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 Post subject: Struyk: The Perils of a Husband-Wife Fraudulent Transfer
PostPosted: Sun Mar 27, 2011 6:15 am 
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Struyk v. Meltzer, 2011 WL 1019916 (Cal.App. 4 Dist, Unpublished, Mar. 23, 2011)

Not Officially Published; (Cal. Rules of Court, Rules 8.1105 and 8.1110, 8.1115)

California Rules of Court, rule 8.1115, restricts citation of unpublished opinions in California courts.

Court of Appeal, Fourth District, Division 1, California.

Tony STRUYK, Plaintiff and Respondent,

v.

David MELTZER et al., Defendants and Appellants.

No. D053301.

(Super.Ct.No. GIC874473).

March 23, 2011.

APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.

Bart Matthew Blechschmidt, Galuppo & Blechschmidt, Carlsbad, CA, for Plaintiff and Respondent.

John Arthur Mayers, Mulvaney Kahan & Barry, LLP, James W. Peterson, Goode, Hemme, Peterson & Sayler, San Diego, CA, for Defendant and Appellant.

McINTYRE, J.

*1 Tony Struyk (Struyk) filed a complaint against David and Julie Meltzer (together the Meltzers) alleging numerous causes of action arising from David Meltzer's failure to repay a $500,000 promissory note guaranteeing Struyk's loan to Corporate Connections, Inc. (Corporate Connections). The court entered judgment on special verdicts awarding Struyk $380,189.72 against the Meltzers on the cause of action for fraudulent conveyance, and $380,189.72 against David Meltzer on the causes of action for breach of promissory note, breach of guaranty, intentional misrepresentation, concealment, and fraud and deceit. The court denied the Meltzers' motions for new trial and judgment notwithstanding the verdict, and they appeal.

The Meltzers argue that there is insufficient evidence to support the special verdict against Julie Meltzer on the fraudulent conveyance claim. They also contend that David Meltzer is not liable for repayment as a guarantor because Struyk did not seek recovery against Corporate Connections, the original obligor. We reject these contentions and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Struyk was involved professionally in approximately 20 entities engaged in real estate services, including mortgage lending, real estate acquisitions and development, land use, consulting, leasing, and property management. He and David Meltzer had been neighbors and friends for the five years preceding events which gave rise to this lawsuit. They also had business dealings during the same period.

David Meltzer was responsible for sales at Corporate Connections whose business purpose was to sell sponsorships to vendors. He approached Struyk initially about investing in Corporate Connections and introduced him to Michael Scott (Scott), its president and chief executive officer. Struyk preferred to make a short-term loan to David Meltzer, but agreed to structure the deal in a way that would assist Corporate Connections. Thereafter, on January 30 and 31, 2006, Struyk, Scott and David Meltzer signed a series of documents that were a primary focus of trial. As relevant to the issues on appeal, these documents included:

1. A NOTE AND WARRANT PURCHASE AGREEMENT, which provided for Struyk's purchase of a $500,000 note from Corporate Connections. The Corporate Connections note was due and payable on May 1, 2006.

2. A STRAIGHT NOTE, separate from the Corporate Connections note, in the sum of $500,000 signed by Scott and David Meltzer on January 31, 2006.

3. A DEED OF TRUST AND ASSIGNMENT OF RENTS on the Meltzer's residence securing David Meltzer's promise to pay on the straight note.

4. An AGREEMENT REGARDING DELAYED RECORDING dated January 31, 2006, in which Struyk, Scott and David Meltzer agreed that the straight note and deeds of trust would not be recorded unless Corporate Connections defaulted on its loan.

Struyk prepared a $500,000 check payable to Corporate Connections dated January 30, 2006. He gave the check to Scott and David Meltzer on the following day, after all the documents had been signed. Thereafter, David Meltzer quitclaimed his interest in the Meltzers' residence to his wife, Julie Meltzer, "as her sole and separate property." The document was recorded on March 9, 2006.

*2 Corporate Connections did not repay Struyk's loan by the May 1, 2006 due date. The company ceased operations in July 2006 and filed for bankruptcy in January 2007. In August or September 2006, Scott made a personal payment of $185,000 to Struyk, after refinancing his residence.

Struyk was unaware that David Meltzer had quitclaimed the Meltzer's residence to Julie Meltzer on March 9, 2006, and would have objected had he known about it. Julie Meltzer refinanced the residence three times between March and September 2006 because they "were in a cash crunch." The Meltzers had money tied up in another deal with Struyk and in other investments they were going to make. David Meltzer testified that Struyk suggested the quitclaim and refinancing, which would be quick because Julie Meltzer had a perfect credit score. Struyk denied suggesting the property transfer to Julie Meltzer, stating that it would have made it difficult for him to collect the $500,000 debt. David Meltzer also maintained, in the face of contrary testimony by Struyk, Scott and the notary, Melissa Lind, that he signed the Straight Note and Deed of Trust "weeks or months" after January 31, 2006.

DISCUSSION

I. Standard of Review

" 'Where findings of fact are challenged on a civil appeal, we are bound by the "elementary, but often overlooked principle of law, that ... the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted," to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court.' [Citation.]" ( Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053.) As the reviewing court, we do not evaluate the credibility of witnesses, but defer to the trier of fact. ( Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968 ( Lenk ).)

II. Julie Meltzer's Liability for the Fraudulent Conveyance

A. Fraudulent Transfers:

The Uniform Fraudulent Transfer Act, Civil Code section 3439 et seq. (UFTA), permits defrauded creditors to reach property in the hands of a transferee. ( Mejia v. Reed (2003) 31 Cal.4th 657, 663; undesignated statutory references are to the Civil Code.) The creditor has the burden of proving the elements of a fraudulent transfer. ( Whitehouse v. Six Corp. (1995) 40 Cal.App.4th 527, 534.) To establish a prima facie case under California law, the creditor must prove "what was transferred, that what was transferred is subject to avoidance under applicable law, and the fair market value of what was transferred." ( Brandt v. nVidia Corp. ( In re 3dfx Interactive, Inc.) (Bankr.N.D.Cal.2008) 389 B.R. 842, 864 ( Brandt ).)

Section 3439.04. subdivision (a) sets forth the elements of a fraudulent conveyance, stating: "A transfer made ... by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer ... as follows: [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor. [¶] (2) Without receiving a reasonably equivalent value in exchange for the transfer ..., and the debtor either: [¶] (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction. [¶] (B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due." Section 3439.04, subdivision (b) lists other factors a jury may consider in determining actual intent. The court instructed the jury on the requirements of section 3439.04. (CACI Nos. 4200 & 4201.)

*3 A transferee may rebut the creditor's prima facie case of fraudulent conveyance by showing that the transferee received the property in good faith and for reasonably equivalent value. (Section 3439.08; 7A West's U. Laws Ann. (2006) Fraudulent Transfer Act, com. to § 8, p. 179; Brandt, supra, 389 B.R. at p. 864.) "One lacks the good faith that is essential to the UFTA § 8(a) defense to avoidability if possessed of enough knowledge of the actual facts to induce a reasonable person to inquire further about the transaction." ( Plotkin v. Pomona Valley Imports ( In re Cohen ) (B.A.P. 9th Cir.Cal.1996), 199 B.R. 709, 719, citing UFTA § 8(a), comment (2) [knowing facts rendering transfer voidable "would be inconsistent with the good faith that is required of a protected transferee"].)

The court instructed the jury that to succeed on the "good faith" defense set forth in section 3439.08 "Julie Meltzer must prove both of the following: [¶] 1. That Julie Meltzer took the property from David Meltzer in good faith; and [¶] 2. That she took the property for a reasonably equivalent value. [¶] 'Good faith' means that Julie Meltzer acted without actual fraudulent intent and that she did not conspire with David Meltzer or otherwise actively participate in any fraudulent scheme. If you decide that David Meltzer had fraudulent intent and that Julie Meltzer knew it, then you may consider her knowledge in combination with other facts in deciding the question of Julie Meltzer's good faith." (CACI No. 4207, italics added.)

The Meltzers challenge three of the four findings that the jury returned in special verdict number 6, specifically that: (1) Julie Meltzer accepted a transfer of real property or incurred an obligation with actual intent to hinder, delay, or defraud Struyk; (2) Struyk was damaged as a result of a transfer caused by Julie Meltzer; and (3) Struyk was damaged in the sum of $380,189.72 as a result of the transfer caused by Julie Meltzer. We conclude the record and reasonable inferences support these findings.

B. Whether Julie Meltzer Intentionally Defrauded Struyk:

The Meltzers argue there is no evidence that Julie Meltzer had actual knowledge of David Meltzer's fraudulent intent and therefore did not accept quitclaim of the residence "with actual intent to hinder, delay or defraud Tony Struyk." Knowledge and intent are typically proven by circumstantial evidence, that is, inferred from facts and statements surrounding the transaction. ( Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834 [fraudulent intent]; Oil Workers Internat. Union v.Super. Ct. (1951) 103 Cal.App.2d 512, 533 [knowledge].)

The jury expressly found that David Meltzer transferred the property to Julie Meltzer "with actual intent to hinder, delay or defraud" Struyk. (§ 3439.04, subd. (a)(1).) Here, there is evidence from which a jury could reasonably infer that Julie Meltzer knew of her husband's fraudulent intent when she accepted the residence as her sole and separate property. Julie Meltzer testified about the transfer and subsequent refinancing of the property on direct examination in plaintiff's case:

*4 "Q. And the reason you [took David Meltzer's name off the property] was because that's what your husband told you you needed to do, right?

[¶] ... [¶]

"A. We did that because we were in a cash crunch. We had a lot of money tied up in a deal we did with Mr. Struyk, and we had other investments we were going to make.

"Q. But you did that because that's what your husband said you guys had to do in order to get this refinance, correct?

"A. Yeah, my husband takes care of the finances."

Julie Meltzer then explained each refinance. The Washington Mutual deed of trust recorded on March 9, 2006, the same day as the quitclaim deed, secured a loan of $1,365,000. Julie Meltzer confirmed that she took $300,000 in cash out of the house in the refinance recorded on May 18, 2006, less than three weeks after the Corporate Connections note and the straight note were due. She testified that the September 2006 Plaza Home Mortgage deed of trust secured a $1,679,000 loan, consolidated the earlier loans, and brought down the interest rate. On cross-examination, Julie Meltzer testified that the residence was appraised at between $2.1 million and $2.2 million in September 2006.

Although Julie Meltzer stated that her husband took care of the finances, her testimony revealed that she herself understood the various transactions that took place between March and September 2006. Based on evidence that Julie Meltzer knew "[they] were in a cash crunch," knew the cash problems involved another deal with Struyk as well as other potential investments, and the timing of refinancing that took $300,000 in equity out of the property, the jury could reasonably infer that she had knowledge of her husband's intent to place cash out of Struyk's reach. As the trial court observed when it denied the Meltzer's motion for judgment notwithstanding the verdict: "With respect to Mrs. Meltzer the argument is there was no direct evidence to support a finding that she was aware of and accepted a transfer of real property with the actual intent of hinder, delay or defraud plaintiff. The demeanor of both Defendants was such that it was clear that the jury did not find them credible." We already explained that we defer to the jury on questions of credibility. ( Lenk, supra, 89 Cal.App.4th at p. 968.)

C. Whether Struyk Was Entitled To $380,189.72 In Damages:

The Meltzers argue that Struyk applied the wrong measure of damages in the cause of action against Julie Meltzer for fraudulent conveyance and therefore the jury awarded excessive damages against her. They contend that Struyk was entitled to a personal judgment no greater than the value of the asset that he could have reached absent the fraudulent conveyance. Specifically, the Meltzers contend Struyk failed to present evidence: (1) establishing the value of the Meltzer's residence on March 9, 2006, the date of the fraudulent transfer; (2) the portion of the value available to Struyk as a creditor of David Meltzer on that date; and (3) the portion of the value exempt from creditors on that date.

*5 Even if we assume the Meltzers are correct that a different measure of damages applied to the fraudulent conveyance claim, we conclude the Meltzers waived that legal question by failing to raise it below. ( Dimmick v. Dimmick (1962) 58 Cal.2d 417, 422.) Our review of the record reveals that throughout the trial and in closing argument, the parties failed to distinguish between damages for breach of contract and tort relating to the note itself and monetary recovery on a fraudulent conveyance. Each of the six special verdicts, including special verdict number 6 on the fraudulent conveyance claims against Julie Meltzer, asked the jury to calculate the amount of damages suffered by Struyk.

The only jury instructions on damages were CACI No. 350 on breach of contract damages and CACI No. 3900 on tort damages. CACI No. 350 reads: "If you decide that TONY STRUYK has proved his claim against DAVID MELTZER for breach of contract, you also must decide how much money will reasonably compensate TONY STRUYK for the harm caused by the breach. This compensation is called 'damages.' The purpose of such damages is to put TONY STRUYK in as good a position as he would have been if DAVID MELTZER had performed as promised. [¶] To recover damages for any harm, TONY STRUYK must prove: [¶] 1. That the harm was likely to arise in the ordinary course of events from the breach of the contract; or [¶] 2. That when the contract was made, both parties could have reasonably foreseen the harm as the probable result of the breach. [¶] TONY STRUYK also must prove the amount of his damages according to the following instructions. He does not have to prove the exact amount of damages. You must not speculate or guess in awarding damages."

As to tort damages, CACI No. 3900 reads: "If you decide that TONY STRUYK has proved his claim against DAVID MELTZER, you also must decide how much money will reasonably compensate TONY STRUYK for the harm. This compensation is called 'damages.' [¶] The amount of damages must include an award for each item of harm that was caused by DAVID MELTZER'S wrongful conduct, even if the particular harm could not have been anticipated. [¶] TONY STRUYK does not have to prove the exact amount of damages that will provide reasonable compensation for the harm. However, you must not speculate or guess in awarding damages. [¶] The following are the specific items of damages claimed by TONY STRUYK: [¶] $500,000.00 plus 10% interest minus any credits for payments received."

There was no instruction on how to calculate monetary recovery on the fraudulent conveyance claims against the Meltzers. Indeed, the parties initially forgot to include a special verdict form for the cause of action against Julie Meltzer. Left to its own devices, it appears that the jury used the same formula to calculate damages on all six special verdicts.

If the Meltzers believed a different measure of damages applied to the fraudulent conveyance cause of action, it was up to them to raise the issue and request an instruction. Moreover, having failed to raise and preserve the issue, they may not claim on appeal that there is no evidence to support the $380,189.72 award.

III. David Meltzer's Liability as Guarantor

*6 The Meltzers contend David Meltzer's liability as guarantor on the $500,000 note was exonerated because: (1) the jury found that David Melzter demanded that Struyk obtain repayment from Corporate Connections, the principal obligor on the note; (2) it is undisputed that Struyk failed to pursue his remedies against Corporate Connections; and (3) there is insufficient evidence to support the jury's finding that David Meltzer was not prejudiced by Struyk's failure to seek recovery from Corporate Connections. We conclude that the record and the law support the jury's finding.

Section 2845 requires a surety to make a formal demand upon its principal's creditor to pursue alternative remedies if the surety seeks exoneration from the guaranty. "This is no mere formality, for implicit in such a demand is recognition by the surety of its obligation under the bond and, in effect, its admission of liability to the creditor." ( Sukut-Coulson, Inc. v. Allied Canon Co. (1978) 85 Cal.App.3d 648, 655.) Although the Meltzers failed to plead exoneration as an affirmative defense, as required ( United California Bank v. Maltzman (1974) 44 Cal.App.3d 41, 54), the court instructed the jury in accordance with section 2845 that "[a] guarantor may require the creditor to proceed against the principal, or to pursue any other remedy in the creditor's power which the guarantor cannot pursue, and which would lighten the guarantor's burden; and if the creditor neglects to do so, the guarantor is exonerated to the extent to which he is thereby prejudiced." (Italics added.)

There is some question whether David Meltzer made an effective "formal" demand on Struyk to pursue his remedies against Corporate Connections, since he continued to deny all liability on the note and did not plead exoneration as an affirmative defense. However, there is some evidence to support the finding that a demand was made.

The remaining question whether David Meltzer was prejudiced by Struyk's failure to seek payment directly from Corporate Connections turns on the company's financial condition at the time. If Corporate Connections was insolvent, David Meltzer was not prejudiced, and the exoneration defense is unavailing. (See Hartman v. Burlingame (1858) 9 Cal. 557, 562.)

There is substantial evidence in the record to support the jury's finding that David Meltzer was not prejudiced by Struyk's failure to pursue Corporate Connections for repayment. Scott testified that Corporate Connections ceased operations in July 2006 and filed for bankruptcy in January 2007, less than one month after Struyk filed the complaint in this case. Scott made a personal payment of $185,000 to Struyk in August or September 2006 because, in his words "Corporate Connections didn't exist really at that time, at least in actual operation. Certainly didn't have any money. Had a substantial list of creditors." There was also evidence that the company owed money to its principals, Scott and David Meltzer as it was struggling to stay afloat. The jury could reasonably infer that Struyk would have been unsuccessful if he had first attempted to recover all or part of the $500,000 note from Corporate Connections.

DISPOSITION

*7 The judgment is affirmed. Plaintiff shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)

WE CONCUR: NARES, Acting P.J., and McDONALD, J.

= = = = = = = = J U D G M E N T E N F O R C E M E N T = = = = = = = =

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