California Procedure,  Judgment,  Jurisdiction

Challenging Voidable Judgments

A short lesson in the difference between void judgments and valid but voidable ones is provided in Baron v. Fire Insurance Exchange, case no. H029830 (6th Dist. Sept. 4, 2007).  While I think the court’s decision not to avoid the “valid but voidable” order in this case is the correct one, I am a bit surprised by its rationale.

Two partners to a venture concerning the insured real property arbitrated a dispute between them.  During the arbitration, the property suffered a fire.  The insured partner submitted an insurance claim, and the arbitration award included the appointment of a receiver to take possession of the property and any insurance proceeds, including settlement proceeds from the existing insurance claim.  The trial court confirmed the arbitration award.

The receiver eventually grew dissatisfied with the handling of the claim.  He sued Fire insurance Exchange for insurance bad faith and misrepresentation, among other claims.

On appeal, Fire Insurance Exchange contended that the arbitrator lacked authority to appoint a receiver as part of the award.  It argued that the appointment was “void for all purposes,” thus the arbitrator was “‘not the proper real party in interest” and “was not entitled to damages, attorney fees, or costs.” 

The court held that the merits of this argument were immaterial because Fire waived the issue by not raising it in the trial court.

Here’s where the difference between void and voidable judgments becomes important . . . 

Fire tried to get around its waiver of the issue by arguing that because the court order confirming the appointment of the receiver was a void act, it could be challenged at any time. 

The court summarizes in a footnote the general rules regarding void and voidable judgments.  Void judgments result from a court lacking fundamental jurisdiction over the parties or subject matter, and are subject to collateral attack at any time.  On the other hand, a court with fundamental jurisdiction renders a valid but voidable judgment when it “acts in excess of its jurisdiction,” which it does “when it has no power to act ‘except in a particular manner, or to give certain kinds of relief, or to act without the occurrence of certain procedural prerequisites.'”  (Citation omitted.)  A party may be precluded from setting aside a voidable judgment by estoppel or other equitable considerations.

The Court of Appeal finds that the order appointing the receiver should not be avoided under the circumstances, but for reasons different from what a reader might anticipate from the statement of the rules in the previous paragraph of this post.  Noting that the trial court unquestionably had fundamental jurisdiction over the parties and subject matter, the court finds that the only question is whether the order confirming the appointment of the receiver should be avoided.  Though the receiver presented equitable reasons against doing so — the statute of limitations had run on the insured partner’s claim during the litigation, and the receiver had expended $700,00 on attorneys — the court instead notes  a different standard: whether an act is “in excess of jurisdiction and thus voidable is enforced depends in large part on ‘the degree of the procedural irregularity and whether the court’s act violated a comprehensive statutory scheme or offended public policy.'”  (Citation omitted.) 

Thus, even if the court exceeded its jurisdiction by ratifying and adopting the arbitrator’s ruling, that error does not compel reversal. Nevertheless, the order was not unjustified in the circumstances before the court. Confirming respondent’s appointment made it a judicial one, and we cannot presume that the order was made without due consideration of the merits of the parties’ joint request.

Given the equitable factors available, I am surprised the court relied on this more ambiguous standard of “the degree of irregularity” present in the order, at least without going into more detail on the rule.  It could have at least noted the equitable factors as an alternate reason not to avoid the order.

California Appellate Report has a detailed post about the court taking both sides to task for making unsupported factual assertions in their briefs.  Nothing like being embarrassed in a published opinion.

 Cal. Civ. Blog has notes on the court’s decision regarding a second issue — punitive damages — on which Fire prevails.