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 Post subject: FT - Lavetts v. Cutter (11/10/2004)
PostPosted: Thu Feb 26, 2009 6:42 pm 

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Victoria Lavetts v. Matthew J. Cutter et al.,
No. B172197 (Cal.App. 11/10/2004)
COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT,
DIVISION FIVE

November 10, 2004, Filed

NOTICE: [*1] NOT TO BE PUBLISHED IN OFFICIAL REPORTS. CALIFORNIA RULES OF COURT, RULE 977(a), PROHIBIT 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 THIS OPINION HAS NOT BEEN CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED FOR THE PURPOSES OF RULE 977.

PRIOR HISTORY: APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC274427, Joseph R. Kalin, Judge.

DISPOSITION: Affirmed.

COUNSEL: Rogers & Harris and Michael Harris for Plaintiff and Appellant.

Law Offices of John R. Fischer and John R. Fischer for Defendant and Respondent Edward Cutter.

No appearance for Defendant and Respondent Matthew Cutter.

JUDGES: GRIGNON, J.; TURNER, P. J., and ARMSTRONG, J., concurred.

OPINIONBY: GRIGNON

OPINION: Plaintiff Victoria Lavetts appeals from a judgment following a court trial in favor of defendant Edward Cutter, individually and as trustee of the Edward W. Cutter 2nd Irrevocable Intervivos Trust and a judgment following a default prove-up hearing in favor of defendant Matthew Cutter, in this action to set aside a fraudulent conveyance. n1 Lavetts contends the trial court's finding that Matthew received a reasonably equivalent [*2] value in exchange for real property transferred to Edward was not supported by substantial evidence. We affirm.

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n1 Because more than one defendant shares the last name Cutter, they will be referred to individually by their first names and collectively as "the Cutters." Matthew has not filed a respondent's brief in this appeal.

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -FACTS

Matthew and Edward are brothers. In 1999, Matthew owned residential rental property on Dickens Avenue in Sherman Oaks and a three-unit residential property on Wilkinson Avenue in North Hollywood. Both properties were subject to loans and deeds of trust. The Wilkinson property was in a state of disrepair and was not rented. Matthew was self-employed as a handyman and had little income.

Matthew and Lavetts began a romantic relationship. Matthew began to live with Lavetts in a residence she owned. They purchased a residence together on Sunshine Terrace that needed repairs. Matthew intended to repair and rent the Wilkinson property units to pay his share of the Sunshine Terrace [*3] mortgage payments. However, Matthew never made the repairs. The mortgage payments on the Sunshine Terrace property and other support was paid primarily by Lavetts. At some point, Matthew moved into the Sunshine Terrace residence. The relationship of Matthew and Lavetts ended in January 2001. Matthew continued to live in the Sunshine Terrace residence, while Lavetts lived in her residence. Lavetts told Matthew that she could not continue to make the Sunshine Terrace mortgage payments.

Lavetts filed an ejectment action against Matthew. Lavetts spoke to Edward about the lawsuit and her inability to continue paying the Sunshine Terrace mortgage. Although Edward was aware of the ejectment action, he did not know Matthew owed Lavetts a substantial sum of money. Between 2000 and 2002, Edward had made irregular payments on Matthew's behalf for the Wilkinson and Sunshine Terrace mortgages and property repairs. These payments were loans from Edward to Matthew. Although Edward and Matthew did not execute formal loan documents, Edward had cancelled checks for payments made on Matthew's behalf totaling approximately $ 20,000. Edward estimated the total he had advanced to Matthew was in excess [*4] of $ 50,000. An entry of default was entered against Matthew in favor of Lavetts in the ejectment action. At some point, Matthew moved out of the Sunshine Terrace property and into one of the Wilkinson units. Lavetts sold the Sunshine Terrace residence.

Matthew's lender foreclosed on the Dickens Avenue property. In addition, foreclosure proceedings were commenced against the Wilkinson property and a foreclosure sale was scheduled for March 14, 2002. The Wilkinson property was in very poor condition. Matthew occupied the front unit. Neither of the other two units were occupied. Matthew owed approximately $ 155,000 on the property, including fees and penalties. Matthew told Edward that the property was worth $ 175,000. Matthew offered to give Edward the Wilkinson property in exchange for the amount of his outstanding loan from Edward. Edward agreed.

On January 18, 2002, Matthew transferred the Wilkinson property to Edward's trust. The grant deed declared that the transfer tax was zero, because the value of the property, exclusive of liens and encumbrances, was zero and no additional consideration was received by the grantor. On January 23, 2002, the trial court entered a default judgment [*5] against Matthew ordering him to vacate the Sunshine Terrace property and pay Lavetts damages of $ 27,886.37.

Edward paid $ 1,100 to bring the loan current on the Wilkinson property. Edward's property manager, Lillian Monteleone, supervised the rehabilitation of the units. She replaced flooring, roofing, plumbing, windows, screens, and doors. The floor in one unit had been damaged by dog feces and urine. The units were infested with fleas and cockroaches. Fire damage to the garage was repaired. The units were repainted and new linoleum was installed. A large amount of debris was removed. The trees were trimmed and the outdoor patio repaired. Monteleone kept a ledger of expenses showing expenditures of $ 14,000 for the Wilkinson property. She also itemized expenditures of $ 13,000 in a separate checking register and several additional expenditures for which she could not provide exact amounts. In total, she estimated that she had spent in excess of $ 40,000 to rehabilitate the property. The units were sufficiently repaired to rent in June 2002. At the time of trial, the units were rented for a total of $ 2,500 per month.

In September 2002, Lavetts's real estate expert appraised the [*6] Wilkinson property based on comparable sales for the area at the time of transfer. In his opinion, the maximum market price for the property in January 2002, had it been in excellent condition and required no repairs, would have been $ 280,675. The recommended price for the property in good condition and without requiring major repairs was $ 257,500. The value of the property in poor condition requiring major repairs, including re-roofing, re-plumbing, foundation, and wall repairs, would have been $ 224,025.

After Matthew transferred the Wilkinson property to Edward, Edward continued to give Matthew money. The additional funds were not in the form of new loans, but rather were simply financial help for Matthew to purchase necessities.

PROCEDURAL BACKGROUND

On May 22, 2002, Lavetts filed a complaint against the Cutters to avoid a fraudulent conveyance, civil conspiracy, quiet title, and declaratory relief. Edward filed an answer. An entry of default was entered as to Matthew.

A court trial was held on August 13 and 25, 2003. The trial proceeded as a default prove-up hearing as to Matthew. The trial court made the following findings: (1) the value of the Wilkinson property [*7] at the time of transfer to Edward's trust was $ 225,000 or less; (2) Edward spent at least $ 35,000 to rehabilitate the property; and (3) Matthew owed Edward at least $ 40,000. The trial court gave credit to Edward's testimony concerning the property's value at the time of the transfer based on the deplorable condition of the property. The trial court further found in pertinent part: "The uncontested testimony of [Edward] is that he had not discussed the lawsuit with [Matthew]. There was an imminent sale of the property through foreclosure. Matthew had allowed another property to be sold in foreclosure. Matthew was not employed and had no funds or assets to save the property. Matthew had allowed the property to fall into extremely serious disrepair. [P] Considering the condition of the property, the repairs needed and made, the funds needed to cure the default and stop the foreclosure and the funds owed to Edward by Matthew, the Court finds that any equity in the property after having given credit for money advanced and paid by Edward would be insignificant. [P] [Lavetts] has failed to offer sufficient evidence to establish a fraudulent conveyance and/or a civil conspiracy. [*8] [P] Had Edward not advanced the funds to cure the default[,] the property would have been lost in foreclosure. [P] Edward assumed a property [in] extremely deteriorated condition and did not receive a discernable asset by the transfer." On November 21, 2003, the trial court entered judgment in favor of the Cutters. Lavetts filed a timely notice of appeal.

DISCUSSION

Standard of Review

"When considering a claim of insufficient evidence on appeal, we do not reweigh the evidence, but rather determine whether, after resolving all conflicts favorably to the prevailing party, and according the prevailing party the benefit of all reasonable inferences, there is substantial evidence to support the judgment." (Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465.) In reviewing the evidence on appeal, all conflicts must be resolved in favor of the judgment, and all legitimate and reasonable inferences indulged in to uphold the judgment if possible. When a judgment is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted [*9] or uncontradicted, which will support the judgment. When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court. (Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 571; Crawford v. Southern Pac. Co. (1935) 3 Cal.2d 427, 429.)

Fraudulent Conveyance

Relying on Civil Code section 3439.05, Lavetts contends the trial court's finding that Matthew received a reasonably equivalent value in exchange for transferring the Wilkinson property is not supported by substantial evidence. We disagree.

"Under some circumstances a creditor may sue to set aside a transfer of property by a debtor, where the transfer defrauds that creditor. (Civ. Code, § 3439, et seq., the Uniform Fraudulent Transfer Act.)" (Mehrtash v. Mehrtash (2001) 93 Cal.App.4th 75, 79-80.) "Even without actual fraudulent intent, a transfer may be fraudulent as to present creditors if the debtor did not receive 'a reasonably equivalent value in exchange for the transfer' and 'the debtor was insolvent at that time or the debtor became [*10] insolvent as a result of the transfer or obligation.' (Civ. Code, § 3439.05.)" (Mejia v. Reed (2003) 31 Cal.4th 657, 664.) Value is given for a transfer if, in exchange for the transfer, an antecedent debt is satisfied. (8 Witkin, Cal. Procedure (4th ed. 1997) Enforcement of Judgment, § 464, p. 464.) A payment given to one creditor in preference to another is valid, even though it results in making the debtor insolvent. (Id., § 446, pp. 446-447.)

In this case, it is apparently undisputed that Matthew was insolvent at the time of the transfer or became insolvent as a result of the transfer of the Wilkinson property to Edward. The issue is whether the trial court's finding that Matthew received a reasonably equivalent value in exchange for the property transfer is supported by substantial evidence. The trial court found that the property was worth less than $ 225,000 at the time of the transfer. In fact, the trial court specifically referred to Edward's testimony that the property was worth $ 175,000. The value of property may be shown by the opinion of the property owner. (Evid. Code, § 813.) The outstanding mortgage on the property was $ 155,000. The evidence [*11] supports an inference that Matthew's equity in the property was approximately $ 20,000 at the time of the transfer. The trial court found that Matthew owed $ 40,000 to Edward. The property was in foreclosure and Matthew had no ability to pay the arrears. Matthew transferred the property to Edward in satisfaction of the entire debt owed to Edward. Matthew received more than the reasonably equivalent value in exchange for the property, as he was able to extinguish $ 40,000 of debt by transferring property with $ 20,000 of equity. The trial court's findings are supported by substantial evidence. n2 We do not have the power to substitute findings on credibility and draw inferences in opposition to those of the trial court.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n2 The grant deed stated that the property was worth zero and Matthew had received no additional consideration for the transfer. The trial court could have found this statement in the grant deed was made solely for property tax purposes and did not accurately reflect whether Matthew had received any consideration from Edward. In concluding that Matthew transferred the property to Edward in satisfaction of an antecedent debt, the trial court implicitly rejected any inference from the grant deed that the transfer was not made in satisfaction of a debt.

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Burden of Proof

Lavetts contends the trial court erroneously shifted the burden of proof and required her to establish that Matthew received insufficient consideration for the transfer. Her contention is based on the trial court's conclusion that she "failed to offer sufficient evidence to establish a fraudulent conveyance and/or a civil conspiracy." Initially, we note that Lavetts did not raise the burden of proof issue in her motion for new trial. More importantly, she affirmatively advised the trial court in her argument that she bore the burden of proof on all issues. Finally, the trial court did not err.

Once a debtor's insolvency has been proven by the creditor, it is the transferee's burden to prove that the debtor received adequate consideration for the transferred property. (Kirkland v. Risso (1979) 98 Cal. App. 3d 971, 977-978, 159 Cal. Rptr. 798.)

Lavetts established that Matthew was insolvent at the time he transferred the Wilkinson property to Edward. Therefore, it was Edward's burden to prove that Matthew received adequate consideration for the property. Edward submitted evidence that Matthew owed him more than $ 40,000 and Matthew's [*13] equity in the property was less than the amount of his debt. The trial court found Edward's evidence was credible and there was adequate consideration for the transfer. In other words, the trial court found Edward had met his burden of proof. Therefore, the trial court concluded Lavetts had failed to establish a fraudulent conveyance. The trial court properly applied the burden of proof in this case.

DISPOSITION

The judgment is affirmed. Respondent Edward Cutter, individually and as trustee of the Edward W. Cutter 2nd Irrevocable Intervivos Trust, is awarded his costs on appeal.

GRIGNON, J.

We concur:

TURNER, P. J.

ARMSTRONG, J.


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