Chen v. Berenjian

• Decision Date: 28 March 2019
• Docket Number: G055496
• Citation: 33 Cal.App.5th 811,245 Cal.Rptr.3d 378
• Court: California Court of Appeals Court of Appeals
• Parties: Pang Yen CHEN, Plaintiff and Appellant, v. Sharmad BERENJIAN, Defendant and Respondent.

33 Cal.App.5th 811

245 Cal.Rptr.3d 378

Pang Yen CHEN, Plaintiff and Appellant,

v.Sharmad BERENJIAN, Defendant and Respondent.

G055496

Court of Appeal, Fourth District, Division 3, California.

Filed March 28, 2019

Gary Hollingsworth, San Marino, for Plaintiff and Appellant.

Ostergar Law Group, Allen C. Ostergar III and Treg A. Julander, Mission Viejo, for Defendant and Respondent.

OPINION

FYBEL, J.

INTRODUCTION

After obtaining money judgments against Shazad Berenjian, Pang Yen Chen sued him and his brother Sharmad Berenjian¹ for fraudulent transfer under the Uniform Voidable Transactions Act (UVTA), Civil Code section 3439 et seq., formerly known as the Uniform Fraudulent Transfer Act (see Stats. 2015, ch. 44, § 3). Chen alleged Shazad and Sharmad had attempted to thwart Chen’s attempts to execute on the judgments by colluding in a sham lawsuit, stipulating to a judgment, and allowing Sharmad to execute on the judgment. The trial court sustained a demurrer with leave to amend, but Chen allowed dismissal to be entered against him and pursued this appeal.

The primary issue presented by this appeal is whether, on the face of Chen’s complaint, the litigation privilege of Civil Code section 47, subdivision (b) ( section 47(b) ) barred the cause of action for fraudulent transfer under the UVTA. Exercising de novo review ( McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415, 106 Cal.Rptr.2d 271, 21 P.3d 1189 ), we conclude the litigation privilege of section 47(b) does not bar the fraudulent transfer cause of action as alleged because the gravamen of that cause of action is the noncommunicative act of transferring assets by executing on a judgment. We therefore reverse.

ALLEGATIONS

We accept as true all of the material allegations of Chen’s complaint and facts that reasonably can be inferred from those expressly pleaded. ( King v. CompPartners, Inc. (2018) 5 Cal.5th 1039, 1049, fn. 2, 236 Cal.Rptr.3d 853, 423 P.3d 975 ; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081, 6 Cal.Rptr.3d 457, 79 P.3d 569.)

Chen alleged:

Shazad and Sharmad are brothers. Shazad owns and operates a business called Digital Ear, Inc. In September 2012, Chen paid Shazad $32,952.22 for goods which Shazad did not deliver. Chen filed a lawsuit against Shazad and obtained a judgment against him for that amount.

In August 2014, Shazad became indebted to Chen for an additional $50,000 for goods that were never delivered. In September 2015, Chen filed a second lawsuit against Shazad and obtained a judgment against him for $57,997.26.

In June 2015, after the judgment in the first lawsuit was entered and before the second lawsuit was filed, Shazad and Sharmad entered into an agreement by which Sharmad would file a lawsuit against Shazad and Shazad would allow a default judgment to be taken. The agreement enabled Sharmad to obtain title to or a lien against all of Shazad’s assets. Sharmad and Shazad intended "to create a shield against claims of other creditors, including [Chen]."

Pursuant to this agreement, Sharmad filed a lawsuit against Shazad. The allegations of Sharmad’s complaint were false. In October 2015, Sharmad and Shazad entered into a stipulated judgment against Shazad in the amount of $199,900. There were no "genuine grounds" for that amount.

"The stipulated judgment was not followed by any effort to actually enforce the judgment or obtain assets from [Shazad] in satisfaction of the judgment. Instead, [Shazad] continued to operate his business called Digital Ear, Inc., as he had done previously. However, when an attempt was made to enforce the above mentioned claims and judgments by [Chen], or any other creditor, [Sharmad] would levy on the property subject to the claim, pursuant to the sham judgment mentioned above, solely in order to defeat the attempts by [Chen] to enforce his own judgments."

When Chen filed his second lawsuit against Shazad, Sharmad levied on two stereo speakers that were owned by Shazad through Digital Ear and which were being stored in a warehouse. The speakers had been previously sold to Chen and were the basis of his second lawsuit against Shazad. Sharmad levied on the speakers to defeat Chen’s claims. Shazad has transferred other assets to Sharmad without reasonable consideration in order to conceal them from Chen.

PROCEDURAL HISTORY

Chen filed a complaint against Shazad, Sharmad, and others asserting two causes of action: (1) fraudulent transfer under the UVTA; and (2) common counts. The common counts are irrelevant to this appeal.

The trial court sustained Sharmad’s demurrer to the first cause of action with leave to amend. The court concluded the fraudulent transfer cause of action was barred by the litigation privilege of section 47(b) and was uncertain because it alleged Shazad transferred assets other than the speakers but did not identify those assets.

Chen did not amend the complaint but allowed the first cause of action to be dismissed as to Sharmad. Chen filed a request for dismissal of the second cause of action. After Chen filed a notice of appeal, he obtained a signed order of dismissal of Sharmad.

DISCUSSION

I.The Litigation Privilege Does Not Bar Chen’s Cause of Action for Fraudulent Transfer.

A. The UVTA

Claims for fraudulent transfer are governed by the UVTA. The purpose of the UVTA is to prevent debtors from placing, beyond the reach of creditors, property that should be made available to satisfy a debt. ( Lo v. Lee (2018) 24 Cal.App.5th 1065, 1071, 234 Cal.Rptr.3d 824.) A creditor may set aside a transfer as fraudulent under Civil Code section 3439.04 by showing actual fraud as defined in subdivision (a)(1) or by showing constructive fraud as defined in subdivision (a)(2).² (See Lo v. Lee, supra, 24 Cal.App.5th at p. 1071, 234 Cal.Rptr.3d 824 ; Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal.App.4th 1388, 1401-1402, 166 Cal.Rptr.3d 705.) As a remedy, the creditor may obtain avoidance of the transfer, an attachment or other provisional remedy, and, subject to applicable principles and rules, an injunction or a receiver. ( Civ. Code, § 3439.07, subd. (a).)

The UVTA applies on its face to all transfers. ( Mejia v. Reed (2003) 31 Cal.4th 657, 664, 3 Cal.Rptr.3d 390, 74 P.3d 166.) Civil Code section 3439.01, subdivision (m) broadly defines "transfer" 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, license, and creation of a lien or other encumbrance." (See Sturm v. Moyer (2019) 32 Cal.App.5th 299, 308, 243 Cal.Rptr.3d 556 [" ‘transfer’ under the UFTA has a broad meaning"].) This definition is broad enough to include transfers of assets by means of executing on a judgment obtained by fraud or collusion. (See Miller v. Turner (1932) 121 Cal.App. 365, 366, 8 P.2d 1057 ["where a debtor has by fraud and collusion permitted a judgment to be obtained against him for the purpose of defrauding his creditors, the latter may obtain relief against it in equity"].)

B. The Litigation Privilege

"The litigation privilege of [ section 47(b) ] ‘applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved.’ [Citation.] ‘[T]he privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that ha[s] some connection or logical relation to the action.’ [Citation.] Section 47 [ (b) ], is intended to ‘afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, [and] to give finality to judgments.’ [Citation.] The privilege is broadly applied to promote effective judicial proceedings by encouraging full communication, and applies to civil actions based upon perjury." ( Optional Capital, Inc. v. DAS Corp., supra , 222 Cal.App.4th at p. 1404, 166 Cal.Rptr.3d 705.)

As Chen posits, if Shazad had simply transferred his assets and those of Digital Ear, Inc. to Sharmad, there would be little question the transfer could be voided as fraudulent. But because the assets were transferred by means of execution of a stipulated judgment in a sham lawsuit, the litigation privilege potentially bars the fraudulent transfer claim.

In Rusheen v. Cohen (2006) 37 Cal.4th 1048, 39 Cal.Rptr.3d 516, 128 P.3d 713

( Rusheen ), the California Supreme Court, in reviewing a judgment arising from an order granting an anti-SLAPP motion, addressed the issue whether actions taken to collect a judgment, such as obtaining a writ of execution and levying on the judgment debtor’s property, are protected by the litigation privilege of section 47(b). ( Rusheen, supra , at p. 1052, 39 Cal.Rptr.3d 516, 128 P.3d 713.) The case has a somewhat complicated fact pattern and procedural history. Attorney Barry Cohen represented Niki Han and Marice Abikzer (clients) in litigation against Terry Rusheen. ( Id. at pp. 1052-1053, 39 Cal.Rptr.3d 516, 128 P.3d 713.) The clients had purchased a house from Rusheen’s father; Rusheen, who lived in the house, refused to move out after escrow closed; Rusheen filed actions against the clients; Cohen obtained an order requiring Rusheen to move out; and the trial court denied Rusheen’s application for a restraining order, and granted motions to declare Rusheen a vexatious litigant. ( Id. at p. 1053, 39 Cal.Rptr.3d 516, 128 P.3d 713.)

Cohen, as the clients' attorney, filed a lawsuit against Rusheen for property damage and other torts. Cohen filed a declaration of service signed by a process server who declared under penalty of perjury that he personally served Rusheen with the...