Transferring Property in Violation of a Court Order is Not a Good Idea
The “right to alienate” (transfer) property is an important part of the legal “bundle of rights” regarding property ownership. But those rights, like most others, can be altered by court orders.
In a recent opinion filed by California’s Fourth Appellate District — Kirkeby v. Kahn — the court addressed a party’s repeated violation of a court order prohibiting the transfer of real property.
While the Kirkeby case is unpublished and therefore cannot be cited as precedent, it still provides a useful guidepost and reminder for parties in similar circumstances.
Facts: court order prohibits transfer of LLC’s real property in case alleging misappropriation; order repeatedly violated
Glenn and Anastasia Kirkeby filed a lawsuit against Lawrence Bodreau Burns arising from their LLC formed to run a drug and alcohol abuse rehabilitation facility, alleging multiple claims (both direct and derivative) arising from Burns’ alleged misappropriation of funds, assets, real estate, and business opportunities. After Burns married Anne Kahn during the litigation, the complaint was amended to add Kahn as a defendant.
The Kirkebys and Burns entered into two stipulated injunctions enjoining the transfer of two properties at issue in the claims. At that time, the properties were owned by two entities controlled by Burns.
Later, Burns violated the stipulated injunction by transferring title of one of the properties from his entity to his personal trust. Pursuant to a motion filed by the Kirkebys, the court found Burns in contempt. Yet, Burns failed to transfer the property back to the entity.
The Kirkebys filed another motion seeking to enforce compliance with the stipulated injunction. The court granted the motion and ordered Burns to reconvey the property back to the entity that owned it at the time of the injunction. Again, Burns failed to comply.
The Kirkebys then moved for terminating sanctions. The trial court granted the motion, issued terminating sanctions based on Burns’ repeated violation of court orders, and entered a default judgment against Burns. After Burns still failed to reconvey the property, the court granted the Kirkebys’ motion to have a court-appointee sign a quitclaim deed reconveying the property, and the property was finally reconveyed to Burns’ entity.
Meanwhile, Burns and Kahn divorced. The Kirkebys dismissed Kahn from the proceedings without prejudice based on her lack of assets to satisfy a judgment. Just two days after Kahn’s dismissal, Burns and Kahn finalized a judgment of marital dissolution in their divorce case, which provided that the property at issue would be transferred from Burns’ entity to Kahn “free and clear” of other interests. Pursuant to that agreement, Burns, as manager of his entity, transferred title of the property to Kahn by quitclaim deed.
After a bench trial on the issue of damages on the Kirkebys’ claims, the trial court found that “the evidence regarding intentional transfer of assets, sometimes in direct contravention of existing court orders, [was] abundant” and awarded the Kirkebys over $9 million in damages.
The Kirkebys filed another motion to compel compliance with the stipulated injunction, asserting that Burns had violated the injunction yet again by transferring the property to Kahn as part of the divorce. Kahn filed her own motion seeking to expunge the stipulated injunction for the property.
Trial court: motion to compel compliance with court’s prior order prohibiting transfer of property granted
The trial court entered judgment against Burns and found that he and the entity owning the property were alter egos of one another.
The court also granted the Kirkebys’ motion to compel compliance with the stipulated injunction and denied Kahn’s motion to expunge the injunction.
Kahn appealed the motion ruling.
Court of Appeal: trial court’s order affirmed
The Court of Appeal affirmed the trial court’s order, rejecting each of Kahn’s three arguments.
First, Kahn argued that her divorce agreement and judgment with Burns, which required the transfer of the property to her, was valid and took precedent over the trial court’s prior injunction orders. The Court of Appeal rejected this argument out of hand, noting that it had “no legal support.”
Second, Kahn argued that since she had been dismissed from the civil action the court lacked jurisdiction to order her compliance with the stipulated injunction. The Court of Appeal held that the dismissal was only without prejudice, the trial court retained subject matter jurisdiction, and Kahn waived any objection based on a lack of personal jurisdiction by re-inserting herself into the case by opposing the Kirkebys’ motion and filing her own motion regarding the stipulated injunction.
Third, Kahn argued that the stipulated injunction could not be enforced because it was not signed by Burns’ entity that held title to the property at the time of the injunction. The Court of Appeal held that because the trial court properly found that Burns and his entity were alter egos of one another, the injunction signed by Burns bound his entity too.
Lesson
Under the unpublished Kirkeby opinion, a party must comply with a court order prohibiting the transfer of property. This should come as no surprise. Weak arguments seeking to avoid the impact of a court order are usually doomed to fail.