Filed 7/13/23 Axis Entertainment v. Yari CA2/7

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

AXIS ENTERTAINMENT INC. 

et al., 

 Plaintiffs and Appellants,

v.

BOB YARI et al.,

 Defendants and Respondents.

 B319669

 (Los Angeles County

 Super. Ct. 

 Nos. 21STCV19745,

 BC545365

APPEALS from a judgment and an order of the Superior 

Court of Los Angeles County, Gregory Keosian, Judge. Affirmed. 

Krane & Smith, Marc Smith and Kathleen Dority Fuster 

for Plaintiffs and Appellants.

Nahai Law Group, Behzad Nahai and Jeffrey A. Lewiston; 

Levene, Neale, Bender, Yoo & Golubchik and Kurt Ramlo; 

Cochran, Davis & Associates and Lisa Kralik Hansen for 

Defendants and Respondents.
2

INTRODUCTION

These appeals are the latest chapter in litigation dating 

back to 2010, when Axis Entertainment, Inc., Isaac Michalov, 

and Michael Grayson (collectively, Axis) obtained a $1 million 

judgment against Syndicate Films International, LLC

(Syndicate). In 2014 Axis sued Syndicate officer Bob Yari, 

Yari Film Group, LLC, and various affiliated individuals and 

entities, alleging they improperly diverted Syndicate’s assets to 

prevent Axis from enforcing the judgment. While that case was 

pending, Syndicate filed a bankruptcy petition, and Axis 

purchased from the bankruptcy trustee the estate’s claims and 

causes of action against the defendants remaining in Axis’s state 

court action (the Yari Parties).

1 Axis then filed this action, as 

successor in interest to Syndicate, against the Yari Parties and 

others.

Nine of the defendants in this action (the Yari Defendants)2

demurred. The trial court sustained the demurrer without leave 

1 The Yari Parties are Bob Yari, Yari Film Group, LLC, Bob 

Yari Films, LLC, Bob Yari International, LLC, Dennis Brown, 

YFG Services, Inc., Persik Productions, Inc., and Stratus Film 

Company, LLC. Three of the Yari Parties (Yari Film Group, 

LLC, Bob Yari Films, LLC, and Bob Yari International, LLC) are 

not parties to this appeal.

2 The Yari Defendants, the respondents in this appeal, are 

Bob Yari, Dennis Brown, YFG Services, Inc., Persik Productions, 

Inc., Stratus Film Company, LLC, Bob Yari Music, LLC,

Schizophrenic Productions, LLC, BY Equities, LLC, and Davand 

Holdings, LLC. Five of the nine Yari Defendants are also Yari 

Parties, while the remaining four are not because they were not 

parties to Axis’s 2014 state court action.
3

to amend on two grounds: (1) Axis, as the successor in interest to 

Syndicate, lacked capacity to sue because Syndicate was a 

suspended corporation and therefore could not bring a civil 

action; and (2) Axis lacked standing to sue those Yari Defendants 

who were not among the Yari Parties because Axis had not 

purchased claims against them. The court subsequently granted 

a motion by the Yari Defendants for attorneys’ fees.

Axis appeals, arguing the trial court erred in ruling it 

lacked capacity to sue and in granting the Yari Defendants’ 

motion for attorneys’ fees. We affirm the judgment and order 

awarding attorneys’ fees. 

FACTUAL AND PROCEDURAL BACKGROUND

A. Axis Sues Syndicate and Recovers $1 Million 

Syndicate was a limited liability company formed in 2003 

to conduct foreign sales for the Yari Film Group. In 

approximately 2006 Davand Holdings, LLC, which was wholly 

owned by Yari, became the sole member of Syndicate. In 2007 

Axis sued Syndicate for $2.1 million in damages arising from, as 

one court described it, “‘complex and intertwined loan 

transactions encompassing seven years.’” In 2010, after a jury 

trial, the court entered judgment in favor of Axis and against 

Syndicate for $1 million. Syndicate did not pay the judgment. 

B. Axis Sues Yari and Others 

In 2014 Axis filed an action against Yari, Yari Film Group, 

and other individuals and entities affiliated with Yari, asserting 

causes of action for fraudulent transfer, declaratory relief, unjust 
4

enrichment, alter ego, and unfair competition.

3 Axis alleged the 

defendants commingled Syndicate’s assets with theirs, 

undercapitalized Syndicate, and improperly diverted Syndicate’s 

assets to prevent Axis from collecting on the $1 million judgment. 

In 2015 the Secretary of State and the Franchise Tax Board 

suspended Syndicate’s corporate status.

4

C. Syndicate Files a Bankruptcy Petition, and Axis

Purchases Syndicate’s Causes of Action Against the 

Yari Parties from the Trustee

In 2019, while the 2014 action was pending, Syndicate filed 

a voluntary petition under Chapter 7 of the United States 

Bankruptcy Code. The filing of the bankruptcy petition stayed 

Axis’s fraudulent transfer cause of action against the Yari 

Parties, as well as the other causes of action to the extent they 

3 The Yari Defendants’ request for judicial notice of the 

complaint and the court’s statement of decision in the 2014 action

is granted. 

4 The Yari Defendants’ request for judicial notice of a 

certificate of status issued by the Secretary of State on 

December 8, 2022, which states Syndicate’s “powers, rights and 

privileges are suspended in California,” is granted. (See Evid. 

Code, §§ 452, subd. (c), 459; Friends of Shingle Springs 

Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 

1470, 1483-1484.) The Yari parties’ request for judicial notice of 

a printout from the website of the Secretary of State is denied. 

(See Gomez v. Regents of University of California (2021) 

63 Cal.App.5th 386, 404, fn. 17; Searles Valley Minerals 

Operations, Inc. v. State Bd. of Equalization (2008) 

160 Cal.App.4th 514, 519.) The parties do not dispute 

Syndicate’s corporate status was suspended in 2015. 
5

sought to avoid a transfer from Syndicate to the Yari Parties. In 

2020 the action in superior court proceeded to a court trial solely 

on Axis’s alter ego theory of liability against the Yari Parties. 

The trial court ruled the Yari Parties were not the alter egos of 

Syndicate because Axis failed to make the required showing of 

unity of interest and ownership. The court entered judgment in 

favor of the defendants. 

Back in the bankruptcy court, the trustee filed a motion 

asking the court to approve a compromise that, subject to 

overbids at the hearing on the motion, would authorize the 

trustee to sell Yari “the bankruptcy estate’s claims, causes of 

action, rights, interests and the State Court Action Causes of 

Action (whatever they may be without any warranties or 

representations of any type) against the [Yari] Parties.”5 At the 

hearing Axis outbid Yari. The bankruptcy court authorized the 

trustee to sell Axis the estate’s claims against the Yari Parties for 

$25,000, and Axis withdrew its claim against the estate for over

$1.9 million and waived any other claims it might have in the 

bankruptcy case. 

5 It was a “compromise” because Yari, to settle the action,

was trying to buy the claims against himself and the other 

defendants. The compromise was “subject to overbids” because, 

although Yari agreed to pay $20,000, at the hearing on the 

motion, someone else could offer more, which Axis in fact did. 

The “State Court Action” referred to Axis’s 2014 lawsuit, where 

the Yari Parties were the remaining defendants in that action.
6

D. Axis Files This Action, and the Trial Court Sustains

the Yari Defendants’ Demurrer and Grants Their 

Motion for Attorneys’ Fees

After purchasing the claims from the bankruptcy trustee, 

Axis filed this action as Syndicate’s successor in interest. Axis

asserted causes of action against the Yari Parties and four other 

defendants (collectively, the Yari Defendants) for breach of 

fiduciary duty, aiding and abetting breach of fiduciary duty, 

indemnity, unjust enrichment, an accounting, and declaratory 

relief. Axis alleged the defendants violated their fiduciary duties 

by siphoning away Syndicate’s assets. 

The Yari Defendants demurred. They argued (1) the 

statute of limitations barred Axis’s causes of action; (2) Axis 

lacked standing to sue some of the defendants because Axis had 

not purchased claims against them; (3) Axis lacked capacity to 

sue as successor in interest to Syndicate because Syndicate, as a 

suspended corporation, could not prosecute a civil action; and 

(4) Axis’s causes of action were uncertain. The trial court 

sustained the demurrer without leave to amend on the second 

and third grounds, ruling that Axis lacked standing to sue four of 

the defendants6 and that Axis lacked capacity to bring any cause 

of action as Syndicate’s successor in interest. 

The Yari Defendants moved for attorneys’ fees as the 

prevailing parties under attorneys’ fees and indemnification 

provisions in Syndicate’s operating agreement, and the court 

6 The trial court ruled Axis lacked standing to sue Bob Yari 

Music, LLC, Schizophrenic Productions, LLC, BY Equities, LLC, 

and Davand Holdings, LLC. Axis does not challenge this aspect 

of the trial court’s ruling. 
7

awarded them $58,810.76 in attorneys’ fees. Axis timely 

appealed from the judgment and from the order granting the Yari 

Defendants’ motion for attorneys’ fees.

7

DISCUSSION

A. The Trial Court Did Not Err in Sustaining the Yari

Defendants’ Demurrer Without Leave To Amend

1. Applicable Law and Standard of Review

A demurrer tests the legal sufficiency of a complaint. (City

of Coronado v. San Diego Assn. of Governments (2022) 

80 Cal.App.5th 21, 35.) “In an appeal from a judgment following 

an order sustaining a demurrer without leave to amend, we first 

review de novo ‘whether the complaint states facts sufficient to 

constitute a cause of action.’” (Jane Doe No. 1 v. Uber

Technologies, Inc. (2022) 79 Cal.App.5th 410, 419; see City of

Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 472.) 

7 Axis appealed from the order sustaining the demurrer 

without leave to amend, which is not an appealable order. (K.J. 

v. Los Angeles Unified School Dist. (2020) 8 Cal.5th 875, 883.) 

Because the trial court subsequently entered a judgment of 

dismissal, we treat Axis’s premature appeal as an appeal from 

the subsequent judgment. (See Maxwell v. Dolezal (2014) 

231 Cal.App.4th 93, 96, fn. 1; In re Social Services Payment Cases 

(2008) 166 Cal.App.4th 1249, 1262, fn. 4; Los Altos Golf & 

Country Club v. County of Santa Clara (2008) 165 Cal.App.4th 

198, 202.) An order granting a motion for attorneys’ fees is 

appealable. (Code Civ. Proc., § 904.1, subd. (a)(2); Riskin v. 

Downtown Los Angeles Property Owners Assn. (2022) 

76 Cal.App.5th 438, 444, fn. 5.) The judgment of dismissal 

includes the award of attorneys’ fees.
8

““‘“[W]e accept as true all material facts alleged in the complaint, 

but not contentions, deductions or conclusions of fact or law. We 

also consider matters that may be judicially noticed.”’”” (City of

Coronado, at p. 35; see City of Oakland, at p. 472.)

2. As a Suspended Company, Syndicate Lacked 

Capacity To Sue 

Syndicate was suspended by the Franchise Tax Board and 

the Secretary of State in 2015 and remained suspended when it 

filed a bankruptcy petition in 2019. The Franchise Tax Board 

may suspend the corporate powers, rights, and privileges of a 

limited liability company if it fails to pay taxes or file a tax 

return. (Rev. & Tax. Code, §§ 23301, 23301.5, 23305.5.) The 

Secretary of State may suspend a limited liability company’s 

powers, rights, and privileges if it fails to file the required 

statement of information. (Corp. Code, § 17713.10.)

A suspended company “‘“lacks the legal capacity to 

prosecute or defend a civil action during its suspension.”’” 

(Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662

(Casiopea Bovet); see Bourhis v. Lord (2013) 56 Cal.4th 320, 324.) 

The purpose of the suspension “‘is to “prohibit the delinquent

corporation from enjoying the ordinary privileges of a going

concern” [citation], and to pressure it to pay its taxes.’” 

(Cal-Western Business Services, Inc. v. Corning Capital Group

(2013) 221 Cal.App.4th 304, 310.) There is no dispute that, when 

Syndicate filed the bankruptcy petition, it lacked capacity to sue.8

8 In Reed v. Norman (1957) 48 Cal.2d 338 the Supreme Court

recognized an equitable exception to section 23301 in derivative

actions where shareholders allege the mismanaging corporate 

officers controlled the records necessary to compute the franchise 
9

3. The Trustee Acquired Syndicate’s Causes of 

Action Subject to the Incapacity Defense

When an entity files a bankruptcy petition, the property of 

the entity becomes the property of the bankruptcy estate, and the 

trustee becomes the representative of the estate. (11 U.S.C. 

§ 323;9 Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 

506.) “The bankruptcy estate is comprised of property including: 

‘all legal or equitable interests of the debtor in property as of the 

commencement of the case’ (§ 541(a)(1)) . . . . The scope of 

section 541 is broad; ‘property’ includes causes of action.” 

(Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 

1083; see United States v. Whiting Pools, Inc. (1983) 462 U.S. 

198, 205, fn. 9 [103 S.Ct. 2309].) 

The bankruptcy trustee has the capacity to sue on behalf of 

the estate. (§ 323; Curtis v. Kellogg & Andelson, supra,

73 Cal.App.4th at p. 506.) When asserting a debtor’s causes of

action, “a trustee ‘stands in the shoes of the debtor’ and is ‘subject

to the same defenses as could have been asserted against the

debtor.’” (In re Infinity Business Group, Inc. (4th Cir. 2022)

31 F.4th 294, 301.) A bankruptcy trustee “‘has standing to bring

any suit that the debtor could have instituted’ when the debtor

filed for bankruptcy, and there is no suggestion in the text of the

tax owed and file a tax return. “In such a case it is not equitable

to permit section 23301 of the Revenue & Taxation Code to stand

as a shield for protecting allegedly dishonest corporate officials.” 

(Id. at p. 343.) Axis does not argue this equitable exception

applies here.

9 Undesignated statutory references are to Title 11 of the 

United States Code, 11 U.S.C. § 101 et seq.
10

Bankruptcy Code that the trustee acquires rights and interests

greater than those of the debtor.” (Official Committee of

Unsecured Creditors of PSA, Inc. v. Edwards (11th Cir. 2006)

437 F.3d 1145, 1150.) According to the Congressional history, 

section 541(a)(1), was “not intended to expand the debtor’s rights

against others more than they exist at the commencement of the

case. For example, if the debtor has a claim that is barred at the

time of the commencement of the case by the statute of

limitations, then the trustee would not be able to pursue that

claim, because he too would be barred.” (H.R. Rep. No. 95-595,

1st Sess., pp. 367-368 (1977), reprinted in 1978 U. S. Code Cong.

& Admin News, pp. 5963, 6323; see Peregrine Funding, Inc. v. 

Sheppard Mullin Richter & Hampton LLP (2005) 

133 Cal.App.4th 658, 680 [“bankruptcy trustee stands in the

shoes of the debtor and may not use his status as an innocent

successor to insulate the debtor” from an unclean hands

defense].) Thus, when the bankruptcy trustee stepped into 

Syndicate’s shoes under section 541, it acquired whatever claims 

and causes of action Syndicate had against the Yari Parties,

subject to the same incapacity (or other) defense the Yari Parties 

could have asserted against Syndicate. 

The cases Axis cites to support its assertion “Syndicate’s 

suspended status had no bearing on the claims the Trustee could 

have brought under the Bankruptcy Code” do not support that 

assertion. In In re Feature Homes, Inc. (Bankr. E.D.Cal. 1990)

116 B.R. 731 the bankruptcy court held the suspension of the 

debtor’s corporate status under the California Revenue and 

Taxation Code did not deprive the debtor of standing to file for 

bankruptcy under the federal Bankruptcy Code. (Id. at p. 733.) 

In In re Lopez (Bankr. C.D.Cal. 2015) 532 B.R. 140 the court
11

stated a corporation’s suspended status did not excuse the 

corporation’s officer from turning over books and records, as 

required by the Bankruptcy Code. (Id. at p. 157.) Neither case 

addressed whether or how suspension of a debtor’s corporate 

status affected the trustee’s capacity to sue on behalf of the 

estate.

Axis also cites cases stating a bankruptcy trustee may sue 

a debtor’s principals for breach of fiduciary duty (as Axis did in 

this action). This proposition is correct as a general proposition

(see, e.g., Koch Refining v. Farmers Union Cent. Exchange, Inc. 

(7th Cir. 1987) 831 F.2d 1339, 1347 [corporation’s causes of action 

against officers, directors, and shareholders for breach of 

fiduciary duty “become property of the estate which the trustee 

alone has the right to pursue after the filing of a bankruptcy

petition”]), but it ignores the fundamental problem with Axis’s 

case: The Yari Defendants could have asserted the defense of 

incapacity against all of the causes of action Axis brought on 

behalf of Syndicate. Axis cites no case where a bankruptcy 

trustee sued on behalf of a debtor that was a suspended company 

lacking capacity to sue.

4. Axis Acquired Syndicate’s Causes of Action 

Subject to the Incapacity Defense 

Rather than pursuing the bankruptcy estate’s causes of 

action against the Yari Parties, the trustee decided to sell them, 

and Axis bought them.

10 A bankruptcy trustee may sell property 

10 As discussed, the bankruptcy trustee originally proposed to 

sell the causes of action to Yari as a compromise under Federal 

Rules of Bankruptcy Procedure, rule 9019(a) (11 U.S.C.). The 

bankruptcy court, however, authorized the trustee to sell the 
12

of the estate, including causes of action, under section 363(b)(1). 

(See In re Lahijani (Bankr. 9th Cir. 2005) 325 B.R. 282, 287-288 

[“Causes of action that exist independent of bankruptcy are 

commonly sold by bankruptcy trustees under § 363(b).”].)

Just as the bankruptcy trustee would have been subject to 

the lack of capacity defense based on Syndicate’s suspension, so 

too was Axis. An assignee of a cause of action generally “‘“‘stands

in the shoes’ of the assignor, taking his rights and remedies,

subject to any defenses which the obligor has against the assignor

prior to notice of the assignment.”’” (Cal-Western Business

Services, Inc. v. Corning Capital Group, supra, 221 Cal.App.4th 

at p. 311; see Rubinstein v. Fakheri (2020) 49 Cal.App.5th 797, 

806; Code Civ. Proc., § 368.) “In cases where the assignor of a 

chose in action is a suspended corporation, California courts 

generally have recognized that the assignee is subject to the same 

defenses that could have been asserted against the assignor.” 

(Cal-Western Business Services, Inc., at p. 311; see Casiopea 

Bovet, supra, 12 Cal.App.5th at p. 663 [“When an assignee 

acquires a claim from a corporation lacking capacity to sue under 

Revenue and Taxation Code section 23301, the assignee takes 

upon itself the same lack of capacity.”].) The policy of 

encouraging companies to pay their taxes “is served by subjecting 

the assignee to the same incapacity defense as the assignor.” 

(Wanke, Industrial, Commercial, Residential, Inc. v. AV Builder 

Corp. (2020) 45 Cal.App.5th 466, 477.) Otherwise, “a suspended 

corporation simply could sell its claim to a third party without 

ever having to cure the default that caused the suspension,” 

causes of action to Axis, which submitted a higher bid, rather 

than Yari. 
13

circumventing Revenue and Taxation Code section 23301’s 

restriction and removing the statutory incentive to pay 

delinquent taxes. (Cal-Western Business Services, at p. 314.)

That the bankruptcy trustee assigned the causes of action 

to Axis under a bankruptcy court order does not change the 

result. “The sale of a litigation claim [under section 363] does not

entitle the assignee to collect in contravention of any defenses to

that claim; all that is conveyed is the right to prosecute the action

and collect any potential judgment.” (In re Atlantic Gulf

Communities Corp. (Bankr. D.Del. 2005) 326 B.R. 294, 299-300.)

Casiopea Bovet, supra, 12 Cal.App.5th 656 is virtually on

point. In that case the trial court entered an order under the 

Enforcement of Judgments Law (Code Civ. Proc., § 708.510) 

assigning a judgment creditor escheated funds held by the state

on behalf of a judgment debtor, a suspended corporation. The 

state denied the creditor’s claim for escheated funds because the 

debtor, as a suspended corporation, lacked capacity to claim the 

funds. (Id. at pp. 659-660.) The creditor argued it should not be 

subject to a lack of capacity defense because it obtained a judicial 

assignment rather than a voluntary assignment. (Id. at p. 662.) 

The court rejected that argument, holding that it made “no 

difference if the assignment is voluntary or through a judicial 

assignment” and that it would undermine the purpose of Revenue 

and Taxation Code section 23301 to “allow the suspended 

corporation to enjoy the ordinary privileges of an ongoing concern 

by resolving its debt without the risk of paying taxes.” (Casiopea 

Bovet, at p. 664.)11 As the trial court stated in sustaining the 

11 Axis does not contend the public policy analysis should be 

different when the suspended assignor has filed for bankruptcy.
14

Yari Defendants’ demurrer, “the situation here is functionally 

identical” to the judicial assignment in Casiopea Bovet. 

Axis complains the Yari Defendants were essentially 

arguing (and by implication the trial court ruled) the trustee sold 

Axis worthless claims “akin to shares in the Brooklyn Bridge.” 

But Axis does not contend the trustee (or anyone else) misled 

Axis about the value of the causes of action or about Syndicate’s 

suspension. Indeed, the bankruptcy court order approving the 

sale described the causes of action as “whatever they may be” and

provided that the trustee disclaimed “any warranties or 

representations of any type,” which put Axis on notice that the 

value of the causes of action was uncertain. (See In re Atlantic 

Gulf Communities Corp., supra, 326 B.R. at p. 300 [“In assigning

a litigation claim, the assignor [the bankruptcy trustee] does not

guarantee the merits of the action.”].) Axis does not dispute it 

could have ascertained Syndicate was suspended by consulting

the Secretary of State’s website. (See Wanke, Industrial, 

Commercial, Residential, Inc. v. AV Builder Corp., supra,

45 Cal.App.5th at p. 477 [“Requiring an assignee to ensure at the 

time of assignment that its assignor is not a suspended 

corporation is not unduly burdensome.”].) Any problems or 

defects in the claims Axis purchased were reflected in the 

purchase price.

5. Axis Brought Causes of Action on Behalf of 

Syndicate, Not Its Creditors 

Perhaps realizing Syndicate’s causes of action are barred by

the incapacity defense, Axis argues it brought causes of action

not as successor in interest to Syndicate, but “on behalf of all of

the unsecured creditors as a whole.” By not making this
15

argument in opposition to the demurrer, however, Axis forfeited

it. (See Johnson v. Greenelsh (2009) 47 Cal.4th 598, 603; Curtis 

v. Superior Court (2021) 62 Cal.App.5th 453, 474, fn. 15.)

Even if not forfeited, the argument is meritless. Axis

acquired the interests of the trustee, who had authority to sue on

behalf of the estate, not Syndicate’s creditors. While “[i]t is true 

in a sense that a trustee in bankruptcy represents creditors of the 

bankrupt,” the trustee “does so . . . only in a limited way” by 

“marshaling, preserving or otherwise administering the assets of 

the estate in bankruptcy.” (Stodd v. Goldberger (1977)

73 Cal.App.3d 827, 835.) “A bankruptcy trustee has no standing 

to sue third parties on behalf of the estate’s creditors, but may 

assert only claims held by the bankrupt entity.” (Shaoxing

County Huayue Import & Export v. Bhaumik (2011)

191 Cal.App.4th 1189, 1197; accord, Peregrine Funding, Inc. v. 

Sheppard Mullin Richter & Hampton LLP, supra, 

133 Cal.App.4th at p. 677; Smith v. Arthur Andersen LLP (9th

Cir. 2005) 421 F.3d 989, 1002; see Stodd, at p. 833 [bankruptcy

trustee could not maintain an action on an alter ego theory

absent some allegation of injury to the bankrupt corporation].) 

The bankruptcy estate includes “any actions that a debtor

corporation may have to recover damages for fiduciary

misconduct, mismanagement or neglect of duty, and the

bankruptcy trustee succeeds to that right for the benefit of all

creditors of the estate.” (Koch Refining v. Farmers Union Cent. 

Exchange, Inc., supra, 831 F.2d at p. 1347.)

Axis cites cases referring to the trustee as acting “on behalf 

of creditors.” Read in context, however, the statements in those 

cases make clear the trustee sued on behalf of the estate. For 

example, in In re Scott Acquisition Corp. (Bankr. D.Del. 2006) 
16

344 B.R. 283 the defendants moved to dismiss the complaint, 

arguing the trustee lacked standing to bring a breach of fiduciary 

duty claim on behalf of creditors. (Id. at p. 290.) The bankruptcy 

court denied the motion to dismiss, stating “the claims alleged in 

this case on behalf of the creditors are derivative of the 

corporation itself. . . . In this case, the plaintiff is not seeking 

recovery on behalf of an individual or even a class of creditors; 

rather, the plaintiff seeks recovery for the bankrupt corporation 

itself.” (Id. at pp. 290-291.)

And it is clear from the first amended complaint that Axis 

sued on behalf of Syndicate, not its creditors. Axis alleged that, 

when it purchased the claims in the bankruptcy court, it became 

“Syndicate’s successor-in-interest to any claims Syndicate may 

have” against the defendants. In its cause of action for breach of 

fiduciary duty, Axis alleged the defendants “owed Syndicate a 

fiduciary duty” and “breached those duties to Syndicate” by 

commingling assets, placing personal interests ahead of 

Syndicate’s, and “failing to pursue claims and avenues of recovery 

available to Syndicate necessary to protect Syndicate from its 

creditors.” Axis alleged that, as a result of those breaches of 

fiduciary duty, “Syndicate suffered harm.”

Axis also argues it asserted claims the trustee could have 

brought under its avoiding powers, such as the trustee’s ability to 

bring “fraudulent transfer and alter ego claims seeking to recover 

looted assets.”

12 This argument is also meritless. The 

Bankruptcy Code gives the bankruptcy trustee the authority to 

12 Although courts disagree on the issue, the Ninth Circuit 

has held a trustee can transfer its avoidance powers. (See In re 

P.R.T.C., Inc. (9th Cir. 1999) 177 F.3d 774, 782).
17

bring an action to avoid (i.e., reverse) certain transactions for the 

benefit of the estate and its creditors. (See §§ 544, 547, 548.) The

trustee “is empowered to sue officers, directors, and other

insiders to recover, on behalf of the estate, fraudulent or

preferential transfers of the debtor’s property.” (Commodity 

Futures Trading Com. v. Weintraub (1985) 471 U.S. 343, 352 

[105 S.Ct. 1986].) Under its avoiding powers, the trustee can set 

aside certain transfers or obligations incurred by the debtor that 

an unsecured creditor could have avoided by allowing “the 

bankruptcy trustee to step into the shoes of a creditor for the 

purpose of asserting causes of action under state fraudulent 

conveyance acts for the benefit of all creditors . . . .” (In re Pacific 

Gas & Electric Co. (Bankr. N.D.Cal. 2002) 281 B.R. 1, 14; see 

§ 544(a), (b).) The trustee also has the authority to set aside any 

fraudulent transfer the debtor made within two years before 

filing a bankruptcy petition. (§ 548(a)(1).)

A trustee seeking to use the avoiding powers to set aside a 

transfer or an obligation, however, must file an adversary 

proceeding in bankruptcy court. (See In re Colortran, Inc.

(Bankr. 9th Cir. 1997) 218 B.R. 507, 510; In re Commercial 

Western Finance Corp. (9th Cir. 1985) 761 F.2d 1329, 1338; Fed. 

Rules Bankr. Proc., rule 7001(1), (2), 11 U.S.C.) The bankruptcy 

trustee cannot file a state court action to avoid a transfer. Nor, 

as the purchaser of the trustee’s claims, could Axis. 

Thus, Axis’s causes of action were barred by the lack-ofcapacity defense. The trial court did not err in sustaining the 

demurrer without leave to amend.

13

13 Axis does not argue the trial court abused its discretion in 

sustaining the demurrer without leave to amend.
18

B. Axis Has Not Shown the Trial Court Erred in

Awarding Fees Under the Attorneys’ Fees Provision

Axis argues the trial court erred in awarding the Yari 

Defendants their attorneys’ fees under two provisions in 

Syndicate’s operating agreement: an attorneys’ fees provision and 

an indemnification provision. We conclude Axis has not shown 

the trial court erred in awarding fees under the attorneys’ fees 

provision.

1. Applicable Law and Standard of Review

“Under the American rule, each party to a lawsuit 

ordinarily pays its own attorney fees.” (Mountain Air

Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 

744, 751.) Section 1021 of the Code of Civil Procedure codifies 

this general rule, but also allows parties “to contract” out of it. 

(Mountain Air Enterprises, at p. 751; see R.W.L. Enterprises v.

Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1025.) Parties “‘“may 

validly agree that the prevailing party will be awarded attorney

fees incurred in any litigation between themselves, whether such 

litigation sounds in tort or in contract.”’” (Mountain Air

Enterprises, at p. 751; see Maynard v. BTI Group, Inc. (2013)

216 Cal.App.4th 984, 989.) 

“‘“On review of an award of attorney fees after trial, the 

normal standard of review is abuse of discretion. However, 

de novo review of such a trial court order is warranted where the 

determination of whether the criteria for an award of attorney

fees and costs in this context have been satisfied amounts to 
19

statutory construction and a question of law.”’ [Citation.] In 

other words, ‘it is a discretionary trial court decision on the 

propriety or amount of statutory attorney fees to be awarded, but 

a determination of the legal basis for an attorney fee award is a 

question of law to be reviewed de novo.’” (Mountain Air

Enterprises, LLC v. Sundowner Towers, LLC, supra, 3 Cal.5th at 

p. 751; see Eden Township Healthcare Dist. v. Eden Medical

Center (2013) 220 Cal.App.4th 418, 425 [“‘[o]n appeal this court 

reviews a determination of the legal basis for an award of 

attorney fees de novo as a question of law’”]; Douglas E.

Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 

230, 237 [same].) In determining “‘whether the parties entered 

an agreement for the payment of attorney fees, and, if so, the 

scope of the attorney fee agreement,’” we “apply traditional rules 

of contract interpretation.” (Mountain Air Enterprises, at p. 752.)

2. The Attorneys’ Fees Provision Authorized the

Award of Attorneys’ Fees

The trial court awarded the Yari Defendants attorneys’ fees 

as prevailing parties under Section 11.10 of Syndicate’s operating 

agreement. Section 11.10, titled “Attorneys’ Fees,” states: “If any 

dispute between the Company and the Members or among the 

Members should result in litigation or arbitration, the prevailing 

party in such dispute shall be entitled to recover from the other 

party all reasonable fees, costs and expenses of enforcing any 

right of the prevailing party, including, without limitation, 

reasonable attorney’s fees and expenses whether or not actually 

incurred.” (Italics added.) As a member of Syndicate, Davand 

Holdings, LLC, was entitled to recover its attorneys’ fees under 
20

Section 11.10 because it prevailed in litigation with Axis, which

sued as successor in interest to Syndicate, the Company.

14

Axis argues the provisions of the operating agreement “are 

simply irrelevant” because Axis sued “to protect the rights of 

creditors,” not for “breach of the Operating Agreement.” As 

discussed, Axis’s contention it sued on behalf of Syndicate’s 

creditors is meritless; Axis sued as Syndicate’s successor in 

interest after purchasing the estate’s causes of action from the 

trustee. The attorneys’ fees provision is broad, covering “any 

dispute between the Company and the Members.” That’s what 

this is: a dispute between the company (Syndicate) and one of its 

members (Davand Holdings, LLC). And because the provision 

covers not only an action on the contract, but “any dispute” 

between the parties, it authorizes an award of attorneys’ fees in 

this case. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 608 

[“[i]f a contractual attorney fee provision is phrased broadly 

enough . . . it may support an award of attorney fees to the 

prevailing party in an action alleging both contract and tort 

claims”]; Maynard v. BTI Group, Inc., supra, 216 Cal.App.4th at 

p. 993 [“an attorney fee provision awarding fees based on the

outcome of ‘any dispute’ encompasses all claims, whether in

contract, tort or otherwise”].)

Finally, the nine Yari Defendants filed a joint motion for 

attorneys’ fees, and the trial court granted it, awarding fees to all 

of them. Although Davand Holdings is the only defendant who 

was a member of Syndicate, the Yari Defendants argued they 

14 Axis does not argue that, as a nonsignatory to the operating 

agreement, it was not bound by the agreement’s attorneys’ fees 

provision. Syndicate, Axis’s predecessor in interest, was a 

signatory.
21

were all entitled to fees under the attorneys’ fees provision 

because Axis alleged the defendants were all alter egos of Davand 

Holdings. Although Axis argued in the trial court that Davand 

Holdings was the only defendant who was a member of Syndicate 

and a party to the operating agreement, it has abandoned that 

argument on appeal. Axis does not argue that, even if the trial 

court properly awarded attorneys’ fees to Davand Holding, the 

court erred in awarding fees to the other eight defendants. 

Because the trial court awarded attorneys’ fees to all nine Yari 

defendants, including Yari, we do not reach Axis’s argument Yari 

was not entitled to attorneys’ fees under the indemnity provision. 

Although the trial court discussed that provision in its ruling, we 

review the trial court’s order, not the court’s reasoning. (WalMart Real Estate Business Trust v. City Council of San Marcos

(2005) 132 Cal.App.4th 614, 625; see Coral Construction, Inc. v. 

City and County of San Francisco (2010) 50 Cal.4th 315, 336

[“‘[i]t is axiomatic that we review the trial court’s rulings and not 

its reasoning’”].)
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DISPOSITION

The judgment is affirmed. The order awarding the Yari 

Defendants their attorneys’ fees is affirmed. The Yari 

Defendants are to recover their costs on appeal. 

SEGAL, Acting P. J.

We concur:

FEUER, J.

ESCALANTE, J.*

* Judge of the Los Angeles County Superior Court, assigned 

by the Chief Justice pursuant to article VI, section 6 of the 

California Constitution.