Friday, September 27, 2013

Ships Pass in the Night in San Diego

Fox Johns Lazar Pekin & Wexler, PC v. Superior Court, No. D062663 (D4d1 Sept. 24, 2013)

Opening a split in authority with a case decided last week, the court of appeal decides that an order compelling a third party to appear at a judgment debtor exam is not immediately appealable.  And then, after accepting the issue on writ review, it significantly limits the scope of third party discovery under the Enforcement of Judgments Law.

Brewer won a $2.7 million judgment against Point Center Financial and then proceeded to initiate post-collection discovery under the EJL against Point Center’s attorneys, Fox Johns and Wexler, while the appeal was pending. Brewer obtained leave of court to serve the attorneys with third-party party judgment debtor examination subpoenas under Code of Civil Procedure § 708.120, including broad requests for documents. The attorneys objected to the requests as outside the scope of third-party discovery under § 708.120, and ultimately sought to quash the subpoena. The trial court issued a mixed-bag order, requiring one of the attorneys to answer certain questions and to produce documents responsive to the subpoena. The attorneys appealed.

The court of appeal recognized a preliminary issue regarding whether the order was appealable. Relying on Rogers v. Wilcox, 62 Cal. App. 2d 978, 979 (1944) and Ahren v. Evans, 42 Cal. App. 2d 738, 739 (1941), the court held that an order denying a motion to quash an order for a third-party debtor exam or a third-party document subpoena was not appealable under Code of Civil Procedure § 904.1(a)(1) and (2). According to the court, because such orders are “one of the steps taken in the course of a proceeding to obtain information pertaining to a judgment debtor's assets,” they are not final orders subject to appeal.

Interestingly, the court’s decision appears to be irreconcilable with Macaluso v. Superior Court—last week’s opinion of the same division of the Fourth District (prior coverage here)—which held that an order compelling third-party debtor discovery in judgment debtor proceedings is immediately appealable under § 904.1(a)(2) because it “was a final determination that [petitioner] was obligated to produce certain documents, and no issue is left for future consideration except the fact of compliance or noncompliance with the terms of the order.” Interestingly, Macaluso cites neither Rogers and Ahren—perhaps understandable given that they predate the enactment of § 904.1 by more than twenty-five years—and Fox Johns cites neither Macaluso nor any of the more recent, but only analogous, cases that Macaluso relied upon in reasoning that third-party discovery under the EJL is different from discovery on the judgment debtor itself.

Although the briefs are not yet available online, I am guessing that the parties in each case took a different tack in arguing the case, that their briefs don’t address the same authorities, and the panels did not do signficant independent legal research on the issue. That, my friends, would be empirical proof of the proposition—sometimes doubted by trial lawyers—that appellate advocates matter. We’ll see if one or the other panel amends or grants rehearing in the next few days to iron out the inconsistency.

In any event, after deciding that the order wasn’t appealable, the court exercised its discretion to hear the case as a writ to resolve the issue of first impression regarding the scope of third-party judgment debtor discovery. Turning to the language of § 708.120, the court noted that in order to get an order to examine a third party in judgment debtor proceedings, the judgment creditor needs to show (a) that the third person is in possession or control of property in which the judgment debtor has an interest or (b) that the person is indebted to the judgment debtor for more than $250. The court determined that, given the statute’s reference to an examination “to answer concerning such property or debt,” this language also clearly defines the scope of the examination of a third party. Thus, because the statute does not allow for a more expansive examination, a third-party judgment debtor exam should be limited to questioning on these two topics.

In reaching its result, the court rejected the proposition that discovery under § 708.120 should be as broad as ordinary prejudgment discovery. It noted that the Discovery Act specifically limits its application to discovery in aid of enforcing judgments to the extent provided in the EJL. It also declined to rely on precedent interpreting the broader scope of discovery permitted on the judgment debtor itself.

Finally, the court read § 708.120 to also limit the scope of any subpoena duces tecum issued to a third party under the auspices of a judgment debtor exam. Requests for documents must be limited to documents that enable the examiner to confirm the third party’s possession of the subject property or indebtedness to the judgment debtor. Because the subpoena in this case vastly exceeded that scope, it needed to be quashed.

Writ granted.

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