-MLG Internet Direct Response Inc v. Fred Buckley, No. 8:2009cv01335 - Document 145 (C.D. Cal. 2011)
Court Description: ORDER DENYING MOTION TO AMEND JUDGMENT (Docket No. 121), DENYING MOTION TO DETERMINE THE CHARACTER OF ASSETS OF CORINNE BUCKLEY (Docket No. 119), AND DENYING MOTION FOR CONSTRUCTIVETRUST (Docket No. 127) by Judge Audrey B. Collins denying 119 Motio n; denying 121 Motion; denying 127 Motion: Plaintiff's Motion to Amend Judgment is DENIED (Docket No. 121); Motion to Determine the Character of Assets of Corinne Buckley is DENIED (Docket No. 119); and Motion for Constructive Trust is DENIED (Docket No. 127). (see document for further details) (bm)
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-MLG Internet Direct Response Inc v. Fred Buckley Doc. 145 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 14 15 INTERNET DIRECT RESPONSE, INC., ) ) Plaintiff, ) ) v. ) ) FRED BUCKLEY, ) ) Defendant. ) ) _______________________________ ) 16 CASE NO.: SA CV 09-1335 ABC (MLG) ORDER DENYING MOTION TO AMEND JUDGMENT (Docket No. 121), DENYING MOTION TO DETERMINE THE CHARACTER OF ASSETS OF CORINNE BUCKLEY (Docket No. 119), AND DENYING MOTION FOR CONSTRUCTIVE TRUST (Docket No. 127) Pending before the Court are three motions filed by Plaintiff and 17 Judgment Creditor Internet Direct Response, Inc. (“Plaintiff”): a 18 Motion to Amend Judgment (Docket No. 121), a Motion to Determine the 19 Character of Assets of Corinne Buckley (Docket No. 119), and a Motion 20 for Constructive Trust (Docket No. 127). 21 separate brief in support of its alter ego theory of liability. 22 (Docket No. 122.) 23 only the Motion to Amend the Judgment on February 14, 2011. 24 Corinne Buckley opposed the Motion to Amend Judgment and the Motion to 25 Determine the Character of Assets of Corinne Buckley on February 14, 26 2011 and opposed the Motion for a Constructive Trust on February 21, 27 2011. 28 Court has nevertheless considered them. Plaintiff also filed a Defendant and Judgment Debtor Fred Buckley opposed Non-party Plaintiff filed untimely replies on March 4, 2011, but the Cf. Local Rules 7-10, 7-12. Dockets.Justia.com 1 The Court finds these matters appropriate for resolution without 2 oral argument and VACATES the March 14, 2011 hearing date. 3 Civ. P. 78; Local Rule 7-15. 4 all of Plaintiff’s motions.1 5 6 Fed. R. For the reasons below, the Court DENIES FACTUAL BACKGROUND In February 2009, an American Arbitration Association award was 7 entered against Defendant Fred Buckley in North Carolina and on May 8 12, 2009, a judgment on the award was entered in federal district 9 court in the Western District of North Carolina. The federal judgment 10 was registered in this district in November 2009 and Plaintiff began 11 collection efforts thereafter. 12 According to the arbitration decision, Plaintiff had entered into 13 a contract with a company called Smart Health USA, its subsidiaries, 14 assigns, and related companies to develop and maintain a website and 15 manage internet advertising for a product called Herbal V. 16 Fred Buckley was the signatory to the contract for Smart Health USA. 17 For a reason not clear in the record, the parties agreed that Fred 18 Buckley would be the individual defendant in the arbitration and any 19 award would be imposed against Buckley individually for actions by Apparently 20 21 22 23 24 25 26 27 28 1 It appears that Plaintiff failed to satisfy its meet-and-confer obligations imposed by Local Rule 7-3 with regard to non-party Corinne Buckley. Similarly, it does not appear that Plaintiff served many of the exhibits supporting its motion to amend the judgment until March 3, 2011, long after the motions were filed. (Docket Nos. 138, 139.) However, this is the third time Plaintiff has filed this set of motions (the first time the motions were stricken for violations of the Local Rules (Docket No. 68) and the second time they were withdrawn by Plaintiff (Docket Nos. 103—108)). Rather than once again postponing adjudication of these motions, in this instance the Court will reach the merits, but Plaintiff is admonished to comply with Local Rule 7-3 and timely serve all future filings or risk sanctions. 2 1 2 Smart Health USA and any subsidiaries.2 During the course of this contractual relationship, other 3 products were apparently added to the scope of the contract, including 4 Zyrexin, which was a product sold by Superbalife International, LLC 5 (“Superbalife”). 6 Plaintiff was owed for the work done related to Zyrexin and 7 Superbalife. A dispute arose between the parties over whether The parties submitted the issue to arbitration. 8 The arbitrator ruled in Plaintiff’s favor, concluding that the 9 website and other work related to Zyrexin was compensable under the 10 contract and the contract had been breached. The arbitrator relied on 11 email correspondence that “clearly indicate[d] in writing that Buckley 12 expected [Plaintiff] to develop and manage a website for Zyrexin 13 and/or Superbalife,” including an email in which Buckley said that 14 “‘one quick thing I want to change on the site is the Smart Health USA 15 thing. 16 Superbalife International.” 17 The arbitrator also found “no emails from Buckley to [Plaintiff] 18 stating that Zyrexin or Superbalife are separate entities apart from 19 Smart Health USA or Buckley or that Zyrexin was not a product covered 20 by the September 2005 contract.” 21 Plaintiff over $120,000 with interest. I need to get Smart Health USA out and replace it with (Mot. to Amend Judgment, Ex. A at 2.) (Id.) The arbitrator awarded 22 After obtaining a federal judgment confirming the award and 23 registering it in this District, Plaintiff immediately sought to 24 conduct judgment debtor examinations on both Defendant Fred Buckley 25 and his wife, Corinne Buckley. 26 and his wife resisted, and, after many additional proceedings, (Docket Nos. 1, 2.) Defendant Buckley 27 2 28 The federal judgment confirming the award likewise was entered against only Defendant Buckley individually. 3 1 including unsuccessful settlement discussions, Plaintiff now asks this 2 Court to issue several different rulings that may enable it to collect 3 the judgment against two parties not named as defendants in either the 4 arbitration proceedings or the federal judgment: Corinne Buckley and 5 Superbalife. 6 In brief, Plaintiff claims that Defendant Buckley is the 7 President and Corinne Buckley is the owner of Superbalife. Plaintiff 8 argues that, because the arbitration involved Zyrexin, a product of 9 Superbalife, Corinne Buckley and Superbalife could have participated 10 in the arbitration, but chose not to because Corinne and Fred Buckley 11 falsely assumed that a post-nuptial agreement preserved Corinne 12 Buckley’s assets used to create Superbalife as separate property, 13 which protects her and Superbalife from Plaintiff’s collection efforts 14 here. 15 federal judgment to add Corinne Buckley and Superbalife as defendants, 16 to declare Corinne Buckley’s separate asserts as community assets 17 subject to collection for the judgment against Fred Buckley, and to 18 impose a constructive trust on Fred Buckley’s, Corinne Buckley’s, and 19 Superbalife’s assets. On this basis, Plaintiff asks the Court for leave to amend the 20 DISCUSSION 21 I. MOTION TO AMEND JUDGMENT 22 Federal Rule of Civil Procedure 69(a)(1) provides jurisdiction to 23 the Court to enforce a judgment by utilizing California state law. 24 One such law is California Code of Civil Procedure section 187, which 25 allows a federal court to “‘amend a judgment to add additional 26 judgment debtors.’” 27 1114, 1121 (9th Cir. 1999). 28 plaintiff must show: “‘(1) that the new party [is] the alter ego of Levander v. Prober (In re Levander), 180 F.3d To amend a judgment under section 187, a 4 1 the old party and (2) that the new party had controlled the 2 litigation, thereby having had the opportunity to litigate, in order 3 to satisfy due process concerns.’” 4 judgment creditor bears the burden to satisfy both requirements by a 5 preponderance of evidence. 6 69 Cal. App. 4th 1012, 1017–18 (1999). 7 8 9 A. Id. (emphasis in original). The See Wollersheim v. Church of Scientology, Alter Ego Two general conditions must be satisfied to apply to find alter ego status: (1) whether there is a unity of interest and ownership 10 such that the corporation and individual no longer exist separately; 11 and (2) whether the corporate form must be disregarded to avoid 12 inequity. 13 5395685, at *13 (Dec. 30, 2010). 14 relaxed in the context of adding new defendants to a judgment pursuant 15 to section 187; so long as the “‘equitable principles regarding alter 16 ego’” are satisfied, a court may add the new defendant to avoid 17 “injustice.” 18 corporate form will be disregarded only in narrowly defined 19 circumstances and only when the ends of justice so require,’” 20 Greenspan, 191 Cal. App. 4th at __, 2010 WL 5395687, at *13, and the 21 “mere fact of sole ownership and control” will not suffice, Katzir’s 22 Floor & Home Design, Inc. v. M-MLS.com, 394 F.3d 1143, 1149 (9th Cir. 23 2004) (rejecting alter ego finding based on the “mere fact of sole 24 ownership and control”). 25 26 Greenspan v. LADT, LLC, 191 Cal. App. 4th 486, ___, 2010 WL These requirements are somewhat Levander, 180 F.3d at 1122. Nevertheless, “‘the As a threshold matter, Plaintiff’s premise that either Superbalife or Corinne Buckley could be an alter ego of Fred Buckley 27 28 5 As a limited liability company,3 Superbalife 1 is legally flawed. 2 cannot be the alter ego of alleged President Fred Buckley because 3 California law does not permit a plaintiff to impose an individual 4 defendant’s debt on a corporation on the theory that the corporation 5 is the alter ego of the individual debtor. 6 Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510, 1522–23 (2008) (rejecting 7 this theory of alter ego liability, called 8 of the corporate veil); see also Schwarzkopf v. Briones (In re 9 Schwarzkopf), 626 F.3d 1032, 1038 (9th Cir. 2010) (recognizing Postal See Postal Instant Press, “outside reverse” piercing 10 Instant Press as controlling California law); Greenspan, 191 Cal. App. 11 4th at ___, 2010 WL 5395685, at *15. 12 be considered the alter ego of Fred Buckley simply because the two are 13 married and Corinne Buckley allegedly owns Superbalife. 14 v. Gillett, 8 Cal. App. 4th 628, 631 (1992) (rejecting attempt to add 15 debtor’s spouse to judgment pursuant to section 187 because the court 16 was “not aware of any case authorizing the addition of a spouse qua 17 spouse”). 18 Likewise, Corinne Buckley cannot See Oyakawa Even assuming Plaintiff’s arguments were not legally foreclosed, 19 Plaintiff’s evidence comes nowhere close to showing by a preponderance 20 that Fred Buckley was the alter ego of either Corinne Buckley or 21 Superbalife. 22 by Corinne Buckley from Superbalife’s bank accounts and two tax 23 returns reporting income she earned from Superbalife. 24 not answer the question here, namely, whether Fred Buckley, as 25 Defendant and Judgment Debtor, is the alter ego of either Corinne Plaintiff has submitted reams of pages of checks written But that does 26 27 28 3 Plaintiff does not dispute that Superbalife, a limited liability company, is subject to the same rules for alter ego status as a corporation in this case. See Cal. Corp. Code § 17101(b). 6 1 Buckley or Superbalife. And on that point, Plaintiff offers only 2 speculation: it alleges without evidence that Fred Buckley had “equal 3 access” to Superbalife funds and was withdrawing cash from Superbalife 4 accounts and using Superbalife funds for purchases while Corinne 5 Buckley was overseas. 6 purchases were made, there is nothing to suggest that Fred Buckley was 7 making them. 8 that these withdrawals and purchases were for personal, rather than 9 business, purposes. While it is true that these withdrawals and And even if he was, Plaintiff has offered no evidence Even under the more relaxed alter ego standard 10 that allows the Court to add new defendants to a judgment to avoid 11 “injustice,” the Court finds no factual basis to treat Corinne Buckley 12 and Superbalife as alter egos of Fred Buckley here. 13 14 B. Due Process Even if new defendants could be considered alter egos of the 15 existing defendants, a plaintiff must also show that the new 16 defendants’ due process rights would not be violated by adding them to 17 the judgment. 18 process, the new defendants must have “‘had control of the litigation 19 and occasion to conduct it with a diligence corresponding to the risk 20 of personal liability that was involved.’” Id. at 1150 (quoting NEC 21 Elecs., Inc. v. Hurt, 208 Cal. App. 3d 772, 779 (1989)). 22 Katzir’s Floor, 394 F.3d at 1149. To satisfy due Here, Plaintiff has failed to demonstrate that either Corinne 23 Buckley or Superbalife actually controlled the arbitration in a way 24 that provided them an opportunity to protect themselves during that 25 proceeding. 26 “decisionmaker” for Corinne Buckley and Superbalife and proceeded in 27 the arbitration representing their interests, but it cites no evidence 28 for this proposition. Plaintiff claims that Fred Buckley was the Plaintiff also cites no evidence to suggest 7 1 that either Corinne Buckley or Superbalife personally controlled Fred 2 Buckley’s participation in the arbitration in a way that would have 3 defended their own interests. 4 arbitrator’s finding that “[t]here are no emails from Buckley to 5 [Plaintiff] stating that Zyrexin or Superbalife are separate entities 6 apart from Smart Health USA or Buckley or that Zyrexin was not a 7 product covered by the September 2005 contract.” 8 evidence cannot satisfy Plaintiff’s burden here, especially when the 9 lack of evidence is relied on for a different reason, namely, to At most, Plaintiff points to the But the absence of 10 demonstrate at the arbitration that the parties did not affirmatively 11 exclude Zyrexin from their website development agreement. 12 record, adding Corinne Buckley and Superbalife to the judgment would 13 offend due process and Plaintiff’s motion must be denied for this 14 independent reason. 15 16 C. On this Conclusion Because neither requirement under section 187 is met, the Court 17 DENIES Plaintiff’s motion to amend the judgment to add Corinne Buckley 18 and Superbalife as defendants and judgment debtors.4 19 20 21 22 23 24 25 26 27 28 4 Although the Court has ruled for non-party Corinne Buckley, the Court feels compelled to point out that her other grounds for denial lack merit (and frankly border on frivolous). First, Section 11 of the Arbitration Act does not preclude this Court from deciding this motion because a party may seek to modify an arbitration award in any district where proper venue lies. See Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193, 200–01 (2000). Second, the rules of the American Arbitration Association do not preclude the Court from amending the federal judgment, as opposed to the arbitration award itself, because a federal judgment on an arbitration award must be treated like any other judgment pursuant to section 187. See Greenspan, 191 Cal. App. 4th at __, 2010 WL 5395685, at *11 (reasoning that treating a judgment confirming an arbitration award differently than any other judgment under section 187 would improperly favor judgments on court decisions over judgments on arbitration decisions (continued...) 8 1 II. MOTION TO DETERMINE THE ASSETS OF CORINNE BUCKLEY 2 The Buckleys were married on March 22, 1988 and entered into the 3 post-nuptial agreement in 1996. 4 limited liability company nine years later on September 21, 2005. 5 Plaintiff contends that the assets of Corinne, particularly the funds 6 she used to start and maintain Superbalife, are community property and 7 therefore reachable for the debt incurred by Fred.5 8 disagrees. 9 10 A. Superbalife was incorporated as a The Court The Post-Nuptial Agreement The Buckleys entered the post-nuptial agreement on July 29, 1996 11 because “Corinne has an idea for an herbal company (the ‘Company’) 12 that she would like to create a develop” and her “father is willing to 13 make a gift to Corinne alone of funds needed to create and develop the 14 Company, provided that Fred agrees that the Company and all results 15 and proceeds therefrom will be for all purposes Corinne’s separate 16 property.” 17 agreed that “the Company that Corinne causes to be established 18 (whether such business is conducted through one or more separate 19 entities or proprietorships) to exploit dietary supplements and/or any 20 other herbal supplements or health products, and all income, results, 21 and proceeds therefrom, shall for all purposes be and remain Corinne’s 22 separate property and Fred shall never acquire any interest for any (Sanders Decl., Ex. 1 at 20.) As a result, the Buckleys 23 24 25 26 27 28 4 (...continued) in violation of Federal Arbitration Act). Finally, Corinne Buckley cites no authority to compel the Court to treat the motion to amend the judgment as a summary judgment motion with the same procedural requirements. 5 In this portion of the Court’s opinion, the Court refers to Corinne and Fred Buckley by their first names to avoid confusion; no disrespect to either is intended. 9 1 reason whatsoever.” 2 income from any herbal company would remain Corinne’s separate 3 property; that any income from the company used to pay living expenses 4 would be a gift to the community; that any property acquired by 5 separate income from the company would remain Corinne’s separate 6 property; that a change in the form of this separate property would 7 not change its character; and that the commingling of this separate 8 property with community property would not change the character of the 9 property as separate. 10 (Id. at 21.) The parties further agreed that all (Id. at 21—23.) During the time the post-nuptial agreement was signed, Fred was 11 experiencing legal difficulties.6 12 “asset freeze order” in FTC v. Innovative Telemedia, Inc. and 13 Frederick O. Buckley, individually and as an officer and director of 14 Innovative Telemedia, Inc., Case No. 96-cv-8140-WDF (S.D. Fla. filed 15 on Mar. 4, 1996). 16 against him for violating the asset freeze order and for tax evasion; 17 he pled guilty to the charges five days later. 18 Buckley, No. 01-cr-6051 WJZ-1 (S.D. Fla. filed on March 16, 2001). 19 his plea colloquy, Fred stated that he was aware of the asset freeze 20 order but he disobeyed it “by transferring money to my in-laws in 21 France. 22 was wrong but I still did it.” 23 Assets, Ex. A at 10.) On March 5, 1996, he received an On March 16, 2001, a criminal information was filed United States v. In I did this to save their business and their home which I knew (Mot. to Determine Character of He also “transferred money into other accounts 24 25 6 26 27 28 Indeed, on February 23, 1998, the parties entered an unrelated First Amendment to their post-nuptial agreement, in which they agreed that Fred would transfer his community interest in their house to Corinne as her separate property, in exchange for Corinne paying “significant legal bills” incurred by Fred. (Sanders Decl., Ex. 1 at 45—52.) 10 1 to enable my wife and I to purchase a home in Los Angeles, which again 2 I knew was in violation of the court order by doing those transfers.” 3 (Id.) 4 for business expenses, but much of the cash was for personal expenses 5 that should have been reported as income to me.” 6 the judge asked Fred why he did these things, Fred said he was a 7 “young man at the time” and “wasn’t thinking,” and that his in-laws 8 were in “dire situations.” 9 He also “wrote checks to myself for cash. Some of these were (Id. at 11.) When (Id.) Thus, it appears that four months after Fred had transferred 10 money to his in-laws (presumably Corinne’s parents) in violation of 11 the asset freeze order, he entered the post-nuptial agreement with 12 Corinne that the funds Corinne would obtain from her father to start a 13 herbal supplement business would remain her separate property. 14 B. California Community Property Law 15 In California, there is a general presumption that property 16 acquired during marriage by either spouse is community property unless 17 traceable to a separate property source. 18 Marriage of Rossin), 172 Cal. App. 4th 725, 731 (2009) (citing Cal. 19 Fam. Code § 760). 20 marriage and all property acquired during marriage by gift, bequest, 21 devise, or descent. 22 However, “‘[b]oth before and during marriage, spouses may agree to 23 change the status of any or all of their property through a property 24 transmutation’” which is an “‘interspousal transaction or agreement 25 that works a change in the character of the property.’” 26 (Cal. Fam. Code § 850). 27 and must be accepted by the spouse adversely affected by the 28 agreement. Rossin v. Rossin (In re Separate property is all property acquired before Id. at 731—32 (citing Cal. Fam. Code § 771). Id. at 733—34 To do so, any agreement must be in writing Id. at 734 (citing Cal. Fam. Code § 852). 11 1 C. 2 Corinne Buckley’s Assets as Community Property Plaintiff advances four arguments as to why the Court should deem 3 all of Corinne Buckley’s income and assets from Superbalife as 4 community property subject to Fred Buckley’s debt in this case: (1) 5 Superbalife is not covered by the post-nuptial agreement; (2) if it 6 is, the money used to fund Superbalife was community property, not 7 separate property from Corinne’s father; (3) if funds are properly 8 considered separate property by way of the post-nuptial agreement, the 9 agreement itself is void as a fraudulent transfer; and (4) the 10 commingling of community assets and Superbalife separate assets has 11 transmuted the separate assets to community property. 12 arguments is persuasive. 13 1. 14 None of these Superbalife Is Covered by the Post-Nuptial Agreement. 15 Plaintiff claims that Superbalife was not the “herbal company” 16 contemplated in the post-nuptial agreement because in a 2003 17 declaration in another proceeding, Corinne stated that the company 18 discussed in the post-nuptial agreement was “Smart Health,” which was 19 changed to Smart Health USA in 1997 or 1998 and Smart Health LLC in 20 2001. 21 nuptial agreement was not limited to one company; it specifically 22 contemplated that any company Corinne set up could be comprised of 23 “one or more separate entities or proprietorships.” 24 filed her 2003 declaration, Superbalife had not yet been created, so 25 her declaration at that time could not have contemplated its 26 existence. 27 fall within the broad terms of the post-nuptial agreement. (Sanders Decl., Ex. 1 at 10—11, ¶¶ 10, 13, 14.) But the post- And when Corinne Thus, there is nothing to suggest that Superbalife did not 28 12 1 2. 2 3 There Is No Evidence that the Funds Used to Create Corinne’s Company Derived from Community Property. Plaintiff speculates that the funds Corinne was to receive from 4 her father as noted in the post-nuptial agreement were actually Fred’s 5 funds he transferred to her father while he was subject to the asset 6 freeze order in the FTC case. 7 this claim: it seems suspect that, only four months after Fred 8 transferred funds to Corinne’s parents because they were in apparent 9 “dire” circumstances, her father would transfer money to her to use as There is considerable facial appeal to 10 separate property to start an herbal supplement company. 11 Corinne’s father declared under penalty of perjury in another federal 12 judgment debtor proceeding that this was, in fact, not true. 13 explained that he had experienced financial hardship after investing 14 in and loaning money to Corinne’s prior husband’s business, which 15 resulted in over $400,000 in debt to him. 16 73—74, ¶ 4.) 17 Agreement before [he] would give Corinne any money to start her own 18 business.” 19 remain her separate property and, “[i]f Fred would not have agreed to 20 sign the agreement I would not have given my daughter the money she 21 needed to start the business.” 22 nuptial agreement was his idea and he was, in his own words, the 23 “driving force behind it.” 24 But He (Sanders Decl., Ex. 1 at Quite rationally, he “insisted on the 1996 Post-Nuptial (Id.) He intended that any money he gave to Corinne would (Id. at 75, ¶ 8.) In fact, the post- (Id. at 75—76, ¶ 10.) Plaintiff offers nothing but speculation to rebut this evidence. 25 Without actual evidence to support its theory, the Court cannot say 26 that the money Corinne’s father sent her to start her herbal 27 supplement business was Fred’s community property and should be 28 treated as community property now. 13 1 3. 2 The Statute of Repose Precludes a Finding that the Post-Nuptial Agreement Was a Fraudulent Transfer. 3 In a related argument, Plaintiff claims that the 1996 post- 4 nuptial agreement effected a fraudulent transfer of assets designed to 5 shield community property from Fred’s creditors and must be set aside 6 pursuant to California’s Uniform Fraudulent Transfer Act (“UFTA”), 7 Cal. Civ. Code §§ 3439—3439.12. 8 barred by the UFTA’s statute of repose, which provides that, 9 “[n]otwithstanding any other provision of law, a cause of action with However, Plaintiff’s claim is time- 10 respect to a fraudulent transfer or obligation is extinguished if no 11 action is brought or levy made within seven years after the transfer 12 was made or the obligation was incurred.” 13 seven-year period is absolute, so it cannot be tolled or otherwise 14 extended. 15 Cal. 2009); Roach v. Lee, 369 F. Supp. 2d 1194, 1197—1200 (C.D. Cal. 16 2005); see also In re Universal Trading & Inv. Co., No. C 06-80086 17 MJJ, 2008 WL 823539, at *3 (N.D. Cal. Mar. 27, 2008), aff’d Universal 18 Trading & Inv. Co. v. Lazarenko, 352 F. App’x 210, 211 (9th Cir. 2009) 19 (unpublished disposition); Rooz v. Kimmel (In re Kimmel), 367 B.R. 20 166, 169 (N.D. Cal. 2007) (applying seven-year statute of repose to 21 reject request to set aside post-nuptial agreement as a fraudulent 22 transfer), aff’d 378 B.R. 630, 639 (B.A.P. 9th Cir. 2007), aff’d 302 23 F. App’x 518 (9th Cir. 2008) (unpublished disposition). 24 Id. § 3439.09(c). This See See In re JMC Telecom LLC, 416 B.R. 738, 742—44 (C.D. The post-nuptial agreement’s seven-year statute of repose expired 25 in 2003, before both the original action was filed in North Carolina 26 in 2008 and this action was filed here in 2009. 27 28 14 Thus, the Court 1 cannot set aside the post-nuptial agreement as a fraudulent transfer.7 2 4. 3 4 Commingling Did Not Transmute Corinne’s Separate Property into Community Property. Finally, Plaintiff claims that Corinne commingled her separate 5 income and other assets related to Superbalife with community assets 6 and that transmuted her separate property into community property 7 subject to Fred’s debt. 8 that community funds and separate funds have been commingled; indeed, 9 Plaintiff identifies no community assets at all, other than those it However, Plaintiff has offered no evidence 10 alleges where improperly classified as Corinne’s separate property 11 derived from Superbalife. 12 nuptial agreement designated all funds derived from Corinne’s herbal 13 business as separate property, regardless of whether they are 14 commingled with community funds. 15 rule that commingling separate and community funds does not transform 16 the separate funds if they are traceable to their source. 17 172 Cal. App. 4th at 734. 18 the Court to recharacterize Corinne’s separate property as community 19 property that would be reachable to satisfy Fred’s debt. 20 21 22 D. Contrary to Plaintiff’s position, the post- That is consistent with the general See Rossin, Plaintiff has offered no evidence to compel Conclusion The Court declines to set aside the 1996 post-nuptial agreement and rejects Plaintiff’s other arguments to recharacterize Corinne’s 23 24 25 26 27 28 7 Without authority or cogent reasoning, Plaintiff argues that “[e]very dollar earned by [Corinne] and Superbalife, in 2008, in 2009, in 2010 and 2011” represents a continuing fraudulent transfer. (Reply to Mot. to Determine Character of Assets 7.) But these transfers were wrongful only to the extent the funds involved could be characterized as community rather than separate property. Because all of Plaintiff’s arguments fail in that regard, Plaintiff’s attempt to extend the statute of repose is unpersuasive. 15 1 separate property in Superbalife as community property subject to 2 collection for Fred’s debt. Plaintiff’s motion is therefore DENIED. 3 III. MOTION FOR CONSTRUCTIVE TRUST 4 Plaintiff moves to impose a constructive trust on “sales proceeds 5 and profits derived from the website designed for Smart Health,” which 6 would operate against Fred Buckley, Corinne Buckley, Superbalife, and 7 “any person or entity acting on their behalf or for their benefit.” 8 (Mot. for Constr. Trust 2.) 9 Generally, “[a] constructive trust is an involuntary equitable 10 trust created by operation of law as a remedy to compel the transfer 11 of property from the person wrongfully holding it to the rightful 12 owner.” 13 App. 4th 980, 990 (1995); see also Mattel, Inc. v. MGA Entm’t, Inc., 14 616 F.3d 904, 908—09 (9th Cir. 2010) (citing 522 Valencia). 15 principal circumstances where constructive trusts are imposed are set 16 forth in Civil Code sections 2223 and 2224.” 17 App. 4th at 990. 18 thing is an involuntary trustee thereof, for the benefit of the 19 owner.” 20 fraud, accident, mistake, undue influence, the violation of a trust, 21 or other wrongful act, is, unless he or she has some other and better 22 right thereto, an involuntary trustee of the thing gained, for the 23 benefit of the person who would otherwise have had it.” 24 Communist Party of the U.S. v. 522 Valencia, Inc., 35 Cal. “The 522 Valencia, 35 Cal. Section 2223 states, “[o]ne who wrongfully detains a Similarly, section 2224 states, “[o]ne who gains a thing by A court may impose a constructive trust on three conditions: “(1) 25 the existence of a res (property or some interest in property); (2) 26 the right of a complaining party to that res; and (3) some wrongful 27 acquisition or detention of the res by another party who is not 28 entitled to it.” 522 Valencia, 35 Cal. App. 4th at 990 (emphasis in 16 1 original). 2 trust. 3 (1991). 4 for the benefit of another unless there is “some basis for determining 5 that [the party seeking the constructive trust] actually owned or was 6 rightfully entitled to possession of” the property. 7 Cal. App. 4th at 991 (refusing to impose constructive trust on 8 companies’ assets in the absence of evidence that the party seeking 9 the trust actually possessed an ownership interest in those assets). 10 A breach of contract can form the basis for a constructive GHK Assocs. v. Mayer Group, Inc., 224 Cal. App. 3d 856, 878 However, property cannot be subject to a constructive trust 522 Valencia, 35 Plaintiff’s request for a constructive trust fails for the 11 fundamental reason that it has not shown that it is the rightful owner 12 of either the Superbalife website or any profits derived from Fred 13 Buckley’s use of the website.8 14 judgment established only that Fred Buckley breached a contract with 15 Plaintiff to develop the website and as a result, was liable for money 16 damages. 17 ownership interest in the website and profits derived from it and that 18 Fred Buckley was wrongfully withholding that property. 19 Plaintiff has the same claim here as any other judgment creditor with 20 a money judgment and the California Enforcement of Judgments Law 21 provides a comprehensive means for Plaintiff to enforce that judgment. 22 See, e.g., Cal. Code Civ. P. § 699.510. The underlying arbitration and The arbitrator did not also conclude that Plaintiff had an Instead, Thus, the motion is DENIED. 23 24 25 8 26 27 28 Plaintiff is correct that in some circumstances profits derived from wrongfully retained property can be subject to a constructive trust. See Mattel, 616 F.3d at 910. That does not mean that Plaintiff is excused from showing that it has an ownership interest in the property generating the profit. See 522 Valencia, 35 Cal. App. 4th at 991. 17 1 2 CONCLUSION Plaintiff’s Motion to Amend Judgment is DENIED (Docket No. 121); 3 Motion to Determine the Character of Assets of Corinne Buckley is 4 DENIED (Docket No. 119); and Motion for Constructive Trust is DENIED 5 (Docket No. 127). 6 IT IS SO ORDERED. 7 DATED: 8 3/7/2011 _______________________________ AUDREY B. COLLINS CHIEF UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18
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