Judge: Frank M. Tavelman, Case: 19BBCV00147, Date: 2023-02-08 Tentative Ruling

Case Number: 19BBCV00147    Hearing Date: February 8, 2023    Dept: A

LOS ANGELES SUPERIOR COURT

NORTH CENTRAL DISTRICT - BURBANK

DEPARTMENT A

DEMURRER

ALLEGATIONS:

Plaintiff JSP Medical Management Inc. (“Plaintiff”) filed its Fourth Amended Complaint in which it named as defendants 11601 Ventura Blvd., LLC (“11601 Ventura”) and 22456 Ventura Blvd., LLC (“22456 Ventura”) (collectively, “Defendants”). Also named as a defendant is Pierre Moeini (“Moeini”). Plaintiff alleges that Special Defendants are the alter ego of Moeini, as Moeini is the sole member of the companies. Plaintiff alleges causes of action against Moeini and Special Defendants for: (1) Fraud; (2) Negligent Misrepresentation; and (3) Fraudulent Transfer.

Plaintiff initially filed suit as against Moeini, Trans-Atlantic Motors, LTD and Does 1-10 on February 19, 2019. Relevant to both parties’ arguments is that, in a previous action, a debtor’s examination of Pierre Moeini took place on November 1, 2019. Plaintiff filed its Third Amended Complaint (“3AC”) on April 16, 2020 alleging for the first time Fraudulent Transfer.

Special Defendants have filed a Demurrer to the Fourth Amended Complaint (“4AC”), specifically its third cause of action for Fraudulent Transfer. Plaintiff opposes this motion.

HISTORY:

The Court received the Demurrer filed by Defendants on January 31, 2023. The opposition was filed by Plaintiff on February 3, 2023. Reply was received February 6, 2023.

PROCEDURAL CONCERNS

Plaintiff argues in its opposition that Defendants previously demurred to this cause of action and it was overruled on April 27, 2021. Plaintiff states that the allegations are substantively unchanged 3AC to 4AC. The Court finds that the allegations have substantively changed, as the fraudulent transfer is now alleged to be to 11601 Ventura and 22456 Ventura, rather than to the Moeni Trust.

Similarly Plaintiff claims that Defendants demurrer is moot as an answer has already been rendered to the 4AC. The answer filed January 24, 2023 was filed by Pierre and Gorliz Moeni and Transatlantic Motors LTD. Demurring Defendants have not filed an answer to the 4AC.

REQUEST FOR JUDICIAL NOTICE

Defendants request judicial notice of (1) the deed for 11601 Ventura Blvd. and (2) the deed for 22456 Ventura Blvd.

Defendants’ request is GRANTED. (Evid. Code, § 452(d).)  

ANALYSIS:

I.          LEGAL STANDARD

The grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.  (C.C.P. § 430.30(a); Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.) A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) The only issue involved in a demurrer hearing is whether the complaint states a cause of action. (Ibid.)

A demurrer assumes the truth of all factual, material allegations properly pled in the challenged pleading. (Blank v. Kirwan, supra, 39 Cal. 3d at p. 318.) No matter how unlikely or improbable, the plaintiff’s allegations must be accepted as true for the purpose of ruling on the demurrer. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.  App. 3d 593, 604.) But this does not include contentions; deductions; conclusions of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to facts of which a court may take judicial notice.  (Blank, supra, 39 Cal. 3d at p. 318.)

Pursuant to C.C.P. §§ 430.10(e) and (f), the party against whom a complaint has been filed may demur to the pleading on the grounds that the pleading does not state facts sufficient to constitute a cause of action, or that the pleading is uncertain, ambiguous and/or unintelligible. It is an abuse of discretion to sustain a demurrer if there is a reasonable probability that the defect can be cured by amendment. (Schifando v. City of Los Angeles (2003) 31 Cal. 4th 1074, 1082, as modified (Dec. 23, 2003).)

II.        MERITS

Defendants argue that Plaintiff has not alleged sufficient facts to support its cause of action for fraudulent transfer.

“A fraudulent conveyance is ‘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.” (Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8.) The UFTA states:

(a) A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation as follows:

(1) With actual intent to hinder, delay, or defraud any creditor of the debtor.

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either:

(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.

(B) Intended to incur or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.

(Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33)

Defendants argue that Plaintiff fails to allege facts with respect to transfer to a third person. Defendants argue that, assuming Plaintiff’s allegation that the Defendants are mere alter egos of Moeini is true, Plaintiff is prevented from subsequently alleging that transferring property to the LLCs qualifies as a transfer to a third person. Defendants argue further that if Moeini is the sole member of the LLCs, then his transfer of property to the LLCs was not a transfer at all. Defendants further argue that, assuming Moeini is the sole member of the LLCs, he received just as much value as he gave away in the transfer. Defendants argue that, as such, Plaintiff has failed to plead facts as to the element of fraudulent transfer which requires the transferee to be rendered insolvent.

The alter ego doctrine follows a two-prong test “First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Tucker Land Co. v. State of California (2001) 94 Cal.App.4th 1191.) It is the purpose of the alter ego theory that “…under certain circumstances a hole will be drilled in the wall of limited liability erected by the corporate form; for all purposes other than that for which the hole was drilled, the wall still stands.” Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290. The doctrine of alter ego is an equitable one, meaning the basic motivation of the trial court is to assure a just and equitable result. (Id.)

Here Plaintiff alleges that the LLCs are the alter ego of Moeini. Plaintiff’s purpose for making this allegation is to avoid a situation in which they obtain judgment against Moeini but are unable to recover because of the property being legally held by the LLC.  To this effect the complaint states “Defendants Pierre Moeini and Gorliz Moeini transferred their assets with the actual intent to hinder, delay, or further defraud Plaintiff and to frustrate attempts to obtain an enforceable judgment as to the remaining $370,160.00.” (4AC ¶30.) Further, Plaintiff argues in opposition that the LLCs, and not Moeini, are the legal title holders of the transferred property. In essence, Plaintiff asks the Court to disregard the legal distinction between Moeini and the LLCs for purposes of preventing an inequitable result, should they be successful at trial.

Defendants essentially ask the Court to consider that the transfer from Moeini to the LLC never existed because of Plaintiff’s allegation of alter ego. The Court does not find this to be consistent with the alter ego doctrine’s equitable purpose. Plaintiff alleges that transfer occurred from Pierre Moeini to other legal entities, the LLCs. For the Court to then sustain the demurer to the fraudulent transfer claim would not only prematurely adjudicate the alter ego issue, it would also violate the equitable purpose of the doctrine. The Court finds that Plaintiff has alleged sufficient facts that a fraudulent transfer occurred.

In reply Defendants argue that Moeini’s transfer to the LLCs in which he is a sole member does not put the property beyond the reach of a judgment creditor because the creditor can obtain a charging order pursuant to Cal. Corp. Code §17705.03. Defendants argue that Plaintiff can simply obtain a charging order constituting a lien against any disbursements the LLC would otherwise pay to the judgment debtor. The Court finds that a charging order would likely be a substantial barrier to recovery in this instance.

“Unlike the creditor of a shareholder of a corporation, the creditor of a member of an LLC may not “step straight into the shoes of the debtor.... [¶] ... [T]he creditor may only obtain a charging order against distributions made to the member. (Corp. Code, § 17705.03.) The debtor remains a member of the LLC with all the same rights to manage and control the LLC, including ... the right to decide when distributions to members are made, if ever.”

Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832 review denied (Feb. 16, 2022).)

Here Defendants and Plaintiff agree that Pierre Moeini is the sole member of the two LLCs. As the sole member, Moeini controls all actions of the LLCs including when, if ever, to make disbursements to himself. If Plaintiff were to obtain a charging order against Moeini it would only entitle them to any disbursements made to him, disbursements which Moeini could simply refuse to make. As such, the Court does not find the existence of a charging order as a remedy to negate Plaintiff’s allegations that Moeini intended to place the property beyond their reach in the event of a judgment.

Defendants also argue in their reply that the property remains an asset of the Moeini Family Trust and as such Moeini did not falsely represent the transfer at the time of the 2019 debtor examination. The Court finds Defendants’ arguments may have merit but do not speak to the standard of a demurrer. Plaintiff has alleged that the property was transferred to the LLCs with the intent to place it beyond reach of a judgment. Whether the property remains an asset of the Moeini Trust is irrelevant to the sufficiency of their allegations.

Defendants further argue that Plaintiff has not alleged sufficient injury in fact, citing to Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75. In Mehrtash the court found that a claim for fraudulent transfer required an affirmative showing that the property transfer actually placed the property beyond reach of the creditor. Defendants argue that Plaintiff has made no such showing here. Defendants also cite to Gagan v. Gouyd (1999) 73 Cal. App. 4th 835 and Fidelity National Title Ins. Co. v. Schroeder (2009) 179 Cal.App.4th 834, where both courts found no injury in fact in fraudulent transfer actions. Plaintiff argues in their opposition that the Gagan and Fidelity National cases are procedurally and factually inapposite to the instant case. Gagan concerned transfer to a trust and not an LLC and is thus not comparable to the instant case. Fidelity National concerned a showing of injury in fact at trial.

The Court finds that the Mehrtash case is also procedurally distinguishable from this case, in that Mehrtash concerned a post jury-trial judgment. The court in Mertash was concerned that plaintiffs in that case did not make an actual showing at trial that injury occurred. Here the court is considering this argument on demurrer and must ask whether Plaintiff has alleged facts supporting an injury in fact. Plaintiff alleges that Moeini conducted this transfer with the intent to place his assets beyond reach of the Defendant. The Court finds this allegation sufficient to sustain Plaintiff’s cause of action.

The Defendants reply argues that Gorliz Moeini is being wrongfully pursued for fraudulent transfer as, pursuant to the property deeds, Pierre Moeini owned the property separately. The Court again finds that this argument has merit but does not speak to the sufficiency of Plaintiff’s allegations.

The Court finds Defendants’ argument do not speak to the standard of a demurrer. On demurrer the court must analyze whether Plaintiff has alleged sufficient facts to support the elements of its claim. Plaintiff here has alleged that a transfer occurred from one legal entity, Moeini, to another, the LLCs. Plaintiff has alleged that such a transfer was intentionally made to put the property transferred beyond the reach of Plaintiff in the event they obtained a judgment. Plaintiff has alleged that Moeini was rendered insolvent by this transfer.

III.       CONCLUSION

Defendants’ demurrer to Plaintiff’s Fourth Amended Complaint on grounds Plaintiff fails to state a claim for fraudulent transfer is OVERRULED.

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RULING:

In the event the parties submit on this tentative ruling, or a party requests a signed order or the court in its discretion elects to sign a formal order, the following form will be either electronically signed or signed in hard copy and entered into the court’s records.

ORDER

Defendants 11601 Ventura Blvd., LLC and 22456 Ventura Blvd., LLC Demurrer came on regularly for hearing on February 8, 2023, with appearances/submissions as noted in the minute order for said hearing, and the court, being fully advised in the premises, did then and there rule as follows:

THE DEMURRER IS OVERRULED.  

IT IS SO ORDERED.

DATE:  February 8, 2023                               _______________________________

                                                                        F.M. TAVELMAN, Judge

                                                                        Superior Court of California

County of Los Angeles