Court Opinion

ID: 9485918
Source: CourtListenerOpinion
Date Created: 2023-08-05 11:33:50.287704+00
Date Added: 2024-06-11T17:51:26.694578
License: Public Domain

REINHARDT, Circuit Judge,
dissenting:
The majority holds that the United States can step in and seize the funds in a judgment debtor’s investment account, even though it knows that a state court has already issued a preliminary injunction against the debtor’s use of those funds in another judgment creditor’s favor. I believe that the majority’s opinion is unwarranted in light of existing precedent. I also believe that the majority erroneously rewards the government for its improper conduct. Accordingly, I dissent.

A. Constructive Trust.

The majority argues that CHoPP cannot prevail on its conversion claim against the United States because CHoPP did not have ownership of the account on the date that the government seized the funds. See Majority Opinion, supra, at 1347-49 [hereinafter Maj. Op.]. The majority’s argument is incorrect for the following reasons.
First, the majority errs in. holding that CHoPP did not have ownership of the funds through a constructive trust. When it awarded final judgment in CHoPP’s favor, the superior court imposed a constructive trust on the funds effective as of the date of the illegal stock transactions — a year and a half before the United States levied on the account. The judgment was not simply a retroactive award of title; it was an acknowl-edgement that CHoPP had equitable title to the funds all along. Indeed, as the majority acknowledges, a constructive trust springs into existence of its own force at the time of the commission of a fraud or mistake. See Broder v. Conklin, 121 Cal. 282, 53 P. 699, 701 (1898); see also Majewsky v. Empire Construction Co., 2 Cal.3d 478, 85 Cal.Rptr. 819, 828 n. 4, 467 P.2d 547, 556 n. 4 (1970) (Tobriner, J., dissenting) (“[T]he imposition of a constructive trust restores title to plaintiff ab initio.’’).
Second, the majority errs in holding that “[t]here is no California law that suggests that CHoPP may rely upon a 1990 judgment to impede satisfaction in 1988 of a competing judgment that was already final.” Maj. Op., supra, at 1348. To the contrary, it is well established under California law that a constructive trust elevates substance over form in order to achieve just results. See, e.g., Edwards-Town, Inc. v. Dimin, 9 Cal.App.3d 87, 87 Cal.Rptr. 726, 730-31 (1970); Sanguinetti v. Rossen, 12 Cal.App. 623, 107 P. 560, 562 (1906). Accordingly, the superior court’s imposition of a constructive trust as of the date of Laurin’s illegal transactions was valid under established state law.1
Third, the majority errs in concluding that CHoPP’s rule would discourage collection by other creditors any time the first creditor initiates an action that may result in a constructive trust. See Maj.Op., supra, at p. 1348. The majority fails to recognize, however, that “mere initiation”' is insufficient to impose a constructive trust — the first creditor must win final judgment in his favor before such a trust can be imposed. Accordingly, meritless claims by judgment creditors would fail, and no constructive trust would result from such actions. By contrast, worthy claims would succeed, and the first creditor to file such a claim would rightly be entitled to what he is owed. Ironically, the majority itself creates a perverse and unjust rule that punishes creditors who file their claims first (in this case, CHoPP), and rewards creditors who file their claims later (in this case, the United States).
Fourth, the majority errs in citing Coppinger v. Superior Court, 134 Cal.App.3d 883, 185 Cal.Rptr. 24 (1982); and Urez Corp. v. Superior Court, 190 Cal.App.3d 1141, 235 Cal.Rptr. 837 (1987) for the proposition that “California discourages the use of equitable remedies to ward off competing lienholders.” See Maj.Op., supra, at 1348-49. Both cases are inapposite here because they deal with the special doctrine of lis pendens, in which notice of pending litigation against real prop-*1353erty is filed in the county recorder’s office.2 In any event, I reject the majority’s argument that CHoPP’s rule “ward[s] off competing lienholders.” As discussed - above, CHoPP’s rule properly creates an incentive for creditors with meritorious claims to file their claims first. By contrast, the majority’s rule wards off diligent creditors and rewards the lazy ones.

B. Government Misconduct.

Even if CHoPP did not have ownership of the account at the time of the government’s seizure of the funds, I would hold that the United States’ misconduct excuses CHoPP from meeting the contemporaneous ownership element of a conversion claim.
The majority errs in holding that the government’s levy was valid under California law. See Maj.Op., supra, at 1349-50. Calfornia law clearly establishes that a levy upon property that is the subject of an action is not effective. See Cal.Civ.Proc.Code § 700.-180(b) (West 1987); cf. Custer v. McCutcheon, 283 U.S. 514, 519, 51 S.Ct. 530, 531, 75 L.Ed. 1239 (1931) (holding that the United States is bound by state law restrictions on execution). Because the account was the subject of an existing action at the time of the government’s seizure (the superior court injunction), the government’s levy is ineffec-tivé.
The majority tries to distinguish § 700.-180(b) by contending that the provision only applies to .suits that “determine ownership” of the subject of the action. This contention is inconsistent with the fact that, CHoPP sought and obtained ownership over the illegal stock profits contained in the account. A constructive trust signifies a property interest; it is not merely a device for recovering money damages. See, e.g., Bainbridge v. Stoner, 16 Cal.2d 423, 106 P.2d 423, 427 (1940); cf. 11 B.E. Witkin, Summary of California Law § 142(b), at 998 (9th ed. 1990) (establishing that a beneficiary of a constructive trust has priority over the other creditors of the trustee).
In any event, barring the plaintiffs conversion suit would reward the defendant for its improper conduct. The United States’ defense to the conversion claim is that it seized the account proceeds before CHoPP was able to obtain a final judgment establishing title to the account, thus frustrating CHoPP’s ability to meet the contemporaneous ownership element of conversion. ■ The . United States only attained the chronological edge that now forms the core of the majority’s opinion by levying on property that was the subject of pending litigation in violation of California law. Further, the United States levied on property with knowledge of the preliminary injunction and without notifying CHoPP of its intent to do so. We should not reward the United States for its amoral behavior by turning an illegal act into an irremediable fait accompli. Rather, we should hold that, since CHoPP’s ultimate ownership of the property is not in doubt, the United States’ wrongful seizure of the property excuses CHoPP from the need to show contemporaneous ownership in order to recover for conversion. Because there are ,no material factual disputes regarding the conversion theory, I would direct the district court to grant summary judgment against the United States on this ground.

C. Right to Possession.

The majority also errs in rejecting CHoPP’s argument that a right to possession over the disputed property is not necessary in order to bring a conversion claim. The majority dismisses CHoPP’s argument that Taylor v. S & M Lamp Co., 190 Cal.App.2d 700, 12 Cal.Rptr. 323 (1961); and Reynolds v. Lerman, 138 Cal.App.2d 586, 292 P.2d 559 *1354(1956), are controlling in this case. Both cases held that a plaintiff with title need not have a right to possession to bring a conversion claim.
The majority contends that Taylor and Reynolds are “not of aid” because CHoPP has shown neither “a right to possession” nor “title.” See Maj.Op., supra, at 1350. This argument completely baffles me, however. First, it is illogical to require CHoPP to show “a right to possession” before it can bring its conversion claim. Taylor and Reynolds stand precisely for the proposition that the right to possession is not necessary in order to prevent one who wrongfully assumes do minion over property from benefitting from his own wrong. See Taylor, 12 Cal.Rptr. at 330; Reynolds, 292 P.2d at 566. To me, the majority’s requirement that CHoPP must show a right to possession before it can prove that right to possession is not necessary seems wholly illogical. Second, CHoPP has already shown a right to “title” in the disputed property. Here, as in Taylor and Reynolds, it is only the timeliness of the plaintiffs ownership interest that is in doubt — that CHoPP ultimately obtained title to the funds is not seriously disputed by either party. The fact that the majority concludes that CHoPP did not have ownership at the time of the government’s seizure of the funds does not change the fact that CHoPP ultimately obtained title to the property. Thus, it was demonstrated that CHoPP had a right to title. Accordingly, Taylor and Reynolds are “of aid,” and CHoPP should be permitted to bring its conversion claim.

D. Damages.

Finally, the majority errs in holding that PaineWebber, the custodian of the account, was not liable for violating the superior court’s preliminary injunction. See Maj. Op., supra, at 1351-52.
A threshold question is whether civil damages are available for the violation of a preliminary injunction. I think it plain that they are. See, e.g., Kirby v. San Francisco Sav. & Loan Soc’y, 95 Cal.App. 757, 273 P. 609, 610 (1928) (“[T]he right to recover as against one who, in disobedience of the mandate of the court, violates a right sought to be protected thereby, to the damage of another, or who knowingly aids and abets such violation, is generally recognized.”);3 see also Heinz v. Superior Court, 42 Cal.2d 164, 266 P.2d 5, 12 (1954) (“Civil damages may be collected in an ordinary civil action for an act otherwise a contempt.” (internal quotes omitted)); In Re Morris, 194 Cal. 63, 227 P. 914, 916 (1924). Any other result would create a gap in California’s comprehensive law of remedies. See Cal.Civ.Code § 3523 (Deering 1984) (“For every wrong there is a remedy.”).
The real question is whether either of the defendants was bound by the preliminary injunction. Neither the U.S. nor Paine-Webber was a party to the Superior Court action in which CHoPP obtained the injunction, and neither was explicitly named in the injunction. However, under California law, an injunction applies not only to the parties named in the court order but to their successors-in-interest, agents, employees, and those who aid and abet the injunction’s violation, provided they have notice of the injunction.4 See, e.g., Ross v. Superior Court, 141 Cal.Rptr. 133, 136, 569 P.2d 727, 731 (1977); Katenkamp v. Superior Court, 16 Cal.2d 696, 108 P.2d 1, 3 (1940); Berger v. Superior Court, 175 Cal. 719, 167 P. 143, 144 (1917); Pitchess v. Superior Court, 2 Cal.App.3d 653, 83 Cal.Rptr. 41, 43 (1969); 38 Cal.Jur.3d Injunctions § 94, at 607 (1977).
I am persuaded that PaineWebber was bound by the preliminary injunction because it was Laurins’ agent. See Black v. Shearson, Hammill & Co., 266 Cal.2d 362, 72 Cal.Rptr. 157, 160 (Ct.App.1968) (stock broker ordinarily serves his customers as an agent). The majority incorrectly contends that PaineWebber was not an agent because it “acted on its own authority” in turning *1355over the money to the United States. Maj. Op., supra, at 1347. Whether PaineWebber actually exercised independent judgment in this particular instance, however, does not change the fact that PaineWebber had general authorization from Laurin to act on his behalf. Accordingly, PaineWebber was Lau-rin’s agent. As Laurins’ agent, PaineWebber was prohibited “from ... withdrawing or transferring, directly or indirectly, any proceeds of any ‘short’ sale of CHoPP stock.” C.R. 1 at 9. This is so even though the injunction did not explicitly bind Laurins’ agents; agents are implicitly covered. See Ross, 141 Cal.Rptr. at 136, 569 P.2d at 731. PaineWebber therefore violated the preliminary injunction when it transferred the funds in the Laurins account to the United States.
PaineWebber is not insulated from liability by the fact that it was under a district court order to turn the account proceeds over to the United States. When served with the United States’ writs of execution, Paine-Webber invited the United States to seek a court order enforcing the writs, and then made no attempt to notify the district court of the fact that the account proceeds were the subject of a preliminary injunction and an ongoing dispute in state court. Had it done so, the district court most likely would have declined to issue its order.5 Paine-Webber also failed to notify CHoPP that it had been served with writs of execution, and failed to take advantage of California’s designated procedure for levying on property subject to litigation. See Cal.Civ.Proc.Code § 700.180(e) (West 1987). Thus, to the extent that PaineWebber was subject to contradictory Superior and District court orders regarding the funds, this was a problem of its own creation.6
Because there áre no material factual issues in dispute here, I would reverse and remand with directions to enter summary judgment against PaineWebber on the preliminary injunction theory.
* * *
For the above reasons, I dissent.

. For a more detailed discussion of why the majority's holding is unjust, see page 1353, below.

. Because notice of pending litigation against the . real property is filed in a centralized location, all potential creditors have constructive notice of the action. See 43 Cal.Jur.3d Lis Pendens §§ 1-7, at 293-304 (1978). Accordingly, it is not surprising that California law discourages the use of equitable remedies (such as the imposition of a constructive trust); all creditors with legitimate claims have already been put on notice at the outset of the litigation.
By contrast, this case involves a creditor— CHoPP — who had absolutely no notice of the United States' intention to levy on the disputed property. See infra pp. 1353-54. Accordingly, the doctrine of lis pendens is completely inapplicable, and equitable remedies in CHoPP’s favor are appropriate.

. The majority opinion’s attempt to distinguish Kirby, see Maj.Op., supra, at 1351-52, is inapplicable here. This section discusses Kirby's holding as to the general availability of damages for a violation of an injunction, which is a separate question from whether PaineWebber in fact violated an injunction in this case. I address the latter question at pages 1354-55, below.

. The United States and PaineWebber both concede that they had notice of the injunction.

. Had the Superior court litigation been brought to the attention of the district court, the district court would have realized that the United States could not lawfully levy on the Laurins account under California law. See pages 1352-53, above. It therefore would have declined to issue an order enforcing the writs of execution.

. My views of the conversion and preliminary injunction claims make it unnecessary for me to reach the parties' exchange regarding the collateral estoppel effect of the state court judgment. See Blue Brief at n. 11; Red Brief at n. 4; Gray Brief at n. 1; District Court Opinion at 5. In addition, my conclusion that the United States committed a conversion by improperly levying on the funds obviates the need to resolve CHoPP’s claim that the United States committed a conversion by wrongfully withholding the trust corpus after the 1990 superior court judgment. See Maj.Op., supra, at 1350-51; Blue Brief at n. 10.