CPF Vaseo Assocs., LLC v. Gray

29 Cal.App.5th 997

240 Cal.Rptr.3d 847

CPF VASEO ASSOCIATES, LLC, et al., Plaintiffs and Appellants,

v.Bruce W. GRAY et al., Defendants and Respondents.

D072909

Court of Appeal, Fourth District, Division 1, California.

Filed December 6, 2018

The Byrne Law Office and John P. Byrne for Appellants.

Dinsmore & Shohl, Joseph Leventhal and Elvira Cortez, San Diego, for Respondents.

DATO, J.

Code of Civil Procedure section 128.5 provides the trial court with a mechanism to sanction certain bad faith actions and tactics.¹ Pursuant to a former version of that section, the trial court ordered CPF Vaseo Associates, LLC (CPF) and its counsel, John P. Byrne, to pay Bruce W. Gray and Barbara Gray (the Grays) just over $30,000 in fees and costs. Yet a mandatory procedural prerequisite to that award was never fulfilled. The motion requesting sanctions was served and filed on the same day, and no safe harbor period was afforded for CPF and Byrne to correct the challenged conduct. While a panel of this court previously determined that no such safe harbor applied to a sanctions motion like the one here, the Legislature's subsequent clarifying amendment of the section and the contrary opinion of another court convince us we must now reach a different conclusion. For that reason, we reverse.

FACTUAL AND PROCEDURAL BACKGROUND

CPF was granted limited provisional remedies in a suit against the Grays in Arizona. Based on that Arizona court order, CPF applied for entry of a sister-state judgment in the San Diego Superior Court under the Sister-State Money Judgment Act (SSMJA). (See §§ 1710.10 et seq.) The clerk of court subsequently entered a judgment for $34,252,215.83 in favor of CPF and against the Grays (the California Judgment). (§ 1710.25.)

Two days after being served with the relevant paperwork, the Grays' Arizona counsel Daniel G. Dowd wrote to CPF's California counsel John P. Byrne to demand withdrawal of the SSMJA application. He explained that the Arizona court order did not constitute a "sister-state judgment" within the meaning of section 1710.10, but rather was limited to specific provisional prejudgment remedies. The letter warned that if no corrective action was taken, the Grays would move to vacate the judgment and seek related attorney's fees and costs. It also explicitly contemplated seeking related sanctions under section 128.7 "given the objectively baseless nature of CPF's actions."

Byrne responded by letter the following day. He disputed the substance of the Grays' position, noted CPF's intent to lien the Grays' California properties, and concluded, "If you obstruct this process, I might suggest that the person and client worrying about sanctions is not my client or my firm." Dowd's subsequent reply asserted that Byrne misunderstood the nature of the Arizona court order. He reiterated the demand for corrective action. Byrne did not respond.

Thereafter, the Grays moved to vacate the California Judgment. (§ 1710.40, subd. (b).) In a separately headed section of their motion, which spanned about a page and a half, the Grays argued for sanctions under former section 128.5, postulating that the SSMJA application "completely lacked legal grounds." They requested "reasonable attorneys' fees in an amount to be determined by the Court upon submission of" a supportive application. CPF filed an opposition that challenged the merits of the Grays' position, but made no arguments specific to the Grays' request for sanctions. The Grays' reply reiterated the sanctions demand.

At the hearing on the motion to vacate, the court initially indicated its tentative ruling to grant the motion to vacate on the ground that the Arizona order was "not a final money judgment." But the court was "disinclined" to order sanctions because (1) a directive in the Arizona order regarding out-of-state enforcement "was somewhat misleading and confusing" and (2) it did not see facts showing this to be "strictly [undue] harassment." The court then invited comments from counsel. Byrne argued the merits only; he did not address the issue of sanctions. Conversely, the Grays' counsel "urg[ed] the court to reconsider its ruling on the issue of sanctions." The court took the matter under submission, indicating it would take another look at the Grays' sanctions argument.

By written ruling issued a few days later (the June 2017 order), the court granted the motion to vacate the California Judgment, denied CPF's request for alternative relief, and granted the Grays' request for sanctions under section 128.5, former subdivision (a). With respect to the sanctions ruling, the court directed the Grays' counsel "to provide forthwith declarations that specify the amount sought and the manner of calculation" and "to prepare the final order, after the amount of sanctions are addressed, for the Court's signature."

A flurry of briefing ensued. CPF's filings generally contested the imposition of sanctions on the ground that no bad faith had been shown. The Grays' filings disputed that position and claimed a specific sum of fees and costs. The court ultimately ordered CPF and Byrne to pay the Grays $30,675.17 in fees and costs.

DISCUSSION

Section 128.5 authorizes sanctions for certain bad faith actions or tactics. (See Nutrition Distribution , LLC v. Southern SARMS , Inc. (2018) 20 Cal.App.5th 117, 123, 228 Cal.Rptr.3d 737 ( Nutrition Distribution ).)² More specifically, former section 128.5 provided the trial court with discretion to "order a party, the party's attorney, or both, to pay the reasonable expenses, including attorney's fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay." (Former § 128.5(a).)

Former section 128.5(f) specified that "[a]ny sanctions imposed" under section 128.5"shall be imposed consistently with the standards, conditions, and procedures set forth in subdivisions (c), (d), and (h) of Section 128.7." The central issue before us is the import of former section 128.5(f)'s cross-reference to section 128.7(c). The first paragraph of section 128.7(c) reads as follows:

"If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence."

The "conditions stated below" are delineated in subdivisions (c)(1) and (c)(2). Section 128.7(c)(1) provides a two-step process with a safe harbor waiting period: The moving party is to serve the sanctions motion on the offending party, but cannot file it with or present it to the court "unless, within 21 days of service of the motion, or any other period as the court may prescribe, the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected." Section 128.7(c)(2) provides a similar safe harbor period applicable when sanctions are sought on the court's own motion.

The safe harbor period is "designed to be remedial, not punitive." ( Li , supra , 177 Cal.App.4th at p. 591, 99 Cal.Rptr.3d 334.) It was "intended to foster compliance ... and to conserve judicial resources otherwise spent adjudicating a sanctions motion by affording a prescribed period of time during which a party may correct or withdraw a frivolous or improper pleading or motion without any penalty." ( Id . at pp. 593–594, 99 Cal.Rptr.3d 334 ; see also Barnes v. Department of Corrections (1999) 74 Cal.App.4th 126, 132, 87 Cal.Rptr.2d 594 ( Barnes ).)

CPF and Byrne argue that, per former section 128.5(f), the Grays were obligated to comply with the safe harbor provision found in section 128.7(c)(1) before moving for sanctions under former section 128.5. They posit that the Grays' failure to comply with this procedural requirement is grounds for reversal of the sanctions order.

We review this claim, insofar as it presents a question of statutory construction, de novo. ( Optimal Markets , Inc. v. Salant (2013) 221 Cal.App.4th 912, 921–922, 164 Cal.Rptr.3d 901 ; Martorana v. Marlin & Saltzman (2009) 175 Cal.App.4th 685, 698, 96 Cal.Rptr.3d 172 ( Martorana ).)

Authority is split on this question—i.e., does the safe harbor provision from section 128.7(c)(1) apply to a former section 128.5 sanctions motion? In June 2016, a panel of this court concluded it did not. (See San Diegans for Open Government v. City of San Diego (2016) 247 Cal.App.4th 1306, 1311, 203 Cal.Rptr.3d 34 ( San Diegans for Open Government ).) As will be explained, however, section 128.5 was subsequently amended as of August 1, 2017, to " ‘clarify the legislative intent,’ " at least partially in light of confusion caused by that very case. (See Nutrition Distribution , supra , 20 Cal.App.5th at p. 129, 228 Cal.Rptr.3d 737, quoting Assem. Com. on Judiciary Analysis of Assem. Bill No. 984 (2017–2018 Reg. Sess.) as amended April 20, 2017, p. 1; see also Nutrition Distribution , at p. 130 & fn. 13, 228 Cal.Rptr.3d 737.) By its express terms, the amendment "applies to actions or tactics that were part of a civil case filed on or after January 1, 2015."³ ( § 128.5, subd. (i).)

With the benefit of the clarified Legislative intent expressed in the amended statute, Division Seven of the Second Appellate District recently reached a different conclusion. ( Nutrition Distribution , supra , 20 Cal.App.5th at p. 130, 228 Cal.Rptr.3d 737.) That court held that "when the motion for sanctions [under section 128.5 is] based on a purportedly frivolous complaint, written motion or court filing that could be withdrawn or on some other alleged action or tactic that could be appropriately corrected, former [ section 128.5 ](f) required the moving party to comply with the safe harbor waiting provisions...