Judge: Gail Killefer, Case: 22STCV13109, Date: 2023-01-26 Tentative Ruling
Case Number: 22STCV13109 Hearing Date: January 26, 2023 Dept: 37
HEARING DATE: December 13, 2022 and January
26, 2023
CASE NUMBER: 22STCV13109
CASE NAME: Johnstone
Supply v. Cubic Air Conditioning, Electric & Solar, Inc., et al.
MOVING PARTIES: Defendants, Alberto Macias
and Cubic Air Conditioning, Electric & Solar, Inc
OPPOSING PARTY: Plaintiff, Johnstone Supply
TRIAL DATE: None
PROOF OF SERVICE: OK
MOTION: Defendants’ Motion to Vacate Default
OPPOSITION: January 12,
2023—Supplemental Brief
REPLY: January 19, 2023—Supplemental Brief
TENTATIVE: Defendants’
motion is denied. Plaintiff is to give notice.
Background
This action arises in connection with a contract between Johnstone
Supply (“Plaintiff”) and Defendant Cubic Air Conditioning, Electric &
Solar, Inc. (“Cubic”). Plaintiff also alleges Defendant Albert Macias
(“Macias”) and Cubic are alter egos and/or successors of one another, and asks
this court to pierce the corporate veil. Plaintiff alleges that, on or about February
17, 2020, Defendants breached their contract by failing to pay $124,273.73 of
the total invoice for goods provided.
Plaintiff’s Complaint alleges causes of action: (1) breach
of contract and (2) common counts.
On June 13, 2022, a default was entered against Defendants. On
August 31, 2022, the court granted default judgment against Defendants.
On December 20, 2022, the court heard the parties’ initial
arguments on Defendants’ Motion to Set Aside the Default Judgment and ordered
supplemental briefing before this hearing on January 26, 2023.
Defendants now move to set aside the default and default
judgment. Plaintiff opposes the motion.
Discussion
Courts generally view default
judgments with disfavor. (Nicholson v. Rose (1980) 106 Cal.App.3d
457, 462-463.) “It is also well established that it is the policy of the
law to bring about a trial on the merits whenever possible, so that any doubts
which may exist should be resolved in favor of the application, to the end of
securing to a litigant his day in court and a trial upon the merits.” (Frank
E. Beckett Co. v. Bobbitt (1960) 180 Cal.App.2d Supp. 921, 928.)
CCP § 473.5(a) provides: “When
service of a summons has not resulted in actual notice to a party in time to
defend the action and a default … has been entered against him or her in the
action, he or she may serve and file a notice of motion to set aside the default
… and for leave to defend the action.”
Section 473(b) provides for
two distinct types of relief—commonly differentiated as “discretionary” and
“mandatory”—from certain prior actions or proceedings in the trial court.
(Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1124 (Luri).) “Under
the discretionary relief provision, on a showing of ‘mistake, inadvertence,
surprise, or excusable neglect,’ the court has discretion to allow relief
from a ‘judgment, dismissal, order, or other proceeding taken against’ a
party or his or her attorney. Under the mandatory relief provision,
on the other hand, upon a showing by attorney declaration of ‘mistake,
inadvertence, surprise, or neglect,’ the court shall vacate any ‘resulting
default judgment or dismissal entered.’ ” (Ibid., internal
citations and quotation marks omitted, quoting CCP § 473(b).) “Applications
seeking relief under the mandatory provision of section 473 must be
‘accompanied by an attorney’s sworn affidavit attesting to his or her mistake,
inadvertence, surprise, or neglect.’ (§ 473, subd.
(b).) The mandatory provision further adds that ‘whenever
relief is granted based on an attorney’s affidavit of fault [the court
shall] direct the attorney to pay reasonable compensatory legal fees and
costs to opposing counsel or parties.’ [Citations.]” (Luri, ibid.)
“‘[A] trial court may ... vacate a
default on equitable grounds even if statutory relief is unavailable.’
[Citation.]” (Sakaguchi v. Sakaguchi (2009) 173 Cal.App.4th 852, 862.)
“The moving party carries the burden of proving that he or she is entitled to
equitable relief.” (Ibid.) Equitable relief may be based on “extrinsic
fraud,” or “extrinsic mistake.”
Extrinsic fraud occurs when, “the unsuccessful party has been prevented
from exhibiting fully his case, by fraud or deception practiced on him by his
opponent, … or where the defendant never had knowledge of the suit, being kept
in ignorance by the acts of the plaintiff.” (Luxury Asset Lending, LLC v. Philadelphia
Television Network, Inc. (2020) 56 Cal.App.5th 894, 911, internal quotation
marks removed.) On the other hand, extrinsic mistake involves the excusable
neglect of a party. (Ibid.) “‘To set aside a judgment based on extrinsic
fraud or extrinsic mistake, the moving party must satisfy three elements: ‘“First,
… demonstrate that it has a meritorious case. Secondly, … articulate a
satisfactory excuse for not presenting a defense to the original action.
Lastly, … demonstrate diligence in seeking to set aside the default once it had
been discovered.” [Citations.]’ [Citation.]” (Ibid.)
In their motion, Defendants to set
aside the default under the discretionary relief provision of CCP § 437(b).
Defendants state they satisfy the mistake, inadvertence, surprise, or excusable
neglect requirement of section 473(b), because “Cubic failed to calendar a due
date for the answer, mistakenly believing the case management conference was
the next significant event.” (Motion, 6.) Defendants also contend the request
for entry of default was not mailed separately to each Defendant, such that
each Defendant would be provided notice. (Motion, 7-8.) Defendants then contend
Plaintiff has failed to show joint and several liability for Macias as he “did
not apply for personal credit, did not promise to guarantee the debt, and there
is no evidence to support a claim of alter ego.” (Motion, 8.)
Defendants also contend “a lay
person could easily misunderstand what the pile of papers served within a
lawsuit mean or forget what was necessary to respond to them,” and emphasize
that “Defendants have moved promptly to retain counsel and set aside the
default once he [sic] realized that they might have missed a deadline.”
(Motion, 9.) Defendants also attach their proposed answer to the complaint.
(Motion, Exh. A.)
In opposition, Plaintiff contends
“the motion is extremely weak and presents no legitimate
basis for the court to even consider it. Defendants do not dispute that they
were served with the summons and complaint. Instead, the motion is premised on
a bogus claim that the defendants failed to calendar a due date for the answer.
That is not a valid basis for setting aside entry of default and does not
constitute excusable neglect.” (Opp., 1.)
Plaintiff further contends “a
defaulted defendant has no standing to argue the evidence,” and Macias, here,
“expressly agreed” to pay for all goods purchased; Defendants further point out
Macias also agreed “to pay cost of collection... [and] ... to pay reasonable
attorney fees in said suit or action...” (Opp., 2.) Plaintiff contends
Defendants have provided “no explanation” as to why they did not retain counsel
after receiving the summons, and “it is not excusable neglect and the defendants
cite no cases to support the requested relief on this basis.” (Opp., 3.)
Plaintiff also affirms that the request for default judgment was properly
filled out and mailed to Defendants to provide notice. (Opp., 4.) Lastly,
Plaintiff requests, in the event the motion to set aside is granted, that
Defendants be instructed to pay the costs of default proceedings as a condition
of relief and post a bond for the amount due, “at least $140,000.” (Opp., 4.)
In their supplemental brief,
Plaintiff repeats their earlier contention that Defendants did not serve the
motion to set aside on Plaintiff’s counsel, even though the attached proof of
service attested to service with the filing of the moving papers. (P.Supp., 1.)
Plaintiff also repeats its contention that Defendants do not have a right to
appear in the action after a default has been entered. (P.Supp., 2.; citing).
Plaintiff points to Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984)
155 Cal.App.3d 381, 385–386, where the court found:
“Our first decision rightly assumed Kearny Mesa, having
defaulted, knew it could not participate in a judgment hearing on punitive
damages. The entry of a default terminates a defendant's rights to take any
further affirmative steps in the litigation until either its default is
set aside or a default judgment is entered. (Forbes v. Cameron Petroleums,
Inc. (1978) 83 Cal.App.3d 257, 262–263; 4 Witkin, Cal.Procedure (2d
ed. 1971) Proceedings Without Trial, § 148, p. 2809; see Luz v. Lopes (1960)
55 Cal.2d 54, 59, fn. 2.) ‘A defendant against whom a default has been entered
is out of court and is not entitled to take any further steps in the cause
affecting plaintiff's right of action; he cannot thereafter, until such
default is set aside in a proper proceeding, file pleadings or move for a new
trial or demand notice of subsequent proceedings.’ (Brooks v. Nelson (1928)
95 Cal.App. 144, 147–148.) And, even where a default judgment is ‘vacated, it
would be the duty of the court immediately to render another of like effect,
and the defaulting defendants would not be heard for the purpose of
interposing any denial or affirmative defense.’ (Title Insurance Etc.
Co. v. King Etc. Co. (1912) 162 Cal. 44, italics added.)” (Id.)
Plaintiff contends by defaulting,
Defendants have conceded the material allegations of the complaint, which
alleged Macias to be a contracting party who undertook certain guarantees as
part of the credit application to Plaintiff. (P.Supp., 2; Motion for Default
Judgment, Exh. C.) “It is axiomatic that
arguing the facts is not a legitimate basis to set aside a default judgment as
nothing in the statute allows a defaulted defendant to argue he is not liable
or even argue the amount of damages.” (Id.) Further, Plaintiff contends
Macias’s arguments regarding a misunderstanding of his responsibility to file a
responsive pleading would lead to a corrupting of default statutes. (P.Supp.,
3.) As explained before, Defendants’ motion simply states: “Defendant submits that a lay person could easily
misunderstand what the pile of papers served within a lawsuit mean or forget
what was necessary to respond to them.” (Motion, 9.) This attestation does not
provide sufficient grounds for setting aside the default under CCP § 473.5, as
Defendant conceded receipt of the summons and complaint.
In reply, Defendants contend:
“[b]ecause there is no evidence that Mr. Macias was a party to the contract the
default is void on its face.” (D.Supp., 3.) However, Exhibit C of the moving
papers in support of the default judgment filed by Plaintiff included the
credit application, which specifically included guarantee language signed by
Defendant Macias. Defendants further contend Devlin is not dispositive,
as this hearing “is not a default prove up but a motion attacking the validity
of a default judgment. Defendants are arguing that the default is void on its
face and should be set aside.” (D.Supp., 3.) Further, Defendants argue the
credit application is invalidated by the statute of frauds:
“Looking to the complaint, and the default prove up package,
which is the only evidence the Court has, the only signature of Mr. Macias is
on a credit application, where Cubic Air Conditioning, Inc., is applying for
credit in its name. There is no indication that Mr. Macias intended to
guarantee the debt personally.” (D.Supp., 4.)
The relevant guarantees of the
credit application state:
“We herein make application to Johnstone Supply for credit
and/or to update and reconfirm our existing account and balance with Johnstone
Supply. Johnstone Supply is authorized to contact any references or banks
listed above and pull credit reports. If credit is granted, I (we) agree to pay
for all goods purchased by the 10th of the month following date of invoice. ln
the event payment is not made and this account is referred for collection, we
agree to pay cost of collection equal to a minimum amount of twenty-five
percent of the principal amount. ... Applicant agrees to pay interest and
service charges at the highest rate permitted by law. Applicant(s) give their
permission to Johnstone Supply and/or its agents to verify and/or supplement
the information listed hereon.... (Memo. In support of Default Judgment, Exh.
C.)
The court finds that it cannot set
aside the default on equitable grounds. As stated above, a party moving to set
aside a judgment based on extrinsic mistake or extrinsic fraud must demonstrate
that they have a meritorious case. Here, Defendants’ motion attaches a bare
answer as proof of a meritorious defense without explaining further why their
arguments have such merit, and fails to provide further explanation in their
supplemental briefing. Granted, “only a minimal showing is necessary” to
demonstrate a meritorious claim. (Mechling v. Asbestos Defendants (2018)
29 Cal.App.5th 1241, 1246.) However, a moving party “‘must show facts
indicating a sufficiently meritorious claim to entitle … [her] to a fair
adversary hearing.’ [Citation.]” (Ibid.) Here, the Complaint alleges
that Defendants breached their contract with Plaintiff by failing to pay a
specific amount on its due date. In their motion, Defendants do not provide any
facts (e.g., that the contract is unenforceable) to show that they have a
meritorious claim entitling them to a fair adversary hearing. Further, the
inclusion of “I(we)” language in the relevant contract between the parties, as
alleged and conceded by Defendants, allows for an inference which this court
relied on in granting default judgment.
Further, as also explained above,
a party seeking relief based on mistake or inadvertence must also show the
mistake to be excusable. Defendants have failed to show how their failure to
prepare an answer, or retain legal counsel, after acknowledging their receipt
of the summons and complaint, are forms of excusable neglect which merit
discretionary relief. Defendants fail to explain why they sat on their hands
after receipt of a summons and complaint, which they acknowledge receiving, and
only now seek to set aside the default by arguing with extrinsic evidence.
Defendants had the obligation to file a responsive pleading, and provide no
reasonable explanation why they failed to do so. Therefore, Defendants have
failed to satisfy the meritorious claim requirement for extrinsic mistake.
For these reasons, Defendants’
motion is denied.
Conclusion
Defendants’ motion is denied.
Plaintiff is to give notice.