NATURE OF PROCEEDINGS: Hearing on Defendant Dix’s Motion to Set Aside/Vacate Default and Default Judgment (CCP 473.5)

 

Defendant Dix’s Motion to Set Aside/Vacate Default and Default Judgment is denied.

                                                                                                                                       

BACKGROUND

On May 1, 2024, Plaintiff Titan Footwear, LLC, filed this action against Jessica Rich Collection, LLC, Jessica Rich Collection, Inc., and Jessica Dix (aka Jessica Rich) (“Defendants”), alleging that Defendants failed to pay money owed to Plaintiff under a footwear manufacturing agreement.

The causes of action are: (1) Breach of Contract; (2) Account Stated; (3) Open Book Account; and (4) Goods Sold and Delivered.

On August 2, 2024, default entered against defendant Dix. 

On November 11, 2024, defendant Dix (Defendant) filed a Motion to Set Aside/Vacate Default and Default Judgment. Plaintiff opposes the motion.

 

LEGAL STANDARD

Under Code of Civil Procedure section 473, subdivision (b), a court may “relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect.” In addition, a court must vacate a default or dismissal when a motion for relief under Section 473, subdivision (b) is filed timely and accompanied by an attorney’s sworn affidavit attesting to the attorney’s mistake, inadvertence, surprise or neglect “unless the court finds that the default or dismissal was not in fact caused by the attorney’s mistake, inadvertence, surprise or neglect.” Code Civ. Proc., § 473, subd. (b).

The party or the legal representative must seek such relief “within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken.” Code Civ. Proc., § 473, subd. (b); see Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980 (“because more than six months had elapsed from the entry of default, and hence relief under section 473 was unavailable”). “Application for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise, the application shall not be granted…” Code Civ. Proc., § 473, subd. (b)

Code of Civil Procedure section 473 is to be liberally applied where the party in default moves promptly to seek relief, and the party opposing the motion will not suffer prejudice if relief is granted. Elston v. City of Turlock (1985) 38 Cal.3d 227, 233.) In such situations, “very slight evidence will be required to justify a court in setting aside the default.” Id. at p. 235.

Additionally, even where relief is not authorized by statute, “a trial court generally retains its inherent power to vacate orders on equitable grounds where a party establishes that the judgment or order was void for lack of due process or resulted from extrinsic fraud or mistake.” County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1228-1229 (citations omitted).

“An attorney has both an ethical and statutory obligation to warn opposing counsel, if counsel’s identity is known, of an intent to seek a default and to give counsel a reasonable opportunity to file a responsive pleading.” Shapell SoCal Rental Properties, LLC v. Chico’s FAS, Inc. (2022) 85 Cal.App.5th 198, 203. “In the absence of a prior warning of default, courts are inclined to grant CCP § 473(b) motions to set aside defaults.” Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 702 (citations omitted) (internal quotation marks omitted). However, failure to warn does not require the court to set aside default when there is no showing of mistake, inadvertence, surprise, or excusable neglect. Bellm v. Bellia (1984) 150 Cal.App.3d 1036, 1038.

 

ANALYSIS

Defendant seeks discretionary relief under Code of Civil Procedure section 473, subdivision (b) based on her understanding that Plaintiff would not proceed with the default motion while the parties were engaged in settlement discussions.

“In deciding whether a party’s mistake, inadvertence, surprise or neglect is excusable, the court inquires whether a reasonably prudent person under the same or similar circumstances might have made the same error.” Zamora v. Clayborn Contracting Group, Inc. (2002) 28 Cal.4th 249, 258 (citations omitted) (internal quotations omitted).

“There can be no doubt that a trial court may find excusable neglect or surprise where settlement negotiations are being had between counsel, and where there is an oral or implied understanding that no default will be taken without notice, and counsel takes such a default without notice.” Yarbrough v. Yarbrough (1956) 144 Cal.App.2d 610, 616 (citations omitted). This principle applies equally where the negotiations occur between the parties directly rather than through counsel. Stegge v. Wilkerson (1961) 189 Cal.App.2d 1, 4-5.

Plaintiff served Defendant on May 17, 2024, by substituted service. On May 29, 2024, Defendant’s attorney requested an extension of time to respond to the Complaint on behalf of all Defendants to June 26, 2024. Sohi Decl. ¶ 5, Ex. B. Plaintiff granted the extension. Ibid; Dix Decl. ¶ 3.

On June 11, 2026, Plaintiff’s CEO, Joe Ouaknine, and Defendant discussed the possibility of Plaintiff accepting Defendants’ inventory to pay her outstanding debt. Ouaknine Decl. ¶ 3; Dix Decl. ¶ 4. Ouaknine directed Defendant to send her inventory list to Plaintiff’s President, Brad Bailey. Ouaknine Decl. ¶ 3; Dix Decl. ¶ 4. Between June 11, 2024, and July 8, 2024, Bailey and Defendant engaged in settlement discussions via email concerning Defendant’s inventory. Bailey Decl. ¶ 3. In his July 8 email correspondence with Defendant, Bailey told her, “We have evaluated the stock offering, and we are declining.” Bailey Decl. Ex A. at p. 2. In a follow-up email that day, he noted, “We are in a lawsuit.” Bailey Decl. Ex A. at p. 1. After confirming Plaintiff’s rejection of Defendant’s settlement offer, he concluded, “Please have your attorney reach out to our attorney if you have any future questions.” Ibid.

While Defendant does not contend that Plaintiff told her that it was granting her any additional extension past June 26, 2024, she argues that these negotiations left her with the understanding that during these negotiations, Plaintiff would place the lawsuit on hold and not commence default proceedings. Mot. at p. 3; Dix Decl. ¶ 3. While settlement negotiations between parties can constitute excusable neglect or surprise where there is “an oral or implied understanding that no default will be taken without notice,” such a finding is “predicated upon the fact that opposing [party] acted so as to deceive or mislead the defaulting [party].” Yarbrough, supra, 144 Cal.App.2d at p. 616. Here, there is no evidence that Plaintiff acted to deceive Defendant into not filing an answer by engaging in negotiations, as it was Defendant who suggested offering her inventory in exchange for dismissal of the lawsuit. Ouaknine Decl. ¶ 3; Dix Decl. ¶ 4.

Moreover, even if Defendant reasonably believed that Plaintiff would not pursue default during their negotiations, Plaintiff clearly indicated that it had no further interest in negotiating in Bailey’s July 8 email correspondence. Significantly, Defendant does not mention the July 8 email correspondence or any subsequent negotiations in her Motion. Mot. at p. 3:5-11; Dix Decl. ¶ 7-9. Defendant offers no explanation for why she continued to believe that Plaintiff would refrain from prosecuting the case after the negotiations failed, nor why she failed to file an Answer between July 8 and August 2, 2024. Under the same or similar circumstances, a reasonably prudent person would not have assumed that Plaintiff would not pursue default after the time to file an Answer expired and negotiations ceased. Accordingly, the Court finds that Defendant has not demonstrated her default resulted from her mistake, surprise, or excusable neglect.

 

CONCLUSION

Defendant Dix’s Motion to Set Aside/Vacate Default and Default Judgment is denied.