Efstratis v. First Northern Bank

• Decision Date: 26 November 1997
• Docket Number: No. C024294,C024294
• Citation: 69 Cal.Rptr.2d 445,59 Cal.App.4th 667
• Court: California Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 8968, 97 Daily Journal D.A.R. 14,429 Andrew E. EFSTRATIS, Plaintiff and Appellant, v. FIRST NORTHERN BANK OF DIXON, Defendant and Respondent.

Page 445

69 Cal.Rptr.2d 445

59 Cal.App.4th 667, 97 Cal. Daily Op. Serv. 8968,

97 Daily Journal D.A.R. 14,429

Andrew E. EFSTRATIS, Plaintiff and Appellant, v. FIRST NORTHERN BANK OF DIXON, Defendant and Respondent.

No. C024294.

Court of Appeal, Third District, California.

Nov. 26, 1997.

William H.G. Norman, Kymberly E. Speer, Bronson, Bronson & McKinnon, San Francisco, for Plaintiff and Appellant.

Hartley T. Hansen, Lawrence R. Watson, Sacramento, Thomas L. Riodan, Hansen, Boyd, Culhane & Watson, Sacramento, for Defendant and Respondent.

DAVIS, Acting Presiding Justice.

Plaintiff Andrew Efstratis ¹ appeals from an order of the trial court denying his motion for a preliminary injunction. He had sought to restrain defendant First Northern Bank of Dixon from taking any action to enter and enforce a confessed judgment he had executed. We shall reverse with directions.

BACKGROUND

In their briefs, the parties provide the full factual context of their relationship, most of which we need not recount. All that is pertinent for our purposes on appeal is the execution by plaintiff Efstratis of a confession of judgment (§§ 1132-1134) in connection with obtaining an unsecured $500,000 line of credit from defendant. ²

According to a declaration submitted by defendant in opposition to the motion, plaintiff Efstratis attended a meeting to sign loan documents without the corporation's attorney (see fn. 1, ante) who had accompanied him during previous negotiating sessions. Plaintiff Efstratis signed the confession of judgment. Defendant's representative allowed the execution of the other documents to proceed, but reminded plaintiff it was necessary to include an attorney declaration with the confession of judgment. (§ 1132, subd. (b).) ³

Thereafter, defendant repeatedly requested that plaintiff Efstratis provide an attorney declaration. Plaintiff responded that his corporation had fired the attorney who had been present during negotiations. In response to defendant's ultimatum to declare plaintiff in default of the loan agreement, plaintiff--a licensed attorney--signed the attorney declaration himself and sent it to defendant in May 1995. It recited:

"I, ANDREW E. EFSTRATIS, Esquire, declare:

"I am an attorney at law, duly admitted to practice before all the courts of the State of California and acting in propria persona herein for Defendant Andrew E. Efstratis, the party confessing judgment in the above-entitled matter.

"I further declare that I have examined the accompanying Confession of Judgment and the proposed Judgment, and with full knowledge and understanding of the waiver of rights and defenses being granted under the Confession of Judgment Procedure do hereby agree to [use] the Confession of Judgment procedure."

He included a cover letter asserting he had never been a practicing attorney and had not received advice from any other attorney regarding the consequences of executing the declaration.

In March 1996, plaintiffs Efstratis and Lank Development Corporation brought the multi-count complaint against defendant that underlies the present motion. As is pertinent for our purposes, in the "TWELFTH CAUSE OF ACTION" plaintiff Efstratis sought an injunction preventing defendant from entering and enforcing the confession of judgment. ⁴ In the "THIRTEENTH CAUSE OF ACTION," plaintiff Efstratis sought a declaratory judgment that the confession of judgment was invalid because it did not authorize the entry of judgment for a specific sum and was not accompanied by the declaration of an attorney independent of both plaintiff Efstratis and defendant.

Plaintiff Efstratis filed his motion for a preliminary injunction in May 1996. He again asserted the grounds of the failure to include a specific sum for the judgment and the invalidity of the judgment debtor himself executing the required attorney declaration. ⁵

The superior court denied the motion. Its written order stated, "Plaintiff has not shown the probable likelihood that the Confession of Judgment is invalid.... The lack of a specific sum does not invalidate the judgment as the line of credit was limited to a specific sum and that is sufficient. Los Angeles Adjustment Bureau, Inc. v. Noonan (1960) 181 CA 2d Supp 834 [5 Cal.Rptr. 445]...." It did not address the contention regarding the absence of a certificate from an independent attorney.

DISCUSSION

Ordinarily, a party challenging the superior court's ruling on a motion for a preliminary injunction must demonstrate an abuse of discretion in evaluating the interrelated factors of plaintiff's likelihood of success and the magnitude of interim harm to plaintiff if the preliminary injunction is denied. (Bullock v. City and County of San Francisco (1990) 221 Cal.App.3d 1072, 1094, 271 Cal.Rptr. 44.) However, where the superior court (as here) limits its ruling to only one of these factors, it is that ground which must conclusively support the order. (Buhl v. Hannigan (1993) 16 Cal.App.4th 1612, 1618, 20 Cal.Rptr.2d 740.) Where the "likelihood of prevailing on the merits" factor depends upon a question of law rather than upon evidence to be introduced at a subsequent full trial, the standard of review is not abuse of discretion but whether the superior court correctly interpreted and applied statutory law, which we review de novo. (Bullock, supra, 221 Cal.App.3d at p. 1095, 271 Cal.Rptr. 44; California Assn. of Dispensing Opticians v. Pearle Vision Center, Inc. (1983) 143 Cal.App.3d 419, 426, 191 Cal.Rptr. 762.)

Whether plaintiff Efstratis is likely to obtain a declaration that the confession of judgment is invalid and a permanent injunction against its use depends on whether the attorney declaration--executed by plaintiff Efstratis himself--satisfies the statutory requirement of a declaration by "an attorney independently representing defendant" (§ 1132, subd. (b)) and does not depend on any evidence that might be introduced at the ultimate trial on the merits. We thus consider this issue de novo.

Generally, a court cannot render judgment against a defendant without according the due process rights of notice and an opportunity to be heard, unless defendant voluntarily, knowingly, and intelligently waives these rights. (Isbell v. County of Sonoma (1978) 21 Cal.3d 61, 64, 145 Cal.Rptr. 368, 577 P.2d 188.) A confession of judgment is in effect a private admission to liability for a debt without trial, upon which a court places its imprimatur when submitted to the clerk for entry. (Id. at p. 66, 145 Cal.Rptr. 368, 577 P.2d 188.) It is a creditor's remedy which has not found widespread use in this state. (Id. at p. 74, 145 Cal.Rptr. 368, 577 P.2d 188; Barnes v. Hilton (1953) 118 Cal.App.2d 108, 111, 257 P.2d 98.) In light of its inconsistency with due process, the confessed judgment is considered an extreme procedure (Wax v. Infante (1982) 138 Cal.App.3d 138, 140, 187 Cal.Rptr. 686), and courts construe the authorizing statutes strictly. (Barnes, supra, 118 Cal.App.2d at p. 111, 257 P.2d 98.)

Isbell held that executing a confessed judgment is not itself the equivalent of a knowing, voluntary, and intelligent waiver of the debtor's due-process rights. (21 Cal.3d at pp. 69-70, 145 Cal.Rptr. 368, 577 P.2d 188.) Because a confessed judgment is entered by the clerk, who has no authority to review it for a constitutionally valid waiver (id. at pp. 68, 71, 145 Cal.Rptr. 368, 577 P.2d 188), the statutory procedure did not result in a constitutional judgment because it did not make provision for the inclusion of an express due-process waiver on the face of the judgment. (Id. at pp. 68, 70-71, 145 Cal.Rptr. 368, 577 P.2d 188.) ⁶ The court noted that in the context of consumer transactions, the Legislature in 1975 had added the requirement of a declaration from an "independent" attorney attesting to advising the debtor of the rights waived by the confessed-judgment procedure and the wisdom of employing it; the court described this requirement as being "impelled by predicates of due process of law." (Id. at pp. 67, 70, 145 Cal.Rptr. 368, 577 P.2d 188 [emphasis supplied].) The Legislature, for whom a wink is as good as a nod, promptly broadened the scope of the attorney certificate to apply to all confessed judgments.

There has been little case law in the intervening 20 years interpreting this requirement of "independent" advisement. In Wax, supra, the court held that it precluded an attorney who had jointly represented both the creditor and the debtor from providing the certificate, even where the debtor acknowledged the potential conflict, because the Legislature wished to avoid even "unconscious" bias on the part of the attorney. (138 Cal.App.3d at p. 140, 187 Cal.Rptr. 686.) Rivercourt Co., Ltd. v. Dyna-Tel, Inc. (1996) 41 Cal.App.4th 1477, 49 Cal.Rptr.2d 279 presented the even more egregious situation of an attorney who had represented the president of a corporation in an action against its principal, and who then purported to provide the declaration for the corporation (with the connivance of its president) in a confession of judgment in favor of another corporation in which the president had an interest. (Id. at pp. 1479-1480, 49 Cal.Rptr.2d 279.) Under those circumstances the attorney could not provide independent advice to the corporation. (Id. at p. 1482, 49 Cal.Rptr.2d 279.)

Before the Legislature's extension of the certificate requirement to all confessed judgments, the Attorney General issued a lengthy opinion regarding the meaning of the requirement that counsel be "independent" of the parties. (59 Ops. Cal. Atty. Gen. 432 (1976) Op. No. SO 76-24 [cited with approval in Isbell, supra, 21 Cal.3d at p. 71, 145 Cal.Rptr. 368, 577 P.2d 188].) The opinion concluded that a certificate signed by a consumer debtor in propria persona would not satisfy the statutory requirement. (Id. at p. 438.) The opinion drew this conclusion from several premises. Because the Legislature was presumed to be aware of the right...