Nagel v. Westen

59 Cal.App.5th 740

274 Cal.Rptr.3d 21

Nicole NAGEL et al., Plaintiffs and Appellants,

v.Tracy A. WESTEN et al., Defendants and Respondents.

2d Civil No. B300552

Court of Appeal, Second District, Division 6, California.

Filed January 7, 2021

As Modified on Denial of Rehearing February 1, 2021

Valle Makoff, Jeffrey B. Valle, Los Angeles, and Jennifer Laser, Los Angeles, for Plaintiffs and Appellants.

The Law Office of John Derrick, John Derrick, Santa Barbara, for Defendants and Respondents, Westen Family Group, LLC, Derek Westen, Peter K. Westen & Westen Family Trust.

Schley Look Guthrie & Locker, Ian M. Guthrie, Santa Barbara, for Defendants and Respondents Tracy A. Westen, Linda Lawson, and the Westen-Lawson Trust.

Rogers, Sheffield & Campbell, Scott B. Campbell, Santa Barbara, and Nathan C. Rogers, for Defendant and Respondent Westen Family Group, LLC, Derek Westen, and Westen Family Trust

PERREN, J.

In the early 1990's, Tracy Westen and Linda Lawson (Sellers) built and lived in an architecturally significant home in the Brentwood area of West Los Angeles. They sold it to appellants Nicole Nagel and "ESY Investments" (Nagel) in 2011 for $4.12 million. Shortly after the sale Nagel learned that over the 19 years Sellers owned the home it had suffered extensive water intrusion, that Sellers knew this and that the home was uninhabitable despite Nagel's best efforts to repair and to save it. Nagel sued.

In the ensuing arbitration, the arbitrator found that Sellers had failed to disclose material facts regarding the water damage, that the house was worthless and its only value was the land. It awarded Nagel over $4.5 million for the loss of the home, which it held added no value to the land on which it stands. This, however, was just the beginning, not the end of the litigation.

As the arbitration was winding down, the likely result became clear to Sellers. By the time ensuing and relatively fruitless efforts at collection were undertaken, Sellers had allegedly sent the bulk of their assets out of California including applying the proceeds of the sale to an expensive home in Texas to take advantage of that state's unlimited homestead exemption; and, with aid and counsel of Tracy Westen's siblings, placing additional assets in a variety of funds, annuities and investments in Nevada and Minnesota.

This appeal is from a subsequent lawsuit filed by Nagel to unwind these transfers under the Uniform Voidable Transactions Act (UVTA). ( Civil Code, § 3439 et seq. )¹ The action was dismissed, however, because Nagel could not identify a "third-party transferee" who received Westen and Lawson's assets; or as respondents describe it, "a meritless attempt to raid deeper pockets." The Court reasoned that no transfer had occurred when Westen and Lawson simply converted their assets from non-exempt to exempt but did not relinquish ownership or control.

The order dismissing the case is reversed in part and affirmed in part. We reverse the order to the extent it dismissed plaintiffs’ causes of action for statutory fraudulent transfer and the companion claims for conspiracy and aiding and abetting. We affirm the order's dismissing of plaintiff's common law cause of action for fraudulent transfer.

FACTUAL AND PROCEDURAL BACKGROUND

Nagel bought the Brentwood house of Westen and Lawson in 2011. Westen and Lawson had commissioned Los Angeles-based Eric Owen Moss, a renowned avant-garde architect, to design the structure in the early 1990s. It served as the couple's primary residence until the sale.

Nagel later discovered pervasive mold and structural damage caused by long term water intrusion. An arbitrator awarded her over $4.5 million for repairs, attorney's fees, costs, and interest. The Los Angeles Superior Court confirmed the award and entered judgment against Westen and Lawson.²

In the instant matter, Nagel alleges Lawson and Westen enlisted Westen's brothers, attorneys Derek and Peter Westen, to help them design and implement an "Asset Protection plan" when it became apparent the arbitrator would rule in Nagel's favor. The plan had three components. First, they converted respondent Westen Family Group, LLC ("WFG"), of which Lawson and Westen held a 20.7 percent membership interest, from a California LLC into a Nevada LLC. Second, they placed a portion of the Brentwood sale proceeds into an annuity. Third, they bought a house in Texas and improved it with the balance of their sale proceeds. Nagel further alleges Lawson and Westen promptly moved to Texas upon receiving the arbitrator's preliminary award so they could invoke the state's unlimited homestead exemption to shield the new house and annuity from creditors.

Nagel filed this action when she learned about these asset protection measures. She named Lawson and Westen as defendants along with Derek Westen, Peter Westen, WFG, and two Westen family trusts. Her first amended complaint included three causes of action at issue here: (1) to set aside fraudulent transfer of assets under both the UVTA³ and common law (as to WFG only); (2) civil conspiracy (as to all parties); and (3) aiding and abetting (as to Derek Westen, Peter Westen, WFG, and the family trusts).⁴ Nagel sought to annul the transfers and to restrain Lawson and Westen from disposing of their assets, among other remedies.

Nearly four years of pleading challenges, discovery disputes, and law and motion proceedings followed. Nagel supplemented her complaint with allegations about post-filing conduct, including Lawson's and Westen's petitioning for bankruptcy in Texas.⁵ A sojourn to Minnesota courts yielded partial satisfaction of the arbitration award when Nagel collected the proceeds of the couple's annuity. She also obtained a charge order directing WFG to direct the couple's share of membership proceeds to her. This brought the Texas house purchase to center stage as trial approached.

The trial court received 42 motions in limine and competing versions of nearly all pre-trial filings, including witness lists, verdict forms, and jury instructions. It heard argument in the course of conducting nine pre-trial conferences over a two month period. The instructions for Nagel's first cause of action for fraudulent transfer, particularly CACI 4200, "Actual Intent to Hinder, Delay, or Defraud a Creditor," were hotly contested.

Nagel proposed modifying CACI 4200 to include not just third-party transfers but any transaction intended to evade creditors. Defining "transfer" more broadly, she argued, was "entirely harmonious with the premise of fraudulent transfer theory under California common law and as reflected in its statutory embodiment." WFG and Derek Westen proposed CACI 4200 in its standard configuration. Their version instructed the jury to decide whether Lawson and Tracy Westen "transferred the property [to WFG] with the intent to hinder, delay, or defraud one or more of their creditors." They argued Nagel could not maintain a cause of action for fraudulent transfer without identifying a third party transferee who received their assets. Defining internal asset shifts like a house purchase for one's self as actionable transfers, they contended, strayed far beyond the UVTA and what little case law informed the issue. The court invited the parties to offer modifications to CACI 4200 and other 4200-series instructions to better reflect the current state of law.

Shortly after this pre-trial conference, Nagel sought to amend her first amended complaint by adding Lawson and Westen as defendants to her first cause of action for fraudulent transfer. She described the amendment as correcting a "labeling oversight."

The couple would suffer no prejudice, she reasoned, because her prior pleading clearly described their role in the scheme. In opposition, Lawson and Westen described the proposed amendment as a belated about-face with a profound conceptual flaw – the couple would need to wear the hats of both "transferor" and "transferee" of their own assets at trial.

At the final pre-trial conference, the trial court said it had not yet decided the third-party transferee issue. The court told the parties it would consider supplemental briefing and directed them to return a week later prepared to select a jury. The parties promptly submitted briefs reiterating their positions.

The court issued a tentative ruling the day before trial denying leave to amend. It found Nagel could not maintain a cause of action under the UVTA against Lawson and Westen without identifying a third party transferee who benefitted from the debtor's transfer. While their establishing a Texas homestead affected Nagel's ability to enforce her judgment, the court reasoned, the purchase did not convey assets to a third party or otherwise alter the couple's rights with respect to their property. It refrained from deciding whether a common law cause of action existed because Nagel could not articulate its elements or explain how to instruct the jury on such a claim.

The parties appeared for trial the next day. Nagel's counsel explained how the court's tentative ruling would eliminate a critical component of his client's case and leave little incentive to proceed with trial if adopted. He requested a stay to seek writ relief of the third-party transferee issue as a matter of first impression in California. The court expressed concern that writ review would result in a "postcard" denial and leave the case in the same position four or five weeks later. Defendants shared this concern. After a brief recess, WFG and Derek Westen moved to dismiss on the grounds they, like Lawson and Westen, could not face liability under the UVTA in the absence of an actionable transfer. Peter Westen joined the motion. The court granted it as both a common law motion for judgment on the pleadings and a dispositive motion in limine. In addition, it granted a separate motion in limine filed by Lawson and Westen to preclude all evidence relating to Nagel's first cause of action for fraudulent transfer.

The...