Pga W. Residential Ass'n, Inc. v. Hulven Int'l, Inc., E064270

Citation221 Cal.Rptr.3d 353,14 Cal.App.5th 156
Decision Date09 August 2017
Docket NumberE064270
CourtCalifornia Court of Appeals
Parties PGA WEST RESIDENTIAL ASSOCIATION, INC., Plaintiff and Respondent, v. HULVEN INTERNATIONAL, INC., Defendant and Appellant.

Sam Walker, Walnut, for Defendant and Appellant.

Peters & Freedman, David M. Peters and Zachary R. Smith, Encinitas, for Plaintiff and Respondent.

OPINION

McKINSTER J.

I.INTRODUCTION

In its lawsuit against Hulven International, Inc. (Hulven) and various other defendants, PGA West Residential Association, Inc. (PGA West) alleged defendant Dempsey Mork1 tried to fraudulently insulate the equity in his condominium from creditors by naming Hulven, a sham corporation entirely owned and controlled by Mork, as the beneficiary of a deed of trust and note, and by later directing Hulven to foreclose on the condominium. Hulven demurred to the complaint, arguing PGA West's lawsuit was barred by the seven-year limitations period for actions under the former Uniform Fraudulent Transfer Act.2 (UFTA or the act; § 3439 et seq.) The superior court overruled the demurrer and, after conducting a bench trial, entered judgment for PGA West.

In this appeal, Hulven contends the superior court erred by overruling its demurrer. According to Hulven, the allegedly fraudulent activities by Mork and Hulven were a "transfer" for purposes of the UFTA and, therefore, this lawsuit was governed by that act and its seven-year limitations period. Because PGA West filed its lawsuit more than seven years after the alleged fraudulent transfer, Hulven contends PGA West's claims were completely extinguished. PGA West responds there was no "transfer" in this case because Hulven never really existed and could not be a transferee and, therefore, the UFTA and its limitations period simply does not apply. Even if the UFTA did apply, PGA West contends Hulven did not reargue the limitations period at trial and, therefore, forfeited the defense. Hulven replies that transfers to dummy or sham entities constitute a "transfer" for purposes of the UFTA and, that by arguing the limitations period in its demurrer, Hulven preserved the defense and did not have to reargue it at trial.

We agree with Hulven that Mork's alleged fraudulent attempt to insulate the equity in his condominium from creditors by naming a sham corporation as the beneficiary on the deed of trust constituted a "transfer" for purposes of the UFTA and that the act's limitations period applies here. We also agree Hulven did not forfeit its defense, but for a different reason. The seven-year limitations period for actions under the UFTA is not simply a procedural statute of limitations that bars a remedy and is forfeited if not properly raised by a defendant. Rather, the UFTA's seven-year limitations period is a substantive statute of repose that completely extinguishes a right or obligation and, under the majority view that we adopt, a statute of repose is not subject to forfeiture.

Because PGA West filed its lawsuit after the UFTA's statute of repose had run, its rights under the act were completely extinguished. Therefore, we must conclude the superior court erred as a matter of law by overruling Hulven's demurrer. The judgment is reversed, and the matter is remanded for the superior court to vacate its order overruling Hulven's demurrer, to enter a new order sustaining the demurrer without leave to amend, and to enter a judgment dismissing the action.

II. FACTS AND PROCEDURAL HISTORY3
A. The Complaint.

In its complaint filed on March 4, 2013, PGA West alleged the following facts:

On or about March 17, 2003, Mork purchased a condominium in the PGA West community in La Quinta, California, for cash and took title to the property free and clear. The fair market value of the property was between $500,000 and $600,000.

On January 28, 2004, a deed of trust was recorded against the property naming Hulven4 as the beneficiary. There was no public record of Hulven in the United States at the time, and the address given for Hulven was a residence in Indio, California. The owner of that residence claimed no interest in Hulven. Hulven was a completely fictitious entity "created and assumed by Mork," and "Mork and [Hulven] are one in the same."

The trust deed purported to secure a promissory note dated January 23, 2004, in which Mork agreed to pay Hulven $450,000 in annual installments of $39,233.05, starting in January 2005. Mork never made a payment to Hulven because "the Note was a fake instrument created for the purposes of furthering Mork's scheme to protect [his] equity in the Property and avoid creditors ..., and ... the Note did not impose any obligation on Mork."

Nine months after it was named as the beneficiary on the deed of trust, Hulven was incorporated in Montana. Just over two years later, Hulven was involuntarily dissolved. At all times, Mork was Hulven's sole officer, director, and shareholder.

On January 1, 2009, the statute of limitations expired for any claim Hulven might have had against Mork for breach of the note. Hulven never sued Mork because Hulven and Mork are one in the same, and the note never imposed an obligation on Mork.

On June 1, 2011, the superior court in a prior lawsuit entered a judgment against Mork and in favor of PGA West and Mork's neighbors (the Wyatts) in the amounts of $413,369.87 (PGA West) and $1,558,721.71 (Wyatts). PGA West and the Wyatts recorded their abstracts of judgment on June 7 and June 15, 2011, respectively, which effectuated judgment liens against the property.5

Around the time of the prior judgment, Mork abandoned the property and moved to Henderson, Nevada. As of the date of the complaint, no amount was paid on the judgment and Mork avoided all attempts to enforce it. "Mork is highly skilled in avoiding creditors and hiding assets," and he conducted business under the name Whitehall Montague assisting clients manage debts, modify loans, defend against foreclosures and collections, and protect assets.

On November 15, 2012, a substitution of trustee was recorded naming California Trustee Services, Inc., as trustee of the deed of trust. The substitution was signed on behalf of Hulven by its purported president. Hulven's purported president was actually the assistant to a Dana Point, California, attorney who specialized in "penny stock companies and reverse mergers," and who acted as a filing agent before the United States Securities and Exchange Commission (SEC). Over the years, that attorney represented Mork and a number of entities that Mork registered with the SEC, and the attorney acted in various capacities for those entities.

On the same day the substitution of trustee was recorded—seven years after Mork defaulted on the note and three years after the statute of limitations ran on any claim Hulven might have had against Mork for breach of the note—the trustee recorded and served a notice of default against the property on behalf of Hulven. The notice of default stated the default was in the amount of $209,934.25, as of January 1, 2005, the day Mork was supposed to start making payments on the note, which only represented the unpaid interest. The default amount did not reflect the true amount purportedly owed on the note. The notice of default stated the trustee and Hulven shared a San Diego, California, address.

On or about February 15, 2013, the trustee served a notice of trustee's sale to take place on March 14, 2013. The notice of sale identified the unpaid balance under the note as $676,328.

Mork received no consideration from Hulven for the deed of trust, and Mork incurred no obligation under the note. The deed of trust was recorded against the property "to defeat any creditor's claims, and to launder Mork's title if necessary." The nonjudicial foreclosure was also an attempt by Mork to launder the title to the property and free it from adverse claims, specifically PGA West's and the Wyatt's judgment liens.

In its first cause of action for declaratory relief, PGA West alleged the deed of trust was invalid, and it did not create an interest in the property superior to PGA West's interest via the judgment lien because Mork never incurred an obligation under the note. PGA West again alleged Mork and Hulven were indistinguishable and that their interests merged upon execution of the deed of trust. The deed of trust "was a fraudulent obligation incurred by Mork in an attempt to protect Mork's equity in the Property and defeat creditor's claims against the same."

In the second cause of action for injunctive relief, PGA West alleged the foreclosure proceedings Hulven initiated were an attempt by Mork to "launder title to the Property" and free it of all adverse claims. Mork and Hulven's conduct was wrongful and unlawful because the deed of trust was unenforceable.

PGA West's third cause of action for fraudulent conveyance once again alleged that Mork and Hulven were "one in the same." The foreclosure sale, if permitted to proceed, would constitute a fraudulent transfer of the property by Mork and Hulven to deprive creditors of their ability to collect. Mork and Hulven conspired with other named and unnamed defendants to defraud PGA West through the foreclosure sale.

The fourth cause of action for constructive trust again alleged that the foreclosure sale, if permitted to proceed, would constitute a fraudulent transfer.

The fifth and final cause of action requested appointment of a receiver to oversee the proceeds of the foreclosure sale in the event the sale were to proceed before PGA West's claims were adjudicated.

PGA West requested (1) a judicial determination of the parties' rights and a declaration that its judgment lien was superior to and took priority over any purported interest under the deed of trust, (2) a temporary restraining order and injunction to prevent the foreclosure sale, (3) a decree setting aside and declaring void the transfer of the property should the foreclosure sale proceed, (4)...

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