California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Heron v. Kelley West Santa Clara Associates,
2003.CA.0007998 (Cal.App. Dist.6 08/25/2003)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT

H024719

2003.CA.0007998

August 25, 2003

SHERILL R. HERON ET AL., PLAINTIFFS AND APPELLANTS,
v.
KELLEY WEST SANTA CLARA ASSOCIATES ET AL., DEFENDANTS; L'OMELETTE, OBJECTOR AND RESPONDENT.

(Santa Clara County Super.Ct.No. CV668886)

The opinion of the court was delivered by: Wunderlich, J.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

James R. Heron, Sherill R. Heron, and C. Norman Winningstad appeal from an order taxing costs and attorney's fees. They contend the trial court erred (1) when it denied recovery of attorney's fees and costs incurred to enforce the underlying judgment, charging order and disgorgement order; (2) when it denied recovery of expert witness fees as postjudgment costs; and (3) when it reduced the underlying judgment and accrued interest. We shall affirm the trial court order.

Facts

In the prior appeal in this action, we set forth in detail the facts leading to the judgment against the Kelleys, the charging orders against the Kelleys' partnership interests, and the disgorgement order, which required the Kelleys, the Roberts partnership, the L'Ommies partnership, and the L'Omelette joint venture to pay or disgorge funds released in violation of the charging order. (See Heron West Santa Clara Associates v. Kelley West Santa Clara Associates et al. (L'Omelette et al.) (Dec. 5, 1996, H014096 [nonpub. opn.].) Additional facts were set forth in a related appeal, Beach Park Associates v. Sherill R. Heron et al. (H023320, app. pending), which will be filed simultaneously with this opinion. We will not repeat those facts here.

Specifically relevant to the instant appeal are the following facts: The judgment against the Kelleys was based on a promissory note that provided: "If it becomes necessary for any party to take any action to enforce the terms of this Note, the prevailing party shall be entitled to reasonable attorneys' fees and all costs incurred in connection therewith." On February 6, 1990, retired Justice Harry Brauer granted summary judgment to the Heron Group for an amount that included attorney fees and costs.

The charging orders were issued by Judge Ronald M. Whyte on May 21, 1990, and did not include any provision for attorney fees. The order required the named partnerships to pay the unpaid balance of the judgment, which at that time consisted of $655,951.90, plus $5592.10 in accrued interest with additional interest accruing at the rate of $179.60 per day. The partnerships were ordered to make payments that would have been distributed to the Kelleys to the Heron Group instead "until the entire amount of all accrued interest, costs and judgment principal owing herein have been paid in full to Heron."

The disgorgement order required L'Ommies, Roberts, and/or L'Omelette "to pay, and/or judgment debtors William Kelley and/or Ryland Kelley were ordered to disgorge, all monies borrowed or otherwise obtained by defendants from L'Omelette Joint Venture at any time since March 30, 1990 in an amount sufficient to satisfy Heron's judgment . . . ." Like the charging orders, the disgorgement order did not include any provision for attorney fees.

Code of Civil Procedure section 685.080 *fn1 allows a judgment creditor to claim certain costs incurred to enforce a judgment. The judgment creditor must do so by noticed motion before the judgment is satisfied, but not later than two years after the costs have been incurred. Under the authority of this code section, the Heron Group has periodically filed memoranda of costs claiming expenses incurred in the prior two years. Until the most recent cost memorandum was filed, L'Omelette failed to file opposition to any of these motions, and therefore all of Heron Group's claimed costs have automatically been added to the judgment amount. *fn2

In 1995, the Heron Group claimed $3661.90 in attorney fees and costs; in 1996, it claimed $155,959.66 in attorney fees and $16,627.40 in non-statutory costs; in April 1997, it claimed $33,125.00 in attorney fees, $1,479.90 in non-statutory costs, $42,251.25 in attorney fees related to the prior appeal, and $1,328.48 in costs for the prior appeal; in December 1998, it claimed $35,806.25 in attorney fees and $4,999.45 in non-statutory costs; in 1999 it claimed $1,000 for levying officers fees, $35,851.90 in non-statutory costs, and $291,241.50 in attorney fees. Thus, before the instant motion was filed, the Heron Group had claimed a total of $623,331.07 for postjudgment costs as well as $469,272.15 in accrued interest through October 31, 1999. All of these costs and fees were added to the judgment amount.

On November 29, 2001, the Heron Group filed the memorandum of costs that is the subject of this appeal. That memorandum sought an additional $120,028.87 in non-statutory costs and $341,673.38 in attorney fees. Over $300,000 of the attorney fees were paid for work done in the separate Beach Park Associates v. James R. Heron et al. lawsuit. Other attorney fees were paid in yet another lawsuit, Del Charro Properties et al. v. James R. Heron et al. (H025571, app. pending), which involved another Kelley partnership.

This time L'Omelette opposed the Heron Group's memorandum of costs. On January 4, 2002, L'Omelette filed a motion to tax fees and costs or alternatively for reference to special master for evaluation and determination regarding the postjudgment fees and costs to be awarded to Heron. L'Omelette argued that Heron's claimed attorney fees were inappropriate and excessive, especially in light of its complete lack of success in the Beach Park Associates v. Heron lawsuit. It further argued that the Heron Group failed to file a noticed motion for attorney fees as is required by statute, failed to adequately document its attorney fees, making calculation of the Lodestar impossible, failed to obtain success in enforcing the judgment and, therefore, was not the prevailing party, and that its claimed costs were not allowed by statute and its claim to postjudgment interest was not adequately documented.

After a hearing, the trial court (Judge William Elfving) issued a ruling on February 13, 2002, stating, "The attorney fees, expert witness fees and costs which are set forth in the Judgment Creditor's Memorandum of Costs After Judgment, Acknowledgment of Credit and Declaration of Accrued Interest served on November 29, 2001 were incurred in attempts to collect on the Disgorgement Order entered September 26, 1990 and in related litigation with Beach Park Associates and others in Case No. CV776920. The Disgorgement Order does not entitle the Judgment Creditors to further attorney's fees. The litigation in Case No. CV776920 does not entitle Judgment Creditors to further attorney's fees. The claimed expert witness fees are not authorized by law. Judgment Creditors have failed to establish what costs of court, if any, should be added to any Judgment in this case. Accordingly, the claimed attorney's fees, expert witness fees and costs are taxed. Counsel for the moving parties shall prepare the Order."

Following the trial court ruling, the Heron Group wrote to the court and to L'Omelette's counsel objecting to the proposed order granting the motion to tax costs on the ground that it did not address whether postjudgment interest was allowed or disallowed by the court. Over the next few months, the parties submitted voluminous argument on the issue of postjudgment interest. L'Omelette argued that Judge Herlihy's determination in the Beach Park Associates v. Heron lawsuit that the judgment against the Kelleys should be reduced by $500,000, bringing the outstanding principal sum of the underlying judgment to $709,532.58, should be given effect in this action. The Heron Group argued that if the court subtracted $500,000 from the balance on the underlying judgment before adding accrued interest to the underlying judgment, it would be violating the stay on appeal in the Beach Park Associates v. Heron lawsuit.

On June 10, 2002, a hearing was held on the issue of postjudgment interest. The following day, Judge Elfving filed his notice of ruling, stating, "Post judgment interest shall be calculated on a Judgment of $709,532.58."

From the February 13, 2002 and June 10, 2002 orders, the Heron Group timely appeals.

Discussion

A. Attorneys fees and costs

Section 685.070, subdivision (a) provides, in pertinent part: "The judgment creditor may claim under this section the following costs of enforcing a judgment: [] . . . [] (6) Attorney's fees, if allowed by section 685.040."

Section 685.040 states: "The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney's fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law. Attorney's fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment included an award of attorney's fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5." *fn3

Section 685.080 provides: "(a) The judgment creditor may claim costs authorized by Section 685.040 by noticed motion. The motion shall be made before the judgment is satisfied in full, but not later than two years after the costs have been incurred. The costs claimed under this section may include, but are not limited to, costs that may be claimed under Section 685.070 . . . . [] (b) The notice of motion shall describe the costs claimed, shall state their amount, and shall be supported by an affidavit of a person who has knowledge of the facts stating that to the person's best knowledge and belief the costs are correct, are reasonable and necessary, and have not been satisfied. The notice of motion shall be served on the judgment debtor. Service shall be made personally or by mail. [] (c) The court shall make an order allowing or disallowing the costs to the extent justified under the circumstances of the case." (Italics added.)

The underlying judgment against the Kelleys did include an award of attorney fees; however, neither the charging orders nor the disgorgement order included such an award. Thus, sections 685.070, 685.040, and 1033.5 would appear not to provide authority for an award of attorney fees. Nor does the Heron Group argue that the disgorgement order contained an attorney fee provision. Rather, it argues that the legislative history of these enactments shows that "the [L]egislature's intention in amending section 685.040 . . . was to deter the very post judgment legal maneuvers and evasive tactics which the Heron Group has endured for the last 12 years."

Heron Group points out that prior to California's adoption of the Uniform Partnership Act (Corp. Code, § 15001 et seq., repealed 1996), *fn4 a judgment creditor of a partner whose personal debt gave rise to the judgment could satisfy that judgment by means of an execution levy on partnership assets. That procedure, the Heron Group notes, was severely criticized for the "consequent injustice done [to] the other partners resulting from execution against partnership property." (Taylor v. S & M Lamp Co. (1961) 190 Cal.App.2d 700, 708.) *fn5 In response, California adopted the Uniform Partnership Act. To reach a judgment debtor's partnership interests now, the judgment creditor must obtain a court order charging such interests with the amount of the judgment. Thus, "charging orders on partnership interests have replaced levies of execution as the remedy for reaching such interests." (Baum v. Baum (1959) 51 Cal.2d 610, 612-613.)

Heron Group argues that it would have been entitled to attorney fees if it had been able to levy on the Kelleys' partnership interests under a writ of execution, and therefore it ought to be entitled to attorney fees for this alternative procedure. We disagree. Even if we agreed with Heron Group's premise as to the charging order, which we do not, the disgorgement order is even more attenuated from the judgment, and the Beach Park Associates lawsuit and the Del Charro lawsuit, for which the Heron Group sought attorney fees in its memorandum of costs, were more attenuated still.

Moreover, the legislative history of the 1992 amendment to section 685.040 does not support the Heron Group's position. The legislative history indicates that the statute was amended to overturn an appellate court decision, Chelios v. Kaye (1990) 219 Cal.App.3d 75. In Chelios v. Kaye, the plaintiffs sued for breach of contract and constructive fraud and obtained a judgment, including attorney fees pursuant to the contract. Enforcement efforts were long and expensive, and the plaintiffs sought to recover their postjudgment costs under section 685.040. At that time, section 685.040 provided: "The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney's fees incurred in enforcing a judgment are not included in costs . . . unless otherwise provided by law." The plaintiffs argued "[b]ecause Civil Code section 1717 statutorily entitled them to collect the prejudgment attorney's fees incurred to enforce the contract, . . . their right to attorney's fees incurred in their postjudgment enforcement efforts is equally protected by Civil Code section 1717, and hence such fees are collectible costs within the `otherwise provided by law' exception of section 685.040." (Id. at p. 79, original italics.)

The court rejected the argument, finding there was no "extant contractual attorney's fees clause" because "all of the prior contractual rights are merged into and extinguished by the [final, non-appealable] monetary judgment, and thereafter the prevailing party has only those rights as are set forth in the judgment itself." (Chelios v. Kaye, supra, 219 Cal.App.3d at p. 80, original italics.) Civil Code section 1717 did not apply because the postjudgment fees were not incurred to enforce the provisions of the contract but to enforce the judgment. (Id. at p. 79.) In 1992, the Legislature amended section 685.040 in response to the Chelios v. Kaye, supra, opinion, to add the following sentence: "Attorney's fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment includes an award of attorney's fees to the judgment creditor [recoverable as costs because authorized by contract]." (See Miller v. Givens (1994) 30 Cal.App.4th 18, 21.)

Nor is the Heron Group's reliance on Mussetter v. Lyke (N.D.Ill.1998) 10 F.Supp.2d 944 well taken. In that case the plaintiffs were lessors of commercial real property who had obtained a California judgment against the lessee corporation. Later, the corporation's principal shareholder and chair of the Board of Directors fraudulently transferred assets of the corporation to avoid paying the judgment. The court found that the director violated the California Uniform Fraudulent Transfer Act and breached his fiduciary duties. Under these circumstances, the director was required to pay the principal sum due on the judgment, plus interest and attorney fees. In the instant case in contrast, the disgorgement order is against L'Omelette, which this court found to be an innocent victim of the Kelleys' fraud. Likewise, Judge Herlihy found in the Beach Park action that "L'Omelette's transfer of possession of 4170 El Camino Real to Beach Park associates and its assignment of the rents from the Walgreens to Beach Park did not constitute a fraudulent conveyance." Thus, Mussetter v. Lyke, supra, is inapposite.

Under section 685.080, a trial court may disallow an award of costs to the extent justified under the circumstances. In this court's view it would have been a proper exercise of discretion for the trial court to conclude, assuming these costs were substantiated, many were incurred unreasonably against different parties in different lawsuits and in which the Heron Group did not prevail. In the Beach Park Associates v. Heron lawsuit, the trial court declared Beach Park to be the prevailing party entitled to costs. Under these circumstances, the court could have reasonably determined an award of costs unwarranted.

B. Expert witness fees

The Heron Group contends they were entitled to recover their expert witness fees as postjudgment costs. We disagree.

Section 1033.5, subdivision (b) lists certain "items [which] are not allowable as costs, except when expressly authorized by law." These items include, but are not limited to, "[f]ees of experts not ordered by the court." (§ 1033.5, subd. (b)(1).)

Notwithstanding this provision, the Heron Group argues that expert witness fees are allowable under the authority of Bussey v. Affleck (1990) 225 Cal.App.3d 1162. In Bussey, Division Four of the First Appellate District held that "where a contract provides for payment of costs and attorney's fees, the court may allow disbursements of counsel as attorney fees under section 1033.5, subdivision (a)(10), if they represent expenses ordinarily billed to a client and are not included in the overhead component of counsel's hourly rate. An agreement for attorney's fees and costs would be less than effectual if it could not cover actual costs of litigation, including disbursements of counsel, and a contrary conclusion would mean that the party prevailing on the contract could never be made whole." (Bussey v. Affleck, supra, 225 Cal.App.3d at page 1166) The Bussey court reasoned: "Insofar as the disbursements are for costs that are not allowable under section 1033.5, subdivision (b), unless `expressly authorized by law,' the requisite authority is found in the statutes that authorize contracting parties to stipulate for the payment of attorney's fees and costs." (Id. at p. 1167, citing § 1021 ["[e]xcept as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied of the parties . . ."] and Civil Code section 1717, subdivision (a) [the prevailing party on a contract providing for attorney fees and costs is "entitled to reasonable attorney's fees in addition to other costs"].)

In Ripley v. Pappadopoulos (1994) 23 Cal.App.4th 1616, the Third Appellate District rejected Bussey, explaining: "In Bussey the court attempted to avoid the statutory prohibition against the inclusion of expert witness fees in a cost award by equating expert witness fees and other nonallowable costs of litigation with attorney fees and by concluding that such costs may be included in an award of contractual attorney fees. We cannot adhere to that approach. In the absence of some specific provision of law otherwise, attorney fees and the expenses of litigation, whether termed costs, disbursements, outlays, or something else, are mutually exclusive, that is, attorney fees do not include such costs and costs do not include attorney fees." (Id. at pp. 1625- 1626.)

Responding to the Bussey court's comment "[a]n agreement for attorney's fees and costs would be less than effectual if it could not cover actual costs of litigation," the Ripley court stated: "Special contract damages are subject to pleading and proof in the main action and cannot be recovered by mere inclusion in a memorandum of costs. [Citations.] As an exception to this rule, the Legislature has chosen to provide for the recovery of contractual attorney fees in a cost award. [Citations.] But the Legislature has declined to adopt that procedure for the recovery of expert witness fees. [Citation.] Accordingly, assuming expert witness fees may be recovered under a contractual provision, they must be specially pleaded and proven at trial rather than included in a memorandum of costs." (Ripley v. Pappadopoulos, supra, 23 Cal.App.4th at p. 1627.) The Ripley court found the same conclusions apply to all of the costs deemed "not allowable" under section 1033.5, subdivision (b), not just expert witness fees. (Ripley v. Pappadopoulos, supra, 23 Cal.App.4th at pp. 1627-1628.)

The Heron Group asks us to reject Ripley and to adopt the approach taken by Bussey. We decline to do so.

Every reported decision considering this issue has followed Ripley and rejected Bussey. For example in Robert L. Cloud & Associates, Inc. v. Mikesell (1999) 69 Cal.App.4th 1141, 1154, Division Five of the First Appellate District stated, "For all the reasons stated in Ripley, the Bussey decision should not be followed." In First Nationwide Bank v. Mountain Cascade, Inc. (2000) 77 Cal.App.4th 871, 878, Division Two of the First Appellate District "join[ed] the Ripley and Cloud courts in holding that Bussey was incorrectly decided." In Fairchild v. Park (2001) 90 Cal.App.4th 919, 931, Division 1 of the Second Appellate District found "Ripley to be persuasive" and declined to follow Bussey. In Steiny & Co. v. California Electric Supply Co. (2000) 79 Cal.App.4th 285, 293 294, Division Seven of the Second District followed Ripley and Cloud, reversing a trial court order allowing the recovery of expert witness fees. In California Housing Finance Agency v. E.R. Fairway Associates I (1995) 37 Cal.App.4th 1508, 1515, the court stated that "Bussey is not authority in this appellate district for awarding costs which are not allowable under statute." Finally, in Carwash of America-PO LLC v. Windswept Ventures No. I (2002) 97 Cal.App.4th 540, 543-544, the Third Appellate District "follow[ed] the lead of the numerous courts which have concluded Bussey was wrongly decided." *fn6

We also agree with the majority view. Accordingly, we hold that the trial court did not err when it denied recovery of expert witness fees in the instant case.

C. Reduction of underlying judgment

Heron Group contends the trial court violated the stay on appeal in the Beach Park matter when it reduced the underlying judgment and accrued interest. Section 916, subdivision (a), provides: As a general rule, "the perfecting of an appeal stays the proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order." A trial court's proceedings in contravention of the section 916 stay are in excess of the court's jurisdiction. (Elsea v. Saberi (1992) 4 Cal.App.4th 625, 629.) Once an appeal is perfected, the court cannot enforce or conduct further hearings "upon the matters embraced therein or affected thereby;" on the other hand, the court may proceed on any matter "embraced in the action and not affected by the judgment or order." (§ 916, subd. (a).)

Thus, the issue in this case is whether the trial court's decision reducing the underlying judgment by $500,000 for purposes of computing interest was embraced in or affected by the judgment in the Beach Park matter within the meaning of section 916.

As L'Omelette points out, section 685.030 subdivision (c) states that "if a money judgment is partially satisfied . . . , interest ceases to accrue as to the part satisfied on the date the part is satisfied." "Section 916 provides generally that an appeal stays the enforcement of the trial court's judgment or order. While the clear effect of taking an appeal under section 916 is to stay the proceedings in the trial court upon the judgment or order for which the appeal is taken [citation], nothing in that code section can be interpreted to hold an order or judgment is rendered null and void by an appeal." (McFarland v. City of Sausalito (1990) 218 Cal.App.3d 909, 912.) The trial court has jurisdiction to "proceed upon any other matter embraced in the action and not affected by the judgment or order' on appeal." (§ 916, subd. (a).)

As a practical matter, if the $500,000 offset were affirmed on appeal and the trial court calculated interest based on the judgment before the $500,000 offset, then the judgment amount in the instant case would be overstated. The remittitur on the appeal of the Beach Park matter would not be directed to the trial court in this matter. L'Omelette was not even a party in the Beach Park lawsuit. On the other hand, if the $500,000 offset were reversed on appeal, it would be a simple matter for the judgment creditor to go back into court and seek the additional interest.

Finally, we note that in the Beach Park matter, which is filed along with this matter, we have concluded that the $500,000 offset against the underlying judgment was proper. Thus, upon the finality of our opinion, the issue becomes moot.

For all the above reasons, we conclude the trial court did not err in reducing the judgment for interest computation purposes by the amount determined by Judge Herlihy in the Beach Park matter.

Disposition

The judgment is affirmed. Costs on appeal to L'Omelette.

WE CONCUR:

Premo, Acting P.J.

Bamattre-Manoukian, J.

Opinion Footnotes

*fn1 All further statutory references are to the Code of Civil Procedure unless otherwise specified.

*fn2 In 1999, Beach Park Associates appeared in opposition, but the trial court denied their opposition on the ground they had no standing. The disgorgement order was not issued against Beach Park; it was issued against L'Omelette. The court stated, "What concerns me is that I have a motion [to tax costs that] you're asking me to deny because the people bringing it have no standing. And if I deny it that means [the attorney fees and costs will be added] to the judgment [even if they] are not properly within the law to be there-that's just that I have my concern-then there's no way those can ever can challenged again. They just get out of the judgment. It's a done deal. You're free and clear to add those in the judgment even though . . . they may not be proper or there's no other way to challenge."

*fn3 Section 1033.5, subdivision (a)(10)(A) provides that attorney fees are recoverable as costs if authorized by contract, statute or law.

*fn4 The Uniform Partnership Act (former Corp. Code, § 15001 et seq.) was repealed effective January 1, 1999 (Stats. 1996, ch. 1003, § 1.2), and replaced by the Uniform Partnership Act of 1994 (Corp. Code, § 16100 et seq.). The former act governs actions commenced and rights accrued before January 1, 1997 (Corp. Code, § 16112).

*fn5 Taylor v. S & M Lamp Co., as respondent points out, did not address the recoverability of attorney fees at all. The issue in that case was whether the creditor's complaint should have been dismissed where the creditor alleged that one of the judgment debtors "acting with knowledge of the charging order, commit[ted] a tort for which he is liable in damages to the person injured thereby." (Taylor v. S & M Lamp Co., supra, 190 Cal.App.2d at p. 712.)

*fn6 The California Supreme Court has not yet taken up this issue. However, in Davis v. KGO- T.V., Inc., a case involving an award of costs in an action under the California Fair Employment and Housing Act, the California Supreme Court noted that there was a conflict between Bussey and Ripley. The court explained it did not need to resolve the issue in that particular case because "[o]ur present analysis, which involves statutory construction, may not be dispositive in a matter involving the effect of a contractual agreement for shifting litigation costs, which turns on the intentions of the contracting parties." (Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436, 446- 447, fn. 5.)

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