Gale v. New Canaan Investments, LLC

Filing 25

ORDER by Judge Claudia Wilken GRANTING DEFENDANTS 6 MOTION TO DISMISS PLAINTIFFS COMPLAINT. (ndr, COURT STAFF) (Filed on 12/17/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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GREG GALE,
Plaintiff,

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v.

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NEW CANAAN INVESTMENTS, LLC,
Defendant.
________________________________/

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United States District Court
For the Northern District of California

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No. C 14-2485 CW

Defendant New Canaan Investments, LLC moves to dismiss
Plaintiff Greg Gale’s complaint for fraudulent transfer.

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Mr. Gale

has filed an opposition, and New Canaan has filed a reply.

Having

considered the papers, the Court GRANTS New Canaan’s motion to
dismiss.

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ORDER GRANTING
DEFENDANT’S MOTION
TO DISMISS
PLAINTIFF’S
COMPLAINT (Docket
No. 6)

FACTUAL BACKGROUND
I.

Request for Judicial Notice
New Canaan asks that the Court take judicial notice of

several documents.

Defendant’s Request for Judicial Notice

(RFJN), Docket Nos. 7, 17 and 20, Exs. A-O.

Mr. Gale opposes this

request, in its entirety, for failure to demonstrate that judicial
notice is appropriate and because New Canaan relies on the
veracity of the facts found in the documents rather than only the
existence of the documents.
of matters of public record.”

“[A] court may take judicial notice
Sami v. Wells Fargo Bank, 2012 WL

967051, at *4 (N.D. Cal.) (citation omitted).

“As a general rule,

we may not consider any material beyond the pleadings in ruling on
a Rule 12(b)(6) motion. . . . More specifically, we may not, on
the basis of evidence outside of the Complaint, take judicial

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notice of facts favorable to Defendants that could reasonably be

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disputed.”

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998-99 (9th Cir. 2011).

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United States v. Corinthian Colleges, 655 F.3d 984,

Exhibit A is a copy of the May 6, 2004 judgment against Mr.

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Gale.

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is appropriate for judicial notice.

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Mr. Gale refers to the judgment in Compl. ¶ 10.

Hence, it

Exhibit B is a copy of the December 10, 2013 Acknowledgment

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of the Assignment of Judgment between the Davises and New Canaan.

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Mr. Gale refers to this transaction many times in the Complaint.

United States District Court
For the Northern District of California

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Hence, it is appropriate for judicial notice.
Exhibits C and D are copies of excerpts of Mrs. Davis’s

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December 11, 2013 bankruptcy filing in the Central District of

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California.

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Hence, they are appropriate for judicial notice.

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Plaintiff refers to this filing in Compl. ¶ 18.

Exhibits E through H are copies of documents filed in the

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Napa County Superior Court in relation to a February 14, 2014

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first amended complaint for fraudulent transfer filed by Mr. Gale

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against New Canaan.

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documents in his Complaint, the documents are a matter of public

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record and are relevant to the issue of whether collateral

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estoppel applies in this case.

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judicial notice.

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While Mr. Gale does not refer to these

Hence, they are appropriate for

Exhibits I and J are copies of filings made by Mr. Gale in

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the Bankruptcy Court of the Central District of California.

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documents request permission to bring avoidance claims against New

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Canaan and its attorney on behalf of Mrs. Davis’s bankruptcy

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estate.

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they are appropriate for judicial notice.

These documents are a matter of public record.

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These

Hence,

Exhibits K and L are copies of documents related to the

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appointment of a trustee over Mrs. Davis’s bankruptcy estate.

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These documents are a matter of public record.

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appropriate for judicial notice.

Hence, they are

Exhibit M is a copy of an August 1, 2014 complaint filed by

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Mr. Gale in the Bankruptcy Court of the Central District of

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California requesting that Mrs. Davis’s bankruptcy discharge be

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denied due to the alleged fraudulent transfer.

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matter of public record.

United States District Court
For the Northern District of California

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Hence it is appropriate for judicial

notice.
Exhibits N and O are excerpts taken from Exhibit M.

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This document is a

They are

duplicative and, hence, need not be judicially noticed.
Mr. Gale requests that the Court take notice of a copy of a

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document which purports to show that, on March 28, 2014, Mrs.

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Davis listed the judgment against Mr. Gale in her husband’s

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probate estate at a value of $52,500.

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Moody, Docket No. 15-1, Ex. A.

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public record.

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II.

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Declaration of Richard

This document is a matter of

Hence, it is appropriate for judicial notice.

Facts
The following facts are taken from the complaint and

documents of which the Court takes judicial notice.
In May 2004, Constance Davis and her husband, William Davis,

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obtained a civil judgment against Mr. Gale for $509,993.22 (Gale

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Judgment).

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none of the judgment has been paid.

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Compl. ¶ 10; RFJN, Ex. A.

To date, it appears that

In December 2010, Mr. Gale filed a civil suit in Napa
Superior Court against Mr. and Mrs. Davis in which he sought

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“several million dollars in damages for the Davises’ intentional

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interference with [his] prospective economic advantage.”

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¶ 11.

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Id. ¶ 12.

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present date, Mr. Davis passed away.1

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Id.

Trial of that suit was scheduled to begin in December 2013.
Sometime between the filing of that suit and the
Id.

Mr. Gale alleges that, in the May 22, 2012 filing Mrs. Davis

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made to establish her late husband’s estate, Mrs. Davis listed Mr.

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Davis’s property as valued at $967,000.2

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alleges, on information and belief, that the Gale Judgment

Id. ¶ 20.

Mr. Gale

United States District Court
For the Northern District of California

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comprised the property Mrs. Davis listed as part of her husband’s

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estate.

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Id.

On December 5, 2013, New Canaan was established as a

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California limited liability corporation, with a principal place

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of business in Idaho and its sole member in Connecticut.

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¶ 13.

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Id.

On December 10, 2013, Mrs. Davis purportedly sold the Gale

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Judgment to New Canaan for $52,500.

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Gale alleges that, with interest, the judgment had an approximate

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value of $1,000,000.

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New Canaan filed a “Notice of Lien” in Mr. Gale’s suit against

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Mrs. Davis.

Id. ¶¶ 15, 21.

Id. ¶ 15; RFJN, Ex. B.

Mr.

Also on December 10, 2013,

Id. ¶ 17.

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The March 2014 probate document, of which Mr. Gale asks the
Court to take judicial notice, notes the date of Mr. Davis’s death
as May 22, 2012.
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However, Mr. Gale asks the Court to take notice also of the
March 2014 probate filing which shows Mrs. Davis listed the
judgment at a value of $52,500.
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On December 11, 2013, Mrs. Davis filed for Chapter 7

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bankruptcy.

Id. ¶ 18; RFJN, Exs. C and D.

In the light of the

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bankruptcy proceedings, the Napa Superior Court stayed the trial

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date in Mr. Gale’s suit against Mrs. Davis.

Id. ¶ 19.

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On February 14, 2014, Mr. Gale filed a complaint for

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Fraudulent Transfer in the California Superior Court for Napa

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County.

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Court sustained New Canaan’s demurrer, dismissing the case without

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leave to amend.

RFJN, Ex. E.

On April 4, 2014, the Napa County Superior

Id., Ex. F.

The Napa County Superior Court held

United States District Court
For the Northern District of California

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that Mr. Gale lacked standing to bring his suit given Mrs. Davis’s

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bankruptcy filing.

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California Court of Appeal.

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filed this suit for fraudulent transfer on May 29, 2014.

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Canaan has filed, in accordance with Civil Local Rule 3-13, a

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Notice of Pendency of Related State Court Action.

Id.

Subsequent to that decision, Mr. Gale
New

Docket No. 19.

LEGAL STANDARDS

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The case is currently on appeal in the

A complaint must contain a “short and plain statement of the

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claim showing that the pleader is entitled to relief.”

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Civ. P. 8(a).

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claim to relief that is plausible on its face.”

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Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 570 (2007)).

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“when the plaintiff pleads factual content that allows the court

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to draw the reasonable inference that the defendant is liable for

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the misconduct alleged.”

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Fed. R.

The plaintiff must proffer “enough facts to state a
Ashcroft v.

A claim is facially plausible

Id.

In considering whether the complaint is sufficient to state a

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claim, the court will take all material allegations as true and

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construe them in the light most favorable to the plaintiff.
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Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061

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(9th Cir. 2008).

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complaint, materials incorporated into the complaint by reference,

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and facts of which the court may take judicial notice.

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However, the court need not accept legal conclusions, including

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“threadbare recitals of the elements of a cause of action,

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supported by mere conclusory statements.”

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(citing Twombly, 550 U.S. at 555).

The court’s review is limited to the face of the

Id.

Iqbal, 556 U.S. at 678

When granting a motion to dismiss, the court is generally

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United States District Court
For the Northern District of California

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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F.2d 242, 246-47 (9th Cir. 1990).

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amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

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Cir. 1990).

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

DISCUSSION

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In determining whether

New Canaan seeks to dismiss Mr. Gale’s complaint in its

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entirety.

First, it argues that, because Mr. Gale’s identical

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claims in the California Superior Court were dismissed with

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prejudice, his claim in this Court is barred under the doctrine of

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collateral estoppel.

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standing to bring this claim.

Second, it argues that Mr. Gale lacks

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I.

Collateral Estoppel3
The doctrine of collateral estoppel, or issue preclusion,

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prohibits the re-litigation of any issues litigated to a final

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judgment in a prior action.

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726 (2011).

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the same preclusive effect as would be given that judgment under

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the law of the State in which the judgment was rendered.”

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v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984).

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Accordingly, because the state court judgment in question is a

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United States District Court
For the Northern District of California

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California judgment, this Court must apply California’s law of

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collateral estoppel.

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People v. Burns, 198 Cal. App. 4th

“A federal court must give to a state-court judgment

Migra

[In California,] [t]he prerequisites to applying collateral
estoppel are (1) a claim or issue raised in the present
action is identical to a claim or issue litigated in a prior
proceeding; (2) the prior proceeding resulted in a final
judgment on the merits; and (3) the party against whom the
doctrine is being asserted was a party or in privity with a
party to the prior proceeding.
Burns, 198 Cal. App. 4th at 731 (citations, quotation marks, and

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alterations omitted).

“[A]ccording to California law, a judgment

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is not final for purposes of collateral estoppel while open to
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direct attack, e.g., by appeal.”

Abelson v. Nat’l Union Fire Ins.

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Co., 28 Cal. App. 4th 776, 787 (1994).
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Mr. Gale does not contest the argument that his state court
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claim and his district court complaint are identical.

Both

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complaints allege the same facts, and both complaints bring a
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fraudulent transfer cause of action.

Mr. Gale argues that because

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his state court suit against New Canaan is currently on appeal in
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In its reply, New Canaan concedes that collateral estoppel
is premature and does not apply.
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the California Court of Appeal, there has been no state court

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final judgment on the merits.

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fact.

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merits, the Court declines to dismiss the complaint due to

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collateral estoppel.4

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New Canaan does not dispute this

Hence, because there has not been a final judgment on the

However, the Court can choose to abstain from deciding this

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case under the doctrine of Colorado River Water Conservation Dist.

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v. United States, 424 U.S. 800 (1976).

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Supreme Court announced a balancing test, weighing four factors to

In Colorado River, the

United States District Court
For the Northern District of California

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determine whether sufficiently exceptional circumstances exist:

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(1) whether either court has assumed jurisdiction over property in

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dispute; (2) the relative convenience of the forums; (3) the

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desirability of avoiding piecemeal litigation; and (4) the order

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in which the concurrent forums obtained jurisdiction.

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The Court stated: “No one factor is necessarily determinative; a

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carefully considered judgment taking into account both the

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obligation to exercise jurisdiction and the combination of factors

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counselling against that exercise is required.”

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“When a district court grants a stay under the Colorado River

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doctrine, it presumably concludes that the parallel state-court

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litigation will be an adequate vehicle for the complete and prompt

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resolution of the issues between the parties.”

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v. Fremont Bank, 2014 WL 4744398, at *16 (N.D. Cal.)

Id. at 818.

Id. at 818-19.

Hanover Ins. Co.

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In addition to collateral estoppel, New Canaan argues that
the Rooker-Feldman doctrine “prohibits a direct appeal from the
final judgment of a state court.” Docket No. 6 at 20. See
Kousgasian v. TMSL, Inc., 359 F.3d 1136 (9th Cir. 2004). However,
as discussed above, there has been no final state court judgment.
Hence, the Rooker-Feldman doctrine does not apply.
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Pursuant to the Colorado River doctrine, a court should stay

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a case that is sufficiently similar to an earlier filed case to

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preserve judicial resources and encourage comprehensive

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disposition of litigation.

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exercise of jurisdiction by different courts over parallel

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actions, a federal court has discretion to stay or dismiss an

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action based on considerations of wise judicial administration.

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Colorado River, 424 U.S. at 817; Aetna Life Ins. Co. v. Kohler,

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2011 WL 1990658 (N.D. Cal.).

In cases involving the concurrent

The two actions need not exactly

United States District Court
For the Northern District of California

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parallel each other to implicate the Colorado River doctrine; it

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is enough that the two cases are substantially similar.

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Marciano, 882 F.2d 1411, 1416 (9th Cir. 1989).

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federal district courts have a “virtually unflagging obligation”

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to exercise their jurisdiction, Moses H. Cone Hosp. v. Mercury

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Constr. Corp., 460 U.S. 1, 19 (1983), and should only invoke a

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stay or dismissal under the Colorado River doctrine in

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“exceptional circumstances,” Colorado River, 424 U.S. at 817.

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Nakash v.

However, the

Here, New Canaan has filed, in accordance with Civil Local

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Rule 3-13, a Notice of Pendency of Related State Court Action.

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Docket No. 19.

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complaint and the complaint filed in this case, both cases assert

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similar factual allegations, and the crux of the cases is the

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same: was the transfer of the Gale Judgment made by Mrs. Davis or

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the Estate of Mr. Davis, and was that transfer fraudulent given

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Mr. Gale’s suit against the Davises.

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cause of action: fraudulent transfer pursuant to California’s

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Uniform Fraudulent Transfer Act, California Civil Code section

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3439.01.

As is clear from a comparison of the state court

Both actions allege the same

Prior to the filing of this case in this Court, the
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Superior Court of Napa County had dismissed the case with

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prejudice, and the case is currently on appeal in the California

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Court of Appeal.

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estoppel when the Court of Appeal rules on Mr. Gale’s appeal, it

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is highly desirable to avoid duplicate litigation prior to the

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Court of Appeal’s ruling.

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weighs heavily toward a stay.

Hence, the balance of the factors

Mr. Gale pointed out that New Canaan did not ask for a stay,

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Given that this Court could apply collateral

and he asked for an opportunity to address a stay if one were

United States District Court
For the Northern District of California

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requested.

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the issue of whether a stay is appropriate at this time in the

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light of the California Court of Appeal’s consideration of his

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appeal.

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II.

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Hence, the Court gives him an opportunity to address

Standing
New Canaan argues that even if Mr. Gale’s complaint is not

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dismissed due to collateral estoppel, it should be dismissed for

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lack of standing pursuant to Federal Rule of Civil Procedure

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12(b)(1).

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transferred the Gale Judgment, and because she is now in Chapter 7

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bankruptcy, “the right to challenge the transfer now vests

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exclusively in [the] Chapter 7 bankruptcy trustee.”

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at 5.

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transferred the judgment, but the Estate of William Davis.

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Docket 15 at 7.

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is not in bankruptcy, he has standing to sue as a creditor under

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California’s Uniform Fraudulent Transfer Act.

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It contends that, because Mrs. Davis owned and

Docket No. 6

Mr. Gale alleges that it was not Mrs. Davis who owned and
See

Hence, Mr. Gale asserts that, because the Estate

This allegation forms the crux of this case.

Mr. Gale admits

that if Mrs. Davis had the authority to transfer her own interest
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in the judgment against him, “the bankruptcy trustee should be the

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one bringing suit.”

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Rule 12(b)(6) motion, Mr. Gale must state facts sufficient to

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support his allegation that Mrs. Davis was not the proper holder

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of the judgment, and, hence, was unauthorized to sell it.

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Otherwise, “[u]pon a declaration of bankruptcy, all of a

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petitioner’s property becomes the property of the bankruptcy

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estate.”

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*3 (N.D. Cal.); see also 11 U.S.C. § 541(a).

Docket No. 15 at 7.

Thus, to survive this

Flowers v. Wells Fargo Bank, N.A., 2011 WL 2748650, at
Furthermore, “the

United States District Court
For the Northern District of California

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estate becomes the only real party in interest unless the

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bankruptcy trustee abandons the claims.”

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the rightful transferor, and the bankruptcy trustee has not

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abandoned the claim, any cause of action for fraudulent transfer

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can only be brought by the bankruptcy trustee.

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Id.

If Mrs. Davis was

Mr. Gale alleges that “at an unknown point between May 2004

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and the present, the [Gale Judgment] became an asset of Mr. Davis,

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as confirmed by the filings made by Ms. Davis in the Estate of

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Davis matter.

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Estate after Mr. Davis passed away.”

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makes this allegation in his Opposition: “Plaintiff properly

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alleges that the transfer was from the Estate of William Davis,

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which is not in bankruptcy, and that only the Estate -– not Ms.

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Davis –- had an interest in the Judgment Asset at the time of the

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transfer.”

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allegations must be accepted as true as this stage.”

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As such, the [Gale Judgment] became an asset of the

Docket No. 15 at 7.

Mr. Gale is incorrect.

Compl. ¶ 10.

Mr. Gale again

He goes on to state, “Those
Id.

As discussed above, to survive a Rule

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12(b)(6) motion, “the plaintiff must proffer enough facts to state

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a claim to relief that is plausible on its face.”
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Ashcroft, 556

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U.S. at 678 (citations omitted).

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facts to support his accusation that Mrs. Davis’s interest in the

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Gale Judgment was transferred to her husband.

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Mr. Gale fails to allege any

Nor does Mr. Gale allege facts sufficient to support the

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allegation that the Gale Judgment belonged to the Estate at the

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time of the transfer.

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petition to establish her husband’s estate after his death, listed

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an asset worth $967,000 as Mr. Davis’s personal property.

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Gale then states that, “on information and belief, that ‘personal

He alleges that Mrs. Davis, in her opening

Mr.

United States District Court
For the Northern District of California

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property’ was comprised principally or entirely of the [Gale

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Judgment] valued as of the time of filing.”

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Gale does not state any facts to support his “information and

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belief.”

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accusation that the Estate was the sole owner of the Gale

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Judgment.

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Compl. ¶ 20.

Mr.

Thus, he does not state facts sufficient to support the

While the parties do not address this issue directly, it

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would appear that California’s community property rules are

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relevant here.

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assets acquired during a marriage are community property: “Except

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as otherwise provided by statute, all property, real or personal,

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wherever situated, acquired by a married person during marriage

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while domiciled in California is community property.

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includes recovery of or a contingent, future interest in the

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recovery of a lawsuit.”

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9th Cir. 2014) (citing Cal. Fam. Code § 760).

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Marriage of Valli, 58 Cal. 4th 1396, 1400 (2014).

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challenging the presumption . . . [bears] the burden of showing

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that the [assets] were not community property.”

Under California law, there is a presumption that

This

In re Lewis, 515 B.R. 591, 598 (B.A.P.

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See also In re
“[T]he party

Cal. Fam. Code

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§ 802; see also In re Marriage of Weaver, 127 Cal. App. 4th 858,

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864 (2005).

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sufficient to rebut the presumption that the Gale Judgment was

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community property.

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address the issue of whether community property rules are

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applicable to this case.

Thus, it would appear that Mr. Gale must state facts

In any future motions, the parties shall

If the Gale Judgment belonged, even in part, to Mrs. Davis,

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Mr. Gale’s standing to bring this suit is also barred by the

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automatic stay triggered by Mrs. Davis’s bankruptcy filing.

United States District Court
For the Northern District of California

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11 U.S.C. § 362(a)(1) states,

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[A] petition filed under section 301, 302, or 303 of this
title . . . operates as a stay, applicable to all entities,
of . . . the commencement or continuation . . . of a
judicial, administrative, or other action or proceeding
against the debtor that was or could have been commenced
before the commencement of the case under this title, or to
recover a claim against the debtor that arose before the
commencement of the case under this title.

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The phrase “or to recover a claim against the debtor”

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encompass[es] cases in which the debtor is not a defendant;
it would otherwise be totally duplicative of the former
category and pure surplusage. Upon analysis, a third-party
action to recover fraudulently transferred property is
properly regarded as undertaken to “recover a claim against
the debtor” and subject to the automatic stay pursuant to
§ 362(a)(1).

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Title

In re Colonial Realty, 980 F.2d 125, 131-132 (2nd Cir. 1992).
Thus, while Mr. Gale’s cause of action for fraudulent transfer is
ostensibly against New Canaan, it is also an action that seeks to
recover (or preserve) possible damages in the suit filed against
Mrs. Davis.

“Absent a claim against the debtor, there is no

independent basis for the action against the transferee.”
132.

Id. at

Accordingly, if the Gale Judgment belonged to Mrs. Davis in
13

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whole or in part, the fraudulent transfer action against New

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Canaan would be subject to the automatic stay required under

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§ 362(a)(1).

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Therefore, Mr. Gale has not sufficiently alleged standing to

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bring this suit.

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motion to dismiss the complaint in its entirety for lack of

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standing.

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Mr. Gale will be granted leave to remedy this deficiency in an

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amended pleading if he can do so truthfully and without

United States District Court
For the Northern District of California

10

Accordingly, the Court GRANTS New Canaan’s

If the case is not stayed, or if the stay is lifted,

contradicting his previous pleadings.
CONCLUSION

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For the reasons set forth above, the Court GRANTS New

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Canaan’s motion to dismiss (Docket No. 6).

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this order, Mr. Gale may file a brief of no more than ten pages

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stating why this case should not be stayed pending the California

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Court of Appeal decision.

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if any, New Canaan may respond by filing a brief of no more than

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ten pages addressing Mr. Gale’s arguments.

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stay pending the California Court of Appeal’s decision will be

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decided on the papers.

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set a date for Mr. Gale to file his amended complaint.

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Within seven days of

Within seven days of Mr. Gale’s filing,

Whether to issue a

If the case is not stayed, the Court will

IT IS SO ORDERED.
Dated:

December 17, 2014

CLAUDIA WILKEN
United States District Judge

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