Lo v. Lee

Decision Date30 May 2018
Docket NumberA151603
Citation24 Cal.App.5th 1065,234 Cal.Rptr.3d 824
CourtCalifornia Court of Appeals Court of Appeals
Parties David LO et al., Plaintiffs and Appellants, v. Daniel S. LEE et al., Defendants and Respondents.

Law Office of Lawrence D. Miller, Lawrence D. Miller, Belmont, for Plaintiff and Appellant David Lo.

Law Offices of Raymond M. Alexander, Jr., San Francisco, Raymond M. Alexander, Jr., for Defendant and Respondent Tristan You.

Dondero, J.Plaintiff David Lo, individually and as the assignee of plaintiffs Danny F.M. Lo and Alice M.C. Lo (collectively referred to as plaintiffs), appeals from an order of dismissal entered in favor of defendant Tristan You after the trial court sustained You's demurrer without leave to amend. Plaintiff contends the trial court should have overruled the demurrer because he stated a viable cause of action for fraudulent conveyance against You for college tuition payments made on You's behalf by his debtor father. On our de novo review, we conclude the demurrer was properly sustained. We thus affirm.


Commencing in December 2006, plaintiffs made several loans to defendant Daniel S. Lee, who is You's father.1 Lee defaulted on the loans.

On July 15, 2013, an amended judgment was entered in favor of plaintiffs against Lee for $1,143,576. No part of the judgment debt has been paid.

On October 11, 2016, plaintiffs filed a first amended complaint (FAC) seeking to set aside allegedly fraudulent conveyances and seeking an accounting. The complaint was filed against Lee and You.

According to the FAC, between June 10, 2013, and November 18, 2013, Lee paid $104,850 to Northeastern University for You's tuition and other expenses. Lee made these payments knowing that he had incurred, or would thereafter incur, debts that would be beyond his ability to pay as they became due. He allegedly did so with the intent to "hinder, delay, or defraud" his creditors, including plaintiffs. In the FAC, plaintiffs sought general damages against Lee and You in the sum of $104,850, along with an accounting, plus attorney fees and costs.

On December 30, 2016, You filed a demurrer to the FAC. He contended Lee's transfers were not fraudulent because they did not lack consideration.

He also argued that You was not a beneficiary of the transfer, having received only the intangible benefits of an education.

On January 17, 2017, plaintiffs filed their opposition to You's demurrer.

On February 1, 2017, the trial court filed its order sustaining You's demurrer to the FAC without leave to amend. Noting that there is no authority on whether creditors may attack college tuition payments as fraudulent transfers under the Uniform Voidable Transactions Act ( Civ. Code, 2 § 3439 et seq.) (UVTA), the court adopted the reasoning of a Massachusetts bankruptcy case ( In re Palladino (Bankr. E.D.Mass. 2016) 556 B.R. 10, 16 ), stating that " [a] parent can reasonably assume that paying for a child to obtain an undergraduate degree will enhance the financial well-being of the child which will in turn confer an economic benefit on the parent.’ "

With that, the court dismissed with prejudice the action as to You. This appeal followed.


I. Standard of Review

The standard by which we review an order sustaining a demurrer without leave to amend is well established. We review the order de novo, exercising our independent judgment on whether the complaint states a cause of action as a matter of law. ( Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) In determining whether the complaint, liberally construed, states facts entitling the plaintiff to any relief, we assume the truth of all material properly pleaded facts, without affording any credit to contentions, deductions, or legal conclusions. ( Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58 ; Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 768–769, 234 Cal.Rptr. 653.) While the decision to sustain or overrule a demurrer is a legal ruling subject to de novo review, the granting of leave to amend involves an exercise of the trial court's discretion. ( Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497, 57 Cal.Rptr.2d 406.) We thus review the denial of leave to amend for abuse of discretion. ( Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 13, 22 Cal.Rptr.2d 229 ; Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 655, 75 Cal.Rptr.3d 812.)


The UVTA, formerly known as the Uniform Fraudulent Transfer Act (see Stats. 2015, ch. 44, § 2, p. 1456 (Sen. Bill No. 161 (2015–2016 Reg. Sess).) ), "permits defrauded creditors to reach property in the hands of a transferee." ( Mejia v. Reed (2003) 31 Cal.4th 657, 663, 3 Cal.Rptr.3d 390, 74 P.3d 166.) "A fraudulent conveyance is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim." ( Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13, 33 Cal.Rptr.2d 283.) The transferee "holds only an apparent title [to the transferred property], a mere cloak under which is hidden the hideous skeleton of deceit, the real owner being the scheming and shifty judgment debtor ...." ( Cortez v. Vogt (1997) 52 Cal.App.4th 917, 936, 60 Cal.Rptr.2d 841.) The purpose of the voidable transactions statute is " ‘to prevent debtors from placing property which legitimately should be available for the satisfaction of demands of creditors beyond their reach ....’ " ( Chichester v. Mason (1941) 43 Cal.App.2d 577, 584, 111 P.2d 362.)

A creditor seeking to set aside a transfer as fraudulent under section 3439.04 may satisfy either subdivision (a)(1) by showing actual intent, or subdivision (a)(2) by showing constructive fraud. ( Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1635, 51 Cal.Rptr.2d 528 ( Monastra ); Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1294, 123 Cal.Rptr.2d 924 ; see Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 122–123, 10 Cal.Rptr.2d 55.) Under the UVTA, "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." ( Monastra , at p. 1635, 51 Cal.Rptr.2d 528, italics added, citing to § 3439.04.)

The UVTA allows a judgment to be entered against (1) the first transferee of the fraudulently transferred asset, (2) the transfer beneficiary, and (3) any subsequent transferee other than a good faith transferee. (§ 3439.08, subds. (b)(1) & (b)(2).) Section 3439.08, subdivision (b)(1) provides that "to the extent a transfer is voidable, ‘the creditor may recover judgment’ for the lesser of the value of the asset or the amount needed to satisfy the creditor's claim, and the ‘judgment may be entered’ against the person for whose benefit the transfer was made . [Citation.] Ordinarily, when a statute provides a court ‘may’ do something, the statute is permissive, not mandatory, and grants the court a discretionary authority. [Citations.] In exercising discretion to provide relief from fraudulent transfers, courts are directed by the [UVTA] to consider ‘the principles of law and equity,’ which ‘supplement its provisions.’ [Citations.] Hence, a court may refuse to enter a money judgment against a person for whose benefit a fraudulent transfer was made if an applicable legal or equitable principle bars entry of such a judgment." ( Renda v. Nevarez (2014) 223 Cal.App.4th 1231, 1237, 167 Cal.Rptr.3d 874, some italics added.)

III. Tristan You Is Not a Transfer Beneficiary

The trial court concluded that tuition payments made to a university by an insolvent debtor parent on behalf of his or her adult child are not voidable as fraudulent conveyances, reasoning that the parent receives an "economic benefit" in exchange for the tuition payments because an education helps secure the child's independent economic well-being. In other words, because the parent receives a "reasonably equivalent value" in exchange for the transfer, constructive fraud cannot be shown.3 Thus, the court did not reach the issue of whether such payments may be recovered from the child as monetary damages under the UVTA. Assuming for purposes of argument that such payments may be voidable, we conclude they may not be recovered from the debtor's child under the circumstances as alleged in the FAC.

Significantly, the FAC does not allege that You directly received any part of the funds that Lee transferred to Northeastern. Instead, plaintiff admits he seeks recovery against You on the basis that You was "the beneficiary of [Lee's] largess." As indicated above, under section 3439.08, subdivision (b)(1)(A), judgment for a fraudulent transfer may be entered against "[t]he first transferee of the asset or the person for whose benefit the transfer was made ." (Italics added.)

Our research has not disclosed any California cases defining "the person for whose benefit the transfer was made" within the meaning of this provision. However, the legislative history is clear that section 3439.08, subdivision (b) "is derived from [ 11 U.S.C.S.] Section 550(a) of the Bankruptcy Code." (Legis. Com. com. 2, 12A Pt. 2 West's Ann. Code (2016 ed.) foll. § 3439.08, p. 377.) Therefore, cases construing the Bankruptcy Code counterparts of the UVTA are persuasive authority due to the similarity of the laws in this area. (See AFI Holding, Inc. v....

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