Waking From a Litigation Nightmare

Last month, “Legal Files” gave a behind-the-scenes report on the settlement of the Cunningham Corvette case, explaining how hard it is to really be a winner in litigation and why settlements almost always make sense (September 2015, p. 70). This month, it’s the other side of the story — an example of a plaintiff taking it all the way and coming out on top. Five years ago, “The Nightmare of Litigation” (May 2010, “Legal Files,” p. 32) reported on a 1953 Ferrari 212 Vignale deal gone bad. “Ed” had given a $25,000 deposit to a California broker representing a seller in Japan. Ed traveled to Japan to inspect the car and didn’t like it. The broker refused to refund the deposit and litigation ensued. At the time of the 2010 article, Ed had just received a judgment against the broker and the Japanese owner for $25,000 plus his travel expenses to Japan and attorney fees of $90,845. According to Ed, that turned out to be just the beginning of the story. Here is his version of what followed.

California appeals

Outraged by the decision, the broker appealed. After cycling through several attorneys, the broker ended up writing his own briefs before the California Supreme Court. That produced the predictable result — a full affirmation of the trial court’s decision. With no further legal proceedings available, it became a matter of how Ed would collect his money from the broker. Ed’s judgment created a lien against the broker’s California residence, but it was heavily encumbered and Ed received foreclosure notices from the prime lender about twice per year. The broker was managing to stave off foreclosure, so perhaps the house would pay off later. Ed got word that the broker had been involved in a car crash, caused by a driver who had been drinking. The broker had been injured and had filed a major lawsuit, claiming that he had suffered brain damage that left him unable to work. Ed’s attorneys attached the lawsuit proceeds. The broker had filed a claim with the California State Victims’ Compensation Fund, which paid him $100,000 and received a lien against the lawsuit proceeds. The broker’s two sets of lawyers also claimed liens against the lawsuit proceeds. Eventually, the driver’s and the broker’s insurance companies told everyone that, between them, there was only $250,000 of coverage, and they were willing to just pay it to be left alone. That set up a squabble among the claimants as to how to divide the money. In the end, the lawyers got paid, Ed received $127,000, the Victims’ Fund accepted about $20,000, and the broker got nothing further. However, an Internet search indicates that the broker is now back at work.

Proceedings in Japan

At first, Ed had a lot of sympathy for the Japanese owner, who never saw any of the money and probably didn’t do anything wrong — other than pick the wrong broker. So he wrote to the owner and explained the situation, and asked him to push the broker to resolve the matter by refunding the $25,000 deposit. When the owner did nothing, apparently accepting whatever story he heard from the broker, Ed lost his sympathy and hired a very capable Tokyo law firm to pursue collection efforts against the owner. The owner refused to pay, challenging the validity of the California judgment. (Once a judgment becomes final, that is the only way the judgment debtor can avoid collection efforts in another state or country.) The owner claimed he knew nothing about the lawsuit, had never been served, and was not even in the U.S. at the time.

Served during Monterey Car Week

Ed was able to produce plenty of documentation to prove all of that was untrue. The final issue then became whether the owner had been properly served while in California. Ed produced the process server, who remembered the sequence of events quite well. He wasn’t about to forget much, as he served the lawsuit summonses on the owner and the broker at The Quail, A Motorsports Gathering, during Monterey Car Week. The court nonetheless expressed some misgivings about the technical validity of the service. However, the court pointed out that it didn’t really matter all that much, as Ed could simply serve the owner again in Japan and start new proceedings. That caused the owner to see that he was facing a lot of additional legal expense that would likely lead to a dead end, so he settled the claim by paying Ed $230,000 — by this time, the additional costs and expenses and the 10% interest that was accruing on the judgment had brought the amount owed to almost $300,000, even after crediting the $127,000 collected from the broker’s insurance settlement.

Money recap

Ed has not only stood up for his principles, but he has actually done quite well with this. His legal fees so far total about $300,000, but he has collected $357,000 on his judgment. And, with that 10% interest accruing on the judgment, the broker still owes him about $170,000, which increases daily. Ed hasn’t been getting any foreclosure notices on the broker’s house lately, so he is optimistic that the real estate market has improved enough that the house might become a source of payment. The broker seems to be seeing the same handwriting on the wall. After the Japanese owner settled, the broker contacted Ed’s attorney asking for a release of the lien, thinking that the matter had ended. He flew into a rage when he was told that he still owed $170,000.

Defamatory barrage

The latest development is that Ed is now facing a public-relations barrage. Numerous Internet and social media posts have made very defamatory statements about Ed, and anonymous emails with those statements have been received by many of his business associates. Ed can’t trace them to the real sender, as they come from multiple dummy companies and addresses and untraceable sources. So all he can do is persevere.

Was it worth it?

“Legal Files” posed that question to Ed. He admits that everyone he knew initially told him, “Forget about it. It’s only $25,000. A lawsuit just isn’t worth it.” But Ed couldn’t just let the broker get away with it, and he had to stand up for his principles. Still, he had his doubts when he first got started with the litigation. “But if the broker had not responded so venomously, and had he not attacked my character and my attorney’s character from the start, I very well might have just let it go.” So, Ed is our other side of the story. He fought the legal battle and came out ahead, proving that it is possible to stand up for your principles and win in litigation. As much as we cheer him on, “Legal Files” is not ready to recommend this to everyone. Ed had several good things going for him. At the start, he knew that he was spending money he might never get back. He was willing and able to do that to prove the point, and any money recovered would be the icing on the cake. An astute businessman, Ed viewed this as just another project the whole time, and didn’t get stressed out and lose sleep about the litigation. He was able to keep his focus on the target, and he didn’t get worked up about the broker’s antics. Ed also had a reliable source of recovery in the Japanese owner’s deep pockets. There was little doubt that he could afford to pay the judgment, so getting to that end was the only question. Finally, Ed got lucky. The broker’s car crash that produced $127,000 was impossible to predict. The broker could have lost his house to foreclosure and declared bankruptcy to wipe out Ed’s judgment, but he somehow managed to hang on. Take those events away, and the outcome isn’t so good. Of course, the owner is kicking himself about this. He had the early opportunity to make the whole thing go away for $25,000 but passed it up. Whether his mistake was thinking Ed would just go away or putting his faith in the wrong broker, he definitely made the wrong choice. He doubled down on that error when he missed his second good chance to resolve this, right after he got served. At that point, any logical person would realize that Ed was not going to go away and that he was in for a legal battle that would cost more than the $25,000 at stake. He could have offered to pay the $25,000 and reimburse Ed’s legal fees, which anyone in Ed’s position would likely accept — and then try to work something out with the broker, who was still expecting to earn a commission from the sale of the Vignale. Instead, the owner in Japan rolled the dice, and it ended up costing him 10 times as much. So maybe we’ve come full circle. Ed may have come out okay, but the litigation has still been a nightmare for the other guys. ♦ John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.