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 Post subject: Atalaya Funding - Third-Party Examinations and Sanctions
PostPosted: Tue Apr 25, 2017 1:56 pm 
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ATALAYA FUNDING II LP, Plaintiff and Respondent,
WILLIAM J. BARKETT et al., Defendants and Appellants.

No. D070339.
Court of Appeals of California, Fourth District, Division One.

Filed April 19, 2017.
APPEAL from an order of the Superior Court of San Diego County, Super. Ct. No. 37-2012-00096192-CU-EN-CTL, Lisa C. Shall, Judge. Affirmed.

Gilmore Magness Leifer and David M. Gilmore for Defendants and Appellants.

Frandzel Robins Bloom & Csato, Peter Csato and Bob Benjy for Plaintiff and Respondent.


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.



William J. Barkett (William) and Lisa Barkett (jointly the Barketts) appeal an order, which (1) denied, in part, motions to quash subpoenas issued by Atalaya Funding II LP (Atalaya) to third party witnesses in connection with a judgment debtor examination to enforce a money judgment against William and related entities, and (2) awarded sanctions against the Barketts and their counsel, David M. Gilmore, pursuant to Code of Civil Procedure section 1987.2.[1] Gilmore appeals only the award of sanctions imposed against him. The Barketts and Gilmore contend the court abused its discretion in awarding sanctions because they had substantial justification for taking the position the third party subpoenas were not authorized by the Enforcement of Judgments Law (§ 680.010 et seq.). We disagree and affirm the order.


Atalaya obtained a judgment on a sister-state judgment against Energy Systems International, LLC, William, Barkett LLC, and Merjan Financial Corporation in the amount of $43,531,023.73 in May 2012. The judgment was partially satisfied in March 2015.

Atalaya took the judgment debtor examination of William in 2012 in which he stated, "[A]ll the new deals are in [my children's] name[s]. Everything I'm doing is in their name. . . . Whatever I'm working on now [is] for free. . . . I own not [one] percent and I'm not getting paid."

At judgment debtor examinations in 2015, William stated he is a member of the Jonathan Club, a private social club, but he has no assets in his own name and has no income. He transferred ownership of his La Jolla residence from himself and his wife to a limited liability company owned by a friend who lives in Kuwait for zero consideration. The limited liability company to which the Barketts's residence was transferred filed for bankruptcy. The Barketts continue to live in the home rent free. All furnishings and artwork still in the residence have also been transferred out of the Barketts' names "[j]ust in case someone like you would want to come in and say, Hey, I want this and I want that."

William testified he was a manager at a financial advising company owned by his friend. William, however, received no salary for his work.

In response to a previous subpoena duces tecum, the Jonathan Club produced documents related to William's membership. In addition to account statements, the Jonathan Club produced cashier's checks representing payments by or on behalf of William for his membership expenses. William testified his friend paid for the Jonathan Club membership. When questioned about the funding for the cashier's checks he obtained to pay the Jonathan Club expenses, William said "[p]eople are giving me money" and "[m]oney between friends doesn't matter." William said his friend "wants me to succeed."

Atalaya also learned the Barkett family and businesses made political contributions of $182,500 over the years, including campaign contributions to Governor Jerry Brown.

Atalaya issued five subpoenas duces tecum in connection with a judgment debtor examination scheduled for William. A subpoena issued to certified public accountant Suzan Dennis ordered her appearance at William's judgment debtor examination and production of documents related to the Barketts's tax returns, assets and accounts. A subpoena to Governor Brown ordered production of documents related to campaign contributions made by the Barketts, their businesses, and/or their children. Subpoenas issued to Wells Fargo Bank, N.A. (Wells Fargo), JPMorgan Chase Bank N.A. (Chase), and Bank of America, N.A. (Bank of America) ordered production of documents related to the source of funds used to pay for 15 specific cashier's checks issued by the banks and made payable to the Jonathan Club toward William's account.

The Barketts moved to quash the subpoenas duces tecum. The Barketts contended third party deposition subpoenas or subpoenas for business records are not authorized discovery methods for enforcement of money judgments pursuant to sections 708.010 through 709.030 unless the judgment creditor applies and obtains an order for such discovery pursuant to section 708.120 after showing the third party has possession or control of property "in which the judgment debtor has an interest or is indebted to the judgment debtor in an amount exceeding [$250]."

Atalaya opposed the motions contending section 708.130 permits examination of witnesses at an examination of the judgment debtor. The subpoenas were for personal appearance and production of documents pursuant to section 1985, et seq. Atalaya sought sanctions pursuant to section 1987.2 against the Barketts and Gilmore for fees incurred to oppose the motions.

The court denied the motions to quash the subpoenas issued to Wells Fargo and Bank of America. It granted the motion to quash the subpoena to Governor Brown.[2] The court denied the motion to quash the subpoena issued to Chase, with the exception of two categories of documents related to one cashier's check in which the remitter was identified as a limited liability company as opposed to William. The court also denied the motion to quash the subpoena issued to Dennis, with the exception of one category of documents involving correspondence with William's assistant.

The court granted Atalaya's request for sanctions pursuant to section 1987.2, subdivision (a), finding the motions were made "without substantial justification." The court awarded $6,750 in attorney fees against the Barketts and Gilmore jointly and severally.




The court's order on the Barketts' motion to quash subpoenas duces tecum issued to third parties is not appealable because it is but "`one of the steps taken in the course of a proceeding to obtain' information pertaining to a judgment debtor's assets." (Fox Johns Lazar Pekin & Wexler, APC v. Superior Court (2013) 219 Cal.App.4th 1210, 1215 (Fox Johns).) "Neither an order denying a motion to quash an order for a third party examination [citation], nor a postjudgment order denying a motion to quash a subpoena duces tecum served on a third party [citation], is appealable." (Fox Johns, supra, at p. 1216, citing Ahrens v. Evans (1941) 42 Cal.App.2d 738, 739.)

Unlike in either Fox Johns, supra, 219 Cal.App.4th 1210 or Macaluso v. Superior Court(2013) 219 Cal.App.4th 1042, 1049, the order here is not a final determination of issues between a party and a third party, which would justify either direct appellate review or consideration as a petition for writ of mandate under extraordinary circumstances. Rather, the dispute is between the judgment creditor and the judgment debtor and there is no indication from the record available to us that all issues have been resolved between these parties related to enforcement of the judgment.

Additionally, the parties agree the merits of the order on the motions to quash is moot because the third parties have complied with the court's order. "`An appellate court will not review questions which are moot and which are only of academic importance. It will not undertake to determine abstract questions of law at the request of a party who shows that no substantial rights can be affected by the decision either way.'" (Estate of McManus (1963) 214 Cal.App.2d 390, 397-398.)

However, an order directing payment of monetary sanctions over $5,000 is appealable. (§ 904.1, subd. (12); Mileikowsky v. Tenet Healthsystem (2005) 128 Cal.App.4th 262, 264 (Mileikowsky).) We will review the merits of the ruling on the motions to quash only to the extent the nonappealable substantive ruling is inextricably intertwined with the order directing sanctions. (§ 906; Mileikowsky, supra, at p. 276.)


Sanction Award


Standard of Review

"Section 1987.2, subdivision (a), provides that a trial court may in its discretion award reasonable attorney fees and expenses incurred in making or opposing a motion to quash `if the court finds the motion was made or opposed in bad faith or without substantial justification.' `Substantial justification' means `that a justification is clearly reasonable because it is well grounded in both law and fact. [Citations.]' [Citation.] We review the trial court's ruling on the discovery sanction imposed . . . under the abuse of discretion standard." (Vasquez v. California School of Culinary Arts, Inc. (2014) 230 Cal.App.4th 35, 40-41.)

To the extent the court interpreted the law in reaching its decision on sanctions, we review the interpretation independently. (B.H. v. County of San Bernardino (2015) 62 Cal.4th 168, 189.) "We are required to harmonize the various parts of a statutory enactment by considering the particular section in the context of the statutory framework as a whole. [Citation.] Ordinarily, the words of the statute provide the most reliable indication of legislative intent. [Citation.] However, a statute's literal terms will not be given effect if to do so would yield an unreasonable or mischievous result." (Ibid.; Fox Johns, supra, 219 Cal.App.4th at p. 1220 ["`Words must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible'"].)


No Substantial Justification for Motion to Quash


The Barketts and Gilmore first contend the subpoenas were not authorized as business records subpoenas under sections 2020.410 through 2020.440 of the Civil Discovery Act (§ 2016.010 et seq.). It is true the Civil Discovery Act applies to discovery aiding the enforcement of a money judgment only to the extent provided in sections 708.010 through 708.030. (§ 2016.070.) These sections provide for written discovery only from the judgment debtor in the form of written interrogatories (§ 708.020 subd. (a)) and inspection demands (§ 708.030, subd. (a)).

However, the Enforcement of Judgments Law provides alternative procedures to written discovery. It also authorizes judgment debtor examinations (§ 708.110) and third party examinations (§ 708.120). (See Lee v. Swansboro Country Property Owners Assn. (2007) 151 Cal.App.4th 575, 580-581 (Lee) [contrasting process for obtaining pretrial written discovery from a judgment debtor with examination process].) Since the third party subpoenas at issue in this case were related to an examination procedure and were issued pursuant to sections 1985 and 1987.5, which are not part of the Civil Discovery Act, section 2016.070 is inapplicable.


The Barketts and Gilmore next contend any subpoena to a third party for appearance or production of documents related to enforcement of judgment proceedings must be limited to the procedure set forth for third party examinations under section 708.120. The law does not support this contention.

Article 2 of chapter 6 of division 2 of the Enforcement of Judgments Law (§ 680.010 et seq.) provides procedures for two types of examination proceedings. Section 708.110 provides the mechanism for a judgment creditor to examine the judgment debtor in court or before a referee "to furnish information to aid in enforcement of the money judgment." (§ 708.110, subd. (a).) The purpose of this proceeding is "to discover and reach assets of a judgment debtor so as to apply them to the satisfaction of the judgment." (Kyne v. Eustice (1963) 215 Cal.App.2d 627, 632.) "`A judgment debtor examination is intended to allow the judgment creditor a wide scope of inquiry concerning property and business affairs of the judgment debtor.'" (Lee, supra, 151 Cal.App.4th at p. 581.)

A similar, but distinct, procedure is available under section 708.120 for examination of a third party before a court or a referee if the judgment creditor proves "by affidavit or otherwise to the satisfaction of the proper court that a third person has possession or control of property in which the judgment debtor has an interest or is indebted to the judgment debtor in an amount exceeding" $250. (§ 708.120, subd. (a), italics added.) In connection with a third party examination, the judgment creditor may ask the third party questions only regarding the property or debt owed to the judgment debtor. (Fox Johns, supra, 219 Cal.App.4th at pp. 1220-1221.) "[T]he purpose of section 708.120 is to provide a tool that allows a judgment creditor to find property or money that is owed to the judgment debtor." (Id. at p. 1221.) To that end, "if the description of the property or the debt is `reasonably adequate to permit it to be identified, service of the order on the third person creates a lien' on the property or debt `for a period of one year from the date of the order unless extended or sooner terminated by the court.' (§ 708.120, subd. (c).)" (Id. at p. 1220.) If it is established the third party possesses or controls property in which the judgment debtor has an interest or the third party is indebted to the judgment debtor, additional steps may be taken to obtain an order to have the interest or debt applied to satisfy the money judgment or to otherwise secure the interest of debt from transfer or disposition. (§§ 708.205, 708.210.)

Section 708.130, subdivision (a) provides, "[w]itnesses may be required to appear and testify before the court or referee in an examination proceeding under this article in the same manner as upon the trial of an issue." (Italics added.) This is the first of a number of sections in this article discussing procedures applicable to either of two types of examination proceedings. (See §§ 708.130-708.205.)

"`[T]he use of a subpoena duces tecum to discover and inspect relevant documents is an accepted practice.' [Citations.] . . . `[A]s far as practicable, counsel should investigate the debtor's assets and subpoena any documents showing ownership . . . into court at the time of examination.'" (Lee, supra, 151 Cal.App.4th at p. 582.) Therefore, a third party witness "may be compelled to appear at an examination even if that witness does not possess or control property in which the debtor has an interest over $250 or owe the debtor an amount over $250." (2 Debt Collection Practice in Cal. (Cont.Ed.Bar 2d ed. 2016) The Debtor's Property, § 8.21.) Documents may also be compelled from a third person by a subpoena duces tecum. (§§ 1985, 1987, subd. (c).)

The Fox Johns court concluded if a subpoena duces tecum is tethered to a third party examination under section 708.120, the scope of the documents sought by such a subpoena must be limited to confirming the third party's possession of property in which the judgment debtor holds an interest or any debt the third party owes to the judgment debtor. (Fox Johns, supra, 219 Cal.App.4th at p. 1222.) The court in Fox Johns made clear its decision was limited to third party examinations under section 708.120 and had no bearing on subpoenas issued in connection with a judgment debtor examination under sections 708.110 or 708.130. (Fox Johns, at pp. 1219-1220.)

If, however, the subpoena is tethered to a judgment debtor examination, the scope of permissible documents must be broad enough to permit the judgment creditor to inquire regarding the "property and business affairs of the judgment debtor." (Lee, supra, 151 Cal.App.4th at p. 581.) In this case, the subpoenas were issued in connection with a judgment debtor examination under section 708.110. Therefore, neither section 708.120 nor the limitation described in Fox Johns, supra, 219 Cal.App.4th 1210 related to third party examinations is applicable to the subpoenas at issue in this case.[3]

The statutory scheme, read as a whole, is not unclear. Unlike in Diepenbrock v. Brown(2012) 208 Cal.App.4th 743, 749, there is no conflicting authority supporting a position that any subpoena issued to a third party witness under section 708.130 is limited to the examination procedure under section 708.120. There was no substantial justification for moving to quash the subpoenas at issue here on the basis they were unauthorized by law. Therefore, the court did not abuse its discretion in awarding sanctions.


The order is affirmed. Atalaya shall recover its costs on appeal.

The Clerk of the Court of Appeal shall send a copy of this opinion to the California State Bar reporting judicial sanctions were imposed against David Malcolm Gilmore. (Bus. & Prof. Code, § 6086.7, subd. (a)(3); Cal. Rules of Court, rule 10.1017.)

NARES, J. and HALLER, J., concurs.

[1] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

[2] The governor's office nevertheless responded stating it had no responsive documents.

[3] We deny as unnecessary Atalaya's request for judicial notice of federal district court decisions interpreting these statutes.

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