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MCA Financial v. Enterprise Bank (CA2 12/30/14)

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Maybe this was an appealable order but it’s a stretch and the court’s labored analysis does little to help sell the idea.

Enterprise was sued for debt under a deed of trust that called for a receiver to be appointed. The court appointed Itkin, an MCA employee. MCA put up Itkin’s bond and Enterprise paid MCA for his services and those of other MCA employees. Itkin then moved to another firm and continued as the receiver. When Itkin made his receiver’s report to the court Enterprise objected that it had been overcharged; it asked the court to order MCA to disgorge fees. Since it wasn’t a party to the case MCA filed a special appearance to object. The court ruled for Enterprise. MCA filed a motion to intervene so that it could appeal, then appealed before the motion was heard.

The Court of Appeals first looks at two jurisdictional questions: whether MCA can appeal and whether the order is appealable.

It finds that MCA can appeal. A non-party with a “direct, substantial, and immediate” interest who “would be benefitted by reversal” can appeal. This is not new law; the court takes it from an old case.

As to appealablility, MCA relied on 12-2101(A)(4), under which appeal can be taken from “a final order affecting a substantial right made in a special proceeding or on a summary application in an action after judgment.” The court decides that the disgorgement order was final by analogy to cases holding that an order to a receiver to pay a claim is final. It decides that Enterprise’s disgorgement motion (which it refers to as “the disgorgement proceeding”) was a “special proceeding”  by relying on language from Johnson (1948) that when someone “institutes a proceeding against the person in charge of the funds to obtain moneys from the receivership or estate,  . . . such action is a separate proceeding in the same sense that it would have been had an independent suit been filed.” Why is the equivalent of an independent suit the equivalent of a special proceeding? Because Black’s Law Dictionary says that a “special proceeding” is “[a] proceeding that can be commenced independently of a pending action and from which a final order may be appealed immediately.” So a special proceeding is something that can be appealed and this is appealable because it was a special proceeding. Got that?

For some reason the court then spends a paragraph deciding that the “after judgment” language of the statute doesn’t apply to the “special proceeding” clause even though there is an “or” between them and even though the court admits that “a plain reading” of the statute indicates that they’re separate notions and even though entertaining the possibility that “after judgment” goes with “special proceeding” throws into question the court’s “special proceeding” analysis (the court doesn’t mention that last part).

Analyzing the substantive issue, the court points out that MCA was never served with anything in the lawsuit, including the disgorgement motion (which it now refers to as a “disgorgement motion”). “Therefore, under basic principles of due process and in personam jurisdiction [MCA] was not subject to the trial court’s jurisdiction.” The trial court had jurisdiction over the receiver but the Court of Appeals finds as a factual matter that the trial judge was clearly in error to think that anything or anyone other than Itkin was the receiver. That’s because when Itkin left MCA MCA didn’t move to amend the order appointing the receiver, it merely filed a notice of Itkin’s change of address. So the forms that MCA did or didn’t file control its substance. Got that?

In a footnote the court mentions that the various things that MCA – rather than Itkin – did “may have caused confusion regarding the receiver’s identity” but it was, evidently, clearly erroneous confusion. But if its clearly erroneous then how . . . well, let’s just not go there.

The court denies fees to MCA because since it wasn’t the receiver it had no contract with Enterprise.

(link to opinion)

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Azore v. Bassett (CA1 12/18/14)

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We think we can figure out why the court did this. What we can’t figure out is why it didn’t say so.

The plaintiff’s decedent died after falling in a nursing home. She sought discovery of documents from the home’s quality assurance committee. The home resisted this based on a federal statute requiring that it have such a committee but protecting committee records from discovery. The trial court ordered production; on special action Division One rules that some of the documents were protected committee records, though emails with and reports from other people were not.

If you’re an elder-law-litigation type, or if you’ll love reading about 42 U.S.C. §1396r(b)(1)(B), then click the link below and dive in. We’re not and didn’t and that’s not what this blog is about; what interests us is that the Court of Appeals considered the case at all.

The problem is that the nursing home didn’t cite the right statute to the trial court. The Court of Appeals specifically finds that it “did not sufficiently argue §1396r before the trial court.” Yet the court accepts the special action, reverses the trial court in part, and grants relief, all on the basis of a statute purportedly not argued below.

Why? The court spends a long paragraph trying to explain this.

It cites a case for the proposition that appellate courts “may address waived issues to uphold a trial court’s ruling.” But this opinion reverses, in part; not addressing the waived issue would have upheld the trial court’s ruling.

The court cites a case for the proposition that it can apply “a legal principal . . . not raised before the trial court” if that “would dispose of an action on appeal and correctly explain the law.” But this is not an appeal; the matter need not be heard to be disposed of. An opinion based on the wrong law is not required. And even if it were an appeal calling for an opinion, a memorandum opinion could base the result on what was argued below while doing no damage to the law.

The court cites a case for the proposition that “[W]hen . . .  considering the interpretation . . . of statutes, we [cannot] be limited to the arguments made by the parties if that would cause us to reach an incorrect result.” “Because we view the §1396r argument as . . . correct . . .  we exercise our discretion to address it.” Sounds noble, doesn’t it? But since when is the “correct” result in an adversary system independent of the adversarial process? Why do we bother to file memoranda and briefs if the courts can use issues the parties chose not to or didn’t properly present? How have courts lost the ability to point out when necessary, even in a published opinion, that the result in a particular case resulted from the issues and arguments raised in it and would not necessarily obtain in other cases? But even that is beside the point; in this case the parties didn’t cite the wrong law to the court. The nursing home cited the right law – in what plaintiff argued, and the court agreed, was a patently defective way.  And nothing that either party did would require an incorrect result – even if you think of “correct” in a sort of Cartesian sense, removed from the earthly reality of the parties’ case – since the court was not required to reach any result.

The court has by this opinion established the principle that there are some cases in which not making an argument below will justify denying relief and some cases in which it will justify granting relief. The court can, it its “discretion,” consider that a waived argument was not waived if it deems the argument “correct.”

This of course does more damage to the law than any other disposition would have.

The pity is that the court could have avoided this almost completely just by explaining itself properly. The two statutes – the one the nursing home argued to the trial court and the one it argued to the Court of Appeals – are identical. They appear in different sub-sub-subsections of the statute (at one or two points the court itself gets confused about where the parentheses should go when citing them, though by the time you read the opinion this may have been corrected by one of those unannounced amendments that the Court of Appeals favors nowadays). Both protect the records of the quality assurance committee; one applies to “nursing facilities,” the other to “skilled nursing facilities.” But there is no suggestion that Congress intended to give them different levels of discovery protection; that it used identical language for both obviously suggests the opposite. To say that the home “did not sufficiently argue §1396r” may be correct in a hyper-technical sense but is entirely misleading. The trial court had before it the same issue that the Court of Appeals did, applying the same statutory language in essentially the same context. That the statutes have different numbers made no difference to the analysis.

That’s why the nursing home didn’t really waive the argument, that’s why considering it was appropriate, and that’s what the court should have said.

Thus endeth this year’s rants. We’re on vacation. Happy Holidays.

(link to opinion)

Madrid v. Avalon Day Care (CA1 11/18/14)

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The question here is whether the Court of Appeals has jurisdiction over a judgment stating that “no further matters remain pending” in the Superior Court, pursuant to Rule 54(c), even though matters remain pending in the Superior Court. If you can’t guess the result then you score no points and forfeit any you may have managed to get so far.

The trial court gave defendants summary judgment on some claims and granted their motion to compel arbitration of the rest. Plaintiff appealed. The judgment contained the Rule 54(c) language. (54(c), you no doubt recall, is the new companion to 54(b).) But an order compelling arbitration isn’t appealable and merely suspends the case. Somebody (the opinion says “Defendants”; at least it does at the moment, what it will say next week we don’t know – these things have a way of changing nowadays) argued that the court had jurisdiction anyway because the judgment contained the language. Without citing cases the court says that “A statement that a judgment is final pursuant to Rule 54(c) when, in fact, claims remain pending does not make a judgment final and appealable.” We agree that no citation should be necessary, though it’s a bit strange not to point out that the 54(b) cases came to the analogous conclusion long ago.

Speaking of which, the next section of the opinion says that this judgment had no 54(b) language so its not appealable under that rule, either. Plaintiff (is what the opinion says this time) asked the court to suspend the appeal so that she could amend the judgment (presumably so that she could appeal just the summary-judgment stuff); the court points out that that’s a possibility under 54(c) but not under 54(b).

The court had already dismissed the appeal by an earlier order; this is the follow-up opinion.

(link to opinion)