Gagan v. Gouyd

• Decision Date: 22 July 1999
• Docket Number: No. E021439,E021439
• Citation: 86 Cal.Rptr.2d 733,73 Cal.App.4th 835
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 5866, 1999 Daily Journal D.A.R. 7472 James L. GAGAN, Plaintiff and Respondent, v. James E. GOUYD et al., Defendants and Appellants.

Page 733

86 Cal.Rptr.2d 733

73 Cal.App.4th 835, 99 Cal. Daily Op. Serv. 5866,

1999 Daily Journal D.A.R. 7472

James L. GAGAN, Plaintiff and Respondent, v. James E. GOUYD et al., Defendants and Appellants.

No. E021439.

Court of Appeal, Fourth District, Division 2, California.

July 22, 1999.

E. Day Carman, Newport Beach, for Defendants and Appellants.

Michael Zitomer, Palm Springs, for Plaintiff and Respondent.

OPINION

GAUT, J.

1. Introduction

On November 23, 1994, James L. Gagan (Gagan) obtained a judgment against James E. Gouyd (James) and Victor Sharar (Victor) for $1,687,500. He sought to satisfy that judgment against James and his wife Constance and against Victor and his wife Mary Lois. Gagan asserted that both couples had made various property transfers which he concluded were fraudulent as defined by the Uniform Fraudulent Transfer Act (Civ.Code, §§ 3439.01 et. seq.) ¹ Gagan filed this action, seeking an order setting aside those transfers.

James and Constance, formerly husband and wife, appeal from a judgment in favor of Gagan that found that the transfer of assets between them under a marital settlement agreement entered in connection with the dissolution of their marriage was a fraudulent conveyance.

Victor and Mary Lois appeal from a judgment in favor of Gagan which found that assets claimed by Mary Lois were community property, not separate property as she claimed, and therefore were subject to the claims of Gagan as a judgment creditor of Victor.

We reverse the judgment against James and Constance because we find that a transfer of assets provided in a marital settlement agreement is not a fraudulent conveyance. We affirm the judgment against Victor and Mary Lois because we find that the property sought by Gagan was community property and was subject to a creditor's levy.

2. Facts

Gagan sued Victor and James, among others, in United States District Court for the Northern District of Indiana on December 31, 1987, alleging, in part, a violation of the Racketeer Influenced and Corrupt Organizations Act. (18 U.S.C. §§ 1961 et seq.) A judgment was entered against them on November 23, 1994, for $1,687,500, after a July 20, 1994 jury verdict.

On February 26, 1996, Gagan filed an action against Victor and Mary Lois, individually and as trustees of the VMS 1992 Trust, and against James and Constance, individually and as trustees of the Lakeview 1993 Trust, to set aside fraudulent transfers. Gagan alleged that James and Constance fraudulently transferred four Riverside County parcels of real property into the revocable Lakeview 1993 Trust on May 5, 1994, and that James fraudulently transferred the entire Lakeview 1993 Trust to Constance by a marital settlement agreement dated September 1, 1994. The marriage of James and Constance was dissolved on December 22, 1994, by a court decree.

Gagan also alleged that Victor and Mary Lois created the revocable VMS 1992 Trust on April 1, 1992 and in December 1994 and January 1995, they transferred various items of community personal property into the VMS 1992 Trust with the intent to hinder, delay or defraud their creditors.

Gagan also alleged separate counts of conspiracy against each couple.

On August 20, 1997, the trial court entered judgment against both couples on the counts for fraudulent conveyance, ordered the challenged transfers be set aside, and imposed a constructive trust on those assets for the benefit of Gagan. The trial court entered judgment in favor of both couples on Gagan's conspiracy counts.

3. Standard of Review

"When a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination...." (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874, 197 Cal.Rptr. 925, original italics.) In applying the substantial evidence test, this court resolves all issues of credibility and conflicts in the evidence in favor of the judgment. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925, 101 Cal.Rptr. 568, 496 P.2d 480.)

In this case we apply the substantial evidence rule to the determinations of fact by the trial court. We review de novo any questions of law, and the application of that law to the facts since such questions can have a significance beyond the confines of the case then before the court. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800-801, 35 Cal.Rptr.2d 418, 883 P.2d 960.)

In determining whether transfers occurred with fraudulent intent, we apply the preponderance of the evidence test (Whitehouse v. Six Corp. (1995) 40 Cal.App.4th 527, 530, 48 Cal.Rptr.2d 600), even though we recognize that some courts believe that the test requires clear and convincing evidence. (Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 123, 10 Cal.Rptr.2d 55.)

4. Community Liability for Debts of Victor and James

The general rule is that the assets of the community are liable for the debts of either party to the marriage, incurred during the marriage. (Fam.Code, § 910, subd. (a).) There are exceptions to that general rule. The separate assets of the non-debtor spouse may not be used to satisfy such debts. (Fam.Code, § 913, subd. (a)(2).) Mary Lois relies upon this section in her appeal.

Community property transferred to the non-debtor spouse as part of the distribution of community assets upon dissolution of the marriage is not liable for the debts of the debtor spouse unless the non-debtor spouse was assigned responsibility for all or some portion of the debt. (Fam.Code, § 916, subd. (a)(2).) Constance relies upon the latter section in her appeal from the trial court judgment.

5. Gagan's Claim of Fraudulent Conveyance

California's Uniform Fraudulent Transfer Act (§§ 3439 et seq.) provides that a creditor may avoid a transfer made with the "actual intent to hinder, delay, or defraud any creditor of the debtor," or a transfer made without receiving reasonably equivalent value in exchange at a time when the debtor was in a business for which the remaining assets were unreasonably small in relation to the business, the debtor intended to incur debts beyond his ability to pay as they became due, or the debtor made the transfer without receiving equivalent value and was insolvent at the time or became insolvent as a result of the transfer. (§§ 3439.04, 3439.05, 3439.07.)

The Uniform Fraudulent Transfer Act defines a creditor as a person who has a right to payment, whether or not the right is reduced to judgment or is disputed. (§ 3439.01, subds. (b) and (c).)

In this case, Gagan filed his original action against James and Victor in 1987 and therefore he was a creditor of James and Victor before either established a trust. If transfers were made to those trusts with the intent to hinder, delay or defraud Gagan, then those transfers would be subject to an order setting them aside under section 3439.07. Likewise, if James' 1994 transfer of his interest in the trust to Constance pursuant to their marital settlement agreement and dissolution judgment was made with the intent to hinder, delay or defraud Gagan, that too could be set aside, unless Family Code section 916 applies.

6. Gouyd Transfers

The trial court found that the conveyances of James and Constance of real and personal property to the Lakeview 1993 Trust and James' later conveyance of the trust to Constance were fraudulent. As a remedy, the trial court imposed a constructive trust of all assets in the trust for the benefit of Gagan. Since the property transferred to Constance was a distribution of community assets in connection with the dissolution of her marriage, the issue is whether that transfer can be set aside under sections 3439 et seq.

James and Constance contend Family Code section 916 precludes the trial court from setting aside the trust transferred to Constance under the terms of their marital settlement agreement.

Family Code section 916 provides that "... the property received by the person in the division [of community assets] is not liable for a debt incurred by the person's spouse before or during marriage, and the person is not personally liable for the debt, unless the debt was assigned for payment by the person in the division of the property." (Fam.Code, § 916, subd. (a)(2).)

In In re Marriage of Braendle (1996) 46 Cal.App.4th 1037, 54 Cal.Rptr.2d 397, our colleagues in the Second District found that Family Code section 916 applied where the trial court directed stock to be held by a third party for the wife as security for the husband's obligation to make an equalization payment to his wife as a part of the dissolution of their marriage. The dissolution and stock assignment occurred in 1991, but the dissolution judgment was not entered before a creditor of the husband obtained a judgment against him alone. The creditor sought to enforce the judgment by levying upon the stock held as security for the wife. The court found that "[o]nce the marriage was dissolved and division of community property had occurred, ... the provisions of section 916 of the Family Code control." (In re Marriage of Braendle, supra, 46 Cal.App.4th at p. 1042, 54 Cal.Rptr.2d 397.) The creditor was precluded from levying upon the stock.

In Lezine v. Security Pacific Fin. Services, Inc. (1996) 14 Cal.4th 56, 65, 58 Cal.Rptr.2d 76, 925 P.2d 1002, the California Supreme Court, referring to section 5120.160, the predecessor of Family Code section 916, observed: "[u]nder this provision, following the division of property, the community property awarded to one spouse no longer is liable for marital debts that are assigned to the other spouse, with the exception that the award of community real property to one spouse that is subject to a lien remains liable for satisfaction of the lien, i.e., the lien remains enforceable to satisfy the...