Friday, November 14, 2008
C.A. Upholds Compounding Interest on Renewed Judgments
By KENNETH OFGANG, Staff Writer
Plaintiffs who renew their judgments under the statutory procedure are entitled to compound interest, the Court of Appeal for this district ruled yesterday.
Div. Four affirmed a ruling by Los Angeles Superior Court Judge Wendell Mortimer Jr., since retired, that compound interest was properly added to a judgment when it was renewed 43 months after it was entered, while appeals were still pending.
The original judgment resulted from a suit by several investment funds that had purchased high yield notes issued by since-liquidated Renaissance Cosmetics, Inc.
The plaintiffs claimed that CIBC World Markets, Inc., the investment banking arm of the Canadian Imperial Bank of Commerce, had engaged in fraud, misrepresentation, and violations of federal and state securities laws in connection with the notes.
Following a jury trial, judgment was entered in favor of the plaintiffs for damages in excess of $32 million. CIBC appealed, and some of the plaintiffs cross-appealed Mortimer’s denial of their request for prejudgment interest.
In May of last year, while the appellate proceedings were still pending, the plaintiffs applied for renewal of the judgment under the Enforcement of Judgments Law. The clerk of court filed a notice of renewal, which gave the plaintiffs interest on the post-judgment interest that had accrued, and CIBC moved to vacate the renewal.
Mortimer denied the motion to vacate, and CIBC appealed. In December of last year, the Court of Appeal affirmed the judgment in favor of the plaintiffs, reversed the denial of prejudgment interest, and remanded to the trial court.
Justice Nora Manella, writing yesterday for the Court of Appeal, said the trial judge was correct in his assessment that the Enforcement of Judgments Law, by establishing the renewal procedure, permits the compounding postjudgment interest.
Manella reviewed the history of the law, which was enacted in 1982. Among other things, the justice noted, it set out the present ministerial renewal procedure in place of a prior process allowing creditors whose judgments had expired after 10 years to move for reinstatement on the ground of “excusable failure” to execute.
The current procedure allows one renewal at any time, and subsequent renewals at intervals of not less than five years.
Contrary to CIBC’s contention, Manella said, the comments of the California Law Revision Commission and the plain language of the law—awarding interest on the “principal amount of a money judgment remaining unsatisfied,” which is “the total amount of the judgment as...last renewed”—establishes legislative intent that interest be compounded upon renewal.
Nor, the justice said, is there anything in the law that limits the right to renew to cases in which there is a risk that the judgment will not be paid. Manella reasoned that by allowing judgment creditors to apply for renewal “at any time before the expiration of the 10-year period of enforceability,” and repealing the code section allowing motions to revive expired judgments based on a showing of diligence, the Legislature made clear that a judgment creditor need not show any particular cause for renewing the judgment.
The justice also rejected the claim that to the extent it allows compounding of interest, the Enforcement of Judgments Law violates the state Constitution’s provision limiting interest on judgments to 10 percent. She cited Heald v. Friis-Hansen (1959) 52 Cal.2d 834, which found that a loan agreement that provided for the maximum interest rate, and for annual compounding at that rate following default, did not violate the Constitution’s usury provision.
A Civil Code section that broadly prohibited compound interest on judgments, Manella said, was abrogated when the constitutional provisions on usury were amended in 1976.
Attorneys on appeal were Donald M. Falk, Neil M. Soltman, Fredrick S. Levin and Melissa J. Pastrana of Mayer Brown LLP for CEBC and J. Michael Hennigan, Michael Swartz, and Allison Chock of Hennigan, Bennett & Dorman LLP, along with Irving H. Greines and Marc J. Poster of Greines, Martin, Stein & Richland LLP for the investors.
The case is OCM Principal Opportunities Fund v. CIBC World Markets Corp., B203443.
Copyright 2008, Metropolitan News Company