Judge Latrice A. G. Byrdsong, Case Number: 24STLC00075, Date: 2024-06-11 Tentative Ruling

Judge: Latrice A. G. Byrdsong, Case: 24STLC00075, Date: 2024-06-11 Tentative Ruling

Case Number: 24STLC00075 Hearing Date: June 11, 2024 Dept: 25

Hearing Date: Tuesday, June 11, 2024

Case Name: CREDITORS ADJUSTMENT BUREAU, INC. v. CARENETLA INC. aka CARENETLA INC; THRIVE HEALTH INC. aka THRIVE HEALTH INC.; and DOES 1 through 10, inclusive

Case No.: 24STLC00075

Motions: (1) Motion to Vacate Default Judgment

(2) Motion to Vacate Plaintiff's Entry of Default Judgment

Moving Parties: (1) Defendants CareNetLA Inc. aka CareNetLA

(2) Thrive Health Inc. aka Thrive Health Inc.

Responding Party: Plaintiff Creditors Adjustment Bureau, Inc.

Notice: No. The joint memorandum of points and authorities filed in support of the notices of motions does not have proof of service. There is also no proof of service attached to CareNetLA’s motion. However, it appears the opposing party received notice because they filed one opposition to the joint memorandum.

Tentative Rulings: Defendants CareNetLA Inc. aka CareNetLA and Thrive Health Inc. aka Thrive Health’s motions to set aside the defaults against them is GRANTED.

The Proofs of Substituted Service filed on 03/08/2024 as to both Defendants are hereby STRICKEN.

The Default entered on 04/02/2024 against Defendants Thrive Health, Inc. aka Thrive Health and against CareNetLA, Inc. aka CareNetLA is set aside and vacated.

BACKGROUND

On January 5, 2024, Plaintiff Creditors Adjustment Bureau, Inc. (“Plaintiff”) filed this action against Defendants CareNetLA Inc. aka CareNetLA (“CareNetLA”), Thrive Health Inc. aka Thrive Health (“Thrive”), and Does 1 through 10, inclusive, asserting causes of action for (1) breach of contract, (2) open book account, (3) account stated, and (4) reasonable value.

The Complaint alleges the following. “Plaintiff’s Assignor” refers to the State Compensation Insurance Fund (“SCIF”), a corporation, insurance issuer, and insurance underwriter licensed in California. (Compl., ¶¶ 1, 4.) Plaintiff’s Assignor and the defendants entered into a written agreement wherein Plaintiff’s Assignor agreed to give workers’ compensation insurance to the defendants, and the defendants agreed to pay premiums in exchange. (Compl., ¶ 11.) Plaintiff’s Assignor performed its part of the contract, but the defendants breached the policy by failing to pay $22,306.91. (Compl., ¶ 14.) Before Plaintiff brought this action, Plaintiff’s Assignor assigned to Plaintiff “the claims herein sued upon … for collection purposes only ….” (Compl., ¶ 4.)

On March 8, 2024, Plaintiff filed Proofs of Service of Summons.

On April 2, 2024, defaults were entered against Defendants.

On April 9, 2024, Defendants filed the instant motion to vacate the default in pro per even though they are corporations.

On April 18, 2024, Plaintiff filed its opposition to the motion.

On May 2, 2024, the Court held a hearing on the motion. Attorney Alexis Wingate (1) represented to the Court that she would substitute in as Defendants’ counsel and (2) requested the hearing on the CareNetLA motion to be continued to allow the filing of a separate motion with respect to Defendant Thrive. The Court continued the hearing pending the filing of Thrive’s motion to vacate default.

On May 3, 2024, Attorney Alexis Wingate substituted in as defense counsel.

On May 6, 2024, Thrive filed its notice of motion to set aside default.

On May 20, 2024, Defendants filed one joint memorandum of points and authorities in support of the motions to set aside default.

On May 29, 2024, Plaintiff filed one opposition to the joint memorandum of points and authorities.

A non-jury trial is set for July 7, 2025.

MOVING PARTY’S POSITION

Defendants argue the following in their joint memorandum of points and authorities (the “Motion”).

The Court should set aside the defaults pursuant to Code of Civil Procedure section 473, subdivision (d) (“Section 473(d)”) because Plaintiff failed to serve the Defendants properly. Plaintiff filed a proof of service, stating that a registered California process server served Defendants by leaving the papers with “Wendy Lopez, Person in Charge,” at 12061 B W Jefferson Blvd, Los Angeles, CA 90230. However, Wendy Lopez (“Lopez”) is only an employee at Thrive; she is not an authorized agent of service, is not assigned as the “person in charge” at Thrive, is not a corporate officer, and is not even listed as a registered agent of service on corporate documents filed with the California Secretary of State. Plaintiff also claims that it attempted service at “29 Santa Isabel, Rancho Santa Margarita, CA 92688” and “8949 Sunset Blvd., #205B, West Hollywood, CA 90069,” before “serving” Defendants through substituted service by leaving copies with Lopez. However, CareNetLA’s principal place of business is 600 Deep Valley Drive, Ste D., Rolling Hills Estates, CA; it is not the Rancho Santa Margarita, West Hollywood, or Los Angeles addresses where Plaintiff claims it attempted service. Moreover, Lopez is not employed by CareNetLA and, therefore, cannot even accept service documents on behalf of that defendant. Therefore, because the service was invalid, the defaults are void. Accordingly, the Court should set aside the defaults pursuant to Section 473(d).

The Court can also set aside the defaults pursuant to Code of Civil Procedure section 473, subdivision (b) (“Section 473(b)”) because the defaults were entered as a result of the excusable neglect. This action arises from the workers’ compensation insurance policy; specifically, Defendants executed an agreement where SCIF (i.e., Plaintiff’s Assignor) would provide workers’ compensation insurance to Defendants bearing Policy No. 9314108-22 (“The 2022 Policy”). Edward Francis Devitt (“Devitt”) is the Defendants’ sole Secretary, Director, CEO and CFO. While this action was pending, Devitt was communicating with SCIF and, because of those communications, believed that this case would be resolved outside of Court and moot Plaintiff’s claims. Therefore, the defaults were entered due to Defendants’ excusable neglect or mistake.

The Court can also set aside the defaults pursuant to Code of Civil Procedure section 473.5 (“Section 473.5”), which authorizes a trial court to relieve a party from a default judgment when service of a summons has not resulted in actual notice to a party in time to defend the action and the party demonstrates that its lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect. Here, Defendants have shown that they did not receive actual notice of the lawsuit due to improper service. Defendants have also demonstrated that the defaults were not caused by their inexcusable neglect.

The Court can also set aside the defaults on the grounds of extrinsic fraud and mistake.

OPPOSITION

In its opposition to the Motion, Plaintiff argues the following (not necessarily in the manner that they appear in the opposition), among other things.

First, Defendants provided insufficient notice as a matter of law and, therefore, pursuant to Code of Civil Procedure section 1005, subdivision (b), this Court lacks the jurisdiction to hear this untimely motion.

Second, Defendants’ moving papers fail to satisfy the California Rules of Court requirements because they failed to submit their belated Motion with their notice of motion.

Third, Defendants’ Motion is defective because it exceeds the 15-page limit, and the Court should not consider anything beyond the 15-page limit. (California Rules of Court, rules 3.1112 and 3.1113.)

Fourth, relief under Sections 473(b) and 473.5 is precluded because the Motion is not accompanied by a copy of the answer or other pleading to be filed in the action.

Fifth, even if Defendants’ motion was proper and timely noticed, it must still be denied on its merits because Defendants were properly served with the Summons and Complaint when the designated agent for service of process, Devitt, was served by substitute service on an apparent person in charge, Lopez, at the undisputed principal place of business and mailing address listed with the California Secretary of State.

Sixth, relief under Section 473.5 is precluded because substitute service on Defendants' registered agent for service of process was proper, Defendants cannot meet their burden to show a meritorious defense, Defendants’ alleged lack of notice, even if true, stemmed from their own gross negligence on multiple levels. Relief under Section 473(b) is similarly precluded for the same reason.

Seventh, Defendants are not entitled to equitable relief under C.C.P. 473(d) because there was no extrinsic fraud or mistake.

For those reasons, the Court should deny the motion.

REPLY

None.

ANALYSIS

I. MOTION TO VACATE DEFAULT JUDGMENT

A. Legal Standard

“It is … 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.

1. Section 473.5 and 473(d)

Section 473.5(a) states: “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.”

“‘“[A]ctual notice” in section 473.5 “means genuine knowledge of the party litigant....” [Citation.]’ [Citation.] ‘“[A]ctual knowledge” has been strictly construed, with the aim of implementing the policy of liberally granting relief so that cases may be resolved on their merits. [Citation.]’ [Citation.]” Ellard v. Conway (2001) 94 Cal.App.4th 540, 547 (“Ellard”).

2. Section 473(d)

“Under Section 473, subdivision (d), the court may set aside a default judgment which is valid on its face, but void, as a matter of law, due to improper service.” Ellard, supra, 94 Cal.App.4th at p. 544; Code Civ. Proc., § 473, subd. (d) (“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”).

3. Section 473(b)

A party may also move to set aside default pursuant to Section 473(b), which states: “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.” (Emphasis added.)

4. Equitable Relief

“‘[A] trial court may [also] ... vacate a default on equitable grounds even if statutory relief is unavailable.’ [Citation.]” Sakaguchi v. Sakaguchi (2009) 173 Cal.App.4th 852, 862 (“Sakaguchi”). “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 (“Luxury”) (internal quotation marks removed).

Extrinsic mistake involves the excusable neglect of a party. Luxury, supra, 56 Cal.App.5th at p. 911. “‘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.

B. Discussion

1. Statutory 16-Court Day Notice

As an initial matter, Plaintiff argues that pursuant to Code Civ. Proc. section 1005, subdivision (b) (“Section 1005(b)”), the Court lacks jurisdiction to hear the instant Motion because Defendants did not give the statutory 16-court-day notice before the hearing. Section 1005(b) states: “Unless otherwise ordered or specifically provided by law, all moving and supporting papers shall be served and filed at least 16 court days before the hearing.”

However, even if it is true, as Plaintiff argues, that Defendants did not give it the statutory 16-court day notice, that is not reason for denying the motion.

Case law holds that the Court can simply continue the hearing to compensate for insufficient notice. See Shields v. Shields (1942) 55 Cal.App.2d 579, 584-585 (holding that lack of enough notice under Section 1005(b) is a “technical one,” and, in any event, the party raising that argument did not show they were prejudiced by the other party’s failure to give them the statutory ten day’s notice instead of nine for the notice of motion); see also Karz v. Karl (1982) 137 Cal.App.3d 637, 648 (“Nothing in [one case], however, supports Karz’ contention that inadequate notice cannot be remedied by continuing the hearing at which the opponent appears and contests the motion on the merits. Under such circumstances, this Division upheld the resulting order in [Shields v. Shields, supra, 55 Cal.App.2d at p. 584]”). Case law holds that filing an opposition to a motion and not claiming prejudice by the defective service or inadequate notice of the motion is a waiver of any alleged defective service or inadequate notice. See Carlton v. Quint (2000) 77 Cal.App.4^th 690.

Here, the Court already continued the hearing once. In addition, Plaintiff had the opportunity to and, in fact, did file a substantive opposition. Plaintiff has not requested a continuance of the hearing in its opposition papers.

Accordingly, the Court finds Plaintiff’s insufficient notice argument unpersuasive under the current circumstances.

2. Motion Exceeding 15-Page Limit and Defendants’ Request for Equitable Relief

Plaintiff argues that the Defendants exceeded the 15-page limit for their Motion.

The Court agrees. “Except in a summary judgment or summary adjudication motion, no opening or responding memorandum may exceed 15 pages.” Cal. Rules of Court, rule 3.1113(d). Here, Defendants’ memorandum of points and authorities starts on Page 6 and ends 18 pages later on Page 24. “A party may apply to the court ex parte but with written notice of the application to the other parties, at least 24 hours before the memorandum is due, for permission to file a longer memorandum. The application must state reasons why the argument cannot be made within the stated limit.” Cal. Rules of Court, rule 3.1113(e). Here, Defendants did not file any ex parte application or motion asking the Court for permission to file a longer memorandum.

Therefore, the Court will not consider Defendants’ equitable relief (i.e., extrinsic fraud and mistake) arguments, which appear in the pages over the 15-page limit.

Accordingly, the Defendants’ request for equitable relief is denied.

3. Memorandum Failed to Accompany Notice of Motion

Plaintiff also argues Defendants failed to comply with the California Rules of Court rule requiring the notice of motion to be accompanied by a memorandum of points and authorities.

The Court agrees. “A motion must be accompanied by a memorandum and, if it is based on matters outside the record, by declarations or other supporting evidence.” Cal. Rules of Court, rule 8.54(a)(2). Here, CareNetLA filed its motion in pro per on April 9, 2024. After obtaining counsel, Defendants filed Thrive’s notice of motion on May 6, 2024. Subsequently, on May 20, 2024, Defendants filed one joint memorandum of points and authorities in support of the motions to set aside default. Defendants have not cited any law allowing them to submit their moving papers in a piecemeal, sequential manner, and the Court admonishes them for doing so.

Despite the defect identified above, the Court will consider the motion on its merits.

4. Request for Relief Under Section 473(b)

The Court denies Defendants’ request to set aside the defaults pursuant to Section 473(b) because Defendants failed to attach copies to their proposed Answers and have not indicated their intention to do so at the hearing. Cf. Carmel, Ltd. v. Tavoussi (2009) 175 Cal.App.4th 393, 403 (“we conclude defendants’ proffer of their proposed answer at the hearing on their motion in the present case substantially complied with the requirements of … section 473, subdivision (b)”).

5. Request to Set Aside Defaults Due to Improper Service

“A summons may be served on a corporation by delivering a copy of the summons and the complaint by any of the following methods:

(a) To the person designated as agent for service of process as provided by any provision in Section 202, 1502, 2105, or 2107 of the Corporations Code (or Sections 3301 to 3303, inclusive, or Sections 6500 to 6504, inclusive, of the Corporations Code, as in effect on December 31, 1976, with respect to corporations to which they remain applicable).

(b) To the president, chief executive officer, or other head of the corporation, a vice president, a secretary or assistant secretary, a treasurer or assistant treasurer, a controller or chief financial officer, a general manager, or a person authorized by the corporation to receive service of process.

(d) If authorized by any provision in Section 1701, 1702, 2110, or 2111 of the Corporations Code (or Sections 3301 to 3303, inclusive, or Sections 6500 to 6504, inclusive, of the Corporations Code, as in effect on December 31, 1976, with respect to corporations to which they remain applicable), as provided by that provision.

Code Civ. Proc., § 416.10 (“Section 416.10”); Corp. Code, §§ 1701 (delivery to agent or corporate agent), 1702 (service upon secretary of state pursuant to a court order], 2110 (concerning foreign defendants), or 2111 (service upon secretary of state pursuant to a court order if the agent cannot be found).

“In lieu of personal delivery of a copy of the summons and complaint to the person to be served as specified in Section 416.10, … a summons may be served by leaving a copy of the summons and complaint during usual office hours in his or her office … with the person who is apparently in charge thereof, and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left. Code Civ. Proc., § 415.20, subd. (a) (“Section 415.20(a)”) (emphasis added).

Therefore, to effectuate substituted service on Defendants pursuant to Section 415.20(a), Plaintiff had to deliver the copy of the summons in the actual office (not just in any location or address) of “the person to be served as specified in Section 415.20.” Ramos v. Homeward Residential, Inc. (2014) 223 Cal.App.4th 1434, 1441–1442 (“While section 415.20, subdivision (a) permits substituted service on ‘the person to be served as specified in Section 416.10,’ where the proof of service fails to identify any such person, the proof of service is defective”).

“It is axiomatic that strict compliance with the code’s provisions for service of process is not required.” Ramos v. Homeward Residential, Inc. (2014) 223 Cal.App.4th 1434, 1442 (“Ramos”).

“‘[S]ubstantial compliance is sufficient.’ [Citation.]” Ramos, supra, 223 Cal.App.4th at p. 1443.

“In general, substantial compliance with the code occurs when, although not properly identified in a proof of service, the person to be served in fact actually received the summons.” Ramos, supra, 223 Cal.App.4th at p. 1443 (italics in original).

“‘[W]hen the defendant is a corporation, the “person to be served” is one of the individuals specified in section 416.10 [above]. Therefore, [a plaintiff] could be held to have substantially complied with the statute if, despite his failure to address the mail to one of the persons to be served on behalf of the defendants, the summons was actually received by one of the persons to be served.’ [Citation.]” Ibid. (emphasis added).

“[M]ere receipt of the summons by an unknown employee of the corporation who is not a person specified in section 416.10 does not necessarily establish substantial compliance. [Citation.] Evidence that shows the name of the person who received the summons and complaint as well as the person’s title or capacity is required by statute (§ 417.10) and, without it, a trial court need not infer that a person specified in section 416.10 actually received the summons and complaint.” Ramos, supra, 223 Cal.App.4th at p. 1443 (emphasis added).

Defendants have argued that Devitt is their sole Secretary, Director, CEO, and CFO, and Plaintiff has not disputed that fact.

Therefore, Plaintiff was required to serve Defendants by delivering a copy of the Summons and Complaint on Devitt.

Plaintiff argues that it effectuated substituted service on Defendants “Wendy Lopez, Person in Charge,” at 12061 B W Jefferson Blvd, Los Angeles, CA 90230.

However, Plaintiff has not proven that Devitt actually received a copy of the Summons and Complaint in time to defend this action. On the other hand, Lopez testifies as follows after receiving a copy of the documents from the process server. “I did not directly hand the documents to Mr. Devitt as he was not at Thrive’s office on 2/15/2024. I placed a note on the documents and left the papers stacked with other documents and work materials on his desk.” (Motion, Lopez Decl., ¶ 9.) “As I had no other verbal communication with the unknown man besides saying ‘No’ and responding ‘Wendy Lopez’, I had no knowledge as to the contents of the documents because the unknown man never identified himself personally by name, nor [sic].” (Lopez Decl., ¶ 10.) “Mr. Devitt works between several offices, and is not in the Thrive office everyday. It is not my responsibility to update him on any mail that is delivered to Thrive. And I had no knowledge that the delivered documents were any sort of legal filing; I did not know what the documents were and I was not given any information by the unknown man as to the contents.” (Lopez Decl., ¶ 11.)

For the reasons set forth above, the Court finds that Plaintiff did not effectuate proper service on Defendants and the defaults were void.

“‘[C]ompliance with the statutory procedures for service of process is essential to establish personal jurisdiction. [Citation.]” Ellard, supra, 94 Cal.App.4th at p. 544.

“Thus, a default judgment [or default] entered against a defendant who was not served with a summons in the manner prescribed by statute is void. [Citation.]’ [Citation]” Ellard, supra, 94 Cal.App.4th at p. 544.

Therefore, the defaults entered against Defendants are void because service was improper.

Accordingly, the Court grants the Defendants’ Motion to set aside the Default and orders the Proofs of Substituted Service filed on 03/0/8/2024 as to both Defendants STRICKEN..

II. CONCLUSION

Defendants Carenetla Inc. aka Carenetla and Thrive Health Inc. aka Thrive Health Inc.’s motions to set aside the defaults entered against them on April 2, 2024, is GRANTED. The defaults entered on 4/02/2024 are hereby set aside and vacated.

The Proofs of Substituted Service filed on 03/08/2024 as to both Defendants are hereby STRICKEN.

The Court sets an Order to Show Cause Re: Proof of Service / Defendants’ Answer/Responsive Pleading for 09/09/2024 at 9:30 a.m. in Department 25 of the Spring Street Courthouse.

The Moving party is ordered to give notice and to attach a copy of the Court's Tentative Ruling, as an exhibit “A” to said notice, as the final order of the Court.