Ketcham v. Selles , 96 Or. App. 121 ( 1989 )

DEITS, J.

Plaintiff Ketcham and intervenor appeal the trial court’s allowance of defendant Selles’ motion to offset judgments and motion to dismiss, its denial of intervenor’s motion to intervene and its denial of plaintiffs and intervenor’s motion to dismiss and requests for trial. We affirm.

In April, 1981, defendant obtained a money judgment against plaintiff in an unrelated case (the 1981 judgment). That judgment remained unsatisfied. In September, 1985, plaintiff obtained a money judgment against defendant in the present case (the 1985 judgment). Before the 1985 judgment was rendered, plaintiff assigned to his attorneys (intervenor in this case), all proceeds collected on any future judgments in a number of specified cases, including the present case. The assignment was consideration for intervenor’s legal services. Intervenor took the assignment with knowledge of the unsatisfied 1981 judgment that defendant held against plaintiff. In October, 1985, intervenor filed a notice of assignment and a notice of attorney’s lien on the proceeds from the 1985 judgment.

Defendant appealed the 1985 judgment. After this court issued a decision affirming the 1985 judgment, 81 Or App 445, 725 P2d 950 (1986), but before that decision became a final judgment under ORS 19.190, defendant filed a post-judgment motion to compel satisfaction of judgment through setoff of the 1981 and 1985 judgments. After defendant filed the motion, plaintiff and intervenor filed a declaratory judgment action to determine defendant’s right to setoff. After the 1985 judgment became final, plaintiff moved the trial court to dismiss defendant’s motion to compel setoff or, in the alternative, a request for trial. After the first day of the hearing on the motion to compel setoff had been held, intervenor filed its motion to intervene. The trial court denied the motion to intervene, the motion to dismiss and the request for trial and allowed defendant’s motion to compel satisfaction through setoff. The court in the declaratory judgment case subsequently allowed defendant’s motion to dismiss. Plaintiff and intervenor appeal those actions.

Plaintiff and intervenor first assign as error the trial court’s allowance of defendant’s motion to compel satisfaction through setoff. They argue that Oregon does not recognize a post-judgment right to offset judgments when the party asserting the right fails to plead setoff as an affirmative defense. We disagree. Although offsetting one judgment against another is not a matter of right, the court, in the exercise of equitable power, may do so. Hartford Accident v. Pyle, 271 Or 97, 530 P2d 843 (1975). The statutes do not require, nor have we held, that setoff must be pled as an affirmative defense.

Plaintiff and intervenor argue that Parker v. Reid, 127 Or 578, 582, 273 P 334 (1928), requires that setoff be pled as an affirmative defense. However, in Parker, the judgment debtor was seeking to offset mere claims that he held against the judgment creditor. Here, the judgment debtor, defendant, has an existing, unsatisfied judgment against his creditor, plaintiff. This is a significant distinction because, when the judgment debtor holds only a claim against the judgment creditor, post-judgment setoff is inappropriate because the judgment creditor has not been given an opportunity to assert any defenses he may have to the judgment debtor’s claims. However, when the judgment debtor holds an unsatisfied judgment against the judgment creditor, the judgment creditor presumably has had an opportunity to be heard.¹ Accordingly, the fact that defendant in this case did not assert the right to setoff as an affirmative defense to plaintiffs action does not bar him from obtaining a post-judgment order to compel satisfaction by setoff.

Plaintiff and intervenor next argue that setoff in this case is inappropriate because there is no “direct nexus” between the 1981 judgment and the 1985 judgment. They argue, relying on Delaney v. Georgia-Pacific, 42 Or App 439, 601 P2d 475 (1979), rev den 288 Or 519 (1980), that a court’s ability to declare a setoff of judgments is limited to situations where both judgments arise out of the same case as a result of a partial remand. We disagree. Our holding in Delaney was dependent on the unique circumstances of that case. In Delaney, the trial court dismissed the plaintiffs claims against the defendant and awarded him a money judgment on his counterclaim. On appeal, the Supreme Court affirmed the judgment on the counterclaim, but reversed and remanded the dismissal of the plaintiffs claims. On remand, the trial court awarded the plaintiff a money judgment. The defendant then sought to collect the judgment that he had obtained on his counterclaim and the interest that had accrued from the date that the original judgment was entered. In an effort to eliminate disparities in both the rate and time of accrual of interest on the two judgments, the plaintiff argued that the judgment obtained on remand should be automatically offset against the defendant’s judgment as of the date the judgment was entered in the first trial. The plaintiff was essentially arguing that the actions were so interrelated that the judgments should share a single date of entry. Under the circumstances of that case, we held that there had to be a “direct nexus” between the two judgments in order to allow a setoff. Delaney v. Georgia-Pacific, supra, 42 Or App at 457.

Here, defendant does not seek a retroactive setoff of judgments. Rather, he asks only that the present balances of both judgments be offset. In such a case, the lack of a direct nexus between judgments should not preclude the court from exercising its equitable power to allow a setoff.

Plaintiff and intervenor next argue that setoff should have been denied in this case because intervenor’s interest obtained through the assignment of judgment by plaintiff must be given priority over defendant’s right of setoff. They also argue that Hartford Accident v. Pyle, supra, governs this case, and that applying the factors identified as pertinent in Hartford Accident dictates that setoff should not be allowed.² We do not agree.

As recognized in Hartford Accident, whether the assignment of a judgment precludes a setoff of that judgment depends upon “principles of equity and justice under the circumstances then attendant.” 271 Or at 100. The factors identified by the court in Hartford Accident were identified as issues which “have been considered important by courts in disposing of like problems.” These factors were not presented as absolute standards that are subject to a mechanical application in each case. Rather, the significance of each depends upon the particular circumstances of each case. For example, the first factor identified by the court in Hartford Accident is whether both judgments were in existence when the assignment was made. In most circumstances, that would be an important consideration because, generally, an assignee of a judgment takes subject to all defenses, legal or equitable, that were available to the judgment debtor as against the assignor. Parker v. Reid, supra, 127 Or at 582. Consequently, when both judgments exist at the time of assignment, the assignee takes subject to the right of setoff assertable against the assignor. Conversely, where only the assignor has obtained a judgment at the time of the assignment, the assignee does not take subject to a setoff, because that right does not exist until the party asserting it has obtained a judgment of his own.

Although the above analysis makes sense in a case where the assignment is made by the party obtaining the first judgment, in this case the assignment was made by the party that eventually obtained the second judgment. We do not believe that the Hartford Accident court contemplated this fact pattern.³ In such a situation, a different analysis should apply because the assignment is of a future judgment. We conclude that the assignee of a future judgment should not be allowed to take free of an existing judgment creditor’s right of setoff simply because the assignment involves a future judgment, rather than a judgment already in existence. To hold otherwise would effectively allow a judgment debtor to avoid setoff of future judgments that might later be recovered against the judgment creditor simply by assigning all interest in those judgments before they are awarded. We do not believe that the Supreme Court in Hartford Accident contemplated that result.

Under the circumstances of this case, the key factor in analyzing whether, under equitable principles, the setoff should be allowed is whether the attorneys-assignees, intervenor, knew of the judgment against their assignor, plaintiff. Hartford Accident v. Pyle, supra, 271 Or at 101. Intervenor did have actual notice of the 1981 judgment defendant held against plaintiff at the time of the assignment. In view of that knowledge, we hold that the equities weigh in favor of allowing the setoff.⁴

Plaintiff and intervenor also argue that intervenor’s attorney lien on the 1985 judgment should take priority over defendant’s right of setoff. ORS 87.445 provides:

“An attorney has a lien upon actions, suits and proceedings after the commencement thereof, and judgments, decrees, orders and awards entered therein in the client’s favor and the proceeds thereof to the extent of fees and compensation specially agreed upon with the client, or if there is no agreement, for the reasonable value of the services of the attorney.”⁵

Neither that provision nor ORS 87.490, which sets out the priority of the attorney’s lien vis-a-vis other liens, gives an attorney’s lien priority over a judgment debtor’s right to offset an existing judgment. See Hartford Accident v. Pyle, supra, 271 Or at 102. Accordingly, the trial judge properly ruled that the intervenor’s lien on the 1985 judgment did not defeat defendant’s right to offset the 1981 judgment.

Plaintiff and intervenor next assign as error the trial court’s denial of intervenor’s motion to intervene at the post-judgment hearing. Because the motion was submitted after trial, the trial court had discretion whether to allow it. ORCP 33;⁶ Duke v. Franklin, 177 Or 297, 304, 162 P2d 141 (1945). The Supreme Court has held that permissive intervention is appropriate when:

“[t]he intervenor shows that the representation of its interest by counsel for the existing parties would be inadequate, as where the representative has some interest adverse to that of the applicant for intervention.” Barendrecht v. Clark, 244 Or 524, 530 n 4, 419 P2d 603 (1966).

In this case, intervenor was counsel for plaintiff, and their interests were not adverse. Both sought to defeat setoff. The same arguments against setoff were raised by intervenor in its capacity as counsel for plaintiff when the motion to compel satisfaction through setoff was originally heard, i.e., before the motion to intervene was even filed. Under these circumstances, we do not believe that it was an abuse of discretion to deny intervenor’s motion to intervene.

Plaintiff and intervenor next assign as error the trial court’s denial of their motion to dismiss and their request for trial. They argue that the trial court was without jurisdiction to receive defendant’s motion to compel setoff, because this court’s affirmance of the 1985 judgment had not yet become final at the time of the filing of the motion.⁷ However, although the motion to compel setoff was filed before our affirmance became final, the motion was not argued or decided until after the trial court had reacquired jurisdiction. Accordingly, it was not error for the trial court to deny the motion to dismiss and request for trial.

Plaintiff and intervenor also argue that defendant’s ORCP 21 motion to dismiss the declaratory judgment action was improperly allowed, because the action was filed before the trial court reacquired jurisdiction to hear defendant’s motion to compel satisfaction by setoff and because the parties in the two actions were not the same. ORCP 21A(3) provides that a motion to dismiss may be filed where “there is another action pending between the same parties for the same cause * * In this case, the motion to compel satisfaction by setoff was pending in the post-judgment case before the declaratory judgment action to determine defendant’s right to setoff was filed by plaintiff and intervenor. That the trial court did not reacquire jurisdiction to decide the post-judgment motion until after the declaratory judgment action was filed does not alter the fact that the motion was “pending” at that time. However, plaintiff and intervenor correctly point out that the declaratory judgment action and the post-judgment case did not involve the same parties, as intervenor was not a party to the post-judgment case. However, for there to be reversible error, the party assigning the error must suffer prejudice. Fassett v. Santiam Loggers, Inc., 267 Or 505, 509, 517 P2d 1059 (1973). For the reasons supporting the denial of the motion to intervene, we hold that intervenor’s interests were adequately protected in the post-judgment case and that no prejudice resulted from dismissal of the declaratory judgment actions.

Affirmed.

1 A party contesting a setoff may dispute the amounts appearing in the judgment docket, particularly when the judgments are years apart and no satisfaction of any part of the first judgment has been filed. However, any disputes in the amounts due under the judgments may be resolved at a post-judgment hearing. We note that in this case, plaintiff presented his arguments on calculation of the setoff at both the post-judgment hearing and in his motion to dismiss.

2 The Hartford Accident court identified these factors as important in determining whether a right of setoff should prevail over an assignment:

“1) were both judgments in existence when the assignment was made to the attorneys?

“2) if both judgments were in existence at the time of the assignment, did the attorneys-assignees know of the judgment against their assignor?

“3) was the client-assignor insolvent at the time of the assignment?

“4) did the two judgments arise out of the same transaction or related transactions?

“5) do both judgments include attorney fees so that, in effect, attorney fees will be set off against attorney fees?” Hartford Accident v. Pyle, supra, 271 Or at 101.

3 For example, the second factor in Hartford Accident is, “if both judgments were in existence at the time of assignment, did the attorneys-assignees know of the judgment against their assignor?” 271 Or at 101. If the Hartford Accident court had contemplated the assignment of future judgments, then the first clause in that factor would make no sense in situations such as this because “both judgments” would never be in existence “at the time of assignment” when the assignment is of a future judgment.

4 Plaintiff and intervenor also argue that, for public policy reasons, pre-judgment assignments to attorneys should prevail over a judgment creditor’s right of setoff. They argue that if the assignment does not take priority, a judgment debtor would be unable to obtain counsel in a subsequent case on a contingent fee arrangement because the prospective attorney could not be assured that he would have priority as to the proceeds of the judgment he recovers in the second case over a setoff right from the earlier judgment. This is a policy argument which would be more properly addressed to the legislature than the court.

5 ORS 87.450 further provides that notice of an attorney’s lien claimed under ORS 87.445 must be filed with the clerk of the court in order to be perfected. The record reveals that intervenor did file notice of a lien with the trial court clerk after judgment was entered. ORS 87.490(1) provides that except for tax liens, prior encumbrances and prior liens of record, an attorney’s lien is superior to all other liens.

6 ORCP 33 provides:

“A. Definition. Intervention takes place when a third person is permitted to become a party to an action between other persons, either by joining the plaintiff in claiming what is sought by the complaint, by uniting with the defendant in resisting the claims of the plaintiff, or by demanding something adversely to both the plaintiff and defendant.

“B. Intervention of Right. At any time before trial, any person shall be permitted to intervene in an action when a statute of this state, these rules, or the common law, confers an unconditional right to intervene.

“C. Permissive Intervention. At any time before trial, any person who has an interest in the matter in litigation may, by leave of court, intervene. In exercising its discretion, the court shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.

7 ORS 19.033 provides:

“(1) When the notice of appeal has been served and filed as provided in ORS 19.023,19.026 and 19.029, the Supreme Court or the Court of Appeals shall have jurisdiction of the cause, pursuant to rules of the court, but the trial court shall have such powers in connection with the appeal as are conferred upon it by law and shall retain jurisdiction for the purpose of allowance and taxation of attorney fees, costs and disbursements or expenses pursuant to rule or statute.

u* * * * *

“(5) Jurisdiction of the appellate court over a cause ends when a copy of the appellate judgment is mailed by the State Court Administrator to the court from which the appeal was taken pursuant to ORS 19.190, except that the appellate court may recall the appellate judgment as justice may require. After jurisdiction of the appellate court ends, all orders which may be necessary to carry the appellate judgment into effect shall be made by the court from which the appeal was taken.”

ORS 19.190(2) provides, in part:

“As to appeals from district, circuit and tax court, the appellate judgment is effective when a copy of the appellate judgment is entered in the court’s register and mailed by the State Court Administrator to the court from which the appeal was taken.”