Judge: Michael Shultz, Case: 21STCV07347, Date: 2025-04-18 Tentative Ruling

Case Number: 21STCV07347    Hearing Date: April 18, 2025    Dept: 40

21STCV07347 Creditors Adjustment Bureau, Inc. v. Addition Building & Designs, Inc., et al.

Friday, April 18, 2025.

[TENTATIVE] ORDER DENYING DEFENDANT’S MOTION TO SET ASIDE THE ORDER STRIKING ANSWER AND ENTERING DEFAULT.

                                                                                        I.          BACKGROUND

Plaintiff Creditors Adjustment Bureau, Inc. (“Plaintiff”) is a collection agency seeking to collect a debt in the amount of $296,480.20 from Defendants Addition Building & Design, Inc. and Michael Ross aka Micahel Edward Ross dba Green Build Design LA (“Defendants”). Defendants procured a workers compensation insurance policy from Plaintiff’s assignor. However, Defendants breached the policy by failing to make necessary insurance premium payments. On February 25, 2021, after the assignor assigned to Plaintiff its claims under the insurance policy, Plaintiff initiated this action against Defendants alleging the following causes of action: (1) breach of contract; (2) open book account; (3) account stated, and (4) reasonable value. 

On May 10, 2023, the Court denied Plaintiff’s Motion for Terminating Sanctions, stating “While the conduct at issue here does not justify terminating sanctions at this stage, the Court will note that it is not condoned, and if such conduct continues, could be part of a larger pattern of conduct that eventually leads to terminating sanctions.”

On July 11, 2024, the Court granted Plaintiff’s Motion for Terminating Sanctions, Striking Defendant Addition Building & Design, Inc.’s Answer and Entering Default.

On August 20, 2024, the Court granted Plaintiff’s Motion for Terminating Sanctions, ordered the Answer filed by Defendant Michael Ross stricken, and entered default against Defendant Michael Ross.

On November 8, 2024, the Court granted Plaintiff’s default judgment in the amount of $438,192.46.

On March 18, 2025, Defendants filed a substitution of attorney.

On March 21, 2025, Defendants filed the instant Motion to Set Aside the Order Striking Defendant’s Answer (Court Order August 20, 2024) and Entering Default. Plaintiff opposed on April 7, 2025. Defendants filed a reply on April 11, 2025.

                                                                                         II.          DISCUSSION

“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…¿ [The application]¿shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken.”¿ (Code Civ. Proc.,¿section¿473(b).)¿¿

Application for discretionary 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…” (Ibid.)¿

Relief under this section is mandatory when based on an attorney affidavit of fault; otherwise, it is discretionary. (Ibid.) An application for relief must be made no more than six months after entry of judgment and must be accompanied by an affidavit of fault attesting to the moving party’s mistake, inadvertence, surprise, or neglect. (Ibid.)¿The court shall, whenever an application for relief is made no more than six months after entry of judgment. . . vacate any (1) resulting default entered by the clerk against his or her client, and which will result in entry of a default judgment, or (2) resulting default judgment or dismissal entered against his or her client,¿unless the court finds that the default or dismissal was not in fact caused by the attorney’s mistake, inadvertence, surprise, or neglect.¿(Ibid.)

A.     Timeliness

Defendant moves to set aside the August 20, 2024, Order Striking Defendant’s Answer and Entering Default pursuant to mandatory relief under section 473(b).  The motion is timely. The wording of the statute makes clear that the 6-month period runs from entry of the default judgment, not the original default. (Sugasawara v. Newland (1994) 27 CA4th 294, 297). A motion made within that period is timely although the attorney neglect predated the entry of default. ( Sugasawara v. Newland, supra, 27 CA4th at 296) For mandatory relief, the date of judgment is from which the six month deadline runs. Judgment was entered on November 8, 2024, and Defendants filed their application for relief no more than six months from that date. The Court finds that this Motion is timely.

B.     Attorney Neglect

Defendants assert that their failure to respond to discovery and appear at hearings, was in fact due to Defendants’ former counsel, Gary Schwartz. “Unfortunately, Mr. Schwartz had Covid in 2020 which resulted in extreme memory loss which resulted in him not communicating with his clients Michael Ross and Addition Building & Design regarding any of the discovery that was due, the sanction requests, the motions to compel or even the terminating sanctions. Defendants had no idea that the case had proceeded to terminating sanctions phase and that a judgment was entered against them for $438,192.46.” (Mot., p. 4:18-24.) Mr. Schwartz declares “All of the above referenced events are due solely to my negligence, inadvertence, and mistake and are not due to any conduct of the Defendants.” (Schwartz Decl. ¶ 12.) “In. . .2021, I contracted a severe case of Covid-19. . .As a result. . .I then and still do have many symptoms from the illness of which is short term memory loss. As a result. . .I forgot about. . .the discovery and upcoming due dates in legal matters, including this matter. . .This memory loss caused me to forget about the case. As such I did not communicate or notify Defendants at all about the discovery. . .” (Schwartz Decl. ¶¶ 13-14.) Mr. Schwartz declares, “Additionally I went on vacation in May of 2024 and forgot to check my mail folder when I returned from vacation to the office and was not aware of the motions to compel on calendar and notify my clients about them.” (Schwartz Decl. ¶ 15.) Mr. Schwartz further declares he suffered from health issues in 2024, which was “distracting and did not allow me to focus fully on my practice as I wanted to.” (Id. at ¶ 17.) Mr. Schwartz does not attach supporting evidence to his declarations. Defendant Michael Ross declares “From February 25, 2021, until recently I believed that Gary Schwartz was handling my case. I had not heard from him in years and assumed that the lawsuit was no longer active. At no point did Mr. Gary Schwartz notify me that there was discovery due in this case, that I needed to respond to discovery, or that there were sanctions and motions to compel hearings pending. If I had known that there were discovery obligations on my part, I would have participated fully in the lawsuit.” (Ross Decl. ¶¶ 3-4.) 

In opposition, Plaintiff asserts that the default was not caused by attorney neglect, but rather Defendants’ neglect. Plaintiff asserts that Mr. Schwartz’s basis for attorney neglect, illness and memory loss, is not credible as Mr. Schwartz has actively participated in the case. Plaintiff asserts “the court's docket clearly evidences the fact that Mr. Schwartz was actively participating in the case during the time defendants allege Mr. Schwarz was incapacitated. Mr. Schwartz appeared at the hearing and argued on March 1, 2023 (Plaintiff’s’ motion to compel further hearing), May 10, 2023 (Plaintiff’s first motion for terminating sanctions), January 29, 2024 (Plaintiff’s’ motion to compel hearings), and February 5, 2024 (Plaintiff’s motion for order of matters deemed admitted). Mr. Schwartz responded to Plaintiff’s detailed meet and confer letter on May 3, 2023, inquiring about what was ‘faulty’ about Defendants’' discovery responses and had numerous meet and confer telephone calls with Plaintiff’s’ counsel.” (Opp., p. 7:18-23.) Plaintiff asserts there is no mention of illness in Mr. Schwartz’s communications. (Opp., p. 8:16-17.) Moreover, “during one of Plaintiff’s meet and confer calls with Mr. Schwartz, Mr. Schwartz stated that ‘considering his communication problem with his client,’ Mr. Schwartz did not have time to complete Plaintiff’s’ discovery requests within the 143 days plaintiff gave Defendants’ to respond. It is worth noting that Plaintiff’s’ counsel prepared a contemporaneous declaration testifying that Mr. Schwartz stated it was his client's lack of communication stopping discovery.” (Weitz Decl., ¶ 12; Ex. “2,” ¶ 3) Plaintiff used this declaration in support of two motions to deem matters admitted in relation to the third set of discovery, which were granted. (Opp. p. 8:3-5; Weitz Decl., ¶ 12-13.) “Because plaintiff still received no discovery responses from Defendants’ for the third set of discovery, despite the court order, on May 21, 2024, plaintiff filed another motion for terminating sanctions,” which was granted. (Opp. p. 8:10-12.)

Further, Plaintiff asserts that Mr. Ross’ declaration is not credible because he claims that Mr. Schwartz was representing Defendants since February 25, 2021, yet Mr. Schwartz was not substituted as attorney until July 2022. (Opp., p. 6:16-20.) Plaintiff also asserts that Mr. Ross declares that he was unaware of discovery being conducted, however Defendants responded to Plaintiff’s discovery responses, which were verified by Mr. Ross and discussed in an email correspondence between counsel. (Ibid.) “Plaintiff sent a meet and confer letter to Mr. Schwartz and Mr. Schwartz responded on May 3, 2023, inquiring about what was "faulty" about Defendants’' discovery responses.” (Weitz Decl., ¶ 8, Ex. “l.”) The Court agrees that Defendant’s unawareness of ongoing discovery and assumption that the lawsuit was inactive is not credible. (See Ross Decl. ¶ 3.)  In fact, Defendants state in reply, “Defendants believed that their counsel was prosecuting and defending their case diligently, which he was not.”

The Court finds that the default was not in fact caused solely by attorney neglect. Plaintiff demonstrates that Mr. Schwartz has actively participated in this case despite declaring that he neglected this case due to short term memory loss. Though Mr. Schwartz declares that his short term memory loss contributed to his forgetting about discovery propounded, Mr. Schwartz does not substantiate these claims with correspondence or other evidence mentioning illness and his inability to attend to this case. Rather, Mr. Schwartz’s communication to Plaintiff that his communication problems with his client resulted in Mr. Schwartz’s inability to respond to the third set of discovery within 143 days cuts against a finding of attorney neglect. After Defendants’ failure to respond to the third set of discovery, Plaintiff’s motion for terminating sanctions was granted. “[A] party can rely on the mandatory provision of section 473 only if the party is totally innocent of any wrongdoing and the attorney was the sole cause of the default or dismissal.” (Lang v. Hochman (2000) 77 Cal.App.4th 1225, 1248.) “It provides no relief for the culpable client¿who participates in conduct which led to the default or dismissal. When deciding whether to grant relief, the court must resolve the issue whether attorney actions, or the misconduct of the parties themselves, actually caused the default or dismissal.¿If attorney actions did not solely cause the terminating sanctions and the subsequent default judgment in this case, the parties cannot rely on the mandatory relief provision of¿section 473.” (Id. at 1251-1252.) “Mandatory¿section 473¿relief shall not be granted when the attorney is “simply covering up for the client.”¿(Rogalski v. Nabers Cadillac¿(1992) 11 Cal.App.4th 816, 821.)

Based on the foregoing, the Court finds that the default was not a result of attorney neglect.

                                                                                           III.          CONCLUSION

Based on the foregoing, the Court DENIES Defendants’ Motion to Set Aside the Order Striking Answer and Entering Default.