California Court of Appeals, Fourth District, Third Division
TERENCE A. KILKER et al., Plaintiffs and Respondents,
FRANK C. STILLMAN, Defendant and Appellant.
Appeal from an order of the Superior Court of Orange County, No. 30-2008-00106524 Franz E. Miller, Judge.
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Law Offices of Jefford C. Davis and Jefford C. Davis for Defendant and Appellant.
Rutan & Tucker and Thomas S. Salinger for Plaintiffs and Respondents.
Following the entry of a judgment in favor of plaintiffs Terence A. Kilker and Paula J. Kilker (the Kilkers) and against defendant Frank C. Stillman, the trial court ordered Stillman to produce documents regarding his assets to the Kilkers. After Stillman failed to comply with that order, the trial court found Stillman in contempt and ordered, inter alia, that Stillman pay the Kilkers reasonable attorney fees and costs, plus interest. The underlying judgment was eventually satisfied.
To collect on the attorney fees and costs award, the Kilkers served a writ of execution on Preferred Bank to levy funds in Stillman’s bank account. Stillman submitted a claim of exemption to the writ. He asserted the funds in the account were Social Security payments exempt from levy under 42 United States Code section 407. The Kilkers opposed Stillman’s claim of exemption, arguing that under Code of Civil Procedure section 704.080, only Social Security funds directly deposited into a bank account by the government are protected by the exemption. (All further statutory references are to the Code of Civil Procedure unless otherwise specified.) The trial court found Stillman’s bank account at Preferred Bank solely contained Social Security payments, but, nevertheless, denied Stillman’s exemption claim. The court did so because those funds were not directly deposited into the bank account by the government. The court’s conclusion was legally erroneous because Stillman’s Social Security payments are protected by federal law from levy.
Accordingly, we reverse. Federal law protects Social Security funds from “execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.” (42 U.S.C. § 407(a).) It is undisputed Stillman’s bank account at Preferred Bank solely contained Social Security payments. The exemption under 42 United States Code section 407(a) thus applied to the Social Security payments in the Preferred Bank account.
The authorities, relied on by the Kilkers, do not eliminate this protection of Social Security payments. True, under section 704.080, subdivision (b), a judgment debtor, who receives Social Security payments by direct deposit, does not need to prove that the funds are exempt (up to certain amounts). Section 704.080, by providing such automatic exemption for direct deposit amounts, provides additional protection to Social Security payments that are directly deposited. But neither section 704.080, nor any other legal authority cited by the parties, supports the interpretation that section 704.080, subdivision (b) eliminates the availability of the 42 United States Code section 407(a) exemption as to Social Security payments that are not directly deposited into a bank account.
Read together, these statutes make perfect sense: If funds are directly deposited by the government, there is no need to trace their source. If they are not directly deposited, the judgment debtor may claim exemption from levy but must prove such funds were Social Security payments. Stillman met that requirement.
Judgment Is Entered Against Stillman.
In 2000, the Kilkers hired Curcies Coordinated Construction, Inc. (Curcies), to build a swimming pool on their property. Curcies, in turn, hired Stillman to provide soil testing in connection with the pool’s construction. Stillman prepared a soils report, and Curcies built the pool. In 2008, the Kilkers sued Curcies, Stillman, and others for damages they sustained after the mastic seal of the pool separated. The Kilkers and Stillman entered into a settlement agreement whereby Stillman agreed to pay the Kilkers $92, 500. After Stillman failed to timely pay the settlement amount, the trial court entered judgment in favor of the Kilkers and against Stillman in the amount of $92, 500.
The Kilkers’ Efforts to Execute on the Judgment
On July 15, 2010, Stillman was ordered to provide the Kilkers’ counsel with certain documents on or before August 6 (the July 15 order), a few days before Stillman’s judgment debtor examination scheduled for August 10. Stillman did not produce the documents.
The Kilkers attempted to collect on the judgment by levying on Stillman’s bank account at Union Bank. The trial court denied Stillman’s claim of exemption from execution of the funds contained in that account. Stillman appealed from that order and this court dismissed the appeal due to Stillman’s failure to timely designate the record.
The Kilkers also attempted to collect on the judgment by levying on real property referred to as the Railroad Street property. Shortly before the date that had been noticed for the sheriff’s sale of the Railroad Street property, Luis Arriaga, as successor trustee of the Walla Walla Group Trust, an irrevocable trust, tendered a third party claim to the sheriff, asserting that the trust owned the Railroad Street property. The sheriff’s sale was cancelled.
The Kilkers filed a petition to establish the invalidity of the trust’s third party claim, in which they asserted Stillman’s transfer of the Railroad Street property to the trust in 2004 constituted a fraudulent conveyance under the ...