Mealing v. Diane Harkey for Board of Equalization 2014 ( 2016 )

Filed 10/24/16
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
DON MEALING, as Trustee, etc.,
Plaintiff and Appellant, G050577
v. (Super. Ct. No. 30-2014-00715046)
DIANE HARKEY FOR BOARD OF OPINION
EQUALIZATION 2014 et al.,
Defendants and Respondents.
Appeal from an order of the Superior Court of Orange County, Geoffrey T.
Glass, Judge. Affirmed.
Aires Law Firm, Timothy Carl Aires and Justin Morong for Plaintiff and
Appellant.
Law Offices of Jeffrey S. Benice and Jeffrey S. Benice for Defendants and
Respondents.
* * *
In this creditor‟s suit, Don Mealing, as Trustee of the Mealing Family Trust
(Mealing), seeks a judgment directing the entity called Diane Harkey for Board of
Equalization 2014 (Campaign) to repay a loan Diane Harkey (Diane) made to the
Campaign and apply the proceeds to partially satisfy a nearly $1.6 million judgment
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Mealing obtained against Diane‟s husband, Dan Harkey (Dan). Mealing claims the
Campaign‟s indebtedness to Diane is a community property asset of Dan and Diane that
may be used to partially satisfy the judgment.
To preserve the Campaign‟s assets during this action, Mealing applied
ex parte for an order under Code of Civil Procedure section 708.240, subdivision (a), to
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prohibit the Campaign from making any payments to Diane on the loan. The trial court
denied the application without explanation and Mealing appealed. He contends the trial
court lacked discretion to deny his application because he made a prima facie showing
that he obtained a judgment against Dan, the judgment remained unpaid, and Diane‟s
loan to the Campaign was a marital asset that he could use to partially satisfy the
judgment, and the Campaign presented no evidence to overcome that showing.
We affirm. Under section 708.240, subdivision (a), a judgment creditor
may apply for an order restraining a third party who is indebted to a judgment debtor
from making any payments to the judgment debtor. But Diane is not a judgment debtor,
which is statutorily defined as the person against whom a judgment was rendered.
Judgment in the earlier action was rendered against Dan, not against Diane. Even
assuming the loan Diane made to the Campaign is a community property asset that may
be used to satisfy the judgment, Diane is not a judgment debtor and section 708.240,
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We refer to Diane and Dan Harkey by their first names to avoid confusion.
No disrespect is intended. We refer to the Campaign, Diane, and Dan collectively as
Respondents.
2
All statutory references are to the Code of Civil Procedure unless otherwise
stated.
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subdivision (a), therefore does not apply. Section 708.240, subdivision (b), authorizes a
judgment creditor to obtain a temporary restraining order and preliminary injunction
preventing a third party who is indebted to a judgment debtor from making a payment or
transfer to any person, not just the judgment debtor. Mealing, however, abandoned his
request for an order under section 708.240, subdivision (b), and fails to make any
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showing to support an order under that subdivision.
I
FACTS AND PROCEDURAL HISTORY
In November 2013, Mealing obtained a judgment against Dan and Point
Center Financial, Inc. for nearly $1.6 million based on a breach of fiduciary duty claim
arising from an investment Mealing made with Point Center Financial. The judgment
also named Dan as Point Center Financial‟s alter ego. In the same action, Mealing
alleged various claims against Diane, but the court entered judgment in her favor on all
claims.
In April 2014, Mealing filed this lawsuit against the Campaign, Diane, and
Dan to collect on the judgment Mealing obtained against Dan. Mealing alleged Diane
was running for a seat on the California State Board of Equalization and formed the
Campaign to manage her run for office. According to Mealing, public filings showed
Diane loaned the Campaign $100,000 and advanced more than $6,000 toward the
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The day before oral argument was scheduled, the parties submitted a
stipulation to dismiss this appeal without explanation. We declined to accept that
stipulation and provided the parties with the option to appear at oral argument or waive
oral argument and submit on their briefs. Both sides elected to waive oral argument. We
publish this opinion because the case is fully briefed and raises novel issues in applying
section 708.240‟s subdivisions. (Greb v. Diamond Internat. Corp. (2013) 56 Cal.4th 243,
247, fn. 3; Finton Construction, Inc. v. Bidna & Keyes, APLC (2015) 238 Cal.App.4th
200, 204-205; see Cal. Rules of Court, rule 8.244(c)(1) [“court may dismiss appeal” on
receipt of request or stipulation to dismiss (italics added)].)
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Campaign‟s expenses, the Campaign is indebted to Diane for more than $106,000, and
that indebtedness represents a community property asset of Diane and Dan that Mealing
may use to satisfy a portion of his judgment. Mealing sought a court order directing the
Campaign to pay him the $106,000 in partial satisfaction of the judgment.
In August 2014, Mealing filed an ex parte application seeking (1) an order
under section 708.240, subdivision (a), restraining the Campaign “from repaying
Defendant Diane Harkey or any other person a $100,000 „personal campaign loan‟ made
by Defendant Diane Harkey, or from repaying Defendant Diane Harkey or any other
person „accrued but unreimbursed campaign expenses‟ of $6,250 advanced by Defendant
Diane Harkey,” and (2) a temporary restraining order and preliminary injunction under
section 708.240, subdivision (b), restraining the Campaign “from making any transfer of
funds, directly or indirectly, that would result in the balance of its funds on deposit being
less than $106,250.”
The trial court denied Mealing‟s ex parte application without explanation,
and this appeal followed.
II
DISCUSSION
A. Legal Background
The Code of Civil Procedure establishes a comprehensive statutory scheme
covering the enforcement of civil judgments, including several different remedies a
judgment creditor may employ to collect on a judgment. (§§ 680.010 to 724.260; Evans
v. Paye (1995) 32 Cal.App.4th 265, 276.) One of those remedies is commonly referred to
as a “creditor‟s suit” under section 708.210 et seq.: “[W]hen a third person possesses or
controls property in which a judgment debtor has an interest or is indebted to the
judgment debtor, the judgment creditor may bring an action against the third person to
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apply the property or debt to satisfaction of the creditor‟s money judgment.” (Evans, at
p. 276.) Mealing filed this action as a creditor‟s lawsuit.
The statutory scheme includes two provisions authorizing a judgment
creditor to obtain a restraining order enjoining a third party from transferring property in
which the judgment debtor has an interest, or paying a debt owed to the judgment debtor,
while the creditor‟s suit is pending. Section 708.240, subdivision (a), allows the
judgment creditor to apply for an order restraining the third person from making any
transfer or payment “to the judgment debtor.” The application for an order under this
subdivision may be made ex parte unless the trial court or a court rule requires a noticed
motion. In granting an order under this subdivision, the trial court may order the
judgment creditor to post an undertaking. Section 708.240, subdivision (b), allows the
judgment creditor to apply for a temporary restraining order and preliminary injunction
preventing “the third person from transferring to any person or otherwise disposing of the
property in which the judgment debtor is claimed to have an interest.” This subdivision
makes an application for relief under its terms subject to the Code of Civil Procedure
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provisions governing injunctive relief in general.
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In its entirety, section 708.240 provides as follows: “The judgment creditor
may apply to the court in which an action under this article is pending for either or both
of the following: [¶] (a) An order restraining the third person from transferring to the
judgment debtor the property in which the judgment debtor is claimed to have an interest
or from paying to the judgment debtor the alleged debt. The order shall be made on
noticed motion if the court so directs or a court rule so requires. Otherwise, the order
may be made on ex parte application. The order shall remain in effect until judgment is
entered in the action or until such earlier time as the court may provide in the order. An
undertaking may be required in the discretion of the court. The court may modify or
vacate the order at any time with or without a hearing on such terms as are just. [¶]
(b) A temporary restraining order or a preliminary injunction or both, restraining the third
person from transferring to any person or otherwise disposing of the property in which
the judgment debtor is claimed to have an interest, pursuant to Chapter 3 (commencing
with Section 525) of Title 7, and the court may make, dissolve, and modify such orders as
provided therein.”
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By incorporating the statutory provisions governing injunctions in general,
section 708.240, subdivision (b), requires the judgment creditor to “prove the probable
validity of his claim and threat of irreparable injury” to obtain an injunction preventing
the third party from transferring the property to any person, as opposed to a restraining
order under section 708.240, subdivision (a), which solely prevents the third party from
making a transfer or payment to the judgment debtor. (Wardley Development, Inc. v.
Superior Court (1989) 213 Cal.App.3d 391, 399 (Wardley).) “This stricter burden was
imposed to provide „the third person with procedural safeguards that were not present in
former Section 720 [the predecessor statute].‟” (Wardley, at p. 399.)
In the trial court, Mealing sought both a restraining order under
section 708.240, subdivision (a), to prevent the Campaign from making a payment to
Diane, and a temporary restraining order and preliminary injunction under
section 708.240, subdivision (b), to prevent the Campaign from making a transfer or
payment to anyone that would cause the Campaign‟s balance to drop below the amount
the Campaign owed Diane. On appeal, Mealing does not challenge the trial court‟s
decision to deny the request under section 708.240, subdivision (b), and exclusively
focuses on the court‟s decision to deny the request under section 708.240, subdivision (a).
As with any other request for injunctive relief, we review the trial court‟s
ruling under the abuse of discretion standard. (See Husain v. McDonald’s Corp. (2012)
205 Cal.App.4th 860, 867 [injunctions in general].) “„The scope of discretion always
resides in the particular law being applied, i.e., in the “legal principles governing the
subject of [the] action. . . .” Action that transgresses the confines of the applicable
principles of law is outside the scope of discretion and we call such action an “abuse” of
discretion. [Citation.] . . . To determine if a court abused its discretion, we must thus
consider „the legal principles and policies that should have guided the court's actions.‟”
(Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747,
773.) To the extent Mealing‟s appeal raises any issues regarding the proper interpretation
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of section 708.240, we review those issues de novo. (People ex rel. Lockyer v. Shamrock
Foods Co. (2000) 24 Cal.4th 415, 432 [statutory interpretation is question of law subject
to de novo review].)
B. Section 708.240, Subdivision (a), Does Not Apply to Transfers or Payments to
Diane Because She is Not a Judgment Debtor
Mealing contends the trial court erred in denying his request for an order
under section 708.240, subdivision (a), because he made a prima facie showing of
entitlement to relief and the Campaign presented no evidence to overcome that showing.
According to Mealing, “once a prima facie showing of the existence of the Judgment, the
Creditor‟s Suit, and the Debt owed to the judgment debtor‟s marital community had been
made, and no evidence to the contrary is presented in opposition, the trial court‟s
discretion is limited to either (a) granting the restraining order requested outright,
(b) granting the restraining order requested but requiring an undertaking, or (c) directing
that the matter be heard on the trial court‟s regular law and motion calendar.” By its
terms, however, section 708.240, subdivision (a), does not apply to Mealing‟s request.
Section 708.240, subdivision (a), allows a judgment creditor to obtain an
order restraining a third person from making any transfer or payment “to the judgment
debtor.” In the statutory scheme governing a creditor‟s suit, the term “„[j]udgment
debtor‟” is statutorily defined as “the person against whom a judgment is rendered.”
(§ 680.250 [defining “„[j]udgment debtor‟”]; see also § 680.110 [making statutory
definitions applicable to entire statutory scheme on enforcement of judgments].) Diane is
not a judgment debtor under this definition.
Mealing obtained a judgment against Dan and Point Center Financial, but
Diane successfully defended against all claims Mealing alleged against her, obtaining a
judgment in her favor. Mealing‟s ex parte application sought an order under section
708.240, subdivision (a), to prevent the Campaign from making any payment to
“Defendant Diane Harkey or any other person” on the loan and advance that Diane made
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to the Campaign. Mealing, however, failed to make any showing Diane was a judgment
debtor, and therefore he was not entitled to an order prohibiting the Campaign from
making a transfer or payment under section 708.240, subdivision (a).
Citing section 695.020, subdivision (a), Mealing contends the loan and
advance “constituted a community property asset that could be applied in satisfaction of
the Judgment.” That code section merely states, “Community property is subject to
enforcement of a money judgment as provided in the Family Code.” (§ 695.020,
subd. (a).)
Family Code section 910, subdivision (a), states, “Except as otherwise
expressly provided by statute, the community estate is liable for a debt incurred by either
spouse before or during marriage, regardless of which spouse has the management and
control of the property and regardless of whether one or both spouses are parties to the
debt or to a judgment for the debt.” Family Code section 1000 addresses a married
person‟s liability for the torts of his or her spouse, such as the judgment Mealing obtained
against Dan for breach of fiduciary duty. Family Code section 1000, subdivision (a),
states, “A married person is not liable for any injury or damage caused by the other
spouse except in cases where the married person would be liable therefor if the marriage
did not exist.” Family Code section 1000, subdivision (b)(1), provides, “If the liability of
the married person is based upon an act or omission which occurred while the married
person was performing an activity for the benefit of the community, the liability shall
first be satisfied from the community estate and second from the separate property of the
married person.”
Based on these statutory provisions, the community estate of Diane and
Dan may be liable for the judgment Mealing obtained against Dan, but that does not
make Diane a “judgment debtor”—i.e., the person against whom a judgment was
rendered. (See §§ 680.250, 708.240, subd. (a).) Section 708.240, subdivision (a), only
authorizes an order restraining transfers or payments to the judgment debtor. It says
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nothing about transfers or payments to a judgment debtor‟s spouse even if the judgment
may be satisfied from the community property estate the judgment debtor shares with his
or her spouse.
To obtain an order restraining the Campaign from making any payment on
the loan or advance to Diane, Mealing must seek an order under section 708.240,
subdivision (b), which authorizes an order prohibiting transfers to any person, not just the
judgment debtor. On appeal, Mealing abandoned his request for relief under
section 708.240, subdivision (b), and makes no attempt to establish the probable validity
of his claim and irreparable injury that he must show to obtain relief under that
subdivision. (Wardley, supra, 213 Cal.App.3d at p. 399.) We therefore affirm the trial
court‟s order denying Mealing relief under section 708.240, subdivision (a).
III
DISPOSITION
The order is affirmed. Respondents shall recover their costs on appeal.
ARONSON, J.
WE CONCUR:
MOORE, ACTING P. J.
FYBEL, J.
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