Who's On First? Creditor's 'Anticipated' Judgment In Fraudulent Conveyance Suit Trumps Earlier-Recorded Lien Where Former Relates Back To Recording Of Lis Pendens; Debtor Used New Wife, Multiple Quit-Claims Of $10M Pacific Palisades Home In Failed Effort At Playing High Stakes Game Of "Keep Away" From Ex-Wife, Lender

In Los Angeles, California, The Recorder reports:

• [M]use Family Enterprises, Ltd. (Muse parties) made loans to BTM Funding, Inc., a company wholly owned by David T. Smith. In 2008, Smith used BTM to buy an expensive home [Editor's Note: $10 million, according to the court ruling; and formerly owned by NBA star Kobe Bryant, according to attorneys for the Muse parties]. David had BTM take title to hide the Property from his former wife during divorce proceedings.
  
  David later had the home deeded to himself by quitclaim deed from BTM. On the same day, he quitclaimed the property to his then-new wife. She later quitclaimed it to her revocable living trust. The quitclaim deeds were not recorded until 2009.
  
  David and his former wife settled their claims by having Mira Overseas Consulting Ltd., owned by David, transferred to her.
  
  In September 2010, the Muse parties filed suit against BTM and others in Los Angeles for breach of contract and fraud, and to set aside the quitclaim deeds as fraudulent transfers. The Muse parties recorded a lis pendens regarding their action and the property. A stipulated judgment on breach of contract was entered in October 2012. Upon trial of the fraudulent transfer claims, a jury found in favor of the Muse parties. An amended judgment was entered in January 2013 awarding damages and nullifying the quitclaim deeds as fraudulent transfers. The amended judgment was recorded in February 2013.
  
  In the meantime, about six months after the Los Angeles action began, Mira sued BTM and related parties in Santa Monica. The action resulted in entry of a stipulated judgment in June 2011. The Muse parties first learned of the Los Angeles action in August 2011.
  
  Mira sued the Muse parties, BTM, and others in early 2012, seeking a declaration that its judgment lien was superior to any lien that might be obtained by the Muse parties.
  
  The Muse parties cross-complained, contending that their anticipated judgment lien related back to the recording of their lis pendens. The trial court found that the Muse parties’ judgment did not relate back to the lis pendens. The Muse parties appealed.
  
  The court of appeal reversed, holding that the trial court erred in concluding the judgment did not relate back to the lis pendens.
  
  Code of Civil Procedure §405.24, relating to lis pendens, provides that the “rights and interest of the claimant in the property, as ultimately determined in the pending noticed action, shall relate back to the date of the recording of the notice.”
  
  In Kirkeby v. Superior Court (2004) 33 Cal.4th 642, the California Supreme Court that a fraudulent conveyance claim affects title to or the right to possess real property, thereby supporting the recording of a lis pendens.
  
  Here, the action below involved the same type of property claim as that in Kirkeby. The plaintiff in Kirkeby filed a fraudulent transfer claim to void property transfers to the extent necessary to satisfy the claims set out in the plaintiff’s complaint. The court in Kirkeby reasoned that because the Uniform Fraudulent Transfer Act allows the remedy of avoidance of the transfer to the extent necessary to satisfy a creditor’s claim, a fraudulent conveyance claim seeking avoidance of transfer qualifies as a real property claim for purposes of the lis pendens statutes. The court here reasoned that a necessary corollary was that a successful claimant’s rights and interests in the property relate back to the recording of the claimant’s lis pendens.
  
  The Muse parties indisputably had the right to record a lis pendens with respect to their fraudulent transfer claim. Accordingly, their rights and interest in the property, namely, the avoidance of transfers of the property to satisfy their claims, related back to the date they recorded their lis pendens. This date was earlier than the date Mira recorded its abstract of judgment. Thus, the Muse parties’ judgment lien had priority.

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For the ruling, see Mira Overseas Consulting Ltd. v. Muse Family Enterprises, Ltd., B254298 (Cal. App. Dist. 2, Div. 2, June 2, 2015) (certified for publication).