ILC E-Bulletin - Aghaian v. Minassian (Cal. App. 2020) - the litigation privilege does not insulate a properly alleged fraudulent transfer claim

These materials were prepared by ILC member Joseph Boufadel.

March 8, 2021

Dear constituency list members of the Insolvency Law Committee:

The following is a case update written by Joseph Boufadel analyzing a recent decision of interest:

SUMMARY

The California Court of Appeal in Aghaian v. Minassian, 59 Cal. App. 5th 447 (2020), reversed the trial court’s sustaining of the defendants’ demurrers to causes of action for actual fraudulent transfer under California’s Uniform Voidable Transactions Act (UVTA) and aiding and abetting a fraudulent transfer. In doing so, the Court of Appeal held that: (1) the litigation privilege does not insulate a properly alleged fraudulent transfer action because the focus of the action is on the transfer, not the sham dissolution proceeding and actions taken in that proceeding to provide legal cover for the transfer; (2) aiding and abetting a fraudulent transfer against a guardian ad litem may proceed because the general immunity provided does not protect actions taken outside the scope of authority as a guardian ad litem; and (3) the pre-filing requirement to assert a civil conspiracy claim against an attorney is not required if the conspiracy does not stem from an attorney-client relationship and the attorney acted for personal financial gain. To read the full published decision, click here.

FACTS

The matter arises from a long running family dispute relating to transfers and dispositions of properties subject to a family trust. The dispute gave rise to two lawsuits in particular, with transactions and allegations that occurred in the first lawsuit giving rise to the second fraudulent transfer action against husband and wife Alice and Shahen Minassian and their son, attorney Arthur Minassian.

Shahen and Alice had been married and living together since the 1960s. In 2004, they purchased their residence, taking title as “Husband and Wife as Joint Tenants.” Several years later, they purchased a second home across the street, taking title in the same manner. Their son Arthur lived in the second home.

Plaintiffs are trustees and beneficiaries of a family trust established by their now deceased parents. In the first lawsuit, Plaintiffs sued Shahen based on actions he took beginning in the mid-1990s relating to the trust properties. During this lawsuit, his son Arthur applied and was appointed as his father Shahen’s guardian ad litem.

Plaintiffs alleged that Alice, Shahen and their son Arthur concocted a scheme to defraud Shahen’s creditors by putting two homes in Alice’s name only and by filing a sham marital dissolution proceeding during the first lawsuit.

The dissolution petition filed in 2016 provided that Alice and Shahen separated in 1991 — years before the transaction at issue. Notwithstanding the dissolution petition, the couple continued to live together and held themselves out as husband and wife.

In summer 2017, Alice and Arthur — as his father’s guardian ad litem — stipulated to a division of property in the dissolution proceeding. Alice received the two homes and Shahen assumed any future obligation to pay a judgment arising from first lawsuit still ongoing with the plaintiffs. The family law court approved the stipulation and entered judgment dividing the property, whereby Arthur subsequently executed and recorded quitclaim deeds to Alice of his father’s interest in the two properties.

Around this time, a six-week bench trial was held in the first lawsuit. After trial but before the court issued a statement of decision, Alice sold the second property, using the proceeds from the sale to purchase a condominium in her and Arthur’s name. Arthur, who lived in the condominium, subsequently deeded his interest in the property to his mother Alice.

In December 2018, the court entered judgment and awarded Plaintiffs more than $34 million in the first lawsuit.

Prior to judgment being entered, however, Plaintiffs commenced a second action (the underlying fraudulent transfer action) against Alice, Shahen and Arthur, alleging various claims for fraudulent transfer based on the transfers and actions taken in the first lawsuit.

The trial court sustained the defendants’ demurrers as to the claim for fraudulent transfer without leave to amend. The trial court reached this decision because it held that the alleged transfer was made by Arthur as Shahen’s guardian ad litem “under supervision of the family court,” and plaintiffs could not show as a matter of law that Shahen’s transfer was made with intent to defraud. The trial court also found that Arthur enjoyed judicial immunity for his actions as guardian ad litem, and, even if his actions were a sham, they were still protected by the litigation privilege under Cal. Civ. Code § 47(b).

The Court of Appeal reversed.

REASONING

The Court of Appeal held that plaintiffs pleaded with particularity numerous badges of fraud to constitute a claim for actual fraudulent transfer, including that debtor Shahen: (a) transferred title to the two properties to insiders; (b) retained control of the two properties after the transfers; (c) was sued prior to the transfers; and (d) did not receive reasonably equivalent value for the transfers.

The Court of Appeal held that the defendants were not protected by the litigation privilege nor did the privilege insulate them from liability for a fraudulent transfer.

The Court of Appeal ruled that the act of commencing the marital dissolution proceeding and actions taken in that proceeding, the filing the petition for appointment of Arthur as Shahen’s guardian ad litem, and the agreement to a stipulated judgment as to the division of assets and liabilities did not constitute protected communications in the course of a judicial proceeding covered by the litigation privilege.

In analogizing to facts in a similar case — Chen v. Berenjian, 33 Cal. App. 5th 811 (2019) — the Court of Appeal explained that the defendants’ alleged sham dissolution proceeding and stipulated judgment to transfer properties run contrary to the purpose of the litigation privilege. With the assistance of Arthur, Shahen and Alice used the marital dissolution proceeding as legal cover to authorize Shahen’s transfer of the properties to his wife Alice. Because the gravamen of the action is the fraudulent transfer of the properties—and not the sham proceedings used to effectuate those transfers—the defendants are not protected by the litigation privilege.

The Court of Appeal also rejected the defendants’ argument that Arthur could not have aided and abetted Shahen’s fraudulent transfer of the two properties because he had immunity from the actions he took as Shahen’s guardian ad litem. Generally, a guardian ad litem is afforded immunity from liability for actions taken within the scope of the guardian’s authority, however it is not “a get-out-of-jail-free card that provides blanket quasi-judicial immunity.” Arthur’s conduct occurred outside the proper scope of his authority as a guardian ad litem and was therefore unprotected.

Finally, the Court of Appeal held that plaintiffs need not comply with the pre-filing requirements to allege a civil conspiracy against an attorney because no such claim was asserted in the first instance. But even if alleged, the pre-filing requirements were inapplicable because Arthur’s actions went beyond the performance of a professional duty to serve a client and instead involved a conspiracy to violate a legal duty in furtherance of an attorney’s financial gain.

AUTHOR’S COMMENTARY

It is easy to understand why a substantially identical fact pattern in Chen, supra, 33 Cal. App. 5th 811, requires the same result here. In Chen, the debtor owed a judgment debt to the creditor. The debtor and his brother agreed that his brother would sue the debtor to obtain a judgment against him. Armed with the judgment, the brother levied on the debtor’s property to defeat creditor’s enforcement efforts against the debtor. When the creditor sued them under the UVTA, the brothers argued that the litigation privilege protected their conduct. The appellate court disagreed, holding that the levy on the property was the voidable transfer causing the injury under the UVTA — not the sham lawsuit and collusive judgment obtained by the brother. Levying on property in an effort to defeat a creditor’s valid enforcement rights under the UVTA is noncommunicative conduct unprotected by the litigation privilege. Well pleaded allegations of a fraudulent transfer under the UVTA coupled with inequitable conduct — such that the defendants used the legal system in an attempt to cleanse their purportedly voidable transfer — does not fall within the purview of the litigation privilege. To hold otherwise would provide debtors with a guide to defeat the rights of creditors and to thwart the purpose of the UVTA.

These materials were prepared by ILC member Joseph Boufadel of Salvato Boufadel LLP in Los Angeles (Jboufadel@salvatoboufadel.com), with editorial contributions from ILC member Aaron E. de Leest of Danning, Gill, Israel & Krasnoff, LLP.