California Legal Brief

The Rule of Navellier v. Putnam is that appellate counsel must promptly notify the court of any party's bankruptcy that could potentially cause a stay under Local Rule 21, regardless of counsel's belief about whether the stay actually applies, under circumstances where the attorney knows about the bankruptcy filing.

Appeal from judgment after jury trial and order granting attorney fees in Superior Court of the City and County of San Francisco.

Plaintiff Appellant was Louis Navellier and Navellier and Associates, Inc. (NAI) — the lender who claimed defendants agreed to assume a $1.5 million promissory note obligation.

Defendant Respondent was Donald Putnam and Grail Partners, LLC — the parties who allegedly agreed to assume the 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 that Navellier loaned FolioMetrix $1.5 million in 2013-2014, guaranteed by Murphey and Rutherford through a promissory note. During merger discussions in March 2015, Navellier claimed Putnam orally agreed to assume the loan obligations, while defendants claimed they only agreed to properly record the loan on FolioMetrix's books. The jury found no contract was formed.

The procedural result leading to the Appeal: The trial court entered judgment for defendants after jury verdict and awarded $317,960.96 in attorney fees under Civil Code section 1717, ruling that plaintiffs sued to enforce the promissory note which contained an attorney fee provision.

The key question(s) on Appeal: 1) Whether NAI's bankruptcy stayed the appeal; 2) Whether the trial court erred in refusing special jury instructions on contract formation; 3) Whether defendants were entitled to attorney fees when plaintiffs claimed they sued on a different contract without fee provisions; 4) Whether the attorney fee award was excessive.

The Appellate Court held that counsel must promptly notify the court of any bankruptcy that "could cause or impose a stay" even if counsel believes no stay applies, the jury instruction claim was waived due to inadequate briefing, defendants were entitled to attorney fees because plaintiffs sought to enforce the promissory note despite claiming otherwise, and the fee award was reasonable.

The case is inapplicable when the debtor did not bring the original action against the other parties, when appellants provide adequate legal argument and citations supporting their jury instruction claims in their opening brief, or when parties clearly sue on a contract without attorney fee provisions and do not seek to enforce terms of a different contract containing such provisions.

The case leaves open the specific sanctions that may be imposed for violations of Local Rule 21 regarding bankruptcy notice, and whether different circumstances might justify having more than three attorneys at trial.