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 Post subject: FT - McClellan v. Sadat (5/22/2002)
PostPosted: Tue Feb 24, 2009 12:20 pm 

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McClellan v. Sadat,
No. B149569 (Cal.App. Dist.2 05/22/2002)

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

No. B149569

May 22, 2002

ROBERT E. MCCLELLAN, PLAINTIFF AND APPELLANT,

v.

SEID SADAT ET AL., DEFENDANTS AND RESPONDENTS.

APPEAL from orders of the Superior Court of Los Angeles County, Jerold A. Krieger, Judge. Affirmed. (Super. Ct. No. PC026574)

Fainsbert Mase & Snyder, Warren K. Miller and David G. Halm for Plaintiff and Appellant.

Geordan Goebel for Defendants and Respondents Northridge Park Townhome Owners Association, Inc. and City Core Property Management, Inc.

Karlin & Karlin and Marc A. Karlin for Defendants and Respondents Seid Sadat, Buyng K. Lee, Douglas Kautzky, Rafi Karapet, Robin Toder, Bernard Blau and Naginder K. Gaur.

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

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.

Plaintiff and appellant Robert E. McClellan dba McClellan Design and Construction (McClellan) appeals orders of dismissal following the sustaining of demurrers interposed by defendants and respondents Northridge Park Townhome Owners Association, Inc. (Northridge Park) and City Core Property Management Inc., dba Golden State Management Company (Golden State) (collectively, the corporate defendants) and Seid Sadat, Buyng K. Lee, Douglas Kautzky, Rafi Karapet, Robin Toder, Bernard Blau, and Naginder K. Gaur (collectively, the individual defendants) to McClellan's original complaint.

The essential issue presented is whether McClellan stated a cause of action for fraudulent conveyance or conspiracy to fraudulently convey assets.

Because the instant action is barred by res judicata, the trial court properly sustained the demurrers without leave to amend. The orders of dismissal are affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

1. The prior action. (No. PS0003223/B139452.)

On October 10, 1996, McClellan, a licensed contractor, entered into a contract with Peppertree North Condominium Association, Inc. (Peppertree) to perform earthquake repair work at Peppertree's 76-unit condominium complex (the complex) located in Northridge, California. Peppertree failed to pay McClellan for the work.

a. McClellan obtains arbitration award and judgment against Peppertree.

McClellan commenced an arbitration proceeding against Peppertree to collect the amount due under the contract. The arbitrator awarded McClellan damages of $141,000 plus 10 percent interest and attorney fees and costs.

On June 15, 1998, pursuant to McClellan's petition to confirm the award, the superior court entered judgment in the amount of $171,685.56 against Peppertree.

b. Peppertree's formation of Northridge Park as its successor corporation.

On December 17, 1997, at a meeting of Peppertree's board of directors, a bankruptcy attorney recommended to the board that filing bankruptcy and starting a new association was the best course of action, given Peppertree's debts.

In accordance with counsel's advice, Peppertree filed a bankruptcy petition, which was dismissed, and is not relevant here.

On June 2, 1998, the board of directors of Peppertree caused the filing of articles of incorporation for Northridge Park, a new corporation, which immediately became the homeowners association for the complex. In addition, new covenants, conditions and restrictions (CC&R's) for Northridge Park were recorded with the county recorder.

c. McClellan's motion to amend the judgment to add Northridge Park as a judgment debtor.

On October 27, 1999, McClellan filed a motion in the superior court to amend the judgment to add Northridge Park as a judgment debtor. The motion was made on the grounds that Northridge Park was merely a continuation of Peppertree and was created to hinder, delay and defraud Peppertree's creditors. McClellan presented evidence to show that "aside from the name, there is no difference whatsoever [between] [Peppertree] and Northridge Park. Northridge Park conducts the same business, collects the same revenues, operates through the same Board of Directors, has the same management company and presides over the same Condominiums, as did [Peppertree]."

On January 14, 2000, following a hearing, the trial court granted McClellan's motion to amend the judgment. The trial court found Northridge Park was the successor corporation to Peppertree and that good cause existed to grant the motion to amend. The amended judgment was entered on February 4, 2000. Northridge Park appealed.

d. Trial court's grant of McClellan's motion for an assignment order.

While that appeal was pending, on or about July 24, 2000, McClellan filed a motion in the trial court for an assignment order in order to collect the judgment out of Northridge Park's homeowners dues. (Code Civ. Proc., § 708.510.) *fn1 In the motion, McClellan asserted that following entry of the amended judgment against Northridge Park, it had taken steps to hide assets that could be utilized to satisfy the judgment. Specifically, Northridge Park had made advance payments of $20,000 to the Department of Water and Power (DWP), $6,750 to its gardener, Luis Ponce Gardening Service (the gardener), and $2,753 to State Farm Insurance Company (State Farm), and had "siphoned off" money and shuffled monies between its accounts to avoid paying McClellan.

On September 1, 2000, the trial court granted McClellan's motion for an assignment order, and ordered Northridge Park to pay McClellan at the rate of $5,000 per month until the amended judgment is paid in full. Northridge Park has been complying with the assignment order.

e. The amended judgment is affirmed on appeal.

In McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746 (rev. denied), this court affirmed the amended judgment. We found substantial evidence supported the trial court's determination naming Northridge Park as an additional judgment debtor due to its status as Peppertree's successor corporation. (Id. at pp. 755-756.) "As stated in Blank v. Olcovich Shoe Corp. [(1937)] 20 Cal.App.2d [456,] 461, `corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old.' Here, substantial evidence supports the conclusion that Northridge Park was a mere continuation of Peppertree. Therefore, the trial court properly imposed successor liability on Northridge Park for Peppertree's debt to McClellan." (McClellan, supra, 89 Cal.App.4th at p. 756.)

2. The instant action. (No. PC026574/B149569.)

a. McClellan's complaint.

On November 22, 2000, after the trial court had amended the judgment to name Northridge Park as an additional judgment debtor, and after the trial court had granted McClellan's motion for an assignment order, McClellan filed the instant action against the corporate defendants and the individual defendants.

In the first cause of action, which was directed against Peppertree and Northridge Park, McClellan alleged the transfer of assets from Peppertree to Northridge Park was a fraudulent conveyance which was made with an actual intent to hinder, delay or defraud McClellan, a creditor.

The second cause of action also related to the transfer of assets from Peppertree to Northridge Park. The second cause of action, captioned "conspiracy to fraudulently convey assets," was directed against Sadat, Lee, Kautzky and Karapet, as directors of Peppertree and Northridge Park, and against Golden State, as the management company for the two homeowners associations. In this cause of action, McClellan alleged that defendants conspired to transfer Peppertree's assets to Northridge Park in order to hinder, delay and defraud McClellan from collecting his judgment.

The third cause of action likewise was captioned "conspiracy to fraudulently convey assets," and named as defendants Sadat, Lee, Kautzky, Karapet, Toder, Blau and Gaur. This cause of action arose out of the advance payments made by Northridge Park to various vendors. Here, McClellan pled that on or about May 19, 2000, the defendants took action to hinder, delay and defraud McClellan from collecting the judgment by making advance payments to the DWP, the gardener, and State Farm, and by transferring cash among various bank accounts.

b. Defendants' demurrers.

The individual defendants demurred, contending McClellan had pled only conspiracy causes of action against them, but no cause of action for conspiracy exists in the absence of an actionable tort claim. Further, pursuant to Civil Code section 1365.7, which limits the personal liability of a volunteer officer or volunteer director of a homeowners' association for any tortious act or omission committed in his or her role as an officer or director, defendants were statutorily immune from liability for the acts alleged in the complaint. Also, McClellan's latest complaint violated the primary rights doctrine, which allows a single cause of action for the violation of a single primary right.

The corporate defendants likewise demurred, contending the complaint failed to state facts sufficient to state a cause of action, there was another action pending between the same parties on the same cause of action, and the complaint was barred by res judicata in that McClellan had prevailed in his action against Peppertree and he was collecting money on the judgment from Northridge Park every month pursuant to the assignment order.

c. Trial court's ruling.

On February 22, 2001, the matter came on for hearing. The trial court sustained the demurrers of the corporate defendants and the individual defendants without leave to amend. In making its ruling, the trial court observed there was no fraudulent conveyance to a third party because Peppertree and Northridge Park were the same entity, so that "when Peppertree transfers it to Northridge, it's transferring it to itself." The trial court also found the advance payments to Northridge Park's vendors did not come within the definition of a fraudulent conveyance.

McClellan filed a timely notice of appeal from the orders of dismissal. *fn2

CONTENTIONS

McClellan contends: he alleged sufficient facts to state causes of action for fraudulent conveyance and conspiracy to fraudulently convey assets; and the amended judgment and assignment order do not preclude him from bringing these causes of action against defendants.

DISCUSSION

1. Standard of appellate review.

A demurrer serves to test the sufficiency of a pleading by raising questions of law. (Buford v. State of California (1980) 104 Cal.App.3d 811, 818.) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The allegations are regarded as true and are liberally construed with a view to attaining substantial justice. (Shaeffer v. State of California (1970) 3 Cal.App.3d 348, 354; King v. Central Bank (1977) 18 Cal.3d 840, 843.)

In addition to the complaint, other relevant matters which are properly the subject of judicial notice, such as the amended judgment and the assignment order, may be treated as having been pled. (Evid. Code, §§ 452, subd. (d), 459; Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 128.)

Generally, when a demurrer is sustained without leave to amend, we decide whether there is a reasonable possibility the defect can be cured by amendment. If it can, the trial court abused its discretion and we reverse; if not, there was no abuse of discretion and we affirm. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)

However, where, as here, a demurrer is sustained to the original complaint, denial of leave to amend constitutes an abuse of discretion if the pleading does not show on its face that it is incapable of amendment. (King v. Mortimer (1948) 83 Cal.App.2d 153, 158.)

2. Trial court properly sustained demurrers without leave to amend because the entire action is barred by res judicata.

As indicated, the complaint purports to allege two types of fraudulent conveyances: (1) the transfer of assets from Peppertree to Northridge; and (2) following the entry of the amended judgment against Northridge Park, the advance payments made by Northridge Park to various vendors as well as the transfer of monies among various Northridge Park accounts. We address these issues seriatim.

a. Res judicata: general principles.

"The doctrine of res judicata precludes parties or their privies from relitigating a cause of action that has been finally determined by a court of competent jurisdiction. Any issue necessarily decided in such litigation is conclusively determined as to the parties or their privies if it is involved in a subsequent lawsuit on a different cause of action. [Citations.] The rule is based upon the sound public policy of limiting litigation by preventing a party who has had one fair trial on an issue from again drawing it into controversy. [Citations.] The doctrine also serves to protect persons from being twice vexed for the same cause. [Citation.]" (Bernhard v. Bank of America (1942) 19 Cal.2d 807, 810-811.)

Res judicata applies when (1) the issues decided in the prior proceeding are identical to those in the second litigation; (2) there was a final judgment on the merits in the prior action; and (3) the party against whom the doctrine is asserted was a party or in privity with a party to the prior adjudication. (Citizens for Open Access etc. Tide, Inc. v. Seadrift Assn. (1998) 60 Cal.App.4th 1053, 1065.)

McClellan, against whom the doctrine is being asserted, was a party to the prior action as well as to the instant action. Further, the prior action resulted in a final judgment on the merits. Therefore, the only question here is whether the prior action and the instant action involve the same issues.

b. The two actions involve an identity of issues.

(1) The prior action, like the instant action, involved the transfer of Peppertree's assets to Northridge Park.

In the instant action, in the first and second causes of action, McClellan purports to state causes of action against the corporate defendants and certain individual defendants for a fraudulent conveyance of Peppertree's assets to Northridge Park.

The issue of the transfer from Peppertree to Northridge Park was fully litigated in the prior action. As indicated, following the transfer of Peppertree's assets to Northridge Park, McClellan brought a motion in the trial court to amend the judgment to add Northridge Park as a party to the judgment. The trial court granted McClellan the relief he sought, and entered an amended judgment naming Northridge Park as an additional judgment debtor. That ruling was affirmed on appeal. (McClellan, supra, 89 Cal.App.4th 747.)

Because McClellan already has litigated his claims arising out of the transfer of Peppertree's assets to Northridge Park, his attempt in the first and second causes of action of the instant complaint to relitigate those issues is barred by res judicata.

(2) The prior action, like the instant action, involved the advance payments to Northridge Park's vendors and the transfer of monies among the various Northridge Park accounts.

In the third cause of action, McClellan pled that on or about May 19, 2000, after entry of the amended judgment against Northridge Park, the individual defendants took action to hinder, delay and defraud McClellan from collecting the judgment by making advance payments to the DWP, the gardener, and State Farm, and by transferring cash among various bank accounts.

The issues of the advance payments and the transfer of cash among various Northridge Park accounts likewise were litigated in the prior action. As indicated, on or about July 24, 2000, McClellan filed a motion in the prior action for an assignment order. In the motion, McClellan asserted that following entry of the amended judgment against Northridge Park, it had taken steps to hide assets that could be utilized to satisfy the judgment. Specifically, Northridge Park had made advance payments of $20,000 to the DWP, $6,750 to its gardener, and $2,753 to State Farm, and had shuffled monies between its accounts to avoid making payment to McClellan.

On September 1, 2000, the trial court granted McClellan's motion for an assignment order. It ordered Northridge Park to pay McClellan at the rate of $5,000 per month until the amended judgment is paid in full, and Northridge Park has been complying with the assignment order.

Because McClellan already has litigated his claims arising out of the advance payments to Northridge Park's vendors, and the transfer of monies among Northridge Park's accounts, and has obtained relief by way of the assignment order, McClellan's attempt in the third cause of action of the instant complaint to relitigate those issues is also barred by res judicata. *fn3

c. No abuse of discretion in denial of leave to amend.

Because McClellan fails to show how he could plead around the bar of res judicata, we perceive no abuse of discretion in the trial court's sustaining of defendants' demurrers without leave to amend.

3. Remaining issues not reached.

In view of the above, it is unnecessary to address any other possible defects in the pleadings, or any other issues.

DISPOSITION

The orders of dismissal are affirmed. Respondents shall recover their costs on appeal.

We concur:

CROSKEY, J.

ALDRICH, J.


Opinion Footnotes

*fn1 Code of Civil Procedure section 708.510, pertaining to enforcement of judgments, provides that upon application of a judgment creditor, the court may order the judgment debtor to assign to the judgment creditor all or part of a right to payment due or to become due.

*fn2 An order of dismissal signed by a trial court and filed in the action constitutes a judgment and is effective for all purposes. (Code Civ. Proc. § 581d.)

*fn3 McClellan cites, inter alia, Cortez v. Vogt (1997) 52 Cal.App.4th 917, 929, for the proposition that the remedies of the Uniform Fraudulent Transfer Act (Civ. Code § 3439 et seq.) are cumulative to the remedies applicable to fraudulent conveyances that existed before the uniform laws went into effect. Be that as it may, because McClellan's claims in the prior action and in the instant action involve the identical issues, the doctrine of res judicata bars the instant action.


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