Thursday, March 19, 2026
Page 3
Court of Appeal:
Victims-Fund Claimant Need Not Show Judgment Is Valid
By a MetNews Staff Writer
A judge properly ordered that victims of a massive Ponzi scheme who obtained judgments on which they were unable to collect be paid from the Victims of Corporate Fraud Compensation Fund, Div. Three of the Fourth District Court of Appeal held yesterday, rejecting the argument by the Office of Secretary of State that the claims are invalid because the underlying lawsuit was time-barred.
That suit was brought in 2021 by more than 170 plaintiffs, both individuals and entities, and a default judgment was obtained against two corporations. Sixteen of the judgment creditors sought monies from the fund, pursuant to Corporations Code §2280 et seq., and, after they were turned down, petitioned the court for an order compelling payment.
Orange Superior Court Robert Shawn Nelson awarded judgment to the plaintiffs. In her opinion affirming the judgment as to liability, Justice Eileen C. Moore said:
“As a matter of first impression, we hold that under the fund’s statutory scheme…, the trial court lacked authority to relitigate the merits of Petitioners’ fraud claim from the prior lawsuit.”
Statutory Provision
Sec. 2282(a) provides:
“When an aggrieved person obtains a final judgment in a court of competent jurisdiction against a corporation based upon the corporation’s fraud, misrepresentation, or deceit, made with intent to defraud…the aggrieved person may, upon the judgment becoming final and after diligent collection efforts are made, file an application with the Secretary of State for payment from the fund….”
Sec. 2282(d)(2) says that where there is a default judgment, “the Secretary of State may request additional documents and information from the claimant to determine whether the claim is valid” and §2288(a) species that a court “shall order payment out of the fund only upon a determination that the aggrieved party has a valid cause of action within the purview of Section 2282.”
Secretary of State Shirley N. Weber’s office concluded that the claimants “failed to meet their burden of showing that the default judgment submitted in support of the Applications was based on a valid cause of action for corporate fraud” because suit was brought after a three-year limitations period.
Moore’s Opinion
Moore wrote:
“We disagree with the Secretary’s interpretation of section 2288, subdivision (a), based on the statute’s text, the surrounding statutory scheme, certain maxims of construction, the relevant legislative history, and public policy….’[C]ause of action; in section 2288, subdivision (a), refers to a payment claim, not the underlying causes of action. In other words, this statute directs the trial court to perform a limited inquiry into whether the claimant submitted a valid payment claim to the Secretary. It does not authorize the Secretary to relitigate the merits of the underlying causes of action.”
She declared that §2282(d)(2) “only allows the Secretary to ‘request additional documents and information from the claimant to determine’ whether the payment claim at issue is valid,” adding:
“It does not authorize the Secretary to request information concerning the validity of the underlying causes of action. As such, the Secretary cannot deny payment claims based on a claimant’s failure to provide information on the merits of the underlying causes of action.”
Public Policy
The jurist opined that “as a matter of public policy, it makes little sense for the Secretary and the trial court to relitigate the merits of an underlying cause of action that was already adjudicated in the final judgment.”
She said the court, in granting a default judgment, “found the corporations liable for fraud.” Moore pointed out that “[i]f the Secretary prevailed on its statute of limitations argument, it would in effect reverse the…judgment by declaring the…fraud claim invalid.”
The opinion reverses the judgment to a limited extent. Moore wrote:
“[W]e agree with the Secretary that the trial court’s order granting the petition violates section 2289, subdivision (a). This statute provides that the fund cannot pay more than $50,000 to any claimant for a single judgment. Here, the court’s order appears to award certain Petitioners more than $50,000 from the fund, so we reverse this portion of the order. On remand, we direct the court to enter a new order that complies with the monetary limits of section 2289, subdivision (a).”
The case is Dion v. Weber, 2026 S.O.S. 721.
Perpetrators of the Ponzi scheme, Michael J. Stewart and John Packard, were convicted of mail fraud. Then-U.S. District Court Judge Cormac Carney of the Central District of California (now an inactive senior judge) sentenced Stewart to 15 years in prison and ordered to pay $9,234,914 in restitution to 120 victims.
Packard was sentenced by Carney to two-and-a-half years and ordered to pay the same amount in restitution as Stewart.
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