Opinion
H043762
11-16-2017
GRAIL SEMICONDUCTOR, INC., Plaintiff, v. MITUSBISHI ELECTRIC & ELECTRONICS USA, Defendant and Respondent; MISHCON DE REYA NEW YORK, LLP, Claimant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-07-CV-098590)
In this appeal, Mishcon De Reya New York, LLP (Mishcon), a New York law firm, seeks reversal of an order denying its motion to vacate dismissal of a lawsuit between Grail Semiconductor, Inc. (Grail) and respondent Mitsubishi Electric & Electronics USA (Mitsubishi). The superior court determined that Mishcon had not preserved its right to recover attorney fees from Grail, because it had failed to perfect its lien on Grail's recovery from Mitsubishi. We agree and therefore must affirm the order.
Background
Grail and Mitsubishi were engaged in litigation beginning in June 2007, when Grail sued Mitsubishi for breach of contract and related claims. Grail obtained a jury verdict in its favor, but the trial court determined that the jury had applied the wrong measure of damages, and it therefore granted Mitsubishi's motion for a new trial on that issue. This court affirmed. (See Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786.)
Mishcon represented Grail in the action against Mitsubishi between August 2010 and July 2011. On July 15, 2011, Mishcon initiated arbitration proceedings in New York to recover unpaid attorney fees and litigation expenses from Grail. Eventually, they settled, and on July 11, 2012, the United States District Court for the Southern District of New York (New York district court) entered a $2,111,000 judgment for Mishcon.
On May 16, 2013, Mishcon registered the judgment against Grail in the United States District Court for the Northern District of California (Northern District court). On May 28, 2013, Mishcon filed a notice of lien in the superior court of Santa Clara County, citing Code of Civil Procedure section 708.410 et seq. and attaching the July 2012 judgment in the New York district court. By letter to counsel involved in the Grail-Mitsubishi action Mishcon advised the parties that it had filed the notice of lien.
All further statutory references are to the Code of Civil Procedure except as otherwise indicated.
In advance of the damages retrial in the Grail-Mitsubishi action, those parties settled their dispute, and on October 16, 2015, they obtained a dismissal. On October 27, 2015, Mishcon, now represented by outside counsel located in California, filed a new notice of lien. This time the notice identified the date of entry of judgment not as July11, 2012, but as May 16, 2013, the date the New York judgment was registered in the Northern District court.
Shortly thereafter, Mishcon's new attorney learned that the parties in the action had settled. On November 18, 2015, he filed Mishcon's motion for an order vacating the dismissal of the Grail-Mitsubishi action. In the motion Mishcon contended that the requested order was authorized by section 473, subdivision (b) because its May 2013 lien precluded any settlement or dismissal without its consent or a court order. Citing section 708.470, subdivision (c), Mishcon sought judgment from the court in the amount of its lien or the amount paid by Mitsubishi in the settlement, whichever was less.
Grail filed for bankruptcy on December 30, 2015. On April 7, 2016, the bankruptcy court lifted the automatic stay to allow Mishcon to pursue dismissal of the state court action and thereby obtain a remedy from Mitsubishi under section 708.470, subdivision (c).
Mitsubishi's opposition to the motion focused on the insufficiency of the May 2013 notice of lien. Mitsubishi emphasized that the judgment lien statutes were subject to strict construction, and that Mishcon had failed to comply with the Enforcement of Judgments statutes set forth in section 708.410 et seq. Consequently, Mitsubishi urged the court to find the May 2013 lien invalid.
The superior court agreed with Mitsubishi, reasoning that no "judgment" had been entered by "a court of this state," within the meaning of section 680.230, as required for a judgment creditor to obtain a lien. The court acknowledged the second notice of lien filed on October 27, 2015, but by then Grail and Mitsubishi had settled and procured dismissal, so the second notice was "untimely and consequently ineffective." From the court's June 10, 2016 order, Mishcon filed this timely appeal.
Discussion
The central issue presented by Mishcon's appeal is whether a civil money judgment issued by a federal district court outside California is enforceable by a California state court if the judgment has been attached in a notice of lien to the affected parties in the underlying action, after being registered in a federal district court within California. The Enforcement of Judgments Law (EJL), delineated in sections 680.010 through 724.260, prescribes the procedure for obtaining and effectuating a judgment lien. As specifically relevant here, Chapter 6, Division 2, Article 5, comprising sections 708.410 through 708.480, governs the procedure applicable to a lien a judgment creditor may obtain against a judgment debtor who is a party to a pending action or proceeding. The judgment lien statutes "are subject to strict construction because they are purely the creation of the Legislature." (Pangborn Plumbing Corp. v. Carruthers & Skiffington (2002) 97 Cal.App.4th 1039, 1056; Epstein v. Abrams (1997) 57 Cal.App.4th 1159, 1167.) As the issues presented involve the construction of statutes and their application to undisputed facts, our review is de novo. (California Veterinary Medical Assn. v. City of West Hollywood (2007) 152 Cal.App.4th 536, 546.)
Under the provisions of Article 5, "a judgment creditor may place a lien on the rights of the judgment debtor to receive money, property[,] or both by way of a settlement or judgment entered in that action." (Oldham v. California Capital Fund, Inc. (2003) 109 Cal.App.4th 421, 429 (Oldham).) Thereafter, while the lien is in effect, the parties in the underlying action may not settle the litigation unless they obtain either the consent of the lienholder or approval of the court. (§ 708.440, subd. (a).) "One purpose of the lien is to establish and preserve the judgment creditor's priority to the money and property the judgment debtor may receive from the pending action. . . . This legislative purpose is best served if a lien obtained under Article 5 is an effective remedy for judgment creditors. To provide an effective remedy, we conclude [that] Article 5 must be implemented to prevent the judgment debtor, with or without the active assistance of other parties to the settlement agreement, from structuring a settlement so it receives benefits while evading the lien of the judgment creditor, absent appropriate equitable considerations." (Oldham, supra, at p. 430; see Cal. Law Revision Com. com., 17 West's Ann. Code Civ. Proc., (2009 ed.) foll. § 708.440, p. 374.)
This provision states: "(a) Except as provided in subdivision (c) of Section 708.410, unless the judgment creditor's money judgment is first satisfied or the lien is released, the judgment recovered in the action or special proceeding in favor of the judgment debtor may not be enforced by a writ or otherwise, and 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)."
These objectives cannot be achieved, however, until the judgment lien is properly created in accordance with the legislative scheme. The procedure for obtaining the lien is outlined in section 708.410, which states, in pertinent part: "(a) A judgment creditor who has a money judgment against a judgment debtor who is a party to a pending action or special proceeding may obtain a lien under this article, to the extent required to satisfy the judgment creditor's money judgment, on both of the following: [¶] (1) Any cause of action of such judgment debtor for money or property that is the subject of the action or proceeding. [¶] (2) The rights of such judgment debtor to money or property under any judgment subsequently procured in the action or proceeding. [¶] (b) To obtain a lien under this article, the judgment creditor shall file a notice of lien and an abstract or certified copy of the judgment creditor's money judgment in the pending action or special proceeding."
If a valid lien is created under the EJL, section 708.440, subdivision (a), precludes dismissal of the underlying action before satisfaction or release of the lien, absent court order or written consent of the judgment creditor. And section 708.470, subdivision (c), directs the court to enter judgment against a party who, with notice of the lien, has paid the judgment debtor money that was subject to the lien, in the amount of the lien or the amount paid to the judgment debtor, whichever is less. The court may order any money to which the judgment debtor is entitled to be applied to satisfaction of the lien. If another party that is aware of the lien has transferred property or money subject to the lien, the court must award the judgment creditor the lesser amount of the creditor's lien or the amount paid to the judgment debtor. This remedy is what Mishcon seeks in the instant case, to recover the attorney fees it was awarded by the federal district court in New York from the proceeds of the settlement between Grail and Mitsubishi.
Section 708.440, subdivision (a), provides: "Except as provided in subdivision (c) of Section 708.410, unless the judgment creditor's money judgment is first satisfied or the lien is released, the judgment recovered in the action or special proceeding in favor of the judgment debtor may not be enforced by a writ or otherwise, and 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)." Subdivision (c) of section 708.410 pertains to service of the notice of lien. It cautions that "[f]ailure to serve all parties as required by this subdivision does not affect the lien created by the filing under subdivision (b), but the rights of a party are not affected by the lien until the party has notice of the lien."
In its motion to vacate dismissal, Mishcon claimed less than the $2,111,000 amount (plus interest) awarded after the arbitration; it now sought $1,943, 657.56.
The superior court, however, found that Mishcon's purported lien was ineffective to begin with. The court relied on the definitions of EJL terms provided in sections provisions of Division 1 of Title 9. Section 680.240 defines "judgment creditor" in these circumstances as "the person in whose favor a judgment is rendered"; section 680.250 defines "judgment debtor" as "the person against whom a judgment is rendered"; and section 680.270 defines "money judgment" as "that part of a judgment that requires the payment of money."
Of particular significance to the court was the definition of "judgment" in section 680.230: "a judgment, order, or decree entered in a court of this state." The court accepted Mitsubishi's point that the money judgment obtained by Mishcon was not entered in a court of this state, meaning a California state court. (See, e.g., Evid. Code, § 452 [distinguishing between records of "any court of this state" and "any court of record of the United States or of any state of the United States"].)
Mishcon nevertheless argued, as it does on appeal, that 28 U.S.C. sections 1962 and 1963, together with rule 69 of the Federal Rules of Civil Procedure (FRCP), constitute "supreme federal law" and as such require that "money judgments rendered by a federal district court have the same effect as a judgment of a state court and may be enforced in like manner." Thus, in Mishcon's view, because its federal district court judgment was registered in a district located in California, it could be enforced under the EJL just as if it had been a judgment obtained in the California superior court.
28 U.S.C. section 1962 states: "Every judgment rendered by a district court within a State shall be a lien on the property located in such State in the same manner, to the same extent and under the same conditions as a judgment of a court of general jurisdiction in such State, and shall cease to be a lien in the same manner and time. This section does not apply to judgments entered in favor of the United States. Whenever the law of any State requires a judgment of a State court to be registered, recorded, docketed or indexed, or any other act to be done, in a particular manner, or in a certain office or county or parish before such lien attaches, such requirements shall apply only if the law of such State authorizes the judgment of a court of the United States to be registered, recorded, docketed, indexed or otherwise conformed to rules and requirements relating to judgments of the courts of the State."
28 U.S.C. section 1963 states: "A judgment in an action for the recovery of money or property entered in any court of appeals, district court, bankruptcy court, or in the Court of International Trade may be registered by filing a certified copy of the judgment in any other district or, with respect to the Court of International Trade, in any judicial district, when the judgment has become final by appeal or expiration of the time for appeal or when ordered by the court that entered the judgment for good cause shown. Such a judgment entered in favor of the United States may be so registered any time after judgment is entered. A judgment so registered shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner. [¶] A certified copy of the satisfaction of any judgment in whole or in part may be registered in like manner in any district in which the judgment is a lien. [¶] The procedure prescribed under this section is in addition to other procedures provided by law for the enforcement of judgments."
FRCP rule 69 provides: "A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies."
The court declined to resolve the "supremacy" question raised by Mishcon, reasoning that even if "supreme" federal law permitted enforcement of federal district court money judgments through section 708.410, Mishcon's notice of lien was nonetheless ineffective. Mishcon's mistake, the court found, was in failing to attach the 2015 registered judgment in the Northern District of California—which the court characterized as the functional equivalent of a new judgment—to the notice of lien; instead, Mishcon attached only the 2012 judgment from the Southern District of New York. Because "it did not reflect on its face that any judgment had been rendered in a California federal district court," the court determined that Grail and Mitsubishi had received inadequate notice of a judgment that could support a valid lien.
The court's characterization was based on judicial recognition that the effect of registration in another federal district under 28 U.S.C. section 1963 is "the functional equivalent of obtaining a new judgment of the registration court." (In re Estate of Ferdinand E. Marcos Human Rights Litig. (9th Cir. 2008) 536 F.3d 980, 989; see also Wells Fargo Equip. Fin. Inc. v. Asterbadi (4th Cir. 2016) 841 F.3d 237, 244 ["just as a new judgment obtained in an action on a previous judgment from another district would be enforceable as any judgment entered in the district court, so too is a registered judgment"]; Stanford v. Utley (8th Cir. 1965) 341 F.2d 265, 268 ["registration provides, so far as enforcement is concerned, the equivalent of a new judgment of the registration court"].)
It is unnecessary to weigh in on the application of either the Supremacy Clause or the restrictive meanings of "judgment" in section 680.230, because we agree with the conclusion reached by the superior court. Even Mishcon's reliance on federal law is unavailing: Under 28 U.S.C. section 1963, it is the registered judgment that has "the same effect as a judgment of the district court of the district where registered and may be enforced in like manner." And FRCP rule 69 explains that the enforcement procedure "must accord with the procedure of the state where the court is located," except to the extent that a federal statute applies. Accordingly, Mishcon had to comply with the EJL to obtain a valid lien in this state. The May 28, 2015 notice of lien, however, indicated that a judgment had been entered in 2012 by the New York district court; it did not mention, much less attach, the May 16, 2013 registration of that judgment in the Northern District of California, thereby supplying notice of a lien that could support enforcement of the judgment. Even as the equivalent of a "judgment rendered by a district court within [California]" within the meaning of 28 U.S.C. section 1962, to serve as the basis of a "lien on the property located in such State," the judgment creditor had to give proper notice of the registered judgment before it could recover the fees awarded in the district court's judgment. (Italics added.) (See § 708.410, subd. (c) [failure to serve the parties does not affect the lien, "but the rights of a party are not affected by the lien until the party has notice of the lien"].) Here, absent proper notice to the parties, neither the EJL nor the federal enforcement statutes could have supplied the basis for enforcement under the procedures set forth in the EJL.
Mishcon's reliance on the supremacy of the federal lien enforcement statutes was based on article 4, clause 2, of the United States Constitution. --------
We are sympathetic to the loss incurred by Mishcon in light of the parties' certain awareness of the New York judgment. But as noted earlier, the judgment lien statutes must be construed strictly in order to protect the rights of the parties to the pending action. Thus, even assuming Mishcon acted properly by registering its New York judgment in a federal court in this state, we cannot find adequate compliance with the enforcement procedures delineated by our Legislature. Although Mishcon corrected its oversight in October 2015 by filing a new notice of lien attaching the registered judgment, that act was performed too late: by that time Mitsubishi had settled its dispute with Grail, paid Grail the settlement amount, and obtained a dismissal of the lawsuit.
Disposition
The order is affirmed.
/s/_________
ELIA, Acting P. J. WE CONCUR: /s/_________
PREMO, J. /s/_________
MIHARA, J.