Forum Ins. Co. v. Devere Ltd.

• Decision Date: 02 January 2001
• Docket Number: No. CV 97-9386 NM RCX.,CV 97-9386 NM RCX.
• Citation: 151 F.Supp.2d 1145
• Parties: FORUM INSURANCE COMPANY, an Illinois corporation, Plaintiff, v. DEVERE LIMITED, et al., Defendants.
• Court: U.S. District Court — Central District of California

Page 1145

151 F.Supp.2d 1145

FORUM INSURANCE COMPANY, an Illinois corporation, Plaintiff, v. DEVERE LIMITED, et al., Defendants.

No. CV 97-9386 NM RCX.

United States District Court, C.D. California.

January 2, 2001.

Michael F. Perlis, Judith L. Anderson, Alan Z. Yudkowsky, Stroock Stroock & Lavan, Los Angeles, CA, Robert Lewin, Stroock Stroock & Lavan, New York City, for plaintiff.

Robert C. Baker, Jeffrey P. Nolan, Baker Keener & Nahra, Santa Monica, CA, Thomas M. Comparet, Thomas M. Comparet Law Offices, Los Angeles, CA, for Devere Limited, Ephraim P. Kranitz, Thomas Comparet, Jerome Eglin, Jeja Investments, AYK, Inc., defendants.

E. Sean McLoughlin, Hill Farrer & Burrill, Los angeles, CA, Connie M. Teevan, James Michael Matthews, Rogers Joseph O'Donnell & Phillips, San Francisco, CA, for Harrington Trust Limited, defendant.

ORDER GRANTING DEFENDANT EGLIN'S MOTION FOR SUMMARY JUDGMENT

MANELLA, District Judge.

I. INTRODUCTION

On December 19, 1997, Forum Insurance Company ("Plaintiff") initiated this action against defendants Devere Limited, Ephraim Kranitz, Thomas Comparet, Jerome Eglin, Jeja Investments, AYK, Inc., OTW Investments, and the law firm Kranitz, Comparet, & Sarrow ("KCS").¹ Plaintiff added Harrington Trust Limited as a defendant in its First Amended Complaint, filed January 22, 1998. Plaintiff's Second Amended Complaint ("SAC") asserts two claims for relief: 1) conspiracy to commit fraudulent transfers in violation of the California Uniform Fraudulent Transfers Act, Cal. Civ.Code § 3439 et seq., and 2) breach of trust against defendant Harrington Trust only.² On September 29, 1998, the court issued an order dismissing as time-barred all claims based on transfers committed prior to December 19, 1990. Def.'s Exh. A (Order of Judge Ronald S.W. Lew).

Defendant Eglin ("Defendant") now moves for summary judgment on the grounds that 1) the Uniform Fraudulent Transfers Act ("UFTA"), as embodied in Cal. Civ.Code § 3439.07, offers only equitable remedies and limits recovery to property received via fraudulent conveyance, and 2) Plaintiff cannot show that Defendant received any illegally transferred funds.

II. FACTUAL BACKGROUND³

The instant action arises from an elaborate scheme engineered by Michael Keele. While on a work-release furlough from prison, Keele created a network of limited partnerships. These partnerships issued fraudulent private placement memoranda and related documents. In reliance on these fraudulent documents, financial institutions, including Plaintiff, issued surety bonds guaranteeing repayment of loans to investors in the partnerships. These bonds obligated the insurers to cover the loans in the event of default by the partnership investors. Plaintiff claims to have lost more than $36 million as a result of this scheme.

During the relevant period, Defendant Eglin was an accountant with the firm Block, Plant & Eglin.⁴ Plaintiff alleges that Eglin conspired to conceal Keele's assets for the purpose of defrauding his creditors. SAC ¶ 21. Specifically, Plaintiff charges Eglin with facilitating the illegal transactions by providing documentation and tax advice to Keele and various Keele-related entities, including Devere, AYK, KCS, OTW Investments, the Acton limited partnerships, and OGAPS (the trust administered by Harrington for the benefit of Keele's daughters). Opp., at 5-6; SAC ¶ 33. Eglin admits that he advised Keele about the tax consequences of consulting fees he received from Devere. Eglin Depo., at 55:5-25; accord Kranitz Depo., at 141:10-14. It is also undisputed that Defendant provided accounting and tax preparation services to Devere and other entities. Reply, at 3; accord Kranitz Depo., at 167:5-24.⁵ However, Defendant maintains that he exercised no "bookkeeping, management, [or] decision making," authority over any of the Keele-related entities. Reply, at 3. This is confirmed by Ephraim Kranitz, a co-defendant who served as Keele's attorney and an officer of Devere. See Kranitz Depo.; at 704:12-705:7.

Plaintiff further alleges that Eglin "received a finder's fee of approximately $15,000 for locating investors for Action I and Action II." SAC ¶ 72. However, Plaintiff submits no evidence to support its claim that these funds were fraudulently transferred. Pl.'s Response to SUF no. 9 ("Forum has not obtained any documentary evidence through discovery indicating that Eglin received any fraudulently transferred funds."). The $15,000 commission is the only transfer Defendant is alleged to have received. SUF, no. 15.

Plaintiff entered into a stipulated $6 million judgment with Keele June 3, 1993, and now seeks to recover its losses from all Defendants.

III. DISCUSSION

A. Summary Judgment Standard

Summary judgment is "properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex Corporation v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 1). Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).

In a trilogy of 1986 cases, the Supreme Court clarified the applicable standards for summary judgment. See Celotex, 477 U.S. 317, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Industry Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Anderson, 477 U.S. at 256, 106 S.Ct. 2505. The governing substantive law dictates whether a fact is material; if the fact may affect the outcome, it is material. See id. at 248, 106 S.Ct. 2505. If the moving party seeks summary adjudication with respect to a claim or defense upon which it bears the burden of proof at trial, it must satisfy its burden with affirmative, admissible evidence. By contrast, when the non-moving party bears the burden of proving the claim or defense, the moving party can meet its burden by pointing out the absence of evidence submitted by the non-moving party. The moving party need not disprove the other party's case. See Celotex, 477 U.S. at 325, 106 S.Ct. 2548.

If the moving party meets its initial burden, the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).

When assessing whether the non-moving party has raised a genuine issue, the court must view the evidence in the light most favorable to the non-movant. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505 (citing Adickes v. S.H. Kress and Company, 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)). Nonetheless, "the mere existence of a scintilla of evidence" is insufficient to create a genuine issue of material fact. Id. at 252, 106 S.Ct. 2505. As the Supreme Court explained in Matsushita,

[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial."

475 U.S. at 586-87, 106 S.Ct. 1348 (citations omitted).

To be admissible for purposes of summary judgment, declarations or affidavits must be based on personal knowledge, set forth "such facts as would be admissible in evidence," and show that the declarant or affiant is competent to testify concerning the facts at issue. Fed.R.Civ.P. 56(e). Declarations on information and belief are insufficient to establish a factual dispute for purposes of summary judgment. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir.1989).

B. Application

Plaintiff alleges that Defendant participated in a conspiracy to violate UFTA. Compl. ¶¶ 81-82; Opp., at 17.⁶ Defendant contends that UFTA provides only equitable relief and limits Plaintiff's recovery to assets received by a transferee. Mot., at 6. Plaintiff counters that it is not limited by the remedies set forth in Cal. Civ.Code § 3439.07(a), because it is not asserting a statutory fraudulent conveyance claim but a common law conspiracy claim for which damages are available.

A creditor suing for relief under UFTA may obtain the following remedies:

(1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim.

(2) An attachment or other provisional remedy against the asset transferred or its proceeds....

(3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure ...

(A) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or its proceeds.

(B) Appointment of a receiver to take charge of the asset transferred or its proceeds.

(C) Any other relief the circumstances may require.

Cal. Civ.Code § 3439.07(a). Terms such as "liability" and "damages" do not appear in the statute. Cf. Mack v. Newton, 737 F.2d 1343, 1360 (5th Cir.1984) ("The Texas [fraudulent conveyance] statute does not purport to do anything other than render the transfer `void' with respect to designated persons.... The statute contains no words such as `damages' or `liability' or `actionable.'"). Thus, by its terms, UFTA allows only equitable remedies such as avoidance, attachment, an injunction, or appointment of a receiver. Upon finding an UFTA violation, the court may cancel the transfer or impose a lien against the...