This appeal follows a highly publicized jury trial of a fraud claim arising from a $2.3 million sale of 15 acres of land that included a residence, riding arena and associated buildings, located on South Kings Canyon Road, Parlier, California. The plaintiffs who purchased the property obtained a judgment for $1,553,800, which included $850,000 in punitive damages.
The motion to dismiss presents a threshold question that must be decided before reaching the merits of the appeal. Based on our review of the motion and opposition papers, including a declaration from defendant Michael Weilert that did not deny any of the 47 transactions took place, and argument by counsel, we conclude the balance of the equitable considerations relevant to the disentitlement doctrine favor dismissal. It would be unjust to allow defendants to seek the benefits of an appeal while willfully disobeying the trial court's valid orders and frustrating plaintiffs' legitimate efforts to enforce the judgment.
We therefore grant plaintiffs' motion to dismiss the appeal.
The plaintiffs in this lawsuit are Brian L. Gwartz and his wife, Cheryl A. Skigin, cotrustees of the Pendragon Trust.
Michael Weilert, M.D. (Weilert), and his wife, Genevieve Weilert, who also is known as Genevieve de Montremare (Genevieve),
The M&G Weilert Family, L.P. (Weilert FLP), is a limited partnership owned 10 percent by Weilert, 40 percent by Genevieve, and 50 percent by the
Michael Weilert, M.D., Inc. (MD Inc.), is a California corporation that has been in the business of providing medical service since 1981. Weilert once was the sole shareholder of MD Inc. Now, Weilert FLP is the sole shareholder of MD Inc. Weilert remains an employee of, and performs all the services associated with, the corporation. Those services are provided to Pathology Associates, the business under which Weilert conducts his medical practice as a pathologist.
Pathology Associates is a California general partnership that provides pathology services to physicians and hospitals. Weilert FLP is one of the general partners and holds a 10 percent ownership interest in Pathology Associates. Also, Weilert is the managing partner of Pathology Associates and, compared to the other partners, receives an additional draw of $2,000 per month for acting in that capacity. At one time, MD Inc. received partnership draws from the Pathology Associates.
Sierra Pathology Building, LLC, is a California limited liability company that owns the building occupied by Pathology Associates. Weilert FLP owns a one-ninth interest in Sierra Pathology Building, LLC.
Free Market Medical Systems, LLC (Free Market), is a California limited liability company that was formed shortly before the trial in this case. On April 5, 2013, Weilert testified (1) Weilert FLP had put $150,000 into the company; (2) its purpose was to develop software products for use in medical offices; (3) its other member was Patricia Tam Ellis, a person familiar with software; (4) no application had been made for a copyright, design patent or other form of intellectual property; and (5) no written business plan existed. On May 3, 2013, Weilert testified he had made transfers of $100,000 and $75,000 into Free Market's bank account in anticipation of future business expense because he expected "to start coding on projects" and would need to pay the programmer. At the time, Weilert was the sole signatory on Free Market's bank account with Wells Fargo.
Belle Reve, LLC, is a California limited liability company owned by Weilert and Genevieve.
In March 2008, plaintiffs agreed to purchase approximately 15 acres of land from Weilert for $2.3 million. The property included a residence, a riding arena and associated buildings. The documents for the sale included (1) a California residential purchase agreement and joint escrow instructions, (2) a real estate transfer disclosure statement, (3) a buyer's inspection advisory, and (4) supplemental statutory and contractual disclosures. All of these documents were prepared using preprinted forms published by the California Association of Realtors. In the real estate transfer disclosure statement, Weilert represented that he was not aware of any room additions, structural modification, or other alterations or repairs (1) made without the necessary permits (except for the pool house) or (2) not in compliance with building codes.
Plaintiffs alleged Weilert made misrepresentations regarding the property, including that (1) the construction of the residence had cost close to $2 million, (2) marble lions imported from Genevieve's family in France came with the house, (3) the property had a private beach, and (4) the property had been permitted for a boat dock. Plaintiffs also alleged the parties agreed that Weilert would complete a covered riding arena, barn and irrigation system prior to the close of escrow.
In March 2009, plaintiffs filed a complaint against Weilert and Genevieve, alleging fraud and other causes of action arising from the real estate transaction.
The trial began in September 2012. The first phase was a bench trial for the purpose of determining whether the purchase agreement was an integrated
During the second phase of the trial, a jury was presented with plaintiffs' causes of action for breach of contract, fraud by intentional misrepresentation, fraud by concealment, negligent misrepresentation, and a common count for work, labor and materials provided by plaintiffs to defendants. The jury decided these causes of action in favor of plaintiffs and also awarded plaintiffs $850,000 in punitive damages.
On October 30, 2012, the trial court filed a judgment on jury verdict that awarded plaintiffs $1,553,800, plus attorney fees and costs in an amount to be determined.
Defendants subsequently filed a motion for a new trial and a motion for judgment notwithstanding the verdict. The trial court denied these motions.
On December 28, 2012, defendants filed a notice of appeal from the judgment and the trial court's order denying their motion for new trial and motion for judgment notwithstanding the verdict.
Defendants did not post a bond to stay the enforcement of the judgment as provided in Code of Civil Procedure section 917.1.
On April 5, 2013, Weilert testified during a judgment debtor examination at the superior court that Weilert FLP had a bank account with Wells Fargo Bank with approximately $225,000. Plaintiffs requested the trial court for an order directing the turnover of the funds. The court directed that the matter be put on calendar and a written ex parte application be filed. The court then stated, "I again repeat my cautionary comment. I think it behooves the judgment debtors not to change the status quo for the next, whatever, two business days it may take to have the matter heard on the merits."
Despite this admonition, sometime between April 5, 2013, and the continued judgment debtor examination on May 3, 2013, Weilert made transfers of $75,000 and $100,000 to the bank account of Free Market.
The order continued the hearing on application for a turnover order until May 16, 2013, and stated the freeze order would remain in effect until that hearing.
On May 16, 2013, the trial court reinstated the freeze order. The court also granted plaintiffs' motion for a turnover order and their motion for an assignment order. The court took plaintiffs' motion for a charging order under submission and filed a written charging order on May 28, 2013.
The turnover order directed defendants and their affiliated entities to deliver to the levying officer (1) vehicles and their documents of title; (2) horses and their documents of title; (3) documents of title for real estate in Fresno and San Luis Obispo Counties; and (4) all certificated and uncertificated securities representing interests in MD Inc., Belle Reve, LLC, Weilert FLP, Sierra Pathology Building, LLC, and Free Market.
The assignment order stated that all payments due defendants or the entities they owned or controlled (to the extent necessary to satisfy the judgment in full) were assigned to plaintiffs. The order specifically mentioned (1) rental income from three parcels of real property; (2) payments, distributions or partnership draws due to MD Inc. from Pathology Associates; (3) payments due to Belle Reve, LLC, from any source; and (4) payments due to Weilert or his affiliated entities from Sierra Pathology Building, LLC.
The charging order stated that the interests of defendants in the Weilert FLP; Pathology Associates; Belle Reve, LLC; Sierra Pathology Building,
On December 23, 2013, plaintiffs filed their motion to dismiss this appeal. The motion listed 47 transactions by defendants and their affiliated entities that violated the trial court's May 6, 2013, order prohibiting transfers of funds in a deposit account.
Eventually, after a specific order from this court, defendants filed an opposition to the motion to dismiss that addressed whether dismissal was appropriate under the doctrine of disentitlement.
Plaintiffs' motion to dismiss the appeal pursuant to California's doctrine of disentitlement presents this court with a threshold question that, if decided in plaintiffs' favor, would mean the merits of defendants' appeal from the judgment are not reached. Because the motion to dismiss will be granted, this opinion sets forth our reasons for dismissing the appeal and does not reach the merits of the appeal. (See Cal. Const., art. VI, § 14 [written appellate decisions].)
The disentitlement doctrine has been applied to a wide range of cases, including cases in which an appellant is a judgment debtor who has frustrated or obstructed legitimate efforts to enforce a judgment. (E.g., Stoltenberg, supra, 215 Cal.App.4th 1225 [defendants repeatedly, and in contempt of sister-state orders, frustrated the enforcement of the Cal. judgment that was the subject of their appeal]; TMS, Inc. v. Aihara (1999) 71 Cal.App.4th 377 [83 Cal.Rptr.2d 834] [appeal dismissed where, despite trial court's order, defendants willfully refused to respond to postjudgment interrogatories]; Stone v. Bach (1978) 80 Cal.App.3d 442 [145 Cal.Rptr. 599] [appellant disobeyed a prejudgment order directing the deposit of partnership funds collected by him into a trustee account and, after the judgment, was found in contempt for failing to appear at a judgment debtor examination].)
All 47 transactions identified in plaintiffs' motion are not discussed here because it will suffice to examine a portion of the transfers involving Weilert himself. These transfers adequately demonstrate that Weilert violated the trial court's freeze order.
Specifically, we will consider 13 transfers totaling $285,000 that were made from Weilert's bank account to (1) MD Inc., (2) Belle Reve, (3) Free Market, and (4) American Express between June 3, 2013, and September 13, 2013.
The five transfers made by Weilert to MD Inc. totaled $135,000
Amount Date $15,000 June 17, 2013 $ 5,000 July 19, 2013 $10,000 August 2, 2013 $50,000 August 6, 2013 $55,000 August 8, 2013
Weilert also made four transfers totaling $3,000 to Belle Reve:
Amount Date $ 600 July 1, 2013 $ 600 July 22, 2013 $ 800 August 6, 2013 $ 1,000 August 12, 2013
On June 20, 2013, Weilert transferred $120,000 to Free Market.
From September 9 through 12, 2013, Weilert made three payments to American Express totaling $27,000.
Plaintiffs learned of these transactions when defendants filed schedules and statements of financial affairs in the bankruptcy cases involving themselves, MD Inc. and Weilert FLP.
On January 7, 2014, defendants filed an opposition to plaintiffs' motion to dismiss the appeal that did not address the disentitlement doctrine, but argued a motion to dismiss based on a failure to file an appellate brief was premature.
On February 6, 2014, defendants filed a supplemental opposition to the motion to dismiss and requested sanctions against plaintiffs on the ground that the motion was frivolous. Again, defendants asserted a motion to dismiss for failure to file an appellant's opening brief was premature under California Rules of Court, rule 8.220(a).
On March 7, 2014, this court filed an order stating that defendants had failed to respond to the merits of the motion to dismiss and granted them 10 days leave to file such a response.
Defendants then filed an opposition that addressed the merits and was supported by a declaration of Weilert and a motion for judicial notice of various documents. Defendants' opposition asserted (1) the motion to dismiss was subject to a bankruptcy stay and (2) the facts did not support equitable relief under the disentitlement doctrine.
A few days after receiving this opposition from defendants, this court issued an order directing plaintiffs to respond to defendants' claim that a bankruptcy stay was in effect. Plaintiffs' reply stated the bankruptcy court had entered an order lifting the automatic stay as to this appeal in its entirety.
The bankruptcy court order referenced by the parties was signed by United States Bankruptcy Judge W. Richard Lee on October 10, 2013. The order states in relevant part: "1. The Stay is lifted to permit the parties to proceed to a final determination of claims from the Court of Appeals but not to enforce any judgment against the debtor or bankruptcy estate. Any affirmation of the judgment obtained shall be brought back to this Court for the proper treatment of claims under the Bankruptcy Code."
We interpret this order to mean that this court is not barred from addressing any issues necessary to resolve the appeal, including those issues presented by plaintiffs' motion to dismiss under the disentitlement doctrine. Therefore, we explicitly reject defendants' interpretation that the bankruptcy stay was not lifted as to the motion to dismiss.
Weilert's declaration in opposition to the motion to dismiss does not deny that any of the 47 transactions listed in the motion took place. Indeed, Weilert effectively admits the transfers occurred in the following statement: "[Plaintiffs] are substantially and materially wrong in the monetary amount they allege at page 8 of their motion seeking to dismiss my appeal. [Plaintiffs] reference an amount of $812,690.00. However, the actual amount is less than 1/3 of this amount. Without getting into the details of the various transfers, [plaintiffs] in effect re-calculated money twice or three times when the amount is the same money being transferred from one account to another."
In addition, Weilert's declaration included the following assertion: "The actions I took at all times relevant were done in good faith." He offers no explanation for how he could have been acting in good faith when transferring money in violation of the trial court's freeze order.
Based on our review of the evidence presented to support the motion to dismiss and the opposition papers (including the Weilert declaration), we conclude that Weilert willfully violated the trial court's freeze order on many occasions by transferring money.
Initially, we note defendants did not address the violations raised in the motion to dismiss in their first two sets of opposition papers. They addressed the violations and the application of the disentitlement doctrine only after this court issued an order directing them to do so.
Furthermore, Weilert's assertion that his actions were done in good faith is unconvincing because defendants have offered no explanation for (1) how the transfers could have been made without violating the trial court's orders or (2) how he acted with a pure heart and a head so empty that he did not realize he was violating the orders.
Weilert and Genevieve also filed an appeal from the freeze, turnover, assignment and charging orders entered by the trial court after the judgment. That appeal has been assigned case No. F067958 (Gwartz v. Weilert).
On May 13, 2014, plaintiffs filed a motion to dismiss the second appeal on the same grounds asserted in their motion to dismiss the first appeal.
We will grant that motion to dismiss in a separate order based on the rationale set forth in this opinion.
The motion to dismiss defendants' appeal is granted. Plaintiffs shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
Defendants' request for sanctions filed on February 6, 2014, is denied.
Kane, Acting P. J., and Peña, J., concurred.
Weilert FLP had filed its first bankruptcy petition (case No. 13-14036) on June 7, 2013. On July 18, 2013, the bankruptcy trustee filed a motion to dismiss the case, which the bankruptcy court granted in an order dated August 13, 2013.
