§ 20.10 Effect of Reversal On Intervening Rights in Civil Cases

• Jurisdiction: Washington

§20.10 EFFECT OF REVERSAL ON INTERVENING RIGHTS IN CIVIL CASES

This section addresses the rules and case law governing the reversal of rights of judgment creditors and purchasers in good faith, on supplemental proceedings, and on a previously filed lis pendens.

(1) The rules

RAP 7.2 provides that a trial court decision may be enforced while an appeal is pending unless the decision is superseded under RAP 8.1. RAP 7.2(c) provides in part: "Any person may take action premised on the validity of a trial court judgment or decision until enforcement of the judgment or decision is stayed as provided inrules 8.1 or 8.3."

RAP 12.8 explains that a party is entitled to restitution if that party has satisfied or complied with a trial court judgment and the judgment is reversed on appeal. The rule provides:

If a party has voluntarily or involuntarily partially or wholly satisfied a trial court decision which is modified by the appellate court, the trial court shall enter orders and authorize the issuance of process appropriate to restore to the party any property taken from that party, the value of the property, or in appropriate circumstances, provide restitution. An interest in property acquired by a purchaser in good faith, under a decision subsequently reversed or modified, shall not be affected by the reversal or modification of that decision.

RAP 12.8 provides alternative remedies: return of the property, return of the value of the property, or restitution.

The Supreme Court has interpreted RAP 12.8 in light of the common law principles in the Restatement Of Restitution §74 (1937). The Restatement focuses on the benefit conferred on the party during review, and requires payment for that benefit rather than payment for the other party's loss. In State v. A.N.W. Seed Corp.,116 Wn.2d 39, 802 P.2d 1353 (1991), the court held that on reversal, the judgment creditor must return the amount received by the judgment creditor from an execution sale of the debtor's property plus interest, rather than the value of the property that was sold. The court reasoned that a debtor wishing to protect against such losses could supersede enforcement of the judgment under RAP 8.1.

Despite the seemingly mandatory language of RAP 12.8, the court has held that a trial court's decision whether to award restitution under the rule is discretionary. Ehsani v. McCullough Family P'ship,160 Wn.2d 586, 589, 159 P.3d 407 (2007); Sloan v. Horizon Credit Union, 167 Wn. App. 514, 518, 274 P.3d 386, review denied, 174 Wn.2d 1019 (2012).

(2) Judgment creditor in possession of property

A successful appellant is entitled to recover any funds collected by a judgment creditor, whether the funds were paid voluntarily or involuntarily. In re Marriage of Mason,48 Wn. App. 688, 740 P.2d 356, review denied, 109 Wn.2d 1012 (1987). In Mason, the husband had paid a judgment for attorney fees to the wife's attorney. After the judgment was reversed on appeal, the husband sought reimbursement. The attorney argued the husband was not entitled to reimbursement because the attorney was a purchaser in good faith. The court rejected that argument, holding that restitution was an appropriate remedy. See also Sloan v. Horizon Credit Union, 167 Wn. App. 514, 274 P.3d 386 (2012) (upon reversal of award of CR 11 sanctions, judgment creditor required to repay sums paid in satisfaction of sanctions judgment).

In Ehsani v. McCullough Family Partnership,160 Wn.2d 586, the Supreme Court addressed the question of whether the judgment creditor's attorney was required to repay the funds collected from the judgment debtor under RAP 12.8 after the judgment was reversed on appeal. The court held restitution was not appropriate, explaining: "An attorney who receives funds into his client trust account, pursuant to a favorable trial court judgment, then disburses those funds as his client directs, is not liable in restitution when said judgment is reversed on appeal." Id. at 588. The court in Ehsani distinguished and limited In re Marriage of Mason,48 Wn. App. 688, 740 P.2d 356, review denied, 109 Wn.2d 1012 (1987). See Ehsani, 160 Wn.2d at 596-99.

Practice Tip: Prior to disbursing any funds from a judgment debtor, the judgment creditor and attorney for the judgment creditor should carefully review Ehsani, 160 Wn.2d 586, to evaluate the potential risk for restitution if the case is appealed.

An exception to RAP 12.8 restitution has been recognized for child support cases. In the case of In re Marriage of Stern,68 Wn. App. 922, 846 P.2d 1387 (1993), the court ruled that restitution for child support payments was not mandatory but discretionary. After an order modifying child support was reversed on appeal, the paying parent sought restitution. The Court of Appeals did not direct the trial court to restore the overpayments. Rather, the appellate court stated that the trial court "may authorize" RAP 12.8 relief. The trial court was directed to consider the amount of the excess payments, whether the payments had actually been spent on the child's support, and whether reimbursement would cause undue hardship to the child or payee parent.

If a judgment creditor is in possession of property, the successful appellant is entitled to specific restitution. RAP 12.8 directs the trial court to act to restore the property to the party. See SAC Downtown Ltd. P'ship v. Kahn,123 Wn.2d 197, 867 P.2d 605 (1994). Restitution applies whether the creditor obtained possession from a decree for specific performance or executed on the property...