Friday, January 13, 2012
THE LEGAL COMMUNITY
The Life and Death of Federal Judgments and Chapter 11 Plans
By DAVID J. COOK
(The author is the senior attorney for Cook Collection Attorneys PLC. )
What greeting card do you expect from the judgments warehoused in your file cabinets? Yes, those judgments can mail you a greeting card. Your first choice is the birthday card: “Happy 10th Year Anniversary. What a ride. Thanks for the renewal. See you in ten years.” Your other choice is the condolence card: “10 years? You waited too long. My dearest sympathy.”
Victory lasts forever, but not a federal judgment. “There is ‘no specific federal statute of limitations on how long [a federal] judgment is effective. (citation omitted) When no federal statute applied, state practices and procedures are utilized…”1 State law provides a judgment creditor with the rights and remedies to enforce a federal money judgment under F.R.C.P. 69(a)(1), including the renewal of a money judgment.2 The law of the state measures the life of a federal judgment. A pending appeal does not toll the enforceability period under C.C.P. § 683.020.3
The Law of the Domicile Measures the Life of a Federal Judgment
In In Re Levander,4 the Ninth Circuit held that the federal courts apply the law of the domicile in the enforcement of a judgment.5 Similarly, in McCarthy v. Johnson,6 the court held that Utah state law provided the mechanism for the renewal of a federal judgment. In Fidelity Nat. Fin. Inc. v. Friedman, the Ninth Circuit held that state law applies when measuring the life of judgments. Federal and bankruptcy courts apply state law when renewing a judgment because federal judgments lack a federal expiration date.7 While Fidelity dealt with a registered judgment, the principle that a registered judgment is deemed a judgment for all purposes under 28 U.S.C. § 1963 is nevertheless applicable.
The Ninth Circuit held that the federal courts are to apply state law in determining the statute of limitations.8 Likewise, the Fifth Circuit applied Texas state law in Andrews v. Roadway Express, Inc. (5th Cir. 2006) 473 F.3d 565, holding that a consent decree, arising from a class action suit, was time barred as a result of the plaintiffs’ failure to timely renew the judgment and raising the issue whether other judgment providing for payment to class bear a fixed life.9 Unless a federal statute provides otherwise, the practice relative to the revival of dormant judgment is governed by state law.10
Deader Than a Doornail: the Statue of Repose
Some states have held that a time-barred judgment is extinguished and ceases to exist (“statute of repose”), as opposed to having a procedural rule that bars recovery in the enforcement of judgments.11 In United States v. Tacoma Gravel & Supply Inc.,12 the Ninth Circuit, construing Washington state law, held that Washington state’s limit on the enforceability of judgments is a statute of extinguishment (i.e., a statute of repose),13 not a statute of limitations. Moreover, the Ninth Circuit unequivocally held that “…this is not a statute of limitations but of extinguishment; after six years, a Washington judgment has no force or effect—it ceases to exist. [Collection of Washington state cases]”14 The Tacoma court applied Washington state law to bar enforcement brought by the United States, stating that the “Appellant had no judgment left to renew,” a conclusion predicated in part on the government’s filing in state court.15 The court did not leave the government empty-handed. It left open the prospect that the underlying claim was still viable under United States v. Summerlin.16 Tacoma is important because it demonstrates that a renewal statute is also a statute of repose that may extinguish the judgment completely.
Read the Manual
California Code of Civil Procedure §§ 683.110 through 683.220 provide for the renewal of a judgment consisting generally of the filing and service of an application for renewal [Sections 683.140 to 683.150]. Upon filing the application, the clerk shall enter the renewal in the court records.17 Section 683.150(a) authorizes renewal without the necessity of service of process of the renewal “package.” (Judicial Council Form Nos. EJ-190, EJ-195, and MC-012, and include a detailed declaration of interest).
To initiate enforcement, the judgment creditor must serve the renewal by mail. See C.C.P § 683.160(b). To maintain the judgment lien on the real property, the judgment creditor must record a certified copy of the application for renewal. See C.C.P § 683.180.18 Ten years is a long time and expect that the debtor might have conveyed the property, fraudulently or otherwise. The judgment creditor must personally serve the transferee and file proof of service within 90 days of the renewal filing. See §§ 683.180(b)(1) & (2) in prosecuting the renewal. This is a common error and title reports (modern parlance and much cheaper: litigation guaranty) are de riguer in identifying the transferee. In the online world, nearly every county recorder (except Los Angeles) will identify the grantee of the debtor under the “granter/grantee” index. Use Judicial Council Form EJ-190 for the Northern District of California, not the Central District, which requires a traditional filing.19
Chapter 11 Plans Are Money Judgments and Expire Like Any Other Federal Judgment
The fact that a class action [“Andrews”] judgment expired suggests that a confirmed Chapter 11 plan, providing for payment to the creditors, would likewise expire unless renewed pursuant to the domicile law. Chapter 11 plans are a blend of contract, judgment, and consent decree, offering payment to a group of creditors.20 Chapter 11 plans assure payment equivalent to their recovery in a Chapter 7 liquidation21 and are subject to enforcement if breached.22 If a consent decree arising from a class action expires like any other federal judgment, the confirmed Chapter 11 plan, bearing the near-identical attributes (judgment, class of claimants, continuing supervision, claim filings procedures, and pro rata payment based on the consent decree), would likewise expire absent a renewal under state law.23 The statute of repose would extinguish the plan obligations and reinvigorate a mediocre balance sheet. The plan discharge would recapitalize the debtor. Who would be beneficiary of the plan “kicking the bucket?” Answer: the shareholders who are the [pre-petition] creditors.
Is dumping the Chapter 11 plan a good deal and for whom? Answer: Yes, if stock of the debtor, freed of the plan and publicly traded, offers greater value to the creditors than payments under the plan. Expiring Chapter 11 plans recast the asbestos mega-cases24 whose plans bear a lifespan of 10 years plus and compensate claimants with debtor’s stock [through a claimant’s trust]. The statute of repose frees the debtor of plan obligations [billions], jumpstarts the stock, and puts real money in the hands of the claimants.
Federal Courts Are Eternal But Federal Judgments Are Not
The life of a federal judgment could easily exceed 10 years, given various appeals up to the Supreme Court. Consent decrees offering payment over time to claimants can run 10 years or more. Asbestos Chapter 11 plans readily exceed ten years and the Johns Manville plan is now in excess of 20 years. These plans [judgments or decrees] bear the risk of extinguishment if not renewed and, if expired, would upset settled social and political expectations.
Is a plan implosion a disaster? In a Chapter 11, the beneficiaries are the creditors as shareholders, anticipating an upswing in the stock value, would move to extinguish the plan and inherit a revived company. This result suggests that the plan extinguishment more efficiently compensates victims of the mass tort than the plan payments because the invisible hand of the marketplace reveals this outcome. The plan extinguishment will wipe out the plan and the market will rush to the stock.
© Copyright David J. Cook 2012
1. In re Fifarek (Stark v. Fifarek), 370 B.R. 754, 758 (Bankr. Court, W.D. Mich. 2007); In re Hunt (Lillie v. Hunt), 323 B.R. 665, 666 (Bankr. W.D. Tenn. 2005) (“Since there is no specific statute of federal statute of limitations on how long this judgment is effective, the parties agree that we must look to Tennessee law [citation omitted])”.
2. Fed R. Civ Pr. 69(a)(1)&(2)
3. Fidelity Creditor Service, Inc. v. Browne (2001) 89 Cal.App.4th 195, 201 [106 Cal.Rptr.2d 854]: The period prescribed in Section 683.020 commences on the date of entry and is not tolled for any reason
4 In re Levander, 180 F.3d 1114 (9th Cir. 1999)
5. Id. at 1121-1122, “We have held that Federal Rule of Civil Procedure 69(a) empowers federal courts to rely on state law to add judgment-debtors under Rule 69(a), which permits judgment creditors to use any execution method consistent with the practice and procedure of the state in which the district court sits.” citing to Cigna Property & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 421 (9th Cir.1998) (quoting Peacock v. Thomas, 516 U.S. 349, 359 n. 7, 116 S.Ct. 862 )(internal quotation marks omitted); see also, Andrews at 568; Crump v. Bank of America, 235 F.R.D. 113, 115 (D.D.C. 2006); RMA Ventures v. Sun Am. Life Ins. Co., 576 F.3d 1070, 1074 (10th Cir. 2009) (“Once a federal district court issues a write of execution, a judgment creditor must follow the procedure on execution established by the laws of the state in which the district court sits. [Citations omitted] ***). Thus, as required by FRCP 69(a)(10), Defendants have turned here to the method of execution prescribed under Utah law.”
6. McCarthy v. Johnson, 172 F.3d 63 (10th Cir. 1999). Unpublished Opinion
7. Fed.R.Civ.Pro 69(a) et seq. incorporates the law of the state in enforcing money judgments, including the requirement of a renewal. McDaniel v. Signal Capital Corp., 198 B.R. 483, 486-487 (Bankr. S.D. Texas 1996); see also, In re Brink, 227 B.R. 94, 95-96 (Bankr. N.D. Texas, 1998); In re Davis, 323 B.R. 745, 748-749 (Bankr. D. Ariz, 2005); In re Hunt; (Lillie v. Hunt), 323 B.R. 665, 666-667 (Bankr. W.D. Texas 2005); In re Fifarek (Stark v. Fifark), 370 B.R. 754, 758 (Bankr. W. D. Mich. 2007). Also In re Romano (Romano v. LaVecchia), Westlaw cite unavailable [WESTLAW?] (9th Circuit BAP, 2009) (“Thus, state law governs the procedure for execution on a judgment in the absence of an applicable federal statute. There is no relevant federal statute we have been able to locate with regard to the renewal of judgment. The parties agree that Nevada law governs the enforcement of the judgment.” [6 years], aff’d 2010 Ap. Lex 5444 (9th Circuit, 2010).
8. See Marx v. Go Publ. Co., Inc.,721 F.2d 1272, 1273 (1983); see also; Duchek v. Jacobi, 646 F.2d 415, 417 (1981).
9. Andrews at 567-568 (collection of cases). Note the discussion whether the issue is the time limits for the issuance of a writ of execution is subject to state law and whether the judgment is extinguished.
10. See Donellan Jerome Inc. v. Trylon Metals Inc., 996 F. Supp. 996 (USDC, N.D.Ohio 1967 (Collection of cases).
11. Mississippi provides for statute of repose, not statute of limitations for judgment renewals. [Mississippi Code § Ann 15-1-43].
12. United States v. Tacoma Gravel & Supply Co., 376 F.2d 343, 344-345 (9th Cir. 1967) (“Consequently, the judgment becomes inoperative for any purpose after expiration of six years.) Please note that, while Washington has extended the life of a judgment to ten years, the holding in Tacoma that the Washington statute is one of repose, extinguishing the judgment, still applies. Cf. RCW 4.16.020 and 4.56.210
13. A statute of repose cuts off a right of action after a specified period time, irrespective of accrual or even notice that a legal right has been invaded. Giest v. Sequoia Ventures, 83 Cal.App.4th 300, 305 (Cal.App.1 Dist., 2000).
14. Tacoma at 344.
15. Id. at p. 345.
16. In re Penberthy, 211 B.R. 391, 395 (Bankr.W.D. Wash. 1997).
17. Goldman v. Simpson, 160 Cal.App.4th 255, 262: “The statutory renewal of judgment is an automatic, ministerial act accomplished by the clerk of the court; entry of the renewal of judgment does not constitute a new or separate judgment. ‘Filing the renewal application (and paying the appropriate filing fee, Gov.C. § 70626(b)) results in automatic renewal of the judgment. No court order or new judgment is required. The court clerk simply enters the renewal of judgment in the court records.’”
18. Songer v. Cooney (Cal. App. 2 Dist. 1989) 214 Cal.App.3d 387, 393, 264 Cal.Rptr. 1 [abstract of judgment ensures enforceability of judgment lien even though the debtor is bankrupt].
19. If in state court, the alternative method (if timely) is to file a suit to renew the judgment. See Pratali vs. Gates (1992) 4 Cal App. 4th 632, 637-638 and Green vs. Zissis (1992) 5 Cal. App. 4th 1219, 1222; for more a detailed discussion, see Fredric Goldman vs. Orenthal James Simpson (O.J. Simpson) (2008) 160 Cal.App.4th 255 [continuing jurisdiction over judgment debtor who absconds from California]. If the defendant departed the state, C.C.P. § 351 tolls the statute of limitations. Green vs. Zissis, supra., at 1222-1123. See also Kertesz vs. Ostrosky (2004) 115 Cal. App. 4th 369, 373. A California state court judgment becomes final upon expiration of the appeal time, or issuance of the remittitur. Green vs. Zissis, supra. p. 1223. If notice of judgment is service, the judgment becomes final in 60 days, and absent notice, 180 days. The notice of entry of judgment kicks off the 60-day clock under C.R.C. 8.104(a)(1) & (2) [60 days after notice from clerk or party], but under C.R.C. 8.104(a)(3), the judgment does not become final until 180 days after entry of judgment. A federal judgment, on the other hand, differs from state law, and is final upon entry. Eichman v Fotomat Corp. (9th Cir 1985) 759 F.2d 1434, 1439.
20. In re Bruce Bartleson, 253 B.R. 75 (9th Cir. BAP 2000) at 78-79
21. 11 U.S.C. § 1129(a)(7)(A)(ii) [Unsecured creditors should emerge from the Chapter 11 with equal or better than what would a Chapter 7 would pay]
22. See In re OORC Leasing, LLC (Bankr. N.D. Ind. 2007) 359 B.R. 227 at 233.
23. A statute of repose extinguishes the judgment. A statute of limitations on a judgment renders the judgment unenforceable. Consent decrees, Chapter 11 plans, and installment judgments provide for periodic payments, sometimes spanning more than ten years. Chapter 11 asbestos plans span decades. This article suggests that a statute of repose would extinguish the decree, plan, or judgment. The statute of limitations might render the decree, plan, or judgment unenforceable but the obligation might remain viable as a contract and enforceable by way of independent suit. Installment judgments have a separate clock under C.C.P. § 683.130(b)(1) based upon the accrual of the past-due payments. The math is left to another article.
24. Nearly all publicly traded.