Perhaps, not surprisingly, the most difficult of the three questions is whether the sanctions-denial order is even appealable. This question is further complicated because it is a post-judgment order.
Code of Civil Procedure section 904.1 generally enumerates what judgments and orders are appealable. Section 904.1(a)(2) specifically permits appeals of post-judgment orders. However, three requirements must be met. The order must affect the judgment or relate to its enforcement, raise different issues than an appeal from the judgment and finally resolve the disputed issues between the parties. See 9 Bernard Witkin, California Procedure: Appeal §§ 135–39, at 201–206 (4th ed. 1997).
To complicate matters a bit further, sections 904.1(a)(11), 904.1(a)(12) and 904.1(b) deal directly with sanction orders. They permit appeals from orders granting sanctions, depending on the amount awarded. However, because the statute does not mention the appealability of orders denying sanctions, there is no clear directive on whether denial orders are appealable.
Thankfully, a recently published decision offers some helpful guidance on this issue. In Shelton v. Rancho Mortgage & Investment Corp., 115 Cal. Rptr. 2d 82 (2002), the court addressed the issue of whether post-judgment orders denying sanctions are appealable in light of the general subsection permitting appeals of post-judgment orders and the subsections dealing with sanctions.
Post-judgment orders generally are appealable pursuant to section 904.1(a)(2), which permits appeals from "an order made after a judgment." Despite the broad language of the section, courts have narrowed the categories of appealable post-judgment orders by imposing three requirements.
First, the order either must affect the judgment or relate to it by enforcing it or staying its execution. Lakin v. Watkins Associated Industries, 6 Cal. 4th 644 (1993); Olson v. Cory, 35 Cal. 3d 390 (1983). Second, the order must raise issues distinct from that of the judgment. Lakin; Rooney v. Vermont Investment Corp., 10 Cal. 3d 351 (1973). And third, the order must be final and not subject to further review in the trial court. Lakin.
In Lubetzky v. Friedman, 228 Cal. App. 3d 35 (1991), the court looked at these requirements in a case involving a post-judgment sanctions order. The plaintiff filed a tort action against the defendants, which was dismissed after the trial court sustained the defendants' demurrer. The dismissal was affirmed on appeal, and the defendants were awarded costs on appeal. After the defendants filed their memorandum of costs, the plaintiff moved to tax those costs. The trial court reduced some of the costs, and the plaintiff appealed.
The appellate court modified the order taxing costs and again awarded the defendants costs on appeal. The defendants filed their memorandum of costs. The plaintiff again moved to tax costs and also requested sanctions. The trial court denied the plaintiff's motion in its entirety. The plaintiff once again appealed.
In the context of the second appeal, the court did not reach the merits of the order denying sanctions because it had "serious doubts" about whether the order was appealable. The court did not believe that the appeal of the order denying sanctions met the requirements for an appealable post-judgment order.
The court reasoned that if the preceding judgment was the order dismissing the plaintiff's case, then the order denying sanctions did not affect the trial court's dismissal order. It also indicated that if the preceding judgment was the order denying the plaintiff's motion to tax costs, then the order denying sanctions presented the same issues as an appeal from the order denying the motion to tax costs. Either way, the sanctions denial order did not meet the requirements for appealability imposed by section 904.1(a)(2).
Two years after Lubetzky was decided, the California Supreme Court discussed the appealability of a post-judgment order denying attorneys' fees in Lakin. Having obtained a favorable judgment, the plaintiff in Lakin requested attorneys' fees to recover the fees that she had to expend to prove facts that the defendant refused to admit during discovery. The trial court denied her motion, and she appealed.
The Court of Appeal held that the post-judgment order denying the requested fees was not appealable because the post-judgment order left the judgment intact and did not add or subtract from it. Therefore, it dismissed her appeal.
After granting the petition for review, the Supreme Court examined the appealability requirements for post-judgment orders and focused on the requirement that the order either must affect the judgment or relate to it by enforcing it or staying its execution.
The Court noted that simply looking at whether an order adds or subtracts from a judgment did not fairly account for this requirement. If adding or subtracting was the sole inquiry, then a post-judgment order awarding fees would be appealable, while an order denying fees would not be appealable. This did not make sense. The Court thus refined the analysis further and found that post-judgment orders that neither add to nor subtract from a judgment are appealable, so long as they affect the judgment or relate to its enforcement.
The Court then held that a post-judgment order denying attorneys' fees should be appealable because it finally determined the rights of the parties and related to the enforcement of the judgment.
Subsequent to Lakin, subdivisions (a)(12) and (b) were added to section 904.1 to allow appeals from orders directing payment of sanctions. Section 904.1(a)(12) permits appeals from "an order directing payment of monetary sanctions . . . [if] the amount exceeds five thousand dollars," while section 904.1(b) permits appeals from sanction orders of $5,000 or less after entry to final judgment.
This addition added a new twist to the appealability issue because it specifically allows appeals for orders granting sanctions but is silent about whether denials of sanctions are appealable.
After these statutory changes and with the benefit of the Supreme Court's reasoning in Lakin, the Shelton court revisited the issue of the appealability of post-judgment orders denying sanctions. Shelton involved a $90,000 personal loan from Shelton to her mother, to be secured by a half-interest in the mother's property.
The mother, through a series of fraudulent activities, transferred the property back to herself and borrowed additional funds from lending institutions. These events spawned several different lawsuits in state and federal court between Shelton, her mother and the lending institutions.
In the main lawsuit, Shelton sued her mother and one of the lending institutions for fraud, to quiet title and for a partition of the property by sale. The lending institution defaulted, and the court entered judgment for Shelton in July 1993, ordering the property be sold. After years of litigation, Shelton sought sanctions against the lending institution for engaging in frivolous and delaying tactics designed solely to thwart enforcement of her 1993 judgment. The trial court denied Shelton's request, and she appealed.
The lending institution moved to dismiss the appeal, arguing that the trial court's post-judgment order denying the sanctions was not an appealable order because the express provisions of section 904.1 permitted only appeals of orders granting sanctions.
The Court of Appeal rejected that argument, noting that the sanctions-denial order could be appealed because it met the standard for appealability under section 904.1(a)(2). With regard to that section, the lender contended that the order could not be appealed because it did not actually affect the underlying judgment or relate to it consistent with Lubetzky.
Once again, the Shelton court disagreed and instead adopted Lakin's reasoning that post-judgment orders that make final determinations of the rights and obligations of the parties are appealable even though they do not necessarily add to or subtract from the underlying judgment.
Applying that standard, the court found that the trial court's post-judgment order denying Shelton's request for sanctions was appealable under section 904.1(a)(2) because the order was a final determination of the rights and liabilities between the parties, was not preliminary to some later proceeding and could not be appealed separately in the future.
Shelton clarifies that post-judgment orders denying sanctions are appealable, even if those orders literally do not add or subtract from an underlying judgment. The holding in Shelton should not be perceived as creating a conflict with Lubetzky.
To begin with, Lubetzky did not directly hold that post-judgment orders denying sanctions are not appealable. Moreover, the Lubetzky court did not have the benefit of the Supreme Court's refinement of the appealability standard in Lakin. Shelton thus provides clear guidance on the appealability question in light of the controlling law.