Fujifilm Corp. v. Yang , 223 Cal. App. 4th 326 ( 2014 )

Filed 1/24/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
FUJIFILM CORPORATION, B243770
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC436748)
v.
CINDY YANG,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los Angeles County.
James R. Dunn, Judge. Affirmed.
Burke, Williams & Sorensen and Richard M. Fannan for Appellant.
Stroock & Stroock & Lavan, Daniel A. Rozansky, John L. Lucas and Crystal Y.
Jonelis for Respondent.
__________________________
Cindy Yang appeals from the judgment for Fujifilm Corporation (Fuji).
According to Yang, Fuji split its cause of action against her. She contends Fuji could
have pursued its claims for fraudulent transfers against her in a prior federal court
proceeding, and therefore the trial court should have applied res judicata and claim
preclusion to bar those claims here. We find that the trial court correctly ruled that res
judicata and claims preclusion did not apply. We therefore affirm.
FACTS AND PROCEEDINGS
In 2005, respondent Fuji sued Yet “Jimmy” Chan and others, including appellant
Cindy Yang -- collectively known as the Achiever Group -- in federal court for allegedly
infringing Fuji’s patent on single-use, disposable cameras. In 2007, Fuji and the
Achiever Group settled the lawsuit. The settlement obligated the defendants other than
appellant Yang to make six installment payments to Fuji totaling $3.25 million. Under
the settlement, if the defendants missed any payments, appellant became liable to Fuji for
property Chan may have transferred to her. The settlement stated: “CINDY YANG shall
become jointly and severally liable with the members of the ACHIEVER GROUP for
that portion of the entire remaining balance [of the settlement amount] which is equal to
the value of any money or interest in property which is transferred directly or indirectly
to her . . . by Jimmy Chan, without regard to whether the transfer is a fraudulent transfer .
. . .”
In April 2007, Chan paid Fuji $750,000 as agreed, and in June 2007 he paid Fuji
$1,000,000 more. Chan and the other defendants thereafter breached the settlement
agreement by making no additional payments toward the $3.25 million settlement.
In January 2008, Fuji filed a federal lawsuit (the parties refer to it as “Lawsuit
No. 2”) for breach of the settlement agreement. Fuji named appellant a defendant.
Lawsuit No. 2 alleged appellant had received up to $1.5 million in money and property
from Chan. According to Fuji, the settlement agreement’s above quoted provision
triggering appellant’s liability for missed installment payments entitled Fuji to recover
from appellant the money and property that Chan had transferred to her.
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The settlement agreement created a streamlined procedure allowing Fuji to file in
federal court a motion in Lawsuit No. 2 to determine whether any transfer from Chan to
appellant fell within the settlement agreement. In October 2008, Fuji filed such a motion
targeting Chan’s transfer to appellant of $700,000 in cash and his quitclaim to her of their
house in Claremont, referred to as the Appalachian property. Appellant opposed Fuji’s
motion. She argued the settlement agreement did not apply to the transfers because she
received them before the settlement agreement’s “effective date.” The federal court
agreed, ruling that because Chan transferred the cash and quitclaim before the settlement
agreement’s effective date of March 1, 2007, Fuji could not recover the cash and property
from appellant.1
In April 2010, Fuji filed its state court complaint that led to this appeal. Among
other causes of action, Fuji alleged Chan and appellant committed common law
fraudulent transfers and violated the Uniform Fraudulent Transfer Act (Civ. Code, § 3429
et seq.) by transferring Chan’s assets to appellant for the purpose of frustrating Fuji’s
ability to enforce the settlement agreement.
Appellant moved for summary judgment. She argued res judicata and claims
preclusion barred Fuji’s claims for fraudulent transfer because Fuji could have pursued
those claims in Lawsuit No. 2. Fuji also moved for summary adjudication on the res
judicata/claims preclusion argument. The trial court granted Fuji’s motion and denied
appellant’s motion. The court rejected appellant’s contention that Fuji’s “case of
fraudulent transfer is simply an attempt to recover the same obligation [asserted under the
breach of the settlement agreement in Lawsuit No. 2] under a different legal theory.” The
court concluded Fuji had different “primary rights” at stake in the federal breach of
contract case and the state court fraudulent transfer case. The court explained, “This case
in State court is about holding defendants accountable for allegedly frustrating [Fuji’s]
ability to collect on the obligation to pay money . . . .” “The primary right under the
1 The federal court granted Fuji relief on a minor point involving about $30,000, but
that relief is not in dispute in this appeal.
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fraudulent transfer cause of action is the right not to have the right to collection of that
obligation frustrated or interfered with by the fraudulent transfer of assets that would
otherwise be available to satisfy [the] contractual obligation” under the settlement
agreement. The court characterized Fuji’s theory of liability as distinguishing between
two legal harms: The first harm was Fuji “didn’t get paid money under the settlement
agreement. And the [second] harm, based on the fraudulent transfer, is [Fuji isn’t] able to
collect the money that [Fuji is] owed because [Chan] fraudulently transferred assets and,
therefore, [Fuji has] no place to go.”2
The case was tried to a jury in February 2012. By special verdict, the jury
answered the following questions as follows:
● “Did YET CHAN engage in a fraudulent transfer of any of his assets or his
interest in assets to CINDY YANG?” – “Yes”
● “Did YET CHAN fraudulently transfer . . . $700,000 to CINDY YANG?” –
“Yes”
● “Did YET CHAN fraudulently transfer his interest in the Appalachian Way
Property to CINDY YANG?” – “Yes”
● “What was the value, if any, of the interest in the Appalachian Way Property
which YET CHAN transferred to CINDY YANG?” – “$450,404.33”3
2 Consistent with the trial court’s analysis, the federal court had not analyzed Fuji’s
claim in Lawsuit No. 2 as a fraudulent transfer. The federal court instead focused on the
settlement agreement’s contractual language and the agreement’s “Effective Date.”
Indeed, the federal court noted the settlement agreement’s provision making appellant
liable for Chan’s transfers to her excused Fuji from having to prove a fraudulent transfer.
According to the federal court, Fuji did not need to go through “the hoops” of proving
Chan’s intent in transferring his property; it was enough for Fuji to prove the transfers
happened.
3 The jury also found Chan fraudulently transferred his interest in property in
Arcadia, but that property is not at issue in this appeal because the jury found Fuji’s claim
was time-barred.
4
The court entered judgment for Fuji as reflected in the jury’s verdict. This appeal
followed.
DISCUSSION
1. Fuji Did Not Split Its Cause of Action
According to appellant, the trial court should have applied the doctrines of res
judicata and claim preclusion to bar Fuji from suing appellant for fraudulent transfers.
Appellant asserts those doctrines obligated Fuji to raise in Lawsuit No. 2 every claim it
had against appellant, or run the risk of unraised claims being barred in any later lawsuit.
According to appellant, Fuji knew, or with due diligence could have known, about
Chan’s transfer of cash and his interest in the Appalachian property before Fuji filed its
complaint in Lawsuit No. 2 for breach of the settlement agreement. By permitting Fuji to
sue appellant for fraudulent transfers in a later proceeding, appellant contends the trial
court erroneously allowed Fuji to split its cause of action. We disagree.
Claim preclusion and res judicata apply to a pending proceeding only when a prior
adjudication resolved, or could have resolved, the same cause of action pending in the
current proceeding. (Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc. (1994)
29 Cal.App.4th 1828, 1835 (Brenelli).) To determine whether the same cause of action is
involved, California courts apply the “primary rights” theory. The “firmly settled rule in
California for determining a cause of action is the primary rights theory. . . . ‘ “Under
this theory, the underlying right sought to be enforced determines the cause of action. In
determining the primary right, ‘the significant factor is the harm suffered.” ’ ” (Id. at
pp. 1835-1836.) A “plaintiff’s primary right is defined by the legally protected interest
which is harmed by defendant’s wrongful act, and is not necessarily coextensive with the
consequence of that wrongful act.” (Italics original.) (Henderson v. Newport-Mesa
Unified School Dist. (2013) 214 Cal.App.4th 478, 499.) Thus, because breaching a
contract inflicts harm on a legally protected interest different from tortious conduct that
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renders uncollectable a judgment arising from the breach of contract, two different
primary rights arise.
Brenelli, supra, is illustrative. In that decision, the plaintiff successfully sued the
defendant-corporation for breach of contract and received a money judgment. (Brenelli,
supra, 29 Cal.App.4th at p. 1833.) Before the plaintiff could execute on the judgment,
the corporation filed for bankruptcy. Once in bankruptcy, it was established that the
corporation had no assets with which to pay the judgment, allegedly because the
corporation’s shareholders had fraudulently conveyed the corporation’s assets. (Ibid.)
Consequently, the plaintiff sued the shareholders for various torts, including fraudulently
transferring the corporation’s assets, thereby seeking “to vindicate [the plaintiff’s] right to
be free from the shareholders’ tortious conduct which unfairly deprived [him] of the
value of [his] judgment.” (Id. at p. 1837.) On review, the appellate court rejected the
shareholders’ argument that res judicata barred the fraudulent transfer lawsuit. Brenelli
explained, “the right to have contractual obligations performed is distinct from the right
to be free from tortious behavior preventing collection of a judgment.” (Ibid.) “In
[Brenelli’s] first action the harm alleged was breach of contractual obligations. In
[Brenelli’s second action] the harm suffered by [the plaintiff] is [the shareholders’]
alleged tortious conduct which has prevented satisfaction of the judgment [the plaintiff]
won in the first action.” (Id. at pp. 1837-1838; see also Miller v. S&S Hay Co. (E.D.Cal.,
June 24, 2013, No. 1:12-CV-01746-LJO-SMS) 2013 WL 3212494, *5 [“Where a
plaintiff obtains a favorable final judgment against a defendant for breach of contract, is
prevented from collecting that judgment by the defendant’s allegedly wrongful acts, and
brings another action against the defendant on the basis of the defendant’s post-judgment
conduct, California courts have found the two actions to involve different primary
rights.”].) Brenelli establishes that the trial court correctly permitted Fuji to pursue its
claims for fraudulent transfer because those claims stated a cause of action different from
the breach of contract cause of action in Lawsuit No. 2.
Appellant urges that we apply the “transaction” doctrine of federal law, instead of
California’s primary rights theory, to find Fuji wrongfully split its cause of action. We
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need not linger on appellant’s request, however, because she does not cite any California
authority applying the transaction doctrine to define a cause of action. Instead of
pertinent case law to support her position, her appellant’s brief relies solely on an eight-
and-a-half page block quotation from a 15-year-old law review article. But our Supreme
Court as recently as three years ago affirmed that the primary rights theory applies in
California. “California courts have ‘consistently applied the “primary rights” theory.
[Citation.] Under this theory, ‘[a] cause of action . . . arises out of an antecedent primary
right and corresponding duty and the delict or breach of such primary right and duty by
the person on whom the duty rests. “Of these elements, the primary right and duty and
the delict or wrong combined constitute the cause of action in the legal sense of the
term.” ’ [Citation.]” (Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797-798;
Federal Home Loan Bank of San Francisco v. Countrywide Financial (2013)
214 Cal.App.4th 1520, 1530 [California applies “primary rights theory” to determine
causes of action].) We are not free to depart from binding Supreme Court precedent, and
we decline appellant’s invitation to make new law by adopting the federal transaction
doctrine. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)
2. Fuji’s Supposed Duty to Amend Its Complaint
Appellant contends that even if Fuji were excused from knowing about Chan’s
transfers to her when it filed Lawsuit No. 2, it learned about the transfers within a month
of filing that lawsuit and therefore should have amended its complaint in that proceeding
to add its claims for fraudulent transfer. The trial court rejected appellant’s contention
that Fuji had been obligated to amend its complaint in Lawsuit No. 2. While noting that
it might have been more economical and efficient for Fuji to have pursued its fraudulent
transfer cause of action in the federal proceeding, the trial court ruled that Fuji’s failure to
do so did not trigger res judicata and claim preclusion.
We see no error. Joinder of different causes of action is permissive. Fuji had a
cause of action for breach of the settlement agreement and a separate cause of action for
fraudulent transfer. “That the two causes of action might have been joined in one lawsuit
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under our permissive joinder provisions [citation] does not prevent the plaintiff from
bringing them in separate suits if he elects to do so.” (Sawyer v. First City Financial
Corp. (1981) 124 Cal.App.3d 390, 402-403; Stanson v. Mott (1976) 17 Cal.3d 206, 213
[“a plaintiff is not required to join separate causes of action arising out of the same
transaction”]; see also Agarwal v. Johnson (1979) 25 Cal.3d 932, 954 overruled on other
grounds by White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 574, fn. 4 [“Under the
‘primary rights’ theory . . . the significant factor is the harm suffered; that the same facts
are involved in both suits is not conclusive.”].) Accordingly, Fuji was not obligated to
pursue its fraudulent transfer claims by amending its federal complaint in Lawsuit No. 2
to litigate those claims in that venue.4
4 We also find it significant that the parties had stipulated to a streamlined
procedure in Lawsuit No. 2 to determine whether a simple (non-fraudulent) transfer from
Chan to appellant fell within the settlement agreement. Issues were limited, discovery
was limited, and the resolution was to be by motion before the same federal judge who
presided over Lawsuit 1, not by trial. And that is what happened in Lawsuit No. 2. In
keeping with the streamlined procedure, Fuji filed a motion, and the federal court
determined that the transfers in question did not violate the settlement agreement because
they had occurred before the agreement was executed by the parties. It seems clear that
the parties agreed that Lawsuit No. 2 would be limited to the settlement agreement and
would not cover fraudulent transfer claims. Handwritten changes on the settlement
agreement confirm this. The word “fraudulent” was stricken on three occasions and the
parties expressly preserved “Fuji’s right to use all available forums and procedures in an
effort to collect the remaining balance from members of the ACHIEVER GROUP.”
Further litigation, it would appear, was expressly contemplated.
Having negotiated a streamlined proceeding which, by mutual agreement, left for
another day claims such as fraudulent transfers, it seems inconsistent for appellant to now
contend that matters intentionally left outside the streamlined proceeding are now barred
because they were not raised within that proceeding. Beyond noting the inconsistency,
however, we need not belabor the point because we conclude that the primary rights
theory does not bar the present litigation.
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3. No Double Recovery of Damages
The jury found Chan fraudulently transferred to appellant his interest in the
Appalachian property’s value in the amount of $450,404.335 and $700,000 in cash.
Appellant contends the jury’s damage award included an unlawful double recovery
because, according to appellant, she used the $700,000 in cash that she received from
Chan to make the down payment on the Appalachian property. (Singh v. Southland
Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 360-361 [double recovery of damages
prohibited].)
After the jury reached its verdict, Fuji and appellant submitted competing
proposed judgments to the trial court. Appellant’s proposed judgment purportedly
corrected for the alleged double recovery. Her proposed judgment awarded Fuji
$800,404.33, consisting of $450,404.33 awarded by the jury for Chan’s half of the
Appalachian property, and $350,000 for his half of the $700,000 – the other $350,000
seemingly being appellant’s share of the down payment on the Appalachian property
which she apparently reasons the jury permitted her to keep because it awarded Fuji only
half (Chan’s half) of their equity in the property. Fuji, on the other hand, submitted a
proposed judgment awarding damages in the full amount awarded by the jury:
$1,150,404.33 (= $450,404.33 + $700,000). The trial court rejected appellant’s proposed
judgment and accepted Fuji’s.
Appellant contends the court erred because “it is undisputed that the $700,000
which Cindy Yang received from [Chan] was used as part of the down payment for the
Appalachian property.” The record does not prove double recovery. No documents were
introduced that tended to link the $700,000 to the down payment on the Appalachian
property. Appellant testified she may possibly have used the $700,000 as a down
payment, but her testimony was inconclusive. Under questioning by counsel about the
source of funds for the down payment, she testified: “Q. You utilized the $700,000 that
5 $450,404.33 is within one penny of one-half of Chan’s and appellant’s down
payment for the Appalachian property.
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Mr. Chan gave you towards that downpayment; is that right? A. I think so.” The jury
was free to disbelieve her equivocal answer. Moreover, the jury was not asked to make
any special finding about the source of the down payment on the Appalachian property or
appellant’s disposition of the $700,000 that Chan gave her. Accordingly, appellant does
not show that the trial court’s judgment awarded a double recovery.
4. Quitclaim Transfer Date
Chan executed his quitclaim of the Appalachian property in August 2005, before
he and appellant were married. They recorded the quitclaim with the Los Angeles
County Recorder in June 2006, after they married. Appellant asserts that Chan’s
quitclaim transferred nothing when he executed it because he and appellant were not
married at the time, and thus he had no community interest to convey. Appellant thus
contends that the jury erred in awarding Fuji damages for Chan’s transfer of the property
because the quitclaim transferred nothing of value to her. We see no error.
The trial court instructed the jury that the timing of Chan’s transfer of his interest
in the Appalachian property might matter in its deliberations. The court instructed that
Fuji “claims that Mr. Chan fraudulently transferred his interest in the [Appalachian]
property to Cindy Yang. . . . [¶] [Yang and Chan] claim that Chan had no interest in the
Appalachian property. If Mr. Chan had no interest in the Appalachian property at the
time of transfer, he cannot have made a fraudulent conveyance. [¶] It’s up to you to
decide whether Mr. Chan had an interest in the Appalachian property at the time of
transfer.”
Fuji based its statutory cause of action for fraudulent transfer on the Uniform
Fraudulent Transfer Act (Civ. Code, § 3429 et seq.). In instructing the jury, the court
relied on many of the Act’s provisions. The court, for example, relied on the Act’s
definition of “transfer” in instructing the jury on that term. (Civ. Code, § 3439.01,
subd. (i).) The court’s instructions also relied on the Act’s statutory factors to determine
whether Chan transferred property to appellant with the intent to frustrate Fuji’s efforts to
recover its damages for breach of contract. And the court instructed the jury that a
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transfer occurred under the Act when the transfer was “perfected,” which the court
instructed ordinarily meant recorded. (See Civ. Code, § 3439.06, subd. (a)(1) [“A
transfer is made [] with respect to an asset that is real property . . . when the transfer is so
far perfected . . . .”].)
The court instructed: “ ‘Transfer’ means every method of parting with a debtor’s
property, or an interest in a debtor’s property. A transfer may be direct or indirect,
absolute or conditional, or voluntary or involuntary. . . . [¶] A transfer of an interest in
real property to a purchaser is deemed made when the transfer is what is called perfected.
Typically, a transfer is perfected when notice of the transfer has been recorded with the
appropriate government recorder’s office.”
Appellant cites authority that the transfer of Chan’s interest in the Appalachian
property occurred when he signed the quitclaim. As a general matter, execution of a deed
transferring an interest in property is effective upon the deed’s execution and delivery
and need not await its being publicly recorded. (See e.g. Luna v. Brownell (2010)
185 Cal.App.4th 668, 673.) But appellant cites no authority that a trial court errs by
instructing a jury with the statutory provisions and definitions of a plaintiff’s statutory
cause of action. (Brown v. Smith (1997) 55 Cal.App.4th 767, 784 [generally speaking,
court’s jury instruction should follow the statutory language at issue unless the statute is
confusing or couched in legal terms]; see also Conservatorship of Gregory (2000)
80 Cal.App.4th 514, 520 [“Instructions in the language of an applicable statute are
properly given.”].) Moreover, particular provisions of law ordinarily prevail over more
general provisions, meaning, in this case, the particular provisions of the Act take
precedence over the general doctrine of execution and delivery of a deed. (Garcia v.
McCutchen (1997) 16 Cal.4th 469, 478.) Accordingly, appellant does not show that the
trial court erred by instructing the jury that the jury could find that Chan’s fraudulent
transfer, as defined by the specific provisions of the Uniform Fraudulent Transfer Act,
took place upon the recording of the quitclaim – at which point he did have an interest in
the property upon which the jury could rest its damage award to Fuji.
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DISPOSITION
The judgment is affirmed. Respondent Fujifilm Corporation to recover its costs
on appeal.
RUBIN, J.
WE CONCUR:
BIGELOW, P. J.
GRIMES, J.
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