Judge: Cherol J. Nellon, Case: 19STCV26678, Date: 2023-08-10 Tentative Ruling
Case Number: 19STCV26678 Hearing Date: December 7, 2023 Dept: 14
Arent Fox v. Drobot
Instant Motion
Defendants Drobot and Healthsmart now move this court for an order permitting
them to file a cross-complaint.
Decision
The motion is GRANTED. Defendants
are to file their cross-complaint by 4 pm on December 8, 2023.
Trial on the cross-complaint will be
severed from trial on the complaint, with trial on the complaint to occur first,
as scheduled. Trial on the cross-complaint will be scheduled at the close of
trial on the complaint.
Discovery on the complaint will
remain closed. Discovery deadlines on the cross-complaint will be pegged to the
date later chosen for trial of those claims.
Governing
Standards
Code of Civil Procedure
§ 426.50 provides:
“A party who fails to plead a cause of action subject to the requirements
of this article, whether through oversight, inadvertence, mistake, neglect, or
other cause, may apply to the court for leave to amend his pleading, or to file
a cross-complaint, to assert such cause at any time during the course of the
action. The court, after notice to the adverse party, shall grant, upon such terms
as may be just to the parties, leave to amend the pleading, or to file the
cross-complaint, to assert such cause if the party who failed to plead the
cause acted in good faith. This subdivision shall be liberally construed to avoid
forfeiture of causes of action.”
Code of Civil Procedure § 428.50 provides that:
“(a) A party shall file a cross-complaint against any of the parties who
filed the complaint or cross-complaint against him or her before or at the same
time as the answer to the complaint or cross-complaint.
(b) Any other cross-complaint may be filed at any time before the court
has set a date for trial.
(c) A party shall obtain leave of court to file any cross-complaint
except one filed within the time specified in subdivision (a) or (b). Leave may
be granted in the interest of justice at any time during the course of the
action.”
“Under California's compulsory
cross-complaint statute, a party is prohibited from asserting a claim if, at
the time the party answered a complaint in a prior suit, it failed to allege in
a cross-complaint any related cause of action against the plaintiff. (§ 426.30,
subd. (a) (§ 426.30(a).)) The phrase “ ‘[r]elated cause of action’ ” is defined
as “a cause of action which arises out of the same transaction, occurrence, or
series of transactions or occurrences as the cause of action which the
plaintiff alleges in his complaint.” (§ 426.10, subd. (c).) Additionally, in
order for a cross-complaint to be compulsory, the related cause of action must
have existed when the answer was served. (§ 426.30(a).) If it was not, the
failure to assert it is not a bar under the statute.” ZF Micro Devices, Inc.
v. TAT Capital Partners, Ltd. (2016) 5 Cal.App.5th 69, 81.
“The legislative mandate is clear.
A policy of liberal construction of section 426.50 to avoid forfeiture of causes
of action is imposed on the trial court. A motion to file a cross-complaint at any time during the course of the action
must be granted unless bad faith of the moving party is demonstrated where forfeiture
would otherwise result. Factors such as oversight, inadvertence, neglect,
mistake or other cause, are insufficient grounds to deny the motion unless
accompanied by bad faith.” Silver Organizations Ltd v. Frank (1990) 217
Cal.App.3d 94, 98-99 (emphasis added). There must be a “strong showing” of bad
faith supported by substantial evidence. Sidney v. Superior Court (1988)
198 Cal.App.3d 710, 718.
Discussion
The
timeline of events is important to the arguments made by both parties.
Fortunately, the key points in that timeline are undisputed. Plaintiff filed
this action on July 30, 2019, to recover $800,000 in unpaid attorney’s fees. Defendant
Drobot moved for a stay on discovery, which was denied by this court on August
20, 2020. Discovery then proceeded until its close on April 23, 2023. No motion
has been made to re-open discovery.
Defendant
Drobot has spent much of the pendency of this case in federal custody, as a
result of a guilty plea in the matter for which he retained Plaintiffs. He was
released on February 13, 2023. (Ex Parte Application filed April 12, 2023).
During the entirety of this case, Defendants Drobot and Healthsmart have been
represented by Mr. Dilip Vithlani, who remains counsel of record.
On April
12, 2023, Defendants Drobot and Healthsmart associated in Mr. Kenneth J.
Catanzarite, who has taken over as lead counsel. On that same day, Mr. Vithlani
filed an Ex Parte Application seeking a continuance, based in part on Mr.
Catanzarite’s intention to file a cross-complaint. (Ex Parte Application filed
April 12, 2023, p. 4:4-7). This court granted the ex parte application and
expressly reserved a time slot for Defense to bring the required motion.
(Minute Order of April 14, 2023).
Instead of
filing their motion, Defendants Drobot and Healthsmart filed a new action,
which they then sought to have consolidated with this action. The new action
charged that Defendant Drobot had actually overpaid Plaintiffs. On July 17,
2023, this court denied the motion for consolidation, leaving Case No. 23 STCV
12715 as merely related. Defendants Drobot and Healthsmart then sought to have
this action stayed and compelled to arbitration. On October 5, 2023, this court
denied that motion.
Also on
October 5, 2023, this court heard a demurrer and motion to strike in the
related case. The court ruled that the claims in the related case were barred
because they should have been filed as a compulsory cross-complaint in this
case. In response to that ruling, Defendants Drobot and Healthsmart have filed
this motion.
Plaintiffs
argue that Defendants have demonstrated bad faith by how long they have delayed
in filing this motion. And their point is not without merit. The record is
clear that Defendants Drobot and Healthsmart had their first inkling about
these claims in April of 2023, even if they were not sufficiently informed to actually
file them until June of 2023, as counsel claims. But rather than taking the
direct approach and filing this motion when the court first reserved it for
them, Defense counsel first filed another case and sought consolidation.
However,
this is not sufficient evidence of bad faith. At best, it shows that Defense
counsel made some procedural errors, of the type that anyone might make. When this
court denied consolidation, Defense counsel prepared to proceed with both cases
on different timelines. It was not until Arent Fox raised the compulsory
cross-complaint issue in the other case, and prevailed on that exact point,
that this motion was brought here.
Having
established that Defense is entitled to file their cross-complaint, the court
is obliged to consider what happens next. Discovery on Plaintiff’s complaint is
closed, and that portion of the case is ready for trial. It would be patently
unfair to Plaintiffs if Defendants could now re-open the case because they have
managed to bring a last-minute cross-complaint.
No such
re-opening is necessary. While the Plaintiff’s complaint addresses only their
entitlement to $800,000 in unpaid fees, the cross-complaint addresses
only the Defense’s claim that some portion of the paid fees should be
returned. Therefore, the subject matter of each pleading can and should be
separated, pursuant to the court’s powers under Code of Civil Procedure
§ 1048(b).
As Plaintiffs
point out, there is an additional reason to proceed in this manner: Defendant
Drobot’s counsel has previously represented to this court that Defendant Drobot
may be re-sentenced by federal authorities for an alleged violation of his plea
agreement. The current trial date was chosen because it would allow the trial
to occur in advance of the re-sentencing hearing and thus enable Mr. Drobot’s
participation.
Conclusion
This court has already determined,
at Plaintiff’s request, that the claims contained in the proposed
cross-complaint are compulsory. The evidence present here is not sufficient to
show that the motion is being brought in bad faith. Therefore, the motion is
GRANTED. Defendants are to file their
cross-complaint by 4 pm on December 8, 2023.
However, the claims in the
complaint can be clearly separated from the claims in the cross-complaint, and
the complaint has already been fully prepared for trial. Furthermore, Mr.
Drobot may only be available to this court for a short period of time. It would
prejudice Plaintiffs to allow the cross-complaint to result in a total re-opening
of this case. Therefore, the cross-complaint will be severed from the
complaint. The complaint will be tried first, as currently scheduled. Trial on the cross-complaint will be
scheduled at the close of trial on the complaint.