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 Post subject: FT -Solar Precision v. Cubic (4/27/2004) Civil Conspiracy
PostPosted: Thu Feb 26, 2009 3:47 pm 

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Solar Precision Products v. Cubic Technologies
2004.CA.0003741 (Cal.App. Dist.2 04/27/2004)

Synopsis

In the case at bar, a judgment debtor corporation’s assets were transferred to a corporate insider who continued the business using a new corporate entity. Solar Precision Products, Inc. appeals from a summary judgment entered in favor of Cubic Technologies, Inc. The complaint alleged that Solar obtained a judgment from Helisys, Inc., which had never been paid and that Helisys transferred it’s assets to Cubic without adequate consideration, in an effort to hinder or delay the collection of Solar’s judgment. The court found that there was no claim for civil conspiracy, as the conspiracy must be initiated by the commission of an actual civil wrong.


Opinion

Solar Precision Products, Inc. v. Cubic Technologies, Inc.,
2004.CA.0003741 (Cal.App. Dist.2 04/27/2004)

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

B165500

2004.CA.0003741

April 27, 2004

SOLAR PRECISION PRODUCTS, INC., PLAINTIFF AND APPELLANT,
v.
CUBIC TECHNOLOGIES, INC., ET AL., DEFENDANTS AND RESPONDENTS.

APPEAL from a judgment of the Superior Court of Los Angeles County. Andria K. Richey, Judge. Reversed, and remanded. (Los Angeles County Super. Ct. No. BC266454)

John A. Goalwin for Plaintiff and Appellant.

Laflam / Dale and Joshua R. Dale for Defendants and Respondents.

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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.

Solar Precision Products, Inc. (Solar), appeals from a summary judgment entered in favor of respondents Cubic Technologies, Inc. (Cubic), Cruttenden Partners, Walter Cruttenden, John Chan, and Michael Feygin in Solar's action for fraudulent transfer. Solar's complaint alleged that it had obtained a judgment against Helisys, Inc. (Helisys), which had never been paid and that Helisys transferred its assets to Cubic without valid or sufficient consideration for the purpose of hindering, delaying, preventing, and defrauding the collection of Solar's judgment. The complaint also alleged a count for conspiracy. The trial court found that the transfer of assets was not a fraudulent transfer (Civ. Code, § 3429.01, subds. (a)(1), (i)) and that California law does not recognize an independent tort of conspiracy. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

Solar filed its complaint in January 2002. Respondents answered and, in September 2002, filed their motion for summary judgment.

Respondents' evidence in support of their motion tended to show the following. In 1997, Comerica Bank California (Comerica) perfected a blanket lien on the tangible and intangible assets of Helisys. Cruttenden guaranteed a line of credit extended to Helisys by Comerica. Helisys defaulted on its obligations to Comerica. Cruttenden paid Comerica approximately $240,000 to satisfy the debt. Cruttenden assumed Comerica's position as the senior secured creditor of Helisys and foreclosed on the assets. The foreclosure was handled by attorneys, with Cruttenden making a written demand for payment, and Helisys transferring the assets. Helisys's tangible assets were shopped to equipment brokers, and the best offer received was $25,000.

Solar opposed the motion. It conceded that Comerica had extended credit to Helisys, that Helisys defaulted, that Cruttenden paid approximately $240,000 to satisfy the debt, and that the best offer received from the equipment brokers was $25,000. It asserted that respondents had put on no evidence to support its position that Cruttenden assumed Comerica's position as senior secured creditor and that Cruttenden foreclosed on the assets. Solar pointed out that Cruttenden followed no formal process in foreclosing on the assets, that Helisys was never legally dissolved, that Cubic has the same address as Helisys, that Cruttenden owned a substantial amount of stock in Helisys and now owns a substantial amount of stock in Cubic, and that Chan, a former director of Helisys, is an officer of Cubic. Solar also asserted that respondents' only alternative attempt to dispose of assets was to acquire liquidation bids.

In their reply, respondents urged that Solar's additional evidence was irrelevant and that respondents' evidence showed that Cruttenden assumed Comerica's position as senior secured creditor and foreclosed on the assets.

The trial court granted summary judgment and this appeal followed.

DISCUSSION

"A defendant . . . has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto." (Code Civ. Proc., § 437c, subd. (p)(2).) We review the grant of summary judgment de novo. (Colarossi v. Coty US Inc. (2002) 97 Cal.App.4th 1142, 1149.)

Solar contends that this case is controlled by Economy Refining & Service Co. v. Royal Nat. Bank of New York (1971) 20 Cal.App.3d 434 (Economy). In Economy, a judgment debtor corporation conveyed its assets, through its president and his associates, to a new corporation. The president had previously loaned the debtor corporation $200,000, reflected in convertible notes and secured by the debtor corporation's assets. The president testified that he transferred the assets because the debtor corporation's outstanding debts were greater than its assets, and that the only way to save any part of his investment was to transfer the business to a separate entity not burdened by debt. The court noted that the transfer of all the assets of a corporation in straitened circumstances, without fair consideration, to a corporation having substantially the same ownership, by which the just claims of creditors are defeated, is fraudulent in nature. (Id. at p. 439; see Franklin v. USX Corp. (2001) 87 Cal.App.4th 615, 626-627 [failure of consideration was a key element of the court's holding in Economy].) The court found that the president had not given fair consideration -- his notes were not canceled -- and that the debtor corporation was not dissolved. (Economy, at p. 441.) It concluded that the president's action was taken with an intent to hinder or defraud creditors in that the president knew that his decision to transfer the assets would hurt the bank, even if he had no malicious intent. (Ibid.)

The present case is similar to Economy, in that a failing corporation's assets were transferred to a corporate insider who apparently continued the business using a new corporate entity. Cruttenden testified that he believed "that if we formed a new company to try to throw these assets that I now owned into and try to sell some paper and some business that Helisys had that seemed like it could be viable, I would have a shot to get my money back." Respondents urge that the present case is not analogous because they showed that Cruttenden paid reasonably equivalent value by satisfying the Comerica note. We disagree.

Helisys was apparently involved in rapid prototype equipment technology. According to Cruttenden, when he was hired in 1995, Helisys was a "$10 million+ enterprise." Comerica's lien in Helisys property extended to its patent and trademark holdings. The only evidence presented by respondents regarding the value of the Helisys assets was in the form of offers from liquidators for its physical assets. There is no estimate of the value of the company's intellectual property, goodwill, or trade secrets. Respondents therefore failed to show that Cruttenden paid reasonably equivalent value for the assets.

Respondents urge that Economy predates the Uniform Fraudulent Transfer Act (Civ. Code, §§ 3439-3439.12) (UFTA), under which the transfer would not be considered fraudulent. Under the UFTA, "a transfer of assets made by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer, if the debtor made the transfer (1) with an actual intent to hinder, delay or defraud any creditor, or (2) without receiving reasonably equivalent value in return, and either (a) was engaged in or about to engage in a business or transaction for which the debtor's assets were unreasonably small, or (b) intended to, or reasonably believed, or reasonably should have believed, that he or she would incur debts beyond his or her ability to pay as they became due." (Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1635; Civ. Code, § 3439.04.) "A transfer by a debtor is fraudulent as to creditors whose claims arose before the transfer if the debtor made the transfer (1) without receiving reasonably equivalent value in exchange, and (2) either (a) was insolvent at the time of the transfer, or (b) became insolvent as a result of the transfer." (Monastra, at p. 1635; Civ. Code, § 3439.05.)

Under UFTA, the key is whether the debtor received "reasonably equivalent value" for the assets. Respondents do not argue that this is a different standard than "fair consideration" required in Economy, supra, 20 Cal.App.3d at page 439. As noted above, respondents did not show the value of Helisys's assets. They therefore did not meet their burden of showing that they paid fair consideration for the assets.

Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, relied upon by respondents, is distinguishable. That case upheld modest draws received by law partners in return for their legal work. (Id. at pp. 1295-1296.) In the present case, by contrast, respondents failed to show that Cruttenden provided reasonably equivalent value for the assets he received.

Respondents urge in the alternative that the transaction at issue is not a transfer as defined by UFTA. Civil Code sections 3439.04 and 3439.05 require a transfer to occur in order for a party to show that such transfer was fraudulent. Transfer is defined by UFTA as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." (§ 3439.01, subd. (i).) UFTA defines asset as "property of a debtor, but the term does not include, the following: [] (1) Property to the extent it is encumbered by a valid lien." (§ 3439.01, subd. (a).) Respondents' evidence tended to show that Cruttenden's payment of $240,000 was secured by Helisys's assets. The extent to which the assets were encumbered by a valid lien could not be determined below, because there was insufficient evidence to show the value of those assets. Respondents have not shown that they are entitled to judgment. For the same reason, respondents failed to show that Solar was not injured because the assets were insufficient to satisfy Cruttenden's security interest in them. (See Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75, 81-82 [a creditor has not been injured by a fraudulent transfer unless it puts beyond reach property that otherwise would be subject to payment of the debt].)

Respondents also assert that Solar produced no evidence showing that Chan, Feygin, or Cruttenden Partners are liable for any fraudulent transfer. It was not required to do so. Respondents argued below that there is no separate tort of civil conspiracy, and that the count affords no relief unless Solar prevails on its fraudulent transfer claim. Since we reverse with regard to the fraudulent transfer claim, we also reverse the conspiracy claim. (See Monastra v. Konica Business Machines, U.S.A., Inc., supra, 43 Cal.App.4th at pp. 1644-1645 [conspiracy must be "activated" by the commission of an actual civil wrong, such as a fraudulent transfer].)

DISPOSITION

The judgment appealed from is reversed. The matter is remanded for proceedings consistent with this opinion. Solar Precision Products, Inc., shall recover its costs of appeal from respondents.

NOT FOR PUBLICATION.

We concur:

BOREN, P.J.

DOI TODD, J.


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