Judge Thomas D. Long, Case 18STCP02593 2023-04-13 Tentative Ruling

The underlying dispute involved breach of a business guaranty. On October 15, 2018, Petitioners and Creditors Keith W. Furlong and David J. Parsons filed a petition to confirm a contractual arbitration award, which required Respondent and Judgment Debtor Karena P. Chuang (also known as Karena Pingju Xie) to pay Petitioners $924,664.28. On March 7, 2019, a judgment was entered in favor of Petitioners in said amount. After a writ of execution was written, on September 29, 2022, the Orange County Sheriff served the required documents to accomplish a bank levy on J.P. Morgan Chase Bank, N.A. (“Chase Bank”), where Respondent had bank accounts, totaling $303,383.64.

On February 14, 2023, Plaintiffs Furlong and Parsons filed a motion for order determining liability of third party for failure to make payments pursuant to bank levy. On March 13, 2023, third party Chase Bank filed an opposition. On March 16, 2023, Plaintiffs filed a reply.

“Except as otherwise provided by statute, when a levy is made by service of a copy of the writ of execution and a notice of levy on a third person, the third person at the time of levy or promptly thereafter shall comply with this section.” (Code Civ. Proc., § 701.010(a).) CCP section 701.010 further provides:

(1) The third person shall deliver to the levying officer any of the property levied upon that is in the possession or under the control of the third person at the time of levy unless the third person claims the right to possession of the property.

(2) To the extent that the third person does not deny an obligation levied upon, or claim a priority over the judgment creditor’s lien, the third person shall pay to the levying officer both of the following:

(a) The amount of the obligation levied upon that is due and payable to the judgment debtor at the time of levy.

(b) Amounts that become due and payable to the judgment debtor on the obligation levied upon during the period of the execution lien.

(3) If the third person makes a delivery or payment to the levying officer pursuant to this section, the third person shall execute and deliver any documents necessary to effect the transfer of the property.

(Id., § 701.010(b).) “For the purposes of this section, ‘good cause’ includes, but is not limited to, a showing that the third person did not know or have reason to know of the levy from all the facts and circumstances known to the third person.” (Id., § 701.010(c).)

(a) If a third person is required by this article to deliver property to the levying officer or to make payments to the levying officer and the third person fails or refuses without good cause to do so, the third person is liable to the judgment creditor for whichever of the following is the lesser amount:

(1) The value of the judgment debtor’s interest in the property or the amount of the payments required to be made.

(2) The amount required to satisfy the judgment pursuant to which the levy is made.

(b) The third person’s liability continues until the earliest of the following times:

(1) The time when the property levied upon is delivered to the levying officer or the payments are made to the levying officer.

(2) The time when the property levied upon is released pursuant to Section 699.060.

(c) If the third person’s liability is established, the court that determines the liability may, in its discretion, require the third person to pay the costs and reasonable attorney’s fees incurred by the judgment creditor in establishing the liability.

(Code Civ. Proc., § 701.020.) A third person who fails or refuses to deliver property to the levying officer without good cause to do so is liable to the judgment creditor for the amount of the levy. (Bergstrom v. Zions Bancorporation, N.A. (2022) 78 Cal.App.5th 387, 399 (citing and quoting CCP section 701.020(a).)

Chase Bank does not dispute that it was subject to the bank levy, but rather argues that liability cannot be determined by a motion under CCP section 701.020, which requires an examination proceeding or a creditor’s suit. Plaintiffs cite to case law which supports a judgment creditor’s motion to impose third party liability under section 701.020(a).

In Bergstrom v. Zions Bancorporation, N.A. (2022) 78 Cal.App.5th 387, the court of appeal reversed the trial court’s denial of the creditor’s motion to impose third party liability for noncompliance with notice of levy. There, the creditor filed a motion, as Plaintiffs have done here, to impose third party liability against a bank, where it had improperly allowed the judgment debtor to make withdrawals despite the levy. (Id. at p. 396, 406.) The court found that the motion and imputation of liability were appropriate as there was no good cause to excuse the bank’s failure to comply with the levy. (Id. at p. 403-404.)

Similarly, here, Plaintiffs have sufficiently shown that Chase Bank failed to comply with the levy imposed on all bank accounts for Judgment Debtor. Although this may not constitute the same withdrawal as in Bergstrom, where the debtors took out the funds rather than transferring it into another account with the same bank, the Court finds that Chase Bank’s allowance of the transfer resulted in its failure to deliver to the levying officer the property levied upon, which is a failure to comply with the levy. Furthermore, Chase Bank does not make any showing of good cause in allowing Judgment Debtor to transfer funds into another account.

Plaintiffs also cite to National Financial Lending, LLC v. Superior Court (2013) 222 Cal.App.4th 262, where the court held that the judgment creditor’s motion to impose liability on a third party for failure to honor a notice of levy was not itself a separate special proceeding that would support a peremptory challenge to the judge. “We conclude that neither a section 701.020 motion brought in the same action in which the underlying judgment was entered nor a motion to quash service of a notice of levy is a special proceeding but rather both are only incidents of the underlying action and do not give rise to a separate right to a peremptory challenge under section 170.6.” (Id. at p. 272.) The Court finds this to mean that Plaintiffs’ motion is not procedurally defective.

As discussed above, Chase Bank failed to comply with the bank levy. This is sufficient to impose liability under section 708.210 unless Chase Bank had good cause to do so. However, Chase Bank fails to explain its failure to submit the funds to the levying officer and its allowance to transfer the funds to another account, which is a withdrawal. Rather, Chase Bank argues that the issue in Plaintiffs’ motion is subject to an interpleader action currently pending before this Court, wherein Chase Bank seeks to interplead and deposit $303,404.24 with the Court. Chase Bank requests that the Court defer to the pending interpleader action as to avoid the possibility of inconsistent rulings or double liability.

Despite Chase Bank’s arguments regarding the interpleader action, the Court finds it proper to impose liability under section 708.210. Chase Bank’s interpleader arguments cannot be considered as good cause for failing to comply with the levy as that action arose after the withdrawal and transfer of funds in the levied property.

“If the third person’s liability is established, the court that determines the liability may, in its discretion, require the third person to pay the costs and reasonable attorney’s fees incurred by the judgment creditor in establishing the liability.” (CCP § 701.020, subd. (c).)

Plaintiffs request attorney’s fees in the amount of $3,525.00 plus costs of $61.65. Plaintiffs’ counsel’s rate is $300 an hour. Counsel claims he spent 9.75 hours in establishing liability, anticipates 2 to 3 hours reviewing the opposition, preparing the reply, and attending the hearing, for a total of 11.5 hours. The Court finds Counsel’s hourly rate and hours to be reasonable. Thus, the Court GRANTS Plaintiffs’ request for attorney’s fees and costs in the amount of $3,586.65 (($300 x 11.5) + $61.65).

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court