Re: Blizzard Energy, Inc. v. Bernd Schaefers 17CVP-0266

Hearing: Motion for Stay/Motion to Vacate Sister State Judgment

Date: March 27, 2018

This action has an extensive procedural background, including an initial action filed in February 2015, in the Santa Barbara Superior Court, which was dismissed on the grounds of forum non conveniens in July 2015. That dismissal was not appealed. Prior to that ruling, the defendants in the Santa Barbara action filed suit against the Santa Barbara plaintiffs in a Kansas court, in an action arising out of the same transaction. The Kansas defendants filed a cross-complaint as well, all of which claims were dismissed before trial.

In September 2017, after two years of litigation and a two-week jury trial, the court in Kansas entered a final judgment against the defendants, including defendant Bernd Schaefers (“Defendant”) in favor of Plaintiff Blizzard Energy, Inc. (“Plaintiff”). The jury entered a verdict against defendants for fraud in the amount of three million, eight hundred twenty five thousand dollars ($3,825,000.00).

On September 25, 2017, Defendant filed a notice of appeal to the final judgment in Kansas. Under Kansas law, a defendant is required to post a supersedeas bond to stay execution of a final judgment pending appeal. (See K.S.A. § 60-123 (d).) Defendant has not requested a stay of enforcement of the final judgment or posted a supersedeas bond in the Kansas appeal.

On October 3, 2017, Plaintiff filed an Application for Entry of Sister-State Judgment from the Kansas Action (“Application”) with this Court, and a Notice of Entry of Judgment of Sister-State Judgment was issued. After repeated attempts over to serve Defendant personally and via notice and acknowledgment were unsuccessful, the Court issued an order allowing Plaintiff to be served by publication. On December 14, 2017, service by publication was completed.

On January 12, 2018, Defendant filed a Motion to Vacate Entry of the Sister State Judgment (“Motion to Vacate”), which Plaintiff opposes. Two months later, on March 13, 2018, the day before Plaintiff’s opposition to the Motion to Vacate was due, Defendant filed an Ex Parte Motion for Stay or Continuance (“Motion to Stay”), seeking to stay enforcement of the Kansas judgment and continue the Motion to Vacate pending resolution of the Kansas appeal pursuant to Code of Civil Procedure section 1710.50(a)(1). That section states that the court shall grant a stay of enforcement where an appeal from the sister state judgment is pending. (Code Civ. Proc., § 1710.50(a)(1).) Under that paragraph, enforcement shall be stayed until the proceedings on appeal have been concluded. (Id.) The court shall grant a stay of enforcement on such terms and conditions as are just. (Code Civ. Proc., § 1710.50(c).)

At the ex parte hearing the following day, the Court ordered that the hearing on the Motion to Stay be continued to March 27, 2018, concurrently with the Motion to Vacate, and allowed Plaintiff to file a written opposition by March 21, 2018. Plaintiff timely filed its opposition.

Defendant sets forth in his Motion to Stay that an appeal is pending in Kansas of the Kansas judgment. A letter from Defendant’s appellate attorney in Kansas estimates that a ruling will not occur for at least another seven months. Defendant’s motion argues that Defendant believes that the entry of the judgment is equivalent to the enforcement of the judgment in California, and he sets forth various consequences of enforcement. Defendant’s motion argues that the judgment “may very well be reversed on appeal.”

Plaintiff’s opposition to the Motion to Stay argues that pursuant to Code of Civil Procedure section 1710.50(c), the Court has broad discretion to fashion the terms of a stay, in particular by requiring the debtor to provide an undertaking in the amount the Court deems just. The amount of the undertaking may not exceed twice the amount of the judgment creditor’s claim. (Code Civ. Proc., § 1710.50(c)(1).) The factors the Court may consider in determining whether to require an undertaking include (i) the probability of a successful defense; (ii) the likelihood the debtor will conceal or transfer assets; (iii) whether the debtor has already posted a bond on appeal in the sister state; and (iv) whether the debtor prefers having his or her property held subject to levy rather than providing an undertaking. (See Law Rev. Comm’n Comment to Code Civ. Proc., § 1710.50.) Plaintiff argues that Defendant should be required to post such an undertaking in order to obtain a stay of execution.

Plaintiff first argues that Defendant has a low probability of a successful appeal, and incorporates by reference its opposition to the Motion to Vacate. It appears that Defendant’s appeal is based upon a purported ambiguity in the jury instructions in regard to section number 4, which related to imposition of punitive damages. In response to a motion after the verdict, the Kansas judge stated that he “regret[ted] the way Number 4 was worded,” but stated that he was certain that the jury understood when they answered “no” that they were deciding not to award punitive damages. The court further explained that the wording was proposed by plaintiffs and defendants did not object to the wording contemporaneously. (Exhibit 9 to Opposition to Motion to Vacate.) Plaintiff argues full faith and credit must be given to final orders, that the Kansas court was comfortable with the issue now raised on appeal, and that there is a low likelihood Defendant will prevail on appeal.

Plaintiff next sets forth that Defendant has not posted a bond in the Kansas appeal. Further, they argue that under California law, a bond or undertaking is required to obtain a stay of enforcement on appeal of a judgment or order for payment of money. (Code Civ. Proc., § 917.1.) Under that section, the undertaking “shall be for double the amount of the judgment or order unless given by an admitted surety insurer in which event it shall be for one and one-half times the amount of the judgment or order.” (Code Civ. Proc., § 917.1(b).) Plaintiff therefore requests that the Court order that Defendant post an undertaking of no less than five million seven hundred thirty-seven thousand five hundred dollars ($5,737,500), or one and one-half times the amount of the judgment, as a condition of any stay order.

Plaintiff next argues there is a high likelihood that Defendant will conceal or hide his assets. Plaintiff argues that Defendant has previously engaged in fraudulent activity, and cites a German newspaper article that alleges that reports that a German prosecutor confirmed that Defendant had “channeled off one million”. Plaintiff further argues that Defendant’s co-judgment debtor,
Valentin Alexandrov, has engaged in the systematic transfer or sale of his real property assets in California since the jury verdict was issued. Apparently in response, Defendant filed a declaration from Alexandrov setting forth that he had transferred title to property for financing reasons, not to avoid the judgment.

Plaintiff finally argues that Defendant has sufficient assets to secure an undertaking or bond. However, this is not a factor that the Court is required to consider.

Section 1710.50 gives broad discretion to the court to grant a stay of enforcement in the interests of justice. The burden is on the judgment debtor to show a need for the stay on ex parte or noticed motion. (See Law Rev. Comm’n Comment to Code Civ. Proc., § 1710.50.) Here is a case where Defendant had a full opportunity to litigate his claims before a jury, and the Court agrees that an undertaking should be required as a condition of the stay of execution of the Kansas judgment. If this were a California judgment, Defendant would be required to post an undertaking of at least one and one-half times the judgment in order to stay execution pending appeal, and no bond or undertaking has been posted in the Kansas appeal to protect Plaintiff. Moreover, while the Court cannot find that the newspaper article or the declaration of Defendant’s co-judgment debtor necessarily show that Defendant will attempt to hide assets, the Court finds it reasonable to believe that with a judgment of this amount, particularly in the case of a verdict for fraud, that there is at least some likelihood that Defendant will attempt to conceal or transfer assets. Defendant argues it will take at least seven months before a ruling on the Kansas appeal, and it is just that Plaintiff receive protection pending that appeal.

Defendant’s Motion to Stay is conditionally granted. Pursuant to Code of Civil Procedure section 1710.50(a)(1), enforcement of the sister state judgment is hereby stayed pending the final resolution of the appeal from that judgment in Kansas, upon the condition that Defendant post and file in this Court an undertaking in the amount of $5,737,500 by April 6, 2018. Defendant is ordered not to transfer any interests or assets, real, personal or otherwise, pending filing of the undertaking. The Court sets a Case Management Conference in this matter on April 9, 2018. Should Defendant fail to file the undertaking, enforcement of the Kansas judgment shall be stayed until determination of the Motion to Vacate, which will occur at the case management conference if necessary, pursuant to Code of Civil Procedure section 1710.50(a)(3).