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Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).
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(:title Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:Summary:Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:descriptionPotter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:Summary:
(:description
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(:title Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).:)
(:Summary: Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).:)
(:description Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).:)
(:Summary: Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).:)
(:description Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).:)
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Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).
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Court of Appeal, Second District, Division 5, California.
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Court of Appeal, Second District, Division 4, California.
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ROBERT STURM, Plaintiff and Appellant,
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TODD ANDREW MOYER et al., Defendants and Respondents.
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B284553
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Filed 07/23/2019
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Filed 2/15/2019
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(Los Angeles County Super. Ct. No. BC637013)
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APPEAL from an order of the Superior Court for Los Angeles County, Susan Bryant-Deason, Judge. Reversed.
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Landsberg Law and Ian S. Landsberg for Plaintiff and Appellant.
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Law Offices of Warren R. Shiell and Warren R. Shiell for Defendants and Respondents.
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WILLHITE, Acting P. J.
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PAGE_1 Plaintiff and appellant Christopher Potter (Potter) was injured by Jesus Remedios Avalos-Tovar (Tovar) in an auto accident. Tovar was insured by defendant and respondent Alliance United Insurance Company (AUIC), with a maximum liability limit of $15,000. Potter offered to settle personal injury claims against Tovar for his policy limit, but AUIC did not respond to the offer. The claim was later tried to a jury and Potter obtained a judgment against Tovar for nearly one million dollars—which the trial court subsequently vacated when granting AUIC's motion for new trial. Then, before retrial, AUIC paid Tovar $75,000 to release any bad faith claim he had against AUIC (for AUIC's failure to accept the early settlement offer). Potter again prevailed after the second trial, this time obtaining a judgment in excess of one million dollars. Unable to collect that sum from the insolvent Tovar, Potter sued AUIC and alleged the release it procured from Tovar was a fraudulent conveyance under statutory and common law. We consider whether the trial court was right to sustain AUIC's demurrer and dismiss the fraudulent conveyance suit on either of two alternative grounds—namely, that the suit was barred by the statute of limitations and failed to state a proper fraudulent conveyance claim.
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PAGE_ Retired Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
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PAGE_1 The question presented in this case is one of first impression: Assuming fraudulent intent, can the Uniform Voidable Transactions Act (Civ. Code, § 3439 et seq., formerly known as the Uniform Fraudulent Transfer Act, or UFTA)1 apply to a premarital agreement in which the prospective spouses agree that upon marriage each spouse's earnings, income, and other property acquired during marriage will be that spouse's separate property? After examining the language of the relevant statutes, the legislative history, and public policy considerations, we conclude that it can.2
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FN1 The UFTA was renamed, with some amendments not relevant to this case, effective January 1, 2016. (Stats. 2015, ch. 44 (Sen. Bill No. 161), § 3.) Because the premarital agreement was executed before that date, we will refer to the relevant act as the UFTA; we will note when the current version of the act is different than relevant provisions of the UFTA.
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FN2 We have found no case from any court in any community property jurisdiction that has addressed this issue.
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BACKGROUND
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Our discussion of the background facts is based upon the allegations of the first amended complaint. Because this appeal is taken from a judgment of dismissal following the sustaining of a demurrer, we treat those alleged facts as true for the purposes of this appeal. (Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1098.)
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In July 2005, Robert Sturm, plaintiff in this action, obtained a $600,000 judgment in bankruptcy court against Todd Moyer. The judgment, which is not dischargeable in bankruptcy, was renewed in January 2015. Following the original entry of judgment and through July 2016, Sturm conducted several judgment debtor examinations of Moyer, during which Moyer claimed to have no assets, and claimed that he did not intend to work ever again so he would not have to pay any portion of the judgment.
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During a judgment debtor examination in July 2016, Sturm discovered that Moyer had married Jessica Schell in or around 2014, and that they had entered into a premarital agreement. The premarital agreement provided that each party's earnings and income, and any property acquired during the marriage by each spouse, would be that spouse's separate property; each party acknowledged that these earnings, income, and property otherwise would be community property. The agreement attached as exhibits lists of each party's significant real and personal property and liabilities in which that party currently held an interest; Moyer's list (Exhibit A) included Sturm's judgment against him, as well as several liens and pending lawsuits. The agreement also included a kind of sunset provision (paragraph 5.15), which provided that in the event the judgments and liens against Moyer listed in Exhibit A, and any money judgment entered against him during marriage, lapse or otherwise become unenforceable for any reason, the parties' earnings and income, and any assets purchased with those earnings and income, from the date of the marriage will be treated as community property, with certain exceptions. Finally, the premarital agreement included a provision allowing the parties to open a jointly owned checking account to meet their reasonable present and future living expenses, but providing that any property acquired with funds from the account will be owned in the ratio of the respective contributions of each party's separate property into the account; it also expressly stated that the account will not create any community property interest.3
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FN3 Further, the agreement included the following provision: "It is the express intention of the parties to opt out of, and to waive, the community property system, the marital property system, the matrimonial property system and out of any other system that provides for the acquisition of interest in property or the distribution of property, or both, by virtue of marriage. The only way in which community property can be created during the marriage is by a valid written transmutation signed by both parties changing separately owned property into community property or the acquisition of an asset with income and earnings of a party that are community property after the modification of this Agreement pursuant to paragraph 5.15."
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PAGE_2 Sturm filed the instant lawsuit against defendants Moyer and Schell, asserting a single cause of action under the UFTA to set aside the alleged transfer of Moyer's community property interest in Schell's earnings and income. The original complaint attached as an exhibit the Moyer-Schell premarital agreement. Following defendants' successful demurrer to the original complaint, Sturm filed a first amended complaint alleging the same cause of action. Defendants again demurred, and the trial court sustained the demurrer without leave to amend.
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In sustaining the demurrer, the trial court found that "[u]nder In re Marriage of Dawley (1976) 17 Cal.3d 342 and Family Code § 1500, defendants were entitled to alter the presumptions under Family Code § 760 and Family Code § 910(a) that property acquired during the marriage is community property and that the community estate would be liable to satisfy any judgments against defendant Todd Moyer. Even though the Premarital Agreement was not effective until Defendants married, pursuant to Family Code § 1613, Defendants still had the right to alter the presumptions of community property under Dawley."
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A judgment of dismissal was entered, from which Sturm timely filed a notice of appeal.
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DISCUSSION
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Sturm has alleged, in substance, that the Moyer-Schell premarital agreement effected a transfer of Moyer's interest in community property (i.e., Schell's earnings and income), and that the actual intent of this transfer was to hinder, delay, or defraud Moyer's creditors, including Sturm. To decide whether the agreement is one to which the UFTA applies, we must examine the relevant provisions of both the UFTA and the Family Code.
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A. Relevant UFTA Provisions
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At the time of the events at issue in this lawsuit, the UFTA provided, in relevant part, that "[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor ... if the debtor made the transfer or incurred the obligation ... [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor."4 (Civ. Code, former § 3439.04; the current version of this statute replaces "fraudulent" with "voidable.") A "transfer" was defined in the UFTA to mean "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." (Civ. Code, former § 3439.01, subd. (i); the definition is found as subd. (m) of the current version, with one amendment that is irrelevant here and would not affect our analysis.)
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FN4 Because the case before us involves allegations of actual fraud, as described in Civil Code, former section 3439.04, we do not include in our discussion the conditions for constructive fraud set forth in the statute.
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Civil Code section 3439.06 contains provisions regarding when a transfer is made and deemed perfected for purposes of the UFTA.5 Subdivision (d) of that statute provides that "A transfer is not made until the debtor has acquired rights in the asset transferred." (Civ. Code, § 3439.06, subd. (d).)
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FN5 The current version of Civil Code section 3439.06 is almost identical to the former version found in the UFTA; the differences do not change the analysis.
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B. Relevant Family Code Provisions
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Under California law, all property (with some statutory exceptions) acquired by a married person while domiciled in California is community property (Fam. Code, § 760), and each spouse's respective interests in community property "are present, existing, and equal" during the marriage (Fam. Code, § 751). However, the Family Code allows a couple by agreement entered into during or before the marriage to change the character of the property they acquire during marriage from community property to separate property.
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PAGE_3 Such an agreement may be made during the marriage under Family Code section 850, which provides that, subject to certain provisions, "married persons may by agreement or transfer, with or without consideration, do any of the following: [¶] (a) Transmute community property to separate property of either spouse. [¶] (b) Transmute separate property of either spouse to community property. [¶] (c) Transmute separate property of one spouse to separate property of the other spouse." One of the provisions referenced in that section is Family Code section 851, which states: "A transmutation is subject to the laws governing fraudulent transfers."
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Before the marriage, couples may change the character of property acquired during marriage from community property to separate property by means of a premarital agreement under the Uniform Premarital Agreement Act (Fam. Code, § 1600 et seq., hereafter the UPAA).6 The UPAA provides that the parties to a premarital agreement may contract with respect to various issues, including: "[t]he rights and obligations of each of the parties in any of the property7 of either or both of them whenever and wherever acquired or located" (Fam. Code, § 1612, subd. (a)(1)), and "[a]ny other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty" (Fam. Code, § 1612, subd. (a)(7)). The premarital agreement "becomes effective upon marriage." (Fam. Code, § 1613.)
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FN6 Family Code section 1500 also authorizes the use of a premarital agreement to change the character of property acquired during marriage. It provides: "The property rights of spouses prescribed by statute may be altered by a premarital agreement or other marital property agreement."
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FN7 "Property" is defined in the UPAA as "an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings." (Fam. Code, § 1610, subd. (b).)
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The characterization of property as separate or community is important when it comes to liability for debts incurred by either spouse, including debts incurred by a spouse before the marriage. Family Code section 910 states in relevant part: "Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt." (Fam. Code, § 910, subd. (a).) Notwithstanding this provision, the earnings of the non-debtor-spouse8 -- which are community property under Family Code section 760 -- "are not liable for a debt incurred by [the other] spouse before marriage." (Fam. Code, § 911, subd. (a).) Those earnings remain not liable for the debtor-spouse's premarital debt, however, only "so long as they are held in a deposit account in which the person's spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property insignificant in amount." (Ibid.)
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FN8 "Earnings" is defined as "compensation for personal services performed, whether as an employee or otherwise." (Fam. Code, § 911, subd. (b)(2).)
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In short, although a married couple's community property is liable for the premarital debts of either spouse, a portion of that community property -- the non-debtor-spouse's earnings and income -- is shielded from liability for that premarital debt to the extent that those earnings and income are held in an account to which the debtor-spouse does not have access and are not commingled (except for insignificant amounts).
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C. Does the Premarital Agreement Alleged Here Effect a "Transfer" Within the Meaning of the UFTA?
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PAGE_4 Having set forth the relevant statutory provisions, we consider whether the UFTA applies to premarital agreements (such as the one at issue here) that make each spouse's earnings, income, and other assets acquired during marriage that spouse's separate property. Resolution turns on two key questions. First, does such an agreement effect a "transfer" under the UFTA? Second, was the agreement intended to "hinder, delay, or defraud any creditor" of the debtor-spouse? The first question is one of law, and can be resolved in this appeal from a demurrer judgment. The second question is one of fact, which cannot be determined on a demurrer or an appeal from a demurrer. We simply note that the complaint alleges sufficient facts to meet the requirement of fraudulent intent, but proof of those facts awaits trial.
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Considering the first question, as noted, "transfer" under the UFTA has a broad meaning. It includes "every mode, direct or indirect, absolute or conditional, ... of disposing of or parting with an asset or an interest in an asset." (Civ. Code, former § 3439.01, subd. (i); currently, Civ. Code, § 3439.01, subd. (m).) Under this definition, there is no doubt that an agreement made during marriage in which a debtor-spouse agrees that the non-debtor-spouse's future earnings, income, or assets would be the non-debtor-spouse's separate property constitutes a transfer because the debtor-spouse is parting with an interest in an asset -- the community property represented by the other spouse's earnings -- in which he or she has a "present [and] existing ... interest[ ]" (Fam. Code, § 751) during continuance of the marriage. (See State Bd. of Equalization v. Woo (2000) 82 Cal.App.4th 481.)
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But what if this same agreement is made in a premarital agreement? Because the parties are not married when the agreement is entered into, the debtor-spouse has no present and existing interest in the community property represented by the non-debtor-spouse's future earnings, income, and assets. Thus, it can be argued (as defendants do here) that no transfer takes place because, by the premarital agreement, the spouses altered the applicability of the community property laws such that neither spouse obtains any interest in community property upon marriage. On the other hand, it can be argued (as Sturm does here) that by law the premarital agreement does not become effective until marriage (Fam. Code, § 1613), at which point two things happen -- each spouse obtains a present interest in community property by operation of law (Fam. Code, § 751) and then, by agreement, each spouse transfers to the other his or her community interest in the other's earnings, income, or other property acquired during the marriage.
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To determine which argument prevails, " 'we must ascertain the intent of the drafters [of the UFTA and Family Code] so as to effectuate the purpose of the law. [Citation.] Because the statutory language is generally the most reliable indicator of legislative intent, we first examine the words themselves, giving them their usual and ordinary meaning and construing them in context.' [Citation.] '[E]very statute should be construed with reference to the whole system of law of which it is a part, so that all may be harmonized and have effect.' [Citation.] 'Where as here two codes are to be construed, they "must be regarded as blending into each other and forming a single statute." [Citation.] Accordingly, they "must be read together and so construed as to give effect, when possible, to all the provisions thereof." [Citation.]' [Citation.]" (Mejia v. Reed (2003) 31 Cal.4th 657, 663.)
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"When the plain meaning of the statutory text is insufficient to resolve the question of its interpretation, the courts may turn to rules or maxims of construction 'which serve as aids in the sense that they express familiar insights about conventional language usage.' [Citation.] Courts also look to the legislative history of the enactment. 'Both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent.' [Citation.] Finally, the court may consider the impact of an interpretation on public policy, for '[w]here uncertainty exists consideration should be given to the consequences that will flow from a particular interpretation.' [Citation.]" (Mejia v. Reed, supra, 31 Cal.4th at p. 663.)
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1. Statutory Language
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PAGE_5 As the Supreme Court observed in Mejia v. Reed, the language of the UFTA on its face applies to all transfers, including transfers of interests in community property during marriage and in marriage settlement agreements. (Mejia v. Reed, supra, 31 Cal.4th at p. 664.) But the UFTA also states that "[a] transfer is not made until the debtor has acquired rights in the asset transferred." (Civ. Code, § 3439.06, subd. (d).)
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As we have noted, under the Family Code, a spouse has a present and existing interest in community property during marriage. (Fam. Code, § 751.) But a premarital agreement is, by statutory definition, "an agreement between prospective spouses made in contemplation of marriage." (Fam. Code, § 1610, subd. (a), italics added.) Thus, at the time the premarital agreement is entered into, neither spouse has "acquired rights" (Civ. Code, § 3439.06, subd. (d)) in community property. On the other hand, a premarital agreement does not become effective until marriage. (Fam. Code, § 1613 ["A premarital agreement becomes effective upon marriage"].) This suggests that at the moment of marriage, each spouse acquires rights to community property that are (if the premarital agreement calls for it) immediately transferred.
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Defendants contend there is no transfer, because the UPAA allows spouses to "opt out of the community property system," and therefore neither spouse ever acquires an interest in community property. But this characterization is not accurate. The UPAA does not state that a couple may prospectively "opt out" of the statutory community property law. Instead, the UPAA provides in substance that -- "effective upon marriage" (Fam. Code, § 1613) -- the couple may reorder from community to separate the property rights established by the community property statutes: "Parties to a premarital agreement may contract with respect to ... [¶] [t]he rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired." (Fam. Code, § 1612, subd. (a)(1); see also Fam. Code, § 1500 [providing that "[t]he property rights of spouses prescribed by statute may be altered by a premarital agreement"].) Thus, by such a contract the parties do not "opt out" of community property law as if it never applied. Rather, they acknowledge that community property law governs their "rights and obligations ... [in each other's property] whenever and wherever acquired" (Fam. Code, § 1612, subd. (a)(1)), and they simply agree to reorder those rights and obligations effective upon marriage. (In re Marriage of Dawley, supra, 17 Cal.3d at p. 358 [describing premarital agreement in which parties agreed that earnings and property acquired by a spouse during marriage would be that spouse's separate property as a "reordering of property rights to fit the needs and desires of the couple"].)
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Nonetheless, although the statutory language suggests that such a contract effects a transfer within the meaning of the UFTA, especially given the broad definition of "transfer," the statutory language does not conclusively resolve the issue. Therefore, we must look to the legislative history to see if it discloses the legislative intent.
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2. Legislative History
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The legislative history of the UFTA is enlightening, but not dispositive. Civil Code section 3439.06, enacted in 1986 as part of Senate Bill No. 2150 (Stats. 1986, ch. 383, § 2, pp. 1591-1592), addresses when a transfer is made and deemed perfected for purposes of the UFTA. The Report of Assembly Committee on Finance and Insurance on Senate Bill No. 2150 set forth the comments of the National Conference of Commissioners on Uniform State Laws as reflecting the intent of the Committee. (Report of Assembly Committee on Finance and Insurance on Sen. Bill No. 2150, found at Assembly Journal, vol. 5, pp. 8569-8587 (July 8, 1986) at p. 8570.) The comments explained the purpose of section 3439.06, and expressly referred to transfers as including "execution of a marital or premarital agreement for the disposition of property owned by the parties to the agreement." (Id. at p. 8582.) This reference shows an intent that premarital agreements disposing of "property owned by the parties" at the time of execution would constitute a transfer under the UFTA. But the reference does not literally apply to the premarital agreement here, because when the agreement was executed neither spouse "owned" an interest in the prospective community property that, upon marriage would be "transferred," i.e., become separate property.
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PAGE_6 With regard to the legislative history related to premarital agreements as reflected in the Family Code and its predecessor statutes,9 we note that the issue with which we are now faced was briefly addressed in a background study -- Reppy, Debt Collection from Married Californians: Problems Caused by Transmutations, Single-Spouse Management, and Invalid Marriage, 18 San Diego L. Rev. 143 (1981) (hereafter Reppy) -- prepared for the California Law Revision Commission for its study of whether the law relating to community property should be revised.10 (Liability of Marital Property for Debts, 17 Cal. L. Revision Comm'n Reports 1, 3 (1984).) In the background study, Professor Reppy addresses myriad issues involving debt collection from married people under California law as it then existed, pointing out problems where he saw them, and recommending changes to the law.
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FN9 Until 1994, the statutes relating to family law, including the Family Law Act, were found in the Civil Code, Code of Civil Procedure, Evidence Code, and Probate Code. In 1992, the Legislature repealed all those statutes and recast them as the Family Code, operative January 1, 1994. (Stats. 1992, ch. 162, §§ 1-14, pp. 463-722.)
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FN10 The Commission's study was authorized by Resolution Chapter 65 of the Statutes of 1978. (Liability of Marital Property for Debts, supra, 17 Cal. L. Revision Comm'n Reports at p. 3.)
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In a short section on premarital agreements, Professor Reppy noted that the placement of the then-existing statutes governing premarital agreements in the Family Law Act (the article was written before the enactment of the Family Code or the UPAA), "implies that such a contract is a means for varying the statutory rules that would otherwise attach to a marriage. A typical 'marriage settlement'11 is an agreement to live separate in property. By permitting such a contract, [former Civil Code] section 5134 creates a situation whereby a community of property never exists between the spouses. Thus when after marriage W labors at her job and is paid wages, they are at all times hers. The alternative construction is that the community property statutes, such as [former Civil Code] section 5110, attach to W's wages and then the antenuptial contract immediately converts the coownership between H and W to the sole ownership of W. The first interpretation is preferable. Under that interpretation, a creditor of insolvent H unable to reach W's separate property could not object to characterization of the earnings as W's separate property on grounds H was already or was thereby rendered insolvent. Under the alternative view, there is a transfer at the time W is paid which is constructively fraudulent under [the Uniform Fraudulent Conveyance Act12]." (Reppy, supra, 18 San. Diego L. Rev. at p. 226.)
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FN11 Professor Reppy noted that former section 5134 of the Civil Code provided that "parties anticipating marriage may make 'marriage settlements.' " (Reppy, supra, 18 San Diego L. Rev. at p. 226.)
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FN12 The Uniform Fraudulent Conveyance Act (Stats. 1939, ch. 329, § 2, p. 1667) was replaced by the UFTA in 1986 (Stats. 1986, ch. 383, §§ 1, 2, pp. 1589-1590).
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In his conclusion of the premarital agreement section Professor Reppy stated, "With respect to creditors existing at the time of making of the [premarital] agreement, rather than at the time of an alleged subsequent 'transfer', the agreement to live separate in property should not be constructively fraudulent. The debtor spouse simply changes his status from single to married with the creditor having the same rights as existed before the change of status. Of course actual fraud might be proved to give the creditor relief under [the Uniform Fraudulent Conveyance Act]."13 (Reppy, supra, 18 San. Diego L. Rev. at p. 227.)
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FN13 We assume by this reference to actual fraud that Professor Reppy is referring to a situation in which the parties contracted to live separate in property but did not in fact keep their separate property separate.
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PAGE_7 Although Professor Reppy identified the two competing constructions regarding the applicability of the UFTA to premarital agreements that the parties in this case present, and stated his preference for the construction asserted by defendants, we cannot say that this is dispositive. First, we observe that the Commission did not recommend -- and the Legislature did not enact -- any statutory provisions that implement this construction.
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Second, several years after Professor Reppy wrote the background study in 1981, the Legislature enacted the UPAA, which included the provision that a premarital agreement does not become effective until marriage. (Stats. 1985, ch. 1315, § 3, p. 4583.) This addition tends to undermine the construction preferred by Professor Reppy, because (as Sturm argues) the agreement is not effective until marriage, at which time it effects a reordering of the parties' community property interests in each other's property acquired during marriage.
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Third, we note that Professor Reppy's interpretation of the law was not always consistent with interpretations of the law by California courts. For example, in his section on postnuptial transmutations, Professor Reppy stated that "[a] postnuptial agreement by H and W that both would thereafter live separate in property should be viewed as eliminating the community from their marriage at that moment. Accordingly, when one of the spouses later is paid earnings during marriage, they are his or her separate property ab initio; community status does not attach to the earnings to be eo instante converted into separate property by a transfer, possibly fraudulent, from the nonearning spouse of his or her community half interest." (Reppy, supra, 18 San. Diego L. Rev. at p. 228.) But the court in State Bd. of Equalization v. Woo, supra, 82 Cal.App.4th 481, came to a different conclusion, holding that an agreement entered into during marriage in which the spouses agree that future earnings by each spouse would be that spouse's separate property was subject to the UFTA.
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Finally, Professor Reppy's suggestion that the construction asserted here by defendants is preferable because the debtor-spouse has only changed his or her status from single to married and the position of the creditor has not changed ignores the fact that, with agreements such as the one in this case, it is not just the debtor-spouse's marital status that changes. With provisions such as the joint bank account provision in the Moyer-Schell agreement, the debtor-spouse is able to significantly increase his or her standard of living while at the same time preventing creditors from accessing the funds used for that increase.
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Moreover, the legislative history of the predecessor to Family Code section 911 -- former section 5120.110, subdivision (b) of the Civil Code (Stats. 1984, ch. 1671, § 4, p. 6020) -- calls into question the acceptance of Professor Reppy's viewpoint. At the time of the professor's study, California law protected the non-debtor spouse's earnings from liability only for premarital contract debts. (Civ. Code, former § 5120 [Stats. 1969, ch. 1608, § 8, p. 3341].) The Legislature subsequently replaced former section 5120 with former section 5120.110, which extended the protection of the non-debtor-spouse's earnings from liability for any premarital debt of the other spouse, and provided that those earnings were protected only so long as they were held in an account in which the debtor-spouse had no right of withdrawal and were not commingled with other community property except property insignificant in amount. (Civ. Code, former § 5120.110, subd. (b).) In recommending the enactment of this provision, the California Law Revision Commission explained that the earnings of the non-debtor-spouse should be protected because they are "peculiarly personal." (Liability of Marital Property for Debts, supra, 17 Cal. L. Revision Comm'n Reports at p. 18.) However, the Commission recommended "that the earnings should lose their protection from liability upon a change in form, [and] ... should retain their protection [only] so long as traceable in bank accounts. This will ensure that substantial amounts of community property are not immunized from creditors, that the judicial system is not burdened by extensive tracing requirements, and that earnings will remain exempt so long as they retain their peculiarly personal character." (Ibid.) In other words, the Legislature wanted to protect the non-debtor-spouse's earnings from liability for the premarital debts of the debtor-spouse only to the extent the debtor-spouse did not share in those earnings.
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PAGE_8 Although not conclusive, we find the legislative history of the UFTA and the relevant provisions of the Family Code, like the language of the statutes, suggest that the UFTA applies to premarital agreements like the one in this case. We turn to public policy considerations to determine whether that interpretation should prevail.
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3. Policy Considerations Favor the Application of the UFTA to Premarital Agreements Like the One in This Case
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Because the statutory language and the legislative history suggest, but do not conclusively establish, that the Legislature intended the UFTA to apply in this situation, we turn to the policy considerations favoring and disfavoring each side's interpretation of the statutes. On the whole, those policy considerations favor the interpretation asserted by Sturm.
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In Mejia v. Reed, the Supreme Court declared that "[t]he California Legislature has a general policy of protecting creditors from fraudulent transfers, including transfers between spouses" in a case that addressed whether the UFTA applied to a transfer of one spouse's interest in community property as part of dissolution of the marriage.14 (Mejia v. Reed, supra, 31 Cal.4th at p. 668.) In deciding that the transfer was subject to the UFTA, the Court found that, "[i]n view of this overall policy of protecting creditors, it is unlikely that the Legislature intended to grant married couples a one-time-only opportunity to defraud creditors by including the fraudulent transfer in an MSA." (Mejia v. Reed, supra, 31 Cal.4th at p. 668.)
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FN14 In the case before it, the husband transferred all of his interest in jointly-owned real property to wife, and the wife transferred all of her interest in the husband's medical practice to the husband in a marriage settlement agreement. (Mejia v. Reed, supra, 31 Cal.4th at p. 662.) Shortly thereafter, the husband abandoned his medical practice, was living with his mother, and had no assets and no income. (Ibid.)
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Admittedly, there is a competing policy at play with regard to premarital agreements that was not present in Mejia. That is, there is a long-standing policy in favor of marriage in this state. (See In re Marriage of Dawley, supra, 17 Cal.3d at p. 350; In re Marriage of Pendleton & Fireman (2000) 24 Cal.4th 39, 52.) And premarital agreements facilitate marriage by allowing the parties to "reorder[ ] ... property rights to fit the needs and desires of the couple." (In re Marriage of Dawley, supra, 17 Cal.3d at p. 358; see also In re Marriage of Pendleton & Fireman, supra, 24 Cal.4th at p. 53 [observing that the availability of an enforceable premarital agreement may encourage marriage].)
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It might be argued that applying the UFTA to a premarital agreement in which the parties agree that each party's earnings, income, and assets acquired during marriage would be that party's separate property would discourage marriage in cases, such as the present one, in which one of the parties has significant debts while the other party has substantial income. But the Legislature already has provided protection for the couple in such a case, by enacting Family Code section 911. As noted, under that statute, the non-debtor-spouse's earnings are sheltered from liability for the debtor-spouse's premarital debts, so long as those earnings are kept by the non-debtor-spouse in a separate account (to which the debtor-spouse does not have a right of withdrawal) and are not commingled with other property in the community estate. This provision demonstrates, not only an intent to protect the non-debtor-spouse's earnings, but also a policy judgment -- an intent to prevent the debtor-spouse from taking advantage of that protection at the expense of his or her creditors by being allowed access to the protected funds.
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D. Conclusion
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PAGE_9 In light of the suggestions raised by the legislative language and history, and the strong policy -- advanced by both the UFTA and section 911 of the Family Code -- of protecting the rights of creditors from fraudulent transfers, we conclude that the Legislature must have intended that UFTA can apply to premarital agreements in which the prospective spouses agree that each spouse's earnings, income, and property acquired during marriage will be that spouse's separate property. The policy considerations in favor of applicability of the UFTA are especially strong in this case, where the agreement provides that all earnings and income, and property acquired with those earnings and income, dating back to the date of marriage will become community property when certain premarital debts no longer are enforceable, and where the agreement allows the debtor-spouse joint access to the non-debtor-spouse's earnings and income that are deposited in a joint account.
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Our conclusion that the UFTA can apply to a premarital agreement does not mean that it necessarily will apply to invalidate the agreement here. Whether the UFTA applies in this (or any) case depends upon whether there was actual or constructive fraud under Civil Code section 3439.04. That issue is a factual one, and is not before us in this appeal from a judgment of dismissal following the sustaining of a demurrer.
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DISPOSITION
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The judgment is reversed. Sturm shall recover his costs on appeal.
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CERTIFIED FOR PUBLICATION
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We concur:
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COLLINS, J.
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E. Potter Waived Any Challenge to the Demurrer Ruling on the Common Law Cause of Action
Though Potter's briefs on appeal include passing mentions of his cause of action for common law fraudulent conveyance, he includes no meaningful discussion of it and cites no pertinent authority regarding it. " 'When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.' (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862, 91 Cal.Rptr.3d 726[ ].) 'We are not bound to develop appellants' arguments for them. [Citation.] The absence of cogent legal argument or citation to authority allows this court to treat the contention as waived.' [Citations.]" (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956, 124 Cal.Rptr.3d 78.) Cahill's observations apply fully to Potter's common law cause of action and the trial court's ruling as to that cause of action will therefore stand.
DISPOSITION
The judgment of dismissal is reversed and the case is remanded for further proceedings consistent with this opinion. Potter is to recover his costs on appeal.
We concur:
RUBIN, P. J.
MOOR, J.
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DUNNING, J.PAGE_
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(:title CITE:)
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(:title Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:Summary: Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:description Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:keywords voidable transaction, uvta, fraudulent transfer, ufta, fraudulent conveyance, California:)
(:Summary: Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
(:description Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).:)
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Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).
Court of Appeal, Second District, Division 5, California.
Christopher POTTER, Plaintiff and Appellant,
v.
ALLIANCE UNITED INSURANCE COMPANY, Defendant and Respondent.
B287614
Filed 07/23/2019
APPEAL from a judgment of the Superior Court of Los Angeles County, Brian C. Yep, Judge. Reversed and remanded with directions. (Los Angeles County Super. Ct. No. MC026408)
Attorneys and Law Firms
Black Compean & Hall, Michael D. Compean and Frederick G. Hall, Los Angeles, for Plaintiff and Appellant.
Lewis Brisbois Bisgaard & Smith, Lane J. Ashley, Raul L. Martinez, and Celia Moutes-Lee, Los Angeles, for Defendant and Respondent.
Opinion
BAKER, J.
PAGE_1 Plaintiff and appellant Christopher Potter (Potter) was injured by Jesus Remedios Avalos-Tovar (Tovar) in an auto accident. Tovar was insured by defendant and respondent Alliance United Insurance Company (AUIC), with a maximum liability limit of $15,000. Potter offered to settle personal injury claims against Tovar for his policy limit, but AUIC did not respond to the offer. The claim was later tried to a jury and Potter obtained a judgment against Tovar for nearly one million dollars—which the trial court subsequently vacated when granting AUIC's motion for new trial. Then, before retrial, AUIC paid Tovar $75,000 to release any bad faith claim he had against AUIC (for AUIC's failure to accept the early settlement offer). Potter again prevailed after the second trial, this time obtaining a judgment in excess of one million dollars. Unable to collect that sum from the insolvent Tovar, Potter sued AUIC and alleged the release it procured from Tovar was a fraudulent conveyance under statutory and common law. We consider whether the trial court was right to sustain AUIC's demurrer and dismiss the fraudulent conveyance suit on either of two alternative grounds—namely, that the suit was barred by the statute of limitations and failed to state a proper fraudulent conveyance claim.
I. BACKGROUND1
1. Our factual recitation is taken from the operative complaint's allegations and attached exhibits. (See generally Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924, fn. 1, 199 Cal.Rptr.3d 66, 365 P.3d 845 (Yvanova).)
A. AUIC Procures the Release After a Jury Finding for Potter
In October 2007, Potter was severely injured when the motorcycle he was riding collided with the automobile Tovar was driving. Tovar was insured under an automobile insurance policy issued by AUIC, which included liability coverage limited to $15,000 per person.
Two months after the accident, Potter wrote to AUIC and offered to settle his claims against Tovar in exchange for payment of the $15,000 policy limit. The offer stated it would expire in 30 days. AUIC did not respond to the offer before it expired.
Potter later filed a personal injury lawsuit against Tovar in Los Angeles Superior Court. That action proceeded to trial in July 2009. Tovar conceded he was at least partially at fault for Potter's injuries but challenged the amount of damages. The jury returned a verdict in Potter's favor, awarding him $908,643.
Tovar filed a motion for a new trial and the trial court granted it—vacating the existing jury verdict and judgment. Potter appealed.
In April 2010, while Potter's appeal was pending, AUIC and Tovar entered into a confidential "Release and Settlement Agreement" (Release) pursuant to which Tovar released and discharged AUIC from "any claims for negligence, delay, bad faith, punitive damages, unfair practices, malpractice, emotional distress, consequential loss and damage, excess judgment, and personal injury." Tovar also agreed he would "not make any assignments, file any suit, take any action or pursue any action [or] proceeding against releasees arising out of or in any way pertaining to the [Potter] automobile accident or the insurance and legal claims relating to said accident." In exchange for Tovar's release of claims and agreement to forego any assignment related to the Potter liability action, AUIC paid Tovar $75,000.
B. Judgment Again for Potter, Who Cannot Collect Against Tovar
PAGE_2 The Court of Appeal affirmed the order granting a new trial in the Potter liability action and the case was remanded for retrial. In early April 2012—before a trial setting conference in the personal injury action and some two years after the Release had been executed—counsel for Tovar disclosed the existence of the Release to Potter's counsel. The second trial in the personal injury action commenced approximately a year later. The jury again returned a verdict in Potter's favor, this time awarding him $975,000 in damages. The trial court also awarded Potter $108,455.59 in recoverable costs and $441,697.92 in prejudgment interest. In December 2013, the trial court entered judgment for Potter in the amount of $1,523,887.16.
From the time of the accident through the time of the second jury verdict, Tovar was insolvent—the only means he had of paying any significant portion of the judgment was his prerogative to sue AUIC. Potter offered to take an assignment of Tovar's rights against AUIC in exchange for a covenant not to execute the judgment against Tovar's personal assets. Because he had already signed the Release, however, Tovar was unable to agree.
AUIC paid Potter the $15,000 policy limit but refused to satisfy the remainder of the judgment.
C. Potter Sues AUIC on a Fraudulent Conveyance Theory and the Trial Court Sustains AUIC's Demurrer
Potter filed an original complaint in this action alleging eight causes of action, including breach of contract, breach of the implied covenant of good faith and fair dealing, and engaging in a fraudulent conveyance. Potter subsequently filed first and second amended complaints, each alleging a single cause of action for fraudulent conveyance. Potter later filed a third amended complaint (the operative complaint) alleging only two causes of action: statutory and common law fraudulent conveyance.
The former cause of action, predicated on a violation of California's Uniform Voidable Transactions Act (the UVTA,2 Civ. Code,3 § 3439 et seq.), alleges Tovar was insolvent prior to and at the time Tovar and AUIC entered into the Release. The cause of action further alleges that Tovar had a viable claim for breach of the implied covenant of good faith and fair dealing against AUIC, which was an "asset" he could have used to pay down his civil liability, and that AUIC participated in a fraudulent transfer of that asset by entering into the Release—which prevented Potter from collecting all or a greater share of the judgment in his favor.4
2. The UVTA was formerly known as the Uniform Fraudulent Transfers Act (UFTA) until it was amended and renamed effective January 1, 2016. (Stats. 2015, ch. 44, § 3.) Although the transfer at issue here took place in 2010, the UVTA does not substantively differ from the UFTA in any manner pertinent to our analysis. Thus, like the parties, we refer to and cite the current version of the UVTA throughout this opinion unless otherwise noted.
3. Undesignated statutory references that follow are to the Civil Code.
4. The operative complaint further alleged facts evidencing AUIC's intent to "hinder, delay or defraud" Potter, namely, the failure to disclose the Release for two years, the decision to enter into the Release after Potter had obtained a judgment against Tovar that was substantially higher than his policy limit, AUIC's awareness that Tovar lacked assets other than the rights to the bad faith claim he released, and the purportedly inadequate consideration Tovar received for the Release.
The operative complaint's common-law-based fraudulent conveyance cause of action proceeded on essentially the same theory, but without reliance on the terms of the UVTA. The Release was illegal, the cause of action alleged, because the insolvent Tovar transferred his right to sue for breach of the covenant of good faith and fair dealing to AUIC, AUIC intended to prevent Potter from collecting the full amount of the judgment, and Tovar did not receive reasonably equivalent value for the claim released.
PAGE_3 AUIC demurred to the operative complaint, arguing the allegations predicated on the UVTA and common law failed to state facts sufficient to constitute a proper fraudulent conveyance cause of action. As relevant for our purposes, AUIC's demurrer argued the UVTA-based cause of action was (1) barred by the statute of limitations and constituted a sham pleading because its amendments contradicted prior allegations regarding when Potter became a creditor of Tovar; (2) Potter lacked standing to assert a UVTA claim because AUIC was not a debtor, a transferee, or a person for whose benefit a transfer was made; (3) the bad faith claim was not an "asset" when Tovar and AUIC entered into the Release because there was no judgment in effect against Tovar at the time; and (4) Potter could not allege he was injured by the transfer. As to the common law cause of action, AUIC argued it failed because Potter lacked standing to sue and could not prove any injury.
At the demurrer hearing, the trial court initially opined the sham pleading and statute of limitations arguments "have some merit." But the court asked the parties to focus their arguments on "whether this [i.e., the released bad faith claim] is an asset, whether there's been a transfer of this asset, whether there are damages and, if so, whether they're speculative or not, and the issue of standing." The parties thereafter argued consistent with their positions in the demurrer briefing.
After hearing argument from counsel, the trial court acknowledged AUIC's conduct "doesn't pass the smell test for sure," but the court further mused that "doesn't mean that something unlawful was done." The court ultimately concluded it would sustain AUIC's demurrer without leave to amend "for all of the reasons we discussed other than [an argument made by AUIC seeking to invoke] the mediation privilege." The trial court prepared no further articulation of these reasons, and AUIC gave notice of the bottom-line ruling. A judgment of dismissal was then entered for AUIC.
II. DISCUSSION
Potter's briefing on appeal includes no meaningful discussion of his common law fraudulent conveyance cause of action, nor of why the trial court erred in sustaining the demurrer to it. We therefore do not address it and instead affirm the trial court's ruling on that score. But the trial court's UVTA ruling is adequately challenged, and that challenge has merit.
Insofar as the trial court sustained AUIC's demurrer because the UVTA claim is barred by the applicable statute of limitations, the conclusion is unsound. That cause of action was timely filed because the fraudulent transfer complained of was made during the pendency of a lawsuit that would (and did) establish whether a debtor-creditor relationship existed between Potter and Tovar. Under California precedent, the statute of limitations thus did not begin running until the judgment in the personal injury action became final. The trial court's remaining reasons (from what we can gather) for sustaining AUIC's demurrer were also faulty. Tovar's right to sue for bad faith was an asset under the UVTA because it was an assignable form of personal property at the time the Release was executed. Potter had a "claim" against Tovar when the release was executed. Potter sufficiently alleged injury because the cause of action was an asset of Tovar's that was put out of Potter's reach by the Release. And AUIC is a proper defendant because the "transfer" of the bad faith claim (within the meaning of the UVTA, which defines "transfer" to include a "release") was made for its benefit.
A. Standard of Review
We review de novo an order sustaining a demurrer without leave to amend. (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010, 209 Cal.Rptr.3d 280, 382 P.3d 1116; Morales v. 22nd Dist. Agricultural Assn. (2016) 1 Cal.App.5th 504, 537, 206 Cal.Rptr.3d 1.) "[W]e accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, 40 Cal.Rptr.3d 205, 129 P.3d 394[ ].)" (Yvanova, supra, 62 Cal.4th at p. 924, 199 Cal.Rptr.3d 66, 365 P.3d 845, fn. omitted.)
PAGE_4 " '[T]he plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds on which the trial court sustained the demurrer, and if the defendant negates any essential element, we will affirm the order sustaining the demurrer as to the cause of action.' [Citation.]" (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1490-1491, 162 Cal.Rptr.3d 525; accord, Carman v. Alvord (1982) 31 Cal.3d 318, 324, 182 Cal.Rptr. 506, 644 P.2d 192 ["A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the [trial] court acted on that ground"]; E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 504, fn. 2, 146 Cal.Rptr. 614, 579 P.2d 505 [validity of the trial court's action, not the reason for its action, is what is reviewable].)
B. Overview of the UVTA
The UVTA is the most recent iteration of creditor protection statutes that trace their origin to the reign of Queen Elizabeth I. (Legis. Com. com., 12A pt. 2 West's Ann. Civ. Code (2016 ed.) foll. § 3439.01, p. 253; see also Mejia v. Reed (2003) 31 Cal.4th 657, 664, 3 Cal.Rptr.3d 390, 74 P.3d 166 (Mejia).) A fraudulent transfer under the UVTA " 'is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim.' [Citation.]" (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648, 15 Cal.Rptr.3d 805, 93 P.3d 395.) "Under the U[V]TA, a transfer can be invalid either because of actual fraud (Civ. Code, § 3439.04, subd. (a)) or constructive fraud (id., §§ 3439.04, subd. (b), 3439.05) ...." (Mejia, supra, at p. 661, 3 Cal.Rptr.3d 390, 74 P.3d 166.)
"A creditor who is damaged by a transfer described in either section 3439.04 or section 3439.05 can set the transfer aside or seek other appropriate relief under Civil Code section 3439.07." (Monastra v. Konica Business Machs., U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1635-1636, 51 Cal.Rptr.2d 528.) As pertinent here, a creditor may recover against either "[t]he first transferee of the asset or the person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1).)
Actual fraud under the UVTA is shown when a transfer is made, or an obligation is incurred, "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." (§ 3439.04, subd. (a)(1).) Such a transfer is voidable as to a creditor of the debtor, "whether the creditor's claim arose before or after the transfer was made or the obligation was incurred." (§ 3439.04, subd. (a).) It is not voidable, however, "against a person that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or obligee." (§ 3439.08, subd. (a).)
Constructive fraud under the UVTA can be shown in either of two ways. First, a transfer is constructively fraudulent where a debtor makes a transfer or incurs an obligation "[w]ithout receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: (A) [w]as 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[; or] (B) [i]ntended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due."5 (§ 3439.04, subd. (a)(2).) As with actual fraud, this form of transfer is voidable as to a creditor no matter whether the creditor's claim arose before or after the transfer. (§ 3439.04, subd. (a).) Second, a transfer is constructively fraudulent when a debtor makes a transfer or incurs an obligation "without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." (§ 3439.05, subd. (a).) This form of transfer is voidable as to a creditor whose claim arose before the transfer was made. (§ 3439.05, subd. (a).)
5. Former section 3439.04, subd. (a)(2)(B) used the phrase "he or she" rather than "the debtor." (Former § 3439.04, subd. (a)(2)(B).)
C. The UVTA's Filing Deadlines Pose No Bar to Potter's UVTA Cause of Action
PAGE_5 The UVTA states a cause of action under section 3439.04, subdivision (a)(1) (actual fraud) is "extinguished" unless filed "not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant." (§ 3439.09, subd. (a).) The statute provides a cause of action under section 3439.04, subdivision (a)(2) (constructive fraud—assets too small or debts too large) or section 3439.05 (constructive fraud—insolvency) must be filed "not later than four years after the transfer was made or the obligation was incurred."6 (§ 3439.09, subd. (b).)
6. The wording of the UVTA differs slightly from the wording of the former UFTA. The differences are inconsequential for our analysis.
The "after the transfer was made or the obligation was incurred" language used by section 3439.09 was interpreted by the Court of Appeal over 20 years ago in Cortez v. Vogt (1997) 52 Cal.App.4th 917, 60 Cal.Rptr.2d 841 (Cortez). The panel in that case analyzed when UVTA filing deadlines are triggered in a case where the "transfer alleged to be a fraudulent conveyance occurs during an underlying action which later establishes by final judgment the actual legal existence of a debtor-creditor relationship." (Id. at p. 929, 60 Cal.Rptr.2d 841.) We are, of course, presented with that same basic scenario here: the Release was executed during the pendency of Potter's action against Tovar, which ultimately confirmed Potter was a creditor of Tovar.
Relying on "legislative material published in connection with the adoption of the [UVTA]," the Cortez opinion holds the filing deadlines run from the time the underlying judgment becomes final. (Cortez, supra, 52 Cal.App.4th at p. 929, 60 Cal.Rptr.2d 841.) Cortez reached that conclusion in light of: (1) the UVTA's purpose as a cumulative remedy in addition to preexisting remedies—remedies for which California Supreme Court precedent holds the limitations period begins to run at the time of judgment in the underlying action (Adams v. Bell (1936) 5 Cal.2d 697, 703, 56 P.2d 208); (2) a desire to construe the UVTA in a manner consistent with other states' laws;7 and (3) "[t]he potential of unnecessary litigation if strict time limits are drawn for fraudulent transfer cases in circumstances such as are involved in [Cortez]." (Cortez, supra, 52 Cal.App.4th at pp. 930-937, 60 Cal.Rptr.2d 841.)
7. The analysis and result in Cortez has since been criticized by some courts in other jurisdictions. (See, e.g., Schmidt v. HSC, Inc. (2014) 131 Hawaii 497, 511, 319 P.3d 416; Moore v. Browning (Ct.App. 2002) 203 Ariz. 102, 109, 50 P.3d 852; but see GEA Group AG v. Flex-N-Gate Corp. (7th Cir. 2014) 740 F.3d 411, 417 [noting the Illinois Supreme Court has not addressed the issue and could potentially agree with the "forcefully argued" Cortez].) In the 20-plus years since Cortez was decided, however, no published case in California has disagreed with its holding or adopted the reasoning of the critical out-of-state cases. We will not be the first, partly in deference to the reliance interests that may have grown up around Cortez and to the salutary aim of ensuring predictability and stability in the law.
AUIC, for its part, does not argue Cortez was wrongly decided. Rather, AUIC cites PGA West Residential Assn., Inc. v. Hulven Internat., Inc. (2017) 14 Cal.App.5th 156, 221 Cal.Rptr.3d 353 (PGA West) and contends PGA West concluded section 3439.09 is a statute of repose (not a statute of limitations), thereby rendering Cortez distinguishable. AUIC misreads PGA West, or more precisely, reads it too broadly. The court in PGA West considered a question Cortez did not: whether section 3439.09, subdivision (c), which places a backstop seven-year filing cap on a UVTA action "[n]otwithstanding any other provision of law," is subject to tolling. PGA West does not, as AUIC suggests, declare either subdivisions (a) or (b) statutes of repose, and we decline to so extend the case's holding, which is solely focused on subdivision (c).
PAGE_6 Potter's lawsuit against Tovar, the result of which would establish whether and to what extent Potter is a creditor of Tovar, was pending when the Release was signed. Following Cortez, the UVTA filing deadlines did not begin to run until judgment was entered in the underlying action. (Cortez, supra, 52 Cal.App.4th at p. 937, 60 Cal.Rptr.2d 841.) That occurred on December 20, 2013, and Potter filed his original complaint within four years of that date, on June 24, 2016. The suit is therefore timely.
D. The Operative Complaint States a Valid UVTA Claim
AUIC's demurrer did not challenge the sufficiency of Potter's allegations of either actual or constructive fraud. Instead, the demurrer attacked the sufficiency of the foundational allegations that establish certain predicates for a UVTA violation, namely whether Potter sufficiently alleged (1) an asset was transferred, (2) Potter was injured by the transfer, and (3) any suffered injury entitled Potter to sue AUIC. AUIC continues to press these points on appeal. AUIC additionally argues the complaint failed to sufficiently allege that Potter had a "claim" against Tovar or that Tovar was insolvent at the pertinent time. We take up these arguments and find each lacking.
1. The cause of action for bad faith is an "asset"
In pertinent part, the UVTA defines an asset as the "property of a debtor," excluding property "to the extent it is encumbered by a valid lien[,]" and "to the extent it is generally exempt under nonbankruptcy law." (§ 3439.01, subd. (a).) As noted by the Legislative Committee Comments, the definition of asset "requires a determination that the property is subject to enforcement of a money judgment. Under Section 704.210 of the Code of Civil Procedure, property that is not subject to enforcement of a money judgment is exempt." (Legis. Com. com., 12A pt. 2 West's Ann. Civ. Code (2016 ed.) foll. § 3439.01, p. 253.)
"Except as otherwise provided by law, all property of the judgment debtor is subject to enforcement of a money judgment." (Code Civ. Proc., § 695.010, subd. (a).) " 'Property' includes real and personal property and any interest therein." (Code Civ. Proc., § 680.310.) " 'Personal property' includes both tangible and intangible personal property."8 (Code Civ. Proc., § 680.290.)
8. Potter's opening brief contends at some length that the intangible nature of the property at issue here does not bear on the adequacy of his pleading. Because we agree and AUIC does not argue to the contrary, we do not address this point further.
A cause of action to recover money damages is known as a "chose in action," which is considered a form of personal property. (Vick v. DaCorsi (2003) 110 Cal.App.4th 206, 212, fn. 35, 1 Cal.Rptr.3d 626; see also Code Civ. Proc. § 17, subd. (b)(8)(A) [defining "personal property" to include "things in action"].) From just these basic definitional principles, Tovar's right to bring a bad faith cause of action would constitute personal property subject to the enforcement of a money judgment.
The Code of Civil Procedure, however, includes an exception to the rule that we must consider to see if it changes the result. The Code states: "Except as otherwise provided by statute, property of the judgment debtor that is not assignable or transferable is not subject to enforcement of a money judgment." (Code Civ. Proc. § 695.030, subd. (a).) The question, of course, becomes whether Tovar's bad faith cause of action was assignable, and for that, we look to the nature of the cause of action.
PAGE_7 "The implied covenant [of good faith and fair dealing] imposes on an insurer the duty to accept a reasonable settlement offer within policy limits when there is a substantial likelihood of a judgment against the insured exceeding policy limits. [Citation.] An insurer who breaches this duty is liable for all of the insured's damages proximately caused by the breach, regardless of policy limits." (Wolkowitz v. Redland Ins. Co. (2003) 112 Cal.App.4th 154, 162, 5 Cal.Rptr.3d 95 (Wolkowitz).) An insured, however, has no immediate remedy for a refusal to settle; rather, "[u]ntil judgment is actually entered, the mere possibility or probability of an excess judgment does not render the refusal to settle actionable." (Safeco Ins. Co. of Am. v. Superior Court (1999) 71 Cal.App.4th 782, 788, 84 Cal.Rptr.2d 43 (Safeco).)
An insured may, however, assign a cause of action for bad faith failure to settle in exchange for the plaintiff's covenant not to execute an excess judgment against the insured's personal assets. (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 732, 117 Cal.Rptr.2d 318, 41 P.3d 128 (Hamilton); see also 21st Century Ins. Co. v. Superior Court (2015) 240 Cal.App.4th 322, 327, 192 Cal.Rptr.3d 530 (21st Century); Safeco, supra, 71 Cal.App.4th at pp. 788-789, 84 Cal.Rptr.2d 43.) This both "ensure[s] a reliable judicial determination of the insured's liability for purposes of a later bad faith action and eliminate[s] the insured's exposure to an excess judgment." (Wolkowitz, supra, 112 Cal.App.4th at p. 164, 5 Cal.Rptr.3d 95.) The assignment "is not immediately assertable," but "becomes operative after the excess judgment has been rendered." (Hamilton, supra, at p. 732, 117 Cal.Rptr.2d 318, 41 P.3d 128; see also Wolkowitz, supra, at p. 164, 5 Cal.Rptr.3d 95 [an insured can assign the bad faith cause of action against the insurer to the claimant "before trial in the underlying action"]; 21st Century, supra, at p. 327, 192 Cal.Rptr.3d 530 ["insured may assign any bad faith claims to the plaintiff in exchange for a covenant not to execute; the assignment will become operative after trial and in the event that an excess judgment has been rendered"].)
Under this established authority, Tovar's bad faith cause of action against AUIC was assignable when Tovar entered into the Release even though Tovar could not yet have sued AUIC. Because it was assignable, and because it does not appear to be otherwise exempted, the potential cause of action is property subject to a money judgment and therefore an asset under the UVTA. AUIC's arguments to the contrary are all unpersuasive.
AUIC relies on Safeco, supra, 71 Cal.App.4th 782, 84 Cal.Rptr.2d 43, for the proposition that a cause of action for bad faith failure to settle accrues only after a judgment has been rendered in excess of the policy limits. True, that is what Safeco says, but that is not all it says. Safeco and the other cases we have cited recognize a bad faith cause of action may be assigned to the claimant before trial in the underlying action (id. at p. 788, 84 Cal.Rptr.2d 43), and AUIC does not reckon with that aspect of precedent that is dispositive on the meaning of "asset" under the UVTA. AUIC also contends the cause of action was not an asset because Tovar could not have sold it to satisfy the excess judgment. The cause of action was transferable, though, and that undercuts AUIC's unsupported assertion that the cause of action was not an asset.
Additionally, AUIC contends section 1045, which provides "[a] mere possibility, not coupled with an interest, cannot be transferred," demonstrates the unaccrued cause of action could not have been assigned. This contention is similarly unpersuasive. "Although common law and statutory rules against assignment of expectations ... prevent the transferee from immediately asserting his claim, the attempted transfer of a future right arising out of the breach of the insurer's duty to settle in good faith operates as an 'equitable assignment or contract to assign, which becomes operative as soon as the right comes into existence.' [Citation.]" (Schlauch v. Hartford Accident & Indem. Co. (1983) 146 Cal.App.3d 926, 931, fn. 3, 194 Cal.Rptr. 658.) Indeed, California courts have long enforced assignments of contingent expectancies "[d]espite ... section 1045." (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 366-367, 111 Cal.Rptr. 468; see also Dougherty v. California Kettleman Oil Royalties, Inc. (1937) 9 Cal.2d 58, 89, 69 P.2d 155.)
PAGE_8 Because we conclude the cause of action was an asset within the meaning of the UVTA, AUIC's argument that the Release was not a transfer of an asset also fails. " '[T]ransfer' under the U[V]TA has a broad meaning." (Sturm v. Moyer (2019) 32 Cal.App.5th 299, 308, 243 Cal.Rptr.3d 556.) It includes "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, license, and creation of a lien or other encumbrance." (§ 3439.01, subd. (m), italics added.) Under the plain language of the UVTA, a release qualifies as a "transfer."
AUIC nevertheless relies on canons of statutory interpretation to argue Tovar's release of his contingent bad faith cause of action could not constitute a transfer under the UVTA because "release" only applies to an asset or interest in an asset, not to the release of a right. The canons do not alter the statute's plain meaning, however, and in any event, we have decided there was an asset involved and the argument therefore fails by necessity.
2. Potter alleged sufficient facts to establish he had a claim against Tovar
AUIC also argues Potter did not have a "claim" against Tovar, and thus was not a "creditor" when Tovar executed the Release, because Potter did not have a judgment against Tovar at the time. While AUIC is correct that a creditor under the UVTA is "a person that has a claim," the word "claim" is not as narrowly defined as AUIC contends. With an exception not pertinent here, a claim is "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." (§ 3439.01, subd. (b).)
The plain language of section 3439.01 demonstrates an individual need not have a judgment to have a claim, as does section 3439.04, which provides certain transfers are voidable as to a creditor "whether the creditor's claim arose before or after the transfer was made" (§ 3439.04, subd. (a)). Though Potter did not have a judgment against Tovar when the Release was executed, he had a claim against him. He and Tovar were thus, respectively, a creditor and debtor under the terms of the UVTA. (§ 3439.01, subds. (c), (e).)
3. Potter sufficiently alleged injury
The operative complaint alleges Potter obtained a verdict in his favor in the amount of $1,523,887.16 and has been damaged because he cannot collect the full amount of the excess judgment from either Tovar or AUIC. As we have already concluded, the bad faith cause of action was a transferrable asset. Without the Release, Tovar could have assigned the cause of action to Potter. If Tovar had declined to do so in favor of pursing it himself, Potter could have placed a lien on the cause of action or potential proceeds of the lawsuit. (Code Civ. Proc., § 708.410, subd. (a).) The Release deprived Potter of those options. While it is unclear at this juncture what value Tovar's cause of action had or has,9 the allegation is sufficient to demonstrate injury for the purposes of a demurrer.
9. It seems fair to assume, however, from the $75,000 AUIC paid Tovar in consideration for the Release, that the cause of action had significant monetary value when the Release was executed.
We also reject AUIC's argument that Potter was not injured by the Release because it did not put any property out of the reach of a creditor. The basic premise of this contention is that Potter did not have a judgment or a "right to payment" when the Release was executed. As described above, a right to payment under the UVTA need not be "reduced to judgment" in order for a claim to exist. (§ 3439.01, subd. (b).) Potter had a "claim," and was a creditor, when the Release was executed.
4. Potter alleged sufficient facts to establish AUIC is a proper defendant for this cause of action
PAGE_9 AUIC appears to have abandoned the contention, raised below, that Potter lacks standing to sue AUIC for fraudulent conveyance. We nevertheless address the contention briefly because it is unclear from the trial court's "for all of the reasons we discussed" ruling whether it based any part of its decision on this contention.
The UVTA permits a creditor to recover against a transferee or a "person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1)(A).) AUIC argued Potter could not state a cause of action for fraudulent conveyance against AUIC because AUIC was not a debtor, a transferee, or a person for whose benefit a transfer was made. The facts as alleged in the operative complaint forestall this conclusion. As alleged, the transfer in question was made for AUIC's benefit.
5. AUIC's insolvency argument fails
AUIC argues the trial court properly sustained the demurrer because the Release did not render Tovar "insolvent" as defined by the UVTA. Only one of the three methods of proving a violation of the UVTA requires a plaintiff to prove insolvency (§ 3439.05), and the operative complaint pleads all three methods in the alternative. As a result, even if AUIC were correct, it has not shown the complaint fails to state a cause of action for violation of the UVTA.
E. Potter Waived Any Challenge to the Demurrer Ruling on the Common Law Cause of Action
Though Potter's briefs on appeal include passing mentions of his cause of action for common law fraudulent conveyance, he includes no meaningful discussion of it and cites no pertinent authority regarding it. " 'When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.' (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862, 91 Cal.Rptr.3d 726[ ].) 'We are not bound to develop appellants' arguments for them. [Citation.] The absence of cogent legal argument or citation to authority allows this court to treat the contention as waived.' [Citations.]" (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956, 124 Cal.Rptr.3d 78.) Cahill's observations apply fully to Potter's common law cause of action and the trial court's ruling as to that cause of action will therefore stand.
DISPOSITION
The judgment of dismissal is reversed and the case is remanded for further proceedings consistent with this opinion. Potter is to recover his costs on appeal.
We concur:
RUBIN, P. J.
MOOR, J.
Court of Appeal, Second District, Division 5, California.
Christopher POTTER, Plaintiff and Appellant,
v.
ALLIANCE UNITED INSURANCE COMPANY, Defendant and Respondent.
B287614
Filed 07/23/2019
APPEAL from a judgment of the Superior Court of Los Angeles County, Brian C. Yep, Judge. Reversed and remanded with directions. (Los Angeles County Super. Ct. No. MC026408)
Attorneys and Law Firms
Black Compean & Hall, Michael D. Compean and Frederick G. Hall, Los Angeles, for Plaintiff and Appellant.
Lewis Brisbois Bisgaard & Smith, Lane J. Ashley, Raul L. Martinez, and Celia Moutes-Lee, Los Angeles, for Defendant and Respondent.
Opinion
BAKER, J.
PAGE_1 Plaintiff and appellant Christopher Potter (Potter) was injured by Jesus Remedios Avalos-Tovar (Tovar) in an auto accident. Tovar was insured by defendant and respondent Alliance United Insurance Company (AUIC), with a maximum liability limit of $15,000. Potter offered to settle personal injury claims against Tovar for his policy limit, but AUIC did not respond to the offer. The claim was later tried to a jury and Potter obtained a judgment against Tovar for nearly one million dollars—which the trial court subsequently vacated when granting AUIC's motion for new trial. Then, before retrial, AUIC paid Tovar $75,000 to release any bad faith claim he had against AUIC (for AUIC's failure to accept the early settlement offer). Potter again prevailed after the second trial, this time obtaining a judgment in excess of one million dollars. Unable to collect that sum from the insolvent Tovar, Potter sued AUIC and alleged the release it procured from Tovar was a fraudulent conveyance under statutory and common law. We consider whether the trial court was right to sustain AUIC's demurrer and dismiss the fraudulent conveyance suit on either of two alternative grounds—namely, that the suit was barred by the statute of limitations and failed to state a proper fraudulent conveyance claim.
I. BACKGROUND1
1. Our factual recitation is taken from the operative complaint's allegations and attached exhibits. (See generally Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 924, fn. 1, 199 Cal.Rptr.3d 66, 365 P.3d 845 (Yvanova).)
A. AUIC Procures the Release After a Jury Finding for Potter
In October 2007, Potter was severely injured when the motorcycle he was riding collided with the automobile Tovar was driving. Tovar was insured under an automobile insurance policy issued by AUIC, which included liability coverage limited to $15,000 per person.
Two months after the accident, Potter wrote to AUIC and offered to settle his claims against Tovar in exchange for payment of the $15,000 policy limit. The offer stated it would expire in 30 days. AUIC did not respond to the offer before it expired.
Potter later filed a personal injury lawsuit against Tovar in Los Angeles Superior Court. That action proceeded to trial in July 2009. Tovar conceded he was at least partially at fault for Potter's injuries but challenged the amount of damages. The jury returned a verdict in Potter's favor, awarding him $908,643.
Tovar filed a motion for a new trial and the trial court granted it—vacating the existing jury verdict and judgment. Potter appealed.
In April 2010, while Potter's appeal was pending, AUIC and Tovar entered into a confidential "Release and Settlement Agreement" (Release) pursuant to which Tovar released and discharged AUIC from "any claims for negligence, delay, bad faith, punitive damages, unfair practices, malpractice, emotional distress, consequential loss and damage, excess judgment, and personal injury." Tovar also agreed he would "not make any assignments, file any suit, take any action or pursue any action [or] proceeding against releasees arising out of or in any way pertaining to the [Potter] automobile accident or the insurance and legal claims relating to said accident." In exchange for Tovar's release of claims and agreement to forego any assignment related to the Potter liability action, AUIC paid Tovar $75,000.
B. Judgment Again for Potter, Who Cannot Collect Against Tovar
PAGE_2 The Court of Appeal affirmed the order granting a new trial in the Potter liability action and the case was remanded for retrial. In early April 2012—before a trial setting conference in the personal injury action and some two years after the Release had been executed—counsel for Tovar disclosed the existence of the Release to Potter's counsel. The second trial in the personal injury action commenced approximately a year later. The jury again returned a verdict in Potter's favor, this time awarding him $975,000 in damages. The trial court also awarded Potter $108,455.59 in recoverable costs and $441,697.92 in prejudgment interest. In December 2013, the trial court entered judgment for Potter in the amount of $1,523,887.16.
From the time of the accident through the time of the second jury verdict, Tovar was insolvent—the only means he had of paying any significant portion of the judgment was his prerogative to sue AUIC. Potter offered to take an assignment of Tovar's rights against AUIC in exchange for a covenant not to execute the judgment against Tovar's personal assets. Because he had already signed the Release, however, Tovar was unable to agree.
AUIC paid Potter the $15,000 policy limit but refused to satisfy the remainder of the judgment.
C. Potter Sues AUIC on a Fraudulent Conveyance Theory and the Trial Court Sustains AUIC's Demurrer
Potter filed an original complaint in this action alleging eight causes of action, including breach of contract, breach of the implied covenant of good faith and fair dealing, and engaging in a fraudulent conveyance. Potter subsequently filed first and second amended complaints, each alleging a single cause of action for fraudulent conveyance. Potter later filed a third amended complaint (the operative complaint) alleging only two causes of action: statutory and common law fraudulent conveyance.
The former cause of action, predicated on a violation of California's Uniform Voidable Transactions Act (the UVTA,2 Civ. Code,3 § 3439 et seq.), alleges Tovar was insolvent prior to and at the time Tovar and AUIC entered into the Release. The cause of action further alleges that Tovar had a viable claim for breach of the implied covenant of good faith and fair dealing against AUIC, which was an "asset" he could have used to pay down his civil liability, and that AUIC participated in a fraudulent transfer of that asset by entering into the Release—which prevented Potter from collecting all or a greater share of the judgment in his favor.4
2. The UVTA was formerly known as the Uniform Fraudulent Transfers Act (UFTA) until it was amended and renamed effective January 1, 2016. (Stats. 2015, ch. 44, § 3.) Although the transfer at issue here took place in 2010, the UVTA does not substantively differ from the UFTA in any manner pertinent to our analysis. Thus, like the parties, we refer to and cite the current version of the UVTA throughout this opinion unless otherwise noted.
3. Undesignated statutory references that follow are to the Civil Code.
4. The operative complaint further alleged facts evidencing AUIC's intent to "hinder, delay or defraud" Potter, namely, the failure to disclose the Release for two years, the decision to enter into the Release after Potter had obtained a judgment against Tovar that was substantially higher than his policy limit, AUIC's awareness that Tovar lacked assets other than the rights to the bad faith claim he released, and the purportedly inadequate consideration Tovar received for the Release.
The operative complaint's common-law-based fraudulent conveyance cause of action proceeded on essentially the same theory, but without reliance on the terms of the UVTA. The Release was illegal, the cause of action alleged, because the insolvent Tovar transferred his right to sue for breach of the covenant of good faith and fair dealing to AUIC, AUIC intended to prevent Potter from collecting the full amount of the judgment, and Tovar did not receive reasonably equivalent value for the claim released.
PAGE_3 AUIC demurred to the operative complaint, arguing the allegations predicated on the UVTA and common law failed to state facts sufficient to constitute a proper fraudulent conveyance cause of action. As relevant for our purposes, AUIC's demurrer argued the UVTA-based cause of action was (1) barred by the statute of limitations and constituted a sham pleading because its amendments contradicted prior allegations regarding when Potter became a creditor of Tovar; (2) Potter lacked standing to assert a UVTA claim because AUIC was not a debtor, a transferee, or a person for whose benefit a transfer was made; (3) the bad faith claim was not an "asset" when Tovar and AUIC entered into the Release because there was no judgment in effect against Tovar at the time; and (4) Potter could not allege he was injured by the transfer. As to the common law cause of action, AUIC argued it failed because Potter lacked standing to sue and could not prove any injury.
At the demurrer hearing, the trial court initially opined the sham pleading and statute of limitations arguments "have some merit." But the court asked the parties to focus their arguments on "whether this [i.e., the released bad faith claim] is an asset, whether there's been a transfer of this asset, whether there are damages and, if so, whether they're speculative or not, and the issue of standing." The parties thereafter argued consistent with their positions in the demurrer briefing.
After hearing argument from counsel, the trial court acknowledged AUIC's conduct "doesn't pass the smell test for sure," but the court further mused that "doesn't mean that something unlawful was done." The court ultimately concluded it would sustain AUIC's demurrer without leave to amend "for all of the reasons we discussed other than [an argument made by AUIC seeking to invoke] the mediation privilege." The trial court prepared no further articulation of these reasons, and AUIC gave notice of the bottom-line ruling. A judgment of dismissal was then entered for AUIC.
II. DISCUSSION
Potter's briefing on appeal includes no meaningful discussion of his common law fraudulent conveyance cause of action, nor of why the trial court erred in sustaining the demurrer to it. We therefore do not address it and instead affirm the trial court's ruling on that score. But the trial court's UVTA ruling is adequately challenged, and that challenge has merit.
Insofar as the trial court sustained AUIC's demurrer because the UVTA claim is barred by the applicable statute of limitations, the conclusion is unsound. That cause of action was timely filed because the fraudulent transfer complained of was made during the pendency of a lawsuit that would (and did) establish whether a debtor-creditor relationship existed between Potter and Tovar. Under California precedent, the statute of limitations thus did not begin running until the judgment in the personal injury action became final. The trial court's remaining reasons (from what we can gather) for sustaining AUIC's demurrer were also faulty. Tovar's right to sue for bad faith was an asset under the UVTA because it was an assignable form of personal property at the time the Release was executed. Potter had a "claim" against Tovar when the release was executed. Potter sufficiently alleged injury because the cause of action was an asset of Tovar's that was put out of Potter's reach by the Release. And AUIC is a proper defendant because the "transfer" of the bad faith claim (within the meaning of the UVTA, which defines "transfer" to include a "release") was made for its benefit.
A. Standard of Review
We review de novo an order sustaining a demurrer without leave to amend. (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010, 209 Cal.Rptr.3d 280, 382 P.3d 1116; Morales v. 22nd Dist. Agricultural Assn. (2016) 1 Cal.App.5th 504, 537, 206 Cal.Rptr.3d 1.) "[W]e accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6, 40 Cal.Rptr.3d 205, 129 P.3d 394[ ].)" (Yvanova, supra, 62 Cal.4th at p. 924, 199 Cal.Rptr.3d 66, 365 P.3d 845, fn. omitted.)
PAGE_4 " '[T]he plaintiff has the burden of showing that the facts pleaded are sufficient to establish every element of the cause of action and overcoming all of the legal grounds on which the trial court sustained the demurrer, and if the defendant negates any essential element, we will affirm the order sustaining the demurrer as to the cause of action.' [Citation.]" (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1490-1491, 162 Cal.Rptr.3d 525; accord, Carman v. Alvord (1982) 31 Cal.3d 318, 324, 182 Cal.Rptr. 506, 644 P.2d 192 ["A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the [trial] court acted on that ground"]; E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 504, fn. 2, 146 Cal.Rptr. 614, 579 P.2d 505 [validity of the trial court's action, not the reason for its action, is what is reviewable].)
B. Overview of the UVTA
The UVTA is the most recent iteration of creditor protection statutes that trace their origin to the reign of Queen Elizabeth I. (Legis. Com. com., 12A pt. 2 West's Ann. Civ. Code (2016 ed.) foll. § 3439.01, p. 253; see also Mejia v. Reed (2003) 31 Cal.4th 657, 664, 3 Cal.Rptr.3d 390, 74 P.3d 166 (Mejia).) A fraudulent transfer under the UVTA " 'is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim.' [Citation.]" (Kirkeby v. Superior Court (2004) 33 Cal.4th 642, 648, 15 Cal.Rptr.3d 805, 93 P.3d 395.) "Under the U[V]TA, a transfer can be invalid either because of actual fraud (Civ. Code, § 3439.04, subd. (a)) or constructive fraud (id., §§ 3439.04, subd. (b), 3439.05) ...." (Mejia, supra, at p. 661, 3 Cal.Rptr.3d 390, 74 P.3d 166.)
"A creditor who is damaged by a transfer described in either section 3439.04 or section 3439.05 can set the transfer aside or seek other appropriate relief under Civil Code section 3439.07." (Monastra v. Konica Business Machs., U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1635-1636, 51 Cal.Rptr.2d 528.) As pertinent here, a creditor may recover against either "[t]he first transferee of the asset or the person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1).)
Actual fraud under the UVTA is shown when a transfer is made, or an obligation is incurred, "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." (§ 3439.04, subd. (a)(1).) Such a transfer is voidable as to a creditor of the debtor, "whether the creditor's claim arose before or after the transfer was made or the obligation was incurred." (§ 3439.04, subd. (a).) It is not voidable, however, "against a person that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or obligee." (§ 3439.08, subd. (a).)
Constructive fraud under the UVTA can be shown in either of two ways. First, a transfer is constructively fraudulent where a debtor makes a transfer or incurs an obligation "[w]ithout receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either: (A) [w]as 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[; or] (B) [i]ntended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due."5 (§ 3439.04, subd. (a)(2).) As with actual fraud, this form of transfer is voidable as to a creditor no matter whether the creditor's claim arose before or after the transfer. (§ 3439.04, subd. (a).) Second, a transfer is constructively fraudulent when a debtor makes a transfer or incurs an obligation "without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." (§ 3439.05, subd. (a).) This form of transfer is voidable as to a creditor whose claim arose before the transfer was made. (§ 3439.05, subd. (a).)
5. Former section 3439.04, subd. (a)(2)(B) used the phrase "he or she" rather than "the debtor." (Former § 3439.04, subd. (a)(2)(B).)
C. The UVTA's Filing Deadlines Pose No Bar to Potter's UVTA Cause of Action
PAGE_5 The UVTA states a cause of action under section 3439.04, subdivision (a)(1) (actual fraud) is "extinguished" unless filed "not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant." (§ 3439.09, subd. (a).) The statute provides a cause of action under section 3439.04, subdivision (a)(2) (constructive fraud—assets too small or debts too large) or section 3439.05 (constructive fraud—insolvency) must be filed "not later than four years after the transfer was made or the obligation was incurred."6 (§ 3439.09, subd. (b).)
6. The wording of the UVTA differs slightly from the wording of the former UFTA. The differences are inconsequential for our analysis.
The "after the transfer was made or the obligation was incurred" language used by section 3439.09 was interpreted by the Court of Appeal over 20 years ago in Cortez v. Vogt (1997) 52 Cal.App.4th 917, 60 Cal.Rptr.2d 841 (Cortez). The panel in that case analyzed when UVTA filing deadlines are triggered in a case where the "transfer alleged to be a fraudulent conveyance occurs during an underlying action which later establishes by final judgment the actual legal existence of a debtor-creditor relationship." (Id. at p. 929, 60 Cal.Rptr.2d 841.) We are, of course, presented with that same basic scenario here: the Release was executed during the pendency of Potter's action against Tovar, which ultimately confirmed Potter was a creditor of Tovar.
Relying on "legislative material published in connection with the adoption of the [UVTA]," the Cortez opinion holds the filing deadlines run from the time the underlying judgment becomes final. (Cortez, supra, 52 Cal.App.4th at p. 929, 60 Cal.Rptr.2d 841.) Cortez reached that conclusion in light of: (1) the UVTA's purpose as a cumulative remedy in addition to preexisting remedies—remedies for which California Supreme Court precedent holds the limitations period begins to run at the time of judgment in the underlying action (Adams v. Bell (1936) 5 Cal.2d 697, 703, 56 P.2d 208); (2) a desire to construe the UVTA in a manner consistent with other states' laws;7 and (3) "[t]he potential of unnecessary litigation if strict time limits are drawn for fraudulent transfer cases in circumstances such as are involved in [Cortez]." (Cortez, supra, 52 Cal.App.4th at pp. 930-937, 60 Cal.Rptr.2d 841.)
7. The analysis and result in Cortez has since been criticized by some courts in other jurisdictions. (See, e.g., Schmidt v. HSC, Inc. (2014) 131 Hawaii 497, 511, 319 P.3d 416; Moore v. Browning (Ct.App. 2002) 203 Ariz. 102, 109, 50 P.3d 852; but see GEA Group AG v. Flex-N-Gate Corp. (7th Cir. 2014) 740 F.3d 411, 417 [noting the Illinois Supreme Court has not addressed the issue and could potentially agree with the "forcefully argued" Cortez].) In the 20-plus years since Cortez was decided, however, no published case in California has disagreed with its holding or adopted the reasoning of the critical out-of-state cases. We will not be the first, partly in deference to the reliance interests that may have grown up around Cortez and to the salutary aim of ensuring predictability and stability in the law.
AUIC, for its part, does not argue Cortez was wrongly decided. Rather, AUIC cites PGA West Residential Assn., Inc. v. Hulven Internat., Inc. (2017) 14 Cal.App.5th 156, 221 Cal.Rptr.3d 353 (PGA West) and contends PGA West concluded section 3439.09 is a statute of repose (not a statute of limitations), thereby rendering Cortez distinguishable. AUIC misreads PGA West, or more precisely, reads it too broadly. The court in PGA West considered a question Cortez did not: whether section 3439.09, subdivision (c), which places a backstop seven-year filing cap on a UVTA action "[n]otwithstanding any other provision of law," is subject to tolling. PGA West does not, as AUIC suggests, declare either subdivisions (a) or (b) statutes of repose, and we decline to so extend the case's holding, which is solely focused on subdivision (c).
PAGE_6 Potter's lawsuit against Tovar, the result of which would establish whether and to what extent Potter is a creditor of Tovar, was pending when the Release was signed. Following Cortez, the UVTA filing deadlines did not begin to run until judgment was entered in the underlying action. (Cortez, supra, 52 Cal.App.4th at p. 937, 60 Cal.Rptr.2d 841.) That occurred on December 20, 2013, and Potter filed his original complaint within four years of that date, on June 24, 2016. The suit is therefore timely.
D. The Operative Complaint States a Valid UVTA Claim
AUIC's demurrer did not challenge the sufficiency of Potter's allegations of either actual or constructive fraud. Instead, the demurrer attacked the sufficiency of the foundational allegations that establish certain predicates for a UVTA violation, namely whether Potter sufficiently alleged (1) an asset was transferred, (2) Potter was injured by the transfer, and (3) any suffered injury entitled Potter to sue AUIC. AUIC continues to press these points on appeal. AUIC additionally argues the complaint failed to sufficiently allege that Potter had a "claim" against Tovar or that Tovar was insolvent at the pertinent time. We take up these arguments and find each lacking.
1. The cause of action for bad faith is an "asset"
In pertinent part, the UVTA defines an asset as the "property of a debtor," excluding property "to the extent it is encumbered by a valid lien[,]" and "to the extent it is generally exempt under nonbankruptcy law." (§ 3439.01, subd. (a).) As noted by the Legislative Committee Comments, the definition of asset "requires a determination that the property is subject to enforcement of a money judgment. Under Section 704.210 of the Code of Civil Procedure, property that is not subject to enforcement of a money judgment is exempt." (Legis. Com. com., 12A pt. 2 West's Ann. Civ. Code (2016 ed.) foll. § 3439.01, p. 253.)
"Except as otherwise provided by law, all property of the judgment debtor is subject to enforcement of a money judgment." (Code Civ. Proc., § 695.010, subd. (a).) " 'Property' includes real and personal property and any interest therein." (Code Civ. Proc., § 680.310.) " 'Personal property' includes both tangible and intangible personal property."8 (Code Civ. Proc., § 680.290.)
8. Potter's opening brief contends at some length that the intangible nature of the property at issue here does not bear on the adequacy of his pleading. Because we agree and AUIC does not argue to the contrary, we do not address this point further.
A cause of action to recover money damages is known as a "chose in action," which is considered a form of personal property. (Vick v. DaCorsi (2003) 110 Cal.App.4th 206, 212, fn. 35, 1 Cal.Rptr.3d 626; see also Code Civ. Proc. § 17, subd. (b)(8)(A) [defining "personal property" to include "things in action"].) From just these basic definitional principles, Tovar's right to bring a bad faith cause of action would constitute personal property subject to the enforcement of a money judgment.
The Code of Civil Procedure, however, includes an exception to the rule that we must consider to see if it changes the result. The Code states: "Except as otherwise provided by statute, property of the judgment debtor that is not assignable or transferable is not subject to enforcement of a money judgment." (Code Civ. Proc. § 695.030, subd. (a).) The question, of course, becomes whether Tovar's bad faith cause of action was assignable, and for that, we look to the nature of the cause of action.
PAGE_7 "The implied covenant [of good faith and fair dealing] imposes on an insurer the duty to accept a reasonable settlement offer within policy limits when there is a substantial likelihood of a judgment against the insured exceeding policy limits. [Citation.] An insurer who breaches this duty is liable for all of the insured's damages proximately caused by the breach, regardless of policy limits." (Wolkowitz v. Redland Ins. Co. (2003) 112 Cal.App.4th 154, 162, 5 Cal.Rptr.3d 95 (Wolkowitz).) An insured, however, has no immediate remedy for a refusal to settle; rather, "[u]ntil judgment is actually entered, the mere possibility or probability of an excess judgment does not render the refusal to settle actionable." (Safeco Ins. Co. of Am. v. Superior Court (1999) 71 Cal.App.4th 782, 788, 84 Cal.Rptr.2d 43 (Safeco).)
An insured may, however, assign a cause of action for bad faith failure to settle in exchange for the plaintiff's covenant not to execute an excess judgment against the insured's personal assets. (Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, 732, 117 Cal.Rptr.2d 318, 41 P.3d 128 (Hamilton); see also 21st Century Ins. Co. v. Superior Court (2015) 240 Cal.App.4th 322, 327, 192 Cal.Rptr.3d 530 (21st Century); Safeco, supra, 71 Cal.App.4th at pp. 788-789, 84 Cal.Rptr.2d 43.) This both "ensure[s] a reliable judicial determination of the insured's liability for purposes of a later bad faith action and eliminate[s] the insured's exposure to an excess judgment." (Wolkowitz, supra, 112 Cal.App.4th at p. 164, 5 Cal.Rptr.3d 95.) The assignment "is not immediately assertable," but "becomes operative after the excess judgment has been rendered." (Hamilton, supra, at p. 732, 117 Cal.Rptr.2d 318, 41 P.3d 128; see also Wolkowitz, supra, at p. 164, 5 Cal.Rptr.3d 95 [an insured can assign the bad faith cause of action against the insurer to the claimant "before trial in the underlying action"]; 21st Century, supra, at p. 327, 192 Cal.Rptr.3d 530 ["insured may assign any bad faith claims to the plaintiff in exchange for a covenant not to execute; the assignment will become operative after trial and in the event that an excess judgment has been rendered"].)
Under this established authority, Tovar's bad faith cause of action against AUIC was assignable when Tovar entered into the Release even though Tovar could not yet have sued AUIC. Because it was assignable, and because it does not appear to be otherwise exempted, the potential cause of action is property subject to a money judgment and therefore an asset under the UVTA. AUIC's arguments to the contrary are all unpersuasive.
AUIC relies on Safeco, supra, 71 Cal.App.4th 782, 84 Cal.Rptr.2d 43, for the proposition that a cause of action for bad faith failure to settle accrues only after a judgment has been rendered in excess of the policy limits. True, that is what Safeco says, but that is not all it says. Safeco and the other cases we have cited recognize a bad faith cause of action may be assigned to the claimant before trial in the underlying action (id. at p. 788, 84 Cal.Rptr.2d 43), and AUIC does not reckon with that aspect of precedent that is dispositive on the meaning of "asset" under the UVTA. AUIC also contends the cause of action was not an asset because Tovar could not have sold it to satisfy the excess judgment. The cause of action was transferable, though, and that undercuts AUIC's unsupported assertion that the cause of action was not an asset.
Additionally, AUIC contends section 1045, which provides "[a] mere possibility, not coupled with an interest, cannot be transferred," demonstrates the unaccrued cause of action could not have been assigned. This contention is similarly unpersuasive. "Although common law and statutory rules against assignment of expectations ... prevent the transferee from immediately asserting his claim, the attempted transfer of a future right arising out of the breach of the insurer's duty to settle in good faith operates as an 'equitable assignment or contract to assign, which becomes operative as soon as the right comes into existence.' [Citation.]" (Schlauch v. Hartford Accident & Indem. Co. (1983) 146 Cal.App.3d 926, 931, fn. 3, 194 Cal.Rptr. 658.) Indeed, California courts have long enforced assignments of contingent expectancies "[d]espite ... section 1045." (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 366-367, 111 Cal.Rptr. 468; see also Dougherty v. California Kettleman Oil Royalties, Inc. (1937) 9 Cal.2d 58, 89, 69 P.2d 155.)
PAGE_8 Because we conclude the cause of action was an asset within the meaning of the UVTA, AUIC's argument that the Release was not a transfer of an asset also fails. " '[T]ransfer' under the U[V]TA has a broad meaning." (Sturm v. Moyer (2019) 32 Cal.App.5th 299, 308, 243 Cal.Rptr.3d 556.) It includes "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, license, and creation of a lien or other encumbrance." (§ 3439.01, subd. (m), italics added.) Under the plain language of the UVTA, a release qualifies as a "transfer."
AUIC nevertheless relies on canons of statutory interpretation to argue Tovar's release of his contingent bad faith cause of action could not constitute a transfer under the UVTA because "release" only applies to an asset or interest in an asset, not to the release of a right. The canons do not alter the statute's plain meaning, however, and in any event, we have decided there was an asset involved and the argument therefore fails by necessity.
2. Potter alleged sufficient facts to establish he had a claim against Tovar
AUIC also argues Potter did not have a "claim" against Tovar, and thus was not a "creditor" when Tovar executed the Release, because Potter did not have a judgment against Tovar at the time. While AUIC is correct that a creditor under the UVTA is "a person that has a claim," the word "claim" is not as narrowly defined as AUIC contends. With an exception not pertinent here, a claim is "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." (§ 3439.01, subd. (b).)
The plain language of section 3439.01 demonstrates an individual need not have a judgment to have a claim, as does section 3439.04, which provides certain transfers are voidable as to a creditor "whether the creditor's claim arose before or after the transfer was made" (§ 3439.04, subd. (a)). Though Potter did not have a judgment against Tovar when the Release was executed, he had a claim against him. He and Tovar were thus, respectively, a creditor and debtor under the terms of the UVTA. (§ 3439.01, subds. (c), (e).)
3. Potter sufficiently alleged injury
The operative complaint alleges Potter obtained a verdict in his favor in the amount of $1,523,887.16 and has been damaged because he cannot collect the full amount of the excess judgment from either Tovar or AUIC. As we have already concluded, the bad faith cause of action was a transferrable asset. Without the Release, Tovar could have assigned the cause of action to Potter. If Tovar had declined to do so in favor of pursing it himself, Potter could have placed a lien on the cause of action or potential proceeds of the lawsuit. (Code Civ. Proc., § 708.410, subd. (a).) The Release deprived Potter of those options. While it is unclear at this juncture what value Tovar's cause of action had or has,9 the allegation is sufficient to demonstrate injury for the purposes of a demurrer.
9. It seems fair to assume, however, from the $75,000 AUIC paid Tovar in consideration for the Release, that the cause of action had significant monetary value when the Release was executed.
We also reject AUIC's argument that Potter was not injured by the Release because it did not put any property out of the reach of a creditor. The basic premise of this contention is that Potter did not have a judgment or a "right to payment" when the Release was executed. As described above, a right to payment under the UVTA need not be "reduced to judgment" in order for a claim to exist. (§ 3439.01, subd. (b).) Potter had a "claim," and was a creditor, when the Release was executed.
4. Potter alleged sufficient facts to establish AUIC is a proper defendant for this cause of action
PAGE_9 AUIC appears to have abandoned the contention, raised below, that Potter lacks standing to sue AUIC for fraudulent conveyance. We nevertheless address the contention briefly because it is unclear from the trial court's "for all of the reasons we discussed" ruling whether it based any part of its decision on this contention.
The UVTA permits a creditor to recover against a transferee or a "person for whose benefit the transfer was made." (§ 3439.08, subd. (b)(1)(A).) AUIC argued Potter could not state a cause of action for fraudulent conveyance against AUIC because AUIC was not a debtor, a transferee, or a person for whose benefit a transfer was made. The facts as alleged in the operative complaint forestall this conclusion. As alleged, the transfer in question was made for AUIC's benefit.
5. AUIC's insolvency argument fails
AUIC argues the trial court properly sustained the demurrer because the Release did not render Tovar "insolvent" as defined by the UVTA. Only one of the three methods of proving a violation of the UVTA requires a plaintiff to prove insolvency (§ 3439.05), and the operative complaint pleads all three methods in the alternative. As a result, even if AUIC were correct, it has not shown the complaint fails to state a cause of action for violation of the UVTA.
E. Potter Waived Any Challenge to the Demurrer Ruling on the Common Law Cause of Action
Though Potter's briefs on appeal include passing mentions of his cause of action for common law fraudulent conveyance, he includes no meaningful discussion of it and cites no pertinent authority regarding it. " 'When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.' (Nelson v. Avondale Homeowners Assn. (2009) 172 Cal.App.4th 857, 862, 91 Cal.Rptr.3d 726[ ].) 'We are not bound to develop appellants' arguments for them. [Citation.] The absence of cogent legal argument or citation to authority allows this court to treat the contention as waived.' [Citations.]" (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956, 124 Cal.Rptr.3d 78.) Cahill's observations apply fully to Potter's common law cause of action and the trial court's ruling as to that cause of action will therefore stand.
DISPOSITION
The judgment of dismissal is reversed and the case is remanded for further proceedings consistent with this opinion. Potter is to recover his costs on appeal.
We concur:
RUBIN, P. J.
MOOR, J.
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