Friday, June 10, 2016

A Declaration Is a Declaration

Hearn Pac. Corp. v. Second Generation Roofing, Inc., No. A142203 (D1d2 May 2, 2016)

As the court tells it, this case “involves a civil procedure game of cat-and-mouse like none we have before encountered.”

In a construction defect dispute, a General Contractor sought indemnify from a Sub. Most of the case settled, but there remained an open issue regarding whether Sub needed to indemnify the GC’s defense costs on the primary liability. Early in that litigation, GC assigned its indemnity claim to its Insurance Carriers, who proceeded to prosecute the case, albeit still in GC’s name under Code of Civil Procedure § 368.5. The assignment was addressed in the complaint.

GC lost, and the court awarded about 200k in fees to Sub under a fee provision in the subcontract. Sub then moved to amend the judgment under Code of Civil Procedure § 187 to add one of the Carriers as an additional judgment debtor, on the theory that, as the party controlling the litigation, it should be on the hook for any fees. In support of this argument, Sub submitted a declaration from a GC board guy, authenticating and attaching the assignment agreement, which the GC had previously submitted in connection with a summary judgment motion. The trial court struck the declaration and denied the amendment. On the meirts, the court held, among other things, that § 187 was limited to amendments to add alter egos, and that the Sub was limited to a remedy under the Insurance Code, which wasn’t available under the facts here.

The Court of Appeal first addresses the striking of the declaration. The trial court purported to exclude it because it believed that evidence submitted by a party in support of summary judgment can’t later be admitted against that party in some other part of the case. That, of course, doesn’t make any sense. It appears that the trial court confused rules about estoppel—there are cases that stand for the point that things parties say in SJ papers don’t necessary bind them at the time of a trial—with rules about evidence. Evidence does not bind; it proves. And since an under oath declaration from an opposing party’s director is a quintessential party admission, there’s no reason the Sub couldn’t submit and rely on the declaration in to authenticate the assignment agreement.

In the converse, the GC—for the first time on appeal—attacks the sub’s reliance on allegations about the assignment in GC’s complaint on the grounds that they were not verified. But unlike declarations, statements in an operative complaint—even an unverified one—are judicial admissions. Those do, in fact, bind the plaintiff, absent some good reason not to do so.

On the merits, the court ducks the issue of § 187 being purportedly limited to alter egos, because it facially applies only when a procedure is not “specifically pointed out by this Code.” Here, the Code, in § 368.5, does affirmatively address the effects of an assignment on a litigation. So recourse to § 187 is not necessary.

So far as § 368.5 goes, cases interpreting it and its prior codifications say that, in the face of an assignment of rights at issue in a litigation, a court can permit litigation to proceed in the name of the original plaintiff, rather than the transferee. But the transferee nonetheless has the right to fully control the case. And some older cases suggest that the court can permissibly use § 368.5 to more directly substitute in the assignee as a true party to a case, who will be bound to a judgment in it.

The court further notes that any due process concerns with adding in new parties after the fact of a judgment aren’t implicated here, sincealter ego or notCarrier had full control over the litigation. And such a ruling would be consistent with the law regarding attorney fee awards. Carrier, after all, relied on the clause in seeking the GC’s fees against the sub. So there’s nothing unfair about making Carrier liable for a fee award going the other way. The Court of Appeal thus funds it was arbitrary and an abuse of discretion for the trial court to refuse add Carrier as a judgment creditor.

The court goes on to reject a smattering of other arguments by GC and insurer make to the contrary. Most of these address substantive issues that don’t merit discussion in this venue. The others are, frankly, insubstantial.


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