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After Reversal on Appeal, Appellant Claimed It Was Entitled to $5.7MM in Restitution

Tim Kowal     May 24, 2021

And it would have been entitled to it, too, and the appellant not stipulated to the remedy.

Here is an under-appreciated consideration in appellate procedure: If you are the party that prevailed at trial, and you collect on your judgment pending appeal, what's the worst that could happen? Would it surprise you to learn that the prevailing plaintiff could be ordered to make restitution "of all property and rights lost by the erroneous judgment or order," and could even have a money judgment imposed against it under Code of Civil Procedure section 908? This includes legal interest. And if enforcing the judgment caused the appellant to lose business profits, the judgment creditor can be liable for those losses, too.

That is very nearly what happened to the respondent in Dr. Leevil, LLC v. Westlake Health Care Ctr. (D2d6 Mar. 17, 2021) no. B304339 (non-pub.). In this high-stakes unlawful-detainer case, the landlord foreclosed on a deed of trust to acquire the tenant medical facility's building from its owner, and decided to evict the tenant. The tenant stood on its lease, but the trial court ruled the lease was subordinate to the landlord's deed of trust and was extinguished by the trustee's sale.

But the tenant had a narrower, and stronger, defense: the landlord's service of the notice to quit was defective because the landlord served the notice before the landlord's title was perfected. This requirement must be strictly followed.

For some reason, however, the tenant withdrew this valid defense.

Ultimately, after the Court of Appeal affirmed the judgment against the tenant, the Supreme Court granted review on the very issue the tenant had withdrawn, and concluded the landlord's notice to quit was invalid.

In the meantime, however, the tenant had lost $5.7 million in profits after losing its facility.

The tenant having ultimately prevailed on appeal (despite having withdrawn the winning issue), the tenant moved for restitution against the landlord for the $5.7 million in lost profits. The trial court was incredulous. It did not think a prevailing plaintiff could be liable for enforcing a judgment, especially when the judgment was based on a point of law the Court of Appeal had affirmed (even if it was later reversed). So the trial court denied the tenant's motion on law-of-the-case grounds.

Yes, a Judgment Creditor Is Liable When It Enforces a Judgment That Is Later Reversed:

While the Court of Appeal affirmed, it did so only on the basis of the tenant's stipulation and voluntary relinquishment of possession. None of the other stuff the trial court suggested about a prevailing plaintiff's not being liable for enforcing a later-reversed judgment was true: a judgment-creditor absolutely can be liable in restitution to the judgment-debtor.

If an appellate court reverses a judgment or order, it may "order restitution on reasonable terms and conditions of all property and rights lost by the erroneous judgment or order . . . and may direct the entry of a money judgment sufficient to compensate for property or rights not restored." (Code Civ. Proc., § 908.) But "[e]ven if the reviewing court has not ordered restitution, the trial court whose order or judgment has been reversed on appeal has the inherent authority to afford restitutionary relief." (Beach Break Equities, LLC v. Lowell (2016) 6 Cal.App.5th 847, 852 (Beach Break).) This authority includes "the award of profits of business conducted on [property] taken from tenant following incorrect initial judgment." (Munoz v. MacMillan (2011) 195 Cal.App.4th 648, 662 (Munoz).) "'"The fundamental rule guiding the court in such proceedings is, so far as possible, to place the parties in as favorable a position as they could have been in had the judgments not been enforced pending appeal." [Citation.]' [Citation.]" (Beach Break, at p. 852, alterations omitted.)

The successful appellant may even be entitled to an award of interest on money paid on a judgment reversed on appeal. An interest award routinely is part of restitution following the reversal of a money judgment unless such an award would be inequitable under the circumstances. (Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 1085 (Textron), disapproved on other grounds in Zhang v. Superior Court (2013) 57 Cal.4th 364, 377-379.) Courts "generally reason[] that []payment of interest is appropriate because a plaintiff who collects his judgment pending appeal assumes the risk that it may have to repay the award, along with interest, if the defendant prevails in that appeal. [Citations.]" (Gunderson v. Wall (2011) 196 Cal.App.4th 1060, 1066-1067.)

Restitution is "a matter of a right if the judgment is reversed or set aside, unless [it] would be inequitable." (Beach Break, supra, 6 Cal.App.5th at pp. 852-853.) "Whether a party is entitled to restitution following reversal [thus] presents a question calling for judicial discretion." (Id. at p. 853.)

So the landlord, as the prevailing plaintiff who had enforced its judgment, might be liable for restitutionary damages following reversal on appeal.

Beware: Stipulations and Voluntary Assent to a Judgment May Waive Important Rights on Appeal:

As mentioned in previous cases (see here and here; but see here), stipulations can be fatal to appellate rights. That was the case here.

The court noted that the successful tenant-appellant's claim for restitution was premised on its loss of possession of its facility. But despite the landlord's legal action, the tenant had continued to occupy the facility as a holdover. It could have continued doing so, presumably until the sheriff arrived. It was only when the tenant "voluntarily" gave up possession that it lost profits.

Observing that a stipulation is binding (Code Civ. Proc., § 664.6, subd. (a)) and that a party that "consents to an act is not wronged by it" (Civ. Code, § 3515), the court held that a restitution award in these circumstances would be inequitable.

The upshot: The consequences of an appellant's voluntary action, pursuant to a stipulation, cannot be laid at the feet of the respondent. If you agree to comply with a judgment, be sure to make a clear record that you are doing so because of threatened and imminent judgment enforcement.

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at [email protected] or (714) 641-1232.

Tim Kowal is an appellate specialist certified by the California State Bar Board of Legal Specialization. Tim helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at CALpodcast.com, and publishes summaries of cases and appellate tips for trial attorneys. Contact Tim at [email protected] or (949) 676-9989.
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