Fleet Credit Corp. v. TML Bus Sales, Inc.

65 F.3d 119, 1995 WL 517212
CourtCourt of Appeals for the Ninth Circuit
DecidedSeptember 1, 1995
DocketNo. 93-17218
StatusPublished
Cited by15 cases

This text of 65 F.3d 119 (Fleet Credit Corp. v. TML Bus Sales, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fleet Credit Corp. v. TML Bus Sales, Inc., 65 F.3d 119, 1995 WL 517212 (9th Cir. 1995).

Opinion

[120]*120ORDER

The memorandum decision filed May 23, 1995, is redesignated as an authored opinion by Judge Kleinfeld with modification.

OPINION

KLEINFELD, Circuit Judge:

We decide a question of lien priorities arising out of a bankruptcy and a fraudulent conveyance.

I. Facts.

Berthold owned Taylor Bus Service, which filed chapter 11 bankruptcy. TML Bus Sales secured a judgment for more than $17 million against Berthold personally for embezzlement and conversion of TML’s funds. Fleet Credit obtained a default judgment against Berthold personally in the amount of $153,275.89 plus interest.

After the bankruptcy filing, two longtime friends and employees of Berthold’s incorporated Victory Enterprises as a Nevada Corporation. Taylor Bus Service emerged from the bankruptcy and received $1.9 million from the bankruptcy trustee. Taylor Bus loaned the $1.9 million to Victory, using falsified dates on documents to hide the true nature of the transaction. The district court found that the promissory note was a falsely dated instrument drafted to “disguise a fraudulent transfer.”

Victory deposited the $1.9 million into a Schwab brokerage account. Fleet believed that the money in the Schwab account really belonged to its judgment debtor, Berthold, and filed a hen against the Schwab account on March 30, 1992, in order to satisfy the judgment. Schwab refused to turn the money over to Fleet, because the account was Victory’s corporate account.

Fleet then filed this diversity suit in federal court. The court determined that Taylor Bus Service was an alter ego of Berthold, and Taylor Bus’s conveyance to Victory was a fraudulent conveyance, so Fleet could reach the money in Victory’s Schwab account:

The $1.9 million transfer to Victory was made ‘[w]ith actual intent to hinder, delay, or defraud’ Taylor’s and Berthold’s creditors. Cal.Civ.Code. § 3439.04(a)
* * ⅜
The avoidance of the transfer to Victory effectively ‘revests’ in Taylor the property transferred.
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Berthold operated Taylor as an extension of himself. He personally directed the transfer of large sums of money, and did so for reasons that had nothing whatsoever to do with the operation of the corporate entity. Based on all the facts presented to the Court, it is clear beyond cavil that an inequitable result would follow were the Court to permit Berthold to shield himself with Taylor’s corporate form.

Meanwhile, TML sued Victory in state court to establish its own rights to the money in the Schwab account. The state court likewise held that Berthold’s creditor, TML, could reach the money in what was nominally Victory’s Schwab account.

TML filed a notice of lien in Fleet’s federal case, claiming a right under California Code of Civil Procedure § 708.410 to all amounts remaining after Fleet satisfied its state court judgment for $153,274.89 plus interest. Fleet moved for attorneys’ fees as well, as a priority ahead of TML’s lien. The district court held that TML could not secure a lien against Berthold at all, and Fleet was entitled to attorneys’ fees.

II. Analysis.

TML appeals the determination that it had no right to a lien under the applicable statute and asks us to find that, if it did have a right to secure a lien, its lien was superior to Fleet’s as to the amount of attorneys’ fees. We reverse, and hold that TML did have a lien, behind Fleet’s lien for the amount of its earlier judgment, but ahead of Fleet’s lien for attorneys’ fees.

TML obtained a $17 million, and Fleet a $153,000, judgment against Berthold in state court. Berthold hid $1.9 million in an account at Charles Schwab. His alter ego corporation loaned the money to another corporation in a fraudulent conveyance designed [121]*121to keep the money away from creditors, as established by findings of fact after trial. The Schwab account was in the name of the second corporation, so for Berthold’s creditors to get it, they had to penetrate two layers of fraud, the alter ego corporation, and the fraudulent conveyance. Fleet did so, in federal court, and TML established substantially the same thing in state court. The attorneys’ fees of Fleet at issue are those Fleet won in the federal court case establishing the fraudulent conveyance and alter ego, not the earlier case establishing Berthold’s debt to Fleet of $158,000.

The district court concluded that because Berthold did not obtain a judgment in his favor in the fraudulent conveyance action in federal court in which TML sought to assert its lien, TML could not assert a lien on Berthold’s interest. We read the California statute differently, and conclude that TML’s motion for an order enforcing his lien should have been granted. We review this question of California law de novo, Ravell v. United States, 22 F.3d 960, 961 n. 1 (9th Cir.1994).

The statute at issue reads:

(a) A judgment creditor who has a money judgment against a judgment debtor who is a party to a pending action or special proceeding may obtain a lien under this article, to the extent required to satisfy the judgment creditor’s money judgment, on both of the following:
(1) Any cause of action of such judgment debtor for money or property that is the subject of the action or proceeding.
(2) The rights of such judgment debtor to money or property under any judgment subsequently procured in the action or proceeding.

Cal.Code Civ.P. § 708.410.

Subsection (2) entitles TML to a hen for the amount of its judgment even though Berthold did not have a cause of action which was the subject of the lawsuit, because the action established that Berthold had an interest in the Schwab account for purposes of awarding his interest to creditors defrauded by his alter ego corporation and fraudulent conveyance. The first subsection lets a judg-ment creditor take a hen when the judgment debtor sues a third party for money. The second subsection broadens the judgment creditor’s rights, so that it can take a hen where the proceeding estabhshes that the judgment debtor has an interest in money or property, even though the judgment debtor was not the plaintiff. If there were doubt about this reading, it would be resolved by the legislative history. In the Legislative Committee Comment, immediately following the statute, the section is interpreted as follows:

A hen under this article reaches the judgment debtor’s right to money under the judgment in the pending action or proceeding as permitted by former law [referring to the superseded section 688.1]. See Abatti v. Eldridge, 103 Cal.App.3d 484, 163 Cal.Rptr. 82 (1980). The hen also reaches any right of the judgment debtor to property under the judgment.

Cal.Code Civ.P. § 708.410 Legislative Committee Comment—Assembly 1982 Addition (emphasis added).

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Cite This Page — Counsel Stack

Bluebook (online)
65 F.3d 119, 1995 WL 517212, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fleet-credit-corp-v-tml-bus-sales-inc-ca9-1995.