Judge: Craig Griffin, Case: Kerivan v. Sparks, Date: 2022-12-05 Tentative Ruling
The Demurrer by defendant David Sparks to the fifth cause of action for Fraudulent Transfer in the Complaint by Joseph Kerivan is SUSTAINED with leave to amend.
The Motion to Strike filed by defendants David Sparks, Kayle Sparks and Amanda Contreras to the Complaint filed by plaintiffs Joseph Kerivan and Michelle Kerivan is GRANTED in part and DENIED in part.
Plaintiffs oppose the Demurrer and Motion to Strike on the grounds that they were not filed within 30 days of service of the complaint and states that CCP §430.40 makes this a mandatory requirement. CCP §430.40 states: “(a) A person against whom a complaint or cross-complaint has been filed may, within 30 days after service of the complaint or cross-complaint, demur to the complaint or cross-complaint.” CCP §435(b)(1) states in part: “Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof.” With respect to the 30-day time limit, both CCP §§ 430.40 and 435 use the word “may” rather than “must,” and thus they are permissive rather than mandatory. (See, McAllister v. County of Monterey (2007) 147 Cal.App.4th 253, 280.) Further, defense counsel has submitted a declaration setting forth a reasonable excuse for the delay and the delay was hardly significant. Accordingly, the Court exercises its discretion and will consider the motions.
Defendant demurs to the Fifth Cause of Action for fraudulent transfer under the California’s Uniform Voidable Transactions Act
(the “Act”) (Civ. Code § 3439, et seq.). Among other arguments Defendant asserts Plaintiff is not a creditor under the Act, nor is he a debtor, because plaintiff has not obtained a judgment against him. This assertion is meritless.
Cal. Civ. Code § 3439.01 defines a “Creditor” as “a person that has a claim . . . .” It further defines a “Debtor” as “a person that is liable on a claim.” The section then defines a “Claim” as “a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”
Accordingly, a tort claimant before judgment is rendered is a “creditor” within the meaning of the Act; the relationship of debtor and creditor arises in tort cases the moment the cause of action accrues. Oiye v. Fox (2012) 211 Cal.App.4th 1036, 1057-1058.
Nonetheless, Plaintiff’s claim for fraudulent transfer suffers from a variety of shortcomings, not the least of which is that it names the debtor as the defendant therein. Under the Act, the proper defendant in a claim for fraudulent transfer is the transferee, not the transferor. Specifically, § 3439.08(b)(1) describes the persons against whom a money judgment may be entered, as follows:
“(b) To the extent a transfer is avoidable in an action by a creditor under paragraph (1) of subdivision (a) of Section 3439.07, the following rules apply:
“(1) Except as otherwise provided in this section, the creditor may recover judgment for the value of the asset transferred, as adjusted under subdivision (c), or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against the following:
“(A) The first transferee of the asset or the person for whose benefit the transfer was made.
“(B) An immediate or mediate transferee of the first transferee, other than either of the following:
“(i) A good faith transferee that took for value.
“(ii) An immediate or mediate good faith transferee of a person described in clause (i).
“(2) Recovery pursuant to paragraph (1) of subdivision (a), or subdivision (b), or subdivision (c) of Section 3439.07 of or from the asset transferred or its proceeds, or other property of the transferee, as applicable, by levy or otherwise, is available only against a person described in subparagraph (A) or (B) of paragraph (1).”
That a judgment against the transferor debtor cannot be rendered pursuant to the Act was recognized by the Court of Appeal in Renda v. Nevarez (2014) 223 Cal.App.4th 1231, 1239, which ruled:
“[W]e hold a creditor who has obtained a judgment for damages against a debtor in a prior action is not entitled under the UFTA to recover a personal judgment against the debtor for the amount of money the debtor subsequently transfers to third parties to hinder, delay, or defraud the creditor in collecting on the original judgment.”
Here, the transferee would be the trustee of the trust to which the property was transferred, who was not named as a defendant.
But the mere fact that real property was transferred to a trust does not always qualify as a transfer under the Act. Revocable Trusts are often used as an estate planning device. Probate Code Sec. 18200 provides:
“If the settlor retains the power to revoke the trust in whole or in part, the trust property is subject to the claims of creditors of the settlor to the extent of the power of revocation during the lifetime of the settlor.”
Absent harm to a creditor, a fraudulent transfer has not occurred.
“A well-established principle of the law of fraudulent transfers is, ‘A transfer in fraud of creditors may be attacked only by one who is injured thereby. Mere intent to delay or defraud is not sufficient; injury to the creditor must be shown affirmatively. In other words, prejudice to the plaintiff is essential. It cannot be said that a creditor has been injured unless the transfer puts beyond [her] reach property [she] otherwise would be able to subject to the payment of [her] debt.’”
Mehrtash v. Mehrtash (2001) 93 Cal. App. 4th 75, 80) Accordingly, Defendant’s transfer to a fully revokable trust cannot be a fraudulent transfer. The situation might be different if it was transferred to an irrevocable trust. But as currently pled, a cause of action is not stated.
The Court also finds that, as set forth in the demurrer, facts supporting intent and harm to the creditor are lacking. Finally, the Court notes that defendants Kayle Sparks and Amanda Contreras are also listed as moving parties on the Demurrer. However, since the fifth cause of action for Fraudulent Transfer in the Complaint by Joseph Kerivan is not alleged against them, their demurrer is MOOT.
In the motion to strike, Defendants move to strike the following from the complaint:
1. Page 1 of Plaintiffs’ Complaint, at paragraph 2: “knowing that Kayle Sparks was a careless and reckless driver”
2. Page 4 of Plaintiffs’ Complaint, at paragraph 24: “willful and conscious disregard for the safety and welfare of others”
3. Page 4 of Plaintiffs’ Complaint, at paragraph 27: “outrageous, despicable, and deplorable manner as to justify an award of punitive and exemplary damages”
4. Page 5 of Plaintiffs’ Complaint, at paragraph 35: “outrageous, despicable, and deplorable manner as to justify an award of punitive and exemplary damages”
5. Page 6 of Plaintiffs’ Complaint, at paragraph 41: “knew or should have known”
6. Page 6 of Plaintiffs’ Complaint, at paragraph 42: “willful and conscious disregard for the rights and safety of others”
7. Page 6 of Plaintiffs’ Complaint, at paragraph 44: “careless and reckless propensity”
8. Page 7 of Plaintiffs’ Complaint, at paragraph 47: “outrageous, despicable, and deplorable manner as to justify an award of punitive and exemplary damages”
9. Page 8 to 9 of Plaintiffs’ Complaint, at paragraph 62: “malice, oppression, and fraud” and “punitive and exemplary damages.”
10. Page 9 of Plaintiffs’ Complaint, at item 6: “For punitive or exemplary damages.”
Items 2, 3, 4, 6, and 8 allege punitive damages based on the negligence, negligence per se and negligent entrustment. Item 10 is the prayer for punitive damages. This is a garden variety negligence claim. The mere carelessness or ignorance of the defendant does not justify the imposition of punitive damages. Lackner v. North (2006) 135 Cal.App.4th 1188, 1211. The punitive damage claims are mere conclusions. Accordingly the Court GRANTS the motion as to these items.
In light of the sustaining of the demurrer, the motion to strike Item 9 is moot.
Items 1, 5 and 7 allege that defendant knew or should have known “Kayle Sparks was a careless and reckless driver.” These are alleged in connection with the Negligent Entrustment cause of action. These allegations relate to an element of a claim for negligent entrustment. (CACI 724 requires plaintiff to prove “defendant knew or should have known that driver was incompetent or unfit to drive the vehicle.”) While conclusory in nature, defendants have sufficient notice of the plaintiffs’ claims in order to conduct discovery and defend the claims. Accordingly, the motion to strike as to items 1, 5 and 7 is OVERRULED.
The Court orders moving party to give notice of this ruling.