In re Invensure Ins. Brokers, Inc.

In re INVENSURE INSURANCE BROKERS, INC., Debtor.

Case No. 8:19-bk-11889-SC

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA - Santa Ana Division

March 4, 2020

FOR PUBLICATION

Chapter 11

ORDER AND MEMORANDUM DECISION SUSTAINING DEBTOR'S OBJECTION TO CLAIM #5

Hearing to be vacated:

Date: March 5, 2020

Time: 11:00 a.m.

Place: Courtroom 5C

411 W. Fourth Street

Santa Ana, CA 92701

Before the Court is Debtor's Objection filed October 30, 2019 [Dk. 107] to Claim No. 5. Proof of Claim ("POC") No. 5 was filed on September 22, 2019 by Duncan E. Prince and ERM Insurance Brokers, Inc. ("Claimants" or "Creditors") for $824,710.93, an amount which is comprised of two components: 1) a pre-petition, post-judgment order entered in State Court on May 14, 2019 of $578,847.58 for expert and attorney's fees, and 2) post-judgment interest on that order of $245,863.35.

Debtor does not object to the May 14, 2019 post-judgment order of $578,847.58 for expert and attorney's fees, but objects to Claimants' purported entitlement to post- judgment interest of $245,863.35. Claimant specifies in its POC that the $245,863.35 is based on interest calculated as follows: (1) $245,861.38 is for 10% interest on the May 14, 2019 award of $575,252.60 for expert and attorney's fees beginning from the February 6, 2015 entry of judgment to the date of the filing of the Bankruptcy, May 16, 2019, and (2) $1.97 is for 10% interest on the May 14, 2019 award of $3,595.00 in attorney's fees incurred post-appeal beginning from May 14, 2019 to May 16, 2019.

Claimants filed an opposition on November 27, 2019 [Dk. 132]. Debtor replied on December 5, 2019 [Dk. 137]. On December 12, 2019, the Court conducted a hearing, with Carol Chow, Esq. appearing on behalf of Debtor, and Andrew Weiss, Esq. appearing on behalf of Claimants. Having carefully considered the arguments raised at the hearing and the record as a whole, the Court continued the hearing to March 5, 2020, and ordered the parties to jointly submit additional exhibits related to the State Court litigation and subsequent appeals. Pursuant to a scheduling order entered January 2, 2020 [Dk. 158], the parties were required to file a joint set of exhibits by January 31, 2020.

The Court has received Creditors' Unilateral Lodgment of Exhibits filed January 31, 2020 [Dk. 178] and Debtor's Additional Exhibits filed February 4, 2020 [Dk. 180], and notes that the Court's order requiring joint submittal was not followed, without good cause. Nonetheless, the Court has reviewed all the pleadings and the docket as a whole, and finds good cause to vacate the March 5, 2020, hearing, and enter this order.

For the reasons set forth fully below, the Court hereby finds that Claimants are not entitled to post-judgment interest of $245,863.35. Thus, Debtor's objection is SUSTAINED and Claim No. 5 is reduced to $578,847.58. In reaching its conclusion, the Court's analysis turns on whether post-judgment interest ceased to accrue in light of the Claimants' execution of an acknowledgment of full satisfaction.¹

I. Background

On July 1, 2013, Claimants initiated a civil action against Debtor in Superior Court for the State of California for the County of Orange ("State Court"), captioned Prince v. Invensure Insurance Brokers, Inc., Case No. 30-2013-00638387-CU-BC-CJC. A judgment in favor of Claimants was entered on February 6, 2015.

Pre-judgment Expert Fees²

On February 26, 2015, Claimants submitted their memorandum of costs, which included a request for $134,682.53 in expert witness fees. Debtor filed a motion to tax or strike costs, which sought a complete reduction of the requested expert fees. Claimants filed an opposition, and Debtor subsequently filed a reply. In its minute order dated April 28, 2015, the State Court reduced the requested expert fees by $129,409.58, awarding only $5,272.95 in requested expert fees.

Pre-Judgment Attorney's Fees

On April 10, 2015, Claimants filed a motion seeking $445,843.00 in attorney's fees. Debtor objected, and Claimants filed an opposition. The State Court ultimately decided the issue of attorney's fees in its May 20, 2015 minute order, denying Claimants' motion.

Actions Taken During and After Appeal

Claimants appealed the State Court's orders on attorney's and expert fees, filing a Notice of Appeal on June 18, 2015.³ The Court of Appeal for the State of California issued an opinion dated May 18, 2018, which reversed and remanded both issues. Back in State Court, Claimants filed a motion for reconsideration which sought reversal of the reduction of $129,409.58 in expert fees and $815,729.00 in attorney's fees. The partiesfully briefed the matters, and the State Court conducted a hearing on May 6, 2019. The State Court took the matter under submission and, in its minute order dated May 14, 2019, awarded Claimants $129,409.58 in requested expert fees (which amount was in addition to the originally awarded $5,272.95) and $449,438.00 in requested attorney's fees (which amount was the $445,843.00 previously requested and denied and the $3,595.00 incurred in prosecuting the motion for reconsideration).

The Issue Presently before the Bankruptcy Court

The issue presently before this Court is whether Claimants are entitled to $245,863.35 in post-judgment interest on the May 14, 2019 award of attorney's and expert fees accruing from the dates specified in POC No. 5.

II. The Accrual of Interest on State Court Post-Judgment Awards for State Court Pre-Judgment Costs and Fees stops after execution of an Acknowledgement of Full Satisfaction

The issue of accrual of interest is generally straight-forward. Under California Law, interest in the amount of 10 percent per annum ordinarily begins to accrue on prejudgment costs and attorney's fees upon entry of a state court judgment. Lucky United Properties Inv., Inc. v. Lee, 185 Cal. App. 4th 125, 137-38, 110 Cal. Rptr. 3d 159, 168 (2010), as modified on denial of reh'g (June 28, 2010).

"Generally, when a judgment includes an award of costs and fees, the amount of the award is left blank for future determination. After the parties file their motions for costs and any motions to tax costs, the trial court holds a post judgment hearing to determine the merits of the competing contentions. When the court's subsequent order setting the final amount is filed, the clerk enters the amounts on the judgment nunc pro tunc." Bankes v. Lucas, 9 Cal. App. 4th 365, 369, 11 Cal. Rptr. 2d 723, 725 (1992). "These costs may include attorney fees, if authorized by contract, statute, or law (§ 1033.5, subd. (a)(10)). Most costs are obtained by filing a cost memorandum, although attorney fees require a separate noticed motion (§ 1033.5, subd. (c); Cal. Rules of Court,rule 3.1702)... In other words, the amount of the cost award is incorporated into the judgment." Lucky United Properties Inv., 185 Cal. App. 4th at 137.

The State Court judgment entered on February 6, 2015 left a blank space for costs. Pursuant to the procedure outlined above, Claimants sought expert fees through a memorandum of cost and attorney's fees through a separate motion to be incorporated into the judgment. The foregoing case law would indicate that Claimants are entitled to statutory interest running from the date of the original entry of judgment, February 6, 2015. However, the issue becomes more complicated when, as is the case here, Claimants execute an acknowledgment of full satisfaction of the original judgment and are subsequently awarded additional costs and fees after appeal.

On June 2, 2015, Claimants executed an acknowledgement of satisfaction, indicating that the February 6, 2015 judgment was satisfied in full.⁴ Debtor argues that the acknowledgement of full satisfaction of the February 6, 2015 judgment bars the Claimants from accruing any interest.⁵ While Debtor cited limited authority, the Court conducted further independent research to obtain a full appreciation of the relevant law⁶ and legislative history.

It is well settled, subject to certain exceptions, that a "satisfaction of judgment is the last act and end of the proceedings," and a parties' acknowledgment of satisfaction can terminate their right to recover additional awards made by the court. Brochier v. Brochier, 17 Cal. 2d 822, 825-826, 112 P.2d 602, 604 (1941); see also In re Estate of Baby, 87 Cal. 200, 202-203, (1890).

Further, pursuant to Cal. Civ. Proc. Code § 685.030, "if a money judgment is satisfied in full other than pursuant to a writ under this title, interest ceases to accrue onthe date the judgment is satisfied in full." A trial court may order restitution, upon appropriate motion, where a judgment was paid during a pending appeal, and then the judgment was reversed. Selby Constructors v. McCarthy, 91 Cal. App. 3d 517, 527, 154 Cal. Rptr. 164, 170 (1979). However, that is not the circumstance before the Court in this instance. Claimants did not file a notice of appeal until June 18, 2015, several weeks after executing a full satisfaction of judgment.⁷ Further, there is no evidence to indicate that the satisfaction of judgment has been set aside by appropriate proceedings for proper cause or otherwise vacated. Brochier, 17 Cal. 2d at 825-826.

Pursuant to the plain language of Cal. Civ. Proc. Code § 685.030, and California decisional authority, this Court finds that Claimants' execution of the full satisfaction of judgment stopped any accrual of interest on the post-judgment award.⁸ Thus, Claimants are not entitled to any post-judgment interest on the award of attorney's and expert fees entered on May 14, 2019.

III. While the Court's ruling on the effect of Full Satisfaction ends the discussion, without that final determination, Accrual of Interest would depend on whether the Appellate Decision was a "Reversal" or "Modification" of the State Court Judgment

In the unlikely event that the Court's application of the law above relating to the effect of executing an acknowledgment of full satisfaction of judgment is...