The Law Favors Judgment Enforcement!
In Yolanda’s, Inc. v. Kahl & Goveia Comm. Real Estate, 11 Cal. App 5th 509 (2017), the judgment creditor (Yolanda’s) obtained a judgment against various entities that had leased it commercial real estate. These entities and Kahl & Goveia Commercial Real Estate (KGCRE) were all associated with Joseph Goveia and Bruce Kahl.
The creditor later learned that after the entry of judgment Messrs. Kahl and Goveia had transferred assets and employees out of KGCRE, closed KGCRE, and begun doing the same business through a new operating entity (“Seabridge Property Services”).
The creditor obtained an order for KGCRE to appear for an examination and served it with a subpoena. At the examination the creditor asked about the location of KGCRE’s assets. KGCRE’s counsel responded by asserting the questions exceeded the permissible scope of examination and instructing KGCRE’s witness not to answer. He argued that Section 708.120 limits the scope of a third-party examination to situations in which the third party is “indebted to the judgment debtor” or has “possession or control” of property of the judgment debtor. As KGCRE no longer had the assets, he reasoned, it did not have to answer questions about the assets.
KGCRE’s counsel forced the Creditor to go to court.
The trial court held Civil Procedure Code Section 187 authorized it to create a proper procedure to obtain the objects of the law. It further ruled that the subpoena was not limited in scope by section 708.120. It authorized the Creditor to ask questions regarding (1) the disposition of the transferred asses; (2) the relationships between KGCRE, the judgment debtors, and other persons (e.g. Kahl) for purposes of possible alter ego liability; and (3) other questions that might assist in determining the judgment debtors’ true financial condition.
KGCRE appealed.
The Court of Appeal opined that it is generally best to treat post-judgment discovery orders as unappealable to prevent judgment debtors from delaying judgment enforcement and concealing assets. Yolanda’s, 11 Cal. App 5th at 513. It opted to review KGCRE’s appeal, however, by construing it as a petition for a writ of mandate (i.e., a request that the trial judge be ordered to withdraw its order).
The Court of Appeal was not impressed with KGCRE's argument. It noted the limitations under Section 708.120 do not appear in Section 708.130(a), which states “[w]itnesses may be required to appear and testify before the court … in the same manner as upon the trial of an issue.” It also approved the trial court’s invocation of Section 187. Rejecting the argument that Section 708.120 limited the scope of examination of third parties, the appellate court wrote:
[N]othing in section 708.120 states that it is the only procedure available for examining a third party. In fact, section 708.130 expressly provides otherwise. To the extent section 708.130 may not apply, there is no reason why the court cannot use its power under section 187 to fashion an appropriate procedure. The policy of the law favors the enforcement of judgments…. There is no policy favoring the concealment of the judgment debtor’s assets from the judgment creditor.
Yolanda's, 11 Cal. App. 5th at 515. Justice Gilbert’s opinion should be cited often for its pithy observation that the law favors the enforcement of judgments. There is simply no point in having a civil justice system if judgment debtors get to choose whether they will comply with judgments.
Now for some angry commentary.
A post-judgment “debtor” examination is essentially indistinguishable from the standard pre-trial deposition. The major difference is that the examination no longer concerns “claims and defenses” in pleadings because those things have been adjudicated. The issues in all debtor examinations are the same: the ability of the judgment debtor to respond to a judgment. In this regard, judgment creditors are to have “the widest scope of inquiry concerning the property and business affairs of the debtor.” Jogani v. Jogani, 141 Cal. App. 4th 158, 172 (2006); Marriage of Sachs, 95 Cal. App. 4th 1144, 1159 (2002); Hooser v. Sup. Ct. (Ray), 84 Cal. App. 4th 997, 1002 (2000); Young v. Keele, 188 Cal. App. 3d. 1090, 1093 (1987).
Discovery objections based on “relevance” are disfavored. In pretrial discovery, they tend to subvert the goal of having cases decided on the merits. If an error is to be made in ruling on a discovery motion it is better to err in favor of allowing discovery than in denying discovery. Errors of the former type merely relate to the costs of the action and parties facing unwarranted costs can move for protective orders. Errors of the latter type, however, cause incorrect outcomes—a failure of justice. In post-judgment discovery relevance objections also threaten a failure of justice.
Relevance-based objections cause delay and interfere with the goal of minimizing judicial involvement in the discovery process. They are almost always asserted in bad faith. If requested information is really irrelevant, it cannot harm the responding party and there is no reason to object unless the request imposes some undue expense on that party. If the request truly threatens to impose unwarranted expense, the responding party can simply move for a protective order. If an adversary is refusing to provide information on grounds it is irrelevant but has not moved for a protective order showing undue expense, you can bet the opponent is merely attempting to obstruct access to valuable information.
Courts have been especially swift to condemn “relevance” objections in the context of oral depositions/examinations. Again, if the information is not relevant, why should the witness care about divulging it? And in this discovery context, stories about unwarranted expense fail because talk is cheap. If some attorney asks a witness if the moon is made of green cheese, why object? Relevant or not, it takes little time or effort to say “no.” The received rule is as follows:
[E]ven were the questions designed to elicit irrelevant evidence, irrelevance alone is an insufficient ground to justify preventing a witness from answering a question posed at a deposition… the deponent’ s counsel should not even raise an objection to a question counsel believes will elicit irrelevant testimony at the deposition. Relevance objections should be held in abeyance until an attempt is made to use the testimony at trial.
Stewart v. Colonial Western Agency, Inc., 87 Cal. App. 4th 1006, 1004-15 (2001).
Justice Gilbert got it right in Yolanda's. Judgment debtors will attempt to interfere with judgment enforcement by concealing assets, causing delay, and adding to expense. The attorney for the judgment debtors in that case forced the filing of a motion to compel and caused delay with an appeal for no purpose but to prevent access to information that could easily have been provided. The only purpose for withholding the information would be to subvert justice or perhaps impress some ignorant client.
Debtor examinations may not be the best means of securing information. This Blog has commented on the ongoing problem with intransigence in debtor examination proceedings and the unwillingness of some courts to award sanctions for blatant misconduct in examinations. See https://www.californiacreditor.com/single-post/2017/07/24/Appellate-Court-Rules-for-Bad-Guy. Practitioners encountering similar misconduct who are thinking about seeking sanctions should emphasize the role of Section 187.
They should also think about reporting opposing counsel to the State Bar for violations of the new California Rules of Professional Conduct. New Rule 3.2 expressly provides that in representing a client “a lawyer shall not use means that have no substantial purpose other than to delay or prolong the proceeding or to cause needless expense.” If you are going to take a debtor or third-party examination, do not assume opposing counsel will act professionally. Anticipate misconduct and serve opposing counsel with the ground rules before the examination.
Copyright (c) 2018 Charles Q. Jakob. All Rights Reserved.