October 2008

Levying on the Opponent’s Claim Against Your Client

by John H. Chun and Denise L. Ashbaugh

This article addresses an interesting but apparently little-known litigation tool: enforcing a judgment against an opponent by levying on the opponent’s claim against your client. We employed this tool just last year.1

How We Did It

Our clients were defendants in a breach of commercial contract action. The matter proceeded to trial, where our clients prevailed. The contract at issue included a fee-shifting provision, and the court awarded our clients attorney fees and costs. This award was reduced to a judgment. The plaintiff appealed but did not pay the judgment amount, claiming that it was judgment proof, and did not post any security to stay enforcement.

While the matter was on appeal, we commenced proceedings to enforce the judgment. We proceeded to levy on plaintiff’s claim against our client, i.e., we levied on the claim that had been litigated and tried, and was then pending on appeal. At the sheriff’s sale of the claim, our clients purchased the claim through a credit bid, i.e., they bid the amount owed by plaintiff on the judgment at issue. There being no other bidders, our clients purchased the plaintiff’s claim. Our clients proceeded to substitute in for the opponent in the appellate proceedings. We then moved for a dismissal of the appeal, which motion was granted, and the court of appeals never reached the merits of the case.

This article presents the legal authorities that permit the use of the foregoing tool. It then explores briefly the limitations on the tactic’s use, including one set forth in the case of Paglia v. Breskovich and potentially applicable equitable principles and public-policy concerns.

Legal Authorities That Allow Execution on the Opponent’s Claim

When any judgment of a court of this state requires the payment of money or the delivery of real or personal property, it may be enforced by execution.2 All property, real and personal, of a judgment debtor that is not exempted by law is subject to execution.3 Washington courts have recognized the breadth of the judgment enforcement laws and have allowed execution on such property as unliquidated tort claims.4 To be sure, it is clear that a party may enforce a judgment by levying on the judgment debtor’s claim or cause of action.

Regarding the issue whether a party may execute on its opponent’s claim against the party, the 1924 Washington State Supreme Court case of Johnson v. Dahlquist is on point.5 In that case, the plaintiff sued the defendants on a claim of indebtedness and obtained a judgment. On appeal, the judgment was vacated and the matter remanded for a new trial. Costs were thus awarded to defendants, who then sought to enforce this award by executing on plaintiff’s claim against them. Plaintiff moved to quash the levy, arguing, inter alia, that the asset at issue was the very indebtedness due from those making the levy. The Supreme Court rejected this argument as follows:

But it is contended that the [defendants] should not be permitted to levy upon that which they themselves owe to the judgment debtor. But why not? It is property. It is capable of being transferred. It is capable of being converted into a judgment which is subject to execution. It is an asset of the judgment debtor, and why should not his assets, whatever their nature, be taken to satisfy a judgment? We cannot see any logical reason why such property should not be levied upon.

Johnson’s 84-year-old holding remains intact today. Thus, under Washington law, one may levy upon that which they themselves allegedly owe to the judgment debtor. Given the foregoing, one is naturally led to consider the logical extensions of this tactic. As the next section discusses, equitable principles somewhat limit the tactic’s use. So, too, may certain public-policy principles. 

Limitations on the Use of the Tactic: The Paglia Case, Equity, and Public Policy

Paglia v. Breskovich. The 1974 Court of Appeals case of Paglia v. Breskovich addresses a limitation to the foregoing tool.6 There, the plaintiff, John Breskovich, sued defendant, Martinolich Shipbuilding Corporation (Martinolich), alleging breach of contract. Martinolich’s lawyer, John Paglia, obtained by assignment the judgment of a third party against Breskovich. Paglia, then sought to enforce the judgment against Breskovich, and levied on Breskovich’s claim against his client, Martinolich. The trial court denied Breskovich’s motion to set aside the sheriff’s sale, apparently under the impression that it lacked the discretion to do so. The Court of Appeals reversed, holding that the trial court possessed inherent supervisory power to set aside the sheriff’s sale, where the bill of sale effectively deprived the judgment debtor on an opportunity to establish his claim. In effect, the court held that a trial court possesses the discretion to block such a tactic when it would lead to an inequitable result.

In a concurring opinion, Chief Judge Pearson made a number of interesting additional points, including the following:

First, he indicated that “[p]ublic policy should not condone the action of counsel for one party to a lawsuit in acquiring ownership of the interest in the lawsuit of the client adversary” and noted that such practice was prohibited by the Code of Professional Responsibility, CPR 5, DR 5-103(A).7

Second, he noted that if the attorney acquires such an interest in order to win the lawsuit by means other than on the merits, the action “borders on abuse of legal process.”8 He noted: “This is particularly true where a great disparity exists between the potential value of the cause of action levied upon as compared with the amount of the judgment debt.”

We believed that our clients’ matter was distinguishable from the facts of Paglia in several material respects. First, counsel for our clients did not levy on the plaintiff’s claim; rather, our clients did so. Second, in our case, the plaintiff had the benefit of a trial and lost; in Paglia, Breskovich had not reached trial. Third, in our case, the plaintiff had the option of posting security to stay execution; in Paglia, Breskovich apparently lacked this option.

Finally, our clients arguably had equity on their side. They had prevailed at trial and had obtained an award of attorney fees and costs, which were not likely to be paid by the plaintiff, which was claiming to be judgment proof. If our clients had not been allowed to levy on the claim, and if they had then proceeded to prevail on appeal, notwithstanding the fee-shifting provision in the contract at issue, they would likely not have been able to recover their existing award of fees and costs or any additional expenses of the appeal, as there was no posted security. In effect, we believed that the plaintiff was seeking to have our clients bear an unacceptable level of litigation risk. Both the trial court and the court of appeals agreed that Paglia did not bar execution in our case.

Equity and Public Policy Limitations. Given the paucity of law in this area, it is unclear the extent to which equitable principles and public policy might limit the use of the foregoing litigation tool. Apparently, in circumstances such as those we faced, Johnson applies and the tool may be used. That is, in a commercial contract matter, where the defendant prevails at trial and obtains a judgment on an award of attorney fees and costs, that judgment may be used to levy on the plaintiff’s claim so as to put an end to the appeal. But query the circumstances when equity might dictate a contrary result. Given Paglia’s affirmance of the trial court’s discretion in these matters, it appears that, going forward, in the absence of additional guidance from legislature and the courts, a trial court will need to analyze the facts of each case, determining whether equitable principles or public policy might bar the judgment enforcement at issue.

Consider the following hypothetical situation:

A patient sues a doctor for medical malpractice, claiming $10 million in damages. The doctor discovers that, in a separate matter, a collection agency has obtained a $20,000 judgment against the plaintiff, who is apparently judgment proof. Prior to trial in the malpractice matter, the doctor purchases that judgment for $5,000, and then levies on the patient’s claim against him. The patient cannot pay the $20,000 judgment amount, and the judgment is enforced. The doctor obtains the claim and dismisses it.

Presumably, Chief Judge Pearson might have found this inequitable and contrary to public policy, as the doctor’s sole purpose in acquiring the judgment was to win the case by means other than on the merits.9 Likewise, he would presumably feel this way because of the disparity between the amount claimed by the plaintiff and the amount of the judgment debt. Perhaps readers of this article find themselves having similar views.

But what if the case regards a commercial contract rather than a medical malpractice claim? What if it involves an employment discrimination claim? What if, in the foregoing hypothetical, the plaintiff proceeds to trial, loses, appeals, fails to post security, and the doctor enforces a cost award judgment and levies on the claim while the matter is on appeal? Washington law answers neither these questions nor whether the tool may be used in the hypothetical as presented.

Conclusion

Under Washington law, one may enforce a judgment in one’s favor against the judgment debtor’s assets, including claims. The Johnson case holds that a party may levy upon its opponent’s claim against the party. But Paglia holds that this tactic is limited by equity. Where the lines should be drawn is unclear. What is clear, however, is that when one is defending against a claim, one should consider whether this tool might be employed and whether equity and/or public policy dictate against its use. 

John H. Chun and Denise L. Ashbaugh are members at Summit Law Group, P.L.L.C. They can be reached, respectively, at johnc@summitlaw.com and denisea@summitlaw.com, and 206-676-7000.

NOTES
 1. We employed this tactic in the following matters: Gada Transportation L.L.C. v. Hospitality First, Inc., Cascade Hospitality LLC, King County Superior Court Case No. 04-2-36796-4 KNT; Gada Transportation LLC v. Hospitality First, Inc., Cascade Hospitality LLC, Court of Appeals of the State of Washington, Division 1, Case Nos. 59544-0I and 587447.
 2. RCW 6.17.070.
 3. RCW 6.17.090.
 4. See, e.g., Woody’s Olympia Lumber, Inc. v. Roney, 9 Wn.App. 626, 513 P.2d 849 (1973) (unliquidated tort claim is “property” under RCW 6.17.090).
 5. Johnson, 130 Wn. 29.
 6. 11 Wn.App. 142, 522 P.2d 511 (1974).
 7. Id. at 148. DR 5-103 addresses the lawyer’s ethical obligation to avoid the acquisition of an interest in litigation the lawyer is conducting for a client, except with respect to acquiring a lien granted by law to secure fees or expenses or contracting with a client for a reasonable contingent fee. Washington’s RPC 1.8(i) imposes the same obligation.  
 8. Paglia, 11 Wn.App. at 148. To establish an abuse of process, one must show: (1) the existence of an ulterior purpose to accomplish an object not within the proper scope of the process; and (2) an act in the use of legal process not proper in the regular prosecution of the proceedings. Batten v. Abrams, 28 Wn. App. 737, 745, 626 P.2d 984 (1981). We submit that the litigation tool discussed herein — which, in contract to Paglia, involves execution by a party rather than an attorney for a party — hardly amounts to abuse of process. Rather, what is interesting here is how the proper use of legal mechanisms might yield inequitable results under certain circumstances.
 9. It should be noted that Chief Judge Pearson presented a more extreme hypothetical in his dissent in Paglia:

[L]et us suppose that the cause of action levied upon is a personal injury action in which the injured plaintiff, because of sever injuries, suffers great economic hardship while his lawsuit is pending. Let us suppose further that counsel for the defendant acquires by assignment a judgment debt for medical expenses incurred by the plaintiff as a result of his injuries. Should the law permit counsel for defendant to destroy plaintiff’s cause of action by becoming the owner of it? To ask the question is to answer it. The law should never be interpreted so as to subvert justice.

Paglia, 11 Wn. App. at 148-49.