ruling

Case Number: 23STCP00999 Hearing Date: February 22, 2024 Dept: 55

NATURE OF PROCEEDINGS: Motion Of Respondent Dr. Shirley N. Weber, In Her Official Capacity as California Secretary of State to Dismiss Petition.

The motion to dismiss is denied.

BACKGROUND

A group of several senior individuals (“Petitioners”) filed this petition against Dr. Shirley N. Weber, in her official capacity as California Secretary of State (“Respondent”), claiming that they are entitled to payment from the Victims of Corporate Fraud Compensation Fund (the “Fund”) (Corp. C. § 2280 et seq.), which is administered by Respondent to compensate victims of corporate fraud.

Petitioners allege that they purchased Long Term Care Planning Packages from a corporation called Senior Care Advocates (“SCA”) based on SCA’s misrepresentations that the packages would provide long term health care at a savings to them. SCA allegedly charged Petitioners exorbitant fees for the packages, which did not result in savings to the Petitioners because they were already eligible for Medi-Cal benefits. (Verified Petition ¶ 3.) The packages also allegedly harmed Petitioners because Petitioners were advised by SCA to misreport their assets to Medi-Cal, thereby risking the loss of Petitioners’ Medi-Cal coverage. (Id.)

Petitioners allege that SCA filed for bankruptcy in the Eastern District of California in 2009. (Id., ¶ 5.) That same year, a group of senior clients of SCA (not the Petitioners in this case) filed adversary proceedings in bankruptcy court. The bankruptcy court entered default judgments against SCA, in which the court ordered that SCA defrauded the petitioners and that the fraud claims were not dischargeable under the bankruptcy code. (Id., ¶¶ 1, 5-6.) The petitioners then sought compensation from the Fund based on the default judgments, but the Respondent denied the claims. (Id., ¶¶ 6-7.) In 2012, the petitioners filed a lawsuit in LASC entitled Lawrence Nier; Robert Rendon et al. v. Debra Bowen, in her official capacity as California Secretary of State, et al., Case No. BC 484761 (the “Nier Action”) to challenge Respondent’s denial of the claims. (Id.) In the Nier Action, the court ordered that most of the petitioners were entitled to compensation from the Fund based on the default judgments issued by the bankruptcy court. (Id., ¶ 7, Ex. B.)

In 2021, the bankruptcy court reopened the SCA bankruptcy case. (Id., ¶ 10.) Petitioners allege that in 2021 they also obtained a default judgment from the bankruptcy court confirming that SCA defrauded Petitioners and that the fraud claims are not dischargeable (the “In Re SCA Action”). (Id., Ex. A.) Just as in the Nier Action, Respondent denied Petitioners’ claims for compensation based on the bankruptcy court default judgment in the SCA Bankruptcy. Petitioners then filed a petition under Corporation Code §2287(a) for an order directing Respondent to compensate Petitioners from the Fund based on the default judgment.

Respondent has now filed a motion to dismiss this case, which Petitioners oppose.

LEGAL STANDARD

In a case involving the Fund, the Secretary of State may move to dismiss “when it appears there are no triable issues, and the petition is without merit.” Corp. C. § 2288(d). Such motions can be supported by an “affidavit of any person or persons having knowledge of the facts” and may be made on the bases that the “petition, and the judgment referred to therein, does not form the basis for a meritorious recovery claim within the purview of Section 2282....” Ibid.

REQUEST FOR JUDICIAL NOTICE

Respondent’s unopposed request for judicial notice of court filings from the In Re SCA Action is granted. Hamilton v. Greenwich Investors (2011) 195 Cal.App.4th 1602, 1608 n.3 (court did not err in taking judicial notice of uncertified Bankruptcy Court documents where objecting parties did not dispute that the documents were as they purported to be).

ANALYSIS

Statute of Limitations

Respondent contends that Petitioners’ 2021 fraud claims in the In Re SCA Action were time-barred. The statute of limitations period for a cause of action for fraud is three years. Broberg v. The Guardian Life Ins. Co. of Amer. (2009) 171 Cal. App. 4th 912, 920 (citing CCP §338(d)). “Code of Civil Procedure section 338, subdivision (d), effectively codifies the delayed discovery rule in connection with actions for fraud, providing that a cause of action for fraud ‘is not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.’” Brandon G. v. Gray (2003) 111 Cal. App. 4th 29, 35.

In support of its argument, Respondent references a bankruptcy court ruling regarding the application of California law, and tolling only if the statute of limitations has not expired before the bankruptcy case-- In re Pascucci, 90 B.R. 438 (Bankr. C.D. Cal. 1988). (Mot., 12:21.) However, that is not governing law in California trial courts, and the case did not address the situation here of a preexisting, older bankruptcy case, being reopened for additional victims of the same debtor. California courts are not bound to follow decisions of lower federal courts. People v. Sup. Ct. (2002) 103 Cal. App. 4th 409, 431.

Therefore, the Court determines that no governing authority directly on point exists as to the positions of the parties regarding the statute of limitations. “A legal proposition asserted without apposite authority necessarily fails.” People v. Taylor (2004) 119 Cal.App.4th 628, 643.

Moreover, with respect to the underlying default judgment issued in the In Re SCA Action, a statute of limitations defense is waived by a defaulting party. See Travelers Indem. Co. v. Bell (1963) 213 Cal. App. 2d 541, 547; Svetina v. Burelli (1948) 87 Cal.App. 2d 707, 710 (“the appellant waived all defenses to the prayer … by suffering the entry of default….”); Cal. Standard Finance Corp. v. Cornelius Cole, Ltd. (1935) 9 Cal. App. 2d 573, 578 (“By the default …, each of them waived the defense ….”). The court entered a default judgment against SCA in the In Re SCA Action, which means that SCA had waived any defense it had that the fraud claims asserted by Petitioners were time-barred. The Court therefore concludes that the fraud claims adjudicated by the bankruptcy court were not time-barred.

Final Judgment Based on Fraud

Respondent contends that Petitioners cannot prove they have a valid cause of action and judgment against SCA for fraud. The Court takes judicial notice that the default judgment was supported by showings of fraud, via the Petitioners’ declarations (Jeffrey Rich Decl., Ex. 6), and that the petition is additionally supportive of triable issues.

The Court determines that the underlying default judgment complies with the statutory requirements to be a final judgment under Corporations Code section 2282(c)(8)(c)(3) and is therefore a qualifying judgment. (Rich Decl., Ex. 7). The default judgment plainly states that SCA defrauded Petitioners, that the debts are not dischargeable, and that Petitioners are awarded the damages sought in their complaint. (Id.)

Therefore, the Court rejects Respondent’s position that the underlying judgment does not qualify as a judgment that can be used to seek compensation from the Fund.

Nier Action

Respondent also contends that the Nier Action has no preclusive effect in this proceeding and that the Court should disregard allegations regarding that case. The allegations regarding the Nier Action have no effect on Respondent’s two arguments for why this case should be dismissed. The Court concludes that the fraud claims at issue in the In Re SCA default judgment were not time barred and that the default judgment is a qualifying judgment under the Corporations Code. Respondent’s arguments about the Nier Action may be asserted at the time of the hearing on the petition.