Old Republic Gen. Ins. v. Alamillo Rebar CA2/7 ( 2022 )

Filed 1/13/22 Old Republic Gen. Ins. v. Alamillo Rebar CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
OLD REPUBLIC GENERAL B312662
INSURANCE CORP.,
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. 20STCV20039)
v.
ALAMILLO REBAR, INC. et al.,
Defendants and Appellants.
APPEAL from an order of the Superior Court of Los
Angeles County, Barbara M. Scheper, Judge. Affirmed.
Brothers Smith and Horace W. Green for Defendants and
Appellants.
TheDewberryfirm and Robert H. Dewberry for Plaintiff and
Respondent.
INTRODUCTION
Old Republic General Insurance Corporation obtained a
default judgment against four related entities: Alamillo Rebar,
Inc., Southwest Transportations Systems, Inc. (Southwest),
325 West Channel Rd., LLC, and 361 West Channel Rd., LLC
(collectively, the Alamillo Entities). The Alamillo Entities moved
to vacate the default judgment and set aside the entries of default
under Code of Civil Procedure section 473, subdivision (b),1
arguing the court entered the defaults as a result of their mistake
or excusable neglect. The trial court denied the motion, ruling
that it was untimely and that the entities did not show mistake
or excusable neglect. The Alamillo Entities appeal. Because both
of the court’s rulings were correct, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Old Republic Obtains a Default Judgment Against
the Alamillo Entities
Old Republic filed this action against the Alamillo Entities,
alleging they were alter egos of each other and operated as part
of a single business. Old Republic alleged it entered into an
agreement to provide Alamillo Rebar with automobile liability,
workers’ compensation, and employers’ liability insurance. Old
Republic alleged the Alamillo Entities owed $3,075,938.15 under
the agreement: $743,313.52 in unpaid premiums and fees,
$318,541.63 in unpaid monthly deductibles, and $2,014,083.00 in
1 Undesignated statutory references are to the Code of Civil
Procedure.
2
collateral to secure the payment of unpaid deductibles and the
estimated outstanding ultimate loss.
When Old Republic filed this action in May 2020, each of
the Alamillo Entities had on file with the Secretary of State a
statement of information that listed Christopher Pereira, at an
address (the same in each statement) in Benicia, California, as
the designated agent for service of process. A registered process
server tried to serve Pereira at the Benicia address, but a
receptionist informed the process server the Alamillo Entities
had moved from that address a year ago. The process server
eventually served Pereira at his residence in June 2020.
Joe Alamillo (Alamillo) is the chief executive officer of
Alamillo Rebar and Southwest. Alamillo is also the trustee of the
Joe M. Alamillo and Jean C. Alamillo Living Trust, which in turn
is a member of 325 West Channel Rd. and 361 West Channel Rd.
At his deposition, Alamillo admitted that in June 2020 Pereira
sent him by email a copy of the complaint, but that he (Alamillo)
decided not to respond to the complaint. Alamillo said that he
recognized the complaint as a lawsuit, but that he did not “see it
necessary” to respond because he “was not served on it.” Instead,
he just “filed it.”
Between July 2020 and August 5, 2020 the trial court
entered the default of each of the Alamillo Entities. In January
2021 Old Republic filed a request for a default judgment against
all of the entities, and on February 10, 2021 the trial court
entered a default judgment in the amount of $1,944,081.86
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($1,943,346.86 in damages and $735 in costs), jointly and
severally, against the Alamillo Entities.2
B. The Alamillo Entities File a Motion To Set Aside the
Default Judgment, Which the Trial Court Denies
On February 23, 2021 the Alamillo Entities filed a motion
under section 473, subdivision (b), to vacate the default judgment
and set aside the entries of default. The entities contended the
trial court entered their defaults and the subsequent default
judgment as a result of the Alamillo Entities’ mistake or
excusable neglect. The Alamillo Entities asserted that, at the
time Alamillo learned of the lawsuit, he did not believe Old
Republic had properly served any of the defendants. The entities
also explained that Alamillo “did not believe that Southwest,
325 West Channel Road, LLC and 361 West Channel Road, LLC
were parties to the written contract which was at issue” and that
Alamillo “was focused on saving his business.”
In opposition to the motion, Old Republic argued the
motion was untimely because the Alamillo Entities filed it more
than six months after the court had entered the defaults of the
entities. Old Republic also argued on the merits that Alamillo’s
decision to ignore the complaint based on his belief the entities
were not properly served was unreasonable because he was not a
2 In its request for a default judgment, Old Republic sought
$1,944,081.86 in damages, rather than the $3,075,938.15 it
requested in its complaint. Although it is not entirely clear, it
appears the discrepancy arises out of the fact Old Republic
received money from the issuer of an irrevocable letter of credit
the Alamillo Entities had provided as collateral for its obligations
under the agreement.
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lawyer. In reply, the Alamillo Entities argued for the first time
that, even if the motion for relief under section 473 was untimely,
the court could still vacate the default judgment and set aside the
entries of default under the court’s “inherent equity power.”
The trial court denied the motion. The court ruled the
motion was untimely because the Alamillo Entities did not file it
within six months of the entries of default. The court also ruled
that, “[e]ven if the motion were not untimely,” the Alamillo
Entities were not entitled to relief. The court found it was
unreasonable for Alamillo to conclude the entities were not
properly served (and therefore unreasonable for them not to
respond to the complaint) because Pereira was still listed as each
entity’s agent for service of process when Alamillo learned of the
complaint and because the Alamillo Entities were no longer
operating at the business address listed in their statements of
information. Moreover, the court pointed out, Pereira testified he
emailed the complaint not only to Alamillo, but also to Roger
Brothers, who was a partner at the law firm that subsequently
represented the Alamillo Entities in their motion to set aside the
default judgment (and represents them on appeal). The trial
court ruled Alamillo’s apparent failure to consult with Brothers
before deciding to ignore the lawsuit showed “negligence in
ascertaining the law.” The Alamillo Entities timely appealed
from the order denying their motion.
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DISCUSSION
A. The Trial Court Did Not Err in Denying the Alamillo
Entities’ Request for Relief on Equitable Grounds
The Alamillo Entities no longer argue that their motion,
filed more than six months after the court entered the defaults
but less than six months after the court entered the default
judgment, was timely under section 473. (See Kramer v.
Traditional Escrow, Inc. (2020) 56 Cal.App.5th 13, 39 (Kramer)
[“The six-month period for granting relief under section 473,
subdivision (b), ‘runs from entry of default, not entry of
judgment.’”]; Rutan v. Summit Sports, Inc. (1985) 173 Cal.App.3d
965, 970 [“The general rule is that the six-month period within
which to bring a motion” for discretionary relief under section
473, subdivision (b), “runs from the date of the default and not
from the judgment taken thereafter.”]; see also Rappleyea v.
Campbell (1994) 8 Cal.4th 975, 980 (Rappleyea) [“more than six
months had elapsed from the entry of default, and hence
[discretionary] relief under section 473 was unavailable”].) The
Alamillo Entities’ only argument on appeal is the one they did
not make until their reply brief in the trial court: They are
entitled to discretionary relief on equitable grounds based on
“extrinsic mistake.” That argument fails.
1. Applicable Law and Standard of Review
“After six months from entry of default, a trial court may
still vacate a default on equitable grounds even if statutory relief
is unavailable.” (Rappleyea, supra, 8 Cal.4th at p. 981; see
Luxury Asset Lending, LLC v. Philadelphia Television Network,
Inc. (2020) 56 Cal.App.5th 894, 910 (Luxury Asset Lending); Bae
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v. T.D. Service Co. of Arizona (2016) 245 Cal.App.4th 89, 97.)
“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.” (Rappleyea,
at p. 981; accord, Kramer, supra, 56 Cal.App.5th at p. 30;
Mechling v. Asbestos Defendants (2018) 29 Cal.App.5th 1241,
1246.) “‘[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, at p. 1246; accord, Kramer, at p. 30; see Luxury Asset
Lending, at p. 911 [“‘“‘Extrinsic mistake involves the excusable
neglect of a party.’”’”].)
As the Supreme Court explained in Rappleyea, where, as
here, “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.’” (Rappleyea, supra,8 Cal.4th at pp. 981-982; accord, Kramer, supra, 56 Cal.App.5th
at p. 29.)
“[T]o further the foregoing policy,” courts have adopted “a
stringent test to qualify for equitable relief from default on the
basis of extrinsic mistake” after a court has entered judgment.
(Rappleyea, supra, 8 Cal.4th at p. 982.) “‘First, the defaulted
party must demonstrate that it has a meritorious case. Second[ ],
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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.’” (Ibid.; see
Luxury Asset Lending, supra, 56 Cal.App.5th at p. 911; Bae v.
T.D. Service Co. of Arizona, supra, 245 Cal.App.4th at p. 100;
Falahati v. Kondo (2005) 127 Cal.App.4th 823, 833.)3
“[T]he trial court’s findings of fact pertaining to the
existence of . . . extrinsic mistake are reviewed for substantial
evidence.” (Kramer, supra, 56 Cal.App.5th at p. 28.) “But our
overall review of the trial court’s application of those findings is
for an abuse of discretion.” (Ibid.; see Rappleyea, supra, 8 Cal.4th
at p. 981; Luxury Asset Lending, supra, 56 Cal.App.5th at p. 907.)
2. There Was No Extrinsic Mistake
As the Alamillo Entities point out, to show a “meritorious
case” for purposes of obtaining relief from default on the grounds
of extrinsic mistake, “only a minimal showing is necessary.”
(Mechling v. Asbestos Defendants, supra, 29 Cal.App.5th at
p. 1246; see Rappleyea, supra, 8 Cal.4th at p. 983 [answer
denying, admitting, and otherwise responding to the allegations,
plus counsel’s declaration stating he believed the defendant had
“‘a very good (and certainly justiciable) defense to the Plaintiff’s
claim,’” was sufficient].) In the trial court, the Alamillo Entities
3 At least one court has “question[ed] the appropriateness of
applying this stringent test” to cases involving an “unusual set of
facts,” for example, “where a nonparty—who was not served with
the complaints, defaults, or default judgments—seeks equitable
relief.” (Mechling v. Asbestos Defendants, supra, 29 Cal.App.5th
at p. 1246, fn. 3.) This case involves no such unusual facts.
8
contended that Southwest, 325 West Channel Rd., and 361 West
Channel Rd. had a meritorious case because they did not execute
the agreement alleged in the complaint. They also contended
325 West Channel Rd. and 361 West Channel Rd. did not have
any employees and therefore had no need for workers’
compensation or employers’ liability insurance. But even
assuming these three entities had a meritorious case, no one
argued Alamillo Rebar did. Thus, the trial court did not err in
denying Alamillo Rebar’s request to set aside its entry of default
and vacate the default judgment against it.4
Moreover, none of the Alamillo Entities presented a
satisfactory excuse for failing to respond to the complaint. The
Alamillo Entities’ primary “excuse” was that Alamillo did not
believe service of the summons and complaint on Pereira—at the
time no longer employed by the Alamillo Entities but admittedly
still their designated agent for service of process—was proper.
But Alamillo was wrong. (See Corp. Code, §§ 1502, subd. (e) [“[i]n
order to change its agent for service of process or the address of
the agent, the corporation must file a current statement
containing all the information required” by section 1502,
subdivisions (a) and (b) of the Corporations Code], 1701
[“Delivery by hand of a copy of any process against the
corporation (a) to any natural person designated by it as agent
. . . shall constitute valid service on the corporation.”], 17701.16
4 The Alamillo Entities forfeited their contention, raised for
the first time on appeal, Alamillo Rebar had a meritorious case.
(See Johnson v. Greenelsh (2009) 47 Cal.4th 598, 603; Colyear v.
Rolling Hills Community Assn. of Rancho Palos Verdes (2017)
9 Cal.App.5th 119, 137, fn. 5.)
9
[same for a limited liability company].) Indeed, the Alamillo
Entities do not contend service on Pereira was improper.
The doctrine of equitable relief based on extrinsic mistake
was never “meant to extend relief to defendants who fail to file an
answer because they are ignorant of the law.” (Stiles v. Wallis
(1983) 147 Cal.App.3d 1143, 1147; see ibid. [that the defendant
was an Australian citizen “unfamiliar with California judicial
proceedings” did not justify failing to file a responsive pleading to
the complaint].) As one court has explained, “Even under the
more lenient section 473, subdivision (b), ‘[w]hen a default is the
result of one party . . . failing to exercise diligence to ascertain
what the law requires of them, trial courts . . . should not . . .
grant that party relief from default.’ [Citation.] Indeed, mistake
is not a ground for relief when it ‘“‘is simply the result of . . .
general ignorance of the law, or unjustifiable negligence in
discovering the law . . . .’”’” (Kramer, supra, 56 Cal.App.5th at
pp. 31-32; accord, Hearn v. Howard (2009) 177 Cal.App.4th 1193,
1206; see also Carroll v. Abbott Laboratories, Inc. (1982)
32 Cal.3d 892, 901, fn. 8 [“‘To the extent that the court’s equity
power to grant relief differs from its power under section 473, the
equity power must be considered narrower, not wider.’”].)
Alamillo’s decision to ignore the summons and complaint
because of his mistaken belief the Alamillo Entities were not
properly served was not a satisfactory excuse for purposes of
obtaining relief based on extrinsic mistake. (See Hearn v.
Howard, supra, 177 Cal.App.4th at p. 1206 [defendant’s
“unsupported, subjective belief that she had not been served
until” the default prove-up hearing did not “demonstrate that the
default judgment was entered as result of mistake, inadvertence,
surprise or excusable neglect”]; see also Kramer, supra,
10
56 Cal.App.5th at p. 30 [defendant’s decision not to participate in
a lawsuit “because [she] erroneously believed that ‘[the p]laintiff
was simply prosecuting this case against a defunct entity,’ and
. . . was unaware that she ‘was potentially personally liable,’” was
not an extrinsic mistake].) Alamillo’s decision was particularly
inexcusable in light of Pereira’s uncontradicted deposition
testimony he sent a copy of the complaint by email to Alamillo
and to counsel for Alamillo Rebar. Alamillo did not explain
whether he consulted with the attorney or, if he did, why he still
chose not to respond to the complaint. The trial court correctly
determined that, at best, Alamillo was “negligen[t] in
ascertaining the law” and that his explanation was not
satisfactory under the circumstances. (See Kramer, at p. 32
[“[c]ountenancing a litigant’s blatant disregard of the judicial
process and rules . . . invites other litigants to ignore the laws
and rules and renders the process unfair to most other litigants
and counsel who endeavor to comply with them”; “undermines
trial courts’ ability to manage their caseloads and, in turn, to
serve other litigants in a timely way”; and thwarts policies that
“favor getting cases to trial on time, avoiding unnecessary and
prejudicial delay, and preventing litigants from playing fast and
loose with the pertinent legal rules and procedures,” internal
quotation marks omitted].)
Nor was Alamillo’s statement in his declaration he was too
busy to respond to the complaint because he was “closing down
[Alamillo Rebar’s] business and resolving its outstanding
obligations” a satisfactory excuse. “‘[T]he mere fact that the
[defendant] is busy and occupied with other affairs’” is generally
insufficient “‘to constitute an excuse for his neglect to answer a
summons within time . . . . If the rule were otherwise, few
11
judgments by default would stand, for most men [and women]
could plead their business as an excuse for not answering the
summons of the court.’” (Davis v. Thayer (1980) 113 Cal.App.3d
892, 909; see Bellm v. Bellia (1984) 150 Cal.App.3d 1036, 1038
[“The press of business is not a sufficient excuse for failing to
respond to service of a summons and complaint.”].) In light of the
strong policy favoring the finality of judgments after the six-
month period in section 473, subdivision (b), the trial court did
not abuse its discretion in ruling the Alamillo Entities failed to
demonstrate a satisfactory excuse for not responding to the
complaint.
B. The Alamillo Entities’ Argument the Complaint
Failed To State a Cause of Action Against Certain of
the Entities Is Forfeited and Meritless
The Alamillo Entities also contend, for the first time on
appeal, the complaint failed to state a cause of action against
Southwest, 325 West Channel Rd., or 361 West Channel Rd. The
Alamillo Entities, however, forfeited this argument by not
making it in the trial court. (See Johnson v. Greenelsh (2009)
47 Cal.4th 598, 603; Colyear v. Rolling Hills Community Assn. of
Rancho Palos Verdes (2017) 9 Cal.App.5th 119, 137, fn. 5.)
The argument also lacks merit. “Because [a] default
confesses those properly pleaded facts . . . they are treated as true
for purposes of obtaining a default judgment. . . . [¶] [But] if the
well-pleaded allegations of the complaint do not state any proper
cause of action, the default judgment in the plaintiff’s favor
cannot stand. On appeal from the default judgment, ‘[a]n
objection that the complaint failed to state facts sufficient to
constitute a cause of action may be considered.’” (Kim v.
12
Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281-282,
italics omitted; accord, Grappo v. McMills (2017) 11 Cal.App.5th
996, 1013; Falahati v. Kondo, supra, 127 Cal.App.4th at
pp. 829-830.)
According to the Alamillo Entities, the complaint failed to
state a cause of action against Southwest, 325 West Channel Rd.,
or 361 West Channel Rd. because the only signatory to the
insurance agreement Old Republic attached to its complaint and
based its causes of action on was Alamillo Rebar. Maybe so. But
Old Republic’s theory of liability against Southwest, 325 West
Channel Rd., and 361 West Channel Rd. did not depend on
whether they were signatories to the agreement. Old Republic’s
theory of liability was that the Alamillo Entities were alter egos
of each other and therefore liable for the debts, obligations, and
duties of one another. (See Leek v. Cooper (2011) 194 Cal.App.4th
399, 418-419 [“[a] claim based upon an alter ego theory is not
itself a claim for substantive relief,” but “a procedural device by
which courts will disregard the corporate entity in order to hold
the alter ego individual liable on the obligations of the
corporation”].) The Alamillo Entities do not address this theory
of liability or argue Old Republic’s alter ego allegations were
insufficient.
Which, in any event, they were. Old Republic alleged
Alamillo Rebar and the other entities were “mere shells,
instrumentalities or conduits for a single venture, common
enterprise, [and] business”; used “the same tangible and
intangible assets, including equipment, employees, and goodwill”;
lacked “sufficient or adequate capitalization”; were “conceived,
intended, and utilized . . . to avoid individual liability”; “failed to
observe corporate formalities”; “caused assets of [each other] to be
13
transferred to . . . each of them, without adequate consideration”;
were “subterfuges for illegal, fraudulent and/or otherwise
wrongful transactions”; and paid excessive compensation to
insiders and shareholders (presumably Alamillo) “at a time when
[they] were insolvent . . . that might otherwise have been used to
satisfy creditors’ claims.” Old Republic also alleged that
recognizing the separate existence of the entities “would sanction
a fraud or promote an injustice.” (See Rutherford Holdings, LLC
v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235 [plaintiff
adequately pleaded alter ego liability by alleging that the
corporate entity was a “mere shell and conduit” for the individual
defendant’s affairs, was “inadequately capitalized,” and “failed to
abide by the formalities of corporate existence”; that the
individual “used [the entity’s] assets as her own”; and that
“recognizing the separate existence . . . would promote injustice”];
cf. A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019)
38 Cal.App.5th 677, 696-697 [plaintiff did not adequately plead
alter ego liability where the plaintiff alleged only that the
defendants owned all the entity’s stock and made all the
management decisions, and did not allege that “‘“adherence to
the fiction of the separate existence of the corporation would
promote injustice . . . or bring about inequitable results”’”].) Had
the Alamillo Entities wanted to challenge Old Republic’s alter ego
allegations, they should have responded to the complaint.
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DISPOSITION
The order is affirmed. Old Republic is to recover its costs
on appeal.
SEGAL, J.
We concur:
PERLUSS, P. J.
WISE, J. *
* Judge of the Alameda County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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