Judge: Virginia Keeny, Case: 21VECV01510, Date: 2023-01-05 Tentative Ruling

Case Number: 21VECV01510    Hearing Date: January 5, 2023    Dept: W

Douglas Emmett 2014, LLC V. Infogen, Inc.

defendant’s motion to set aside default judgment

Date of Hearing:        January 5, 2023                                             Trial Date:       None set.  

Department:              W                                                                    Case No.:        21VECV01510

Moving Party:            Defendant Jeff Rayden

Responding Party:     Plaintiff Douglas Emmett 2014, LLC

BACKGROUND

This is a breach of contract action. Plaintiff Douglas Emmett 2014, LLC alleges on September 25, 2015, Plaintiff’s predecessor in interest, Douglas Emmett 1997, LLC (“DE 1997”) leased to Defendant Infogen, Inc. certain real property under a written Short Term Office Lease. The initial term of the Short Term Office Lease expired on March 31, 2016. Plaintiff succeeded to all of DE 1997’s right, title and interest in and to the Premises as owner and became the landlord under the Lease in 1997. Plaintiff alleges on March 24, 2016, Plaintiff and Defendant entered into a written First Amendment to Short Term Office Lease which extended the term of the Short Term Office Lease until March 31, 2017. Plaintiff further alleges Plaintiff and Defendant entered several more amendments, ultimately leasing the space and extra storage space until June 30, 2020. On October 3, 2015, Defendant Jeff Rayden executed a written guaranty of the lease agreement.   

Upon expiration of the lease agreement, Plaintiff alleges Defendant failed and refused to surrender possession of the premises to Plaintiff and beginning July 1, 2020, Defendant Infogen wrongfully remained in possession of the premises. On July 29, 2021, Plaintiff was restored possession of the premises by a lockout performed by the sheriff’s office pursuant to a judgment entered in an unlawful detainer action filed by Plaintiff against Defendant Infogen.

On November 3, 2021, Plaintiff filed a complaint against Defendant Infogen, Inc., asserting causes of action for breach of lease and breach of guaranty. On November 10, 2021, Plaintiff filed a first amended complaint naming Defendant Rayden as a defendant.

Request for entry of default was entered January 21, 2022 and default judgment was entered May 19, 2022.

[Tentative] Ruling

Defendant Rayden’s Motion to Set Aside Default is GRANTED

discussion

Defendant Jeff Rayden moves this court to set aside the default and default judgment on the grounds Defendant’s illness prevented him from actively engaging in this lawsuit and responding timely.

Code of Civil Procedure section 473(b) contains two distinct provisions for relief. The first provision is discretionary and broad in scope, providing: “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.” (CCP §473(b).)

The second provision is mandatory and narrowly covers only default judgments and defaults that will result in entry of judgments. It states: “[T]he court shall, whenever 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 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.” (CCP §473(b).)

Where a party moves for discretionary relief, “[t]he general rule is that the six-month period within which to bring a motion to vacate under section 473 runs from the date of the default and not from the default judgment taken thereafter.”  (Rutan v. Summit Sports, Inc. (1985) 173 Cal.App.3d 965, 970; Weiss v. Blumencranc (1976) 61 Cal.App.3d 536, 540; Nemeth v. Trumbull (1963) 220 Cal.App.2d 788, 791.)  The six-month limit is mandatory and a court has no authority to grant relief under CCP section 473(b) unless an application is made within the six-month period.¿¿(Arambula v. Union Carbide Corp.¿(2005) 128 Cal. App. 4th 333, 340.)¿ Accordingly, this six-month limit is jurisdictional because the court has no power to grant relief under CCP section 473(b) after that time.¿(Davis v. Thayer¿(1980) 113 Cal.App.3d 892, 901.)

The mandatory provision is inapplicable here as there is no attorney mistake, inadvertence, surprise, or neglect. Under the discretionary provision, the court cannot grant Defendant’s motion to set aside. While Defendant brought the motion within six months of the default judgment, more than six months has elapsed from the entry of default. As a general matter, the six-month period within which to bring a motion to vacate runs from the date of the default, not from the date of the subsequently entered default judgment. (Rutan, supra, 173 Cal.App.3d at p. 970; Weiss, supra, 61 Cal.App.3d at p. 540; Nemeth, supra, 220 Cal.App.2d at p. 791.) “The reason for the rule is that vacation of the judgment alone ordinarily would constitute an idle act; if the judgment were vacated the default would remain intact and permit immediate entry of another judgment giving the plaintiff the relief to which his complaint entitles him.” (Rutan, supra, 173 Cal.App.3d at p. 970.) This six-month time limit is jurisdictional and the court has no power to grant relief under Code of Civil procedure section 473(b) once the time has lapsed. (Ibid.) The court believes although there are certain instances in which granting relief from the default judgment, but not the default itself, would not be an idle act, Defendant has failed to demonstrate that here. For example, in Nemeth, the court found granting a motion to set aside the default judgment was not an idle act where “the objective of the motion is to vacate a portion of the judgment in excess of that demanded by the complaint.” (Nemeth, supra, 220 Cal.App.2d at p. 792.) Here, the only issue Defendant has raised with the validity of the default is that the lease was defective at the inception as Defendant Rayden’s business was not even a proper legal entity and Plaintiff knew it. However, Defendant has not presented any evidence to support this assertion. The court does not find the judgment therefore void on its face.

Defendant Rayden next asks this court to set aside the default and default judgment pursuant to Code of Civil Procedure section 473.5, but that section is inapplicable here.  Section 473.5 permits the court to vacate a default when service of a summons has not resulted in actual notice to a party in time to defend the action and a default or default judgment has been entered against him. (CCP § 473.5(a).) Here, Defendant Rayden admits to being personally served the summons and complaint but failed to respond due to his illness and several stays in the hospital. (Rayden Decl. ¶¶28.45.)

Defendant Rayden also asks this court to use its equitable power to set aside the default and default judgment in this case. “When a default judgment has been obtained, equitable relief may be given only in exceptional circumstances. ‘[W]hen relief under section 473 is available, there is a strong public policy in favor of granting relief and allowing the requesting party his or her day in court. Beyond this period there is a strong public policy in favor of the finality of judgments and only in exceptional circumstances should relief be granted.” [Citations.] Apparently to further the foregoing policy, one appellate court has created a stringent test to qualify for equitable relief from default on the basis of extrinsic mistake. “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.” [Citation.]” (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981–982.)

Defendant Rayden first argues he has a meritorious defense. Defendant Rayden contends as COVID-19 ravaged his business, he has a defense under Civil Code section 1511. Moreover, he contends the lease was defective at its inception as Mr. Rayden’s business was not a legal entity and Douglas Emmett knew it.

The court does not understand the latter argument, as it is alleged that Mr. Rayden acted as a guarantor to his own business, Imogen.  The court does not believe Mr. Rayden can avoid his obligations by claiming the company he created was operating illegally.  Such an argument is typically barred by the doctrine of unclean hands.  But as for his other defense, defendant may have a meritorious defense to the suit for unpaid rent during Covid. 

The law in California with respect to force majeure is codified at Civil Code Section 1511, which provides in pertinent part:

The want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:

1. When such performance or offer is prevented or delayed by the act of the creditor, or by the operation of law, even though there may have been a stipulation that this shall not be an excuse; however, the parties may expressly require in a contract that the party relying on the provisions of this paragraph give written notice to the other party or parties, within a reasonable time after the occurrence of the event excusing performance, of an intention to claim an extension of time or of an intention to bring suit or of any other similar or related intent, provided the requirement of such notice is reasonable and just;

2. When it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary; or,

3. When the debtor is induced not to make it, by any act of the creditor intended or naturally tending to have that effect, done at or before the time at which such performance or offer may be made, and not rescinded before that time.

Defendant argues that the Covid-19 pandemic and the stay-at-home orders issued by the State of California and the City and County of Los Angeles excuse defendant’s performance under the contract. 

There is surprisingly little case law interpreting Section 1511 and what constitutes an “irresistible, superhuman cause” that would excuse performance.  The court could find no published California court of appeal case to consider whether the emergency orders issued in response to Covid-19 in 2020 excused performance of contractual obligations by effected businesses.  The parties cite to none.   The few cases to analyze Section 1511 in the face of other earlier emergencies, have denied relief.  (See, e.g. Dwight v. Callaghan (1921) 53 Cal.App. 132 [The existence of war conditions rendering it difficult for a seller of oil cases to procure the particular wood out of which they were to be made, due to the fact that the United States government was requiring and commandeering a large amount of the same material for use in making planes did not excuse performance under the provisions of this section, that the want of performance of an obligation is excused when prevented by the act of public enemies]; Ryan v. Rogers (1892) 96 Cal. 349 [The fact that an unbridged river between defendants' residence and the place of performance was swollen by recent rains, and impassable at the time set for the performance of the contract, did not bring defendants' nonperformance within the provision of this section that performance of an obligation will be excused “when it is prevented or delayed by an irresistible and superhuman cause,” where it is not shown that such a condition of the river was unusual at that season of the year, and could not have been anticipated by ordinary prudence].)

In the instant case, the alleged force majeure was the Covid Pandemic and, more specifically, the emergency orders entered on March 19, ordering all Californians to stay home, except for those working in critical sectors, none of which is applicable here.  Those orders remained in effect throughout the relevant period here (December 1, 2020).  Although it is too early to determine whether Section 1511 applies here, the court agrees that on its face the section may provide an affirmative defense in this case. 

Next, Defendant Rayden argues he has a satisfactory excuse for not presenting a defense earlier. Defendant Rayden attests that from about September 2020 to the present, he has been extremely ill. (Rayden Decl. ¶¶28-45.) When Plaintiff filed and served the summons and complaint on Defendant, he had been hospitalized in the Ronald Regan UCLA Medical Center due to infectious colitis from a weakened immune system. (Rayden Decl. ¶28.) Then when Plaintiff sought default, Defendant was attending several cardiology and neurology pre surgery visits. (Rayden Decl. ¶30.) Again, when Plaintiff sought entry of default judgment, Defendant Rayden was hospitalized in the Santa Monica UCLA Medical Center to undergo perioperative cardiovascular arterial stentings and from May 2 through July 6, 2022, Rayden underwent 13 cardiopulmonary rehabilitation treatment sessions at UCLA cardiopulmonary facility. (Rayden Decl. ¶33-34.) Defendant Rayden goes on to attest his various hospital stays, surgeries, and medical visits he had from May 2022 to the present. (Rayden Decl. ¶¶35-45.)

In opposition, Plaintiff argues Defendant’s period of illness is not a satisfactory excuse and cites to Davis v. Thayer (1980) 113 Cal. App. 3d 892 to support his contention. In Davis, one of the defaulted defendants argued they were not in any condition, financially or physically, to defend themselves as they were under a doctor’s care for a recent heart attack and  taking valium very heavily. (Davis v. Thayer (1980) 113 Cal.App.3d 892, 900.) The defendant was also taking care of their 86-year-old mother who was recovering from a corneal transplant and her husband was dying of cancer. (Ibid.) The court found although the defendant provided a declaration, she did not state the severity of the condition or in what manner it limited her activity. (Ibid.) Moreover, she did not present a doctor’s declaration to confirm her statements. Relief from default was denied.

The court finds the facts here differ from those in Davis. Here, Defendant Rayden’s declaration includes the severity of his condition as he provides when and how often he was hospitalized and underwent surgeries. Defendant Rayden also provides that his illness limited his activity as he was advised to curtail extreme stresses and make lifestyle modifications, and suffered from headaches, blurred vision, weakness, gastrointestinal problems, and pericarditis. He also appears to have suffered from serious heart ailments, intestinal ailments, a stroke and repeated hospitalization during the relevant period.    

Lastly, the court finds Defendant was diligent in seeking to set aside the default and default judgment. Although the default was entered beyond the time limit set in Code of Civil Procedure section 473, Defendant’s motion was filed only four months beyond the limitation period.  During the six months after default was entered, he was repeatedly hospitalized and had scores of medical appointments for serious conditions.  While the court might wish that he had focused on responding to this litigation, it is understandable that his attention was preoccupied by attending to life -threatening conditions.  His failure to move to set aside earlier should not be attributed to a lack of diligence, but to the distraction and stress of combating these conditions. 

Accordingly, Defendant Rayden’s Motion to Set Aside Default is GRANTED.