Mejia v. Reed

• Citation: 31 Cal.4th 657,3 Cal.Rptr.3d 390,74 P.3d 166
• Decision Date: 14 August 2003
• Docket Number: No. S106586.,S106586.
• Court: United States State Supreme Court (California)
• Parties: Rhina MEJIA, Plaintiff and Appellant, v. Danilo REED et al., Defendants and Respondents.

3 Cal.Rptr.3d 390

74 P.3d 166

31 Cal.4th 657

Rhina MEJIA, Plaintiff and Appellant, v. Danilo REED et al., Defendants and Respondents.

No. S106586.

Supreme Court of California.

August 14, 2003.

Anderson & Blake, Hannig Law Firm and John H. Blake, Redwood City, for Plaintiff and Appellant.

Douglas B. Schwab, Los Angeles, for Jeffrey W. Little as Amicus Curiae on behalf of Plaintiff and Appellant.

Olimpia, Whelan & Lively, Olimpia, Whelan, Lively & Ryan, Gary L. Olimpia, Adam R. Bernstein; Robinson & Wood and Helen E. Williams, San Jose, for Defendant and Respondent Danilo Reed.

Law Offices of Vanessa A. Zecher and Vanessa A. Zecher, San Jose, for Defendant and Respondent Violeta Reed.

KENNARD, J.

Danilo Reed (Husband) had an extramarital relationship with plaintiff Rhina Mejia that led to the birth of a child. In a later divorce proceeding, Husband and Violeta Reed (Wife) entered into a marital settlement agreement (MSA) under which Husband transferred all his interest in jointly held real property to Wife. Plaintiff claimed that the purpose of this transfer was to prevent her from collecting child support, and she asked the court to impose a lien on the real property. The trial court rejected her contentions and entered summary judgment for Husband.

The Court of Appeal reversed the trial court, holding that a transfer of real property under an M.S.A. § could be found invalid under the Uniform Fraudulent Transfer Act (UFTA) (Civ.Code, §§ 3439-3439.12). Because that holding conflicted with another Court of Appeal decision, Gagan v. Gouyd (1999) 73 Cal.App.4th 835, 86 Cal.Rptr.2d 733, we granted review. We conclude that the Court of Appeal in this case correctly held that the provisions of the UFTA apply to marital settlement agreements.

That conclusion requires us to address an additional issue. Under the UFTA, a transfer can be invalid either because of actual fraud (Civ.Code, § 3439.04, subd. (a)) or constructive fraud (id., §§ 3439.04, subd. (b), 3439.05); one form of constructive fraud is a transfer by a debtor, without receiving equivalent value in return, if the debtor is insolvent at the time of transfer or rendered insolvent by the transfer (§ 3439.05). The Court of Appeal held that there were triable issues of fact relating to both actual fraud and constructive fraud. Husband sought review only of the holding relating to constructive fraud.¹ That holding rested on the proposition that a person is insolvent under section 3439.05 if the person's assets are less than the discounted cumulative value of future child support obligations. We disagree, and hold that the discounted value of future child support, because it is generally paid from future income rather than current assets, should not be considered in determining solvency under section 3439.05. We therefore reverse the judgment of the Court of Appeal and remand the case for further proceedings.

I. Facts and Procedural History

The facts are taken from the Court of Appeal opinion. Husband and Wife were married in 1970. In 1994, Husband had an extramarital relationship with plaintiff. Their daughter was born in February 1995. In May 1995, Wife petitioned for dissolution of her marriage to Husband. They entered into an M.S.A. § under which Husband conveyed all his interest in the couple's real estate to Wife, and she conveyed her interest in Husband's medical practice to him. The M.S.A. § provided that Husband would be solely responsible for his extramarital child support obligation. The M.S.A. § was merged into a judgment of dissolution entered in August 1995.

By June 1997, Husband had abandoned his medical practice. He now lives with his mother. He has no assets and little income.

Plaintiff, who had a pending paternity suit against Husband, filed a lis pendens against the real property awarded Wife under the MSA. The trial court in the paternity action awarded plaintiff child support of $750 per month, but it ruled that plaintiff had no standing to challenge the transfer of property under the MSA. The court later increased child support to $953 per month plus $200 per month for day care, or a monthly total of $1153.

Plaintiff then filed this action, asserting that the M.S.A. § was a fraudulent transfer by Husband to Wife, intended to hinder plaintiff in her collection of future child support. The complaint sought to establish a lien upon the real property transferred under the MSA. (See Civ. Code, § 3439.07 [remedies of defrauded creditor].) Husband moved for summary judgment. His supporting papers did not expressly deny fraudulent intent, instead relying on plaintiffs failure to provide direct evidence of intent to defraud. Husband further declared that the value of his practice at the date of separation was $600,000, and consequently that the community property had been divided equally.

In response, plaintiff asserted that the transfer was accompanied by certain "badges of fraud" from which the trier of fact could infer intent to defraud. She presented an expert evaluation appraising the fair market value of Husband's medical practice at $100,000. Another expert calculated the discounted value of future child support at $164,829 to $205,975 on the assumption that child support, based on Husband's earning potential, would be set at $1146 to $1482 monthly (plus $200 per month for child care expenses). Under the lowest of these figures, the discounted value of future child support would still exceed the appraised value of Husband's practice.

The trial court assumed that the UFTA applied to the MSA, but it granted Husband's summary judgment motion on the grounds that no evidence was presented of actual intent to defraud, and the transfer did not render Husband insolvent. The Court of Appeal reversed, holding that although the UFTA applies to marital settlement agreements, triable issues of fact precluded summary judgment.

II. The Uniform Fraudulent Transfer Act Applies to Transfers Under Marital Settlement Agreements

The UFTA permits defrauded creditors to reach property in the hands of a transferee. The Family Code, in section 916, protects property transferred to a spouse incident to divorce from the debts of the other spouse. Neither statute expressly refers to the other. Our task is to harmonize the two statutes. (DeVita v. County of Napa (1995) 9 Cal.4th 763, 778-779, 38 Cal.Rptr.2d 699, 889 P.2d 1019.)

"Under well-established rules of statutory construction, we must ascertain the intent of the drafters so as to effectuate the purpose of the law. [Citation.] Because the statutory language is generally the most reliable indicator of legislative intent, we first examine the words themselves, giving them their usual and ordinary meaning and construing them in context." (Esberg v. Union Oil Co. (2002) 28 Cal.4th 262, 268, 121 Cal.Rptr.2d 203, 47 P.3d 1069.) "[E]very statute should be construed with reference to the whole system of law of which it is a part, so that all may be harmonized and have effect." (Moore v. Panish (1982) 32 Cal.3d 535, 541, 186 Cal.Rptr. 475, 652 P.2d 32.) "Where as here two codes are to be construed, they `must be regarded as blending into each other and forming a single statute.' [Citation.] Accordingly, they `must be read together and so construed as to give effect, when possible, to all the provisions thereof.' [Citation.]" (Tripp v. Swoap (1976) 17 Cal.3d 671, 679, 131 Cal.Rptr. 789, 552 P.2d 749.)

When the plain meaning of the statutory text is insufficient to resolve the question of its interpretation, the courts may turn to rules or maxims of construction "which serve as aids in the sense that they express familiar insights about conventional language usage." (2A Singer, Statutes and Statutory Construction (6th ed.2000) p. 107.) Courts also look to the legislative history of the enactment. "Both the legislative history of the statute and the wider historical circumstances of its enactment may be considered in ascertaining the legislative intent." (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387, 241 Cal. Rptr. 67, 743 P.2d 1323.) Finally, the court may consider the impact of an interpretation on public policy, for "[w]here uncertainty exists consideration should be given to the consequences that will flow from a particular interpretation." (Ibid.)

Following these principles of statutory construction, we turn first to the text of the UFTA and the Family Code.

A. The Statutory Texts

1. The Uniform Fraudulent Transfer Act

The UFTA was enacted in 1986; it is the most recent in a line of statutes dating to the reign of Queen Elizabeth I. "This Act, like its predecessor and the Statute of 13 Elizabeth, declares rights and provides remedies for unsecured creditors against transfers that impede them in the collection of their claims." (Legis. Com. com., 12A West's Ann. Civ.Code (1997 ed.) foll. § 3439.01, p. 272.) Under the UFTA, a transfer is fraudulent, both as to present and future creditors, if it is made "[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." (Civ.Code, § 3439.04, subd. (a).) Even without actual fraudulent intent, a transfer may be fraudulent as to present creditors if the debtor did not receive "a reasonably equivalent value in exchange for the transfer" and "the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." (Civ. Code, § 3439.05.)

On its face, the UFTA applies to all transfers. Civil Code, section § 3439.01, subdivision (i) defines "[t]ransfer" as "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...." The UFTA excepts only certain transfers resulting from lease terminations or lien enforcement. (Civ.Code, § 3439.08, subd. (e).) Thus, the UFTA on its face encompasses transfers made under an MSA. Consequently, most decisions of other states construing parallel...