Favila v. Pasquarella

• Decision Date: 21 June 2021
• Docket Number: B304841
• Court: California Court of Appeals Court of Appeals
• Parties: Sandra Corrales FAVILA, as Executor, etc., Plaintiff and Respondent, v. Helena PASQUARELLA, Defendant and Appellant.

65 Cal.App.5th 934

280 Cal.Rptr.3d 425

Sandra Corrales FAVILA, as Executor, etc., Plaintiff and Respondent,

v.Helena PASQUARELLA, Defendant and Appellant.

B304841

Court of Appeal, Second District, Division 7, California.

Filed June 21, 2021

Barnhill & Vaynerov, Maxim Vaynerov ; Walton & Walton and L. Richard Walton, Marina del Rey, for Defendant and Appellant.

Miller Barondess, Christopher D. Beatty, Los Angeles, and Bernadette M. Bolan, Glendale, for Plaintiff and Respondent.

PERLUSS, P. J.

The trial court granted the motion of Sandra Corrales Favila, as executor of the Estate of Richard Charles Corrales (Estate), to further amend the judgment entered against Raleigh Souther and Get Flipped, Inc. by adding Helena Pasquarella as a judgment debtor. Emphasizing that she had successfully moved for summary judgment and been dismissed as a defendant many years earlier and that the Estate had already obtained a judgment against her in a separate fraudulent conveyance action, Pasquarella contends on appeal that the court exceeded its equitable authority under Code of Civil Procedure section 187¹ by granting the motion. Pasquarella also contends the evidence was insufficient in any event to justify adding her as a judgment debtor. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Get Flipped Lawsuit

As described in detail in this court's opinions resolving prior appeals,² Richard Corrales, a photographer and inventor, and Souther incorporated Motion Graphix, Inc. in 2000 to license and sell photographic and imaging technologies Corrales had developed or improved for the creation of animated lenticular images.³ Corrales owned 51 percent of the company; Souther 49 percent.

Corrales died in November 2005. In February 2007 Souther, purportedly acting on behalf of Motion Graphix, sold the company's assets to Get Flipped, a company created in 2006 and wholly owned by Souther (90 percent) and Pasquarella (10 percent), Souther's then-wife, for $5,000. Motion Graphix was dissolved by Souther in March 2007.

In October 2007 Favila, Corrales's sister, as executor of his estate, filed a complaint asserting causes of action for conversion, breach of fiduciary duty, fraud, breach of contract and breach of the implied covenant of good faith and fair dealing against Souther, Get Flipped and fictitiously named Doe defendants. The complaint alleged Corrales had still owned 51 percent of the shares of Motion Graphix when he died, those shares passed to the Estate, the Estate never approved the sale of Motion Graphix's assets to Get Flipped or Motion Graphix's dissolution, the fair market value of Motion Graphix's intellectual property was between $8 million and $12 million and Souther had engaged in wrongdoing by orchestrating the fraudulent and unauthorized sale of Motion Graphix's assets to Get Flipped. In addition to damages the complaint sought imposition of constructive and resulting trusts.

In April 2008 the Estate amended the complaint to name Pasquarella as an additional defendant. Pasquarella's motion for summary judgment was granted, and she was dismissed from the lawsuit in January 2009. The Estate did not appeal that ruling.

At the conclusion of a lengthy bench trial ultimately held in the action, the court found in favor of the Estate on its claims for breach of contract, conversion, fraud and breach of fiduciary duty and awarded it $4,003,311.70 in damages against Souther and Get Flipped: $1,700,191 in compensatory damages, which included both the value of the Estate's interest in the wrongfully transferred assets of Motion Graphix and the Estate's share of the income generated by those assets from which it had been excluded; $2,125,238.70 in punitive damages; and $177,882 in prejudgment interest. The court also imposed both a constructive trust and resulting trust in favor of the Estate on all the Motion Graphix assets fraudulently transferred to Get Flipped including computer equipment, software code, trademarks, copyrights and license agreements.

On appeal we rejected most of Souther's challenges to the judgment but agreed the trial court had erroneously imposed a constructive/resulting trust on 100 percent of the assets improperly transferred to Get Flipped, rather than 51 percent. In addition, we held the Estate was not entitled to both damages to compensate it for the improper transfer of assets to Get Flipped and a constructive trust on those same assets: The Estate was required to elect its remedy. Accordingly, we remanded the matter for further proceedings to address those issues.

Following additional briefing and oral argument on remand, the trial court entered an amended judgment that reduced the compensatory damage award by $530,677, the valuation of the Estate's 51 percent interest in the assets wrongfully transferred to Get Flipped, eliminated the resulting trust and imposed a constructive trust on all assets of Motion Graphix held by Get Flipped. There was no change in the punitive damage award. On Souther's appeal from the amended judgment we held it was proper for the trial court both to impose a constructive trust on the assets Souther had misappropriated from Motion Graphix and to award consequential damages for the Estate's lost income during the period Souther and Get Flipped held and used those assets. However, we held (and the Estate conceded) the trial court had again mistakenly imposed a constructive trust on 100 percent of the assets improperly transferred to Get Flipped. We modified the amended judgment to reflect the constructive trust imposed in favor of the Estate and against Souther and Get Flipped covered an undivided 51 percent (not 100 percent) of all the assets of Motion Graphix fraudulently transferred to Get Flipped and affirmed the amended judgment as modified.

2. The Moofly Productions Lawsuit

Following entry of the judgment in the Estate's lawsuit against Souther and Get Flipped, Souther and Pasquarella created Moofly Productions, LLC, doing business as 3D Cheeze. Pasquarella owned 90 percent of the new company; Souther owned the remaining 10 percent. In 2011 Get Flipped announced on social media it was rebranding as Moofly/3D Cheeze and transferred all of its assets to Moofly Productions. (See Moofly Productions, LLC v. Favila (2020) 46 Cal.App.5th 1, 6, 259 Cal.Rptr.3d 502.) In 2013 Moofly Productions sued Favila for intentional interference with prospective economic advantage, unfair competition and related claims based on actions taken by the Estate when attempting to collect its judgment in the Get Flipped litigation. The Estate filed a cross-complaint alleging causes of action against Moofly Productions, Pasquarella and Souther (by then, Pasquarella's former husband) for fraudulent conveyance, conversion, unfair competition and copyright infringement. ( Ibid . )

Following removal to federal court based on the federal copyright claim and remand to state court, the trial court granted the Estate's motion to dismiss Moofly Production's complaint as a discovery sanction. ( Moofly Productions, LLC v. Favila , supra , 46 Cal.App.5th at p. 6.) In a bifurcated bench trial on the Estate's fraudulent conveyance claim, the court found that the transfer of assets from Get Flipped to Moofly Productions was a fraudulent conveyance designed to prevent the Estate from collecting on the judgment in the Get Flipped action. The court granted a mandatory injunction directing Moofly Productions, Pasquarella and Souther to transfer back to Get Flipped all the assets that had previously been transferred from Get Flipped to Moofly Productions. The court also ordered restitution of the profits earned from the fraudulently transferred property and issued a prohibitory injunction to prevent any further transfers of property. ( Id. at p. 7, 259 Cal.Rptr.3d 502.) The Estate voluntarily dismissed its remaining causes of action. ( Id. at p. 7, fn. 3, 259 Cal.Rptr.3d 502.) Our colleagues in Division One of this court affirmed the judgment on appeal. ( Id. at p. 13, 259 Cal.Rptr.3d 502.)⁴

3. The Motions To Further Amend the Get Flipped Judgment

a. Addition of Moofly Productions as a judgment debtor

On July 17, 2019, several months after entry of judgment in the Moofly Productions lawsuit and while the appeal was pending, the Estate moved to amend the judgment in the Get Flipped lawsuit to include Moofly Productions as a judgment debtor pursuant to section 187.⁵ The court granted the unopposed motion on August 12, 2019, explaining in its ruling that, under the "successor corporation" theory, "when a corporation transfers all of its assets to another corporation constituting its ‘mere continuation,’ the latter is also liable for the former's debts and liabilities. [Citation.] ‘A mere continuation’ may be found where one corporation transfers all of its assets to another corporation in order to fraudulently escape liability for its debts. [Citation.] [¶] Here, plaintiff has established by a preponderance of the evidence that Moofly is the successor of judgment debtor Get Flipped."

b. Addition of Pasquarella as a judgment debtor

On December 11, 2019 the Estate moved pursuant to section 187 to further amend the judgment in the Get Flipped lawsuit by adding Pasquarella as a judgment debtor on the ground Pasquarella was the alter ego of judgment debtor Moofly Productions. Hearing on the motion was set for January 6, 2020.

The Estate supported its motion with a declaration from Bernadette Bolan, one of its attorneys, who explained, when the Estate attempted to enforce the August 12, 2019 amended judgment through bank levy, it discovered Pasquarella had set up bank accounts in the name of 3D Cheeze, Moofly Productions’ registered fictitious business name, but tied the accounts to her personal social security number, rather than Moofly Productions’ tax identification number. When the Estate attempted to levy on several accounts in 3D Cheeze's name, the bank informed the Estate's counsel it could not locate any responsive account...