Opinion
B302445
02-16-2021
BELMONT STATION, INC., Cross-complainant and Appellant, v. DOGZ, LLC, Cross-defendant and Respondent.
Trujillo & Winnick, Anthony W. Trujillo and Alexander H. Winnick for Cross-complainant and Appellant. Wilcox, Dunakin & Chrisopoulos, Chad C. Wilcox and Lance D. Orloff for Cross-defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. NC057084) APPEAL from a judgment of the Superior Court of Los Angeles County, Michael P. Vicencia, Judge. Affirmed. Trujillo & Winnick, Anthony W. Trujillo and Alexander H. Winnick for Cross-complainant and Appellant. Wilcox, Dunakin & Chrisopoulos, Chad C. Wilcox and Lance D. Orloff for Cross-defendant and Respondent.
Following a court trial, an appeal, and further proceedings on remand, cross-complainant and appellant Belmont Station, Inc. (sometimes referred to as Belmont) appeals a judgment on remand, insofar as it found in favor of cross-defendant and respondent Dogz, LLC (Dogz) on Belmont's third cause of action of the cross-complaint, which alleged a fraudulent conveyance to Dogz of Full House Enterprises, Inc.'s (Full House) 65 percent interest in CNR Holdings, LLC (CNR).
Belmont's essential contention on appeal is that the trial court on remand should have shifted the burden of proof to Dogz, the transferee, to show that it paid sufficient consideration for the transfer. As discussed below, we conclude that Belmont forfeited this issue by failing to raise it in its prior appeal. Therefore, the judgment on remand is affirmed.
FACTUAL AND PROCEDURAL BACKGROUND
This summary is based in part on our previous opinion in this matter. (Belmont Stations, Inc. v. Dogz, LLC (Oct. 13, 2015, B259171) [nonpub opn.] (Belmont I).)
I.
EARLIER PROCEEDINGS
1. Dogz's acquisition of Full House's and Belmont's interests in CNR.
For a number of years, Jerome Chiaro (Chiaro) operated a bar and restaurant called Belmont Station through a corporate entity, Belmont Station, Inc. Around 2005, Chiaro began discussions with Gary Roth (Roth) about a possible partnership. Eventually, Chiaro and Roth formed CNR. Roth's entity, Full House, held a 65 percent interest in CNR, while Chiaro's entity, Belmont, held the remaining 35 percent. They created EVO, a new nightclub that, unlike Belmont Station, relied more on live entertainment and alcohol sales. EVO was unsuccessful. By January 2011, CNR was nearly $200,000 in debt, including a $65,000 debt owed to the landlord, a $49,000 line of credit debt with Chiaro as obligor, $32,000 owed to the State Board of Equalization for sales taxes, and more than $42,000 owed to various vendors. Additionally, CNR had lost its municipal live entertainment license.
In 2010, Chiaro and Belmont brought suit against Roth, Full House and CNR, alleging misrepresentation and mismanagement.
Norm Turley (Turley) approached Roth and Chiaro about buying their stakes in CNR, and by the end of January 2011, after entering into separate purchase agreements with Full House and Belmont, respectively, Turley's entity, Dogz, owned 100 percent of CNR.
The agreement between Turley and Chiaro/Belmont (Exhibit 101) was for the purchase of Belmont's 35 percent interest in CNR for $150,000. However, Turley bought more than a 35 percent share of CNR from Belmont for his $150,000; he also bought Roth's dismissal from Belmont's lawsuit.
The agreement between Turley and Roth/Full House (Exhibit 33) was for the purchase of Full House's 65 percent interest in CNR for $100,000. Said agreement recited the purchase price was $100,000. "In fact, the evidence show[ed] that Mr. Turley paid $57,000 in cash to Full House and [also] assumed debt of $139,923 ($65,000 to the landlord, $42,279 to vendors and $32,644 to the Board of Equalization) for total consideration of $196,923."
Chiaro proceeded with Belmont's lawsuit against Full House. On November 26, 2012, Belmont obtained a stipulated judgment against Full House in the amount of $275,000. Full House is insolvent.
2. The instant action.
a. Pleadings.
On January 25, 2012, Dogz filed suit against Belmont and Chiaro, alleging, inter alia, causes of action for breach of contract and fraud.
On March 14, 2012, Belmont filed a cross-complaint against Dogz and Turley, asserting various causes of action, including breach of contract, fraud and fraudulent conveyance. The sole cause of action relevant to the instant appeal is the third cause of action of the operative first amended cross-complaint, alleging a fraudulent conveyance. Belmont pled that Dogz's acquisition of Full House's interest in CNR was made to defraud Full House's creditors (including Belmont), the transfer rendered Full House insolvent, and the transfer was made without Full House having received a reasonably equivalent value in exchange for the transfer of its assets to Dogz.
b. Trial and statement of decision.
On January 6 and 7, 2014, the matter came on for a nonjury trial. On January 16, 2014, the trial court issued a statement of decision. With respect to Belmont's cause of action alleging a fraudulent conveyance, the trial court ruled as follows:
Belmont contended Full House's transfer of its 65 percent interest in CNR to Dogz "was a fraudulent attempt to avoid creditors in violation of the Uniform Fraudulent Transfers Act. In Mejia v. Reed (2003) 31 Cal. 4th 657, [661] our Supreme Court stated: 'Under the UFTA, a transfer can be invalid either because of actual fraud [citation] or constructive fraud [citations]; one form of constructive fraud is a transfer by a debtor, without receiving equivalent value in return, if the debtor is insolvent at the time of transfer or rendered insolvent by the transfer [citation].' [Citation.] Thus, the elements for fraudulent conveyance based on constructive fraud are: 1) a conveyance 2) by one who is insolvent or will become so upon the conveyance 3) for less than full value.
"Here, there can be no question but that there was a conveyance and that both Mr. Roth and Full House were insolvent thereafter. The sole question is whether [Dogz] paid full value for Full House's 65% [interest] in [CNR]. To this point, Belmont Station called Adam Minow as an expert witness. Mr. Minow is a CPA and a certified value analys[t] as well as a certified forensic financial analys[t]. He testified that there are three ways to value a business: 1) assets minus liabilities equal equity, 2) income v. expenses or cash flow analysis, 3) comparisons to comparable businesses that recently sold. Mr. Minow believes an analysis of all three methods, when possible, is the optimal way [of] valuing a business. To value [CNR] as of January 2011, Mr. Minow first looked to the January 29, 2011 sale of Belmont Station's 35% interest to Mr. Turley for $150,000. Mr. Minow extrapolates that if 35% is worth $150,000, then the other 65% is worth, as a base, [$]278,571.43. Mr. Minow would add another 20% to the 65% value as a 'control premium.' That is, a premium for a percentage that gives the buyer operating control of the company. By Mr. Minow's calculation, the 65% interest in [CNR] had a value in January of 2011 of $334,285. Mr. Minow also testified that it is his understanding that Mr. Turley only agreed to pay $100,000 for the 65% interest from Full House. Mr. Minow concludes that this was far below the actual value.
"The first problem with Mr. Minow's analysis is that Mr. Turley bought more than a 35% share of [CNR] from Belmont Station for his $150,000. He also bought Mr. Roth's dismissal from Belmont Station's lawsuit. According to Mr. Turley, this dismissal was necessary before Mr. Roth would agree to sell Full House's 65% interest. The value of the dismissal has to be deducted from the $150,000 before Mr. Minow's numbers can be recalculated. For example, if the value of the dismissal is $70,000, then Mr. Turley paid $80,000 for the 35% share and the 65% is worth (with a 20% control premium) $178,285. The court is not placing a $70,000 value on Mr. Roth's dismissal, but using this number as an example of how a figure would change Mr. Minow's opinion.
"So, what then, is dismissal of Mr. Roth from Belmont Station's lawsuit worth? The answer lies in what Belmont Station was willing to take and what Mr. Roth would be willing to pay for a dismissal. No testimony was offered in this regard. In fact, Mr. Roth did not testify.
"The next problem with Mr. Minow's analysis lay in his assumption that Mr. Turley agreed to pay $100,000 for Full House's 65% share in [CNR]. Mr. Minow cannot be blamed for this errant assumption as he was only given the purchase agreement showing a purchase price of $100,000 (exhibit 33.) In fact, the evidence shows that Mr. Turley paid $57,000 in cash to Full House and assumed debt of $139,923 ($65,000 to the landlord, $42,279 to vendors and $32,644 to the Board of Equalization) for total consideration of $196,923.
"Mr. Minow also opines that Acapulco Inn, ('AI') a bar across the street from EVO, sold a 45% interest for $217,000. Using his same valuation method, a 65% interest with a 20% control premium would be worth . . . $376,133. Since AI is a comparable business, this shows that Mr. Turley paid far below fair value. The evidence, however, shows this comparison to be misplaced. The evidence shows that AI was a well-run, profitable business with a long term lease. [CNR] under Mr. Roth was none of these things. The evidence shows that it was under heavy debt, had lost its live entertainment license and was on a month to month tenancy with a $65,000 debt to the landlord. The only asset of value was [CNR's] liquor license.
"Whether a transfer is a fraud [on] creditors is a question of fact and the burden of proving the fraud lies with the party attacking the transfer. [Citation.] While a liquor license in Long Beach's Belmont Shore area is a valuable asset, the court cannot conclude, from the evidence before it, that the value of a 65% interest in [CNR] in January 2011 was more than the $196,923 Mr. Turley gave to Full House. Therefore, Belmont Station has not met its burden and the cause of action for fraudulent conveyance fails." (Italics added.)
c. Objections to the statement of decision.
Belmont objected to the statement of decision. It contended, inter alia, that the trial court erred in placing the burden of proof on Belmont, because the burden should have been shifted to Dogz, the transferee, to establish the fairness of the consideration. Belmont further contended the trial court erred in treating Dogz's payoff of CNR's debts as part of the "consideration received by Full House for its 65% stake [in] CNR." Belmont argued there was no evidence that Full House was liable for CNR's debts, and further, a parent company traditionally is not liable for the debts of a subsidiary.
d. The trial court overruled Belmont's objections and entered judgment.
The trial court overruled Belmont's objections to the statement of decision, and on March 25, 2014, it entered judgment on both the complaint and the cross-complaint. On the cross-complaint, it awarded Belmont $951.99 in damages against Dogz and Turley on a breach of contract claim. Belmont appealed.
e. The decision on the prior appeal: Belmont I.
In Belmont I, Belmont contended that in determining whether Dogz paid fair consideration to Full House, the trial court erred to the extent it relied on Dogz's payment of debts owed by CNR. Significantly, Belmont did not contend on appeal, as it had in the court below, that the burden of proof should have been shifted to Dogz, the transferee, to establish the fairness of the consideration.
On the issues presented for our review, we reversed and remanded for further proceedings with respect to Belmont's cause of action alleging a fraudulent conveyance. We concluded the trial court erred in including Dogz's payoff of CNR's debts as part of the consideration that Dogz paid to Full House, without first making a finding that Full House was in fact liable for CNR's debts.
Belmont I's review of the trial court's statement of decision revealed that "in determining that Dogz paid adequate consideration to Full House, the trial court relied in large part on Dogz's assumption of $139,923 in debt owed by CNR." We found that "[t]he problem with the trial court's analysis is that the trial court did not make an express finding that Full House was liable for CNR's debts. Instead, the trial court simply made an implied finding, without citing any evidence adduced at trial, that Full House was liable for CNR's debts."
Therefore, we reversed and remanded the matter for the trial court to determine a principal controverted issue, namely, whether Full House was liable for CNR's debts.
We provided the following guidance to the trial court: "On remand, if the trial court finds that the evidence adduced at trial established that Full House was liable for the $139,923 in CNR debt which Dogz assumed, the trial court will be in a position to conclude that the total consideration of $196,923 paid by Dogz constituted fair value for its purchase of Full House's interest in CNR. On the other hand, if the trial court finds that the evidence did not establish that Full House was liable for CNR's debt, the trial court will have to determine whether Dogz's $57,000 cash payment to Full House, standing alone, was sufficient to represent fair value for Full House's interest in CNR."
II.
PROCEEDINGS ON REMAND
The matter was handled on remand by the same judicial officer who presided at the trial. The trial court did not take any additional evidence on remand. It directed the parties to brief whether Full House was liable for CNR's debts, and whether, based on the evidence presented at the earlier trial, Dogz paid fair consideration for Full House's interest in CNR, with or without inclusion of Dogz's payment of CNR's $139,923 debt.
In its papers, Dogz argued, inter alia, that Full House was legally obligated for CNR's debts because Full House was the majority owner of CNR, and therefore Dogz's payment of CNR's $139,923 debt should be included in the analysis of fair consideration. Dogz further argued that even if its payment of CNR's debt were disregarded, Dogz paid fair consideration for Full House's 65 percent in CNR because CNR's sole asset was its liquor license, which was worth less than Dogz's cash payment of $57,000.
Belmont, in turn, argued there was no evidence that Full House was liable for CNR's debts, and therefore Dogz paid at most $57,000 in cash for Full House's 65 percent interest in CNR. Belmont asserted that Dogz's payment of $57,000 did not constitute reasonably equivalent value, and that "because Full House was insolvent, Dogz has the burden of proving that Full House received reasonably equivalent value, and must do so from the objective standpoint of Belmont, as the creditor. Dogz failed to meet its burden." (Italics added.)
On April 13, 2016, the matter came on for hearing. Belmont argued that although the trial court had ruled in the statement of decision that Belmont failed to meet its burden to show that Dogz did not pay fair consideration, "because insolvency [was] established[,] . . . [t]he burden shift[ed] to [Dogz] to establish [that it paid] fair consideration," in accordance with Kirkland v. Risso (1979) 98 Cal.App.3d 971, 978 (Kirkland) [where conveyor is insolvent at the time he executed the conveyance, the grantee has the burden of proving fair consideration for the conveyance].
Dogz, in turn, argued that Belmont had not raised the issue of the burden of proof in its prior appeal, and therefore the issues on remand did not include the question of which party had the burden of proof. Instead, Belmont I remanded the matter for the trial court to rule on only two issues, namely, whether Full House was liable for CNR's debts, and if not, whether Dogz's $57,000 cash payment to Full House, standing alone, was sufficient to represent fair value for Full House's interest in CNR.
During the hearing, the trial court raised the issue of the applicability of an amendment to Civil Code section 3439.05, subdivision (b), which took effect on January 1, 2016, after Belmont I was decided. It continued the matter to allow the parties to file supplemental papers on that limited issue.
Civil Code section 3439.05 states: "(a) A transfer made or obligation incurred by a debtor is voidable 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. [¶] (b) A creditor making a claim for relief under subdivision (a) has the burden of proving the elements of the claim for relief by a preponderance of the evidence." Subdivision (b) was added by Statutes 2015, chapter 44 (S.B.161), section 7, effective January 1, 2016.
On May 11, 2016, the matter came back on for hearing. The trial court declined to address the applicability of the 2016 amendment to Civil Code section 3439.05, stating that issue was outside the limited scope of the remand in Belmont I.
Belmont does not contend on appeal that the trial court erred in declining to address the impact of the 2016 amendment to Civil Code section 3439.05. It asserts the 2016 amendment "was not applicable at the [relevant] time and is not retroactive. Only the rule applied in Kirkland controls."
The trial court then asked Belmont's counsel why the issue of the burden of proof was not raised in the prior appeal. "Why not bring up all of the error[s] the first time?" Counsel responded, "Your honor, there's limited space, there's limited room to argue in these briefs." Counsel added, "when you are appealing, you want the court to focus on your [strongest] issue."
We note the certificate of word count in Belmont's opening brief in Belmont I indicated that the brief consisted of only 4,507 words. (See Cal. Rules of Court, rule 8.204(c)(1) [brief not to exceed 14,000 words].)
The trial court concluded the issue of the burden of proof is "not before me. . . . The Court of Appeal told me what to do, and that was not one of the things the Court of Appeal told me to do." The trial court also noted that Belmont had objected to the earlier statement of decision insofar as the court had assigned the burden of proof to Belmont, that objection was overruled, and Belmont did not thereafter pursue that issue in the prior appeal.
On August 22, 2016, the trial court issued its written ruling in the matter. In response to the two issues specified by the decision in Belmont I, the trial court ruled that "there is no evidence that Full House was liable for CNR's debt," and therefore Dogz's payment of CNR's $139,923 debt was not part of the consideration for Dogz's purchase of Full House's interest in CNR. The remaining issue was whether Dogz's $57,000 cash payment to Full House, standing alone, was sufficient to represent fair value for Full House's interest in CNR. The trial court reasoned: "In order to determine whether $57,000 was sufficient to represent fair value for Full House's 65% interest in CNR, the Court must have some sense of the value of that 65% interest. Put another way, was the fair value of CNR more or less than $57,000? This Court concludes that Belmont Station completely failed to establish any range of value for CNR and, therefore, failed to meet its burden of proof." The trial court thus determined "the original judgment should remain as Belmont Station failed to meet its burden in showing the fair value of CNR."
On June 26, 2019, after a delay of nearly three years, the trial court entered a final judgment on remand that, inter alia, entered judgment in favor of Dogz and Turley and against Belmont on the latter's cause of action alleging a fraudulent conveyance. This appeal followed.
A prior appeal by Belmont from the decision on remand (Case No. B278689) was dismissed on November 16, 2018, because a final judgment on remand had not yet been entered.
CONTENTIONS
Belmont contends the trial court erred in ruling that the burden to show fair value rested on Belmont, the creditor, rather than on Dogz, the transferee.
DISCUSSION
1. The trial court on remand properly refused to reopen the issue of which party bore the burden of proof.
a. In the prior appeal, Belmont forfeited its contention that Dogz, the transferee, had the burden at trial to prove that it paid fair consideration for the transfer.
As indicated, following the January 2014 bench trial, the court issued a statement of decision that found Belmont had not met its burden on its fraudulent conveyance claim to show that Dogz paid less than full value for Full House's interest in CNR. Belmont objected to that aspect of the statement of decision, the trial court overruled the objection, and Belmont appealed (Belmont I). However, in that appeal Belmont did not assert as error the trial court's assignment of the burden of proof to Belmont, the cross-complainant, rather than to Dogz, the transferee. Belmont thereby waived the issue.
"Issues do not have a life of their own: if they are not raised or supported by [substantive] argument or citation to authority, we consider the issues waived." (Jones v. Superior Court (1994) 26 Cal.App.4th at 92, 99.) This principle extends to claims of error involving the burden of proof. Such claims likewise are waived if not properly raised. (See, e.g., California Interstate Tel. Co. v. Prescott (1964) 228 Cal.App.2d 408, 411; In re Riva M. (1991) 235 Cal.App.3d 403, 411; Bank of Santa Ana v. Molina (1969) 1 Cal.App.3d 607, 623.)
In Belmont I, Belmont could have argued that the trial court should have shifted the burden of proof to Dogz, but Belmont admittedly failed to raise the issue in that appeal. Instead of availing itself of its appellate remedy, Belmont unsuccessfully sought to relitigate the burden of proof at the time the matter was remanded to the trial court, and Belmont now advances that issue in its current appeal. However, "[o]n an appeal from an appealable ruling, an appellate court will not review earlier appealable rulings. [Citations.]" (Malatka v. Helm (2010) 188 Cal.App.4th 1074, 1082.) By its silence, Belmont waived the issue of the burden of proof in the prior appeal, and thereby eliminated it as an issue for the reviewing court and for the trial court on remand. Belmont's belated contention in the current appeal that the burden of proof should have been shifted to Dogz on remand is not properly before this court.
b. Trial court on remand properly refused to shift the burden of proof to Dogz, recognizing that its role was governed by this court's directions in Belmont I.
In declining Belmont's request on remand to shift the burden of proof to Dogz, the trial court concluded the issue of the burden of proof is "not before me. . . . The Court of Appeal told me what to do, and that was not one of the things the Court of Appeal told me to do." The trial court correctly resolved the issue.
"Our remittitur directions are contained in the dispositional language of our previous opinion. [Citation.] . . . When, as in this case, the reviewing court remands the matter for further proceedings, its directions must be read in conjunction with the opinion as a whole." (Ayyad v. Sprint Spectrum, L.P. (2012) 210 Cal.App.4th 851, 859 (Ayyad).) " 'The trial court is empowered to act only in accordance with the direction of the reviewing court; action which does not conform to those directions is void.' (Hampton v. Superior Court (1952) 38 Cal.2d 652, 655.)" (Ayyad, at p. 859.) "[T]he rule requiring a trial court to follow the terms of the remittitur is jurisdictional in nature. [Citation.] The issues the trial court may address in the remand proceedings are therefore limited to those specified in the reviewing court's directions, and if the reviewing court does not direct the trial court to take a particular action or make a particular determination, the trial court is not authorized to do so. (Bach [v. County of Butte (1989)] 215 Cal.App.3d [294,] 302, 303, 304; accord, Hanna v. City of Los Angeles (1989) 212 Cal.App.3d 363, 376 (Hanna) [where on prior appeal reviewing court did not direct trial court on remand to determine whether statutory violations had occurred, any such determination would be in excess of jurisdiction on remand].)" (Ayyad, at pp. 859-860.)
Because Belmont did not raise the issue of the burden of proof in its initial appeal, this court's opinion in Belmont I did not address the issue, and therefore the scope of the limited remand to the trial court did not include a reexamination of the burden of proof. Consequently, as noted, Belmont I confined the trial court's inquiry on remand to two issues: whether the evidence adduced at trial established that Full House was liable for the $139,923 in CNR debt that Dogz assumed, and if the evidence did not establish Full House's liability for CNR's debt, was Dogz's $57,000 cash payment to Full House, standing alone, sufficient to represent fair value for Full House's interest in CNR.
In sum, Belmont I did not direct the trial court on remand to shift the burden of proof to Dogz, and therefore any such determination would have been in excess of the trial court's jurisdiction on remand. Thus, the trial court properly refused to reach the issue.
The doctrine of law of the case, cited by Dogz, is inapplicable. " 'The doctrine of "law of the case" deals with the effect of the first appellate decision on the subsequent retrial or appeal: The decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.' " (Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 491, certain italics added.) Belmont I did not address which party had the burden of proof and therefore is not law of the case on that issue.
c. No merit to Belmont's argument that Dogz failed to meet its burden of proof.
Belmont's final argument is that Dogz failed to meet its burden of proof because Dogz did not present any evidence that its $57,000 payment was reasonably equivalent value for Full House's 65 percent interest in CNR. Belmont's argument is meritless because, as discussed, the burden rested with Belmont to show that the $57,000 that Dogz paid to Full House was inadequate.
In this regard, the trial court on remand found that Belmont "completely failed to establish any range of value for CNR, and, therefore, failed to meet its burden of proof." The trial court noted the only asset of value was CNR's liquor license but Belmont "failed to produce any competent evidence as to what that value was."
Because Belmont, not Dogz, had the burden of proof, Belmont's contention that Dogz failed to meet its burden is without merit.
DISPOSITION
The June 26, 2019 judgment on remand is affirmed. Dogz shall recover its appellate costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EDMON, P. J. We concur:
LAVIN, J.
EGERTON, J.