The Rule of Bagby v. Davis is that California law applies to collection actions in California courts regardless of where the judgment debtor lives, and that a voluntarily surrendered life insurance policy is treated as matured (not exempt) unless the proceeds are necessary for the debtor's support, under circumstances where the debtor seeks exemption from levy on accounts funded by surrendered insurance policy proceeds.
Appeal from order denying claim of exemption in Superior Court, Los Angeles County.
Defendant Appellant was Joseph Daniel Davis — the judgment debtor attorney who claimed Florida exemptions should apply to his IRAs.
Plaintiff Respondent was Douglas A. Bagby — the judgment creditor attorney seeking to collect on a $5 million malpractice judgment.
The suit sounded in enforcement of a judgment for breach of contract and malpractice. This was the fourth appeal in an ongoing dispute between two attorneys arising from Davis's representation of Bagby in a personal injury action.
The key substantive facts leading to the suit were that Bagby hired Davis to represent him in a personal injury case after losing his leg in a motor vehicle collision in 2013. After obtaining a $5+ million jury verdict, Bagby sued Davis for malpractice in 2017. Davis defaulted and Bagby obtained a $5 million default judgment in July 2020. Bagby then sought to levy on two IRAs belonging to Davis, which were funded by proceeds from a life insurance policy held in Davis's former law firm's pension plan that had been cashed out and rolled over.
The procedural result leading to the Appeal: The trial court denied Davis's claim of exemption, ruling that California law (not Florida law) governed the exemption determination, and that Davis failed to prove the IRAs were exempt under California law either as private retirement plan assets or as necessary for his support.
The key question(s) on Appeal: 1. Whether California courts have jurisdiction over IRA funds held by a custodian subject to California jurisdiction 2. Whether Florida law should apply to exemption claims because the judgment debtor resides in Florida 3. Whether IRAs funded by surrendered life insurance policy proceeds from an alleged private retirement plan are exempt from collection under California law
The Appellate Court held that California law applies to exemption determinations in California courts regardless of the judgment debtor's domicile, that a voluntarily surrendered life insurance policy is treated as matured (requiring proof the proceeds are necessary for support), and that the judgment debtor failed to prove either that the source plan qualified as a private retirement plan or that the IRA funds were necessary for his support.
The case is inapplicable when the life insurance policy surrender was compelled by court process rather than voluntary, when the debtor can prove the source plan was genuinely designed and used primarily for retirement purposes, when the judgment debtor can prove the IRA funds are necessary for support, or when collection actions are filed in courts lacking personal jurisdiction over the account custodian.
The case leaves open the precise definition of "private retirement plan" under California law, whether different choice of law rules might apply when account custodians are located outside California's jurisdiction, and the specific procedures for calculating tax exemptions under Code of Civil Procedure section 704.115(e)(3).
Counsel
For Appellant: Nemecek & Cole, Frank Wynn Nemecek, Mark Schaeffer
For Respondent: Douglas A. Bagby (pro per), James L. Keane; Stiller Law Firm, Ari J. Stiller