When more than one party is liable for injury to a third party, California law permits a responsible party who has paid the injured third party to obtain partial reimbursement from the other liable parties through equitable indemnity. A claim for equitable indemnity does not exist until one of the responsible parties makes payment on the third party’s claim.
In Boyajian v. Ordoubadi, the California Court of Appeal considered the effect of a bankruptcy filed by one responsible party after the conduct giving rise to joint liability, but before any responsible party paid the claim. The Boyajian court held that bankruptcy discharged the potential equitable indemnity claim against the bankrupt party.
The Boyajian case arose from an unusual set of facts. In the late 70s and early 80s, both parties conspired together to obtain money from Iranian bank accounts in violation of federal law. They did so by using the identity of a dead person. The parties hired a law firm in the Netherlands to present their claim in the Hague. After the parties incurred $95,000 in attorney’s fees, their scheme was discovered. The Dutch firm sued both parties for the unpaid legal fees and obtained a judgment, after which Ordoubadi filed a petition in bankruptcy. Boyajian later came into some money and paid the judgment, then sued Ordoubadi under an equitable indemnity theory.
The Boyajian court affirmed the dismissal of the claim due to the prior bankruptcy. The court reasoned that bankruptcy discharges contingent and unmatured claims. Thus, even though the claim for indemnity did not mature until the payment that occurred after the bankruptcy case, the claim was discharged by virtue of the bankruptcy.