APPEAL from a judgment of the Superior Court of Los Angeles County, Gregory Alarcon, Judge. Reversed. (Los Angeles County Super. Ct. No. BC353642).
The opinion of the court was delivered by: Kriegler, J.
CERTIFIED FOR PUBLICATION
A judgment creditor brought an action under California Uniform Commercial Code section 8112 to reach shares of stock owned by the judgment debtor and his wife to satisfy a money judgment.*fn1 The debtor surrendered his stock certificate to the trial court. The debtor's wife argued that shares in her name were her separate property. The trial court found that the shares had no value, yet ordered the shares transferred directly to the creditor with no reduction in the outstanding judgment. If the debtor's wife failed to transfer her shares, her shares were to be cancelled and reissued in the name of the creditor. We conclude that it was an abuse of discretion to order worthless shares of stock transferred to a judgment creditor in satisfaction of a money judgment without any reduction in the outstanding judgment. Therefore, we reverse.
FACTS AND PROCEDURAL BACKGROUND
The Parties and the Judgment in the Underlying Action
Dr. Jeng-Cheng Ho (Creditor) was raised in Taiwan. He came to the United States to attend dental school, married, and opened a dental practice in the Los Angeles area in 1986. Shih-Ming Hsieh (Debtor) met Creditor's sister Cheng-Fang Ho (Debtor's Wife) in Taiwan. They married in California in 1988, but live together in Taiwan.
In August 1991, the families purchased a 52-acre golf course property in Colton, California for $6.5 million, paying $2 million in cash and giving the seller a note for $4.5 million at 9 percent interest. Debtor and Debtor's Wife took title to the property as "husband and wife as Joint Tenants." H&H Investment Co., Inc., was incorporated on August 30, 1991. Debtor and his wife quitclaimed the Colton property to H&H. H&H issued 12,500 shares of stock each to Creditor, Creditor's wife, Debtor and Debtor's Wife. Debtor served as the president and chief executive officer of H&H. Creditor acted as the general manager of the golf course.
The golf course was not profitable because of the high interest rate on the seller's note. In 1994, Debtor told Creditor that if they provided substantial collateral, he could get a low interest loan from the French bank BNP to pay off the seller's note. Debtor obtained a $4.5 million loan from BNP with an interest rate of approximately 2 percent. The loan proceeds were paid to a Taiwanese corporation named Tonical Corporation that was controlled by Debtor. Tonical transferred the loan proceeds to Debtor's daughter-in-law Chiu-Ming Chung. Chung loaned $4.5 million to H&H at 9 percent interest. H&H continued not to show a profit because of the high interest rate on the loan. The difference between the interest rates on the BNP loan and the Chung loan was periodically credited against the H&H shareholders' loan balances.
On February 29, 2000, the father of Creditor and Debtor's Wife died. The relationship between Creditor and Debtor's Wife deteriorated and litigation was instituted in Taiwan over the disposition of their father's assets.
On July 12, 2002, Debtor filed the complaint in the underlying action against Creditor and H&H alleging multiple causes of action, including breach of fiduciary duty, declaratory relief, an accounting, and a shareholder derivative action for breach of fiduciary duty. The issues at trial included whether Creditor had used corporate funds for unauthorized purposes and whether certain accounting adjustments were appropriate. Creditor filed a cross-complaint against Debtor for declaratory relief, breach of fiduciary duty, conversion, fraud and deceit, breach of contract, money had and received, constructive trust, an accounting and injunctive relief.
Debtor paid off the BNP loan in March 2003. The trial court issued monetary sanctions against Debtor twice for refusing to produce documents and ultimately issued evidentiary sanctions against Debtor for his continued refusal to produce documents.
Debtor's Wife attended and testified at the trial in the underlying action. The court found Creditor's expenditures on behalf of H&H were reasonable and denied recovery on the complaint. However, on the cross- complaint, the court found Debtor committed fraud and breached his fiduciary duty when he burdened the corporation with a higher interest rate than the loan available from BNP, failed to openly identify and document the loan transactions, failed to render proper accountings for Creditor's payments toward the loan balance, and required H&H to pay off the loan from Chung. The court found Creditor had paid $1,512,322.50 toward his shareholder loan balance, and therefore, Debtor owed compensatory damages of $1,512,322.50 to Creditor. In addition, the court awarded punitive damages of $6 million based on Debtor's discovery abuses, malicious conduct, and wealth. The court entered a judgment in the underlying action on January 18, 2005, awarding $8,293,534.40 to Creditor for compensatory damages, prejudgment interest, punitive damages and attorney fees. Debtor appealed from the judgment.
The Instant Action to Enforce the Judgment
On June 8, 2006, Creditor and H&H filed the instant action against Debtor and Debtor's Wife to transfer or cancel their H&H stock share certificates pursuant to section 8112. The complaint alleged that Debtor is a resident of Taiwan and Debtor's Wife's primary residence is in Taiwan. Creditor had attempted to execute on the judgment by applying for a judgment debtor's examination, obtaining an assignment order, notifying Debtor to return his share certificates to H&H, and requesting that H&H transfer or cancel Debtor's shares. However, Debtor had evaded Creditor's efforts to satisfy the judgment. Creditor and H&H sought an order canceling Debtor's H&H stock certificates and reissuing them to Creditor ...