Judge: Lynette Gridiron Winston, Case: 24PSCV01819, Date: 2025-04-22 Tentative Ruling
Case Number: 24PSCV01819 Hearing Date: April 22, 2025 Dept: 6
CASE
NAME: BMO
Bank N.A. v. Thunder Auto Group LLC, et al.
Defendants Zhe Zhou and Si Chen’s Motion to Expunge Lis Pendens
TENTATIVE
RULING
The Court DENIES the motion to expunge the lis pendens. The Court further DENIES the parties’ requests for attorney fees.
Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order.
BACKGROUND
This is a money lending dispute. On June 6, 2024, plaintiff BMO Bank N.A., formerly known as BMO Harris Bank N.A. (Plaintiff) filed this action. On August 21, 2024, Plaintiff filed the operative First Amended Complaint (FAC) against defendants Thunder Auto Group LLC (Thunder Auto), Zhe Zhou (Zhou), Si Chen (Chen), and Does 1 to 25, alleging eighteen counts of breach of written agreement and breach of continuing guaranty, claim and delivery, conversion, fraudulent transfer – actual fraud, and fraudulent transfer – constructive fraud.
On January 30, 2025, Zhou and Chen (collectively, Moving Parties) moved to expunge the lis pendens. On April 9, 2025, Plaintiff opposed the motion. On April 16, 2025, Moving Parties replied.
LEGAL
STANDARD
“At any time after notice of pendency of action has been recorded, any party, or any nonparty with an interest in the real property affected thereby, may apply to the court in which the action is pending to expunge the notice. However, a person who is not a party to the action shall obtain leave to intervene from the court at or before the time the party brings the motion to expunge the notice. Evidence or declarations may be filed with the motion to expunge the notice. The court may permit evidence to be received in the form of oral testimony, and may make any orders it deems just to provide for discovery by any party affected by a motion to expunge the notice. The claimant shall have the burden of proof under Sections 405.31 and 405.32.” (Code Civ. Proc., § 405.30.)
“In proceedings under this chapter, the court shall
order that the notice be expunged if the court finds that the claimant has not
established by a preponderance of the evidence the probable validity of the
real property claim. The court shall not order an undertaking to be given as a
condition of expunging the notice if the court finds the claimant has not
established the probable validity of the real property claim.” (Code Civ.
Proc., § 405.32.)
In proceedings under this chapter, the court shall order that the notice be expunged if the court finds that the real property claim has probable validity, but adequate relief can be secured to the claimant by the giving of an undertaking. The expungement order shall be conditioned upon the giving of the undertaking of such nature and in such amount as will indemnify the claimant for all damages proximately resulting from the expungement which the claimant may incur if the claimant prevails upon the real property claim. In its order conditionally expunging the notice, the court shall set a return date for the moving party to show fulfillment of the condition, and if the moving party fails to show fulfillment of the condition on the return day, the court shall deny the motion to expunge without further notice or hearing. Recovery may be had on the undertaking pursuant to Section 996.440.
For purposes only of determining under this section whether the giving of an undertaking will secure adequate relief to the claimant, the presumption of Section 3387 of the Civil Code that real property is unique shall not apply, except in the case of real property improved with a single-family dwelling which the claimant intends to occupy.
(Code Civ. Proc., § 405.33.)
PRELIMINARY ISSUE
Moving Parties filed their reply after the April 15, 2025 deadline. (Code Civ. Proc., § 1005, subd. (b).) The Court will still consider Moving Parties’ reply, but nevertheless admonishes Moving Parties to comply with the requirements of the Code of Civil Procedure going forward. (See Cal. Rules of Court, rule 3.1300, subd. (d); Juarez v. Wash Depot Holdings, Inc. (2018) 24 Cal.App.5th 1197, 1202.)
OBJECTIONS
The Court OVERRULES all of Plaintiff’s objections to Defendant Zhou’s declaration.
The Court OVERRULES all of Plaintiff’s objections to Defendant Chen’s declaration.
The Court OVERRULES all of Plaintiff’s objections to Jing Chen’s declaration.
The Court OVERRULES all of Plaintiff’s objections to ZhongZhong Zhou’s declaration.
The Court SUSTAINS all of Plaintiff’s objections to Moving Parties’ reply declarations on the grounds that they constitute improper new evidence on reply. (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538 [new evidence is not permitted on reply unless it fills in gaps in the evidence created by the opposing party’s opposition and is not raising new substantive issues for the first time; otherwise, a further hearing would be required to permit the opposing party to respond]; Alfaro v. Cmty. Hous. Improvement Sys. & Plan. Assn., Inc. (2009) 171 Cal.App.4th 1356, 1393, fn. 23 [“’The general rule is that points raised for the first time in a reply brief will not be considered unless good cause is shown for the failure to present them before.’ [Citation.]”].)
REQUESTS FOR JUDICIAL NOTICE
The Court GRANTS the parties’ respective requests for judicial notice. (Evid. Code, § 452, subds. (c)-(d); West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 803 [court may take judicial notice of recorded deed].) However, the Court takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal.App.5th 389, 400.)
DISCUSSION
Summary
of Arguments
Moving Parties seek to expunge Plaintiff’s lis pendens recorded against certain real property located at 20606 Shepherd Hills Drive, Diamond Bar, CA 91789 (the Property). Moving Parties contend the FAC has nothing to do with the Property except for the 21st and 22nd causes of action for fraudulent transfer based on actual fraud and constructive fraud, respectively. Moving Parties contend these two causes of action fail because Chen, the transferee of the Property, was the actual owner, whereas Zhou had no interest in it, but only held title as a constructive trustee for Chen. Moving Parties contend Plaintiff will not be able to prove any elements of the fraudulent transfer claims. Moving Parties contend Chen paid $505,000 as a down payment and deposit in acquiring the Property and that Zhou had no equity interest in the Property. Moving Parties contend that they agreed Zhou did not need to pay monthly child support for five years in exchange for his assistance in obtaining a loan to pay for the Property. Moving Parties contend Chen paid Zhou about $350,670.00 for the Property mortgage payments, and that Chen made all the mortgage payments on the Property. Moving Parties contend Thunder Auto’s business was normal in March 2023 at the time of the transfer of the Property from Zhou to Chen, that Thunder Auto was paying debts that became due in March 2023, and that the truck industry took a downturn in October 2023.
Moving Parties then contend the lis pendens is void because it was not properly served. Moving Parties contend Plaintiff has not filed any proof of service regarding the lis pendens in this action and that Plaintiff did not record any proof of service regarding the lis pendens. Moving Parties contend the lis pendens was never served on them by mail.
In opposition, Plaintiff contends the FAC pleads a real property claim by alleging that Zhou transferred the Property to Chen with wrongful intent by transferring it to his former spouse, after Zhou had signed the loan agreements and corresponding guaranties and while Thunder Auto was experiencing financial distress, the Property constituted substantially or all of Zhou’s real property holdings, Zhou received consideration not reasonably equivalent to the Property’s value, and Zhou became insolvent at the time he made the alleged transfer. Plaintiff also contends the FAC alleges Zhou was engaged in a business or a transaction for which his remaining assets were unreasonably small in relation to the business or transaction, and intended or reasonably should have believed that he would incur debts beyond his ability to pay as they became due.
Plaintiff then contends it has established the probable validity of its fraudulent transfer claims by a preponderance of the evidence. Plaintiff contends it is undisputed that Zhou transferred the Property to an insider, Chen, through an interspousal transfer grant deed, and that Moving Parties continue to live together while being represented by the same counsel in this action. Plaintiff contends Zhou retained possession or control of the Property following the transfer where he resides with Chen and continues to make mortgage payments. Plaintiff contends Thunder was experiencing financial distress in 2023, as it had stopped making automatic payments to Plaintiff, it had no money according to Zhou, and was no longer in business by January 2024. Plaintiff contends the Property constituted all or substantially all of Zhou’s assets and that Zhou admitted he was insolvent shortly after the transfer. Plaintiff contends Zhou transferred the Property to Chen without receiving any consideration of equivalent value, that Moving Parties presented no admissible evidence of a five-year waiver regarding child support payments, and their deposition testimony confirms that Moving Parties never enforced or abided by any such agreement. Plaintiff contends Zhou made the Property transfer shortly before his personal liability was triggered by the guaranties. Plaintiff also contends Chen’s claimed interest in the Property based on the Moving Parties’ agreement constitutes mortgage fraud.
With
respect to service of the lis pendens, Plaintiff contends those arguments are
moot because Defendants were personally served with the original lis pendens
along with the FAC in September 2024. Plaintiff contends that it served a new
lis pendens on Defendants by certified mail, return receipt requested, on
February 14, 2025, and subsequently recorded and filed that lis pendens.
Analysis
(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.
(b) In determining actual intent under paragraph (1)
of subdivision (a), consideration may be given, among other factors, to any or
all of the following:
(1) Whether the transfer or obligation was to an
insider.
(2) Whether the debtor retained possession or control
of the property transferred after the transfer.
(3) Whether the transfer or obligation was disclosed
or concealed.
(4) Whether before the transfer was made or
obligation was incurred, the debtor had been sued or threatened with suit.
(5) Whether the transfer was of substantially all the
debtor’s assets.
(6) Whether the debtor absconded.
(7) Whether the debtor removed or concealed assets.
(8) Whether the value of the consideration received
by the debtor was reasonably equivalent to the value of the asset transferred
or the amount of the obligation incurred.
(9) Whether the debtor was insolvent or became
insolvent shortly after the transfer was made or the obligation was incurred.
(10) Whether the transfer occurred shortly before or
shortly after a substantial debt was incurred.
(11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.
(c) A creditor making a claim for relief under subdivision (a) has the burden of proving the elements of the claim for relief by a preponderance of the evidence.
(Civ. Code, § 3439.04.)
The Court finds Plaintiff has established the probable validity of its claims by a preponderance of the evidence. First, the evidence clearly shows, and Moving Parties have fully acknowledged, that Zhou transferred the Property to Chen, his ex-wife, which the Court finds would qualify as a transfer to an insider. (See generally, Motion; Moving Parties’ Request for Judicial Notice, Ex. 5; Civ. Code, § 3439.04, subd. (b)(1).) Second, Zhou continued to reside at the Property with Chen following the transfer, i.e., until approximately November 2024. (Mekhael Decl., Ex. 4, Zhe Zhou Depo., 13:12-15:3.) Third, Thunder Auto went out of business less than a year after the transfer. (Mekhael Decl., Ex. 4, Zhe Zhou Depo., 128:3-18, 188:10-19; Civ. Code, § 3294.04, subd. (b)(9).) Fourth, Moving Parties’ purported child support arrangement in exchange for Zhou’s mortgage assistance is questionable, as Zhou had not been consistently making child support payments before Zhou acquired title to the Property in 2018. (Mekhael Decl., Ex. 5, Si Chen Depo., 31:12-25; 38:6-24; Civ. Code, § 3294.05, subd. (b)(8).)
With respect to adequacy of notice, Plaintiff correctly contends that substantial compliance is sufficient for purposes of Code of Civil Procedure section 405.22. (J&A Mash & Barrel, LLC v. Superior Ct. of Fresno Cnty. (2022) 74 Cal.App.5th 1, 29 (J&A).) Contrary to Moving Parties’ assertion, Plaintiff filed proofs of service with the Court on September 12, 2024, and October 30, 2024, indicating personal service of the lis pendens on Chen and substitute service on Zhou, respectively. (Plaintiff’s Requests for Judicial Notice, Exs. G-H.) While Code of Civil Procedure section 405.22 may specify mailing the lis pendens by certified mail return receipt requested, the Court finds the personal service effected on Chen to be more than sufficient. (Plaintiff’s Requests for Judicial Notice, Ex. G; J&A, supra, 74 Cal.App.5th at p. 29.) Also, the proof of service for Zhou shows that Chen received the lis pendens on Zhou’s behalf. (Plaintiff’s Requests for Judicial Notice, Ex. H.) Considering the parties are or at least were still living together at that time, the Court finds this sufficient to impart notice to Zhou. (Mekhael Decl., Ex. 4, Zhe Zhou Depo., 13:12-15:3; J&A, supra, 74 Cal.App.5th at p. 29.) Additionally, the lis pendens has now been filed with the Court with proof of service on Chen and Zhou by certified mail return receipt requested. (Notice of Pendency of Action (2/19/24).)
The Court declines to consider the parties’ remaining arguments. Based on the foregoing, the Court DENIES the motion to expunge the lis pendens.
The Court further DENIES the parties’ respective requests for attorney fees, finding that the motion was both made and opposed with substantial justification. (Code Civ. Proc., § 405.38.)
CONCLUSION
The Court DENIES the motion to expunge the lis pendens. The Court further DENIES the parties’ requests for attorney fees.
Plaintiff is ordered to give notice of the Court’s ruling within five calendar days of this order.