Ciolino et al v. Ryan et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 05-32933DM
JOHN A. and DANIELLE T. RYAN, 	)
)
Debtors. 	) Chapter 11
___________________________________)
NICKLOS CIOLINO, et al., 	) Adversary Proceeding
) No. 05-3428DM
Plaintiffs, )
)
v. 	)
)
JOHN A. RYAN, et al., 	)
)
Defendants. )
___________________________________)
E. LYNN SCHOENMANN, 	)
)
Plaintiff-in-Intervention, 	)
)
v. 	)
)
LAWRENCE CHAZEN, LAWRENCE J. CHAZEN)
REVOCABLE TRUST, WILLIAM STEWART, 	)
CRAIG JUDY, PATRICIA JUDY, LAWRENCE)
CAVALLINI, KATHY CAVALLINI and 	)
NICKLOS CIOLINO, et al., 	)
)
Defendants. )
___________________________________)
MEMORANDUM DECISION REGARDING MOTION FOR SUMMARY JUDGMENT
Defendants Lawrence J. Chazen, individually and as trustee of
the Lawrence J. Chazen Revocable Trust (collectively “Chazen”),
move for summary judgment against Plaintiffs Nicklos Ciolino,
Charles Ciolino, Daniel Delorenzi, Robert Aguilar, and Stephen
Signed and Filed: October 29, 2008
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 29, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 1 of 9

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1 The following discussion constitutes the court's findings
of fact and conclusions of law. 	Fed. R. Bankr. P. 7052(a).
2 Unless otherwise indicated, all chapter, section and rule
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and
to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037, as
enacted and promulgated prior to the effective date of The
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. 109-8, 119 Stat. 23.
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Daniele (collectively the “Ciolino Parties”) on their alleged
independent claim for conspiracy/aiding and abetting against
Chazen. 	Because there are no genuine issues of material fact in
dispute, and Chazen is entitled to summary judgment as a matter of
law, the Court hereby GRANTS Chazen’s motion.
I. FACTS1
This case has a long and contentious history. 	However, for
the purposes of this motion, the Court briefly recites only the
relevant facts. 	On January 28, 2005, the Ciolino Parties filed a
First Amended Complaint to Set Aside or Annul Fraudulent Transfers
and for Damages against several defendants, including Chazen, in
the Superior Court of the State of California, County of San
Mateo. 	The Ciolino Parties alleged that debtor John A. Ryan made
a number of fraudulent transfers of his assets to the other
defendants, and further asserted that all defendants, including
Chazen, conspired and/or aided and abetted in the wrongful conduct
to accomplish the transfers. 	After debtors John A. and Danielle
T. Ryan (“Debtors”) filed their voluntary petition under Chapter
11 2 on September 7, 2005, the state court fraudulent transfer
action was removed to this Court on October 4, 2005, commencing
the instant adversary proceeding. 	The matter did not proceed
beyond initial disclosures, and Ms. E. Lynn Schoenmann was
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 2 of 9

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appointed as Chapter 11 trustee (“Trustee”) of the Debtors’
bankruptcy estate on February 14, 2006.
On September 9, 2007, pursuant to Rule 7024, the Trustee
filed a Motion and Complaint to Intervene in the adversary
proceeding brought by the Ciolino Parties to recover or avoid the
alleged fraudulent transfers by Debtors under section 544(b), and
Cal. Civ. Code §§ 3439.04(A), 3439.04(B), and 3439.05. 	The
Ciolino Parties were not named in the Trustee’s moving papers.
This Court granted Trustee’s motion on October 17, 2007.
After the parties initially stated they would maintain a
status quo while awaiting the result of another matter on appeal
from this Court to the Ninth Circuit, Chazen apparently changed
course and filed a Motion for Summary Judgment on August 19, 2008.
During certain discovery disputes, the Ciolino Parties maintained
they hold a claim, independent from Intervener-Plaintiff Trustee,
against Chazen for conspiracy/aiding and abetting of the
fraudulent transfers. 	In the motion, Chazen asserted that the
Ciolino Parties did not retain the conspiracy aspect of their
fraudulent transfer claim because: (1) California law does not
recognize conspiracy as an independent cause of action; and (2)
there was no evidence of a conspiracy between Chazen and the
Debtors. 	A hearing on Chazen’s motion was set for September 16,
2008.
Trustee filed a Rule 7056(f) motion on September 2, 2008,
seeking additional discovery against Chazen and Debtor John Ryan,
which served as a timely opposition to Chazen’s motion. 	This
Court granted Trustee’s motion on September 12, 2008, and the
summary judgment hearing was rescheduled for December 19, 2008.
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 3 of 9

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The Ciolino Parties did not file a timely opposition to
Chazen’s motion. 	On September 24, 2008, counsel for the Ciolino
Parties filed a Declaration in Support of Joinder in Trustee’s
56(f) Motion, for Leave to File Opposition to Chazen’s Motion for
Summary Judgment, and Request for Hearing on Chazen’s Motion for
Summary Judgment on December 19, 2008. 	Chazen filed a Response to
the declaration on September 25, 2008. 	Upon consideration of the
pleadings filed by both parties, this Court denied the Ciolino
Parties’ counsel’s declaration, and took under advisement whether
as a matter of law Chazen was entitled to summary judgment on the
Ciolino Parties’s claim for conspiracy/aiding and abetting.
II. ISSUE
Do the Ciolino Parties have an independent claim for
conspiracy/aiding and abetting against Chazen?
III. DISCUSSION
A. 	Summary Judgment Standard
Summary judgment is properly granted when there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. 	Rule 7056(c).
B. 	Violation Of California’s Uniform Fraudulent Transfer
Act Is Tortious Conduct Which Supports A Claim For
Conspiracy or Aiding And Abetting.
Some jurisdictions hold that a violation of the fraudulent
transfer law does not constitute an independent tort. 	Therefore,
if civil conspiracy under state law requires an independent tort,
then a conspiracy claim cannot be maintained in those
jurisdictions where a violation of the fraudulent transfer laws
does not constitute a tort. 	However, California courts have held
that a fraudulent transfer is tortious conduct, and an act for
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which fellow conspirators can be held liable in connection
therewith. 	Filip v. Bucurenciu, 129 Cal. App. 4th 825, 837 (3d.
Dist. 2005)(“In fraudulently transferring property, tortious
conduct occurred.”); See In re B.L. Jennings, Inc., 373 B.R. 742
(Bankr. M.D. Fla. 2007)(violation of California’s Uniform
Fraudulent Transfer Act is tortious conduct that will support a
conspiracy claim, relying on Filip decision).
Here, in their state court action, the Ciolino Parties pled
“Conspiracy/Aiding and Abetting.” 	California courts recognize
that conspiracy and aiding and abetting are closely allied forms
of liability. 	Janken v. GM Hughes Elec.s, 46 Cal. App. 4th 55, 78
(2d. Dist. 1996)(“A conspiracy generally requires agreement plus
an overt act causing damage. 	Aiding and abetting requires not
agreement, but simply assistance. 	The common basis for liability
for both conspiracy and aiding and abetting, however, is concerted
wrongful action.”). 	Therefore, the Court treats the Ciolino
Parties’ claim for conspiracy/aiding and abetting as one in the
same.
C. 	California Law Does Not Recognize A Cause Of Action
For Civil Conspiracy Or Aiding and Abetting.
Under California law, there is no separate and distinct tort
cause of action for civil conspiracy. 	Allied Equip. Corp. v.
Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510-511 (1994). 	See
Filip at 837 (under California law, civil conspiracy is not a
cause of action but rather a theory of joint liability imposed on
persons who, although not committing a tort themselves, share with
the immediate tortfeasors a common plan or design in its
perpetration); and see Wyatt v. Union Mortgage Co., 24 Cal. 3d
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3 Section 544(b)(1) provides in relevant part, “. . .[T]he
trustee may avoid any transfer of an interest of the debtor in
property . . . that is voidable under applicable law by a creditor
holding an unsecured claim.”
4 To avoid the transfer from Debtors to the several
defendants, Trustee relies on California’s Uniform Fraudulent
Transfer Act (“UFTA”), the same statute invoked by the Ciolino
Parties in their state court action.
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773, 784 (1979)(holding same).
In other words, the gravamen or gist of the action for a
civil conspiracy is not the conspiracy itself, but the underlying
tort which, absent the conspiracy, would give rise to a right of
action. 	Therefore, without the existence of an underlying tort, a
claim for conspiracy or aiding and abetting cannot stand.
D. 	Because Trustee Succeeded To The Underlying Tort Of
Fraudulent Transfer, The Ciolino Parties Have No
Independent Claim for Conspiracy/Aiding And Abetting.
Where a trustee has been appointed, she or he assumes
complete control of litigation concerning the bankruptcy estate.
Meyer v. Fleming, 327 U.S. 161, 165-166 (1946)(trustee has the
authority and discretion to initiate an action, pursue an action
previously initiated, intervene, settle or dismiss).
Section 544 3 commonly referred to as the "strong arm clause,"
allows a trustee to prosecute fraudulent transfer actions under
state law that could have been prosecuted by one of the debtor's
actual unsecured creditors. 4 	Although the Ciolino Parties are
presumably the creditors with grounds to avoid the alleged
fraudulent transfers against all defendants under California’s
UFTA, the commencement of the bankruptcy case gave the Trustee the
right under section 544(b) to pursue that action to the exclusion
of all creditors. 	See In re Berg, 376 B.R. 303, 311 (Bankr. D.
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 6 of 9

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5 Since Trustee is the proper party to avoid the allegedly
fraudulent transfers, it would appear to follow that she too is
the proper party to assert the related claim for conspiracy/aiding
and abetting. 	Trustee has not alleged a claim for conspiracy or
aiding and abetting. 	However, even if she had, Trustee lacks
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Kan. 2007)(citing In re Integrated Agri, Inc., 313 B.R. 419, 427
(Bankr. C.D. Ill. 2004); and see Matter of Leonard, 125 F.3d 543
(7th Cir. 1997)(creditor who filed a prepetition UFTA suit against
defendant who then filed Chapter 7, which suit was removed to
bankruptcy court by the Chapter 7 trustee, had no continuing
rights or interest in the suit).
Therefore, once Debtors filed their petition, the Trustee
stepped into the shoes of the Ciolino Parties and was given the
exclusive power to avoid the allegedly fraudulent transfers under
California law against the defendants.
Even though the Ciolino Parties are no longer asserting the
fraudulent transfer action, they continue to maintain that they
have an independent claim for conspiracy/aiding and abetting.
They do not. 	Because the Trustee succeeded to the cause of action
to avoid the allegedly fraudulent transfers under section 544(b)
and Cal. Civ. Code § 3439 et. seq., there is no underlying tort to
support the conspiracy/aiding and abetting claim. 	Without the
underlying tort of fraudulent transfer, under California law the
Ciolino Parties have no independent claim against defendant Chazen
for a conspiracy to commit, or aid and abet in, the tortious act
of fraudulent transfer. 	See Filip supra.
Accordingly, as a matter of law, the Ciolino Parties have no
independent claim for conspiracy or aiding and abetting against
defendant Chazen, and Chazen is entitled to summary judgment. 5
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standing to assert such a claim. 	See In re Hamilton Taft & Co.,
176 B.R. 895, 902 (Bankr. N.D. Cal. 1995) aff’d on other grounds,
114 F.3d 991 (9th Cir. 1997)(trustee is not authorized to pursue
every action that creditors of the debtor might pursue, such as
recover civil damages from those who conspire to transfer debtor’s
property to hinder, delay, or defraud creditor; section 544(b)
permits trustee only to avoid a fraudulent transfer, not to assert
a claim for aiding and abetting a fraudulent transfer.
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IV. CONCLUSION
Therefore, based on the foregoing reasons, the Court GRANTS
Chazen’s Motion for Summary Judgment. 	A separate Order to that
effect is being issued concurrently with this Memorandum Decision.
***END OF MEMORANDUM***
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 8 of 9

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COURT SERVICE LIST
T. Michael Turner, Esq.
236 West Portal Ave., #53
San Francisco, CA 94127
James F. Beiden, Esq.
840 Hinckley Rd., Ste. 245
Burlingame, CA 94010
Iain A. Macdonald, Esq.
Macdonald & Associates
Two Embarcadero Center, Ste. 1670
San Francisco, CA 94111
Laurie Hepler, Esq.
Carroll, Burdick & McDonough
44 Montgomery St., #400
San Francisco, CA 94104
Thomas F. Koegel, Esq.
Folger Levin & Kahn LLP
275 Battery St., 23rd Fl.
San Francisco, CA 94111
Michele L. McGill, Esq.
Law Offices of Michele L. McGill
220 Sansome St., 6th Fl.
San Francisco, CA 94104
Desmond B. Tuck, Esq.
Law Offices of Desmond B. Tuck
177 Bovet Rd., Ste. 600
San Mateo, CA 94402
Michael Mazzocone, Esq.
400 Montgomery St., Ste. 200
San Francisco, CA 94104
Michael D. Liberty, Esq.
Law Office of Michel D. Liberty
1290 Howard Ave., Ste. 303
Burlingame, CA 94010
Case: 05-03428 Doc# 69 Filed: 10/29/08 Entered: 10/29/08 11:40:57 Page 9 of 9