Wednesday, October 29, 2008
Court Explains Fee Awards for ‘Enforcing’ Judgments
By STEVEN M. ELLIS, Staff Writer
Judgment creditors forced to defend the validity of an award may seek costs under a state law allowing recovery of attorney fees incurred “enforcing” the judgment, the Fourth District Court of Appeal held yesterday.
Reversing a trial court’s order taxing costs, Div. Three ruled that an Orange County corporation could recover for defending its award against an action by two judgment debtors who alleged the award had been reduced by stipulation in a subsequent mediation because the sole purpose of the separate action was to decrease the debtors’ unsatisfied obligation.
Globalist Internet Technologies sued Albert Reda and two affiliated corporations for breach of contract and fraud over the sale of two Internet websites by Globalist, and in 2003 obtained a judgment awarding compensatory damages of $136,000, punitive damages, and attorney fees as authorized by the contract.
While defending against a separate action by Reda and the others alleging malicious prosecution, Globalist also sued some of Reda’s business associates who were involved in the same business transaction underlying the judgment, and all of the litigants agreed to engage in a global mediation before retired Los Angeles Superior Court Judge William Sheffield.
The parties signed a handwritten stipulation for settlement during the mediation in 2005, substantially reducing the award, but negotiations over the final terms of the settlement broke down and a final agreement was not executed.
Reda and one of his co-debtors then filed suit to enforce the stipulation, but Sheffield—on the parties’ submission of the matter to binding arbitration before him—concluded that the stipulation was not an enforceable settlement agreement, and Orange Superior Court Judge Clay M. Smith denied the debtors’ subsequent motion to vacate the arbitration award.
However, when Globalist sought costs under Code of Civil Procedure Sec. 685.040 it asserted were incurred in enforcing the judgment, including costs of defending against the suit to enforce the stipulation, Smith concluded that the latter fees had not been incurred “enforcing” the judgment, and granted the debtors’ motion to tax costs with respect to those fees.
Smith reasoned that the fees were not recoverable because they were incurred in a different action than the judgment, but Justice Kathleen O’Leary wrote on appeal that Smith was incorrect because Globalist’s right to recover attorney fees did not depend on the nature of the action or the forum in which the expenses were incurred.
Remanding the matter to the trial court to determine whether the attorney fees sought were reasonable, she explained:
“The inquiry compelled by Sec. 685.040 is whether the attorney fees were incurred ‘in enforcing a judgment’ containing an award of contract attorney fees. They were. The sole purpose of the specific performance action…was to significantly decrease their unsatisfied judgment debtor obligations in this action…[to] about one-sixth of what was owed.
“Had Globalist not defended against the specific performance action, it would have lost substantial rights under the judgment in this case. Accordingly, the attorney fees it incurred in defense of the companion action were incurred in enforcing the judgment.”
Presiding Justice David G. Sills and Justice Richard M. Aronson joined O’Leary in her opinion.
The case is Globalist Internet Technologies, Inc. v. Reda, 08 S.O.S. 5895.
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