Judge Stephanie M. Bowick, Case Number: 23STCV29442, Date: 2025-02-24 Tentative Ruling

Judge: Stephanie M. Bowick, Case: 23STCV29442, Date: 2025-02-24 Tentative Ruling

Case Number: 23STCV29442(2) Hearing Date: February 24, 2025 Dept: 19

CASE NAME: U.S. Specialty Insurance Company v. FPG Maiden Lane, LLC, et al.

CASE NUMBER: 23STCV29442

DATE FILED: 12/01/2023

TRIAL DATE: NA

CALENDAR NUMBER: 6

PROCEEDING: Motion to Vacate and Set Aside Default

MOVING PARTY: Defendants FPG Maiden Lane, LLC and Fortis Property Group, LLC

OPPOSITION: Plaintiff U.S. Specialty Insurance Company

REPLY: Yes

After consideration of the briefing filed, Defendants FPG Maiden Lane, LLC and Fortis Property Group, LLC’s Motion to Vacate and Set Aside Default is GRANTED.

The Court GRANTS Plaintiff’s request for compensatory fees in the amount of $5,862.50. The Court DENIES Plaintiff’s request to impose a $1,000.00 penalty pursuant to Code of Civil Procedure section 473, subdivision (c)(1)(A).

This is a breach of contract action. In the First Amended Complaint (“FAC”), Plaintiff U.S. Specialty Insurance Company (“Plaintiff”) brings suit against Defendants FPG Maiden Lane, LLC (“FPG Maiden”) and Fortis Property Group, LLC (collectively, “Defendants”) alleging the following causes of action:

The FAC alleges that, on or about June 25, 2019, Defendants entered into a General Indemnity Agreement (the “Indemnity Agreement”) “¿as consideration for Plaintiff issuing, renewing, maintaining and/or refraining from cancelling bonds on behalf of FPG Maiden.” (FAC, ¶ 8, Ex. 1; see id. at ¶ 9.)

The FAC alleges that, in consideration of and reliance on the Indemnity Agreement, “¿Plaintiff, as surety, issued twenty five lien discharge bonds to discharge the mechanic’s liens” against 161 Maiden Lane, New York (hereafter, “161 Maiden”). (Id. at ¶ 10.)

Plaintiff now seeks to recover from Defendants $358,036.00 in unpaid bond premiums. (See id. at ¶¶ 11, 19.)

On September 19, 2024, Defendants filed the instant Motion to Vacate and Set Aside Default (the “Motion”).

Pursuant to Code of Civil Procedure section 473, subdivision (b) as well as the Court’s equitable authority, Defendants move to set aside and vacate their default on the grounds of (1) counsel's sworn affidavit attesting to his/her mistake, inadvertence, surprise or neglect; and (2) Defendants’ mistake, inadvertence, surprise or excusable neglect.

The Court DENIES Defendants’ request to take judicial notice of Exhibits 1 through 8. Exhibits 1 through 8 are printouts of legal authority. The Court does not find that Exhibits 1 through 8 contain any judicially noticeable facts. (See Evid. Code, § 452.) The Court will consider all legal authority cited by the parties in their briefing.

It is well established that Code of Civil Procedure section 473 is remedial, and its provisions to be liberally construed so as to dispose of cases upon their merits. (See, e.g., Laguna Village, Inc. v. Laborers' Internat. Union of North America (1983) 35 Cal.3d 174, 182; Taliaferro v. Taliaferro (1963) 217 Cal.App.2d 216, 220.)

Code of Civil Procedure section 473, subdivision (b) consists of two distinct parts: “a discretionary provision, which applies permissively, and a mandatory provision, which applies as of right.” (Minick v. City of Petaluma (2016) 3 Cal.App.5th 15, 25-26; Bailey v. Citibank, N.A. (2021) 66 Cal.App.5th 335, 348.)

The discretionary relief provision of Code of Civil Procedure section 473, subdivision (b) provides, in relevant part, as follows:

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.

The mandatory provision of Code of Civil Procedure section 473, subdivision (b) provides as follows:

Notwithstanding any other requirements of this section, the court shall, whenever an application for relief is made no more than six months after entry of judgment, is in proper form, and is accompanied by an attorney’s sworn affidavit attesting to his or her mistake, inadvertence, surprise, or neglect, 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. The court shall, whenever relief is granted based on an attorney’s affidavit of fault, direct the attorney to pay reasonable compensatory legal fees and costs to opposing counsel or parties. However, this section shall not lengthen the time within which an action shall be brought to trial pursuant to Section 583.310.

It is the moving party’s burden “to demonstrate ‘that due to some mistake, either of fact or of law, of himself or of his counsel, or through some inadvertence, surprise or neglect which may properly be considered excusable, the judgment or order from which he seeks relief should be reversed.’” (Hopkins & Carley v. Gens (2011) 200 Cal.App.4th 1401, 1410 (citing Kendall v. Barker (1988) 197 Cal.App.3d 619, 623–624).)

“Under the traditional discretionary provisions of section 473, a party seeking relief on the basis of its attorney's neglect must show that the neglect was excusable.” (Metropolitan Service Corp. v. Casa de Palms, Ltd. (1995) 31 Cal.App.4th 1481, 1486–1487.) However, “[a]n entirely different standard exists under the mandatory relief provisions,” and “require the court to grant relief if the attorney admits neglect, even if the neglect was inexcusable.” (Id. at 1487 (citing Beeman v. Burling (1990) 216 Cal.App.3d 1586, 1603).)

“Relief can only be granted under the mandatory provision… if relief could have been granted under the discretionary provision.” (Minick, supra, 3 Cal.App.5th at 26 (citing Garcia v. Hejmadi (1997) 58 Cal.App.4th 674, 681).) If the requirements of the mandatory provision are met, then relief is mandatory. (Lorenz v. Commercial Acceptance Ins. Co. (1995) 40 Cal.App.4th 981, 989.)

Pursuant to the mandatory provision of Code of Civil Procedure section 473, subdivision (b), a party is not entitled to relief if “the court finds that the default or dismissal was not in fact caused by the attorney’s mistake, inadvertence, surprise, or neglect.” (Code Civ. Proc., § 473(b).) This provision tests both the credibility of the declaration and the causation of the default. (Milton v. Perceptual Develop. Corp. (1997) 53 Cal.App.4th 861, 866-867.)

“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. Therefore, a trial court order denying relief is scrutinized more carefully than an order permitting trial on the merits.’” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980 (quoting Elston v. City of Turlock (1985) 38 Cal.3d 227, 233, superseded by statute on other grounds as stated in Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 979) (internal citation omitted).)

“The moving party has the burden of showing that a default or judgment was taken against it through its mistake, inadvertence, surprise, or excusable neglect.” (Schwab v. Southern California Gas Co. (2004) 114 Cal.App.4th 1308, 1319, disapproved of on other grounds by Sass v. Cohen (2020) 10 Cal.5th 861).) “If it fails to make this showing, ‘the court may not grant relief. It has no discretion.’” (Id. (quoting Parage v. Couedel (1997) 60 Cal.App.4th 1037, 1042).)

Here, Defendants move for relief pursuant to both the mandatory and discretionary provisions of Code of Civil Procedure section 473, subdivision (b), as well as the Court’s equitable authority. (See Motion, pp. 7-11.)

As a threshold matter, the Court finds Defendants’ ¿Motion To Quash Service Of Summons And Complaint And Dismiss Case For Lack Of Personal Jurisdiction, concurrently filed on September 19, 2024, satisfies the requirement that the application for relief be “accompanied by a copy of the answer or other pleading proposed….” (Dollase v. Wanu Water, Inc. (2023) 93 Cal.App.5th 1315, 1324-1326 [a motion to quash filed before the court ruled on motion to vacate sufficient to satisfy requirement that the application for relief be “accompanied by a copy of the answer or other pleading proposed….”].)

In support of their request for relief pursuant to the mandatory provision of Code of Civil Procedure section 473, subdivision (b), Defendants provide the declaration of Stephen Wagner, a lawyer licensed in New York but not in California who was “only recently” retained by Defendants for other matters pending in New York. (Stephen Wagner Decl., ¶¶ 1-2, 5.)

Defendants concede that Mr. Wagner has never represented them in the instant matter. (See Motion at pp. 5-6; Wagner Decl. at ¶ 5.)

Since Defendants were never clients of Mr. Wagner, Defendants cannot obtain relief pursuant to the mandatory provision of Code of Civil Procedure section 473, subdivision (b). (See Esther B. v. City of Los Angeles (2008) 158 Cal.App.4th 1093, 1099-1100 [mandatory relief provision does not operate in favor of a party representing himself or herself in propria persona because mandatory relief provision only applies in the case of an “attorney” representing a “client.”].)

Defendants cite to SJP Limited Partnership v. City of Los Angeles (2006) 136 Cal.App.4th 511 and Martin Potts & Associates, Inc. v. Corsair, LLC (2016) 244 Cal.App.4th 432 for the assertion that mandatory relief may be granted based upon an affidavit of fault by an attorney that was not representing the defaulted party or parties. (Motion at pp. 5-6.) However, neither SJP Limited Partnership nor Martin Potts & Associates, Inc. held as such.

Rather, in SJP Limited Partnership, the Court of Appeal held that a party who was not represented by the attorney submitting the sworn affidavit of fault was not entitled to mandatory relief, explaining that, “[w]here an attorney submits a sworn affidavit of fault, section 473, subdivision (b) provides mandatory relief from default or dismissal entered ‘against his or her client.’” (SJP Limited Partnership, supra, 136 Cal.App.4th at 520 (quoting Code Civ. Proc., § 473(b)).)

Defendants’ reliance on Martin Potts & Associates, Inc. is also misplaced because, in that case, the Court of Appeal merely held that the mandatory provision of Code of Civil Procedure section 473, subdivision (b) did not require the attorney to disclose the reasons for the mistake, inadvertence, surprise, or neglect; there was no dispute that the defaulted party was a client and represented by the attorney who submitted the affidavit of fault. (Martin Potts & Associates, Inc., supra, 244 Cal.App.4th at 439-444.) Unlike the declaration of Mr. Wagner in this action, the affidavit of attorney fault in Martin Potts & Associates, Inc. stated that the defaulted party was the attorney’s “client.” (Id. at 442.)

Moreover, the Court agrees with Plaintiff that Defendants fail to sufficiently establish that their defaults were entered due to any mistake, inadvertence, surprise, or neglect by Mr. Wagner because Mr. Wagner attests that “Defendants had only recently decided to have my firm represent it in multiple pending cases, all of them in New York…,” and nothing in Mr. Wagner’s declaration shows that Mr. Wagner was involved with Defendants with respect to any matter, in New York, California, or otherwise, during the relevant time period. The declaration of Mr. Wagner does not specify when Defendants forwarded to him “the summons and complaints that were sent to them by their agent for service of process in January and March 2024” or when Defendants retained Mr. Wagner’s firm in connection with the pending New York matters. (See Wagner Decl. at ¶¶ 4-5.)

In support of their request for discretionary relief, Defendants provide the declaration of David Hurwitz, Defendants’ Administrative Assistant. (David Hurwitz Decl., ¶ 2.)

Mr. Hurwitz attests that, “[a]round ¿February 2024, Fortis [i.e., Defendants] received an email from their agent for service of process, which indicated a ‘Property Damage’ claim,” but that “[b]y this time,” the construction project at issue in this action, i.e., 161 Maiden Lane, “was in receivership,” and that, based on the email, Mr. Hurwitz believed it “was a New York matter to be handled by the receiver,” and that he “¿did not realize this action had anything to do with their dispute with the bond insurer.” (Id. at ¶ 5.)

Mr. Hurwitz attests that, “¿[i]n about December 2023, our in-house counsel Michael Regan had left, and we had no in-house attorney to handle legal matters,” and that “legal matters eventually became my responsibility to find outside counsel, and I was unprepared and overwhelmed given the large volume of large and small legal matters attendant upon the financially fraught, major project in question.” (Id. at ¶ 6.) Mr. Hurwitz attests that, since he “had already been forwarding all legal matters that came in” to Mr. Wagner at ¿Cohen Tauber Spievack & Wagner P.C. (“CTSW”) and believed that Mr. Wagner was handling the matter, he forwarded the email to Mr. Wagner. (Id. at ¶ 7.)

Mr. Wagner attests in his declaration that, “[b]ecause this was a California case, a state in which neither I nor any other attorney from CTSW is admitted, I mistakenly believed that the case was sent to me for information purposes, and that the Defendants had retained California counsel” and therefore failed to notify Defendants “that they needed to retain California counsel and file a response.” (Wagner Decl. at ¶ 5.)

Given the evidence that Defendants’ in-house counsel had left in December 2023, the same month the original Complaint was served on Defendants and the evidence that Mr. Hurwitz, who is not an attorney and was overwhelmed by the legal matters attendant upon the financially fraught 161 Maiden Lane project, forwarded the email from Defendants’ agent for service of process to Mr. Wagner under the mistaken belief that Mr. Wagner was handling the matter, together with the evidence of Mr. Wagner’s mistaken belief that the case was sent to him for informational purposes and that Defendants had retained California counsel, the Court rejects Plaintiff’s argument that the Defendants simply chose to ignore the lawsuit rather than respond. (See Opposition at pp. 2-7.)

The Court also rejects Plaintiff’s argument that the Motion should be denied on the basis that Defendants unreasonably delayed in filing the Motion. (See Opposition at pp. 7-9.)

The Request for Entry of Default indicates that it was mailed to Defendants on May 16, 2024. Defendants provide evidence that they received notice of their entries of default sometime in June 2024. (Hurwitz Decl. at ¶ 8.) Mr. Hurwitz attests that he contacted Mr. Hurwitz about the entries of default and that Defendants then proceeded to seek and ultimately obtain counsel. (Id. at ¶¶ 8-11.) As such, the Court finds that Defendants sufficiently show that they acted diligently in the approximately four (4) month period between the mailing of the notice of the entries of their defaults in May 2024 and the filing of the instant Motion on September 19, 2024.

Finally, the Court rejects Plaintiff’s argument that the Motion should be denied on the basis of prejudice to Plaintiff. (Opposition at p. 9.) None of the case authority cited by Plaintiff, i.e., McCreadie v. Arques (1967) 248 Cal.App.2d 39 and Jerry's Shell v. Equilon Enterprises, LLC (2005) 134 Cal.App.4th 1058, 1074, compels the conclusion that the Motion must be denied on this basis.

McCreadie involved a motion in equity to set aside a default judgment, not a motion to set aside pursuant to Code of Civil Procedure section 473, subdivision (b), and the motion was brought almost two and one-half years after the filing of the action. (McCreadie, supra, 248 Cal.App.2d at 47.) Thus, Plaintiff’s reliance on McCreadie is misplaced.

The Court of Appeal in Jerry's Shell v. Equilon Enterprises, LLC held that “[a] party cannot justly be permitted to seek relief under section 473(b) from sanctions imposed for deliberate failure to respond to discovery or oppose discovery motions.” (Jerry's Shell, supra, 134 Cal.App.4th at 1074.) Here, Defendants are not moving under Code of Civil Procedure section 473, subdivision (b) from sanctions imposed for deliberate failure to respond to discovery or oppose discovery motions. Jerry's Shell did not hold that a motion pursuant to Code of Civil Procedure section 473, subdivision (b) may or must be denied on the basis of prejudice to Plaintiff’ nowhere does the Court of Appeal discuss “prejudice.”

Below, the Court addresses Plaintiff’s request for compensatory attorney’s fees and costs, (see Opposition at pp. 9-10), and the Court finds that the prejudice to Plaintiff is properly remedied by means of an award of compensatory fees and costs rather than by way of precluding Defendants from defending the action so that it may be resolved on the merits.

In light of the rule that Code of Civil Procedure section 473 is to be liberally construed so as to dispose of cases upon their merits, the Court finds Defendants’ evidence sufficient to establish that Defendants’ defaults were entered due to mistake, inadvertence, surprise or excusable neglect.

As such, the Court need not and does not address Defendants’ request for relief pursuant to the Court’s equitable authority. (See Motion at pp. 10-11

Pursuant to Code of Civil Procedure section 473, subdivision (c), Plaintiff requests that the Court (1) order Defendants to pay $4,737.50 for fees incurred by Plaintiff in pursuing the default judgment and opposing the instant Motion as well as $1,125.00 to review the reply and appear for the hearing; and (2) impose a $1,000.00 penalty against “the offending attorneys and the Defendants.” (Opposition at pp. 9-10.)

(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.

As an initial matter, the Court rejects Defendants’ argument that attorney’s fees and costs are not permitted “because the motion is not based exclusively on attorney’s fault.” (Reply, p. 5.) While an award of reasonable compensatory legal fees and costs is mandatory when mandatory relief is granted, (Code Civ. Proc., § 473(b) [“The court shall, whenever relief is granted based on an attorney’s affidavit of fault, direct the attorney to pay reasonable compensatory legal fees and costs to opposing counsel or parties.”]), Code of Civil Procedure section 473, subdivision (c)(1) gives the Court discretion to “[g]rant other relief as is appropriate,” including an award of reasonable compensatory legal fees and costs “[w]henever the court grants relief from a default, default judgment, or dismissal based on any of the provisions” of Code of Civil Procedure section 473. (Code Civ. Proc., § 473(c)(1); Hearst v. Ferrante (1987) 189 Cal.App.3d 201, 204 (citing Williams v. Myer (1907) 150 Cal. 714, 719; Hansen v. Snap-Tite, Inc. (1972) 23 Cal.App.3d 208, 213) [“Courts have long construed [Code of Civil Procedure section 473] to allow payment of costs or attorneys' fees to the adverse party to compensate him for any losses or expenses suffered by the section 473 motion.”].) Defendants do not provide any legal authority to conclude that the Court lacks discretion to award reasonable attorney’s fees and costs incurred due to Defendants’ failure to file a responsive pleading within the time permitted.

Here, pursuant to Code of Civil Procedure section 473, subdivision (c)(1)(C), the Court exercises its discretion and awards to Plaintiff compensatory legal fees and costs reasonably incurred to file the default judgment package because the package, filed on August 5, 2024, was filed approximately two and one-half months after Defendants’ defaults had been entered and approximately one and one-half months before the instant Motion was filed. The Court also awards compensatory legal fees and costs reasonably incurred to oppose the instant Motion.

“[T]he trial court is in the best position to value the services rendered by the attorneys in his or her courtroom, and this includes the determination of the hourly rate that will be used in the lodestar calculus.” (569 East County Boulevard LLC v. Backcountry Against the Dump, Inc. (2016) 6 Cal.App.5th 426, 436-437 (internal citation omitted); see, e.g., Wilkerson v. Sullivan (2002) 99 Cal.App.4th 443, 448 [“The reasonableness of attorney fees is within the discretion of the trial court, to be determined from a consideration of such factors as the nature of the litigation, the complexity of the issues, the experience and expertise of counsel and the amount of time involved. The court may also consider whether the amount requested is based upon unnecessary or duplicative work.”]; Christian Research Institute, supra, 165 Cal.App.4th at 1321-1322 [ascertaining the amount of attorney’s fees to be awarded is left to the sound discretion of the trial court and the trial court need not simply award the sum requested].)

In setting the hourly rate for an attorney fees award, courts are entitled to consider the rate of “fees customarily charged by that attorney and others in the community for similar work.” (Bihun v. AT&T Information Systems, Inc. (1993) 13 Cal. App. 4th 976, 997, overruled on other grounds by Lakin v. Watkins Associated Indus. (1993) 6 Cal. 4th 644, 664; see also Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 1009 [“[R]ate determinations in other cases, particularly those setting a rate for the plaintiffs' attorney, are satisfactory evidence of the prevailing market rate.”].) “In making its calculation, the court may rely on its own knowledge and familiarity with the legal market, as well as the experience, skill, and reputation of the attorney requesting fees, the difficulty or complexity of the litigation to which that skill was applied, and affidavits from other attorneys regarding prevailing fees in the community and rate determinations in other cases.” (569 East County Boulevard LLC, supra, 6 Cal.App.5th at 437 (internal citations omitted).)

After a review of the billing records attached to the declaration of Natasha K. Buchanan as Exhibits F and G, Plaintiff is requesting $375.00 per hour for work by Natasha K. Buchanan and $205.00 per hour for work by paralegal Ethan Kwock. (Natasha K. Buchanan Decl., ¶¶ 18-20, Exs. F & G.)

After consideration of the declaration of Natasha K. Buchanan, (Buchanan Decl. at ¶¶ 11-21), and relying on the Court’s own knowledge and familiarity with the legal market, the Court finds the requested hourly rates are reasonable.

After review of the billing records, the default judgment package, and Plaintiff’s Opposition, the Court finds that the requested $4,737.50 to prepare and file the default judgment package and Plaintiff’s Opposition is reasonable. Defendants provide no legal or factual basis to conclude that any of the requested fees should not be awarded because they constitute “basic case preparation.” (Reply at p. 5.)

Plaintiff also requests reimbursement for 1.5 hours by Ms. Buchanan to review the reply and 1.5 hours by Ms. Buchanan to appear for the hearing, for a total of $1,125.00 in fees. (Buchanan Decl. at ¶ 27.) The Court finds 3.0 hours by Ms. Buchanan to review the reply and to prepare for and attend the hearing is reasonable.

However, the Court denies Plaintiff’s request that the Court impose an additional $1,000.00 penalty pursuant to Code of Civil Procedure section 473, subdivision (c)(1)(A).