Case Name: Khazaeli v. Brewer, et al.
Case No.: 17CV310507

After full consideration of the evidence, the separate statements submitted by the parties, and the authorities submitted by each party, the court makes the following rulings:

This is an action for fraud. On October 24, 2016, in Khazaeli v. Globo Mobile Technologies, Inc. (Super. Ct. Santa Clara County, 2016, No. 2014-1-CV-259655), the Court [Hon. Persky] signed a judgment in favor of plaintiff Hamid Khazaeli (“Plaintiff” or “Khazaeli”) against Globo Mobile Technologies (“Globo” or “GMTI”) on causes of action for national origin discrimination, retaliation and violation of public policy in the amount of $4,416,667 plus costs and attorney’s fees for a total of $5,147,898. Collection activity immediately commenced, and in an effort to locate and identify assets to satisfy the judgment, defendant David Brewer (“Brewer”) was served with an order of appearance and examination and document subpoena to appear on February 21, 2017. (See third amended complaint (“TAC”), ¶ 12.) Brewer testified that he was Chairman of the Board of Notify Technology Corporation, which later changed its name to Former NT after the assets of Notify Technology Corporation were sold to Globo Mobile pursuant to an October 3, 2013 Asset Purchase Agreement. (See TAC, ¶ 13.) The Asset Purchase Agreement included the confirmation of liability for Plaintiff’s claims regarding discrimination and retaliation, and on October 3, 2014, Globo Mobile made a claim to $1 million plus interest contained in an escrow account that was to pay for the defense and/or adverse judgment of any indemnified lawsuit. (See TAC, ¶¶ 13-18.) In late 2015, Globo Mobile became effectively insolvent as a result of its parent company’s bankruptcy and debts and Brewer, hearing of the potential insolvency, and with knowledge of Khazaeli’s pending lawsuit, approached Globo Mobile about releasing the escrow funds to prevent Plaintiff from recovering any money from the judgment. (See TAC, ¶¶ 21-23.)

On January 17, 2019, Plaintiff filed the TAC against Brewer, Former NT Corp., and Globo Mobile Technologies, Inc., asserting causes of action for:

1) Fraudulent transfer—actual fraud;
2) Fraudulent transfer—constructive fraud;
3) Noncompliance with levy;
4) Creditor’s suit;
5) Alter ego; and,
6) Conversion.

Defendants Brewer and Former NT Corp., formerly named Notify Technology Corporation (“NT”) move for summary judgment, or, in the alternative, moves for summary adjudication of each of Plaintiff’s causes of action against them. Plaintiff also moves for summary judgment.
I. DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

Defendants’ burden on summary judgment or adjudication

“A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted; emphasis added.)

“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of plaintiff’s claim.” (Weil et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 10:241, p.10-91, citing Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334; emphasis original.) “The moving party’s declarations and evidence will be strictly construed in determining whether they negate (disprove) an essential element of plaintiff’s claim ‘in order to avoid unjustly depriving the plaintiff of a trial.’” (Id. at § 10:241.20, p.10-91, citing Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)

“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of plaintiff’s claim cannot be established. Defendant does so by presenting evidence that plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because plaintiff must be allowed a reasonable opportunity to oppose the motion.) Such evidence usually consists of admissions by plaintiff following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id. at ¶ 10:242, p.10-92, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.)

Requests for judicial notice

In support of their motion, moving defendants request judicial notice of: the certificate of status for Former NT Corp.; the order to appear for examination of Brewer; the notice of hearing regarding objections to the order for examination; the memorandum of points and authorities in support of Brewer’s objections to the order for examination; the declaration of John Claassen in support of Brewer’s objections to the order for examination; the declaration of Brewer in support of his objections to the order for examination; Brewer’s separate statement in support of the objections to the document subpoena; a request for judicial notice in the other case; Plaintiff’s oppositions to Brewer’s objections to the order for examination; Plaintiff’s opposition to Brewer’s separate statement; the declaration of Berke in opposition to Brewer’s objections; an unsigned proposed order regarding Brewer’s objections; Judge Stoelker’s March 17, 2017 order sustaining Brewer’s objections; and the TAC. The request for judicial notice is GRANTED as to the certificate of status, the order to appear for examination of Brewer, the March 17, 2017 order and the TAC. (Evid. Code § 452, subds. (c), (d), (h).) The request for judicial notice is DENIED as to the remainder of the documents.

In opposition to the motion, Plaintiff requests judicial notice of: the complaint in the initial action; the judgment in the initial action; the third party order to appear for examination of Brewer; the first amended complaint; David Brewer’s state bar profile; the declaration of Brewer in the initial action; Berke’s declaration in opposition to Brewer’s objections, the October 3, 2017 order regarding the demurrer in the instant action; the March 17, 2017 order; the statement of information regarding Former NT; and, the declaration of Berke filed in support of Plaintiff’s motion for summary judgment. The request for judicial notice is DENIED as to the three declarations. The request for judicial notice is GRANTED as to the remainder of the documents. (Evid. Code § 452, subds. (c), (d), (h).)

Fourth cause of action

The fourth cause of action alleges that “Defendants were in possession and control of monies owed or owing to Plaintiff at the time of the service of the levy on February 1, 2017… Plaintiff attempted to levy on the Property and/or debt under a writ of execution and Third Person failed without good cause to perform the duties of the garnishee.” (TAC, ¶¶ 51-52.) Moving defendants Brewer and NT (collectively, “moving defendants”) argue that the fourth cause of action is barred by collateral estoppel and that it fails as a matter of law because the funds released to NT from escrow were not subject to levy and NT was never served with a notice of levy or order of examination.

As to the collateral estoppel argument, moving defendants have made this argument previously in the demurrer to this cause of action:

The complaint in the Underlying Action did not contain a cause of action for breach of Section 701.020 and a creditor’s suit; rather, it involved discrimination claims based on Globo’s refusal to hire Plaintiff. Defendants neglect to consider this important distinction in their analysis and, instead, immediately addresses whether the Prior Order was final. Indeed, Defendants cite no legal authority applying res judicata to an order regarding the scope of an order for examination to a separate action attempting to collect funds. As such, Defendants fail to establish res judicata is applicable here.

Defendants contend the third and fourth causes of action are barred by collateral estoppel because the Prior Order definitively determines the scope of the collection does not extend to the escrow funds. This interpretation of the Prior Order is inaccurate. As stated above, Section 708.120 provides that a third party may be compelled to appear before the court if he or she possesses or controls property in which the judgment debtor has an interest or is indebted to the judgment debtor to answer questions concerning the subject property. The Prior Order, relating only to the scope of a debtor’s examination, addressed the compulsion to appear before a court under Section 708.120. The court held the inquiry exceeded the scope of Section 708.120 because it was undisputed—and admitted by Plaintiff—that Brewer no longer possessed or controlled the specific escrow funds. (RJN, Exh. H.) The court then observed as follows: Plaintiff “very well may have a cause of action against Mr. Brewer and/or the recipients of the escrow funds. However, that claim is not currently adjudicated. It is far from undisputed that the escrow funds were ever intended to be for the purpose of satisfying the amount owing to this judgment creditor. Therefore, discovery of supporting evidence to support the potential cause of action in the context of CCP section 708.120 is not permitted here.” (Ibid.)

Thus, the Prior Order only stated Plaintiff presented insufficient evidence establishing Brewer possessed the escrow funds and refused to allow him to attempt to gather more evidence by conducting a third-party examination. Contrary to Brewer’s interpretation, the Prior Order did not state the escrow funds could not be collected in connection with the Underlying Action; it simply stated an examination of Brewer could not be conducted to determine their whereabouts. In addition, the Prior Order recognized Plaintiff may have a cause of action against Brewer and contemplated him asserting it outside of the context of an order for examination. As such, the Prior Order did not finally resolve the issue of whether the escrow funds could be a part of the collection of the Judgment.

Defendants’ argument is also problematic because it is misfocused. The third and fourth causes of action are based on Defendants’ failure to deliver the $960,000.00 as mandated by the levy and lien. The Prior Order is completely silent as to the lien created by the service of the order for examination and the levy created by the service of the writ of execution. The Prior Order was limited to whether Brewer had to attend a second day of examination. The court only held Brewer did not need to attend because he did not possess the money. There is otherwise no ruling relating to the lien or levy. As such, it does not follow that any cause of action based on the lien and levy are barred by the order. Consequently, Defendants have not established the third and fourth causes of action are barred by res judicata.

(October 3, 2017 order re: demurrer, pp.19:1-27, 30:1-18.)

The Court has already determined this argument to be without merit, and moving defendants do not provide any new basis to support its argument.

Moving defendants’ other arguments are not supported by any case authority and do not demonstrate that an essential element cannot be established or that there is a complete defense. The evidence is insufficient, and in many cases does not support the asserted material facts. For example, on multiple occasions, moving defendants assert that “GMTI transferred no money to Defendants in 2016 when the transfers allegedly occurred; Wells Fargo Bank did.” However, the cited evidence—a paragraph of Brewer’s supporting declaration and a joint instruction purportedly from GMTI and NT—do not support that material fact. Thus, for multiple reasons, moving defendants fail to meet their initial burden with respect to the fourth cause of action. Even if moving defendants had met their initial burden, there are triable issues as to moving defendants’ possession of monies, service of the order of examination through Brewer, whether Brewer is the alter ego of NT, and whether the funds were subject to levy. (See Pl.’s separate statement of undisputed material facts, nos. (“UMFs”) 47, 54-58, 115, 376, 383-387.) The moving defendants’ motion for summary judgment and the alternative motion for summary adjudication of the fourth cause of action is DENIED.

Third cause of action

Moving defendants make near identical arguments with regards to the third cause of action. Again, moving defendants fail to meet their initial burden with respect to the third cause of action. Even if moving defendants had met their initial burden, there are triable issues as to moving defendants’ possession of monies, service of the order of examination through Brewer, whether Brewer is the alter ego of NT, and whether the funds were subject to levy. (See UMFs 47, 54-58, 115, 163, 169, 174, 376, 383-387.) The moving defendants’ motion for summary adjudication of the third cause of action is DENIED.

First and second causes of action

Moving defendants assert that the first two causes of action lack merit because Plaintiff cannot show that Globo transferred an asset or incurred an obligation. Again, their argument relies on their assertion that “GMTI incurred no obligation to Defendants in 2016 when the transfers allegedly occurred… [r]ather, Wells Fargo Bank made transfers from an escrow that was funded by part of the purchase price for NTC’s assets.” (Defs.’ Memo, p.12:8-13, citing UMFs 54-56, 220-22.) Again, however, moving defendants’ evidence does not support the asserted material fact. Moving defendants fail to meet their initial burden with respect to this argument.

Moving defendants also argue that the first two causes of action lack merit because Plaintiff cannot demonstrate Globo’s intent to avoid creditors. Moving defendants’ lone reason in support is that “there is no admissible evidence that, in agreeing to a distribution of proceeds, GMTI was attempting to hinder, delay or defraud creditors… [i]ndeed, NTC enjoyed documented rights, supported by consideration (the sale of all of its assets) to the escrow funds.” (Defs.’ memo, p.14:17-20, citing UMFs 3-27, 229-253.) Again, however, moving defendants’ evidence does not support the asserted material facts. Thus, moving defendants fail to meet their initial burden with respect to this argument. However, even if moving defendants were to have met their initial burden, there is a triable issue of material fact with regards to such intent. (See evidence cited by Pl.’s additional material facts, nos. 392-423.) The moving defendants’ motion for summary adjudication of the first and second causes of action is DENIED.

Sixth cause of action for conversion

Moving defendants argue that Plaintiff cannot show actual interference because “Defendants did not possess the escrow funds because Wells Fargo Bank possessed them.” (Defs.’ memo, p. 15:6-7.) This argument is neither supported by the evidence or any case authority. “An escrow holder is an agent and fiduciary of the parties to the escrow.” (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 1160A, 711.) Here, Wells Fargo Bank, as the escrow holder, acted as agent for Globo and NT. This argument is plainly without merit.

Moving defendants also argue that “Plaintiff cannot show his ownership of the funds or his right to possess them… [because t]he Escrow Agreement expressly prohibited the contract parties from allowing third party liens to arise like the one Plaintiff argues attached here.” (Defs.’ memo, pp.15:10-28, 16:1-27, 17:1-27, 18:1-8.) Again, however, moving defendants apparently rely on the same argument regarding not possessing the escrow funds. (See Defs.’ separate statement of undisputed material facts, nos. 325-329.) Again, these purported material facts are neither supported by the evidence or any case authority. Accordingly, moving defendants fail to meet their initial burden. The moving defendants’ motion for summary adjudication of the sixth cause of action is DENIED.

Fifth cause of action for alter ego

Moving defendants argue that summary adjudication of the fifth cause of action is required because “Defendants have already shown… above that Plaintiff’s fraudulent conveyance claims fail as a matter of law… [and] Plaintiff’s conversion claim fails as a matter of law… [t]hus, Plaintiff cannot establish the existence of an inequitable result….” (Defs.’ memo, p.18:21-28.) However, in light of the above rulings, moving defendants fail to meet their initial burden with respect to the fifth cause of action; accordingly, the motion for summary adjudication of the fifth cause of action is DENIED.

Moving defendants’ objections numbers 1-3, 5-15, 18-25 are OVERRULED. Moving defendants’ remaining objections are not the basis for the Court’s ruling.

II. PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

Plaintiff’s burden on summary judgment

The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact—one sufficient to support the position of the party in question that no more is called for. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851.) Plaintiffs moving for summary judgment bear the burden of persuasion that each element of the cause of action in question has been proved, and hence that there is no defense thereto. (Cal. Code Civ. Proc. § 437c.) Plaintiffs, who bear the burden of proof at trial by preponderance of evidence, therefore “must present evidence that would require a reasonable trier of fact to find the underlying material fact more likely than not—otherwise he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact.” (Aguilar, supra, 25 Cal.4th at p.851.)

Plaintiff’s separate statement does not identify each supporting material fact with respect to the issue

Plaintiff suggests that his motion is for summary judgment, or, in the alternative, for summary adjudication of issues. Rule of Court 3.1350, subdivision (b) states that “[i]f summary adjudication is sought, whether separately, or as an alternative to the motion for summary judgment, the specific cause of action, affirmative defense, claims for damages, or issues of duty must be stated specifically in the notice of motion and be repeated, verbatim, in the separate statement of undisputed material facts.” (Rule of Court 3.1350, subds. (b), (d)(A).) Here, as Defendants argue, Plaintiff has failed to state the “issues” of which Plaintiff seeks summary adjudication. More importantly, Plaintiff fails to identify “[e]ach supporting material fact claimed to be without dispute with respect to the cause of action, claim for damages, issue of duty, or affirmative defense that is the subject of the motion.” (Rule of Court 3.1350, subd. (d) (B).) The alternative motion for summary adjudication of issues is DENIED.

There are triable issues of material fact precluding summary judgment.

As to the fraudulent conveyance causes of action, Plaintiff presents evidence that sufficiently demonstrates circumstances showing a transfer by Defendants to a third party undertaken with an intent to defraud Plaintiff. (See Yaesu Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13 (stating that “[a]fraudulent conveyance is a transfer by the debtor of property to a third person undertaken with the intent to prevent a creditor from reaching that interest to satisfy its claim”).) Thus, Plaintiff meets his initial burden with respect to this cause of action. (See Pl.’s separate statement of undisputed material facts, nos. 1-35.) However, the evidence presented by Plaintiff regarding intent is also sufficient itself to demonstrate the existence of a triable issue of material fact. Accordingly, it is unnecessary to address the remaining causes of action, and Plaintiff’s motion for summary judgment is DENIED.

The Court shall prepare the Order.