{"id":897535,"date":"2020-06-02T15:35:33","date_gmt":"2020-06-02T21:35:33","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=897535"},"modified":"2020-06-02T15:46:08","modified_gmt":"2020-06-02T21:46:08","slug":"post-judgment-collections","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/post-judgment-collections\/","title":{"rendered":"A Glimpse Into Post-Judgment Collections and Perhaps the Near Future?"},"content":{"rendered":"\n

Garret Murai | California Construction Law Blog<\/a><\/p>\n\n\n\n

According to a\u00a0recent study\u00a0conducted by the Harvard University, the University of Chicago, and the University of Illinois, more than 100,000 small businesses (firms with fewer than 500 employees) representing 2% of small businesses in the America have closed their doors permanently due to the coronavirus. The next case, although about events occurring before COVID-19, provides a glimpse of what litigation may look like in the intervening months and years as companies struggle to keep their doors open.<\/p>\n\n\n\n

The Wanke Case<\/h3>\n\n\n\n

Waterproofing company Wanke, Industrial, Commercial, Residential, Inc. sued a former employee, Scott Keck, and his competing company, WP Solutions, Inc., for trade secret misappropriation and obtained a judgment for $1,190,929.<\/p>\n\n\n\n

At the time, general contractor AV Builder Corp. had hired WP Solutions as a waterproofing subcontractor on fire residential and commercial projects. In the face of the judgment obtained by Wanke, Keck declared bankruptcy and dissolved WP Solutions.<\/p>\n\n\n\n

Wanke later learned that AV Builder owed WP Solutions $109,327 on the various projects and filed a creditors suit against AV Builder seeking recovery of the $109,327 as an offset against its outstanding $1 million judgment. The creditor suit went to trial.<\/p>\n\n\n\n

At trial, AV Builder\u2019s president testified that any money AV Builder owed WP Solutions should be offset against the bargained for warranty work that WP Solutions would no longer be able to perform($43,929), unperformed work ($78,246), and repair work paid for by AV Builders ($57,055.95).<\/p>\n\n\n\n

In response, Wanke presented evidence that the repair work paid for by AV Builder was for damages that would not have been covered under the warranty provided by WP Solutions. Wanke also presented expert testimony that AB Builder\u2019s warranty set-off argument was inflated by an overestimation of Mars remaining under each warranty.<\/p>\n\n\n\n

After evidence was submitted, the court entered judgment in favor of Wanke and against AV Builder in the amount of $83,418.94, representing a reduction of $25,908 against the $108,327 claimed by Wanke. AV Builder appealed.<\/p>\n\n\n\n

The Appeal<\/h3>\n\n\n\n

At issue on appeal was application of California\u2019s Enforcement of Judgments Law (EJL) under Code of Civil Procedure sections 680.101 through 724.260.<\/p>\n\n\n\n

Under the EJL, after entry of a money judgment, a judgment creditor (here, Wanke) may obtain a writ of execution authorizing a levying officer to enforce the judgment. If the property subject to levy is in the possession of a third party (here, AV Builders), the levying officer is authorized a to serve a copy of the writ of execution and a notice of levy on the third party. If the third party fails to deliver the property subject to the levy without good cause, the third party is liable to the judgment creditor for the lesser of the judgment debtor\u2019s (here, WP Solutions) interest in the property or debt and the amount required to satisfy the money judgment. If a third party refuses to deliver the property to the judgment creditor, the judgment creditor may seek to enforce the levy through a creditors suit.<\/p>\n\n\n\n

Wanke\u2019s Standing to Bring a Creditors Action Against AV Builders<\/strong><\/p>\n\n\n\n

On appeal, AV Builder contended that because WP Solutions was a suspended corporation, and because a creditor\u2019s suit must be brought in the name of the real party in interest (here, WP Solutions), that Wanke did not have standing to sue AV Builder in the name of WP Solutions. In other words, because suspended corporations do not have the capacity to prosecute or defend a civil action, Wanke was unable to sue AV Builder in the name of WP Solutions since WP Solutions was a suspended corporation.<\/p>\n\n\n\n

The Court of Appeals, however, disagreed. Because the EJL merely requires that a judgment debtor have an \u201cinterest\u201d in the property held by a third party, rather than having the \u201ccapacity\u201d to sue the third party, the EJL does not bar a judgment creditor (Wanke) from bringing a creditors action against a third party (AV Builders) simply because the judgment debtor (WP Solutions)  is suspended and has no capacity to sue the third party.<\/p>\n\n\n\n

Timeliness of Wanke\u2019s Creditors Action Against AV Builder<\/strong><\/p>\n\n\n\n

AV Builder next claimed that Wanke\u2019s creditor suit was time barred under the EJL. Under the EJL, a creditor suit is required to be filed before the later of: (1) the time when the judgment debtor may bring an action against the third party concerning the property or debt; and (2) one year after creation of a lien on the property or debt.<\/p>\n\n\n\n

Because Wanke obtained its levy in June 2014 and did not file its creditors suit until more than one year later on July 2016, Wanke failed to satisfy the second prong of the EJL. This left the first prong of the EJL, and according to AV Builder, because WP Solutions\u2019 contractor\u2019s license was suspended in July 2014, Wanke also failed to satisfy the first prong of the EJL because its creditor suit must have been brought no later than July 2014.<\/p>\n\n\n\n

Again, however, the Court of Appeals disagreed. Under the first prong, explained the Court, a creditor may bring a creditor\u2019s suit within the time that a judgment debtor \u201cmay bring an action\u201d against a third party concerning the property or debt, without regard to whether the judgment debtor is barred from filing suit due to corporate suspension or licensure suspension. In other words, simply because WP Solution\u2019s contractor\u2019s license was suspended in July 2014, would not change the four year statute of limitations for WP Solutions to bring a breach of contract claim against AV Builder for breach of written contract.<\/p>\n\n\n\n

Note:<\/strong> Although the Court didn\u2019t discuss this, I don\u2019t believe WP Solutions would have been  barred from filing suit against AV Builder simply because its contractor\u2019s license was suspended in July 2014 so long as WP Solutions had an active license while it performed work for AV Builder.<\/p>\n\n\n\n

Standard Applied to AV Builder\u2019s Warranty Setoff Defense<\/strong><\/p>\n\n\n\n

Finally, AV Builder argued that the trial court had applied the wrong legal standard when considering AV Builder\u2019s warranty setoff defense.<\/p>\n\n\n\n

According to AV Builder, the uncontradicted testimony of its president was that AV Builder\u2019s warranty setoff was calculated at five to seven cents per square foot multiplied by the total square footage of each project and the number of years remaining under each warranty.  Wanke\u2019s expert, while he challenged the number of years remaining under each warranty, did not challenge AV Builder\u2019s square footage benchmarks. Nevertheless, argued AV Builder, the trial court stated that AV Builder\u2019s warranty setoff was \u201cunmatured, inchoate, speculative and contingent.\u201d<\/p>\n\n\n\n

Once again, the Court of Appeals disagreed. Citing to conflicting testimony from AV Builder\u2019s president at trial, in which he testified that square footage benchmark was upwards of 12 cents per square foot, the Court found that AV Builder had the burden of proof, that it was within the discretion of the trial court determine credibility of witnesses, and that AV Builder had failed to satisfy its burden.<\/p>\n\n\n\n

Conclusion<\/h3>\n\n\n\n

Wanke provides an interesting glimpse at post-judgment collection activities. As I often tell clients, go in with your eyes wide open, because even if you get a judgment, it may just be the first of several steps.<\/p>\n","protected":false},"excerpt":{"rendered":"

Garret Murai | California Construction Law Blog According to a\u00a0recent study\u00a0conducted by the Harvard University, the University of Chicago, and the University of Illinois, more than 100,000 small businesses (firms with fewer than 500 employees) representing 2% of small businesses in the America have closed their doors permanently due to the coronavirus. The next case,… Continue reading A Glimpse Into Post-Judgment Collections and Perhaps the Near Future?<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[172],"tags":[9895,11178],"class_list":["post-897535","post","type-post","status-publish","format-standard","hentry","category-construction-law-2","tag-advise-consult","tag-post-judgment-collections-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nA Glimpse Into Post-Judgment Collections and Perhaps the Near Future? 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