Monastra v. Konica Business Machines, U.S.A., Inc.

• Decision Date: 28 March 1996
• Docket Number: No. B084674,B084674
• Citation: 43 Cal.App.4th 1628,51 Cal.Rptr.2d 528
• Court: California Court of Appeals Court of Appeals
• Parties: , 29 UCC Rep.Serv.2d 1306, 96 Cal. Daily Op. Serv. 2188, 96 Daily Journal D.A.R. 3612 Nicholas MONASTRA, Plaintiff and Appellant, v. KONICA BUSINESS MACHINES, U.S.A., INC. et al., Defendants and Respondents.

Page 528

51 Cal.Rptr.2d 528

43 Cal.App.4th 1628, 29 UCC Rep.Serv.2d 1306,

96 Cal. Daily Op. Serv. 2188,

96 Daily Journal D.A.R. 3612

Nicholas MONASTRA, Plaintiff and Appellant, v. KONICA BUSINESS MACHINES, U.S.A., INC. et al., Defendants and Respondents.

No. B084674.

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

March 28, 1996.

[43 Cal.App.4th 1630] George S.L. Dunlop, Newport Beach, for Plaintiff and Appellant.

Cutler & Cutler, Richard B. Cutler and Claudia Ribet, Los Angeles, for Defendants and Respondents.

CROSKEY, Associate Justice.

In this case of first impression, we are called upon to determine whether compliance with the notice requirements of California's Bulk Sales Act (Cal.U.Com.Code, §§ 6101 et seq.; formerly the Bulk Transfer Act) ¹ insulates a bulk sale from attack under the Fraudulent Transfer Act and Civil Code section 3440, ² even if the transfer is one of those fraudulent or constructively fraudulent transfers proscribed in the latter statutes. We answer the question in the negative.

Nicholas Monastra appeals from a summary judgment entered against him and in The trial court, concluding that compliance with the Bulk Sales Act precluded recovery on a fraudulent transfer claim, granted summary judgment in favor of Konica and Digitec. However, we hold that the Bulk Sales Act and the fraudulent transfer laws represent cumulative independent statutory schemes, and compliance with one does not satisfy the requirements of the other. We therefore reverse.

favor of two of the eight named defendants in Monastra's action to set aside fraudulent transfers and establish a constructive trust and for damages for fraud and conspiracy. Monastra brought suit on these claims against Master Technology, Inc. (hereafter, "Master Technology"), John Gorden and Linda L. Gorden (hereafter, collectively, "Gorden"), Konica Business Machines, U.S.A., Inc. ("Konica"), Digitec Office Products, Inc. ("Digitec"), Earl D. McCool, Humberto Gutierrez and Stacy Gutierrez. Master Technology and Gorden are judgment debtors of Monastra under a judgment rendered in a previous lawsuit; Konica, Digitec, McCool, and the Gutierrezes are parties to whom Master Technology and Gorden transferred substantially all of Master Technology's assets, as well as certain real property belonging to Gorden, while the previous suit was pending.

FACTUAL AND PROCEDURAL BACKGROUND ³

Prior to 1985, Monastra was the owner and operator of City Copier Services, Inc., and Gorden was the president and major shareholder of Master Technology. Both companies were in the business of selling, renting and servicing copying machines, and both were authorized dealers of Konica products. In 1985, Monastra's company merged with Master Technology. However, within a year of the merger, Monastra was forced out of the new company. He thereafter sued for breach of contract, fraud and other causes of action and eventually obtained a judgment in the approximate amount of $400,000.

In July of 1990, prior to the trial of Monastra's lawsuit, Gorden and Master Technology entered into an agreement with Konica to transfer all of the assets of Master Technology, including its trade name, "Copymasters," and its good will, to Digitec, which was to be a new corporation formed as a wholly owned subsidiary of Konica. As required by the Bulk Sales Act (former Bulk Transfer Act, Cal.U.Com.Code, former §§ 6101 et seq.), notice of the transfer of assets from Master Technology to Digitec was published once in a newspaper of general circulation in the The Agreement of Purchase and Sale of Assets between Konica and Master Technology recited that the price paid for Master Technology's assets was $600,000, although Monastra believed the company's true value was approximately $3 million. It also appears from the contract of sale and attached exhibits that only $224,000 of the specified purchase price was actually paid to Master Technology; the remainder was paid to Gorden personally as back salary and in other forms. Gorden also received $270,000 in exchange for his covenant not to compete and was guaranteed an annual salary of $120,00 for three years, with the opportunity for bonuses in unspecified amounts.

judicial district where Master Technology was located and was filed in the county recorder's office. However, Gorden continued to serve as president of Digitec, Digitec took over the "Copymasters" trade name immediately after Master Technology abandoned it, and in every other respect, company operations remained indistinguishable from operations before the buyout, so that the business community, including Digitec's own employees, was generally unaware that any change had occurred. In particular, the defendants never informed Monastra of the buy-out, although they were engaged in ongoing communication with him concerning the prior litigation, which was then pending.

In September of 1992, after Monastra obtained a judgment against Gorden and Master Technology, he finally was informed of the transfer of assets. He also learned at this time that several parcels of real property belonging to Gorden personally had been transferred to Gorden's mother- and father-in-law and to Gorden's children. On July 15, 1993, Monastra filed suit to avoid all of the transfers of assets belonging to Master Technology and Gorden as fraudulent and to impose a constructive trust on all of the transferred assets. On December 17, 1993, Konica and Digitec moved for summary judgment, contending their compliance with the Bulk Sales Act immunized the transfers of Master Technology assets from attack under the Fraudulent Transfer Act and Civil Code section 3440. The trial court agreed with the arguments of Konica and Digitec and granted summary judgment as to them on March 14, 1994. This timely appeal followed.

CONTENTIONS

Monastra contends that: (1) contrary to the trial court's ruling, compliance with the Bulk Sales Act does not immunize a fraudulent bulk transfer from challenge under the Fraudulent Transfer Act (Civ.Code, § 3439 et seq.) or Civil Code sections 3440 and following; (2) there are triable issues of fact as to whether the challenged transfers were fraudulent; (3) the defendant transferees are liable to Monastra for conspiracy; (4) constructive trust is an appropriate remedy; and (5) Monastra's claims are not barred by the statute of limitations. ⁴

DISCUSSION

1. Standard Of Review

Summary judgment is properly granted when the evidence in support of the moving party establishes that there is no material issue of fact requiring a trial. (Code Civ.Proc., § 437c, subd. (c); Molko v. Holy Spirit Ass'n (1988) 46 Cal.3d 1092, 1107, 252 Cal.Rptr. 122, 762 P.2d 46.) Materiality depends upon the issues in the case; evidence which does not relate to a matter in issue is not material. (People v. Hill (1992) 3 Cal.App.4th 16, 29, 4 Cal.Rptr.2d 258; Andalon v. Superior Court (1984) 162 Cal.App.3d 600, 604-605, 208 Cal.Rptr. 899.)

Here, the defendants do not dispute Monastra's factual claims. Rather, they contend there is no material issue of fact to be tried, because, as matter of law, their compliance with the Bulk Sales Act insulates them from any liability which might otherwise be established by the facts which Monastra alleges to be true. The question of whether, and how, the bulk sales and fraudulent transfer statutes apply to the undisputed facts is a question of law which we review independently.

                (California Teachers Assn. v. San Diego Community College Dist.   (1981) 28 Cal.3d 692, 699, 170 Cal.Rptr. 817, 621 P.2d 856;  Coca-Cola Bottling Company v. Lucky Stores, Inc.  (1992) 11 Cal.App.4th 1372, 1377, 14 Cal.Rptr.2d 673;  Tobin v. Oris (1992) 3 Cal.App.4th 814, 825, 4 Cal.Rptr.2d 736.)
                

2. Compliance With The Bulk Sales Act Does Not Insulate A Fraudulent Transfer From Attack Under The Laws Governing Such Transfers

a. Summary Of Controlling Statutes

Three separate statutory schemes are involved in this case: the Fraudulent Transfer Act (Civ.Code, §§ 3439-3439.12), Civil Code sections 3440 through 3440.9, and the Bulk Sales Act (Cal.U.Com.Code, § § 6101-6111).

Under the Fraudulent Transfer Act (Civ.Code, § § 3439-3439.12), a transfer of assets made by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer, if the debtor made the transfer (1) with an actual intent to hinder, delay or defraud any creditor, or (2) without receiving reasonably equivalent value in return, and either (a) was engaged in or about to engage in a business or transaction for which the debtor's assets were unreasonably small, or (b) intended to, or reasonably believed, or reasonably should have believed, that he or she would incur debts beyond his or her ability to pay as they became due. (Civ.Code, § 3439.04; Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 122-123, 10 Cal.Rptr.2d 55.) A transfer by a debtor is fraudulent as to creditors whose claims arose before the transfer if the debtor made the transfer (1) without receiving reasonably equivalent value in exchange, and (2) either (a) was insolvent at the time of the transfer, or (b) became insolvent as a result of the transfer. (Civ.Code, § 3439.05.) A creditor who is damaged by a transfer described in either section 3439.04 or section 3439.05 can set the transfer aside or seek other appropriate relief under Civil Code section 3439.07. (See fn. 2, ante.) A transfer that would otherwise be voidable as intentionally fraudulent under section 3439.04, subdivision (a), is not voidable against a transferee who took in good faith and for a reasonably equivalent value. (Civ.Code, § 3439.08, subd. (a).)

Under Civil Code section 3440, a transfer of most forms of personal property that is not accompanied by delivery and a continuous change of possession is void as against the transferor's creditors at the time of the transfer, those who become creditors while the transferor remains in possession and bona fide...