Source: http://lawtonlaw.com/appellate-cortez.php
Timestamp: 2019-04-22 14:28:55+00:00

Document:
MANUEL CORTEZ, Plaintiff and Appellant, v. WILLIAM VOGT etal., Defendants and Respondents.
Rehearing Denied March 11, 1997. Review Denied April 30, 1997, Reported at: 1997 Cal. LEXIS 2499.
PRIOR HISTORY: APPEAL from a judgment of the Superior Court of San Diego County. Super. Ct. No. N59674. Thomas R. Murphy, Judge.
DISPOSITION: Judgment reversed. Cortez to recover costs on appeal.
PROCEDURAL POSTURE: Plaintiff judgment creditor appealed the judgment from the Superior Court of San Diego County (California), which granted summary judgment in favor of defendant debtors in plaintiff's action to set aside an alleged fraudulent transfer pursuant to the Uniform Fraudulent Transfer Act, Cal. Civ. Code § 3439 et seq.
OVERVIEW: Plaintiff judgment creditor filed an action against defendant debtors under the Uniform Fraudulent Transfer Act (UFTA), Cal. Civ. Code § 3439 et seq., seeking to set aside an alleged fraudulent transfer. The alleged fraudulent transfer was made during a pending lawsuit that was to establish whether in fact, a debtor-creditor relationship existed between the parties. The trial court granted summary judgment in favor of defendants, holding that plaintiff's complaint was time-barred. On appeal, the court reversed. The court held that UFTA's four-year statute of limitations was tolled until the underlying liability became fixed by a final judgment. Plaintiff's action had been filed before the judgment against defendants became final, and therefore plaintiff's claim under UFTA was timely. In so concluding, the court relied on legislative history which indicated that UFTA was a cumulative and additional remedy, the requirement that California and other states construe UFTA in a uniform manner, and the potential of unnecessary litigation.
OUTCOME: The court reversed the grant of summary judgment in favor of defendant debtors in plaintiff judgment creditor's action to set aside an alleged fraudulent transfer because plaintiff's suit was not time-barred as the statute of limitations was tolled until the judgment in the underlying action became final.
Phillips, Campbell, Haskett, Noone & Ingwalson, Frederick C. Phillips, Davis, Reno & Courtney, Alan C. Davis, Cindy O'Hara, Laurie Erdman and Andrean Kalemis for Plaintiff and Appellant.
Luce, Forward, Hamilton & Scripps, Lawton Law Firm, Dan Lawton and Kelly Capen Douglas for Defendants and Respondents.
JUDGES: Opinion by Nares, J., with Work, Acting P. J., and McDonald, J., concurring.
Under the Uniform Fraudulent Transfer Act (UFTA), embodied in Civil Code n1 section 3439 et seq., on April 30, 1993, Manuel Cortez filed an action against William Vogt, Betty Vogt and Doe defendants (collectively, the Vogts) seeking to set aside an alleged fraudulent transfer occurring in August 1987. On May 20, 1994, the trial court granted summary judgment in favor of the Vogts, finding the complaint is barred by the statute of limitations set forth in[***2] section 3439.09.
n1 All statutory references are to the Civil Code unless otherwise specified.
Cortez appeals, contending (1) the four-year statute of limitations of section 3439.09 was tolled during the pendency of an appeal in the underlying action for wrongful termination against two corporations which were merged into another corporation during the underlying action with the assets ultimately being transferred to a corporation that did not assume the then-unsettled, but potential liability; (2) the one-year statute of limitations of section 3934.09, subdivision (a), did not begin to run until the debtor examination of William Vogt in March 1993, after the judgment against the corporations in the underlying action was final; and (3) the Vogts should be equitably estopped from asserting the statute of limitations defense.
In the context of the scheme of law of which section 3934.09 is a part, where an alleged fraudulent transfer occurs while an action seeking to establish the underlying liability is pending, and where a judgment establishing the liability later becomes final, we construe the four-year limitation period, i.e., the language, "four years after the transfer was made or the obligation was incurred," to accommodate a tolling until the underlying liability becomes fixed by a final judgment. Thus, in this case the four-year period did not commence to run until[***4] the judgment became final in April 1990. Accordingly, the present action under the UFTA, filed in April 1993, was timely under the four-year provision and summary judgment should not have been granted on this basis.
Since the foregoing conclusion requires reversal of the summary judgment, we do not address Cortez's claim that the later one-year statute of limitations did not begin to run until March 1993 or Cortez's estoppel claim which, in any event, was not ruled on by the trial court.
On September 19, 1984, Cortez filed a wrongful termination action against Telecheck Golden Gate, Inc. (Telecheck), a point-of-sale check verification company, all the shares of which were owned by the Vogts. (Cortez v. Telecheck Golden Gate, Inc. (Super. Ct. Alameda County, 1984, No. 588925-9) (hereinafter, Cortez I).) Cortez had been terminated as a general manager of Telecheck in May 1984, after moving from Colorado to California and spending less than one year on the job. His action also named as defendants William Vogt, La Touche, Ltd. (a management company for all of the Vogts' companies, also owned and controlled by Vogt), and other officers and affiliated[***5] businesses of Telecheck.
In late 1985, before the trial in Cortez I, Telecheck and La Touche, Ltd., were merged into VMC-Telecheck, Inc. (VMC), which was incorporated on August 26, 1985. n2 William Vogt is the chairman and chief executive officer [*921] of VMC, which is a franchise of Telecheck Services, Inc. The Vogts are the sole shareholders of VMC.
n2 Two additional companies, Telecheck Colorado, Inc., and Telecheck San Diego, Inc., also were dissolved and had their operations taken over by VMC.
On December 23, 1985, a declaration notifying Cortez of the merger of Telecheck and La Touche into VMC was served on Alan C. Davis, Cortez's counsel in Cortez I. Raymond T. Nogueira, VMC's president, declared in part that since the incorporation of VMC in August 1985, the operation of "La Touche Ltd. [and] Telecheck Golden Gate . . . [were] taken over by VMC-Telecheck, Inc.," and "I was the President[***6] of La Touche Ltd. from January 1985 until . . . December, 1985."
In June 1987, Cortez filed a second amended complaint naming VMC as a defendant in Cortez I.
n3 Documents produced later show the sale was not made directly to McDonnell Douglas. Rather, the sale involved a transfer to Telecheck Services, Inc., apparently a subsidiary of McDonnell Douglas, which exercised a right of first refusal in connection with a formal agreement of sale between the sellers (the Vogts and the named entities to be sold) and the original buyer, Telecheck Acquisition Company.
"Q. Am I correct that the presence of the gentleman from McDonnell Douglas at your deposition led you to conclude that McDonnell Douglas had acquired assets and liabilities of VMC and/or some of the Telecheck entities?
"A. I think what was said was that McDonnell Douglas had acquired some or all of the companies involved, whatever that included.
"Q. You made reference a moment ago to assets and liabilities. Was that part of the impression that you came away with?
"A. I don't know if those terms were used specifically or if the terms companies were used or entities were used. My impression was that they had purchased the various companies that Telecheck was involved with under Bill Vogt.
"Q. And whether or not the actual terms were used or not, did you arrive at the impression or the conclusion that the assets and liabilities of VMC and/or the Telecheck entities had been transferred to McDonnell Douglas?
"A. I arrived at no conclusion.
"Q. Do you know what BBV is?
"A. No, I do not."
n5 In the summary judgment proceedings here under consideration, William Vogt declared that during a recess in the trial of Cortez I in 1989, he approached Cortez and told him "that all of the remaining defendant corporations (i.e., Telecheck and La Touche) had been dissolved, and that any judgment Mr. Cortez obtained against those now-defunct corporations would be meaningless."
In his declaration in opposition to the summary judgment motion, Cortez denies he had any "conversations with William Vogt either during or after the trial in the underlying action in which he has said anything to me about my ability to collect on my judgment in the underlying action against Telecheck Golden Gate, Inc., and La Touche, Ltd."
Carefully read, Cortez's declaration does not deny that Vogt spoke to him and told him that Telecheck and La Touche, Ltd. had been dissolved.
Neither the declaration of William Vogt nor that of Cortez states that William Vogt informed Cortez that VMC's assets had been sold to McDonnell Douglas.
On July 25, 1989, a judgment of nonsuit was entered in favor of William Vogt individually in Cortez I.
On November 7, 1989, a judgment was entered after a jury trial, awarding Cortez approximately $93,000 in his wrongful termination action against Telecheck and La Touche, Ltd. only.
On April 12, 1990, the Court of Appeal dismissed the appeal of Telecheck and La Touche, Ltd., for their having failed to procure the record on appeal within the time limits allowed or any extensions, and for their having failed to apply for relief from default. Thus, the judgment against Telecheck and La Touche became final.
In December 1989, after the judgment in Cortez I, Cortez's attorney's office contacted the Secretary of State by telephone and was told that in 1985 Telecheck and La Touche, Ltd. had merged into VMC. The attorney was also told that in 1987 VMC had changed its name to BBV Liquidating Co.
In March 1990, an investigator for Cortez's attorney issued a California and [***10]Nevada asset search report on BBV Liquidating Co., VMC and the judgment debtor companies. [**845] The investigator confirmed the information from the Secretary of State about the merger of Telecheck into VMC and reported there were insufficient assets of the two judgment debtor companies or their successors to satisfy the judgment. Only one checking account averaging in the medium four-figure range was found for BBV Liquidating Co.
The March 1990 investigator's report noted the merger on November 27, 1985, of Telecheck Golden Gate, Inc., with VMC Telecheck, Inc., and the latter's August 14, 1987, change of its corporate name to BBV Liquidating Co. The report further noted that La Touche, Ltd. had on December 2, 1985, also merged with VMC Telecheck, Inc., which later merged with BBV Liquidating Co. The report stated that there apparently were a number of companies operating throughout California with the name Telecheck or variations of that name, and that a specialized investigation would be required to determine whether any of them related to BBV Liquidating Co.
In January 1991, the same investigator issued a report on assets of the Vogts.
In August 1991, Cortez's attorney[***11] learned by telephone from the Secretary of State that the successor company, BBV Liquidating, Inc., was not in good standing and had been suspended for failure to comply with the requirements of the Franchise Tax Board.
"Please note that sources report that the corporation VMC Telecheck, Inc. may no longer be operating in San Diego and that it is a branch of Telecheck Services, Inc. of Englewood, Colorado, which appears to be a subsidiary of McDonnell Douglas Corporation of St. Louis, Missouri. Sources pursuing Telecheck Services, Inc. report that there does not appear to be any connection between this entity and the Subject Companies related to the Vogts.
"Upon review of our file compilation, it is the recommendation of our directors that a more extensive investigation would, in all probability, confirm the contents of this report and disclose no[***12] additional substantial forms of assets relating to the Subject. If, however, you suspect that the Subject does have assets worth pursuing, a more extensive investigation will be required."
In March 1993, a debtor examination of William Vogt for the first time directly confirmed the merger information, as well as the sale to McDonnell Douglas, as above described. William Vogt further indicated that certain liabilities, including liability to Cortez, were not transferred to McDonnell Douglas, but was specifically retained by VMC.
Cortez's April 30, 1993, complaint against the Vogts alleged causes of action (1) to set aside the McDonnell Douglas transfer as a fraudulent transfer, and (2) for conspiracy to engage in a fraudulent transfer. Cortez sought to set aside the consideration received by the Vogts from the McDonnell Douglas transfer to the extent of approximately $128,000 compensatory damages. Cortez's complaint also sought punitive damages, an attachment against the Vogts' property, an accounting, and other equitable relief.
On April 11, 1994, Cortez moved for summary adjudication of the statute of limitations defense in his favor. In the meantime the Vogts moved for judgment on the [**846] pleadings, based on Cortez's failure to file his complaint within the limitations period provided by the UFTA.
The trial court denied Cortez's motion for summary adjudication, and ordered the parties to appear on May 20, 1994, to show cause why the court should not vacate its previous order denying summary judgment to the Vogts.
On May 24, 1994, after the hearing on the order to show cause, the court issued an order vacating its November 30, 1993, order denying the Vogts' summary judgment motion, and entered an order granting summary judgment to the Vogts. The court ruled:“. . . The Court finds that [the] complaint is barred by the [***14]statute of limitations period set forth in Civil Code [section] 3439.09. The complaint in this action was filed on April 30, 1993. The alleged fraudulent transfer occurred on or about August 1987. [Cortez] failed to file his complaint within four years from this date. Further, the Court finds as a matter of law that [Cortez] knew or reasonably could have discovered this transfer on February 18, 1988. [Cortez] failed to file his complaint within one year from this date. See deposition of Manuel Cortez taken July 12, 1993. This ruling disposes of the action in its entirety. Accordingly, all pending motions in this matter are off calendar as moot. . . ."
On June 16, 1994, the court entered judgment in favor of the Vogts.
n6 To a large extent in this and the following portions of the opinion, we set forth the description of the UFTA as made recently in Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal. App. 4th 1628 [51 Cal. Rptr. 2d 528] (Monastra), at pages 1635-1636 and 1645. For consistency of form with the remainder of this opinion, we do not quote this material, which we also have edited to add certain statutory provisions.
n7 We refer only to a "transfer" made even though the sections also cover an "obligation" incurred.
“(1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim.
“(2) An attachment or other provisional remedy against the asset transferred or its proceeds in accordance with the procedures described in Title 6.5 (commencing with Section 481.010) of Part 2 of the Code of Civil Procedure.
“(A) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or its proceeds.
“(B) Appointment of a receiver to take charge of the asset transferred or its proceeds.
“(C) Any other relief the circumstances may require.
“(b) If a creditor has commenced an action on a claim against the debtor, the creditor may attach the asset transferred or its proceeds if the remedy of attachment is available in the action under applicable law and the property is subject to attachment in the hands of the transferee under applicable law.
“(c) If a creditor has obtained a judgment on a claim against the debtor, the creditor may levy execution on the asset transferred or its proceeds. . . ."
“(a) Under subdivision (a) of Section 3439.04, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.
“(b) Under subdivision (b) of Section 3439.04 or Section 3439.05, within four years after the transfer was made or the obligation was incurred.
“(b) 'Claim' means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
“(c) 'Creditor' means a person who has a claim . . . .
“(d) 'Debt' means liability on a claim.
“(e) 'Debtor' means a person who is liable on a claim."
“(a) With actual intent to hinder, delay, or defraud any creditor of the debtor.
“(2) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due."
n11 Section 3439.05 provides: "A transfer or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation."
Section 3439.10 provides: "Unless displaced by the provisions of this chapter, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions."
Section 3439.11 requires that the UFTA "be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among the states enacting it."
(3) There are no cases in California dealing with the specific issue here, involving when the statute of limitations begins to run under the UFTA. That is, no California case construing the UFTA determines whether, when a transfer alleged to be a fraudulent conveyance occurs during an underlying action which later establishes by final judgment the actual legal existence of a debtor-creditor relationship, the limitations period[***23] runs from the date of the transfer as distinguished from the date the underlying judgment becomes final.
The language of section 3439.09 appears to be straightforward in its reference to the time "the transfer was made or the obligation was incurred." However, legislative material published in connection with the adoption of the UFTA requires a conclusion a creditor has an option to establish creditor status by judgment and thus cause the limitations period to run from the time the underlying judgment becomes final.
In light of the carry-over of remedies from even before the Uniform Fraudulent Conveyance Act, the consistency of the Adams v. Bell rule with the legislative history on the UFTA, and the salutary purposes served by obviating the need for a second lawsuit while the underlying action is being pursued, we conclude the Adams v. Bell rule of accrual at the time of the underlying judgment or later discovery applies.
Legislative and decisional history of the UFTA makes clear its remedies are cumulative to preexisting remedies for fraudulent conveyances. A key feature of the UFTA is that a creditor is permitted, but not required, to maintain an action to annul a fraudulent conveyance before his debt has matured. (See Estate of Kalt (1940) 16 Cal. 2d 807, 811 [108 P.2d 401, 133 A.L.R. 1424]. n12 ) As stated in Weisenburg v. Cragholm (1971) 5 Cal. 3d 892, 896 [97 Cal. Rptr. 862, 489 P.2d 1126], "it is no longer necessary that a creditor reduce his claim to judgment before seeking the benefit of the remedy. (See Rupp v. Kahn, 246 [***25]Cal. App. 2d 188 [55 Cal. Rptr. 108].)"
Concerning the general import of the UFTA, 1 Glenn, Fraudulent Conveyances and Preferences, supra, section 77, page 130, cited in Assembly Comment (6) to section 3439.07, n13 states:“ § 77. The Uniform Law, However, Does Not Confine the Creditor to Its Method.
Thus it is clear the main thrust of the UFTA, as with the Uniform Fraudulent Conveyance Act, is that the act permits, but does not require, a creditor to bring suit to set aside a fraudulent transfer before the claim has matured. Under this scheme of law the question arises: If a party asserting creditor status in a pending action is not required under the UFTA to file suit to set aside an alleged fraudulent transfer until the creditor obtains a final judgment, under what circumstances, and when, does the prescribed limitations period for bringing the attack on the transfer begin to run?
In our view, the fact that the creditor may pursue the unmatured claim to judgment, followed by a suit to set aside the fraudulent transfer, suggests it would be inappropriate to begin the running of the limitations period for the fraudulent transfer action before the creditor choosing to pursue a judgment actually obtains the judgment.
If the limitations period on the fraudulent transfer action begins to run before final judgment in the underlying creditor action, the creditor may be required to file and prosecute both actions to protect against the expiration of the limitations period; if the creditor action is not successful the fraudulent transfer action will be dismissed or severed and will have resulted in needless effort and expense to both parties and the court.
n14 In Adams v. Bell, supra, 5 Cal. 2d at page 700, it was alleged the conveyance in question was made for the purpose of defeating recovery by the plaintiff of her judgment.
Thus, the time of the underlying judgment, combined with the creditor's knowledge of transfer, were the key factors in determining when the statute of limitations began to run.
The list of jurisdictions starting the limitations period at the time of the underlying judgment can be augmented (without any pretense of being complete or exhaustive) to include jurisdictions such as Colorado ( Greco v. Pullara (1968) 166 Colo. 465 [444 P.2d 383] [where, as here, the creditor had no actual notice of the transfer before becoming a judgment creditor (see Sands v. New Age Family Partnership (Colo.App. 1995) 897 P.2d 917, 920)]); and the Fifth, Eighth and Tenth Circuit Courts of Appeals construing state statutes ( Douglas-Guardian Warehouse Corporation v. Jones (5th Cir. 1969) 405 F.2d 427; Keaton v. Little (10th Cir. 1929) 34 F.2d 396; Dykes v. Little (8th Cir. 1928) 31 F.2d 742).
Thus, the questions decided in Lind have direct bearing on the issues in the present case.
“. . . Why should the creditor be compelled in every case to commence suit against the grantee to set aside a transfer under penalty of having the statute of limitations run until he is certain of being one in fact? Often the asserted claim against the principal obligor might well be uncertain, and even speculative, or at least one in which the amount of recovery is very uncertain. A construction should not be adopted compelling a creditor who claims to be such to institute proceedings of this nature until the debtor's liability has been established by final judicial determination. It is apparent that such compulsion will exist in many cases if the creditor cannot proceed by the[***40] old method. In many cases the third party grantee will be saved the burden of defending a suit by one whose cause of action failed against his grantor.
Accordingly, since the 1993 action here was brought well within four years after the time the judgment in the underlying action became final, the action was timely.
Judgment reversed. Cortez to recover costs on appeal.
Work, Acting P. J., and McDonald, J., concurred.
A petition for a rehearing was denied March 11, 1997, and respondents' petition for review by the Supreme Court was denied April 30, 1997.

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