Judge Margaret L. Oldendorf, Case Number: 22AHCV00926, Date: 2023-08-25 Tentative Ruling

Judge: Margaret L. Oldendorf, Case: 22AHCV00926, Date: 2023-08-25 Tentative Ruling

This action concerns real property located at 596 N. Sierra Madre Blvd. in Pasadena. Plaintiff Ayad Alanizi and Charlotte Byron allege that they purchased the real property with Defendant Omar Khatib in June 2019 pursuant to an agreement that was part written and part oral. It is alleged that the three of them purchased the property for $700,000, with Alanizi obtaining a loan for $560,000, which was later refinanced with a new loan in the amount of $566,000.

Plaintiffs allege that at the time of the purchase, Khatib and the other defendants represented to them that they had experience “flipping” real estate and that this venture would generate at least $100,000 in profits. It is alleged these representations were false.

Defendant Tarek Elzanaty (Elzanaty) answered and filed a cross-complaint. The cross-complaint alleges that Alanizi, Byron, and Khatib agreed to settle their differences by selling the property to him. A handwritten agreement is attached as an exhibit to the pleading. Elzanaty sues for specific performance of that real estate agreement as well as breach of contract. Elzanaty resides in the real property.

On November 6, 2023, Defendant Hussam Khatib filed a motion to set aside the default entered against him. This was denied without prejudice on December 4, 2023. Khatib filed a second motion to set aside the default on December 29, 2023. It is this second motion that is now before the Court.

After being served with the lawsuit, Hussam Al-Khatib purportedly forwarded the Complaint to his attorney, Guenther Richter, who told Al-Khatib he would file an Answer. Richter did not do so, and Plaintiffs took Al-Khatib’s default. Hussam Al-Khatib (who is proceeding in pro per) now seeks relief from the default entry. For the reasons set forth below, the motion is denied.

Code Civ. Proc. Section 473(b) permits trial courts to relieve a party of a judgment or order taken against the party “through his or her mistake, inadvertence, surprise, or excusable neglect.” (CCP § 473(b).) A motion for such relief must be accompanied by a copy of the answer or proposed pleading. The statute also requires that relief be sought within six months. CCP Section 473(d) permits a court to set aside a void judgment. (CCP § 473(d).)

“The law favors judgments based on the merits, not procedural missteps. Our Supreme Court has repeatedly reminded us that in this area doubts must be resolved in favor of relief, with an order denying relief scrutinized more carefully than an order granting it. As Justice Mosk put it in Rappleyea, ‘Because the law favors disposing of cases on their merits, ‘any doubts in applying section 473 must be resolved in favor of the party seeking relief from default [citations]. Therefore, a trial court order denying relief is scrutinized more carefully than an order permitting trial on the merits.’ (Elston v. City of Turlock (1985) 38 Cal.3d 227, 233; see also Miller v. City of Hermosa Beach (1993) 13 Cal.App.4th 1118, 1136.)” (Id. at p. 980.)” (Lasalle v. Vogel (2019) 36 Cal.App.5th 127, 134-135, italics in original.) “In a case like this one, where there would have been no real prejudice had the set-aside motion been granted, the rule is that a party’s negligence in allowing a default to be taken in the first place ‘will be excused on a weak showing.” (Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 740, italics added.)

CCP Section 473.5 provides that when service of summons has not provided a party with actual notice in time to defend the action and his default was taken, “he or she may serve and file a notice of motion to set aside the default or default judgment and for leave to defend the action.” (CCP § 473.5(a).) The notice of motion shall be served and filed “within a reasonable time, but in no event exceeding the earlier of: (i) two years after entry of a default judgment… or (ii) 180 days after service on him or her of a written notice that the default or default judgment has been entered.” (CCP § 473.5(a).) A motion to set aside default under CCP Section 473.5 “shall be accompanied by an affidavit showing under oath that the party’s lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect.” (CCP § 473.5(b).)

Default was entered against Mr. Al-Khatib on January 4, 2023. This motion was filed December 29, 2023, which is not within the six-month window for seeking statutory relief from default. The motion is therefore untimely under CCP Section 473(b).

Additionally, to the extent that Khatib is bringing this motion pursuant to the attorney fault provision of CCP Section 473(b), the Court notes the absence of an attorney declaration of fault, which is required to set aside a default on grounds of attorney mistake. (See Opposition p. 9: 21-23.)

Here, Al-Khatib urges that he did not receive the Request for Entry of Default. (Motion, p. 8: 10-11.) Specifically, he urges that he did not know that he was in default as “Mr. Richter misrepresented that the Default’s that was entered against Hussam Khatib, Diversity Construction and JJ Design and Construction ‘are incorrect, and I do not think their attorney knows what he is doing.’” (Motion p. 9: 6-9.) Further, “Mr. Richter in that January 9, 2023, email further stated that Mr. Khatib had been given not one but two extensions to file a responsive pleading pursuant to California Code of Civil Procedure § 430.41.” (Motion p. 9: 9-11.)

Section 473.5 applies by its terms to service of the summons and complaint. Khatib does not allege that he failed to receive notice of the summons and complaint – indeed he acknowledges this. Moreover, Khatib also concedes he did receive notice of the default request.

Accordingly, the Court declines to set aside the default under Section 473.5. (See Opposition p. 6: 19-20.)

CCP Section 473(a)(1) allows for an answer to be made after the time the answer is due, in furtherance of justice. (CCP § 473(a)(1).) CCP Section 473(d) allows the court to set aside any “void” judgment. (CCP § 473(d).)

Al-Khatib urges that in the alternative, the default against him should be set aside because he does not recall receiving any documents in this case. (Motion p. 11: 16-17.) However, the next sentence of his motion contradicts this assertion: “After the initial hearing on this Motion Defendant Hussam Khatib spent several hours searching for emails between himself and Guenther Richter and remembered that Mr. Hussam Khatib had received the defaults and sent them to Mr. Richter.” (Motion p. 11: 17-19.) Accordingly, the Court declines to set aside the default on this basis. (See Opposition p. 9: 8-14.)

Alternatively, a party may seek relief from default on equitable grounds, by demonstrating extrinsic fraud or mistake. (Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 290.) Extrinsic fraud occurs when “a party is deprived of the opportunity to present his claim or defense to the court; where he was kept ignorant or, other than from his own negligence, fraudulently prevented from fully participating in the proceeding.” (Id.) To set aside a default judgment on extrinsic fraud or mistake, moving party must show: (1)”the defaulted party must demonstrate that it has a meritorious case, [(2)]the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action, [(3)] the moving party must demonstrate diligence in seeking to set aside the default once it had been discovered.”(Id. at 290-291, internal citations omitted.)

The Declaration of Hussam Al-Khatib details why he did not file an answer, as he declares that he thought he had retained an attorney, Mr. Guenther Richter, to represent him in this matter. (Khatib Decl. ¶¶ 6, 8.) Khatib avers that “I discovered on or about October 16, 2023 that Mr. Richter has allowed a default to be entered against me and I immediately sought to retain a new attorney.” (Khatib Decl. ¶ 25.) Lastly, he declares that “due to mistake, inadvertence and excusable neglect the default was entered against me and that the failure to file an answer on my part was a result of a mistake of fact, that Mr. Richter was competently representing me.” (Khatib Decl. ¶ 29.)

Al-Khatib urges that the default against him should be set aside as due to his reasonable mistake of fact that he was represented by counsel. It was this mistake of fact and subsequent communication with Mr. Richter that allowed his default to be taken and why the motion to set aside was filed so late. In support, Khatib provides emails evidencing his communications with Richter, an engagement letter referencing the case number and case name, and communication regarding a conflict waiver that allowed for Richter to represent both him and Defendant Elzanaty. (Khatib Decl. Exh. 2-6.)

Khatib attaches the engagement letter as Exh. 2. (Exh. 2 to Khatib Decl.) The letter references the case name, case number and party represented, Mr. Khatib. It is a seven-page document containing terms and conditions of the representation and is signed and initialed by Khatib, as well as signed by Richter.[1]

The Court has also reviewed, and on its own motion takes judicial notice of, the complaint Mr. Richter filed in July 2023 against Khatib, Elzenaty and others arising out of an unrelated business venture. (Richter v. Ahmed, et al., LASC Case No. 23AHCV00748; see also Evid. Code §452(d).) The chronology of events set forth in the Richter v. Ahmed action is instructive. It indicates that Richter, Khatib, and Elzenaty (among other business partners) were involved in another matter in the Spring of 2023. A dispute about payment for Richter’s services apparently arose, and on June 15, 2023, Richter gave Khatib and Elzenaty notice that he was withdrawing as their attorney in that matter. (See Exhibit E to the Complaint filed by Richter for, inter alia, breach of contract on July 17, 2023.)

It is the Court’s conclusion that Khatib has not established a basis for relief on the grounds of extrinsic fraud or mistake. Even assuming Khatib has shown that he has a meritorious case in this action (which is questionable); and that, at least initially, he had a satisfactory excuse for not responding to the lawsuit, Khatib has not shown that he acted diligently in seeking to have the default set aside. The record establishes that Khatib was first placed on notice of his default in January of 2023. Although he may have been justified in concluding initially that Richter was going to represent him in this action, and possibly even to take steps to get the default set aside, it was apparent at least by June 15, 2023, that his relationship with Richter had broken down. Accordingly, it was not reasonable for him to wait until November 2023 – almost five months after the June 15 letter and ten months after his default – to move to have it set aside. (See Opposition p. 8: 11- p. 9: 7.) This delay is also prejudicial and unfair to Plaintiffs, who have been actively litigating the case and have also been attempting to reach a resolution with the non-defaulted parties.

[1] The Court notes that Khatib signed the engagement letter in his capacity as an individual and also in his capacity as principal of certain other defaulted defendants, Diversity Construction, JJ Design & Construction and Diversity Financial. Khatib has not included these defaulted defendants in his notice of motion for relief; however, the same analysis would apply to the entities.