When you get a fraud judgment against a California corporation that doesn't pay it, you can get up to $50,000 of it from the Victims of Corporate Fraud Compensation Fund.
Plaintiffs here get a default judgment for fraud and file an application for compensation from the Fund, but their application is denied on the grounds that their claim was outside the statute of limitations. The Court of Appeal holds that's not okay; that since the plaintiffs prevailed in court (where the defendant defaulted and hence didn't raise the limitations defense), that's the end of things. Pay 'em.
The opinion says numerous times that "[a]llowing the Secretary to relitigate the merits of the underlying causes of action" would be permissible; e.g., that it "undermines the judicial goals of fostering finality and would create a significant possibility of inconsistent judgments." But the underlying statute clearly allows precisely such relitigation. Section 2288(b)(1) says: "The Secretary of State may defend any action on behalf of the fund and shall have recourse to all appropriate means of defense and review, including examination of witnesses and the right to relitigate any issues that are material and relevant in the proceeding against the fund." The underlying judgment only creates a presumption, according to the statute: "The claimant’s judgment shall create a rebuttable presumption of the fraud, misrepresentation, or deceit by the corporation, which presumption shall affect the burden of producing evidence."
The Court of Appeal responds that (b)(1) only applies to contested judgments, and that the statute purportedly creates a "dual track" such that for default judgments (like here), only subsection (b)(2) applies. (That subsection reads: "If the civil judgment, arbitration award, or criminal restitution order in the underlying action on which the final judgment in favor of the petitioner was by default, stipulation, consent, or pursuant to Section 594 of the Code of Civil Procedure, or if the action against the corporation or its agent was defended by a trustee in bankruptcy, the petitioner shall have the burden of proving that the cause of action against the corporation or its agent was for fraud, misrepresentation, or deceit.")
That's not the way I read those sections. Paragraph (b)(1) says nothing about being applicable only to "contested" actions. The word's not even in there. I read (b)(1) as saying that the Fund can relitigate anything. Period. With the proviso that there's a rebuttable presumption that the underlying judgment is correct. Paragraph (b)(2) cuts back on that, in my view, only by saying that in default cases, there's no such presumption, and the burden of proof in those cases is instead on the plaintiff (unlike in non-default cases, where it's on the Fund).
Wholly beyond the words of the statute, it seems strange to be that there'd effectively be NO statute of limitations on claims against the Fund. Can I really get a default judgment against a 1870s corporation today (because they don't show up) and get $50,000 from the Fund? That would just seem weird. Not the way things usually work.
I get the desire to compensate victims of fraud. But we've got that desire in regular lawsuits as well, yet still have limitations periods. I'm just not sure the statute here operates in the way the Court of Appeal thinks it does.
But, hey, for victims of fraud: a good opinion for ya.
