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Moore v. Hill

September 30, 2010

JENNIFER MOORE, PLAINTIFF AND APPELLANT,
v.
TOMAS HILL ET AL., DEFENDANTS AND RESPONDENTS.
JACQUELINE JACKSON, INDIVIDUALLY AND AS TRUSTEE, ETC., PLAINTIFF,
v.
ALLIANCE FINANCIAL CAPITAL, INC., ET AL., DEFENDANTS.
JENNIFER MOORE, PLAINTIFF, CROSS-DEFENDANT AND APPELLANT,
v.
RICHARD HATFIELD ET AL., DEFENDANTS, CROSS-COMPLAINANTS AND RESPONDENTS;
JOHN CULVER, INDIVIDUALLY AND AS TRUSTEE, ETC., CROSS-COMPLAINANT AND RESPONDENT.
JACQUELINE JACKSON, INDIVIDUALLY AND AS TRUSTEE, ETC., PLAINTIFF AND RESPONDENT,
v.
ALLIANCE FINANCIAL CAPITAL, INC., ET AL., DEFENDANTS AND RESPONDENTS;
JENNIFER MOORE, DEFENDANT AND APPELLANT.



(San Mateo County Super. Ct. Nos. CIV 450151, 454150). Trial Judge: Hon. Marie Seth Weiner, Hon. Jonathan E. Karesh.

The opinion of the court was delivered by: Jenkins, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

In these consolidated appeals, plaintiff Jennifer Moore (Moore) appeals two orders of the trial court in her ongoing case against Richard Hatfield (Hatfield), financial corporations controlled by Hatfield, and numerous persons holding promissory notes issued by those corporations. In case number A117526, Moore appeals the judgment entered in favor of respondents, Tomas Hill and E.J. Pean (jointly Hill and Pean), on Moore's derivative causes of action after the trial court granted Hill and Pean's motion for judgment on the pleadings. In case number A118678, Moore appeals the trial court's order finding that a settlement agreement between respondents and other promissory note holders, and Hatfield, was entered in good faith pursuant to Code of Civil Procedure section 877.6*fn2 For reasons explained below, we shall affirm the trial court's order in case number A117526 and reverse the trial court's order in case number A118678.*fn3 *fn4

FACTUAL BACKGROUND

Jennifer Moore and Richard Hatfield were involved in an intimate relationship that lasted approximately thirteen years. During the course of their relationship, a company named Alliance Financial Capital, Inc. (AFC) was founded in 1994 with Richard Hatfield as its President. AFC engaged in the business of factoring receivables, i.e., purchasing accounts receivable from its customers at a discount, collecting the receivables, and making a profit on the difference between the discounted rate paid and the receivables collected.

To finance the operations of AFC, Hatfield borrowed large sums of money from numerous individual lenders (collectively, Lenders) against promissory notes (the Notes) signed by Hatfield as President of AFC. The Notes were secured against the assets of AFC and personally guaranteed by Hatfield. A majority of the Lenders were elderly persons who loaned portions of their retirement funds to AFC in return for the Notes. Hatfield offered the Lenders very attractive rates of interest: Respondents Hill and Pean, for example, loaned AFC $200,000 and over $750,000 on promissory notes bearing interest rates of 10% and 11%, respectively.

In 2004, Hatfield informed Lenders that AFC could not remain competitive if it continued to raise capital by issuing Notes to individual lenders at rates of previously offered interest. To maintain profitability, AFC would need to restructure in order to fund operations through a bank line of credit at a lower interest rate. To obtain the bank line of credit, Hatfield created Alliance Finance Capital Holdings, Inc. (AFCH), with Hatfield as its sole stockholder. The function of AFCH was to acquire and hold the indebtedness of AFC. Hatfield assured the Lenders that this corporate restructuring would increase the profitability of AFC and enhance the security of the Notes held by the Lenders. Hatfield also informed the Lenders that the terms of the Notes held by AFCH "will be the same as your original note." Interest payments on the Notes held by the Lenders ceased on or around June 1, 2006.

Hatfield also owned or controlled other business entities, including Industry Funding Corporation (IFC). IFC held a lending license issued by the State of California but the license lapsed because Hatfield did not renew it. IFC has been suspended for failure to pay the minimum California corporate franchise tax. In addition, Hatfield formed Alliance Business Capital, Inc. (ABC) as a vehicle for making asset based loans. Hatfield owns a portion of the stock in ABC and the remaining stock is held by Robert Brophy, who managed the company's asset-based lending operations.

After the relationship between Moore and Hatfield ended, Moore filed a Marvin*fn5 action in family court claiming an ownership interest in AFC and other property. Subsequently, the Marvin action resulted in a finding by the family court that Moore and Hatfield held themselves out to the world as married during their 13-year relationship. The family court also determined that all assets, including shares in Hatfield's companies, are to be divided equally "subject to any 'separate' property interest Hatfield may be able to establish . . . that existed before the 'marriage ceremony.' "

PROCEDURAL BACKGROUND

A. Moore's Complaint and Related Cross-Complaints

On July 26, 2006, Moore filed a third amended complaint (complaint) against Hatfield, the above-described corporations and all the Lenders, including respondents Hill and Pean. The first cause of action in the complaint alleged that the promissory notes held by the Lenders "are usurious and in violation of the California Constitution, Article XV, Section 1(2)." On behalf of AFC, Moore sought to recover all payments made to the lenders as interest on the promissory notes, to reduce the amount claimed by the lenders as principal "by all interest credited as increased principal," and damages in the form of three times the amount of all interest payments to lenders in the year preceding the filing of the action. In the second and related cause of action, Moore sought declaratory relief that the interest rate provisions of the promissory notes are null and void under the usury clause of the California Constitution.

In the complaint, Moore also alleges several other causes of action against Hatfield. As pertinent here, Moore alleges in her sixth cause of action that she is the holder of at least one third of AFC's outstanding shares and that Hatfield, "who is in control of AFC, has been guilty of persistent fraud . . . and unfairness toward Moore by treating AFC as his alter ego in violation [of] corporate statutes and for his exclusive benefit, thereby depriving Moore of her rights as a shareholder to share in the profits and earnings of AFC, while retaining such earnings and profits for his exclusive use and benefit." For relief on the sixth cause of action, Moore sought a court order winding up and dissolving AFC and its related financial corporations.

On June 28, 2006, respondents Hill and Pean filed a cross-complaint against Hatfield and his financial corporations.*fn6 In their cross-complaint, Hill and Pean allege that interest rates on the Notes were presented to the Lenders by representatives of AFC and/or AFCH and were not negotiated by Lenders. Based on Hatfield's alleged non-payment of interest and principal on the Lenders' notes, Hatfield's subordination of their notes to other security interests, and his transfer of assets between his financial corporations, Hill and Pean asserted several causes of action against Hatfield and the corporations, including breach of written and oral contracts, fraud and concealment, fraudulent conveyance, and conversion.

On September 29, 2006, John Culver, a Lender and noteholder, individually and as Trustee of the John Culver 401k Plan, filed a cross-complaint (Culver cross-complaint) against Hatfield, Moore, and Hatfield's financial companies. In his cross-complaint, Culver alleged that Hatfield owns shares of stock in the named companies and that Moore claims to own one-half of Hatfield's interest in the companies. Culver also alleged that the promissory notes issued to Culver were fully secured by the assets of AFC and that Hatfield and Moore executed unconditional guarantees obligating each of them, jointly and severally, to pay all indebtedness to Culver under the terms of the promissory notes. Culver asserts several causes of action against all defendants, including unjust enrichment, money had and received, conversion and alter ego liability, and prays, inter alia, for "damages in the principal amount of $1,150,000 plus unpaid lawful interest against Hatfield, Moore, IFC, AFC and ABC."

On October 2, 2006, Hatfield filed a cross-complaint (Hatfield cross-complaint) against Moore for contribution, indemnity and declaratory relief. In his cross-complaint, Hatfield alleged that Moore filed an action seeking a one-half share of his assets on the basis that during their period of cohabitation they agreed to share assets and obligations. Based upon Moore's claim to a one-half share in his assets, Hatfield alleged that if he is obligated to cross-complainants Hill and Pean on any of their claims, then Moore is jointly liable on those claims, and Hatfield is entitled to contribution from her for one-half of any obligation owed to Hill and Pean.

Moore, in turn, filed a first amended cross-complaint (Moore cross-complaint) seeking indemnity from Hatfield, his companies and certain individuals associated with his companies for any monies recovered by Culver on his cross-complaint. The Moore cross-complaint alleges Hatfield is the de jure or de facto president or chief executive of the cross-defendant companies and that any damages suffered by Culver as alleged in the Culver cross-complaint were caused by Hatfield's misrepresentations and his misappropriation or other misuse of company funds. In addition, Moore also states derivative claims on behalf of the ...


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