Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

BACKGROUND 

This dispute arises from alleged fraudulent transfers.  Plaintiff Shahlah Melamed alleges Defendants Paul Arena, Aim Group, Inc., David Appell, Edward Withrow III, Huntington Chase Financial, Montecito Biosciences Ltd, Calli Bucci, MJ Management, Inc., Dave Engert and Data Health Partners Inc. received fraudulent transfers from Defendant Parallax Health Sciences Inc. (“Parallax”), who owes Plaintiff a judgment of $20 million.   

Plaintiff founded and solely owned RoxSan Pharmacy, Inc. (“RPI”).  (Compl. ¶24.)  RPI is a local pharmacy in the City of Beverly Hills.  (Id.)  In 2015, Parallax bought all stock, assets and inventory of RPI by a secured promissory note for $20.5 million (“Note”).  (Id. ¶27.) 

Almost immediately, Parallax defaulted on the Note.  Plaintiff filed two actions against Parallax, and Parallax filed an action against Plaintiff (the “Underlying Litigation”).  (Id. ¶29.)   The parties eventually settled.  (Id. ¶¶31-33.) 

The Settlement Agreement provided for entry of a stipulated judgment for $20 million in favor of Plaintiff in the event of default.  (Id. ¶33.)  Parallax did default, and this Court entered judgment against it for $20 million (the “Judgment”).  (Id. ¶¶ 35, 36.)  

Plaintiff brings this action to recover the $20 million judgment from Defendants who are alleged to have actively assisted in rendering Parallax judgment proof.  (Id. ¶38.)  The operative complaint alleges claims for (1) fraud, (2) fraudulent conveyances, (3) conspiracy to defraud, and (4) rescission.  

The Court previously granted a special motion to strike the first and third causes of action as arising from the protected activity of settling the Underlying Litigation.  Accordingly, only the fraudulent conveyance and rescission claims remain.   

Defendants now seek summary judgment or in the alternative summary adjudication of the remaining claims.  The relevant facts are as follows:   

Defendant Dave Engert was formerly the Chairman of the Board of Parallax.  (Compl. ¶ 11.)  Defendant Carla Bucci is the CFO of Parallax, and Defendant MJ Management Inc. is a company controlled by Bucci.  (UMF Nos. 6, 28.)  Defendant Paul Arena was the CEO of Parallax.  (UMF No. 4.)  Defendant Aim Group Inc. is a company controlled by Arena.  (UMF No. 6.)   Defendant Edward Winthrow was a former CEO of Parallax, and his company, Defendant Montecito Biosciences, Ltd., was a shareholder of Parallax.  (UMF No. 5.)  Winthrow’s other company, Defendant Huntington Chase, served as a consultant to Parallax.  (UMF No. 34.)   

The Settlement Agreement contains a release of all claims against all Defendants occurring through February 12, 2020.  (UMF Nos. 1-6.)  Plaintiff contends this release is unenforceable because it was induced into entering the Settlement Agreement through fraud.  (Additional Material Facts (“AMF”) Nos. 1-3.)  Plaintiff claims Parallax misrepresented that it had investors lined up to pay the $20 million judgment secured by Plaintiff when in fact it had no such investors.  (Plaintiff’s Ex.15.)  

Defendants’ motion focuses on transfers after February 12, 2020 which assumes the validity of the release.  Those transfers include the following: 

In 2016, Parallax bought the Qolpom patents for $225,000.  (UMF No. 14.)  Parallax tried unsuccessfully to monetize the technology.  (Id.)  In 2021, Data Value Holdings offered to purchase the Qolpom patents for $450,000.  (UMF No. 12.)  Parallax’s board believed this amount was adequate compensation for the patents given Parallax had no success in monetizing the patents and they had been purchased for half that amount in 2016.  (UMF No. 13.)  The $450,000 received by Parallax from the Qolpom sale were used to pay Parallax’s attorneys, accountants and the SEC.  (UMF No. 14.)  At the time of the sale of the Qolpom patents to Data Value in December 2021, Arena held a 7.33% beneficial interest in Parallax, Bucci held a 6.46% interest, and Withrow held a 25.45% interest. (UMF No. 46.) 

In 2017, Parallax bought patented technology from Grafton Integrated Integrated Health Network (“Grafton patents”), which were originally valued at $1.6 million, but Parallax had been unable to monetize the technology.  (UMF No. 27.)  Parallax believes that third parties infringed on the Grafton patents, but even after years of significant effort, it could not secure a law firm or funder to bring the patent infringement suit.  (UMF No. 18.)  In April 2021, the Grafton patents were later acquired by Data Health Partners for valuable consideration consisting of a secured note of $20 million.  (UMF No. 16.)  The transaction involving the sale of the Grafton patents to Data Health Partners in April 2021 was the only exchange of any assets between Parallax and Data Health Partners.  (UMF No. 19.)  At the time of the sale of the Grafton patents to Data Health Partners in April 2022, Arena held a 9.24% beneficial interest in Parallax, Bucci held a 8.27% interest, and Withrow held a 21.13% interest.  (UMF No. 47.)       

Since February 12, 2020 through May 14, 2021, Paul Arena and his company, Aim Group Inc., received a total of $71,657 in cash payments based upon his full time services as CEO of Parallax for about 17 months through his resignation in July 2021.  (UMF No. 22.)  Parallax was contractually obligated to pay Arena $350,000 in annual salary, an auto allowance of $1,200/month, and health insurance/allowance of $2,500/month.  (UMF No. 23.)  Because of Parallax’s financial situation, Parallax could only pay Arena a fraction of his salary and expense allowance.  (Id.)  Taking into account non-cash compensation and conversion of notes to company stock, Arena is still owed $75,356 by Parallax in unpaid benefits and allowances.  (UMF No. 24.)  The payments made to Arena and Aim Group were all made with knowledge of the board and consistent with agreements existing between them and Parallax.  (UMF No. 25.)  The value of the services provided by Arena and Aim Group was worth much greater than the cash and non-cash compensation they received.  (UMF No. 26.) 

Since February 12, 2020 through September 15, 2021, Bucci and her company, MJ Management, Inc., received a total of $62,101 in cash payments based on her full time services as CFO of Parallax.  (UMF No. 27.)  The amounts received by Bucci and MJ Management were only a fraction of the contracted amounts; Bucci’s employment agreement provides for an annual salary of $216,000 plus $550 for medical insurance and $1,000/month for auto allowance.  (UMF No. 29.)  Taking into account non-cash compensation and conversion of notes to stock, Bucci is still owed $417,876 by Parallax in unpaid compensation, unpaid benefits and loans.  (UMF No. 31.)  The payments made to Bucci and MJ Management were all made with the knowledge of the board and consistent with agreements existing between them and Parallax.  (UMF No. 32.)  The value of Bucci’s services from February 12, 2020 has far exceeded the compensation she has received from Parallax.  (UMF No. 33.) 

Since February 12, 2020 through November 20, 2020, Edward Withrow and his company, Huntington Chase received a total of $34,078 in cash payments based upon his consulting agreement.  (UMF No. 34.)  Currently, he is still owed a total of $183,984 in unpaid benefits.  (UMF No. 35.)  The payments made to Withrow and Huntington Chase were all made with knowledge of the board and consistent with the agreements existing between them.  (UMF No. 37.)  Withrow and his company’s strategic consulting services have been invaluable to the Company and their value far exceeds the compensation he received.  (UMF No. 38.) 

Since February 12, 2020, David Appell was paid $15,000 pursuant to a settlement for outstanding compensation in excess of $80,000.  (UMF Nos. 39-40.)  The payments made to Appell were all made with the knowledge of the board and consistent with the settlement agreement.  (UMF No. 41.)  

At the time of the Settlement Agreement, on February 12, 2020, and during the payments made to Arena/Aim Group, Bucci/MJ Management, Withrow/Huntington Chase and Appel, Arena held a 6.11% beneficial interest in Parallax, Bucci held a 5.16% interest, Withrow held a 25.59% interest, and Appel held a negligible number of shares, much less than 5% of the company.  (UMF No. 45.)   

This hearing is on Defendants’ motion for summary judgment or in the alternative for summary adjudication.  Defendants argue that (1) any liability for transfers prior to February 12, 2020 were released by Plaintiff in the Settlement Agreement, (2) the fraudulent conveyance claim against Montecito Biosciences and Engert have no merit because they did not receive any assets from Parallax, (3) the fraudulent conveyance claim against the other Defendants fail because they are not a debtor nor did they make any transfers with actual intent to hinder, delay or defraud Plaintiff or without Parallax receiving reasonably equivalent value for the transfer, (4) the fraudulent conveyance claim against the other Defendants fail for the additional reason that they acquired assets of Parallax in good faith and for a reasonably equivalent value, and (5) the recission claim fails because it is not a claim but a remedy, and the underlying claim for fraudulent conveyance has no merit.   

REQUEST FOR JUDICIAL NOTICE 

Defendants request judicial notice of (1) the Board of Pharmacy Department of Consumer Affairs State of California Decision and Order against Plaintiff resulting in the surrender of Plaintiff’s pharmacy license, (2) facts contained in the Judgment and Statement of Decision against Plaintiff dated April 9, 2019 in Case No. SC124873, (3) Fact of Judgment and Indictment against Hootan Melamed, and (4) Debtor pursuant to Stipulated Judgment in Case No. SC125702 (Related Cases SC124873 and SC124898).  The Court denies the request as none of these documents are relevant to the present motion.   

EVIDENTIARY OBJECTIONS 

The Court overrules Plaintiff’s Objection Nos. 1, 2, 3, 4, 9, 10, 11, 12, 13, 21, 22 and sustains Objection Nos. 5, 6, 7, 8, 14, 15, 16, 17, 18, 19 and 20 to the Declaration of Carla Bucci.  

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 Ritchfield Co. (2001) 25 Cal.4th 826, 843.)  Code Civ. Proc. §437c(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. Minor 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).   

As to each claim as framed by the complaint, a defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element of the claim(s) or by establishing an affirmative defense.  (Code Civ. Proc. §437c(p)(2); Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520.)  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.)  

Once the defendant has met its burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.  (Id.)  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.) 

DISCUSSION 

Issue No. 1 – Released Claims 

A motion for summary adjudication cannot be made to only part of a claim.  (Catalano v. Superior Court (2000) 82 Cal.App.4th 91, 97 (“The purpose of the enactment of Code of Civil Procedure section 437c, subdivision (f) was to stop the practice of piecemeal adjudication of facts that did not completely dispose of a substantive area.”).)  Here, Defendants argue that the releases in the Settlement Agreement prevent claims against Defendants for any acts through February 12, 2020.  This argument does not dispose of an entire claim, and therefore, it cannot support a motion for summary adjudication.   

In any event, there are triable issues as to whether Parallax defrauded Plaintiff into signing the settlement agreement based upon a false representation that Parallax already had funds committed to pay Plaintiff the settlement payment and that Parallax had wrested control from Edward Withrow.  (AMF Nos. 1-3.)  To the extent Plaintiff was fraudulently induced to enter into the Settlement Agreement, then the agreement (including the release) cannot be enforced against Plaintiff.  (McClain v. Octagon Plaza LLC (2008) 159 Ca.App.4th 784, 794 (“A party to a contract who has been guilty of fraud in its inducement cannot absolve himself or herself from the effects of his or her fraud by any stipulation in the contract, either that no representations have been made, or that any right might be grounded upon them is waived.  Such a stipulation will be ignored, and parol evidence of misrepresentations will be admitted, for the reason that fraud renders the whole agreement voidable, including the waiver provision.”).) 

Issue No. 2 - No Transfers to Montecito/Engert 

Defendants argue that neither Montecito Biosciences nor Engert can be liable for fraudulent transfer because they did not acquire any assets of Parallax after February 12, 2020 and were not involved in any decisions of Parallax after February 12, 2020.  The Court disagrees. 

Defendants’ motion focuses on transfers to Engert for the period after February 12, 2020 by virtue of the release in the settlement agreement.  But the Court has concluded there is disputed issue as to the enforceability of the release.  The motion fails to address transfers to Engert before February 12, 2020, and accordingly, the Court denies the motion for summary adjudication on this issue as to Engert. 

As to Montecito Biosciences, Defendants contend there is no evidence that it ever acquired any assets from Parallax.  (UMF No. 8.)  But Plaintiff argues Montecito exclusively licensed in perpetuity its patents to Parallax, and it later took back that asset from Parallax.  (Plaintiff’s Exhibit 11, 12.)  Accordingly, there is a triable issue as to whether Montecito received assets from Parallax.  The Court, therefore, denies summary adjudication on this issue.       

Issue Nos. 3 -Transferor Claim 

The Court next considers whether Defendants are liable as a transferor.  Defendants argue that Plaintiff cannot show they, excluding Parallax, were a “debtor” of Plaintiff and “made” any actionable transfer of assets away from Parallax.  Again, Defendants assume the validity of the release and only focus on transfers for the period after February 12, 2020.  Given there is a disputed issue as to the enforceability of the release, the Court denies summary adjudication on this issue.  In addition, this issue only addresses part of the fraudulent conveyance claim, and therefore, summary adjudication is improper.   

Issue No. 4 - Transferee Claim 

The Court next considers whether Defendants can be liable as transferees.  Defendants argue there is no triable issue that the transfers were made in good faith and for reasonable value.  Again, Defendants focus on transfers for the period after February 12, 2020, assuming the validity of the release.  Given there is a disputed issue as to the enforceability of the release, the Court denies summary adjudication on this issue.  In addition, this issue only addresses part of the fraudulent conveyance claim, and therefore, summary adjudication is improper.   

Issue Nos. 5 & 6 - Rescission Claim 

Plaintiff’s fourth cause of action seeks rescission of the Settlement Agreement.  (Compl. ¶53.)  To the extent Plaintiff seeks rescission of the transfers as well, Defendants argue the claim is based on the underlying fraudulent transfer claim and must fail for the same reasons as that claim.  Given the Court has concluded there is a triable issue on Plaintiff’s fraudulent transfer claim, the Court also denies summary adjudication of Plaintiff’s rescission claim.   

CONCLUSION 

For the foregoing reasons, the Court DENIES Defendants’ motion for summary judgment, or in the alternative, for summary adjudication.   

 

IT IS SO ORDERED. 

 

DATED:  March 21, 2024 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court