Judge: Kevin C. Brazile, Case: 22STCV16477, Date: 2023-07-11 Tentative Ruling

Hearing Date: February 8, 2024

Case Name: Pappas v. Namazikhah DMD, Inc., et al.

Case No.: 21STCV19741

Matter: (1) Motion for Summary Judgment/Adjudication

(2) Motion for Summary Judgment/Adjudication

Moving Party: (1) Defendants M.S. Namazikhah D.M.D and Essential Endodontics, Inc.

(2) Defendant Robert M. Hindin

Responding Party: Plaintiff Tony Protopappas

Notice: OK

Ruling: The Motion for Summary Judgment/Adjudication of Defendants M.S. 

Namazikhah D.M.D and Essential Endodontics, Inc. is denied.

The Motion for Summary Judgment of Hindin is granted.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

This is a fraudulent transfer action relating to a stipulated judgment in BC457138.  On July 19, 2021, a First Amended Complaint (“FAC”) was filed for (1) fraudulent transfer, (2) conspiracy, (3) declaratory relief, (4) judicial foreclosure, (5) appointment of receiver, and (6) an accounting.

Defendants M.S. Namazikhah D.M.D (“MS”) and Essential Endodontics, Inc. (“EE”) now seek summary judgment or, alternatively, summary adjudication of all causes of action.  Defendant Robert Hindin brings a separate motion for summary judgment/adjudication.

The law of summary judgment provides courts “a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”  (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)  In reviewing a motion for summary judgment or adjudication, courts employ a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent’s claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.”  (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)  The moving party bears the initial burden of production to make a prima facie showing of the nonexistence of any triable issue, in which case the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue.  (Code Civ. Proc. § 437c(p)(2).)  To show a triable issue of material fact exists, the opposing party may not rely on the mere allegations or denials of the pleadings, but instead must set forth the specific facts showing that a triable issue exists as to that cause of action or a defense thereto.  (Aguilar, at p. 849.)  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.)

Defendants’ main argument is that MS filed for bankruptcy and so Plaintiff’s claims are preempted/intrude upon the exclusive jurisdiction of the bankruptcy court.  Also, because Plaintiff filed a creditor’s claim and an objection to MS’ sale of assets to EE in the bankruptcy proceedings and could have taken other action therein, res judicata or collateral estoppel apply.

1. Bankruptcy 

“ ‘State courts are not authorized to determine whether a person's claim for relief under a federal law, in a federal court, and within that court's exclusive jurisdiction, is an appropriate one. Such an exercise of authority would be inconsistent with and subvert the exclusive jurisdiction of the federal courts by allowing state courts to create their own standards as to when persons may properly seek relief in cases Congress has specifically precluded those courts from adjudicating. [Citation.] The ability collaterally to attack bankruptcy petitions in the state courts would also threaten the uniformity of federal bankruptcy law, a uniformity required by the Constitution. U.S. Const. art. I, § 8, cl. 4. [¶] That Congress' grant to the federal courts of exclusive jurisdiction over bankruptcy petitions precludes collateral attacks on such petitions in state courts is supported by the fact that remedies have been made available in the federal courts to creditors who believe that a filing is frivolous. Debtors filing bankruptcy petitions are subject to a requirement of good faith, [citation], and violations of that requirement can result in the imposition of sanctions [citations]. Congress' authorization of certain sanctions for the filing of frivolous bankruptcy petitions should be read as an implicit rejection of other penalties, including the kind of substantial damage awards that might be available in state court tort suits. Even the mere possibility of being sued in tort in state court could in some instances deter persons from exercising their rights in bankruptcy. In any event, it is for Congress and the federal courts, not the state courts, to decide what incentives and penalties are appropriate for use in connection with the bankruptcy process and when those incentives or penalties shall be utilized.’ ”  (Choy v. Redland Ins. Co. (2002) 103 Cal.App.4th 789, 798–99.)

“Res judicata precludes the relitigation of a cause of action only if (1) the decision in the prior proceeding is final and on the merits; (2) the present action is on the same cause of action as the prior proceeding; and (3) the parties in the present action or parties in privity with them were parties to the prior proceeding.”  (Zevnik v. Superior Court (2008) 159 Cal.App.4th 76, 82; see also Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 541 n.21 [distinguishing between claim preclusion (res judicata) and issue preclusion (collateral estoppel)].)  

To determine whether the same causes of action are asserted, courts employ the primary rights theory.  (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 557.)  Under the primary rights theory, the invasion of one primary right gives rise to a single cause of action, which consists of (1) a primary right possessed by the plaintiff, (2) a corresponding primary duty owed by the defendant, and (3) a delict or wrong by the defendant which consists in a breach of the primary right and corresponding duty.  (Ibid.)  At bottom, a cause of action is based on the harm suffered, as opposed to the legal theory articulated.  (Ibid.) 

Collateral estoppel precludes the relitigation of an issue only if (1) the issue is identical to an issue decided in a prior proceeding; (2) the issue was actually litigated; (3) the issue was necessarily decided; (4) the decision in the prior proceeding is final and on the merits; and (5) the party against whom collateral estoppel is asserted was a party to the prior proceeding or in privity with a party to the prior proceeding. (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.)

The bankruptcy docket shows that MS’ case was closed without a discharge.  As MS is a corporate entity, it cannot obtain a discharge via a chapter 7 bankruptcy.  (Wolf Metals Inc. v. Rand Pac. Sales, Inc. (2016) 4 Cal.App.5th 698, 708 [“a corporation may not discharge its debts and liabilities in a chapter 7 proceeding.”].)  “As such a proceeding also does not dissolve a corporation—which must be accomplished under state procedures—corporate debts and liabilities survive the closing of the bankruptcy proceeding.”  (Ibid.)  “Under chapter 7 of the Bankruptcy Code (11 U.S.C. § 701 et seq.), a corporate (as opposed to an individual) debtor's assets are simply liquidated and the corporation will cease to exist except as an empty shell . . . .”    (Choy v. Redland Ins. Co. (2002) 103 Cal.App.4th 789, 794.)  

The Court does not see why preemption or res judicata would apply to the extent that the subject transfer of assets never took place pursuant to the bankruptcy proceedings because the bankruptcy trustee withdrew its motion for approval of the sale.  That is, Plaintiff’s claims do not actually call into question the bankruptcy proceedings and it is not apparent what must have been litigated in a matter that did not result in liquidation and could not result in discharge.  The bankruptcy itself is used to give context, and Plaintiff challenges the transfer that was subsequently made without court approval.  (See, e.g., FAC ¶ 40.)  The idea that Defendants cannot be sued simply because MS filed a bankruptcy petition and there was a determination of no assets makes little sense.  To the contrary, “Congress intended that corporate debt would survive Chapter 7 proceedings and be charged against the corporation when it resumed operations.”  (N.L.R.B. v. Better Bldg. Supply Corp. (9th Cir. 1988) 837 F.2d 377, 379.)  “Legislative history indicates that section 727(a)(1) was designed to prohibit the kind of business activity undertaken here. The primary concern underlying this section was to prevent businesses from evading liability by liquidating debtor corporations and resuming business free of debt. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 384 (1977) reprinted in 1978 U.S.Code Cong. and Admin.News, pp. 5787, 6340, and S.Rep. No. 989, 95th Cong.2nd Sess. 98 (1978) reprinted in 1978 U.S.Code Cong. and Admin.News, p. 5884. (Section 727(a)(1) was adopted to ‘avoid trafficking in corporate shells and in bankrupt partnerships.’) The drafters chose not to make corporate debt dischargeable so that corporations continuing to operate could not avoid previously incurred debt.”  (Ibid.)

“[R]esponsibility for those debts and liabilities may [still] be imposed . . . .  (Wolf Metals Inc. v. Rand Pac. Sales, Inc. (2016) 4 Cal.App.5th 698, 708.)  

Here, Plaintiff’s contention is that EE continued MS’ business debt-free with the same principal in the same location after making a transfer without sufficient consideration.  The Motions do not specifically rebut the FAC’s allegation that EE is an alter ego of MS.  Under these circumstances, there is no preemption or res judicata bar that applies. 

The Court also notes that where there is a no asset case, there is no deadline for creditors to file a proof of claim (In re Beezley (9th Cir. 1993) 994 F.2d 1433, 1434), let alone to pursue a fraudulent transfer claim therein.

2. Fraudulent Transfer/Consideration

Defendants also seem to challenge that there was a lack of consideration for any transfer made. 

“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, 13, 33 Cal.Rptr.2d 283.) The UFTA makes fraudulent transfers voidable: ‘(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.’ (§ 3439.04, subd. (a).)  [¶] If a transferee or obligee took in good faith and for a reasonably equivalent value, however, the transfer or obligation is not voidable. (§ 3439.08, subd. (a).) Whether a transfer is made with fraudulent intent and whether a transferee acted in good faith and gave reasonably equivalent value within the meaning of section 3439.08, subdivision (a), are questions of fact.”  (Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 39–40.)

Here, non-party individual Namazikhah (the principal of both MS and EE) admitted that MS’ assets in question were sold to EE for $7,500.  (PUMF 54-55 at Ex. 15 p.25:16-25.)  There are triable issues as to whether this was appropriate, and the bankruptcy court never ruled on that issue.  For example, Plaintiff’s expert indicates that, based on prior tax returns, MS assuredly collected more income than what was represented by a $7,500 transaction.  Whether third-party Abraham Ghorbanian extinguished nearly all of MS’ expected patient referrals via alleged defamation merely highlights a factual dispute.  A juror might also find it improbable that 0% percent of MS’ patients could be considered as returning customers.  That is, the value of MS remains in question.  

MS’ and EE’s other arguments lack merit and are mostly derivative of the failed arguments pertaining to the fraudulent transfer claims.  Therefore, their Motion for Summary Judgment/Adjudication is denied.

3. Hindin

Hindin also argues that there is no evidence to establish a conspiracy between him and the other Defendants.

“The elements of liability under conspiracy are: (1) formation and operation of the conspiracy; (2) wrongful conduct in furtherance of the conspiracy; and (3) damages arising from the wrongful conduct. (AREI II Cases, supra, 216 Cal.App.4th at pp. 1021-1022, 157 Cal.Rptr.3d 368.) The plaintiff must establish that the conspiring defendants knew of the wrongful plan, and agreed, expressly or tacitly, to achieve it. (Id. at p. 1022, 157 Cal.Rptr.3d 368.) Due to the secret nature of conspiracies, their existence is often inferentially and circumstantially derived from the character of the acts done, the relations of the parties, and other facts and circumstances suggestive of concerted action.”  (Spencer v. Mowat (2020) 46 Cal.App.5th 1024, 1037.)

Plaintiff points to the facts that Hindin, an attorney, defended Namazikhah and MS in an action prosecuted by Ghorbanian; knew MS would file for bankruptcy; was involved in Namazikhah’s personal bankruptcy; and formed EE for Namazikhah.

Respectfully, this alone is not sufficient to create a triable issue for the formation of a conspiracy through agreement to take wrongful acts.  There is nothing to show that Hindin knew that any transfer from MS to EE would necessarily be without adequate consideration and engineered to escape creditors.  The Opposition relies on speculation.  Accordingly, the Motion for Summary Judgment of Hindin is granted.  A proposed judgment is to be filed within ten days.

The Request for Judicial Notice is granted.

The objections are overruled.

Moving parties to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.