Judge: Daniel S. Murphy, Case: 18STCV04896, Date: 2022-10-05 Tentative Ruling

Case Number: 18STCV04896    Hearing Date: October 5, 2022    Dept: 32

BACKGROUND

            This action was initially brought in November 2018 by Plaintiff Akira Kokubu against various Defendants. The operative Second Amended Complaint was filed on January 15, 2020. Various cross-complaints and amended cross-complaints have also been filed from June 2019 through November 2019. The dispute involves joint ownership of a commercial real estate office building. The investment was made by investors from Japan, including Plaintiff (“Japanese Investors”) and investors from the United States (“US Investors”). The instant motion arises from the following pertinent facts.

            Initially, the Japanese Investors owned the Property as tenants in common with Defendant entities Beach Front Properties, LLC (“BFP”) and Daniel J. Niemann Inc. (“DJN”), with the Japanese Investors owning 99.01% for tax reasons. BFP and DJN later quitclaimed their interests in the Property to Park Rolling Hills, LLC (“PRH”). Due to nonpayment of the mortgage, the Property went into foreclosure. BFP purchased the Property at the foreclosure sale, and Plaintiff demanded that BFP acknowledge his rights, title, and ownership interests in the Property. Plaintiff alleges that BFP is a cotenant with fiduciary duties to Plaintiff, and therefore BFP cannot acquire title to the Property to the exclusion of Plaintiff. BFP then formed Academy Center 90274 LLC (“Academy Center”) and transferred its interest in the Property to Academy Center. Plaintiff alleges that this was a fraudulent transfer intended to insulate the Property from Plaintiff’s reach.

            On July 6, 2020, Plaintiff filed the instant motion for summary adjudication of his fifth cause of action for fraudulent transfer and ninth cause of action for partition. The case was subsequently stayed pending an arbitration issue. The stay was lifted in June 2022. The US Investors filed their opposition on September 21, 2022.

LEGAL STANDARD

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) Code of Civil Procedure section 437c, subdivision (c) “requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) “The function of the pleadings in a motion for summary judgment is to delimit the scope of the issues; the function of the affidavits or declarations is to disclose whether there is any triable issue of fact within the issues delimited by the pleadings.” (Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367, 381-382.)

As to each claim as framed by the complaint, the plaintiff moving for summary judgment must satisfy the initial burden of proof by presenting facts to establish each element of the cause of action. (Code Civ. Proc., § 437c, subd. (p)(1).) Once the plaintiff has met that burden, the burden shifts to the defendant to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Code Civ. Proc., § 437c, subd. (p)(1).) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.) Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

EVIDENTIARY OBJECTIONS

            Plaintiff’s objections are overruled.

DISCUSSION

I. Alter Ego

            BFP quitclaimed its interest in the Property to PRH in October 2008. (UF 10.) A November 2008 deed of trust identified the Japanese Investors and PRH as tenants in common. (UF 12.) The US Investors argue that as a result, BFP was no longer a cotenant with duties to Plaintiff at the time of the foreclosure sale and that Plaintiff lacks standing to sue for partition because his ownership interest was extinguished by the sale to BFP. (Opp. 4:15-21, 19:8-22.)

Accordingly, for both the fifth and ninth causes of action, Plaintiff relies on his theory that BFP is the alter ego of PRH and therefore was a cotenant of Plaintiff at the time of sale. (Mtn. 8:9-10:10, 15:21-22.) Plaintiff argues that “[a] cotenant who acquires the title to the common property at a foreclosure sale of a mortgage executed by a former owner through whom the cotenants derived their common title holds the title as trustee for the other cotenants, subject to their obligation to make a proportionate contribution of the amount paid.” (Mtn. 11:21-27, citing Miller & Starr, Cal. Real Estate (4th ed. 2019) § 11:12.)

“Alter ego is a limited doctrine, invoked only where recognition of the corporate form would work an injustice to a third person.” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285.) To establish alter ego, a plaintiff must show “(1) there is such a unity of interest that the separate personalities of the corporations no longer exist; and (2) inequitable results will follow if the corporate separateness is respected.” (Ibid.) “Whether a party is liable under an alter-ego theory is normally a question of fact.” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 811.) “The alter ego test encompasses a host of factors.” (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal. App. 4th 223, 249.) The court in Morrison acknowledged at least 14 different factors, and “[t]his long list of factors is not exhaustive.” (Id. at pp. 249-50.) Thus, alter ego is necessarily a fact-intensive inquiry that is difficult to resolve on summary adjudication.

Plaintiff first relies on language in the 2008 quitclaim deed transferring BFP’s interest to PRH, which stated that “Grantor and Grantee are comprised of the same parties who continue to hold the same proportionate interest. R&T 11923(d).” (UF 11.) Plaintiff argues that this alone is dispositive in establishing alter ego. (Mtn. 8:18-9:2.) However, the US Investors argue that language was included due to a clerical error and is inaccurate. (See Kazan Decl. ¶¶ 4-10 [explaining the actual composition and ownership interests of BFP and PRH].) In reply, Plaintiff argues that Kazan’s claim is unconvincing, considering the US Investors used the quitclaim deed as evidence in their own motion to expunge lis pendens, and the representation made in the deed exempted PRH from higher property taxes. (Reply 2:3-20.) However, the Court does not weigh evidence or consider credibility at this stage. The US Investors also raise a triable issue with evidence weighing against a finding of alter ego under the Morrison factors. (AF 39-53.)

Therefore, there is a triable issue over whether BFP is PRH’s alter ego, which correspondingly results in a triable issue over the fraudulent transfer and partition claims. Additionally, as discussed below, there are triable issues over the other elements of those claims.

II. Fraudulent Transfer

Under the Uniform Voidable Transactions Act, the essential elements for a claim of fraudulent transfer with intent to defraud are: (1) the plaintiff has a right to payment from a debtor; (2) the debtor transferred property or incurred an obligation to the defendant; (3) the debtor transferred the property or incurred in the obligations with the intent to hinder, delay or defraud one or more of his creditors; and (4) the plaintiff was harmed as a result. (Civ. Code, § 3439.04, subd. (a)(1); CACI No. 4200.)

            Plaintiff acknowledges that whether intent to defraud exists is “a question of fact and must be determined by considering the circumstances surrounding the transaction and the inferences which can be reasonably drawn from them.” (Mtn. 12:1-5, citing Bulmash v. Davis (1979) 24 Cal.3d 691.) Thus, as with alter ego, this element involves a fact-intensive inquiry ill-suited for summary adjudication. As with alter ego, there are a host of factors to consider. (See Civ. Code, § 3439.04(b).)

            It is undisputed that after purchasing the Property at foreclosure, BFP formed Academy Center and transferred its interest in the Property to Academy Center. (UF 21, 26.) BFP is the sole member of Academy Center. (UF 22.) However, the US Investors deny that the transfer occurred for fraudulent reasons, claiming instead that the transfer was necessary “so that title to the Subject Property would be held in a single-asset LLC that was owned wholly by BFP.” (Kazan Decl. ¶ 32.) “[T]his was done to protect BFP from any liabilities that may arise from the operation and maintenance of the Subject Property.” (Ibid.) At the very least, this is a disputed issue. Plaintiff’s evidence also does not support the contention that the transfer to Academy Center was made with no consideration. The quitclaim deed cited as evidence does not indicate that the transfer was executed for a mere $108 as Plaintiff claims. (See UF 26; Plntf.’s Ex. F.) The $108 was the fee for recording the document. (Ibid.)

            The US Investors also challenge the first element of fraudulent transfer, or the plaintiff’s right to payment from a debtor. (Opp. 15-26.) Plaintiff argues that “one having a claim for a tort is a creditor before the commencement of an action thereon as well as after, and as such creditor is, upon recovering judgment, entitled to avoid a fraudulent transfer antedating the commencement of his action.” (Mtn. 10:16-11:3, citing Estate of Blanco v. Closs (1978) 86 Cal.App.3d 826, 832.) However, Plaintiff does not articulate a tort claim under which he could be considered a creditor, nor a judgment (matured or not) entitling him to void any purported transfer.

            The US Investors have raised triable issues regarding at least two elements, as well as the alter ego allegations that underly Plaintiff’s standing. Therefore, Plaintiff’s motion for summary adjudication is DENIED as to the fifth cause of action.  

III. Partition

“A partition action may be commenced and maintained by any of the following persons: (1) A coowner of personal property. (2) An owner of an estate of inheritance, an estate for life, or an estate for years in real property where such property or estate therein is owned by several persons concurrently or in successive estates.” (Code Civ. Proc., § 872.210(a).)

As discussed above, the triable issue over alter ego raises questions as to whether Plaintiff is a co-owner with BFP entitled to bring this action. This precludes summary adjudication of the partition claim.

The US Investors argue, “partition as to concurrent interests in the property shall be as of right unless barred by a valid waiver.” (See Code Civ. Proc., § 872.710(b).) The tenancy in common agreement executed in March 2006 provides that “[n]o Owner shall either directly or indirectly make application to or petition any court for a partition of the Property.” (AF 75.) BFP and DJN deny signing the purported second tenancy in common agreement attached to Plaintiff’s complaint, which does not include this waiver. (AF 31-32.) However, the first TIC expired ten years after its execution. (Def.’s Ex. 2, § 2.) Nonetheless, there is a factual dispute over alter ego. Plaintiff’s motion for summary adjudication is DENIED as to the ninth cause of action.

CONCLUSION

            Plaintiff’s motion for summary adjudication is DENIED.