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Defendants Sued Over Fraudulent Transfer Not Entitled to Attorney Fees—C.A.
By a MetNews Staff Writer
Two brothers who were sued by a credit union on a debt incurred by their father, now deceased, on a theory that funds were fraudulently transferred to them to keep them beyond the reach of creditors, are not entitled to an award of attorney fees based on a proviso in the contract between the father and the financial institution for fees to the prevailing party should a dispute arise, the Court of Appeal for this district held yesterday.
Presiding Justice Maria E. Stratton of Div. Eight authored the opinion, which was not certified for publication. It affirms a postjudgment order by Los Angeles Superior Court Judge Deirdre Hill.
On March 8, 2017, the father, Chaudhry Muhammad, in ill health, transferred about $229,000 to his sons, Tanvir Ahmad and Wasim Ahmad, as well as placing three parcels of real property in an irrevocable trust, with them as co-trustees.
Suit Against Father
He subsequently took out a loan from the Los Angeles Federal Credit Union (“LAFCU”) and drew advances on his credit card, accumulating a debt of $35,309.28. LAFCU sued the father in Los Angeles Superior Court Case No. 18TRCV00171.
On Dec. 17, 2018, LAFCU sued the sons (as well as Muhammad) in a separate action, No. 18TRCV00201, alleging a fraudulent transfer. It sought to recover from them whatever was awarded in 18TRCV00171.
On March 1, 2019, LAFCU obtained a default judgment against Muhammad in the amount of $37,258.05.
The father died, and his estate had assets of only about $800.
A judgment in favor of the sons in 18TRCV00201 was entered on Dec. 13, 2021. They included in their cost bill $31,152.50 in attorney fees.
LAFCU moved to have the item stricken. The Ahmads insisted they were entitled to the fees under Civil Code §1717(a) which provides:
“In any action on contract, where the contract specifically provides that attorney fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the prevailing party on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney fees in addition to other costs.”
Trial Court’s Ruling
The contract between Muhammad and LAFCU contained such a provision. Last Feb. 15, Hill sided with LAFCU, explaining:
“[D]efendants have not shown any contractual or statutory authority that would allow defendants to recover attorney’s fees….Further, claims under the Uniform Fraudulent Transfer Act are considered torts.”
Stratton yesterday expressed agreement with Hill. She wrote:
“Section 1717 allows contract signatories to recover attorney fees in an action on the contract where they are the prevailing parties and the contract includes an attorney fees provision. If a contract only permits only one signatory to recover attorney fees, our Supreme Court has held that principles of mutuality permit any signatory to recover fees as the prevailing party….
“The Ahmads go further, contending that section 1717 applies not only to signatories but also to non-signatories who are sued in an enforcement action to collect a judgment obtained against a contract signatory.”
Stepping Into Shoes
Cases cited by them are not relevant, she said, “as they involve non-signatories who step into the shoes of the contract signatory by virtue of their status as alter egos, agents or successors in interest.”
The Ahmads, she pointed out, were not alter egos of their father and, in suing them on a fraudulent transfer theory, were not suing on the contract between it and their father. “LAFCU did not sue the Ahmads for breach of its loan and credit card agreements with Muhammad and did not contend the Ahmads were directly indebted to LACFU on those agreements” she said. “Because they never faced liability under Muhammed’s contracts with LACFU, they may not invoke section 1717 to recover their fees.”
The case is Los Angeles Federal Credit Union v. Ahmad, B320843.In a separate unpublished opinion filed yesterday, Stratton wrote for Div. Eight in affirming the judgment. She said the “findings support a conclusion that Muhammad transferred his assets either due to his failing health and a desire to give his money to his children while he was still alive or to protect the assets from his caregiver/wife,” adding:
“The trial court was permitted to infer from its factual findings that Muhammad was not motivated by any effort to hinder creditors. Substantial evidence supports the verdict in favor of respondents.”
That case is Los Angeles Federal Credit Union v. Ahmad, B317230.
Encino attorney John R. Yates represented the Ahmads and Alana B. Anaya and Joseph P. Graziano of Anaya Law Group in West Lake Village acted for LAFCU.
Copyright 2022, Metropolitan News Company