California Legal Brief

The Rule of Navellier v. Putnam is that parties to an appeal must promptly notify the appellate court of any bankruptcy filing that "could cause or impose a stay" of proceedings, even if they believe the stay does not apply, under Local Rule 21's mandatory disclosure requirements.

Appeal from judgment after jury trial in Superior Court, City & County of San Francisco.

Defendant Appellants were Louis Navellier and Navellier and Associates, Inc. (NAI) — the investment advisor who loaned money to FolioMetrix and later sued to enforce alleged assumption of the debt.

Defendant Respondents were Donald Putnam and Grail Partners, LLC — the investment firm managing partner and entity who allegedly agreed to assume loan obligations but denied making such agreement.

The suit sounded in breach of contract and fraud. Plaintiffs also asserted claims for negligent misrepresentation and breach of the covenant of good faith and fair dealing.

The key substantive facts leading to the suit were Navellier loaned FolioMetrix $1.5 million via three $500,000 capital injections between 2013-2014, guaranteed by a promissory note executed by FolioMetrix principals Murphey and Rutherford. During merger discussions in March 2015, Putnam allegedly agreed to assume the loan obligations, but later refused to sign formal assumption documents and denied making any such agreement.

The procedural result leading to the Appeal: The trial court entered judgment for defendants after jury verdict finding no contract was formed, and awarded defendants $317,960.96 in attorney fees under Civil Code section 1717, ruling that plaintiffs sued to enforce the promissory note containing the fee provision.

The key question(s) on Appeal: 1. Whether the automatic bankruptcy stay precluded appellate review after NAI filed bankruptcy 2. Whether the trial court erred in refusing plaintiffs' special jury instructions on contract formation 3. Whether defendants were entitled to attorney fees under the promissory note when plaintiffs claimed to sue on a different oral agreement 4. Whether the attorney fee award amount was excessive

The Appellate Court held that (1) the bankruptcy stay did not apply because NAI brought the original action against defendants, not vice versa; (2) plaintiffs waived their jury instruction challenge by failing to provide adequate argument and citations in their opening brief, and any error was not prejudicial; (3) substantial evidence supported that plaintiffs sued to enforce the promissory note terms, making defendants entitled to attorney fees under Civil Code section 1717; and (4) the trial court properly exercised discretion in calculating the fee award.

The case is inapplicable when the debtor did not bring the original action but was sued by the opposing party (which would trigger the automatic stay), when appellant provides adequate legal argument and citations supporting jury instruction challenges, when plaintiffs clearly disclaim seeking to enforce a contract containing attorney fee provisions, or when trial courts fail to carefully review and reduce excessive attorney fee requests.

The case leaves open what constitutes adequate legal analysis to avoid waiver of jury instruction challenges on appeal, the precise boundaries of what constitutes an "action on a contract" under section 1717 in complex assumption scenarios, and whether different bankruptcy stay analysis would apply to cross-claims or counterclaims filed by non-debtor parties.