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California Appeals Court Upholds Right to Add Additional Debtor to Judgment Against Law Firm in Bankruptcy – Glass & Goldberg | Financing, Property & Bankruptcy Law
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California Appeals Court Upholds Right to Add Additional Debtor to Judgment Against Law Firm in Bankruptcy

California Appeals Court Upholds Right to Add Additional Debtor to Judgment Against Law Firm in BankruptcyOn December 19, 2014, a California Appeals Court affirmed a trial court’s ruling that amended a judgment against a law firm in bankruptcy to add a former name partner as an additional debtor.

In Danko v. O’Reilly, attorney Michael Danko filed suit against his former law firm, O’Reilly & Collins, for breach of contract and other actions and won a multi-million dollar judgment at trial. Subsequently, Danko filed a motion to add name partner Terry O’Reilly as an additional judgment debtor, alleging that O’Reilly used firm funds for personal use and transferred other assets to evade execution on the judgment.

The trial court granted Danko’s motion, finding that O’Reilly bore responsibility for Danko’s claims against the defunct firm and had used firm funds for personal expenditures rather than to satisfy the judgment.

On appeal, the First Appellate District ruled that the trial court was authorized under the Code of Civil Procedure §187 to amend the judgment to include additional debtors. The appellate court also found that the post-judgment amendment did not violate the bankruptcy’s court’s automatic stay since a bankruptcy stay does not apply to corporate officers, affiliates, codefendants, general partners or guarantors.

In addition, the appeals court found that if the bankruptcy trustee does not enforce the automatic stay, no one else may do so in the trustee’s stead. In this case, the trustee deemed the amended judgment to be legitimate and included it in the bankruptcy settlement. The bankruptcy court also agreed, approving the settlement and denying a motion by the defendant to void the amended judgment.

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