Lincoln Benefit Life Insurance Company v. Alexander Dallal et al

Filing 203

ORDER RE: PLAINTIFF LINCOLN BENEFIT LIFE COMPANY'S MOTION FOR TEMPORARY RESTRAINING ORDER AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION by Judge Michael W. Fitzgerald. **See Minute Order for details.** (smom)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
Present: The Honorable MICHAEL W. FITZGERALD, U.S. District Judge
Deputy Clerk:
Rita Sanchez

Court Reporter:
Not Reported

Attorneys Present for Plaintiff:
None Present

Attorneys Present for Defendant:
None Present

Proceedings (In Chambers): ORDER RE: PLAINTIFF LINCOLN BENEFIT LIFE
COMPANY’S MOTION FOR TEMPORARY
RESTRAINING ORDER AND ORDER TO SHOW
CAUSE RE PRELIMINARY INJUNCTION [195]
Before the Court is Plaintiff Lincoln Benefit Life Company’s (“LBLC”) Motion
for a Temporary Restraining Order and Order to Show Cause re a Preliminary
Injunction, filed on September 23, 2019 (“Motion”). (Docket No. 195). Defendants
Alexander Dallal and Claire Dallal filed an opposition to the Motion on September 30,
2019. (Docket No. 196). LBLC filed a reply on October 7, 2019. (Docket No. 199).
The Court has read and considered the parties’ submissions, and held a hearing
on October 21, 2019.
For the reasons discussed below, the Court GRANTS LBLC’s Motion.
Defendants must place $919,290.49 in an escrow account within 10 days. If they do
not, Defendants are enjoined from (1) further transferring or encumbering the five
properties at issue; (2) transferring or encumbering any ownership interest in any of the
LLCs that hold title to the five properties at issue; or (3) further accessing or dispersing
any funds from any loans or lines of credit secured by the five properties at issue. As
stated at the hearing, the Order will be mooted by the Court’s issuance of the final
judgment against Defendants.
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
I.

PROCEDURAL BACKGROUND

For the purposes of this Order, the Court will only focus on the factual
allegations relevant to this dispute.
In August 2018, LBLC obtained a jury verdict of $919,290.49 in fraud and
punitive damages against Defendants. (Motion at 2). LBLC alleged that Defendants
had engaged in rampant long-term-care insurance fraud, and the jury ruled in favor of
LBLC. (Id). The final judgment has not yet issued. In the meantime, LBLC claims
that Defendants have been transferring real estate assets and taking other actions in
order to become judgment proof. (Id.). Specifically, Plaintiffs allege that Defendants
“executed quitclaim deeds, transferred property to their children, and set up four
different LLCs to hold their real estate assets.” (Id. at 1). Plaintiffs also allege that
Defendants “took out nearly $1 million in lines of credit, depleting the equity in their
properties” which were “part of their $4 million net worth at trial, which formed the
basis for the punitive damages verdict.” (Id.).
Specifically, LBLC asserts that Defendants have transferred their assets,
including five properties (the “Properties”), into newly formed LLCs. (Id. at 14).
Additionally, LBLC alleges that Defendants have taken out loans on the Properties
amounting close to $1 million, diminishing the Properties’ values. (Id. at 14-15).
Further, LBLC asserts that Defendants issued 10 quitclaim deeds for transfers of their
Properties into and out of trusts, into and out of the LLCs they formed, and as gifts to
their children for little to no consideration. (Id. at 15).
Defendants do not dispute the facts as outlined by LBLC in terms of what
Defendants have done with the Properties and their other asserts. Instead, Defendants
dispute the inferences LBLC attempts to draw from that activity. Specifically,
Defendants argue that they are “elderly individuals with ongoing health concerns” who
are “facing their own mortality.” (Opposition at 3). Defendants characterize the
actions they have been taking with their assets as “simply to properly organize the
estate and secure better terms on existing loans, access the equity of the properties to
cover maintenance and related expenses, cover medical and other living expenses
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
(including legal fees), prepare for the judgment in this case, and to provide for their
children.” (Id. at 3-4) (citing Declaration of Claire Dallal ¶ 12).
II.

REQUEST FOR JUDICIAL NOTICE

In conjunction with their Motion, LBLC requests that the Court take judicial
notice of various deeds related to Defendants’ properties. (See Request for Judicial
Notice, Docket No. 195-1 (“RJN”)). Defendants did not file an opposition or response
to the RJN. The Court may take judicial notice of matters of public record, including
public deeds. Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th
Cir. 2006); Hotel Employees & Rest. Employees Local 2 v. Vista Inn Mgmt. Co., 393 F.
Supp. 2d 972, 978 (N.D. Cal. 2005) (“Unimpeached and certified copies of deeds have
been widely held proper subjects of judicial notice.”).
Defendants do not oppose the RJN, nor do they dispute any of the facts LBLC
asks the Court to take judicial notice of.
Accordingly, the RJN is GRANTED.
III.

DISCUSSION

Federal Rule of Civil Procedure 65 governs the issuance of temporary
restraining orders and preliminary injunctions, and courts apply the same standards to
both. Stuhlbarg Intern. Sales Co., Inc. v. John D. Brush & Co., 240 F.3d 832, 839 n.7
(9th Cir. 2001). A plaintiff seeking injunctive relief must show that (1) he is likely to
succeed on the merits; (2) he is likely to suffer irreparable harm in the absence of
preliminary relief; (3) the balance of the equities tips in his favor; and (4) an injunction
is in the public interest. Toyo Tire Holdings of Ams. Inc. v. Cont’l Tire N. Am., Inc.,
609 F.3d 975, 982 (9th Cir. 2010) (citing Winter v. Nat. Res. Def. Council, 555 U.S. 7
(2008)).
A plaintiff must “make a showing on all four prongs.” Alliance for the Wild
Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011). The Ninth Circuit employs
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
the “serious questions” version of the “sliding scale” approach when applying the fourelement Winter test. Id. at 1134. “That is, ‘serious questions going to the merits’ and a
balance of hardships that tips sharply towards the plaintiff can support issuance of a
preliminary injunction, so long as the plaintiff also shows that there is a likelihood of
irreparable injury and that the injunction is in the public interest.” Id. at 1135.
As for the type of relief requested here, neither party disputes that the Court has
authority to issue injunctive relief in order to ensure a party is not shifting assets to
avoid judgment. See In re Estate of Ferdinand Marcos, Human Rights Litig. 25 F.3d
1467, 1480 (9th Cir. 1994) (“[A] district court has authority to issue a preliminary
injunction where the plaintiffs can establish that money damages will be an inadequate
remedy due to impending insolvency of the defendant or that defendant has engaged in
a pattern of secreting or dissipating assets to avoid judgment”); American Chemical
Society v. Commax Techs., Inc., No. C 06-04414 JW, 2009 WL 10692025, at *4 (N.D.
Cal. May 15, 2009) (granting preliminary injunction to prevent transfer of real property
asset).
The Court concludes that Plaintiff has met its showing on all four prongs.
A. Likelihood of Success on the Merits
LBLC first argues that it can show more than just a “likelihood” of success on
the merits, instead arguing that by already prevailing at trial, success “has already
happened.” (Motion at 20). Accordingly, LBLC argues that there is “no question”
that it “satisfies the first element for injunctive relief.” (Id.). Defendants do not
dispute this point. Accordingly, the Court determines that Defendants have conceded
this point. See L.R. 7-12.
B. Irreparable Harm
LBLC next argues that it has demonstrated a possibility of irreparable harm if
the injunctive relief it seeks is denied. (Motion at 20). LBLC cites to case law where
courts have found irreparable harm demonstrated “when there is a danger that a
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
defendant is judgment proof or insolvent.” (Id.) (citing Hendricks v. Bank of Am.,
N.A., 408 F.3d 1127, 1141 (9th Cir. 2005); In re Estate of Ferdinand Marcos, Human
Rights Litig. 25 F.3d 1467, 1480 (9th Cir. 1994)). LBLC points to the Defendants’
history of fraud, as confirmed by the jury verdict against Defendants, and argue that
Defendants’ “actions make it clear that absent this Court’s issuance of an injunction,
they will attempt to further render themselves judgment-proof and deny [LBLC] any
rightful recovery on its claims.” (Id. at 21). At the hearing, LBLC reiterated its
arguments regarding irreparable harm.
In opposition, Defendants argue that despite LBLC’s arguments that Defendants
are attempting to “render themselves ‘judgment proof,’” LBLC “does not attempt to
argue that the [Defendants] are currently judgment proof – only that they might
become so in the hypothetical future.” (Opposition at 5-6). Defendants argue that the
evidence actually indicates that they are not trying to become judgment proof, because
(1) the loans taken on the Properties were just loan consolidations; (2) a majority of the
alleged illicit transactions occurred in 2018; and (3) Defendants have gone months
without making any transactions. (Id. at 6-7). Defendants argue that this timing
implies that Defendants are not acting illicitly, because Defendants would have
presumably continued to act if their goal was to avoid judgment. (Id.). Finally,
Defendants argue that LBLC’s cases are distinguishable, as they only arose in
“extraordinary circumstances.” (Id. at 8-9). At the hearing, Defendants reiterated their
arguments regarding irreparable harm, emphasizing that LBLC failed to meet its
burden of demonstrating that Defendants’ inability to pay is imminent.
At the hearing, the parties reiterated these arguments.
The Court agrees with LBLC, to an extent. The parties seem to agree that if a
party is moving assets to avoid judgment, the other party can demonstrate irreparable
harm. The only dispute here, then, is whether Defendants’ actions are to avoid
judgment, or whether Defendants’ actions are explained by neutral motives, like
engaging in normal estate planning activities. This is key, because Defendants are
correct that the cases cited by LBLC are not necessarily on point. For example, in
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
Hendricks, the Ninth Circuit relied on the fact that the Defendant “conceded in its
public statements and its filings that it [was] insolvent” in determining there was
irreparable harm. 408 F.3d at 1141. Similarly, in Marcos, the Ninth Circuit
determined there was “substantial danger that the defendants would transfer or conceal
its funds” only because (1) other plaintiffs had been unable to execute judgment
against the same defendants, and (2) federal courts have twice enjoined Defendants
from transferring or secreting assets “based on a pattern and practice of secreting assets
through foreign bank accounts by the use of aliases and shell corporations.” 25 F.3d at
1480. Those concerns are not present here.
That being said, the Court determines that Defendants’ motives are not
necessarily pure here. LBLC cites to the “badges of fraud” factors which courts
consider to infer fraudulent intent, and correctly notes that many of those factors are
present here, including the lack of consideration for the transfers and the timing of the
transfers. (Reply at 6-7). As LBLC points out, if Defendants were purely engaging in
estate planning, we would expect to see similar transactions prior to a judgment being
entered against Defendants, and no such actions are apparent here. And LBLC notes
that based on the Defendants’ stated net worth at trial, and the actions taken by
Defendants post-trial, Defendants may not currently be capable of satisfying the
judgment. (Id. at 8). This, taken with the Defendants’ rampant fraud as confirmed at
trial and the fact that Defendants have not stated that they currently are able to satisfy
the judgment, tips this factor in LBLC’s favor. (Id. at 9). That being said, as stated at
the hearing, the Court is not making any kind of finding or drawing any kind of
conclusion regarding Defendants’ past actions.
C. Balance of Hardships and Public Interests
LBLC next argues that the balance of equities and public interest supports its
position for two reasons. First, LBLC argues that the balance of equities is in its favor
because Defendants “engaged in fraud and are facing an impending judgment for fraud
and punitive damages.” (Motion at 22). Second, LBLC argues that public policy
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
“favors the enforceability of judgments, especially when the jury finds the defendant
liable for malice, oppression and fraud.” (Id.).
In opposition, Defendants rebut both of LBLC’s points, arguing again that their
actions were benign. (Opposition at 10). Defendants also argue that the Court “must
take into account” the Defendants’ business, health, and their ability to satisfy a
judgment. (Id.). Defendants argue that they need to keep their business and properties
viable in order to satisfy the judgment and other ongoing financial obligations. (Id. at
10-11). Accordingly, Defendants argue that LBLC “should not be allowed to use the
courts to inflict additional punishment on the [Defendants] and possibly force them
into drastic choices regarding life-saving medical care, or the loss of their business.”
(Id. at 11). Defendants posit that “[p]ublic policy does not – or should not – favor the
imposition of additional punishments when the trier of fact has already spoken.” (Id.).
The Court agrees with LBLC. The balance of equities is in LBLC’s favor,
considering that a jury returned a verdict for fraud against Defendants. To be clear,
LBLC is not punishing Defendants, it is simply ensuring that Defendants are able to
satisfy the judgment against them. And the Court agrees that public policy favors the
enforcement of judgments, and the considerations raised by Defendants do not
outweigh those considerations. Accordingly, the Court determines that all four factors
are in LBLC’s favor.
D. Defendants’ Alternative Remedy Requested
Finally, Defendants argue that the Court does not need to “grant all relief the
Plaintiff seeks, and can modify its injunctive decree as needed for the particular case
presented.” (Opposition at 11-12) (citing Smith v. Pathway Fin. Mgmt., Inc., 2012 WL
12883909, at *2 (C.D. Cal. Nov. 19, 2012)). Defendants argue that LBLC’s requested
order “poses very real risks to the [Defendants]” which suggests “that a much more
limited order could address whatever legitimate concerns Plaintiff has.” (Id.). As a
result, Defendants propose an order which would require a 10-day notice period to
LBLC prior to Defendants “taking any action [LBLC] seeks to enjoin.” (Id.). This
would allow LBLC “ample time to prevent any truly illegitimate transfers while also
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CIVIL MINUTES—GENERAL
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
allowing [Defendants] the ability to organize their estate in the manner they see fit,
meet their obligations, and pay for medical care.” (Id.).
In response, LBLC argues that Defendants’ proposal “is unworkable” and that
LBLC “should not be forced to run into Court upon notice of each such transfer in
order to stop it and have the Court make a ruling on an ex parte basis within 10 days.”
(Reply at 12). Based on the factual record here, LBLC argues that “the onus should be
on the [Defendants] to prove an exigent circumstance if they later wish to seek an
exception to the injunction via a motion to seek relief from the injunction for a proven,
specified purpose.” (Id.).
The Court agrees with Defendants that alternate relief may be justified here, but
agrees with LBLC that Defendants’ proposal is unworkable. Accordingly, the Court
will craft an order which gives Defendants an option to place the amount of the
judgment in an escrow account. That way LBLC can be sure Defendants can satisfy a
judgment, and Defendants will not be restricted in their financial transactions. If
Defendants fail to do this, the Court will grant LBLC the relief it is seeking.
IV.

CONCLUSION AND BOND

In sum, the Court concludes that all four factors—likelihood of success on the
merits, irreparable harm, balance of hardships, and public interest—support granting a
preliminary injunction to protect LBLC’s judgment against Defendants. Therefore, the
Motion is GRANTED, and Defendants are ordered to place $919,290.49 in an escrow
account by November 4, 2019, in the unlikely event that a final judgment has not been
issued by that date which would moot this order. If Defendants fail to do this,
Defendants will be enjoined from further transferring or encumbering the Properties;
transferring or encumbering any ownership interest in any of the LLCs that hold title to
the Properties, or from further accessing or dispersing any funds from any loans or
lines of credit secured by the Properties.
The Order will remain in effect until the Court issues its final judgment, at
which time this Order shall be moot.
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CIVIL MINUTES—GENERAL
8

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL
Case No. CV 16-9307-MWF (Ex)
Date: October 25, 2019
Title:
Lincoln Benefit Life Company -v- Alexander Dallal, et al.
Federal Rule of Civil Procedure 65 provides that the Court “may issue a
preliminary injunction . . . only if the movant gives security in an amount that the court
considers proper to pay the costs and damages sustained by any party found to have
been wrongfully enjoined.” Fed. R. Civ. P. 65(c). LBLC requests that the Court
should not require a bond, citing Jorgensen v. Cassiday, 320 F.3d 906, 919 (9th Cir.
2003). (Motion at 22). Defendants do not respond to this contention.
“The district court may dispense with the filing of the bond when it concludes
there is no realistic likelihood of harm to the defendant from enjoining his or her
conduct.” Jorgensen, 320 F.3d at 919. Because there is no possible harm to be felt by
Defendants, LBLC need not post any bond.
The Preliminary Injunction shall be issued separately.
IT IS SO ORDERED.

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CIVIL MINUTES—GENERAL
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