TENTATIVE RULING

Calendar: 4

Date: 9/1/2023

Case No: 23 GDCV00166

Case Name: Account Management Services, Inc. v. Beecan Health LLC, et al.  

MOTION TO SET ASIDE DEFAULT

MP: Defendants Beecan Health, LLC, Royal Palms Convalescent Hospital, Inc., and Royal Palms Post Acute, LLC    

RP: Plaintiff Account Management Services, Inc. 

RELIEF REQUESTED:

Order setting aside default and default judgment entered against defendants on March 30, 2023 and June 7, 2023

FACTUAL AND PROCEDURAL BACKGROUND:

Plaintiff Account Management Services, Inc. is the assignee of claims by Home Related Services, Inc. dba California Mobile X-Ray against defendants Beecan Health, LLC, Royal Palms Convalescent Hospital, Inc. and Royal Palms Post Acute, LLC.  The Complaint alleges common count causes of action for open book account, account stated, and two causes of action for work, labor, services and materials rendered at the special request of defendant and for which defendant promised to pay.  Plaintiff seeks $78,216.02, plus prejudgment interest at the rate of ten percent per year from December 02, 2021, plus attorney’s fees of $1,200 pursuant to Civil Code section 1717.5.  

The file shows that on March 30, 2023, plaintiff filed a Request for Entry of Default against defendants Beecan Health, LLC, Royal Palms Post Acute, LLC, and Royal Palms Convalescent Hospital, Inc. on the complaint, which default was entered by the court as requested the same date. 

On June 7, 2023, the court signed and filed a Judgment by Court by Default based on plaintiff’s written declaration against defendants Beecan Health, LLC, Royal Palms Post Acute, LLC, and Royal Palms Convalescent Hospital, Inc. in the total sum of $84,751.67. 

On August 1, 2023, defendants Beecan Health, LLC, Royal Palms Post Acute, LLC, and Royal Palms Convalescent Hospital, Inc. brought an ex parte application to stay enforcement until defendants’ motion to set aside default judgment was decided or to recall/quash plaintiff’s writ of execution and vacate any levy.  The court, Judge Rosen presiding, granted the ex parte as to staying of the writ of execution only, and continued the hearing on the ex parte application to September 1, 2023.  

The order signed and filed on August 1, 2023 stays enforcement of the June 7, 2023 default judgment until the court rules on defendants’ motion to set aside default and default judgment set for September 1, 2023, and orders defendants not to sell, transfer, hypothecate, in any way, any of their property and their business operations, through the hearing of their motion to set aside/vacate.   

ANALYSIS:

Defendants Beecan Health, LLC, Royal Palms Post Acute, LLC, and Royal Palms Convalescent Hospital, Inc. seek to set aside the default and default judgment entered against them under the discretionary provision of CCP § 473(b), which provides:

“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.”

This application was made on July 26, 2023, within six months of the entry of default on the complaint on March 30, 2023.  The motion is accompanied by a copy of an Answer to Plaintiff’s Complaint.  [Ex. A].  

The trial court’s granting or denial of relief under this provision is reviewed for abuse of discretion.   State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.   It is noted that appellate courts are traditionally “favorably disposed toward such action on the part of the trial courts as will permit, rather than prevent, the adjudication of legal controversies on their merits.”  Mercantile Collection Bureau v. Pinheiro (1948) 84 Cal.App.2d 606, 608, citing Benjamin v. Dalmo Mfg. Co. (1947) 31 Cal.2d 523. 

Here, defendants argue that in May of 2023, defendants’ in-house counsel, who was aware of the instant action and other related proceedings between plaintiff and defendants, abruptly ended his employment with defendants.  [Gross Decl., para. 2].  Defendants argue that due to error or neglect, defendants’ responsive pleadings were not timely filed prior to the departure of defendants’ in-house counsel. 

Plaintiffs indicate that defendants retained current outside counsel shortly after the departure of in-house counsel, but that given the sudden withdrawal of previous counsel during the pendency of this action, neither defendants nor current counsel were aware of the status of these proceedings, and current counsel did not receive copies of the request for default and default judgment documents, and was otherwise unaware of the entry of default and default judgment until after entry had occurred. 

Plaintiffs rely on case law where courts have granted relief from default judgment where a party’s counsel, “had no personal knowledge or notice of the service of the summons and complaint until after the default had been entered.” Toon v. Pickwick Stages, Northern Division (1924) 66 Cal.App. 450, 455; See also Lieberman v. Aetna Ins. Co. (1967) 249 Cal.App.2d 515, 519. 

The problem with the argument here, as raised in the opposition, is that prior counsel for defendants was in fact aware of this action, and was aware of the status of service, and was also aware of the entry of default, which occurred in March of 2023, while prior in-house counsel was responsible for defending this action against defendants. This situation is not a case where then counsel had no awareness of the action until after the defaults were entered. 

The opposition also points out that there is no declaration from prior counsel explaining the failure to timely respond to the complaint, and that, although the moving papers argue that defendants themselves were not fully aware of the pending proceedings, the moving papers also do not include a declaration from defendants providing evidence that defendants were in fact unaware of the proceedings.   

Although it is not surprising that prior counsel has not submitted a declaration, and could be in a position now where counsel is hostile to the former clients, it would be expected that the clients would submit a declaration explaining the state of their understanding, and the reasonableness of their reliance on their in-house counsel to have been properly handling the matter.   

The opposition argues that defendants do not even suggest that all defendants were not properly served with the summons and complaint, and that defendants and their attorney were aware of the proceedings in this matter.  

Plaintiff argues that there has been no explanation here concerning why relief was not sought between the period between when the default was entered on March 30, 2023, and when this motion was filed on July 26, 2023, which was clearly prompted by the filing by plaintiff of bank levies to enforce the default judgment.   Plaintiff argues that this four-month delay is not reasonable.  As argued by plaintiff, the six-month period begins to run from the entry of default, not the entry of the default judgment.  See Rutan v. Summit Sports, Inc. (1985) 173 Cal.App.3d 965, 970.  In this case, that would be March 30, 2023.

It is held that under the requirement that application for relief must be made within a “reasonable time” within the six-month period, the moving party must show diligence in filing its application after learning of the dismissal or, in this case, default.  Stafford v. Mach (1998) 64 Cal.App.4th 971, 1174 (waiting until the last day of the six-month period without reasonable justification is not “reasonable time.”); Caldwell v. Methodist Hospital (1994) 24 Cal.App.4th 1521 (court did not abuse discretion in denying motion for relief filed within three months). What is a reasonable time depends upon the circumstances of the case.   Baratti v. Baratti (1952) 109 Cal.App.2d 971.   The six-month limitation is merely a limitation on the power of the court to grant relief, regardless of the merits, after the six-month period, but it does not prevent the court, in the exercise of discretion from refusing an application made within the six months but not made within reasonable time after learning of its necessity.   Smith v. Pelton Water Wheel Co. (1907) 151 Cal. 394.    

“Defendant has not cited, nor has independent research disclosed, any case in which a court has set aside a default, where, in making application therefor, there has been an unexplained delay of anything approaching three months after full knowledge of the entry of the default.  On the contrary, the proper procedure appears to involve the presentation of some explanation, by affidavit or testimony, of any extended delay.”

Benjamin, at 529.   

“Although “the law ordinarily charges the litigant with the negligence of his agent, namely, his attorney” (Bonfilio v. Ganger, supra, 60 Cal.App.2d 405, 407), in the measurement of their respective remissness “the same rules” prevail (Morgan v. Brothers of Christian Schools, supra, 34 Cal.App.2d 14, 18) in guidance of the trial court's determination of the matter upon the basis of the showing made. (O'Brien v. Leach, supra, 139 Cal. 220, 222-223; Morgan v. Brothers of Christian Schools, supra, 34 Cal.App.2d 14, 18; Stub v. Harrison, supra, 35 Cal.App.2d 685, 690; Bonfilio v. Ganger, supra, 60 Cal.App.2d 405, 407-409.) So here, in view of the statutory provision that the “application ... must be made within a reasonable time” (Code Civ. Proc., § 473), the circumstances occasioning the attorney's delay of more than three months before the institution of these proceedings should have been presented in support of defendant's motion for relief. While no counteraffidavit was filed by plaintiffs showing that they would be prejudiced by the setting aside of the default judgment, none was necessary until defendant had at least made some excuse for the delay in question. (Bruskey v. Bruskey, 4 Cal.App.2d 472, 479 [41 P.2d 203]; Elms v. Elms, supra, 72 Cal.App.2d 508, 519.) To hold otherwise—that in the absence of any explanation a delay of more than three months in undertaking to open a default can be excused—would empower the trial court to dispense with the “reasonable time” requirement of the statute. In short, as is said in Ross v. San Diego Glazed Cement Pipe Co., 50 Cal.App. 170, at page 173 [194 P. 1059], where there was likewise a failure to show “reasons or causes or excuses for the inadvertence or negligence of the attorney” in the premises: “Regrettable as the circumstance may be, the stubborn fact remains that there is in the record no evidence sufficient to justify an order setting aside the judgment or default in this case.”

Benjamin, at 532-533. 

Similarly, here no explanation is offered concerning the period between March 30, 2023 and an unstated date in May of 2023 when new counsel was retained, and there is also no clear explanation with respect to the delay from new counsel’s retention in May 2023 to the date of the filing of the motion on July 26 2023.  

Defendants have failed to present any affidavit or testimony or evidence at all concerning the period in this litigation from March 30, 2023 to May, 2023 by any witness with personal knowledge of the events of that period.  Defendants rely solely on the declaration of outside counsel who testifies that counsel was retained “to assist in this matter shortly after the departure of Defendant’s in-house counsel,” which counsel testifies had occurred “[i]n or around May 2023.”  [Gross Decl., paras. 2, 4].  This witness would obviously have no personal knowledge of any events occurring prior to May of 2023.     

As noted above, no declaration of defendants is submitted concerning the state of their knowledge concerning the litigation, and it is unlikely that defendants had no awareness or knowledge of events, as presumably in-house counsel was consulting with agents of defendants which were in a position to authorize settlement offers and the acceptance of settlement offers by plaintiff.  

The motion is denied on the ground the moving papers have failed to meet defendants’ burden of showing the motion was brought within a reasonable time.  

Plaintiff also argues that the neglect urged here was inexcusable, as defendants’ actions in not defending the litigation with full knowledge on the part of their counsel of its status does not reflect reasonable diligence.  

-Counsel’s failure to discharge “routine professional duties”, or failure to “properly prepare for the hearing.”  Generale Bank Nederland v. Eyes of the Beholder Ltd (1998) 61 Cal.App.4th 1384, 1402

-Counsel’s declaration of illness without declaration of physician or details of illness.  Transit Ads, Inc. v. Tanner Motor Livery, Ltd. (1969) 270 Cal.App.2d 275, 286-87.

-Being “overburdened with work.”   Willett v. Schmeister Mfg. Co. (1926) 80 Cal.App.337, 339-340.   

-Failure to file an answer or other required paper “with knowledge of the time limit and without any justifiable belief that it has been or will be extended.”  8 Witkin, (4th Ed.) Cal. Proc. Attack on Judgment in the Trial Court 173.  

Luri, at 1129, emphasis added.

The Second District in Generale Bank reviewed the “reasonably prudent person standard” governing a determination of “excusable neglect” and concluded with respect to attorney conduct:

“Conduct falling below the professional standard of care, such as failure to timely object or to properly advance an argument, is not therefore excusable.   To hold otherwise would be to eliminate the express statutory requirement of excusability and effectively eviscerate the concept of attorney malpractice.” 

Generale Bank, at 1400, quoting Garcia v. Hejmadi (1997, 2nd Dist.)  58 Cal.App.4th 674, 682-683.   

It appears here that that defendants’ attorney had inexcusably neglected the matter or made a deliberate decision to permit the default to be entered, and that defendants now question that strategy, and want to change the position taken by their attorney.   This conduct would fall within the province of legal malpractice, not excusable neglect.   

Plaintiff relies on Elms v. Elms (1946)  72 Cal.App.2d 508, 513, in which the Second District found that the trial court had abused its discretion in issuing an order vacating an annulment decree, and set forth guiding rules for construing section 473:

“To warrant relief under section 473 a litigant's neglect must have been such as might have been the act of a reasonably prudent person under the same circumstances. The inadvertence contemplated by the statute does not mean mere inadvertence in the abstract. If it is wholly inexcusable it does not justify relief. (Freeman on Judgments, 5th ed., vol. 1, p. 482; Shearman v. Jorgenson, 106 Cal. 483, 485 [39 P. 863].)  It is the duty of every party desiring to resist an action or to participate in a judicial proceeding to take timely and adequate steps to retain counsel or to act in his own person to avoid an undesirable judgment. Unless in arranging for his defense he shows that he has exercised such reasonable diligence as a man of ordinary prudence usually bestows upon important business his motion for relief under section 473 will be denied. (Freeman, 483, 5th ed.) Courts neither act as guardians for incompetent parties nor for those who are grossly careless of their own affairs. All must be governed by the rules in force, universally applied according to the showing made. (Gillingham v. Lawrence, 11 Cal.App. 231 [104 P. 584].)  The law frowns upon setting aside default judgments resulting from inexcusable neglect of the complainant. The only occasion for the application of section 473 is where a party is unexpectedly placed in a situation to his injury without fault or negligence of his own and against which ordinary prudence could not have guarded. Neither inadvertence nor neglect will warrant judicial relief unless it may reasonably be classified as of the excusable variety upon a sufficient showing. (Hughes v. Wright, 64 Cal.App.2d 897 [149 P.2d 392].)

A judicial proceeding is not to be treated by a party as a game of blindman's buff in which the participants may enter or withdraw at will. It is successor to the duel, in which, after the challenge had been accepted, both parties were obliged to comply with the code duello and to stand on the line until the deadly discharge. Diligence is the watchword and to be on the alert is the constant directive. If judgment be entered against a party in his absence before he can be relieved therefrom he must show that it was the result of a mistake or inadvertence which reasonable care could not have avoided, a surprise which reasonable precaution could not have prevented, or a neglect which reasonable prudence could not have anticipated. (See McGuire v. Drew, 83 Cal. 225 [23 P. 312].)”

Elms, at 513-514. 

Plaintiff indicates in the opposition papers that plaintiff has spent no less than 12 hours at $200 per hour in the prosecution of this file, including court appearances, preparation of a default judgment package on several occasions, preparing bank levy instructions, and preparing opposition to the ex parte application and this motion.  [Bemis Decl., para. 9].  Plaintiff also indicates that the service of the bank levy was $275 and the writ of execution was $40.00.  [Id.]

As noted above, under CCP § 473(b), the court may grant relief “upon any terms as may be just…”

Under CCP § 473(c)(1): “Whenever the court grants relief from a default, default judgment, or dismissal based on any of the provisions of this section, the court may do any of the following:

(A) Impose a penalty of no greater than one thousand dollars ($1,000) upon an offending attorney or party.

(B) Direct that an offending attorney pay an amount no greater than one thousand dollars ($1,000) to the State Bar Client Security Fund.

(C) Grant other relief as is appropriate.”

“Section 473 permits the court to grant relief “upon such terms as may be just.” The court may properly order payment of costs or attorney fees to the adverse party as compensation for loss or expense occasioned by the granting of the section 473 motion. (Hearst v. Ferrante (1987) 189 Cal.App.3d 201, 204 [234 Cal.Rptr. 385]; Hansen v. Snap-Tite, Inc. (1972) 23 Cal.App.3d 208, 213 [100 Cal.Rptr. 51].)”

Jade K., 1474. 

The court would be inclined to award compensation for expenses occasioned by the granting of the motion and undoing the default. The court would award the costs set forth, and reduce the time claimed of 12 hours by 5 hours, which the court would find fairly represents time spent in tasks such as preparing the complaint and engaging in activity which would have been necessary in prosecution of the action regardless of whether default and default judgment was taken and subsequently set aside.  This outcome would result in an award of expenses of 7 hours at $200 per hour ($1,400), plus $275 and $40 in costs for a total of $1,715.00.   

RULING:

Defendants Beecan Health, LLC, Royal Palms Convalescent Hospital, Inc., and Royal Palms Post Acute, LLC’s Motion to Set Aside Default and Default Judgment is DENIED.  Defendants have failed to meet their burden to establish that the motion was made within a reasonable time or that the default or default judgment taken against defendants was through defendants’ or their attorneys’ mistake, inadvertence, surprise or excusable neglect. 

UNOPPOSED Request for Judicial Notice is GRANTED.  

Order of August 1, 2023 staying enforcement of the June 7, 2023 default judgment and issuing other orders is ordered lifted. 

Defendants’ ex parte application to stay enforcement until a motion to set aside default judgment is decided or to recall/quash plaintiff’s writ of execution and vacate any levy continued to this date from August 1, 2023 is DENIED.

DEPARTMENT D IS CONTINUING TO CONDUCT AND ENCOURAGE AUDIO OR VIDEO APPEARANCES

Please make arrangement in advance if you wish to appear via LACourtConnect/Microsoft Teams by visiting www.lacourt.org to schedule a remote appearance.  Please note that LACourtConnect/Microsoft Teams offers free audio and video appearances.  However, ADVANCE REGISTRATION IS REQUIRED. 

If no appearance is set up through LACourtConnect/Microsoft Teams, or no appearance is otherwise made, then the Court will assume the parties are submitting on the tentative.