Judge Stephen P. Pfahler, Case Number: 23STCV01749, Date: 2024-12-04 Tentative Ruling

Judge: Stephen P. Pfahler, Case: 23STCV01749, Date: 2024-12-04 Tentative Ruling

Case Number: 23STCV01749 Hearing Date: December 4, 2024 Dept: 68

Dept. 68

Date: 12-4-24

Case #: 23STCV01749

Trial Date: Not Set

VACATE DEFAULT

MOVING PARTY: Defendant, Gredale LLC

RESPONDING PARTY: Plaintiff, D & O Tradeco Inc.

RELIEF REQUESTED

Motion to Vacate Default Judgment

SUMMARY OF ACTION

On January 26, 2023, Plaintiff D & O Tradeco Inc. filed a complaint for Breach of Written Lease, Breach of Implied Covenant of Good Faith and Fair Dealing, Fraud in the Inducement, Negligence, Conversion, Intentional Interfence with Contractual Relations, Negligent Interference with Contractual Relations, and Violation of Business and Professions Code section 17200. The complaint arises from an alleged breach of settlement agreement arising from previously filed complaint, D&O Tradeco, Inc. v. Gredale, LLC, 22STCV14045, which was dismissed on July 6, 2022.

On January 31, 2023, Plaintiff filed a 170.6 against Department 12, thereby leading to reassignment to Department 68. On March 10, 2023, Defendant Gredale LLC answered the complaint. On November 3, 2023, the court granted the motion of counsel for Gredale LLC to be relieved as counsel.

On December 14, 2023, the court granted the motion to strike the answer of Gredale LLC on grounds of a lack of counsel representing the corporate entity. The court also entered a default against Gredale LLC. On February 16, 2024, the court entered default judgment in favor of Plaintiff and against Gredale LLC for $10,775.157.82.

RULING: Denied without Prejudice.

Defendant/Judgment Debtor Gredale LLC (Gredale) moves to vacate the default judgment. Gredale moves for relief on grounds that the default was entered as the result of difficulty in retaining new counsel, but now that new counsel is in place, Gredale requests adjudication on the merits. Plaintiff/Judgment Creditor in opposition challenges any statutory relief as untimely, and denies any showing of extrinsic mistake. Defendant in a one day late reply reiterates the extrinsic mistake position based on accusations of misrepresentations of Judgment Creditor, and restatement of “financial” difficulties by the corporate entity, thereby leading to an inability to pay for attorney representation. The reply also suggests that the entry of judgment 35 days after the default, rather than waiting six months also violated certain uncited procedural standards. The reply concludes with a denial of prejudice.

On a threshold note, the court electronic filing system shows no substitutions of counsel on behalf of Gredale prior to either the filing of the motion or amended motion. New counsel for Plaintiff substituted into the action on March 14, 2024. The motion was improperly served on former counsel on August 12, 2024. New counsel filed an “amended” motion on November 5, 2024, on new Plaintiff’s counsel as well as the attorney responsible for filing the first motion for relief, Steven Scandura. Again, whoever now represents the corporate entity, neither attorney filed a substitution of counsel.

In the initial motion, Gredale moved for relief on grounds of an equitable request for trial on the merits, without addressing any legal or statutory standards regarding the default. The motion also lacks a signed declaration from counsel. The amended motion requests relief under extrinsic mistake principles. Neither motion requests relief under under Code of Civil Procedure section 473 subdivision (b), and the court lacks jurisdiction to grant relief under this provision either way.

“The six-month time limit for granting statutory relief is jurisdictional and the court may not consider a motion for relief made after that period has elapsed. (Citation.) The six-month period runs from entry of default, not entry of judgment.” (Manson, Iver & York v. Black (2009) 176 Cal.App.4th 36, 42.) The August 12, 2024, motion was filed five (5) months and 27 days or 178 days from the February 16, 2024, entry of the judgment, but seven (7) months and 29 days or 242 days from the entry of the judgment itself.

Given the lapse of the six month deadline and valid basis for the entry of the default and judgment, the requested relief depends on equity. “[E]xtrinsic mistake” constitutes “a term broadly applied when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits.” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981.) “[E]xtrinsic mistake exists when the ground ... is the excusable neglect of the defaulting party to appear and present his claim or defense. If that neglect results in an unjust judgment, without a fair adversary hearing, the basis for equitable relief on the ground of extrinsic mistake is present. (Citation.) Relief will be denied, however, if the complaining party's negligence permitted the ... mistake to occur. (Citation.)” (Manson, Iver & York v. Black, supra, 176 Cal.App.4th at p. 47.) Circumstances of extrinsic mistake include numerous examples, including: “when one party relies on another to defend (Citations); ... when a mistake led a court to do what it never intended (Citation); when a mistaken belief of one party prevented proper notice of the action (Citations); ... cases involving ... mistaken belief as to immunity from suit (Citations). (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471-472.)

“‘To set aside a judgment based upon extrinsic mistake one must satisfy three elements. First, the defaulted party must demonstrate that it has a meritorious case. Second[ ], the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action. Last [ ], the moving party must demonstrate diligence in seeking to set aside the default once ... discovered.’” (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 982.)

Since the equitable power of the court is being invoked, the relief sought is subject to equitable defenses, including laches. Thus, relief may be denied if it is shown that the moving party has been guilty of unreasonable delay in seeking relief, causing prejudice to the opposing party. (McCreadie v. Arques (1967) 248 Cal.App.2d 39, 46 [plaintiff would be prejudiced by having to prove matters 5 years old if judgment set aside].) The greater the prejudice to the responding party, the more likely it is that the court will determine that equitable defenses such as laches or estoppel apply to the request to vacate a valid judgment. (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 983.)

Greg Lorber, president of Gredale LLC submits an extensive declaration regarding the underlying circumstances leading to the lawsuit. Gredale maintains the complaint was the result of a settlement agreement, which Gredale accuses Plaintiff/Judgment Debtor of obtaining the default on an “underlying faulty premise.” [See Declaration of Greg Lorber, ¶¶ 15-16, Ex. 4.] The declaration concludes with defenses to the action should the court vacate the default. [Id., ¶¶ 17-19.] The declaration concludes with the representation that the default was obtained when Judgment Debtor was unable to “afford an attorney.” [Id., ¶ 20.] Attorney Steven Scandura submits a declaration as to being retained on July 1, 2024, after previously declining to represent Gredale in December of 2023. Moving counsel in the amended motion, Michael Newhouse, states representation began in “October” due to a “related” federal action against Gredale on the basis of “fraudulent transfer and alter ego theory.”

The court accepts the representation of a satisfactory defense based on the disputed settlement agreement. Significantly lacking from the motion is any substantive address of the last two elements: “‘the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action. Last [ ], the moving party must demonstrate diligence in seeking to set aside the default once ... discovered.’” (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 982.) The amended motion references declarations of “Huffine” and “Davis” regarding an inability to pay bills, thereby leading to the withdrawal of counsel, but the both the motion and amended motions lack any such declarations in support. The only reference, again, is the second to last paragraph in the Lorber declaration representing an inability to pay legal fees.

Judgment creditor takes significant issue with this position. Judgment creditor specifically contends the corporate entity was stripped of all assets in order to avoid judgment creditor collection. [Declaration of Eliyahu Ness.]

Assuming the represented financial hardship was better articulated and removed from any context of the alleged transfer of assets, the court questions the veracity of any purported financial hardships given the otherwise admitted voluntary entry into the settlement agreement. The court assumes Judgment Debtor was represented by counsel at the time of the settlement agreement, and executed the settlement agreement in good faith with an intent to meet all financial obligations. A default on the agreement leading to the lawsuit and subsequent loss of counsel based on a sudden inability to not pay counsel, indicates potential financial issues arising from unexplained reasons. [Lorber Decl., ¶¶ 15-18.]

The lack of such information and questionable circumstances also undermines any showing of diligence. Judgment Debtor offers neither any denial of notice of the stricken answer and entry of default, nor an explanation for the delay in filing of the first motion itself two days before the 180 deadline lapse, and well after the initial default. Furthermore, even accepting the unsupported position of financial shortcomings as a credible basis of the motion, the existence of the federal court action for fraudulent transfer circles back to a potential intent to simply evade collection rather than challenge the underlying action on the merits until the federal court action forced a new plan.

Vacating the default in this court could also significantly prejudice the federal court action. Other than a denial of prejudice, Judgment Debtor offers no address to this situation, especially given the unexplained conduct addressed from the time of the settlement agreement to the late filing of the instant motion. [Ness Decl.]

The court therefore DENIES the motion to vacate without prejudice.

Judgment Debtor/Defendant to give notice.