Optional Capital, Inc. v. Das Corp.

• Decision Date: 15 January 2014
• Docket Number: B241244
• Citation: 222 Cal.App.4th 1388,166 Cal.Rptr.3d 705
• Court: California Court of Appeals Court of Appeals
• Parties: OPTIONAL CAPITAL, INC., et al., Plaintiffs and Appellants, v. DAS CORPORATION, Defendant and Respondent.

222 Cal.App.4th 1388

166 Cal.Rptr.3d 705

OPTIONAL CAPITAL, INC., et al., Plaintiffs and Appellants,

v.DAS CORPORATION, Defendant and Respondent.

B241244

Court of Appeal,

Second District, Division 1, California.

Filed January 15, 2014

See 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 1029.

APPEAL from a judgment of the Superior Court of Los Angeles County, Michelle R. Rosenblatt, Judge. Reversed. (Los Angeles County Super. Ct. No. BC474472)

Rehm & Rogari, Ralph Rogari, Los Angeles; Law Offices of Mary Lee and Mary Lee for Plaintiffs and Appellants Optional Capital, Inc., Ralph Rogari and Mary Lee.

Law Offices of Gregory M. Lee and Gregory M. Lee, for Defendant and Respondent DAS Corporation.

JOHNSON, J.

Plaintiffs appeal judgment of dismissal of their action for conversion and fraudulent conveyance against defendant DAS Corporation. The trial court granted defendant's special motion to strike pursuant to Code of Civil Procedure section 425.16¹ and sustained defendant's demurrer to plaintiffs' complaint, finding that plaintiffs' causes of action arose out of DAS's settlement of litigation, which was protected activity under section 425.16, and further that Optional's claims were barred by the litigation privilege. We reverse.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This case involves an extremely tangled thicket of legal proceedings in both state and federal court, as well as in Switzerland. The judgment on appeal is but one installment in Optional Capital, Inc.'s attempt to recover monies it contends were looted from its corporate coffers in 2000 and 2001.

Plaintiff Optional Capital, Inc. (Optional) is a Korean Corporation. Plaintiffs Ralph Rogari and Mary Lee are attorneys licensed in California who represented Optional in connection with four United States District Court actions. Defendants Erica Kim, Christopher Kim,² and Bora Lee (Christopher Kim's wife) (the Kim parties) during the period January 2001 to August 2002 were fiduciaries of Optional. Defendant Alexandria Investments, Inc. (Alexandria) is a California Corporation, and the Kim parties are principals of Alexandria. Defendant DAS Corporation (DAS) is a Korean corporation that conducts extensive business in California manufacturing, selling, and distributing auto parts.

In January 2001, Optional was known as “New Vision Venture Capital Company Ltd.” and was a publicly traded venture capital firm whose shares traded on a South Korean stock exchange. In April 2001, pursuant to a conspiracy, DAS and the Kim parties took control of Optional and used their fiduciary positions to issue stock to Christopher Kim, convert more than $30 million of property of Optional, and manipulate the market for Optional's stock. Optional alleged some of the proceeds from this scheme were used to pay debts to investors, including DAS. The remaining proceeds were deposited in bank accounts at United Commercial Bank (UCB) in Rowland Heights controlled by the Kim parties. In February 2002, the Kim parties created defendant Alexandria and transferred the money misappropriated from Optional into a bank account in the name of Alexandria at UCB. Defendants used Optional's funds to purchase real property in Beverly Hills and expensive automobiles.

According to plaintiffs, DAS was aware of and participated in the conversion by the Kim parties of more than $35 million of Optional's funds.

On May 30, 2003, DAS filed a complaint in Los Angeles Superior Court, case No. BC296604, against Christopher Kim and Bora Lee (DAS superior court litigation). Alexandria was not a party to that action. In that action, DAS sought to recover 14 billion South Korean Won (KRW) in connection with an investment DAS made in a company affiliated with Christopher Kim and Bora Lee, alleging they solicited funds from investors but instead created sham corporations “with no business except money laundering.”

In September 2003, Alexandria transferred more than $15 million of Optional's converted money to a bank account opened at Credit Suisse in Geneva, Switzerland.

Starting in March 2004, based on the conduct of the Kim parties in running Optional, the United States Government commenced forfeiture proceedings in the United States District Court for the Central District of California in three different cases (Nos. CV 04–2788, CV 04–3386 & CV 05–3910) ³ (forfeiture actions). The United States government seized property, including the automobiles in the United States and the Alexandria funds held at Credit Suisse Bank in Geneva, Switzerland.⁴ At the request of the United States Government, the Swiss government froze the Credit Suisse account (Government Freeze). Both Optional and DAS were claimants in the forfeiture actions arising out of the Kim parties' looting of Optional, and both Optional and DAS filed claims to the various assets, including the monies in the Credit Suisse account.

In 2004, Optional filed a lawsuit against the Kim parties and Alexandria in the United States District Court, seeking damages for fraud and conversion based on the looting of Optional (No. CV 04–3866) (Optional federal court action).

On March 13, 2007, the United States District Court granted the Kim parties' summary judgment motion in the forfeiture actions, and the Ninth Circuit affirmed that decision on October 3, 2008, extinguishing the United States Government's forfeiture claim.

In April 2007, DAS instituted criminal proceedings in Switzerland against Alexandria and Christopher Kim, thereby obtaining a second freeze on the Credit Suisse funds (DAS Freeze). Although it was aware of the DAS Freeze on the funds, Optional did not take any action on its own in Switzerland to freeze the funds.

On February 4, 2008, the jury returned a verdict in the Optional federal court action, finding that the Kim parties and Alexandria converted approximately $15.5 million from Optional. Optional served notice of that judgment on the parties in the forfeiture actions. On April 25, 2008, Optional served a copy of its notice of judgment lien on the parties to the Optional federal court action, and filed a copy of the notice of judgment lien with the California Secretary of State.

Shortly thereafter, DAS sued Optional in Los Angeles Superior Court, alleging that Optional owed DAS a portion of any monies it recovered from the Kim parties and Alexandria pursuant to the terms of a litigation contract. DAS later dismissed the lawsuit.

In June 2008, the United States District Court in the Optional federal court action vacated the jury award.

In April 2010, in the DAS superior court litigation, the trial court ordered the parties to mediation. The matter was ultimately settled in November 2010 between the Kim parties and DAS pursuant to a confidential settlement. Alexandria, who was not a party to the lawsuit, was not a party to that settlement.

In December 2010, the Swiss magistrate investigating DAS's criminal action learned that settlement had been made in the DAS superior court litigation. Subsequently, at a hearing held February 1, 2011, with DAS and Alexandria present, the Swiss government lifted the DAS Freeze and the funds on deposit at Credit Suisse were released to DAS. Optional did not participate in these proceedings. On April 4, 2011, DAS withdrew its claims in the forfeiture actions and dismissed the criminal action.

On January 4, 2011, the Ninth Circuit reinstated Optional's recovery on its conversion claim in the Optional federal court action. On February 7, 2011, the United States District Court entered its amended judgment awarding Optional 37.1 billion KRW.

In additional proceedings in the forfeiture actions, the United States District Court found DAS and Optional's claims were extinguished. However, the Ninth Circuit reversed that ruling on January 28, 2011, and remanded the matter for the district court to adjudicate the competing claims of all claimants. ⁵

1. Plaintiffs' Complaint and DAS's Demurrer and Motion to Strike⁶

On December 1, 2011, plaintiffs filed their complaint stating causes of action for conversion and fraudulent transfer. Plaintiffs alleged that DAS, in conspiracy with Alexandria and the Kim parties, converted its funds, and further that Alexandria did not receive reasonably equivalent value or any consideration for its exchange with DAS, and that the transfer to DAS was made to hinder, delay and defraud plaintiffs. Plaintiffs sought damages, declaratory relief, injunctive relief, imposition of a constructive trust, an accounting, attorney fees, and punitive damages. Rogari and Lee have an interest in the litigation as Optional's attorneys.

On March 27, 2012, DAS filed a special motion to strike, arguing that Optional's complaint for conversion and fraudulent conveyance arose from the settlement of the DAS superior court litigation that resulted in the release of the funds from Credit Suisse Bank, and the action was barred because the settlement was protected activity within the meaning of section 425.16, citing Seltzer v. Barnes (2010) 182 Cal.App.4th 953, 106 Cal.Rptr.3d 290. Further, DAS contended Optional could not establish it would prevail in its claims against DAS because the settlement agreement was protected by the litigation privilege of Civil Code section 47, and the simple transfer of money, without more, did not constitute a fraudulent conveyance because a debtor can prefer one creditor over another.

Optional opposed the motion on the grounds that DAS had not demonstrated Optional's complaint arose from protected activity because Optional's lawsuit was not based upon the settlement, but DAS's conduct in conspiring with Alexandria and the wrongful transfer of funds from the Credit Suisse account.

Simultaneously, DAS filed a demurrer to Optional's complaint, contending that Optional could not establish it was entitled to sole ownership of the funds on deposit at Credit Suisse because it has admitted that DAS also was a competing claimant to those funds; further, Optional's...