Lewis v. Superior Court
30 Cal. App. 4th 1850, 37 Cal. Rptr. 2d 63, 1994 Cal. App. LEXIS 1314 (1994)
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Rule of Law:
Under the Uniform Fraudulent Transfer Act, a transferee takes property in 'good faith' if they lack actual, subjective knowledge of the transferor's fraudulent scheme; this status is not defeated by constructive notice from a lis pendens that is either substantively improper or not indexed at the time of transfer. A recorded document provides constructive notice only after it has been properly indexed, and a title insurer's knowledge of title defects is not imputed to the insured buyer.
Facts:
- Randolph Shipley owned a residential property which he sought to sell.
- Robert F. and Josephine N. Lewis agreed to purchase the property from Shipley for $2.3 million in an all-cash transaction and opened escrow.
- While the Lewises were in escrow, Fontana Films, a creditor of Shipley, recorded a federal lis pendens against the property, alleging it was purchased with misappropriated funds.
- The county recorder recorded the lis pendens on February 24 but did not index it until February 29.
- The Lewises acquired title and their grant deed was recorded on February 28, one day before the lis pendens was indexed.
- The Lewises had no actual knowledge of any litigation involving Shipley or any claims against the property at the time of purchase.
- After closing the sale, the Lewises spent approximately $2.6 million on renovations to the property.
- The Lewises first learned of the litigation involving Shipley months later when they received a cross-complaint in the mail.
Procedural Posture:
- Fontana Films sued Randolph Shipley in federal court and recorded a lis pendens against his property.
- Folksam General Mutual Insurance Society also pursued claims against Shipley, eventually asserting a fraudulent conveyance claim against the Lewises.
- The Lewises filed a motion for summary judgment in the state trial court, arguing they were good faith purchasers.
- The trial court denied the Lewises' motion for summary judgment and their related motion to expunge Folksam's lis pendens.
- The Lewises then petitioned the Court of Appeal for a peremptory writ of mandate to compel the trial court to grant their motions.
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Issue:
Does a lis pendens that was recorded but not indexed until after a buyer acquired title provide constructive notice sufficient to defeat the buyer's status as a good faith purchaser for reasonably equivalent value under the fraudulent conveyance statute?
Opinions:
Majority - Woods (Fred), J.
No. A lis pendens recorded but not indexed until after a buyer acquires title does not provide constructive notice sufficient to defeat the buyer's 'good faith' status under the fraudulent conveyance statute. First, the statute requires the absence of actual, subjective participation in a fraudulent scheme, a standard which the 'fiction' of constructive notice cannot satisfy. Second, the underlying federal claim sought to impose a constructive trust as a means to collect money damages, which is not a 'real property claim' that can validly support a lis pendens; an improper lis pendens is a nullity and imparts no notice. Third, for a recorded document to provide constructive notice, it must be indexed so that it is discoverable. Since the lis pendens was not indexed until after the Lewises took title, it could not provide notice to them. Finally, a title insurer is not an agent of the insured, so any knowledge held by the title company is not imputed to the buyer.
Analysis:
This case significantly clarifies the 'good faith' requirement for purchasers under California's fraudulent transfer laws, firmly distinguishing it from the concept of a 'bona fide purchaser' in pure real property title disputes. By holding that good faith requires subjective, actual knowledge of fraud and cannot be defeated by constructive notice from a procedurally or substantively defective lis pendens, the court protects innocent buyers from undiscoverable claims. This decision reinforces the integrity of the public recording system by making indexing, not just recording, the critical event for imparting constructive notice. It also solidifies the legal principle that title insurers are independent contractors, not agents, thereby preventing the imputation of their knowledge to innocent insureds.
