Summer 2006 Newsletter

Volume 2, Issue 2

Commercial Leases: Restrictions on Assignment

Our client, a wheel manufacturer in Orange County, had a judgment for over $1 million against a retailer who, after accepting a shipment of wheels, stopped payment on his checks and refused to pay. The defendant defaulted (i.e., did not answer the complaint or appear in court) and judgment was entered against him. Prior to collection on the judgment, the defendant brought a motion to set aside the judgment .

The Motion: The defendant asserted several arguments. First, he argued that the very filing of the action violated an automatic bankruptcy stay in violation of 11 U.S.C. §362(a) and the judgment was therefore void. The defendant further argued that he was never properly served with the summons and complaint, that the judgment was obtained by extrinsic fraud, and that plaintiff corporations lacked capacity to obtain a judgment in California.

Our Investigation: Investigation into the underlying bankruptcy case revealed that the bankruptcy was not discharged based on the trustee’s findings that, among other things, the defendant had hidden assets from the trustee, had destroyed and falsified records, had knowingly made false oaths in connection with his case, had fled the country to avoid his debtor examination and had diverted money to his native Pakistan. The trustee and the defendant then stipulated to a judgment denying a discharge in August of 2002. Our client’s lawsuit was not filed until December of 2002 and therefore not subject to a bankruptcy stay (even though the bankruptcy was not dismissed until February of 2003).

Numerous documents, including the summons and complaint in our case, had been personally served on the defendant. He, however, claimed to have never received any document, whether by mail or by person. He did however concede that his wife had received the complaint the very day it was served and that he had telephoned both the plaintiff and his attorney. His claim of extrinsic fraud was based on his contention that plaintiff had told him that he would not pursue the case while the defendant was in bankruptcy.

Our Opposition: We raised a threshold argument that the defendant’s motion was untimely and barred by the Code of Civil Procedure under sections 473 and 473.5. We argued that the defendant had received notice of the judgment in July 2005 and that the statute allowed him 180 days in which to challenge that judgment. We also argued that, in any event, the defendant had not filed his motion within a reasonable time even after the time he conceded he learned of the judgment (December 2004).

We pointed out that the defendant did not have a satisfactory excuse for the default, noting that, even if the defendant believed that he was subject to a bankruptcy stay, “ignorance of the law coupled with negligence in ascertaining it will certainly sustain a finding denying relief under section 473.” Anderson v. Sherman (1981) 125 Cal.App.3d 228, 237-238. We also argued that the defendant conceded he knew about the lawsuit at the time it was filed (since he had called our client shortly thereafter) but, rather than sending it to his attorney, he simply buried his head in the sand and ignored it. “Courts do not relieve litigants from the effects of mere carelessness.” Ludka v. Athana Corp. (1972) 25 Cal.App.3d 316, 321-322.

The Ruling: After oral argument, the court ruled that the defendant’s motion was barred as untimely under Code of Civil Procedure section 473 and 473.5. If our client had lost the motion, the case would have been reopened and set for trial. Our clients would have been forced to engage in another year of costly litigation with the defendant. We are pleased that, with this ruling, our client is free to proceed with judgment enforcement against this debtor.

Show Me The Money, Part Two: Judgment Enforcement

In most lawsuits, the ultimate goal is not a judgment but collection of the money owed. While a judgment itself is a step in the right direction, it is only a piece of paper. Once you have secured a judgment, you must come up with a plan as to how to enforce the judgment.

Prior to judgment, a plaintiff should consider the following:
Does the Defendant Have Assets? A plaintiff should determine up front whether the defendant will be able to pay a judgment. It is not productive to sue a party who has nothing upon which to collect. This should be done before filing the lawsuit as a part of the cost-benefit analysis of litigation. The plaintiff may already know whether the defendant owns property or other assets, makes a good income or is otherwise capable of satisfying a judgment. Also remember to research available insurance policies which may be on the hook.

Writ of Attachment: With a Writ of Attachment you can secure a litigant’s property prior to judgment. See article on Writs of Attachment in our Fall 2004 Newsletter, available online at www.wagensellerlaw.com/news-articles.

Receiver: When authorized by statute, a plaintiff may request the appointment of a receiver to take possession of and preserve specified property pending the outcome of the lawsuit.
After judgment, there are various tools available to the judgment creditor:

Locate Assets and Determine Collectability. After judgment the plaintiff can have the court order the debtor to appear for a Judgment Debtor examination. This examination allows the plaintiff to question the debtor about assets, bank accounts, property, income and anything that will help in the collection of the judgment. A private investigator may also be helpful in locating assets.

Writ of Execution: A levying officer (e.g., the sheriff) can enforce a money judgment by garnishing a bank or savings account. Landlords should keep a copy of a rent check for each tenant since the check contains the tenant’s bank and account information. We have used this with great success in chasing down debtors.

Perfect Liens. After judgment, the plaintiff can place a lien on real or personal property. This prevents property, for example, from being sold, refinanced or otherwise encumbered to the detriment of the judgment. However, a lien simply preserves the plaintiff’s priority claim against the property but does not require the sale of the property to satisfy the judgment.

Wage Garnishment. Under this process an employer must withhold a portion of the debtor’s disposable earnings for payment to the creditor. The wages may be subject to certain exemptions.
Writ of Possession or Sale. This procedure allows a levying officer to take possession of or sell a property to enforce a money judgment.

Assignment Orders. If the debtor is due payments from a third party, the plaintiff may seek an assignment order so that those payment are made to the plaintiff.

Charging Order. A Charging Order can be secured against a debtor’s partnership interests. Like a wage garnishment or assignment order, this order requires a partnership to make the debtor/partner’s cash distributions to the judgment creditor rather than the partner until the judgment is satisfied. The order does not give the creditor any partnership rights, just a right to the debtor’s distributions.

While the above procedures are the most common, there are other special enforcement procedures available for other types of assets or in special circumstances. Because of the various tools for enforcing a judgment, a judgment creditor should formulate a plan which will lead to the highest likelihood of collection in the shortest amount of time for the least amount of money.

LEGAL UPDATE

Facts: Commercial landlord filed unlawful detainer action against tenant after tenant failed to install new roofs on leased property.

Holding: Judgment for tenant. Commercial tenant did not breach lease provision requiring ‘maintenance and repair of the roof’ by failing to replace old, dilapidated roof with new roof at own expense.

ASP Properties Group. L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257.

Message from Laine Wagenseller…

I recently read that every businessperson should focus on amazing his or her clients with service. We have taken that idea to heart. Instead of simply going through the motions, we are focused on amazing our clients with service.

The number one way to amaze our clients, of course, is to win. In some cases, the way to amaze our clients with service is to get the deal done. We have always prided ourselves on results-oriented legal services.

We are pleased to report some of those results in this issue. Oftentimes clients question the need for an attorney or fear the cost that legal work entails. This, of course, is understandable. However, a good attorney can add value to your business. An attorney with the expertise and training can help you find creative solutions to vexing problems or cost effective resolutions to bitter litigation. Or he can just help you win.

By being active in legal and real estate groups, volunteering as a temporary judge in the Superior Court, publishing articles and giving seminars, I am focused on creating a value that I can pass on to my clients. It is that value that allows us to amaze our clients with service.

How can we help you?

Laine

In The Works: Cases We Have Been Working On

  • Congratulations to our clients who will be opening the “R Bar” in Koreatown. We were able to help them form a Limited Liability Company, draft an Asset Purchase Agreement, put together a Private Placement Memorandum and related investment documentation, review their proposed lease and help guide the purchase of an existing bar and liquor license through escrow.
  • We have been retained to assist our client, who is building a home in Mt. Washington, with a mechanic’s lien problem. After discovering numerous and egregious errors in construction, our client terminated the contractor. Unbeknownst to our client, the contractor thereafter recorded a mechanic’s lien against the property, causing the construction lender to stop payments on the construction loan and holding up the progress of the project.
  • We have settled yet another Americans With Disabilities Act lawsuit against our client on very favorable terms.
  • In an important victory for our client in Orange County Superior Court, we and our co-counsel were able to defeat an attempt by a judgment debtor to have a $1 million judgment overturned. See Article on Page 1.
  • We have been retained by a landlord to pursue a tenant who moved out with delinquent rent payments outstanding. We have filed suit in the Orange County Superior Court.
  • A commercial landlord hired us to regain legal possession of a warehouse after the tenant stopped paying rent and declared bankruptcy. We were successful in regaining possession prior to the bankruptcy court’s rejection of the lease.

The Qualities of Skillful Leadership

If you want to be a leader who attracts quality people, the key is to become a person of quality yourself. Leadership is the ability to attract someone to the gifts, skills and opportunities you offer.
Learn to be strong but not rude. Some people mistake rudeness for strength. It’s not even a good substitute.

Learn to be kind but not weak. We must not mistake kindness for weakness. Kindness is a certain kind of strength. We must be kind enough to tell somebody the truth.

Learn to be bold but not a bully. It takes boldness to win the day. To build your influence, you’ve got to walk in front of your group.

You’ve got to learn to be humble, but not timid. Humility is a grasp of the distance between us and the stars, yet have the feeling that we are part of the stars.

Be proud but not arrogant. It takes pride to win the day. It takes pride to build your ambition. But the key to becoming a good leader is being proud without being arrogant.

Develop humor without folly. It’s okay to be fun but not foolish.
Deal in truth. Save yourself the agony. Just accept life like it is and deal in realities.

Adapted from an article by Jim Rohn.

News and Happenings…

  • Family Law News, the official publication of the State Bar of California Family Law Section, recently published an article by Mr. Wagenseller on the requirements for a Lis Pendens.
  • In April, Mr. Wagenseller attended the University of Southern California Gould School of Law and Los Angeles County Bar Association Crocker Symposium on Real Estate Law and Business 2006. Mr. Wagenseller’s article on the Density and Mixed Use Development session will be published by the Los Angeles County Bar’s Real Property section.
  • Mr. Wagenseller was recently recognized by the Los Angeles Superior Court for his service as a judge pro tem. The ceremony recognized those individuals who sat in as temporary judges in the Superior Court during the past year. Mr. Wagenseller recently completed supplemental training and continues to serve as a judge pro tem.
  • USC’s Marshall Partners, a support group for the Marshall School of Business at USC, recently had an event with Coach Pete Carroll, which Mr. Wagenseller attended. Coach Carroll spoke on leadership (and, of course, next season).
  • Mr. Wagenseller also attended a Marshall breakfast featuring Joe Weller, the retired Chairman and CEO of Nestle, who spoke about his “blueprint for success” in which he emphasized teamwork, passion, a clearly stated plan and a life outside of work. Nestle promoted spirituality, community service and a balanced life among its employees under Mr. Weller’s leadership (“We never lost a moment of productivity because someone went to a Little League game”). Mr. Weller stated that good leaders act decisively, create the sense of urgency that combats complacency and develop leaders within their ranks.
  • Mr. Wagenseller also attended the Asian Business League’s Annual Real Estate Conference in June.
  • Wagenseller Law Firm was pleased to sponsor a table at this year’s YMCA Good Friday breakfast at the Westin Bonaventure hotel downtown.
  • Look for Mr. Wagenseller’s upcoming article in Los Angeles Lawyer on starting a law firm.

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Wagenseller Law Firm is a full-service business and real estate law firm. Materials contained in this newsletter are for general information purposes and to permit you to learn more about the services that Wagenseller Law Firm offers its clients. These materials are not intended to constitute legal advice relating to any specific matter and do not create an attorney-client relationship. Please consult Wagenseller Law Firm for legal advice regarding specific matters of concern.