Finance Holding Co., LLC v. The American Inst. of Certified etc.

Filed 11/29/18
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
FINANCE HOLDING COMPANY, LLC, D072910
Respondent,
v. (Super. Ct. No.
37-2014-00084275-CU-CL-CTL)
THE AMERICAN INSTITUTE OF
CERTIFIED TAX COACHES, INC.,
Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Timothy
B. Taylor, Judge. Reversed and remanded with directions.
Dental & Medical Counsel and Mukesh Advani for Appellant.
Law Office of David Sean Dufek and David Sean Dufek for Respondent.
Finance Holding Company, LLC (Finance) obtained a judgment against
Dominque Molina for about $50,000 plus interest and attorney fees. In judgment
enforcement proceedings, Finance sought documents from Molina's employer, The
American Institute of Certified Tax Coaches, Inc. (Institute). Finance requested
numerous categories of business, tax, and bank records, without limiting the request to
information relevant to Molina. The court overruled the Institute's objections and ordered
the Institute "to produce for inspection and copying all the demanded documents."
On appeal, the Institute contends the document production order is overbroad
under the statute governing third party discovery in judgment enforcement proceedings.
(Code Civ. Proc., § 708.120.)1 Finance responds that the order is not an appealable final
order, and therefore we should dismiss the appeal. On the merits, Finance contends the
document production order was proper under related statutes and/or the court's equitable
authority in judgment collection proceedings.
We conclude the order is appealable. We also determine the order is statutorily
overbroad, and the court did not have the authority to order the expansive document
production that went far beyond the statutory guidelines. We remand for the court to
narrow the order to require production only of those documents pertaining to Molina's
compensation, property, or services, and/or the Institute's debts owed to Molina.
FACTUAL AND PROCEDURAL BACKGROUND
Accountonit, LLP entered into a contract with a bank for a $50,000 credit line, and
Molina signed a personal guaranty to repay borrowed sums. In January 2014, Finance, as
the bank's assignee, sued Molina alleging the borrowed funds had not been repaid. After
a trial, the court entered judgment in Finance's favor for $49,958.74 plus prejudgment
1 All statutory references are to the Code of Civil Procedure.
2
interest and attorney fees. Molina appealed, and this court affirmed the judgment in May
2016. (Finance Holding Co., LLC v. Molina (May 19, 2016, D067952) [nonpub. opn.].)
While the appeal was pending, Finance sought to enforce the judgment and
engaged in "substantial collection related activity." In November 2015, Finance's counsel
conducted Molina's judgment debtor examination, during which Molina stated she
worked for the Institute as an instructor, and her compensation consisted solely of
medical insurance benefits and $4,500 in monthly rental payments for her residence. She
denied an ownership interest in the Institute, that she was an officer of the Institute, or
that the Institute owed her any money. Molina said she was separated from her husband,
and had no assets other than a vehicle.
About 16 months later, Finance moved for a judgment debtor examination of the
Institute and the court signed an order scheduling the examination. The order attached a
document titled "DOCUMENTS AND THINGS TO BE PRODUCED," listing 15
categories of requested documents, including (for the past five years) all of the Institute's
bank records, federal and state tax returns, deposit accounts, business books and records,
financial statements, documents from the California Employment Commission, sales tax
documents, retirement plan information, and credit card statements.
This document request read in full:
"All discoverable documents in your possession, custody, or control
relating or relevant to any assets in which [Molina] may hold,
including but not limited to any interest in [the Institute], and which
might be used to satisfy the Judgment entered in this cause,
including but not limited to the originals or true and correct copies of
the following items:
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"1. Any and all checkbooks, cancelled checks, account statements,
deposit slips or trust vouchers for any and all bank accounts,
wherever situated, existing for the benefit of or in the name of [the
Institute] individually, jointly, beneficially or in trust with any other
individuals or entities for the past five (5) years.
"2. Any and all income tax returns, gift tax returns, estate tax returns,
partnership information returns, or other tax returns, whether state or
federal, filed by or signed in any capacity by [the Institute],
individually or jointly with any other individuals or entities, whether
such returns be individual or as a corporation, for the past five (5)
years, including any estimates of income tax and any and all records
of taxable income from any of these individuals or entities during the
current tax year and any other years for which such returns have not
yet been filed.
"3. Any and all contracts, partnership agreements, limited
partnership agreements, or any other agreements, of whatever kind
or character, entered into by [the Institute]—Individually or jointly
with [Molina], for the performance of services or other acts for
which is in any way possible that [Molina] will or may receive any
compensation or any other thing of value for such services for the
past five (5) years.
"4. Any and all check books, cancelled checks, account statements,
deposit slips, pass books trust vouchers, and all other written
documentation of the existence of any and all bank accounts, savings
accounts, trust folios, credit union deposits, certificates of deposit, or
safety deposit boxes in which funds or real or personal property or
any other assets, of whatever kind or character, in any way relating
to the business operations or personal finances of [the Institute] have
been deposited, kept, or maintained, withdrawn or otherwise
recorded in any manner at anytime during the past five (5) years.
"5. Any and all books or records, of whatever kind or character,
maintained by [the Institute's] agents, attorneys, business manager,
accountants or other representatives, in any way reflecting the
financial condition of [Molina] or any entity in which [Molina] has
ever participated as an officer, director, owner, or member,
including, but not limited to notes payable, notes receivable,
accounts receivable, accounts payable, financial statements, periodic
4
and annual income statements, balance sheets, cash receipts and
disbursement journals, profit and loss Statements, general ledgers,
statements of changes in financial position, statements of changes in
shareholders' equity, and any and all other financial information in
any way relating to any of [Molina's] individual or personal finances
during the past five (5) years.
"6. Any statement of the financial condition of [the Institute]
furnished or exhibited to any person, institute or business
organization during the past two (2) years.
"7. All franchise tax returns, filed in the name of [the Institute].
"8. All documents filed with the Internal Revenue Service,
including, but not limited to, IRS Form 941, pertaining to quarterly
earnings, tax withholdings, FICA withheld, and the portion of FICA
withheld on behalf of [the Institute].
"9. All documents filed with the California Employment
Commission filed by [The Institute] on behalf of [Molina] for
Unemployment Tax paid to the State of California.
"10. All documents filed with the Internal Revenue Service by [the
Institute] on behalf of [Molina], including, but not limited to, IRS
Form 941, pertaining to Federal Unemployment Tax.
"11. All documents filed with the State of California by [the
Institute] on behalf of Defendant pertaining to Sales Tax collected.
"12. All documents by [the Institute] relating to the current status of
Defendant including, but not limited to, open bank accounts, deeds,
accounts receivable, accounts payable, and rental of office space and
equipment.
"13. The documents evidencing all IRA, SEPP, Keogh, 401K,
403B, Roth, or other retirement plans held by or for benefit of
Defendant, including but not limited to all statements pertaining to
any such accounts for the past four (4) years.
"14. The documents evidencing Defendant's contributions to any
IRS 529b plans during the preceding five (5) years.
5
"15. With regard to every credit card and bank card owned or
controlled by [the Institute] that Defendant has used during the
preceding five (5) years, the monthly billing statements for each
such card pertaining to that time period."
On May 10, 2017, the Institute's counsel notified Finance it would not provide
"information about the Institute's finances outside of that which directly relates to Ms.
Molina's compensation." The Institute's counsel attached a letter from the Institute's
accounting manager addressed to Molina, stating Molina was "not permitted to
disseminate any information not directly related to your compensation without Board
approval."
Two days later, Molina appeared at a debtor examination on behalf of the Institute,
and said that after her November 2015 examination, her job title changed and she was
now the Institute's chief executive officer (CEO). She said she had retained her instructor
duties, and her current compensation consisted solely of $4,900 rental payments to her
landlord (a slight increase from the former monthly payments). She said the Institute also
reimburses her for business travel (which involves primarily teaching classes in various
locations). She denied any ownership interest in the Institute, and said the Institute no
longer pays for her insurance or any other benefits. She identified the location of the
Institute's bank accounts; testified that the Institute was governed by an independent
board of directors; and said she did not have the authority to write checks or use the
Institute's credit card.
The Institute produced only two documents responsive to Finance's document
request: (1) an unsigned two-page agreement ("Work Agreement") dated March 3, 2012,
6
between Molina and the Institute setting forth the terms of Molina's services and
compensation, including that the Institute would pay Molina $4,500 in "monthly
residence lease payment[s]"; and (2) a four-page list purporting to show the monthly
rental payments to Molina's landlord from mid-2012 through 2016. Molina said she did
not bring any other documents responsive to the document request under directions from
the Institute's officers and attorneys.
About two weeks later, Finance applied for an order compelling the Institute to
produce the requested documents. In support, Finance submitted the declaration of its
counsel, David Dufek, who claimed that during Molina's November 2015 debtor
examination, she "lied under oath" concerning "her relationship with [the Institute]."
Dufek said that given Molina's (unspecified) misrepresentations and the fact Molina
testified she has no assets other than wages paid by her employer, Finance "need[s]" the
requested documents to determine the true amount of Molina's compensation and "the
actual amount and location of [Molina's] assets that are being held by her in the hands of
her 'employer.' " He said that without these business records, "there is simply no way to
determine what assets are available from [Molina's] employer to satisfy the judgment."
Dufek alleged "based upon . . . information and belief" that the Institute "is actively
assisting [Molina] to conceal her assets . . . ."
In the application, Finance also said that in September 2016 it had served the
Institute with an earnings withholding order, but the Institute had failed to comply by
garnishing Molina's wages (the admitted monthly rent payments). Finance requested the
7
court to direct the Institute to pay the outstanding amount due under this order, which it
calculated to be $9,800. Finance argued that the court had the authority to order the
Institute to pay this amount under section 780.180, subdivision (a), which provides a
procedure for a court to determine the validity of a judgment creditor's claim against a
third party under certain circumstances. Finance also asked the court to order that the
Institute comply with the wage assignment order in the future by paying Finance $1,225
every month (based on Molina's admitted $4,900 current monthly wages).
In opposition to the motion, the Institute argued: (1) the document requests exceed
the permissible scope for a third party examination; (2) it had never been served with an
earnings withholding order; and (3) Finance's claims that the Institute is assisting Molina
to conceal her assets were unsupported.
The Institute proffered the supporting declaration of its corporate secretary,
Elizabeth Gonzalez, who said the Institute is an Ohio corporation headquartered in San
Diego, and was formed in August 2009. She said the Institute "is an independent, not-
for-profit corporation which trains and certifies tax professionals in the philosophy of
proactive tax planning. The organization . . . administers the Certified Tax Coach
designation, . . . [and] offers a network of resources, ongoing education, and joint venture
opportunities to its members."
Gonzalez attached to her declaration a copy of the most recent Statement of
Information filed with the California Secretary of State. The document identified the
Institute's officers as Molina (CEO), Gonzalez (secretary), and Linda Webb (treasurer).
8
Gonzalez said Molina was not an authorized signer on the Institute's bank accounts or
credit card. She identified the six individuals who are current members of the Institute's
board, and said "[t]he board meets on a regular basis . . . to discuss and decide on matters
relating to the [Institute's] affairs . . . , including all legal matters . . . ." Gonzalez said
Molina is expected to "carry out board decisions on a day-to-day basis." Gonzalez also
said Molina is not compensated for her services as an officer, and that she is paid for her
instructor duties solely in the form of rental payments and reimbursement for travel
expenses. Gonzalez said that other than the two produced documents (the Work
Agreement and the rental payments printout), the Institute "does not have any other
documents pertinent to Ms. Molina's compensation in its care, custody and control."
On the wage assignment order, Gonzalez said: "[The Institute] has no record of
ever having received a wage garnishment order regarding Ms. Molina in September 2016
or at any other time. . . . Had [the Institute] received such a wage garnishment order, it
would have responded, but none was received."
In reply, Finance produced a copy of the proof of service reflecting the sheriff's
service of the earnings-withholding order to an individual at the Institute's address.
Finance also confirmed it was not seeking the documents on an alter ego theory, stating it
"does not dispute that [the Institute] is an entity separate from Molina"; it has never
raised the alter ego issue; and was not presenting the "alter ego theory as a basis for
granting the order to compel."
9
After a brief hearing (not recorded by a court reporter), the court entered a written
order granting Finance's motion to compel production of the documents. The court first
noted that Molina has been "lead[ing] the judgment creditor on a merry chase while
paying zero toward satisfaction of the judgment." The court then stated: "Generally
speaking, the rules of decision are set forth in . . . section 708.110 [et seq.] [¶] . . . [¶]
The motion is granted in full. [The Institute] is ordered not later than August 29, 2017,
to produce for inspection and copying all of the demanded documents. In the event [the
Institute] contends there are no responsive documents, [the Institute] must so state, in
writing and under oath, and state the reason there is no responsive document, on a
category by category basis. This statement under oath must be subscribed by a duly
authorized corporate representative other than the judgment debtor." (Italics added.) In
this order, the court did not rule on Finance's request to enforce the wage garnishment
order.
The Institute filed a notice of appeal on August 21, 2017, one week before the
document production deadline.
DISCUSSION
I. Appealability
The existence of an appealable judgment or order is a jurisdictional prerequisite to
an appeal. (Jennings v. Marralle (1994) 8 Cal.4th 121, 126.) The right to appeal is
"wholly statutory." (Dana Point Safe Harbor Collective v. Superior Court (2010) 51
10
Cal.4th 1, 5 (Dana Point).) A trial court's order is appealable only when a statute permits
the appeal. (Ibid.; Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 696.)
Section 904.1, subdivision (a)(2) provides that an order made after an appealable
judgment is itself appealable. Interpreting this code section, the California Supreme
Court has recognized certain prerequisites to the appealability of postjudgment orders: (1)
the issues raised by the postjudgment order must be different from those arising from an
appeal from the judgment; (2) the order must either affect the judgment or relate to it by
enforcing it or staying its execution; (3) the underlying judgment must be final; and (4)
the challenged order must be a final determination of the rights of the parties and not be
appealable as part of later proceedings. (See Lakin v. Watkins Associated Industries
(1993) 6 Cal.4th 644, 651 & fn. 3, 652-656 (Lakin).)2
The parties do not dispute that this appeal satisfies the first three prerequisites.
But they disagree whether the fourth element is met. Finance contends the challenged
order is not a final determination of the parties' rights because "it is abundantly clear that
it is unclear whether the trial court . . . will be required to issue further discovery orders."
The Institute responds that there are "no further rulings which the court could make
regarding the [document production] compliance order, and therefore, [the Institute] is
entitled to appeal and challenge the merits of the trial court's decision." Based on the
2 The Lakin court primarily discussed the fourth (finality) element in the context of
analyzing the second element (order must "affect" or "relate" to judgment). But for
purposes of clarity, we find it helpful to describe these factors as separate elements.
11
California Supreme Court's definition of finality in the context of appealable orders, we
conclude the Institute is correct.
A. Judicial Decisions on Appealability of Postjudgment Third Party Discovery Orders
Before we discuss the California Supreme Court authority, we note this is not the
first time our court has addressed the issue of appealability of postjudgment third party
discovery orders in judgment enforcement proceedings. Five years ago, this court issued
two opinions six days apart by different panels that reached different conclusions on this
issue. (Macaluso v. Superior Court (2013) 219 Cal.App.4th 1042 (Macaluso); Fox Johns
Lazar Pekin & Wexler v. Superior Court (2013) 219 Cal.App.4th 1210 (Fox Johns).)
First, in Macaluso, the trial court issued a postjudgment order compelling a third
party to answer questions at a judgment debtor examination and comply with a subpoena
duces tecum by producing documents in the judgment enforcement proceeding.
(Macaluso, supra, 219 Cal.App.4th at p. 1049.) Instead of complying with the order, the
third party appealed. (Ibid.) In response, the trial court entered an order to show cause
regarding contempt, finding the order was not appealable and therefore the appeal did not
deprive the court of jurisdiction to enforce its order. (Id. at pp. 1046-1047.) The third
party filed a writ petition seeking to stay the proceeding pending the appeal. (Id. at p.
1047.) The Macaluso court issued an order to show cause, and considered "the narrow
issue of whether the order was an appealable order within the meaning of section 904.1,
subdivision (a)(2)." (Id. at p. 1045.)
12
Relying primarily on two California Supreme Court decisions, Lakin, supra, 6
Cal.4th 644 and Dana Point, supra, 51 Cal.4th 1, the Macaluso court held the order
compelling a third party to produce requested documents "was a final order from which
an appeal may be taken." (Macaluso, supra, 219 Cal.App.4th at p. 1049.) The court
noted the challenged order "direct[ed] [the third party] to perform an act—to produce
records claimed to be confidential or privileged" that was "not subject to further
resolution in future proceedings." (Ibid.) Analogizing the case to Dana Point (which
concerned the finality of a legislative subpoena order), the court stated the order
compelling production "represented a final determination that overruled the subpoenaed
party's objections to the document request and mandated that the materials described in
the subpoena be produced . . . ." (Macaluso, at p. 1049.) The court stressed that the
order "left no issue for future consideration except the subpoenaed party's compliance or
noncompliance with the terms of the order." (Ibid.) The court alternatively found the
order was appealable under the collateral order doctrine. (Macaluso, supra, 219
Cal.App.4th at p. 1049; see Smith v. Smith (2012) 208 Cal.App.4th 1074, 1084.)
Six days later, a different panel of this court filed Fox Johns, in which a third party
(the debtor's law firm) appealed an order requiring it to appear and produce documents as
a third party witness in a judgment debtor examination. (Fox Johns, supra, 219
Cal.App.4th at pp. 1214-1215.) The Fox Johns court found the order was not appealable
(but reached the merits and granted relief by treating the appeal as a writ petition). (Id. at
pp. 1215-1218.)
13
On the appealability issue, the Fox Johns court agreed with the judgment creditor's
arguments that the orders were "preliminary orders pertaining to discovery, adjudicate[d]
no rights, and thus are not appealable." (Fox Johns, supra, 219 Cal.App.4th at p. 1215.)
The court did not discuss California Supreme Court decisions on the appealability/finality
issues (e.g. Lakin and Dana Point), and instead relied on two older Court of Appeal
decisions, Rogers v. Wilcox (1944) 62 Cal.App.2d 978 (Rogers) and Ahrens v. Evans
(1941) 42 Cal.App.2d 738 (Ahrens). Quoting Rogers (which concerned documents
sought from the debtor and not from a third party witness), the Fox Johns court stated the
discovery "orders were 'one of the steps taken in the course of a proceeding to obtain'
information pertaining to a judgment debtor's assets. [Citation.] '[They] did not
constitute . . . final order[s]. A court should not be interrupted in the exercise of its
jurisdiction until its judgment has become final. Error in the course of a proceeding does
not warrant a review.' " (Fox Johns, at p. 1215.) The Fox Johns court cited Ahrens
(which did involve a third party witness) in support of its additional observation that a
postjudgment order denying a motion to quash a subpoena duces tecum is not appealable.
(Fox Johns, at p. 1216.) The Fox Johns court rejected the appellants' argument that
Rogers and Ahrens are no longer viable law because they were decided under a former
version of section 904.1. (Fox Johns, at p. 1216.)
With respect to the Macaluso decision, Fox Johns stated in a footnote: "We are
aware of the recent opinion from this court issued after oral argument here, wherein the
court held that a third party may appeal an order overruling all of the third party's
14
objections to the subpoena and granting a motion to compel compliance with the
subpoena. . . . We think the better approach here, on the unique facts before us where it
is not clear if the superior court will be issuing further orders regarding the very
discovery at issue, is to treat the appeal like a petition for writ of mandate." (Fox Johns
supra, 219 Cal.App.4th at p. 1218, fn. 4.)
Four years later, the Second District Court of Appeal considered an issue similar
to that raised in Macaluso and Fox Johns concerning the appealability of a postjudgment
discovery order directed to a third party in judgment enforcement proceedings.
(Yolanda's, Inc. v. Kahl & Goveia Commercial Real Estate (2017) 11 Cal.App.5th 509,
512-513 (Yolanda's).) The Yolanda's court examined Fox Johns and Macaluso, and
noted the "opposite results" reached in these decisions. (Yolanda's, at p. 512.) The court
also discussed Fox Johns's attempt to distinguish its case from Macaluso, but said this
"distinction escapes us." (Yolanda's, at p. 513.) Without extended reasoning, the
Yolanda's court then stated that it agreed with the result in Fox Johns and concluded the
discovery order before it was not appealable. (Yolanda's, at p. 513.) The court said:
"Because it is rarely certain whether the trial court will be issuing further discovery
orders, the better approach in general is to treat such orders as not appealable. Allowing
an appeal of each discovery order will invite unnecessary delay and facilitate the
concealment of assets. So we join our colleagues in Fox Johns and part company with
them in Macaluso." (Ibid.) The court then decided to treat the appeal as a petition for
writ of mandate. (Ibid.)
15
B. Evaluation of Appealability of Postjudgment Third Party Discovery Orders
We agree with Yolanda's that it can be difficult to fully harmonize Macaluso and
Fox Johns. Additionally, even if there was a logical way to do so, the different
approaches to resolving a similar appealability issue leaves uncertainty in the law.
Viewing the language of each opinion, a reasonable practitioner seeking to challenge a
third party discovery order in judgment enforcement proceedings would have some
reasonable doubt as to whether an appeal is required or whether a writ petition is the sole
review vehicle.
Thus, we think it helpful to provide additional clarification on the issue. In doing
so, we note that although the Yolanda's court's observations regarding the benefits of the
Fox Johns approach arguably make sense as a policy matter, the issue before us is
statutory and not an issue that can be determined based on policy choices or perceived
better outcomes. Certainly, there are policies on both sides of the issue as to whether a
postjudgment order compelling a third party to produce documents as part of a judgment
enforcement proceeding should be appealable or whether the order can be immediately
challenged only by a writ petition. For example, although an appeal pertaining to third
party discovery orders could cause unnecessary delays in judgment enforcement, a
conclusion that a discovery production order is not appealable because other proceedings
might take place could forever eliminate the third party's appeal rights. Evaluating these
policy outcomes is for the Legislature. Our role is to construe and apply the relevant
appealability statutes, as they have been interpreted by our high court.
16
We thus start with the language of the statute. Section 904.1, subdivision (a)
states in relevant part: "An appeal, other than in a limited civil case, may be taken from
any of the following: [¶] (1) From a judgment [with certain exceptions]. . . . [¶] (2) From
an order made after a judgment made appealable by paragraph (1)."
Interpreting these provisions, the Lakin court held a postjudgment order denying
attorney fees under former section 2033, subdivision (o) was an appealable order. (Lakin,
supra, 6 Cal.4th at p. 656.) In reaching this conclusion, the court discussed the prior
judicial requirement that for a postjudgment order to affect or relate to the judgment and
thus be appealable, it must add to or subtract from the judgment. (Id. at pp. 651-653.)
The Lakin court ultimately decided the reasoning underlying this rule is "incomplete" and
does not necessarily apply in all situations, stating a court should instead more broadly
focus on the relationship between the challenged order and the judgment, including
whether the order is "preliminary to a later judgment." (Id. at pp. 652, 654.) The high
court explained this concept by discussing various decisions that have held postjudgment
orders nonappealable (such as those pertaining to record preparation and new trial
motions), and observed: "All these 'postjudgment' orders lacked finality in that they were
. . . preparatory to later proceedings. To hold these orders 'nonappealable' merely
postponed their appeal until the conclusion of later proceedings; it did not deny it
altogether." (Id. at p. 653.) The court distinguished these decisions from those finding
orders appealable because they were " 'necessarily a final determination of the matter,'
eliminating the possibility of appeal." (Ibid.) Applying these principles, the Lakin court
17
concluded "the [postjudgment] order here in issue . . . is a postjudgment order that
affects the judgment or relates to its enforcement because it determines the rights and
liabilities of the parties arising from the judgment, is not preliminary to later
proceedings, and will not become subject to appeal after some future judgment." (Id. at
p. 656, italics added.)
Seventeen years later, the California Supreme Court was presented with an issue
concerning the appealability of an order compelling compliance with a legislative
subpoena. (Dana Point, supra, 51 Cal.4th 1.) The Dana Point court found the order was
appealable, rejecting the respondent's arguments that the order was analogous to a
prejudgment discovery order and thus not final. (Id. at p. 13.) Although the order at
issue in Dana Point was not a postjudgment order, the court's discussion of finality
provides helpful guidance in this case.
The high court began by discussing the meaning of a "final" order or judgment for
purposes of appeal: " ' "As a general test . . . it may be said that where no issue is left for
future consideration except the fact of compliance or noncompliance with the terms of the
first decree, that decree is final, but where anything further in the nature of judicial action
on the part of the court is essential to a final determination of the rights of the parties, the
decree is interlocutory." ' " (Dana Point, supra, 51 Cal.4th at p. 5.) Under this test, Dana
Point found the order compelling compliance with the subpoena was final, explaining:
"We have repeatedly held that judgments are final when they leave nothing to the party
against whom judgment is rendered except to comply. . . . The order here does exactly
18
that. It concludes that the [appealing parties] must respond to the subpoenas, subject to a
protective order. At no time does the order contemplate future proceedings nor otherwise
indicate that it is not final. Thus, the order is final for purposes of appeal." (Id. at p. 11,
italics added.)
Of additional significance here, the high court rejected the respondent's argument
that the orders were not final "based on the potential for future actions or proceedings."
(Dana Point, supra, 51 Cal.4th at p. 12.) The court reasoned: "The order directs
[appellants] to comply with the subpoenas, thus representing a rejection by the trial court
of the various grounds advanced by the [appellants] . . . for refusing to turn over the
records. Whether or not the parties haggle over the existence of a particular document
does not undermine the finality of the order. Nor does the possibility that the [appellants]
might simply defy the order and persist in refusing to turn over the records. Similarly,
the possibility of further proceedings regarding the scope of the protective order does not
affect the finality of the order. . . . '[T]he question of future compliance . . . is present in
every judgment' [citation], and if the potential for the sort of future proceedings described
here were the standard for assessing finality, few judgments would ever be final." (Id. at
pp. 12-13.)
Relying on Lakin and Dana Point, the Macaluso court found the order compelling
a third party to produce documents in a judgment enforcement proceeding was
appealable. (Macaluso, supra, 219 Cal.App.4th at pp. 1047-1050.) The court reasoned:
"We perceive no meaningful distinction between the compliance order [in] Dana Point
19
. . . and the order from which Macaluso appealed: both orders represented a final
determination that overruled the subpoenaed party's objections to the document request
and mandated that the materials described in the subpoena be produced, and both orders
left no issue for future consideration except the subpoenaed party's compliance or
noncompliance with the terms of the order." (Id. at p. 1049.) The court emphasized that
without treating the order as appealable, Macaluso's appellate rights would likely be
extinguished: "Here Macaluso was not a party to an ongoing lawsuit from which he
might later be able to appeal and challenge the merits of the ruling on his objections to
the subpoena, and the order was not preparatory to a later ruling that would be
encompassed in a final judgment from which Macaluso could have appealed. Instead, the
order was a final determination that Macaluso was obligated to produce certain
documents, and 'no issue is left for future consideration except the fact of compliance or
noncompliance with the terms of the [order]. . . . [U]nder Lakin and Dana Point, the
order was appealable." (Id. at p. 1050.)
C. Analysis and Conclusion on Appealability Issue
Considering together Lakin and Dana Point, and consistent with both Macaluso
and Fox Johns, the key test for finality of a third party discovery order in enforcement
proceedings is whether the challenged order reflects a final determination of the rights or
obligations of the parties or whether it contains language showing it is preparatory to a
later ruling that will be embodied in an appealable judgment or order. (Dana Point,
supra, 51 Cal.4th at pp. 5-13; Lakin supra, 6 Cal.4th at pp. 652-656; Macaluso, supra,
20
219 Cal.App.4th at pp. 1047-1050; Fox Johns, supra, 219 Cal.App.4th at p. 1218, fn. 4.)
Under this standard, the challenged order here is a final determination of the rights
between the Institute and Finance regarding the discovery at issue. The order on its face
is final. It fully resolves the issue regarding the required disclosure of all requested
documents, and does not reserve any issues for later determination. As in Lakin, there is
no showing the order is "preliminary to later proceedings" or will "become subject to
appeal after some future judgment." (Lakin, at p. 656.) As in Dana Point and Macaluso,
the fact there may be additional orders relating to the enforcement or scope of the
required document production does not mean this discovery order is not a "final"
appealable order.3 (Dana Point, at pp. 12-13; Macaluso, at pp. 1048-1049.)
Fox Johns does not compel a contrary result. In footnote 4, the Fox Johns court
described the facts before it as "unique" because it was "not clear if the superior court
will be issuing further orders regarding the very discovery at issue . . . ." (Fox Johns,
supra, 219 Cal.App.4th at p. 1218, fn. 4, italics added.) This observation makes sense
because portions of the court's challenged orders pertained to the general scope of the
third party debtor examination, rather than any specific inquiries.
But to the extent the Fox Johns court suggested a discovery order compelling a
third party to disclose documents in a judgment enforcement proceeding is never
3 Although not raised by Finance in support of its appealability challenge, we are
aware there may be further orders on the wage garnishment issue. However, any such
orders would be independent and collateral to the document production order, and thus
would not preclude a finding of appealability of the current challenged order.
21
appealable until the debtor and creditor's disputes have been fully resolved or when there
is a mere possibility of future orders, we decline to adhere to this holding. Fox Johns
based its conclusion on two Court of Appeal decisions from the 1940's that we find
unhelpful on the issue before us. (Fox Johns, supra, 219 Cal.App.4th at pp. 1215-1216;
see Rogers, supra, 62 Cal.App.2d 978; Ahrens, supra, 42 Cal.App.2d 738.)
Rogers concerned an order compelling the judgment debtor (not a third party) to
appear at debtor examination, which presents different finality issues. (Rogers, supra, 62
Cal.App.2d at p. 979.) Unlike a document production order against a third party, an order
compelling the judgment debtor's attendance at an examination or to compel the debtor to
produce documents can be reasonably viewed as an intermediate step to enforcing the
judgment against that judgment debtor. (See SEC Acquisitions, Inc. v. Superior Court
(2015) 243 Cal.App.4th 741, 749-750 (SEC Acquisitions) [distinguishing appealability
issues with respect to orders against debtor with those against third parties].)
Although Ahrens concerned a discovery order pertaining to a third party in
judgment enforcement proceedings, the decision is unpersuasive. (Ahrens, supra, 42
Cal.App.2d 738.) The Ahrens court relied exclusively on a 1919 Court of Appeal
decision involving a debtor (not a third party) (see Frost v. Superior Court (1919) 41
Cal.App. 580), and neither the Fox Johns court nor the Ahrens court considered the
distinctions between the two situations. (See Julian v. Glenair, Inc. (2017) 17
Cal.App.5th 853, 871, fn. 8 [case not authority for issues not considered].) Additionally,
Ahrens's viability is subject to doubt as the court did not have the benefit of the more
22
recent California Supreme Court authority on finality principles for purposes of
appealability.
The order compelling the Institute to produce the requested documents is
appealable. We thus turn to the merits of the Institute's challenge to the court's document
production order.
II. Document Production Order
The Institute contends the court erred in ordering it to produce documents
unrelated to Molina and/or its debts owed to her.
A. Section 708.120
Section 708.120 governs a creditor's right to obtain information from a third party
in judgment collection proceedings: "Upon ex parte application by a judgment creditor
who has a money judgment and proof by the judgment creditor 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 two hundred fifty dollars ($250), the court shall make an
order directing the third person to appear before the court, or before a referee appointed
by the court, at a time and place specified in the order, to answer concerning such
property or debt. The affidavit in support of the judgment creditor's application may be
based on the affiant's information and belief." (§ 708.120, subd. (a).)
After deciding to treat the appeal as a writ petition, the Fox Johns court resolved
issues concerning the scope of discovery under this code section. (Fox Johns, supra, 219
23
Cal.App.4th at pp. 1218-1223.) Interpreting the statutory language, the Fox Johns court
held that section 708.120 limits third party discovery in judgment enforcement
proceedings to questions pertaining to the third party's control or possession of " 'property
in which the judgment debtor has an interest' " or money "owe[d] [to] the judgment
debtor." (Id. at p. 1220.) The Fox Johns court thus determined the trial court erred when
it ordered the debtor's attorney to answer questions and to produce documents pertaining
to client billings, payments on these billings, and entities that may be related to the client.
(Id. at pp. 1220-1223.) The court found these matters were unrelated to any of the client's
property in the attorney's possession or debts owed to the client, and thus were
unauthorized under section 708.120.
We agree with Fox Johns's reasoning and conclusion on the scope of third party
discovery in judgment enforcement proceedings. Under section 708.120, a creditor is
entitled to examine a third party if it convinces the court that the "third person has
possession or control of property in which the judgment debtor has an interest or is
indebted to the judgment debtor." If this showing is made, "the court shall make an order
directing the third person to appear . . . to answer concerning such property or debt."
(§ 708.120, italics added.) Under its plain meaning, this statutory language provides the
trial court with the authority to permit a creditor to seek information regarding the
existence of the debtor's property in the third party's possession and/or a debt owed to the
debtor. A third party document subpoena must therefore be limited to "confirm[ing] the
24
existence of the subject property [and/or] debt." (Fox Johns, supra, 219 Cal.App.4th at p.
1222.)
In this case, the order compelling production of the requested documents exceeded
the statute's scope. Finance sought all of the Institute's business, tax, and bank records
during a five-year period. The court essentially ordered the Institute to produce every
single sheet of paper (or computer document) that the Institute (or its agents) have
produced or maintained over the past five years without any limitation for documents that
are relevant to Molina or assets in which she has an interest or any debts owed to her.
Finance acknowledged that it was not seeking documents to support an alter ego theory,
and it was requesting the information solely to determine the existence or location of
Molina's assets, including property or outstanding debts owed to her. On this record, the
court did not have the authority to require Institute to produce all of its documents
regardless of their relevance to Molina.
Finance argues that Fox Johns is distinguishable because that case involved a
document request to the debtor's attorneys, and sought information about the law firm's
third party clients. This factual distinction does not mean the document production order
here was proper. As in Fox Johns, the order "permit[ted] discovery far beyond what
section 708.120 allows." (Fox Johns, supra, 219 Cal.App.4th at p. 1222.)
B. Finance's Additional Asserted Grounds for Document Production Order
In its respondent's brief, Finance makes no real attempt to suggest the ordered
document production fell within section 708.120's third party discovery rules. Instead, it
25
argues the court's order was appropriate under other statutes and/or the court's equitable
authority. (See §§ 708.130, 708.180, 187.) In Fox Johns, we rejected similar arguments,
finding section 708.120 "defines the scope of the examination of a third party." (Fox
Johns, supra, 219 Cal.App.4th at p. 1220.) We thus specifically limited "what the third
party could be questioned about during the examination" and the documents that could be
requested from the third party. (Id. at p. 1221.) On our review of the cited statutes and
section 708.120's plain language, we adhere to this legal conclusion. As explained
below, Finance's reliance on sections 708.130, 708.180, and 187 is misplaced.
Section 708.130
Section 708.130 provides generally that witnesses in a judgment debtor
examination may appear and testify "in the same manner as upon the trial of an issue."
Finance argues that this code section allowed it to conduct the type of broad discovery
permitted under prejudgment discovery rules. We disagree. Under settled statutory
interpretation principles, section 708.130 does not expand a court's powers to order third
party discovery under section 708.120. (See Fox Johns, supra, 219 Cal.App.4th at p.
1220-1221.) Otherwise, there would have been no need for section 708.120. Because
section 708.130 is a general statute pertaining to the conduct of a debtor's examination,
and section 708.120 provides specific rules regarding the scope of discovery against a
third party in judgment enforcement proceedings, section 708.120 governs the court's
discovery order here. (See State Dept. of Public Health v. Superior Court (2015) 60
26
Cal.4th 940, 960-961; Lake v. Reed (1997) 16 Cal.4th 448, 464; People v. Bussey (2018)
24 Cal.App.5th 1056, 1063.)
Section 708.180
Section 708.180 sets forth a procedure that permits a court to make factual
findings on the validity of a third party's claim to an interest in property adverse to the
judgment debtor and/or a third party's denial of a debt owed to the judgment debtor.4
(See Evans v. Paye (1995) 32 Cal.App.4th 265, 276-280 (Evans).) In the proceedings
below, Finance did not rely on this statute to seek the documents from the Institute. It
requested the court to exercise its authority under section 708.180 only to order the
Institute to pay amounts due under Finance's wage garnishment order. As the court was
not asked to order discovery under section 708.180 and there is no indication it did so, we
cannot affirm the court's discovery order on this basis.
Moreover, even had Finance asserted section 708.180 as grounds for the discovery
order, it would not change our conclusion in this case. The Legislature enacted section
708.180 to provide a "less cumbersome" enforcement procedure (as compared to an
4 Section 708.180 provides in relevant part: "(a) Subject to subdivision (b), if a
third person examined pursuant to Section 708.120 claims an interest in the property
adverse to the judgment debtor or denies the debt, the court may, if the judgment creditor
so requests, determine the interests in the property or the existence of the debt. The
determination is conclusive as to the parties to the proceeding and the third person, but an
appeal may be taken from the determination. The court may grant a continuance for a
reasonable time for discovery proceedings, the production of evidence, or other
preparation for the hearing. [¶] (b) The court may not make the determination provided
in subdivision (a) if the third person's claim is made in good faith and [a statutory
condition] is satisfied . . . . "
27
independent creditor's suit) when a third party in bad faith claims an interest in the
debtor's property or denies a debt owed by the third party to the debtor. (Evans, supra,
32 Cal.App.4th at p. 276.) As explained by the Evans court, "section 708.180 expressly
authorizes the trial court, in a hearing outside the framework of a creditor's suit, to
determine whether the third person in fact [has an interest in the debtor's property or]
owes money to a judgment debtor, unless the court finds the third person's" claims or
denials are "made in good faith" and a statutory condition is satisfied. (Id. at p. 280.)
"The third person is afforded due process in a section 708.180 hearing by its provision
giving the court discretion to grant a continuance for discovery, the production of
evidence, or other preparation for the hearing." (Ibid.)
Finance's suggestion that the court's document production order was proper under
the broad discovery provisions of section 708.180 is without merit because the Institute
has not claimed an interest in any of Molina's property or identified a debt owed to
Molina. If Institute later does so, Finance would have the right to bring a motion to
trigger a section 708.180 hearing. At that point, both parties would be entitled to conduct
further discovery on the relevant issues and have additional time to prepare for the
hearing. Finance's request for discovery from the Institute preliminary to any section
708.180 procedure cannot be justified by the rules governing a section 708.180 hearing.
Section 187
Section 187 states: "[I]n the exercise of [the court's] jurisdiction, if the course of
proceeding be not specifically pointed out by this Code or the statute, any suitable
28
process or mode of proceeding may be adopted which may appear most conformable to
the spirit of this Code." (Italics added; see Citizens Utilities Co. of Cal. v. Superior Court
of Santa Cruz County (1963) 59 Cal.2d 805, 813; Tide Water Associated Oil Co. v.
Superior Court of Los Angeles County (1955) 43 Cal.2d 815, 825-826.) Based on the
Legislature's expressed intent in section 708.120 regarding the defined scope of a third
party debtor's examination, section 187 is inapplicable. Section 187 does not permit a
trial court to ignore statutory limitations on a court's authority. (§ 187; see Fox Johns,
supra, 219 Cal.App.4th at p. 1221 ["To allow for a wider scope of examination . . . , we
would have to read additional language into [section 708.120]. This we cannot do."].)
Relying on Yolanda's and section 187, Finance urges us to adopt a broad reading
of section 708.120. (Yolanda's, supra, 11 Cal.App.5th at pp. 513-515.) The Yolanda's
court said: "[N]othing in section 708.120 states that it is the only procedure available for
examining a third party. In fact, section 708.130 expressly provides otherwise. To the
extent section 708.130 may not apply, there is no reason why the court cannot use its
power under section 187 to fashion an appropriate procedure. The policy of the law
favors the enforcement of judgments. [Citation.] There is no policy favoring the
concealment of the judgment debtor's assets from the judgment creditor." (Id. at p. 515.)
Even assuming compelling reasons support an expansion of third party discovery
in a particular case, we disagree with Yolanda's that courts have the authority to order the
discovery beyond the confines of section 708.120. The decision whether to enlarge a
judgment creditor's rights to obtain discovery is one for the Legislature and not the
29
courts. (See Fox Johns, supra, 219 Cal.App.4th at p. 1221; see also Schechter, Post-
Judgment Examination of Non-Debtor Third Party May Delve Into Alter Ego and
Fraudulent Transfer Issues, Despite Narrow Wording of Statute (Thomson Reuters 2017)
2017-19 Comm. Fin. News NL 38 [noting the conflict between Fox Johns and Yolanda's
on scope of third party judgment enforcement discovery; opining that Fox Johns
"correctly" interpreted "the current statutes"; and concluding that although the result in
Yolanda's reflects better public policy, its approach requires an amendment of the
relevant statutes].) The determination involves the examination and balancing of various
private interests and public policies, a task best left to the legislative arena.
Moreover, Yolanda's is materially distinguishable. In Yolanda's, there was
evidence showing the third party entity was controlled by the debtors, and the person
most knowledgeable of this third party entity testified in his debtor examination regarding
transfers of certain debtor assets, but his counsel refused to allow him to answer
questions about where those assets were located, claiming the questions did not
specifically concern the third party's current possession of the debtor's property or funds
owed to the debtor. (Yolanda's, supra, 11 Cal.App.5th at pp. 511-512.) After the court
ordered the third party to answer the questions based on evidence showing the transfers
were allegedly fraudulent, the third party appealed. The Yolanda's court affirmed,
holding that even if the questions went beyond the scope of section 708.120, "there is no
reason why the court [could not] use its power under section 187 to fashion an
appropriate procedure." (Yolanda's, at p. 515.)
30
The requirement that a third party witness (representing a third party entity
allegedly controlled by the debtor) answer direct questions about specific transferred
property in which the debtor has or had an interest is materially different from requiring a
third party (who is not alleged to be an alter ego of the debtor) to produce every single
piece of business, bank, and tax document for the past five years without any showing of
relevance to the debtor. Accordingly, even if the court here had some form of equitable
powers beyond section 708.120, these powers did not support the expansive order in this
case.
Finally, Finance contends the court's order was within its broad discretionary
authority to rule on discovery matters. (See SEC Acquisitions, supra, 243 Cal.App.4th at
p. 751.) We agree the applicable review standard is highly deferential. (See Bank of
America, N.A. v. Superior Court (2013) 212 Cal.App.4th 1076, 1089.) But this does not
mean the court's ruling was unreviewable. "The scope of the trial court's discretion is
limited by law governing the subject of the action taken. . . . An action that transgresses
the bounds of the applicable legal principles is deemed an abuse of discretion." (SEC
Acquisitions, at p. 751.) In this case, the court erred because its order went beyond the
bounds of its authority.
DISPOSITION
Order reversed. We remand the matter for the court to narrow the document
production order to require production only of those documents pertaining to Molina's
31
compensation, property, or services, and/or the Institute's debts owed to Molina.
Appellant to recover costs on appeal.
HALLER, Acting P. J.
WE CONCUR:
IRION, J.
DATO, J.
32