WANKE, INDUSTRIAL, COMMERCIAL, RESIDENTIAL, INC., Plaintiff and Respondent, v. AV BUILDER CORP., Defendant and Appellant.
D074392
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Filed 2/19/20
Timothy B. Taylor, Judge
CERTIFIED FOR PARTIAL PUBLICATION*; (Super. Ct. No. 37-2016-00023774-CU-EN-CTL)
APPEAL from a judgment of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Affirmed.
Lindborg & Mazor, Peter F. Lindborg and Irina J. Mazor for Plaintiff and Respondent.*
Wanke, Industrial, Commercial, Residential, Inc. (Wanke) obtained a judgment against Scott Keck and WP Solutions, Inc. (WP Solutions).
Invoking assignment principles, AVB contends that Wanke lacked the ability to sue given judgment debtor WP Solutions‘s corporate suspension. Next, it claims Wanke‘s suit was untimely under
FACTUAL AND PROCEDURAL BACKGROUND
Wanke is a company that installs waterproofing systems. It sued Keck and another of its former employees in 2008 for trade secret misappropriation after they left Wanke to form a competing business, WP Solutions.2 The parties entered into a stipulated settlement and later litigated Keck‘s alleged breach of that settlement agreement. (See Wanke, Industrial, Commercial, Residential, Inc. v. Keck (2012) 209 Cal.App.4th 1151, 1156–1162.) In 2013, the court entered judgment in favor of Wanke, holding Keck and WP Solutions jointly and severally liable for $1,190,929.
Meanwhile, general contractor AVB had hired WP Solutions as a waterproofing subcontractor on five residential and commercial construction projects.3 Keck completed his work around June 2014 when, facing the sizable judgment, he declared bankruptcy and dissolved WP Solutions. Wanke served a writ of execution and notice of levy on AVB that month. In examination proceedings of AVB‘s president, Wanke learned that AVB owed WP Solutions $109,327 under the subcontracts. Wanke filed this creditor‘s suit in July 2016 seeking to recover that amount toward its outstanding judgment.
The case proceeded to a two-day bench trial in June 2018. The parties stipulated as follows: Wanke obtained a judgment of $1,190,929 against WP Solutions and Keck; Keck discharged his debts in bankruptcy; and after serving a notice of levy on third-party AVB, Wanke learned that AVB owed
Wanke presented no affirmative evidence, resting on the stipulated facts. AVB presented four witnesses. Employee Robert Canup described the scope of his repairs at the Point Loma project, where Keck‘s waterproofing system failed due to his use of incompatible materials. Keck testified about warranty obligations built into the subcontracts that WP Solutions could not perform after its 2014 suspension.4 As AVB was Keck‘s largest customer, Keck continued to honor warranty calls through his new company for minor repairs.
Antonio Madureira, AVB‘s president and founder, testified that any money AVB owed should be offset by the value of bargained-for warranty work that WP Solutions could no longer perform. Although AVB had received warranty calls on each project, Madureira was unsure what repairs were needed or how much AVB had spent. He did know that AVB spent $57,055.95 to repair damage from Keck‘s use of incompatible materials on the Point Loma project.
AVB‘s final witness was Jan Bagnall, a Pli-Dek representative. By stipulation of the parties, the court read deposition excerpts indicating that damage at the Point Loma project was caused by an installation issue that would not have been covered under its manufacturer‘s warranty.
After AVB rested, Wanke presented one rebuttal witness. Forensic architect Paul Kushner offered expert testimony on AVB‘s setoff claims. As relevant here, Kushner concluded AVB‘s warranty setoff claims were inflated by an overestimation of the years remaining on each warranty.
The court entered judgment in Wanke‘s favor. In a detailed statement of decision, it concluded AVB was entitled to offset moneys expended to repair the pool deck at Point Loma but otherwise rejected AVB‘s setoff claims. After offsetting the allowed amount, the court entered judgment in favor of Wanke and against AVB for $83,418.94.
DISCUSSION
AVB appeals the entry of judgment in Wanke‘s creditor‘s suit. We provide a brief outline of the legal framework before turning to the standing, statute of limitations, and setoff claims it raises on appeal.
“Detailed statutory provisions govern the manner and extent to which civil judgments are enforceable. In 1982, following the recommendations of the California Law Revision Commission, the Enforcement of Judgments Law (EJL) was enacted. The EJL appears in
After entry of a money judgment, the judgment creditor may obtain a writ of execution requiring the levying officer to enforce the judgment. (
Examination proceedings (
However, “[w]hen the claims require a contested adjudication, the parties are entitled to have the issues determined in an independent creditor‘s action, rather than by the motion procedure under
In this case, Wanke filed a notice of levy on AVB in June 2014. Thereafter it conducted examination proceedings and learned from AVB‘s president that AVB owed WP Solutions $109,327. Both the levy lien and examination lien expired. (
2. Standing and Capacity
AVB argues Wanke lacks standing because it stands in the shoes of WP Solutions, a suspended corporation. Although AVB did not raise this argument below, a lack of standing is a jurisdictional defect and may be claimed for the first time on appeal. (Common Cause of Calif. v. Board of Supervisors of Los Angeles County (1989) 49 Cal.3d 432, 438.)
“Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” (
Although framed as a lack of standing, AVB‘s claim instead goes to capacity. ” ‘A corporation that has had its powers suspended “lacks the legal capacity to prosecute or defend a civil action during its suspension.” ’ ” (Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662
Citing the statutory requirement that a third person possess or control property “in which the judgment debtor has an interest” (
AVB relies on two assignment cases in making this argument. In Cal-Western Business Services, Inc. v. Corning Capital Group (2013) 221 Cal.App.4th 304 (Cal-Western), Pacific West One held a judgment against Corning Capital. The Franchise Tax Board suspended Pacific West One for failing to pay taxes. While suspended, Pacific West One assigned its rights to Cal-Western. (Id. at p. 307.) Cal-Western sued to enforce the judgment. (Ibid.) The trial court struck the complaint, finding Cal-Western lacked capacity to sue as the assignee of a suspended corporation. (Id. at p. 308.) Affirming this ruling, the appellate court explained that as an assignee, Cal-Western‘s rights were derivative of Pacific West One‘s. (Id. at p. 312.)
In the second case, this court relied on Cal-Western in deciding whether an assignee of a suspended corporation could claim that corporation‘s escheated property under the Unclaimed Property Law. (Casiopea, supra, 12 Cal.App.5th 656.) The assignment was made pursuant to
AVB first presented this argument in its trial brief.5 In rejecting it, the trial court explained:
“Here, of course, there was no ‘assignment’ (either while
WP Solutions was suspended, or at any other time). Beyond this
chasmal factual distinction, it also strikes the court that disqualifying a judgment creditor on standing or capacity grounds because of an action taken solely by a judgment debtor (i.e., failing to remain current with the FTB) would frustrate the legislative purpose behind []
section 708.210 .”
Wanke urges us to affirm, arguing against application of assignment principles in a creditor‘s suit. AVB responds that there is no practical difference—like
These competing claims present a question of statutory interpretation, subject to independent review. (Bruns v. E-Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 724.) At the outset, provisions applicable in one kind of enforcement mechanism under the EJL do not necessarily apply to others. (See Ilshin, supra, 195 Cal.App.4th at pp. 628–630 [no right to attorney‘s fees in creditor‘s suit, even though fees are recoverable from execution of a levy].) To evaluate whether assignment principles apply in the manner AVB suggests, we start with the language of the governing statutes, ” ‘giving it a plain and commonsense meaning.’ ” (Bruns, at p. 724.)
The statute at issue in Casiopea was
By its plain language, the creditor‘s suit statute considers solely whether the judgment debtor has an “interest” in property held by the third person or is owed a debt by the third person. There is no requirement for the judgment debtor to have present capacity to collect against the third person. And because no assignment is created,
As the trial court suggested, this result makes sense. “The purpose of
In short, Wanke could bring a creditor‘s suit against third party AVB under
3. Statute of Limitations
AVB argues next that Wanke‘s action is untimely. A creditor‘s suit must be commenced before the later of the following: “(1) The time when
In a creative argument first presented on appeal, AVB contends that the period in which WP Solutions “may bring an action” expired when its contractor‘s license was suspended in July 2014. Thereafter, WP Solutions was statutorily precluded from pursuing a collection action against AVB.7 Because Wanke sued two years after that date, AVB maintains Wanke‘s action is time-barred. Wanke makes several threshold arguments, which we address first before turning to the merits of AVB‘s claim.
First, Wanke contends AVB is precluded from raising a statute of limitations defense based on its statement in a prior brief that “WANKE has now timely filed suit.”
But as AVB points out, the entire sentence reads, “WANKE has now timely filed suit to apply its Judgment Debtor‘s asset to its Judgment but it does so standing in the shoes of Judgment Debtor (WP Solutions).” This sentence is not wholly inconsistent with AVB‘s argument on appeal that the statute of limitations elapsed once WP Solutions lost capacity to sue. Moreover, the sentence pertained to an unrelated argument in AVB‘s motion to strike. It neither constitutes a judicial admission nor triggers judicial estoppel. (See Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 187–188 [defining and applying both concepts].)
Next, Wanke asserts that AVB forfeited its defense by not specifically pleading
The foundational premise of AVB‘s statute of limitations claim is flawed. AVB misconstrues the “may bring an action” language in
WP Solutions could bring a collection action against AVB within four years of when AVB failed to meet its payment obligations under the waterproofing subcontracts. (
The problem for AVB is that the record does not establish as a matter of law when that occurred. Wanke argues the $109,327 due pertained solely to WP Solutions’ work on two projects, Oxford Court and the Taitz residence. Indeed, Keck testified based on exhibit No. 13 that those were “the only project[s] where there‘s open money due.” The
subcontracts for both projects were signed in 2013, within four years of Wanke‘s 2016 creditor‘s suit. Payments were due once certain conditions were met. Even in the unlikely event that AVB owed WP Solutions the day those subcontracts were signed, Wanke claims its creditor‘s suit was timely under
AVB responds by challenging whether Wanke‘s action related solely to Oxford Court and the Taitz residence. But it cites no evidence that would permit us to find as a matter of law that Wanke sued more than four years
As the party asserting a statute of limitations defense, AVB bore the burden of proving what portion of Wanke‘s claims were time-barred. (Ladd v. Warner Bros. Entertainment, Inc. (2010) 184 Cal.App.4th 1298, 1310;
4. Warranty Setoffs
We turn finally to AVB‘s argument that the trial court applied the wrong legal standard and overlooked undisputed evidence in denying its warranty setoff claim. As we explain, the court gave several independent reasons for its ruling. We affirm based on one of those stated reasons—AVB‘s failure to establish the value of those setoffs.
a. Legal Principles
“The right to offset is a long-established principle of equity.” (Carmel Valley Fire Protection Dist. v. State of California (1987) 190 Cal.App.3d 521, 550; see Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 363.) As early as the 17th century, English chancery courts permitted a defense of setoff “founded on the equitable principle that ‘either party to a transaction involving mutual debts and credits can strike a balance, holding himself owing or entitled only to the net difference.’ ” (Granberry v. Islay Inv. (1995) 9 Cal.4th 738, 743–744; Jess v. Herrmann (1979) 26 Cal.3d 131, 142 (Jess).) Codifying this principle,
“Where cross-demands for money have existed between persons at any point in time when neither demand was barred by the statute of limitations, and an action is thereafter commenced by one such person, the other person may assert in the answer the defense of payment in that the two demands are compensated so far as they equal each other, notwithstanding that an independent action asserting the person‘s claim would at the time of filing the answer be barred by the statute of limitations.”
Traditional setoff rules “operate as an accounting mechanism to avoid a payment and repayment from one party to another,” “simply eliminat[ing] a superfluous exchange of money between the parties.” (Jess, supra, 26 Cal.3d at pp. 134, 137.)
From these authorities we derive a general rule. A setoff may be applied pursuant to
b. Additional Background
AVB sought a total setoff of $179,230 against the amount it owed WP Solutions. This amount was allegedly attributable the lost value of warranty work ($43,929), a resin layer not installed at two project sites ($78,246), and necessary pool deck repairs at the Point Loma site ($57,055). The trial court accepted a smaller setoff of $25,908 for pool deck repair at Point Loma but otherwise rejected AVB‘s setoff claims. AVB challenges only the denial of its warranty setoff on appeal, so we limit our summary to that claim.
Each of WP Solutions’ subcontracts required it to perform ongoing warranty repairs for a given number of years after it received final payment. As Keck explained at trial, WP Solutions built the warranty obligation into its bid price for each subcontract. The warranties covered miscellaneous repairs of cracks, nicks, or chips of coating, as well as inspections and water tests. Once WP Solutions went insolvent in 2014, it could no longer do warranty work. AVB argues it was entitled to withhold funds necessary to cover anticipated warranty work from that point forward.
In its trial brief, AVB valued the warranty setoffs at five to seven cents per square foot multiplied by the square footage for each project and the number of years remaining on each warranty.9 As AVB‘s president Madureira would testify at trial, those per-square-foot cost benchmarks derived from Keck‘s estimates in 2014, when AVB received Wanke‘s notice of levy and investigated possible setoff claims. However, Keck offered a different benchmark at trial, upwards of 12 cents per square foot. Wanke‘s rebuttal expert
Paul Kushner did not challenge the per-square-foot benchmarks but testified that AVB had overestimated the years remaining under each warranty.10
The trial court rejected AVB‘s warranty setoff claim on multiple grounds. First, it determined that AVB did not carry its burden to establish the value of the warranty setoffs. It rejected the simplistic calculation based on the square footage and years because: (1) it lacked confidence in Keck‘s testimony providing the basis for his five to seven cents benchmark, and (2) Wanke‘s rebuttal expert revealed errors in the years estimated under each warranty. The court faulted AVB for failing to do an actuarial analysis of the warranty claims or discount the claimed amounts to their net present value. Moreover, it agreed with Kushner that as to one property, any warranty obligation had expired when WP Solutions went insolvent.
In articulating other grounds, the trial court stated the warranty setoffs were “unmatured, inchoate, speculative and contingent” and failed for lack of mutuality. As a factual matter, the court believed any warranty claims were unlikely to arise in practice because Keck was addressing calls through his successor company.
c. Analysis
AVB takes issue with the court‘s finding that the claimed setoffs “were unmatured, inchoate, speculative and contingent.” It argues the court applied the wrong standard in requiring the value of warranty work to be liquidated and certain. AVB also claims the court erred in rejecting undisputed evidence estimating the value of those warranties at seven cents per square foot.
Even if AVB is correct that the court applied the wrong standard in articulating one stated ground, any error does not affect the court‘s independent factual basis for rejecting AVB‘s warranty setoff claim—i.e., that AVB did not carry its burden to prove the value of those setoffs. AVB offered conflicting valuation evidence. At trial, Keck based his estimates off a benchmark of 12 cents per square foot. But AVB‘s president relied on Keck‘s earlier benchmark of five to seven cents per square foot. Wanke‘s rebuttal expert applied the five-to-seven-cents benchmark solely for purposes of analysis to highlight a separate calculation error.
Ultimately, the trial court did not find any of Keck‘s benchmarks credible, citing “the lack of confidence the court had in Mr. Keck‘s testimony generally, and specifically the testimony which provided the basis for the 5-7 cents figure.” It explained that “inasmuch as AVB has the burden of proof, it was required to offer sufficient evidence for the court not only to conclude that there were valid warranty offsets, but also to form an evidence-based, non-speculative determination of the value of those claims. This AVB failed to do.”
A defendant seeking setoff pursuant to
DISPOSITION
The judgment is affirmed. Wanke is entitled to its costs on appeal.
DATO, J.
WE CONCUR:
BENKE, Acting P. J.
O‘ROURKE, J.