Wednesday, December 14, 2016

Fun and Games with Interpleaders

S. Cal. Gas Co. v. Flannery, No. B268298 (D2d5, as modified Dec. 13, 2016)

This case is an interpleader action that was the subject of a prior appeal affirming the denial of an anti-SLAPP motion. The facts are a kind of complicated, but since interpleader doesn’t come up too much, its worth getting into it a little.

A Utility—the interpleading party—agreed to pay $ 2.45 million to settle a case for allegedly causing a wildfire that damaged a ranch owned by A. At the time of the fire A had been cohabiting with B for about twenty years. While the wildfire case was pending, B brought a Marvin v. Marvin palimony case against A. That resulted in B being awarded a 50 percent interest in the burnt ranch, including half of the settlement proceeds from the wildfire case. Due to the uncertainty caused by the palimony case, Utility interpleaded the $2.45 million, naming as defendants A, B, and their various lawyers.

On the same day the court accepted the interpleader and discharged Utility, it also denied A’s anti-SLAPP motion, which
led to the aforementioned affirmance on appeal. After remand, Utility moved for its post-discharge fees under Code of Civil Procedure § 386.6(a), which the trial court approved. And along the same timeline B moved for release of half of the settlement proceeds, even though the palimony case was on appeal. A’s former attorney also moved for release, seeking to enforce a fee lien against A. 

Ultimately, the court released half the funds to B, on the representation that she would make good on whatever she owed her attorney out of that release. Of the remainder, it also released a big (but slightly reduced) chunk to A’s former lawyer, to satisfy his lien. Which means that A and his current counsel took what is left. The waterfall looks like this:

Res:        $2.45 mm

Minus:     $1.225m to B and B’s counsel
Minus:     $170k to Utility’s fees.
Minus:     $512k to satisfy A’s former attorney’s lien.
Equals:   $543k to A and current counsel.

A appeals the fee award to Utility, the release order giving B half the money, and the satisfaction of his former lawyer’s lien.

Utility’s fee award issue is straightforward. A claims that the interpleader statute permits an interpleading party to recover its fees only up to the time of discharge and thus that Utility couldn’t recover its fees on the anti-SLAPP appeal. But the court disagrees. Section § 386.6 permits an interpleading party to recover its fees “incurred in such action” out of the res. “Such action” includes both normal interpleading stuff, as well as A’s unfounded and ultimately unsuccessful anti-SLAPP motion, including A’s ill-fated appeal. The fact that the anti-SLAPP statute doesn
t generally award fees to a prevailing plaintiff doesnt change that result.

The release of the funds to B is quite a bit more complicated, and made even more complicated by the fact that A and his lawyer made a hash of procedure in the trial court. In particular, an interpleader defendant’s answer is supposed to specifically include “allegations of fact as to either [defendant‘s] ownership of or other interest in the amount or property” interpleaded. A and his lawyer, however, filed their answers and claims late. And when they did file them they just filed general denials with bare statements of how much of the res they claimed to be entitled to. Which is problematic because: (a) they effectively denied Utility’s allegation that B
’s interests in the res conflict with A’s; and (b) don’t contain the allegations required by the statute. And then on top of that, A didn’t provide a reporter’s transcript in the appellate record. So there’s no clear record of what happened during the court hearing when the trial court granted B’s motion.

The upshot of all of this is that the Court of Appeal holds that A can’t complain that the hearing in which B’s motion was resolved did not include all of the procedural hallmarks of a summary judgment motion or an actual trial. In the absence of an RT, the Court assumes that an evidentiary hearing either occurred or was waived, and thus there was nothing problematic about resolving B’s motion as the trial court did. Practically speaking, that means that so long as there isn’t some categorical legal error that means B or the former lawyer
shouldn’t have gotten paid, A’s appeal will fail.

On his issues with B, A claims that (1) the trial shouldn’t have made the award because the palimony case was stayed pending appeal; (2) the court that entered the palimony judgment didn’t have jurisdiction; and (3) the trial court deferred to B’s attorneys’ assurance that they would take whatever fee they are entitled to out of the court’s award to B. The Court of Appeal doesn’t find any of these convincing.

On the stay issue, there’s no dispute that A didn’t provide a supersedeas bond to stay the palimony judgment pending appeal or that if a bond were required, the court wasn’t free to release the interpleaded funds even though an appeal was pending. The question is: Is the palimony judgment a “judgment for money or the payment of money,” under § 917.1 or for “delivery of personal property,” under § 917.2? Both require an undertaking to stay an appeal, but § 917.1 waives the requirement when the money is already in the court’s possession, as it is in an interpleader case. Based on somewhat opaque reasoning implicating the enactment histories of §§ 917.1 and 917.2 that I am finding it hard to follow, the court finds that palimony judgment was for delivery of personal property, and thus fell under § 917.2. That being the case, A needed to post a bond to stay the palimony judgment.

As to the palimony court’s jurisdiction, A claims that the court presiding over the wildfire settlement retained jurisdiction to enforce the settlement under § 664.6. But the settlement specifically didn’t purport to resolve the palimony dispute, so the prior court’s jurisdiction wouldn’t interfere with whatever was retained by the wildfire court.

And finally, the trial court didn’t err in declining to deduct B’s attorneys fees from the award to B. B’s attorney stated that he would be satisfied out of B’s award and the interpleader judgment extinguished any further claim by him. So there wasn’t anything for A to complain about.

So far as the award to A’s former lawyer based on his lien goes, the court rejects A’s argument that the amount of the lien was not amenable to resolution by the court. It is true that a court that renders an original judgment does not have jurisdiction to resolve the propriety and amount of a party’s attorney’s lien on that judgment. The rationale is that the attorney isn’t really a party to the underlying case and is not an appropriate intervenor. But the underlying case here was the wildfire case. Former attorney is a party to the interpleader case because Utility specifically pleaded him in and he answered to the interpleader complaint. 

The court also rejects A’s argument that the former attorney did not withdraw from the representation involuntarily and with good cause—a prerequisite to a former attorney’s recovery of quantum meruit. A brief makes various accusations along these lines but the trial court rejected them, and in the absence of a record to show error, those rulings stand.


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