Sanger v. Ahn

PRIYA SANGER, et al., Plaintiffs, v. AHE AHN, et al., Defendants.

Case No. 18-cv-07204-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

March 15, 2019

ORDER REGARDING MOTION FOR JUDGMENT ON THE PLEADINGS

Re: Dkt. No. 19

I. INTRODUCTION

This is a dispute regarding a multifamily residential building that Plaintiffs Priya Sanger and Michael Sanger own as a tenancy-in-common with non-party Leah Ahn, among others. The Sangers brought this action against Defendants Ahe Ahn and Lance Ahn in state court under California's Uniform Voidable Transactions Act ("UVTA") seeking to void a deed of trust on behalf of Ahe Ahn encumbering Leah Ahn's interest in the tenancy-in-common. Defendants now move for judgment on the pleadings, and the Court held a hearing on March 15, 2019. For the reasons discussed below, the motion is DENIED in part and GRANTED in part with leave to amend no later than March 29, 2019.

II. BACKGROUND

The Sangers initiated this action by filing a complaint against Ahe Ahn in state court on March 17, 2017, bringing a single claim under the UVTA, as codified at sections 3439.04 and 3439.07 of the California Civil Code. Artiga-Purcell Removal Decl. (dkt. 1-1) ¶ 2 & Ex. A (Compl.). The complaint alleges that "some months after" the Sangers obtained a judgment against Leah Ahn requiring her to pay damages and to pay her share of mortgage payments going forward, Leah Ahn encumbered the property with a deed of trust in favor of Ahe Ahn, unbeknownst to the Sangers. Compl. ¶ 15. The Sangers assert that Leah Ahn conveyed the deed of trust to Ahe Ahn "with the actual intent to hinder, delay and defraud the Sangers," id. ¶ 30, as purportedly evidenced by, among other factors: (1) Leah Ahn's inaccurate testimony at a debtor's examination that she was not aware of deeds of trust on the property other than the joint mortgage, id. ¶¶ 18-19; (2) Leah Ahn's insolvency, id. ¶¶ 18, 27; (3) multiple lawsuits involving Leah Ahn, such that she should have believed she would incur debts she was unable to pay, id. ¶ 22; (4) Leah Ahn's retention of custody and control of the property, id. ¶ 23; (5) the fact that the deed of trust was conveyed to a close family member, id. ¶ 24; (6) the Sangers' belief that the deed of trust served to transfer "substantially all of Leah Ahn's assets," id. ¶ 25; (7) the timing of the deed of trust, id. ¶ 26; and (8) the Sangers' belief that Leah Ahn did not receive equivalent value for the deed of trust, id. ¶ 28. On October 26, 2018, the Sangers amended their complaint to name Lance Ahn as an additional defendant. Artiga-Purcell Removal Decl. ¶ 3 & Ex. A.¹

Defendants removed to this Court, and the Sangers moved for a preliminary injunction barring Defendants from foreclosing on the property, which the Court granted. See Order Granting Prelim. Inj. (dkt. 20).² That order includes a detailed summary of facts subject to judicial notice, which the Court may also consider on the present motion, as well as other evidence, which the Court may not consider here. See id. at 1-9. Some of the relevant facts subject to judicial notice are as follows.

On March 12, 2012, the Sangers obtained a judgment against Leah Ahn totaling $72,870.57 in the California Superior Court for the County of San Francisco. Defs.' Request for Judicial Notice ("Defs.' RJN," dkt. 19-1) Ex. A. The Sangers recorded an abstract of judgment in the same amount on May 16, 2012. Id. Ex. B. Ahe Ahn recorded her deed of trust on March 18,2013. On January 13, 2014, after a hearing on an order to show cause, the Superior Court issued an order for sale of the property to satisfy the Sangers' judgment. Id. Ex. I. Over the course of the following months and years, the Sangers repeatedly succeeding in amending the judgment to account for additional delinquencies and attorneys' fees. Pls.' RJN (dkt. 24) Exs. J-N.

Leah Ahn filed a petition for bankruptcy on June 9, 2014. Defs.' RJN Ex. E. The Sangers allege, and Defendants do not dispute, that this bankruptcy prevented a sale of the property pursuant to the state court's order. Compl. ¶ 21. Leah Ahn's bankruptcy was discharged on September 16, 2014. Defs.' RJN Ex. F.

On July 17, 2015, Leah Ahn delivered a check from Ahe Ahn for $131,098.05 to the Sangers' lawyer, purportedly in satisfaction of the entire judgment against her at that time. Defs.' RJN Ex. G.³

On August 21, 2017, after Leah Ahn's bankruptcy had been reopened, the Bankruptcy Court issued an order granting Leah Ahn summary judgment on an argument that the Sangers' abstract of judgment failed to create a valid lien because the Sangers failed to include their names and address in a space on the abstract calling for that information, and entered judgment accordingly. Defs.' RJN Exs. H, J. Judge Tigar, of this Court, affirmed the Bankruptcy Court's decision, and the Sangers have appealed to the Ninth Circuit. See Pls.' RJN Ex. I.

III. ANALYSIS

A. Legal Standard for Motions Under Rule 12(c)

Rule 12(c) of the Federal Rules of Civil Procedure permits a party to move for judgment on the pleadings "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). "Analysis under Rule 12(c) is substantially identical to analysis under Rule 12(b)(6) because, under both rules, a court must determine whether the facts alleged in the complaint, taken as true, entitle the plaintiff to a legal remedy." Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (citation and internal quotation marks omitted). Generally, a plaintiff's burden at thepleading stage is relatively light. Rule 8(a) of the Federal Rules of Civil Procedure states that "[a] pleading which sets forth a claim for relief . . . shall contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a). In ruling on a motion under Rule 12(c), the Court must accept all factual allegations in the complaint as true and view them in the light most favorable to the non-moving party. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009).

Dismissal at the pleading stage may be based on a lack of a cognizable legal theory or on the absence of facts that would support a valid theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint must "contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562 (2007) (citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Twombly, 550 U.S. at 557). Rather, the claim must be "'plausible on its face,'" meaning that the plaintiff must plead sufficient factual allegations to "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Twombly, 550 U.S. at 570).

B. Legal Standard for Claims Under the UVTA

The Sangers seek to void the deed of trust pursuant to California Civil Code section 3439.04, which governs transactions voidable by present or future creditors. Compl. ¶ 31. The Sangers do not rely on the test of section 3439.05, which only applies to creditors whose claims arose before the transactions or obligation sought to be voided.

"There are two theories under which a [creditor] may proceed under [section 3439.04]: actual fraud or constructive fraud." Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) (applying California law). Under the former theory, a plaintiff must show "actual intent to hinder, delay, or defraud any creditor of the debtor." Cal. Civ. Code § 3439.04(a)(1). The statute provides a number of non-exclusive factors may be considered in assessing intent:

(1) Whether the transfer or obligation was to an insider.

(2) Whether the debtor retained possession or control of the property transferred after the transfer.

(3) Whether the transfer or obligation was disclosed or concealed.

(4) Whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.

(5) Whether the transfer was of substantially all the debtor's assets.

(6) Whether the debtor absconded.

(7) Whether the debtor removed or concealed assets.

(8) Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.

(9) Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.

(10) Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.

(11) Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

Cal. Civ. Code § 3439.04(b). "A debtor is insolvent if, at a fair valuation, the sum of the debtor's debts is greater than the sum of the debtor's assets," and is presumed to be insolvent if the debtor "is generally not paying the debtor's debts as they become due other than as a result of a bona fide dispute." Cal. Civ. Code § 3439.02(a)-(b).

As an alternative to showing actual intent to hinder, delay, or defraud, a plaintiff may also prevail on a theory of constructive fraud by showing that the debtor transferred property or incurred an obligation "[w]ithout receiving equivalent value in exchange" and at least one of the following: either the debtor "[w]as 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," or the debtor "[i]ntended to incur, or believed or reasonably should have...