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Adir International, LLC v. Superior Court (Fusion Industries)

California Court of Appeals, Second District, Third Division

May 29, 2013

ADIR INTERNATIONAL, LLC, Petitioner,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent FUSION INDUSTRIES, Real Party in Interest.

ORIGINAL PROCEEDINGS in mandate. Abraham Khan, Judge. Los Angeles County Super. Ct. No. BC451147

Elizabeth T. Van Horn, Assistant General Counsel, for Petitioner.

No appearance for Respondent.

Law Offices of A.J. Glassman and A.J. Glassman for Real Party in Interest.

CROSKEY, Acting P. J.

After the sheriff levied on funds in its bank account, pursuant to a writ of execution, a judgment debtor filed a notice of appeal and a sufficient appeal bond. The debtor gave notice of these documents to the sheriff, in order to prevent the sheriff from disbursing the levied funds to the judgment creditor. However, the debtor failed to file a motion to quash the writ of execution. The sheriff then disbursed the levied funds to the creditor. The debtor filed an ex parte application, requesting the trial court to order the creditor to return the funds erroneously disbursed to it by the sheriff. The trial court denied the order, on the basis that it had no jurisdiction to do so once the funds had been delivered to the creditor. The debtor filed a petition for writ of mandate challenging the trial court’s order. We issued an order to show cause and now deny the petition.

FACTUAL AND PROCEDURAL BACKGROUND[1]

Petitioner Adir International, LLC dba Curacao, filed the instant action against Fusion Industries, which then filed a cross-complaint. The action proceeded to a jury trial, in which Fusion prevailed. The verdict, in an amount exceeding $90, 000, was reached on October 12, 2012. Judgment was entered on November 27, 2012, with notice of entry shortly thereafter.

On December 10, 2012, Fusion, now the judgment creditor, obtained a writ of execution.[2] Fusion filed the writ of execution with the Los Angeles County Sheriff, [3] who was statutorily required to execute it. (Code Civ. Proc., § 699.530, subd. (a).)

On December 12, 2012, Adir International, the judgment debtor, filed a motion for judgment notwithstanding the verdict, which was set to be heard on January 17, 2013. In the meantime, collection efforts continued. The sheriff levied on the debtor’s bank account on December 13, 2012. The levy created an “execution lien” on the property levied. (Code Civ. Proc., § 697.710.) The debtor asserts that it received a copy of the notice of levy on December 31, 2012.[4] At that point, according to the debtor, the sheriff’s website indicated that the funds would be disbursed to the creditor on February 4, 2013. Although the debtor was aware, on December 31, 2012, of the levy on its funds, it took no immediate action to prevent the levied funds from being turned over to the creditor. Instead, on January 17, 2013, the same day as the motion for judgment notwithstanding the verdict was to be heard, it made an ex parte application for a discretionary stay of execution.[5]

On January 17, 2013, the motion for judgment notwithstanding the verdict was denied, as was the ex parte application for discretionary stay.[6] Under Code of Civil Procedure section 917.1, subd. (a)(1), the enforcement of a monetary judgment is stayed by the perfecting of an appeal and the filing of a sufficient undertaking. At the time of the denial of its motion for judgment notwithstanding the verdict, more than two weeks remained for the debtor to perfect an appeal and file an undertaking before the levied funds were to be disbursed to the creditor.

The disbursement was to occur on February 4, 2013, a Monday. On February 1, 2013, the preceding Friday, the debtor filed a notice of appeal and an appeal bond.[7] Under Code of Civil Procedure section 697.040, subdivision (a), one of the effects of the stay which arises from the filing of a notice of appeal and sufficient undertaking is that “[e]xisting [execution] liens... are extinguished.” Furthermore, upon extinguishment of such a lien, property held by a levying officer subject to the lien “shall be released, ” to the debtor, unless certain exceptions, inapplicable here, exist. (Code Civ. Proc., § 697.050.)

Concerned, however, that the sheriff would not know that the liens were extinguished, and would therefore disburse the levied funds to the creditor on the following Monday, the debtor hand served the sheriff with a copy of its notice of appeal and appeal bond.[8] The law is clear that, had the debtor sought an order staying further enforcement of the judgment and directing the sheriff to release the levied funds to the debtor, the court would have been required to issue it. (California Commerce Bank v. Superior Court (1992) 8 Cal.App.4th 582, 587 (CCB).) However, the debtor did not seek such an order. On February 7, 2013, [9] the levied funds were disbursed to the creditor by the sheriff.

On February 13, 2013, the debtor filed an ex parte application for an order requiring the creditor to return the erroneously disbursed funds. Relying exclusively on CCB, the debtor argued that, under the trial court’s residual authority over the enforcement of judgments, [10] the court had the power to order the creditor to return to the debtor funds which had been erroneously disbursed to the creditor after the enforcement lien had been extinguished.

The trial court denied the application on the basis that, while CCB provided the court with authority to direct the sheriff to release to the debtor levied funds in its possession, the court had no authority to order the return of funds already delivered to the judgment creditor. On February 27, 2013, the debtor filed a petition for writ of mandate challenging the denial of its application.[11] We issued an order to show cause and now deny the petition.

ISSUE RAISED

The sole issue raised by this writ petition is whether the trial court has authority to order a judgment creditor to return to a judgment debtor funds which have already been disbursed to the creditor by the levying officer. We conclude that it does not.

DISCUSSION

As noted above, a levy on property under a writ of execution creates an execution lien on the property. (Code Civ. Proc., § 697.710.) Code of Civil Procedure section 697.040, subdivision (a) provides that “[i]f enforcement of the judgment is stayed on appeal by the giving of a sufficient undertaking...: [¶] (1) Existing liens created under this division are extinguished. [¶] (2) New liens may not be created under this division during the period of the stay.” Moreover, Code of Civil Procedure section 697.050 provides, “If a lien created pursuant to this division is extinguished, property held subject to the lien shall be released.... ” It is undisputed that this factual scenario is at issue in this case. The sheriff’s levy on the debtor’s account created an execution lien; the debtor’s notice of appeal and appeal bond stayed the action and extinguished the lien; the extinguishment of the lien required that the levied property be released to the debtor. However, the property was not released to the debtor, and was, instead, disbursed to the creditor. The parties do not refer to, and independent research has not disclosed, any case authority supporting the proposition that a court can order the return of funds once disbursed, however erroneously, by the levying officer to the creditor. Indeed, all of the authority is to the contrary.

In Del Riccio v. Superior Court (1952) 115 Cal.App.2d 29 (Del Riccio), the court was concerned with a statutory scheme whereby once funds were in the hands of the levying officer, the funds were, in fact, the property of the judgment creditor. In that case, the trial court issued an order staying further execution of the judgment, after funds had been levied pursuant to a writ of execution. The question before the court was whether the trial court could stay execution after the funds had already been levied. (Id. at pp. 29 31.) The court answered the question in the negative. The court explained, “There can be no doubt as to the power of the court to control further proceedings while the execution is outstanding, but we think the court was without power to take control of the money of petitioners by ordering the sheriff not to pay it over as he was legally bound to do. The court would not have had authority to order the petitioners to pay the money into court after they had received it, and yet the orders in question accomplished a seizure by taking control of the fund. [¶] In the exercise of equitable jurisdiction the court undoubtedly has broad discretionary powers to take whatever action is necessary in the interests of justice in order that its decrees will not fail to accomplish their purpose. Here, no appeal was made to the equitable powers of the court. A stay of execution was proper—the code provides for it—but the court could not, by ordering a stay, undo what had already been done so as to deprive the creditor of ownership and use of money collected under the writ.” (Id. at p. 31.)

While the instant statutory scheme provides that levied funds in the hands of the sheriff can, in fact, be ordered to be released to the debtor when a stay is effectuated, the language of Del Riccio with respect to funds in the hands of creditors is still valid. “The court would not have had authority to order the petitioners to pay the money into court after they had received it.... ” (Del Riccio, supra, 115 Cal.App.2d at p. 31.) Indeed, CCB cites favorably to Del Riccio for the proposition that, “in the absence of statutory authority a court cannot undo what has already been done so as to deprive a judgment creditor of ownership and use of money collected under a writ of execution.” (CCB, supra, 8 Cal.App.4th at p. 584.) Although there is statutory authority for the proposition that a stay (arising from a perfected appeal and undertaking) results in the extinguishment of judgment liens, the inability to create further liens, and the release of property held subject to the liens, there is no statutory authority for the proposition that property disbursed to a creditor after a lien has been extinguished can be ordered to be returned.

Language in another case confirms the result. In Estate of Neilson (1960) 181 Cal.App.2d 769, the appellate court issued a writ of supersedeas to restrain the sheriff from disbursing levied funds to a judgment creditor when execution had been stayed by appeal. The court noted, “As long as the funds have not been paid over to the [creditor], this court may issue supersedeas to prevent execution in violation of the statutory stay.” (Id. at p. 774.)

We are not unmindful of the situation in which the debtor finds itself. As it timely filed a notice of appeal and sufficient appeal bond, enforcement efforts were stayed. Having informed the sheriff of these filings, it assumed that the sheriff would cease further enforcement efforts and release the funds to it.[12] However, the debtor had a more conclusive remedy; it could have sought an order from the court recalling and/or quashing the writ of execution and releasing the liens. (CCB, supra, 8 Cal.App.4th at p. 587; Curley v. Superior Court (1962) 199 Cal.App.2d 369, 371; Ahart, Cal. Practice Guide: Enforcing Judgments and Debts (The Rutter Group 2012) ¶ 6:613, p. 6D-70; cf. Brown v. Kennard (2001) 94 Cal.App.4th 40, 50 [when a party wrongfully executes on exempt funds, the litigation privilege bars an action for abuse of process; the proper remedy would have been to move to quash the wrongful writ of execution and levy].) The debtor failed to seek court intervention until the funds had already been disbursed to the creditor. At that point, the court had no authority to order the funds returned to it.

DISPOSITION

The petition for writ of mandate is denied. Fusion, the creditor, shall recover its costs in these proceedings.

We Concur: KITCHING, J.ALDRICH, J.


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