Filed 12/12/19 Lipkin v. Beverly Hills Hospitality Group, LLC CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

GAL LIPKIN et al.,

Plaintiffs and Respondents,

v.

BEVERLY HILLS HOSPITALITY GROUP, LLC et al.,

Defendants;

BEVERLY HILLS MANSION, LLC,

Third Party Claimant and Appellant.

G056886

(Super. Ct. No. 30-2015-00786537)

O P I N I O N
Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Reversed with directions.

Steckbauer Weinhart, William W. Steckbauer and Sean A. Topp for Third Party Claimant and Appellant.

Sparks Law Firm and Jerry R. Sparks for Plaintiffs and Respondents.

No appearance for Defendants.

* * *

Plaintiffs’ predecessor in interest, 25325 Dana Point Harbor Drive, LLC (Lender), obtained a writ of attachment against defendant Michael Draz’s real and personal property and levied certain funds in a bank account held in the name of Beverly Hills Mansion, LLC (BHM). BHM filed a third party claim of ownership of the levied funds contending that it (not Draz) was the owner of the funds, and there was no evidence Draz fraudulently transferred those funds to BHM. BHM accordingly argues the funds were not subject to the attachment.

The court denied BHM’s third party claim, ruling that “BHM’s showing [was] insufficient to establish ownership” of the levied funds and that Lender had “sustained its burden of establishing a fraudulent transfer.” BHM appeals from the order denying its third party claim, arguing the evidence was insufficient to support the court’s findings.

We agree the court erred. BHM presented a prima facie showing that it (not Draz) was the owner of the levied funds, and Lender failed to meet its burden to show Draz had fraudulently transferred the levied funds to BHM. Accordingly, we reverse the judgment.

FACTS

The Complaint and Writ of Attachment

In May 2015, Lender filed a complaint against Beverly Hills Hospitality Group, LLC (Borrower), Michael M. Draz, Gal Lipkin, Peter Newton, and Joan R. Forsum. Lender alleged its predecessor in interest provided certain loans to Borrower. Draz, Lipkin, and Newton agreed to guaranty Borrower’s obligations. After Borrower defaulted on its loan payments, Lender asserted claims for judicial foreclosure, breach of an unsecured note, and breach of a written guaranty. The complaint did not name BHM as a defendant.

Lender later filed an application for a right to attach order. The court granted the application and issued a writ of attachment allowing the prejudgment attachment of Draz’s real and personal property. The writ was served on a bank that held an account in BHM’s name. Some of the forms associated with the bank account identified Draz’s name and address. The bank froze the assets in the account, approximately $598,000 (the Funds), pursuant to the writ of attachment.

BHM’s Ex Parte Opposition and Third Party Claim

In January 2017, BHM filed what it called an “ex parte opposition” to the writ of attachment and argued the Funds were exempt from attachment because they belonged to BHM rather than Draz. Lender opposed the “ex parte opposition” claiming it was procedurally improper. Lender also argued BHM failed to prove Draz was not the beneficial owner of the Funds. According to Lender, BHM’s statement of information filed with the California Secretary of State identified Draz as BHM’s managing member, and Draz “likely created” the bank account “after defaulting on his Guaranty in order to prevent, hinder, and delay [Lender’s] collection efforts.” Lender further noted Draz had transferred his ownership interest in certain real property (the Tower Grove Property) to BHM. He allegedly made this transfer two weeks after he defaulted on his obligations under the written guaranty.

The court deemed BHM’s “ex parte opposition” to be a motion to quash the writ of attachment and denied the motion. The court found: “[BHM] has not met its burden and [Lender] has presented admissible evidence of a fraudulent transfer; Among other things, Draz transferred his ownership interest in [the Tower Grove Property] to [BHM] and Draz is the [chief executive officer] and Managing Member of [BHM] according to [Secretary of] State info . . . .”

Nearly one year later, in December 2017, BHM filed a third party claim of ownership pursuant to Code of Civil Procedure section 720.110 and again argued the Funds were not subject to attachment because Draz did not own the Funds. BHM claimed it was the “absolute owner” of the Funds and pointed to the following bank records to support its argument.

1. “Business New Account — Application.” The Application used to open the bank account, indicates the account would be owned by a limited liability company, and identifies BHM as the relevant business entity. Draz’s name, address, and contact information are listed under a section titled “Signer Information.”

2. “Account Agreement.” The account agreement indicates that “Ownership of Account” is by a “Limited Liability Company.” The form also identifies BHM and a Los Angeles address under two different sections titled “Account Title & Address” and “Non-Individual Owner Information.” The same address along with Draz’s name and contact information are listed under a section titled “Owner/Signer.”

3. “Limited Liability Company Authorization Resolution.” The form identifies Draz as BHM’s “Manager or Designated Member” and indicates he was authorized to take certain actions on BHM’s behalf, including opening any deposit or share accounts.

4. “Wire Transfer Authorization List” and “Wire Transfer Callback Authorization Form.” Both documents identify BHM as the client. The former document further lists Draz as the “Authorized Signer,” and the latter document lists Draz as a person authorized to receive callbacks regarding wire transfers.

5. “Cash Management Resolutions” and “Cash Management Services Enrollment Form.” The documents identify Draz as BHM’s manager and authorized representative.

In addition to the above documents, BHM submitted Draz’s declaration to establish that the Funds did not belong to Draz and were instead deposited to BHM’s account by a company called Vacation In Paradise, LLC (VIP). Draz testified he was the managing member of VIP, which was formed to purchase and develop real property known as the Sunset Property. VIP purchased the Sunset Property, proceeded to develop it, and eventually sold it. In November 2014, VIP entered into an agreement to purchase the Tower Grove Property. BHM was formed in December 2014 to develop the Tower Grove Property, and Draz opened a bank account in BHM’s name to further that purpose. In December 2015, VIP deposited $500,363 into the BHM account which represented part of VIP’s capital contribution to BHM. BHM’s funds were later transferred to another bank that held the account at issue in this appeal. Finally, Draz testified he was not a member of BHM.

Lender opposed BHM’s third party claim and argued the claim was an improper motion for reconsideration of the court’s earlier ruling on the motion to quash. Lender also argued BHM failed to meet its burden of establishing ownership of the Funds. Finally, Lender claimed Draz fraudulently transferred the Funds to BHM to prevent Lender’s collection efforts. Lender pointed to the following evidence in its attempt to prove Draz generally made fraudulent conveyances to BHM and was engaged in a “shell game . . . to render himself judgment proof . . . .”

1. BHM’s Statement of Information filed with the California Secretary of State identified Draz as BHM’s chief executive officer and managing member.

2. BHM’s mailing address was the same as Draz’s home address.

3. Draz was VIP’s managing member, and VIP deposited money into BHM’s bank account two days after the court entered the right to attach order and writ of attachment. The money was later transferred to another bank that ultimately froze the Funds pursuant to the writ of attachment.

4. In June 2016, Draz Investment Group, LLC (Draz LLC), a company owned by Draz, issued a check to BHM for $195,000.

5. From September 2016 to December 2016, BHM issued six separate checks to Draz LLC for a total amount of $100,000. The six checks consisted of the following separate payments: $20,000, $15,000, $20,000, $15,000, $10,000, and $20,000.

6. Draz and a person named Barry Shy transferred their ownership interests (67.5 percent for Shy, 32.5 percent for Draz) in the Tower Grove Property to BHM two weeks after Draz defaulted on his guaranty obligations.

7. According to the grant deed transferring the Tower Grove Property, Draz and Shy continued to hold the same proportionate interest in the property so the transfer was not subject to transfer taxes.

Based on the above evidence, Lender argued that “in the six months BHM had its account at the bank prior to being levied upon, every single deposit and withdrawal was from or to Draz’s company, Draz Investment Group, LLC.” Lender also claimed Draz used “Draz Investment Group, LLC as a conduit to unlawfully transfer monies.”

The court denied BHM’s third party claim because “BHM’s showing [was] insufficient to establish ownership” of the Funds. The court found Lender “sustained its burden of establishing a fraudulent transfer.” BHM appealed from the judgment denying its third party claim.

DISCUSSION

Applicable Law and Standard of Review

When “personal property has been levied upon under a writ of attachment, a writ of execution, a prejudgment or postjudgment writ of possession, or a writ of sale,” “[a] third person claiming ownership or the right to possession of property may make a third-party claim . . . if the interest claimed is superior to the creditor’s lien on the property.” (§ 720.110.) “At a hearing on a third-party claim, the third person has the burden of proof.” (§ 720.360.) The third party claimant must introduce evidence that it owns the attached property. (Whitehouse v. Six Corp. (1995) 40 Cal.App.4th 527, 535 (Whitehouse).) The burden then shifts to the creditor to establish a fraudulent transfer. (Ibid.) “A creditor wishing to pursue a fraudulent transfer theory may not escape the burden of proving its claim merely because the contest is played out in a third party claim proceedings.” (Ibid.) “There is no requirement of a jury trial in third party claim proceedings, and no findings are required.” (Oxford Street Properties, LLC v. Rehabilitation Associates, LLC (2012) 206 Cal.App.4th 296, 307.)

We must uphold the court’s findings if they are supported by substantial evidence. (Oxford Street Properties, LLC v. Rehabilitation Associates, LLC, supra, 206 Cal.App.4th at p. 307.) “Under that standard, we consider whether there is any evidence, contradicted or uncontradicted, which will support the trial court’s finding.” (Ibid.) We have no power to reweigh the evidence, evaluate the credibility of witnesses, or resolve conflicts in the evidence. (Reddy v. Gonzalez (1992) 8 Cal.App.4th 118, 123.)

There Was Substantial Evidence that BHM Owned the Funds

BHM contends the court erred by finding BHM did not establish ownership of the Funds. According to BHM, the bank records prove BHM was the sole owner of the bank account while Draz was merely a “signer” of the account. Relying on Draz’s declaration, BHM also claims the Funds were derived from VIP and not Draz. We agree BHM introduced evidence that it owned the levied Funds. The burden then shifted to Lender to establish a fraudulent transfer, a burden it failed to meet.

First, and perhaps most fundamentally, we observe there is no evidence whatsoever that Draz was ever the owner of the $500,363 deposited by VIP to the BHM bank account. Plaintiffs seem to believe, as they did below, that simply because Draz acknowledged he was a member of VIP, he was an owner individually of all of VIP’s assets, and that the VIP deposit of $500,363 to the account of BHM represented a transfer of funds owned by Draz individually. Further, plaintiffs seem to believe that Draz’s individual ownership of the funds continued after the deposit to the account of BHM. But there is no evidence that either proposition is true.

The deposit and withdrawal of funds between Draz LLC and BHM does not constitute evidence that Draz owned these funds individually. We have searched the record and have found no evidence, and plaintiffs have not directed us to any evidence, that Draz was an individual owner of any of the funds transferred to BHM. The writ of attachment was not issued against the property of VIP, nor the property of Draz LLC, nor the property of BHM. Plaintiffs have simply ignored the fact that Draz’s property was the subject of the writ, not the property of VIP, Draz LLC or BHM. Of course, Draz was an acknowledged member of VIP, and an alleged member of Draz LLC and BHM, but the record does not disclose that plaintiffs ever pursued an attachment against Draz’s membership interest in either of those entities. The notice of attachment served on the bank described the property to be attached as the “money in deposit accounts of the defendant Michael Draz.”

BHM presented evidence that it owned the levied bank account. “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.” (Evid. Code, § 662, italics added.) Here, the presumption was not overcome. First, there was evidence the account was opened for a legitimate purpose. According to Draz’s declaration, BHM was created to develop the Tower Grove Property, and Draz opened a bank account in BHM’s name to further that purpose. Second, the bank records associated with the account identify BHM as the owner. Some of those documents also identify Draz, but he is merely listed as the signer of the account and BHM’s authorized representative. Plaintiffs note the account agreement includes Draz’s name and contact information under a section titled “Owner/Signer.” But that same document indicates the “Ownership of Account” is by a “Limited Liability Company.” The document also identifies BHM under two different sections titled “Account Title & Address” and “Non-Individual Owner Information.”

As noted above, BHM also offered evidence tracing most of the Funds back to VIP (not Draz). Draz’s declaration explained the genesis of VIP and BHM and their involvement in the Tower Grove Property. Draz further testified that VIP deposited money into BHM’s account, representing part of VIP’s capital contribution to BHM. BHM’s bank account eventually was transferred to another bank that held the account at issue in this appeal.

Despite the evidence tracing most of the Funds from VIP to BHM, plaintiffs contend BHM did not actually own the Funds because there was a “unity of interest” between BHM and Draz, an argument evoking images of an alter ego theory without actually saying so. Plaintiffs contend this “unity of interest” can be inferred from Draz’s transfer of his ownership interest in the Tower Grove Property to BHM two weeks after defaulting on his guaranty obligations, the account deposits and withdrawals made between BHM and Draz LLC, BHM’s statement of information, which identifies the same mailing address for BHM and Draz and also identifies Draz as chief executive officer and “member managing,” and Draz’s various roles at BHM, VIP, and Draz LLC as a managing member or owner. None of this evidence establishes the Funds were transferred to BHM by Draz personally rather than by VIP or Draz LLC. Draz’s transfer of his ownership interest in the Tower Grove Property, or for that matter his contested membership in BHM, has nothing to do with the source or ownership of the Funds.

Plaintiffs’ reliance on Goldberg v. Engelberg (1939) 34 Cal.App.2d 10 (Goldberg) is misplaced. In Goldberg, the court found the levy of funds held in a corporation’s bank account was proper because there was a unity of ownership and interest between the debtor and the corporation. (Id. at pp. 12-14.) In reaching this conclusion, the court relied on evidence that the corporation’s shareholders were comprised of the debtor and his family members, no formal corporate records were maintained, meetings were held in the debtor’s home, the corporation never paid dividends to stockholders, the debtor’s personal obligations were paid by the corporation, and the debtor’s personal funds were deposited into the corporation’s bank account. (Id. at p. 12.) Based on this evidence, the court found “a recognition of separate corporate existence would sanction a fraud.” (Id. at p. 13.) Unlike the evidence in Goldberg, the evidence in the instant case does not give rise to a reasonable inference that BHM, VIP or Draz LLC were not legitimate separate legal entities. Plaintiffs’ apparent reliance on an (unstated) alter ego theory to rebut BHM’s claim of ownership is unavailing. In the trial court, plaintiffs relied on a fraudulent conveyance theory and never asked the court to make any alter ego findings. And the court stated its ruling was based on a fraudulent conveyance theory, not alter ego. Thus, we next address the asserted evidence of a fraudulent conveyance.

Substantial Evidence Did Not Support the Court’s Finding that Lender Established a Fraudulent Transfer

BHM contends the court erred by finding Lender established a fraudulent transfer. We agree.

Under the Uniform Fraudulent Transfer Act (Civ. Code, § 3439 et seq.), a transfer is fraudulent if it is made “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” (Civ. Code, § 3439.04, subd. (a)(1).) “[P]roof [of fraudulent intent] often consists of inferences from the circumstances surrounding the transfer.” (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 834.) Courts consider a nonexclusive list of factors to discern a debtor’s actual intent, and “[t]here is no minimum number of factors that must be present before the scales tip in favor of finding of actual intent to defraud.” (Ibid.)

The relevant factors, known as “the ‘badges of fraud’” (Filip v. Bucurenciu, supra, 129 Cal.App.4th at p. 834), include: “(1) Whether the transfer . . . was to an insider. [¶] (2) Whether the debtor retained possession or control of the property transferred after the transfer. [¶] (3) Whether the transfer . . . was disclosed or concealed. [¶] (4) Whether before the transfer was made . . . , the debtor had been sued or threatened with suit. [¶] (5) Whether the transfer was of substantially all the debtor’s assets. [¶] (6) Whether the debtor absconded. [¶] (7) Whether the debtor removed or concealed assets. [¶] (8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred . . . . [¶] (9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made . . . . [¶] (10) Whether the transfer occurred shortly before or after a substantial debt was incurred. [¶] (11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.” (Civ. Code, § 3439.04, subd. (b).)

Whether a fraudulent transfer is made with fraudulent intent is a question of fact. (Nautilus, Inc. v. Yang (2017) 11 Cal.App.5th 33, 40.) “‘When the trial court has resolved a disputed factual issue, the appellate courts review the ruling according to the substantial evidence rule. If the trial court’s resolution of the factual issue is supported by substantial evidence, it must be affirmed.’” (Ibid.) As a creditor that resisted a third party claim, Lender had the burden of proving a fraudulent transfer by a preponderance of the evidence. (Whitehouse, supra, 40 Cal.App.4th at p. 537.)

Here, substantial evidence did not support the court’s ruling that Lender met its burden of establishing a fraudulent transfer. BHM offered evidence tracing most of the Funds back to VIP, and Lender pointed to no evidence suggesting the Funds were fraudulently transferred from VIP to BHM. On appeal, plaintiffs cite the same evidence discussed above: Draz’s transfer of his ownership interest in the Tower Grove Property to BHM, the transfer of money between BHM and Draz LLC, BHM’s statement of information, which identifies the same mailing address for BHM and Draz, and Draz’s various roles at BHM, VIP, and Draz LLC as a managing member or owner. In pointing to this evidence, plaintiffs again appear to rely on an alter ego theory and argue “ample evidence . . . support[s] the finding of a fraudulent transfer of the [l]evied Funds and the other property of [BHM] which have all been used as shell game by . . . Draz . . . .” But plaintiffs avoid discussing the central problem with their argument: Draz was not the transferor of the Funds. VIP was the transferor of the bulk of the Funds; Draz LLC was a transferor to a lesser extent. There is a complete absence of evidence that Draz individually transferred anything. The only way this central problem could have been avoided, if at all, was to demonstrate that these entities were alter egos of each other. But there is no evidence in the record sufficient to establish this fact, and, importantly, plaintiffs never asked the court to make any alter ego finding, and the court did not do so. Based on the current record, substantial evidence did not support a fraudulent transfer finding for attachment of the Funds. In fact, based on the current record, plaintiffs’ arguments are speculative at best — not the clear and convincing evidence required to overcome the presumption of title established by Evidence Code section 662.

DISPOSITION

The judgment is reversed and the court is directed to enter a new order granting BHM’s claim of ownership of the Funds. BHM shall recover its costs incurred on appeal.

IKOLA, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

MOORE, J.