Judge: Edward B. Moreton, Jr., Case: 22SMCV00971, Date: 2023-11-30 Tentative Ruling

Case Number: 22SMCV00971    Hearing Date: April 5, 2024    Dept: 205

Superior Court of California

County of Los Angeles

Beverly Hills Courthouse | Department 205

Background

This is a fraudulent conveyance case. On June 27, 2022, Plaintiff Berritto Enterprises, LLC (“Plaintiff”) filed a Complaint against Defendant Taylor Woods (“Defendant”) and DOES 1 through 50, alleging causes of action for: (1) fraudulent conveyance; (2) money had and received; (3) conversion; (4) breach of fiduciary duty; and (5) fraud.

On August 2, 2022, Plaintiff filed a Proof of Service indicating that Defendant was served by personal service with the summons and complaint on July 23, 2022.

On November 15, 2022, Plaintiff filed another Proof of Service showing that Defendant was served by personal service with the summons and complaint on November 14, 2022.

On November 21, 2022, Defendant filed and served a Notice of Stay of Proceedings indicating that this action was automatically stayed due to the filing of a petition in bankruptcy court against Defendant on June 30, 2022.

On January 24, 2023, the Court held a Case Management Conference and counsel notified the Court that the bankruptcy stay was still pending. (01/24/23 Minute Order.)

On July 28, 2023, the Court held a Status Conference re: Bankruptcy and Plaintiff’s counsel notified the Court that the bankruptcy was previously dismissed. (07/28/23 Minute Order.) The Court’s minute order also stated that “Defendant has been served, but has not answered.” (07/28/23 Minute Order.)

On August 10, 2023, Plaintiff filed a Request for Entry of Defendant against Defendant and default was entered against Defendant on such date.

On October 6, 2023, Plaintiff filed a Request for Dismissal of DOES 1 through 50 only, and, on such date, DOES 1 through 50 were dismissed from this action without prejudice.

On November 30, 2023, the Court entered default judgment against Defendant in the amount of $1,001,770.43. (11/30/23 Minute Order.)

On February 29, 2024, Defendant, specially appearing, filed and served the instant motion for an order quashing service of process on him, and vacating the default and default judgment entered against him in this matter. Defendant’s motion is made on the grounds that “[t]he court lacked in personam jurisdiction over . . . [D]efendant because service of process was made during the pendency of . . . Defendant’s bankruptcy case in violation of the automatic stay, and therefore the default and default judgment entered against him were void pursuant to 11 U.S.C. 362(a)(1).” (Motion at p. 2:10-14.)

On March 22, 2024, Plaintiff filed and served an opposition to the motion, to which Defendant replied on March 29, 2024.  

Request for Judicial Notice

A court can take judicial notice of its own records. (Starr v. Ashbrook (2023) 87 Cal.App.5^th 999, 1014.) “Although a court cannot take judicial notice of hearsay allegations in a court record, it can take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments.” (Ibid.)

The Court GRANTS Defendant’s request for judicial notice numbers 1 and 2.

Legal Standard/Applicable Law

            “The court may, upon motion of the injured party, or its own motion, correct clerical mistakes in its judgment or orders as entered, so as to conform to the judgment or order directed, and may, on motion of either party after notice to the other party, set aside any void judgment or order.” (Code Civ. Proc., § 473, subd. (d).)     

            “Upon the filing of a bankruptcy proceeding, federal bankruptcy law imposes an automatic stay on all state and federal proceedings outside the bankruptcy court against the debtor and the debtor’s property.” (Shaoxing County Huayue Import & Export v. Bhaumik (2011) 191 Cal.App.4^th 1189, 1196.) “The automatic stay is self-executing and is effective upon filing the bankruptcy petition.” (Ibid.) “Judicial proceedings in violation of the automatic stay are void.” (Sindler v. Brennan (2003) 105 Cal.App.4^th 1350, 1353.) “A petition in bankruptcy creates an automatic stay of all judicial proceedings against the debtor.” (Ibid.)  Service of process is prohibited against the party subject to bankruptcy proceedings during the pendency of an automatic stay pursuant to bankruptcy proceedings. (11 U.S.C. § 362, subd. (a)(1).) The stay of action pursuant to 11 U.S.C. § 362, subd. (a) continues until the earliest of: (1) the time the case is closed; (2) the time the case is dismissed; or (3) if the case is a case for Chapter 7 bankruptcy, the time a discharge is granted or denied. (11 U.S.C., § 362, subd. (c)(2)(A)-(C).) “The automatic stay and the protections it offers terminate immediately upon dismissal of a bankruptcy case.” (In re Kline (B.A.P. 10^th Cir. 2012) 472 B.R. 98, 103.)  “Any actions taken in violation of the automatic stay are void and of no force or effect, even when there is no actual notice of the existence of the stay.” (Ibid.)

Analysis

Here, a bankruptcy case was initiated on June 30, 2022 against Defendant. (Defendant’s RJN at Exhibit 1.) The bankruptcy proceedings were not dismissed until February 23, 2023. (Defendant’s RJN at Exhibit 2.) Thus, any action taken by Plaintiff between those dates is void and is of no force and effect under In re Kline, supra, 472 B.R. 98, 103. It follows that Plaintiff’s service of the summons and complaint on Defendant on November 14, 2022 is void under 11 U.S.C. § 362(a)(1). Plaintiff served Defendant with the summons and complaint while Defendant was in bankruptcy proceedings. Plaintiff even acknowledges in the opposition that the bankruptcy case was not dismissed until February 23, 2023. (Opp’n at ¶ 5.) While Plaintiff indicates that it initially lacked knowledge of the bankruptcy proceedings and Defendant never contested Plaintiff’s service as a breach of the automatic stay in bankruptcy court (Opp’n at ¶¶ 2-3), the lack of actual notice on Plaintiff’s behalf does not render service of the summons and complaint during the pendency of the bankruptcy proceedings as proper. Moreover, Plaintiff presents no legal authority which stands for the proposition that a defendant must challenge improper service in the underlying bankruptcy action.

In its order granting Plaintiff’s application for default judgment, the Court stated that “Plaintiff filed a proof of service showing Defendant was personally served on November 14, 2022. Defendant was obligated to respond within 30 days. Defendant did not do so. Plaintiff successfully requested the entry of Defendant’s default, which was entered by the Clerk’s Office on [August 10, 2023].” (11/30/23 Minute Order.)

Given that Plaintiff improperly served Defendant with the summons and complaint during a pending bankruptcy proceeding, it follows that the entry of default and the subsequent default judgment entered against Defendant must be set aside. Plaintiff served Defendant in violation of the automatic stay provision under 11 U.S.C. § 362. It follows that any acts or orders arising from the improper service of the summons and complaint are also void.

The Court finds that Plaintiff’s citations to: (1) In re National Environmental Waste Corp. (9th Cir. 1997) 129 F.3d 1052; (2) In re Goldstein (9th Cir. 2001) 5 F.App’x 757; and (3) In re Badax, LLC (Bankr. C.D. Cal 2019) 608 B.R. 730 are all inapposite to support Plaintiff’s contention that the Court has discretion to retroactively annul any actions taken in violation of the automatic stay. (Opp’n at ¶ 6.) Such cases all concern the discretion of the bankruptcy court and do not address the discretion of a state court to retroactively annul any actions taken in violation of the automatic stay. Plaintiff’s citation to In re Aki Oya, No. BAP SC-19-1095-BKUL, 2019 WL 5390007 (B.A.P. 9th Cir. Oct. 18, 2019) is improper as citation to an unpublished opinions are not proper pursuant to California Rules of Court, Rule 8.1115(a).

As such, the Court finds that Plaintiff’s service of the summons and complaint on Defendant during the time the automatic stay was in effect is void. It therefore follows that the entry of default and subsequent default judgment entered against Defendant are also void. “[V]iolations of the automatic stay are void, not voidable.” (In re Schwartz (9th Cir. 1992) 954 F.2d 569, 571.)

Conclusion

Based on the foregoing, the Court GRANTS Defendant’s Motion to Quash Service of Process and to Set Aside and Vacate the Default and Default Judgment. The Court further sets a case management conference on July 11, 2024 at 9:00 a.m.

Dated: April 5, 2024

__________________________________________

Edward B. Moreton, Jr.

Judge of the Superior Court