Tuesday, December 16, 2008
C.A. Revives Claim That Lawyer Received Fraudulent Transfer
By SHERRI M. OKAMOTO, Staff Writer
A plaintiff’s claim that Cardiff attorney David Blake was the recipient of a fraudulent transfer from his client was not subject to the pre-filing order requirements for civil conspiracy causes of action, the Fourth District Court of Appeal ruled yesterday.
Div. One explained that transferees owe a transferor’s creditors an independent duty to avoid fraudulent transfers, affirming San Diego Superior Court Judge Lisa Guy-Schall’s order overruling Blake’s demurrer to Ramsey Najor’s complaint in an unpublished opinion.
Blake’s client, Jay Walker, was involved in litigation with Najor and Najor’s company, Bio Prime Enterprises. To secure Walker’s debt to Blake for legal services, the attorney recorded two deeds of trust on Walker’s home in Carlsbad.
Approximately one month after Blake filed the second deed of trust, a bankruptcy judge found that Walker intentionally interfered with Bio Prime’s economic relationship with a third party and owed a nondischargeable debt of $187,794 to BioPrime for his misconduct.
Najor subsequently filed a complaint against Walker and Blake, alleging that the two had conspired to fraudulently transfer Walker‘s property to Blake.
Blake demurred to Najor’s complaint on the ground that Najor had failed to obtain a pre-filing order pursuant to Civil Code Sec. 1714.10, which ostensibly requires a plaintiff to obtain a pre-filing order prior to moving forward with an action that alleges a civil conspiracy between an attorney and his client.
He also generally demurred on the ground that Najor failed to state a cause of action. The trial court sustained Blake’s demurrers, but allowed Najor to amend his complaint.
In his amended complaint, Najor alleged that Walker’s transfer of his property to Blake was a fraudulent transfer, and sought to void the transfer so that Najor could collect his judgment against Walker.
Najor also asserted causes of action for declaratory relief and for an accounting regarding the amounts Walker owed to Blake for legal fees, to the extent those fees relate to the transferred property.
The attorney again specifically and generally demurred to the amended complaint on the same basic grounds presented in his demurrer to the original complaint, but the trial court overruled the demurrers.
On appeal, Blake argued that because Najor’s amended complaint essentially alleged a civil conspiracy with Walker based on Blake’s prior representation, Sec. 1714.10’s pre-filing order requirement applied.
Writing for the appellate court, Justice Cynthia Aaron concluded that Najor’s cause of action fell outside the scope of section 1714.10, even though the claim suggested the existence of a conspiracy between the attorney and client, because Najor alleged Blake himself had engaged in affirmative misconduct.
“A transferee who is alleged to have been a party to the fraudulent transfer by taking the property in bad faith, and without an exchange for reasonably equivalent value, is, essentially, alleged to have violated an independent duty not to engage in a fraudulent transfer,” Aaron explained, adding that “[e]very person has a duty not to knowingly participate in a fraudulent transfer, including the transferee.”
Because Sec. 1714.10 specifically exempts claims that an attorney violated an independent legal duty to the plaintiff or that an attorney conspired to cause a client to violate a statutory duty in the performance of a professional duty in furtherance of the attorney’s own financial gain, Aaron reasoned “at least one, if not both” exemptions applied to Najor’s claims.
Aaron further noted that following legislative amendments to Sec. 1714.10, there is no circumstance in which a plaintiff must actually obtain a pre-filing order because the action would either meet one of Sec. 1714.10’s two exceptions or because the cause of action is not viable as a matter of law, due to the agent immunity rule.
Presiding Justice Judith McConnell and Justice James A. McIntyre joined Aaron in her opinion.
Blake said he was “disappointed, of course,” by the court’s decision and maintained his belief that the “statute does not create any kind of independent duty.”
He cautioned that as a result of yesterday’s ruling, “a lawyer has to be very careful because if the client can’t pay a judgment later, there will be trouble.”
The case is Najor v. Blake, D052684
Copyright 2008, Metropolitan News Company