## Facts

- Judgment creditors obtained a money judgment against Beverly Surgical Supply Company for $42,427.69 plus interest and $8,000 in attorney fees; no part was paid.
- Clark Hospital Supply Corporation was later added as an additional judgment debtor.
- The sheriff levied under a writ of execution on a Century Bank account in Clark’s name, seizing $22,135.94.
- Foothill Capital Corporation, a senior secured creditor, asserted a third-party claim that the levied funds were subject to its prior blanket security interest under security agreements with Clark and related entities.
- Foothill had extended about $2.7 million in credit to a corporate group (including Beverly and Clark) secured by accounts receivable, inventory, and equipment.
- Evidence showed the related companies transferred money among themselves as needed and that Clark dissipated substantial assets after being added as a judgment debtor.
- Evidence also supported a finding that other entities in the group had substantial remaining assets potentially available to satisfy Foothill’s secured claims.

## Issues

1. Whether a court may order equitable marshaling of assets against a senior secured creditor even when the senior creditor is not foreclosing its lien.
2. Whether marshaling is proper where the senior creditor can look to multiple funds but the junior judgment creditor can reach only a single fund, so long as marshaling does not impose a material risk of loss on the senior creditor.
3. Whether the California Uniform Commercial Code bars marshaling in this setting or requires foreclosure as a prerequisite to such equitable relief.

## Decision

- The Court of Appeal affirmed the trial court’s order granting the judgment creditors relief.
- The court held marshaling may be ordered even absent a foreclosure by the senior secured creditor.
- The court concluded the record supported the classic marshaling conditions: the senior creditor had access to multiple funds, while the junior creditor was effectively limited to Clark’s bank account.
- The court upheld the order freeing the levied bank account for the judgment creditors and directing Foothill to resort first to other available collateral, because the marshaling did not impose a risk of loss on Foothill.

## Legal Principles

- Marshaling is an equitable doctrine that protects a junior creditor with access to only one fund by requiring a senior creditor with access to multiple funds to satisfy its claim from other available collateral when feasible.
- Marshaling is appropriate when: (a) the senior creditor can reach multiple funds, (b) the junior creditor can reach only one, and (c) the senior creditor is not subjected to a material risk of nonpayment or prejudice.
- A court may apply marshaling to resolve conflicting creditor claims even if the senior creditor has not initiated foreclosure proceedings.
- The California Uniform Commercial Code does not displace equitable marshaling or impose a foreclosure-first requirement as a condition to applying the doctrine.

## Conclusion

The court affirmed equitable marshaling that permitted judgment creditors to collect from a levied bank account held by a judgment debtor, requiring the senior secured creditor to look first to other collateral within a related corporate group where substantial assets existed and the order did not increase the senior creditor’s risk of loss.


Shedoudy v. Beverly Surgical Supply Co., 100 Cal. App. 3d 730 (Cal. Ct. App. 1980)