Judge: Mark H. Epstein, Case: 24SMCV00776, Date: 2025-06-09 Tentative Ruling

Case Number: 24SMCV00776    Hearing Date: June 9, 2025    Dept: I

The court is inclined to DENY the motion to set aside the default.  The case involves a loan to make a movie.  Plaintiff alleges that the loan was not repaid and therefore sues on the note.  According to plaintiff, the amount now owed on the $100,000 loan is well over $300,000 after imposition of interest, fees, and penalties.  Defendant did not answer the complaint although it was served properly.  Defendant was then defaulted and served with a notice of default.  Now, more than six months later, defendant seeks to vacate the default.

Plaintiff personally served Johnson with the summons and complaint on August 1, 2024.  He had 30 days to respond, but he did not.  On October 3—a little more than 60 days after service—default was entered.  Johnson moves to vacate default.  His motion was filed on April 25, 2025—more than six months after default was entered.  Even though it has been over six months, the court still has equitable power to vacate the default where the judgment is void or the result of a lack of due process or extrinsic fraud or mistake.  (County of San Diego v. Gorham (2010) 186 Cal.App.4th 1228.)  Because more than six months elapsed, though, defendant must rely on the court’s equitable powers.  (Kramer v. Traditional Escrow, Inc. (2020) 56 Cal.App.5th 13 [six month period runs from entry of default; not default judgment].)

Defendant asserts that this is extrinsic excusable mistake.  Extrinsic mistake occurs where circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits.  It is not necessarily based on fraud by the plaintiff, it is really the neglect of the defaulting party where the neglect is excusable and results in an unjust judgment without a fair hearing.  (In re Marriage of Park (1980) 27 Cal.3d 337.)  To qualify for this doctrine, the moving party must show a meritorious case, a satisfactory excuse, and diligence in seeking to set aside the default once the mistake is discovered.  (Mechling v. Asbestos Defendants (2018) 29 Cal.App.5th 1241.)  The test might be somewhat less stringent where only a default has been entered and not a default judgment.  That is because at the point of a default judgment, plaintiff’s default has ripened into a vested right, and therefore more is required to divest plaintiff of that right.  (Rappleyea v. Campbell (1994) 8 Cal.4th 975 [noting the issue but declining to decide it because the result would be the same under either test].)  The court notes that the test implicitly also looks at the prejudice to plaintiff.  The greater the prejudice to the plaintiff from vacating the default, the more diligence and stronger excuse will need to be shown.  The court also notes that prejudice is not that the plaintiff will have to prove the case; that is always required in litigation.  The prejudice is injury due to the passage of time, greater difficulty collecting a judgment should plaintiff prevail, or greater difficulty in obtaining the discovery or proof needed to prevail, for example. 

Johnson states that after he was served, he gave the papers to his former counsel, Craig Huber.  Johnson says that Huber told him that service was invalid because the process server was dressed as an Amazon driver and was carrying boxes.  According to defendant, when he was served, the process server “handed me the package as if delivering an Amazon package.  I do not recall the Amazon delivery guy ever telling me that I’d been served, or that I’d been sued or named in a lawsuit.”  (Johnson Decl., ¶7.)  After Huber said he’d take care of it, Johnson gave it little thought.  Rather, he flew to New York for work and then traveled elsewhere for the next few months, not returning home until April 8, 2025.  He says he learned of Huber’s failure to take care of the lawsuit that day.  (Id., at ¶18.)  He immediately sought new counsel and the instant motion was filed on April 25, 2025.  He says that the delay was not intentional on his part, but rather due to excusable neglect because he trusted his prior counsel.

Plaintiff, in response, states that there is no corroborating evidence that defendant actually gave the material to Huber or that Huber said he would take care of it.  Tellingly, plaintiff also produced a photograph of the process server serving the papers.  The papers were not in an Amazon box or envelope.  Rather, they were loose and open and the photograph shows that the nature of the papers was obvious from sight.  Further, the process server’s declaration states that when defendant opened the door, defendant confirmed his identity and the server informed him of the nature of the papers with which he was being served.  It is hard for the court to credit that any lawyer would tell a client that personal service on the client by handing what are obviously court papers is somehow invalid, and frankly, even if the lawyer were told that the process server handed defendant a box and said nothing, it would be unreasonable for the lawyer to advise defendant simply to ignore the case.  Johnson does not even address this issue in reply.  Plaintiff also notes that defendant did nothing to follow up with Huber between August 2, 2024, and April 8, 2025.  While Johnson was a busy guy, it is a bit hard to give credence to the notion that Johnson was too busy even for a phone call with counsel about the pending litigation, or that Johnson simply allowed six months’ worth of mail to pile up at his home without anyone looking at it or informing him of the contents thereof.  That is important because Johnson was served with the notice of default in October, 2024.  That would have put him on notice that Huber had not handled the matter.  Johnson gives no credible explanation for the notion that no one sorted his mail or looked through his mail during that six month period.  The court also notes that there is no corroborating declaration from Huber.  It could well be that Huber refused to provide the declaration because he did not want to admit his error.  Or it could be that Huber did not provide the declaration because the complaint was not forwarded to him in a timely fashion or that Huber is not at fault here.

All of that said, had the motion been brought within the six month period, the court likely would have granted it without more.  After all, there is a strong public policy favoring resolution of matters on their merits.  And there has not been much of a showing of prejudice.  But the motion was not brought within six months, so defendant’s showing must be stronger.  Given that, the court is inclined to DENY the motion, but WITHOUT PREJUDICE.  There are holes in the papers, as the court has pointed out.  But the court notes that if Johnson explains these issues, and especially if Huber submits a declaration confirming what Johnson says and confessing that he just dropped the ball, the court might well grant the motion given the non-showing of prejudice (although that is not a certainty).  The court also notes that there is no answer filed with the pleading, although if that were the only problem, the court would find a way to get past it.

A short word on the defense.  Johnson offers no defense on the note itself.  His defense is that the note is usurious and therefore he is really only liable for $100,000.  At any prove up hearing, if the default stands, plaintiff will have to show that the note is not usurious and that none of the provisions constitute unenforceable penalty provisions.  The court will also need to see some evidence beyond the allegations that the individual defendant is truly the alter ego of the entity.

In the meantime, the parties ought to discuss whether they can come to terms on the issue of vacating the default—likely with Johnson agreeing to pay plaintiff’s fees in taking the default and opposing this motion.  The parties might also want to discuss resolution of this case overall.