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 Post subject: FT - Sive v. Hasso (2/13/2003)
PostPosted: Thu Feb 26, 2009 2:32 pm 

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Sive v. Hasso,
No. G030586 (Cal.App. Dist.4 02/13/2003)

Synopsis

This case questions the validity of monies a judgment debtor corporation gave to a third-party, in order to purchase a deed of trust. The court holds that the mere allegation of a fraudulent conveyance doesn’t necessarily make it so. The court concludes that a trustee may avoid a fraudulent conveyance by bringing an adversary proceeding in the bankruptcy court. Thus, the burden is on the trustee to prove evidence of fraudulent intent, by presenting clear and convincing evidence.

Opinion

Sive v. Hasso, No. G030586 (Cal.App. Dist.4 02/13/2003)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT DIVISION THREE

G030586

February 13, 2003

GEOFFREY H. SIVE, PLAINTIFF AND APPELLANT,
v.
SAMA HASSO, DEFENDANT AND RESPONDENT.
Appeal from a judgment of the Superior Court of Orange County, William M. Monroe, Judge.

Affirmed. (Super. Ct. No. 01CC13522)

Prenovost, Normandin, Bergh & Dawe, Daniel H. McLinden and Paula M. Harrelson for Plaintiff and Appellant.

Stephen W. Johnson for Defendant and Respondent.

The opinion of the court was delivered by: Sills, P. J.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

OPINION

Geoffrey H. Sive filed this action against Sama Hasso to prevent her from foreclosing under a 1994 trust deed secured by his real property. Sive claims a third party who had received an assignment of the trust deed from the bankruptcy estate of La Sierra Financial Services, Inc. had reconveyed it to him, thus eliminating the encumbrance. Hasso claims the bankruptcy assignment created a wild deed that is outside the chain of title and does not affect her interest in the trust deed. The trial court granted Hasso's motion for summary judgment and denied Sive's motion for judgment on the pleadings, entering judgment in favor of Hasso on the complaint. Sive appeals, contending both rulings were erroneous. We affirm.

Hasso has filed a motion for sanctions, contending Sive has misrepresented the record and his appeal is frivolous. We decline to award sanctions.

FACTS

Sive's complaint for declaratory relief, quiet title, slander of title and injunctive relief alleges that a deed of trust dated January 17, 1994, made by the Sive Family Trust, granted a security interest in real property located in Santa Ana. The trust deed secured a $225,000 loan and named Sama Hasso as the beneficiary. It was recorded on January 26, 1994. In August 2001, Hasso recorded a notice of default.

Sive alleges Hasso purchased the note with money she fraudulently obtained from her husband's company, La Sierra Financial Services, Inc. (La Sierra), to avoid collection efforts by La Sierra's judgment creditors, D. Robert Johnson, Odetta Johnson and the Johnson Family Trust (the Johnsons). The Johnsons initiated involuntary bankruptcy proceedings for La Sierra in September 1994; Sive alleges, "[I[t was determined [in the bankruptcy proceedings] that transfers of assets to Hasso within a year of the bankruptcy were fraudulent and preferential and the assets (including the [deed of trust]) were part of the bankruptcy estate. A court-approved settlement in that bankruptcy action transferred various assets of the debtor, including the [deed of trust], to the trustee in bankruptcy." Subsequently, the bankruptcy trustee assigned the trust deed to Sam Holdings, Inc., a company owned by the Johnsons. Sam Holdings, Inc. then assigned the trust deed to S-B Investments, Inc., a company owned by Sive, which reconveyed it to Sive, thus allegedly eliminating the encumbrance against the property.

Hasso filed a motion for summary judgment on the complaint, claiming she lent $225,000 to Sive's mother, Joan Marie Sive, in January 1994 and received the note and trust deed in exchange. Joan Marie Sive made no payments on the note; she filed a lawsuit in August 1994 contesting its validity but later dismissed the lawsuit with prejudice. Hasso has never assigned the note or trust deed and has never received any payments. In her motion, Hasso contended the assignment of the trust deed by the bankruptcy trustee and the subsequent assignment by Sam Holdings, Inc. are outside the chain of title.

In his opposition to Hasso's motion, Sive requested judicial notice of bankruptcy court records showing that the Johnsons had listed the note and deed of trust as an asset of La Sierra's bankruptcy estate as a fraudulent transfer. These records also showed that the trustee and the Johnsons entered into a settlement agreement providing that the Johnsons would purchase the assets of the estate, excluding cash, for $575,000, and a mutual release of claims would be executed. The agreement stated, "Johnsons acknowledge that the sale of all such choses in action (assets/adversary actions), notes and interests therein, whatever they may be, are being purchased `as is', `where is' and that no representations and/or warranties are being made with respect to the status of same . . . ." The bankruptcy court approved the agreement in July 1997, ordering the sale of "[a]ll right, title, interest, if any . . . of this Estate . . . ." The trustee assigned the note and trust deed to Sam Holdings, Inc., Johnsons' nominee, in December 1998. Sive argued the bankruptcy court order approving the sale and settlement agreement and the subsequent assignment divested Hasso of any interest in the trust deed and conferred bona fide purchaser status on Sam Holdings, Inc.

The trial court issued a tentative ruling granting the motion for summary judgment. It reasoned that the bankruptcy order transferred whatever interest the bankruptcy trustee had in the note and trust deed, without warranties. "[T]he issue of whether there was a fraudulent conveyance was not determined in that proceeding. Hasso has presented evidence of her title and that it was obtained in exchange for a loan. Plaintiff has failed to provide any FACTS to establish that her interest constituted a fraudulent transfer, other than the fact that the Johnsons alleged that it had been. This is insufficient to raise a question of fact. [] The settlement isn't being [attacked]; the underlying title to the note is being attacked. The settlement expressly didn't convey anything more than the trustee possessed." (Emphasis in original.)

After hearing argument on the motion, the trial court indicated it was "still inclined to go with my tentative," but it acceded to Sive's request for more time to "bring [something] to the court's attention that's going to change the court's mind." The trial court gave Sive 30 days to provide additional documents in "kind of like a sur-opposition" and set a date for the continued hearing.

Three weeks later, Sive filed a motion for judgment on the pleadings, which he scheduled to coincide with the date for the continued hearing on the motion for summary judgment. Sive raised two theories in support of his motion. First, he requested judicial notice of an adversary action in the bankruptcy proceeding brought by Hasso's husband against the trustee. In this adversary action, Hasso and her husband alleged the trustee had converted the Sive note and deed of trust by "[i]ssuing assignments and other instruments intended to transfer title which were intended to give other parties title to the property of plaintiff or the ability to contest title to the property of plaintiff." This adversary action was later dismissed with prejudice in connection with a settlement between the trustee and the Hassos, which Sive claimed had res judicata effect on his complaint.

Second, Sive requested judicial notice of a cross-complaint filed in Orange County Superior Court (795613) by Hasso against the Johnsons for breach of fiduciary duty and conversion. The cross-complaint alleged that the "JOHNSONS caused perjured financial schedules and false financial statements to be issued by [La Sierra]. As a result of those wrongful activities, the debts owed by [La Sierra] to cross-complainant have been rendered worthless." Hasso obtained a $4 million default judgment against the Johnsons on the cross-complaint; Sive claims this money judgment constitutes an election of remedies on the note and bars her from now foreclosing on the trust deed that secures the note.

The trial court noted it had merely given Sive leave to file additional opposition to the summary judgment motion, not to file a new motion for judgment on the pleadings. However, the trial court reviewed the judicially noticed pleadings anyway and denied the motion for judgment on the pleadings. "No showing that OC cross-complaint even mentioned the Sive note. . . . NOTHING to show that Sive note was encompassed in the OC action. . . . [] Pleadings don't support relief requested. Sole issue before the Court is whether the Court should want to give plaintiff the opportunity to amend the complaint to plead the claims asserted in this motion. Moving party doesn't even state what causes of action this Judgment on the Pleadings is aimed at. [] It's too little too late to give leave to amend." Judgment for Hasso was entered on April 22, 2002.

DISCUSSION

Judgment on the Pleadings

Sive claims his motion for judgment on the pleadings should have been granted based on one or both of the theories he raised below: res judicata or election of remedies. He first contends the dismissal with prejudice of Hasso's adversary action against La Sierra's trustee in bankruptcy operated to adjudicate the conversion allegations in the trustee's favor and is res judicata on that issue. Because the trustee did not convert the note and trust deed, Sive reasons, he had the right to sell them, and the party taking from the trustee took them free and clear of any interest claimed by Hasso. Citing Rice v. Crow (2000) 81 Cal.App.4th 725, Sive asserts, "`[D]ismissal with prejudice [is] a retraxit constituting a decision on the merits invoking the principles of res judicata.'" (Id. at pp. 733-734.)

Res judicata "precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction." (Rice v. Crow, supra, 81 Cal.App.4th at p. 734, internal quotations and emphasis omitted.) The application of res judicata requires identical causes of action; thus, it has been called "claim preclusion." (Ibid.) A privy "is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, or purchase." (Id. at p. 735, internal quotations and citations omitted.) Collateral estoppel, on the other hand, bars relitigation of issues that were decided in prior litigation between the same parties if the issues: "(1) are identical to those litigated in the first action; (2) were actually litigated and necessarily decided in determining the first action; (3) are asserted against a participant in the first action or one in privity with that party; and (4) the former decision was final on the merits." (Ibid.)

The issues in Hasso's adversary action and Sive's action to stop the foreclosure were not identical. In the adversary action, the issue was whether the trustee converted the note and trust deed by selling it to the Johnsons and assigning it to their nominee. Resolving the conversion issue merely determined that the trustee either did or did not substantially interfere with Hasso's possession of the note. It did not necessarily determine that the trustee assigned the note and trust deed to Sam Holdings, Inc. free and clear of Hasso's interest.

Furthermore, the settlement agreement provided for a dismissal with prejudice of "any and all proofs of claim" the Hassos had against the bankruptcy estate. "As a result . . . the Hasso Parties, and each of them, understand and acknowledge that they are not creditors of the Debtor's bankruptcy estate and thus do not have standing as a creditor of the Estate to assert any claims against the Estate . . . ." However, the agreement expressly did not affect "the security interests in real property claimed by the Hasso Parties." And while the Hassos expressly released numerous entities from any and all claims arising from the bankruptcy case, the agreement expressly provided that the release provisions did not extend to "the Johnsons and their entities . . . [and] Geoffrey Sive." *fn1 Thus, neither res judicata nor collateral estoppel prevents Hasso from foreclosing on the trust deed.

Sive next contends Hasso elected money damages over the remedy of foreclosure when she obtained a default judgment on her cross-complaint against the Johnsons. Hasso responds by claiming the cross-complaint does not relate to the note and trust deed.

The cross-complaint alleged that Hasso was "the beneficiary of a revolving demand note from [La Sierra]." La Sierra had utilized Hasso's funds "to fund notes and deeds of trust which were required to be assigned to [Hasso and] was to service and collect the balances and payments owed on various notes on behalf of [Hasso]." The Johnsons took control of La Sierra, caused it to file bankruptcy, and "[c]aused perjured financial schedules and false financial statements to be issued by [La Sierra]. As a result of those wrongful activities, the debts owed by [La Sierra] to [Hasso] have been rendered worthless." Hasso alleged the Johnsons breached their fiduciary duty to her by, inter alia, "list[ing] the property of [Hasso] as the property of [La Sierra]." The conversion cause of action related specifically to three notes secured by deeds of trust, none of which was the Sive note.

Sive contends because the note was listed as an asset of La Sierra on the bankruptcy schedules, the default judgment compensated Hasso for the trustee's wrongful taking of the note and trust deed. But nothing in the cross-complaint or the default prove-up mentions the Sive note. The general reference in Hasso's cross-complaint to the wrongful listing of her property as an asset of La Sierra was in support of her cause of action against the Johnsons for breach of fiduciary duty to her as a creditor of La Sierra. The injury she alleged was rendering the debts owed to her by La Sierra as worthless. Despite Sive's contentions, there is no evidence that the Sive note and trust deed were ever debts of La Sierra to Hasso. Rather, they were given from Joan Marie Sive directly to Hasso. Furthermore, the cross-complaint predated the assignment of the Sive note and trust deed by several months. Summary Judgment

Sive contends if judgment on the pleadings is not granted in his favor, the summary judgment in favor of Hasso must be reversed. He claims the good faith sale of the note and trust deed from the bankruptcy trustee to the Johnsons' nominee cut off any interest Hasso had and that the "as-is, where-is" language in the assignment only protected the trustee from claims by the purchaser, rather than preserving Hasso's interest in the note. We disagree.

11 U.S.C.A. section 363(b) generally authorizes a bankruptcy trustee to sell property of the estate after notice and a hearing. But a trustee can convey only such right, title and interest as is vested in him as a result of the bankruptcy proceedings. (Marley v. United States (Ct.Cl. 1967) 381 F.2d 738, 743.) "Plaintiff Marley, as a purchaser subject to the `caveat emptor' admonition, could acquire no greater right, title, or interest than that of the trustee." (Ibid.) Security interests in the debtor's assets survive bankruptcy, absent special proceedings to disallow the claim. (In re Silliani (Bankr. S.D. Fl. 1981) 9 B.R. 188, 189.)

Sive points out that the bankruptcy court's order approving the sale states, "[T]he sale . . . has been undertaken in good faith under 11 U.S.C. Section 363(m)." Section 363(m) provides: "The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith . . . ." In a leap of logic, Sive insists the bankruptcy court order created good faith purchaser status in the Johnsons, thus conferring on them title to the Sive note and trust deed free and clear of all liens.

There are several flaws in this reasoning. First, the language of the order itself belies Sive's conclusion. It states the sale is undertaken in good faith; it does not refer to the status of the purchaser. Furthermore, the order incorporates the sale agreement, which expressly recites that the trustee is transferring "all right, title and/or interest, if any, he has in the following assets/adversary actions `as is', `where is' without any representations and/or warranties." A good faith purchaser is "one who buys in good faith and for value and without notice of adverse claims." (Cowans, Bankruptcy Law and Practice (7th ed. 1998) § 11.6, p. 154.) The agreement clearly indicates the Johnsons were on notice that the assets they were receiving were not necessarily "free and clear."

Second, subdivision (m) of section 363 protects a good faith purchaser against the invalidation of the trustee's authorization to sell. No one is attempting to invalidate the sale here; subdivision (m) simply does not apply.

Third, the Sive note and deed of trust were merely alleged to be assets of La Sierra as a fraudulent conveyance. The mere allegation of fraudulent conveyance does not make it so. A trustee may avoid a fraudulent transfer by bringing an adversary proceeding in the bankruptcy court, and the burden is on the trustee to present clear and convincing evidence of fraudulent intent. (11 U.S.C.A. § 548(a); Cowans, Bankruptcy Law and Practice, supra, § 10.9 (i), p. 552.) *fn2 Absent a final judgment in an adversary proceeding, Hasso's title to the note and trust deed remains intact.

Sanctions

Hasso asserts that Sive has misrepresented the record, citing two examples of error. Sive corrected the first example, which was incorrect, by an errata filing after the sanctions motion was filed. The second example is arguably correct. These kinds of briefing errors are not grounds for sanctions.

Hasso also asserts no reasonable attorney would argue the issues raised on appeal because they are devoid of merit. Although we have affirmed the judgment, the facts and procedural history are extremely complicated and the issues are not clear-cut. "An appeal that is simply without merit is not by definition frivolous and should not incur sanctions." (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650, emphasis in original.)

DISPOSITION

The judgment in favor of Hasso is affirmed. The motion for sanctions is denied. Hasso is entitled to costs on appeal.

WE CONCUR:

MOORE, J.
FYBEL, J.


Opinion Footnotes

*fn1 Sive claims the release provisions extend to the assigns of the bankruptcy trustee and do not exclude Sam Holdings, Inc. or S- B Investments. But the provisions exclude "the Johnson entities," of which Sam Holdings, Inc. is one. While they do not expressly exclude S- B Investments, they do exclude Sive himself.

*fn2 The Bankruptcy Act provides that a trustee can also invalidate fraudulent transfers under state law. (11 U.S.C.A. § 544(b)(1)


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