The judgment-enforcement case of R Consulting & Sales, Inc. v. Kim (D4d1 May 13, 2021) (non-pub.) provides several useful lessons. For attorneys representing judgment-creditors, the case provides an interesting application of a wage garnishment against a debtor's sham companies. For appellants, it provides a caution in careful drafting of the notice of appeal, and a warning that post-judgment stipulations may be deemed as an assent to the judgment – thus waiving the right to appeal.
It also suggests how new legal theories – which sometimes may be raised for the first time on appeal – will be deemed forfeited if they involve a factual question that was not raised in the trial court.
Finally, it reminds attorneys for prevailing parties to be judicious in their use of redacted billings, and to avoid block-billing.
R Consulting gives us a rather unsympathetic appellant-debtor. The debtor operated a number of sham entities, and rented a private jet from the owner. And what good, one wants to know, is a private jet without pilots and attendants and a fully-stocked cabin? So the debtor hired these and other suchlike, who, when the debtor did not pay the bill, placed liens on the jet to the tune of $2.4 million.
Not liking how this was unfolding very much, the owner sued and asked the debtor for supporting documents for the fees he'd run up. At which point the debtor sabotaged the computers that held the information. The court granted terminating sanctions and entered a default judgment for $2.4 million.
Already you might be getting the feeling this is not the type of debtor who is going to just write you a check. The owner had that feeling too and so began judgment enforcement. Sure enough, the owner was getting dubious answers during the debtor-examination in which the debtor admitted, yes, he was the vice-president of one of his sham companies, but no, he did not know who the president was. And who was paying the $14,000 monthly rent for his Los Angeles house? The debtor was sure he didn't know, but it was probably his mom. And no, he didn't know how much the rent was, either. Yet when the owner got his hands on a rent check, it bore the debtor's signature.
Wage Garnishment Order Against the Debtor Directly:
Believing it futile to get wage garnishment orders against sham entities, the owner got creative and sought a turnover and assignment order against the debtor himself. The court found that it had authority to require the debtor to assign 25 percent of his disposable earnings under Code of Civil Procedure sections 187 and 708.510.
After mulling it over for a year-and-a-half what to do about this turnover and assignment problem, the debtor got the idea to argue that, now that he is spending so much of his time abroad in South Korea, maybe the California order violates some kind of international law?
The trial court rejected the argument. The court also granted the owner's motion for attorney fees for enforcing the judgment of nearly $400,000, which included many block-billed hours, and entries redacted without explanation. The debtor appealed.
Defective Notice of Appeal Held Not Fatal:
When the debtor filed his notice of appeal, it stated he was appealing from the order entered August 30, 2019. But there was no such order. The order was dated August 28. A-ha! the owner argued. The appeal should be dismissed!
Possibly, but what saved the debtor here was that he had attached the August 28 order to his notice of appeal. As we have covered previously, all that is required in a notice of appeal is that it be served and filed in the superior court (CRC 8.100(a)(1)); signed (CRC 8.100(a)(1)); and identify the judgment or order being appealed. (CRC 8.100(a)(2).) Here, although the debtor did misidentify the order in the notice, he did attach the order being appealed. That was enough to put the respondent owner on notice of what was being appealed. The respondent was not misled by the erroneous date on the notice itself.
“Rule 8.100(a)(2)'s liberal construction requirement reflects the long-standing ‘ “law of this state that notices of appeal are to be liberally construed so as to protect the right of appeal if it is reasonably clear what [the] appellant was trying to appeal from, and where the respondent could not possibly have been misled or prejudiced.” ’ (In re Joshua S. (2007) 41 Cal.4th 261, 272; see Luz v. Lopes (1960) 55 Cal.2d 54, 59.) The rule is intended to ‘implement the strong public policy favoring the hearing of appeals on the merits.’ ” (K.J. v. Los Angeles Unified School Dist. (2020) 8 Cal.5th 875, 882 (K.J.).).” ’ (In re Joshua S. (2007) 41 Cal.4th 261, 272; see Luz v. Lopes (1960) 55 Cal.2d 54, 59.) The rule is intended to ‘implement the strong public policy favoring the hearing of appeals on the merits.’ ” (K.J. v. Los Angeles Unified School Dist. (2020) 8 Cal.5th 875, 882 (K.J.).)
Judging by the appellant's conduct here, the policy applies quite irrespective of the appellant's merit.
The Appellant-Debtor's Wage-Garnishment Legal Contentions Deemed Forfeited by Not Raising Them in the Trial Court:
The debtor argued on appeal that the wage-garnishment order, made via the unusual mechanism of a turnover and assignment order here, was not supported under the Enforcement of Judgments Law. The debtor made nice legal arguments on appeal to this effect, on the premise that he was merely an employee of his companies, and because a garnishment order must be directed at the employer, the order was unlawful. (Code Civ. Proc., § 706.011(b).)
But the reason this nice legal argument didn't work is because it is really not a legal argument but a factual argument. Or at least a mixed question of law and fact. Specifically, the fact question is whether the debtor's companies were shams. And if he really controlled the companies then he, the debtor, was the employer. And so the garnishment order was properly issued against him.
Holding this to be primarily a factual question, the Court of Appeal held it was forfeited by debtor's not having asserted it earlier. While pure legal theories in some circumstances may be asserted for the first time on appeal, factual theories must be raised in the trial court. (Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 997 (Nellie Gail) [noting as a “ ‘general rule, theories not raised in the trial court cannot be asserted for the first time on appeal’ ”]; JRS Products, Inc. v. Matsushita Elec. Corp. of America (2004) 115 Cal.App.4th 168, 178 (JRS Products) [recognizing that courts of review “are loath to reverse a judgment [or order] on grounds that the opposing party did not have an opportunity to argue and the trial court did not have an opportunity to consider”].) The forfeiture rule prevails when the new claim involves a mixed question of law and fact. (Panopulos v. Maderis (1956) 47 Cal.2d 337, 341 (Panopulos).)
The debtor's theory here should have been raised in the trial court, and not for the first time on appeal. (See Nellie Gail, supra, 4 Cal.App.5th at p. 997 [“ ‘theories not raised in the trial court cannot be asserted for the first time on appeal’ ”]; JRS Products, supra, 115 Cal.App.4th at p. 178 [courts of review are reluctant to reverse an order or judgment on grounds not briefed by the parties in, or considered by, the trial court].)
The Appellant-Debtor's Initial Stipulation and Subsequent Conduct Was Deemed an Assent to the Order, and Thus a Waiver of the Right to Challenge It on Appeal:
The appellant originally agreed to stipulate to the wage-garnishment/turnover/assignment order, even though he ultimately refused to sign the stipulation. Then for several months, the appellant complied with that order. Later, he appealed it.
The court deemed this to be a waiver. (See Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1713 (Metalclad) [recognizing the rule that an “ ‘estoppel precludes a party from asserting rights “he otherwise would have had against another” when his own conduct renders assertion of those rights contrary to equity’”].)
Caution: I found this a surprising part of the opinion. Apparently, the court anticipated this, holding it was appropriate "under the unique circumstances of this case." But it still provides a caution: Be very wary when complying with a judgment or order if you intend to appeal. Any compliance, or accommodation, or compromise, or stipulation, could be argued as a waiver and estoppel of your right to appeal.
Award of Unexplicably Redacted Fees Reversed:
The Court of Appeal reversed and remanded the fee award. The owner's attorneys failed to offer any "preliminary or foundational showing" by which the court could determine the propriety of fees whose descriptions were redacted. (Coito v. Superior Court (2012) 54 Cal.4th 480, 502 (Coito).)
As for block-billed fees, the court reversed where there was no showing of entitlement for block-billed fees that were "so heavily or completely redacted it was not possible to determine the work done by counsel and thus, whether such work was compensable."
Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.