Friday, January 10, 2014

Who Needs Privity? This Is Collections!

Cardinale v. Miller, No. A132611 (D1d3 Jan. 8, 2014)

This case is an appeal of a fraudulent transfer action that arises from the long-ago implosion of a Ponzi scheme. The published part of this case deals with the right of a judgment creditor to obtain attorneys’ fees against a fraudulent transferee. A provision in the Enforcement of Judgments Law—Code of Civil Procedure § 685.040—entitles a judgment creditor to its fees in the collection action, but only if fees were also awarded as a cost in the underlying action under Code of Civil Procedure § 1033.5(a)(10)(A). Here, they were, because the contract between the plaintiff and the original judgment debtor had an attorneys’ fee provision subject to Civil Code § 1717. But the defendant in this case—who was found to have accepted fraudulent transfers from the original judgment debtor—argued that § 685.040 did not warrant a fee award against him because he was a party to neither the underlying judgment nor the contract from which it arose. But according to the court, that’s not necessary. Parsing the statute, the court finds that there are only two requirements for a judgment creditor to get fees: (1) a collections action; (2) to collect on a judgment where fees were awarded as a cost. The contractual privity that applies to § 1717 issues does not control because the entry of judgment in a contract case—including an award of fees—extinguishes the underlying contract. Thus the rights arise from the judgment itself. The court further rejected the argument that a fraudulent transfer case was not a collections action subject to the EJL’s fee provision. Practically speaking, the point of this case was plaintiff's effort to collect on his unpaid judgment. That’s all that was needed.

Affirmed in relevant part.

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