Judge Cherol J. Nellon, Case Number: 23STCV16842, Date: 2024-09-24 Tentative Ruling

Judge: Cherol J. Nellon, Case: 23STCV16842, Date: 2024-09-24 Tentative Ruling

Case Number: 23STCV16842 Hearing Date: September 24, 2024 Dept: 14

Case Background

This is an action for fraudulent conveyance and for a creditor’s suit under Code Civ. Proc., section 708.210. Plaintiff alleges that Young No Lee, Eun Joo Lee, and other Defendants began shifting income, assets, sales, and business from Defendant Dollar Fashions, Inc. (DFI) to other business and to themselves, leaving DFI insolvent. DFI became indebted to Plaintiff in the amount of $300,000 in trade debt after Plaintiff sold supplies for the apparel industry to DFI. After Plaintiff filed a lawsuit against DFI, Young No and Eun Joo Lee transferred DFI’s property to Eun Joo Lee. In July 2019, Eun Joo Lee transferred the property to her company, Defendant 1114 LA Street, Inc. (1114 LA). Defendants made these transfers to prevent Plaintiff and other creditors from recovering against DFI and Eun Joo Lee.

On July 18, 2023, Plaintiff FCI Group, LLC filed its Complaint against 1114 LA and DFI.

On July 2, 2024, Defendants filed this demurrer and motion to strike.

Instant Pleading

Defendants demur to the Complaint and move to strike paragraph 26.

Decision

Defendants’ demurrer is OVERRULED.

Defendants’ motion to strike is DENIED.

Defendants are to file an answer to the Complaint within 10 days of this order.

Judicial Notice

Defendants request that the Court take judicial notice of the order dismissing the Lee Defendants from another action, 18STCV03041 (the 2018 case), a stipulated judgment entered against DFI in the 2018 case, a marriage dissolution decree, and a grant deed transferring property from Young No Lee to Eun Joo Lee.

The requests are granted. However, the Court may not take judicial notice of the truth of the matters asserted in these documents. Although a court may take judicial notice of court records and files, judicial notice is limited to matters that are indisputably true. (Evid. Code, section 452(d); Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 482.) The truth of the matters asserted in these records is not subject to judicial notice. (Arce at p.483.) A court may take judicial notice of a document’s legal effect. (Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist. (2021) 62 Cal.App.5th 583, 600.)

Discussion

Demurrer

Defendants demur to the first and second causes of action on the grounds that the Complaint fails to state sufficient facts to support a cause of action against them.

The Court notes that Plaintiff filed an amended complaint on September 20, 2024. However, Plaintiff was required to file the amended complaint by the time the opposition was due under Code Civ. Proc., section 472(a). Here, Plaintiff filed the amended complaint too late, just two calendar days before the hearing on this motion. Therefore, the amended complaint is stricken and the demurrer will proceed as scheduled.

1. First Cause of Action – Fraudulent Conveyance

Defendants first argue that the first cause of action is time-barred.

A fraudulent conveyance under the Uniform Fraudulent Transfer Act (“UFTA”) involves “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.” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) A transfer under the UFTA is fraudulent as to a creditor if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor. (See Civ. Code, section 3439.04(a); Filip, supra, 129 Cal.App.4th at 829.)

A constructive fraudulent transfer cause of action under the UFTA must be brought within four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant. (See Civ. Code, section 3439.09(a)-(b).) Furthermore, notwithstanding any other provision of law, a claim under the UFTA must be brought within seven years after the transfer was made or the obligation was incurred. (Id., subd. (c).)

Here, the Complaint alleges that Plaintiff relied on DFI’s assets for payment, including a building located at 1114 S. Los Angeles St., Los Angeles, CA 90015, which Defendants told Plaintiff it owned. (Compl., ¶¶12, 14.) Eun Joo Lee made the alleged fraudulent transfer to 1114 LA, a company she was a member of, on July 18, 2019. (Compl., ¶18.)

The Court granted Defendants’ request for judicial notice of a grant deed dated December 19, 2019 wherein Eun Joo and Young No Lee transferred the property to Eun Joo Lee. (RJN Exh. D.) The grant deed was recorded on March 22, 2019. (Id.) Defendants argue that this is the alleged fraudulent transfer and that the deadline for Plaintiff to file a lawsuit was March 22, 2023.

It does not appear that the December 19, 2019 transfer is the transfer which is the subject of this lawsuit. The Complaint alleges that Eun Joo Lee transferred the subject property to 1114 LA on July 18, 2019. The grant deed shows a transfer from Eun Joo and Young No Lee to Eun Joo Lee, not a transfer from Eun Joo Lee to 1114 LA. Therefore, the grant deed does not reflect the transfer described in the Complaint. Plaintiff’s deadline to file this action was July 18, 2023, the date this lawsuit was filed, according to the facts alleged in the Complaint. Therefore, this action was timely filed.

Defendants’ demurrer to the first cause of action is OVERRULED because this action was timely filed within four years of the alleged fraudulent transfer.

2. Second Cause of Action – Creditor’s Suit

Defendants next argue that the second cause of action against them fails because DFI was never an owner of the property and there is no evidence that DFI ever transferred the property to Young No or Eun Joo Lee.

Code of Civil Procedure section 708.210 provides “If a third person has possession or control of property in which the judgment debtor has an interest or is indebted to the judgment debtor, the judgment creditor may bring an action against the third person to have the interest or debt applied to the satisfaction of the money judgment.” (Code Civ. Proc., section 708.210.)

Here, Defendants allege that DFI never had an interest in the subject property. Although Defendants submitted the grant deed showing the property was transferred from Eun Joo and Young No Lee to Eun Joo Lee, the grant deed does not show that the property was never owned by DFI or that DFI had no interest in the property. Whether DFI in fact ever had an interest in the property is a dispute of fact which may not be resolved through a demurrer. Defendants’ assertions that DFI never had an interest in the property are facts extraneous to the Complaint which may not be considered on demurrer.

Defendants’ demurrer to the second cause of action is OVERRULED because Defendants’ arguments rely on facts extraneous to the Complaint.

Motion to Strike

Defendants move to strike paragraph 26 from the Complaint on the grounds that the Complaint fails to state allegations against any of the defendants that would allow for the imposition of punitive damages.

In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. (College Hospital, Inc. v. Superior Court (1994) 8 Cal.4th 704, 721.) These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. (Civ. Code, § 3294, subd. (a).)

Here, Defendants allege that the alleged fraudulent transfers were part of the Lee Defendants’ divorce and that the transfer was not done with intent to defraud FCI. As discussed above, the grant deed provided by Defendants does not appear to reflect the transfer that is the subject of this lawsuit. Additionally, whether the subject property was in fact owned by DFI and whether the Lees intended to defraud Plaintiff is a dispute of fact which may not be resolved through a motion to strike.

The cause of action for fraudulent conveyance survives demurrer. Plaintiff states a claim for punitive damages because it alleges that Defendants engaged in fraudulent conduct. Therefore, the Complaint states sufficient facts to support a claim for punitive damages.

Defendants’ motion to strike is DENIED because Defendants’ arguments rely on facts extraneous to the Complaint and because the Complaint alleges sufficient facts to support a claim for punitive damages.

Conclusion

Defendants’ demurrer is OVERRULED.

Defendants’ motion to strike is DENIED.

Defendants are to file an answer to the Complaint within 10 days of this order.