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 Post subject: FT - Reilly v. Smith (6/9/2004)
PostPosted: Thu Feb 26, 2009 3:51 pm 

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Reilly v. Smith
2004.CA.0005136 (Cal.App. Dist.4 06/09/2004)

Synopsis

In the case at bar, respondent and appellant were divorced with one child. Appellee agreed to pay $250 per month in child support. Both parties ended up moving to California. The child support payments continued, but then they abruptly stopped. Appellant and Joanne Knoblock took title to a piece of real property in California, as joint tenants to property. Respondent then filed a complaint for avoidance of a fraudulent transfer action. Appellant contends that he had no actual ownership in the house, and there was no fraudulent intent involved. He claimed that Knoblock had the money for the down payment but did not qualify for a loan because she lacked the required income.

The court considers the value of appellants’ interest in the house. If his interest in the house is a non-exempt amount, then it is not a fraudulent transfer. The court finds that without proof of its value, respondent did not prove that attaching the property could support any net recovery for her if and when the conveyance was set aside.


Opinion

[U] Reilly v. Smith, 2004.CA.0005136 (Cal.App. Dist.4 06/09/2004)

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

G031700

2004.CA.0005136
June 9, 2004

MELINDA MAGINN REILLY, PLAINTIFF AND RESPONDENT,
v.
MERRILL WAYNE SMITH ET AL., DEFENDANTS AND APPELLANTS.

Appeal from a judgment of the Superior Court of Orange County, Mason L. Fenton, Judge. Affirmed. (Super. Ct. No. 01CC02435)

Law Offices of Michael G. York and Michael G. York for Defendants and Appellants.

Roland E. Bye for Plaintiff and Respondent.

The opinion of the court was delivered by: Moore, 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

The trial court's failure to give appellant time to file objections to the statement of decision was harmless error. Leave to permit the filing of amended pleadings posttrial was properly granted. We affirm.

I. FACTS

Melinda Maginn Reilly, respondent, and Merrill Wayne Smith, appellant, were divorced in 1993. They had one child during their marriage. A New Jersey court ordered Smith to pay $250 per week in child support. At some point, both parties moved to California. Smith paid the child support as ordered through August 1995, but paid no support from September 1995 until 1999 when he was under threat of being jailed for contempt of court.

On September 27, 1994, Smith and Joanne Knoblock took title as joint tenants to property located in Orange, California (the property). On April 11, 1996, appellant quitclaimed his rights to the Pinewood property to Knoblock in exchange for $1. The deed was recorded on February 27, 1997. On May 28, 1997, Smith filed a Chapter 7 bankruptcy and was later discharged from all dischargeable debts.

Reilly filed a complaint for avoidance of fraudulent transfer and damages on February 16, 2001. At the time of filing, Smith was $91,787.88 in arrears for his child support obligation. In her lawsuit, Reilly alleged the transfer was fraudulent and made with the intent to hinder, delay or defraud her because she was appellant's creditor.

Smith explains he had no actual ownership in the house, and there was no fraudulent intent involved. He says Knoblock had cash for a down payment and closing costs for the Pinewood purchase but did not qualify for a loan because she lacked the required income. But Smith's earnings qualified for the income requirement. According to Smith, he and Knoblock entered into a written agreement that "Knoblock would pay the down payment and the closing costs, and that [his] income would be used to qualify for the loan. Since Defendant Knoblock's funds were being used to pay the down payment and the closing costs, the written agreement provides that the house would be owned by Defendant Knoblock, and that eighteen months after the purchase, [he] would transfer his title to the house to Defendant Knoblock."

After a court trial, judgment was entered in favor of Reilly on November 8, 2002. The court declared the quitclaim deed to be void and ordered that respondent shall be entitled to execute on appellant's interest in the property, for the purpose of enforcing any court ordered obligations by Smith to Reilly.

Appellant argues the judgment must be reversed because the trial court failed to issue a statement of decision as to a principal controverted issue. He also contends the trial court erred in granting leave to amend the pleadings posttrial. Lastly, he maintains that Reilly failed to prove there was a fraudulent transfer.

II. DISCUSSION

Statement of decision

In his argument regarding his perceived inadequate statement of decision, Smith argues the judgment must be reversed because the trial court failed to issue a statement of decision as to a principal controverted issue. His point is that the evidence does not show the value of any interest he had in the Pinewood house exceeded the amount of the homestead exemption. He filed a request for a statement of decision asking the court to explain: "If [appellant] had an interest in the Pinewood house on February 17, 1997, the value of his interest."

The route to the statement of decision was long and arduous. A tentative statement of decision was sent to the parties, but neither side cited a record reference for it and we have been unable to locate it. Appellant filed objections to the tentative statement of decision. Alas, the objections are limited to page and line numbers, so we do not know exactly what objections appellant made. The court conducted a hearing on the objections on June 14, 2002. Appellant did argue at the hearing that he objected that the court had not addressed the value of his interest in the Pinewood property on February 27, 1997. He argued, "The statute specifically says transfer's only fraudulent if it's non-exempt property. So the question is if the exemption is 50,000, what was the value of Mr. Smith's interest? If the value of Mr. Smiths interest is less than $50,000, then as a matter of law it's not a fraudulent transfer and that's why it's a critical issue in terms of what was the value of his interest on the date of the transfer because that determines whether the property is exempt or not or if the property is partially exempt what portion of the property is exempt." In response, respondent's counsel argued there was no issue in the pleadings and no proof on that issue. Apparently the court agreed, since the judge stated, "No, I'm not going to consider that any further."

According to Smith, "[r]espondent eventually came to the realization that she failed to present any evidence in support of a required element of a cause of action for fraudulent transfer." On July 5, 2002, months after the trial was completed, respondent filed a motion for leave to file a first amended complaint to conform to proof. The court granted the motion on October 25, 2002. The first amended complaint alleged appellant's purported transfer of his interest in the Pinewood property was a sham.

The statement of decision was signed and filed on November 8, 2002. On November 19, 2002, appellant filed an objection to the statement of decision. He objected that it did not explain the factual and legal basis for the court's decision regarding whether appellant had an interest in the Pinewood house on February 27, 1997 and the value of his interest. Other than entering judgment, the record does not reflect the court took any further action.

Code of Civil Procedure, section 632 requires a court to issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of a party. The parties and the record provide no indication to us that the value of Smith's interest in the Pinewood property was a principal controverted issue in the case. The statement of decision says that Smith was the beneficial owner of one-half interest in the property. The judgment declared the quitclaim deed void and states respondent shall be entitled to execute on appellant's interest in the property, "just as if the Quitclaim Deed had never been recorded." The judgment does not state there was a fraudulent transfer. The trial court merely stated respondent may execute on whatever interest appellant has in the Pinewood property as if the quitclaim deed had not been filed.

The trial court should not have signed the statement of decision without allowing time for objections. (Cal. Rules of Court, rule 232(e).) But the court's error did not prejudice appellant. "No judgment, decision, or decree shall be reversed or affected by reason of any error, ruling, instruction, or defect, unless . . . a different result would have been probable if such error, ruling, instruction or defect had not occurred or existed." (Code Civ. Proc., § 475.) The objection that was filed was based on an issue that was not a principal controverted one in the case. The error was harmless.

Motion to amend pleading

Smith contends the court erred in granting leave to amend the complaint. From his view, the amended pleading was not justified on the ground the amendment was made to conform to proof at trial because it raised new issues. He claims he was denied his right to present evidence on the issue of whether or not there was a transfer. Appellant cites Richter v. Adams (1937) 19 Cal.App.2d 572, 578: "A commonly recognized limitation upon the propriety of amendments to conform to the proof is that they must not introduce a new cause of action, or substantially change the claim or defense, or the cause of action, or the nature of the action or defense."

To support his argument, Smith states that prior to trial, Reilly stipulated there was a transfer. The joint list of stipulated facts states: "Smith signed a deed transferring to Knoblock his joint tenancy interest in the Property, and on February 27, 1997, the deed was recorded." During trial, Reilly made arguments which stated there was a transfer. For example, in her closing brief, she states, "Having transferred the house to Knoblock, Smith was free to pursue his new role as a dead beat dad, and for six years he paid nothing in child support except when threatened with 32 days of jail time."

A judgment or order of a lower court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.) "No judgment shall be set aside, or new trial granted, in any cause, on the ground of misdirection of the jury, or of the improper admission or rejection of evidence, or for any error as to any matter of pleading, or for any error as to any matter of procedure, unless, after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice." (Cal. Const., art. VI, s 13.)

We have been provided only selected portions of the reporter's transcript. Therefore, we are unable to examine the entire record. What segments there are in the appellate record do not lead us to believe there has been a miscarriage of justice.

Reilly's motion to amend her complaint states when the case was filed, she knew only that there was a quitclaim deed and that it appeared to be fraudulent. But she said at trial the evidence revealed the purported transfer appeared to be a sham since Smith retained all of the incidents of ownership. He continued to live at the property. He ran his business out of the property. He deducted all interest payments on the mortgage from his tax returns, and he continued to hold himself out as the owner.

The statement of decision states: "Although Smith and Knoblock claimed at trial that Smith never owned an equitable interest in the Property, they produced no credible evidence to support their claim. The testimony by Smith and Knoblock on this issue was not credible and was contradicted by their own sworn testimony and by documents which they did not dispute. Among other things, the evidence at trial proved that: Smith took and held title to the Property as a joint tenant with Knoblock; he applied for a loan on the Property, and signed escrow documents in which he represented himself to be one of the purchasers of the Property; he signed a promissory note and trust deed as an owner of the Property; and in every way Smith held himself out to be an owner of the Property."

When all intendments and presumptions are indulged in favor of its correctness of the judgment, there is no cause to reverse the instant judgment. From the record provided, it appears the court permitted the posttrial amendment to the complaint to conform to proof.

Fraudulent transfer

Smith next contends a transfer of an asset is not fraudulent unless it puts beyond reach property that otherwise would be subject to payment of a debt. The basis of his argument appears to be that Reilly did not prove her case since she did not prove the value of his interest in the Pinewood property. Without proof of its value, Reilly did not prove that attaching the property could support any net recovery for her if and when the conveyance was set aside.

This argument is irrelevant in light of the trial court's findings. The court granted leave to file the first amended complaint. The judgment mentions nothing about a fraudulent transfer. Thus, Smith's argument that no fraudulent transfer accrued is without import. We presume the trial court based its decision on the evidence presented at trial.

III. DISPOSITION

The judgment is affirmed. Respondent is awarded costs on appeal.

WE CONCUR:

SILLS, P.J.

RYLAARSDAM, J.


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