Greta Curtis, a disbarred attorney, represented Ammec Investments in a lawsuit. As payment for her services, Ammec transferred a 5.774% interest in two Los Angeles real property parcels to Sisters in Law, LLC, a company owned by Curtis. Curtis then transferred the interest to Dr. Roots Herbs, LLC, another entity she controlled, which was later the debtor in a Chapter 7 bankruptcy case. Curtis also executed a deed of trust on the property to secure a debt owed to Vincent Thames. Ammec sued Curtis and the affiliated entities in state court, arguing the transfers were void because Curtis violated California Rules of Professional Conduct by failing to prepare a written fee agreement and failing to disclose conflicts of interest. The state court agreed, voiding the initial deed from Ammec to Sisters. Later, Ammec filed an adversary proceeding in the bankruptcy court to void the subsequent transfers to Curtis and the deed of trust. The bankruptcy court granted summary judgment to Ammec, and the Bankruptcy Appellate Panel affirmed. Curtis appealed to the Ninth Circuit.
The Ninth Circuit reviewed the summary judgment ruling de novo. The court first addressed Curtis's attempt to collaterally attack the state court judgment that voided the initial deed. The panel held that the state court judgment was final and enforceable against Curtis and the debtor entity because Curtis controlled the defense of the affiliated entities and shared the same litigation incentives. Full faith and credit principles prevented the bankruptcy court or the Ninth Circuit from reconsidering that judgment. Regarding the downstream transfers, the court applied California law which distinguishes between bona fide purchasers and non-bona fide purchasers when a deed is voidable. While a bona fide purchaser for value could take title, the burden of proof lies with the claimant to show they acquired the interest without notice of the prior infirmity. The court found that Curtis failed to present evidence that she was a bona fide purchaser. In fact, the record showed that Curtis's own unethical conduct rendered the initial deed voidable, and she was the sole owner and manager of the receiving entities, giving her actual notice of the deed's infirmity. Consequently, the transfers were void as to Ammec. The court also rejected Curtis's procedural arguments, noting that her failure to raise specific arguments in her opening brief forfeited them, and that the statute of limitations for attorney negligence did not apply to the claim under California Civil Code section 3412.
The decision confirms that attorneys cannot use affiliated entities to shield property transfers made for legal fees when those transfers violate professional conduct rules. It reinforces that an attorney controlling the receiving entity lacks standing to claim bona fide purchaser status. The ruling leaves open the question of whether a bankruptcy trustee could pursue different claims, as the court noted Curtis lacked standing to appeal on behalf of the trustee. The case serves as a warning that transfers made in violation of the duty to disclose conflicts or execute written fee agreements are vulnerable to being voided even years later.