Waffer Internat. Corp. v. Khorsandi, B114443

• Decision Date: 16 February 1999
• Docket Number: No. B114443,B114443
• Citation: 69 Cal.App.4th 1261,82 Cal.Rptr.2d 241
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 1225, 1999 Daily Journal D.A.R. 1471 WAFFER INTERNATIONAL CORPORATION, Plaintiff and Appellant, v. Michael KHORSANDI et al., Defendants and Respondents.

Page 241

82 Cal.Rptr.2d 241

69 Cal.App.4th 1261, 99 Cal. Daily Op. Serv. 1225,

1999 Daily Journal D.A.R. 1471

WAFFER INTERNATIONAL CORPORATION, Plaintiff and Appellant, v. Michael KHORSANDI et al., Defendants and Respondents.

No. B114443.

Court of Appeal, Second District, Division 2, California.

Feb. 16, 1999.

Seyfarth, Shaw, Fairweather & Geraldson, Thomas J. Weiss and Steven B. Katz, Los Angeles, for Plaintiff and Appellant.

Silverstein & Huston, Orange, and Mark W. Huston, Santa Ana, for Defendants and Respondents.

ZEBROWSKI, J.

This case concerns the defense of election of remedies in the context of attachment. The plaintiff (appellant on this appeal) obtained and levied a writ of attachment in a related but different case against a corporate defendant. The trial judge then ruled that plaintiff was barred by the election of remedies doctrine from pursuing tort remedies in this case against two individual defendants. The trial court thus granted summary judgment to the individual defendants (respondents on this appeal). In making this ruling, the trial court relied on Richmond Teachers Credit Union v. James F. Waters, Inc. (1960) 182 Cal.App.2d 110, 5 Cal.Rptr. 716.

Richmond has never been cited in any other reported decision, possibly because its statement of facts does not correspond to the law it applied. Despite Richmond's use of the word "attachment," the opinion factually describes a claim and delivery case. It is therefore off point for present purposes. Even if Richmond were considered an attachment case, there are significant distinctions between the attachment law in force at the time of Richmond and the attachment law in force now. At the time of the events in Richmond (the early to mid-1950s), attachment law routinely allowed a plaintiff to obtain summary seizure of a defendant's property before trial with no notice, no chance to be heard, and no prior judicial involvement. Defendants often first learned of the plaintiff's lawsuit by learning that their property had been seized. Moreover, the attachment law at that time applied to a wide variety of claims, including non-business (consumer) claims. Property necessary for family maintenance was consequently often summarily seized. Attachment was therefore viewed as a harsh remedy which created significant hardship.

A parallel judicial development still ongoing at the time of Richmond was an expansive application of the doctrine of election of remedies designed to curtail the use of attachment and to mitigate its harshness. A decade after Richmond, however, the attachment law (together with many other unilateral creditor's remedies) was found unconstitutional as violative of due process. During the 1970s, a new attachment law was enacted incorporating extensive due process protections, including notice in all but extraordinary circumstances, an opportunity to be heard, strict evidentiary requirements, judicial pre-screening, required findings (including findings on the merits before attachment), restriction to certain types of business claims, etc. The detailed attachment statute that now exists, consuming fifty pages in even the unannotated code and brimming with procedural protections, bears scant resemblance to the summary unilateral creditor's remedy in existence at the time of the events in Richmond. ¹

Even before this metamorphosis in attachment law, the more expansive applications of the election doctrine were falling into disrepute. After the metamorphosis, case law has continued the trend of narrowing the election of remedies defense in favor of deciding tort claims on their merits. The rationale for this narrowing is that the election doctrine is a form of estoppel. The purpose of an estoppel is to remedy an inequity. Since the current attachment statutes carefully protect a defendant's rights, and allow attachment only upon prior court order in limited circumstances, it is doubtful that attachment today can ever be said to result in an inequity justifying an estoppel. Instead, the election doctrine now appears simply outmoded in the attachment context due to the extensive revisions in the attachment statutes. However, even assuming that some vestige of the doctrine survives, the doctrine does not apply to the facts of this case. We will therefore reverse the summary judgment and remand for the tort claims to be adjudicated on their merits.

I. FACTUAL BACKGROUND.

An abbreviated summary of this procedurally complex litigation:

Plaintiff Waffer International Corporation sued several defendants alleging breach of contract, negligence, fraud and conversion arising out of the shipment of 2.5 million dollars worth of computer monitors from Taiwan, and their sale to Edison Technologies, Inc. ² Edison is now defunct; the instant appeal concerns individual defendants Anavim (Edison's controller) and Khorsandi (another Edison officer) (collectively the "individual defendants"). The individual defendants were initially named in two causes of action, one for conversion and one for fraud and deceit. In these two counts, plaintiff Waffer alleged that the individual defendants caused the monitors to be wrongfully released to Edison by the international shipper without payment to Waffer.

On the day the initial complaint was filed, plaintiff applied ex parte for a right to attach order and order for issuance of writ of attachment against purchaser Edison. The application was either denied or withdrawn in favor of an attempt at settlement. On that date at the courthouse a handwritten "stipulation for settlement" was signed by plaintiff Waffer, purchaser Edison, and the international shipper. The stipulation did not mention release of any claims against the individual defendants, did not mention any consideration to be paid by the individual defendants, and was not signed by the individual defendants. The settlement agreement provided that purchaser Edison would, on that same day, make an initial payment of $500,000. The payment was not made, and a few days later Waffer again unsuccessfully applied ex parte for a writ of attachment against purchaser Edison.

Waffer then filed an amended complaint which, together with a supplement discussed below, is the operative pleading. Waffer alleged deliveries on a series of sales contracts and Edison's failure to pay. Causes of action were asserted against Edison for breach of contract, goods sold and delivered, money had and received, account stated and open book account. Waffer also sued the international shipper for breach of contract and negligence for delivering the monitors without first receiving notice from Waffer that purchaser Edison had paid for them. ³ Waffer also sued the individual defendants (among others not involved here) for conversion, alleging that they converted the monitors. Finally, Waffer sued the individual defendants (also among others not involved here) for fraud, alleging that they falsely represented an intention to pay and then presented false documents to the international shipper, causing the shipper to release the monitors without payment.

Waffer then obtained issuance of an order to show cause re: preliminary injunction, and a preliminary injunction was subsequently issued. The injunction enjoined purchaser Edison "and all persons acting under, or in concert with it" from disposing of the inventory of monitors sold to Edison by Waffer. ⁴ Waffer also moved, pursuant to Code of Civil Procedure section 664.6, for entry of judgment on the settlement agreement noted above. ⁵ However, the court denied the 664.6 motion on the ground that the settlement agreement required determination of the amount of an offset by arbitration.

Purchaser Edison, a defendant in the instant case, then commenced a separate action against Waffer and the international shipper seeking declaratory relief under the settlement agreement. In that other action, Waffer cross-complained alleging breach of the settlement agreement (this other action will be referred to as "the parallel action"). In the parallel action (in which the individual defendants involved in the instant appeal were not parties), Waffer obtained a writ of attachment on its cross-complaint against purchaser Edison in the amount of $2,475,000. However, Waffer was successful in levying on only about $200,000 worth of assets.

The remaining issues raised in the parallel action were arbitrated by the American Arbitration Association. The arbitrators found that purchaser Edison had breached the settlement agreement (as opposed to the underlying contracts of sale), and awarded Waffer over $2.5 million, including interest. ⁶ This award was confirmed as a judgment, but Waffer has been unable to enforce it, allegedly because all of Edison's assets have disappeared.

Waffer then moved to file a supplemental complaint in the instant action. The proposed supplemental complaint alleged that after issuance of the writ of attachment against corporate purchaser Edison, the individual defendants committed further acts of conversion and fraud by transferring purchaser Edison's funds to Hong Kong, by transferring Edison's funds to themselves, by parking Edison's funds with their attorney and at other offshore sites, by diverting approximately one million dollars worth of Edison's computer chips (or their proceeds), and by otherwise looting Edison and rendering it insolvent so that Waffer could not recover. ⁷

While Waffer's motion for leave to file its supplemental complaint was pending, the individual defendants filed the summary judgment motion which resulted in this appeal. The summary judgment motion raised the issue considered in this opinion: it contended that Waffer had forfeited its tort claims for conversion and fraud against the individual defendants in this action by pursuing its attachment remedies on its settlement contract claim against the corporate defendant in the parallel action.

After the individual defendants filed their ...