Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County, Jan I. Goldsmith, Judge. Super. Ct. No. GIE030750.
McCONNELL, P. J.
The issue in this case is whether the court erred by granting Debra Montgomery summary judgment on Ramona Equipment Rental, Inc.'s (RER) cause of action against her for the alleged fraudulent transfer of residential property from the joint tenancy of Montgomery and her estranged husband, Lee Montgomery, to her separate property. RER contends it raised triable issues of fact as to Lee's actual intent to defraud his creditors, or alternatively, his constructive fraud. We affirm the judgment.
To avoid confusion we refer to Lee Montgomery by his first name.
FACTUAL AND PROCEDURAL BACKGROUND
In July 1997 Montgomery married Lee. At the time, she was the sole owner of a home at 915 Magnolia Heights, Ramona, California. In October 1997 Montgomery executed a quit claim deed that added Lee to the property's title, at the request of a loan officer to facilitate the property's refinancing. The couple took equity out of the property and used most of it to purchase a bar in Ramona.
In April 2003 the couple decided to refinance the property to extract additional equity. The loan officer advised the couple it would be difficult to obtain refinancing with Lee on the property's title because of his personal credit card debt and resultant low credit score. The couple agreed Lee should be taken off the title as his only interest in it was through the marriage. On May 21, 2003, a quit claim deed was recorded that conveyed the property to Montgomery as her separate property.
Lee had a business called Montgomery Custom Mason, Inc. (MCM). Between July 2002 and January 2006 Lee entered into several agreements with RER for the rental of heavy equipment for use in his business. Additionally, in April and July 2003 Lee entered into installment sale contracts with RER for the purchase of equipment for MCM. The contracts were largely financed by another company, leaving balances with RER. In March 2004 Lee entered into another installment sale contract for additional equipment, and this purchase was not financed by another company. In November 2004 Lee filled out a credit application with RER, under which he personally guaranteed the debts of MCM.
RER was doing business as One Stop Equipment Rental or One Stop Equipment Rental & Sales.
In July 2005 Montgomery and Lee separated. He began dissolution proceedings, but they later stipulated to a legal separation. In March 2006 the couple entered into a marital settlement agreement that awarded Montgomery the residence as her separate property.
In June 2006 RER filed a first amended complaint against Montgomery, Lee and MCM for breach of contract, common counts, to set aside a fraudulent transfer and for declaratory relief. The complaint alleged the defendants failed to pay rental fees and finance charges totaling $36,502.88, and failed to pay purchase costs and finance charges totaling $202,571.69. The complaint alleged the May 2003 transfer of the residential property from the couple as joint tenants to Montgomery as her separate property was made by Lee with the intent of defrauding creditors, or alternatively, constituted constructive fraud because of Lee's financial situation.
Montgomery successfully moved for summary judgment. The court found she never entered into any contract with RER, and she was not MCM's "alter ego," as RER argued. The court also found RER did not raise a triable issue of material fact as to whether the transfer of the property was intended to defraud any creditor, or constituted constructive fraud. The court granted Lee and MCM summary adjudication of the counts for fraudulent conveyance and declaratory relief. Judgment was entered for Montgomery on July 11, 2007.
Lee and MCM are not involved in this appeal. We are informed that in July 2007 Lee filed a bankruptcy proceeding, and he did not include the property at issue here as an asset of his estate. Given our holding, we are not required to address the effect of his bankruptcy.
DISCUSSION
I
Standard of Review
A "party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he [or she] is entitled to judgment as a matter of law." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A defendant satisfies this burden by showing " 'one or more elements of' the 'cause of action' in question 'cannot be established,' or that 'there is a complete defense' " to that cause of action. (Ibid.) In determining whether the moving party met his or her burden, we review the matter independently. (Rubenstein v. Rubenstein (2000) 81 Cal.App.4th 1131, 1143.)
II
Fraudulent Transfer
A
Actual Intent
RER contends summary judgment was improper insofar as the cause of action for fraudulent transfer of the residential property is concerned, because it raised triable issues of material fact as to Lee's actual intent. RER asserts that by adding Lee to the property's title in October 1997, Montgomery transmuted the property to community property, and thus the reconveyance of the property to Montgomery as her separate property in May 2003, another transmutation, is subject to the law governing fraudulent transfers.
"[M]arried persons may by agreement or transfer, with or without consideration, do any of the following: [¶] (a) Transmute community property to separate property of either spouse. [¶] (b) Transmute separate property of either spouse to community property. . . ." (Fam. Code, § 850, subd. (b).) "A transmutation is subject to the laws governing fraudulent transfers." (Fam. Code, § 851.)
"The Uniform Fraudulent Transfer Act (UFTA), codified in Civil Code section 3439 et seq., 'permits defrauded creditors to reach property in the hands of a transferee.' " (Filip v. Bucurenciu (2005) 129 Cal.App.4th 825, 829.) "A fraudulent conveyance under the UFTA involves ' "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." ' [Citation.] 'A transfer made . . . by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made, if the debtor made the transfer as follows: [¶] (1) With actual intent to hinder, delay, or defraud any creditor of the debtor.' " (Ibid.) Proof of fraudulent intent "often consists of inferences from the circumstances surrounding the transfer." (Filip v. Bucurenciu, supra, 129 Cal.App.4th at p. 834.)
All section references are to the Civil Code except where otherwise specified.
Montgomery asserts the UFTA is inapplicable as a matter of law because the marital settlement agreement awarded her the residential property. In Mejia v. Reed (2003) 31 Cal.4th 657, however, the California Supreme Court held the UFTA applies to transfers under marital settlement agreements, notwithstanding Family Code section 916, which "protects property transferred to a spouse incident to divorce from the debts of the other spouse." (Mejia v. Reed, supra, at p. 663.)
Historically, courts have considered a variety of factors, the so-called " 'badges of fraud,' " in determining actual intent to defraud. (Filip v. Bucurenciu, supra, 129 Cal.App.4th at p. 834.) The nonexclusive factors are now codified in section 3439.04, subd. (b), as follows: (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 the debtor received 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 shortly after a substantial debt was incurred; and (11) whether the debtor transferred the essential assets of a business to a lienholder who transferred the assets to an insider of the debtor.
Section 3439.07, subdivision (a) "sets forth creditors' remedies, which include avoidance of a transfer, attachment, and the equitable remedies of injunction and receivership as well as [a]ny other relief the circumstances may require.' [Citation.] A transfer is not voidable against a person 'who took in good faith and for a reasonably equivalent value or against any subsequent transferee.' " (Filip v. Bucurencil, supra, 129 Cal.App.4th at p. 830.) RER's first amended complaint prayed for a judicial declaration that the property transfer was void as fraudulent.
In support of her motion for summary judgment, Montgomery submitted a separate statement and supporting evidence that established she owned the residential property as her separate property before she married Lee, in October 1997 she added him to the title as a joint tenant at the request of a loan broker, and in May 2003 the property was transferred to Montgomery as her separate property "at the request of a loan broker with Calpacific Mortgage who was handling a refinance of the property at that time," "due to [Lee's] substantial personal debt and corresponding low credit score."
That showing shifted the burden to RER to raise a triable issue of material fact. In its responsive separate statement, however, RER conceded the above facts are undisputed. RER argued that certain "badges of fraud" raise an inference the May 2003 transfer was fraudulent. For instance, the transfer was to an insider, Montgomery; Lee received no consideration for the transfer; he remained in possession of the property after the transfer while the parties still lived together; he did not disclose the transfer to RER; and in July 2003 he entered into a contract with RER to purchase more than $42,000 in equipment.
We agree with the trial court, however, that as a matter of law RER's showing cannot overcome Montgomery's undisputed showing that she and Lee transferred the property in good faith to attain refinancing. "[S]pecific evidence may negate an inference of fraud notwithstanding the presence of a number of 'badges of fraud.' " (In re Beverly (Bankr. 9th Cir. 2007) 374 B.R. 221, 236.) "Even the existence of several 'badges of fraud' may be insufficient to raise a triable issue of material fact." (Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1299.)
Although the issue of whether a transfer was fraudulent is ordinarily a question for the trier of fact (Filip v. Bucurenciu, supra, 129 Cal.App.4th at p. 834), summary judgment is proper "if the conflict in the evidence 'is not of sufficient magnitude to create a genuine issue of material fact'; summary judgment is proper when the [opposing party] does not provide 'evidence that would permit a rational trier of fact to conclude . . . [the debtor] was cheating his creditors.' " (Annod Corp. v. Hamilton & Samuels, supra, 100 Cal.App.4th at p. 1299.) Trial is unwarranted here because a jury may not reasonably find actual intent to defraud.
B
Constructive Fraud
Under the UFTA, even without actual fraudulent intent, a transfer may be fraudulent as to present creditors on the ground of constructive fraud under section 3439.04 or 3439.05. (Mejia v. Reed, supra, 31 Cal.4th at p. 664.) "[U]nder the former section there must be proof of insolvency or prospective insolvency of the debtor-grantor, and under the latter section there must be proof that the person making the conveyance was engaged in a business for which the property remaining in his hands after the conveyance was an unreasonably small capital." (Patterson v. Missler (1965) 238 Cal.App.2d 759, 765.)
Section 3439.04, subdivision (a)(2) provides that a transfer is fraudulent if the debtor did not receive reasonably equivalent consideration, and either "(A) [w]as engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction[; or] [¶] (B) [i]ntended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they came due."
Under the UFTA, a debtor "is insolvent if, at fair valuations, the sum of the debtor's debts is greater than all of the debtor's assets." (§ 3439.02, subd. (a).) Further, the UFTA provides that a "debtor who is generally not paying his or her debts as they become due is presumed to be insolvent." (§ 3439.02, subd. (c).)
It is undisputed that in May 2003, when the property was transferred to Montgomery as her separate property, Lee owed RER a total of $9,488.11. There is no evidence the transfer caused or threatened his or MCM's insolvency. RER submitted evidence that in May 2003 Lee had credit card debt and he used approximately one-half of the $41,800.58 the parties took out in equity to pay off such debt. Further, the evidence showed that Lee's credit was poor because of the credit card debt. Standing alone, however, that does not indicate insolvency. None of the evidence RER cited in its responsive separate statement showed that credit card payments were in arrears, and one may suffer a poor credit rating based on excessive credit card balances even when payments are current.
Additionally, Lee's declaration stated the May 2003 transfer "did not render me personally insolvent, it did not render me incapable of satisfying my personal debts and obligations that I had at that time, nor did it preclude me from carrying [on] my regular day to day business with [MCM]." RER produced no countervailing evidence. Further, the evidence showed that in 1997 Lee purchased a bar in Ramona, the Turkey Inn, using most of the $97,683.63 in equity he and Montgomery borrowed against their home. Apparently, he still owned the bar in May 2003.
RER submitted a declaration by its president, John Souza, which stated: "When I would press [Lee] for payment, he always indicated that he had insufficient assets that he could liquidate to pay off the debts and that he would have to pay off the account balances over time out of money received on jobs he was working on." There is no indication, however, that these discussions took place near the time of the transfer. Notably, in November 2004, approximately one and a half years after the transfer, RER found Lee creditworthy after he filled out a credit application and agreed to personally guarantee the debts of his business. Surely RER did not consider him insolvent at that point or it would not have been interested in continuing the business relationship.
Further, there is no evidence that in May 2003 Lee "was engaged in a business for which the property remaining in his hands after the conveyance was an unreasonably small capital." (Patterson v. Missler, supra, 238 Cal.App.2d 759, 764.) RER asserts that "[a]t the time of the transfer, the property was a substantial portion of [Lee's] business assets." RER, however, waived the issue by not citing the appellate record in support. "The reviewing court is not required to make an independent, unassisted study of the record in search of error or grounds to support the judgment. It is entitled to the assistance of counsel." (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 594, p. 627; Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
In any event, our review of the record reveals no evidence pertaining to Lee's or MCM's assets. In its responsive separate statement, RER claimed Lee's "assets were unreasonably small in relationship to the purchase of approximately $200,000 in business equipment," and "the transfer was substantially all of [Lee's] assets." Again, however, there is no evidence regarding assets. RER cited only the declarations of Montgomery, Lee and Souza, and certain deposition testimony by Montgomery and Lee, none of which touched on his assets or capitalization of his business at the time of the transfer.
The court properly granted Montgomery summary judgment.
DISPOSITION
The judgment is affirmed. Montgomery is entitled to costs on appeal.
WE CONCUR: McDONALD, J., AARON, J.
Section 3934.05 provides: "A transfer made . . . by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made . . . if the debtor made the transfer . . . without receiving a reasonably equivalent value in exchange for the transfer . . . and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation."