Thursday, August 15, 2019
Page 1
State Lawsuit Brought Against Defendant In Bankruptcy Is Nullity—Appeals Court
Lawyer Who Once Had Judgment Against Ex-Client for $98,000 to Receive No Fees
By a MetNews Staff Writer
A superior court complaint filed after the defendant has sought bankruptcy protection is void ab initio, under a decision by Div. Two of Fourth District Court of Appeal.
In light of the opinion, filed late Tuesday, a lawyer who at one point had a default judgment against his former client for nearly $100,000 will wind up with nothing, and must pay her costs on appeal.
Justice William Bedsworth wrote the opinion which, despite the issue apparently being one of first impression, was not certified for publication. Bedsworth said it is well established that actions taken in a lawsuit while bankruptcy proceedings are pending are void but, he observed, there appears to be no California authority for the proposition that a complaint filed in state court during that period is a nullity.
Precedent Not Found
He noted that the trial judge—Melissa R. McCormick of the Orange Superior Court—puzzled over the matter at a hearing, telling counsel:
“I have not been able to identify any published cases—you’re welcome to disagree with me if I’m wrong—where a superior court has [voided] a complaint under circumstances like this.”
Bedsworth wrote:
“It may be true that no published California opinion has yet to declare the obvious conclusion that flows from the rule that any action taken in violation of the automatic stay is void ab initio. However, the Supreme Court of Kansas…and the intermediate appellate court of Illinois…have both squarely so held.”
Suit Against Client
The plaintiff is Dana Point attorney Fred S. Pardes. He initially sued his former client, Susan Doan, for fees in 2009.
That action was dismissed without prejudice because he failed to advise Doan of her right to arbitrate the dispute. She proceeded to request arbitration, asserting that she fired Pardes based on a conflict of interest and unfair practices and owed him $10,000, at most, not the $66,000 he billed.
Pardes sued her again in 2010 but after she had declared bankruptcy.
He knew from his representation of her that one of her assets was an apartment complex in Long Beach known as the “Rose property.” Doan had failed to list it among her assets in the bankruptcy proceeding, and Pardes did not point this out to the trustee.
After Doan obtained a discharge in bankruptcy in 2011, Padres secured a default and a default judgment in the action he filed the previous year, being awarded $63,702.28 in fees, which swelled to $98,179.46 with interest. In 2017, the lawyer sought to levy execution on the Rose property, prompting Doan to move for a relief from default and the default judgment, which McCormick granted.
Both parties appealed.
No Jurisdiction
“The trial court here did not have subject matter jurisdiction even to set aside the default or default judgment,” Bedsworth said. “The only jurisdiction it had was to announce its lack of subject matter jurisdiction over Pardes’ 2010 complaint, and dismiss that complaint.”
He commented:
“Indeed, were we to articulate some special rule that would render a state court complaint filed during a debtor’s bankruptcy not to be void ab initio if it could be later shown the debtor omitted assets, it would give creditors like Pardes—creditors who are aware of the omission—an unfair advantage over the debtor’s other creditors. Such creditors would have a special incentive to keep mum during the pendency of the bankruptcy in order to pursue the omitted asset for themselves on the chance the bankruptcy trustee or bankruptcy court failed to discover it. We don’t think Congress had that in mind in enacting the automatic stay.”
Reversal, With Direction
Bedsworth announced:
“[W]e reverse all trial court orders in this action and direct the trial court to dismiss the complaint.”
He continued:
“This disposition, however, raises an interesting question concerning costs on appeal. One might argue that if the trial court had no jurisdiction to do anything other than dismiss the case, then we likewise have no jurisdiction to do anything other than direct the same result, ergo we should not even award costs on appeal to Doan, though Doan is clearly the prevailing party in this appeal.
“But we reject this line of analysis.”
Court’s Power
He said courts always have the power to decide if there is jurisdiction. Bedsworth also noted that under Code of Civil Procedure §904.1(a)(2), his court has jurisdiction to hear appeals from postjudgment orders, saying that the determination that Pardes’s action could continue was such an order.
“Concomitantly, having such jurisdiction to decide whether the trial court had jurisdiction to make the postjudgment order here, we also have authority to award costs on appeal,” he reasoned, proceeding to provide: “Doan shall recover her costs on appeal.”
The case is Padres v. Doan, G056170.
Copyright 2019, Metropolitan News Company