Thursday, January 23, 2014

Fraudlent Transfers Are Not Protected Actity, Even if Accomplished Through a Collusive Settlement

Optional Capital v. Das Corporation, No. B241244 (D2d1 Jan 15, 2014)

The effort it would take to explain the convoluted facts in this case significantly outweighs any procedural interest, so I’ll try to be brief. Generally speaking, defendants are individuals and companies that are alleged to have raided plaintiff’s assets to the tune of $35 million. As part of what the court describes as “an extremely tangled thicket of legal proceedings in both state and federal court, as well as in Switzerland,” plaintiff got a judgment against some of defendants. In this case, plaintiff is trying to collect on its judgment by suing other defendants as the beneficiaries of fraudulent transfers. Somewhere in the thicket of legal proceedings there was a settlement between the judgment debtor defendants and one of the fraudulent transferee defendants. Plaintiff says that it was collusive—part a conspiracy to divert some funds out of a recently unfrozen Swiss bank account so that plaintiff couldn’t execute against it. As seems to happen any time a complaint references some other litigation, defendants filed an anti-SLAPP motion and a demurrer on the Civil Code § 47(c) litigation privilege, both of which the trial court granted.

Not so, said the court of appeal. This case does not arise from protected activity. No doubt, settlement-related activity can sometimes be “protected activity,” as defined in Code of Civil Procedure § 425.16(e). Just because a collusive settlement was alleged to have been a means by which the debtor defendants accomplished their fraudulent transfers does not mean that plaintiff is suing them and the fraudulent transferee defendants for the act of entering a settlement. They are instead being sued engaging in a scheme to shuffle money around avoid the debtor defendants’ obligations on the judgment. That claim does not
arise from protected activity. In any event, plaintiff showed a likelihood of success on its fraudulent transfer theory. And similarly, as to the demurrer, although the litigation privilege might apply to statements made in settlement negotiations, it does not apply when a lawsuit is based on a separate, non-communicative, wrongful act, like a conspiracy to transfer funds out of the clutches of one’s creditors for lack of reasonably equivalent value.


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