In Liens, Sometimes Over Doesn’t Mean Over

A bankrupt Ventura County business owner cannot avoid paying for assets and profits owed to the widow of his enterprise’s former owner, despite termination of the owner’s personal liability, a state appeals court has ruled.”

“Sometimes it’s not over when it’s over,” said Justice Arthur Gilbert in an order last week by the Second District Court of Appeal in Los Angeles.

Mary McCready’s husband sold the audio/video furniture design business Billy Bags to William Whorf, then died, leaving McCready to collect the purchase contract payments.

Whorf defaulted on those, so McCready sued and secured a judgment entitling her to collect the money. Whorf could not discharge McCready’s lien in bankruptcy, but he successfully terminated his personal liability on the money judgment.

The trial court let Whorf get away with this, faulting McCready for neglecting to enforce the judgment before Whorf escaped liability on it, according to Gilbert.

Gilbert and the appellate panel took a different view. They agreed that Whorf’s bankruptcy had stamped out his obligation on McCready’s money judgment, but found that the lien on Billy Bags’ assets and profits survived, with any cash received from operations being an asset subject to the lien.

In reversing the trial court’s judgment, the panel sent the case back to the trial judge to assess damages.  The appeals court rejected McCready’s claim for recovery of gross profts, saying instead the court had to take into account Whorf’s expenses.

“Bankruptcy may give a debtor a fresh start, but it does not give a debtor life-long immunity for wrongful behavior,” Gilbert stated.

Gilbert relied on case precedent that barred a defendant from unfairly profiting when that plaintiff lost security in defendant’s property, through means outside of plaintiff’s control. In Justice Gilbert’s view, letting Whorf keep Billy Bags’ business profits after he’d skated out of finishing the business purchase would not be right.

Whorf argued that McCready could not sue him on the lien when she could have previously sued him for enforcement of the money judgment; she had missed her chance. No, said the appellate court: Here, Whorf’s dodging responsibility for the money judgment was the act that gave rise to a claim; there was no reason for McCready to sue before that. In fact, because Whorf had evaded McCready’s lien, the only way for McCready to enforce the money judgment was by suing to recoup her damages.

The appellate court also ordered Whorf to pay McCready’s costs to appeal the case.

Gilbert was joined by Justices Kenneth Yegan and Steven Perren.

Case: McCready v. Whorf, No. 56-2012-00421480-CU-CO-VTA

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