Judge: Douglas W. Stern, Case: 20STCV35751, Date: 2023-04-19 Tentative Ruling
Case Number: 20STCV35751 Hearing Date: April 19, 2023 Dept: 68
Courtny Mitchell vs. Santa Fe Lofts Pacific Owner, LLC, et al., Case No. 20STCV35751
Motion to Set Aside/Vacate Default
Moving Party – Defendant Cannon Management
Responding Party – Plaintiff Courtny Mitchell
Moving Party’s Position
This lawsuit involves claims of breach of the warranty of habitability and related claims. Plaintiff alleges that on or about December 27, 2016, she entered into a lease with Defendant Cannon Management. (Complaint ¶ 13.) Beginning in about August 2017 Plaintiff began to receive notices about the water being shut off. (Complaint ¶ 14.) In March 2018 there was a change in ownership and/or management of the apartments. (Complaint ¶ 19.)
Defendant Cannon Management (Cannon) is seeking to set aside a default that was entered on October 20, 2021. Cannon was the property manager of an apartment complex that was owned by Urban Foresight II 2014, LLC (Urban Foresight II). It is now owned by Defendant Santa Fe Lofts (Santa Fe Lofts). Cannon was the property manager until the property was sold to Santa Fe Lofts in March of 2018.
Defendant Cannon claims that the October 2020 default was entered against it as a result of its mistake, inadvertence or excusable neglect. Code of Civil Procedure § 473(b). It claims that its actions after service of the summons and complaint are sufficient to allow it to be relieved of its default.
“13. On or about, September 23, 2020, more than two years after the apartments had been sold and more than two years after Cannon Management had ceased management of the Santa Fe Lofts Apartments, a settlement demand for $750,000.00 (Seven Hundred Fifty Thousand Dollars) was mailed to “Cannon Management, Attn, Legal Department, 6349 Riverside Ave., Riverside, CA 92506.
14. Upon receipt of the September 23, 2020 settlement demand, … Cannon Management’s Senior Regional Supervisor, Rebecca Mobley, emailed the settlement demand on or about October 2, 2020 … to Urban Foresight II 2014, LLC’s representatives Bruce Gorman at Capital Foresight and Bill Lindborg at Borg Development. Ms. Mobley’s October 2, 2020 email stated in pertinent part, “Please see attached settlement demand. ... Please let me know if you need anything further from Cannon.”
15. On October 2, 2020, … Bruce Gorman emailed Urban Foresight II 2014, LLC’s broker Jeff Jones at IOA Insurance Services stating, “Hi Jeff, Will you please open a claim for the sold property Santa Fe Lofts. The legal name is Urban Foresight II 2014, LLC. Thank you, Bruce.” (Paprocki Decl. ¶ 13-15.) (Bold added.)
Apparently, Cannon had no “follow-up” to make sure that someone was addressing the matter that involved a demand of $750,000. Perhaps that was not critical, as the lawsuit had not been served. Perhaps it was critical, as it placed Cannon on notice that an attorney believed that Cannon might have liability in the amount of $750,000.
“16. Thereafter, on or about December 9, 2020, Plaintiff erroneously [why does Cannon claim that this is erroneous?] served Cannon Management’s corporate office in Riverside with the Summons and Complaint and did not serve its’ corporate agent for service of process, David Gardner. The Summons and Complaint were sent to Urban Foresight II 2014, LLC. In the year 2020, Cannon Management was not informed by Urban Foresight II 2014, LLC that a defense and/or answer would not be provided on its’ behalf.” (Paprocki Decl. ¶ 16.) (Bold added.) [Nor was Cannon informed that a defense would be provided.]
That Complaint now alleged damages of $3 million. Now Cannon faced a real and imminent risk if it was not represented. Apparently, Cannon still had no “follow-up” system to ascertain if the $3 million suit was being addressed to protect it.
“17. Approximately, one year later, on or about October 20, 2021, Plaintiff mailed a Request for Default to Cannon Management’s corporate office without making any other attempt to contact Cannon Management and informing it that no answer had been filed on its’ behalf. Cannon Management sent the Request for Default to Urban Foresight II 2014, LLC. However, Urban Foresight II 2014, LLC never informed Cannon Management that a defense would not be provided on its behalf in the years 2020, 2021, or 2022. Thus, Cannon Management was under the mistaken belief that the claim was being defended by Urban Foresight II 2014, LLC.” (Paprocki Decl. ¶ 17.) (Bold added.) [Nor was Cannon informed that this Default would be addressed by anyone.]
And apparently Cannon still chose to essentially ignore the situation. Apparently Cannon was incapable of establishing any meaningful system to ascertain if it was being represented in a case that alleged $3 million of liability. Demand – sent on to others. Complaint – sent to others. Default – sent to others. Never anything received by Cannon from the insurance company or an attorney telling it that it was being represented. And never any action taken by Cannon to learn what was going on with its $3 million risk.
Is Cannon’s failure to take any action with all these flashing red lights in its face sufficient to constitute “mistake, inadvertence or excusable neglect?” Or is it simply too extreme so that it is inexcusable?
“18. Similarly, approximately one year and three months later, on or about January 25, 2023, Plaintiff once again mailed a Request for Default Judgment in the approximately amount of $7,436,343.59 to Cannon Management’s corporate office in Riverside without contacting Cannon Management and informing it that no answer or response had been filed on its behalf, ....
19. Alarmed at the surprisingly large, disproportionate, and inconsistent Request for Judgement, on or after January 25, 2023, we immediately contacted Urban Foresight II 2014, LLC once again to find out why a judgment was being requested. In February of 2023, we learned for the first time, that Urban Foresight II 2014, LLC’s 2018 insurance carrier was denying the claim because the property had been sold in March of 2018 and there was allegedly no coverage under the applicable policy after March of 2018. We were informed that the decision to deny the claim was not made until February of 2023.” (Paprocki Decl. ¶ 18-19.) (Bold added.)
Apparently not sufficiently “alarmed” at being sued for $3 million, not sufficiently alarmed at having been served with default papers on that $3 million lawsuit, Cannon became alarmed when it learned that a $7.5 million default judgment was being sought. So it decided to circle back and see what had happened.
Does this history constituted behavior that entitles Cannon to relief?
Plaintiff’s Opposition
Plaintiff opposes the motion on the basis that Cannon failed to show mistake, inadvertence, surprise, or excusable neglect. Plaintiff also argues that Cannon failed to show that there was an extrinsic mistake. Finally, Plaintiff argues that she would be prejudiced if the default is set aside because she has already settled with Santa Fe Lofts, believing that she would be able to get a default in her case against Cannon.
Moving Party’s Reply
Cannon argues that Plaintiff would not be prejudiced, and Cannon argues that the default should be set aside due to mistake, inadvertence, and excusable neglect.
Analysis
Pursuant to Section 473(b) of the Code of Civil Procedure
“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.”
The law favors resolving disputes on the merits. Any doubts as to the application of section 473 should be resolved in favor of the party seeking relief from default. (See Shapiro v. Clark (2008) 164 Cal.App.4th 1128, 1139-1140.)
A court also has inherent equitable power to set aside a judgment on the ground of “extrinsic fraud or mistake.” (See Olivera v. Grace (1942) 19 Cal.2d 570, 576; see also Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 290-91.) The three essential requirements to obtain relief under the court’s equitable authority include: 1) a meritorious defense; 2) a satisfactory excuse for not presenting a defense to the original action; and 3) diligence in seeking to set aside the default once it is discovered. (See Rappleya v. Campbell (1994) 8 Cal.4th 975, 982.)
The conduct of Cannon is surprising. It apparently is so lax in its procedures that it believes that merely forwarding the various legal materials to its former “employer”; the former owner of the apartment, it need do nothing more to protect itself. It was so lax that even when it never heard anything further, it simply assumed that all was well. It never had confirmation that it was being defended by anyone. It ignored the request for default, merely forwarding it on and again assumed that all was well. No worries.
All that said, Cannon did something, however minimal. It did forward the materials seeking insurance coverage.
Cannon cites Fasyui v. Permatex, Inc. (2008) 167 Cal.App.4th 681 in support of its motion. In that case, the insurer did not file a response on behalf of the party, and the Court ruled that the resulting judgment should be set aside. (Id. at 694.) That case is distinguishable because the defaulted party was not aware that the default had been entered, unlike in the present case, where Cannon knew in October 2021. However, Cannon claims that it was operating under the assumption that Urban Foresight II’s insurer would take care of the default.
Plaintiff claims that she would be prejudiced by setting aside the default, as she has settled with the other defendant. This argument is rejected by the Court for the simple reason that setting aside the default only means that Plaintiff will have to prove her case at trial. She still may recover all damages that she can prove. Further, it is worth noting that this Court has previously rejected the default judgment application of Plaintiff on the basis that it failed to show a basis for imposing liability on Cannon. In short, Plaintiff always was at risk that she might not receive judgment against Cannon. Further, Plaintiff has always known that Cannon ceased having a role regarding the apartment in March 2018 when it was sold.
Thus, granting this motion will allow the dispute to be resolved on the merits.
THE PARTIES SHOULD BE PREPARED TO ARGUE THE MATTER.