Opinion
D076293
02-16-2021
EMPLOYERS COMPENSATION INSURANCE COMPANY, Plaintiff and Appellant, v. DESIGNER STUDIO, INC., Defendant and Respondent.
Aires Law Firm, Timothy C. Aires, and Nathan Budzinski for Plaintiff and Appellant. No appearance for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2017-00024263-CU-CL-CTL) APPEAL from an order of the Superior Court of San Diego County, Richard E.L. Strauss, Judge. Affirmed. Aires Law Firm, Timothy C. Aires, and Nathan Budzinski for Plaintiff and Appellant. No appearance for Defendant and Respondent.
I
INTRODUCTION
Employers Compensation Insurance Company (Insurance Company) appeals an order setting aside a default judgment based on extrinsic mistake. We affirm the challenged order.
II
BACKGROUND
A
Designer Studio, Inc. (Designer Studio) operates a single-location retail clothing store. On July 3, 2017, Insurance Company sued Designer Studio for breach of contract based on allegations that Designer Studio made misrepresentations to procure a worker's compensation insurance policy from Insurance Company, refused to provide Insurance Company with access to its corporate records, and failed to make premium payments on its insurance policy.
On November 25, 2017, Designer Studio was served by substitute service. The process server mailed copies of the complaint and summons to Lorenzo Baillieux—Designer Studio's chief executive officer, sole shareholder, and designated agent for service of process—at the address specified on the statement of information that Designer Studio filed with the Secretary of State. The process server also left copies of the complaint and summons at Designer Studio's designated service of process address with John Duesing, a person whose relation to Baillieux or Designer Studio (if any) is not apparent from the appellate record.
Designer Studio did not respond to the complaint. On March 14, 2018, Insurance Company requested and the trial court granted entry of default. Insurance Company requested entry of default judgment on April 4, 2018, and the court clerk granted the request on April 6, 2018. On or about October 3, 2018, funds totaling $38,519.01 were levied from Designer Studio's bank account in satisfaction of the default judgment.
B
On January 28, 2019, Designer Studio's counsel sent an email to Insurance Company's counsel stating Baillieux did not became aware of the lawsuit until the funds were levied from Designer Studio's bank account. Designer Studio's counsel asked for information about the factual basis for the case and the method by which process was served. Insurance Company's counsel replied, "Judgment satisfied three months ago. Relief is time-barred. My file is closed."
Designer Studio's counsel then contacted Insurance Company's auditors in an apparent effort to resolve the underlying dispute. Designer Studio provided information to Insurance Company to facilitate an audit of its account. In return, Designer Studio sought a refund of any amounts that were subject to the default judgment and bank levy, yet not actually owed under the insurance policy (as determined by the forthcoming audit). On May 17, 2019, after months of communications between Designer Studio and Insurance Company, one of Insurance Company's auditors told Designer Studio's counsel that Insurance Company decided not to conduct an audit of Designer Studio's account.
On July 22, 2019, Designer Studio filed an ex parte application requesting that the trial court exercise its equitable authority to set aside the default judgment due to extrinsic mistake. Designer Studio argued it had a meritorious defense to the litigation because Insurance Company miscalculated Designer Studio's policy premiums. Designer Studio proffered two excuses as to why it did not defend itself in the original action: (1) Baillieux did not receive the complaint or summons because the address listed for service of process on Designer Studio's statement of information was outdated; and (2) Baillieux suffered from and/or was being treated for colon cancer between February 2018 and January 2019. Designer Studio also argued it acted diligently in seeking to set aside the default judgment because Designer Studio's counsel sought to resolve the dispute outside court as early as January 2019—first with Insurance Company's counsel and then with its auditors—and filed the ex parte application a month after those efforts proved fruitless.
Together with the ex parte application, Designer Studio filed a declaration from Baillieux. Baillieux averred he previously resided at the address designated as Designer Studio's address for service of process, but moved prior to the lawsuit and inadvertently did not update his company's statement of information. Baillieux also averred as to his medical ailments in 2018 and 2019. He averred he felt depressed, suffered from physical and mental exhaustion, and was "weak and nearly bed-ridden" beginning in February 2018. According to Baillieux, he was diagnosed with stage three colon cancer four months later, in June 2018, which required him to undergo an aggressive course of chemotherapy and surgery to remove a portion of his intestine. Baillieux averred he experienced extreme fatigue and drowsiness, neuropathy, severe weight loss, a blood clot, vomiting, loss of appetite, and other symptoms in connection with his cancer treatments, which lasted until January 2019. Baillieux averred he had "good days and bad days" during his cancer treatments, but he could devote no more than a "few hours" trying to "keep [his] business afloat" on his "good days."
Insurance Company opposed Designer Studio's ex parte application to set aside the default judgment. Insurance Company argued Designer Studio did not have a satisfactory excuse for failing to defend itself because the complaint and summons were properly served and Designer Studio was at "fault" for not updating its statement of information with the correct address for service of process. Insurance Company also argued Designer Studio did not act diligently in seeking to set aside the default judgment because 15 months had elapsed since the default judgment was entered and 16 months had elapsed since the default was entered.
On July 23, 2019, the court denied Designer Studio's ex parte application and ordered the matter to proceed via noticed motion. The parties stipulated that their ex parte filings would constitute their briefs for purposes of the motion and the court accepted the stipulation.
Notwithstanding the parties' stipulation, Insurance Company filed a "First Amended Opposition" to Designer Studio's request to set aside the default judgment, in which it asserted a new argument not previously raised in its opposition to the ex parte application. Insurance Company argued Designer Studio's failure to defend itself was unreasonable because Insurance Company mailed certain litigation-related filings—including a case management statement, the request for entry of default, the request for entry of default judgment, and a memorandum of costs—to Designer Studio's retail store as early as March 2018.
On July 26, 2019, the court granted the motion to set aside the default judgment. It found Designer Studio presented evidence of a meritorious defense because Insurance Company likely miscalculated Designer Studio's premium payments. The court also found Designer Studio had a satisfactory excuse for not presenting a defense, reasoning that Baillieux was "incapacitate[d]" and "fighting colon cancer" in 2018, and averred he was unaware of the case until the bank levy. Further, the court found Designer Studio was diligent in seeking to set aside the default judgment, citing the negotiations between Designer Studio and Insurance Company that occurred between January 2019 and May 2019. The court did not consider Insurance Company's "First Amended Opposition" because "the parties agreed to rely on the [ex parte] papers" and "[n]o leave was granted to file additional papers."
After the court indicated its intention to set aside the default judgment, Insurance Company requested that the court put the funds levied from Designer Studio's deposit account into a trust. The court denied the request and ordered the funds returned to Designer Studio.
III
DISCUSSION
Insurance Company appeals the order granting the motion to set aside the default judgment. It contends the trial court abused its discretion in vacating the default judgment and erred in ordering that the funds levied from Designer Studio be returned to Designer Studio.
Designer Studio did not file a respondent's brief. However, we do not treat the failure to file a respondent's brief as an admission of error; rather, we consider the appellate record and Insurance Company's arguments to determine whether reversal of the order is required. (In re Marriage of Rifkin & Carty (2015) 234 Cal.App.4th 1339, 1342, fn. 1.)
A
Scope of the Challenged Order
Before we address the merits of Insurance Company's appeal, we must determine the scope of the order challenged on appeal. Insurance Company claims the order vacated the default judgment only, not the default preceding the default judgment. Thus, Insurance Company asserts it will be entitled to seek immediate default judgment following remand.
Designer Studio's motion was not the model of clarity as to whether it was directed at the default judgment alone or, alternatively, both the default and the default judgment. On the one hand, the motion was captioned, "Defendant's Ex Parte Application to Set Aside Default Judgment," and, at certain points, it referenced the default judgment only. At first blush, this tends to support Insurance Company's contention that Designer Studio sought, and the court granted, vacatur of the default judgment only.
To ensure consistency with the caption of Designer Studio's motion, we refer to the motion herein as a motion to vacate the default judgment and the order granting the motion as an order vacating the default judgment.
However, at other times, Designer Studio's motion referenced the default, not merely the default judgment. For instance, the motion recited standards governing the "motion to set aside a default on equitable grounds" and the showing of diligence required "to set aside the default once it [is] discovered." In its motion, Designer Studio also asked the court to "permit a trial on the merits" and allow Designer Studio "to defend this action on the merits." These requests suggest Designer Studio sought to vacate both the default and the default judgment, given that " '[a] defendant against whom a default has been entered is out of court and is not entitled to take any further steps in the cause affecting plaintiff's right of action,' " such as mounting a defense at trial. (Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984) 155 Cal.App.3d 381, 385-386.)
Further, Insurance Company apparently believed Designer Studio requested vacatur of both the default and the default judgment. Its brief in opposition to the ex parte application was captioned "Opposition of Plaintiff Employers Compensation Insurance Company to Ex Parte Application of Defendant Designer Studio Inc. for Order Vacating Default and Default Judgment." (Italics added.) The opposition brief asked the trial court to "deny the ex parte application for [an] order vacating default and default judgment." (Italics added.) And, in substance, the opposition brief asserted Designer Studio did not diligently seek relief, in part, because of the time that had elapsed since the entry of default (not merely the time that had elapsed since the entry of default judgment).
Given all these facts, we believe the trial court's attention was "directed to the existence of the defendant's default as well as the default judgment and we think the court intended by its order to vacate the default as well as the judgment, for if only the judgment is set aside leaving the default still of record, it would be the duty of the court to enter another judgment on plaintiff's application. [Citations.] If there is doubt or ambiguity in the order, it should be treated here as one setting aside both the default and the judgment, for otherwise the defendant's motion and the court's order would be but an idle act and an empty gesture." (Beall v. Munson (1962) 204 Cal.App.2d 396, 399; see Luz v. Lopes (1960) 55 Cal.2d 54, 61 [construing ambiguous motion as request for relief from default and default judgment].)
B
Evidentiary Error
Next, we address another preliminary matter raised in Insurance Company's opening appellate brief—whether the court erred in considering evidence that Designer Studio's counsel negotiated with Insurance Company's auditors before Designer Studio sought to vacate the default judgment. Insurance Company argues the negotiations were unauthorized communications with a represented party in violation of State Bar Rules of Professional Conduct, rule 2-100 (Rule 2-100). It asserts the court should have stricken the allegedly ill-gotten evidence.
We conclude Insurance Company's argument concerning alleged unauthorized contacts is unavailing for two reasons. First, the record indicates Insurance Company asserted this argument in passing in a two-sentence footnote in its trial court brief, unaccompanied by legal analysis. By failing to adequately raise and support its argument in the trial court, Insurance Company forfeited the argument and is precluded from asserting it for the first time on appeal. (Holden v. City of San Diego (2019) 43 Cal.App.5th 404, 419 (Holden) [argument raised in footnote in trial court brief without legal analysis not preserved for appellate review].)
Second, in its appellate brief, Insurance Company provides no legal analysis or record support to substantiate its claim concerning alleged Rule 2-100 violations. For instance, it does not address whether the auditors with whom Designer Studio's counsel communicated were covered employees under Rule 2-100, or whether their acts or omissions may be binding upon or imputed to Insurance Company—necessary elements for a Rule 2-100 violation. (See Snider v. Superior Court (2003) 113 Cal.App.4th 1187, 1207-1211.) Nor does Insurance Company discuss whether it was a represented party for purposes of Rule 2-100, given that there was no longer an active lawsuit pending at the time of the challenged communications. (See Jackson v. Ingersoll-Rand Co. (1996) 42 Cal.App.4th 1163, 1169.) Where, as here, " 'a point is merely asserted by [appellant] without any [substantive] argument of or authority for its proposition, it is deemed to be without foundation and requires no discussion.' " (Holden, supra, 43 Cal.App.5th at p. 418.)
C
Order Vacating the Default Judgment
Turning to the merits, Insurance Company claims the trial court abused its discretion in vacating the default judgment. It asserts Designer Company did not have a satisfactory excuse for not defending itself and failed to exercise diligence in seeking to set aside the default judgment.
1
Legal Standards
Code of Civil Procedure sections 473 and 473.5 vest trial courts with authority to vacate a default and default judgment on certain grounds within specified time periods. "Apart from any statute, courts have the inherent authority to vacate a default and default judgment on equitable grounds such as extrinsic fraud or extrinsic mistake." (Bae v. T.D. Service Co. of Arizona (2016) 245 Cal.App.4th 89, 97.) Extrinsic mistake is a term that "broadly applie[s] 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 (Rappleyea).) It 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.' " (Mechling v. Asbestos Defendants (2018) 29 Cal.App.5th 1241, 1246 (Mechling).)
To obtain equitable relief based on an extrinsic mistake, the movant bears the burden of establishing that the defaulted party: (1) has a meritorious case; (2) had a satisfactory excuse for not presenting a defense to the original action; and (3) demonstrated diligence in seeking to set aside the default or default judgment upon its discovery. (Rappleyea, supra, 8 Cal.4th at p. 982.) Insurance Company challenges the trial court's rulings with respect to the second and third elements of this three-part test.
" 'Because of the strong public policy in favor of the finality of judgments, equitable relief from a default judgment or order is available only in exceptional circumstances.' " (Pulte Homes Corp. v. Williams Mechanical, Inc. (2016) 2 Cal.App.5th 267, 275-276.) However, "[t]he 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.' " (Mechling, supra, 29 Cal.App.5th at p. 1246.) We review the trial court's factual findings for substantial evidence and its order vacating the default judgment for abuse of discretion. (County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1230; Mechling, at p. 1247.) Under the abuse of discretion standard of review, "we may reverse only if we conclude the trial court's decision is ' "so irrational or arbitrary that no reasonable person could agree with it." ' " (Mechling, at p. 1249.)
2
Excuse
Insurance Company contends the court abused its discretion in setting aside the default judgment because Designer Studio did not have a satisfactory excuse for failing to participate in the action. It asserts the sole reason Designer Studio did not defend itself is that Designer Studio did not monitor its mail for "important court papers" and/or update its statement of information to ensure it properly received service of such filings. Insurance Company claims Designer Studio's own negligence thus prevented it from participating in the action.
We need not determine whether a party's failure to monitor its mail or update its statement of information constitutes a satisfactory excuse to support the vacating of a default judgment because the trial court based its finding of a satisfactory excuse on other factors that, in our view, sufficiently excuse Designer Studio's nonperformance. As noted, the court found Designer Studio proffered a satisfactory excuse because Baillieux "was fighting colon cancer" and "incapacitate[d]" during 2018.
The evidence in the appellate record supports the trial court's determination. In his uncontroverted declaration, Baillieux averred he experienced symptoms relating to his colon cancer beginning in February 2018—after the filing and service of the complaint, but—critically—before Insurance Company sought entry of default or default judgment. In particular, he averred he suffered from extreme fatigue, near-constant sickness, mental exhaustion, and depression starting in February 2018, and that he was "weak and nearly bed-ridden" as a result. The court acted within its discretion in finding that Baillieux's incapacitation excused Designer Studio from defending itself in the original action. (Sanchez v. Sanchez (1969) 273 Cal.App.2d 159, 161-164 [defendant's mental illness was satisfactory excuse warranting vacatur of default judgment]; Evry v. Tremble (1957) 154 Cal.App.2d 444, 446-449 [defendant's rheumatic fever and corresponding physical symptoms constituted satisfactory excuse justifying vacatur of default judgment]; see Shapiro v. Clark (2008) 164 Cal.App.4th 1128, 1142 ["The fact that the defendant ... was under medical treatment, including heavy doses of a well-known sedative, certainly supported ... a finding" of excuse in a proceeding to vacate a default and default judgment].)
Insurance Company claims Designer Studio did not have a satisfactory excuse because Designer Studio and Baillieux are not the same person or entity; therefore, Designer Studio did not technically become incapacitated when Baillieux became ill. We fail to see the significance of this distinction, which exalts form over substance. Baillieux was the chief executive officer, sole shareholder, and agent for service of process for Designer Studio. According to Baillieux, Designer Studio operates just a single retail store and he personally was responsible for overseeing the company's day-to-day operations. Further, the record contains no information regarding any other officers, employees, or agents of Designer Studio. On this record, it is readily apparent Baillieux was central to Designer Studio's corporate decision- making and daily operations, and it is equally apparent Baillieux's illness caused Designer Studio itself to become functionally incapacitated as well.
Insurance Company also asserts Designer Studio was not excused from defending itself because Baillieux did not suffer from "complete incapacity." We construe this as an argument that substantial evidence did not support the trial court's factual finding of incapacitation. So construed, Insurance Company's argument is meritless. As previously noted, Baillieux averred in his uncontradicted declaration that he suffered from numerous debilitating symptoms beginning in February 2018. He averred he later underwent an aggressive course of chemotherapy, had a portion of his intestine surgically removed, and was heavily medicated—treatments that ultimately helped him become cancer-free, but produced a range of serious side-effects in the meantime including fatigue, drowsiness, neuropathy, weight loss, a blood clot, vomiting, and loss of appetite. This evidence amply supported the trial court's factual finding that Baillieux was incapacitated and its determination that Designer Studio was excused from participating in the original action.
3
Diligence
Insurance Company contends the court abused its discretion in a second respect—by finding Designer Studio diligently sought to set aside the default judgment. Similarly, Insurance Company asserts laches barred the request to vacate the default judgment. In support of these arguments, Insurance Company claims Designer Studio was aware, or should have been aware, of the litigation no later than March 2018, when Insurance Company allegedly mailed its request for entry of default to Designer Studio's retail store. Insurance Company asserts Designer Studio did not proceed diligently because it did not seek to set aside the default judgment until 16 months later, in July 2019.
Assuming for purposes of this appeal that Designer Studio was aware of Insurance Company's request for entry of default in March 2018, we discern no abuse of discretion. As previously discussed, Baillieux was already experiencing incapacitating symptoms related to his colon cancer when Insurance Company allegedly mailed the request for entry of default. He continued to suffer from these symptoms and other side-effects at least through January 2019. As soon as Baillieux's cancer treatments were completed in January 2019, Baillieux retained counsel for Designer Studio straight away. Designer Studio's counsel then immediately communicated with Insurance Company's counsel and its auditors to discuss the litigation and arrange for an audit and possible refund to Designer Studio. Just one month elapsed between when these discussions fell apart and when Designer Studio filed its application to set aside the default judgment.
In view of Baillieux's lengthy incapacitation and Designer Studio's efforts to resolve the parties' dispute, Insurance Company has not established that the court abused its discretion in finding Designer Studio was diligent.
Insurance Company also claims the trial court erred by declining to consider its "First Amended Opposition" brief. Insurance Company is estopped from asserting this argument, given that it stipulated its opposition to the ex parte application would constitute its brief for purposes of the noticed motion and it did not seek leave of court to file a second brief. (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 420 ["plaintiffs are estopped to complain of the trial court's error because they participated in its commission"].) In any event, our conclusion that the court did not abuse its discretion in finding diligence, notwithstanding Designer Studio's alleged notice of the request for entry of default, renders any error harmless. --------
4
Conclusion
Our role as an appellate court is not to determine whether the trial court could have rendered differed factual findings or reached a different determination. Nor is our role to substitute our findings for those of the trial court. Rather, our role is to decide whether the trial court abused its discretion—that is, whether the court rendered a decision so irrational and arbitrary that no reasonable person could agree with it. (Mechling, supra, 29 Cal.App.5th at p. 1249.) Based on the appellate record before us, we conclude Insurance Company has failed to establish such an abuse of discretion.
D
Return of the Levied Funds
Insurance Company claims the trial court erred in ordering the return of the funds seized from Designer Studio's bank account in satisfaction of the default judgment. Insurance Company cites a single legal authority in support of its argument, Adir Internat., LLC v. Superior Court (2013) 216 Cal.App.4th 996 (Adir), and asserts in a perfunctory manner that the trial court erred by directing the return of the levied funds to Designer Studio. Because Insurance Company does not support its argument with substantive legal analysis, we need not address the argument. (Holden, supra, 43 Cal.App.5th at pp. 418-419.)
In any event, Insurance Company has not demonstrated reversible error. In Adir, the sole legal authority on which Insurance Company relies, a judgment creditor prevailed at trial and obtained a writ of execution that was filed with the county sheriff. (Adir, supra, 216 Cal.App.4th at p. 998.) The sheriff then levied the judgment debtor's bank account, creating an execution lien on the levied property. (Id. at pp. 998-999.) The debtor filed a notice of appeal and an appeal bond, which extinguished the execution lien and required the return of the levied funds to the debtor. (Id. at p. 999.) But the debtor failed to take proper steps to ensure the sheriff released the funds back to the debtor. (Id. at pp. 999-1000.) As a result, the sheriff erroneously released the funds to the creditor. (Id. at p. 1000.) The debtor then requested that the trial court require the creditor to return the erroneously disbursed funds, but the court found it had no authority to do so, and the Court of Appeal agreed. (Id. at p. 1002.)
The Adir decision concerns whether a trial court has the authority to order the return of property that should never have been disbursed in the first place due to the perfecting of an appeal. It is unrelated to whether funds may, or must, be returned after a default or default judgment has been vacated. Because Adir is inapposite to the case at hand, Insurance Company has not established that the trial court erred in ordering the return of the funds to Designer Studio.
IV
DISPOSITION
The order is affirmed. Each party to bear its own costs.
McCONNELL, P. J. WE CONCUR: IRION, J. DATO, J.