Court Opinion

ID: 2788889
Source: CourtListenerOpinion
Date Created: 2015-03-24 20:02:04.590917+00
Date Added: 2024-06-11T11:08:20.399662
License: Public Domain

Filed 3/24/15

                          CERTIFIED FOR PUBLICATION

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                          SECOND APPELLATE DISTRICT

                                     DIVISION SIX

MARY J. McCREADY,                                          2d Civil No. B253164
                                                          (Super. Ct. No. 56-2012-
     Plaintiff and Appellant,                             00421480-CU-CO-VTA)
                                                             (Ventura County)
v.

WILLIAM F. WHORF,

     Defendant and Respondent.

                Sometimes it's not over when it's over. A bankruptcy extinguished
defendant debtor's liability on a judgment in favor of plaintiff. But here it did not
extinguish plaintiff's lien on the bankrupt's business from which plaintiff was
entitled to the assets and profits of the business.
                Shortly before his death, plaintiff's husband sold a business to
defendant. Defendant defaulted on the purchase contract payments. Plaintiff sued
and obtained a money judgment and a lien on the assets of the business including all
profits. Defendant then declared bankruptcy, terminating his personal liability on
the judgment, but the lien survived. Plaintiff brought an action for money had and
received to recover post-bankruptcy profits from the business. The trial court found
for defendant on the ground that plaintiff's remedy was through the laws applicable
to the enforcement of judgments. We reverse.
                                       FACTS
              In 2007 Mary McCready's husband sold his business, BMIP Billy
Bags Design ("Billy Bags"), to William H. Whorf. McCready's husband died after
the sale. Whorf failed to make the payments on the sale. McCready brought an
action against Whorf to recover the sales price.
              On July 6, 2011, McCready obtained a judgment against Whorf in the
amount of $134,927.36. The judgment provided, "In addition Mary J. McCready is
awarded an equitable lien on the assets and profits of [Billy Bags]."
              On July 17, 2011, Whorf filed a petition under Chapter 7 of the
Bankruptcy Code. The petition showed Whorf had an average net monthly income
of $10,487.72 from Billy Bags. Whorf named McCready as a creditor.
              On October 24, 2011, personal liability on Whorf's debts was
discharged in bankruptcy. The lien, however, remained on the assets and profits of
Billy Bags.
              On July 27, 2012, McCready brought the instant action against Whorf
for money had and received. The complaint alleged that Whorf had been receiving
$10,487.72 per month profit from Billy Bags; that McCready has a lien against
those profits; and therefore profits received from the filing of the bankruptcy
petition to the time of trial were monies belonging to McCready. The complaint
prayed for $134,927.36 in damages, the same amount as the original judgment
against Whorf.
              This was a court trial in which no oral testimony was taken. Instead,
the court took judicial notice of documents, including the bankruptcy petition. The
settled statement recites that there was evidence after bankruptcy that Whorf had
receipts from Billy Bags but made no payments to McCready.
              The trial court found for Whorf. The court's ruling states in part:
"[McCready's] remedy, if any, was to seek to enforce the judgment that created the
lien through the use of laws applicable to the enforcement of judgments."

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                                    DISCUSSION
               McCready's prior judgment gave her a lien on the assets and profits of
Billy Bags. It is undisputed that although Whorf's bankruptcy extinguished his
personal liability on the judgment, the lien on Billy Bag's assets and profits
survived. (See Johnson v. Home State Bank (1991) 501 U.S. 78, 84.) Further, it
cannot be disputed that any cash Whorf received from Billy Bags' operations after
the bankruptcy was an asset subject to the lien. That Whorf may have disbursed the
cash, instead of keeping it for McCready in a lump sum, does not make it any less
of an asset subject to the lien.
               In First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657,
FNS was the beneficiary of a deed of trust securing a loan on a single family
residence. Sunrise Trust was the owner of the property. The trustee under FNS's
deed of trust mistakenly executed a deed of reconveyance. The deed was recorded.
Sunrise sold the property free of FNS's trust deed. FNS brought an action against
Sunrise for money had and received and unjust enrichment. The trial court
sustained Sunrise's demurrer. The Court of Appeal reversed stating: "In this case,
FNS, through no fault of its own, lost its security in Sunrise's property. Sunrise had
no legitimate claim to this previously secured portion of the property, and arguably
knew or should have known it did not own all of the property. Nonetheless, it sold
the property and pocketed all of the proceeds. Given these circumstances, this may
prove to be a classic case of unjust enrichment." (Id., at pp. 1670-1671.)
               Here there was evidence that Whorf defeated McCready's lien on the
profits and assets of Billy Bags by keeping the profit for himself. Whether the
action lies in unjust enrichment or money had and received McCready is entitled to
relief.
               The trial court was concerned that Whorf's discharge in bankruptcy
relieved him of personal liability. But Whorf cites no authority that a discharge in
bankruptcy bars personal liability for wrongful acts committed after bankruptcy.
Bankruptcy may give a debtor a fresh start, but it does not give a debtor life-long

                                           3
immunity for wrongful behavior. Here McCready is seeking to hold Whorf liable
for his post-bankruptcy actions in defeating her lien on the profits of Billy Bags.
              The trial court stated McCready's remedy, if any, is to "enforce the
judgment that created the lien through the use of the laws applicable to the
enforcement of judgment." But a separate action on a judgment is expressly
authorized by such laws. Code of Civil Procedure section 683.050, provides in part,
"Nothing in this chapter limits any right the judgment creditor may have to bring an
action on a judgment[.]" In fact, due to Whorf's wrongful acts in avoiding the lien,
there is no other way to enforce the judgment but an action for damages.
              Whorf argues McCready's action is barred by res judicata. Res
judicata serves as a bar to all causes of action that were or could have been litigated
in the first cause of action. (Allied Fire Protection v. Diede Construction, Inc.
(2005) 127 Cal.App.4th 150, 155.) But res judicata is not a bar to claims that arise
after the initial complaint was filed. (Ibid.) This is an action to enforce a judgment.
It quite obviously could not have been litigated in the first action. It arose after the
initial complaint was filed.
              Whorf argues McCready's action is barred by collateral estoppel.
Collateral estoppel applies to bar relitigation in a second action of such issues as
were actually litigated and determined in the first action. (7 Witkin, Cal. Procedure
(5th ed. 2008) Judgment, § 413, p. 1053.) McCready did not and could not litigate
issues raised here relating to the enforcement of the judgment in the first action.
              Moreover, even if res judicata and collateral estoppel might otherwise
apply, McCready's action to enforce the judgment is specifically authorized by
Code of Civil Procedure section 683.050.
              Whorf claims there is no admissible evidence to support an award of
damages. McCready's evidence is: that Whorf's bankruptcy petition shows profits
and so does his unverified response to requests for admissions. Whorf argues that
neither is admissible. But Whorf points to no objection having been raised. In the

                                            4
absence of an objection the evidence is admissible. (Estate of Silverstein (1984)
159 Cal.App.3d 221, 225.)
              In any event, as we read the trial court's ruling, it did not consider the
question of damages. Instead, it found McCready's entire action was barred. The
trial court must consider the question of damages on retrial.
              The trial court was correct when it stated it would be inequitable to
allow McCready to recover all the gross receipts without accounting for the
expenses that were incurred to produce the receipts. The correct measure of
damages is gross profits less costs.
              The judgment is reversed. Costs on appeal are awarded to McCready.
              CERTIFIED FOR PUBLICATION.

                                           GILBERT, P. J.

We concur:

              YEGAN, J.

              PERREN, J.

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                              Tari L. Cody, Judge
                       Superior Court County of Ventura
                      ______________________________

             Law Offices of Malcolm R. Tator, Malcolm R. Tator for Plaintiff and
Appellant.
             Dennis G. Merenbach for Defendant and Respondent.