Case Name: Dennis Alen Lempert v. Sung My Ly, et al.

Case No.: 2015-1-CV-278870

Currently before the Court is the motion by defendants Sung My Ly (“Ly”) dba ProfessioNAIL, Tsu Cam Luu (“Luu”), Ngoc Diep Thi Vo (“Vo”), and Hong Lee Wilbanks (“Wilbanks”) (collectively, “Defendants”) for summary judgment and summary adjudication.

Factual and Procedural Background

This is a personal injury action brought by plaintiff Dennis Alen Lempert (“Plaintiff”) against Defendants and defendant Thuy Trong Le (“Le”).

According to the allegations of the operative pleading, which is captioned as the third amended complaint (“TAC”), Luu, an employee of ProfessioNAIL, inadvertently injured Plaintiff’s right index finger while giving him a manicure.1 (TAC, ¶¶ 2.1 and 5.) Luu accidentally cut into Plaintiff’s finger with her cuticle cutters, causing the finger to bleed. (Ibid.) Luu then placed Plaintiff’s cut finger back into a basin of used and unsanitized water instead of anesthetizing or bandaging the wound. (Ibid.)

As a result of the injury, Plaintiff’s finger became infected and worsened until he was required to seek emergency medical care five days later. (TAC, ¶ 6.) Emergency physicians and an infectious disease specialist evaluated and diagnosed Plaintiff with cellulitis with lymphangitis. (Id. at ¶ 7.) His course of treatment included a long-term hospital stay, surgery, antibiotics, and physical therapy. (Ibid.) Plaintiff’s finger has since healed from infection, but the damage to his tendon is a permanent and progressively degenerating condition affecting his range of motion, grip strength, flexibility, and dexterity. (Id. at ¶ 8.)

At the time of the injury, Ly was doing business as ProfessioNAIL at 4848 San Felipe Road in San Jose, California (“San Felipe Road Address”). (TAC, ¶ 2.) ProfessioNAIL was owned and operated by Ly. (Id. at ¶¶ 2 and 21.) Le also had an ownership interest in the ProfessioNAIL business and/or co-operated the business. (Id. at ¶¶ 2.3 and 22.) Plaintiff also alleges that Ly and Le conspired to transfer their ownership interest in the ProfessioNAIL business to Ly’s wife, Vo, and his daughter, Wilbanks, in order to unlawfully avoid satisfaction of judgment in this action. (Id. at ¶¶ 2.3 and 23.) Vo and Wilbanks are now the current owners and/or operators of the ProfessioNAIL business, and do business at the San Felipe Road Address. (Id. at ¶ 2.2.)

Based on the foregoing, Plaintiff alleges the following causes of action against Defendants: (1) negligence; (2) negligence per se; and (3) fraudulent transfer.

Defendants filed an answer to the TAC on January 31, 2017, generally denying the allegations of the TAC and alleging various affirmative defenses.

On November 20, 2017, Defendants filed the instant motion for summary judgment and summary adjudication. Plaintiff filed papers in opposition to the motion on January 25, 2018. On February 6, 2018, Defendants filed a reply.

Discussion

Pursuant to Code of Civil Procedure section 437c, Defendants move for (1) summary adjudication of the third cause of action and (2) summary judgment of the TAC as alleged against Wilbanks. (Ds’ Ntc. Mtn., p. 2:4-15; Mem. Ps. & As., p. 9:6-14.)

I. Legal Standard

The pleadings limit the issues presented for summary judgment or summary adjudication, and such a motion cannot be granted or denied on issues not raised by the pleadings. (Nieto v. Blue Shield of Calif. Life & Health Ins. (2010) 181 Cal.App.4th 60, 73; Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1663.) A defendant seeking summary judgment or summary adjudication “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; see also Code Civ. Proc., § 437c, subd. (p)(2).) “ ‘There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.’ ” (Madden v. Summit View, Inc. (2008) 165 Cal.App.4th 1267, 1272, internal citations omitted; see also Raghavan v. Boeing Co. (2005) 133 Cal.App.4th 1120, 1132; see also Intrieri v. Super. Ct. (2004) 117 Cal.App.4th 72, 82.)

The tried and true way for defendants to meet their burden of proof is to present affirmative evidence negating, as a matter of law, an essential element of the plaintiff’s claim. (Guz v. Bechtel Nat’l, Inc. (2000) 24 Cal.4th 317, 334, fn. 7 [under California’s traditional rules, courts must determine with respect to each cause of action whether the defendant seeking summary judgment has presented affirmative evidence conclusively negating a necessary element of the plaintiff’s case]; see also Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1597 [a cause of action cannot be established if the undisputed facts presented by the defendant prove the contrary of the plaintiff’s allegations as a matter of law].)

The defendant may also demonstrate that an essential element of the plaintiff’s claim cannot be established by “present[ing] evidence that the plaintiff does not possess, and cannot reasonably obtain, needed evidence-as through admissions by the plaintiff following extensive discovery to the effect that he has discovered nothing.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 855 (Aguilar); see Weil & Brown, Cal.
Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017), p. 10-104, ¶ 10:242, [“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.”].)

The final way in which defendants can satisfy their initial burden of proof is to show a complete defense to the plaintiff’s cause of action. (See Aguilar, supra, 25 Cal.4th at p. 849.) For example, defendants can present declarations or other admissible evidence showing that the plaintiff’s claim has been released or is time-barred by the statute of limitations. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017), p. 10-105, ¶ 10:246.)

For purposes of establishing their respective burdens, the parties involved in a motion for summary judgment or adjudication must present admissible evidence. (See Saporta v. Barbagelata (1963) 220 Cal.App.2d 463, 468.) The motion may not be granted by the court based on inferences reasonably deducible from the papers submitted, if such inferences are contradicted by other inferences which raise a triable issue of fact. (Hepp v. Lockheed-California Co. (Hepp) (1978) 86 Cal.App.3d 714, 717-718 (Hepp).) Additionally, in ruling on the motion, a court cannot weigh said evidence or deny summary judgment or adjudication on the ground that any particular evidence lacks credibility. (See Melorich Builders v. Super. Ct. (1984) 160 Cal.App.3d 931, 935; see also Lerner v. Super. Ct. (1977) 70 Cal.App.3d 656, 660.) As summary judgment “is a drastic remedy eliminating trial,” the court must liberally construe evidence in support of the party opposing summary judgment and resolve all doubts concerning the evidence in favor of that party. (See Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389; see also Hepp, supra, 86 Cal.App.3d at p. 717.)
II. Summary Adjudication of the Third Cause of Action
Defendants argue that the third cause of action for fraudulent transfer fails because: (1) there has been no transfer of any asset; (2) the claim is premature; and (3) the undisputed facts do not show an actual intent to defraud or constructive fraud. (Mem. Ps. & As., p. 2:3-7.)

A. Motion for Summary Adjudication Brought By Luu

As a preliminary matter, to the extent Luu moves for summary adjudication of the third cause of action for fraudulent transfer, the motion is not well-taken because the third cause of action is not alleged against Luu. (See TAC, p. 7:19-21.) The third cause of action is alleged only against Le, Ly, Vo, and Wilbanks. (Ibid.) Because the claim is not alleged against Luu, Luu lacks standing to challenge the third cause of action.

B. Transfer

Defendants assert that the third cause of action must fail because “there is no underlying transaction for the [C]ourt to void.” (Mem. Ps. & As., p. 4:10-11.)

Defendants initially point out that the claim is based, in part, on allegations that Ly transferred his ownership interest in the ProfessioNAIL business to Vo and Wilbanks. Defendants assert that “ ‘ownership’ in the nail salon was never an asset that [Ly] could legally transfer.” (Mem. Ps. & As., p. 4:15-16.) In support of their assertion, Defendants cite Providence Washington Ins. Co. v. Valley Forge Ins. Co. (1996) 42 Cal.App.4th 1194, 1199-1200 (Providence), which provides that a sole proprietorship is not a legal entity itself, but rather a natural person who directly owns the business. Defendants then conclude that “[t]here is no entity and therefore no legally cognizable interest to transfer to any person.” (Mem. Ps. & As., p. 4:22-23.)

This argument is not well-taken. First and foremost, Defendants’ undisputed material facts (“UMF”) do not establish that the ProfessioNAIL business was Ly’s sole proprietorship. In fact, none of the UMF address who owned the ProfessioNAIL business or the manner in which such ownership was held. Instead, the UMF only address the issues of who operated the nail salon business and who leased the premises where the nail salon business was operated.2 (Ds’ UMF Nos. 2-5, 11-13, 16-18, 21.) Notably, the Sublease Agreement between Le, Ly, and Vo does not address who owns the ProfessioNAIL business. Rather, the Sublease Agreement merely provides that Ly and Vo would lease the San Felipe Road Address from Le, Ly and Vo would operate a nail salon on the premises, Le would provide pedicure spas for the premises, and Ly and Vo would “fully equip the premises into a nail salon with all other inside store featuring, supply, and personal properties ….” (La Force Dec., Ex. 2, Vo Depo. Ex. 2.) As Defendants fail to establish the predicate fact underlying their argument—that Ly owned the ProfessioNAIL business as a sole proprietorship—their argument lacks merit.

Even assuming for the sake of argument Defendants had established that the ProfessioNAIL business was Ly’s sole proprietorship, their argument still is not well-taken. Although, technically, an ownership interest in a sole proprietorship cannot be transferred, a sole proprietorship may be transferred in the sense that the assets of the business, such as interests in real or personal property, the rights to use the fictitious name, and the goodwill, may be transferred in part or in whole. (See Maron v. Howard (1968) 258 Cal.App.2d 473, 481 (Maron) [the plaintiff ceased doing business as a sole proprietorship and transferred the assets of the sole proprietorship, including a lease, to a corporation]; see also Estate of Wemyss (1975) 49 Cal.App.3d 53, 56 [the decedent was the owner of the Coca-Cola Bottling Company of Stockton, a sole proprietorship, and he transferred all the assets of the sole proprietorship to a corporation]; Estate of Pitzer (1984) 155 Cal.App.3d 979, 996, fn. 9 [same]; Rawlings v. D. M. Oliver, Inc. (1979) 97 Cal.App.3d 890, 900-01 (Rawlings) [a corporation bought the assets of a sole
proprietorship, including its goodwill]; Gutterman & Stainslaw, 1 Cal. Transactions Forms–Bus. Entities (2017), § 1:35.) In fact, the purchase of the assets of a sole proprietorship is sometimes, imprecisely, referred to as the purchase of the business. (See e.g., Rawlings, supra, 97 Cal.App.3d at p. 901 [“Oliver bought a going business including its good will and continued that business at the same location under the same fictitious name as its predecessor.”].) In light of the foregoing, the allegations in the TAC providing that Ly fraudulently transferred his ownership interest in the ProfessioNAIL business to Vo and Wilbanks may reasonably be understood to mean that Ly transferred the assets of that business to Vo and Wilbanks. Such a transfer meets the definition of a “transfer” as set forth in Civil Code section 3439.01, subdivision (c). (See Civ. Code, § 3439.01, subd. (m) [“ ‘Transfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.”].)

Next, Defendants contend that the “real property and equipment associated with the salon was never an asset that [Ly] could legally transfer for purposes of avoiding collection of a debt.” (Mem. Ps. & As., p. 4:24-25.) Defendants state that Ly “had been leasing the property and the equipment used in the operation of his salon in exchange for monthly rental payments,” and Ly could not “ ‘transfer ownership’ of assets which he never owned to begin with[ ] nor could such property ever be subject to collection on any of [Ly’s] personal debts.” (Id. at p. 5:3-6.) The only UMF cited in support of this contention is UMF No. 3, which provides that Ly and Vo “leased the retail space along as well as [sic] the equipment used for purposes of running the salon from [Le] via a written sublease agreement executed in March of 2005.” (Ds’ UMF No. 3.)

Defendants’ argument lacks merit. As a preliminary matter, the argument narrowly focuses on “real property and equipment associated with the salon.” However, Defendants do not present any UMF demonstrating that the third cause of action is based, in part or in whole, on the transfer of “real property and equipment associated with the salon.” In fact, Defendants do not submit any UMF that identify the specific transfer, or transfers, of assets that form the basis of Plaintiff’s fraudulent transfer claim. Because Defendants fail to show that the purported transfer of “real property and equipment associated with the salon” forms the basis of the third cause of action, their argument lacks merit.

Additionally, assuming for the sake of argument that the transfer of a leasehold interest was the basis of Plaintiff’s claim, a leasehold interest in real or personal property, in and of itself, is a business asset that can be transferred. (See Maron, supra, 258 Cal.App.2d at p. 481 [the plaintiff, a sole proprietor, “transferred the assets of the sole proprietorship, including the lease, to the corporation”]; Vallely Investments, L.P. v. BancAmerica Commercial Corp. (2001) 88 Cal.App.4th 816, 822 [a leasehold can be transferred to another person by an assignment].) Defendants do not present any UMF, or cite any facts or legal authority, demonstrating that the lease at issue here could not be sold to generate money, which could then be used to satisfy Plaintiff’s claim.

Furthermore, Defendants’ evidence does not support UMF No. 3 as it does not establish that Ly was leasing all of the equipment used in the operation of the ProfessioNAIL business from Le. The Sublease Agreement between Le, Ly, and Vo states that: Ly and Vo would lease the San Felipe Road Address from Le in exchange for the payment of rent; Le would supply pedicure spas for the premises; and Ly and Vo would “fully equip the premises into a nail salon with all other inside store featuring, supply, and personal properties ….” (La Force Dec., Ex. 2, Vo Depo. Ex. 2, p. 1, ¶ 6.) Thus, the only equipment provided by Le under the terms of the Sublease Agreement was pedicure spas. (Ibid.) All other equipment was to be provided by Ly and Vo. (Ibid.) Therefore, Defendants have not shown that Ly was leasing all of the equipment used in the operation of the ProfessioNAIL business from Le.

Defendants also argue that “removal of [Ly] from the sublease agreement in 2013 is not a ‘transfer’ subject to a fraudulent transfer claim.” (Mem. Ps. & As., p. 5:7-8.) This argument is not well-taken because Defendants do not submit any UMF establishing that the third cause of action is based, in whole or in part, the “removal of [Ly] from the sublease agreement in 2013.”

Finally, Defendants assert that “[t]he nonsensical nature of Plaintiff’s claim is independently demonstrated by the facts that [Ly, Vo, and Wilbanks] are all covered by an insurance policy of $1,000,000 for the claims that Plaintiff makes in this action,” and “Plaintiff would have to obtain a judgment in excess of $1,000,000.00 for Plaintiff to seek recover from personal assets of the Defendants.” (Mem. Ps. & As., pp. 5:21-6:1.)

This argument lacks merit. As an initial matter, Defendants’ UMF and evidence demonstrate that Ly alone is covered by an insurance policy. (Ds’ UMF Nos. 22-23; Wilbanks Dec., Ex. C.) The UMF and evidence do not establish that Vo and Wilbanks are covered by the subject insurance policy. More importantly, Defendants do not articulate why the existence of the subject insurance policy defeats the fraudulent transfer claim. Defendants simply state that “Plaintiff would have to obtain a judgment in excess of $1,000,000.00 for Plaintiff to seek recover from personal assets of the [d]efendants.” (Mem. Ps. & As., pp. 5:21-6:1.) Defendants do not submit any UMF or evidence indicating that Plaintiff could not obtain such a judgment. Thus, Defendants’ argument is without merit.

C. Premature

Defendants argue that Plaintiff’s claim for fraudulent transfer is premature because “Plaintiff cannot possibly show that any transfer has prejudiced his ability to collect on a judgment which has not yet been entered.” (Mem. Ps. & As., p. 6:20-22.) Defendants contend that “trial must go forward and judgment must be entered as a prerequisite to Plaintiff’s ability to show that any transaction has prejudiced his ability to collect.” (Id. at p. 6:23-25.)

Defendants’ argument lacks merit. First, Defendants cite no legal authority providing that Plaintiff is required to obtain a judgment against them prior to bringing his
claim for fraudulent transfer. Second, under the UFTA, “‘[c]reditor’ means a person who has a claim….” (Civ. Code, § 3439.01, subd. (c).) “ ‘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.” (Id. at subd. (b), italics added.) Based on the express language of Civil Code section 3439.01, subdivision (b), the fact that Plaintiff has not obtained a judgment does not bar his claim under the UFTA. Additionally, case law establishes that it is not necessary for a creditor to reduce his claim to judgment before seeking to set aside a fraudulent conveyance. (See Weisenburg v. Cragholm (1971) 5 Cal.3d 892, 896, citing Rupp v. Kahn (1966) 246 Cal.App.2d 188, 197.)

D. Actual Intent to Defraud and Constructive Fraud

Defendants argue that Plaintiff must show either actual or constructive fraud to prevail on the third cause of action. (Mem. Ps. & As., p. 7:2-7.) Defendants contend Plaintiff cannot establish actual or constructive fraud and, therefore, his claim for fraudulent transfer fails. (Ibid.)

1. Actual Intent to Defraud

Regarding the issue of actual intent to defraud, Defendants assert that the third cause of action is based on the fact that Ly’s wife, Vo, “has taken up the obligations of the sublease and possession of the personal property used in the business and now operates the salon.” (Mem. Ps. & As., p. 7:10-14.) Defendants contend that “[t]he nature of the transaction being attacked simply does not give rise to any inference of intent to hinder, delay or defraud any creditor.” (Id., at p. 7:20-21.) Defendants state that “[e]ven assuming that Plaintiff can prove [Ly] transferred the ‘ownership’ of his business to his wife, such a transaction cannot give rise to an inference of intent to defraud his creditors” because “allowing a spouse to take over management of community assets has no impact whatsoever on a creditor’s rights.” (Id., at p. 7:22-25.)

This argument is not well-taken. First, Defendants do not submit any UMF establishing that the third cause of action is based, in whole or in part, on Vo’s execution of a new sublease, her “possession of the personal property used in the business,” or her operation of the nail salon.

Second, none of Defendants’ UMF establish that the assets of the ProfessiNAIL business were owned by Ly and Vo as community property. The UMF simply state that: Ly and Vo are husband and wife; since 2005, they operated a nail salon at the San Felipe Road Address; and they leased the premises and some equipment from Le. (Ds’ UMF Nos. 1-3.) These facts are not sufficient to establish that the assets of the ProfessioNAIL business were Ly and Vo’s community property.

Third, even assuming that Defendants’ argument regarding actual intent to defraud has merit, it fails to dispose of the claim in its entirety. (See Code Civ. Proc., § 437c, subd. (f)(1) [“[a] motion for summary adjudication shall be granted only if it
completely disposes of a cause of action”].) Plaintiff’s fraudulent transfer claim as alleged against Ly is based on Ly’s alleged transfer of his ownership of the ProfessioNAIL business to Vo and Wilbanks. (TAC, ¶¶ 2.3 and 23.) Defendants’ argument does not address the issue of actual intent to the extent the claim is based on the fraudulent transfer of assets to Wilbanks. Thus, Defendants’ argument regarding actual intent fails to dispose of the third cause of action in its entirety as alleged against Ly. Furthermore, the fraudulent transfer claim as alleged against Vo and Wilbanks is based, in part, on Le’s alleged transfer of his ownership of the ProfessioNAIL business to Vo and Wilbanks. Defendants’ argument does not address the issue of actual intent to the extent the claim is based on the fraudulent transfer allegedly made by Le. Therefore, Defendants’ argument regarding actual intent fails to dispose of the third cause of action in its entirety as alleged against Vo and Wilbanks.

2. Constructive Fraud

Because Defendants have not met their initial burden with respect to the issue of actual intent to defraud, the Court need not address Defendants’ arguments regarding constructive fraud.

E. Conclusion

For the reasons previously stated, Defendants’ arguments are not well-taken and Defendants fail to meet their initial burden. Accordingly, Defendants’ motion for summary adjudication of the third cause of action is DENIED.

III. Summary Judgment of the TAC as Alleged Against Wilbanks

Defendants argue that they are entitled to summary judgment of the TAC to the extent it is alleged against Wilbanks because (1) the third cause of action fails and (2) Wilbanks “was not involved with any of the underlying acts of negligence and, therefore has no duty to the Plaintiff on any of his alleged theories of liability.” (Mem. Ps. & As., p. 2:7-10.)

Defendants are not entitled to summary judgment of the TAC to the extent it is alleged against Wilbanks. A motion for summary judgment must dispose of the entire action. (Code Civ. Proc., § 437c, subd. (a).) For the reasons previously articulated, Defendants have not met their initial burden with respect to the third cause of action. Because the third cause of action survives Defendants’ motion, the motion fails to dispose of the lawsuit against Wilbanks in its entirety.

Accordingly, Defendants’ motion for summary judgment is DENIED.