Fourth District, Division Three Relies on Jaffe v. Pacelli In Reversing Denial of Fee Award to Judgment Creditor.
In our August 2, 2008 post, we reviewed the Second District’s decision in Jaffe v. Pacelli, 165 Cal.App.4th 927 (2008), which dealt with application of Code of Civil Procedure section 685.040. That provision specifies that when a judgment awards attorney’s fees pursuant to a contract, the postjudgment attorney’s fees incurred by the judgment creditor in “enforcing” the judgment are included as recoverable costs. Jaffe determined that section 685.040 allowed a judgment creditor to recover fees expended in successfully prosecuting a bankruptcy adversary proceeding that ultimately resulted in getting the bankruptcy petition dismissed. The Second District reasoned that the bankruptcy would have discharged the judgment in entirety had the judgment creditor not prevailed, such that the forum in which qualifying fees were expended was not the determinative factor. (Id. at 934, 936, 938.)
Justice O’Leary, of our local Fourth District, Division Three, recently authored an opinion on behalf of our local appellate court in a matter than confronted Jaffe, albeit in the context of a separate state court action by which judgment debtor sought to enforce a handwritten mediation stipulation that would have reduced judgment creditor’s judgment by 5/6ths of what was owed. Her opinion interpreted section 685.040 much like the Second District did in Jaffe, which she found “on point” in the cause before the 4/3 panel.
Globalist Internet Technologies, Inc. v. Reda, Case No. G039795 (4th Dist., Div. 3 Oct. 28, 2008) (certified for publication) involved a convoluted set of facts which we will try to parse to their essentials.
Judgment creditor obtained a compensatory judgment against several judgment debtors, as well as attorney’s fees of $88,972 (as authorized by contract) that were included in the judgment. While appeals of the judgment and a related malicious prosecution anti-SLAPP motion were pending, plaintiff filed a separate Los Angeles Superior Court action against one of the judgment debtor’s business associates. The litigants engaged in global mediation, a process that resulted in a handwritten stipulation for settlement outlining the terms of a global resolution. However, “because the devil is in the details,” negotiations over a final settlement agreement broke down and no final agreement was ever signed. Judgment debtors then went for broke, filing several proceedings to enforce the handwritten settlement stipulation, including a separate settlement enforcement action in Orange County Superior Court (OCSC). Judgment debtors were no fools, because the handwritten stipulation—if effective—would have resolved the matter for one-sixth of what was owed under the original judgment (if certain other performance terms were satisfied). The parties stipulated that the global mediator could arbitrate the separate settlement OCSC action, resulting in a determination that the handwritten stipulation was not an enforceable settlement agreement—a ruling confirmed by the superior court and affirmed by the Fourth District, Division Three upon review in a related earlier appeal.
Judgment creditor then filed a costs memorandum seeking $134,032.67 in attorney’s fees under section 685.040, $107,561 of which were incurred in defending against the separate settlement OCSC enforcement action. Impacted judgment debtors moved to tax costs, with the trial court agreeing that the costs in defending the separate action were not incurred in enforcing the original judgment.
Judgment creditor appealed and won; our local Santa Ana appellate court reversed the fee denial order and remanded for a fee determination in judgment creditor’s favor.
Because the case involved an interpretation about the breadth of section 685.040, the review standard was de novo.
From a “bottom line” viewpoint, Justice O’Leary determined that it was incorrect to conclude that section 685.040 did not allow recovery of attorney’s fees incurred in a different action, especially given that Jaffe made it clear that this was not the case. The appellate panel also found corroboration in a literal construction of the statute: “The plain meaning of the word [‘enforcing’ in section 685.040] necessarily suggests ‘enforcing a judgment’ would include defending the validity of the judgment against challenge in a separately filed attack.” (Slip Opn., at p. 8.)
Also, the equities favored the result reached in Globalist Internet. “As in Jaffe, [judgment creditor’s] right to recover attorney fees does not depend on the nature of the action or the forum in which the expenses were incurred …. By the time [the separate OCSC settlement enforcement action] was filed, [judgment debtors] owed [judgment creditor] over $444,600 (not including accrued interest) on this judgment. Their action sought specific performance of an alleged settlement of the judgment for $75,000 or about one-sixth of what was owed. Had [judgment creditor] not defended against the specific performance action, it would have lost substantial rights under the judgment in this case. Accordingly, the attorney fees it incurred in defense of the companion action were incurred in enforcing the judgment.” (Slip Opn., at pp. 10-11.)
The Court of Appeal remanded to the trial court for purposes of fixing an appropriate fee award to judgment creditor, including consideration of whether judgment creditor was entitled to all fees incurred in the defense of the separate OCSC settlement enforcement action. Beyond that, judgment creditor was awarded costs on appeal, another potential source of fee recovery once the remittitur issues in this appellate case.