Gilman v. Dalby, 61 Cal. App. 5th 923 (2021): There is Nothing Special about a Refund

An attorney named Gilman sued various people associated with the Dreyer, Babich personal injury law firm of Sacramento. Gilman lost that action (Gilman v. Dalby) in the trial court, but paid the Dreyer, Babich attorneys and appealed. On appeal, the judgment was reversed and remanded.

On seeing the published decision, judgment creditors Phillips et al. (who had obtained judgments against Gilman in a different action, Gilman v. Sweeney), filed and served lien notices in Dalby.

With the case back in the trial court, Gilman privately approached the Dreyer, Babich attorneys and asked that they repay him the money he had paid under the now-reversed judgment. If they did, he said, he would voluntarily dismiss his suit. The Dreyer, Babich attorneys, apparently confident they would win on remand, refused.

Gilman responded by moving for restitution of the funds he had “mistakenly” paid under the now-reversed judgment. He did so without giving any notice to the judgment creditors. The Sacramento County Superior Court granted Gilman’s motion for restitution. The Dreyer, Babich firm then repaid Gilman and Gilman, despite the presence of the judgment creditors’ liens, purported to dismiss Gilman v. Dalby.

When the judgment creditors learned of these events, they demanded Gilman and the Dreyer, Babich parties pay the funds over to the judgment creditors. When neither of the parties complied, the judgment creditors moved in the Sacramento County Superior Court for an order that the parties pay the funds over to judgment creditors.

The Sacramento County Superior Court, caught in the embarrassing position of having ordered moneys paid to Gilman when the docket showed creditors liens in the case, denied the judgment creditors’ motion. It did so by adopting a meritless argument advanced by the Dreyer, Babich attorneys: the judgment creditors’ liens did not attach to the funds at issue because those funds represented “restitution” and there was “no judgment” in the case.

The judgment creditors appealed. In a well-written decision, the Third District Court of Appeal has now reversed and remanded. Gilman v. Dalby, 61 Cal. App. 5th 923 (2021).

The decision is not surprising. Contrary to the suggestion of the Dreyer, Babich attorneys, the provisions of the Enforcement of Judgments Law ("EJL") are not narrowly construed. They are construed liberally to assure a remedy for judgment creditors. Further, the EJL defines a judgment to include an order, so an order for the payment of money constitutes a money judgment to which a lien may attach. The EJL provisions governing liens in a pending action were designed so that a judgment creditor’s lien in a pending action will attach to and “intercept” any money or property ordered paid to the judgment debtor in that action.

In fact, most of the arguments advanced on appeal by Gilman and the Dreyer, Babich attorneys had already been rejected—at least implicitly-- by the trial court. By issuing a decision on the merits, for example, the trial court had rejected the argument that Gilman’s dismissal deprived the trial court of jurisdiction. That might be the ordinary result when a plaintiff dismisses a case, but it presumes a lawful dismissal. The EJL provisions at issue, however, specifically qualify the right of a judgment debtor to dismiss a case once a judgment creditor has filed a lien in the case.

The real surprise is that the Third District decided to publish the decision. The Court of Appeal may have felt it important to stamp out the misconception that the rights of judgment creditors turn on the purpose of an award to a judgment debtor. They do not.

The sum and substance of the law here is that judgment creditors who perfect a lien in a pending action are entitled to be paid from money or property ordered paid to their judgment debtors. The law does not inquire further, and it does not even matter whether the judgment debtor is a plaintiff or defendant in the action.

More specifically, nothing in the text of the statute suggests a creditors’ lien only attaches to funds that represent some net gain for the judgment debtor. If an order produces a flow of money or property for the judgment debtor, the creditors’ lien will attach to it. Ultimately, the Legislature has ordained attachment to uphold the rule of law. The civil justice system was not designed to be a joke. When courts issue money judgments they expect the losers to pay those judgments. Judgment debtors who think the payment of judgments is optional have another think coming.

The central argument from the Dreyer, Babich attorneys not only lacked a basis in statutory text, but any basis in logic. Gilman paid Dreyer, Babich to satisfy an adverse judgment. The Court of Appeal agreed --barely-- that the judgment should not have been entered against Gilman. It reversed and remanded and, on remand, the trial court ordered the amount Gilman paid be returned to Gilman. But there is nothing in law or logic that would render the returned funds immune from the claims of Gilman’s judgment creditors. If Gilman had never paid those funds to the Dreyer, Babich attorneys, nobody would suggest they were not fair game for judgment creditors. If they had been sitting in Gilman’s bank account, for example, there would be no dispute the judgment creditors could reach those funds through a bank levy.

The argument that Gilman was only receiving a “refund” was immaterial. The law has no concern with the reasons behind the payment. The only concern of the law is that Gilman had unsatisfied judgments and had a source of funds that could be applied to pay down those judgments.

To be sure, there are situations in which the Legislature forbids creditors from reaching certain types of property to satisfy a money judgment. The laws defining those situations are called “exemptions.” Exemptions are defined by the Legislature, not judges. There is no statute creating an exemption for “refunds” and judges have no authority to create such an exemption through judicial decision-making.

Copyright 2021 Charles Q. Jakob. All Rights Reserved.


RECENT POST