Is There a Right to Jury Trial for Claim of Fraudulent Transfer of Real Property?

Sometimes defendants against whom a money judgment is entered will try and prevent enforcement of the judgment against the defendant's real property by transferring the real property with actual or constructive intent to hinder, delay or defraud the judgment creditor.  Such a transfer will then require a new legal action under California's Uniform Voidable Transactions Act (Civil Code §§ 3439 to 3439.14).

The issue is whether there is a right to a jury trial in the Uniform Voidable Transactions Act lawsuit?

In the recent decision in Moofly Productions v. Favila, the Second District Court of Appeal affirmed the superior court’s judgment in favor of defendant and cross-complainant Sandra Favila, the executrix of the Estate of Richard Corrales (the Estate) for fraudulent transfers and other causes of action against Moofly Productions.

Following the dismissal of Moofly’s complaint, the case proceeded to trial on the Estate’s cross-complaint. The superior court found that the transfer of assets to Moofly was a fraudulent transfer designed to prevent the Estate from collecting on its judgment.

The court granted a mandatory injunction directing plaintiffs to transfer back all the assets that had previously been transferred to Moofly. The court also ordered restitution of the profits plaintiffs earned from the fraudulently transferred property, and issued a prohibitory injunction to prevent plaintiffs from any further transfers of property.

Moofly contended that the superior court erred by denying its request for a jury trial on its cause of action for fraudulent transfer. The Court of Appeal disagreed, ruling that to provide the relief sought in the cause of action, the superior court was required to apply equitable doctrines, and Moofly was therefore not entitled to a jury trial.

The California Constitution guarantees the right to a jury trial, but the right so guaranteed is the right as it existed at common law in 1850, when the Constitution was first adopted.  As a general proposition, a jury trial is a matter of right in a civil action at law, but not in equity.

The California Code of Civil Procedure also guarantees the right to a jury trial in actions for the recovery of specific, real, or personal property, with or without damages. (Code Civil Procedure § 592)

If the action involves ordinary common-law rights cognizable in courts of law, it is to that extent an action at law. In determining whether the action was one triable by a jury at common law, the court is not bound by the form of the action but rather by the nature of the rights involved and the facts of the particular case—the gist of the action.

A jury trial must be granted where the gist of the action is legal, and where the action is in reality cognizable at law.

On the other hand, if the action is essentially one in equity and the relief sought depends upon the application of equitable doctrines, the parties are not entitled to a jury trial.

In most instances, courts have considered suits to reverse fraudulent transfers to be actions at equity. Where no individual money damages are sought, and where the plaintiff seeks only to rescind and to recover the fraudulently conveyed assets, the action is equitable, and a jury trial is not a matter of right.

An action to recover a fraudulent conveyance of a determinate sum of money must proceed under law because in such a case, a complete remedy is available at law, and equity will not countenance an action when complete relief may be obtained at law.

One of the key questions in any action for fraudulent transfer is whether the transferor received a reasonably equivalent value in exchange for the transfer or obligation. (Civ. Code § 3439.04(a)(2).) The evaluation of that question required considering all of the property that Moofly received, and would not have allowed separate trials for the chattels, cash, and intangibles.

Because the Estate’s cause of action for fraudulent transfer was essentially one in equity and the relief sought depended upon the application of equitable doctrines, the Appellate Court held that Moofly was not entitled to a jury trial.

LESSONS:

1.         Limit causes of action for fraudulent conveyance to the return of the transferred property to avoid the time and expense of a jury trial.