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BRADLEY A. BENING, SBN — 104221
ELLYN E. NESBIT, SBN — 136398
WILLOUGHBY, STUART, BENING & COOK
50 W. San Fernando Street, Suite 400
San Jose, California 95113
Telephone: (408) 289-1972
Facsimile: (408) 295-6375
Attorneys for Defendants,
YA-HUI (EMILY) WANG and CHUN DOK CHRIS WONG
IN THE SUPERIOR COURT OF THE STATE OF CALIFORIA
IN AND FOR THE COUNTY OF SANTA CLARA
THE TDS GROUP, INC., a California CASE NO.: 18CV333695
Corporation; R.A. LOTTER INSURANCE
MARKETING, INC., a California DEFENDANTS' REPLY IN SUPPORT OF
Corporation; and ROBERT A. LOTTER, MOTION FOR JUDGMENT ON THE
PLEADINGS
Plaintiffs,
Hearing Date: April 19, 2019 .
vs. Time: 9:00 a.m.
Dept: 8
YA-HUI (EMILY) WANG; CHUN DOK __ | Judge: Hon. Sunil R. Kulkarni
CHRIS WONG, and DOES 1 through 20,
inclusive Date Action Filed: August 28, 2018
Defendants. Trial Date: None Set
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TABLE OF CONTENTS
INTRODUCTION ...eccsesecsseessseesseecsssssediecssesssusssseessvessessusessnvessssessssessesssecssssiaeesssesseesneens 1
I TDS Fails to Prove That It Has a "Right to Payment", and Thus
Fails to Meet Its Burden to Prove Standing ......sssesssseeesseessesseessesseseneens 2
A. TDS' New Theories Fail to Establish Standing... reseeneeee 2
B. TDS' Original Theory Fails to Establish Standing .......ccssesseseseseseeeees 4
C. TDS Makes Admissions Which Rebut Its Own Erroneous Arguments... 5
Il. TDS' Arguments Contravene the Supreme Court's Demarcation
Between a Contingent Right to Fees and an Unenforceable Speculative
Possibility of fees... seeneesueesieecisanesnesesseeaesssusssesssestsssesssesessrsaseeaserssssarsses D
Ill. TDS Improperly Attempts to Modify the UVTA and Eliminate
the "Right of Payment" Requirement.......c.ccccsessseseesnesseeseseesesseeeneesennes 7
Iv. TDS" Common Law Claim Contravenes a Century of Law. 10
CONCLUSION wiiescessccsssssesssessssessssesssessecssessseccsssessnessseeseesseessnecsuuecseeeeniecseesnessnsesanensenenans 10
i
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TABLE OF AUTHORITIES
State Cases
Heller Ehrman LLP v. Davis Wright Tremaine LLP
(2018) 4 Cal. Sth 467 viecsecsssscssssssssssecssnessssssssssvecsssecsessssssssseesssssesssssssessnveessnesesssensseness 5, 6, 8, 10
People v. Bell
(2015) 241 Cal. App.4th 315 ccssesssecsssesssscsssssessssessssscessssessssssesesssseessnvecssssessssensssssssatessseeesssnes 7
Shea Homes Limited Partnership v. County of Alameda
(2003) 110 Cal. App.4th 1246 wcseccssessssessssecsssssesssussssssssssssssecssssescsssssssssvesssusessusessssessestessseseessess 4
Troyk v. Farmers Group, Inc.
(2009) 171 Cal App.4th 1305 oiceccessesseessesssesssessssesssvessseesssseessussssesssssnsessessnesssesssansessseesseees 4
State Statutes
Civ. Code, section 1717 ....
Civ. Code, section 3439.01
United States Supreme Court Opinions
Johnson v. Home State Bank (1991) 501 U.S. 78 cesses ‘essessesseesseavensesueesveseeseseesesssennes 5
Federal Cases
California Dep't of Health Servs. v. Jensen
(9"" Cir. 1993) 995 F.2d 925 .
Grady v, A.H. Robins Co.
(4" Cir, 1988) 839 F.2d 198 vrecssscssssssescssssescsssssescccssssnscsecessessssecssssnusssscssnssccesssnnsceessnnneecanecsnssnnaeseenst 9
Inre Firearms Import & Export Corp.
-(Bankr.$.D. Fla. 1991) 131 BuR. 1009 weeesseesessetsssesssessseesssesssessnsssnsessesseessseeaseensseeesneeesneesse 9
Inre Grossman’s, Inc.
(3d Cir. 2010) 607 F.3d 114 eee Jesssssasccsssveusensssssasssssvessssanecessacassasestasedseensensesesensaes 9
Inre Hemingway Transp.
(1S Cir, 1992) 954 F.2d 1 vecccsssssssssssscsssssusesccssssssssssunnssscecseeesssssssussssunnessseeeegessnusieeseeraeeeeeeeeeensees 9
Inre Matter of Frenville Co.
(3d Cir, 1984) 744 F.2d 332 veicsssssccsssecsssecsneessseeessuseesssesssseecessaveccesneeenseessneessesses
Watson v. Parker
(10! Cir, 2002) 313 F.3d 1267 secsssssssssessssssssssssssssssseccsssssnssssessersssssssssensscsesuusssnsanseceeeeasssssesssteniee 9
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INTRODUCTION
Plaintiffs must hold a "right to payment" in order to have standing under the Uniform
Voidable Transactions Act ("UVTA"). That right may be contingent, unmatured, or disputed,
but that right must actually exist. The circumstances which establish the right must have already
occurred. A mere hope that circumstances might occur in the future which could give rise to a
right is not is not a "contingent, unmatured, or disputed" right to payment. Plaintiffs (collectively
"TDS") agree that a "right to payment" as used in the definition of "Claim" means "nothing more
nor less than an enforceable obligation". (Opp. 8:4-6). Exactly! TDS does not have one.
TDS contends that it has a contingent, unmatured, or disputed right to prevailing party
attorneys’ fees, but that is impossible as a matter of law. The Supreme Court has unequivocally
confirmed that a right to prevailing party attorneys’ fees cannot exist before the final conclusion
of a lawsuit, after all re-trials and appeals. When a lawsuit has reached its final conclusion, the
party who won then has a right to file a motion to be declared the prevailing part, and move for an
award of attorneys' fees. Any right to prevailing party fees remains contingent, unmatured, and
disputed until the court declares a party the prevailing party and actually awards fees.
TDS has only a fantasy of fees, not a "right to payment" of fees. The Underlying Action
is on appeal, and there may be another trial after the appeal. It will be years before the
Underlying Action reaches its final conclusion. TDS has nothing more than a far-fetched,
speculative wish that it might ultimately win the pending appeal and cross-appeals, be declared
the "prevailing party" under Civil Code §1717, and be awarded fees. The California Supreme
Court has held that speculation, hopes and wishes are not actionable contingent rights for
purposes of a fraudulent transfer action, and that is all TDS has.
In its Opposition, TDS never gets around to demonstrating how a "right to payment" of
prevailing party fees could exist prior to the conclusion of the Underlying Action when the
Supreme Court has unequivocally held that no such right can arise before the final conclusion of
an action. Unable to prove that it has a "right to payment", TDS attempts to dispense with that
requirement by misconstruing the UVTA to read the requirement out of existence. TDS cannot
cure its lack of standing by unilaterally eliminating the core requirement of the UVTA.
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I. TDS Fails to Prove That It Has a "Right to Payment", and Thus
Fails to Meet Its Burden to Prove Standing
A. TDS' New Theories Fail to Establish Standing
TDS premises its UVTA complaint on allegations that there is a judgment in its favor in
the Underlying Action, and TDS seeks to enforce its "right to payment" of prevailing party
attorneys’ fees based on that judgment. (Complaint, §§ 14 -19, 23, 29). TDS deliberately failed
to mention in its complaint that there is no such judgment, since it had been vacated by grant of a
new trial. Now that TDS has been called out on its attempt to mislead the Court, TDS has
changed tactics. TDS now contends that the (non-existent) judgment upon which it premised its
complaint is irrelevant. TDS argues that it has a "claim" because it is not required to have a
"judgment", (Opp. 4:9-20), but that begs the question. The absence of a judgment does not
establish the existence of the "right to payment" required by the UVTA .
TDS next argues that it has a "claim" under the UVTA merely because it was sued in the
Underlying Action. TDS contends that as soon as Ms. Wang filed the Underlying Lawsuit, TDS
had a unmatured and contingent "claim" to prevailing party fees, and "[t]herefore the TDS Parties
had a "right to payment of attorneys’ fees" upon the filing of the lawsuits, even though unmatured
and contingent". (Opp. 4:21-5:8). TDS' assertion conflates the UVTA's requirements for
standing. The UVTA defines "Claim" as a "right to payment", and then describes the various
statuses that the right to payment may have and still fall within the definition of "claim":
"Claim", except as used in "claim for relief" means a right to payment, whether or not
the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
"Creditor" means a person that has a claim...
(CC §3439.01, boldface added).
TDS' argument that it had a "contingent claim" and thus a "right to payment" has it
exactly backwards, The UVTA does not confer standing for "unmatured contingent claims".
Instead, a "Claim" is limited to a "right to payment", and that right to payment may be contingent
or unmatured. A defendants desire to win a case, be declared the prevailing party, and then bring
a motion for fees is not a contingent "right to payment". It is an unenforceable, unilateral hope
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that it might acquire a future right to fees. (See moving papers, pgs. 4-10).
TDS did not acquire the status of a"Creditor" with a "right to payment" actionable under
the UVTA merely because the Underlying Action was filed. TDS has no support for its
contention that Emily's mere filing of a lawsuit gave TDS an immediate right to take the assets of
Emily and her husband to satisfy an award of fees TDS hoped to get if it hypothetically won the
lawsuit years down the road. TDS' argument ignores the Supreme Court's confirmation that a
right to prevailing party attorney's fees cannot arise before the conclusion of an action, and that a
speculative, future hope of obtaining fees is not an actionable contingent right for purposes of a
fraudulent transfer suit. (See moving papers pgs. 4-10). The consequences of TDS'
misinterpretation confirm that it is an untenable construction. According to TDS, any defendant
sued in any lawsuit where statutory or contractual fees may ultimately be sought could obtain
injunctive relief and attach the plaintiffs assets, and prevent the plaintiff from using its own assets
during the entire pendency of the lawsuit, based only on the defendant's speculative hope that it
may one day win the lawsuit and then be awarded prevailing party fees. Merely because the
plaintiff filed a lawsuit, that plaintiff could not buy or sell a home, a car, or engage in any
virtually any financial transaction during the entire pendency of the lawsuit, or the defendant
could immediately prosecute the plaintiff for fraudulent transfer under the UVTA. TDS'
misinterpretation allows a defendant to weaponize the UVTA and chill the plaintiff's exercise of
its right of action against the defendant despite the fact that the defendant does not yet have any
right to even seek attorneys' fees.
Weaponization of the UVTA is exactly what TDS is perpetrating here. TDS is using this
suit to attempt to tie up Emily and Chris' assets for the duration of the Underlying Action; deprive
them of resources to continue with the Underlying Action; and to even deprive Emily and Chris
of use of their own assets for living expenses; notwithstanding that Emily is far more likely to
ultimately prevail in the Underlying Action and TDS will be the judgment debtor, as discussed in
Defendants' pending motion for a protective order. TDS cannot weaponize the UVTA by
misconstruing it.
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TDS also contends that it had a contingent claim because it filed a cross-complaint in the
Underlying Action for reformation of the settlement agreement. (Opp. pg. 5:3-6). This argument
suffers from the same infirmities. The UVTA does not confer standing for contingent claims; the
plaintiff must hold a "right to payment". For the same reasons the mere filing of the Underlying
Action did not establish a "right to payment", TDS could not grant itself a "right to payment" and
confer standing upon itself to prosecute a UVTA claim by merely filing a cross-complaint. 1
B. TDS' Original Theory Fails to Establish Standing
As a last gasp effort to prove a "right to payment", TDS reverts to the theory. it pled,
contending that the judgment it momentarily held after the second trial "shows Plaintiffs have a
claim". (Opp. 9:9-10:2). TDS argues that it received a judgment, so it won the action, and thus
has a "right to payment" of prevailing party attorneys’ fees, (Opp. 9:16-23). TDS' argument
suffers from the blatant infirmity that it has no judgment, and no party has "won" an action until
the final conclusion of that action, including all appeals. (See Defendants' moving papers).
TDS' argument that it has standing because it briefly had a non-final judgment is spurious.
A party must have standing when an action is filed, and throughout its pendency. Troyk v.
Farmers Group, Inc. (2009) 171 Cal.App.4"" 1305, 1345. The non-final judgment after the
second trial had been vacated by grant of a new trial long before TDS filed this UVTA lawsuit.
(Def. Request for Judicial Notice, Ex. 5 (6/5/18 Order granting new trial); Plaintiffs! UVTA
complaint filed 8/28/18).
Finally, TDS attempts to confer standing upon itself by concocting a Dr. Seuss-ism: "does
the 'contingent' claim lose its 'contingent' status based on a 'contingency'." (Opp. 9:24-10:2).
This baffling query first presumes that TDS had a "contingent claim",.and that a "contingent
' Plaintiffs also argue that they sufficiently alleged fraud, and erroneously state that it must be
assumed for purposes of this motion that Defendants "engaged in fraud". (Opp. 1:21-22; 5:9-19).
Plaintiffs’ false accusations are not presumed true. Conclusions of law or fact are not.considered
in a motion for judgment on the pleadings. Shea Homes Ltd. Partnership v. County of Alameda
(2003) 110 Cal.App.4" 1246, 1254. Plaintiffs’ allegations of fraud are irrelevant to this motion
in any event. Plaintiffs cannot establish standing by alleging fraud. Plaintiffs' standing does not
depend upon Defendants' purported conduct, but upon whether Plaintiffs hold an enforceable
right to prevailing party attorneys’ fees. They hold no such right, and have no standing.
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claim" confers standing under the UVTA without a "right to payment". TDS' gibberish about loss
of contingent status "based on a contingency" is undecipherable. The UVTA requires a "right to
payment" that may be contingent, but no contingent right to payment of prevailing party
attorneys' fees could arise before the final conclusion of the Underlying Action for all of the
reasons discussed in the moving papers and herein.
C. TDS Makes Admissions Which Rebut Its Own Erroneous Arguments
TDS concedes that a "right to payment means nothing more nor less than an enforceable
obligation". (Opp 8:5-7, citing Johnson v. Home State Bank (1991) 501 U.S. 78, 83). TDS'
admission is in accord with California Supreme Court's holding in Heller Ehrman, LLP v. Davis
Wright Tremail LLP (2018) 4 Cal.5" 467, which likewise requires an enforceable right and not
just the speculative hope of acquiring a future right to fees. (See moving papers pgs. 7-10). That
right may be contingent, but it must exist. No enforceable right to prevailing party attorneys’ fees
can arise until the final conclusion of an action. (See moving papers pgs. 5-7).
TDS also rebuts its own misconstruction with the tort example it proffers. As TDS
acknowledges, a tort plaintiff acquires creditor status under the UVTA upon the occurrence of the
event giving rise to the plaintiff's rights against the defendant - the date of the accident. (Opp.
4:14-20). When an accident occurred, the tort plaintiff acquired a right to payment from the
defendant, albeit contingent. But TDS has not and cannot acquire a contingent right to payment
unless and until the event giving rise to that right occurs. TDS must win the appeal, cross-
appeals, and any new trial before a contingent "right to payment" of prevailing party attorneys'
fees will arise. (See further discussion in Defendants' moving papers, pg. 9:18-10:10).
Il. TDS' Arguments Contravene the Supreme Court's Demarcation
Between a Contingent Right to Fees and an Unenforceable Speculative
Possibility of fees
TDS' lack of standing is confirmed by Heller Ehrman LLP v. Davis Wright Tremaine LLP
(2018) 4 Cal. 5th 467. The Supreme Court distinguished between an enforceable contingent
interest in attorneys' fees, and an unenforceable "mere possibility"; "mere expectancy";
"speculative" hope; "unilateral hope"; or "unilateral expectation" of fees. Jd. at 471-472, 476-
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478. (See moving papers, pgs. 7-10). The court held that the mere possibility that Heller would
obtain attorneys’ fees in the future fell within the unenforceable speculative hope categories. Id.
Since Heller had no enforceable interest in fees, it had no viable claim for fraudulent transfer. Id.
at 473. As in Heller, TDS has no enforceable contingent right to attorneys' fees. TDS has
nothing more than a speculative hope that it may one day obtain a right to move for attorneys’
fees. TDS has no "right to payment", contingent or otherwise, and thus has no standing.
TDS tries to avoid the fatal impact of the rulings in Heller by describing Heller as nothing
more than decision involving the question of property rights of a dissolved law firm. (Opp. pg.
8:9-17). TDS' attempt at deflection ignores that the Court adjudicated the issue of whether Heller
had a property interest in attorneys’ fees in order to determine whether Heller had a viable claim
for fraudulent transfer. Heller, supra at 473. Since Heller had no enforceable property interest,
there was no fraudulent transfer. Id.
TDS next attempts to avoid Heller's clear demarcation between enforceable rights and
speculative hope by proffering irrelevant distinctions regarding the factual scenario. TDS
dispenses with Heller on grounds that TDS was not in a law partnership or attorney/client
relationship with Emily and Chris and there are no allegations of fiduciary duties owed "in this
instance". (Opp. 8:18-9:9). TDS relies on its irrelevant distinctions to conclude that Heller has
no application to the determination of whether a "suit between parties regarding a contract
providing for prevail [sic] party attorney's fees may have a ‘claim’ if one party defrauds the other
as to fees". (Opp. 9:6-8). Nor does this motion encompass any such determination. TDS'
incoherent point fails to avoid the pertinent delineation established in Heller between an
enforceable existing right to fees and an unenforceable speculative hope of acquiring a future
right to fees. The Supreme Court's distinction between an enforceable existing right and an
unenforceable speculative hope of acquiring a future right, has ubiquitous application, as
confirmed by the Supreme Court's overview of California law on the circumstances giving rise to
property rights in various contexts. /d, at 476-477. The demarcation does not depend on the
existence of an attorney/client or fiduciary relationship.
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TDS' efforts to dispense with Heller are mooted by TDS' admission that a "right to
payment" as required by the definition of "Claim" requires an "enforceable obligation". (Opp.
8:4-7). To establish standing, TDS must have an existing, enforceable right to attorneys' fees,
That right may be contingent, but it cannot consist of nothing more than the mere unilateral,
speculative hope that is the basis of TDS' action.
TDS' positions are astonishingly incongruous. TDS attempts to run from the Supreme
Court's determination in Heller of what constitutes an interest in attorneys! fees enforceable under
the Bankruptcy Code's fraudulent transfer provisions. Yet, TDS argues that federal bankruptcy
cases from foreign jurisdictions, which applied bankruptcy law to determine the meaning of
"claim" for purposes of discharge in bankruptcy, somehow operate to eliminate the UVTA's
requirement of a "right to payment". (Opp. pgs. 6-8). TDS' attempt to utilize bankruptcy
discharge cases to read the UVTA's requirement of a "right to payment" out of existence is
debunked below.
Ill. TDS Improperly Attempts to Modify the UVTA and Eliminate the "Right of
Payment" Requirement
TDS acknowledges that the UVTA requires a "right to payment" in order for standing to
exist, but TDS then tries to read that requirement out of existence because TDS has no such right.
(Opp. 4:2-8). TDS contends that the UVTA's requirement of a "right to payment" is not a
"limiting factor" in determining whether it has a "claim" under the UVTA. (Opp. 4:2-4; 5:20-
8:7). TDS' vacuous contention defies the rules governing statutory interpretation. A "right to
payment" is the fundamental core requirement of the UVTA definition of "Claim":
"Claim", except as used in "claim for relief" means a right to payment, whether or not
the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
The definition makes it clear that a "right to payment" must exist, but that right can be
contingent. TDS' interpretation wrongly focuses exclusively on the adjectives, and eliminates the
noun that is the subject of definition. Under the guise of construction, a court cannot omit
language from a statute. People v. Bell (2015) 241 Cal.App.4" 315, 342.
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To support its attempt to eviscerate the UVTA's requirement of a "right to payment",
TDS resorts to bankruptcy cases which applied federal bankruptcy law to determine when a
"claim" exists for purposes of bankruptcy discharge. (Opp. pgs. 6-8). The bankruptcy cases do
not support TDS' attempt to eliminate the "right of payment" requirement from the UVTA. The
bankruptcy cases do not do not establish standing in a state action brought under a state statute to
enforce a right to fees that can only arise under state law.
TDS contends that the bankruptcy cases support TDS' position that a "right to payment"
does not limit what constitutes a "claim". (Opp. 8:1-8). The cases do not support TDS' conclusion
that an actionable "claim" under the UVTA may be premised upon its bare speculation that TDS
might one day acquire a right to seek attorneys' fees if it prevails in the Underlying Action. TDS'
discourse culminates with its admission that the United States Supreme Court has confirmed that
aright to payment" as used in the definition of "claim" requires an "enforceable obligation".
(Opp. 8:4-7). The requirement of an "enforceable obligation" is completely consistent with the
California Supreme Court's analysis in Heller. The "right to payment" may still be contingent,
but it must be an enforceable obligation and not a mere unilateral hope that a right might someday
arise. Heller, supra at 471-473, 476-478).
TDS has woven a delusive web with out-of-context fragments culled from the bankruptcy
cases. Disentanglement of that web begins with Frenville, since TDS' entire discussion is focused
on discrediting that decision despite the fact that Defendants did not rely upon or reference that
decision. (Jn Re Matter of Frenville Co., Inc. (3 Cir., 1984) 744 F.2d 332.) TDS notes that
Frenville was premised on a conclusion that state law applied to the threshold question of when a
"right to payment" arises. Frenville at 336; (Opp. 6:11-12). It is for that very reason that other
bankruptcy courts have declined to apply Frenville, because federal bankruptcy law, not state
law, governs the determination of when a claim arises for purposes of a right of discharge in
bankruptcy. TDS relies on bankruptcy cases that rejected application of state law to determine
when a "right to payment" arises, but a state court must rely on state law to determine when a
right to payment arises for purposes of applying a state statute to enforce a right that can only
arise under state law.
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The bankruptcy cases criticized Frenville's application of state law to determine when a
"claim" arose for purposes of bankruptcy discharge, and instead construed "claim" under
bankruptcy law to effect the purposes and principles of the Bankruptcy Code. Federal bankruptcy
law pre-empts state law, and is determinative of when a claim arises for purposes of bankruptcy
discharge. As TDS itself emphasizes, the federal cases distinguished Frenville because a claim
can exist under the bankruptcy code before a right to payment exists under state law. (Opp. 7:23-
25, citing In Re Grossman's Ine. oe Cir. 2010) 607 F.3d 114, 121). See Grady v. A.H. Robins
Co. Inc. (4" Cir. 1988) 839 F.2d 198, noting that Frenville had turned to state law to determine
when a right to payment arises, but bankruptcy law is superimposed upon state law, and the
bankruptcy court does not apply state law in determining what claims are allowable. Grady at
201. The court in Jn Re Parker (10" Cir 2002) 313 F.3d 1267, rejected Frenville's application of
state law to determine when a claim arose for purposes of bankruptcy. Jd. at 1269. In Re
Hemingway Transport, Inc. (1* Cir 1992) 954 F.2d 1, rejected Frenville's holding that the
existence of a "right to payment" is controlled by state law. Id. at 8-9 fn. 9. Jn Re Jensen oo"
Cir. 1993) 995 F.2d 925 determined when a CERCLA claim arose for purposes of discharge in
bankruptcy. In making that determination, the court did not apply state law, and instead made the
determination by balancing the competing goals of CERCLA, and the Bankruptcy Code's
"overriding goal" to "provide a fresh start for the debtor" and assure that " all legal obligations of
the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy
case". Id. at 929-931. In Re Firearms Import and Export Corp. (S.D. Fla 1991) 131 B.R. 1009,
1015 (criticized Frenville because it "failed to consider fundamental bankruptcy policies" and
"would leave to the vagaries of the timing of events by third parties such obviously crucial issues
of bankruptcy relief as priorities of distribution and dischargeability of obligations.)
The bankruptcy cases do not aid TDS in its quest to read the UVTA's requirement of a
"tight of payment" out of existence. Federal bankruptcy law adjudicating when a claim arises for
purposes of a right of discharge under bankruptcy law does not govern the determination of when
a "right to payment” arises under a state statute, in an action venued in state court, to enforce a
right to fees that TDS can only obtain under state law. California law necessarily applies to the
REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS:
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STUART,
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determination of when a "right to payment" of attorneys’ fees arises in a state action for purposes
of enforcement of that state right in another state action brought under the state's Uniform
Voidable Transactions Act. Even for purposes of application the Bankruptcy Code's fraudulent
transfer provisions, the California Supreme Court applied state law to determine whether an
actionable interest in attorneys’ fees had existed. Heller supra at 474-482. TDS cannot escape
that under California law, a contingent or unmatured "right to payment" of attorneys’ fees cannot
arise prior to the final conclusion of an action, including all appeals.
IV. TDS' Common Law Claim Contravenes a Century of Law
Despite the unequivocal clear law for over 100 years that a plaintiff must have an actual,
existing final judgment for standing to pursue a common law fraudulent transfer case, TDS still
defy the law, and refuses to concede a lack of standing. (Opp. pg. 10).
CONCLUSION
TDS' has failed to establish standing under the UVTA. The fact that TDS must resort to
such convoluted attempts to show that it has a "right to payment" of prevailing party fees instead
serves to emphasize the lack of any such right. TDS will never obtain even a contingent right to
payment of prevailing party fees unless and until years from now, it prevails in the pending
appeal and cross-appeals in the Underlying Action, and also in any new trial. TDS has nothing
more than a speculative hope that maybe someday it will win. TDS is not entitled to abscond
with Emily and Chris' assets based on nothing more than its fantasy of fees. Judgment on the
Pleadings without leave to amend should be granted.
DATED: April 15, 2019 WILLOUGHBY, STUART, BENING & COOK
By A peWehar.
ELLYN. NESBIT
Certified App€llate Specialist
State Bar of Cal. Board of Legal Specialization
REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS
10UR WN
oC 0 Oe ND
Case Name: The TDS Group, Inc. v. Wang, et al.
Court: Santa Clara Superior Court
Case No. 18CV333695
Our File No. 2155.13491B
PROOF OF SERVICE
STATE OF CALIFORNIA ]
Ss.
COUNTY OF SANTA CLARA ]
lam a citizen of the United States and a'resident of the County of Santa Clara, State of
California; I am over the age of eighteen years and not a party to the within action; my business
address is 50 W. San Fernando Street, Suite 400, San Jose, San Jose, CA 95113. On the date set
forth below I served the document[s] described as:
DEFENDANTS’ REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE
PLEADINGS
on the following person[s] in this action by placing a true copy thereof enclosed in a sealed
envelope addressed as follows:
Marc A. Eisenhart, Esq. Attorney for Plaintiffs
Gates Eisenhart Dawson
125 South Market Street, Suite 1200
San Jose, CA 95113
(408) 288-8100
(408) 288-9409
mae@gedlaw.com
[] [BY MAIL] I caused such envelope[s] with postage thereon fully prepaid by
placing the envelope for collection and mailing following our ordinary business
practices. I am readily familiar with this business’s practice for collection and
processing correspondence for mailing. On the same day that correspondence is
placed for collection and mailing, it is deposited in the ordinary course of
business with the United States Postal Service.
{ ] [BY PERSONAL SERVICE] I caused such envelope[s], as indicated above, to be
delivered by hand this date to the offices of the addressee[s].
[ ] [BY FACSIMILE] I caused such document[s] to be transmitted by facsimile on this date
to the offices of addressee[s] and the facsimile machine complies with Rule 2003(3) of
the California Rules of Court and was reported as complete and without error at the time
specified on the transmission confirmation report and was properly issued by the
transmitting facsimile machine operating at [408]295-6375.OD ew IYI DHA FWY
SB Ne Ss
14
[BY ELECTRONIC MAIL] I caused such document[s] to be transmitted by electronic
mail on April 15, 2019 to the offices of addressee[s] without return error notification.
[BY FEDERAL EXPRESS] I caused such envelope|s] with postage thereon fully
prepaid to be placed for collection by Federal Express at San Jose, California.
[STATE] I declare under penalty of perjury under the laws of the State of California that
the foregoing is true and correct.
[FEDERAL] I declare that I am employed in the office of a member of the bar of this
court at whose direction the service was made.
Executed on April 15, 2019 at San Jose, California.
Marla ova
MARSHA NOVACK
Preview
WILLOUGHBY, STUART, BENING & COOK Bw N 0 wom ID 10 12 13 14 15 16 17 18 19 20 21 2 2% 24 25 26 27 28 BRADLEY A. BENING, SBN — 104221 ELLYN E. NESBIT, SBN — 136398 WILLOUGHBY, STUART, BENING & COOK 50 W. San Fernando Street, Suite 400 San Jose, California 95113 Telephone: (408) 289-1972 Facsimile: (408) 295-6375 Attorneys for Defendants, YA-HUI (EMILY) WANG and CHUN DOK CHRIS WONG IN THE SUPERIOR COURT OF THE STATE OF CALIFORIA IN AND FOR THE COUNTY OF SANTA CLARA THE TDS GROUP, INC., a California CASE NO.: 18CV333695 Corporation; R.A. LOTTER INSURANCE MARKETING, INC., a California DEFENDANTS' REPLY IN SUPPORT OF Corporation; and ROBERT A. LOTTER, MOTION FOR JUDGMENT ON THE PLEADINGS Plaintiffs, Hearing Date: April 19, 2019 . vs. Time: 9:00 a.m. Dept: 8 YA-HUI (EMILY) WANG; CHUN DOK __ | Judge: Hon. Sunil R. Kulkarni CHRIS WONG, and DOES 1 through 20, inclusive Date Action Filed: August 28, 2018 Defendants. Trial Date: None Set REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGSWILLOUGHBY, STUART, BENING & COOK 10 11 12 13 14 15 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS INTRODUCTION ...eccsesecsseessseesseecsssssediecssesssusssseessvessessusessnvessssessssessesssecssssiaeesssesseesneens 1 I TDS Fails to Prove That It Has a "Right to Payment", and Thus Fails to Meet Its Burden to Prove Standing ......sssesssseeesseessesseessesseseneens 2 A. TDS' New Theories Fail to Establish Standing... reseeneeee 2 B. TDS' Original Theory Fails to Establish Standing .......ccssesseseseseseeeees 4 C. TDS Makes Admissions Which Rebut Its Own Erroneous Arguments... 5 Il. TDS' Arguments Contravene the Supreme Court's Demarcation Between a Contingent Right to Fees and an Unenforceable Speculative Possibility of fees... seeneesueesieecisanesnesesseeaesssusssesssestsssesssesessrsaseeaserssssarsses D Ill. TDS Improperly Attempts to Modify the UVTA and Eliminate the "Right of Payment" Requirement.......c.ccccsessseseesnesseeseseesesseeeneesennes 7 Iv. TDS" Common Law Claim Contravenes a Century of Law. 10 CONCLUSION wiiescessccsssssesssessssessssesssessecssessseccsssessnessseeseesseessnecsuuecseeeeniecseesnessnsesanensenenans 10 i REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS:WILLOUGHBY, STUART, BENING & COOK TABLE OF AUTHORITIES State Cases Heller Ehrman LLP v. Davis Wright Tremaine LLP (2018) 4 Cal. Sth 467 viecsecsssscssssssssssecssnessssssssssvecsssecsessssssssseesssssesssssssessnveessnesesssensseness 5, 6, 8, 10 People v. Bell (2015) 241 Cal. App.4th 315 ccssesssecsssesssscsssssessssessssscessssessssssesesssseessnvecssssessssensssssssatessseeesssnes 7 Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal. App.4th 1246 wcseccssessssessssecsssssesssussssssssssssssecssssescsssssssssvesssusessusessssessestessseseessess 4 Troyk v. Farmers Group, Inc. (2009) 171 Cal App.4th 1305 oiceccessesseessesssesssessssesssvessseesssseessussssesssssnsessessnesssesssansessseesseees 4 State Statutes Civ. Code, section 1717 .... Civ. Code, section 3439.01 United States Supreme Court Opinions Johnson v. Home State Bank (1991) 501 U.S. 78 cesses ‘essessesseesseavensesueesveseeseseesesssennes 5 Federal Cases California Dep't of Health Servs. v. Jensen (9"" Cir. 1993) 995 F.2d 925 . Grady v, A.H. Robins Co. (4" Cir, 1988) 839 F.2d 198 vrecssscssssssescssssescsssssescccssssnscsecessessssecssssnusssscssnssccesssnnsceessnnneecanecsnssnnaeseenst 9 Inre Firearms Import & Export Corp. -(Bankr.$.D. Fla. 1991) 131 BuR. 1009 weeesseesessetsssesssessseesssesssessnsssnsessesseessseeaseensseeesneeesneesse 9 Inre Grossman’s, Inc. (3d Cir. 2010) 607 F.3d 114 eee Jesssssasccsssveusensssssasssssvessssanecessacassasestasedseensensesesensaes 9 Inre Hemingway Transp. (1S Cir, 1992) 954 F.2d 1 vecccsssssssssssscsssssusesccssssssssssunnssscecseeesssssssussssunnessseeeegessnusieeseeraeeeeeeeeeensees 9 Inre Matter of Frenville Co. (3d Cir, 1984) 744 F.2d 332 veicsssssccsssecsssecsneessseeessuseesssesssseecessaveccesneeenseessneessesses Watson v. Parker (10! Cir, 2002) 313 F.3d 1267 secsssssssssessssssssssssssssssseccsssssnssssessersssssssssensscsesuusssnsanseceeeeasssssesssteniee 9 REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON ‘THE PLEADINGS 1BENING & COOK WILLOUGHBY, STUART, vA RB ww Co Oe ND 10 11 12 13 14 15 16 17 18 20 21 22 23 24 25 26 27 28 INTRODUCTION Plaintiffs must hold a "right to payment" in order to have standing under the Uniform Voidable Transactions Act ("UVTA"). That right may be contingent, unmatured, or disputed, but that right must actually exist. The circumstances which establish the right must have already occurred. A mere hope that circumstances might occur in the future which could give rise to a right is not is not a "contingent, unmatured, or disputed" right to payment. Plaintiffs (collectively "TDS") agree that a "right to payment" as used in the definition of "Claim" means "nothing more nor less than an enforceable obligation". (Opp. 8:4-6). Exactly! TDS does not have one. TDS contends that it has a contingent, unmatured, or disputed right to prevailing party attorneys’ fees, but that is impossible as a matter of law. The Supreme Court has unequivocally confirmed that a right to prevailing party attorneys’ fees cannot exist before the final conclusion of a lawsuit, after all re-trials and appeals. When a lawsuit has reached its final conclusion, the party who won then has a right to file a motion to be declared the prevailing part, and move for an award of attorneys' fees. Any right to prevailing party fees remains contingent, unmatured, and disputed until the court declares a party the prevailing party and actually awards fees. TDS has only a fantasy of fees, not a "right to payment" of fees. The Underlying Action is on appeal, and there may be another trial after the appeal. It will be years before the Underlying Action reaches its final conclusion. TDS has nothing more than a far-fetched, speculative wish that it might ultimately win the pending appeal and cross-appeals, be declared the "prevailing party" under Civil Code §1717, and be awarded fees. The California Supreme Court has held that speculation, hopes and wishes are not actionable contingent rights for purposes of a fraudulent transfer action, and that is all TDS has. In its Opposition, TDS never gets around to demonstrating how a "right to payment" of prevailing party fees could exist prior to the conclusion of the Underlying Action when the Supreme Court has unequivocally held that no such right can arise before the final conclusion of an action. Unable to prove that it has a "right to payment", TDS attempts to dispense with that requirement by misconstruing the UVTA to read the requirement out of existence. TDS cannot cure its lack of standing by unilaterally eliminating the core requirement of the UVTA. 1 REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGSBENING & COOK WILLOUGHBY, STUART, om ND HW B® 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. TDS Fails to Prove That It Has a "Right to Payment", and Thus Fails to Meet Its Burden to Prove Standing A. TDS' New Theories Fail to Establish Standing TDS premises its UVTA complaint on allegations that there is a judgment in its favor in the Underlying Action, and TDS seeks to enforce its "right to payment" of prevailing party attorneys’ fees based on that judgment. (Complaint, §§ 14 -19, 23, 29). TDS deliberately failed to mention in its complaint that there is no such judgment, since it had been vacated by grant of a new trial. Now that TDS has been called out on its attempt to mislead the Court, TDS has changed tactics. TDS now contends that the (non-existent) judgment upon which it premised its complaint is irrelevant. TDS argues that it has a "claim" because it is not required to have a "judgment", (Opp. 4:9-20), but that begs the question. The absence of a judgment does not establish the existence of the "right to payment" required by the UVTA . TDS next argues that it has a "claim" under the UVTA merely because it was sued in the Underlying Action. TDS contends that as soon as Ms. Wang filed the Underlying Lawsuit, TDS had a unmatured and contingent "claim" to prevailing party fees, and "[t]herefore the TDS Parties had a "right to payment of attorneys’ fees" upon the filing of the lawsuits, even though unmatured and contingent". (Opp. 4:21-5:8). TDS' assertion conflates the UVTA's requirements for standing. The UVTA defines "Claim" as a "right to payment", and then describes the various statuses that the right to payment may have and still fall within the definition of "claim": "Claim", except as used in "claim for relief" means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. "Creditor" means a person that has a claim... (CC §3439.01, boldface added). TDS' argument that it had a "contingent claim" and thus a "right to payment" has it exactly backwards, The UVTA does not confer standing for "unmatured contingent claims". Instead, a "Claim" is limited to a "right to payment", and that right to payment may be contingent or unmatured. A defendants desire to win a case, be declared the prevailing party, and then bring a motion for fees is not a contingent "right to payment". It is an unenforceable, unilateral hope REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON ‘THE PLEADINGS 2BENING & COOK WILLOUGHBY, STUART, 0 eo ND HD 10 i 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that it might acquire a future right to fees. (See moving papers, pgs. 4-10). TDS did not acquire the status of a"Creditor" with a "right to payment" actionable under the UVTA merely because the Underlying Action was filed. TDS has no support for its contention that Emily's mere filing of a lawsuit gave TDS an immediate right to take the assets of Emily and her husband to satisfy an award of fees TDS hoped to get if it hypothetically won the lawsuit years down the road. TDS' argument ignores the Supreme Court's confirmation that a right to prevailing party attorney's fees cannot arise before the conclusion of an action, and that a speculative, future hope of obtaining fees is not an actionable contingent right for purposes of a fraudulent transfer suit. (See moving papers pgs. 4-10). The consequences of TDS' misinterpretation confirm that it is an untenable construction. According to TDS, any defendant sued in any lawsuit where statutory or contractual fees may ultimately be sought could obtain injunctive relief and attach the plaintiffs assets, and prevent the plaintiff from using its own assets during the entire pendency of the lawsuit, based only on the defendant's speculative hope that it may one day win the lawsuit and then be awarded prevailing party fees. Merely because the plaintiff filed a lawsuit, that plaintiff could not buy or sell a home, a car, or engage in any virtually any financial transaction during the entire pendency of the lawsuit, or the defendant could immediately prosecute the plaintiff for fraudulent transfer under the UVTA. TDS' misinterpretation allows a defendant to weaponize the UVTA and chill the plaintiff's exercise of its right of action against the defendant despite the fact that the defendant does not yet have any right to even seek attorneys' fees. Weaponization of the UVTA is exactly what TDS is perpetrating here. TDS is using this suit to attempt to tie up Emily and Chris' assets for the duration of the Underlying Action; deprive them of resources to continue with the Underlying Action; and to even deprive Emily and Chris of use of their own assets for living expenses; notwithstanding that Emily is far more likely to ultimately prevail in the Underlying Action and TDS will be the judgment debtor, as discussed in Defendants' pending motion for a protective order. TDS cannot weaponize the UVTA by misconstruing it. REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS 3BENING & COOK WILLOUGHBY, STUART, wo oe ND 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TDS also contends that it had a contingent claim because it filed a cross-complaint in the Underlying Action for reformation of the settlement agreement. (Opp. pg. 5:3-6). This argument suffers from the same infirmities. The UVTA does not confer standing for contingent claims; the plaintiff must hold a "right to payment". For the same reasons the mere filing of the Underlying Action did not establish a "right to payment", TDS could not grant itself a "right to payment" and confer standing upon itself to prosecute a UVTA claim by merely filing a cross-complaint. 1 B. TDS' Original Theory Fails to Establish Standing As a last gasp effort to prove a "right to payment", TDS reverts to the theory. it pled, contending that the judgment it momentarily held after the second trial "shows Plaintiffs have a claim". (Opp. 9:9-10:2). TDS argues that it received a judgment, so it won the action, and thus has a "right to payment" of prevailing party attorneys’ fees, (Opp. 9:16-23). TDS' argument suffers from the blatant infirmity that it has no judgment, and no party has "won" an action until the final conclusion of that action, including all appeals. (See Defendants' moving papers). TDS' argument that it has standing because it briefly had a non-final judgment is spurious. A party must have standing when an action is filed, and throughout its pendency. Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4"" 1305, 1345. The non-final judgment after the second trial had been vacated by grant of a new trial long before TDS filed this UVTA lawsuit. (Def. Request for Judicial Notice, Ex. 5 (6/5/18 Order granting new trial); Plaintiffs! UVTA complaint filed 8/28/18). Finally, TDS attempts to confer standing upon itself by concocting a Dr. Seuss-ism: "does the 'contingent' claim lose its 'contingent' status based on a 'contingency'." (Opp. 9:24-10:2). This baffling query first presumes that TDS had a "contingent claim",.and that a "contingent ' Plaintiffs also argue that they sufficiently alleged fraud, and erroneously state that it must be assumed for purposes of this motion that Defendants "engaged in fraud". (Opp. 1:21-22; 5:9-19). Plaintiffs’ false accusations are not presumed true. Conclusions of law or fact are not.considered in a motion for judgment on the pleadings. Shea Homes Ltd. Partnership v. County of Alameda (2003) 110 Cal.App.4" 1246, 1254. Plaintiffs’ allegations of fraud are irrelevant to this motion in any event. Plaintiffs cannot establish standing by alleging fraud. Plaintiffs' standing does not depend upon Defendants' purported conduct, but upon whether Plaintiffs hold an enforceable right to prevailing party attorneys’ fees. They hold no such right, and have no standing. REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS 4 .BENING & COOK STUART, WILLOUGHBY, WN ony 10 11 12 13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 claim" confers standing under the UVTA without a "right to payment". TDS' gibberish about loss of contingent status "based on a contingency" is undecipherable. The UVTA requires a "right to payment" that may be contingent, but no contingent right to payment of prevailing party attorneys' fees could arise before the final conclusion of the Underlying Action for all of the reasons discussed in the moving papers and herein. C. TDS Makes Admissions Which Rebut Its Own Erroneous Arguments TDS concedes that a "right to payment means nothing more nor less than an enforceable obligation". (Opp 8:5-7, citing Johnson v. Home State Bank (1991) 501 U.S. 78, 83). TDS' admission is in accord with California Supreme Court's holding in Heller Ehrman, LLP v. Davis Wright Tremail LLP (2018) 4 Cal.5" 467, which likewise requires an enforceable right and not just the speculative hope of acquiring a future right to fees. (See moving papers pgs. 7-10). That right may be contingent, but it must exist. No enforceable right to prevailing party attorneys’ fees can arise until the final conclusion of an action. (See moving papers pgs. 5-7). TDS also rebuts its own misconstruction with the tort example it proffers. As TDS acknowledges, a tort plaintiff acquires creditor status under the UVTA upon the occurrence of the event giving rise to the plaintiff's rights against the defendant - the date of the accident. (Opp. 4:14-20). When an accident occurred, the tort plaintiff acquired a right to payment from the defendant, albeit contingent. But TDS has not and cannot acquire a contingent right to payment unless and until the event giving rise to that right occurs. TDS must win the appeal, cross- appeals, and any new trial before a contingent "right to payment" of prevailing party attorneys' fees will arise. (See further discussion in Defendants' moving papers, pg. 9:18-10:10). Il. TDS' Arguments Contravene the Supreme Court's Demarcation Between a Contingent Right to Fees and an Unenforceable Speculative Possibility of fees TDS' lack of standing is confirmed by Heller Ehrman LLP v. Davis Wright Tremaine LLP (2018) 4 Cal. 5th 467. The Supreme Court distinguished between an enforceable contingent interest in attorneys' fees, and an unenforceable "mere possibility"; "mere expectancy"; "speculative" hope; "unilateral hope"; or "unilateral expectation" of fees. Jd. at 471-472, 476- REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS: 5BENING & COOK WILLOUGHBY, STUART, UB wN oo ND 10 11 12 13 14 “15 16 17 18 19 20 21 22 23 24 25 26 27 28 478. (See moving papers, pgs. 7-10). The court held that the mere possibility that Heller would obtain attorneys’ fees in the future fell within the unenforceable speculative hope categories. Id. Since Heller had no enforceable interest in fees, it had no viable claim for fraudulent transfer. Id. at 473. As in Heller, TDS has no enforceable contingent right to attorneys' fees. TDS has nothing more than a speculative hope that it may one day obtain a right to move for attorneys’ fees. TDS has no "right to payment", contingent or otherwise, and thus has no standing. TDS tries to avoid the fatal impact of the rulings in Heller by describing Heller as nothing more than decision involving the question of property rights of a dissolved law firm. (Opp. pg. 8:9-17). TDS' attempt at deflection ignores that the Court adjudicated the issue of whether Heller had a property interest in attorneys’ fees in order to determine whether Heller had a viable claim for fraudulent transfer. Heller, supra at 473. Since Heller had no enforceable property interest, there was no fraudulent transfer. Id. TDS next attempts to avoid Heller's clear demarcation between enforceable rights and speculative hope by proffering irrelevant distinctions regarding the factual scenario. TDS dispenses with Heller on grounds that TDS was not in a law partnership or attorney/client relationship with Emily and Chris and there are no allegations of fiduciary duties owed "in this instance". (Opp. 8:18-9:9). TDS relies on its irrelevant distinctions to conclude that Heller has no application to the determination of whether a "suit between parties regarding a contract providing for prevail [sic] party attorney's fees may have a ‘claim’ if one party defrauds the other as to fees". (Opp. 9:6-8). Nor does this motion encompass any such determination. TDS' incoherent point fails to avoid the pertinent delineation established in Heller between an enforceable existing right to fees and an unenforceable speculative hope of acquiring a future right to fees. The Supreme Court's distinction between an enforceable existing right and an unenforceable speculative hope of acquiring a future right, has ubiquitous application, as confirmed by the Supreme Court's overview of California law on the circumstances giving rise to property rights in various contexts. /d, at 476-477. The demarcation does not depend on the existence of an attorney/client or fiduciary relationship. REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON ‘THE PLEADINGS 6WILLOUGHBY, STUART, BENING & COOK Coe ND mH BF BY °o 11 TDS' efforts to dispense with Heller are mooted by TDS' admission that a "right to payment" as required by the definition of "Claim" requires an "enforceable obligation". (Opp. 8:4-7). To establish standing, TDS must have an existing, enforceable right to attorneys' fees, That right may be contingent, but it cannot consist of nothing more than the mere unilateral, speculative hope that is the basis of TDS' action. TDS' positions are astonishingly incongruous. TDS attempts to run from the Supreme Court's determination in Heller of what constitutes an interest in attorneys! fees enforceable under the Bankruptcy Code's fraudulent transfer provisions. Yet, TDS argues that federal bankruptcy cases from foreign jurisdictions, which applied bankruptcy law to determine the meaning of "claim" for purposes of discharge in bankruptcy, somehow operate to eliminate the UVTA's requirement of a "right to payment". (Opp. pgs. 6-8). TDS' attempt to utilize bankruptcy discharge cases to read the UVTA's requirement of a "right to payment" out of existence is debunked below. Ill. TDS Improperly Attempts to Modify the UVTA and Eliminate the "Right of Payment" Requirement TDS acknowledges that the UVTA requires a "right to payment" in order for standing to exist, but TDS then tries to read that requirement out of existence because TDS has no such right. (Opp. 4:2-8). TDS contends that the UVTA's requirement of a "right to payment" is not a "limiting factor" in determining whether it has a "claim" under the UVTA. (Opp. 4:2-4; 5:20- 8:7). TDS' vacuous contention defies the rules governing statutory interpretation. A "right to payment" is the fundamental core requirement of the UVTA definition of "Claim": "Claim", except as used in "claim for relief" means a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. The definition makes it clear that a "right to payment" must exist, but that right can be contingent. TDS' interpretation wrongly focuses exclusively on the adjectives, and eliminates the noun that is the subject of definition. Under the guise of construction, a court cannot omit language from a statute. People v. Bell (2015) 241 Cal.App.4" 315, 342. REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS 7BENING & COOK WILLOUGHBY, STUART, YN DA wA BF Bw WN To support its attempt to eviscerate the UVTA's requirement of a "right to payment", TDS resorts to bankruptcy cases which applied federal bankruptcy law to determine when a "claim" exists for purposes of bankruptcy discharge. (Opp. pgs. 6-8). The bankruptcy cases do not support TDS' attempt to eliminate the "right of payment" requirement from the UVTA. The bankruptcy cases do not do not establish standing in a state action brought under a state statute to enforce a right to fees that can only arise under state law. TDS contends that the bankruptcy cases support TDS' position that a "right to payment" does not limit what constitutes a "claim". (Opp. 8:1-8). The cases do not support TDS' conclusion that an actionable "claim" under the UVTA may be premised upon its bare speculation that TDS might one day acquire a right to seek attorneys' fees if it prevails in the Underlying Action. TDS' discourse culminates with its admission that the United States Supreme Court has confirmed that aright to payment" as used in the definition of "claim" requires an "enforceable obligation". (Opp. 8:4-7). The requirement of an "enforceable obligation" is completely consistent with the California Supreme Court's analysis in Heller. The "right to payment" may still be contingent, but it must be an enforceable obligation and not a mere unilateral hope that a right might someday arise. Heller, supra at 471-473, 476-478). TDS has woven a delusive web with out-of-context fragments culled from the bankruptcy cases. Disentanglement of that web begins with Frenville, since TDS' entire discussion is focused on discrediting that decision despite the fact that Defendants did not rely upon or reference that decision. (Jn Re Matter of Frenville Co., Inc. (3 Cir., 1984) 744 F.2d 332.) TDS notes that Frenville was premised on a conclusion that state law applied to the threshold question of when a "right to payment" arises. Frenville at 336; (Opp. 6:11-12). It is for that very reason that other bankruptcy courts have declined to apply Frenville, because federal bankruptcy law, not state law, governs the determination of when a claim arises for purposes of a right of discharge in bankruptcy. TDS relies on bankruptcy cases that rejected application of state law to determine when a "right to payment" arises, but a state court must rely on state law to determine when a right to payment arises for purposes of applying a state statute to enforce a right that can only arise under state law. REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS 8WILLOUGHBY, STUART, BENING & COOK AU Bw N no on 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The bankruptcy cases criticized Frenville's application of state law to determine when a "claim" arose for purposes of bankruptcy discharge, and instead construed "claim" under bankruptcy law to effect the purposes and principles of the Bankruptcy Code. Federal bankruptcy law pre-empts state law, and is determinative of when a claim arises for purposes of bankruptcy discharge. As TDS itself emphasizes, the federal cases distinguished Frenville because a claim can exist under the bankruptcy code before a right to payment exists under state law. (Opp. 7:23- 25, citing In Re Grossman's Ine. oe Cir. 2010) 607 F.3d 114, 121). See Grady v. A.H. Robins Co. Inc. (4" Cir. 1988) 839 F.2d 198, noting that Frenville had turned to state law to determine when a right to payment arises, but bankruptcy law is superimposed upon state law, and the bankruptcy court does not apply state law in determining what claims are allowable. Grady at 201. The court in Jn Re Parker (10" Cir 2002) 313 F.3d 1267, rejected Frenville's application of state law to determine when a claim arose for purposes of bankruptcy. Jd. at 1269. In Re Hemingway Transport, Inc. (1* Cir 1992) 954 F.2d 1, rejected Frenville's holding that the existence of a "right to payment" is controlled by state law. Id. at 8-9 fn. 9. Jn Re Jensen oo" Cir. 1993) 995 F.2d 925 determined when a CERCLA claim arose for purposes of discharge in bankruptcy. In making that determination, the court did not apply state law, and instead made the determination by balancing the competing goals of CERCLA, and the Bankruptcy Code's "overriding goal" to "provide a fresh start for the debtor" and assure that " all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case". Id. at 929-931. In Re Firearms Import and Export Corp. (S.D. Fla 1991) 131 B.R. 1009, 1015 (criticized Frenville because it "failed to consider fundamental bankruptcy policies" and "would leave to the vagaries of the timing of events by third parties such obviously crucial issues of bankruptcy relief as priorities of distribution and dischargeability of obligations.) The bankruptcy cases do not aid TDS in its quest to read the UVTA's requirement of a "tight of payment" out of existence. Federal bankruptcy law adjudicating when a claim arises for purposes of a right of discharge under bankruptcy law does not govern the determination of when a "right to payment” arises under a state statute, in an action venued in state court, to enforce a right to fees that TDS can only obtain under state law. California law necessarily applies to the REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS: 9BENING & COOK STUART, WILLOUGHBY, A Fw WN io oOo ND 10 ir 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 determination of when a "right to payment" of attorneys’ fees arises in a state action for purposes of enforcement of that state right in another state action brought under the state's Uniform Voidable Transactions Act. Even for purposes of application the Bankruptcy Code's fraudulent transfer provisions, the California Supreme Court applied state law to determine whether an actionable interest in attorneys’ fees had existed. Heller supra at 474-482. TDS cannot escape that under California law, a contingent or unmatured "right to payment" of attorneys’ fees cannot arise prior to the final conclusion of an action, including all appeals. IV. TDS' Common Law Claim Contravenes a Century of Law Despite the unequivocal clear law for over 100 years that a plaintiff must have an actual, existing final judgment for standing to pursue a common law fraudulent transfer case, TDS still defy the law, and refuses to concede a lack of standing. (Opp. pg. 10). CONCLUSION TDS' has failed to establish standing under the UVTA. The fact that TDS must resort to such convoluted attempts to show that it has a "right to payment" of prevailing party fees instead serves to emphasize the lack of any such right. TDS will never obtain even a contingent right to payment of prevailing party fees unless and until years from now, it prevails in the pending appeal and cross-appeals in the Underlying Action, and also in any new trial. TDS has nothing more than a speculative hope that maybe someday it will win. TDS is not entitled to abscond with Emily and Chris' assets based on nothing more than its fantasy of fees. Judgment on the Pleadings without leave to amend should be granted. DATED: April 15, 2019 WILLOUGHBY, STUART, BENING & COOK By A peWehar. ELLYN. NESBIT Certified App€llate Specialist State Bar of Cal. Board of Legal Specialization REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS 10UR WN oC 0 Oe ND Case Name: The TDS Group, Inc. v. Wang, et al. Court: Santa Clara Superior Court Case No. 18CV333695 Our File No. 2155.13491B PROOF OF SERVICE STATE OF CALIFORNIA ] Ss. COUNTY OF SANTA CLARA ] lam a citizen of the United States and a'resident of the County of Santa Clara, State of California; I am over the age of eighteen years and not a party to the within action; my business address is 50 W. San Fernando Street, Suite 400, San Jose, San Jose, CA 95113. On the date set forth below I served the document[s] described as: DEFENDANTS’ REPLY IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS on the following person[s] in this action by placing a true copy thereof enclosed in a sealed envelope addressed as follows: Marc A. Eisenhart, Esq. Attorney for Plaintiffs Gates Eisenhart Dawson 125 South Market Street, Suite 1200 San Jose, CA 95113 (408) 288-8100 (408) 288-9409 mae@gedlaw.com [] [BY MAIL] I caused such envelope[s] with postage thereon fully prepaid by placing the envelope for collection and mailing following our ordinary business practices. I am readily familiar with this business’s practice for collection and processing correspondence for mailing. On the same day that correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service. { ] [BY PERSONAL SERVICE] I caused such envelope[s], as indicated above, to be delivered by hand this date to the offices of the addressee[s]. [ ] [BY FACSIMILE] I caused such document[s] to be transmitted by facsimile on this date to the offices of addressee[s] and the facsimile machine complies with Rule 2003(3) of the California Rules of Court and was reported as complete and without error at the time specified on the transmission confirmation report and was properly issued by the transmitting facsimile machine operating at [408]295-6375.OD ew IYI DHA FWY SB Ne Ss 14 [BY ELECTRONIC MAIL] I caused such document[s] to be transmitted by electronic mail on April 15, 2019 to the offices of addressee[s] without return error notification. [BY FEDERAL EXPRESS] I caused such envelope|s] with postage thereon fully prepaid to be placed for collection by Federal Express at San Jose, California. [STATE] I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. [FEDERAL] I declare that I am employed in the office of a member of the bar of this court at whose direction the service was made. Executed on April 15, 2019 at San Jose, California. Marla ova MARSHA NOVACK