Opinion
F073513
02-26-2018
FFA FARM LABOR SERVICES et al., Plaintiffs and Appellants, v. B & A INTERNATIONAL FARM LABOR SERVICES, INC. et al., Defendants and Respondents.
Miller & Ayala and Nathan S. Miller for Plaintiffs and Appellants. Baker Manock & Jensen, Steven M. Crass and Diane E. Coderniz for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 13CECG03021)
OPINION
APPEAL from a judgment of the Superior Court of Fresno County. Kristi Culver Kapetan, Judge. Miller & Ayala and Nathan S. Miller for Plaintiffs and Appellants. Baker Manock & Jensen, Steven M. Crass and Diane E. Coderniz for Defendants and Respondents.
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In this business dispute, a judgment was entered against defendants B & A International Farm Labor Services, Inc. (B&A), Ayala Farms, Inc., Piedad Ayala, Bernardo Ayala, and Central Valley Equipment Rental when they failed to appear on the date set for trial. At that time, plaintiffs FFA Farm Labor Services, Inc. (FFA), Saul Camacho, Laura Gilbert, and Imelda Moreno proceeded to prove-up their claims against defendants in defendants' absence. Upon learning of the judgment, defendants filed a motion seeking to have the judgment set aside under Code of Civil Procedure section 473 and the court's inherent equitable power. The trial court granted the motion, finding defendants had adequately shown extrinsic mistake warranting the requested relief. Plaintiffs appeal from the order setting aside the judgment. Because plaintiffs have failed to meet their burden of demonstrating a clear abuse of discretion, we affirm the order of the trial court.
Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.
FACTS AND PROCEDURAL HISTORY
The Pleadings
On September 26, 2013, plaintiffs filed their complaint against defendants for alleged breach of contract, fraud and defamation arising out of the parties' prior business relationship. The complaint alleged, among other things, that FFA made a series of loans to several of defendants, which included loans in the following amounts: (1) $101,126.12; (2) $255,267.21; (3) $1,000, and (4) $2,379.29. Allegedly, defendants failed to repay the money borrowed and breached their promises to do so. Further, the complaint alleged B&A, Bernardo Ayala and Piedad Ayala agreed that plaintiffs would purchase 60 tractors and defendants would rent the tractors from plaintiffs. According to the complaint, the agreed rental amount was $750 per tractor per month for a period of three months each year for five years, for a total rental obligation of $675,000. Allegedly, defendants failed to pay any portion of the rental amount as agreed. As a result, plaintiffs were forced to return the tractors to the lender, who then sold the tractors at an auction, which resulted in a deficiency on the loan procured to purchase the tractors in the sum of approximately $150,000. Additionally, the complaint alleged Bernardo Ayala and Piedad Ayala made false statements defaming the reputations of Camacho, Gilbert, and Moreno. Specifically, said defendants allegedly told people that plaintiffs stole or embezzled money from defendants.
Defendants filed their answer to the complaint on November 21, 2013. Defendants also filed a cross-complaint against plaintiffs, the operative pleading being the first amended cross-complaint filed on February 27, 2014 (the cross-complaint). The cross-complaint alleged the individual cross-defendants (i.e., Camacho, Gilbert and Moreno) formerly worked for B&A and, unbeknownst to B&A, used confidential proprietary information of B&A to solicit B&A's customers through unfair competitive means. Moreover, the cross-complaint alleged that plaintiffs/cross-defendants conspired with one another to embezzle substantial sums of money from B&A through an elaborate scheme purportedly involving the generation of false and fraudulent vendor invoices, the creation of phony payroll checks, opening accounts for plaintiffs'/cross-defendants' personal benefit, and other means. The cross-complaint sought damages against plaintiffs/cross-defendants on theories of recovery that included civil conspiracy, conversion, and intentional interference with prospective economic advantage.
Defendants' Legal Representation
Defendants were initially represented in this case by David Emerzian of the law firm of McCormick, Barstow, Sheppard, Wayte & Carruth LLP (McCormick Barstow). However, sometime in 2014, defendants' tax attorney, Thomas P. Hogan, discovered McCormick Barstow may have previously represented plaintiffs. Defendants took steps to remove Emerzian, and the McCormick Barstow firm, from further representation in this matter and substituted their tax attorney, Hogan, as their attorney of record. Substitution of attorney forms confirming this change of legal counsel were filed by defendants in the trial court on July 23, 2014. However, the new arrangement did not last long. According to defendants, Hogan's law office insisted on a large retainer that defendants could not pay "due to the funds embezzled by Plaintiffs and the ongoing IRS litigation." At Hogan's request, defendants signed substitution of attorney forms removing Hogan as their attorney of record and causing defendants to be self-represented (i.e., no legal counsel) in this litigation, which substitution of attorney forms were filed in the trial court on December 11, 2014.
Trial Date
In January of 2014, while Emerzian was acting as attorney of record for defendants, the trial court mailed a case management conference minute order to the parties' respective attorneys, setting the trial date in this case for May 11, 2015. The minute order also stated that a trial readiness hearing was scheduled for May 8, 2015, and a mandatory settlement conference was scheduled for April 14, 2015. Defendants maintain they were not aware of the trial and other hearing dates. In November 2014, during the period of time Hogan represented defendants herein, an associate in Hogan's law firm informed defendants she would be requesting a continuance of the trial date due to her planned maternity leave in "May/June" of 2015. According to defendants, Hogan's associate never followed up with them about a potential continuance. On December 11, 2014, Hogan's law firm substituted out of the case, as noted above. Defendants purportedly heard nothing further about this action.
Defendants did not appear at the mandatory settlement conference on April 14, 2015, they did not appear at the trial readiness hearing on May 8, 2015, and, most importantly, they did not appear at the trial on May 11, 2015.
On May 11, 2015, at the time and place set for trial of this matter and upon defendants' failure to appear for same, plaintiffs proceeded to prove-up their case in defendants' absence. After plaintiffs' evidence was presented, the Honorable Alan M. Simpson entered judgment in favor of plaintiffs and against defendants. A written judgment was entered by the trial court on June 5, 2015. Under the plaintiffs' complaint, the trial court awarded damages to FFA in the sum of $1,189,332.14 against B&A, Central Valley Equipment Rental, and Ayala Farms, Inc. Additionally, the trial court awarded $10,000 each to Camacho, Moreno, and Gilbert against Piedad Ayala and Bernardo Ayala. Regarding the cross-complaint, the judgment was in favor of cross-defendants/plaintiffs.
Since judgment was entered on June 5, 2015, defendants' motion for relief, which was filed on January 11, 2016, was brought more than six months after the judgment was taken against defendants.
There is nothing in the record to indicate plaintiffs ever served notice of entry of judgment on defendants. According to defendants, they (defendants) first learned of the existence of the judgment against them about seven months later, in early January of 2016, when a notice of levy and a writ of execution seeking to collect on the judgment were delivered to B&A's business office.
Defendants' Motion to Set Aside Judgment
On January 11, 2016, defendants filed their motion to vacate default judgment. One of the principal grounds for the motion was that "equitable grounds exist to vacate the judgment due to extrinsic fraud and mistake."
According to the declarations presented in support of defendants' motion, when Hogan was substituted out of the case in December of 2014, defendants were "not aware that this action was still open and pending." As set forth in the declaration of Bernardo Ayala, defendants were "engaged in ongoing litigation with the IRS regarding the same events and issues involving Plaintiffs that were related to the claims raised in this action [and] ... Hogan continued to represent B&A in the IRS litigation until late 2015. Since [Bernardo Ayala] was no longer represented in this action and [Bernardo Ayala] is uneducated on legal matters, [Bernardo Ayala] did not fully comprehend the distinction between the claims raised in this action and those being litigated with the IRS." The declarations of Piedad Ayala and Gracy Villalvazo alleged the same facts and the same misunderstanding based on the IRS litigation. Thus, defendants maintained they mistakenly assumed this action was inactive or stayed in light of the related IRS litigation.
Additionally, according to the declarations filed in support of the motion, defendants had heard in conversation with others in the agricultural industry that FFA was no longer an active corporation, which tended to further confirm their understanding that this action was not active. A January 2016 printout from the California Secretary of State's official Web site was presented to the trial court by defendants' legal counsel in connection with defendants' motion. The printout reflected FFA was, at the time of the printout (i.e., January 2016), suspended as a corporation by the Franchise Tax Board.
Defendants further asserted in their motion that they had "received no information whatsoever regarding this action" between December 2014 and December 2015 and were "not aware" of the dates previously scheduled by the trial court for a mandatory settlement conference (Apr. 14, 2015), trial readiness hearing (May 8, 2015), and jury trial (May 11, 2015). According to defendants, they did not learn of the judgment taken against them until January 2016, when a notice of levy and writ of execution to enforce the judgment were delivered to B&A's offices.
Finally, concerning the merits of the case, defendants' supporting declarations denied they ever borrowed money from FFA or agreed to rent tractors from FFA or other plaintiffs. That is, defendants asserted the purported oral agreements never existed. Concerning the issues raised in defendants' cross-complaint, the declaration of Gracy Villalvazo specified certain facts and circumstances in support of the allegation plaintiffs had embezzled substantial funds from defendants.
On February 17, 2016, plaintiffs filed their opposition to the motion. The opposition argued that since the judgment was not, technically speaking, a default judgment, it could not be set aside. Additionally, plaintiffs' counsel raised a number of evidentiary objections to the declarations submitted by defendants. Finally, plaintiffs' counsel presented to the court a printout from the California Secretary of State's office showing FFA was no longer a suspended corporation as of January 19, 2016.
Defendants filed their reply to the opposition on February 29, 2016.
Trial Court's Order
Defendants' motion to set aside the judgment was heard by the trial court on March 8, 2016, before the Honorable Kristi Culver Kapetan. After taking the matter under advisement, the trial court issued its written "Order After Hearing" (the order) on March 17, 2016. Citing the strong public policy for allowing trial on the merits, the trial court granted the motion with the following explanation: "Here, the defendants claim they are 'uneducated on the law' and operated under a mistaken belief this case was stayed pending the litigation with the IRS. ... These claims of mistake are a satisfactory excuse for the defendants' failure to appear at the trial. Additionally, the defendants' motion presents a meritorious case and demonstrates they moved diligently upon discovery of the judgment. Accordingly, there is basis to set aside the judgment under the court's 'inherent equity power.' [Citation.]"
Plaintiffs' timely notice of appeal followed.
DISCUSSION
I. Standard of Review
In the instant case, although defendants' motion to set aside the judgment was made after the six-month period under section 473, subdivision (b) (§ 473(b)) had passed, it was properly directed to the trial court's inherent equitable discretion to set aside a judgment based on extrinsic fraud or mistake. (In re Marriage of Guardino (1979) 95 Cal.App.3d 77, 87; Weitz v. Yankosky (1966) 63 Cal.2d 849, 855.) After the six-month period for statutory relief has passed, the court may still grant relief on equitable grounds of extrinsic fraud or mistake. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981.)
Section 473(b) provides a motion for discretionary relief "shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken."
Here, the equitable ground raised by defendants' motion was that of extrinsic mistake. Extrinsic mistake is "a term that broadly applies 'when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits.'" (In re Marriage of Thorne & Raccina (2012) 203 Cal.App.4th 492, 505.) "'"Extrinsic mistake involves the excusable neglect of a party. [Citation.] When this neglect results in an unjust judgment, without a fair adversary hearing, and the basis for equitable relief is present, this is extrinsic mistake."'" (Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 290.) "In contrast with extrinsic fraud, extrinsic 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." (Manson, Iver & York v. Black (2009) 176 Cal.App.4th 36, 47.)
Such a motion is "addressed to the sound discretion of the trial court and in the absence of a clear showing of abuse of discretion, the order of the court will not be disturbed on appeal." (In re Marriage of Guardino, supra, 95 Cal.App.3d at p. 87; Cope v. Cope (1964) 230 Cal.App.2d 218, 231.) A trial court abuses its discretion only if its ruling "exceeded the bounds of reason in light of the circumstances before the court." (County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1230.) On appeal, the judgment or order is presumed correct, and the burden of showing an abuse of discretion rests squarely on the appellant. (McCreadie v. Arques (1967) 248 Cal.App.2d 39, 45; Cope v. Cope, supra, 230 Cal.App.2d at p. 231.)
Further, we keep in mind "[i]t is the policy of the law to favor, wherever possible, a hearing on the merits, and appellate courts are much more disposed to affirm an order where the result is to compel a trial upon the merits than they are when the judgment by default is allowed to stand and it appears that a substantial defense could be made. Stated another way, the policy of the law is to have every litigated case tried upon its merits, and it looks with disfavor upon a party, who, regardless of the merits of the case, attempts to take advantage of the mistake, surprise, inadvertence, or neglect of his adversary." (Weitz v. Yankosky, supra, 63 Cal.2d at pp. 854-855; accord, Crane v. Kampe (1964) 225 Cal.App.2d 200, 204-205 [stating policy favoring trial on merits where equitable relief granted based on extrinsic mistake].)
II. Plaintiffs' Contention of Error on Appeal
We reiterate a fundamental principle of appellate review: Because a challenged order or judgment of the trial court is presumed to be correct on appeal, it is the burden of the appellant to affirmatively demonstrate the existence of a reversible error or a clear abuse of discretion. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133; Denham v. Superior Court (1970) 2 Cal.3d 557, 564; Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal.App.4th 547, 556-557.) In the instant appeal, plaintiffs contend the trial court erred or abused its discretion in the following particular respects: (1) granting relief from a judgment that was allegedly not a true "default" judgment, (2) granting relief from a judgment entered by another judge, and (3) treating the parallel IRS litigation as though it were a proven fact, when defendants purportedly failed to produce adequate evidence thereof and plaintiffs filed evidentiary objections. We consider each of these contentions below.
A. Relief Not Limited to Default Judgments
Plaintiffs argue the trial court erred in setting aside the judgment in this case because, allegedly, such relief is only available from default judgments entered when a party fails to answer a complaint. Plaintiffs are mistaken.
Plaintiffs appear to confuse the narrow provision for mandatory relief under section 473(b), which is limited to defaults, default judgments and dismissals (and must be premised on an attorney affidavit of fault), with other forms of relief that are not so limited. For example, the broad discretionary relief provision of that same statute allows a court to "relieve a party ... from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect." (§ 473(b).) As our Supreme Court has clearly stated, "the discretionary relief provision of section 473, subdivision (b) applies to any 'judgment, dismissal, order, or other proceeding.'" (Zamora v. Clayborn Contracting Group, Inc. (2002) 28 Cal.4th 249, 254.) Thus, "[i]n contrast to the mandatory provision in section 473(b), 'discretionary relief under the statute is not limited to defaults, default judgments, and dismissals.'" (Henderson v. Pacific Gas & Electric Co. (2010) 187 Cal.App.4th 215, 229, quoting English v. IKON Business Solutions, Inc. (2001) 94 Cal.App.4th 130, 149 [discretionary relief available from any type of judgment]; see Minick v. City of Petaluma (2016) 3 Cal.App.5th 15, 30-31 [discretionary provision of § 473(b) not limited to defaults or default-equivalent conduct].) Accordingly, there is no reason the discretionary relief provision of section 473(b) would not be available in circumstances where, as here, an uncontested judgment was entered after a party failed to appear at the time of trial. (See, e.g., Noceti v. Whorton (2014) 224 Cal.App.4th 1062, 1068 [where judgment entered after party failed to appear for trial, mandatory relief not available since it was not a default judgment, but the matter was remanded to trial court to consider whether to grant discretionary relief under § 473(b)].)
Discretionary relief under section 473(b) has been applied to a variety of judgments and orders other than defaults. (See, e.g., Zamora v. Clayborn Contracting Group, Inc., supra, 28 Cal.4th at p. 254 [judgment voluntarily entered pursuant to settlement offer]; Elston v. City of Turlock (1985) 38 Cal.3d 227, 232-234 [judgment after failure to timely respond to requests for admission caused pivotal issues to be deemed admitted]; Minick v. City of Petaluma, supra, 3 Cal.App.5th at p. 18 [discretionary relief applied to summary judgment where effort to oppose summary judgment motion was clouded by attorney's medical condition and medications creating cognitive impairment].)
Although not technically a default judgment in the narrow sense, a judgment taken where the other party failed to appear at trial has been described as in the nature of a default. (Au-Yang v. Barton (1999) 21 Cal.4th 958, 963 ["'A proceeding taken against [a party] in his absence is in the nature of a default'"].)
Here, as noted above, defendants' motion was not filed until after the six-month period for requesting relief under section 473(b) had passed. Nevertheless, even though beyond the time for statutory relief, defendants were still entitled to seek relief from the judgment under the trial court's inherent equitable power to grant relief based on extrinsic fraud or mistake. (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981 [after the six-month period for statutory relief has passed, the court may still grant relief on equitable grounds of extrinsic fraud or mistake].) Moreover, as was true in the case of discretionary relief under section 473(b) (see, ante), a trial court's power to set aside a judgment on equitable grounds is not limited to default judgments, but applies to all types of judgments and orders. The following cases are illustrative. (See, e.g., Jeffords v. Young (1929) 98 Cal.App. 400, 402-405 [judgment following failure to appear at trial; equitable grounds of extrinsic mistake applied]; Estate of Beard (1999) 71 Cal.App.4th 753, 775-776 [prior judgment premised on settlement embodying promises of one party, which were falsely made and designed to prevent fair adversary hearing; equitable ground of extrinsic fraud applied]; Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 735-736 [dismissal order resulting from unopposed motion; relief granted under court's inherent equitable power].)
Defendants note plaintiffs failed to serve any notice of entry of judgment, or other papers relating to the judgment, until after the six months expired.
Based on the foregoing analysis, we reject plaintiffs' contention the trial court's discretion was restricted to setting aside default judgments. That is simply not the law, except perhaps in the limited circumstance where the motion in question is based on the mandatory relief provision of section 473, which was not the case here. Here, defendants' motion clearly apprised plaintiffs the relief sought was addressed to the trial court's inherent equitable power to grant relief for extrinsic mistake. Since such relief is not limited to default judgments, this ground for appeal is without merit.
B. Motion Permissibly Heard by a Different Judge
Next, plaintiffs argue the motion to vacate judgment should have been heard by the same judge who entered the judgment. Here, the judgment was rendered by Judge Simpson, but Judge Culver Kapetan heard and ruled on the motion to set it aside. Plaintiffs fail to show this was reversible error.
While it is in accord with "sound judicial policy" to have "section 473 motions ... heard by the same judge who rendered the challenged judgment" (Walker v. San Francisco Housing Authority (2002) 100 Cal.App.4th 685, 693 [approving of a local court rule so providing]), plaintiffs have failed to provide any legal authority for the proposition it is mandatory such motions be brought before the same judge. Nothing in our independent research reveals such a mandatory requirement. The lone citation by plaintiffs to California Rules of Court, rule 3.1602 obviously falls short because that rule refers only to motions made under section 663. Plaintiffs have failed to show legal error, much less reversible error or a clear abuse of discretion. This ground for appeal fails.
Additionally, nothing in the record reflects plaintiffs objected in the trial court to the fact Judge Culver Kapetan would be hearing the motion. Thus, even if there was technically an error, it was waived or forfeited. (Feduniak v. California Coastal Com.(2007) 148 Cal.App.4th 1346, 1381 [failure to raise argument or issue in trial court waives the point on appeal].) --------
C. Evidentiary Issue
Finally, plaintiffs argue the trial court abused its discretion by relying on defendants' supporting declarations as to the existence of the parallel IRS litigation. Plaintiffs' opposition to the motion had included a written list of boilerplate evidentiary objections, including objections to the declarants' descriptions of the IRS litigation. In particular, plaintiffs argue on appeal there was no adequate foundation to show the IRS litigation actually existed, since defendants had failed to attach copies of pleadings in the IRS litigation or a reference to a case number or other corroborating evidence. While it is true it would have been better evidence to attach copies of pleadings from the IRS litigation, nevertheless, we know of no reason individuals who are personally involved in a litigation could not provide a basic description of the nature of that litigation in a declaration. In other words, the declarations did constitute some evidence of the existence of the litigation. Of course, if plaintiffs desired an opportunity to investigate the matter further, they could have requested a brief continuance in the trial court. In short, plaintiffs have failed to demonstrate a prejudicial abuse of discretion by the trial court. (See § 475 [error not reversible unless shown to be prejudicial]; accord, Evid. Code, § 353 [evidentiary ruling only leads to reversal if it constituted error and the error resulted in a miscarriage of justice]; In re Marriage of Connolly (1979) 23 Cal.3d 590, 598 [abuse of discretion will be found only if trial court "exceeded the bounds of reason, all of the circumstances before it being considered"].) Consequently, this ground for appeal likewise fails.
DISPOSITION
The trial court order setting aside the judgment is affirmed. Defendants are awarded their costs on appeal.
/s/_________
PEÑA, J. WE CONCUR: /s/_________
LEVY, Acting P.J. /s/_________
DETJEN, J.