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Franke v. Bam Building Co.

March 17, 2009; as modified April 16, 2009

NICHOLAS A. FRANKE, PLAINTIFF AND RESPONDENT,
v.
BAM BUILDING COMPANY ET AL., DEFENDANTS AND APPELLANTS.



(Super. Ct. No. 238934) (Ventura County). Steven Hintz, Judge.

The opinion of the court was delivered by: Coffee, J.

CERTIFIED FOR PUBLICATION

BAM Building Company, a general partnership, Michael T. Novick, Robert J. Novick (deceased), BAM Building, a California limited liability partnership, Michael Todd Novick Living Trust, and Novick Family Trust Number One dated June 4, 1982 (collectively BAM) appeal from a judgment entered after a bench trial awarding Nicholas A. Franke $178,288.61 in his action against BAM for liability on an undertaking. The award included $82,535.27 for Franke's losses incurred in municipal and bankruptcy court actions resulting from BAM's efforts to enforce a judgment against a third party, prejudgment interest (Code Civ. Proc., § 720.260, subd. (c)(2)),*fn1 $39,270.00 in attorney's fees and $2,148.71 in costs as the prevailing party (ibid.).

BAM contends that Franke incurred no recoverable losses as a result of its enforcement proceedings because BAM's lien was invalid and its efforts to levy on a bankruptcy distribution were ineffective. BAM also challenges particular items of loss.

BAM further contends that section 720.260 does not authorize an award of attorney's fees in this action. We reverse the award of attorney's fees in the amount of $39,270 and otherwise affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 1996, BAM, Franke and George Benjamin were each creditors of C.W. and Marlene Wilburn (the Wilburns). The Wilburns expected distribution on claims they were pursuing against a bankruptcy debtor, Noci Oro Corporation (the Wilburn distribution).*fn2 The competing claims of these creditors against the Wilburn distribution led to the current litigation.

BAM had a 1989 unsatisfied judgment against the Wilburns. Benjamin had a 1990 unsatisfied judgment against the Wilburns. In 1993, the Wilburns granted Franke, their bankruptcy attorney, a first priority lien against the Wilburn distribution to secure his fees.

In February 1996, the bankruptcy court approved a compromise allowing the Wilburns' $162,500 unsecured claim against Noci Oro. BAM received notice of the Wilburn compromise but did not object to it or appear at the approval hearing. The notice did not disclose Franke's lien. BAM chose not to oppose the compromise "and to utilize instead its state court judgments to levy upon the Wilburns."

In order to levy on the Wilburn distribution, BAM obtained a writ of execution against the Wilburns for $28,949.23 in the municipal court action.*fn3 On February 27, 1996, BAM levied on the Wilburn bankruptcy distribution by causing the sheriff to serve the writ of execution and a notice of levy on the bankruptcy trustee. Franke responded by filing a third party claim asserting that he had a priority lien against the Wilburn distribution for $73,712.63 in fees currently owed him by the Wilburns plus future fees and interest. In order to prevent release of the funds pursuant to Franke's claim, BAM tendered an undertaking in the amount of $2,500 to indemnify Franke against losses he might "incur[] by reason of the enforcement proceedings" against the Wilburns. (§ 720.260.) At the time, that statute required an undertaking of "two thousand five hundred dollars ($2,500), or twice the amount of the execution lien... whichever is the lesser amount." Franke also tendered a statutory undertaking to indemnify BAM. (§ 720.630.)

Meanwhile, in the Noci Oro bankruptcy, the trustee acknowledged service of BAM's 1996 writ of execution. He also acknowledged notice of Franke's 1994 lien and notice of Benjamin's assignment of claim. The trustee did not immediately release any funds to the Wilburns. He requested letter briefs on the relative priorities of the three claims against the Wilburn distribution. The parties exchanged correspondence, and in August of 1996, the trustee gave notice of his intent to distribute the Wilburn distribution in the following priority: first to Benjamin, second to BAM and third to Franke.

In October 1996, in the municipal court, BAM's writ was returned "unsatisfied." In April 1997, Franke moved the municipal court for an order recognizing the superiority of his claim and requiring BAM to indemnify Franke for losses incurred as a result of BAM's enforcement proceedings. (§ 720.260, subd. (c)(2).) The municipal court denied the motion, finding that it had "no jurisdiction to determine the issue of the priority of [Franke's] claim of lien, that issue already having been determined in the bankruptcy court. [¶] [Franke's] motion is denied."*fn4

The United States Trustee's Office approved the trustee's proposed distribution and filed a final report on May 8, 1998, requesting bankruptcy court approval. In August of 2000, the bankruptcy court entered a formal order instructing the trustee to distribute first to Benjamin the full amount necessary to satisfy his claim, and to distribute the remainder between Franke (68 percent) and BAM (32 percent). In June 2000, the trustee distributed funds to BAM, before the court had issued its formal order.

Franke successfully appealed the order of the bankruptcy court to the bankruptcy appellate panel of the Ninth Circuit Court of Appeal. In July 2001, the panel remanded the matter to the bankruptcy court with directions to award Franke the full Wilburn distribution, and to distribute nothing to BAM or Benjamin.

Franke again moved the municipal court for an order determining that his lien was senior to BAM's and requiring BAM to pay Franke's losses incurred as a result of the enforcement proceedings. The court denied the motion "without prejudice" pending a priority decision by the bankruptcy court on remand.

On remand, the bankruptcy court ordered BAM to disgorge the prior distribution, which it did, and the court ordered the trustee to pay the full Wilburn distribution to Franke. Franke received that distribution in the amount of $69,036.83 on November 21, 2001. Benjamin and BAM received nothing. Franke had incurred $1,907.88in fees and costs in the municipal court enforcement proceedings, and he incurred $33,898.48in attorney's ...


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