Kaley v. Catalina Yachts

• Decision Date: 12 December 1986
• Court: California Court of Appeals Court of Appeals
• Parties: Merrel E. KALEY, Plaintiff and Respondent, v. CATALINA YACHTS et al., Defendants and Appellants. B010220.

Page 384

232 Cal.Rptr. 384

187 Cal.App.3d 1187

Merrel E. KALEY, Plaintiff and Respondent, v. CATALINA YACHTS et al., Defendants and Appellants.

B010220.

Court of Appeal, Second District, Division 7, California.

Dec. 12, 1986.

Review Denied March 25, 1987.

Greene, O'Reilly, Broillet, Paul, Simon, McMillan, Wheeler & Rosenberg, Gary M. Paul and Michael L. Goldberg, Los Angeles, for plaintiff and respondent

William A. Feinberg, Encino, and Mark S. Gottlieb, Mommaerts & Rutledge and Arthur D. Rutledge, Los Angeles, for defendants and appellants.

BARRERA, Associate Justice. ^*

This is an appeal from a judgment rendered in favor of Merrel Kaley (Kaley) and against Catalina Yachts, a corporation (Catalina). Finding the appeal unmeritorious, we affirm the judgment.

THE INCIDENT

It was drizzling on September 21, 1978, as Kaley and Leonard Klatt, riding in a Kenworth tractor (the truck), came to the crest of a steep, downhill grade outside of Ozona, Texas. On the right, there was a cliff, an apparent mile-and-a-half drop that made the trees below look minuscule. On the left, there was a sheer, rock wall. As they started their descent, the transmission malfunctioned, locked in neutral and deprived the accelerating truck of the braking influence of the lower gears. Kaley fought the transmission, seeking to put the truck into any gear. It didn't work. He applied a little pressure on the air brakes. The empty trailer behind started to sway from side to side and then to slide The stress suffered as a result caused him a heart attack about 19 months later. Although he drove for three companies after the incident, he developed a strong fear of driving and his career as a truck driver came to an end.

                toward the cliff.  He tried once more to put the truck into gear, failed and turned hard, away from the cliff.  The trailer turned over.  The truck hit the rock wall, bounced and came to rest over the precipice, affording the battered and bloodied Kaley "an airplane view." 1  He could see no ground immediately beneath him
                

The jury impliedly found that Catalina was the owner of the truck, it was negligent in not maintaining the truck in a safe operating condition and Catalina's negligence was the sole legal cause of Kaley's injuries. ² It awarded Kaley $407,000. The trial court reduced the award by the amount of the Workers' Compensation benefits earlier paid to Kaley and rendered judgment. This appeal followed.

I BANKRUPTCY ISSUES

While the litigation was pending, Kaley started bankruptcy proceedings but did not list the cause of action on any of the bankruptcy schedules. On January 18, 1983, he was discharged in bankruptcy. On October 1, 1984, one day before the taking of trial testimony began, the issue of the bankruptcy surfaced. Before the jury reached its verdict, Mr. Paul, Kaley's attorney, was hired to represent the trustee in the instant litigation. In a post-judgment proceeding, Mr. Block, the attorney representing the trustee generally, presented the court with a certified copy of a stipulation that the cause of action and/or the proceeds from the judgment were the exclusive property of the bankruptcy estate. It was executed by Kaley, the trustee and the bankruptcy judge.

A. Kaley's Standing to Continue the Prosecution of the Action After the Initiation of the Bankruptcy Proceedings

Catalina argues at length that it was denied a fair trial against the real party in interest, the trustee in bankruptcy, in whom the cause of action was vested from the time of the filing of the bankruptcy proceedings. ³ It contends that the trustee ought to have been substituted in from that time, and Catalina afforded the right to conduct settlement conferences with the trustee and to bring his identity to the attention of the jury. Catalina further argues that, whether or not the trustee substituted into the lawsuit, Kaley lost standing to continue the lawsuit from the time that the bankruptcy proceedings were initiated. Thus, Catalina concludes, the judgment was in favor of a non-party and in excess of the jurisdiction of the court.

Catalina's arguments do not consider Code of Civil Procedure section 385, which provides in relevant part:

"An action does not abate ... by the transfer of any interest therein, if the cause of action survive or continue.... In case of ... (a) transfer of interest, the action ... may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action...." (Emphasis added; Code Civ.Proc., § 385, subd. (a).)

Clearly a bankrupt's cause of action for personal injuries becomes a part of the bankruptcy estate upon the filing of the petition in bankruptcy. (11 U.S.C., § 541, subd. (a)(1); Carmona v. Robinson (9th Cir.1964) 336 F.2d 518, 521; Sierra Switchboard Co. v. Westinghouse Elec. Corp. (9th Cir.1986) 789 F.2d 705, 707-709.) However, the transfer, by operation of law, does not divest the plaintiff of his right to Catalina argues that the California real party in interest statute, Code of Civil Procedure section 367, ⁶ mandates that the action be prosecuted by the trustee in bankruptcy as the real party in interest. The answer is that until a trustee in bankruptcy intervenes and substitutes himself in, he is not the real party in interest. (American Foods, Inc. v. Dezauche (W.D.N.Y.1947) 74 F.Supp. 681, 682-683.) Code of Civil Procedure section 385 expressly authorizes the plaintiff to remain the real party in interest, even after the cause of action has been transferred to the estate by operation of law, until such time as the trustee seeks, and is allowed, to substitute in by the court. ⁷ Catalina hypothesizes that had it not discovered Kaley's bankruptcy, the trustee would have been entitled to prosecute the same cause of action against Catalina even after Kaley dissipated the fruits of the judgment. We need not address whether the hypothesis is legally sound. ⁸ Suffice it to say that the bankruptcy did come to light, albeit quite late in the litigation, the trustee was put on notice and he is now concluded by the judgment, i.e., estopped from prosecuting the action anew against Catalina. (Kaplan v. Hacker (1952) 113 Cal.App.2d 571, 573-574, 248 P.2d 464; Paradise v. Vogtlandische Maschinen-Fabrik (3d Cir.1938) 99 F.2d 53, 55.)

                continue to prosecute the action, pending assertive action by the representative of the estate, the trustee in bankruptcy.  (11 U.S.C., § 323, subd.  (a).)  The trustee may, among other things, 4 allow the plaintiff to pursue the action and await the results, any recovery being first for the benefit of the estate. 5  (Johnson v. Collier (1911) 222 U.S. 538, 540, 32 S.Ct. 104, 105, 56 L.Ed. 306;  Meyer v. Fleming, supra, 327 U.S. at pp. 165-166, 66 S.Ct. at p. 385;  Shivell v. Hurd (1953) 115 Cal.App.2d 405, 406-407, 252 P.2d 62;  Stewart v. Spaulding (1887) 72 Cal. 264, 266, 13 P. 661;  Rule 6009 of the Federal Bankruptcy Rules;  11 U.S.C., § 323, subd.  (b).)
                

The reason for the real party in interest statute is to protect a defendant from a multiplicity of actions predicated on the same gravamen and to preserve to that defendant all personal defenses and counterclaims available. Catalina is protected from further suit by the trustee and there is no issue, here, about personal defenses or setoffs against the trustee which were unavailable against Kaley. The objective has been met. The protection of the statute has been afforded. Catalina can have no further legitimate concern. (Giselman v. Starr (1895) 106 Cal. 651, 657-658, 40 P. 8; Mosier v. Suburban Estates, Inc., Ltd. (1934) 137 Cal.App. 574, 575-576, 31 P.2d 209; Kaplan v. Hacker, supra, 113 Cal.App.2d at pp. 573-574, 248 P.2d 464.)

In support of its argument that Kaley lost standing to prosecute the action upon the filing of the bankruptcy proceedings, Catalina cites three California cases. Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 69 Cal.Rptr. 321, 442 P.2d 377, and Tarr v. Merco Constr. Engineers, Inc. (1978) 84 Cal.App.3d 707, 148 Cal.Rptr. 813, are clearly cases where the actions were filed by the plaintiff after the bankruptcy proceedings had terminated or were, at least, pending. Massey v. Bank of America (1976) 56 Cal.App.3d 29, 128 Cal.Rptr. 144, is a case where the facts are not clear about when the complaint in the action was filed, i.e., before or after bankruptcy proceedings were begun. Because the plaintiff lacked standing to sue, the cause of action having vested in the trustee as was the law then (former Bankruptcy Act, § 70, subd. (a)(6); 11 U.S.C., § 110, subd. (a)(6)), demurrers were sustained and judgments of dismissal were entered in Reichert and Tarr and a motion for summary judgment was granted in Massey. The judgments rendered were affirmed on appeal. If all three cases concern themselves with actions predicated on events preceding the bankruptcy litigation and commenced by plaintiffs already discharged in bankruptcy or, at least, subject to the jurisdiction of the Bankruptcy Court at the time of the filing of the action, the cases are clearly distinguishable from the instant case. ⁹ See Cleverdon v. Gray (1944) 62 Cal.App.2d 612, 145 P.2d 95, where the plaintiff was allowed to continue with the litigation begun before the assignment of the cause of action. The defendants there made substantially the same arguments as Catalina makes, focusing on Code of Civil Procedure section 367. (Id., at pp. 615-616, 145 P.2d 95.) There, as here, Code of Civil Procedure section 385 was found controlling. We hold, therefore, that where bankruptcy proceedings are commenced after the initiation of an action for personal injuries, the plaintiff may continue to prosecute the action until the trustee in bankruptcy takes assertive action, as earlier discussed, which is incompatible with the plaintiff remaining the real party in interest. (Code Civ.Proc., § 385, subd. (a).)

B. Catalina's Contentions That It Was Denied...