Airfloor Co. v. Regents of University of California

Opinion

WIENER, J. We have seen this case before. In Airfloor Co. of California, Inc. v. Regents of University of California (1978) 84 Cal.App.3d 1004 [149 Cal.Rptr. 130], we held litigation of nonarbitrable debts exceeded the scope of the proceeding to confirm the arbitration award. [741]However, concerned with the inequity to the university if it were unable to offset Airfloor’s $100,000 judgment against any judgment obtained by it against Airfloor in another action pending between the parties, we invited the university upon remand to move the trial court to stay execution. (Airfloor, supra, at p. 1009.) Taking our advice at face value, it proceeded accordingly—unsuccessfully. It appeals from the denial of the motion, We conclude the court abused its discretion and accordingly reverse with instructions to the trial court to grant the motion.

A court has the power to stay execution of a judgment where the judgment debtor has another action pending on a disputed claim against the judgment creditor. (Erlich v. Superior Court (1965) 63 Cal.2d 551 [47 Cal.Rptr. 473, 407 P.2d 649].) The rationale for this rule is based on equitable principles for to hold otherwise unfairly deprives the judgment debtor of not only his right of set-off, but with an impecunious creditor, the right to receive any recovery whatsoever. (Id., at p. 555.) In exercising its discretion, the court must consider the likelihood of the judgment debtor prevailing in the other action and the financial ability of the judgment creditor to satisfy a judgment on the disputed claim if such should be rendered.

The only evidence at the hearing was through declarations filed by respective counsel. Based on that evidence Airfloor is insolvent. In September 1971 it had not paid $150,000 of accounts payable; the IRS had levied on it for $78,000 in back taxes; and its unaudited financial statement of December 31, 1971, showed a net deficit of approximately $521,000. We also note that on May 13, 1971, Airfloor assigned all money due from its contract with the university to Community Bank; on July 22, 1976, the judgment was assigned.

The more difficult problem involves the outcome of the action on the university’s claim now pending in the Alameda County Superior Court. If the action is frivolous, the judgment creditor’s assignee is unfairly deprived of the funds until that case is concluded. If, on the other hand, it is meritorious and there is a reasonable likelihood the university will prevail, it is equally unjust to require the university to pay the judgment.