Shedoudy v. Beverly Surgical Supply Co.

Foothill Capital Corporation (Foothill) was a finance company that extended about $2.7 million in credit to Pacific Coast Medical Enterprises (PCME) and PCME’s numerous subsidiaries, including Beverly Surgical Supply Company (Beverly) and Clark Hospital Supply Corporation (Clark) (defendants). As security, Foothill took a security interest in PCME’s and its subsidiaries’ accounts receivable, equipment, and inventory. Thereafter, Benjamin Shedoudy and others (the judgment creditors) (plaintiffs) sued Beverly and obtained a favorable judgment in the amount of $50,427.69, inclusive of attorney’s fees. The judgment creditors subsequently added Clark as a judgment debtor. Pursuant to a writ of execution, the sheriff levied on Clark’s bank account and received $22,135.94. Before the sheriff paid the levied funds to the judgment creditors, Foothill served the sheriff with a third-party claim alleging that the levied funds were subject to its security interest. The judgment creditors moved for an order declaring that Foothill’s third-party claim was invalid as to Clark’s assets and requiring a marshaling of assets of debtors other than Clark. The trial court held two hearings on the motion. During the hearings, evidence was presented indicating that PCME and its subsidiaries exchanged money freely with one another on an as-needed basis and that Clark had dissipated substantial assets after it was added as a judgment creditor. Further, although testimony was presented describing problems with PCME’s collection of accounts receivable, other evidence suggested that PCME had approximately $10 million in net assets after deductions. The trial court granted the judgment creditors’ motion. Foothill appealed and argued that applying the marshaling-assets doctrine was improper because Clark had only one fund, the doctrine’s application would impose a risk of loss upon Foothill, and Foothill was not foreclosing on Foothill’s senior lien.