Thursday, October 29, 2009

311 South Spring Street Co. v. Dep't of General Svcs. (Cal. Ct. App. - Oct. 28, 2009)

Here's a hypothetical. Tell me how you think it's should come out.

Landlord rents office space to Tenant. Tenant breaches the lease and stops paying, and Landlord sues. Landlord wins, and the trial court enters a judgment against Tenant for $5.4 million plus 12 percent per year postjudgment interest. Tenant never objects to that rate, but does appeal the merits, an appeal that Tenant loses in the Court of Appeal (in which, again, Tenant never objects to postjudgment interest). No petition for review is filed, the remittitur issues, and shortly thereafter, Tenant sends Landlord a check for the judgment. But not for the whole thing; Tenant unilaterally decides to limit the interest to 10 percent a year, deducting over $440,000. Landlord says: "No way. Where's my extra $400K+?" Tenant says: "The interest rate should have been legally limited to 10 percent under the California Constitution, and even though we never raised the issue, we're raising it now -- post-remittitur -- and refusing to pay." Landlord files (and the trial court grants) a motion compelling Tenant to satisfy the full amount of the judgment awarded by the Court. Tenant appeals, and attempts to collaterally attack the final judgment on the ground that the postjudgment interest rate should be 10 rather than 12 percent. Landlord opposes the appeal and asks for sanctions for a frivolous appeal.

Two questions. (A) Who wins: Landlord or Tenant? (B) Does Tenant get sanctioned?

Ponder that. My prediction, on this straightforward set of facts, would be that Landlord would win and that Tenant might well be sanctioned. Tenant had its appeal but never objected in any forum to the interest rate. That judgment's now final. It's got to pay.

But I'd have been wrong. At least if the case was before Justices Mallano, Rothschild and Johnson. The Court of Appeal holds that since the postjudgment interest rate was in excess of the court's "jurisdiction," it can be collaterally attacked even after the judgment is final.

I've fiddled with the facts a tiny bit; here, Tenant is a state agency (the Department of General Services) and the relevant interest rates are 7 and 10 percent rather than 10 and 12. But the holding here -- based on "jurisdiction" -- would be equally applicable to private parties as well.

Interestingly, I think that if the case had been a private party, the panel might have come out a different way. Indeed, might have sanctioned the Tenant. Because private litigation would have had a different "feel" to it even though the relevant jurisdictional principles are identical. But my sense is that the Court of Appeal's jurisdictional spidey-sense got all tingly when the issue was whether an agent of the state should be forced to pay what's pretty clearly more than they should. The rate should have been 7 percent.

But, of course, the State should have argued this below. Or on appeal. Or at any time before the decision became final. And didn't. There's a big freaking finality interest to judgments. One that is obviated by the Court of Appeal's holding here.

Now I readily concede that deciding what's "jurisdictional" (and hence potentially subject to a collateral attack) and what's not is freakishly hard. Academics have started to grapple with this issue in some depth in the last decade or so and it's an incredibly tough field even for those of us with plenty of time on our hands and who devote ourselves to the subject. It's even more tough for individuals (like Justice Mallano) who've got to decide hundreds of disparate cases a year.

That concession aside, I don't that, properly interpreted, the issue here is in fact jurisdictional in the sense of allowing a collateral attack. I think that Justice Mallano -- like many others -- gets slightly blinded by the fact that the 7 percent rate is a constitutional limitation, which (especially when combined with the fact that it's a limit) makes the thing sound mighty jurisdictional.

But that's not enough, nor does it authorize collateral attacks. There are lots of limits in the state constitution, for example, on judicial power, all of which are analogous to this one and all of which we'd easily recognize aren't jurisdictional. Article 6, Section 13, for example, says that courts can only set aside (or grant a new trial) a judgment for an instructional or evidentiary error when there's a been finding of a miscarriage of justice. Assume that, notwithstanding this provision, a trial court granted a new trial (or set aside a judgment) on some other grounds, without finding any miscarriage of justice, and the now-losing party filed an appeal that only raised other objections to what transpired below (e.g., the judge should have been disqualified, etc.), never mentioning the relevant deficiency. After losing in the Court of Appeal, years later, they refuse to pay the judgment and want to raise the new issue of the new trial grant, claiming that the trial court had no "jurisdiction" under Article 6 to do what it did. We'd all readily agree, I think, that this argument would lose; they had their chance to raise this issue, they didn't, and the trial court's alleged error didn't deprive it of jurisdiction or the judgment of legitimate finality. Doctrinally, however, this hypothetical is the same as the "jurisdictional" deficiency here -- both are limitations established by the state constitution on judicial acts, so if one's in the form of jurisdiction, so's the other.

Here's a briefer hypothetical about Article XV itself -- which concerns "usury" and is the precise constitutional provision that contains the 7 percent limitation at issue in the present case. That part of the California Constitution says that, generally, the rate of interest on a loan can only be 7 percent, with various exceptions. Imagine that Alpha loans Beta $100,000 for a year at a rate of 10 percent under a written contract, a year later Beta pays Alpha $107,000, and Alpha sues for the extra 3,000 owed. Beta never argues, either below or in the Court of Appeal, that none of the constitutional exceptions apply, but instead just says "I paid it" or "statute of limitations" or other meritless defenses, which the trial court rejects, a decision affirmed by the Court of Appeal, and the decision becomes final. I have no doubt that we wouldn't allow Beta an additional shot at avoiding this final $3000 judgment even if Beta said -- as the DGS did here -- that the $3000 award was in "excess of the court's jurisdiction" under Article XV. Yep, as here, Article XV did in fact say the $3000 was a no go. But you had your chance to so argue and didn't. It's final. The appeal to "jurisdiction" doesn't work even though this is, as here, (1) in the constitution, and (2) can in one sense be viewed -- in precisely the way the Court of Appeal views the present case -- as a "limitation" on judicial power to award above 7 percent interest.

There are indeed jurisdictional things that can properly be collaterally attacked. Subject matter jurisdiction is the classic example. But this ain't that. For reasons that might require legions of law review articles to fully and properly explain; and even then, one might rightly still be more than a bit uncertain about the distinction between "jurisdictional" (in the sense of permitting a collateral attack) and "non-jurisdictional" deficiencies. But even not being the world's expert in this incredibly difficult area, I think that the present case falls somewhat readily on one side of the line and not the other. And it's not on the side adopted by the Court of Appeal.

To reiterate: I'm not harshing on Justice Mallano. This is tough stuff. And I totally see why the Court of Appeal comes out the way it does as a descriptive matter. When something seems to be the kind of thing that involves judicial power, especially when it's part of the constitution, and to put the icing on the cake add the doctrinally irrelevant but nonetheless distracting complexity of potential sovereign immunity, I totally get why the Court of Appeal does what it does.

But that doesn't make it right. And while, as a taxpayer in California, I'm sort of happy we don't have to pay this particular landlord an extra $440,000, as a principled guy, I'm forced to admit that I think that's what we rightly owe. Not because we truly owe it -- the relevant cap is indeed seven percent. But because our lawyers were stupid and didn't argue it when they should have.

I've got another interesting piece of the opinion about which I'd ordinarily make a big deal that arises out of the third-to-last paragraph, in which the Court of Appeal somewhat boldly decides not to follow a holding of the California Supreme Court (on this exact point) on the ground that this 1944 decision was "incorrectly decided." But I've said way too much already. I'll leave that separate issue regarding the allocation of precedential responsibility (which is also complicated, and on which the Court of Appeal is much less wrong, if wrong at all) for another universe. One in which I've been far more concise than I've been in this one.