APPEAL from a judgment of the Superior Court of Sacramento County, Loren E. McMaster, Judge. Reversed. (Super. Ct. No. 03AS01691)
The opinion of the court was delivered by: Duarte , J.
CERTIFIED FOR PARTIAL PUBLICATION
Plaintiff Portico Management Group, LLC (Portico) entered into a contract to purchase an apartment building owned by the ________________________________________________________________* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of parts II-VI of the Discussion.
trustees of the Harrison Children's Trust (HCT) and Harrison Family Enterprise II (HFE II), a limited partnership. When the sale was not completed, Portico sued the sellers for specific performance and damages. The matter went to arbitration, resulting in an arbitration award of over $1.6 million in Portico's favor. Although in its lawsuit Portico properly named as defendants Alan Harrison and Wei-Jen Harrison as trustees of the HCT, and HFE II, the arbitration award was not against the trustees, but only against the HCT and HFE II.
In 2007, a judgment confirming the arbitration award against the trust and the limited partnership was entered; the trial court declined to accept a proposed judgment against the trustees.
Portico did not seek to correct or modify either the arbitration award or the judgment to indicate the arbitration award and judgment were properly against the trustees; nor did Portico appeal from the judgment against the trust. Instead, years of protracted litigation ensued. Portico sought to enforce the judgment by levying on funds generated by the apartment building and to add as judgment debtors the successor trustees of the HCT, and Wei-Jen Harrison as trustee of the Wei-Jen Harrison Revocable Trust (WHRT), to which HFE II had transferred its share of the apartment building. In response, the successor trustees of the HCT asserted a third party claim on the levied funds.
The trial court originally ruled in favor of Portico, but later changed its mind and accepted the argument that the HCT, as a trust, was not an entity and did not hold title to any property; thus the judgment against it was unenforceable. The court also rejected the argument that Wei-Jen Harrison could be added to the judgment on an alter ego theory. The court awarded the successor trustees post-arbitration attorney fees as prevailing parties under the attorney fee provision of the purchase contract.
Portico appeals. It maintains, as it has throughout the litigation, that it is proper to enter judgment against a trust and such a judgment is enforceable against the assets of the trust. Portico contends that in granting various motions, the court, without jurisdiction, was permitting a collateral attack on the final 2007 judgment. It further contends the court's judgments and orders addressing adding judgment debtors and the validity of the third party claim must be reversed due to these errors. It argues the trial court erred in denying its motion to add Wei-Jen Harrison, as trustee of the WHRT, to the judgment on an alter ego theory. Finally, Portico claims the attorney fee award to the successor trustees must be reversed.
We find merit solely in Portico's contention of error regarding adding Wei-Jen Harrison to the judgment. In ruling on the motion, the trial court apparently misconstrued the motion and therefore erred. Accordingly, we shall remand for further proceedings on that motion. In all other respects, we shall affirm.
The Parties and the Purchase Contract
Alan Harrison and Wei-Jen Harrison were married in 1975; in 1987, they created the HCT for the benefit of their daughters, Kim and Lynn.*fn1 Alan and Wei-Jen were the general trustees of the HCT. The couple invested in several apartment complexes over the years, one of which was the 102-unit apartment complex in Carmichael known as the Continental. In 1999, Alan and Wei-Jen divorced; pursuant to a partial marital settlement agreement, the Continental was placed in the HCT. The HCT owned 87.5 percent of the Continental. The remaining 12.5 percent was owned by Wei-Jen's relatives. After the separation, Wei-Jen purchased their interest.
In 2001 or 2002, Wei-Jen organized the limited partnership HFE II, which held the 12.5 percent interest in the Continental. She planned to sell the Continental and manage the properties through HFE II. Wei-Jen, as "Trustee Asset Manager" of HCT and as general partner of HFE II, entered into a purchase agreement to sell the Continental to Portico. Alan refused to sign the deed and closing documents.
The Arbitration Award and Judgment
In 2003, Portico brought suit for specific performance, breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and negligent misrepresentation based on the failure to complete the sale of the Continental. The complaint named as defendants Alan and Wei-Jen, individually and as general trustees of the HCT, two special trustees of the HCT, HFE II, and Wei-Jen as general partner of HFE II. The complaint also sought to compel mediation and arbitration pursuant to paragraph 21 of the purchase agreement.
Portico's motion to compel arbitration was granted.
The arbitration hearing was held October 23 through October 27, 2006. In 2007, the arbitrator issued a final award. The arbitrator found for Portico on the breach of contract claim, as Alan's failure to sign the closing documents to permit the sale caused the sellers to breach the contract with Portico. The arbitrator found, however, that Portico had failed to carry its burden to show fraud and misrepresentation. Noting that the action was brought against Alan and Wei-Jen personally and as trustees and against Wei-Jen as general partner of HFE II, the arbitrator found "that the General Trustees are not personally liable for their acts as trustees of an irrevocable Trust. At all times, Plaintiff knew it was dealing with a trust and a partnership. Thus, the award in this case is against [HCT] and HFE II in proportion to their ownership interest in the
Continental (87.5% and 12.5%)." Portico had elected the remedy of damages rather than specific performance. The arbitrator awarded Portico damages, attorney fees, and costs totaling $1,621,435.80.
Portico petitioned to confirm the arbitration award. Portico proposed a judgment that was against HFE II and Alan and Wei-Jen as general trustees of the HCT. After Alan and Wei-Jen objected to this form of judgment, the trial court directed Portico to revise the proposed judgment. In August 2007, judgment was entered against the HCT and HFE II--without reference to trustees.
The Levy and Third Party Claim of Ownership
To enforce the judgment, Portico caused a writ of execution on the judgment to be issued. Pursuant to this writ, a notice of levy was served on FPI Management, Inc. (FPI). Portico sought to levy on all personal property of the HCT and HFE II, including rents from the Continental and all monies in the Continental Apartments Operating Account at Wells Fargo Bank.
FPI turned over $189,000 to the levying officer. This sum represented 87.5 percent of the monies in the Continental account that were dispersible under HUD requirements. FPI noted the owner of 12.5 percent of the Continental was not named in the levy.*fn2
Meanwhile, Kim and Lynn, Alan and Wei-Jen's adult daughters and beneficiaries of the HCT, had petitioned the court for appointment as co-trustees of the HCT. In March of 2007, after the arbitration but before the award issued, Kim and Lynn were approved and appointed interim successor co-trustees of the HCT.
Kim and Lynn filed a third party claim of ownership, pursuant to Code of Civil Procedure*fn3 section 720.110 et seq., on the property described in the notice of levy served on FPI and Wells Fargo Bank. They argued that no judgment had been entered against their predecessors, Alan and Wei-Jen as trustees of the HCT. Instead, the judgment was entered against the HCT, which was not an entity or person capable of owning title to property.
Portico applied for a temporary restraining order enjoining transfer of the levied funds and an order setting a hearing to determine the validity of the third party claim. The court issued a temporary restraining order, which did permit FPI to make mortgage payments, and pay taxes and other ordinary operating expenses.
Motions to Add Judgment Debtors
Portico moved to add Kim and Lynn, as successor trustees, as judgment debtors. Portico argued Kim and Lynn's claim that a judgment cannot be entered against a trust failed under well-settled law. Nonetheless, if the court concluded Portico could not enforce the judgment against the successor trustees without adding them as judgment debtors, Portico asserted the court had power under section 187 to do so. Portico also sought to add Wei-Jen, as trustee of the WHRT, and the WHRT itself as judgment debtors. Portico asserted that despite the lis pendens it had filed on the Continental in 2003, Wei-Jen purported to transfer HFE II's 12.5 percent interest in the Continental to Wei-Jen as trustee of the WHRT. As a result of this purported transfer, FPI refused to deposit with the sheriff 12.5 percent of the funds it held, on the grounds that such funds did not belong to HFE II. Portico argued the purported transfer was "an obvious effort to frustrate Portico's efforts to enforce any resulting judgment against HFE II."
In opposition, Wei-Jen argued Portico knew in 2004 that title to the Continental had been transferred. In 2004, Portico took Wei-Jen's deposition and from the questions it was apparent that Portico knew about the transfer. Nonetheless, despite this knowledge, Portico did not amend its complaint to allege the property had been transferred and to add alter ego allegations. Nor did Portico make any effort to modify or correct the arbitration award. Instead, Portico waited over three years to "amend the judgment."
Portico withdrew its motion to add Wei-Jen as a judgment debtor, but brought the motion again later.*fn4 In the second motion, Portico argued Wei-Jen and the WHRT were alter egos of HFE II. It relied on her deposition in a debtor's examination in which she conceded she, HFE II, and the WHRT were all the same entity. Portico argued there was no consideration for HFE II's transfer of its 12.5 percent interest in the Continental.
In response, Wei-Jen declared there was consideration for the transfer, as she had assumed a $100,000 note, gave up her interest in HFE II, and assumed responsibility for a claim by the listing brokers over the failed sale.
Initial Rulings, Final Rulings, and Judgment
On December 5, 2007, the trial court tentatively granted Portico's motion to add Kim and Lynn, successor trustees of the HCT, as judgment debtors. On December 28, the court ruled on the petition for an order determining the validity of the third party claim, treating it as a motion to amend the judgment. Finding that it was clear the arbitrator intended to order judgment against Alan and Wei-Jen in their capacity as trustees of the HCT, but not in their individual capacities, the court ordered the judgment amended to reflect that it was against Alan and Wei-Jen as trustees of the HCT. Since Kim and Lynn were now successor trustees of the HCT, a second amended judgment would be entered against them. The court found that Portico was entitled to enforce its judgment against the trust property.
In early January 2008, Alan made an ex parte application to stay entry of the amended judgment. He argued his due process rights were violated as there was no notice that an amendment of the judgment was being considered.
The court denied the motion to stay without prejudice, but indicated that it would not sign the amended judgment until all motions to vacate or reconsider were filed, ...