Axis Entertainment v. Yari CA2/7 ( 2023 )

Filed 7/13/23 Axis Entertainment v. Yari CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
AXIS ENTERTAINMENT INC. B319669
et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct.
Nos. 21STCV19745,
v. BC545365
BOB YARI et al.,
Defendants and Respondents.
APPEALS from a judgment and an order of the Superior
Court of Los Angeles County, Gregory Keosian, Judge. Affirmed.
Krane & Smith, Marc Smith and Kathleen Dority Fuster
for Plaintiffs and Appellants.
Nahai Law Group, Behzad Nahai and Jeffrey A. Lewiston;
Levene, Neale, Bender, Yoo & Golubchik and Kurt Ramlo;
Cochran, Davis & Associates and Lisa Kralik Hansen for
Defendants and Respondents.
INTRODUCTION
These appeals are the latest chapter in litigation dating
back to 2010, when Axis Entertainment, Inc., Isaac Michalov,
and Michael Grayson (collectively, Axis) obtained a $1 million
judgment against Syndicate Films International, LLC
(Syndicate). In 2014 Axis sued Syndicate officer Bob Yari,
Yari Film Group, LLC, and various affiliated individuals and
entities, alleging they improperly diverted Syndicate’s assets to
prevent Axis from enforcing the judgment. While that case was
pending, Syndicate filed a bankruptcy petition, and Axis
purchased from the bankruptcy trustee the estate’s claims and
causes of action against the defendants remaining in Axis’s state
court action (the Yari Parties).1 Axis then filed this action, as
successor in interest to Syndicate, against the Yari Parties and
others.
Nine of the defendants in this action (the Yari Defendants)2
demurred. The trial court sustained the demurrer without leave
1 The Yari Parties are Bob Yari, Yari Film Group, LLC, Bob
Yari Films, LLC, Bob Yari International, LLC, Dennis Brown,
YFG Services, Inc., Persik Productions, Inc., and Stratus Film
Company, LLC. Three of the Yari Parties (Yari Film Group,
LLC, Bob Yari Films, LLC, and Bob Yari International, LLC) are
not parties to this appeal.
2 The Yari Defendants, the respondents in this appeal, are
Bob Yari, Dennis Brown, YFG Services, Inc., Persik Productions,
Inc., Stratus Film Company, LLC, Bob Yari Music, LLC,
Schizophrenic Productions, LLC, BY Equities, LLC, and Davand
Holdings, LLC. Five of the nine Yari Defendants are also Yari
Parties, while the remaining four are not because they were not
parties to Axis’s 2014 state court action.
2
to amend on two grounds: (1) Axis, as the successor in interest to
Syndicate, lacked capacity to sue because Syndicate was a
suspended corporation and therefore could not bring a civil
action; and (2) Axis lacked standing to sue those Yari Defendants
who were not among the Yari Parties because Axis had not
purchased claims against them. The court subsequently granted
a motion by the Yari Defendants for attorneys’ fees.
Axis appeals, arguing the trial court erred in ruling it
lacked capacity to sue and in granting the Yari Defendants’
motion for attorneys’ fees. We affirm the judgment and order
awarding attorneys’ fees.
FACTUAL AND PROCEDURAL BACKGROUND
A. Axis Sues Syndicate and Recovers $1 Million
Syndicate was a limited liability company formed in 2003
to conduct foreign sales for the Yari Film Group. In
approximately 2006 Davand Holdings, LLC, which was wholly
owned by Yari, became the sole member of Syndicate. In 2007
Axis sued Syndicate for $2.1 million in damages arising from, as
one court described it, “‘complex and intertwined loan
transactions encompassing seven years.’” In 2010, after a jury
trial, the court entered judgment in favor of Axis and against
Syndicate for $1 million. Syndicate did not pay the judgment.
B. Axis Sues Yari and Others
In 2014 Axis filed an action against Yari, Yari Film Group,
and other individuals and entities affiliated with Yari, asserting
causes of action for fraudulent transfer, declaratory relief, unjust
3
enrichment, alter ego, and unfair competition.3 Axis alleged the
defendants commingled Syndicate’s assets with theirs,
undercapitalized Syndicate, and improperly diverted Syndicate’s
assets to prevent Axis from collecting on the $1 million judgment.
In 2015 the Secretary of State and the Franchise Tax Board
suspended Syndicate’s corporate status.4
C. Syndicate Files a Bankruptcy Petition, and Axis
Purchases Syndicate’s Causes of Action Against the
Yari Parties from the Trustee
In 2019, while the 2014 action was pending, Syndicate filed
a voluntary petition under Chapter 7 of the United States
Bankruptcy Code. The filing of the bankruptcy petition stayed
Axis’s fraudulent transfer cause of action against the Yari
Parties, as well as the other causes of action to the extent they
3 The Yari Defendants’ request for judicial notice of the
complaint and the court’s statement of decision in the 2014 action
is granted.
4 The Yari Defendants’ request for judicial notice of a
certificate of status issued by the Secretary of State on
December 8, 2022, which states Syndicate’s “powers, rights and
privileges are suspended in California,” is granted. (See Evid.
Code, §§ 452, subd. (c), 459; Friends of Shingle Springs
Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th
1470, 1483-1484.) The Yari parties’ request for judicial notice of
a printout from the website of the Secretary of State is denied.
(See Gomez v. Regents of University of California (2021)
63 Cal.App.5th 386, 404, fn. 17; Searles Valley Minerals
Operations, Inc. v. State Bd. of Equalization (2008)
160 Cal.App.4th 514, 519.) The parties do not dispute
Syndicate’s corporate status was suspended in 2015.
4
sought to avoid a transfer from Syndicate to the Yari Parties. In
2020 the action in superior court proceeded to a court trial solely
on Axis’s alter ego theory of liability against the Yari Parties.
The trial court ruled the Yari Parties were not the alter egos of
Syndicate because Axis failed to make the required showing of
unity of interest and ownership. The court entered judgment in
favor of the defendants.
Back in the bankruptcy court, the trustee filed a motion
asking the court to approve a compromise that, subject to
overbids at the hearing on the motion, would authorize the
trustee to sell Yari “the bankruptcy estate’s claims, causes of
action, rights, interests and the State Court Action Causes of
Action (whatever they may be without any warranties or
representations of any type) against the [Yari] Parties.”5 At the
hearing Axis outbid Yari. The bankruptcy court authorized the
trustee to sell Axis the estate’s claims against the Yari Parties for
$25,000, and Axis withdrew its claim against the estate for over
$1.9 million and waived any other claims it might have in the
bankruptcy case.
5 It was a “compromise” because Yari, to settle the action,
was trying to buy the claims against himself and the other
defendants. The compromise was “subject to overbids” because,
although Yari agreed to pay $20,000, at the hearing on the
motion, someone else could offer more, which Axis in fact did.
The “State Court Action” referred to Axis’s 2014 lawsuit, where
the Yari Parties were the remaining defendants in that action.
5
D. Axis Files This Action, and the Trial Court Sustains
the Yari Defendants’ Demurrer and Grants Their
Motion for Attorneys’ Fees
After purchasing the claims from the bankruptcy trustee,
Axis filed this action as Syndicate’s successor in interest. Axis
asserted causes of action against the Yari Parties and four other
defendants (collectively, the Yari Defendants) for breach of
fiduciary duty, aiding and abetting breach of fiduciary duty,
indemnity, unjust enrichment, an accounting, and declaratory
relief. Axis alleged the defendants violated their fiduciary duties
by siphoning away Syndicate’s assets.
The Yari Defendants demurred. They argued (1) the
statute of limitations barred Axis’s causes of action; (2) Axis
lacked standing to sue some of the defendants because Axis had
not purchased claims against them; (3) Axis lacked capacity to
sue as successor in interest to Syndicate because Syndicate, as a
suspended corporation, could not prosecute a civil action; and
(4) Axis’s causes of action were uncertain. The trial court
sustained the demurrer without leave to amend on the second
and third grounds, ruling that Axis lacked standing to sue four of
the defendants6 and that Axis lacked capacity to bring any cause
of action as Syndicate’s successor in interest.
The Yari Defendants moved for attorneys’ fees as the
prevailing parties under attorneys’ fees and indemnification
provisions in Syndicate’s operating agreement, and the court
6 The trial court ruled Axis lacked standing to sue Bob Yari
Music, LLC, Schizophrenic Productions, LLC, BY Equities, LLC,
and Davand Holdings, LLC. Axis does not challenge this aspect
of the trial court’s ruling.
6
awarded them $58,810.76 in attorneys’ fees. Axis timely
appealed from the judgment and from the order granting the Yari
Defendants’ motion for attorneys’ fees.7
DISCUSSION
A. The Trial Court Did Not Err in Sustaining the Yari
Defendants’ Demurrer Without Leave To Amend
1. Applicable Law and Standard of Review
A demurrer tests the legal sufficiency of a complaint. (City
of Coronado v. San Diego Assn. of Governments (2022)
80 Cal.App.5th 21, 35.) “In an appeal from a judgment following
an order sustaining a demurrer without leave to amend, we first
review de novo ‘whether the complaint states facts sufficient to
constitute a cause of action.’” (Jane Doe No. 1 v. Uber
Technologies, Inc. (2022) 79 Cal.App.5th 410, 419; see City of
Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 472.)
7 Axis appealed from the order sustaining the demurrer
without leave to amend, which is not an appealable order. (K.J.
v. Los Angeles Unified School Dist. (2020) 8 Cal.5th 875, 883.)
Because the trial court subsequently entered a judgment of
dismissal, we treat Axis’s premature appeal as an appeal from
the subsequent judgment. (See Maxwell v. Dolezal (2014)
231 Cal.App.4th 93, 96, fn. 1; In re Social Services Payment Cases
(2008) 166 Cal.App.4th 1249, 1262, fn. 4; Los Altos Golf &
Country Club v. County of Santa Clara (2008) 165 Cal.App.4th
198, 202.) An order granting a motion for attorneys’ fees is
appealable. (Code Civ. Proc., § 904.1, subd. (a)(2); Riskin v.
Downtown Los Angeles Property Owners Assn. (2022)
76 Cal.App.5th 438, 444, fn. 5.) The judgment of dismissal
includes the award of attorneys’ fees.
7
““‘“[W]e accept as true all material facts alleged in the complaint,
but not contentions, deductions or conclusions of fact or law. We
also consider matters that may be judicially noticed.”’”” (City of
Coronado, at p. 35; see City of Oakland, at p. 472.)
2. As a Suspended Company, Syndicate Lacked
Capacity To Sue
Syndicate was suspended by the Franchise Tax Board and
the Secretary of State in 2015 and remained suspended when it
filed a bankruptcy petition in 2019. The Franchise Tax Board
may suspend the corporate powers, rights, and privileges of a
limited liability company if it fails to pay taxes or file a tax
return. (Rev. & Tax. Code, §§ 23301, 23301.5, 23305.5.) The
Secretary of State may suspend a limited liability company’s
powers, rights, and privileges if it fails to file the required
statement of information. (Corp. Code, § 17713.10.)
A suspended company “‘“lacks the legal capacity to
prosecute or defend a civil action during its suspension.”’”
(Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662
(Casiopea Bovet); see Bourhis v. Lord (2013) 56 Cal.4th 320, 324.)
The purpose of the suspension “‘is to “prohibit the delinquent
corporation from enjoying the ordinary privileges of a going
concern” [citation], and to pressure it to pay its taxes.’”
(Cal-Western Business Services, Inc. v. Corning Capital Group
(2013) 221 Cal.App.4th 304, 310.) There is no dispute that, when
Syndicate filed the bankruptcy petition, it lacked capacity to sue.8
8 In Reed v. Norman (1957) 48 Cal.2d 338 the Supreme Court
recognized an equitable exception to section 23301 in derivative
actions where shareholders allege the mismanaging corporate
officers controlled the records necessary to compute the franchise
8
3. The Trustee Acquired Syndicate’s Causes of
Action Subject to the Incapacity Defense
When an entity files a bankruptcy petition, the property of
the entity becomes the property of the bankruptcy estate, and the
trustee becomes the representative of the estate. (11 U.S.C.
§ 323;9 Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492,
506.) “The bankruptcy estate is comprised of property including:
‘all legal or equitable interests of the debtor in property as of the
commencement of the case’ (§ 541(a)(1)) . . . . The scope of
section 541 is broad; ‘property’ includes causes of action.”
(Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075,
1083; see United States v. Whiting Pools, Inc. (1983) 462 U.S.
198, 205, fn. 9 [103 S.Ct. 2309].)
The bankruptcy trustee has the capacity to sue on behalf of
the estate. (§ 323; Curtis v. Kellogg & Andelson, supra,
73 Cal.App.4th at p. 506.) When asserting a debtor’s causes of
action, “a trustee ‘stands in the shoes of the debtor’ and is ‘subject
to the same defenses as could have been asserted against the
debtor.’” (In re Infinity Business Group, Inc. (4th Cir. 2022)
31 F.4th 294, 301.) A bankruptcy trustee “‘has standing to bring
any suit that the debtor could have instituted’ when the debtor
filed for bankruptcy, and there is no suggestion in the text of the
tax owed and file a tax return. “In such a case it is not equitable
to permit section 23301 of the Revenue & Taxation Code to stand
as a shield for protecting allegedly dishonest corporate officials.”
(Id. at p. 343.) Axis does not argue this equitable exception
applies here.
9 Undesignated statutory references are to Title 11 of the
United States Code, 11 U.S.C. § 101 et seq.
9
Bankruptcy Code that the trustee acquires rights and interests
greater than those of the debtor.” (Official Committee of
Unsecured Creditors of PSA, Inc. v. Edwards (11th Cir. 2006)
437 F.3d 1145, 1150.) According to the Congressional history,
section 541(a)(1), was “not intended to expand the debtor’s rights
against others more than they exist at the commencement of the
case. For example, if the debtor has a claim that is barred at the
time of the commencement of the case by the statute of
limitations, then the trustee would not be able to pursue that
claim, because he too would be barred.” (H.R. Rep. No. 95-595,
1st Sess., pp. 367-368 (1977), reprinted in 1978 U. S. Code Cong.
& Admin News, pp. 5963, 6323; see Peregrine Funding, Inc. v.
Sheppard Mullin Richter & Hampton LLP (2005)
133 Cal.App.4th 658, 680 [“bankruptcy trustee stands in the
shoes of the debtor and may not use his status as an innocent
successor to insulate the debtor” from an unclean hands
defense].) Thus, when the bankruptcy trustee stepped into
Syndicate’s shoes under section 541, it acquired whatever claims
and causes of action Syndicate had against the Yari Parties,
subject to the same incapacity (or other) defense the Yari Parties
could have asserted against Syndicate.
The cases Axis cites to support its assertion “Syndicate’s
suspended status had no bearing on the claims the Trustee could
have brought under the Bankruptcy Code” do not support that
assertion. In In re Feature Homes, Inc. (Bankr. E.D.Cal. 1990)
116 B.R. 731 the bankruptcy court held the suspension of the
debtor’s corporate status under the California Revenue and
Taxation Code did not deprive the debtor of standing to file for
bankruptcy under the federal Bankruptcy Code. (Id. at p. 733.)
In In re Lopez (Bankr. C.D.Cal. 2015) 532 B.R. 140 the court
10
stated a corporation’s suspended status did not excuse the
corporation’s officer from turning over books and records, as
required by the Bankruptcy Code. (Id. at p. 157.) Neither case
addressed whether or how suspension of a debtor’s corporate
status affected the trustee’s capacity to sue on behalf of the
estate.
Axis also cites cases stating a bankruptcy trustee may sue
a debtor’s principals for breach of fiduciary duty (as Axis did in
this action). This proposition is correct as a general proposition
(see, e.g., Koch Refining v. Farmers Union Cent. Exchange, Inc.
(7th Cir. 1987) 831 F.2d 1339, 1347 [corporation’s causes of action
against officers, directors, and shareholders for breach of
fiduciary duty “become property of the estate which the trustee
alone has the right to pursue after the filing of a bankruptcy
petition”]), but it ignores the fundamental problem with Axis’s
case: The Yari Defendants could have asserted the defense of
incapacity against all of the causes of action Axis brought on
behalf of Syndicate. Axis cites no case where a bankruptcy
trustee sued on behalf of a debtor that was a suspended company
lacking capacity to sue.
4. Axis Acquired Syndicate’s Causes of Action
Subject to the Incapacity Defense
Rather than pursuing the bankruptcy estate’s causes of
action against the Yari Parties, the trustee decided to sell them,
and Axis bought them.10 A bankruptcy trustee may sell property
10 As discussed, the bankruptcy trustee originally proposed to
sell the causes of action to Yari as a compromise under Federal
Rules of Bankruptcy Procedure, rule 9019(a) (11 U.S.C.). The
bankruptcy court, however, authorized the trustee to sell the
11
of the estate, including causes of action, under section 363(b)(1).
(See In re Lahijani (Bankr. 9th Cir. 2005) 325 B.R. 282, 287-288
[“Causes of action that exist independent of bankruptcy are
commonly sold by bankruptcy trustees under § 363(b).”].)
Just as the bankruptcy trustee would have been subject to
the lack of capacity defense based on Syndicate’s suspension, so
too was Axis. An assignee of a cause of action generally “‘“‘stands
in the shoes’ of the assignor, taking his rights and remedies,
subject to any defenses which the obligor has against the assignor
prior to notice of the assignment.”’” (Cal-Western Business
Services, Inc. v. Corning Capital Group, supra, 221 Cal.App.4th
at p. 311; see Rubinstein v. Fakheri (2020) 49 Cal.App.5th 797,
806; Code Civ. Proc., § 368.) “In cases where the assignor of a
chose in action is a suspended corporation, California courts
generally have recognized that the assignee is subject to the same
defenses that could have been asserted against the assignor.”
(Cal-Western Business Services, Inc., at p. 311; see Casiopea
Bovet, supra, 12 Cal.App.5th at p. 663 [“When an assignee
acquires a claim from a corporation lacking capacity to sue under
Revenue and Taxation Code section 23301, the assignee takes
upon itself the same lack of capacity.”].) The policy of
encouraging companies to pay their taxes “is served by subjecting
the assignee to the same incapacity defense as the assignor.”
(Wanke, Industrial, Commercial, Residential, Inc. v. AV Builder
Corp. (2020) 45 Cal.App.5th 466, 477.) Otherwise, “a suspended
corporation simply could sell its claim to a third party without
ever having to cure the default that caused the suspension,”
causes of action to Axis, which submitted a higher bid, rather
than Yari.
12
circumventing Revenue and Taxation Code section 23301’s
restriction and removing the statutory incentive to pay
delinquent taxes. (Cal-Western Business Services, at p. 314.)
That the bankruptcy trustee assigned the causes of action
to Axis under a bankruptcy court order does not change the
result. “The sale of a litigation claim [under section 363] does not
entitle the assignee to collect in contravention of any defenses to
that claim; all that is conveyed is the right to prosecute the action
and collect any potential judgment.” (In re Atlantic Gulf
Communities Corp. (Bankr. D.Del. 2005) 326 B.R. 294, 299-300.)
Casiopea Bovet, supra, 12 Cal.App.5th 656 is virtually on
point. In that case the trial court entered an order under the
Enforcement of Judgments Law (Code Civ. Proc., § 708.510)
assigning a judgment creditor escheated funds held by the state
on behalf of a judgment debtor, a suspended corporation. The
state denied the creditor’s claim for escheated funds because the
debtor, as a suspended corporation, lacked capacity to claim the
funds. (Id. at pp. 659-660.) The creditor argued it should not be
subject to a lack of capacity defense because it obtained a judicial
assignment rather than a voluntary assignment. (Id. at p. 662.)
The court rejected that argument, holding that it made “no
difference if the assignment is voluntary or through a judicial
assignment” and that it would undermine the purpose of Revenue
and Taxation Code section 23301 to “allow the suspended
corporation to enjoy the ordinary privileges of an ongoing concern
by resolving its debt without the risk of paying taxes.” (Casiopea
Bovet, at p. 664.)11 As the trial court stated in sustaining the
11 Axis does not contend the public policy analysis should be
different when the suspended assignor has filed for bankruptcy.
13
Yari Defendants’ demurrer, “the situation here is functionally
identical” to the judicial assignment in Casiopea Bovet.
Axis complains the Yari Defendants were essentially
arguing (and by implication the trial court ruled) the trustee sold
Axis worthless claims “akin to shares in the Brooklyn Bridge.”
But Axis does not contend the trustee (or anyone else) misled
Axis about the value of the causes of action or about Syndicate’s
suspension. Indeed, the bankruptcy court order approving the
sale described the causes of action as “whatever they may be” and
provided that the trustee disclaimed “any warranties or
representations of any type,” which put Axis on notice that the
value of the causes of action was uncertain. (See In re Atlantic
Gulf Communities Corp., supra, 326 B.R. at p. 300 [“In assigning
a litigation claim, the assignor [the bankruptcy trustee] does not
guarantee the merits of the action.”].) Axis does not dispute it
could have ascertained Syndicate was suspended by consulting
the Secretary of State’s website. (See Wanke, Industrial,
Commercial, Residential, Inc. v. AV Builder Corp., supra,45 Cal.App.5th at p. 477 [“Requiring an assignee to ensure at the
time of assignment that its assignor is not a suspended
corporation is not unduly burdensome.”].) Any problems or
defects in the claims Axis purchased were reflected in the
purchase price.
5. Axis Brought Causes of Action on Behalf of
Syndicate, Not Its Creditors
Perhaps realizing Syndicate’s causes of action are barred by
the incapacity defense, Axis argues it brought causes of action
not as successor in interest to Syndicate, but “on behalf of all of
the unsecured creditors as a whole.” By not making this
14
argument in opposition to the demurrer, however, Axis forfeited
it. (See Johnson v. Greenelsh (2009) 47 Cal.4th 598, 603; Curtis
v. Superior Court (2021) 62 Cal.App.5th 453, 474, fn. 15.)
Even if not forfeited, the argument is meritless. Axis
acquired the interests of the trustee, who had authority to sue on
behalf of the estate, not Syndicate’s creditors. While “[i]t is true
in a sense that a trustee in bankruptcy represents creditors of the
bankrupt,” the trustee “does so . . . only in a limited way” by
“marshaling, preserving or otherwise administering the assets of
the estate in bankruptcy.” (Stodd v. Goldberger (1977)
73 Cal.App.3d 827, 835.) “A bankruptcy trustee has no standing
to sue third parties on behalf of the estate’s creditors, but may
assert only claims held by the bankrupt entity.” (Shaoxing
County Huayue Import & Export v. Bhaumik (2011)
191 Cal.App.4th 1189, 1197; accord, Peregrine Funding, Inc. v.
Sheppard Mullin Richter & Hampton LLP, supra,
133 Cal.App.4th at p. 677; Smith v. Arthur Andersen LLP (9th
Cir. 2005) 421 F.3d 989, 1002; see Stodd, at p. 833 [bankruptcy
trustee could not maintain an action on an alter ego theory
absent some allegation of injury to the bankrupt corporation].)
The bankruptcy estate includes “any actions that a debtor
corporation may have to recover damages for fiduciary
misconduct, mismanagement or neglect of duty, and the
bankruptcy trustee succeeds to that right for the benefit of all
creditors of the estate.” (Koch Refining v. Farmers Union Cent.
Exchange, Inc., supra, 831 F.2d at p. 1347.)
Axis cites cases referring to the trustee as acting “on behalf
of creditors.” Read in context, however, the statements in those
cases make clear the trustee sued on behalf of the estate. For
example, in In re Scott Acquisition Corp. (Bankr. D.Del. 2006)
15
344 B.R. 283 the defendants moved to dismiss the complaint,
arguing the trustee lacked standing to bring a breach of fiduciary
duty claim on behalf of creditors. (Id. at p. 290.) The bankruptcy
court denied the motion to dismiss, stating “the claims alleged in
this case on behalf of the creditors are derivative of the
corporation itself. . . . In this case, the plaintiff is not seeking
recovery on behalf of an individual or even a class of creditors;
rather, the plaintiff seeks recovery for the bankrupt corporation
itself.” (Id. at pp. 290-291.)
And it is clear from the first amended complaint that Axis
sued on behalf of Syndicate, not its creditors. Axis alleged that,
when it purchased the claims in the bankruptcy court, it became
“Syndicate’s successor-in-interest to any claims Syndicate may
have” against the defendants. In its cause of action for breach of
fiduciary duty, Axis alleged the defendants “owed Syndicate a
fiduciary duty” and “breached those duties to Syndicate” by
commingling assets, placing personal interests ahead of
Syndicate’s, and “failing to pursue claims and avenues of recovery
available to Syndicate necessary to protect Syndicate from its
creditors.” Axis alleged that, as a result of those breaches of
fiduciary duty, “Syndicate suffered harm.”
Axis also argues it asserted claims the trustee could have
brought under its avoiding powers, such as the trustee’s ability to
bring “fraudulent transfer and alter ego claims seeking to recover
looted assets.”12 This argument is also meritless. The
Bankruptcy Code gives the bankruptcy trustee the authority to
12 Although courts disagree on the issue, the Ninth Circuit
has held a trustee can transfer its avoidance powers. (See In re
P.R.T.C., Inc. (9th Cir. 1999) 177 F.3d 774, 782).
16
bring an action to avoid (i.e., reverse) certain transactions for the
benefit of the estate and its creditors. (See §§ 544, 547, 548.) The
trustee “is empowered to sue officers, directors, and other
insiders to recover, on behalf of the estate, fraudulent or
preferential transfers of the debtor’s property.” (Commodity
Futures Trading Com. v. Weintraub (1985) 471 U.S. 343, 352
[105 S.Ct. 1986].) Under its avoiding powers, the trustee can set
aside certain transfers or obligations incurred by the debtor that
an unsecured creditor could have avoided by allowing “the
bankruptcy trustee to step into the shoes of a creditor for the
purpose of asserting causes of action under state fraudulent
conveyance acts for the benefit of all creditors . . . .” (In re Pacific
Gas & Electric Co. (Bankr. N.D.Cal. 2002) 281 B.R. 1, 14; see
§ 544(a), (b).) The trustee also has the authority to set aside any
fraudulent transfer the debtor made within two years before
filing a bankruptcy petition. (§ 548(a)(1).)
A trustee seeking to use the avoiding powers to set aside a
transfer or an obligation, however, must file an adversary
proceeding in bankruptcy court. (See In re Colortran, Inc.
(Bankr. 9th Cir. 1997) 218 B.R. 507, 510; In re Commercial
Western Finance Corp. (9th Cir. 1985) 761 F.2d 1329, 1338; Fed.
Rules Bankr. Proc., rule 7001(1), (2), 11 U.S.C.) The bankruptcy
trustee cannot file a state court action to avoid a transfer. Nor,
as the purchaser of the trustee’s claims, could Axis.
Thus, Axis’s causes of action were barred by the lack-of-
capacity defense. The trial court did not err in sustaining the
demurrer without leave to amend.13
13 Axis does not argue the trial court abused its discretion in
sustaining the demurrer without leave to amend.
17
B. Axis Has Not Shown the Trial Court Erred in
Awarding Fees Under the Attorneys’ Fees Provision
Axis argues the trial court erred in awarding the Yari
Defendants their attorneys’ fees under two provisions in
Syndicate’s operating agreement: an attorneys’ fees provision and
an indemnification provision. We conclude Axis has not shown
the trial court erred in awarding fees under the attorneys’ fees
provision.
1. Applicable Law and Standard of Review
“Under the American rule, each party to a lawsuit
ordinarily pays its own attorney fees.” (Mountain Air
Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th
744, 751.) Section 1021 of the Code of Civil Procedure codifies
this general rule, but also allows parties “to contract” out of it.
(Mountain Air Enterprises, at p. 751; see R.W.L. Enterprises v.
Oldcastle, Inc. (2017) 17 Cal.App.5th 1019, 1025.) Parties “‘“may
validly agree that the prevailing party will be awarded attorney
fees incurred in any litigation between themselves, whether such
litigation sounds in tort or in contract.”’” (Mountain Air
Enterprises, at p. 751; see Maynard v. BTI Group, Inc. (2013)
216 Cal.App.4th 984, 989.)
“‘“On review of an award of attorney fees after trial, the
normal standard of review is abuse of discretion. However,
de novo review of such a trial court order is warranted where the
determination of whether the criteria for an award of attorney
fees and costs in this context have been satisfied amounts to
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statutory construction and a question of law.”’ [Citation.] In
other words, ‘it is a discretionary trial court decision on the
propriety or amount of statutory attorney fees to be awarded, but
a determination of the legal basis for an attorney fee award is a
question of law to be reviewed de novo.’” (Mountain Air
Enterprises, LLC v. Sundowner Towers, LLC, supra, 3 Cal.5th at
p. 751; see Eden Township Healthcare Dist. v. Eden Medical
Center (2013) 220 Cal.App.4th 418, 425 [“‘[o]n appeal this court
reviews a determination of the legal basis for an award of
attorney fees de novo as a question of law’”]; Douglas E.
Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th
230, 237 [same].) In determining “‘whether the parties entered
an agreement for the payment of attorney fees, and, if so, the
scope of the attorney fee agreement,’” we “apply traditional rules
of contract interpretation.” (Mountain Air Enterprises, at p. 752.)
2. The Attorneys’ Fees Provision Authorized the
Award of Attorneys’ Fees
The trial court awarded the Yari Defendants attorneys’ fees
as prevailing parties under Section 11.10 of Syndicate’s operating
agreement. Section 11.10, titled “Attorneys’ Fees,” states: “If any
dispute between the Company and the Members or among the
Members should result in litigation or arbitration, the prevailing
party in such dispute shall be entitled to recover from the other
party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including, without limitation,
reasonable attorney’s fees and expenses whether or not actually
incurred.” (Italics added.) As a member of Syndicate, Davand
Holdings, LLC, was entitled to recover its attorneys’ fees under
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Section 11.10 because it prevailed in litigation with Axis, which
sued as successor in interest to Syndicate, the Company.14
Axis argues the provisions of the operating agreement “are
simply irrelevant” because Axis sued “to protect the rights of
creditors,” not for “breach of the Operating Agreement.” As
discussed, Axis’s contention it sued on behalf of Syndicate’s
creditors is meritless; Axis sued as Syndicate’s successor in
interest after purchasing the estate’s causes of action from the
trustee. The attorneys’ fees provision is broad, covering “any
dispute between the Company and the Members.” That’s what
this is: a dispute between the company (Syndicate) and one of its
members (Davand Holdings, LLC). And because the provision
covers not only an action on the contract, but “any dispute”
between the parties, it authorizes an award of attorneys’ fees in
this case. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 608
[“[i]f a contractual attorney fee provision is phrased broadly
enough . . . it may support an award of attorney fees to the
prevailing party in an action alleging both contract and tort
claims”]; Maynard v. BTI Group, Inc., supra, 216 Cal.App.4th at
p. 993 [“an attorney fee provision awarding fees based on the
outcome of ‘any dispute’ encompasses all claims, whether in
contract, tort or otherwise”].)
Finally, the nine Yari Defendants filed a joint motion for
attorneys’ fees, and the trial court granted it, awarding fees to all
of them. Although Davand Holdings is the only defendant who
was a member of Syndicate, the Yari Defendants argued they
14 Axis does not argue that, as a nonsignatory to the operating
agreement, it was not bound by the agreement’s attorneys’ fees
provision. Syndicate, Axis’s predecessor in interest, was a
signatory.
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were all entitled to fees under the attorneys’ fees provision
because Axis alleged the defendants were all alter egos of Davand
Holdings. Although Axis argued in the trial court that Davand
Holdings was the only defendant who was a member of Syndicate
and a party to the operating agreement, it has abandoned that
argument on appeal. Axis does not argue that, even if the trial
court properly awarded attorneys’ fees to Davand Holding, the
court erred in awarding fees to the other eight defendants.
Because the trial court awarded attorneys’ fees to all nine Yari
defendants, including Yari, we do not reach Axis’s argument Yari
was not entitled to attorneys’ fees under the indemnity provision.
Although the trial court discussed that provision in its ruling, we
review the trial court’s order, not the court’s reasoning. (Wal-
Mart Real Estate Business Trust v. City Council of San Marcos
(2005) 132 Cal.App.4th 614, 625; see Coral Construction, Inc. v.
City and County of San Francisco (2010) 50 Cal.4th 315, 336
[“‘[i]t is axiomatic that we review the trial court’s rulings and not
its reasoning’”].)
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DISPOSITION
The judgment is affirmed. The order awarding the Yari
Defendants their attorneys’ fees is affirmed. The Yari
Defendants are to recover their costs on appeal.
SEGAL, Acting P. J.
We concur:
FEUER, J.
ESCALANTE, J.*
* Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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