Judge Holly J. Fujie, Case Number: 22STCV09969, Date: 2024-07-12 Tentative Ruling

RESPONDING NON-PARTY: Lien Claimant Michael R. Augustine, Trustee, Irwin L. Green and Dorothy L. Green Revocable Trust (“Lien Claimant”)

On November 22, 2022, Plaintiff filed the currently operative first amended complaint alleging causes of action for: (1) legal malpractice; and (2) malicious prosecution. The legal malpractice claim is asserted only against Defendants Matthew Green, Rhett Warriner, Michael Riley, and Warriner, Green & Riley, LLP; the malicious prosecution claim is asserted against all Defendants.

On February 15, 2023, Lien Claimant filed a Notice of Lien based on a money judgment entered in In the matter of Irwin L. Green and Dorothy L. Green Revocable 1998 Trust, Case No. 16STPB01322, in the amount of $5,134,712.00.

On June 12, 2024, Defendant Steven Lowe (“Lowe”) submitted a Notice of Settlement notifying the Court, among others, that Plaintiff and Lowe, individually and doing business as Law Office of Steven Lowe/Lowe law dba Lowe &Associates (“Lowe Defendants”) have entered into a settlement.

Plaintiff now moves for an order authorizing her to enter into a settlement via a Motion for Order Authorizing Settlement Under C.C.P Section 708.440(b) (the “Motion”) filed on June 17, 2024. On June 28, 2024, Lien Claimant filed an Objection to the Motion. On July 3, 2024, Lowe submitted a “Joinder to Motion Determnation [sic] of Good Faith Settlement” and a “Reply to Objection to Application for Determnation [sic] of Good Faith Settlement.” Plaintiff filed a reply on July 5, 2024.

Plaintiff’s requests for judicial notice are GRANTED pursuant to Evidence Code section 452(d) (court records).

Code of Civil Procedure (“CCP”) section 708.440(a) states that when there is a pending judgment lien against a party, “unless the judgment creditor’s money judgment is first satisfied or the lien is released, … no compromise, dismissal, settlement, or satisfaction of the pending action or special proceeding or the judgment procured therein may be entered into by or on behalf of the judgment debtor, without the written consent of the judgment creditor or authorization by order of the court obtained under subdivision (b).” In turn, subdivision (b) states: “Upon application by the judgment debtor, the court in which the action or special proceeding is pending or the judgment procured therein is entered may, in its discretion, after a hearing, make an order described in subdivision (a) that may include such terms and conditions as the court deems necessary. The application for an order under this subdivision shall be made on noticed motion. The notice of motion shall be served on the judgment creditor. Service shall be made personally or by mail.”

At the outset, the Court notes that service was not made personally or by mail, but rather by email. However, as no party has objected to the manner of service of the Motion, the Court will address the Motion on its merits.

When a lien is created in a pending action, the judgment debtor is entitled to claim any applicable exemption for all or part of the money or property that the debtor may recover in the action. (CCP § 708.450(a).) To do this, the judgment debtor must file and serve, personally or by mail, a noticed motion on the judgment creditor, not more than thirty (30) days after the judgment debtor received notice of the lien. (CCP § 708.450(a).) The motion must include a declaration complying with CCP § 703.520(b), and if the judgment debtor fails to make a timely claim, the exemption is waived. (Id.) Here, Plaintiff did not claim an exemption within the prescribed period and has therefore waived any exemption.

In the Motion, Plaintiff asserts that Plaintiff’s attorney in this action, Larry J. Caldwell (“Caldwell”), has an attorney’s lien that applies to all recoveries in this action, including the proposed settlement between Plaintiff and Lowe Defendants. Plaintiff further asserts that since Caldwell’s attorney’s lien was created before Lien Claimant filed his Notice of Judgment Lien, Caldwell’s attorney lien is entitled to preference over the judgment creditor’s lien.

The Court of Appeal summarized the case law on rulings on the validity of attorney’s liens in Carroll v. Interstate Brands Corporation (2002) 99 Cal.App.4th 1168, 1173, as follows:

Appellate courts have consistently held that the trial court in the underlying action has no jurisdiction to determine the existence or validity of an attorney’s lien on the judgment. [Citations.] The trial court does have fundamental jurisdiction over the subject matter and over the parties. Nevertheless, because the attorney is not a party to the underlying action and has no right to intervene, the trial court acts in excess of its jurisdiction when it purports to determine whether the attorney is entitled to foreclose a lien on the judgment. [Citations.] Nor can the court entertain a motion to terminate the lien. [Citations.] After the client obtains a judgment, the attorney must bring a separate, independent action against the client to establish the existence of the lien, to determine the amount of the lien, and to enforce it. [Citations.] An order within the underlying action purporting to affect an attorney’s lien is void.

Further, “[w]hen a party -- be it the plaintiff client or a judgment creditor deemed a party for purposes of an application under the judgment lien statutes -- objects to the adjudication of the attorney lien claim in the underlying action, the fundamental rule set forth in Carroll and its predecessors applies: Any order within the underlying action purporting to affect the attorney lien, whether positively or negatively, is void.” (Brown v. Superior Court (2004) 116 Cal.App.4th 320, 333.)

The holding in Brown is explicit and unambiguous: the Court does not have the jurisdiction to make any finding whatsoever regarding the validity of an attorney’s lien, and any claim to an attorney’s lien must be determined in a separate action.

Although the Court lacks jurisdiction to rule on the validity of Plaintiff’s attorney’s lien or its purported priority over Lien Claimant’s judgment lien, the Court has the discretion under CCP § 708.440(b) to determine whether the settlement should be approved under “terms and conditions as the court deems necessary.” (CCP §708.440(b).)

The Enforcement of Judgments Act “must be implemented to prevent a judgment debtor, with or without the assistance of other parties to the settlement agreement, from structuring a settlement agreement so that it receives benefits while evading the lien of the judgment creditor, absent appropriate equitable considerations.” (Oldham v. California Capital Fund Inc. (2003) 109 Cal.App.4th 421, 430.) “[C]ourts exercising their discretion in approving or disapproving a settlement should consider whether the settling parties have adopted settlement terms that adversely affect the rights of others,” including specifically those of a judgment creditor with a lien under Code of Civil Procedure § 708.410, et seq. (Id. at p. 432.) “To make an informed and intelligent decision about the settlement, the superior court should have sufficient information to understand who benefits from the transfers contemplated by the proposed settlement and how they are benefitted. In other words, the superior court must understand the size of the settlement pie, how the pie is sliced, and who is getting which slice.” (Id. [Citation omitted].) The obligation to provide that information belongs to the judgment debtor because, as the proponent of the settlement, it bears the burden of proving that the settlement is reasonable. (Id. at p. 434.) “[O]nce the superior court knows the judgment debtor or an entity closely connected to the judgment debtor is getting a settlement slice beyond the reach of the judgment creditor’s lien, the court can determine if equitable principles justify evasion of the lien, if terms or conditions should be imposed on the settlement, or if approval of the settlement should be withheld.” (Id.)

Here, the Motion and its supporting declaration provide no information about the negotiated allocation of the settlement funds. Pursuant to the proposed settlement, Lowe Defendants agree to pay $51,500 to Plaintiff to settle Plaintiff’s claims as against the Lowe Defendants, contingent upon this Court’s approval of the settlement. (Declaration of Larry J. Caldwell in Support of Motion, ¶ 2; Exh. 1.) Nothing in the Motion or its supporting papers indicates that any portion of the settlement amount was expressly allocated to the satisfaction of the judgment lien. Instead, the Settlement Agreement merely provides for the deposit of the “Settlement Funds into the blocked interest-bearing account pending subsequent determination by the Court of how the Settlement Funds shall be disbursed as between Plaintiff and Judgment Creditor…” (Id.) Based on Plaintiff’s showing, therefore, the Court cannot conclude what amount was paid to settle the claims brought by Plaintiff and what funds, if any, would be available to satisfy Lien Claimant’s judgment lien. The Court also notes that the Settlement Agreement provides that after the Court approval of the settlement, the settlement funds are to be transferred from the trust account of the Lowe Defendants’ counsel to a blocked account for which Plaintiff Paula R. Green shall “have the responsibility to open the blocked interest-bearing account.” (Id.) The Court would not under the circumstances exercise its discretion to allow control over the settlement funds to be held exclusively by Plaintiff.

Lien Claimant has a right to preserve available funds for the purpose of satisfying a judgment, especially because it remains to be seen whether Plaintiff will succeed in ultimately pressing her claims against all the defendants. In recognition of the parties’ competing interests, and to preserve the balance between the parties at this stage of the litigation, the Court DENIES the Motion.

Accordingly, Plaintiff’s motion for an order authorizing the settlement is DENIED.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court