Trial attorneys are familiar with the three common standards of appellate review: substantial evidence, abuse of discretion, and de novo. But what standard of review applies when an unsuccessful plaintiff appeals? When the plaintiff is arguing that the trial court should have found its evidence more persuasive, a fourth standard of review applies, something like a summary-judgment standard, in which the appellate court must be satisfied the plaintiff's evidence is so compelling that the plaintiff is entitled to a finding as a matter of law. This is a very difficult burden to overcome, and so it is rarely attempted, and even more rarely met.
But the plaintiff met the high finding-compelled-as-a-matter-of-law standard in King v. May-Wesely (D5 Oct. 22, 2021) 2021 WL 4929912 (no. F080224) (nonpub. opn.). The plaintiff was the holder of a $12 million judgment against the defendant judgment-debtor, and alleged the debtor had engaged in fraudulent transfers of his wealth. The trial court entered a judgment for the debtor, finding the plaintiff failed to adduce any evidence of fraudulent intent. But the Court of Appeal held the evidence compelled a judgment for the plaintiff as a matter of law.
Failure-of-Proof Determinations and the Finding-Compelled-as-a-Matter-of-Law Standard of Review:
Here is how the court described the standard of review that applies to a trial court's determination that a party did not carry its burden of proof:
“[I]t is misleading to characterize the failure-of-proof issue as whether substantial evidence supports the judgment.... [¶] [W]here the issue on appeal turns on a failure of proof at trial, the question for a reviewing court becomes whether the evidence compels a finding in favor of the appellant as a matter of law. [Citations.] Specifically, the question becomes whether the appellant's evidence was (1) ‘uncontradicted and unimpeached’ and (2) ‘of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.’ ” (In re I.W. (2009) 180 Cal.App.4th 1517, 1528; see Dreyer's Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828, 838.)
"Thus, the finding-compelled-as-a-matter-of-law standard applies to a trial court's determination that a plaintiff failed to prove a particular element of a cause of action."
Here is another statement of the standard as compared with the substantial-evidence standard:
The substantial evidence standard “ ‘is typically implicated when a defendant contends that the plaintiff succeeded at trial in spite of insufficient evidence.’ ” (*Sonic*** Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465; In re I.W. (2009) 180 Cal.App.4th 1517, 1528, disapproved of on other grounds by Conservatorship of O.B. (2020) 9 Cal.5th 989.) “ ‘In the case where the trier of fact has expressly or implicitly concluded that the party with the burden of proof did not carry the burden, the question for a reviewing court becomes whether the evidence compels a finding in favor of the appellant as a matter of law.’ ” (Dreyer's Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828, 838.)
Thus, on appeal, the plaintiff-appellant has to meet something like a summary-judgment standard by establishing its evidence is so overwhelming and uncontradicted that the plaintiff was entitled to a judgment as a matter of law. This is a very difficult standard to establish.
The Defendant's Stipulation to Insolvency and Transfers Lacking Reasonably Equivalent Value Established Constructive Fraudulent Transfers as a Matter of Law:
The plaintiff sued for both actual and constructive fraudulent transfers. The 2015 Uniform Voidable Transactions Act (UVTA; Civ. Code, §§ 3439–3439.14) makes a transfer voidable as to present and future creditors if it was made “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” (§ 3439.04, subd. (a)(1).) Even without actual fraudulent intent, a transfer is voidable as to present creditors under the constructive fraud test. (Ahart, Cal. Practice Guide: Enforcing Judgments and Debts (The Rutter Group 2021) ¶ 3:326, p. 3-131 (Enforcing Judgments).) Subdivision (a) of section 3439.05 provides a transfer may be voidable where the transfer was made or obligation was incurred when the debtor does not receive reasonably equivalent value in exchange, and at a time when the debtor was insolvent.
After trial, the trial court found the plaintiff had failed to adduce any evidence of defendant's fraudulent intent. But the Court of Appeal noted this did not address the plaintiff's claim for constructive fraud. As to that theory, the defendant had stipulated that his obligation on the judgment always exceeded his assets. The Court of Appeal held this alone established insolvency as a matter of law.
As to the other element to establish constructive fraud, the court held that the defendant's transfer of his shares in his bee-keeping business to his wife for no consideration was without reasonably equivalent value in exchange. Similarly, his transfer of $170,000 in cash for a mere 2% interest in a house was not reasonably equivalent value in exchange.
The court reversed and remanded to the trial court to enter a judgment voiding the transfers.
Tip: If you are the successful defendant responding to the plaintiff's appeal, keep the finding-compelled-as-a-matter-of-law standard in mind. Unsuccessful plaintiffs sometimes think the substantial-evidence standard of review applies. But as the authorities indicate, this is not only incorrect, it is misleading. It is not enough for the plaintiff to point to the defendant's evidence as insubstantial: the plaintiff must show it met its burden by uncontradicted and unimpeached evidence. This almost never happens.
Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. His appellate practice covers all of California's appellate districts and throughout the Ninth Circuit, with appellate attorneys in offices in Orange County and Monterey County. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.