Deleon v. EH & BG Investments CA1/5 ( 2020 )

Filed 12/22/20 Deleon v. EH & BG Investments CA1/5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
ARACELI DELEON,
Plaintiff and Appellant, A157052
v.
(Contra Costa County
EH & BG INVESTMENTS, INC.,
Super. Ct. No. CIVMSC17-
Defendant and Respondent. 00134)
Araceli Deleon obtained a default judgment in a slip and fall case
against EH & BG Investments, Inc. (defendant) for $556,090. The trial court
set aside the default judgment but left the underlying default intact. Later,
the court set aside the “entire default so that the case [could] be heard on the
merits.”
Deleon appeals. We affirm. We conclude the default judgment was
subject to be set aside on the equitable ground of extrinsic mistake.
FACTUAL AND PROCEDURAL BACKGROUND
Defendant owns and operates a restaurant and dance club in Concord.
In January 2017, Deleon filed a lawsuit against defendant alleging
negligence and premises liability and seeking compensatory damages.
According to the complaint, Deleon slipped on water on the dance floor and
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was injured. She filed a proof of service indicating the summons and
complaint, and a statement of damages, were personally served on
defendant’s designated agent for service of process on January 30, 2017.
In June 2017, Deleon requested entry of default. The court entered the
default and scheduled a prove-up hearing. Before that hearing, Deleon filed
a statement of damages seeking $1 million in general damages and $55,000
in special damages.1 The statement of damages was not accompanied by a
proof of service but was dated January 28, 2017. Deleon testified at an
unreported February 20, 2018 prove-up hearing, where the court ordered her
to provide a supplemental declaration regarding special damages and future
medical costs, and to appear at a “continued prove-up” hearing in March.
On February 22, 2018, Deleon filed a declaration averring she fractured
her ankle when she slipped on the dance floor. She had surgery to repair her
ankle and missed three months of work. In this declaration, Deleon indicated
that she sought only $500,000 in general damages, $55,000 in special
damages, and $545 in costs. Deleon’s declaration attached medical bills,
employment-related documents, and photographs of her ankle in various
stages of rehabilitation.
That same day—and before the continued prove-up hearing—the court
entered a default judgment against defendant in the amount of $556,090.
The court signed the judgment on February 20, 2018, two days before Deleon
filed her declaration. The proof of service attached to the judgment is dated
February 16, 2018, before the judgment was signed and filed.
1There are five statements of damages. Each seeks an identical
amount of damages but is directed at a different fictitious business name for
defendant. We refer to the statements using the singular.
2
In March 2018, Deleon filed various unauthenticated documents “in
support of application for entry of default judgment.”
A.
The Court Sets Aside the Default Judgment
In December 2018, defendant moved to set aside the default and
default judgment pursuant to Code of Civil Procedure sections 473 and
473.5,2 and on equitable grounds. Defendant argued it did not receive actual
notice of the default or the default judgment, and that the statement of
damages was not personally served before entry of default. It also contended
the award of special damages lacked evidentiary support. Finally, defendant
urged the court to set aside the default and default judgment on the equitable
grounds of mistake or fraud.
In a supporting declaration, Mario Rosales, defendant’s sole officer and
director, averred he did not know about the lawsuit—or receive “any
documentation regarding it”—until May 2018, when he was served with
documents pertaining to a debtor examination. Rosales had met with
Deleon’s attorney in March. During that meeting, Rosales claimed, the
attorney did not tell him a lawsuit had been filed against defendant, nor that
a default judgment had been entered.
Rosales did not recall seeing or receiving the statement of damages
before May 2018, and he “d[id] not believe” defendant was served with that
document. Had Rosales known about the lawsuit, defendant would have
“respond[ed] to the allegations” and “defend[ed] against” the lawsuit by
denying liability. Rosales did not believe defendant was liable for Deleon’s
2 Undesignated statutory references are to the Code of Civil Procedure.
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damages because she was wearing high heels, which “were difficult to walk
in” and caused her “to trip and fall.”
Defendant’s agent for service of process, Luis Garcia, averred he “d[id]
not believe” he was served with the statement of damages. Garcia did not
recall seeing the statement of damages before his attorney showed it to him
“recently.” Defense counsel offered a declaration attaching, among other
documents, a chart calculating the amount of Deleon’s medical bills.
Deleon opposed the motion. She surmised the court “was satisfied with
the . . . evidence presented” at the prove-up hearing. She also argued the
summons, complaint, and statement of damages were properly served, and
offered supporting declarations attesting to service of those documents on
defendant’s agent for service of process. Finally, Deleon contended defendant
was not entitled to equitable relief from the default judgment based on
“extrinsic fraud.”
Defendant’s reply highlighted the “irregularities” that warranted
vacating the default and default judgment on equitable grounds. Defendant
also offered a proposed answer denying all material allegations in the
complaint, and raising several affirmative defenses.
In February 2019, the court partially granted the motion and set aside
the default judgment. It determined the judgment was void because it was
for an amount “far in excess of the evidence produced” at the prove-up
hearing. The court, however, declined to set aside the underlying default.
It explained: “vacating a default judgment because it is excessive does not
affect the underlying default. It simply returns the case to the default status
it had before the erroneous judgment was entered.”
The court set a new prove-up hearing date.
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B.
The Court Sets Aside the Underlying Default
Before the renewed prove-up hearing, defendant moved for
reconsideration (§ 1008). It urged the court to set aside the underlying
default because Deleon did not serve the statement of damages before entry
of default. Defendant relied on a supplemental declaration from Garcia,
defendant’s agent for service of process, who averred he was not served with
the statement of damages before defendant’s default was entered, and that he
did not receive the statement of damages until December 2018. According to
defendant, Garcia’s declaration was “new” evidence negating the presumption
that Deleon timely served the statement of damages.
In opposition, Deleon argued the motion did not satisfy the
requirements of section 1008. Deleon’s attorney, Mark Pappas, averred the
statement of damages was included “in the original package of documents”
served on Garcia in January 2017. Deleon’s process server offered a
declaration stating he personally served Garcia with the statement of
damages.
Defendant’s reply reiterated that the statement of damages was not
served before entry of default. Defendant also urged the court to exercise its
inherent authority to reconsider its prior order and set aside the default.
In April 2019, the court set aside the default judgment not based on
section 1008 but on its “inherent power to change its decision.” The court
noted a judgment is void for lack of personal service of a plaintiff’s statement
of damages and that a “void judgment must be set aside regardless of the
merits of the underlying action.” Next, the court determined it was unable to
resolve whether the statement of damages had been served before entry of
default. As the court explained, it found “itself unable to determine from the
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competing declarations of the agent for service of process, the process server
and Mr. Pappas whether the default judgment [was] void as a matter of law
for failure to properly serve the Statement of Damages. . . . Given the
circumstances,” the court set aside “the entire default so that the case can
be heard on the merits.”
Deleon timely appealed both orders.
DISCUSSION
As set forth above, the court set aside the default judgment because it
was for an amount “in excess of the evidence produced” at the prove-up
hearing. Later, the court set aside the underlying default based on
conflicting evidence regarding whether Deleon served the statement of
damages before entry of default. For reasons different than the trial court’s,
we affirm. We conclude defendant established entitlement to relief from the
default judgment on the equitable ground of extrinsic mistake.
A trial court has inherent power to vacate a default judgment on
equitable grounds, and its decision to grant such relief is reviewed for abuse
of discretion. (Mechling v. Asbestos Defendants (2018) 29 Cal. App. 5th 1241,
1245, 1246 (Mechling).) An appellate court may grant equitable relief from
a default judgment even if a trial court has declined to do so. (Luxury Asset
Lending, LLC v. Philadelphia Television Network, Inc. (2020) 56 Cal. App. 5th
894, 910–911 [granting equitable relief in the first instance]; Rappleyea v.
Campbell (1994) 8 Cal. 4th 975, 980–984 [granting equitable relief where
trial court denied motion for relief pursuant to section 473].) Because we
review the trial court’s result, not its reasoning, we “may affirm the . . . ruling
on any ground supported by the record.” (Taylor v. Elliott Turbomachinery
Co. Inc. (2009) 171 Cal. App. 4th 564, 573, fn. 5; Rappleyea, at p. 981.)
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“ ‘One ground for equitable relief is extrinsic mistake—a term broadly
applied when circumstances extrinsic to the litigation have unfairly cost a
party a hearing on the merits.’ [Citations.] ‘[E]xtrinsic mistake exists when
the ground of relief is not so much the fraud or other misconduct of one of the
parties as it 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.’ ” (Mechling, supra, 29 Cal.App.5th at
p. 1246.) Courts have found extrinsic mistake where the moving party has
shown excusable neglect, hardship, or other grounds for the failure to press
a claim or defense. (Estate of Beard (1999) 71 Cal. App. 4th 753.)
“To qualify for equitable relief based on extrinsic mistake, the
defendant must demonstrate: (1) ‘a meritorious case’; (2) ‘a satisfactory
excuse for not presenting a defense to the original action’; and (3) ‘diligence
in seeking to set aside the default once the fraud [or mistake] had been
discovered.’ [Citations.] When ‘a default judgment has been obtained,
equitable relief may be given only in exceptional circumstances.’ ”
(Mechling, supra, 29 Cal.App.5th at p. 1246, fn. omitted.) At the same
time, however, the “law ‘favor[s] a hearing on the merits whenever possible,
and . . . appellate courts are much more disposed to affirm an order which
compels a trial on the merits than to allow a default judgment to stand.’ ”
(Ibid.)
Here, defendant qualified for equitable relief from the default
judgment based on extrinsic mistake. First, defendant demonstrated
it had “ ‘a meritorious case’ ” by offering a proposed answer denying the
allegations of the complaint and raising affirmative defenses. (Mechling,
supra, 29 Cal.App.5th at pp. 1247, 1248.) Defendant also submitted a
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declaration disputing causation: Rosales opined he did not believe defendant
was liable for Deleon’s damages because she was wearing high heels, which
“were difficult to walk in” and caused her “to trip and fall.” (Smith v.
Busniewski (1952) 115 Cal. App. 2d 124, 129 [moving party’s declaration
averring he “ ‘ ha[d] a good defense’ ” to the action established meritorious
defense element].) “The moving party does not have to guarantee success, or
‘demonstrate with certainty that a different result would obtain . . . . Rather,
[it] must show facts indicating a sufficiently meritorious claim to entitle [it]
to a fair adversary hearing.’ ” (Mechling, at p. 1246.) Defendant made that
showing here.
Second, defendant articulated a satisfactory excuse for not presenting
a defense to the lawsuit. (Mechling, supra, 25 Cal.App.5th at p. 1248.)
Rosales averred he was not aware of the lawsuit until May 2018, after entry
of the default and default judgment. He stated he did not receive “any
documentation regarding” the lawsuit, including the statement of damages,
before May 2018.3 We acknowledge that Garcia, defendant’s agent for
service of process, did not deny receiving the summons and complaint. But
a reasonable inference from Rosales’s declaration is that Garcia did not
3 Significantly, Rosales also stated Deleon’s attorney did not tell him
a lawsuit had been filed, or that a default judgment had been entered, when
they met in March 2018. Deleon’s attorney claimed he showed Rosales a
copy of the default judgment at their March 2018 meeting and emailed
Rosales’s wife a copy of the default judgment within a few days of the
meeting. The trial court was not required to accept this testimony as true.
(Howard v. Owens Corning (1999) 72 Cal. App. 4th 621, 632.) Even if we
credit the attorney’s statements, they do little, if anything, to establish
Rosales’s awareness of the lawsuit before the default and default judgment
were entered.
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notify defendant of the lawsuit and thus, defendant—through no fault of its
own—did not have actual notice of the lawsuit in time to defend against it.
Rosales testified that had he known about the lawsuit, defendant would have
“respond[ed] to the allegations” by denying liability. From this evidence, it is
reasonable to conclude defendant offered a satisfactory reason for failing to
present a defense before the entry of default and default judgment.
(Mechling, at p. 1246.)
Finally, defendant established diligence in seeking to set aside the
default judgment once it had been discovered. (Mechling, supra,
29 Cal.App.5th at p. 1248.) When determining whether a party is entitled
to equitable relief from a default judgment, “the ‘court must weigh the
reasonableness of the conduct of the moving party in light of the extent of
the prejudice to the responding party.’ ” (Id. at pp. 1248–1249.) Given the
relatively short length of time between entry of the default judgment and the
motion to set aside that judgment, and the lack of prejudice to Deleon, we
conclude the diligence factor is satisfied. (Weitz v. Yankosky (1966) 63 Cal. 2d
849, 857 [plaintiff’s failure to show prejudice from defendant’s claimed lack of
diligence was important factor when determining entitlement to equitable
relief].)
Deleon’s reliance on Rodriguez v. Cho (2015) 236 Cal. App. 4th 742 and
Kulchar v. Kulchar (1969) 1 Cal. 3d 467, does not alter our conclusion. Those
cases are factually distinguishable. In Rodriguez, there was no extrinsic
fraud because the moving party did not establish fraudulent or improper
service of the summons and complaint, and because the moving party failed
to establish a meritorious defense. (Rodriguez, at p. 751.) In Kulchar, there
was no extrinsic fraud in part because the husband presented his case at
trial. (Kulchar, at pp. 473–474.)
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DISPOSITION
The orders setting aside the default and default judgment are affirmed.
Defendant is entitled to costs on appeal. (Cal. Rules of Court, rule
8.278(a)(2).)
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_________________________
Reardon, J.*
WE CONCUR:
_________________________
Simons, Acting P. J.
_________________________
Needham, J.
A157052
* Judge of the Superior Court of Alameda County, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
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