Yugen Kaisha Y.K.F. et al v. Dodson, No. 3:2008cv00225 - Document 56 (N.D. Cal. 2009)
Court Description: ORDER granting 33 Motion for Preliminary Injunction; granting in part and denying in part 37 Motion to Strike (sclc1, COURT STAFF) (Filed on 4/21/2009)
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Yugen Kaisha Y.K.F. et al v. Dodson Doc. 56 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 YUGEN KAISHA, Y.K.F., 9 Plaintiff, United States District Court For the Northern District of California 10 11 ) ) ) ) ) ) ) ) ) ) ) ) ) v. STEPHANIE DODSON, 12 Defendant. 13 No. 08-0225 SC ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO STRIKE, AND GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION 14 15 16 I. INTRODUCTION Plaintiff Yugen Kaisha, Y.K.F. ("Plaintiff" or "YKF") filed 17 this action to set aside an allegedly fraudulent conveyance under 18 11 U.S.C. §§ 544(b) and 548, and California Civil Code §§ 3439- 19 3439.12. 20 moves to strike Stephanie Dodson's ("Defendant" or "Dodson") 21 demand for a jury trial, or in the alternative, to bifurcate 22 proceedings. 23 filed a memorandum in opposition. 24 Opposition"). 25 Martin F. Triano ("Triano") also filed a memorandum in opposition. 26 Docket No. 44 ("Triano MTS Opposition"). 27 both memoranda of opposition. 28 Two motions are pending before this Court. Docket No. 37 ("Motion to Strike"). First, YKF Dodson has Docket No. 48 ("Dodson Attorney Martin F. Triano, dba Law Offices of YKF filed a reply to Docket No. 52 ("YKF MTS Reply"). Second, YKF moves for a preliminary injunction. Docket No. Dockets.Justia.com 1 33 ("MPI"). Dodson has filed a Statement of Non-Opposition to 2 this motion. 3 filed a limited opposition. 4 Opposition"). 5 Docket No. 50 ("YKF PI Reply"). 6 parties' submissions, the Court hereby GRANTS IN PART AND DENIES 7 IN PART YKF's Motion to Strike. 8 Preliminary Injunction. Docket No. 47 ("Dodson Non-Opposition"). Triano has Docket No. 40 ("Triano PI YKF filed a reply to the Triano PI Opposition. Having considered all of the The Court GRANTS YKF's Motion for 9 United States District Court For the Northern District of California 10 II. BACKGROUND A. 11 12 YKF's Fraudulent Conveyance Claims YKF originally filed an action for the fraudulent conveyance 13 of stock in the Bankruptcy Court of the Northern District of 14 California. 15 07-3104 (Bankr. N.D. Cal.).1 16 transfer of 3,744,000 shares of common stock in Smart Alec's 17 Intelligent Food, Inc. ("Smart Alec's") from Alexander Popov 18 ("Popov") to his then-girlfriend, Dodson. 19 Complaint") at 2. 20 filed for personal bankruptcy on September 5, 2005. 21 Popov, No. 05-32929 (Bankr. N.D. Cal. 2005). Yugen Kaisha, Y.K.F. v. Dodson, Adversary Docket No. YKF's claims arise out of the Adv. Docket No. 1 ("YKF Popov and Dodson are now married. Id. Popov See In re: The transfer of shares took place some time before Popov 22 23 filed for bankruptcy, but the date of the transfer is in dispute. 24 Dodson claims that the transaction took place in April of 2004. 25 1 26 27 28 Citations to documents from the underlying adversary proceeding, Yugen Kaisha, Y.K.F. v. Dodson, Adversary Docket No. 07-3104 (Bankr. N.D. Cal.), will appear in the form "Adv. Docket No. XX." 2 1 Adv. Docket No. 6 ("Dodson Answer") at 2. 2 took place in August of 2005, roughly a month before Popov filed 3 for personal bankruptcy. 4 $12,500 for the shares. 5 was fraudulent, and motivated by an intent to hinder and defraud 6 Popov's creditors. United States District Court For the Northern District of California 7 YKF alleges that it YKF Complaint at 2. Id. at 3. Dodson paid Popov YKF alleges that this transfer Id. On August 1, 2007, YKF purchased from the Chapter 7 Trustee 8 the rights, claims, causes of action, and remedies of the Trustee 9 and the Debtor's Estate to avoid and recover the transfer of stock 10 to Dodson under 11 U.S.C. §§ 544(b), 548, and 550, and California 11 Civil Code §§ 3439-3439.12. 12 YKF then brought suit against Dodson. Id. Ex. A ("Assignment Agreement"). 13 B. Dodson's Counterclaim 14 While Popov's personal bankruptcy proceedings were ongoing, 15 Dodson and YKF entered arrangements to repay debts that Smart 16 Alec's and Popov owed to YKF. 17 arrangements culminated in a Closing Agreement, dated March 12, 18 2007, involving a redemption of shares held by YKF, in 19 consideration for the payment of obligations of Smart Alec’s and 20 Popov to YKF. Dodson Answer at 7-8. These Id. Upon filing her answer to YKF's complaint for fraudulent 21 22 conveyance, Dodson asserted a contract-based counterclaim against 23 YKF. 24 Agreement in bad faith, thereby causing her to pay approximately 25 $90,000 more than she would have paid if YKF had acted in good 26 faith. 27 a jury before the Bankruptcy Court. 28 Id. Id. She alleges that YKF delayed the closing of the Closing Dodson demanded a jury trial, and did not consent to 3 Adv. Docket No. 24 1 ("Certification for Withdrawal"). 2 transferred to this Court. United States District Court Id. 3 C. 4 Triano had previously provided legal services for Popov, and Triano's Intervention 5 also claims a security interest in the shares that are disputed in 6 YKF's fraudulent conveyance claim. 7 Intervene"). 8 from 2002 providing him with a derivative interest in the shares. 9 Id. at 2. 10 For the Northern District of California The case was thereafter Adv. Docket No. 12 ("Motion to Triano alleges an agreement between Popov and Triano On August 11, 2008, this Court granted Triano's Motion to Intervene. See Docket No. 20. 11 12 III. LEGAL STANDARD 13 A. 14 The Seventh Amendment protects a party's right to a trial by Motion to Strike Dodson's Jury Demand 15 jury. 16 legal in nature, but not for issues that are equitable in nature. 17 See Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 18 347-48 (1998). 19 that on some or all of the issues there is no federal right to a 20 jury trial. Parties are entitled to a trial by jury for issues that are The Court may strike a jury demand if it finds See Fed. R. Civ. P. 12(f), 39(a)(2). 21 B. Alternative Motion to Bifurcate 22 Under Rule 42(b) of the Federal Rules of Civil Procedure, the 23 Court may, "for convenience, to avoid prejudice, or expedite and 24 economize, . . . order a separate trial of one or more separate 25 issues [or] counterclaims . . . ." Fed. R. Civ. P. 42(b). 26 C. Motion for Preliminary Injunction 27 To be entitled to a preliminary injunction, the plaintiff 28 4 1 "must establish that he is likely to succeed on the merits, that 2 he is likely to suffer irreparable harm in the absence of 3 preliminary relief, that the balance of equities tips in his 4 favor, and that an injunction is in the public interest." 5 v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 374 (2008). Winter 6 United States District Court For the Northern District of California 7 IV. DISCUSSION 8 A. 9 YKF moves to strike Dodson's demand for a jury trial of both Motion to Strike 10 YKF's claims for fraudulent conveyance and Dodson's contract-based 11 counterclaim. 12 YKF's alternative motion to bifurcate. 13 does not oppose the motion to strike, but opposes the motion to 14 bifurcate. 15 16 Dodson opposes the Motion to Strike, including Dodson Opp'n at 1. Triano MTS Opp'n at 1. 1. YKF's Fraudulent Conveyance Claims YKF is seeking recovery under 11 U.S.C. §§ 544(b) and 548, 17 and California Civil Code §§ 3439-3439.12. 18 seeking to recover the shares in Smart Alec's that were 19 transferred from Popov to Dodson in the allegedly-fraudulent 20 conveyance. 21 Triano Specifically, YKF is For suits brought to enforce statutory rights, the Seventh 22 Amendment protects the right to trial by jury to the extent that 23 the action is "analogous to common-law causes of action ordinarily 24 decided in English law courts in the late 18th century, as opposed 25 to those customarily heard by courts of equity or admiralty." 26 Granfinanciera, S. A. v. Nordberg, 492 U.S. 33, 42 (1989) 27 (citations omitted). 28 The Court must apply a three-step analysis 5 1 to determine whether a statutory cause of action requires a jury 2 trial. 3 to 18th-century actions brought in the courts of England prior to 4 the merger of the courts of law and equity." 5 Court must "examine the remedy sought and determine whether it is 6 legal or equitable in nature." 7 "indicate that a party is entitled to a jury trial," then the 8 Court will "decide whether Congress may assign and has assigned 9 resolution of the relevant claim to a non-Article III adjudicative United States District Court For the Northern District of California 10 Id. First, the Court must "compare the statutory action Id. Second, the If these two factors body that does not use a jury as factfinder." 11 Id. Id. Under the first step, the Court examines the nature of YKF's 12 claims for the fraudulent conveyance of shares. YKF contends that 13 its claims are equitable, and Dodson does not challenge this 14 characterization. 15 concluded that claims for fraudulent conveyance of property other 16 than money, such as real property or intangibles, are equitable in 17 nature.2 18 Dist. LEXIS 9660, at *16-17 (E.D. La. June 25, 2001) (finding 19 fraudulent conveyance action to be equitable because its subject 20 matter was shares). Mot. to Strike at 6; Dodson Opp'n. Courts have See In re Babcock & Wilcox Co., No. 01-1467, 2001 U.S. The Court concludes that YKF's claim is 21 22 23 24 25 26 27 28 2 The Supreme Court considered the nature of a claim for fraudulent conveyance of money (rather than stock) in Granfinanciera, and it concluded that the claim was legal. Id. at 36. The Court predicated this conclusion on the fact that "the present action [is] for monetary relief," and because the Trustee "sought the recovery of a fixed sum of money." Id. at 42, 45 (emphasis in original). Later courts have concluded that this ruling was limited to fraudulent conveyance of money and does not apply to other subject matter. See, e.g., United States v. Combs, No. 96-5050, 1996 U.S. Dist. LEXIS 17187, *3-4 (E.D. Cal. Oct. 28, 1996). 6 1 equitable in nature. The Court next considers the nature of YKF's requested United States District Court For the Northern District of California 2 3 relief. YKF requests that the transfer be set aside, that a 4 constructive trust be declared, and the shares be transferred to 5 YKF. 6 conveyance is traditionally equitable. 7 v. McCoy, 507 F.2d 301, 305 (6th Cir. 1974). 8 contends that YKF's request "[f]or compensatory damages according 9 to proof" renders YKF's request for relief equitable, rather than YKF Complaint at 6. An action to set aside a fraudulent See, e.g., Hyde Properties However, Dodson 10 legal. 11 convert YKF's requested relief into a legal request. 12 Hause, 694 F.2d 861, 865 (1st Cir. 1982) (rejecting demand for 13 jury trial based on "catch all" prayer, where "damages request was 14 intended to take effect only if the earlier requested equitable 15 relief of reconveyance was unavailable"); Babcock & Wilcox Co., 16 2001 U.S. Dist. LEXIS 9660, at *18 (request "for alternative 17 monetary relief in an amount equal to the value of the assets does 18 not convert the claim to one at law"). 19 the relief sought by YKF is equitable in nature. 20 Court concludes that YKF's claims, as well as the relief it seeks, 21 are equitable in nature, it need not consider the third factor in 22 Granfinanciera. Dodson Opp'n at 3. This alternative prayer does not Whitlock v. The Court concludes that Because the 492 U.S. at 42. 23 Dodson contends that she is entitled to a trial by jury 24 because she did not submit a claim for relief with the Bankruptcy 25 Court. 26 for YKF's Motion to Strike. 27 by submitting a claim or by seeking the res of the bankruptcy 28 Dodson Opp'n at 3. This argument misapprehends the basis YKF is not arguing that Dodson has, 7 1 estate, waived her right to a jury. 2 Strike rests primarily on the equitable nature of the claims in 3 its complaint and the relief that it is seeking. 4 that the nature of YKF's complaint is equitable, and GRANTS YKF's 5 motion to strike Dodson's jury request as to the complaint. 6 United States District Court For the Northern District of California 7 2. Instead, YKF's Motion to This Court finds Dodson's Counterclaim Dodson has raised a contract-based counterclaim and is 8 seeking damages against YKF. 9 traditional example of suits at law that entitle the parties to Contract claims for damages are a 10 jury trials. 11 Health Review Comm'n, 430 U.S. 442, 458 (1977) ("[S]uits for 12 damages for breach of contract, for example, were suits at common 13 law with the issues of the making of the contract and its breach 14 to be decided by a jury."). 15 See e.g., Atlas Roofing Co. v. Occupational Safety & YKF contends that Dodson effectively waived her right to a 16 jury trial by raising a permissive counterclaim in response to a 17 complaint that sounds in equity. 18 Life Ins. Co., 80 F.2d 295, 301 (9th Cir. 1935) for the 19 proposition that raising a permissive counterclaim waives a 20 counterclaimant's right to a jury trial. 21 predates the Federal Rules of Civil Procedure, and this rule has 22 not survived the merger of law and equity. 23 Theaters, Inc. v. Westover, 359 U.S. 500, 505-07 (1959) (rejecting 24 rule because "[u]nder the Federal Rules the same court may try 25 both legal and equitable causes in the same action"); Morrison- 26 Knudsen Co., Inc. v. Wiggins, 13 F.R.D. 304, 305 (D. Alaska 1952) 27 ("Since the adoption of the Federal Rules of Civil Procedure, . . 28 YKF cites Horowitz v. New York 8 However, Horowitz See, e.g., Beacon 1 . the Federal Courts have held in a number of instances that trial 2 of legal issues so raised by the defendant should be tried by 3 jury." (citations omitted)); see also Cache, Inc. v. Scitech Med. 4 Prods., Inc., No. 89-4028, 1990 U.S. Dist. LEXIS 3830, at *5-6 (D. 5 Kan. Mar. 19, 1990) (rejecting rule). United States District Court For the Northern District of California 6 YKF cites several cases to imply that the modern rule is that 7 only a counterclaimant who raises a compulsory counterclaim does 8 not waive his or her right to a jury. 9 Secs., Inc., 156 B.R. 750, 754 (E.D. Penn. 1993); In re Allied See e.g., In re Lloyd's 10 Cos., Inc., 137 B.R. 919, 924 (S.D. Ind. 1991). 11 suggest, at most, that a counterclaim raised against a debtor or a 12 bankrupt estate may, in some circumstances, be interpreted as a 13 waiver of a jury trial because of the equitable nature of the 14 bankruptcy process. 15 against the bankruptcy estate; she is raising a contract-based 16 counterclaim against YKF, which arose before YKF had even 17 purchased the right to bring a separate suit on behalf of the 18 Trustee. 19 trustee, and this case law is not relevant. 20 These cases However, Dodson is not counterclaiming Dodson's counterclaim is therefore not against YKF as a YKF's argument that Dodson's counterclaim is permissive, 21 rather than compulsory, is not persuasive. 22 that suggests that this distinction is a basis for denying a jury 23 trial under the modern judicial system. 24 waiver rule generally do not premise their conclusion on whether 25 the counterclaim is permissive or compulsory. 26 Theaters, 359 U.S. at 505-07. 27 with the merger of law and equity, and has been rejected by the 28 YKF has cited no case Cases that reject the See e.g., Beacon This distinction is inconsistent 9 United States District Court For the Northern District of California 1 weight of legal scholarship. See, e.g., 8 James Wm. Moore et al., 2 Moore's Federal Practice ¶ 38.43 at 38-206 (3d ed. 2009) ("[N]o 3 waiver of jury trial results from the interposition of a 'legal' 4 counterclaim whether compulsory or permissive, in a civil action 5 which is essentially equitable."); 9 Charles Alan Wright & Arthur 6 R. Miller, Federal Practice and Procedure 2305 at 70 (2nd ed. 7 1994) ("The same result should be and is reached for any 8 counterclaim, whether compulsory or permissive."). 9 therefore concludes that Dodson did not waive her right to a jury The Court 10 trial by asserting a legal counterclaim in an equitable action. 11 The Court DENIES YKF's motion to strike Dodson's jury demand with 12 respect to her counterclaim. 13 B. Alternative Motion to Bifurcate 14 YKF moves to bifurcate so as to separate the proceedings 15 related to its fraudulent conveyance claims from the proceedings 16 related to Dodson's counterclaim. 17 argues that bifurcation will lead to two advantages. 18 First, it will be more efficient, because YKF's equitable claim 19 can be tried separately. 20 factual overlap between YKF's claims and Dodson's counterclaim, 21 trying these two issues together could confuse a jury. 22 Id. Mot. to Strike at 2. YKF Id. at 10. Second, because there is little Id. Rule 42(b) of the Federal Rules of Civil Procedure "merely 23 allows, but does not require, a trial court to bifurcate cases 'in 24 furtherance of convenience or to avoid prejudice.'" 25 Provident Life & Accident Ins. Co., 373 F.3d 998, 1021 (9th Cir. 26 2004) (citations omitted). 27 compelling reason to bifurcate. 28 Hangarter v. The Court finds that there is no The parties to both claims are 10 1 the same, and the Court finds that these matters will be most 2 efficiently dealt with before a single court in a single action. 3 The Court DENIES YKF's alternative motion to bifurcate. 4 C. 5 YKF moves to enjoin Dodson from transferring her interest in 6 the shares at issue. 7 required to notify Summit Bank of the pendency of this action. 8 MPI at 6. 9 interest in the Shares and Smart Alec's assets," which it acquired United States District Court 10 For the Northern District of California PRELIMINARY INJUNCTION MPI at 1. YKF also requests that Dodson be This is because Summit Bank "allegedly has a security after Dodson guaranteed a loan from Summit Bank. Id.3 Dodson is not opposed to the injunction, but denies that YKF 11 12 is likely to prevail on the merits. Dodson Non-Opp'n at 1. 13 Triano objects only insofar as the injunction would require a 14 finding that YKF is likely to succeed not only as to Dodson, but 15 also over Triano's claim to the shares. 16 Because it is not necessary to weigh Triano's claim at this time, 17 the preliminary injunction is effectively unopposed. Triano PI Opp'n at 1. To be entitled to a preliminary injunction, YKF must first 18 19 show a likelihood of success on the merits, or that it has at 20 least "a fair chance of success." 21 Marcos, 862 F.2d 1355, 1362 (9th Cir. 1988) (en banc). Republic of the Philippines v. YKF 22 23 24 25 26 27 28 3 YKF has also filed a Request for Judicial Notice, Docket No. 35 ("RJN"). These documents consist of filings and proceedings before the Bankruptcy Court of the Northern District of California. The Court may take judicial notice of proceedings and filings in other courts. See United States ex rel. Robinson Racheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992). The Court GRANTS YKF's request for judicial notice. Dodson suggested that Summit Bank may have a security interest during trial in the bankruptcy proceedings. RJN, Ex. 3, at 104:9-105:4, 110:19-111:9. 11 1 contends that Popov's transfer of shares to Dodson was fraudulent. 2 Whether YKF can establish this claim will depend on Popov's state 3 of mind, i.e., whether he had an actual intent to hinder, delay, 4 or defraud a creditor. 5 (B.A.P. 9th Cir. 1996). United States District Court For the Northern District of California 6 See e.g., In re Cohen, 199 B.R. 709, 716 YKF points to several facts that could establish Popov's 7 fraudulent intent. 8 the transfer of stock from the President and Board member of Smart 9 Alec's for over a year (assuming that the transfer took place in YKF alleges that Popov and Dodson concealed 10 April of 2004), or that they backdated the transfer (assuming that 11 it took place in August of 2005). 12 allegedly incurred significant debts to both YKF and Triano. 13 at 10-11. 14 Popov shared a close relationship (i.e., his then-girlfriend 15 Dodson), and Popov allegedly remained active in the business after 16 it was transferred (again, assuming a transfer in April of 2004). 17 Id. at 9. 18 establish a plausible claim of fraudulent transfer. 19 Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 806 (9th Cir. 20 1994) (listing "unmanageable indebtedness," and a "special 21 relationship between the debtor and the transferee," and retention 22 of the property transferred, as potential badges of fraud). 23 Court concludes that YKF has established that it has a sufficient 24 likelihood of success for the purposes of its motion for Popov had Id. Finally, the transfer was made to someone with whom Read together, these factors suggest that YKF can 25 26 27 28 MPI at 9-10. 12 See Acequia, The 1 preliminary injunction.4 United States District Court For the Northern District of California 2 YKF must next establish that irreparable injury is likely in 3 the absence of an injunction. See Winter, 129 S. Ct. at 374. YKF 4 is seeking to recover shares. YKF could suffer irreparable harm 5 if Dodson were to transfer the shares to a bona fide third party. 6 See DLJ Mortg. Capital, Inc. v. Kontogiannis, 594 F. Supp. 2d 308 7 (E.D.N.Y. 2009) (finding irreparable harm where defendant could 8 convey properties in dispute to a bona fide purchaser). 9 of these shares could not be replaced by a monetary reward, Recovery 10 because these shares are not easily fungible and are difficult to 11 monetize. 12 least one entity that is not a party to this litigation, Summit 13 Bank, may possess a security interest in the claim. 14 104:9-105:4, 110:19-111:9. 15 sufficient basis for establishing a likelihood of irreparable 16 harm. 17 Furthermore, there is evidence on the record that at RJN Ex. 3 at The Court finds this to be a Under the third prong, the Court weighs the balance of 18 equities between the parties. 19 motion for preliminary injunction to preserve the status quo, the 20 Court finds that the balance of hardships tips in favor of YKF. 21 YKF risks losing access to the shares in the absence of an 22 injunction, and Dodson has presented no countervailing interest. 23 Finally, the Court notes that the preliminary injunction does not 24 burden the public interest. Given the unopposed nature of YKF's The Court GRANTS YKS's Motion for 25 26 27 28 4 In doing so, the Court offers no opinion regarding the respective claims to the contested shares as between Triano and YKF. 13 1 Preliminary Injunction. 2 3 V. 4 5 For the reasons discussed above, this Court hereby: 1. 6 7 United States District Court GRANTS YKF's motion to strike Dodson's jury demand with respect to the claims brought by YKF in its complaint; 2. 8 For the Northern District of California CONCLUSION DENIES YKF's motion to strike Dodson's jury demand with respect to the counterclaim raised by Dodson; 9 3. DENIES YKF's alternative motion to bifurcate; and 10 4. GRANTS YKF's motion for preliminary injunction. 11 The Court hereby orders, during the pendency of this action, 12 Dodson, her employees, agents, and representatives, and all 13 persons acting with her or on her behalf must not sell, transfer, 14 or encumber the shares that she received pursuant to the Share 15 Purchase Agreement between Popov and Dodson dated April 18, 2004, 16 or any interest therein, or any assets of Smart Alec's outside the 17 ordinary course of business. 18 notify Summit Bank of the pendency of this action and the issuance 19 of this injunction. 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 The Court further orders Dodson to 14 1 The parties are also ordered to participate in a mandatory 2 settlement conference before a Magistrate Judge. Counsel will be 3 advised of the date, time, and place of the conference by notice 4 from the assigned Magistrate Judge. 5 will be held on September 9, 2009, at 10:00 a.m. in Courtroom #1. A Further Status Conference 6 7 IT IS SO ORDERED. 8 United States District Court For the Northern District of California 9 April 21, 2009 10 ____________________________ 11 UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15
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