Friday, June 26, 2020

MSY Trading v. Saleen Automotive (Cal. Ct. App. - June 26, 2020)

I like Justice Ikola's style in today's opinion.

He's right that it's both a "subtle" issue as well as one, apparently, of first impression.  He also frames quite well the question presented:

"The scenario is this: In a separate lawsuit filed in the Riverside Superior Court, plaintiffs obtained a judgment for breach of contract, including an award of attorney fees, against certain entities not parties to the present suit. Plaintiffs filed the present enforcement action against defendants, seeking to hold them liable on the judgment as alter egos of the judgment debtors. Plaintiffs lost against one of the defendants, Steve Saleen (Steve). Steve moved for attorney fees under the contract. The court granted the motion and plaintiffs appealed.

Plaintiffs contend this is not an action on the contract and, therefore, fees are unavailable under Civil Code section 1717. Instead, it is an enforcement action. They cite caselaw for the proposition that a judgment on the contract subsumes and extinguishes contractual rights. On the other hand, had plaintiffs included Steve as a defendant in the Riverside suit, making the exact same alter ego allegations they make here, undoubtedly Steve would have been entitled to contractual attorney fees under the doctrine of reciprocity established by Civil Code section 1717 and Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 (Reynolds Metals), even though he was not a signatory on the contract."

So who wins?

Justice Ikola tells you:  "We conclude Steve has the better argument."  As well as why:  "The timing of an alter ego claim—either prejudgment or postjudgment—is too arbitrary a consideration on which to base the right to attorney fees. When a judgment creditor attempts to add a party to a breach of contract judgment that includes a contractual fee award, the suit is essentially “on the contract” for purposes of Civil Code section 1717."

That's nice, short and clear.  It also seems like a pretty good (and fair) rule.  And that Justice Ikola can persuasively explain both the issue as well as its proper resolution in less than a dozen (double-spaced) pages is an additional bonus.

Well done.

I also personally liked the last couple of paragraphs, which contain language that's often in my head (and sometimes in first drafts of my briefs) but that you rarely see in a actual opinions.  Justice Ikola says:

"Defendants’ second argument goes something like this: Code of Civil Procedure section 685.040 only permits fees where the underlying judgment includes an award of contractual attorney fees. Here, Saleen Automotive was deemed the alter ego of Saleen Signature Cars. Saleen Signature Cars was the entity the Riverside Superior Court added to the judgment pursuant to a motion to amend the judgment in March 2016. The order amending the judgment, however, did not itself award attorney fees. Defendants conclude, “Carried over to this current action, then, the Appellants are entitled to NO attorney fees!” Aha!

Except there is a rather glaring flaw in this analysis: Saleen Signature Cars was added to a judgment that does contain an award of contractual attorney fees. The amended judgment did not eliminate the prior judgment, it simply added a party. Thus Code of Civil Procedure section 685.040 applied."

Love the "Aha!" part.  Classic.