December 30, 2008; as modified January 26, 2009 and January 29, 2009
APPEAL from an order of the Superior Court of Los Angeles County, Elizabeth (Los Angeles County Super. Ct. No. BC270115). A. Grimes, Judge. Reversed with directions.
The opinion of the court was delivered by: Turner, P. J.
CERTIFIED FOR PUBLICATION
Code of Civil Procedure*fn1 section 685.040 allows a judgment creditor to recover reasonable and necessary attorney fees incurred in "enforcing" a judgment under specified circumstances. Plaintiff and judgment creditor, Chinese Yellow Pages Company ("the creditor"), appeals from an order denying a request pursuant to section 685.040 for postjudgment fees and costs incurred in a bankruptcy proceeding brought by defendant and judgment debtor, Chinese Overseas Marketing Service Corporation ("the debtor"). We conclude section 685.040 can extend to reasonable and necessary attorney fees and costs incurred in postjudgment bankruptcy proceedings under the circumstances of this case. Because the trial court ruled it had no jurisdiction to award reasonable and necessary attorney fees and costs, we reverse the order under review. Upon remittitur issuance, the trial court is to exercise its discretion and determine the amount of reasonable and necessary attorney fees and costs payable to the judgment creditor.
The present case has a complexity to it not normally found in civil appeals. At issue is a motion for attorney fees and costs filed in the trial court. The attorney fees and costs were incurred though in the chapter 11 proceedings conducted in the United States Bankruptcy Court for the Central District of California.*fn2 As will be noted, there were two state court lawsuits and a chapter 11 federal bankruptcy proceeding. Events in the trial court overlapped with those in the chapter 11 proceeding in federal court. Further, an appeal was pending before us while proceedings were transpiring concurrently in the trial and bankruptcy courts. And even in the chapter 11 proceeding, various motions were pending at one time. And sometimes a motion would be granted but the formal order would not be entered until days later. We will describe chronologically the course of the various proceedings but with the caveat that sometimes events were transpiring in different jurisdictions at the same time. The current appeal has its origins in a false advertising and unfair competition lawsuit brought by the debtor against the creditor entitled Chinese Overseas Marketing Service Corporation v. Chinese Yellow Pages, Inc. (Super.Ct. L.A. County, 1999, No. KC032014). This lawsuit settled on October 27, 2000. The settlement agreement contains a provision awarding attorney fees to the prevailing party in any action to enforce or interpret it. Judgment was entered on the stipulation as well as a related permanent injunction.
Thereafter, the creditor filed the current action against the debtor. The creditor claimed the debtor had, among other things, misrepresented the nature of the October 27, 2000 settlement agreement to potential customers. On January 6, 2006, the trial court entered a judgment after a jury verdict in the amount of $4,250,000 in compensatory damages jointly and severally against the debtor and its owner Alan Kao. The jury also awarded punitive damages of $500,000 against Mr. Kao and $250,000 against the debtor. Meanwhile, between December 29, 2005, and January 11, 2006, Mr. Kao transferred $1,120,000 from defendant to his sister-in-law Li Wen Chen.
On January 13, 2006, two days after the date of the last payment by Mr. Kao to Ms. Chen, the debtor filed a voluntary chapter 11 bankruptcy petition. Any effort to collect on the judgment was subject to the automatic stay. (U.S.C. § 362(a).) On January 20, 2006, the bankruptcy court set the first creditors' meeting for March 6, 2006. On January 24, 2006, the chapter 11 status conference order was issued which required the filing of status reports and established procedures for requesting approval of a disclosure statement and plan. On January 26, 2006, the debtor filed its motion to pay prepetition employee compensation and taxes. On January 27, 2006, the debtor filed its chapter 11 bankruptcy schedules.
On February 3, 2006, the creditor moved for an order setting an examination requiring document production pursuant to Federal Rules of Bankruptcy, rule 2004*fn3 by the debtor and its accountant, Kent Cheng. According to the creditor's counsel, Lewis R. Landau, such a procedure is the functional equivalent of a judgment debtor examination under California's debt collection law. On February 13, 2006, the debtor filed three employment applications which sought to employ: the law firm of SulmeyerKuptez as general bankruptcy counsel; the law firm of Lim, Ruger & Kim (the Lim firm) as special litigation counsel; and Mr. Cheng as its accountant. (The application to employ the law firm of SulmeyerKuptez as general bankruptcy counsel was later granted and the applications as to the Lim firm and Mr. Cheng were later withdrawn.) On February 17, 2006, the bankruptcy court issued an order setting an examination and production schedule later in the month. On February 21, 2006, the debtor filed its chapter 11 status report and the first status conference was held on March 9, 2006. On February 27, 2006, the debtor, rather than produce the documents subject to the February 17, 2006 order, moved for a protective order staying production for 60 days so it could move to dismiss the chapter 11 proceeding it voluntarily commenced. The debtor's protective order motion was later denied. Both Mr. Cheng and Mr. Kao appeared for the examinations. According to Mr. Landau, the creditor's counsel, Mr. Cheng and Mr. Kao never produced the documents required by the February 17, 2006 examination and document production order. Mr. Cheng produced some documents. Mr. Cheng and Mr. Kao were deposed.
On March 3, 2006, the bankruptcy court entered an order granting partial relief from the automatic stay pursuant to stipulation. Relief from the automatic stay was granted to allow the following posttrial motions to be litigated: a judgment notwithstanding the verdict motion; a motion to tax costs; and an attorney fee motion. Also, the debtor was permitted to appeal from the January 6, 2006 judgment. On March 8, 2006, Mr. Kao paid the plaintiff $4,341,533.29 on behalf of himself and the debtor. Mr. Kao received an acknowledgment of full satisfaction as to himself but not as to the debtor.
On March 13, 2006, the debtor moved to dismiss its chapter 11 case. The dismissal motion outlined a procedure for paying off the attorney fee award that was owed to the creditor. The hearing on the debtor's dismissal motion was set for April 6, 2006. In the interim between March 13 and April 6, 2006, the creditor deposed declarants who executed declarations in support of the debtor's pending dismissal motion. Mr. Landau stated that "certain declarants" did not actually execute their declarations. Rather, according to Mr. Landau, the declarants' signatures were forged by an employee of the debtor and those declarations were then withdrawn. The creditor and Quebecor World (USA), Inc. opposed the debtor's dismissal motion. The debtor's dismissal motion was denied; an order to that effect was entered on April 11, 2006. While the debtor's dismissal motion was pending, on March 31, 2006, the creditor filed its proof of claim in the sum of $1,353,000. The claim of Quebecor World (USA), Inc. had been assigned to Joseph W. Browning, trustee of the Joseph P. Browning 1996 Descendant's Trust.
On April 10, 2006, the debtor filed a motion to employ the law firm of Sedgwick, Detert, Moran, and Arnold (the Sedgwick firm) to provide appellate court representation in the then pending appeal from the judgment entered in the trial court on January 6, 2006. The debtor's motion, which was opposed by the creditor, was not set for hearing. (The motion was later refiled by the trustee and granted.) On April 13, 2006, the trial court awarded the creditor $1,216,414.65 in attorney fees. This attorney fee award was added to the January 6, 2006 judgment in favor of the creditor.
On April 14, 2006, the creditor moved for the appointment of a bankruptcy trustee. According to Mr. Landau, assigning a trustee is the functional equivalent of the appointment of a receiver under California law. In connection with the trustee appointment motion, the service of subpoenas led to the discovery that Mr. Kao, as noted, transferred $1,120,000 from the debtor's accounts to his sister-in-law, Ms. Chen, in the days leading to the filing of the chapter 11 petition. The transfers from Mr. Kao to Ms. Chen were not reflected on the debtor's schedules. The debtor then stipulated to the appointment of a chapter 11 trustee. An order approving the appointment of a chapter 11 trustee was entered on May 8, 2006. Pursuant to the recommendation of the United States Trustee, Jeffery Golden was appointed as the chapter 11 trustee in an order entered on May 12, 2006. On May 19, 2006, the creditor moved to remove Mr. Golden as the trustee. The creditor asserted that Mr. Golden was the lawyer for Howard M. Ehrenberg, a member of SulmeyerKuptez, the debtor's bankruptcy counsel. On June 9, 2006, the creditor's motion to disqualify Mr. Golden as the trustee was denied.
While the disqualification motion was pending, on May 26, 2006, Mr. Golden, now represented by his general bankruptcy counsel, the law firm of Danning, Gill, Diamond & Kollitz, moved for permission to use cash collateral; a matter which was stipulated to by the creditor. On May 31, 2006, Mr. Golden filed a second motion for permission to use cash collateral and the creditor immediately stipulated to the request being granted. Mr. Golden then secured a June 8, 2006 order setting July 7, 2006 as the bar date for all prepetition and administrative expenses incurred through May 12, 2006. On June 9, 2006, the creditor and Mr. Golden stipulated that approximately $51,000 held by the Los Angeles County Sheriff's Department be released. The released funds were delivered to the trustee.
As noted previously, both Mr. Browning and the creditor had filed claims. On June 14, 2006, Mr. Golden filed: objections to the claims of the creditor and Mr. Browning; a complaint against the creditor to recover pre-bankruptcy judgment liens and preferential transfers; and a complaint against Mr. Kao, his sister in law, Ms. Chen, and the creditor to recover the $1,120,000 transferred from the debtor between December 29, 2005, and January 13, 2006.
On July 18, 2006, Mr. Golden's objection to the creditor's claim was overruled and an order to that effect was entered on August 3, 2006. The objection to Mr. Browning's claim was overruled on September 26, 2006. Mr. Golden, the trustee, and the debtor argued that the creditor and Mr. Browning could not vote in the trustee election scheduled for June 16, 2006. The Lim firm voted for Mr. Golden while the creditor and Mr. Browning voted for Frank Secor. The United States Trustee declared the election disputed and on August 8, 2006, the bankruptcy court ruled that the creditor and Mr. Browning could not vote in the trustee election. Hence, Mr. Golden was elected as the trustee.
Meanwhile, while the issue of the election of the trustee was litigated, the creditor moved for an order compelling a Federal Rules of Bankruptcy, rule 2004 examination of the Lim firm and document production. The Lim firm had filed an unspecified claim. Ultimately, subject to a protective order, the bankruptcy court ordered the Lim firm to undergo a Federal Rules of Bankruptcy, rule 2004 examination and produce documents. Further, while the issue of the trustee election was being litigated in the bankruptcy court, on June 22, 2006, based upon newly discovered evidence, the creditor moved for a new trial on its disqualification motion which had resulted in the June 9, 2006 order denying its motion to disqualify Mr. Golden. According to the creditor, Mr. Golden had "connections" with Mr. Ehrenberg, a member of SulmeyerKuptez. Mr. Landau declared the new trial motion was based on the following: "[The] new evidence consisted of [Mr. Golden's] fraudulent transfer complaint, which failed to also name SulmeyerKuptez . . . , another recipient of the same funds that [Mr. Golden] contended were fraudulently transferred and which gave rise to [Mr. Golden's] complaint against [the creditor]. [The creditor] argued that [Mr. Golden's] failure to name [SulmeyerKuptez] as an indispensable party to the fraudulent transfer action proved [Mr. Golden's] inability to fulfill his duties based on his connections to [SulmeyerKuptez]." Later, on August 8, 2006, the creditor's new trial motion on the trustee disqualification motion was denied. Additionally, while the bankruptcy court was finally resolving the trustee issue, the creditor and Mr. Golden entered into the third stipulation to allow the debtor to use cash collateral for operating expenses.
Also, beginning July 7, 2006, the creditor and the Lim and the Sedgwick firms filed requests for payment of post-petition administrative expenses. Two accounting firms filed similar requests. As part of the litigation over post-petition expenses, the creditor objected to the Lim firm's request. The trustee objected to various requests for payment of administrative expenses. Ultimately, on September 6, 2006, the bankruptcy court denied certain compensation requests.
Meanwhile, on August 16, 2006, the creditor proposed a chapter 11 plan. The creditor proposed a "liquidating chapter 11 plan" under which all of the debtor's assets would be sold at an auction. Proceeds from the proposed action would be used to pay off the debtor's creditors in the priority provided by law. Mr. Landau explained that the auction is the functional equivalent of a sheriff's sale under state law pursuant to Code of Civil Procedure section 701.510 et seq. The trustee filed a competing plan. Under this competing plan, Mr. Kao would "buy his business back" after paying all claims owed by the debtor. Under the trustee's plan, the creditor's unpaid judgment would be paid in full. The bankruptcy court directed the creditor and the debtor to "reconcile" their disclosure statements and proposed plans.
On September 19, 2006, the debtor filed its second motion to dismiss its chapter 11 case. The creditor filed a conditional nonopposition to the dismissal motion subject to certain technical issues being resolved. Mr. Golden sought permission to borrow $1 million against the debtor's assets in order to pay all creditors, including the creditor. Among the issues requiring resolution was that the $1 million loan would be entitled to priority over all other claims including that of the creditor. If the loan was approved as proposed by Mr. Golden, the creditor would lose the priority of its judgment lien. According to Mr. Landau, if the structuring of the transaction resulted in the creditor being paid in full, it would have no objection to the dismissal. After the hearing was continued, the trustee joined in the dismissal request on condition that all creditors were to be paid in full. The trustee indicated that sufficient funds ...