Karton v. Musick, Peeler, Garrett LLP
| Decision Date | 03 October 2022 |
| Docket Number | B305837 |
| Citation | 83 Cal.App.5th 1027,300 Cal.Rptr.3d 12 |
| Parties | DAVID S. KARTON, a Law Corporation, Plaintiff and Appellant, v. MUSICK, PEELER, GARRETT LLP, Defendant and Respondent. |
| Court | California Court of Appeals Court of Appeals |
Benedon & Serlin, Gerald M. Serlin and Melinda W. Ebelhar for Plaintiff and Appellant David S. Karton, A Law Corporation.
Musick Peeler & Garrett, Cheryl A. Orr, Los Angeles; Joshua P. Friedman, and Associates, and Joshua P. Friedman, Calabasas, for Defendant and Respondent Musick, Peeler & Garrett LLP.
In 2015 and 2017, William Russell Dougherty obtained judgments against David S. Karton, A Law Corporation (the Law Corporation). In July 2019, Dougherty assigned the judgments to Musick Peeler & Garrett LLC (Musick Peeler).
In October 2019, the Law Corporation filed a motion (the setoff motion) in the superior court to set off against its judgment debt to Musick Peeler a debt that Dougherty allegedly owes to the Law Corporation. Dougherty's purported debt is the sum of attorney fees the Law Corporation incurred as a result of Dougherty's alleged tortious actions to hinder, delay, or defraud the Law Corporation in its efforts to collect on a 1999 default judgment prior to our opinion vacating that judgment and declaring it void in 2009. (See David S. Karton, A Law Corp. v. Dougherty (2009) 171 Cal.App.4th 133, 152, 89 Cal.Rptr.3d 506 ( Karton I ).) The court denied the motion, and the Law Corporation appealed.1 For the reasons given below, we affirm the order.
In 1996, Dougherty retained the Law Corporation to represent him in a marital dissolution action. The retainer agreement provides that the "prevailing party" shall be entitled to recover "legal fees for services" incurred in connection with the enforcement of the agreement and the collection of fees and costs.
In 1999, the Law Corporation sued Dougherty, seeking to recover $65,246.63 in unpaid fees and costs, plus interest. In August 1999, the trial court entered a default judgment against Dougherty for a total of $86,676.88, including accrued prejudgment interest, attorney fees, and costs.
By October 4, 1999, the Law Corporation had collected, by levy upon Dougherty's bank accounts, approximately $56,000 in partial satisfaction of the default judgment. On that date, Dougherty filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code.
The Law Corporation commenced an adversary action against Dougherty in the bankruptcy proceeding that resulted in an order denying Dougherty a discharge under the Bankruptcy Code. The Law Corporation thereafter filed actions in Pennsylvania, Tennessee, and Arkansas against Dougherty to enforce and collect the judgment in those states. As a result of these efforts, the Law Corporation garnished Dougherty's wages in Tennessee and Arkansas. In addition, the Law Corporation filed a second action in Tennessee, which the parties refer to as the Tennessee fraudulent transfer action. In that action, the Law Corporation alleged that Dougherty, with the intent to hinder, delay, and defraud the Law Corporation: purchased property in Nevada; "[d]iverted sale proceeds" from the sale of a Tennessee residence, transferred funds into a "bank account that was hidden from the Law Corporation"; transferred title of a Pennsylvania residence to himself and his then-wife Kimberly Moseley; failed to disclose rent Dougherty received from property in Pennsylvania; transferred funds into Moseley's account; and transferred funds into a bank account located outside of Tennessee.
In 2004 and 2005, Dougherty commenced what the parties refer to as the "collateral attack" actions in California seeking to set aside the 1999 default judgment. Dougherty dismissed the 2004 collateral attack action before the Law Corporation filed a responsive pleading. The superior court sustained the Law Corporation's demurrer to the 2005 collateral attack action without leave to amend on the ground that the action was barred by the doctrine of collateral estoppel as a result of the 1999 default judgment. Dougherty's appeal from the ensuing judgment was dismissed for failure to post an appeal bond. The superior court subsequently awarded the Law Corporation more than $115,000 in attorney fees it incurred in response to the collateral attack actions.
In 2006, a Pennsylvania court ordered Dougherty to pay to David S. Karton (the Individual) and the Individual's counsel $30,000 as contempt sanctions for discovery violations.3
On December 31, 2007, a Tennessee Chancery Court denied the Law Corporation's motion for summary judgment in the Tennessee fraudulent transfer action. The court, however, made a finding that Dougherty's transfer of title to certain property in Pennsylvania from himself to both him and Moseley "was a fraudulent transfer" and ordered the transfer set aside.
In 2003 and 2007, the Law Corporation, without notice to Dougherty, requested the superior court award it additional attorney fees and costs based on its enforcement and collection efforts, including fees incurred in connection with Dougherty's bankruptcy proceeding, the Pennsylvania and Tennessee collection actions, the Tennessee fraudulent transfer action, and the California collateral attack actions. The court granted the requests in their entirety.
The second such award, entered in February 2007, increased the principal amount of the judgment to more than $1.3 million.
In 2007, Dougherty filed a motion to vacate the default judgment and the 2003 and 2007 fee awards, which the trial court denied. Dougherty appealed.
In Karton I , supra , 171 Cal.App.4th 133, 89 Cal.Rptr.3d 506, we held that the 1999 default judgment was void on its face because the judgment exceeded the amount the Law Corporation had sought in its complaint. ( Id. at pp. 149–151, 89 Cal.Rptr.3d 506.) We directed the trial court to enter an order vacating and setting aside that judgment and the 2007 fee award. ( Id. at pp. 151–152, 89 Cal.Rptr.3d 506.) We also noted that our opinion "nullif[ied]" the 2003 fee award. ( Id. at p. 151, fn. 18, 89 Cal.Rptr.3d 506.) The trial court thereafter set aside the entry of Dougherty's default, as well as the default judgment.
Our holding in Karton I had consequences for the Law Corporation's actions in Tennessee and California. In April 2009, a Tennessee Court of Appeal held that, as a result of Karton I , "there no longer exist[s] any California judgments ... for the Tennessee courts to enforce." ( David S. Karton v. Dougherty (Tenn.Ct.App. Apr. 29, 2009, No. M2008-01478-COA-R3-CV) 2009 WL 1162725 at p. *2, 2009 Tenn.App. LEXIS 158 at p. *6.) In August 2010, Dougherty filed in the Tennessee collection action a motion/petition for writ of restitution in the Tennessee Chancery Court and a motion to vacate all judgments. The court granted the motion/petition for writ of restitution, directing the Law Corporation to pay Dougherty $151,137.86 as restitution for the Law Corporation's garnishment of Dougherty's wages. The Tennessee court also granted Dougherty's motion to vacate all judgments because, in part, "the original 1999 California judgment is void and all subsequent California judgments are vacated." The court explained that "none of the judgments that have been enrolled by [the Law Corporation] in Tennessee are enforceable."4
In December 2010, the Los Angeles County Superior Court granted Dougherty's motion to vacate the judgment in the 2005 collateral attack action and the related attorney fee awards. The court explained that the judgment in the collateral attack action and the related fee awards are void because they were "based on a ‘void’ judgment." Division Eight of this court affirmed that ruling in 2012. ( Dougherty v. David S. Karton, A Law Corporation (Oct. 11, 2012, B230074) 2012 WL 4829279 [nonpub. opn.].)
In February 2011, a Tennessee Chancery Court issued an order that "revised" its December 31, 2007 summary judgment order in the Tennessee fraudulent transfer action. In particular, the court "deleted" its finding in the prior order, that Dougherty's transfer of title to property in Pennsylvania "was a fraudulent transfer."
After the trial court vacated Dougherty's default pursuant to Karton I, the fee dispute between the Law Corporation and Dougherty was arbitrated by a panel of the Los Angeles Bar Association pursuant to Business and Professions Code section 6201. The arbitrators found in favor of Dougherty and determined that he had previously paid the Law Corporation " ‘an amount far in excess of the amounts owed for legal services plus interest on the amounts billed.’ " ( Karton II , supra , 231 Cal.App.4th at p. 605, 180 Cal.Rptr.3d 55.)
After the arbitration ruling, the Law Corporation filed a request for trial de novo in the superior court. In addition to alleging a cause of action against Dougherty for breach of the retainer agreement and common counts, the Law Corporation included a sixth cause of action seeking to recover damages from Dougherty under the tort of another doctrine and a seventh cause of action for declaratory relief.5
Under the tort of another cause of action, the Law Corporation alleged that Dougherty had "been engaged in a pattern of fraud and fraudulent transfers, which has required [the Law Corporation] to pursue claims against other people and certain assets." Dougherty's allegedly wrongful conduct included: the filing of a "fraudulent [b]ankruptcy" proceeding in 1999, making fraudulent transfers to his accountant, transferring his property in Pennsylvania to Moseley with the "intent to hinder, delay, or defraud [the Law Corporation]," and transferring his and Moseley's property in Tennessee and Arkansas to Moseley only, with the "intent to hinder,...
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