Judge Upinder S. Kalra, Case Number: 23STCV07552, Date: 2023-12-12 Tentative Ruling

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2. Defendant’s Proposed Answer attached as Exhibit 1 is deemed filed this day.

On April 5, 2023, Plaintiff Farmand Property LLC (Plaintiff) filed a Complaint against Defendant Healthy Spot 016 LLC (Defendant) for breach of contract.

According to the Complaint, Plaintiff owns a commercial building located at 1864 N. Vermont Ave., Los Angeles, California 90027 (the Property). Plaintiff and Defendant entered into a letter of intent to lease space at the Property on December 6, 2017, and entered into a written lease and an Amendment No. 1 on June 15, 2018. Plaintiff alleges that as of January 1, 2023, Defendant stopped making payments under the lease and notified Plaintiff it had abandoned the leased portion of the Property.

On August 7, 2023, the court found that all named Defendants had been defaulted as of July 21, 2023. Plaintiff provided notice of this ruling on August 11, 2023.

On October 2, 2023, Plaintiff personally served the default judgment application on Defendant.

On October 6, 2023, Defendant moved ex parte to set aside entry of default, which the court denied on October 9, 2023.

On November 16, 2023, Defendant filed the instant motion. On December 1, 2023, Plaintiff filed an opposition. Defendant’s reply was due on or before December 5, 2023. Defendant filed a Reply at 10:59 p.m. on December 7, 2023.

“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.”¿ CCP¿§¿473(b).¿

Although a trial court has discretion to vacate the entry of a default or subsequent judgment, this discretion may be exercised only after the party seeking relief has shown that there is a proper ground for relief, and that the party has raised that ground in a procedurally proper manner, within any applicable time limits.” ¿(Cruz v.¿Fagor¿America, Inc. (2007) 146 Cal.App.4th 488, 495.) “The defendant must … demonstrate a satisfactory excuse for not responding to the original action in a timely manner.”¿(Id.¿at 504.) Moving parties have the initial burden to prove excusable neglect by a preponderance of competent evidence.¿(Kendall v. Barker¿(1988) 197 Cal.App.3d 619, 624.)¿

Defendant contends that it neglected to timely file a response to the Complaint because it was focused on an intensive restructuring process of its business. Defendant additionally contends it will face irreparable harm if the court does not grant this relief. Plaintiff argues inexcusable neglect and Defendant failed to act diligently.

“What is a reasonable time in any case depends upon the circumstances of that particular case” and “whether a party has acted diligently is a factual question for the trial court.” (Younessi v. Woolf (2016) 244 Cal.App.4th 1137, 1145 [internal citations omitted].) CCP § 473(b) “is construed liberally to further the policy of adjudicating legal controversies on the merits.” (Id. at p. 1146.) The question is “whether a reasonably prudent person under the same or similar circumstances would have made the same error.” (Ibid.) Because the law strongly favors trial and disposition on the merits, any doubts in allowing discretionary relief from adverse orders for mistake, inadvertence, surprise, or excusable neglect must be resolved in favor of the party seeking relief from default. (Huh v. Wang (2007) 158 Cal.App.4th 1406.)

Here, before the Court reviews the merits, the Court will discuss the many missteps of Plaintiff. First, as set forth in both Plaintiff’s and Defendant’s filings, Defendant initially filed a complaint against Plaintiff 21STCV22902 on June 8, 2021, alleging various causes of action related to the same lease that underlies the complaint filed by Plaintiff in 23STCV0755 on April 5, 2023. Noticeably absent on the Civil Case Cover sheet is any notation of this prior related case. On the contrary, counsel Davis, the same counsel who represented Plaintiff in the prior case, asserts that there are no related cases. This statement is inaccurate on its face. Moreover, Davis had actual knowledge that Defendants were represented by counsel, which as shown below, is significant. Second, counsel Davis filed proof of service that demonstrated service was complete on April 12, 2023. According to the Declaration of Davis, representatives for Defendant contacted Davis the very next day, on April 13, 2023. (Dec. Davis ¶ 2.) Nonetheless, on June 1, 2023, approximately 18 days after a responsive pleading was due, Davis sought entry of default without providing any written warning to counsel for Defendant. The speed at which Plaintiff proceeded is not lost on this Court. Apparently, counsel Davis is not aware of his ethical and legal obligation to warn a represented party in writing that Davis intended to obtain default and then give a reasonable (i.e. at least 30 days) for a response before seeking default.[1] Third, on August 7, 2023, counsel Yashar appeared for counsel Davis. No one reported to the Court that Davis was in communication with counsel for Defendant. If counsel had made such a report, the Court would have reminded counsel of their ethical and legal obligation under LaSalle. With such a record, the Court of Appeal in LaSalle found that on this record, it was an abuse of discretion for the trial court not to set aside the default. (LaSalle, supra, 36 Cal.App.5th at p. 137.)

With this in mind, discretionary relief here is warranted. First, Defendant timely sought to set aside default. Defendant first moved to set aside default on October 6, 2023 – four days after Plaintiff personally served the default judgment application and less than three months after receiving notice of the court’s August 11, 2023 ruling setting a hearing on default and indicating default had been entered against Defendant. Second, Defendant provided a declaration from a manager indicating that Defendant is embroiled in what appears to be an extensive restructuring of the company. (Booonnark Decl. ¶¶ 4, 5.) Plaintiff’s argument that Defendant knew about this action at the outset and failed to respond is not controlling. Even accepting counsel Davis’ testimony that Defendant’s accountant Grobstein and Defendant’s counsel Olsen stopped communicating on June 22, 2023, this in no way relieves counsel Davis of an ethical and legal obligation to warn counsel Olsen before seeking default. The record is absent of counsel David issuing such an explicit written warning. Moreover, the gaps in communication from Defendant is also consistent with counsel Olsen’s contention that that Defendant’s actions were excusable neglect.[2]

Accordingly, the court GRANTS Defendant’s motion to set aside default entered on July 21, 2023.

2. Defendant’s Proposed Answer attached as Exhibit 1 is deemed filed this day.

[1]In Lasalle v. Vogel (2019) 36 Cal. App. 5th 127, 135 (Lasalle), the court spoke at length of one particular disturbing behavior, which has relevance here, the practice of racing to the courthouse to obtain default. “ ‘The quiet speed of plaintiffs' attorney in seeking a default judgment without the knowledge of defendants' counsel is not to be commended.’ [citation]. . .The State Bar Civility Guidelines deplore the conduct of an attorney who races opposing counsel to the courthouse to enter a default before a responsive pleading can be filed. (Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 702,quoting section 15 of the California Attorney Guidelines of Civility and Professionalism (2007) (Fasuy).) Accordingly, it is now well-acknowledged that an attorney has an ethical obligation to warn opposing counsel that the attorney is about to take an adversary's default. (Id. at pp. 701-702.)”

“In that regard we heartily endorse the related admonition found in The Rutter Group practice guide, and we note the authors' emphasis on reasonable time: “Practice Pointer: If you're representing plaintiff, and have had any contact with a lawyer representing defendant, don't even attempt to get a default entered without first giving such lawyer written notice of your intent to request entry of default, and a reasonable time within which defendant's pleading must be filed to prevent your doing so.” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2008) § 5:73, p. 5-19 (rev. #1, 2008) as quoted in Fasuyi, supra, 167 Cal.App.4th at p. 702, 84 Cal.Rptr.3d 351.)” (LaSalle, supra, 36 Cal.App.5th at p. 135.)

[2] While Plaintiff cites authority that an attorney may not claim excusable neglect by being too busy, they have not cited authority that a client amidst restructuring is inexcusable.