On 12/22/2016 FARIBA COHEN filed a Contract - Professional Negligence lawsuit against KOLODNY LAW GROUP. This case was filed in Los Angeles County Superior Courts, Stanley Mosk Courthouse located in Los Angeles, California. The Judge overseeing this case is SUSAN BRYANT-DEASON. The case status is Pending - Other Pending.
Pending - Other Pending
Los Angeles County Superior Courts
Stanley Mosk Courthouse
Los Angeles, California
ANTEAU RONALD W.
KOLODNY & ANTEAU
KOLODNY STEPHEN A.
DOES 1 THROUGH 10
KOLODNY LAW GROUP
WEISS MICHAEL H.
LEICHTER KEVIN JOHN
MATTHAI EDITH RAE
3/9/2018: NOTICE OF HEARING ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
5/2/2018: CROSS-CROSS-DEFENDANTS KOLODNY & ANTEAU, STEPHEN A. KOLODNY, A PROFESSIONAL CORPORATION AND KOLODNY LAW GROUP'S REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEMURRER TO FARIBA COHEN'S CROSS-CROSS-COMPLAI
5/8/2018: NOTICE OF CONTINUANCE OF HEARING ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
5/10/2018: STIPULATION AND ORDER TO CONTINUE HEARING ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
6/6/2018: Minute Order
6/11/2018: CIVIL DEPOSIT
9/28/2018: DECLARATION OF ANDREW E. HEWITT IN SUPPORT OF PLAINTIFF AND CROSS-DEFENDANT FARIBA COHEN'S NOTICE OF MOTION AND MOTION TO COMPEL FURTHER RESPONSES TO PLAINTIFF'S FIRST SET OF INTERROGATORIES
1/3/2019: Notice of Change of Address or Other Contact Information
3/27/2019: Notice of Ruling
4/11/2019: Notice of Ruling
3/23/2017: DEFENDANTS' COMPENDIUM OF DECLARATIONS AND EXHIBITS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
3/23/2017: DEFENDANTS' SEPARATE STATEMENT IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
9/15/2017: Minute Order
11/15/2017: Minute Order
Motion for Protective Order; Filed by Kolodny Law Group (Legacy Party); Stephen A. Kolodny (Legacy Party)Read MoreRead Less
at 08:30 AM in Department 52, Susan Bryant-Deason, Presiding; Final Status Conference - Not Held - Advanced and VacatedRead MoreRead Less
Notice (of Entry of Minute Order dated April 19, 2019 re Stipulation and Protective Order); Filed by Kolodny Law Group (Legacy Party); Stephen A. Kolodny (Legacy Party)Read MoreRead Less
at 09:08 AM in Department 52, Susan Bryant-Deason, Presiding; Court OrderRead MoreRead Less
Minute Order ( (Court Order Re: Stipulation and Protective Order-Confidential...)); Filed by ClerkRead MoreRead Less
Certificate of Mailing for (Minute Order (Court Order Re: Stipulation and Protective Order-Confidential...) of 04/19/2019); Filed by ClerkRead MoreRead Less
Notice of Ruling; Filed by Kolodny Law Group (Legacy Party); Stephen A. Kolodny (Legacy Party)Read MoreRead Less
Notice of Ruling; Filed by Kolodny Law Group (Legacy Party); Stephen A. Kolodny (Legacy Party)Read MoreRead Less
at 08:30 AM in Department 52, Susan Bryant-Deason, Presiding; Post-Mediation Status Conference ((cf 3/29/19) Deft's counsel to give notice.) - HeldRead MoreRead Less
at 08:30 AM in Department 52, Susan Bryant-Deason, Presiding; Hearing on Motion to Compel Further Discovery Responses ((Adv. from 1/2/20)) - HeldRead MoreRead Less
NOTICE OF CASE MANAGEMENT CONFERENCERead MoreRead Less
Notice of Case Management Conference; Filed by Fariba Cohen (Legacy Party)Read MoreRead Less
ANSWER TO UNVERIFIED COMPLAINT; DEMAND FOR JURY TRIALRead MoreRead Less
Answer; Filed by Kolodny Law Group (Legacy Party); Stephen A. Kolodny (Legacy Party)Read MoreRead Less
Notice of Case Management Conference; Filed by ClerkRead MoreRead Less
NOTICE OF CASE MANAGEMENT CONFERENCERead MoreRead Less
COMPLAINT FOR: (1) LEGAL MALPRACTICE (2) NEGLIGENCE (3) MONIES HAD AM) RECEIVED (4) UNJUST ENRICHMENTRead MoreRead Less
SUMMONSRead MoreRead Less
Summons; Filed by Fariba Cohen (Legacy Party)Read MoreRead Less
Complaint; Filed by Fariba Cohen (Legacy Party)Read MoreRead Less
Case Number: BC644632 Hearing Date: January 28, 2021 Dept: 85
Fariba Cohen v. Kolodny Law Group, et al., BC644632
Tentative decision on applications for right to attach orders: denied
Plaintiff Fariba Cohen (“Fariba”) applies for rights to attach orders against Defendants Stephen A. Kolodny, P.C. (“SAKPC”), Ronald Anteau, P.C. (“RAPC”) and Kolodny & Anteau (“K&A”) (collectively, the “Kolodny Defendants”) in the amount of $8,363,123.17.
The court has read and considered the moving papers, opposition, and reply, and renders the following tentative decision.
A. Statement of the Case
Plaintiff Fariba commenced this action on December 22, 2016 against Kolodny Law Group (“KLG”) and Stephen A. Kolodny, Esq. (“Kolodny”), alleging causes of action for (1) legal malpractice, (2) negligence, (3) monies had and received, and (4) unjust enrichment. The Complaint alleges in pertinent part as follows.
Defendants KLG and Kolodny entered into a contract to represent Plaintiff Fariba in her marital dissolution from her husband, Saeed Cohen (“Saeed”), that was commenced in 2008. By agreeing to undertake the representation, Defendants each had a duty to use such skill, prudence, and diligence as members of the legal profession commonly possess and exercise in providing legal services to Plaintiff.
Defendant Kolodny deficiently advised Plaintiff regarding tax matters such as the characterization of her assets and money and property received at various stages of the litigation, including but not limited to distributions from the Cohens’ business, Amp Plus dba Elco Lighting (“Elco”).
Defendants failed to discuss with Plaintiff that the legal fees for the procurement of her spousal and child support were not dischargeable and failed to determine whether Plaintiff's tax returns properly accounted for the support, which was taxable income because it was wrongly characterized as distribution from Elco rather that support paid by Saeed. Once the court characterized the money paid to Plaintiff as distribution from Elco as equal partnership pay, Kolodny did not seek to inspect Elco's books and records and did not seek a court-appointed receiver for Elco, which allowed Saeed to perpetuate breaches of fiduciary duty and fraud in his false report of assets and income. Kolodny further did not advise Plaintiff of her right to appeal to rectify the facts that Saeed hid $50 million off the books of Elco and that the income distributed to Plaintiff was characterized as corporate distribution rather than support.
Kolodny deficiently represented Plaintiff in the dissolution of marriage proceedings (the "Divorce") leading to Plaintiff discharging Defendants KLG and Kolodny. Defendants failed to seek and obtain a domestic violence restraining order after being informed of Plaintiff's husband's abusive nature and given medical records by an expert in spousal abuse all of which would have placed Plaintiff in a better position for obtaining legal custody of her children.
Kolodny also deficiently represented Plaintiff in a bankruptcy case, In Re Saeed Cohen, Case No. 2:13-bk-26483-NB (the "Bankruptcy Case"). Defendants did not properly seeks adjustments to the family court support award despite the fact that Congress explicitly set out this ability as an exception to bankruptcy rules. Defendants also did not seek a retroactive adjustment once the district court ruled that Plaintiff always had been entitled to seek such adjustments/modifications. Based upon Saeed's admitted ability to take $3 million per year for his income and to pay his creditors, Plaintiff has never received guideline spousal or child support based upon Guideline or Marital Standard of Living.
For the period that Saeed was in Chapter 11 Bankruptcy, Kolodny all but abandoned Plaintiff and her case, while at the same time charging approximately $4 million in legal and expert fees and continuing to demand an additional $1 million in fees with interest.
Defendant Kolodny also never delivered Plaintiff’s client file to her, which severely restricted the ability to present Plaintiff’s case to the family court and the bankruptcy court.
On May 4, 2017, Defendants KLG and Kolodny filed a Cross-Complaint against Fariba, alleging causes of action for breach of contract and quantum meruit. The Cross-Complaint alleges in pertinent part as follows.
KLG and Kolodny entered into an engagement agreement with Fariba whereby they agreed to provide legal services to her. Fariba agreed to pay KLG and Kolodny for their services and disbursements on a monthly basis, and no later than ten days from the date of transmission of invoices.
From approximately October 1, 2013 to September 28, 2015, KLG and Kolodny performed services and incurred costs as counsel to Fariba. Fariba failed to pay KLG and Kolodny’s invoices for services and disbursements in excess of $215,000. Pursuant to the terms of the engagement agreement, she owes Cross-Complainants the invoice amounts and interest of 10% per annum.
3. Course of Proceedings
According to a proof of service on file, Defendants were served with the moving papers for the instant applications on January 5, 2021 via electronic service.
B. Applicable Law
Attachment is a prejudgment remedy providing for the seizure of one or more of the defendant’s assets to aid in the collection of a money demand pending the outcome of the trial of the action. See Whitehouse v. Six Corporation, (1995) 40 Cal.App.4th 527, 533. In 1972, and in a 1977 comprehensive revision, the Legislature enacted attachment legislation (CCP §481.010 et seq.) that meets the due process requirements set forth in Randone v. Appellate Department, (1971) 5 Cal.3d 536. See Western Steel & Ship Repair v. RMI, (12986) 176 Cal.App.3d 1108, 1115. As the attachment statutes are purely the creation of the Legislature, they are strictly construed. Vershbow v. Reiner, (1991) 231 Cal.App.3d 879, 882.
A writ of attachment may be issued only in an action on a claim or claims for money, each of which is based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable amount not less than five hundred dollars ($500). CCP §483.010(a). A claim is “readily ascertainable” where the amount due may be clearly ascertained from the contract and calculated by evidence; the fact that damages are unliquidated is not determinative. CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (2004) 115 Cal.App.4th 537, 540-41 (attachment appropriate for claim based on rent calculation for lease of commercial equipment).
All property within California of a corporation, association, or partnership is subject to attachment if there is a method of levy for the property. CCP §487.010(a), (b). While a trustee is a natural person, a trust is not. Therefore, a trust’s property is subject to attachment on the same basis as a corporation or partnership. Kadison, Pfaelzer, Woodard, Quinn & Rossi v. Wilson, supra, 197 Cal.App.3d at 4.
The plaintiff may apply for a right to attach order by noticing a hearing for the order and serving the defendant with summons and complaint, notice of the application, and supporting papers any time after filing the complaint. CCP §484.010. Notice of the application must be given pursuant to CCP section 1005, sixteen court days before the hearing. See ibid.
The notice of the application and the application may be made on Judicial Council forms (Optional Forms AT-105, 115). The application must be supported by an affidavit showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based. CCP §484.030.
Where the defendant is a corporation, a general reference to “all corporate property which is subject to attachment pursuant to subdivision (a) of Code of Civil Procedure Section 487.010” is sufficient. CCP §484.020(e). Where the defendant is a partnership or other unincorporated association, a reference to “all property of the partnership or other unincorporated association which is subject to attachment pursuant to subdivision (b) of Code of Civil Procedure Section 487.010” is sufficient. CCP §484.020(e). A specific description of property is not required for corporations and partnerships as they generally have no exempt property. Bank of America v. Salinas Nissan, Inc., (“Bank of America”) (1989) 207 Cal.App.3d 260, 268.
A defendant who opposes issuance of the order must file and serve a notice of opposition and supporting affidavit as required by CCP section 484.060 not later than five court days prior to the date set for hearing. CCP §484.050(e). The notice of opposition may be made on a Judicial Council form (Optional Form AT-155).
The plaintiff may file and serve a reply two court days prior to the date set for the hearing. CCP §484.060(c).
At the hearing, the court determines whether the plaintiff should receive a right to attach order and whether any property which the plaintiff seeks to attach is exempt from attachment. The defendant may appear the hearing. CCP §484.050(h). The court generally will evaluate the attachment application based solely on the pleadings and supporting affidavits without taking additional evidence. Bank of America, supra, 207 Cal.App.3d at 273. A verified complaint may be used in lieu of or in addition to an affidavit if it states evidentiary facts. CCP §482.040. The plaintiff has the burden of proof, and the court is not required to accept as true any affidavit even if it is undisputed. See Bank of America, supra, at 271, 273.
The court may issue a right to attach order (Optional Form AT-120) if the plaintiff shows all of the following: (1) the claim on which the attachment is based is one on which an attachment may be issued (CCP §484.090(a)(1)); (2) the plaintiff has established the probable validity of the claim (CCP §484.090(a)(2)); (3) attachment is sought for no purpose other than the recovery on the subject claim (CCP §484.090(a)(3); and (4) the amount to be secured by the attachment is greater than zero (CCP §484.090(a)(4)).
A claim has “probable validity” where it is more likely than not that the plaintiff will recover on that claim. CCP §481.190. In determining this issue, the court must consider the relative merits of the positions of the respective parties. Kemp Bros. Construction, Inc. v. Titan Electric Corp., (2007) 146 Cal.App.4th 1474, 1484. The court does not determine whether the claim is actually valid; that determination will be made at trial and is not affected by the decision on the application for the order. CCP §484.050(b).
Except in unlawful detainer actions, the amount to be secured by the attachment is the sum of (1) the amount of the defendant’s indebtedness claimed by the plaintiff, and (2) any additional amount included by the court for estimate of costs and any allowable attorneys’ fees under CCP section 482.110. CCP §483.015(a); Goldstein v. Barak Construction, (2008) 164 Cal.App.4th 845, 852. This amount must be reduced by the sum of (1) the amount of indebtedness that the defendant has in a money judgment against plaintiff, (2) the amount claimed in a cross-complaint or affirmative defense and shown would be subject to attachment against the plaintiff, and (3) the value of any security interest held by the plaintiff in the defendant’s property, together with the amount by which the acts of the plaintiff (or a prior holder of the security interest) have decreased that security interest’s value. CCP §483.015(b). A defendant claiming that the amount to be secured should be reduced because of a cross-claim or affirmative defense must make a prima facie showing that the claim would result in an attachment against the plaintiff.
Before the issuance of a writ of attachment, the plaintiff is required to file an undertaking to pay the defendant any amount the defendant may recover for any wrongful attachment by the plaintiff in the action. CCP §489.210. The undertaking ordinarily is $10,000. CCP §489.220. If the defendant objects, the court may increase the amount of undertaking to the amount determined as the probable recovery for wrongful attachment. CCP §489.220. The court also has inherent authority to increase the amount of the undertaking sua sponte. North Hollywood Marble Co. v. Superior Court, (1984) 157 Cal.App.3d 683, 691.
C. Statement of Facts
1. Plaintiff’s Evidence
On April 21, 2010, Fariba hired Kolodny of K&A to act as her lawyer in the Divorce Case. Fariba Decl., ¶5, Ex. J. Before and after the retention, Kolodny repeatedly told Fariba that he was the best divorce lawyer in Los Angeles and that Saeed would ultimately pay all of her legal bills. Fariba Decl., ¶6.
At the time she retained K&A, Fariba informed Kolodny that Saeed had been sued by a bank for $38,000,000 for a failed real estate project in New York and that he had hidden as much as $3,000,000 in accounts overseas. Fariba Decl., ¶7.
Kolodny later told Fariba that Saeed would have to pay all the taxes and penalties arising from his scheme to hide almost $49,000,000 of their community assets in foreign bank accounts to avoid taxes. Id. K&A aggressively pursued this strategy. Id.
From April 21, 2009 through June 26, 2013, Fariba incurred the following legal fees and expenses in connection with her divorce: (1) $5,359,714.13 to K&A; (2) $3,064,363.80 to Mayer Hoffman, et al.; and (3) $1,320,570.66 to the Law Offices of Dennis Brager, for a total of $9,744,648.59. Fariba Decl., ¶8, Ex. K.
Fariba and Saeed collectively expended an approximate $15,000,000 in professional fees for lawyers and forensic accountants and other experts, with K&A alone receiving $5,473,871.32. Weiss Decl., ¶14, Ex. A.
In July 2010, Saeed disclosed to the IRS that he had hidden about $49,000,000 in undisclosed foreign bank accounts pursuant to "OVDI", also known as OVDP, which is the Offshore Voluntary Disclosure Program where taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets and avoid criminal and civil penalties. Fariba Decl., ¶10, Ex. Y. Shortly before August 2, 2010, K&A and Fariba learned of Saeed's disclosure to the IRS. Id.
In correspondence throughout 2011, Saeed’s counsel informed Kolodny that Saeed’s finances were insufficient to pay for his various obligations and he was close to insolvency. Weiss Decl., ¶¶ 20, 22, 23, 24, Ex. Q, pp. 262-64; Ex. R, pp. 266-67, Ex. S, p.270; Ex. T, pp. 273-74.
In March 2012, the IRS asserted a "FBAR" penalty of about $8,700,000 against Saaed. Fariba Decl., ¶11. Saeed’s counsel and Kolodny were aware the community property assets were inadequate to pay both the parties’ legal fees and the parties’ obligation to the IRS. Weiss Decl., ¶¶ 12, 15. In the face of this insolvency situation, Kolodny proposed and Saeed’s family law counsel accepted, an arrangement whereby community property assets either outside the country or not in the hands of Saeed would be paid directly to the lawyers instead of the IRS.
The financial pressures from the combination of the divorce litigation, the debts owed to the IRS and FTB arising out of Saeed using foreign bank accounts to avoid reporting income, and the litigation to enforce the guaranty of a $38,000,000 loan assigned to One West Bank (“OWB”) impelled Saeed to file for bankruptcy, where Saeed’s estate spent another $4,015,942.32 in professional fees. Weiss Decl., ¶¶ 18-19, Ex. O, pp. 227-30; Ex. P, pp. 233-60.
For services rendered through July 31, 2015 in connection Saaed's bankruptcy, Fariba paid approximately $1,100,000 in legal fees and expenses through September 30, 2015 to KLG, Wolf Rifkin, et al., the Shenson Law Group, and Binder & Malter, LLP. Fariba Decl., ¶9.
Except for approximately $1,782.00 per month from Fariba’s State Farm insurance brokerage business in which she is a licensed insurance broker, all of the funds used to pay fees to K&A came from distributions from the community property lighting business (Elco), rents from the property in Vernon leased by Elco, Saeed, Fariba’s bank accounts, and distributions from community investments. Fariba Decl., ¶12.
As a result of the Divorce and Bankruptcy Cases, Fariba receives $20,892 per month in spousal support which cannot be modified until 2025, below the equal standard of living requirement. Fariba Decl., ¶13. From that amount, the IRS and FTB garnish $17,000 per month. Id.
Fariba received title to a community business entity, Lighton Property, LLC (“Lighton”) in April of 2017. Id. She receives $40,832 in monthly rent from that property where Saaed conducts his business. Id. Her expenses for that property are $224,000 per year. Id. Despite a term of ten years, there is no Consumer Price Index adjustment in that lease to increase the rent in the event of inflation. Id. Without that adjustment, the rent is significantly below market. Id. Fariba has the responsibility to maintain the roof, which had over $500,000 of deferred maintenance costs. Id. Fariba was precluded from receiving rents generated by the property until December 2019 because they were subject to attorneys' liens until that time. Id. The Lighton Property is worth about $5,200,000 and is subject to liens and encumbrances of $1,650,000 to Saeed, $4,500,000 to the IRS, and $1,200,000 to the FTB, for a total of $7,350,000. Id.
Fariba sued the Kolodny Defendants for malpractice and to recover the transfers that came from Saeed’s separate or community property after the Committee authorized Fariba to pursue those claims under Saeed’s bankruptcy plan. Weiss Decl., Ex. E, pp. 98-100.
2. Defendants’ Evidence
In April 2010, Fariba Cohen retained K&A to represent her in her marital dissolution action. Sturman Decl., ¶2. There was protracted and time-consuming litigation in the marital dissolution case, and several very complex issues arose that were highly unusual in a family law case. Id.
At the outset of the representation, it appeared that the issues that needed to be addressed were: (a) child custody and visitation; (b) child support; (c) spousal support; (d) the characterization, valuation, and division of property; and, (e) the payment of attorney’s fees and costs. Sturman Decl., ¶3. Resolving these issues was more complicated than usual because Fariba and Saeed were very hostile to each other, Fariba seemed to have limited knowledge of the parties’ financial matters, and the parties owned Elco, a business that was generating many millions of dollars per year of income. Id.
In June 2010, K&A prepared Fariba’s request for child support, spousal support, and attorney’s fees and costs. Sturman Decl., ¶4. However, it had incomplete information about the parties’ finances because Saeed managed and controlled Elco, which appeared to be their primary source of income. Id.
In July 2010, K&A filed Fariba’s request for child support, spousal support, and fees and costs. Sturman Decl., ¶5. The court set a hearing for August 2, 2010. Id. K&A received Saeed’s opposition and prepared Fariba’s reply. Id.
On August 2, 2010, the court ruled on Fariba’s request for child support, spousal support, fees and costs, awarding her $14,649 and $36,698 per month in child and spousal support, respectively. Sturman Decl., ¶6, Ex. 14. Saeed was also ordered to pay to Fariba an additional $20,284 per month, representing half of the net rental property income to the community from one of the community business entities, Lighton. Id. A further hearing was set in November 2010 regarding the same issues so both parties could conduct discovery and provide the court with more complete information. Id.
Around the same time, K&A received a letter from Saeed’s family law attorneys that there was approximately $45 to $50 million held in foreign bank account. Sturman Decl., ¶7. Either at that time or within a month, K&A was told by Saeed’s attorneys that he intended to participate in an IRS program which permitted taxpayers to disclose foreign bank accounts in order to incur a lesser amount of penalties and interest than the IRS might otherwise seek to have assessed. Id. Saeed’s disclosure of the foreign bank accounts and his stated intention to participate in the IRS program made the marital dissolution case substantially more complex. Id.
Fariba claimed not to know about the majority of the $45 to $50 million held in foreign accounts, and she did not want her share of community property money used to pay taxes, tax penalties and interest. Sturman Decl., ¶7A. She claimed that Saeed should be solely responsible for the taxes, penalties and interest. Id.
It appeared that the money held in foreign accounts was earned by the community property business, Elco, but the revenue had not been recorded on its books or reported on its tax returns. Sturman Decl., ¶7B. That meant those documents could not be relied on to determine Elco’s income and value. Id. The correct number for Elco’s income was necessary to calculate Saeed’s ability to pay support and attorney’s fees and costs, and to value the business. Id.
In early October 2010, a week or two before tax returns were required to be filed, K&A received a letter from Saeed’s attorneys stating that he was filing a separate income tax return. Sturman Decl., ¶8. Since Elco was a community property business, Fariba was supposed to report half of its income on her separate tax return. Id. However, she had not received one-half of Elco’s income and would not have the ability to pay the tax liability. Id.
At about the same time, K&A received tens of thousands of pages of financial documents produced by Saeed in discovery propounded by K&A to prepare for the November 2010 hearing regarding support and attorney’s fees and costs. Sturman Decl., ¶9. The November 2010 hearing was continued to January 2011. Id.
To address Fariba’s need to pay taxes for half of Elco’s 2009 income, K&A prepared and filed supplemental documents with the family law court and requested that it order Saeed to distribute money to her to pay taxes. Sturman Decl., ¶10. Saeed filed a substantial opposition to Fariba’s request. Id. K&A prepared a reply and worked with Fariba’s forensic accountant so that he could testify at the upcoming hearing. Id.
At the January 2011 hearing, the court determined that Saeed failed to present evidence to rebut Fariba’s claims, and it made a support order that essentially equally divided their community income. Sturman Decl., ¶11, Ex. 15. The child support and spousal support orders were increased to $64,398 and $204,596 per month, respectively, and were made retroactive to July 15, 2010. Id. The court also ordered for the parties to split the funds held in a Lighton Property, LLC Wells Fargo account. Id. The court retained jurisdiction over the issue of fees and costs, and it did not order Saeed to pay Fariba’s fees and costs at that time. Id.
In January 2011, K&A represented Fariba in connection with a separate hearing that Saeed initiated regarding the custody of the parties’ minor daughter, Lauren. Sturman Decl., ¶12.
After January 2011, K&A propounded additional discovery to determine Elco’s income, its value, the source of the funds held in foreign accounts, and other issues. Sturman Decl., ¶14. However, Saeed objected to producing documents and information, which resulted in motions to compel and a motion for protective order. Id. A judge pro tem was appointed to hear these matters. Id.
In May 2011, K&A received Saeed’s motion for new trial. Sturman Decl., ¶15. In addition to attempting to re-litigate the support issue, Saeed asked that tens of millions of dollars held in presumptively community accounts be distributed so that he could pay taxes, tax penalties and interest in order to allow him to be part of the IRS tax amnesty program. Id. K&A prepared Fariba’s opposition in which she objected to all of Saeed’s requests. Id.
In June 2011, the family law court denied Saeed’s requests. Sturman Decl., ¶16. However, the family law court allowed tens of millions of dollars in foreign accounts to be distributed to pay taxes, penalties, and interest. Id.
In August 2011, Saeed produced about 1.2 million pages of documents pursuant to the discovery order. Sturman Decl., ¶18. K&A and Fariba’s accountants reviewed and found certain documents that showed how Saeed used the parties’ business, Elco, to generate profits not reported to the IRS and instead were held in foreign accounts. Id.
On October 11, 2011, the court ordered Saeed to pay Fariba $1,129,504 in child and spousal support arrearages by January 3, 2012. Sturman Decl., ¶19, Ex. 16. Those arrearages had accrued between July 15, 2010 and January 2011 and the payments had not been made by Saeed. Id.
In November or December 2011, Saeed claimed to need additional community money from the foreign accounts to pay an additional/miscellaneous tax penalty to the IRS of approximately $8.75 million. Id. Simultaneously, Fariba sought to have Saeed contribute to her attorney’s fees and costs because she was using most of her income (including her child and spousal support payments) to pay her attorney’s fees. Id., Ex. 2. Because Fariba did not want additional funds to be paid to the IRS and she was contending that she had little or no knowledge of Saeed’s tax schemes, K&A spent additional time preparing for a hearing that was set for about March 2012. Id.
In March 2012, K&A represented Fariba at the hearing regarding Saeed’s request to use about $8.75 million to pay the miscellaneous tax penalty that he agreed to pay to the IRS, but that Fariba did not. Sturman Decl., ¶22. Fariba and Saeed then signed a stipulated support order that modified the prior support order. Id., Ex. 18. Under the stipulation, child and spousal support were set to $9,875 and $20,988, respectively. Id. However, both parties were also to each receive half of the pre-tax monthly net income from Elco, structured such that each party would receive an advance in the amount of $125,000 at the beginning of the month, with any remaining income distributed later in the month. Id. The following month, the family law court issued an order that denied Saeed’s request for a distribution of about $8.75 million to pay his miscellaneous penalty. Id.
In the summer of 2012, Saeed tried to cause the IRS to levy against community property so that would collect the $8.75 million that he owed. Sturman Decl., ¶23. At Fariba’s request, K&A took whatever actions it could in the family law court to prevent or delay those collection actions. Id.
On August 2, 2012, the court heard Fariba’s pending fee request. The court adopted a referee’s report and ordered that, retroactive to May 2012, the parties would be permitted to withdraw $120,000 per month from the community’s foreign bank accounts to pay their fees and costs. Sturman Decl., ¶24, Exs. 19-21. Pursuant to this order, K&A received a payment of $777,325.38 on December 7, 2012.
In December 2012, the family law court set trials in Fariba’s and Saeed’s family law case. Sturman Decl., ¶25. In the first phase of the trial set to commence in May 2013, the court was to determine whether one or both parties were responsible for the tax liabilities, tax penalties, interest, and miscellaneous tax. Id. In the second phase of the trial set to commence in June 2013, the court was to determine the issues of support, property, attorneys’ fees and costs. Id. The trials were estimated to last more than 30 days.
Because Fariba claimed she was unaware of the transactions that resulted in millions of dollars being deposited in foreign accounts, K&A conducted discovery to try to verify whether she could credibly claim ignorance. Sturman Decl., ¶26. Fariba had insisted that her signature had been forged on some of the documents to create the offshore bank accounts. Id. Both Fariba and Saeed Cohen retained questioned document examiners to evaluate the documents and express opinions about whether her signatures were genuine. Both document examiners concluded that Fariba likely signed certain documents that she had claimed she did not sign. Id.
In advance of trial, the parties reached a stipulation, approved by the trial court, concerning the payment of attorney’s fees and costs. The stipulation provided that Elco would distribute up to $750,000 each to Fariba and Saeed for payment of attorneys’ fees and costs. Sturman Decl., ¶27, Ex. 22. K&A received three payments from Elco pursuant to this stipulation: $250,000 on February 20, 2013, $250,000 on March 28, 2013, and $150,000 on April 2, 2013. Sturman Decl., ¶27. Because both forensic document examiners concluded that the signatures on certain documents were likely Fariba’s, before the trial, K&A advised Fariba that those findings could adversely affect her credibility and the strength of her positions at trial, and recommended she settle with Saeed on the tax issues, leaving the property valuation and support issues to be tried. Id.
A mandatory settlement conference was held prior to the trial before Judge Louis Meisinger. Fariba was in attendance and represented by K&A attorneys. Sturman Decl., ¶27. Although Fariba indicated that she was willing to concede that the $11 million of already-paid tax penalties and interest on the income taxes were a community obligation, she wanted Saeed to remain responsible for the miscellaneous penalty of more than $8 million and not the community. Id. Judge Meisinger explained that the handwriting expert’s conclusions weakened Fariba’s case and that he believed Saeed had the stronger position as to the tax claims. Id.
At the settlement conference, Saeed made two settlement offers. Sturman Decl., ¶28. The first offer was that all the assets would be sold, the proceeds would be used to pay the $8.75 million miscellaneous penalty, $2 million would be paid to Fariba as an inducement, and the remainder would be equally divided. Id. The second offer was to divide various assets between the parties and sell Elco, the profits from which would be divided equally between the parties if they exceeded a certain amount. Fariba declined all the settlement offers. Id.
In May 2013, the first phase of the trial started. Sturman Decl., ¶29. The trial regarding tax issues was continued to June, to be immediately followed by trial on the remaining issues. Id. Trial dates regarding attorneys’ fees and costs were not scheduled. Id.
One of the issues that was to be addressed at the second phase of the trial was the character of a potential debt relating to a lawsuit filed by a bank against Saeed and others. Sturman Decl., ¶30, Exs. 26-27. That lawsuit was referred to as the Whitestone Jewels litigation. Id. During the parties’ marriage, Saeed and others purchased property in New York via an entity called Whitestone Jewels, LLC, with the intent of developing it. Id. The property was acquired with a $17.5 million bank loan personally guaranteed by Saeed. Id. When Whitestone Jewels defaulted, the lender sought to foreclose and also brought suit against Saeed as a guarantor. The actual amount of the liability was vigorously litigated by Saeed, even after summary judgment was entered for the lender. Id.
On June 25, 2013, days before the trial was to resume, K&A was notified by Saeed’s attorneys that he filed a Chapter 11 bankruptcy petition. Sturman Decl., ¶31, Ex. 5. Saeed’s bankruptcy filing was unexpected because only a few weeks prior, he had filed a schedule of assets and debts which showed that his assets exceeded his debts. Id., Ex. 6.
On July 12, 2013, K&A learned that Fariba had retained Simon Aron (“Aron”) of Wolf, Rifkin, Shapiro, Shulman & Rabkin, LLP to represent her in Saeed’s bankruptcy. Sturman Decl., ¶32. Fariba did not retain K&A or KLG to represent her interests in Saeed’s bankruptcy. Id.
In May 2015, Saeed and the Creditors’ Committee proposed a Fourth Amended Joint Plan of Reorganization. Sturman Decl., ¶33, Ex. 7. This plan was confirmed by the bankruptcy court on July 31, 2015. Id. Ex. 23. In June 2015, the Creditors’ Committee filed an adversary proceeding against K&A to avoid the pre-bankruptcy transfers to K&A for the attorneys’ fees incurred in representing Fariba in the divorce proceeding, claiming that the transfers were constructively fraudulent under the Bankruptcy Code and the UVTA. Sturman Decl., ¶34, Ex. 8.
K&A billed Fariba monthly for the work performed on her behalf. Wolff Decl., ¶3. The monthly invoices reflected the hours worked, and the rates charged, for the attorneys and paralegals working on her matter, as well as the costs incurred in the course of litigation. Id.
From September 2010 through April 2013, K&A received court-ordered payments from Saeed, and Fariba either picked those checks up at K&A or they were sent to her. Sturman Decl., ¶35.
Throughout K&A’s representation of Fariba, it received 51 payments in partial satisfaction of her outstanding receivable. Wolff Decl., ¶¶ 3-7, Ex. 1. The payments came from Fariba, Saeed, Elco, Fariba, Saeed’s community-property business, and from Fariba and Saeed’s offshore bank accounts, all per court orders. Id. Some of the payments were allocated in their entirety to pay other professionals or litigation costs, some payments were applied in their entirety towards the K&A receivable, and some of the payments were divided between K&A and other professionals. Id.
K&A received $3,425,831.97 in payments from Fariba. Wolff Decl., ¶4, Ex. 1. K&A received $650,000 in payments from Elco. Wolff Decl., ¶5, Ex. 1. K&A received $1,520,133.08 in payments from Fariba’s and Saeed’s foreign bank accounts. Wolff Decl., ¶6, Ex. 1. K&A received a payment of $19,325 from Saeed. Wolff Decl., ¶7, Ex. 1. The payments were all made to K&A. Wolff Decl., ¶8. No payments on behalf of Fariba were received at any time by either SAKPC or RAPC. Id. Fariba still owes $1,049,043.69 for unpaid services and disbursements provided to her by K&A. Wolff Decl., ¶9.
After K&A dissolved, KLG was formed. Fariba signed a retainer with KLG. Wolff Decl., ¶10. KLG performed services on behalf of Fariba and billed her for those services. Id. To date, Fariba has not made any payments to KLG. Id.
3. Reply Evidence
Upon review of the calculations for Fariba’s claimed prejudgment interest, Fariba’s counsel discovered that the payment of $19,325 on November 10, 2011 had been included twice and double counted. Weiss Reply Decl., ¶3a. After correcting this error, the transfer amount of $5,473,871.32 remains unchanged and prejudgment interest is corrected to $2,860,406.25, for a corrected total of $8,314,952.57, representing a variance of $48,170.60. Weiss Reply Decl., ¶3a.
Defendants’ claim that Fariba’s Brief used $8,363,251.85, instead of the sum requested in the Application ($8,363,123.17), arises from its own error in transposing the last five digits of the prejudgment interest request ($251.85) and the last five digits of the total requested ($123.17). Weiss Reply Decl., ¶3b.
Defendants’ confusion from the statement in Fariba’s declaration that she paid $5,359,714.13 to K&A is due to Fariba’s counsel’s good faith error and inadvertent failure to include all the fees incurred through June 26, 2013. Weiss Reply Decl., ¶3c.
Fariba seeks right to attach orders against the Kolodney Defendants (K&A, SAKPC, and RAPC) in the amount of $8,363,123.17, which includes pre-judgment interest of $2,889,251.85. App. at 5. Defendants oppose.
1. Procedural Issues
Fariba submitted a single application for right to attach orders, listing all three Defendants in an attachment to the application. This is improper. A separate application is required for each Defendant. While the Judicial Council form is not mandatory, Fariba used the form and it clearly provides spaces for the “Defendant” in the singular form. Defendants do not object to this procedural failure and the court will address the merits of the applications.
a. A Claim Based on a Contract
Fariba’s claim is based on a voidable transaction claim for six transfers totaling $2,189,458.08 from Saeed, a Saeed community property account, or Elco to K&A (“Initial Transfers”) and 43 payments totaling $3,284,323.24 from Saeed to Fariba, who then paid K&A (“Immediate Transfers”). App. at 6-7.
As Fariba notes, attachment is a statutorily proscribed remedy for voidable transfer under the Uniform Fraudulent Transactions Act (“UFTA”). App. at 14. Whether made before or after the creditor’s claim arose, a transfer is voidable if it was made (1) with actual intent to “hinder, delay or defraud” a creditor (Civil Code §3439.04(a)(1)) or (2) without receiving reasonably equivalent value and the debtor either (a) was engaged in a business for which the debtor’s remaining assets were unreasonably small in relation to the business or transaction, or (b) intended to incur or reasonably should have believed that the debtor would incur debts beyond his or her ability to pay as they became due. Civil Code §3439.04(a)(2).
In determining whether a transfer was made “with actual intent to hinder, delay, or defraud any creditor” the court may consider: (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; and (11) whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor. Civil Code §3439.04(b).
A transfer made after the creditor’s claim arose is voidable if it was made without receiving a reasonably equivalent value and the debtor was insolvent at the time or became insolvent as a result of the transfer. Civil Code §3439.05(a). In an action for relief against a transfer, a creditor may obtain an attachment or other provisional remedy against the asset transferred. Civil Code §3439.07(a)(2); Whitehouse v. Six Corporation, (1995) 40 Cal.App.4th 527, 533.
Fariba steps into the shoes of a creditor, OWB, to void the allegedly fraudulent transfers to K&A pursuant to 11 U.S.C. (“Bankruptcy Code”) section 544(b). App. at 14. Pursuant to the Bankruptcy Code, a trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that existed on the date of the debtor’s bankruptcy petition and of each transfer. Bankruptcy Code §544(b). Fariba relies on Civil Code section 3439.05(a) as the pertinent applicable law. App. at 6, 13-14.
A creditor can recover from an initial transferee – one who receives a direct transfer from a debtor. Bankruptcy Code §550(a)(1). According to Fariba, even if these transfers were made pursuant to family law orders, they may be avoided. Mejia v. Reed, (2003) 31 Cal.4th 657, 668. Transfers to an initial transferee can be avoided even if the transferee gives good value and acts in good faith. Thompson v. Jonovich, (Bankr. D. Ariz. 1994) 168 B.R. 408, 417-18. Immediate transfers may also be recovered under Bankruptcy Code section 550(a)(2) and a good faith defense is negated by the transferor’s insolvency. Bonded Fin. Serv. v. European American Bank, (7th Cir. 1988) 838 F.2d 890, 897-98. App. at 12-13.
Saeed filed for bankruptcy on June 26, 2013, creating an estate that included the right to avoid and recover fraudulent transfers. App. Ex. D; Bankruptcy Code §541. Pursuant to Bankruptcy Code section 1123(b)(3)(B), Saeed’s chapter 11 reorganization plan appointed Fariba to prosecute the estate’s fraudulent transfer claims. App. Ex. E, pp. 98-100. OWB is an actual creditor of Saeed, whose predecessor-in-interest sued Saeed to enforce a guaranty on May 27, 2009. App. Exs. H, I. An attachment may issue against a guarantor (Saeed) who has waived the right to require a creditor, OWB, to proceed against the secured collateral first. Engelman v. Bookasta, (1968) 264 Cal.App.2d 915, 917-18. Saeed waived any right that OWB must proceed first against its real property security. App. Ex. H, pp. 116-18. Fariba is permitted to seek attachment because OWB could also have sought attachment. Civil Code §3439.07(d).
These are claims on which attachment can be based.
b. An Amount Due That is Fixed and Readily Ascertainable
A claim is “readily ascertainable” where the damages may be readily ascertained by reference to the contract and the basis of the calculation appears to be reasonable and definite. CIT Group/Equipment Financing, Inc. v. Super DVD, Inc., (2004) 115 Cal.App.4th 537, 540-41. The fact that the damages are unliquidated is not determinative. Id. But the contract must furnish a standard by which the amount may be ascertained and there must be a basis by which the damages can be determined by proof. Id. (citations omitted).
Fariba does not directly address this issue. Fariba’s claim in the amount of $8,363,123.17 is based on the Initial Transfers from Saeed to K&A totaling $2,189,458.08 and the Immediate Transfers from Fariba to K&A totaling $3,303,648.24, an overall total of $5,473,871.32. App. at 5, 6-7; Reply at 6. Fariba provides a summary of the transactions in question. App. Ex. A.
Although Defendants note (Att. at 1-2) that Fariba’s declaration and memorandum cite inconsistent amounts for the transfers, the supporting evidence matches the amount sought on the Judicial Council form, which is sufficient for the amount due to be fixed and readily ascertainable.
In addition to the transfers totaling $5,473,871.32, Fariba argues she is entitled to attach pre-judgment interest pursuant to Civil Code sections 3287 and 3289. App. at 14. Pre-judgment interest is available on attachment and is owed from the time that the obligation to pay money begins. See Santa Clara Waste Water Company v. Allied World National Assurance Company, (2017) 18 Cal.App.5th 881, 890. The rate for pre-judgment interest is 10%. Civil Code §3289(b).
Based on the rate of interest of 7% per annum permitted by Civil Code section 3287, Fariba provides calculations that $1,215,116 has accrued for the Initial Transfers and $2,167,193.66 has accrued for the Immediate Transfers. App. Ex. A.
As Defendants note, these two amounts total $3,382,309.66, which does not match the amount listed on the Judicial Council form or in Fariba’s memorandum. In reply, Fariba admits to making an error in calculating pre-judgment interest and corrects the amount to $2,860,406.25. Weiss Reply Decl., ¶3a. However, Fariba’s correction fails to address the discrepancy in the total of Initial and Immediate Transfers. Moreover, the 7% per annum rate permitted by Civil Code section 3287 only applies against a public entity. Civil Code §3287(c). K&A is not a public entity; the rate of 10% per annum permitted by Civil Code section 3289(b) would apply. Fariba further wrongly labels the $2,899,251.85 in pre-judgment interest as estimated costs on her Judicial Council form.
As Fariba’s application incorrectly describes the pre-judgment interest and her calculations for it are wrong, pre-judgment interest is not fixed and readily ascertainable and is denied.
c. Probability of Success
Fariba asserts a probability of success on her claim for voidable transfer, arguing that Saeed made the transfers while he was insolvent and that he received less than the reasonably equivalent value for the transfers. App. at 14.
Under the UFTA, a transfer made after the creditor’s claim arose is voidable if it was made without receiving a reasonably equivalent value and the debtor was insolvent at the time or became insolvent as a result of the transfer. Civil Code §3439.05(a). Both parties call such a voidable transfer constructive fraud. See App. at 14; Opp. at 7.
(i) Claim against SAKPC and RAPC
Defendants assert that Fariba cannot seek attachment against SAKPC or RAPC. Att. at 1. A plaintiff may only obtain an attachment against the asset transferred or other property of the transferee. Civil Code §3439.07(a)(2); Whitehouse v. Six Corporation, supra, 40 Cal.App.4th at 533.
As Defendants note, Fariba has not established that either SAKPC or RAPC received any money that would be subject to the UVTA. Att. at 1. Fariba signed a retainer agreement with only K&A. She has not shown that she had any relationship with SAKPC or RAPC or that she ever made any payments to them for services. Instead, Fariba argues that she can avoid a transfer against a general partnership and recover its from its general partners pursuant to Bankruptcy Code section 550. App. at 7, n. 8; Reply at 13. While this is true, Fariba does not present any evidence that SAKPC and RAPC are general partners in K&A.
Fariba has not shown that she can obtain a right to attach order against either SAKPC or RAPC.
(ii) Transfers from Elco and Lighton
Defendants contend that Fariba cannot void the transfers from Elco and Lighton to K&A because the monies were not Saeed’s property and the UFTA does not apply. Opp. at 8.
Both Civil Code section 3439 and Bankruptcy Code section 548 (“section 548”) only apply to transfers of the debtor’s property. Section 548’s requirement for a debtor’s interest in property has generally been held to be the equivalent of the bankruptcy estate’s property; the debtor has an interest in any property that would have been part of the estate had it not been transferred before the commencement of the bankruptcy. Begier v. IRS, (1990) 496 U.S. 53, 59; Gladstone v. US. Bancorp, (9th Cir. 2016) 811 F.3d 1133, 1138-39; In re Matter of Heller Ehrmann LLP, (9th Cir. 2016) 830 F.3d 964, 969; Bankruptcy Code §541(a)(1) (defining debtor's property interests as including all legal or equitable property interests of the debtor as of commencement of the case.) Similarly, Civil Code 3439.01(a) only allows a creditor to set aside transfers of the debtor’s property to a third party.
As Defendants correctly note (Opp. at 9), a corporation is a legal entity separate and distinct from its stockholders, officers, and directors. Robbins v. Blecher, (1997) 52 Cal.App.4th 886, 892; see also Sonora Diamond Corp. v. Superior Court, (2000) 83 Cal.App.4th 523, 538. A corporation's shareholder does not hold legal title to the corporation's assets. See Dole Food Co. v. Patrickson, (2003) 538 U.S. 468, 474. It is well accepted that a bankruptcy filing by an individual who is an owner of a corporation brings into the estate only his ownership interest and not the assets of the corporation. In re Shapow, (Bankr. C.D. Cal. 2019) 599 B.R. 51, 71.
Fariba does not address this argument, instead asserting that the transfers are still voidable because, even though the Initial Transfers were indirectly made, an indirect transfer of community property is still within the definition of voidable transfers under the Bankruptcy Code and the UFTA. Reply at 7-8. Fariba misunderstands Defendants’ argument, which is that the Initial Transfers were monies belonging to Elco and Lighton and Saeed did not own those monies; he only held ownership interests in those companies.
Saeed filed for bankruptcy as an individual on June 25, 2013 (Opp. Ex. 5), which created an estate comprised of his legal or equitable property interests. Saeed identified his ownership interest in Elco on his Schedule of Assets and Debts, which he represented was 100% owned by The Cohen Family Trust dated November 25, 2002. Opp. Ex. 6, p.108. He also identified his ownership interests in Lighton. Id. While Saeed’s ownership interests in Elco and Lighton were part of his bankruptcy estate, the assets of those corporations were not. The transfers to K&A by Elco and Lighton are not voidable under either the Bankruptcy Code or UFTA since they were not transfers of an interest of property of the debtor, who was Saeed.
Fariba cannot seek attachment of the $650,000 transferred from Elco or the $777,325.38 transferred from Lighton, a total of $1,427,325.38. App. Ex. A; Wolff Decl., ¶¶ 5-6, Ex. 1.
(iii) Reasonably Equivalent Value
The remaining payments to K&A were made either directly by Saeed or through Fariba. A transfer made after the creditor’s claim arose is voidable if it was made without receiving a reasonably equivalent value and the debtor was insolvent at the time or became insolvent as a result of the transfer. Civil Code §3439.05(a); §548(a)(1)(B)(i). The debt must have preceded the transfer. Warsco v. Preferred Technical Group, (7th Cir. 2001) 258 F.3d 557, 569; see also, In re Imperial Corp. of America, (Bankr. S.D. Cal. 1992) 144 B.R. 115, 120. Saeed’s debt to OWB occurred prior to any payment of Fariba’s attorneys’ fees. See App. Exs. H, I (La Jolla Bank lawsuit filed in 2009).
Courts ascertain reasonably equivalent value from the standpoint of creditors by comparing what the debtor surrendered and what the debtor received. In re Prejean, (9th Cir. 1993) 994 F.2d 706, 708; Wyle v. C.H. Rider & Family, Inc., (9th Cir. 1991) 944 F.2d 589, 597. First, the court must determine that the debtor received value in exchange for the transfer. In re Brobeck, Phleger & Harrison, LLP, (Bankr. N.D. Cal. 2009) 408 B.R. 318, 341. Second, if the debtor received value, the court must then determine whether what the debtor received in exchange was reasonably equivalent to what the debtor gave up. Id. “Value” is defined for fraudulent transfer purposes as property, or satisfaction or securing of a present or an antecedent debt of the debtor. Bankruptcy Code §548(d)(2)(A); BFP v. Resolution Trust Corp., (1994) 511 U.S. 531, 535-36; Civil Code §3439.03; Annod Corp v. Hamilton & Samuels, (2002) 100 Cal.App.4th 1286, 1297.
Fariba argues that Saeed received less than the reasonably equivalent value for both the Initial and Immediate Transfers. App. at 15; Reply at 8-9.
Fariba contends that all of Saeed’s payments to her, and her subsequent payment of $3,284,323.24 to K&A (the Immediate Transfers), came from either community property in Saeed’s possession, the parties’ joint community accounts, community investments, or Elco. From August 9, 2010 to May 28, 2013, with the exception of some relatively small payments from her insurance business, all of the funds that Fariba used to pay K&A came from Saeed’s transfer of $8,399,720.08 in community property. Saeed received no value for those payments because he did not use those monies to satisfy existing community debts. App. at 17; Reply at 8-9.
Defendants are correct that Saeed made transfers to Fariba to satisfy his court-ordered support obligations, not pay her attorneys’ fees. Following contested proceedings, the family court issued numerous orders requiring Saeed to pay child and spousal support. The family court also ordered Saeed to make distributions from Elco and Lighton to Fariba. Opp. Ex. 14, pp. 789, 790; Ex. 18, p.881. Beginning in September 2010 and through April 2013, Saeed sent checks payable to Fariba to satisfy his court-ordered support obligations. Sturman Decl., ¶35.
Fariba asserts that the court’s transfer orders are not entitled to deference because they were interim orders, rather than a final judgment, distinguishing her situation from that in Batlan v. Bledsoe, (9th Cir. 2008) 569 F.3d 1106, 1111, upon which Defendants rely. She argues that the Bankruptcy Court’s later determination of support payments is a better indicator which should not bind Saeed’s creditors. Reply at 10. While the family law orders may have been interim in nature, Fariba fails to provide any authority demonstrating that this difference is material or that support payments ordered in the Bankruptcy case have any bearing on the court-ordered support. The fact that the family law court orders reserved the right to recharacterize the payments of spousal and child support as distributions of income does not change the fact that Saeed made the transfers to satisfy support obligations, not to pay Fariba’s attorney fees.
As Defendants correctly note (Opp. at 11), Fariba’s position – that Saeed’s estate received less than reasonably equivalent value from her payments to J&A – is contradicted by her admissions. She has repeatedly declared under oath that she used the court-ordered support payments received from Saeed to pay K&A and the other professionals retained in the divorce proceeding. Fariba used $980,000 of these support payments to pay the fees owed to K&A. Opp. Ex. 13, pp. 777-82; Ex. 2, pp. 52-53 (¶¶ 12-13); Ex. 3, pp. 55-56 (¶¶ 11-12)
These support payments were her separate property, not community property. Family Code §771(a). Whether Saeed improperly used community property instead of his separate property to meet his support obligations is inconsequential. A debtor who pays court-ordered child and spousal support receives reasonably equivalent value. In re Whaley, (“Whaley”) (Bankr. N.D. Miss. 1995) 190 B.R. 818; see also In re Libra, (E.D. Mich. 2018) 584 B.R. 550; In re Bledsoe, (9th Cir. 2009) 569 F.3d 1106.
Whaley is fairly on point. In Whaley, the debtor-husband filed an adversary proceeding to void court-ordered child and spousal support payments made to his former spouse in the divorce proceeding as fraudulent transfers under section 548 of the Bankruptcy Code. Whaley, supra, 190 B.R. at 819. The bankruptcy court concluded the debtor/husband received reasonably equivalent value for the amounts he paid to his former wife for alimony and support obligations and the payments were not avoidable as fraudulent transfers. Id. at 822. Since Saeed was legally bound to make the transfers to Fariba and the payments were made in satisfaction of his court-ordered support obligations, Saeed received value for $980,000 in transfers made to Fariba for spousal and child support. Subtracting the $980,000 from the $3,284,323.24 in Immediate Transfers, leaves $2,304,323.24 available for Farida to set aside.
Fariba also asserts that the $2,189,458.08 in attorneys’ fees paid directly to K&A (the Initial Transfers) was her separate debt because she incurred it after the February 26, 2010 date of separation. App. at 16. Community property cannot be used to pay a separate debt with only a modest exception for “common necessities of life”. Post-separation support is a separate debt that cannot be paid from community property unless there is a community property surplus. Family Code §2623(b). Fariba contends that Saeed received less than equivalent value for the Initial Transfers because community property was used to reduce her separate debt to K&A. App. at 16;.
Unlike the Immediate Transfers, these direct payments to K&A from Saeed or community property entities would not have been for spousal or child support. They occurred between December 13, 2011 and May 28, 2013, after the year 2011 when Fariba admitted that she used $980,000 in support payments for her attorneys’ fees. While Defendants present evidence that Saeed sent checks to K&A through April 2013 that were payable to Fariba to satisfy his court-ordered support obligations (Sturman Decl., ¶35), that does not mean Fariba used these monies for attorneys’ fees. Thus, the Initial Transfers were community property used to pay K&A’s fees and Saeed arguably received less than reasonably equivalent value for Fariba’s separate debt.
However, $1,427,325.38 of the Initial Transfers came from Elco or Lighton as discussed ante. This leaves $762,133.38 of the Initial Transfers available for Fariba to void as lacking reasonably equivalent value because it was community property. Adding $2,304,323.24 in Immediate Transfers to the $762,133.38 in Initial Transfers, Fariba can seek to set aside a total of $3,066,456.62 for constructive fraud.
A transfer made after the creditor’s claim arose is voidable only if the debtor was insolvent at the time or became insolvent as a result of the transfer. Civil Code §3439.05(a); Bankruptcy Code §548(a)(1)(B)(ii)(I). A debtor is insolvent if, at fair valuations, the sum of the debtor's debts is greater than all of the debtor's assets. Civil Code §3439.02(a); Bankruptcy Code §101(32)(A); In re Pierce, (Bankr. D. Idaho 2010) 428 B.R. 524, 530; Slater v. Bielsky, (1960) 183 Cal.App.2d 523, 526. A debtor that is generally not paying the debtor's debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence. Civil Code §3439.02(b).
Fariba asserts that she can void Saeed’s transfers because he was insolvent when he made them. She argues that Saeed is presumed insolvent because he was not paying his debts as they came due as early as May 27, 2009, when OWB sued him based on the OWB Guaranty. App. at 15; Reply at 11. Saeed was insolvent by August 2, 2010 when Kolodny disclosed to the court that Saeed had tens of millions in undisclosed foreign accounts, incurring liabilities relating to his concealment of those monies. App. at 15. Saeed’s transfer of $5,493,106.32 to K&A occurred from August 9, 2010 through May 28, 2013, after he was failing to pay his debts as they came due. App. at 15.
Defendants note that Fariba relies on Saeed’s failure to pay one debt as it came due, the OWB Guaranty. She ignores the evidence that Saeed’s failure to pay the OWB Guaranty was based on a bona fide dispute, which is an exception to the presumption of insolvency. Civil Code §3439.02(b). Opp. at 15.
OWB’s predecessor filed its complaint for judicial foreclosure on a mortgage because Whitestone Jewel, LLC failed to pay the loan. Saeed was sued as one of the guarantors. App. Ex. I. In his opposition to OWB’s motion for summary judgment, Saeed argued that as the guarantor he could only be for a deficiency judgment after the foreclosure sale. Opp. Ex. 26, p. 909. Saeed also disputed whether OWB could recover a deficiency judgment from him, arguing that OWB failed to mitigate its damages. Id. Saeed further disputed the default penalties, the high rate of default interest (Opp. Ex. 27, pp. 914, 915) and that the amount of his potential liability could be determined before the foreclosure sale. Opp. Ex. 26, p. 911.
After summary judgment was granted, Saeed continued to challenge the amount of his liability to OWB. Opp. Ex 27, pp. 914, 915. Saeed disputed the amount owed to OWB in the bankruptcy as well. Opp. Ex. 5, p.81. Eventually, the OWB debt was resolved for approximately $9 million, not the approximately $36 million claimed. Opp. Ex. 7, pp. 650-53. Therefore, a bona fide dispute existed regarding the OWB debt and the section 3439.02(b) presumption of insolvency was not triggered.
Fariba correctly notes that the language providing an exemption to insolvency for a bona fide dispute is only present in the current version of Civil Code section 3439.02(b), which applies only to transfers on or after January 1, 2016. Reply at 11; Civil Code §3439.14(b). The UFTA, which governs the transfers in question, does not contain the bona fide dispute exception. Weiss Reply Decl., Ex. GG.
Under both the UFTA and the UVTA, the burden of proving insolvency has always been on the creditor. Neumeyer v. Crown Funding Corp, (“Neumeyer”) (1976) 56 Cal.App.3d 178, 186; Stearns v. Los Angeles City School Dist. (1966) 244 Cal.App.2d 696, 737 (ordinarily the burden of proving insolvency is on the creditors, and, as a general rule, solvency and not insolvency is presumed). To overcome the presumption of solvency, some basis in evidence is required for determining that the amount of the debtor's obligations exceed the fair value of his non-exempt assets. Neumeyer, supra, 56 Cal.App.3d at 186. Under the UFTA, Civil Code section 3439.02 presumed insolvency where the debtor was not generally paying his debts, and it did so without regard to a bona fide dispute. This does not mean, however, that the court is required to ignore a bona fide dispute with regard to a debt. In this provisional remedy proceeding, the court will not find that Saeed was generally not paying his debts when due based on the non-payment of a single large debt which he contested. Therefore, he is not presumed to have been insolvent and Fariba will have to prove Saeed’s insolvency at trial.
Additionally, Saeed’s May 5, 2013 Schedule of Assets and Debts in bankruptcy showed that his assets exceeded his debts approximately one month prior to his bankruptcy petition. Opp. Ex. 6, pp. 95-96. The confirmation order in bankruptcy provides for payment in full of most of Saeed’s outstanding claims and for the transfer to Fariba of the Lighton property free and clear of all claims of the estate. Opp. Ex. 23. Saeed received a surplus payment in excess of $3 million after liquidation and resolution of the bankruptcy estate. Opp. Ex. 7, p. 661.
Fariba notes that solvency is measured at the time of transfer (not resolution of the Bankruptcy Case) and refers to Saeed’s bankruptcy schedules showing $53,516,808.34 in liabilities and only $25,085,770.78 in assets. Weiss Reply Decl., Ex. FF. Reply at 11. True, but $37 million of the liabilities were the OWB debt. Ex. FF, p. 81. Saeed’s assets clearly exceeded his liabilities at the 2011-13 time of paying K&A’s fees if the contested OWB debt is reduced.
Fariba has not shown that Saeed was insolvent at the time of the transfers. Fariba has not met the elements of constructive fraud under Civil Code section 3439.05(a) and Bankruptcy Code §548(a)(1)(B)(i).
Fariba asserts that Defendants cannot setoff their claims for fees against her fraudulent transfer claims. App. at 18.
Bankruptcy Code section 553 has three conditions to assert a setoff: (1) the debtor owes the creditor a pre-petition debt; (2) the creditor owes the debtor a pre-petition debt; and (3) the debts are mutual. Biggs v. Stovin, (Bankr. 9th Cir. 1998) 219 B.R. 837, 843-44. For debts to be mutual, they must be in the same right and be between the same individuals who stand in the same capacity. In re County of Orange, (Bankr. C.D. Cal. 1995) 183 B.R. 609, 616. Courts strictly construe mutuality. Newbery Corp. v. Fireman’s Fund Ins. Co., (9th Cir. 1996) 95 F.3d 1392, 1399.
Fariba asserts that none of the Bankruptcy Code conditions are present because there were no obligations between Saeed and K&A prior to his bankruptcy. App. at 18; Reply at 13-14. Fariba’s debt to K&A arose pre-bankruptcy whereas the fraudulent transfer claims arose afterwards and are not between the same individuals in the same capacities as required for mutuality. App. at 18; Reply at 13-14. Fariba’s debt to K&A is her personal debt and K&A’s liability to Fariba for the fraudulent transfers arises from her acting as the representative of Saeed’s bankruptcy estate. App. at 18; Reply at 13-14.
Defendants do not address the Bankruptcy Code section 533 factors, instead asserting that Bankruptcy Code setoff does not apply because Fariba is not a representative of Saeed’s bankruptcy estate. Opp. at 16. The court agrees. Fariba was awarded the fraudulent transfer claims against K&A as her sole and separate property in the bankruptcy court's July 31, 2015 Plan Confirmation Order. Opp. Ex. 23, pp. 839-40. The Bankruptcy Code requirements for offset do not apply.
Under California law, a defendant may raise a claim of offset for any indebtedness of the plaintiff to the defendant raised in a cross-complaint or affirmative defense in an answer. CCP §483.015(b)(2), (3). The defendant’s offset claim under CCP section 483.015(b)(2) or (3) must be supported by sufficient evidence to prove a prima facie case of attachment in its own right. Lydig Construction, Inc. v. Martinez Steel, (2015) 234 Cal.App.4th 937; Pos-A-Traction, Inc. v. Kelly Springfield, (C.D. Cal. 1999) 112 F.Supp.2d 1178, 1183.
Defendants assert causes of action for breach of contract and quantum meruit against Fariba. Fariba does not dispute that she signed a retainer agreement with K&A, which provided legal services for her. Wolff Decl., ¶10; Fariba Decl., ¶6. Defendants provide the payments K&A received from Fariba from May 4, 2010 to May 28, 2013. Opp. Ex. 1. Defendants assert that Fariba still owes K&A $1,049,043.69 for unpaid services and disbursement provided, but they fail to provide any documentary evidence supporting this amount. Wolff Decl., ¶9.
The declaration supporting a prima facie case for attachment – and hence a declaration supporting offset -- must be set forth with particularity. Compare CCP §516.030 (requirements for writ of possession). This means that the plaintiff must show evidentiary facts rather than the ultimate facts commonly found in pleadings. A recitation of conclusions without a foundation of evidentiary facts is insufficient. See Rodes v. Shannon, (1961) 194 Cal.App.2d 743, 749 (declaration containing conclusions inadequate for summary judgment); Schessler v. Keck, (1956) 138 Cal.App.2d 663, 669 (same). Defendants’ failure to provide documentary evidence supporting the amount they claim is due and owing means they cannot show a prima facie case for attachment and are not entitled to claim offset.
Fariba has not demonstrated a probability of success on her claim to void the transfers pursuant to the UFTA. She has not shown that he did not receive reasonably equivalent value from the Immediate Transfers and she has not shown that Saeed was insolvent at the time of the transfers. Fariba’s applications for right to attach orders are denied.
 Plaintiff improperly provided a courtesy copy notebook with double-sided paper in violation of CRC 2.102. There is a reason for the rule – double-sided paper is difficult for the court to make notes on legibly -- and Plaintiff’s counsel is admonished not to do so in future filings or lodgings.
 Fariba filed her reply at 6:59 p.m. on January 26, 2021. While CCP section 484.060(c) permits a reply to be filed two court days before the hearing and this 6:59 p.m. filing technically complied with the statute, Fariba’s counsel would have been wise to give the court more time than one day to address her papers. This error is compounded by Fariba’s failure to lodge a courtesy copy of her reply brief in violation of the Presiding Judge’s General Order Re: Mandatory Electronic Filing.
 Fariba requests judicial notice of the following exhibits attached to her Appendix of Exhibits: (1) Saeed’s voluntary bankruptcy petition in the Bankruptcy Case (Ex. D); (2) order confirming joint plan of reorganization dated May 14, 2015 in the Bankruptcy Case (Ex. E); (3) complaint for recovery of fraudulent conveyances in the Bankruptcy Case (Ex. F); (4) order of remand to state court in the Bankruptcy Case (Ex. G); (5) OneWest Bank’s proof of claim filed September 27, 2013 in the Bankruptcy Case (Ex. H); (6) Complaint in La Jolla Bank, FSB v. Whitestone Jewel, LLC et al., (“La Jolla”) Index No. 13920-2009, Supreme Court of the State of New York (Ex. I); (7) reporter’s transcript of proceedings for March 1, 2012 in the Divorce Case (Ex. L); (8) agreement to resolve the issues raised by respondent’s order to show cause (“OSC”) filed March 1, 2012 in the Divorce Case (Ex. M); (9) disclosure statement describing debtor’s plan of reorganization (dated November 15, 2013) in the Bankruptcy Case (Ex. O); (10) several orders in the Bankruptcy Case (Ex. P); (11) K&A’s brief regarding the character of claims for fees in connection with family law matters in the Bankruptcy Case (Ex. U); (12) order on temporary spousal and child support in the Divorce Case (Ex. V); (13) excerpts from Fariba’s Income and Expense Declarations in the Divorce Case (Ex. W); (14) excerpts from Saeed’s Income and Expense Declarations in the Divorce Case (Ex. X); (15) reporter’s transcript of proceedings for August 2, 2010 in the Divorce Case (Ex. Y); (16) IRS Proof of Claim filed July 25, 2013 in the Bankruptcy Case (Ex. Z); and (17) decision on the characterization of professional claims as community or separate debts filed April 6, 2015 in the Bankruptcy Case (Ex. AA).
The court cannot judicially notice a reporter’s transcript (Ex. L, Y) and the request is denied. The existence of Exhibits D-I, M, O, P, U, V, W, X, Z, and AA, but not the truth of their contents, is judicially noticed. Evid. Code §452(d); Sosinsky v. Grant, (1992) 6 Cal.App.4th 1548, 1551 (judicial notice of findings in court documents may not be judicially noticed).
The court has ruled on Plaintiff’s written objections, which were overruled with the exception of Fariba declaration paragraph 3 and Exhibits L, N, and Y. The clerk is ordered to scan and file the courtesy copy which contains the rulings.
 This contention is unsupported by admissible evidence.
 Defendants request judicial notice of the following exhibits attached to their Compendium of Exhibits: (1) order on petitioner’s OSC for spousal and child support filed September 21, 2010 in the Divorce Case (Ex. 14); (2) minute order dated January 12, 2011 in the Divorce Case (Ex. 15); (3) order on petitioner’s motion to determine arrearages dated October 11, 2011 in the Divorce Case (Ex. 16); (4) ruling on petitioner’s motion for sanctions filed November 7, 2011 in the Divorce Case; (5) agreement to resolve the issues raised by respondent’s OSC filed March 1, 2012 in the Divorce Case (Ex. 18); (6) referee’s proposed report filed May 4, 2012 in the Divorce Case (Ex. 19); (7) minute order dated July 26, 2012 in the Divorce Case (Ex. 20; (8) order on petitioner’s OSC re: attorney’s fees filed December 3, 2012 in the Divorce Case (Ex. 21); (9) stipulation re payment of attorney’s fees filed March 8, 2013 in the Divorce Case (Ex. 22); (10) order confirming joint plan of reorganization filed July 31, 2015 in the Bankruptcy Case (Ex. 23); (11) amended decision on motion for sanctions filed June 9, 2016 in the Bankruptcy Case (Ex. 24); (12) OSC re: sanctions filed December 15, 2016 in the Bankruptcy Case (Ex. 25); (13) order filed December 13, 2011 in La Jolla (Ex. 26); and (14) decision filed March 21, 2013 in La Jolla (Ex. 27).
The existence of the requested documents, but not the truth of their contents, is judicially noticed. Evid. Code §452(d); Sosinsky v. Grant, (1992) 6 Cal.App.4th 1548, 1551 (judicial notice of findings in court documents may not be judicially noticed).
 In support of her reply, Fariba requests judicial notice of the following exhibits attached to the Weiss reply declaration: (1) Judgment for the Divorce Case, filed April 19, 2017 (Ex. DD); (2) four Orders Regarding Debtor’s Use of Profit Distributions and Budgeted Expenses in the Bankruptcy Case (Ex. EE); (3) Fourth Amended Joint Plan of Reorganization Proposed by the Debtor and the Official Committee of Creditors Holding Unsecured Claims (Dated May 14, 2015) in the Bankruptcy Case (Ex. EE); and (4) Summary of Schedules for Debtor Saeed Cohen, entered July 23, 2013 in the Bankruptcy Case (Ex. FF). The existence of the requested documents, but not the truth of their contents, is judicially noticed. Evid. Code §452(d); Sosinsky v. Grant, (1992) 6 Cal.App.4th 1548, 1551 (judicial notice of findings in court documents may not be judicially noticed).
 In reply, Fariba corrects the amount to be attached to $8,314,952.57, including corrected pre-judgment interest of $2,860,406.25. Reply at 6.
 An “initial transferee” is the first party to receive a transfer and an “immediate transferee” is the first subsequent transferee from an initial transferee. Bank. Code §550(a)(1), (2).
 Fariba notes that, because the transfers in question occurred between 2010 and 2013, prior to the amendment of the UFTA to the Uniform Voidable Transfer Act (“UVTA”), the UFTA applies. App. at 6, n. 4. California's UVTA is similar in form and substance to the Bankruptcy Code's fraudulent transfer provisions. In re AFI Holding, Inc., (9th Cir. 2008) 525 F.3d 700, 703. As Defendants note (Opp. at 9, n. 11), state cases analyzing Bankruptcy Code provisions are persuasive authority where the state’s statutes are similar to the Bankruptcy Code.
 The citations to “Att.” are to Defendants’ attachment to their Notice of Opposition.
 In reply, Fariba calculates the support she received over the 34-month period of the transfers. Reply at 10. That is not how the court addresses the issue, which is based on Fariba’s admissions in her declarations.
 Fariba’s reliance on Mejia v. Reed, (2003) 31 Cal.4th 657 is misplaced. The court in that case only held that the UFTA applies to transfers made pursuant to marital settlement agreements (“MSA”) and did not address court-ordered support. Mejia does not stand for the proposition that transfers made pursuant to family court orders can be voided.
 The plaintiff to the complaint is La Jolla Bank. However, OWB held the guaranty claim by the time of the date of the New York Supreme Court’s decision. Opp. Ex. 27.
 This evidence should have been included in Fariba’s initial application and the court has not considered it. Regency Outdoor Advertising v. Carolina Lances, Inc., (1995) 31 Cal.App.4th 1323, 1333.
 Defendants note (Opp. at 17) that a transfer is not voidable under Civil Code section 3439.04(a)(1) (actual intent to hinder, delay, or defraud) against a person who took in good faith and for reasonably equivalent value. Civil Code §3439.04(a); Annod Corp. v. Hamilton & Samuels, (2002) 101 Cal.App.4th 1286, 1294. Bankruptcy Code section 550(b)(1) also provides that recovery may not be made from an immediate transferee who takes for value, in good faith, and without knowledge of the voidability. Payments made to attorneys for legal services rendered have been found to constitute payment for reasonably equivalent value. Wyzard v. Goller, (1994) 23 Cal.App.4th 1183; In re Interco Systems, Inc., (Bankr. W.D.N.Y. 1996) 202 B.R. 188; In re Richards & Conover Steel Co., (8th Cir. BAP 2001) 267 B.R. 602; In re Trauger, (Bankr. S.D. Fl. 1989) 105 B.R. 120.
Fariba argues (Reply at 12), that K&A cannot show that it was acting in good faith because it has failed to show the reasonable value of its services given her contention of “massive billing fraud.” K&A also sought to grab money for its fees to hinder the IRS and other creditors and knew about the OWB litigation at the time of transfer. Reply at 12.
For purposes of this application, Fariba has not demonstrated that K&A’s advocacy that funds in offshore accounts be used to satisfy part of her attorneys’ fees obligation, with the knowledge of a dispute regarding potential liability to the IRS, is tantamount to participation in fraud. She does not dispute that K&A provided legal services on her behalf in the Divorce Case and that the transfers made to K&A were for the legal services performed. Nonetheless, she is correct that K&A has not shown the reasonable value of its services and that it had no knowledge of the OWB case. The good faith defense is an affirmative obligation that K&A has not met.
Get Deeper Insights on Court Cases