McWethy v. Elansari

Filed 3/14/07 McWethy v. Elansari CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from orders of the Superior Court of San Diego County, Richard E. L. Strauss and Janis Sammartino, Judges. Affirmed.

In this case we affirm trial court orders which permitted a judgment creditor to renew his default judgment and authorized a receiver to seize documents and other evidence demonstrating the judgment debtor owned a substantial interest in two named corporations.

Contrary to the arguments of the judgment debtors and corporations, the judgment which the trial court renewed was valid. Prior to entry of the judgment the trial court conducted a thorough prove-up hearing at which the judgment creditor provided evidence of each element of damage alleged in the underlying complaint. Moreover, contrary to the judgment creditor's argument, the judgment did not exceed the amount alleged in the complaint.

Moreover, the trial court did not err in entering orders which permitted the previously appointed receiver to investigate whether the judgment debtor owned an interest in the named corporations and upon satisfying himself that they did, seizing the records of the corporations. In light of the judgment debtor's lengthy and well-established efforts to conceal his assets, the appointment of a receiver with the authority to locate and seize assets that might satisfy the judgment was fully warranted. Moreover, those circumstances fully supported entry of the receivership orders on an ex parte basis.

Our disposition of the trial court's orders is without prejudice to the right of the named corporation or other third parties to show to the satisfaction of the trial court that the judgment debtor has no ownership interest in the corporations and that the corporations and third parties are therefore entitled to the return of corporate documents lodged with the court and such other orders as may be necessary to protect their privacy rights.

SUMMARY

1. Lease

The default judgment which is the subject of this appeal arises out of a 1992 lease agreement between plaintiff and respondent William H. McWethy, Jr., doing business as Palm Mountain Resort, and defendant and appellant Ahed Elansari. At all material times McWethy was the owner and operator of a Holiday Inn hotel in Palm Springs, California. In 1992 McWethy leased the restaurant located in the hotel to Elansari for a term of 10 years. Among other matters, under the terms of the agreement Elansari promised to provide hotel guests with regular food service.

Elansari began operating the restaurant in 1992 but was not able to operate it profitably. For his part McWethy was not satisfied with the food service the restaurant provided the hotel's guests. In March 1994 Elansari and McWethy executed a written abandonment of the lease. The abandonment stated Elansari was voluntarily relinquishing possession of the restaurant and each party reserved their respective rights under the lease.

2. Complaint and Default Judgment

In July 1994 McWethy filed a complaint against Elansari. The complaint alleged eight causes of action. Each cause of action alleged a specific amount of damages and the total of the damages allegations was $1,000,450.

Initially, Elansari was represented by counsel, who filed an answer and cross-complaint. However, counsel for Elansari substituted out of the case in January 1995. Thereafter Elansari failed to respond to discovery which McWethy propounded, failed to respond to motions to compel and failed to respond to McWethy's motion for terminating sanctions. As a result of these lapses, the trial court entered Elansari's default.

At a prove-up hearing, the trial court awarded McWethy a total of $556,914.23 in damages. The amount awarded included not only rent due under the terms of the lease, but also substantial damages for the loss of business at the hotel due to Elansari's failure to provide hotel guests with adequate food service. In addition to damages, the trial court awarded McWethy $21,623 in attorney fees, $37,594 in prejudgment interest and $850 in costs. Accordingly, on October 3, 1995, the trial court entered a total judgment of $616,980 against Elansari.

In 1998 Elansari moved to set aside the default and default judgment. He argued his counsel had failed to give him actual notice of McWethy's discovery requests. The trial court denied Elansari's motion.

3. Receivership Orders

In July 1998 the trial court amended the judgment to include as judgment debtors more than a dozen aliases Elansari was known to use. Later, the judgment was amended again to state that Elansari's brothers Fuad Ansari, Osama Ansari, and Abdel Ansari were not judgment debtors.

In 1999 the trial court appointed a receiver. The order appointing the receiver stated in pertinent part: "[T]he Receiver is initially hereby appointed for the sole purpose of locating assets and records of the Judgment Debtors, and reporting thereon."

In particular, the receiver was authorized to "[i]nvestigate the nature and extent of the Judgment Debtor's ownership, operation and/or other involvement with (a) any and all jewelry stores in the state of California, (b) the home in which he is living, and (c) any litigation in the state of California. [] . . . []

"The Receiver is authorized to request and receive any and all information submitted to third parties by the Judgment Debtors which in any way relate to the three categories of assets listed herein, so long as the requests do not violate the attorney/client privilege of the judgment debtor."

4. Renewal of Judgment

In March 2005 McWethy filed an application to renew his judgment which, with accrued interest, amounted to $1.2 million. Under the provisions of Code of Civil Procedure section 683.170, Elansari moved to vacate the renewal. Elansari argued the judgment exceeded the amounts prayed for in the complaint and improperly awarded McWethy duplicate damages. The trial court denied Elansari's motion on September 7, 2005, and he filed a timely notice of appeal.

5. Additional Receivership Orders

On September 28, 2005, shortly after Elansari's motion to vacate was denied, McWethy moved ex parte for an "Amended Order Appointing Post-Judgment Receiver." By way of the application for the amended order, McWethy asked that the trial court give the receiver permission to "allow the Receiver to seize and hold all of the books, records and indicia of ownership regarding any corporations, partnerships, limited liability companies and/or any other legal entities in which Judgment Debtors or any of them owns or controls any interest." McWethy's ex parte application asserted Elansari was the owner of two corporations which had assets available to satisfy the judgment. McWethy's application further asserted the agent for service of process of both corporations was an accountant for the corporations as well as for Elansari.

The application asserted notice to Elansari of the receiver's plan to obtain evidence and documents from the accountant would cause Elansari to hide, transfer or otherwise obfuscate his interest in the corporations. This assertion was supported by a copy of findings made in a federal district court proceeding in which Elansari was a defendant and cross-complainant. The findings set forth an elaborate scheme to defraud a lender of more than a million dollars and placed Elansari at the center of the scheme. Among other matters, the district court found: "Pursuant to the settlement agreement, Ed Ansari prepared a financial statement showing essentially no assets. At trial, however, he testified that his net worth exceeded several million dollars."

The trial court granted McWethy's application for the amended order. Thereafter by way of a ruse, the receiver met with the accountant, Craig Carr, and asked Carr to provide him financial records for appellants Village Green, Inc. (Village Green), and Unique Home Galleria, Inc. (Unique Home). Carr refused to provide the receiver with any documents and told the receiver he would contact his lawyer.

On October 21, 2005, McWethy applied to the trial court for an "Order Expanding Receiver's Authority" (expansion order). By way of the expansion order McWethy asked that the trial court give the receiver the power to seize and hold all financial books and records of the two corporations as well as Fuad Ansari. McWethy's application was based on a declaration from the receiver which stated in part Carr's counsel had conceded Elansari owned an interest in Unique Home Galleria and Carr would comply with an order which specifically required that he produce the documents the receiver was requesting. McWethy had given Elansari one-day's notice of his application for the expansion order. Counsel for Elansari and the corporations appeared at the ex parte hearing and opposed McWethy's application and disputed any representation to the effect Elansari had an ownership interest in the corporations. The trial court nonetheless granted the order.

Elansari challenged the amended and expansion orders by way of a petition for a writ of mandate and request for stay, which this court summarily denied.

On November 14, 2005, Carr lodged with the court copies of the records which were the subject of the amended and expansion orders. In response to objections from the corporations and Elansari's brother Fuad Ansari, the trial court limited access to those documents to the receiver and professionals or third parties who, in the receiver's judgment, needed access in order to assist him in performing his duties as receiver.

On November 22, 2005, Elansari, his brother and the corporations filed a notice of appeal from the amended and expansion orders.^[1]

DISCUSSION

I

Under Code of Civil Procedure^[2]section 683.170, subdivision (a), "[t]he renewal of a judgment . . . may be vacated on any ground that would be a defense to an action on

the judgment, including the ground that the amount of the renewed judgment as entered . . . is incorrect." In challenging the order denying his motion to vacate renewal of the judgment, Elansari argues the default judgment was erroneous in that it exceeded the amount prayed for in the complaint and further that it contained double recovery. We find no error.

Under section 580, subdivision (a), a default judgment "cannot exceed that which [the plaintiff] shall have demanded in his complaint." "Section 580, and related sections . . . , aim to ensure that a defendant who declines to contest an action does not thereby subject himself to open-ended liability. Reasoning that a default judgment that exceeds the demand would effectively deny a fair hearing to the defaulting party, the Courts of Appeal have consistently read the code to mean that a default judgment greater than the amount specifically demanded is void as beyond the court's jurisdiction." (Greenup v. Rodman (1986) 42 Cal.3d 822, 826; see also Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 494.) As we have indicated, McWethy's complaint alleged a total of $1,000,450 in compensatory damages and the trial court awarded McWethy $556,914.23 in damages. Moreover, as appellants' brief itself illustrates, the trial did not award damages on any cause of action which exceeded the amount demanded in the complaint for any cause of action. Given this record, the judgment met the requirements of section 580.

Elansari also argues the trial court improperly awarded McWethy tort damages growing out of a breach of contract and the trial court should have required that McWethy elect between his remedies. Contrary to Elansari's apparent assumption, section 683.170 does not provide him a vehicle to assert such substantive defenses to the merits of the underlying complaint. Under the statute, a judgment debtor may assert defenses to enforcement of the later judgment, such as lack of service or satisfaction of the judgment. (See e.g. Fidelity Creditor Service, Inc. v. Browne (2001) 89 Cal.App.4th 195, 201.) A judgment debtor may also assert any error in calculating the current amount due on the judgment. (See e.g. In re Marriage of Henderson (1990) 225 Cal.App.3d 531, 535.) However, the defenses Elansari raises are ones which he could have raised before entry of the judgment by demurrer or at trial and they do not undermine the validity of the later judgment. Thus the defenses are beyond the limited scope of section 683.170, subdivision (a).

We note that at the prove-up hearing McWethy presented evidence of all the damages he requested. In particular, he offered separate proof of his lost rent and the cost of remodeling the restaurant to satisfy new tenants. McWethy also offered evidence that because Elansari failed to provide adequate food service, McWethy was required to provide tour operators with refunds and lost future business from them. In support of these claims, McWethy provided proof of the cost of refunds to tour operators and an estimate of lost future profits from those tour operators.

II

In attacking the amended receivership and expansion orders, Elansari, his brother Fuad and the corporations argue the orders should not have been entered on an ex parte basis. We find no abuse of discretion.

Section 564, subdivision (b)(3), provides for the appointment of a receiver to enforce the terms of a judgment. Although appointment of a receiver is an extraordinary measure, "[t]he appointment of a receiver rests within the discretion of the trial court. [Citations.]" (Gold v. Gold (2003) 114 Cal.App.4th 791, 807-808.) As a substantive matter, "[w]here there is evidence that the plaintiff has at least a probable right or interest in the property sought to be placed in receivership and that the property is in danger of destruction, removal or misappropriation, the appointment of a receiver will not be disturbed on appeal. [Citations.]" (Sachs v. Killeen (1958) 165 Cal.App.2d 205, 213.)

Under section 568: "The receiver has, under the control of the Court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the Court may authorize." "In a civil action, a receiver is an agent and officer of the court, and property in the receiver's hands is under the control and continuous supervision of the court. [Citations.]" (People v. Stark (2005) 131 Cal.App.4th 184, 204, fn. omitted.) The role of the court in supervising a receiver cannot be overstated. "'The receiver is but the hand of the court, to aid it in preserving and managing the property involved in the suit for the benefit of those to whom it may ultimately be determined to belong.' [Citations.]" (Marsch v. Williams (1994) 23 Cal.App.4th 238, 248.)

Under California Rules of Court, rule 3.1204 (b)(3), a court may grant an ex parte order without notice to an affected party when the applicant for the order has satisfied the court that, for specified reasons, notice should not be provided. Under rule 3.1175 (a)(1), California Rules of Court, a receiver may be appointed on an ex parte basis when the applicant by declaration shows "[t]he nature of the emergency and the reasons irreparable injury would be suffered by the applicant during the time necessary for a hearing on notice." In turn, rule 3.1176 provides that when a receiver is appointed on an ex parte basis, any objection to the appointment must be heard within no less than 22 days after the order of appointment.

The amended order and expansion order were subject to the general provisions governing ex parte applications rather than the more specific provisions governing ex parte appointment of receivers. The receiver in this case was appointed in 1999 and no order relieving him of his obligations was entered. Thus the amended order and expansion order were not the initiation of a receivership, which is governed by the specific and more stringent requirements of California Rules of Court, rule 3.1176. Rather, in authorizing the receiver to obtain documents from the corporations' accountant, the trial court was merely supervising the activities of the receiver rather than taking the far more drastic step of initiating a receivership.

The showing McWethy made in obtaining the amended and expansion orders satisfied the requirements of California Rules of Court, rule 3.1204 (b)(3). Although in later appearances in the trial court appellants disputed McWethy's contention that he has any ownership interest in the corporations, the corporate documentation McWethy presented at the ex parte hearings was sufficient to establish probable cause of Elansari's ownership interest. Moreover, in light of Elansari's numerous aliases and questionable business practices, the trial court was fully warranted in concluding there was some risk that greater notice of the applications would allow Elansari to thwart the receiver's attempt to identify and recover his interests in the corporations. In this regard we recognize the district court findings McWethy relied upon in making his application were eventually vacated by the district court pursuant to a stipulation the parties in the federal `case entered under the terms of a settlement between those parties. Plainly, that stipulation did not undermine the value of the findings in determining whether there was a risk that with more notice Elansari would attempt to hide his interests in the corporations.

"Moreover, the presumption in the California Constitution is that the 'improper admission or rejection of evidence . . . or . . . any error as to any matter of procedure,' is subject to harmless error analysis and must have resulted in a 'miscarriage of justice' in order for the judgment to be set aside. (Cal. Const., art. VI,  13.) Code of Civil Procedure section 475 contains similar language: 'The court must, in every stage of an action, disregard any error, improper ruling, instruction, or defect, in the pleadings or proceedings which, in the opinion of the court, does not affect the substantial rights of the parties.' " (In re Marriage of Goddard (2004) 33 Cal.4th 49, 56-57.) Here, before any documents were provided to the receiver, Elansari and the corporations sought relief from the amended and expansion orders by way of a petition for a writ of mandate in this court. Thus the ex parte nature of the trial court's orders did not deprive appellants of meaningful opportunity to challenge those orders.

In affirming the two receivership orders we hasten to add that the orders entered do not in any manner prevent the corporations or Fuad Ansari from seeking relief from the orders upon a further showing, sufficient to satisfy the trial court, that Elansari had no legal or equitable interest in the corporations or that the receiver's conduct unfairly injured their separate interests. Thus, as we indicated at the outset, our disposition of the orders is without prejudice to the corporations and Fuad Ansari's right to seek such relief.

Orders affirmed.

BENKE, Acting P. J.

WE CONCUR:

O'ROURKE, J.

AARON, J.

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^[1] We have consolidated Elansari's appeal from the order denying his motion to vacate the renewal of McWethy's judgment with the appeal from the amended and expansion orders. We agree the corporations and Fuad Ansari have standing to appeal the trial court's amended and expansion orders. The effect of the orders was to provide the receiver with copies of the corporations' documents and Fuad Ansari claims he is the actual owner of the corporations. Thus the corporations and Fuad Ansari are aggrieved by the trial court's orders and their interests are in no sense nominal or remote. (See Marsh v. Mountain Zephyr, Inc. (1996) 43 Cal.App.4th 289, 295.)

^[2] All further statutory references are to the Code of Civil Procedure unless otherwise specified.