There is an evergreen warning in Brilliant Digital Ent., Inc. v. PersonalWeb Tech., LLC (D2d4 Oct. 3, 2022 no. B317580) 2022 WL 4716637 (nonpub. opn.) that an incomplete appellate record can doom an otherwise righteous appeal.
And there is also a reminder of a more esoteric nature about a rule that allows unsecured creditors a right to mandatory intervention.
In Brilliant Digital, Amazon held a $5.4 million judgment against PersonalWeb from an earlier lawsuit. In that earlier lawsuit, Amazon had won the judgment for its attorney fees in defending against PersonalWeb’s unreasonable litigation tactics.
Then came the lawsuit between Brilliant and PersonalWeb. Brilliant Digital sued PersonalWeb, claiming some $19 million based on promissory notes. But something was a little fishy about the litigation. Brilliant sought a receiver against PersonalWeb, but PersonalWeb did not oppose it. Brilliant also sought a preliminary injunction, and PersonalWeb stipulated to it. Of relevance, the injunction stayed all PersonalWeb’s judgment-holders from enforcing their judgments. This meant Amazon could not enforce its $5.4 million judgment against PersonalWeb.
This was too much for Amazon to take. Amazon moved for mandatory intervention under Code of Civil Procedure section 387(d)(1)-(2). No one opposed the motion. Intervention is to be “liberally construed in favor of intervention” (Crestwood Behavioral Health, Inc. v. Lacy (2021) 70 Cal.App.5th 560, 572), and the statute applies where the intervenor has a “sufficient interest” in the action, and the action would impair the intervenor’s “ability to protect [its] interest.” (Id. at pp. 572-573, fn. omitted.)
But the trial court denied intervention, on the ground that a creditor normally does not have a “sufficient interest” unless the creditor has a lien or attachment on the debtor’s assets, or the case falls within the exception in Continental Vinyl Products Corp. v. Mead Corp. (1972) 27 Cal.App.3d 543. The Continental Vinyl exception is for cases in which a debtor colludes with a nominally adverse party to litigation to avoid the intervenor’s debt.
Unfortunately for Amazon, it did not adequately brief Contental Vinyl.
But the Court of Appeal reversed. The Court of Appeal agreed that Amazon had not adequately argued Continental Vinyl in the trial court, but the court declined to overlook the fact that the exception applied here given the obvious collusion between Brilliant and Personal Web.
What really drove home the collusion was the fact that although Brilliant was claiming $19 million in unpaid debt against PersonalWeb, Brilliant was still offering to lend an additional $1 million to Personal Web. And the purpose of that loan was to fund litigation against Amazon. And that loan, would be secured by “receiver’s certificates” issued by the receiver—the receiver appointed on Brilliant’s motion unopposed by PersonalWeb.
These facts amounted to “collusion … ‘likely to result in injustice’” and thus establishing the Continental Vinyl exception, allowing an unsecured creditor to intervene.
There are two points of appellate procedure worth noting.
First, why didn’t the Court of Appeal issue a writ of supersedeas? At the outset of the appeal, Amazon filed a petition for a writ of supersedeas to stay the collusive litigation pending the appeal. The criteria for supersedeas were met here: Amazon ultimately prevailed, a stay would have caused no cognizable prejudice to the other parties as they were engaged in collusion, and the lack of a stay threatened to moot or undermine the purpose for which Amazon sought intervention.
Yet the court offered no reason why it denied the petition.
The second procedural point of note is that Amazon almost lost this appeal by failing to provide a complete record. As noted above, the court pointed out that Amazon did not adequately raise the Continental Vinyl exception. In fact, Amazon only raised the exception in the trial court by way of a supplemental brief. But then on appeal, Amazon did not even include that supplemental brief in the record!
The court gave Amazon a big assist in this regard. The court noted that the supplemental brief was missing, and directed Amazon to file it with the court. At that point, the court also noted that Amazon had failed to include the underlying motion to intervene, as well as the reply brief and the complaint-in-intervention. Amazon then filed a motion to augment, which was granted.
Fortunately for Amazon, no respondent's brief was filed. Had the respondents filed a brief, Amazon’s record defects may well have been unsalvageable by the time they were discovered.
This is why it is critically important to review the appellate record early in the appeal to ensure completeness.
