Judge: Mark H. Epstein, Case: 23SMCV01796, Date: 2023-08-14 Tentative Ruling

Case Number: 23SMCV01796    Hearing Date: August 18, 2023    Dept: R

The motion to vacate default is VACATED.  The request for sanctions is GRANTED in the amount of $8200 payable by defendant (or defense counsel) to plaintiff’s counsel forthwith, and the order vacating the default is contingent thereon.  The request to stay the ruling is DENIED.  The writ of post-judgment execution is WITHDRAWN and of no further effect.  Monies collected pursuant to that writ ARE TO BE HELD IN ESCROW AND NOT RETURNED TO DEFENDANT.  The ex parte application for a writ of attachment is DENIED WITHOUT PREJUDICE to a hearing on noticed motion.

There is a debate as to whether an attorney’s very bad strategic decision is enough to trigger relief under 473(b) where the decision is itself not endorsed by the client.  If the attorneys’ bad strategic decision is insufficient to defeat a 473(b) motion absent evidence that the client is responsible for the tactic then this is easy: the motion must be granted, for even under plaintiff’s argument, this was a very bad strategic decision and there is absolutely no evidence that the client actually endorsed the strategy (as opposed to an imputation argument).  On the other hand, if an attorney’s deliberate decision is enough, then the question becomes harder.  Attorney Hoffman has stated that he did not deliberately and tactically decide to allow judgment to be taken but plaintiff disputes this, stating that Hoffman is committing perjury and that he deliberately and strategically allowed a default to be taken and planned to seek to vacate once plaintiff attempted to enforce the judgment thereby obtaining a delay.  The court ultimately finds Hoffman’s declaration to be credible.  If he actually did have the intent to allow a default to be taken, allow a writ to be issued, allow his client’s income and bank account to be levied, and then seek emergency relief to have it undone because that might buy the client an additional month or two, then his conduct in seeking ex parte relief would itself be sufficient to subject him to discipline and perhaps disbarment because that is certainly not how his papers read.  And the fact that he doubled down under oath certainly would lead to discipline.  This is a $70,000 case.  The court simply finds it to be not credible that counsel would put his license at risk that way.  Further, if this was his strategy, then the court believes when the judgment was entered and his bluff was called because plaintiff would not stipulate to vacate the default, he (or his client) would have simply paid the $70,000 to make the case go away.  After all, there is no reason to believe that plaintiff would have maintained the action if it were paid in full.  While there could be some incidental costs, they would not be huge at this stage.  In short, it is simply not credible that this was all a carefully thought out plot to squeeze a couple of months out of plaintiff.

Accordingly, the court finds attorney Hoffman to be credible in this regard.  Because of that, the motion to vacate the default must be, and is, GRANTED upon satisfaction of the payment obligation discussed below. 

That leaves the question what to do next.  Plaintiff does not want the writ to be stayed or the money returned.  The court is inclined to agree that the money stays where it is: in limbo pending resolution of the case, agreement of the parties, or further order of the court.  However, because the judgment upon which the writ was entered has now been vacated, the writ must be of no further force or effect and it is WITHDRAWN upon satisfaction of the payment obligation discussed below.  That means that going forward, any receipts are not to be levied pending further order. 

The court is aware of plaintiff’s claim that it will be harmed if the writ is stayed.  But the court does not see that as being a horrible outcome.  Generally speaking, one potentially subject to a pre-judgment writ of attachment is entitled to a hearing in court before one actually issues.  That is happening here.  To the extent that monies were taken, they stay in limbo.  But to the extent that we are talking about the future, it is similar to what would have happened had defendant answered on June 26, 2023.  Presumably an application would have been speedily sought, just as it was in fact sought on July 12, 2023, very shortly after the default judgment was entered.  True, in the context of a writ enforcing a judgment, the due process owed to the judgment debtor is somewhat less.  But still, that is not dissimilar to the time frame the court is ordering.

And, assuming that defendant’s goal is to have an operating business, there ought to be money enough if the writ is eventually granted to satisfy the judgment.  And if defendant elects instead to go bankrupt, then this will all be in the Bankruptcy Court anyway.  And even if defendant does not elect to go bankrupt, right now defendant claims to be turning away 90% of the business.  Plaintiff’s response is that doing so is mean-spirited because defendant could accept credit card business; it is just that defendant would get none of the receipts.  (Defendant disputes that, claiming that due to the nature of the enforcement, the credit card companies actually will not process any credit card payments.  The court is ABSOLUTELY NOT going to get into that at this hearing.)  But what that means is that, from plaintiff’s perspective, defendant ought to be willing to keep people employed (and pay them) and continue to buy supplies and the like even though it brings in no money (because the money is levied).  The court does not see defendant’s election to not do that as being mean-spirited or inherently evil.

The court is aware of plaintiff’s argument that it is entitled to due process.  Due process is defined as notice and an opportunity to be heard.  The amount of notice and opportunity varies according to the situation.  Here, in light of section 473(b) and the strong public policy favoring resolution on the merits, the court believes there has been process enough.  While there has been no opportunity to take discovery, the court does not believe discovery is necessary here.  Of course, plaintiff is free to challenge that view in another court.  It is just that the court is not of the opinion that we are in a constitutional crisis where the very foundation of plaintiff’s due process rights are in jeopardy.

Finally, plaintiff states, rightly, that the court may condition its order on terms that are just.  Here, the order will deem the proposed answer filed as of the date the amount below is paid, so there is no additional delay there.  The cross-complaint is not deemed filed.  Defendant will need to seek leave of court to file that document because the time to file as of right has passed.  Plaintiff has claimed about $7800 in fees and costs.  The court anticipates another $400 in plaintiff’s preparation for and attendance at oral argument for a total of $8200.  That amount is ordered to be paid to plaintiff’s counsel within 5 court days.  This order will not be effective until the amount is paid, and thus until payment is made, defendant will remain in default and the writ will remain active.  If payment is not made within five days, then the ex parte application will be deemed DENIED and the court will conclusively presume at that point that plaintiff was right all along and that this is a tactical decision being made collectively by defendant and defense counsel.  The court suggests that defendant make the payment forthwith (meaning today).  The court notes that if the check is drawn on defense counsel’s account, that ought to be good enough.  Defense counsel would be ill-advised to stop payment on such a check or to allow the check to be dishonored.  Were that to happen, the court would draw the same conclusion as if the money had never been tendered.  The court notes that, amazingly, defendant in his reply challenges whether any money should be paid.  Defense counsel, who has sworn that he committed malpractice in this case to his client’s detriment, ought not to be sweating the small stuff.  Through his admitted ineptitude, he allowed a default judgment to be entered against his client.  One would have thought that he would have his checkbook out and ready to write a check rather than take the opportunity to again attempt to wallow in the common mud.  In any event, $8200 is a rather small price to pay to be rid of the problem.  While it is true that the order goes to defendant not counsel, the court is confident that counsel will speedily write the check and not add insult to injury by billing the client.

For future reference, the court warns the parties and their counsel that they ought to re-set things.  This motion is done and over and the complaint has now been filed and answered.  While the court understands that there is no love lost between the clients or their counsel, if the case is litigated as a blood sport, it will be long, unpleasant, and expensive.  The court does not know if there is an attorneys’ fees clause in the contract.  But both parties should recall that the fee recovery is only for fees that are reasonable and necessary.  The court is unlikely to find fees that were incurred because of a salted earth strategy and a refusal to give professional courtesies to be recoverable because such fees are neither necessary nor reasonable.  That is true in the discovery sanction context as well.  As should be apparent, the court is not pleased with the behavior of either party thus far.