Can Civil Conspiracy Be Asserted Against Some Who Assists The Debtor In Evading A Judgment? Yes, Says Optronics Court
This case starts with a price-fixing scheme to corner the U.S. market for consumer telescopes and ... More binoculars.
A California company called Optronics Technologies, Inc., but known as Orion Telescopes & Binoculars, brought an antitrust lawsuit against Ningbo Sunny Electronic Co., Ltd. The lawsuit alleged that Ningbo and some other companies had engaged in price-fixing for the U.S. market for consumer telescopes. Eventually, Orion won a $54 million judgment against Ningbo.
After the jury announced its verdict against Ningbo, Orion moved for a restraining order to keep Ningbo from transferring away its U.S. assets. In response to this motion, Ningbo's president filed a declaration with the court to the effect that Ningbo would not transfer any of its cash or other assets located in the U.S. to anywhere outside the U.S. Based on this declaration, the court denied Orion's motion for the restraining order.
But while all of this was going on, a company called Celestron Acquisition, LLC, had received certain inventory from Ningbo and thus Celestron owed Ningbo for that inventory. Under its contract with Ningbo, Celestron was required to pay Ningbo within 100 days of receiving the inventory.
The day after the jury verdict in Orion's favor, Orion's counsel sent a letter to Celestron's counsel warning Celestron not to assist Ningbo in transferring assets outside the U.S. But, just three days before the first day that Celestron was allowed to enforce its judgment against Ningbo, Celestron paid Ningbo nearly $4.2 million for the outstanding invoices ― sending the money to China.
About 10 days later, Orion served Celestron with a notice of levy for any moneys that Celestron was holding for Ningbo, and a few days after the the court entered an assignment order which required that all of Ningbo's accounts receivables be paid to Orion. Of course, by this time the $4.2 million cat was already out of the bag and nowhere to be found.
Later, Orion would discover that Celestron's payments to Ningbo were not yet due under the 100-day requirement, and that Ningbo had asked Celestron to "pay as much as possible this week", i.e., before Orion could serve its levy on Ningbo. There was also evidence that Ningbo's counsel and Celestron's counsel had spoken about "judgment enforcement".
The court sanctioned Ningbo for making its president's declaration in bad faith, noting that the evidence showed that it was not the ordinary business practice between Ningbo and Celestron for the latter to pay Ningbo early or on request. The court also ordered Ningbo to pay to Orion the $4.2 million that it had received from Celestron.
Two years later, Orion sued Celestron and Ningbo for a fraudulent transfer under the California Uniform Voidable Transactions Act (UVTA) and civil conspiracy. The complaint alleged that Celestron and its counsel were copied on filing in the antitrust litigation and also knew of the declaration filed by Ningbo's president with the court. The complaint further alleged that Ningbo's president e-mailed Ningbo's counsel, about "trying to find a way to circumvent the judgment" and wondering whether "it is possible that we ship to US customers through a third party in the future without having to pay Orion." Ningbo's counsel in response stated that Ningbo should collect as much of its accounts receivables as possible. Despite this, another Ningbo counsel the next day told the court at the hearing on the restraining order that, "we are unaware [of any]
judgment avoidance plan."
The complaint also alleged that Celestron's counsel set up a call with Ningbo's counsel, and only three days later Celestron made the $4.2 million payment. A conspiracy between Ningbo and Celestron was also alleged, whereby Ningbo sent a request to Celestron for payment knowing in advance that Celestron would honor it.
Celestron filed a demurrer to Orion's complaint. Several things were asserted in the demurrer, but of importance to us is that Celestron claimed that it could not be subject to the UVTA claim because it was neither a debtor (that was Ningbo) or a transferee from Ningbo (since it had paid Ningbo not the other way around). In response, Orion argued that Celestron owed a duty "not to commit an intention tort against anyone", but had done so by aiding and abetting Ningbo's evasion of the judgment.
The trial court sustained Celestron's demurrer as to Orion's UVTA claim. The trial court based its decision on the fact that Celestron was not the debtor (that was Ningbo) and the one transfer that it did make was to the debtor, not from the debtor. Further, the trial court held that Celestron had the right to act in its own business interest by paying its own business debt.
Orion appealed. This resulted in the opinion of the California Court of Appeals in Optronic Technologies, Inc. v. Celestron Acquisition, LLC, 108 Cal.App.5th 770 (Cal.App., Jan. 15, 2025), which we will next examine. The Court of Appeals considered several additional issues on appeal, but we will stick with the UVTA and civil conspiracy claims as those are the ones relevant to this article. Also, here the Court of Appeals is considering Celestron's demurrer, which necessarily presumes that the allegations of Orion's complaint are true, even if not yet proven.
The Court of Appeals agreed with Celestron that it could not be a transferee under the UVTA because it had paid Ningbo, not the other way around. This is plainly wrong for reasons that I will discuss more in the analysis section of this article below, but for now let's move on to the more interesting issue of civil conspiracy.
Here, Orion argued that even if Celestron could not be liable under the UVTA, Celestron could be liable for conspiracy and for aiding and abetting Ningbo. The Court of Appeals noted that previous California appellate opinion had recognized civil conspiracy and aiding and abetting liability for parties involved in a fraudulent transfer. Further, these causes of action have not been strictly tied to a UVTA claim.
While Celestron argued that it could not be liable to Orion under any theory because Celestron owed no duties to Orion, and further than Celestron was merely paying Ningbo's invoice which it owed, the Court of Appeals looked at the surrounding factors to determine that Orion had adequately plead that Celestron had gone out of its way to aid Ningbo's evasion of the judgment by paying the invoice before it was even due. Further, whether or not Orion could recover the $4.2 million against Celestron as that might constitute a "double recovery", Orion could still recover for its collateral losses of such things like attorneys fees, costs and expenses.
With all this, the Court of Appeals ultimately held that Celestron's demurrer should have been overruled by the trial court and the matter was reversed and remanded for that purpose.
ANALYSIS
The main takeaway from this case obviously goes to the civil conspiracy and aiding and abetting issue. A party who knowingly assists a debtor in evading a judgment can be liable to the creditor under those theories ― and those theories are not tethered to the fraudulent transfer issues. This has broad implications.
This application of liability to third-parties could apply, for instance, to a trust company that assists a debtor in distancing assets for the purpose of defeating creditors. It could apply to professionals who assist a debtor in evading a judgment. It could also apply to a financial firm that facilitates the transaction. The only immutable requirement seems to be that the party knowingly assist the debtor in evading the judgment.
To say that this makes post-judgment transactions very dangerous would be a considerable understatement. Effectively, anybody who assists the debtor in evading a judgment is potentially buying into the judgment themselves, or at the very least exposing themselves to the creditor's attorney fees to attempt to remedy the judgment evasion.
Some might argue that this has always been the case, but the relatively few appellate opinions have brought the issue into such stark contrast as in this case. We will have to see how far the appellate courts are willing to extend these theories. In the meantime, the best counsel is that if a debtor seeks assistance that might disfavor a creditor, run. It's just not worth it to get involved.
Going back to the fraudulent transfer issue, I stated earlier that I thought the Court of Appeals got this part wrong. Let me explain why I hold this view.
Celestron argued, the trial court agreed, and ultimately the Court of Appeals agreed, that there had been no transfer from Ningbo as the debtor to Celestron. Rather, the only transfer involved, in their view, was Celestron's payment of the judgment ― a one-way transaction.
What really happened here is that Ningbo held an obligation (or an account receivable if you prefer) that was not yet due against Celestron. When Celestron paid that obligation, Ningo essentially transferred the obligation back to Celestron and it was then cancelled out by the payment.
Normally, in ordinary commercial transactions, this does not result in a fraudulent transfer. The reason is that the transferee can assert the good faith for value defense of UVTA § 8. This defense requires that the transferee be both in good faith (which means something like "not in cahoots with the debtor to cheat creditors") and that reasonably equivalent value be exchanged by the parties. The problem here, of course, is that if Orion's allegations are to be believed, Celestron could not have been in anything like the good faith required by § 8.
An alternative theory would be that the fraudulent transfer occurred when Ningbo delivered the inventory to Celestron. At the time of this delivery, a claim existed against Ningbo (which would later be liquidated to the $54 million) and Orion was an existing creditor of Ningbo even if Orion did not yet hold a judgment. Recall that in fraudulent transfer, the "claim" arising when the liability arises, not when there is a judgment. In fact, the judgment is largely irrelevant to fraudulent transfer law other than to liquidate the amount of the debtor's liability to the creditor.
Under the Insolvency Test of UVTA § 5(a), a voidable transaction occurs if the debtor was insolvent at the time of the transfer and there was no reasonably equivalent value exchanged between the parties. The insolvency test would have been satisfied if the $54 million judgment rendered Ningbo insolvent (this I don't not know, but let's assume it is true). The reasonably equivalent value part would have been satisfied by Celestron's obligation to pay the $4.2 million, but as we have seen this obligation did not arise until 100 days after delivery of the inventory. Thus, it is possible that Orion might have met the insolvency test.
To this end, it should be recalled that in determining insolvency, UVTA § 2 provides that "Assets under this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has been transferred in a manner making the transfer voidable under this [Act]." If Orion had come up with proof that Ningbo was removing other assets to China to avoid a then-potential judgment, those assets would be taken off Ningbo's balance sheet as well.
Anyway, it is fun to speculate about such things but we will probably never know. It is all water under the bridge now anyway. The point is that in these voidable transaction cases it is often good to be creative if one is representing the creditor because you never know what might stick.
Another issue that Celestron argued, and the Court of Appeals seemed to struggle with, was the concept of "double recovery" insofar as Orion might recover the $4.2 million from both Ningbo and Celestron. This argument comes up all the time in fraudulent transfer litigation and it is, frankly, silly.
A voidable transaction action is a creditor's remedy and whatever the creditor recovers in terms of avoidance or a money judgment is credited against the judgment against the debtor. Thus, it is quite impossible for there to be a double recovery so long as this crediting properly occurs.
But, again, the main takeaway from this case is that anybody who gets involved with a debtor that is evading a judgment is skating on some really thin ice. We'll have to watch the appellate opinions that come down later to see just how thin that ice may be.
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