Even disobedience of trial courts in other states can get your California appeal dismissed

Last Thursday’s decision in Stoltenberg v. Ampton Investments Inc., case no. B235731 (2d. Dist. April 4, 2013) demonstrates the hazards of being unable to stay enforcement of a money judgment against you while your appeal is pending . . . and how much trouble you can get in for going too far in resisting those enforcement efforts. How much trouble? Well, is having your appeal dismissed enough trouble for ya?

Ampton had the misfortune of losing at trial and having a judgment of more than $8 million dollars entered against it. Ampton appealed, but did not post a bond to stay enforcement of the judgment. When the plaintiffs registered the California judgment in Ampton’s home state of New York and then subpoenaed financial records, Ampton ignored the subpoena. Plaintiffs asked the New York trial court to find Ampton in contempt. Ampton escaped contempt but was ordered to respond to the subpoena. When Ampton refused to do so, Plaintiffs again sought a contempt finding against Ampton, and that time they got it: Ampton was ordered to pay $500 in sanctions and to comply with the subpoena within 30 days or face further sanctions.

By now, you would think that Ampton might finally accept the reality that its own failure to stay enforcement of the judgment pending appeal carries consequences that it would have to live with, and comply with the contempt order. But . . . that’s not what Ampton did. When Ampton failed to comply with the New York contempt order, Plaintiffs moved to dismiss Ampton’s California appeal, arguing that Ampton’s disobedience of the New York trial court contempt order was sufficient to invoke the “disentitlement doctrine.” After much procedural wrangling (which makes for interesting reading but is unnecessary to cover here), Plaintiffs succeeded in getting Ampton’s appeal dismissed.

Let’s start with the court’s description of the disentitlement doctrine (citations omitted):

An appellate court has the inherent power, under the “disentitlement doctrine,” to dismiss an appeal by a party that refuses to comply with a lower court order. As the Supreme Court observed . . . “A party to an action cannot, with right or reason, ask the aid and assistance of a court in hearing his demands while he stands in an attitude of contempt to legal orders and processes of the courts of this state.

We recently explained the equitable rationale underlying the doctrine. “‘Dismissal is not “a penalty imposed as a punishment for criminal contempt. It is an exercise of a state court‟s inherent power to use its processes to induce compliance” with a presumptively valid order’ . . .  Appellate disentitlement “is not a jurisdictional doctrine, but a discretionary tool that may be applied when the balance of the equitable concerns make it a proper sanction . . . . “No formal judgment of contempt is required; an appellate court “may dismiss an appeal where there has been willful disobedience or obstructive tactics.” The doctrine “is based upon fundamental equity and is not to be frustrated by technicalities.”

The Court of Appeal has no problem finding the doctrine applicable here. After rejecting a few contentions that were squarely against precedent (why the heck were those arguments made?), the court addresses the one issue that had even a chance of succeeding: that Ampton’s appeal could not be dismissed under the disentitlement doctrine because Ampton disobeyed orders only of a court of foreign jurisdiction rather than orders from a California trial court.

It’s a valiant effort, but the Court of Appeal finds no reason to treat disobedience of foreign court orders any differently from those of California trial court for purposes of the disentitlement doctrine. The court first cites the “full faith and credit” clause of the federal constitution, but also notes a very practical reason for applying the disentitlement doctrine in these circumstances (citations and footnote omitted):

Had plaintiffs attempted to enforce the judgment in California by propounding postjudgment special interrogatories seeking defendants’ financial information, including information about assets defendants may have in New York, the disentitlement doctrine would have applied to any noncompliance with the California trial court‟s orders compelling responses to those interrogatories.  For purposes of the disentitlement doctrine, there is no meaningful distinction between New York trial court orders and California trial court orders related to enforcement of a California judgment. The orders of the New York court in issue were based solely on a California money judgment and were intended to aid in the enforcement of that judgment. Thus, by violating those orders, defendants are obstructing and frustrating the enforcement of a judgment of this state, while at the same time seeking relief concerned that judgment in this court. Under the well-established disentitlement doctrine, defendants are not entitled to the relief they seek on appeal.

UPDATE: Interestingly, the court stayed its dismissal for 30 days to allow Ampton to seek reinstatement of the appeal, but cautioning that it was not suggesting or implying how it would act on such a request.  So, naturally, Ampton did so, but only at the last minute and not very well. Ampton filed an initial motion that provided only an unsworn account of Ampton’s purported compliance with the New York Subpoena, a “supplement” to that motion regarding further New York proceedings, a petition for rehearing and a “renewed” motion for reinstatement (this time supported by sworn declarations),  and finally a “supplement” to the renewed motion, with a flurry of orders from the New York court, all for naught. The Court of Appeal found that Ampton failed to prove that it had ceased playing games:

Defendants have had two months since our initial opinion to provide us with a competent and unequivocal showing that they had complied fully with plaintiffs’ information subpoena and that the New York court had made an express finding of full compliance. Defendants and plaintiffs have both provided their versions of the oral proceedings before the court, but apparently those proceedings were “off the record.” Had the New York trial court, knowing of our deadline, considered our dismissal order inequitable, that court presumably would have acted upon the pending motions before it with respect to compliance with its orders. Moreover, it was defendants’ burden to provide us with an adequate record, and that would include a transcript of a proceeding “on the record” or a reasonable substitute for such a transcript. (See Cal. Rules of Court, rule 8.137.) Defendants have been making last-minute efforts to avoid the disentitlement doctrine, but these efforts are too little and too late.

If you are unable to stay the judgment pending appeal, use every legitimate means at your disposal to forestall enforcement (the requirements for many judgment enforcement proceedings are highly technical, and noncompliance by the judgment creditor can delay things for a while), or try to settle the case (though admittedly, an appeal without a stay of the judgment does not create a lot of leverage), but don’t play games with judgment enforcement. The best appellate argument in the world is worthless if the Court of Appeal dismisses your appeal under the disentitlement doctrine before it ever reaches the merits.

A Published Supersedeas Case. Really!

From my lips to the Court of Appeal’s ears . . . or maybe from my keyboard to the Court of Appeal’s monitors . . . barely a week after I lamented how old most of the published case law is regarding supersedeas and other stays on appeal, along comes Veyna v. Orange County Nursery, Inc., case no. G041305 (4th Dist. Jan. 15, 2009), a published decision denying a petition for writ of supersedeas.  Published opinions on this topic rarely come along, so we might as well grab all the gusto we can from it.  First, a synopsis of the facts, then a couple of lessons to take away from the case.

The underlying proceeding was filed by the minority shareholders of a corporation to force its dissolution.  The parties stipulated to follow the buy-out procedure of Corporations Code section 2000, under which the corporation would purchase the shares of the minority shareholders.  Since the parties could not agree on share value (imagine that!), the majority shareholders were required to post a bond pending a final order.

After independent appraisers submitted a unanimous valuation report to the court, the minority shareholders moved to confirm the appraisal.  The majority shareholders fought the motion, contending that the business had been overvalued.  The trial court adopted the appraisers’ valuation of the company and entered an alternative decree fixing a share price and setting a date by which the purchasing shareholders had to tender cash payment to the minority shareholders for their shares, and which provided that failure to timely tender cash payment would result in the entry of judgment of involuntary dissolution.

Ten days before payment was due (and without making any payment), the corporation filed its notice of appeal, and three days after that they filed their petition for writ of supersedeas in the court of appeal without first seeking a stay in the trial court.

The court denies the petition, with some lessons along the way, which I present in no particular order.

The issue that I think caused the court of appeal to publish the decision is the first one it tackles: whether the alternative order was automatically stayed upon the filing of the appeal from it.  The court holds that the order was not automatically stayed because the proceeding wasn’t really an “action” for purposes of the rules governing stays and undertakings on appeal in a civil “action.”  (Code Civ. Proc. secs. 22-23.)  In fact, the parties agreed that the involuntary dissolution suit was a “special proceeding” under Code of Civil Procedure section 23.  Since the stay provisions (Code of Civil Procedure sections 916 et seq.) of Part 2 of the Code apply only in civil actions, the decree was not automatically stayed.

(This is probably a good time to warn prospective appellants in civil actions against taking comfort in the “automatic stay” of Code of Civil Procedure section 916, under which “the perfecting of an appeal stays 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.”  There’s a huge “but”: the automatic stay of section 916 is subject to so many exceptions that they  swallow the rule, and it is the unusual case that is actually stayed automatically.)

Special proceedings are subject to the stay provisions of Part 2 only if the statute creating the special proceeding expressly incorporates them.  The majority shareholders directed the court’s attention to Corporations Code section 2000, subdivision (d), under which, to prevent winding up and dissolution, the purchaing parties “shall pay to the moving parties the value of their shares ascertained and decreed within the time specified pursuant to this section, or, in the case of appeal, as fixed on appeal.”  (Emphasis added.)  Unfortunately, they did not make clear what they thought the significance of the provision was.

The court rejects two possible assertions based on the cited language.  First, holding firm to the rule that statutory incorporation of Part 2 must be express, it rejects the possibility that the cited language was intended to incorporate the stay provisions of Part 2.  Second, it rejects the possibility that the cited language itself imposed a stay.  Because there is a stay on appeal from special proceedings only when the implementing statute expressly incorporates Part 2, the  language cannot be read to implement a stay independent of Part 2.

I think that’s probably it for the new stuff.

One thing really jumped out at me.  Did you note my reference to “possible assertions”?  The court began its analysis: “It is unclear how subdivision (d) purports to address the narrow question of whether an automatic stay comes into effect upon the perfecting of an appeal.  If the argument is that . . . ”  If the argument is?  The court was confused what the appellant’s argument was even after hearing oral argument!

Reminder of an old rule: self-executing judgments are not automatically stayed (and supersedeas is usually inappropriate, too).  Since failure to tender payment for the minority’s shares would result in a judgment of dissolution without further action by the court, it is self-executing, and thus not stayed.

Another reminder of an old rule: apply for a stay in the trial court before petitioning for supersedeas.  Moving on to its discretionary power to issue supersedeas, the court cites appellant’s failure to seek a stay from the trial court as grounds for denying the petition, which ought to serve as an important reminder to appellants that the court of appeal takes this prerequisite seriously:

An application for a stay of a judgment should, wherever possible, be made first in the superior court. [Citation.] The reason is self-evident but it bears repeating.  “A trial court’s familiarity with the evolving circumstances of a case normally constitutes it the appropriate forum to weigh the relative hardships on the parties, including the likelihood that substantial questions will be raised on appeal, and its refusal to grant or to continue an injunction during appeal is entitled to great weight.” [Citation.]

Appellant said it did not apply for a stay in the trial court because it did not believe it had any remedy available to it there (remember that Code of Civil Procedure section 918 would not apply).  However, Since the trial court’s preliminary decree had specifically allowed that the payment date could be postponed “for good cause,” the court of appeal holds that relief was at least theoretically available in the trial court.  Thus, the court denies the petition “on the narrow ground that the [petitioners] should have sought relief in the superior court first.”

Make sure you provide an adequate record when you are seeking supersedeas.  Petitions for supersedeas are often filed prior to preparation of the record on appeal, so the petitioner is responsible for submitting documents to the court of appeal sufficient to decide the petition.  (Cal. Rules of Court, rule 8.112(a)(4)(B)(iv).)  Though appellants argued that it would raise a substantial question on appeal regarding the propriety of the appraisal procedure, it did not even submit its own papers opposing the motion to confirm the valuation.  Their failure to do so could only emphasize that the superior court, because of its familiarity with the case, was better suited to first entertain a request for a stay.

By the way, the case is very interesting reading on the subject of involuntary dissolution.

Got a stay? Challenge the judge anyway!

Under Code of Civil Procedure 170.3, subdivision (c), a party may apply to disqualify the trial judge for cause, but must submit the statement of objection “at the earliest practicable opportunity after discovery of the facts constituting the ground for disqualification.”  In Tri Counties Bank v. Superior Court (Amaya-Guenon), case no. F055084 (5th Dist. Oct. 28, 2008), Tri Counties tried to convince the court of appeal that its seven-month delay met the “earliest practical opportunity standard” under the circumstances of the case.  No dice.  And in rejecting that contention, the court of appeal makes an interesting exception to a stay of proceedings in the trial court.

Tri Counties asserted that the the judge should be disqualified for conducting an independent investigation into a factual issue relevant to class certification.  It learned of the investigation from the trial court’s tentative ruling in the class certification motion and, in a supplemental memorandum, urged it as a ground to deny certification.  When the trial court certified the class, Tri Counties sought appellate review of the certification order by petitioning for a writ of mandate, citing the improper investigation as a ground to grant the petition, but did not seek the trial judge’s disualification.  Only after that petition was denied did Tri Counties submit its 170.3 statement of objection, which the trial court struck as untimely.  Tri Counties then filed a writ petition challenging that order.

Tri Counties contended that the stay issued in connection with the first writ petition prevented it from filing its statement of objection until the conclusion of that proceeding.  The court notes, however, that the stay did not take effect until more than three moths after Tri Counties became aware of the improper investigation, leaving it plenty of time to challenge the judge.

The second reason the court gave was more interesting.  It holds that proceedings regarding the qualification of a judge are distinct from the ordinary proceedings, and the stay affects only the latter:

Second, although unnecessary to our conclusion that the statement of objection was untimely, it is our view that petitioner could have filed a statement of objection even while the stay was in effect.  Our general stay of proceedings was obviously directed to the underlying proceedings between the parties to the action (i.e., to the litigation itself), not to questions of the judge’s qualification to preside over those proceedings.  A judge’s qualification to preside as judge in a particular case is foundational to, and hence distinct from, the ordinary proceedings between the parties that would be tried or heard by the judge.  (See § 170.5, subd. (f).)  Because of this basic distinction between a judge’s qualification and the underlying litigation, we do not believe that our stay could reasonably be understood as barring petitioner from promptly filing a statement of objection in the trial court.  We note further that disqualification of the trial judge was not raised in the writ of mandate petition challenging the class certification order, thus the filing of a statement of objection to pursue disqualification would not have interfered with or affected our appellate review of that order.

This is an interesting and important distinction.  It’s also quite interesting that the court went out of its way to discuss it, since it was unnecessary once it found Tri Counties had delayed too long even before the stay went into effect.