Daily Development for Friday, August 13, 2004
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu
LIS PENDENS; GROUNDS; FRAUDULENT CONVEYANCE: Although a claim for constructive
trust will not support a lis pendens, and a complaint seeking only relief in the
form of constructive trust will result in expungement of an associated lis
pendens filing, the court should not grant expungement if the complaint also
alleges fraudulent conveyance, as a fraudulent conveyance claim does support a
lis pendens filing, and the statute providing for expungement based upon the
pleadings looks only to allegations, and not to evidence.
Kirkeby v. Superior Court, 93 P.3d 395, 15 Cal.Rptr.3d 805 (Cal. 2004)
This case reverses the case discussed as the DIRT DD for 7/8/03.
Kirkeby and her brother, Fascenelli, developed a business called FasTags for
manufacturing and wholesale selling of pet identification tags. The business was
incorporated, with Fascenelli and his wife controlling 51 percent, and Kirkeby
controlling 49 percent, individually and in trust.
Things went south between the siblings and Kirkebyz, who had resigned from the
board, filed a complaint in 2002 alleging 27 causes of action, including a
fraudulent conveyance claim, and asking for declaratory and injunctive relief
and $4.9 million aggregate damages for FasTags and herself.
The fraudulent conveyance cause of action alleged that Fascenelli obtained a
$50,000 loan from FasTags to purchase or construct a building for FasTags'
operations, but used the proceeds to buy a residential income property known as
the Oak Street Property.
Fascenelli transferred the Oak Street Property to a family partnership which
also owned the Fascenelli family residence called the Clark Street Property.
Kirkeby petitioned that the $50,000 be viewed as establishing a constructive
trust and to the extent the Oak Street Property had appreciated in value, that
Fascenelli disgorge the profits. After filing the complaint, Kirkeby recorded
notices of lis pendens on both the Oak Street Property and the Clark Street
Property.
The Fascenellis moved to expunge the lis pendens and the trial court granted the
motion, finding the complaint to be concerned with monetary damages. The trial
court based its decision on cases that found a recording of a lis pendens to be
inappropriate where a claim for fraudulent conveyance or imposition of a
constructive trust is made and no ownership or possessory interest is claimed in
the property. LaPaglia v. Superior Court 215 Cal.App.3d 1322 (1989) ; Urez Corp.
Superior Court, 190 Cal.App.3d 1141 (1987).
Kirkeby appealed, and the California Supreme Court reversed, holding that the
lower court mistakenly looked to the expungement standard in CCP 405.32, rather
than 405.31. Under 405.31, upon which the respondents had relied in seeking
expungement, the court is to look to the allegations of the complaint. If there
is an allegation of a claim that will support a lis pendens, the court will deny
the motion to expunge. The California Supreme Court, analyzing the Uniform
Fraudulent Transfer Act adopted in California, concluded lis pendens is an
available remedy under that Act, even though it is not specifically mentioned in
the statute. Kirkeby adequately alleged that her relatives had transferred
properties to the Family Trust with the intent to defraud creditors. This was an
adequate allegation.
The court noted that a second statute, 405.32, provides additional grounds for
expungement upon hearing of the evidence. Under this statute, if the court
concludes, upon evaluation of the evidence presented, that the evidence does not
support a claim for relief as to which a lis pendens is appropriate, then the
court will grant expungement. It reiterated the point made below that the
showing of facts sufficient to support a constructive trust, which was the
primary thrust of the plaintiff’s case, was insufficient to support a lis
pendens. But it noted that counsel for respondents had not invoked 405.32 in its
expungement motion. It is not clear whether this would have been an available
remedy at the time that the motion was made.
The court acknowledged that parties may be able to exploit the broad reach of
the fraudulent conveyance statute and the narrow reach of the expungement
statute to tie up property improperly as a tactic in a larger dispute. But it
stated that the remedy for this possibility lies with the legislature, and that
the language of the statutes in question clearly mandated the result it had
reached.
Comment 2: Kirkeby isn’t home free. She still has to show facts sufficient to
support a fraudulent conveyance. Simply establishing grounds for a constructive
trust will not be enough. But one assumes, since she paid for this appeal to the
California Supreme Court, that she believes that her evidence will support her
claim.
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