Case Number:: 107CV090284
Case Name:: Stevens vs. Wade, Jr., et al
Motion/Application for an Order to Apply Judgment Debtor’s Right to Money or Property to Satisfaction of Statutory Lien

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1. Summary of Facts.

Moving party Campeau Goodsell Smith, L.C. (“CGS”) is a judgment creditor of Arlene Stevens (“Stevens”) in Case # 1-11-CV-191788 (Campeau Goodsell Smith, L.C. v. Arlene Stevens, et al). Arlene Stevens, in turn, is a judgment creditor of Booker T. Wade, Jr. in Case # 1-07-CV-090284 (Stevens v. Wade, et al).

On 22 March 2011, CGS obtained a clerk’s judgment against Stevens in Case # 1-11-CV-191788 in the amount of $81,573.60 (“the CGS Judgment”). On March 25, 2011, CGS filed a notice of judgment lien under Case # 1-07-CV-090284. According to an amended notice of lien filed by CGS on January 5, 2015, the CGS Judgment has now reached a total of $238,230.42 after court approved costs and post-judgment attorney’s fees.

On June 13, 2014, judgment based on a settlement agreement was entered in favor of Stevens and against Wade in Case #1-07-CV-090284 (“the Stevens Judgment”).

Rossi, Hamerslough, Reischl & Chuck (“RHRC”) and Stephen S. Fry (“Fry”) jointly represent Stevens in Case # 1-07-CV-090284. According to the declarations of CGS’s counsel William J. Healy, filed on January 5, 2015 and January 27, 2015, RHRC and Fry may assert lien claims regarding the Stevens Judgment in the amounts (as of December 10, 2014) not exceeding $535,000 and 65,000, respectively. The December 4, 2014, December 30 2014, and January 27, 2015 Healy declarations also indicate that RHRC holds approximately $645,000, and Fry approximately $174,000, in trust accounts for Stevens.

On December 4, 2014, CGS filed the instant motion/application under Case # 1-07-CV-090284 seeking an order to apply Stevens’ rights to money or property held by RHRC and Fry to satisfaction of CGS’s judgment lien.

On January 21, 2015, RHRC, acting on behalf of Stevens, filed an opposition to the motion stating that CGS’s motion was premature for the following reasons: 1) issues still remain between Stevens and Wade arising out of the Stevens Judgment including possession of the Palo Alto condominium, a claim by the homeowners’ association for payment of HOA dues, and a potential claim by Wade for a homeowner’s exemption against that property; 2) Wade continues to file motions in the personal bankruptcy that he filed before the Stevens Judgment was entered; and 3) Stevens still faces claims by the Small Business Administration (“SBA”) in the amount of over a million dollars, and the priority of that claim in relationship to the CGS claim has not been adjudicated.

RHRC argues that Stevens’ ability to resolve these outstanding issues is dependent on the continued representation of RHRC; and her ability to pay RHRC is dependent on her right to the funds that CGS is seeking to apply to satisfaction of its judgment lien.

Furthermore, RHRC states that the funds in dispute are subject to attorney lien rights based on UCC filings by RHRC and Fry. RHRC’s lien rights are also provided for in the fee agreement with Stevens. It is not known if Fry’s fee agreement with Stevens also included a similar contractual lien right. RHRC has filed a declaratory relief action to establish its lien right, by naming CGS, SBA, and Stevens as defendants.

Based on the outstanding issues relating to enforcement of the Stevens Judgment and the competing lien claims between CGS, SBA, RHRC, and Fry, RHRC contends that the instant application by CGS is premature and should be denied.

CGS filed a reply to RHRC’s opposition on January 27, 2015. Booker T. Wade, Jr., the judgment debtor in the Stevens Judgment, also filed an opposition to CGS’s motion on January 2015 30,. CCP 1005(b) requires all papers opposing a motion to be filed with the court and a copy served on each party at least nine court days before the hearing. The Court does not need to consider Wade’s opposition papers, as they are filed untimely.
2. Legal Standards.

“Under the judgment lien statutes, ‘[a] judgment creditor who has a money judgment against a judgment debtor who is a party to a pending action or special proceeding may obtain a lien [on the rights of the judgment debtor to money or property under any judgment subsequently procured in the action or proceeding] to the extent required to satisfy the judgment creditor’s money judgment.’ To obtain a judgment lien under these statutes, ‘the judgment creditor shall file a notice of lien and an abstract or certified copy of the judgment creditor’s money judgment in the pending action or special proceeding.’” (Brown v. Super. Ct. (2004) 116 Cal. App. 4th 320, 326; citing Code of Civil Procedure, § (hereafter “CCP”) 708.470(a) and (b).)

Once created as such, a lien “[…] may be enforced by any applicable procedure: (a) After the judgment subject to the lien is entered and the time for appeal from the judgment has expired. (b) If an appeal is filed from the judgment subject to the lien, after the appeal is finally determined.” (CCP 708.480.)

“ ‘A lien in favor of an attorney upon the proceeds of a prospective judgment in favor of his client for legal services rendered … may be created either by express contract … [citations] or it may be implied if the retainer agreement between the lawyer and client indicates that the former is to look to the judgment for payment of his fee [citations].’ (Cetenko v. United California Bank [(1982)] 30 Cal.3d [528, 531.]) ‘An attorney’s lien is created and takes effect at the time the fee agreement is executed.’ (Carroll v. Interstate Brands Corp. (2002) 99 Cal.App.4th [1168,1175.]) ‘Unlike a judgment creditor’s lien, which is created when the notice of lien is filed [citation], an attorney’s lien is a ‘secret’ lien; it is created and the attorney’s security interest is protected even without a notice of lien. [Citations.]” (Brown, supra, p. 327.)

“[W]hen a trial court presented with an application under section 708.470 has notice of an attorney’s claim of a contractual lien against the proceeds of the judgment that, if valid, would have priority over the judgment lien that is the subject of the application, the trial court must take all relevant circumstances—including the potential existence of a senior lien—into account in exercising its discretion whether to grant or deny the application. Moreover, the court must bear in mind that the party making the application bears the burden of persuading the court the application should be granted and the judgment proceeds applied to satisfy the judgment creditor’s lien, notwithstanding the attorney’s potentially senior claim of a lien on those proceeds.” (Id., p. 335.)

Here, CGS is a judgment creditor of Stevens by virtue of its March 22, 2011 judgment against Stevens. Based on that judgment, CGS obtained a lien on Stevens’ right to money under the Stevens Judgment when it filed its notice of lien under the judgment lien statutes on March 25, 2011. The Stevens case has concluded by the entry of judgment on June 13, 2014. The notice of appeal filed by Wade against this judgment has been dismissed and a Remittitur filed on December 1, 2014. Therefore, CGS has the right to file this motion under CCP 708.470(a) and 708.480(a) and (b).
3. Discussion.

There is no fundamental disagreement between the parties to this motion regarding the factual circumstances of the case. Both sides acknowledge the existence of funds held in trust account under the Stevens Judgment, and that those funds are subject to judgment liens by CGS and SBA as well as attorneys’ liens by RHRC and Fry.

RHRC opposes CGS’s motion only for its timing. RHRC argues that CGS’s motion is premature for two main reasons. First, there are outstanding issues relating to the enforcement of the Stevens Judgment that would require continued representation of Stevens by RHRC for their resolution. Stevens needs those funds to have the continued services of RHRC in relation to enforcement of the judgment. Second, the Stevens Judgment is subject to attorneys’ lien by RHRC and Fry. RHRC has brought a separate action for declaratory relief in order to obtain determination of its contractual lien right. Therefore, releasing funds from the Stevens Judgment at this point will frustrate resolution of these ongoing issues.

The following quote from RHRC’s opposition memorandum sums up its arguments: “Public policy and equity do not support that Stevens should be deprived of legal representation, or for that matter, her attorneys be deprived of being paid for that representation, when the total amount of those fees and costs have not yet been determined.” (Memorandum of points and authorities in opposition to motion, filed 21 January 2015, p.5, Lns. 2-5.) RHRC relies on the Brown and Pangborn cases to support its arguments.

On the other hand, CGS maintains that the Stevens Judgment is not subject to any stay or stay of enforcement or appeal. As a result, CCP 708.470 and 708.480 allow CGS to bring this motion and obtain a court order for release of the funds until full satisfaction of its judgment lien. CGS acknowledges the existence and potential seniority of RHRC’s and Fry’s attorneys’ liens over the Stevens Judgment. CGS further proposes “carve-outs” or “set-asides” out of the funds in a bid to accommodate the potential or actual amounts of attorneys’ lien claims by RHRC and Fry. CGS maintains that the funds available under the Stevens Judgment are sufficient to meet RHRC’s and Fry’s attorneys’ liens as well as CGS’s judgment lien. CGS also claims that its judgment lien (filed on March 25, 2011) is senior to SBA/USA’s judgment lien (filed on September 11, 2013).
A. Outstanding Issues with Respect to Enforcement of the Stevens Judgment.

RHRC argues that releasing funds from the Stevens judgment in satisfaction of CGS’s judgment lien is premature, because Stevens needs those funds to ensure continued representation by RHRC in relation to enforcement of the judgment. In particular, RHRC invokes potential litigation in respect of the Palo Alto condominium, which was ordered to be transferred to Stevens’ name under the Stevens Judgment, continued motion filings by Wade in Bankruptcy Court, claims by SBA/USA against Stevens. RHRC recites quotations from Pangborn in support of its argument.

RHRC’s reliance on Pangborn is unavailing in this case for three main reasons. First, in Pangborn the issue of priority between a judgment lien and attorneys’ contractual lien was disputed between the parties, and the court’s decision addressed that as the main issue. Whereas, in the case at hand, CGS never disputed the potential seniority of RHRC’s and Fry’s attorneys’ liens. Instead, CGS is proposing a mechanism to accommodate the attorneys’ lien rights while exercising its own judgment lien right.

Second, Pangborn cross-complained against multiple parties in a single action, and settled only with one. The litigation was still going on with the remaining parties that have not settled. Thus, in holding that the settlement funds should be available to finance the litigation, the court was referring to a not yet resolved litigation in the pre-judgment stage.

What happened in this case is what commonly happens in multiple-party litigation: Debtor, WKA’s client, managed to settle its claim against one party, and such settlement proceeds then became available to fund Debtor’s ongoing litigation against the nonsettling party. As is clear from the record here, Debtor is still involved in the same litigation that resulted in the creation of the settlement fund, and WKA is still representing Debtor against ICW. Until that litigation is finally resolved, and WKA’s related fees and costs have been billed and paid for, any proceeds from such litigation must remain subject to WKA’s contractual lien. (Pangborn, supra, p.1055)

The only parties to the present case are Stevens and Wade. This case has resolved through a judicially supervised settlement agreement and subsequent entry of judgment on June 13, 2014. The Court of Appeal dismissed Wade’s notice of appeal on September 26, 2014, and a Remittitur was filed on December 1, 2014. On October 10, 2014, the Bankruptcy Court also entered an order on motion for relief from stay to seek to enforce judgment in state court, granting Stevens relief from stay. Thus, the Stevens judgment and any appeal are final. There is no stay either from the Bankruptcy Court, the Court of Appeal, or this Court barring enforcement of the Stevens Judgment at this point. Therefore, in this case, there is no ongoing litigation comparable to the one referenced by the Pangborn court, because the litigation in this case has resolved with finality.

The argument that Stevens will need the funds to finance attorneys’ fees in relation to the Palo Alto condominium is unavailing. Especially in view of CGS’s representations, if the Palo Alto condominium has negative equity, then pursuing any action in realization of rights in respect of that property may not even be a wise decision. It would be throwing good money after bad money, and that would unfairly prejudice the interests of CGS by wasting the funds through increasing costs and attorney fees. Even if that decision is said to be Stevens’ prerogative, there is no justification to apply the Stevens Judgment funds to litigation involving SBA or HOA, who are not even parties to the present case. The Pangborn decision authorized utilization of settlement funds to ongoing litigation, because there were parties in the same case who had not yet settled with Pangborn and the litigation was pending in that respect. That is not the case here.

Finally, it is not clear how RHRC intends to conduct enforcement of the Stevens Judgment in view of the restrictions imposed by CCP 708.440(a), which states:
Except as provided in subdivision (c) of Section 708.410, unless the judgment creditor’s money judgment is first satisfied or the lien is released, the judgment recovered in the action or special proceeding in favor of the judgment debtor may not be enforced by a writ or otherwise, and no compromise, dismissal, settlement, or satisfaction of the pending action or special proceeding or the judgment procured therein may be entered into by or on behalf of the judgment debtor, without the written consent of the judgment creditor or authorization by order of the court [….]

Even if RHRC may seek a court order under CCP 708.440(b), or obtain the consent of the judgment creditors for the purpose of enforcing the judgment, this cannot by itself act as a bar to satisfaction of the judgment liens in this case.
B. RHRC’s Pending Declaratory Relief Action.

The second ground on which RHRC describes CGS’s motion as premature is the pending declaratory relief action it filed against CGS, SBA/USA, and Stevens. There is no dispute as to the potential seniority of the attorneys’ liens. CGS does not only acknowledge the existence of potentially senior attorneys’ liens on the Stevens Judgment, but it also offers to accommodate those liens by offering to “carve-out” or “set-aside” funds sufficient to meet the actual/potential balances of those liens.

RHRC makes a counter-proposal by offering to stipulate certain terms in the prosecution of its declaratory relief action and the post-judgment actions in this case, with a view to facilitate the quick resolution of the matter. It also argues that there will not be any prejudice to CGS’s interest, because the funds to pay CGS are being held by RHRC and Fry, and will not be disbursed without a court order or agreement.

CGS’s concern is that delaying satisfaction of its judgment lien until RHRC finalizes the outstanding issues it listed in its opposition and the pending declaratory relief action would result in severely depleting the funds available for satisfaction of CGS’s lien. This is a valid concern since RHRC will continue charging its fees and costs against the same fund, and RHRC’s lien apparently has seniority over CGS’s.

Both CGS and RHRC rely on the Brown decision to support their arguments. Neither party is claiming that Brown mandates one outcome or the other. Instead, as recited above,

[W]hen a trial court presented with an application under section 708.470 has notice of an attorney’s claim of a contractual lien against the proceeds of the judgment that, if valid, would have priority over the judgment lien that is the subject of the application, the trial court must take all relevant circumstances—including the potential existence of a senior lien—into account in exercising its discretion whether to grant or deny the application. Moreover, the court must bear in mind that the party making the application bears the burden of persuading the court the application should be granted and the judgment proceeds applied to satisfy the judgment creditor’s lien, notwithstanding the attorney’s potentially senior claim of a lien on those proceeds.” (Brown, supra, p.335.)

Therefore, in exercising its discretion, the court should take into account the interests of RHRC and Fry in securing their potentially senior attorney/contractual liens, and also the interests of CGS in satisfying its judgment lien without undue delay and unnecessary or unreasonable depletion of the funds available for this purpose. This Court has notice of the potentially senior attorneys’ liens by RHRC and Fry.

Here, CGS preempted the opportunity for the Court to consider how the RHRC and Fry claims were to be evaluated vis-à-vis CGS’s application. CGS not only acknowledges RHRC’s and Fry’s claims, but it also offers to accommodate those claims to their fullest extent by “carving-out” or “setting-aside” sufficient funds to meet their demands. RHRC’s claim is confirmed by itself to be in excess of $525,000 (see memorandum in opposition, filed 21 January 2015, p.2, Lns. 25-27). Although Fry has not filed an opposition to the motion, CGS’s counsel represented that he has confirmed with Fry that his claim is approximately $65,000. That means there will be nearly $230,000 remaining balance after RHRC’s and Fry’s claims are set-aside. There is no reason why CGS should not be able to satisfy its judgment lien from this remaining balance.

The Brown court reversed the lower court’s grant of a similar motion because in that case the lower court granted judgment creditor’s motion without giving the attorney lien claimant the chance to litigate his claim, and without taking into account the attorney lien claimant’s potentially senior claim. In the present case, however, CGS is conceding any argument with regard to the existence, nature, and extent of the potential lien held by RHRC and Fry, even without waiting for the outcome of the RHRC declaratory relief action. In view of this fact, the requirements of the Brown decision appear to be satisfied by virtue of CGS’s preemptive concession. As such, there is nothing more for the Court to consider before granting CGS’s motion under the terms stipulated by the motion itself.

On the other hand, if the Court were to follow RHRC’s proposal to stipulate certain terms for the speedy prosecution of the pending issues including the declaratory relief action, it would not have alleviated CGS’s legitimate concern that the funds available to satisfaction of its judgment lien would diminish. As admitted by RHRC itself, “[l]itigation is an adversarial process, in which one’s adversaries often dictate or influence its course.” (Memorandum in opposition, filed 21 January 2015, p.5, Lns. 12-13; quoting Pangborn without citation.) The promise the RHRC proposal offers is too uncertain, and the risk to CGS is too high. On the contrary, CGS’s proposal provides concrete guarantee by reserving sufficient funds to meet the claims of both RHRC and Fry.

In light of the above, Court GRANTS CGS’s motion.