California Court of Appeal Clarifies a Judgment Creditor's Right to Third Party Discovery in Aid of Enforcement of Judgment

In Yolanda's, Inc. v. Kahl & Goveia Commercial Real Estate, 11 Cal. App. 5th 509 (2017), the California Court of Appeal recently affirmed a judgment creditor's right to seek third party discovery in aid of enforcement of a judgment, regardless of whether the judgment debtor's assets are in the possession of the third party or the third party is indebted to the judgment debtor.

The Trial Court Allowed the Judgment Creditor Broad Discovery to Aid Enforcement of the Judgment

In Yolanda's, the trial court entered a judgment against Kahl & Goveia Commercial Real Estate ("KGCRE"), Rocklin Covenant Group, and K&G/Seabridge II, LLC, for breach of a commercial lease. The judgment was subsequently reversed as to KCGRE, but Yolanda's obtained an order requiring KGCRE to appear for examination as a third party witness and issued a subpoena to KCGRE for the production of documents at the examination. During the examination, KCGRE produced documents evidencing various property transfers, but counsel for KCGRE instructed the witness not to answer questions about the location of the transferred assets because the "questions [were] beyond the scope of a third party judgment debtor's examination." The trial court disagreed and allowed Yolanda's to ask "any other questions that may assist [it] in determining the judgment debtors' true financial condition and the nature and location of judgment debtors' assets and sources of income."

The Court of Appeal Clarified that Third Party Discovery Is Not Limited To Assets in Possession of or Debts Owed By a Third Party

KCGRE appealed the trial court's order, arguing that California Code of Civil Procedure § 708.120 only allows judgment creditors to seek information from third parties about property of the judgment debtor in the third party's possession or whether the third party is indebted to the judgment debtor. The Court of Appeal rejected KCGRE's reliance on Fox Johns Lazar Pekin & Wexler, APC v. Superior Court, 219 Cal. App. 4th 1210 (2013), and Section 708.120, and, instead, found that Section 708.130 "allows any person with information leading to the enforcement of the judgment to be subpoenaed to testify in an examination proceeding in the same manner as a trial witness." The Court of Appeal further found that "Section 187 codifies the trial court's inherent power to adopt any suitable method of practice if the procedure is not specified by statute or the Rules of Court." The Court of Appeal further rejected KCGRE's argument that Section 708.120 is the "only procedure available for examining a third party," finding that California courts have established that no stone shall be left unturned in aid of enforcement of judgment.

The Court of Appeal's ruling affirms that robust discovery is available to judgment creditors in aid of enforcement of judgments and reiterates a trial court's power to craft solutions to address attempts by judgment debtors to conceal assets and frustrate judgment enforcement.