LEONARDO SUDMAN v. JANA YOUNG

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Court of Appeal, Second District, California.

LEONARDO SUDMAN et al., Plaintiffs and Appellants, v. JANA YOUNG, Defendant and Respondent.

2d Civil No. B217157

Decided: June 22, 2010

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

The general rule in an action on a contract is that the “judgment absolves the defendant of any further contractual obligations, and the judgment for damages replaces the defendant's duty to perform the contract.”  (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1766, 1770.)   Any attorney fee provision in the contract is extinguished upon entry of judgment.   This rule does not bar recovery of attorney fees where, as here, the claim for fees arises in a subsequent action involving the contract and is based on events occurring subsequent to entry of judgment in the original action.   Leonardo and Marty Lynn Moreland Sudman appeal from a judgment awarding attorney fees to respondent Jana Young based on an attorney fee clause in a promissory note.   We affirm.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

The Sudmans and Young were close friends.   When the Sudmans asked Young to lend them substantial sums of money, Young agreed to do so.   Ultimately, Young loaned the Sudmans more than $60,000.   The parties executed a promissory note for $47,695.00 1 on October 24, 2003.   The note stated the following regarding Young's security interest and rights:

“Security:  Men's gold ring with three diamonds, one mens Harley Davidson Motorcycle, one womans Harley Davidson motorcycle, residence in Italy located at 12 Via San Quirico, Orta San Guilio, Italy.”

In addition, the promissory note contained the following rights and obligations with respect to the security:

1. “If Leonardo Sudman and Marty Lynn Moreland Sudman default in payment as required under this Note or after demand for ten (10) days, the Security will be immediately provided to Jana Young and Jana Young is granted all rights of repossession as a secured party.”

2. “Both Marty and Leonardo Sudman agree to allow lender, Jana Young access upon demand to take these items and sell them.   All funds obtain[ed] from the sale of these items will be properly documented to show the actual value obtained for the items and proper credit will be given for each personal item belonging to the borrowers and sold to make payment towards the outstanding debt.”

3. “Leonardo Sudman and Marty Lynn Moreland Sudman grant to Jana Young a security interest in the Security until this Note is paid in full.   Jana Young will be listed as a lender on the title of Security whether or not Jana Young elects to perfect the security interest in the Security.”

4. “In case of default on this loan Marty and Leonardo Sudman, further described as the borrowers, agree to pay for any and all expenses to obtaining payment on this loan.   This includes, but is not limited to attorney's fees, court costs, expenses to obtain and sell personal property, transportation costs, shipping costs, along with fees and expenses related to attempting to collect on any portion of the debt or associated costs and expenses of locating and serving the borrowers Marty or Leonard Sudman with court documents, legal papers, fees for service and any and all other related expenses incurred in an attempt to collect this debt.”

5. “Marty and Leonard Sudman, the borrowers agree to turn over personal property on demand to the lender Jana Young.”

The note states that the loan was due and payable in 90 days.

The loans came due on March 12, 2004, but no payment was received.   After meeting with the Sudmans and telling them of her intention to sell the jewelry if the note was not paid, Young filed a lawsuit to collect the debt.   She obtained a default judgment against the Sudmans in the amount of $83,083.40, including damages, prejudgment interest and costs.   The Sudmans' motion to vacate the judgment was denied.   Subsequently, Young sold the ring to a jeweler for $6,000 and the Sudmans were credited with that amount.

The Sudmans then filed a complaint against Young for conversion, declaratory relief and imposition of a constructive trust alleging that Young sold the ring without notice and in violation of the California Uniform Commercial Code.2

Young filed a motion to strike on the ground that the Sudmans' claims arose from the same set of facts as the prior lawsuit and they should have filed a compulsory cross-complaint under Code of Civil Procedure section 426.30.3  Young also argued that the doctrine of res judicata barred the subsequent action.   The Sudmans opposed the motion and prevailed.

After a bench trial, on January 22, 2008, the court issued a statement of decision denying the Sudmans all relief on their complaint and awarding attorney fees and costs to Young “pursuant to the terms and conditions of the subject promissory note.”

Following entry of judgment on December 26, 2008, Young filed a motion for attorney fees in the amount of $35,972.21.   The Sudmans opposed the motion on the ground that the attorney fee provision in the promissory note could not be the basis for an attorney fee award in the conversion case because “[t]he obligation which is the subject of the contract containing the clause had been reduced to final judgment before this case was even filed” and “any and all contractual rights including the subject attorneys fees clause were merged by operation of law into a final judgment.”   After two separate hearings, the court awarded attorney fees to Young in the amount of $33,092.21.

On appeal, the Sudmans' sole argument is that there is no contractual attorney fee clause upon which to predicate an award since the provisions of the promissory note were merged into a final judgment in the prior lawsuit.   Consequently, any contractual provisions were superseded by the terms of the final judgment.   This contention is meritless.

DISCUSSION

We review entitlement to attorney fees de novo.  (Berti v. Santa Barbara Beach Properties (2006) 145 Cal.App.4th 70, 74.)

The general rule on which the Sudmans rely provides that “when a judgment is rendered in a case involving a contract that includes an attorney fees and costs provision, the ‘judgment extinguishes all further contractual rights, including the contractual attorney fees clause․’ ”  (Jaffe v. Pacelli (2008) 165 Cal.App.4th 927, 934;  Berti v. Santa Barbara Beach Properties, supra, 145 Cal.App.4th at p. 77.)   The rule that a valid final judgment in favor of plaintiff merges the claim into the judgment applies to default judgments.  (7 Witkin, Cal. Procedure (5th ed.   2008) Judgment, § 372, p. 996.)   The rule is inapplicable here.

Young is not seeking attorney fees for enforcing the prior judgment.   Her fee request is for attorney fees incurred in defending against the conversion action.   The conversion action involves a different cause of action and is based on facts occurring after entry of the default judgment.   In such case, the prior judgment does not merge with the contract nor does it bar a subsequent claim for attorney fees.  (See, e.g., Craig v. County of Los Angeles (1990) 221 Cal.App.3d 1294, 1299 [“If the second action involves a different cause of action, rather than a different legal theory, the doctrine will not apply”];  Allied Fire Protection v. Diede Const., Inc. (2005) 127 Cal.App.4th 150, 155 [claims arising after the initial complaint is filed are not merged into or barred by the prior judgment].)

The facts giving rise to the conversion action-Young's sale of the jewelry-arose after the default judgment was entered.   The second lawsuit thus involved a new cause of action-one that could not have been brought in the first action.   Young's defense of the conversion action was necessary to her efforts to collect under the promissory note.   Therefore, the trial court did not err in awarding attorney fees to Young based on the attorney fee provision in the note.

The judgment is affirmed.   Respondent shall recover costs on appeal.

NOT TO BE PUBLISHED.

We concur:

Superior Court County of Ventura

Creighton A. Stephens for Plaintiffs and Appellants.

Orrock, Higson & Kurta, Daniel Higson;  Law Offices of Malcolm R. Tator and Malcolm Tator for Defendant and Respondent.

FOOTNOTES

FN1. The remaining sums were loaned when Young permitted the Sudmans to use her credit card to pay for their daughter's wedding..  FN1. The remaining sums were loaned when Young permitted the Sudmans to use her credit card to pay for their daughter's wedding.

FN2. The Sudmans' complaint alleges that Young sold the wedding ring and diamond earrings.   However, in its order denying the Sudmans relief on the complaint, the court states that Young “may not sell these earrings until she has followed appropriate procedure in enforcing the judgment she obtained as a result of plaintiffs' default.”.  FN2. The Sudmans' complaint alleges that Young sold the wedding ring and diamond earrings.   However, in its order denying the Sudmans relief on the complaint, the court states that Young “may not sell these earrings until she has followed appropriate procedure in enforcing the judgment she obtained as a result of plaintiffs' default.”

FN3. All further statutory references are to the Code of Civil Procedure.Section 426.30 states:  “(a) Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded. [¶] (b) This section does not apply if either of the following are established:  [¶] (1) The court in which the action is pending does not have jurisdiction to render a personal judgment against the person who failed to plead the related cause of action.  [¶] (2) The person who failed to plead the related cause of action did not file an answer to the complaint against him.”.  FN3. All further statutory references are to the Code of Civil Procedure.Section 426.30 states:  “(a) Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded. [¶] (b) This section does not apply if either of the following are established:  [¶] (1) The court in which the action is pending does not have jurisdiction to render a personal judgment against the person who failed to plead the related cause of action.  [¶] (2) The person who failed to plead the related cause of action did not file an answer to the complaint against him.”

YEGAN, Acting P.J. COFFEE, J. Frederick Bysshe, Judge