Judge: H. Jay Ford, III, Case: 20SMCP00238, Date: 2024-11-05 Tentative Ruling

Case Number: 20SMCP00238    Hearing Date: November 5, 2024    Dept: O

  Case Name:  WVM Holdings , LLC v. Noval, et al.

SUBJECT:                 MOTION FOR SUMMARY JUDGMENT

MOVING PARTY:   Defendants Victor Franco Noval individually and as trustee of the Shernbourne Trust and Rexford Trust; Victorino Noval individually and as trustee the Advisors Trust; Secured Capital Partners, LLC; Beverly Hills Real Estate Holdings, LLC; 8484 Wilshire Blvd, LLC; and 1141 Summit Drive, LLC

RESP. PARTY:         Plaintiff WVM Holdings, LLC

TENTATIVE RULING

            Defendants Motion for Summary Judgment is DENIED. Defendants do not meet their initial burden to show that Plaintiff cannot prevail on an alter ego liability cause of action, and a fraudulent transfer cause of action. Even if Defendants were to meet their initial burden Platiniff’s provide triable issues material fact to the challenged elements of both causes of action.

            Defendants RJN and Supplemental RJN are GRANTED as to the existence of articles, court documents, and the administrative ruling documents, but not to the “truth of the hearsay statements in the documents.” (In re Vicks (2013) 56 Cal.4th 274, 314.).

            Defendants Objections are OVERRULED as to Nos 1–9, 11–19, 21–68, and SUSTAINED as to Nos. 10 (lacks authentication and foundation), and 20 (hearsay).

REASONING

            “A party is entitled to summary judgment only if it meets its initial burden of showing there are no triable issues of fact and the moving party is entitled to judgment as a matter of law. This is true even if the opposing party fails to file any opposition. The court's assessment of whether the moving party has carried its burden—and therefore caused a shift—occurs before the court's evaluation of the opposing party's papers. Therefore, the burden on the motion does not initially shift as a result of what is, or is not, contained in the opposing papers.” (Mosley v. Pacific Specialty Insurance Company (2020) 49 Cal.App.5th 417, 434–435 [landlord’s failure to address issue of whether they were aware of their tenant’s marijuana growing operation was not grounds to grant summary judgment where moving party failed to satisfy its initial burden as to the issue]; Thatcher v. Lucky Stores, Inc. (2000) 79 Cal.App.4th 1081, 1086-1087 [court cannot grant summary judgment based merely on lack of opposition; court must first determine if the moving party has satisfied its burden].)

            In addition, the evidence and affidavits of the moving party are construed strictly, while those of the opponent are liberally read. (Government Employees Ins. Co. v. Sup. Ct. (2000) 79 Cal.App.4th 95, 100. “All doubts as to the propriety of granting the motion (whether there is any issue of material fact [Code of Civil Procedure] § 437c) are to be resolved in favor of the party opposing the motion (i.e., a denial of summary judgment).” (Hamburg v. Wal-Mart Stores, Inc. (2004) 116 Cal.App.4th 497, 502.)

I.                Defendants Do Not Meet Their Burden to Show that Plaintiff cannot establish elements of their Alter Ego and Fraudulent transfer claims

            Where a defendant seeks summary judgment or adjudication, he must show that either “one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action.” (Code Civ. Proc. §437c(o)(2).) A defendant may satisfy this burden by showing that the claim “cannot be established” because of the lack of evidence on some essential element of the claim. (Union Bank v. Superior Court (1995) 31 Cal.App.4th 574, 590.) Once the defendant meets this burden, the burden shifts to plaintiff to show that a “triable issue of one or more material facts exists as to that cause of action or defense thereto.” (Id.) If unable to prove the existence of a triable issue of material fact, summary judgment or summary adjudication in favor of the defendant is proper. (Id.)

“[P]ointing out the absence of evidence to support a plaintiff's claim is insufficient to meet the moving defendant's initial burden of production. The defendant must also produce evidence that the plaintiff cannot reasonably obtain evidence to support his or her claim.” (Gaggero v. Yura (2003) 108 Cal.App.4th 884, 891; see Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 808 [“It was not enough simply to assert that [Plaintiff] had no evidence supporting an element of each cause of action; a moving defendant “must indeed present ‘evidence,’ ” such as “ ‘affidavits, declarations, admissions, answers to interrogatories, depositions, and matters of which judicial notice’ must or may ‘be taken”].)

A.    First cause of Action for Alter Ego Liability

Defendants Victor Franco Noval (“Franco Noval”, “Franco” or “Noval Jr.”) individually and as trustee of the Shernbourne Trust and Rexford Trust; Victorino Noval (“Victor Noval,” or “Noval Sr.”) individually and as trustee the Advisors Trust; Secured Capital Partners, LLC (“SCP”); Beverly Hills Real Estate Holdings, LLC (“BHRE”); 8484 Wilshire Blvd, LLC (“8484”); and 1141 Summit Drive, LLC (“1141,” collectively “Defendants”) move for summary judgment of Plaintiff WVM Holdings, LLC (“Plaintiff”) first cause of action for Addition of Judgment Debtors pursuant to CCP § 187. Defendants argue that Plaintiff cannot prove there was unity of ownership and interest between Tower Park Properties, LLC (“TPP”) and Charles Dickens (“Dickens”, collectively the “Original Judgment Debtors,”), nor that Defendants had control of the underlying litigation.

            CCP “[s]ection 187 authorizes a trial court to amend a judgment to add a judgment debtor who is found to be an alter ego of a corporate defendant.” Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 846.)

To prevail on the alter ego claim under CCP § 187 Plaintiff “must show that (1) the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone.” (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 815–816; see also Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 811 [“[I]t is generally stated that in order to prevail on an alter-ego theory, the plaintiff must show that “(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.”].)

            “[T]he determination of whether a corporation is an alter ego of an individual is ordinarily a question of fact.” (Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1072, as modified (Aug. 9, 2011). “There are two requirements for disregarding the corporate entity: first, that there is a sufficient unity of interest and ownership between the corporation and the individual or organization controlling it that the separate personalities of the individual and the corporation no longer exist and, second, that treating the acts as those of the corporation alone will sanction a fraud, promote injustice, or cause an inequitable result.” (Ibid.) “Both of these requirements must be found to exist before the corporate existence will be disregarded, and since this determination is primarily one for the trial court and is not a question of law, the conclusion of the trier of fact will not be disturbed if it is supported by substantial evidence.” (Ibid.)

            “The first requirement for disregarding the corporate entity under the alter ego doctrine—whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist—encompasses a series of factors. Among the many factors to be considered in applying the doctrine are one individual's ownership of all stock in a corporation; use of the same office or business location; commingling of funds and other assets of the individual and the corporation; an individual holding out that he is personally liable for debts of the corporation; identical directors and officers; failure to maintain minutes or adequate corporate records; disregard of corporate formalities; absence of corporate assets and inadequate capitalization; and the use of a corporation as a mere shell, instrumentality or conduit for the business of an individual. (Id., at p. 1073.) “This list of factors is not exhaustive, and  . . . [n]o single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.” (Ibid.)

            “The second requirement for application of the alter ego doctrine is a finding that the facts are such that adherence to the fiction of the separate existence of the corporation would sanction a fraud or promote injustice.” (Ibid.) “The test for this requirement is that if the acts are treated as those of the corporation alone, it will produce an unjust or inequitable result.” (Ibid.)

            “The essence of the alter ego doctrine is that justice be done. ‘What the formula comes down to ... is that liability is imposed to reach an equitable result.’ [Citation.] Thus the corporate form will be disregarded ... only when the ends of justice so require.” (Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 854.)

Under the successor theory of alter ego liability, “California decisions holding that a corporation acquiring the assets of another corporation is the latter's mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations.” (Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 705.)

“Alter ego liability “is not limited to the parent-subsidiary corporate relationship; rather, ‘under the single-enterprise rule, liability can [also] be found between sister [or affiliated] companies.” (Cam-Carson, LLC v. Carson Reclamation Authority (2022) 82 Cal.App.5th 535, 550, review denied (Nov. 16, 2022).) ““Factors for the trial court to consider include the commingling of funds and assets of the two entities, identical equitable ownership in the two entities, use of the same offices and employees, disregard of corporate formalities, identical directors and officers, and use of one as a mere shell or conduit for the affairs of the other. [Citation.] ‘No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.” (Ibid.)

Plaintiffs plead multiple alter ego theories in the TAC, including single enterprise rule, and successor theory, in addition to shareholder liability. Defendants provide declaration evidence to some, but not all, of these theories. Defendants argue their declaration evidence show there is no unity of ownership and interest between the Original Judgment debtors and any of the Defendants (See SSUF, ¶¶ 38–41, 42, 63–91, 93–110, 114.)  However, alter ego liability is generally a question of fact. Certainly, at trial, the Court is free to weigh the evidence presented and ultimately decide whether this evidence is sufficient to find the adherence to the fiction of the separate existence of the TPP  “would sanction a fraud or promote injustice” or, more particularly will produce an “unjust” or “inequitable result.” At this stage, however, defendant’s conclusionary declarations do not show that all of the possible alter ego factors cannot be met to a such a degree that the Court can decide now, as a matter of law, that it would be unequitable or unjust to find the Defendants are the alter egos of TPP.

Defendants argue in the reply that Plaintiff cannot and has not provided any evidence that the Defendants controlled the underlying litigation. (See Reply., p. 5; SSUF, ¶¶ 20–21; Dickens Decl. at ¶ 67; Franco Decl. ¶ 76.) However, at minimum, Plaintiff shows there is an issue of material fact as to whether Defendants, specifically Noval Sr., owned a 10% interest in TPP at the time of the underlying litigation. (See SSUF, ¶¶ 21–22; PAOE, Ex. 6 Dickens Depo at pp. 27–41, 59) At page 30 of the Dickins Deposition, Dickens stated it was his belief that Noval Sr.  “was Advisors” Trust, which was another signatory on the 2007 agreement, and thus Noval Sr. owned 10% interest in TPP upon the agreement execution. (PAOE, Ex. 6 Dickens Depo at p. 30:2–9.) This 10% interest in TPP may provide enough foundation to show how the Novels directly or indirectly had sufficient control over TPP in the underlying litigation.  Plaintiff therefore shows there is a disputed material fact regarding Defendants control over TPP.

Additionally, Defendants argue that the original judgment and judgment lien were discharged by Tower Park Properties, LLC’s (“TPP”) bankruptcy, and thus a bar to this action. (SSUF, ¶¶ 23, 27, 30–31.) It is undisputed that TPP filed for bankruptcy on 7-11-08. (SSUF, ¶ 22; Dickens Decl., ¶ 69, Ex. D.) It is undisputed that Plaintiff’s assignor KGMAC, LLC was a claimant in the bankruptcy and accepted the Fifth Amended Plan. (SSUF, ¶¶ 23, 27; Dickens Decl., ¶ 69, 72; Ex. E, H.) Defendants argues that TPP’s Fifth Amended Plan provided for the “treatment and full satisfaction of the Original Judgment and the claim made by KGMAC, LLC in the TPP Bankruptcy,” and thus Plaintiff’s assignor and Plaintiff themselves were enjoined from prosecuting the Original Debt and the debt thereunder (SSUF, ¶¶ 28–31; Dickens Decl., ¶ 65; Ex. F at pp. 24:2–11; Ex. G at ¶¶ 6.a–b, 7.)

Disregarding whether the TPP Bankruptcy actually discharged the Original Judgement and Judgment Lien, the Plaintiff can still file claims against an alleged alter egos for the judgement amount because the creditor's alter ego allegations do not automatically become the property of the bankruptcy estate once the corporate debtor files for bankruptcy. (See Shaoxing County Huayue Import & Export v. Bhaumik (2011) 191 Cal.App.4th 1189, 1197 [finding that Plaintiff’s alter ego claims were not stayed by Defendant’s bankruptcy filing].) Additionally, 11 U.S.C.A. § 524(e), part of the federal bankruptcy statutes, “confines the debt that may be discharged to the “debt of the debtor”—and not the obligations of third parties for that debt—conforms to the basic fact that “a discharge in bankruptcy does not extinguish the debt itself but merely releases the debtor from personal liability.... The debt still exists, however, and can be collected from any other entity that may be liable.” (Blixseth v. Credit Suisse (9th Cir. 2020) 961 F.3d 1074, 1082; see also In re RS Air, LLC (B.A.P. 9th Cir. 2023) 651 B.R. 538, 544 [“Following the plain language of the statute [§ 524(e)], we have repeatedly emphasized that the discharge only affects the debtor's “personal liability.”].)

Thus, if the alter ego claims are viable, the Plaintiff can collect the judgment amount from the alleged alter ego Defendants regardless of whether TPP’s debt was discharged in bankruptcy.

            Additionally, it is disputed whether the bankruptcy fully discharged the Original Judgment as to the Plaintiff. Defendants leave out the first part of the sentence, “Subject to the Provision below,” within the Confirmation Order ¶ 6.a in the Separate Statement and Motion. The paragraph states in its entirety:

Subject to the provision below, confirmation shall bind the Debtor, its estate, the Reorganized Debtor, all creditors, any person acquiring or receiving property under the Plan, any party to a contract with the Debtor, any other parties in interest to the provisions of the Plan whether or not the claim of such creditor is impaired under the Plan and whether or not such creditor has accepted the Plan, and the respective heirs, executors, administrators, successors or assigns, if any, of any of the foregoing.

(Def. Appx. Exh. “G” at ¶ 6.a.)

The full Paragraph 6(b) of the Confirmation Order states:

Except as otherwise provided in the Plan or in this Confirmation Order, on the Effective Date, to the extent applicable, the Debtor will be discharged from any debt that arose before confirmation of the Plan, and any debt of a kind specified in Section 502(g), 502(h) or 502(i) of the Bankruptcy Code whether or not a proof of claim based on such debt was filed or deemed filed under Section 501 of the Bankruptcy Code, such claim was allowed under Section 502 of the Bankruptcy Code or the holder of such claim accepted the Plan.

(Def. Appx. Exh. “G” at ¶ 6.b.)

The Confirmation Order paragraph 20 states in relevant part:

Other than (a) the property tax liens of Los Angeles County, (b) the Existing Liens of the Hughes Entities whose treatment shall be consistent with the terms of the Exit Financing Facility and the Hughes Trust Settlement, and (c) LJCI’s lien, whose treatment shall be consistent with the terms described in the Plan, all other liens on the Property (the “Junior Liens”) shall be treated as follows: (1) the Junior Liens shall remain on the Property in their allowed amount, priority and validity, which amount, priority and validity are not determined except as set forth in the Plan; . . .

(4) Junior Liens released hereunder shall automatically and immediately attach to the proceeds of the Property Sale or any other transaction unless otherwise provided in the Plan

(Def. Appx. Exh. “G” at ¶ 20.)

Exhibit A from the Confirmation Order shows KGMAC, LLC as a Junior Lien Holder. (See Def. Appx. Exh. “G”, at p. 15 ¶ 1.)

The Fifth Amended Plan specifically states in relevant part:

(I) the Junior Liens shall remain on the Property in their allowed amount, priority and validity; (2) the Junior Liens, to the extent that they secure allowed secured claims of this bankruptcy estate, shall be paid from the cash or other proceeds of a sale or other disposition of a Property Interest (a "Property Sale") in their order of priority under applicable nonbankruptcy law, except as otherwise provided herein; . . .

(Def. Appx. Exh. “F”, at pp. 6:19–724.)

The Court cannot find any evidence of payment from any property sales on the junior loans within the separate statement. Thus, Defendants do not meet their initial burden to show that the junior loans have in fact been discharged. Additionally, there is a disputed fact as to whether the junior loans, including the Plaintiff’s junior loan, has in fact been discharged by a property sale.

Defendants argue that due to the Plaintiff being enjoined from prosecuting the original judgment, Plaintiffs violated the Confirmation Order by renewing the judgment on 3-22-17. (SSUF, ¶ 2.) Defendants argue that due to Plaintiff’s violation of the confirmation order, the 2017 Renewal effectively does not exist, meaning the Original Judgment expired on 1-30-18, and thus Plaintiff’s Alter Ego cause of action fails as a matter of law. (See Code Civ. Proc., § 683.020 [In California, a money judgment is enforceable for 10 years and then expires and may not be enforced].) However, as analyzed above, Plaintiff’s Junior Lien was not discharged by the Fifth Amended Plan, but instead became attached to the Property under the plan. Thus, this argument is not persuasive, as there is no evidence provided that Plaintiff’s Junior Lien was satisfied as per the Fifth Amended Plan, which would allow Plaintiff to renew the original judgement prior to the 10-year expiration date on 3-22-27.

Thus, Defendants argument fails regarding TPP’s bankruptcy proceedings barring Plaintiff’s action as a matter of law.

B.    Second 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.” (Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 39.)   

            The Uniform Fraudulent Transfer Act (“UFTA”) codified in Civil Code 3239.01(a) provides  “(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.” (Cal. Civ. Code § 3439.04, subd. (a).)

            “Whether a transfer is made with fraudulent intent, [is a] question[] of fact.” (Nautilus, Inc, supra, 11 Cal.App.5th at p. 40; see also Aghaian v. Minassian (2020) 59 Cal.App.5th 447, 456 [“Whether a debtor had the actual intent to hinder, delay, or defraud a creditor is a question of fact.”].)

            Among other so-called “badges of fraud” indicating such intent, the fact finder may consider whether: (1) the debtor made the transfer to an “insider”; (2) the debtor retained possession or control of the property after the transfer; (3) the debtor had been sued before making the transfer; (4) the debtor removed or concealed assets; (5) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred; and (6) the transfer occurred shortly before or shortly after a substantial debt was incurred. (§ 3439.04, subd. (b).) None of these factors is determinative, and no minimum or maximum number of factors is required.” (Aghaian, supra, 59 Cal.App.5th at p. 456.)

            California imposes liability “on one who aids and abets the commission of an intentional tort if the person (a) knows the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person's own conduct, separately considered, constitutes a breach of duty to the third person.” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1144;; accord American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1477, 171 [individual may be liable for aiding and abetting an intentional tort where he or she “makes ‘ “a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act” ’ ”].) “Because transferring funds in order to evade creditors constitutes an intentional tort, it logically follows that California common law should recognize liability for aiding and abetting a fraudulent transfer.” (Berger v. Varum (2019) 35 Cal.App.5th 1013, 1025.)

            Defendants point to their arguments under the Alter Ego cause of action to argue there is no creditor-debtor relationship between Plaintiff and Defendant as required by Civ Code § 3439.01. (Motion, p. 17:6–10.) However, as analyzed above, Defendant has not met their initial burden to show there are no triable issues of fact as to the Alter Ego cause of action. Defendants do not show, nor provide evidence, that Plaintiffs cannot show an alter ego exists creating a debtor credit relationship. Thus, this argument is not persuasive.

            Defendants argue and point to declarations showing there was no intent of the Defendants to hinder, delay or defraud the Original Judgment Debtors’ creditors. (SSUF, ¶ 230; Defendants Appendix of Evidence (“DAOE”), Dickens Decl. ¶ 81; Franco Noval Jr. (“Franco”) Decl. ¶ 93.) Defendants argue they never aided and abetted Original Judgment Debtors to hinder, delay or defraud Original Judgment Debtors’ creditors. (SSUF, ¶ 232; Dickens Decl. at ¶ 82; Franco Decl. at ¶ 94.) Defendants argue Dickens never asked, agreed or conspired with any of the Defendants to hinder, delay or defraud his or TPP’s creditors. (SSUF, ¶¶ 227, 228, 229, 231; Dickens Decl. at ¶¶ 79–82; Franco Decl. at ¶¶ 91–94; Exh. “Q” at pp. 146:15–147:5, 147:15–23, & 149:3–8.)

            Again, Defendants conclusory declarations, without providing additional substantial evidence to refute the fraudulent transfer elements, are not  sufficient to meet the Defendants burden on summary judgment. (See Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1293 [“the moving partners were required to present evidence that would require the trial court not to find fraudulent intent more likely than not.”]

Even if the Court finds that Defendants have met their initial burden through these conclusory declarations and the Dickens Deposition, Plaintiff have in turn raised triable issues of fact as to the existence of intent and aiding and abetting elements. Plaintiff argues and provides evidence showing that both Noval Sr. and Noval Jr. were/are managing members of Secured Capital Partners, LLC (“SCP”) (SSUF, ¶ 32, 92, 106–112, 227–229; Franco Decl., ¶¶ 4–5, Ex. L; Plaintiffs Appendix of Exhibits (“PAOE”) Ex. 13 at p. 11 [Barino Note showing Victorino Noval (“Noval Sr.”) as the SCP Managing Member.].) Plaintiff provides arguments and evidence to show the possible existence of the “badges of fraud” including but not limited to insider transfers, timing of the transfers between SCP and other Defendant entities, along with the pre-existing restitution amount owed by Noval Sr. (See SSUF, ¶ 92 [Plaintiff’s theory and provided circumstantial evidence of the fraudulent transfer] Plaintiff provides evidence that SCP paid for Defendant Dickens’ expenses at Noval Sr. request. (Ibid; DAOE, Franco Decl., ¶ 96; PAOE Ex. 5, Noval Jr. Depo at pp. 20-23, 66, 196, 269-271, 279, 321, 328-330; Dominguez Decl. Exh. A and B [SCP also paid millions to Dickens, including paying for his rent at 717 N. Rexford Drive ($14,000 per month].)

Plaintiff’s provided evidence creates triable issues of fact as the intent and aiding and abetting elements due to the timing of multiple transfers between the Defendants and SCP, and other possible badges of fraud listed above. Intent is generally a matter of fact for the jury to decide, the Court cannot state as a matter of law there was no intent, or aiding and abetting in fraudulent transfers.