Attorney Meredith King provided a summary of the key points of a recent case of interest, which was published and distributed to members of the California Lawyers Association’s Business Law Section. Read Meredith’s summary at calawyers.com.

Summary

In Guo v. Moorpark Recovery Serv., LLC, 60 Cal. App. 5th 745, 749-50 (2021), the California Court of Appeal, First Appellate District held that a judgment identifying a prevailing party and stating they were “entitled” to recover their costs of suit and attorney fees was sufficient to justify an award of post-judgment fees and costs under section 685.040 of California’s Enforcement of Judgment Law (Cal. Code Civ. Proc. §§ 680.010-724.260), even where the judgment did not provide a specific amount for fees and costs. A copy of the decision can be found here.

Facts

Svetlana Mazurova and Luminary Spa, Inc. (“Buyers”) purchased a spa business from Chunlei Leila Guo and Tri-Valley Golden Care, Inc. (“Sellers”). Disputes later arose—Buyers alleging Sellers failed to make required disclosures and Sellers alleging Buyers failed to make payments required under a take-back promissory note provided at the time of sale. Each party filed suit and, after a judgment and amended judgment were entered in Buyers’ favor on their complaint (Buyers’ “Complaint Judgments”), a judgment was entered against Sellers on their cross-complaint (“Cross-Complaint Judgment”). The Cross-Complaint Judgment explicitly provided that Buyers were “deemed the prevailing parties” and were “entitled to recover their costs of suit and reasonable attorney fees in this action as permitted by law.” Guo, 60 Cal. App. 5th at 748.

Buyers validly assigned the Complaint and Cross-Complaint Judgments (together, the “Judgments”) to Moorpark Recovery Service, LLC (“Moorpark”). The trial court, however, denied Moorpark’s subsequent motion for post-judgment attorney fees and costs incurred in enforcing the Judgments. The trial court determined it could not award such fees and costs because the Cross-Complaint Judgment was not an “award” of attorney fees and costs under California Code of Civil Procedure section 685.040 because no amount of fees was specifically awarded. Id. at 749. The trial court cited Imperial Bank v. Pim Electric, Inc., 33 Cal. App. 4th 540, 558 (1995) for the proposition that a judgment was insufficient to support an award under section 685.040 where “no attorney’s fee award was ever made.” Guo, 60 Cal. App. 5th at 749. The trial court reasoned that Moorpark’s assignor had not received attorney fees or costs in connection with the underlying action and so section 685.040 did not apply.

The Court of Appeal reversed, distinguishing Imperial Bank and determining that the language of the Cross-Complaint Judgment was sufficient to support an award of post-judgment fees and costs.

Reasoning

The Court of Appeal started with the text of California Code of Civil Procedure section 685.040, which provides that parties are entitled to post-judgment fees and costs where: (1) fees are incurred to enforce a judgment and (2) the underlying judgment includes an award of attorney fees and costs pursuant to California Code of Civil Procedure section 1033.5(a)(10)(A). Section 1033.5(a)(10)(A) permits an award of attorney fees “when authorized by contract.” So, in this case, the Court of Appeal concluded that if the Cross-Complaint Judgment was found to be an “award” of attorney fees “under the contract and promissory note,” post-judgment fees and costs were authorized under section 685.040.

The Court began its analysis of the Cross-Complaint by noting that under California’s “one final judgment” the Complaint and Cross-Complaint Judgments should be construed “as a single judgment that included a determination that [Buyers] were prevailing parties under the contract.” Id. at 750. The Court then held the unambiguous language of the Cross-Complaint included an obligation by Sellers to pay reasonable attorney fees to Buyers which was sufficient to apply section 685.040. The Court noted this analysis was based on the language of the Judgments and not the underlying promissory note, as the doctrine of “extension by merger” required courts look only at the language of the judgment and not the underlying contact in determining whether section 685.040 applies. Guo, 60 Cal. App. 5th at 751.

The Court of Appeal distinguished Imperial Bank, 33 Cal. App. 4th at 544, because in Imperial Bank nothing in the record indicated the underlying judgment included any award of attorney fees, whereas in Guo the Judgments clearly stated the Buyers were entitled to fees and costs even though the judgment creditor never filed a cost bill and the trial court never awarded a particular dollar amount. The Court emphasized a judgment awarding reasonable attorney fees and cost is sufficient to support an award of post-judgment attorney fees and costs under section 685.040.

Comments

The Court of Appeal’s holding in Guo is consistent with a long line of cases in which courts rely on an examination of the specific terms of the underlying judgment in determining whether post-judgment fees and costs should be awarded under section 685.040. For this reason, the best practice would seem to be to carefully word your judgment to avoid any dispute, including ensuring your judgment: (1) identifies your client as the prevailing party; (2) awards reasonable attorney fees and costs (citing the grounds justifying the award); and (3) provides a specific amount of attorney fees and costs awarded and/or expressly reserves the issue for later determination. In any event, preservation of the right to post-judgment attorney fees and costs under section 685.040 is best considered at the time judgment is entered or immediately thereafter.

These materials were written by Meredith King. Editorial contributions were provided by Ed Hays of Marshack Hays LLP in Irvine, California.