Photo by Quintin Gellar
Or More Appropriately, You Can Have Your Boat and Keep Your House Too
I have a confession. In every chase movie I’m quietly pulling for the person being chased. The third quarter of this year delivered such a case and so, I read Davis Boat Manufacturing-Nordic, Inc. v. Smith, 95 Cal.App.5th 660 (2023) with a small amount of pleasure. But it’s certainly the kind of case that fairly justifies handwringing about the business climate in California.
Weldon Smith, Jr. bought a boat on credit in late 2012.[1] The terms had a lot of standard provisions (e.g., security interest in the boat) but it wasn’t a standard, amortized loan of several years with a bank.[2] The loan was twelve monthly payments with a final payment due in October 2013.[3]
Smith defaulted on the loan.
In September of 2016, Davis Boat Manufacturing-Nordic, Inc. (“Davis Boat”), who appears to be the seller and the creditor, filed a breach-of-contract lawsuit against Smith, alleging that he only paid $39,500.00 of the $156,562.50.[4]
In July of 2017, a preliminary injunction was granted in the case that restrained Smith from “(a) transferring any interest by sale, pledge, or grant or security interest or otherwise disposing of, or encumbering; (b) concealing or hiding; and (c) impairing the value of” the boat and trailer.[5]
In December of 2019, a jury returned a unanimous verdict in favor of Davis Boat and against Smith in the amount of $189,900.[6] Davis Boat was also awarded $12,024 in costs and $188,286 in attorney's fees.[7]
It’s unclear from the record why Davis Boat delayed filing the complaint, but doing the math, Smith enjoyed possession of the boat for just over seven years before the verdict was returned. And when Davis Boat attempted to repossess the boat to satisfy the judgment in late 2020, it appears the boat could not be found. In December of 2020 (i.e., after eight years of boat possession) Smith was held in contempt of court for hiding the boat.[8]
Stymied in their collection efforts, Davis Boat turned to foreclose on Smith’s home to satisfy the debt. Stanislaus County Sheriff's Office performed a levy.[9] The application was filed with the superior court. On June 28, 2021, the superior court issued an “ORDER TO SHOW CAUSE WHY ORDER FOR SALE OF DWELLING SHOULD NOT BE MADE.”[10] In lay terms, here’s your last chance to tell us why your home shouldn’t be sold to satisfy this debt.
Smith filed an opposition to the sale,[11] pointing out that during the pendency of the case and during the COVID-19 pandemic, the California State Legislature enacted Assembly Bill No. 2463 January 1, 2021) which includes the following provision:
Notwithstanding any other law, the principal place of residence of a judgment debtor is not subject to sale under execution of a judgment lien based on a consumer debt unless the debt was secured by the debtor’s principal place of residence at the time it was incurred. As used in this subdivision, “consumer debt” means debt incurred by an individual primarily for personal, family, or household purposes.[12]
Davis Boat argued that the judgment debt wasn’t a consumer debt and that the state legislature was concerned with protecting vulnerable, low-income families from homelessness induced by creditors selling their homes to satisfy debts over student loans, washing machines, refrigerators, and the like.[13]
The superior court didn’t buy the argument. Though the court seemed to concede that this had been the intent of the Legislature, it found that the statute wasn’t ambiguous and that a similar bifurcation of goods versus luxury goods in the Bankruptcy Code was effectively only concerned with whether such goods were recently acquired or not.
Davis Boat appealed.
At the appellate level, Smith—who appeared in propria persona—urged the court to “uphold the trial court's decision” in view of the “plain and unambiguous” terms of section 699.730 of the California Code of Civil Procedure.[14]
Davis Boat argued, in brief:
· More or less repeating its argument, that the legislature intended for the prohibition on the sale of a debtor’s primary residence to only apply to debt incurred to purchase goods or services reasonably necessary for [a debtor's] support or maintenance of that of his dependents.[15] The appellate court disagreed, finding no such restriction in the statute.[16]
· That the law was unconstitutional because it retroactively impaired obligations in a contract.[17] The appellate court disagreed, finding that the legislature can modify remedies which modify procedure so long as other remedies continue to exist.[18] In this instance, the appellate court noted there were still open remedies (i.e., garnishment).[19]
· That the law was unconstitutional because the second portion of the law in question (i.e., section 699.730(b)) allowed financial institutions owed $75,000 or more on a consumer debt to sell a debtor’s primary home and this distinction between a creditor like Davis Boat and a financial institution violated the Equal Protection Clause.[20] The appellate court ruled there was at least a rational basis for the legislature to make a distinction between a creditor like Davis Boat and regulated financial institutions and therefore this was not a violation of the Equal Protection Clause.[21] The appellate court upheld the superior court and blocked the sale of Smith’s home.[22] In some respects, I have already written more about this case than I should as I cannot imagine it will have a lot of impact. Generally, a party seeking to force the sale of a judgment debtor’s home to collect on a judgment debt that stems from a consumer debt in excess of $75,000 will be a financial institution. Though Davis Boat is likely of limited impact, it will undoubtedly be cited for the breadth of its interpretation of section 699.730(a). As I confessed at the beginning, I am often rooting for the person being chased in the movies, but here I have trouble. Yes, the “little guy” Smith prevailed, but how can I really cheer for him after he violated the order prohibiting him from impairing the value of or concealing the boat? And if the counter party had been J.P. Morgan, Smith would have lost under section 699.730(b)), which highlights that Davis Boats isn’t exactly the Establishment either. In that respect, the case is just another example of how COVID-era policies maddeningly favored gargantuan business interests. From a strategic perspective, I think the case suggests to bring your breach of contract claims as soon as possible. Why did Davis Boat wait so long to file a complaint? Had it filed in mid-2013, the case would have been completed and Smith’s home would have been foreclosed upon far in advance of the new bill from the state legislature. For the record, I am not claiming that Davis Boat should have had prescience about this particular law coming into effect, I am only stating that is often said that delay favors the defendant. In the real world of course, perhaps Davis Boat needed financing to pursue the case, perhaps the first lawyer became ill, etc. This was not part of the opinion, so I am merely speculating. But the facts speak for themselves: the dithering ended up changing at least this facet of the outcome. My best guess is that Davis Boat did not want to pursue the case but as the statute of limitations started to bear down on them, they took the plunge. Much like the old axiom that you can’t be half pregnant, you cannot half-file a lawsuit, and waiting to file will not make it easier. Value is in the Eyes of the Beholder Over the summer, I obtained my license to practice law in Wisconsin, so I occasionally check the cases there too. In the third quarter, there was an interesting case involving a judgment debt stemming from a defamation case on the Sandy Hook matter. In Pozner v. Fetzer, 959 N.W.2d 89 (Wis. Ct. App. 2021), the parent of a child killed in the Sandy Hook mass shooting sued James Fezter for defamation after he published statements asserting that the child’s death certificate was a “fabrication.”[23] The jury awarded $450,000 on the defamation claim.[24] In order to collect upon the debt, the plaintiff (now judgment creditor) filed a motion for a turnover of property.[25] In this instance, the property in question was four editions of a book, "Nobody Died at Sandy Hook" and four website domains, all associated with Fetzer.[26] In brief, three things happened at the circuit court. First, the circuit court considered Fezter’s argument that he did not own the copyright because he had compiled portions from other contributors. In the end, it agreed with Pozner’s assertion that the copyright to a collective work still resided in the person who compiled the work. And further, it reasoned that even if full ownership did not reside with Fetzer, it could order a transfer of whatever rights did reside with Fetzer.[27] Second, conversations occurred about the appropriateness of a receiver being appointed.[28] Counsel for Fetzer stated "this may be a set of circumstances" in which "appointment of a receiver would be appropriate to untangle some of the valuation and specifics of the property behind this and other owners."[29] Counsel for Pozner effectively dodged the question by not opposing the concept but suggesting that Fezter could make a motion for an appointment of a receiver. And the circuit court found that the expenditure and additional financial resources in the case did not warrant the appointment of a receiver.[30] Third, the circuit court asked Pozner to give a value on the four editions of “Nobody Died at Sandy Hook” and based on royalties Fetzer stated he received from the first edition, Pozner pegged the value at $100,000.[31] Fetzer refused to stipulate to the amount. At one point in the hearing, he alleged that the works had zero value.[32] At another point, he alleged that Pozner wanted the works for some other motive, perhaps a nefarious one. The circuit ruled that the property be turned over immediately, but that Fetzer had sixty days to submit an appraisal.[33] Fetzer did not submit an appraisal in this time period, which in my opinion, was fatal for reasons which will be discussed below. On appeal, the only issue that the court seriously considered was Fezter’s contention that a receiver should have been appointed. The appellate court ruled that under section 813.16 of the Wisconsin Statutes, a circuit court "may" appoint a receiver under the following potentially pertinent circumstances:
(1) On the application of either party, when the applying party establishes an apparent right to or interest in property which is the subject of the action and which is in the possession of an adverse party, and the property or its rents and profits are in danger of being lost or materially impaired.
(2) By the judgment, or after judgment, to carry it into effect or to dispose of the property according to the judgment.[34] The appellate court found that the circuit court had properly exercised its discretion because Fetzer had not applied for the receiver before the hearing, had been ambivalent about the receivership at the hearing, and did not acknowledge the discretionary nature of the appointment in his appeal.[35] Moreover, it discarded his arguments that a receiver would demonstrate the value of the property to be zero because he had failed to submit an appraisal.[36] The appellate court was correct here, but wholly on procedure. The parties, of course, were not merely rational actors collecting on a routine commercial debt. So, it (sort of) made sense for Fetzer to posture at the circuit court the writings had zero value: it appears his motive was to prevent transfer of the book to Pozner. I believe it was a major error to not submit a valuation of the book after the circuit court ordered the book to be transferred. I am speculating on the facts, but presumably the valuation itself could have essentially served as a submission of the type of evidence demonstrating that the book was an asset in need of a receiver. For the example, the valuation could have presented a range of values and multiple scenarios depending on the efforts undertaken to commercialize any remaining portions that had value. Further, if the valuation put forth any credible basis (however thin) for a higher valuation range then perhaps Pozner would have stipulated to it or perhaps the court would have “split the baby with the bathwater” and valued the book at an amount between the two parties.[37] In either event, Fetzer would have the judgement reduced.[38] And paying down this judgment with the carcass of a book seems preferrable to payment of the judgment with other assets. There’s not much of a strategic or practice point here. But if there were it would echo Woody Allen: “Eighty percent of success is showing up.” Undoubtedly, Fetzer may have been exhausted by this point in the legal process, but skipping this appraisal was the equivalent of not showing up. Hidden Dangers Not Fault of Landowner Who Knew and Failed to Fix In September of 2014, a roofing contractor alerted the property manager of a shopping plaza that the roof access cover (also referred to as a “hatch” or “roof hatch”) did not close properly because a spring was broken, making it heavy and dangerous to open and close, and that the adjacent roof ladder did not meet OSHA specifications because it stopped two feet from the roof.[39] The roofing contractor advised that the cost to repair these issues was $3,353.[40] These repairs were never made. In August of 2016, (nearly two years later) an electrical technician stopped at the shopping plaza as part of his employer’s maintenance route.[41] He noticed that the exterior lights were still on, which he attributed to an incorrectly set time clock or a malfunctioning photocell. A security guard let the technician into the locked electric room. The lights would not turn on, but the technician said there was enough light to “distinguish what was on the electrical panel” and to “get around.” There was not a timer in the room, so the technician decided to go to the roof to inspect the photocells. After inspecting the fixed ladder he began to climb it. At the top he pushed open the roof hatch with one hand; it seemed to lock into place. Because the ladder did not go all the way to the roof, the technician grabbed the frame of the hatch, and swung one leg over the frame. As he pulled his other leg over the frame, the hatch released and fell on him, pinning him between the hatch and the frame. Soon thereafter, while climbing down the ladder he noticed a handwritten note on the wall that said, “HATCH BROKEN! WATCH FINGERS AND HEAD ☹.”[42] Though he was able to continue working immediately after the accident, eventually he felt pain. He was later diagnosed with ruptured discs in his cervical and lumbar spine. He experienced pain, numbness, and weakness in his neck, back, shoulders, and legs, and ultimately underwent two spinal surgeries.[43] The technician filed a lawsuit against the owner of the shopping plaza and the property manager for negligence and premises liability.[44] A jury awarded the technician a verdict of over twelve million dollars.[45] For that amount, of course, the owner of the shopping plaza and the property management company appealed. In the appeal, they contended that substantial evidence did not support the jury's verdict because the evidence was undisputed that the technician knew or reasonably should have known of the hazards—i.e., that the roof hatch was broken and the ladder did not extend to the roof—and there was a visible warning of the broken hatch.[46] The appellate court cited two key rules, but I am not totally convinced they followed the first. First, they stated that the appellate court would only reverse a jury's verdict only if it is unsupported by any substantial evidence.[47] Second, the California Supreme Court has held that a hirer is typically not liable for injuries sustained by an independent contractor or its workers while on the job, except that when the hazard is concealed from the contractor, but known to the landowner, the rule must be different. A landowner cannot effectively delegate to the contractor responsibility for the safety of its employees if it fails to disclose critical information needed to fulfill that responsibility, and therefore the landowner would be liable to the contractor's employee if the employee's injury is attributable to an undisclosed hazard.[48] It’s a three-part rule: whether the (1) landowner knows or reasonably should know of a concealed, preexisting hazardous condition on its premises; (2) the contractor does not know and could not reasonably ascertain the condition; and (3) the landowner fails to warn the contractor.[49] A significant portion of the opinion scrutinized the testimony of the technician. Specifically, the technician estimated that he had opened approximately 650 roof hatches throughout his career.[50] Therefore, the court reasoned that because of his experience, he should have known that the spring mechanism on this particular hatch was broken because of the effort required to push open the hatch.[51] Next, the appellate court relied on testimony that the fact that the ladder did not extend all the way to the roof could be seen from the ground and if each rung of the ladder had been examined prior to climbing, the technician would have seen the handmade warning sign. Thus, the court relied heavily on the second phrase of the second prong—the contractor does not know and could not reasonably ascertain the condition—to overturn the jury.[52] In defense of Acosta, I do not find this decision patently wrong, but I disagree for three reasons. First, I suspect that the reason the jury verdict was so high in this case was because of the express, relevant warning that the property owner had received. This is only my suspicion, but it offends a common person to know that dangerous situation could have been fixed for $3,353 and instead a man is left with presumably lifelong injuries. Is it really equitable to apportion none of the fault to the building owner? Second, it’s just too neat of an application of “reasonably ascertain.” In the real world, I think technicians often enter rooms of imperfect lighting and while they might tug at fixed ladders to ensure corrosion or time has not weakened them, a reasonable person should be entitled to some presumption that the fixed ladder was a properly installed length.[53] And finally, the plaintiff’s expert testified that the handwritten warning was not adequate to put the technician on notice of the broken hatch because it did not comply with OSHA, looked like graffiti, and didn’t stand out from anything else that was written on the wall.[54] Ergo, the evidence existed in the record for the jury to determine (as it did, after assessing the facts) that neither the owner nor property manager notified the contracting firm of the dangerous condition. So, to sum it up, the owner and property manager had a poorly lit room, a sign that did not comply with OHSA, a ladder that did not comply with OSHA, and a hatch that they had failed to fix. They knew about all of these things in the majesty of time, but the decision hinged (pun intended) on the technician ascertaining, in media res, that the hatch was heavy.[55] Third, if these are facts that can be argued, can it really be found that the jury’s verdict didn’t rest on substantial evidence? Here, the practice point for contractors is that they are, for all practical purposes, totally responsible for the injuries of their staff. If you are a contractor, request written representations from the landowner in your agreement with them that they have not been notified of any dangerous condition on the property that they have failed to repair. Next, stress in your staff training that the landowner may not maintain the property in safe condition. Even in a scenario where the landowner knows in advance of an unsafe condition, fails to fix it, fails to inform you of it and fails to adequately notice you of it, the court may still exonerate them of all liability.
**************************************************
[1] Davis Boat Manufacturing-Nordic, Inc. v. Smith, 95 Cal.App.5th 660, 667 (2023). This boat model appears to still be sold by the manufacturer, though it has likely changed somewhat over time. See https://www.nordicboatsusa.com/boat/42-inferno/. [2] Id. [3] Id. [4] Id. [5] Id. at 668. [6] Id. at 668. [7] Id. at 668. [8] Id. at 668. Professor Thomas L. Shaffer at Notre Dame Law School was a supervising attorney at the Notre Dame Legal Aid Clinic when I was in law school. He once quipped to me “that if you can’t keep your client in their house for a year during foreclosure proceedings, you’re a bad (i.e., inept) lawyer.” May he rest in peace. His comments were certainly born from his work for hardscrabble, working-class folks about to lose their homes. I am not claiming he would have endorsed the outcome in this case, but he certainly would have marveled at the chutzpah. [9] Id. at 668. [10] Id. at 668. [11] Id. at 668. [12] Cal. Code Civ. Proc. § 699.730(a). [13] Davis Boat, 95 Cal.App.5th at 669. [14] Id. at 672; Cal. Code Civ. Proc. § 699.730. [15] Davis Boat, 95 Cal.App.5th at 672. [16] Id. at 672–76. [17] Id. at 677–78. [18] Id. at 677–78. [19] Id. at 678. [20] Id. at 678–79. [21] Id. at 678–80. [22] Id. at 680. [23] Pozner v. Fetzer, 949 N.W.2d 89, 89 (Wis. Ct. App. 2021). [24] Id. [25] Pozner v. Fetzer, No. 2022AP1751, 2023 LEXIS 1005, at *3 (Wis. Ct. App. Sept. 14, 2023). [26] Id. [27] Id. at *3–6. [28] Id. at *6–7. [29] Id. at *6. [30] Id. at *6–7. [31] Id. at *7–9. [32] Id. at *8. [33] Id. at *10–11. [34] Wis. Stat. § 813.16; Id. at *16–17. [35] No. 2022AP1751, 2023 LEXIS 1005, at *17–20. [36] Id. at *19–20. [37] I concede this might prove difficult, but experts are creative and the value of any assert is rightly subject to divergent opinions. See https://www.rollingstone.com/culture/culture-news/sandy-hook-shooting-leonard-pozner-lawsuit-james-fetzer-900334/. [38] At the risk of offending my liberal readers, in honor of the recent passing of legendary Indiana basketball coach Bobby Knight, I think at this point my advice to Fetzer might have mimicked Knight’s most controversial quote: “I think if rape is inevitable, relax and enjoy it.” At this point, Fetzer had lost his defamation case, lost the related appeals, was denied writ of certiorari from the Supreme Court, and had lost the hearing to turn over the book in question. [39] Acosta v. MAS Realty, LLC, 96 Cal.App.5th 635, 640 (2023). [40] Id. [41] Id. [42] Id. at 641. [43] Id. at 641. [44] Id. at 642. [45] Id. at 648. [46] Id. at 649. [47] Id. at 649–50. [48] Id. at 650–52. [49] Kinsman v. Unocal Corp., 37 Cal.4th 659, 664 (2005). [50] Acosta, 96 Cal.App.5th at 643. [51] Id. at 644–45. [52] Id. at 645. [53] The Acosta court relies in part upon Johnson v. Raytheon Co., 33 Cal.App.5th 617 (2019). But in that case, the ladder in question had been left behind by another contractor and there’s no suggestion that the landowner had knowledge. [54] Id. at 645. [55] The Acosta court, in part, relies upon Blaylock v. DMP 250 Newport Center, LLC (2023) 92 Cal.App.5th 863 [310 Cal.Rptr.3d 1]. But in Blaylock there doesn’t appear to be any evidence that the hazard in question was not up to code or that the landowner has been specifically informed about the condition.