California Court of Appeals, Fourth District, Third Division
from a judgment of the Superior Court of Orange County No.
30-2012-00613352, Kirk H. Nakamura, Judge. Affirmed.
Thompson Coburn and Samuel R. Watkins for Plaintiff,
Cross-defendant, and Appellant.
Anderson, McPharlin & Conners, Michael S. Robinson;
Songstad Randall Coffee & Humphrey, L. Allan Songstad,
Jr., and William D. Coffee for Defendant, Cross complainant
appearance for Defendants, Cross-defendants and Respondents.
Inc. (Nautilus), obtained a judgment against Stanley Kuo Hua
Yang, and recorded an abstract of judgment against real
property on which Stanley and his brother, Peter Chun Hua
Yang, held title. Stanley and Peter transferred title on
the property to their father, Chao Chen Yang, who obtained a
reverse mortgage loan on the property from Security One
Lending (Security One). In its title search, the title
insurance company missed Nautilus's abstract of judgment
when the reverse mortgage loan funded.
transfer of the property to Chao Chen was a fraudulent
conveyance under the Uniform Fraudulent Transfer Act (UFTA)
(Civ. Code, § 3439 et seq.). (All further statutory
references are to the Civil Code, unless otherwise
specified.) Nautilus sued Stanley, Peter, and Chao Chen.
Nautilus also sued Urban Financial Group, Inc. (Urban
Financial), which bought the mortgage from Security One, for
damages resulting from the fraudulent conveyance from Stanley
to Chao Chen. Following a bench trial, the court found that
Security One and Urban Financial had acted in good faith, and
could not be liable to Nautilus.
affirm. As we will explain, the trial court misapplied the
burden of proof in connection with the good faith defense.
Nevertheless, given the facts of the case, even under the
correct burden of proof and legal principles, the good faith
defense was established.
publish our opinion because of our analysis of the
requirements of the good faith defense. Some cases have held
that a transferee cannot avail itself of the good faith
defense if the transferee had fraudulent intent, colluded
with a person who was engaged in a fraudulent conveyance, or
actively participated in a fraudulent conveyance. A line of
federal cases interpreting California law concludes the good
faith defense may also fail if the transferee had actual
knowledge of facts suggesting to a reasonable person that the
transfer was fraudulent. Some of those cases may be read to
improperly establish an inquiry notice standard, and others
frame the test in a way that is inconsistent with the
legislative comment to section 3439.08. After analyzing those
state and federal cases, we hold a transferee cannot benefit
from the good faith defense if that transferee had fraudulent
intent, colluded with a person who was engaged in the
fraudulent conveyance, actively participated in the
fraudulent conveyance, or had actual knowledge of facts
showing knowledge of the transferor's fraudulent
conclude that the trial court did not err in granting
equitable subrogation to Urban Financial. This decision has
the effect of making a portion of the Urban Financial
mortgage senior to Nautilus's abstract of judgment even
though the Urban Financial mortgage was recorded after the
abstract of judgment.
we conclude the trial court's equitable grant of priority
to a money judgment to Nautilus as against Chao Chen, over a
portion of Urban Financial's lien on the reverse mortgage
loan taken out by Chao Chen, was proper.
OF FACTS AND PROCEDURAL HISTORY
is a manufacturer of exercise equipment under various trade
names including Bowflex. In December 2011, Nautilus obtained
an $8 million default judgment against Stanley (among others
not involved in the present case) arising from counterfeiting
Nautilus products. On April 4, 2012, Nautilus recorded an
abstract of judgment in Orange County, California.
the beginning of 2012, Stanley and Peter held title as joint
tenants to a single family residence in Fountain Valley,
California (the Property). In February and April 2012,
through two separate transactions, Stanley and Peter conveyed
their interests in the Property to Chao Chen. Chao Chen then
obtained a reverse mortgage loan on the Property on April 17,
2012, in the amount of $386, 835 from Security
One; a deed of trust was recorded to secure
the reverse mortgage loan.
American Title Company (First American) ran a title search in
connection with the reverse mortgage loan, which revealed
Nautilus's abstract of judgment. First American
acknowledged its error in failing to realize the abstract of
judgment affected the Property.
proceeds of the reverse mortgage loan were used to pay off
the existing liens against the Property, all of which had
been recorded before Nautilus's abstract of judgment, in
the total amount of $308, 576.72. Those prior liens consisted
of mortgage liens in favor of CitiMortgage, Inc., and Bank of
the West, and a judgment lien in the amount of $20, 514.88
against Stanley in favor of Nautilus Design &
Construction (Nautilus Design). (The judgment in favor of
Nautilus Design is different from the judgment in favor of
Nautilus.) The remaining funds were disbursed to Chao Chen.
Security One sold the reverse mortgage loan to Urban
Financial in May 2012 for $422, 302.21.
filed a complaint against Urban Financial, Stanley, Peter,
and Chao Chen, to set aside fraudulent transfers, recover
damages from Stanley, Peter, and Chao Chen for conspiracy,
and for declaratory relief against Urban
Financial. Urban Financial filed a
cross-complaint against Nautilus, Stanley, Peter, and Chao
Chen, seeking to quiet title, to establish and foreclose an
equitable lien, to recover damages from Stanley, Peter, and
Chao Chen for fraud, and for declaratory relief.
case proceeded to a court trial. The trial court signed a
statement of decision and a judgment, which provided, in
1. Security One and Urban Financial were good faith lenders
for value, and Nautilus therefore could not recover damages
from Urban Financial.
2. Stanley and Chao Chen were each awarded a one-half,
undivided interest in the Property, subject to the other
parties' lien rights.
3. Urban Financial was granted a first priority equitable
lien on the Property in the amount of $308, 576.72.
4. Nautilus was granted a second priority judgment lien on
Stanley's one half interest in the Property, based on its
abstract of judgment, in the amount of $8 million.
5. Nautilus was awarded a money judgment against Chao Chen in
the amount of $153, 212, secured by a lien on Chao Chen's
one-half interest in the Property.
6. Urban Financial's deed of trust securing the reverse
mortgage loan was deemed to be junior to Urban
Financial's equitable lien, Nautilus's judgment lien,
and Nautilus's money judgment.
Financial's motion to vacate the judgment was denied.
Nautilus filed a notice of appeal, and Urban Financial filed
a notice of cross-appeal.
Trial Court Did Not Err in Finding That Security One and
Urban Financial Acted in Good Faith.
fraudulent conveyance is “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.” (Yaesu Electronics Corp. v. Tamura
(1994) 28 Cal.App.4th 8, 13.) The UFTA makes fraudulent
transfers voidable: “(a) A transfer made or obligation
incurred by a debtor is voidable as to a creditor, whether
the creditor's claim arose before or after the transfer
was made or the obligation was incurred, if the debtor made
the transfer or incurred the obligation as follows: [¶]
(1) With actual intent to hinder, delay, or defraud any
creditor of the debtor. [¶] (2) Without receiving a
reasonably equivalent value in exchange for the transfer or
obligation, and the debtor either: [¶] (A) Was 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. [¶]
(B) Intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the
debtor's ability to pay as they became due.”
(§ 3439.04, subd. (a).)
transferee or obligee took in good faith and for a reasonably
equivalent value, however, the transfer or obligation is not
voidable. (§ 3439.08, subd. (a).) Whether a transfer
is made with fraudulent intent and whether a transferee acted
in good faith and gave reasonably equivalent value within the
meaning of section 3439.08, subdivision (a), are questions of
fact. (Annod Corp. v. Hamilton & Samuels (2002)
100 Cal.App.4th 1286, 1294 (Annod).) “When the
trial court has resolved a disputed factual issue, the
appellate courts review the ruling according to the
substantial evidence rule. If the trial court's
resolution of the factual issue is supported by substantial
evidence, it must be affirmed.” (Winograd v.
American Broadcasting Co. (1998) 68 Cal.App.4th 624,
632.) As the party seeking to ...