Durant Software v. Herman

• Decision Date: 31 March 1989
• Citation: 220 Cal.App.3d 460,257 Cal.Rptr. 200
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 220 Cal.App.3d 460 220 Cal.App.3d 460 DURANT SOFTWARE, etc., Plaintiff and Appellant, v. James E. HERMAN, Defendant and Respondent. Civ. B029673.

Page 200

257 Cal.Rptr. 200

Previously published at 220 Cal.App.3d 460

220 Cal.App.3d 460

DURANT SOFTWARE, etc., Plaintiff and Appellant, v. James E. HERMAN, Defendant and Respondent.

Civ. B029673.

Court of Appeal, Second District, Division 6, California.

March 31, 1989.

Review Granted July 13, 1989.

Certified for Partial Publication ^*.

Hollister & Brace and William A. Brace and Robert L. Brace, Santa Barbara, for plaintiff and appellant.

Eskin & Jackson and George C. Eskin, Ventura, and Diane M. Matsinger, Santa Barbara, for defendant and respondent.

Ventura County Bar Ass'n and Lascher & Lascher and Edward L. Lascher, Ventura, for amici curiae.

OPINION ON REHEARING

GILBERT, Associate Justice.

A judgment creditor files a civil action alleging that an attorney and other individuals conspired to fraudulently convey assets of a judgment debtor. The judgment creditor alleges that at a debtor's examination, the debtor's attorney acted to further the conspiracy involving the purported wrongful acts of his law firm. Civil Code section 47, subdivision 2 bars causes of action arising from conduct in a judicial proceeding.

Is the judgment creditor's cause of action for conspiracy against the attorney barred by section 47 when the wrong underlying the conspiracy occurred before the judgment debtor examination? No, because section 47 does not create an evidentiary privilege. The attorney's conduct at the judgment debtor hearing is evidence the judgment creditor may use to try to prove the conspiracy allegations at trial. We hold the cause of action is not barred. The judgment creditor may therefore attempt to prove its allegations at trial. ¹

FACTS

In July 1983, Durant Software sold a computer software program to Robex/6 Corporation. The parties had a dispute over payment for the program. This dispute was resolved in favor of Durant who won an arbitration award of $228,585.41. On January 22, 1985, a San Francisco Superior Court confirmed the award and entered a judgment in favor of Durant.

On November 22, 1985, Durant filed the instant action in Santa Barbara Superior Court against Robex/6, its principals, Donald C. and Lois D. Hoodes, and their attorneys of the law firm of Cappello & Foley. Durant alleged, inter alia, that Robex/6 transferred a $100,000 computer phone system to the law firm without consideration and for the purpose of hindering Durant from collecting its judgment. Durant seeks to set aside this allegedly fraudulent conveyance to Cappello & Foley.

In a separate cause of action Durant seeks damages against the defendants, including attorney James E. Herman, an associate of Cappello & Foley, for engaging in a conspiracy to defraud a judgment creditor. A third cause of action, not relevant to this appeal, alleged that Robex/6 wrongfully distributed corporate assets to the Hoodes as shareholders.

Durant does not allege that Herman took part in the actual transfer of assets to the law firm or to others, but that he destroyed evidence and suborned perjury prior to and Durant submitted the declaration of Charles J. Churchfield, the former Robex/6 controller. Churchfield declared, inter alia, that on the morning of the debtor's examination, Herman "physically destroyed" two pages of a computerized Accounts Receivable Detailed Aging Report which was to be delivered to Durant in response to a letter requesting the production of documents.

during a debtor's examination of Robex/6's former controller, and thus acted in furtherance of a conspiracy to defraud.

Churchfield also averred that Herman and another attorney with Cappello & Foley "expressly told me to lie under oath at my debtor's examination" in order to "cover up the fact that Robex/6's assets had been transferred to various entities and individuals for no consideration in furtherance of a conspiracy to defraud Durant." Churchfield's declaration also stated that Herman accompanied him to the debtor's examination and "repeatedly took me out of the conference room and told me to falsify my answers to pending questions."

Herman moved for summary judgment of the conspiracy cause of action as to him, or, in the alternative, summary adjudication of the issues relating to him. He filed a declaration denying the Churchfield allegations, and argued inter alia that even if the allegations were true, his conduct in preparation for and during the debtor's examination was absolutely privileged pursuant to Civil Code section 47, subdivision 2. Herman submitted a statement of "undisputed" facts in support of his motion, many of which Durant disputed. Herman also submitted portions of Churchfield's deposition, taken after the declaration, where he alleges Churchfield recanted his earlier allegations.

In ruling on Herman's motion, the trial court reviewed the declaration and depositions and found eight triable issues of fact remained, including whether Herman was involved in a conspiracy to hinder Durant's collecting its judgment against Robex/6; whether Herman destroyed evidence prior to the debtor's examination; and whether he suborned perjury during that examination. The court agreed with Herman, however, that even if these allegations were true, his conduct amounts to "publications" involving litigation. The court concluded that because "the only evidence in support of plaintiff's cause of action against Mr. Herman is absolutely privileged" pursuant to Civil Code section 47, subdivision 2, it granted summary judgment in Herman's favor.

Durant appeals, arguing that the trial court misapplied the privilege. We reverse the order for summary judgment. Durant's damages, if any, do not flow from the judgment debtor hearings, but instead from the alleged fraudulent conveyances which arose out of the conspiracy. The attorney's purported conduct at the debtor's hearing is merely evidence from which a fact-finder may infer he was a co-conspirator.

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DISCUSSION

I.

Civil Code section 47, subdivision 2, reads in relevant part: "A privileged publication or broadcast is one made--... [p] 2. In any (1) legislative or (2) judicial proceeding, or (3) in any other official proceeding authorized by law...." The privilege for a publication made in "any ... judicial proceeding" follows the Civil Code provisions defining the torts of libel and slander, and was "at least historically, ... primarily designed to limit an individual's potential liability for defamation." (Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1163, 232 Cal.Rptr. 567, 728 P.2d 1202 (hereafter Oren Royal Oaks ).)

In recent years, California courts have applied the privilege to torts other than defamation where defendant's injurious conduct would be privileged for defamation purposes. (See, e.g., cases listed in Oren Royal Oaks, supra, 42 Cal.3d at p. 1164, fn. 5, 232 Cal.Rptr. 567, 728 P.2d 1202.) The rationale for extending the privilege beyond the defamation arena is that "[t]he salutary purpose of the privilege should not be frustrated by putting a new label on the complaint. If it is desirable to create an absolute privilege in defamation, not because we desire to protect the shady practitioner, but because we do not want the honest one to have to be concerned with libel or slander actions while acting for his client, we should not remove one concern and saddle him with another for doing precisely the same thing." (Thornton v. Rhoden (1966) 245 Cal.App.2d 80, 99, 53 Cal.Rptr. 706.)

Herman contends that the privilege applies to all "causes of action" except malicious prosecution. (See Ribas v. Clark (1985) 38 Cal.3d 355, 364, 212 Cal.Rptr. 143, 696 P.2d 637.) This broad statement does not tell the whole story. The privilege applies when the damages grow out of judicial proceedings. It is thus necessary to determine the relationship between the conduct complained of and the causes of action alleged. We must "draw a careful distinction between a cause of action based squarely on a privileged communication, such as an action for defamation, and one based on an underlying course of conduct evidenced by the communication." (White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 888, 221 Cal.Rptr. 509, 710 P.2d 309.)

The Supreme Court recently considered this distinction in Oren Royal Oaks, supra, 42 Cal.3d 1157, 232 Cal.Rptr. 567, 728 P.2d 1202. Plaintiff landowner sought damages from a neighbor and the neighbor's attorney, alleging abuse of process and conspiracy to abuse process. The allegations were largely based on statements made by the neighbor's attorney during settlement negotiations relating to the neighbor's petition for an administrative writ of mandamus challenging the plaintiff's proposed residential development project. The attorney sought summary judgment on the grounds that his statements were absolutely privileged pursuant to section 47, subdivision 2.

The trial court first denied the motion for summary judgment, but later, following directions of a peremptory writ issued by the Court of Appeal, granted summary judgment in favor of the attorney. Still later, when the case was appealed, the Court of Appeal had a change of heart and reversed the summary judgment which it had directed the frustrated trial court to grant.

The appellate court concluded that " '[w]hen the publication itself is alleged to be the tortious conduct ..., the privilege creates a "transactional immunity." Where, however, the alleged tortious conduct is something other than the publication itself, then the publication may be used as evidence bearing on the tortious nature of that conduct. In other words, Civil Code section 47(2) does not provide an immunity from "use" of the publication.' " (Id. at p. 1163, 232 Cal.Rptr. 567, 728 P.2d 1202.)

The Court of Appeal concluded that the alleged tortious conduct was the institution of the writ of mandate for an improper purpose, which constituted an abuse of process, and not the statements made during settlement...