Judge: Cherol J. Nellon, Case: 22STCV25394, Date: 2024-03-12 Tentative Ruling

Case Number: 22STCV25394    Hearing Date: March 12, 2024    Dept: 14

Ortega vs Offabbot

Case Background

Plaintiff alleges that Defendant failed to pay him the wages he was due, then forged his signature on a document, then breached a subsequent settlement agreement.

On August 5, 2023, Plaintiff filed his Complaint for (1) Non-Payment of Wages, (2) Waiting Time Penalties, (3) Failure to Reimburse Expenses, (4) Failure to Provide Wage Statements, (5) Unfair Competition, (6) Fraud, (7) Rescission, and (8) Breach of Contract against Defendants OffAbbot LLC, OffAbbot Sports, LLC, OffAbbot Sports, Inc. (collectively “OffAbbot”), Frank Samuel (“Samuel”), Lauren Bayer (“Bayer”), and DOES 1-25.

On December 26, 2023, the default of Defendant Bayer was entered.

No trial date has yet been set.

(1)        Motion to Set Aside Default

            Defendant Bayer now moves this court, per Code of Civil Procedure § 473(b), for an order setting aside her default and permitting her to file a responsive pleading.

Decision

            The motion is GRANTED.

Governing Statute

            Code of Civil Procedure § 473 provides in relevant part as follows:

“(b) The court may, upon any terms as may be just, 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. 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, and shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken…

Discussion

            The parties engage in some skirmishing over just how amenable (or not) Defendant Bayer was to being served. None of that is relevant to this motion. None of the relevant facts are disputed.

Defendant Bayer was served on November 22, 2023. Defendant Bayer retained counsel. Her counsel contacted Plaintiff’s counsel. At the request of Plaintiff’s counsel, they spoke over the phone on December 19, 2023, to discuss a potential demurrer. The conversation continued via email.

On December 22, 2023, the date the responsive pleading was due, Defense counsel filed Optional Form CIV-141. Had they succeeded, they would have obtained an automatic 30-day extension of their deadline pursuant to Code of Civil Procedure § 430.41(a)(2). However, the document was rejected by the clerk’s office due to a technical deficiency in the spelling of the names.

            At this point, counsel got enmeshed in a dispute about whether their meetings were being conducted in good faith. Plaintiff’s counsel saw the filing of the form as a delay tactic and filed a declaration opposing the extension. As a matter of law, however, Defense was entitled to the extension: Code of Civil Procedure § 430.41(a) requires that the parties meet and confer “in person, by telephone, or by video conference,” and Code of Civil Procedure § 430.41(a)(2) provides the automatic extension where the meeting doesn’t happen “at least 5 days before the date the responsive pleading is due.” Plaintiff’s counsel picked the date for the meeting and conference, and the date he picked was only 3 days before the deadline.

            At some point[1] on December 22, 2023 (the Friday before Christmas), Plaintiff’s counsel sent Defense counsel an email saying that if he did not receive a responsive pleading by “the end of the day,” he would take Defendant Bayer’s default. As good as his word, on December 26, 2023, the next day the court was open, Plaintiff’s counsel filed for and received entry of default against Defendant Bayer.

            The court is obliged to set this default aside for any number of reasons – Defense was legally entitled to the extension, and the strong public policy in favor of trying cases on their merits – but one in particular seems to need emphasis. And that is counsel’s legal and ethical obligation not to use defaults as a trap.

            The ethical obligation here is one of long standing in the law: where a plaintiff’s attorney is aware that a defendant has counsel, plaintiff’s counsel must warn defense counsel before they attempt to enter default. See Lasalle v. Vogel (2019) 36 Cal.App.5^th 127, 135. That ethical obligation has since been turned into a legal obligation which requires this court to set aside any default that was sought without advance warning. Id. at 135-141.

            Plaintiff’s counsel has complied with that rule, but only in the barest of technical senses. He gave Defense counsel whatever was left of the Friday before a major holiday to draft a responsive pleading; when that inevitably proved impossible, he filed for entry of default immediately. The time stamp on the entry of default filing is 12:00 am on the morning of December 26, 2023.

            While that approach may follow the letter of the law, it certainly does not comport with the spirit of the ethical and professional obligations. Therefore, even if the other reasons were not present, this court would feel bound to follow LaSalle and set aside the default. The court hopes that in future counsel will communicate in real time rather than by email, and that these disputes about good and bad faith can be left in the rearview mirror of this litigation.

Conclusion

            Defense was entitled to an automatic extension of their time to respond, which they only failed to receive for technical clerical reasons. The policy of the law is that cases should be tried on their merits. And Defense counsel should have received more warning of the impending default than they actually got. Therefore, the motion is GRANTED.

(2)        Demurrer

            Defendants OffAbbot and Samuel now demur to the first, second, third, fourth, fifth, sixth, and seventh causes of action in the Complaint, on the grounds that Plaintiff has failed to state sufficient facts to support those claims.

Decision

            The demurrer is SUSTAINED, with 10 days leave to amend.

Discussion

            The demurrer makes individual challenges only to the first, sixth, and seventh causes of action. Its primary argument is that the entire block of claims is barred because the parties had a subsequent settlement. Defendants argue that the settlement agreement remains valid and enforceable.

            The settlement agreement is described in the Complaint and attached to it as Exhibit 7. It was executed by Plaintiff on July 22, 2022. Plaintiff alleges that Defendants breached the contract by failing to pay the second installment, due on August 1, 2022. (Complaint ¶¶ 66-68). On August 2, 2022, Plaintiff gave notice to Defendants that he was rescinding the settlement agreement, but that he would keep the first installment payment as a credit against his damages. (Complaint ¶¶ 69-71).

            Defense argues that, by keeping the first installment payment, Plaintiff has failed to meet one of the requirements for a valid rescission. They are correct.

            To effectuate a rescission, Civil Code § 1691(b) requires the rescinding party to either restore, or at least offer to restore, everything received under the contract. In opposition, Plaintiff points out that the final paragraph of Section 1691 allows the service of a lawsuit containing a claim for rescission to constitute the required “offer to restore.” However, in the specific case of a settlement agreement, freedom from a lawsuit is the primary benefit under the contract. Therefore, filing a lawsuit can hardly serve as an offer to restore those benefits. As one Court of Appeal put it: “[defendant] paid a substantial sum to buy its peace…[plaintiff] would like to both keep the money and maintain the war…we conclude he cannot.” Myerchin v. Family Benefits, Inc. (2008) 162 Cal.App.4^th 1526, 1533 (disapproved on other grounds by Village Northridge Homeowners Assn. v. State Farm Fire & Casualty Co. (2010) 50 Cal.4^th 913, 929 fn.6).

            If Plaintiff is incapable of returning the money for practical reasons (for instance, if it has already been spent), he may allege that inability, and the case may proceed under Civil Code § 1693. See Village Northridge, supra, 50 Cal.4^th at 926-929, 931. However, at present, no such allegation has been made.

Conclusion

            Where a party wishes to rescind a settlement agreement and prosecute the claims that were covered in that agreement, they must either allege the return of the settlement funds or their inability to return them. Plaintiff has done neither in this case. Therefore, the demurrer to the first seven causes of action is SUSTAINED, with 10 days leave to amend.