Court Opinion

ID: 9388506
Source: CourtListenerOpinion
Date Created: 2023-04-20 18:02:31.581869+00
Date Added: 2024-06-11T17:18:20.670823
License: Public Domain

Filed 4/20/23 Cabandong v. Weber CA4/1

                   NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

                 COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                      DIVISION ONE

                                              STATE OF CALIFORNIA

 FRANCISCA CABANDONG,                                                         D080352

            Plaintiff and Appellant,

            v.                                                                (Super. Ct. No. 37-2020-00044818-
                                                                              CU-MC-CTL)
 SHIRLEY WEBER, as Secretary of
 State, etc.,

            Defendant and Respondent.

          APPEAL from a judgment of the Superior Court of San Diego County,
Carolyn M. Caietti, Judge. Affirmed.
          Anthony Law Office, Gregory J. Anthony; Law Offices of Daniel J.
Winfree and Daniel J. Winfree for Plaintiff and Appellant.
          Office of the California Secretary of State, Ryan Hall Gomez and Mary
M. Mooney for Defendant and Respondent.
      The Victims of Corporate Fraud Compensation Fund (Fund) (Corp.

Code, § 2280 et seq.1) provides limited restitution to victims of corporate
fraud who are unable to collect their judgment. To recover up to $50,000, an
aggrieved claimant must, among other requirements, obtain a “final
judgment” against a corporation based upon fraud or deceit. (§ 2282, subd.
(a).) A judgment is not deemed “final” for these purposes if a court order bars
its enforcement. (§ 2281, subd. (g).) The purpose of this rule is to protect the
State’s right as subrogee to recover amounts paid from the Fund. (See
§ 2292.) Thus, not only must a claimant be a victim of corporate fraud, but
they must also have a potentially enforceable “final judgment” as defined in
section 2281, subdivision (g).
      Here, although Francisca Cabandong obtained an apparently
uncollectible judgment for fraud against a corporation, an order issued by the
bankruptcy court prohibits enforcing it against any source other than the
Fund. As a result, the trial court correctly concluded it is not a “final
judgment” within the meaning of section 2282, subdivision (a) and properly
dismissed her petition to compel payment.

                            LEGAL BACKGROUND

      In 2012, the Legislature established the Fund “for the sole purpose of
providing restitution to the victims of a corporate fraud.” (§ 2280; Stats.
2012, ch. 564, § 4.) Generally, an “aggrieved person” who has obtained a
“final judgment” against a corporation based upon fraud or deceit may apply
to the Secretary of State for payment from the Fund for up to $50,000 of the
amount unpaid on the judgment. (§§ 2282, subd. (a), 2289.) “ ‘Final
judgment’ ” means “a judgment . . . for which appeals have been exhausted or

1     Undesignated statutory references are to the Corporations Code.
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for which the period for appeal has expired, enforcement of which is not
barred by the order of any court . . . and for which the claimant has not
otherwise been fully reimbursed.” (§ 2281, subd. (g).)
      The application may be filed only after “diligent collection efforts are
made” for the amount unpaid on the judgment that represents “the awarded
actual and direct loss.” (§ 2282, subd. (a).) The California Secretary of State
(Secretary) is required to include a notice in the application informing the
claimant “of his or her obligation to protect the underlying judgment from
discharge in bankruptcy . . . .” (Id., subd. (e).) And if a bankruptcy
proceeding is pending when the application is filed, the claimant must
truthfully represent that “the judgment and debt have been declared to be
nondischargeable . . . and that the claimant has been granted permission by
the bankruptcy court to proceed with collection . . . .” (Id., subd. (c)(8)(C)(iii).)
      The Secretary may deny or grant the application or may enter into a
compromise with the claimant to pay less in settlement than the full amount
of the claim. (§ 2284, subd. (b).) If denied, the claimant may file a verified
petition in the superior court for an order directing payment from the Fund.
(§ 2287, subd. (a).)
      If a petition is filed, the superior court conducts a “de novo review of the
merits of the application as contained in the administrative record.” (§ 2287,
subd. (d).) At “any time,” however, the Secretary may move to dismiss the
petition “when it appears there are no triable issues and the petition is
without merit.” (§ 2288, subd. (d).) The motion may be supported by
“affidavit of any person or persons having knowledge of the facts” and may be
made on grounds that “the petition, and the judgment referred to therein,
does not form the basis for a meritorious recovery claim within the purview of
Section 2282 . . . .” (§ 2288, subd. (d).)

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                   FACTUAL AND PROCEDURAL HISTORY

      In 2008, Cabandong (then 51 years old) invested her life savings of
$155,000 with Powel Financial Services, Inc. (Powell), who promised her 12
percent interest and repayment of principal within six months. Years later,
Powell had still not repaid the principal ($155,000). In 2016, she sued for

breach of contract, fraud, and related causes of action.2
      About two years later, Powell filed a bankruptcy petition. In November
2018, ruling on Cabandong’s motion for relief from the automatic stay of her
state court lawsuit, the bankruptcy court lifted the stay, but “for the limited
purpose of establishing liability for fraud . . . such that [Cabandong] may
tender a claim to the [Fund] if successful on the merits.” The order further
provides that she “shall not seek any other relief from the Debtor [Powell] in
state court, or if successful on the merits, seek compensation from any source
other than the Fraud Fund as alleged in her motion for relief from stay.”
(Italics added.)
      In early 2020, Cabandong obtained a default judgment against Powell.
The trial court found that the corporation (which had dissolved in 2012)
“made material false misrepresentations” and failed to disclose material facts
to Cabandong resulting in $212,800 damages. The court “expressly”
acknowledged her intention to seek compensation from the Fund “in the
amount of the maximum recovery of $50,000,” and at Cabandong’s request
reduced the judgment to that amount.

2     In 2012, Cabandong filed a separate superior court action against
Ronald Powell, the corporation’s sole shareholder. That case settled in 2018,
with Cabandong reserving her rights against “all other persons or entities.”
Under the settlement, Cabandong received $25,000 and all of Ronald Powell’s
interest, right or title to approximately 40 acres of certain real property in
Boulevard, California.
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      About two months later, Cabandong filed an application seeking
$50,000 from the Fund. After she declined to accept a settlement offer, the
application was deemed denied (§ 2284, subd. (c)) and she petitioned the

superior court to compel payment.3
      Following briefing and oral argument, the superior court granted the
Secretary’s motion to dismiss the petition. The court determined that as a
matter of law, Cabandong “cannot prove compliance with the requirements of
section 2282” because the bankruptcy court’s order barring enforcement of
the judgment means there is no “final judgment” and, additionally prevents
her from making “diligent collection efforts” as required under section 2282,
subdivision (a).

                                DISCUSSION

A.     The Standard of Review is De Novo

      The Secretary contends that “the proper standard of review is
substantial evidence” because under section 2287, subdivision (d), in deciding
whether to grant or deny the petition, the superior court is required to

conduct a de novo review of the administrative record.4 Analogizing the
proceedings here to administrative mandamus, the Secretary maintains that

3     The petition also contained a second cause of action generally alleging
that the defendants unlawfully transferred money from the Fund to the
State’s general fund. Before the court ruled on the motion to dismiss,
Cabandong voluntarily dismissed this claim without prejudice.
4     Section 2287, subdivision (d) provides: “The claimant shall have the
burden of proving compliance with the requirements of Section 2282 by
competent evidence at an evidentiary hearing. The claimant shall be entitled
to a de novo review of the merits of the application as contained in the
administrative record.”
                                       5
the appellate court’s task is to determine whether substantial evidence
supports the trial court’s decision.
      The Secretary may be correct where a petition is decided after an
evidentiary hearing under section 2287, subdivision (d). But this case never
got to that point because it was decided on a motion to dismiss claiming
“there are no triable issues and the petition is without merit.” (§ 2288,
subd. (d).)
      The apt analogy, therefore, is not administrative mandamus but rather
summary judgment. (See Civ. Code, § 437c, subd. (c) [“The motion for
summary judgment shall be granted if all the papers submitted show that
there is no triable issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.”].) Accordingly, we independently
review the judgment, as we would in any other summary judgment appeal.
(See, e.g., Gonzalez v. Mathis (2021) 12 Cal.5th 29, 39.)

B.     The Court Correctly Dismissed the Petition Because as a Matter of
       Law, Cabandong Did Not Obtain a “Final Judgment”

      The Fund’s primary purpose is to provide a limited source of recovery,
and only as a last resort, to victims of corporate fraud. But the statutes also
reflect the Legislature’s clear intent to preserve the State’s interest as
subrogee so that it may recoup payments made under the Fund. For
example, the Secretary “shall be subrogated to all of the rights of the
claimant” who must “assign all of his or her right, title, and interest in the
judgment to the Secretary of State.” (§ 2293.) Further, where, as here,
bankruptcy proceedings are ongoing, the applicant must truthfully represent
that “the judgment and debt have been declared to be nondischargeable by
the [bankruptcy] judge . . . and that the claimant has been granted
permission by the bankruptcy court to proceed with collection or otherwise

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proceed with the claimant’s claims against the judgment debtor or debtors.”
(§ 2282, subd. (c)(8)(C)(iii).) Indeed, the Secretary is statutorily required to
include in the application form a notice of the “obligation to protect the
underlying judgment from discharge in bankruptcy.” (§ 2282, subd. (e).) All
of this culminates in sections 2281 and 2282, which require the claimant to
have obtained a “final judgment,”—a term of art meaning—“a judgment . . .
for which appeals have been exhausted or for which the period for appeal has
expired, enforcement of which is not barred by the order of any court or by any
statutory provision . . . .” (§§ 2281, subd. (g), 2282, subd. (a).)
      Here, Cabandong’s judgment against Powell is not a final judgment
under sections 2281 and 2282 because its enforcement against any entity
other than the Fund is barred by the bankruptcy court’s order granting relief
from stay. Accordingly, the trial court correctly determined that Cabandong
is not entitled to payment under the Fund.
      In urging a contrary result, Cabandong challenges this interpretation
of the bankruptcy court’s order. She contends the order “did not in any way
bar, i.e., prospectively or otherwise, [her] from enforcing a yet-to-be-obtained
judgment against [Powell] but simply restricted collection efforts to those not
protected under [the Bankruptcy Code].” But this is not a reasonable
interpretation. The order prohibits Cabandong from seeking compensation
“from any source other than the Fraud Fund” in the event she obtained a
judgment in the state court action against Powell. The necessary effect of
that order is to bar enforcement of the state court judgment against Powell or
any other person or entity (other than the Fund). This reduces the State’s
interest as subrogee to zero.
      Cabandong further contends this interpretation of the “final judgment”
requirement in section 2282 “does violence to [the statute’s] main purpose—

                                          7
helping victims of corporate fraud.” (Italics omitted.) She maintains that the
State’s subrogation rights are not a condition for compensation. As we have
explained, however, the legislative goals are more nuanced. The diligent
collection requirement in the statute serves to conserve the Fund’s resources
by requiring victims to apply for restitution only as a last resort. The
legislative directive to preserve the Fund’s resources for future claimants is
also refined and reflected in section 2293, which requires the claimant to
assign their rights in the final judgment to the State. Those subrogation
rights would be meaningless where the judgment is rendered unenforceable

as a matter of law by court order.5 It is true we are dealing with a remedial
statute that, generally speaking, should be interpreted liberally. But that
does not mean a court may read into the statute terms the Legislature has
excluded or read-out what it has plainly included.
      In a related argument, Cabandong asserts that as a “dissolved”
corporation, Powell “had no undistributed assets and, on that basis, no
further collection efforts could have been maintained . . . .” Thus, she
concludes that as a practical matter, the Secretary’s subrogation rights were
valueless. Her argument assumes that a dissolved corporation has no value
or assets. We are not so sure. A corporate dissolution is best understood not
as a corporation’s death, but merely as its retirement from active business.
(Penasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180, 1190.) Section
2010, subdivision (c) provides that a dissolved corporation has the authority

5     We ignore the Secretary’s improper citation to a nonpublished decision
to support this conclusion. (Cal. Rules of Court, rule 8.1115(a)–(b).) The
Secretary’s assertion that it is “not being cited as authority” but merely to
support the Secretary’s “understanding that subrogation rights must be
meaningful” is, putting it politely, too thin a slice.
                                       8
to collect and distribute assets discovered after the date of dissolution so long
as it is part of the winding up process.
      In any event, the words in section 2282 are plain and unambiguous.
A “ ‘[f]inal judgment’ ” as defined in section 2281, subdivision (g) is required
to make a claim on the Fund, and the bankruptcy court’s order limiting

enforcement means Cabandong does not have one as a matter of law.6

                                 DISPOSITION

      The judgment is affirmed. The Respondent is entitled to costs on
appeal.

                                                                        DATO, J.
WE CONCUR:

HUFFMAN, Acting P. J.

O’ROURKE, J.

6      Because of this disposition, it is unnecessary to consider whether the
trial court correctly dismissed the petition on the alternative ground that as a
matter of law, Cabandong failed to make “diligent collection efforts” within
the meaning of section 2282, subdivision (a). Accordingly, we do not address
her contention that the court misapplied California Code of Regulations,
title 2, section 22502, subdivision (c) regarding “ ‘sufficient collection
efforts.’ ”
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