Opinion
A146334
07-13-2017
TERRY WILLIAMS IRELAND et al., Plaintiffs and Appellants, v. GORDON & REES, LLP et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco City & County Super. Ct. Nos. CGC-12-524546 & CGC-12-524815)
I. INTRODUCTION
This appeal is from defense judgments in two legal malpractice cases that were consolidated below: ZF Micro Solutions, Inc. et al. v. Gordon & Rees et al. (Super. Ct. S.F. City and County, 2015) No. CGC-12-524815) (ZF/Feldman); and Ireland et al. v. Gordon & Rees et al. (Super. Ct. S.F. City and County, 2015) No. CGC-12-524546) (Ireland).
The ZF/Feldman and Ireland plaintiffs were all defendants in contentious litigation involving shareholders of two corporations, ZF Micro Devices Inc. (ZF Devices) and its successor in interest, appellant ZF Micro Solutions, Inc. (ZF Solutions). Appellant David Feldman is the chairman and chief executive officer (CEO) of both ZF companies. The Ireland appellants are individual shareholders of ZF Solutions.
Respondents are three groups of defendants who were sued in both malpractice cases: (1) Gordon & Rees, LLP and Andrew D. Castricone (Gordon), defense counsel during the trial of the underlying action; (2) Illinois Union Insurance Company and affiliates (Illinois Union), insurance coverage providers for the defense of the underlying action; and (3) Ropers Majeski Kohn & Bentley PC and Susan Handelman (Ropers), appellate counsel in the underlying action.
After these malpractice cases were consolidated below, the trial court granted summary judgment to each group of defendants pursuant to unopposed motions that were predicated on evidentiary sanction orders imposed on plaintiffs due to multiple discovery violations. In this court, appellants contend the trial court erred by denying them relief from the sanction orders because they are the victims of extrinsic fraud committed by a disbarred attorney who represented them during the discovery phase of this case. Finding no such error, we affirm the judgments.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Shareholder Litigation
In 2002, ZF Solutions filed a lawsuit against National Semiconductor Corporation (NSC) for breach of a product development agreement NSC had executed with ZF Devices. The NSC litigation resulted in a settlement pursuant to which ZF Solutions received a cash payment of $20 million. That money was divided among ZF Solutions, Feldman, and several shareholders of ZF Solutions.
In February 2005, shareholders of ZF Devices including TAT Capital Partners, Ltd. (TAT) sued ZF Solutions and Feldman for fraudulent transfer, breach of fiduciary duty, dissolution of a corporation, and an accounting. ZF Solutions and Feldman retained the Trepel Law Firm (Trepel) to represent them. Illinois Union accepted Feldman's tender of his defense in the TAT litigation under a directors'/officers' insurance policy. In September 2005, TAT amended its complaint to add ZF Solutions shareholders as named defendants. Feldman arranged for Trepel to represent these shareholder defendants at company expense.
In 2007, Feldman and ZF Solutions retained Gordon to replace Trepel as their counsel in the TAT litigation; Illinois Union agreed to provide a "courtesy defense" to the shareholder defendants; and Feldman arranged for the shareholder defendants to sign substitution of attorney and conflict waiver forms so that Gordon could represent all the defendants.
In 2010, the TAT case was tried in three phases and resulted in a plaintiffs' judgment totaling more than $6 million. ZF Solutions was found to be jointly liable for each of the fraudulent conveyances made to the shareholder defendants, although the individual defendants were only liable for the conveyances made to each of them. Ropers was retained to pursue an appeal.
In July 2012, the TAT judgment was affirmed in an unpublished decision by the Sixth Appellate District, TAT Capital Partners, Ltd. v. Feldman (July 2, 2012) H035968, 2012 Cal. App. Unpub. LEXIS 4932, rehg. denied July 19, 2012, review denied Oct. 1, 2012.
B. The Malpractice Complaints in the Present Action
The Ireland plaintiffs filed their complaint in this case on September 21, 2012. The complaint was signed by Robert Machado from the law office of Machado & Machado. Pursuant to a second amended complaint, plaintiffs alleged causes of action for legal malpractice against Gordon and Ropers; breach of fiduciary duty against Gordon and Illinois Union; breach of contract and insurance bad faith against Illinois Union; and fraud against all defendants (Ireland Action).
The ZF/Feldman plaintiffs filed their case on September 28, 2012. Again, the complaint was signed by Robert Machado. Plaintiffs alleged causes of action for legal malpractice against Gordon and Ropers; and fraudulent breach of fiduciary duty against Gordon and Illinois Union. However, Illinois Union was subsequently dismissed from the ZF/Feldman case (ZF/Feldman Action).
On July 30, 2014, the trial court granted Illinois Union's motion for judgment on the pleadings in ZF/Feldman. Appellants' September 10, 2015 notice of appeal purported to appeal from the July 2014 judgment. But ZF Solutions and Feldman subsequently filed motions to dismiss their appeal as to respondent Illinois Union. We granted those motions on March 25, 2016.
C. Defense Efforts to Obtain Discovery
The three sets of defendants separately pursued discovery from each set of plaintiffs. Ropers were the first defendants to request discovery. In June 2013, Ropers served Machado with interrogatories, requests for admissions, and document requests in each malpractice case.
On September 3, 2013, Ropers filed a motion in the ZF/Feldman Action to compel discovery responses and for sanctions. A hearing on the motion was set for October 2. On September 19, plaintiffs filed a declaration of counsel in support of their opposition to the motion. Machado stated that he had never been served with discovery requests from Ropers, and when he learned that Ropers claimed otherwise, he was very surprised because he thought that discovery in both cases was stayed while Gordon pursued an anti-SLAPP motion in the Ireland Action. According to Machado, the parties had agreed to consolidate the two cases but were still working out the stipulation. Machado also stated that, regardless of whether Ropers's voluminous requests were proper, he was in the process of responding to them, although his efforts were "hampered" by two circumstances: the law firm defendants refused to provide electronic copies of their client files in the underlying shareholder action; and Machado was very busy working on a cross-complaint in the underlying action that had not been resolved during the TAT trial. On September 25, plaintiffs filed another declaration of Robert Machado, which was signed and dated the previous day. In that declaration, Machado stated: "Today I served by mail and email the response to the discovery that is the subject of this motion."
On October 2, 2013, the trial court granted Ropers's motion to compel plaintiffs to produce documents within 15 days, but it denied as moot the motion to compel answers to the discovery that plaintiffs had responded to on September 24.
In November 2013, Ropers filed two additional motions to compel discovery in the ZF/Feldman Action, one directed at plaintiffs' failure to produce documents as required by the October 2 order, and the other to compel further responses to discovery plaintiffs had answered on September 24. Again, plaintiffs' opposition took the form of a declaration from counsel. In his December 4 declaration, Machado repeated that he was never properly served with Ropers's discovery, but had made a good faith attempt to respond anyway. Machado also intimated that defendants were exploiting the fact that he was a sole practitioner handling two malpractice cases while simultaneously acting as "second chair" at the trial of a cross-complaint in the underlying shareholder action.
At a December 9, 2013 hearing, Machado appeared by telephone to oppose the two motions to compel, arguing that he had offered to make documents available and had adequately answered all discovery. The trial court granted Ropers's motion to compel compliance with the October 2, 2013 order, giving specific direction as to time and place. As to the second motion, the court compelled further responses to some discovery, ordered the parties to meet and confer as to other requests, and imposed monetary sanctions against plaintiffs and their attorney jointly and severally. For some reason, formal orders were not signed and filed until January 31, 2014.
Meanwhile, on December 6, 2013, Ropers filed a motion to compel the Ireland plaintiffs to respond to the discovery served on them the previous June. The day before a December 31 hearing on that motion, the Ireland plaintiffs filed an opposition and served and lodged unsigned, unverified discovery responses. At the December 31 hearing, Machado appeared by telephone. The court ordered plaintiffs to provide verified discovery responses and to produce documents, and also ordered the parties to meet and confer. On February 7, 2014, the court requested declarations from counsel regarding the status of discovery and compliance with directives the court made at the December 31 hearing. Ropers filed the requested declaration but plaintiffs did not. In a February 18 order, the court granted Ropers's motion to compel further discovery, which was specific about when responses and documents were due. Ropers's request for sanctions was denied without prejudice to its filing a formal motion.
Ropers's experiences attempting to obtain discovery were similar to the experiences of the other two groups of defendants. On September 13, 2013, Gordon served interrogatories and document requests on the ZF/Feldman plaintiffs. On October 24, Gordon served similar requests on the Ireland plaintiffs. Receiving no response, Gordon filed motions to compel in both cases. On February 18, 2014, Gordon's unopposed motions to compel were granted; plaintiffs were ordered to respond to the discovery, and to pay monetary sanctions. Meanwhile, on November 18, 2013, Illinois Union served the Ireland plaintiffs with interrogatories and requests for production of documents. Plaintiffs did not respond, necessitating a motion to compel, which Illinois Union filed the following January. On February 18, 2014, the court ordered plaintiffs to respond to the interrogatories and to produce documents by February 28, 2014, and to pay Illinois Union monetary sanctions.
Because Illinois Union was dismissed from the ZF/Feldman case, we limit our discussion of discovery requests from this respondent in the Ireland Action.
On February 26, 2014, the superior court consolidated the Ireland Action and the ZF/Feldman Action, and designated the Ireland Action as the lead case. After the cases were consolidated, some parties continued to file separate motions and papers in each case, while others began to treat the cases as a single action.
D. The Evidentiary Sanction Orders
1. Ropers
On March 13, 2014, Ropers filed two motions for evidentiary sanctions against the ZF/Feldman plaintiffs, one for failing to comply with the January 31 order compelling further discovery responses, and the other for failing to comply with the October 3 and January 31 orders to produce documents. On April 7, a hearing on the motions was held before the Honorable Jeffrey Windsor, Judge Pro Tem. At the conclusion of that hearing, the court signed and filed two orders (the April 7 orders) directing plaintiffs to comply with the prior discovery orders and provide the court with documentation of such compliance within 10 days. The April 7 orders stated that if plaintiffs failed to comply with these orders, they would be precluded from offering evidence at trial with respect to specified claims and contentions against Ropers.
In a declaration filed on April 18, 2014, Machado stated that plaintiffs intended to file a motion to set aside the April 7 orders in their entirety. Machado also repeated his claims that plaintiffs had never violated any discovery order and had produced all discovery. Finally, Machado stated that monetary sanctions had not been paid because plaintiffs were confident the April 7 orders would be set aside.
Meanwhile, on March 26, 2014, Ropers filed a motion for evidentiary sanctions against the Ireland plaintiffs. In their opposition brief, plaintiffs argued that they had complied with all prior discovery, had never violated a discovery order, and that Ropers's conduct was reprehensible. In an April 8, 2014, declaration, Machado apologized to the court for "all of the confusion surrounding the propounding of discovery." Machado explained that the Ireland plaintiffs believed further responses were not due from them until Ropers produced an electronic copy of the client file from the underling action, and he also claimed that Ropers was complaining about discovery violations that never occurred. However, Machado also unequivocally stated that any discovery failure rested squarely on his shoulders and that plaintiffs were completely blameless. Finally, Machado documented his efforts to respond to what he characterized as an improper coordinated effort by the defendants to overwhelm him with discovery demands.
On April 18, 2014, a hearing on Ropers's motion to impose evidentiary sanctions on the Ireland plaintiffs was held before the Honorable Steven Stein, Judge Pro Tem. Machado, who appeared by telephone, acknowledged that the Ireland discovery responses still had not been verified, claiming that "[t]hey've been obtained, but they haven't been sent." Judge Stein inquired about the status of Ropers's motion for evidentiary sanctions against the ZF/Feldman plaintiffs, which had been presented to Judge Windsor. Ropers's counsel informed the court that plaintiffs had failed to comply with the April 7 orders and, under self-executing terms of those orders, evidence sanctions had issued in the ZF/Feldman Action. Machado responded that the April 7 orders were improper, documents had been produced in that case, and the defendants were "gang[ing] up" on the plaintiffs. The court heard extensive argument about discovery issues that plagued the entire case, but focused on the February 18, 2014 discovery order directed at the Ireland plaintiffs. Ultimately, the court concluded that plaintiffs had failed to comply with that order and granted the motion for evidentiary sanctions with respect to the Ireland plaintiffs' claims against Ropers. The court's rulings were formalized in a written order that was signed on May 19 and filed on May 27, 2014.
2. Gordon
On March 5, 2014, Gordon filed a motion to impose terminating or evidentiary sanctions on both sets of plaintiffs for violating the discovery orders that were imposed separately on them in February 2014. This motion was also presented to Judge Stein. The plaintiffs did not file any opposition. Therefore, the tentative ruling issued in advance of an April 2 hearing was to grant Gordon's motion as unopposed. However, at the hearing the court agreed to consider plaintiffs' application to file late opposition and continued the matter for additional briefing.
On April 14, 2014, plaintiffs filed a formal opposition to the Gordon motion, along with a declaration from Machado. Plaintiffs argued that while any failure to respond to discovery was solely the fault of their attorney, Gordon's motion should be denied because it was both premature and part of a larger effort by all defendants to avoid liability rather than get answers to discovery. Plaintiffs also promised they would "lodge the discovery responses prior to the hearing of April 24, 2014."
In his April 14 declaration, Machado stated that the failure to file timely responses to the Gordon discovery was "mine and mine alone," that his clients had been "completely cooperative," and that the discovery failures "were the result of my surprise, inadvertence, mistake and neglect." Machado complained again that defendants exploited the fact that he was busy working on the trial of the cross-complaint in the underlying shareholder action by bombarding him with essentially pointless discovery requests.
At the beginning of the April 24 hearing, Judge Stein made a record of the fact that plaintiffs did not serve or lodge discovery responses as they had promised. Nevertheless, he granted plaintiffs' request to consider their late filed opposition. After hearing extensive argument, the court granted Gordon's motion to impose evidentiary sanctions, finding a clear record that plaintiffs had simply not complied with the February 18 discovery orders. The court memorialized its rulings in a written order that was filed on May 27, 2014.
3. Illinois Union
On April 8, 2014, Illinois Union filed a motion for issue and monetary sanctions on the ground that the Ireland plaintiffs had failed to comply with the February 28, 2014 order compelling them to respond to Illinois Union's discovery requests. The motion was unopposed and plaintiffs did not appear at a May 2 hearing on the motion, which was held before the Honorable James Watson, Judge Pro Tem. At the hearing, the court signed an order granting Illinois Union's unopposed motion to impose issue and monetary sanctions on the Ireland plaintiffs.
E. Summary Judgment Rulings
On June 30, 2014, plaintiffs filed a substitution of attorney, substituting Jeffrey Berger for Robert Machado as their counsel of record in the consolidated action.
On July 25, 2014, Gordon filed a motion for summary judgment. On August 6, 2014, Illinois Union filed a motion for summary judgment against the Ireland plaintiffs. On August 26, 2014, Ropers filed separate motions for summary judgment against each set of plaintiffs. All of the summary judgment motions were predicated on the evidentiary sanctions orders. Plaintiffs did not file any opposition, but they did file a November 2, 2014 motion for relief from the discovery sanction orders. That motion was based on two distinct and arguably inconsistent claims.
First, plaintiffs argued that they were entitled to relief under Code of Civil Procedure section 473, subdivision (b) (section 473(b)) because the orders resulted from Machado's "mistake, inadvertence, and neglect." According to this part of the plaintiffs' motion, Machado was overwhelmed by the complexity of the litigation and unable to handle the cases as a sole practitioner. In support for this claim, plaintiffs highlighted the following facts: (1) the consolidated action was very complex, involving multiple law firms and voluminous files; (2) despite many inhibiting circumstances, Machado made a good faith and substantial effort to comply with discovery requests; (3) defendants bombarded Machado with discovery, knowing he was a sole practitioner and involved in the trial of the cross-complaint in the underlying shareholder action; and (4) Machado's contract paralegal, who worked out of her home, had been unavailable during several key weeks in February and March 2014 due to illness.
Plaintiffs argued that relief from the sanction orders was mandated by section 473(b) because on October 31, 2014, Machado executed a declaration admitting his fault. In that declaration, Machado stated that plaintiffs were "completely blameless" with respect to the evidentiary sanction discovery orders, and that "responsibility" for failing to comply with discovery obligations rested "squarely on [his] shoulders." Machado incorporated by reference four prior declarations that he filed in opposition to the sanction motions, and repeated many of the complaints, explanations and excuses previously offered for violating the discovery orders. Ultimately though, Machado acknowledged that he unintentionally failed to protect his clients, explaining: "It was just a culmination of the size and breadth of the discovery requested, the absence of the documents for a significant period of time, my limited resources and other pending matters and my admitted and unfettered failure to file timely responses, oppositions to the motions or otherwise seek appropriate relief."
The second part of plaintiffs' motion for relief from the evidentiary sanction orders was based on allegations that they were victims of extrinsic fraud. According to this theory, the sanction orders did not result from Machado's neglect but rather from the misconduct of a disbarred attorney named Michael Morrissey who allegedly impersonated Machado during the discovery proceedings. To support this fraud claim, plaintiffs relied on a November 2014 declaration from plaintiff David Feldman.
Feldman's declaration described Morrissey as an attorney who was not eligible to practice law as of March 24, 2012, and who was disbarred as of June 14, 2013. Feldman did not divulge when or how he knew these facts. According to Feldman's narrative, before these malpractice cases were filed, Morrissey represented co-plaintiff Terrance Ireland "in other matters." Ireland suggested that Morrissey was knowledgeable and might be an appropriate attorney to represent all the plaintiffs in the malpractice cases and in "other actions." Morrissey told Feldman and Ireland "that he expected to be reinstated to practice and that a friend of his, Mr. Machado, would take over representation of all matters until he was reinstated." Machado and Morrissey both confirmed that Morrissey would "be assisting" Machado in "drafting pleadings/papers." Therefore, Feldman understood that he would have direct communications with Morrissey, but that drafts of pleadings he received from Morrissey would be subsequently "reviewed, signed and submitted by Mr. Machado." Feldman and Ireland "agreed and assumed" that until Morrissey was reinstated Machado would act as their counsel in the malpractice cases and other matters.
Feldman stated that he did not learn about the evidentiary sanction orders until late May 2014, when he logged onto the superior court Web site to see what future hearing dates had been scheduled. He was "surprised and dismayed" because he and the other plaintiffs always gave "timely" answers to questions about the case. Feldman tried but failed to reach Machado, so he contacted Morrissey and asked what had happened. In Feldman's words, "I was shocked when Mr. Morrissey told me that he had appeared at most of the San Francisco County Superior Court hearings via Court Call." (Boldface, italics, and underline omitted.) Feldman asked Morrissey how he could have appeared via Court Call after he was disbarred, and also asked if plaintiffs were "at risk in any way" for what Morrissey had done. Morrissey's assurance that "there was no problem" did not alleviate Feldman's concerns. So Feldman "decided to immediately end our representation by Mr. Machado and any association with Mr. Morrissey."
Feldman stated that after he decided to replace Machado, he contacted Jeffrey Berger, an attorney who represented him and ZF Solutions at a jury trial of the cross-complaint in the underlying shareholder action. When Berger was substituted in as plaintiffs' counsel, Feldman noticed that Machado's signature on the substitution of attorney form looked "very different" from Machado's signatures on many other documents that had been filed in this action. Feldman became concerned that Morrissey had not only impersonated Machado on Court Call, but had also prepared all the papers and represented the plaintiffs "without any real involvement by Mr. Machado." However, Feldman did not tell Berger about what Morrissey had done until October 15, 2014, because he was concerned about "imputed complicity that might be attached" to him and the other plaintiffs.
Finally, Feldman emphasized that he, "and by extension, the other Plaintiffs," were not aware of the fraud that was committed upon them and the court, and were completely unaware of the lack of discovery compliance in this case.
On December 23, 2014, a hearing on plaintiffs' motion for relief from the evidentiary sanction orders was held before the Honorable James McBride. At the conclusion of that hearing, the court denied plaintiffs' motion, finding that (1) the mandatory relief provision of section 473(b) did not apply because a discovery sanction order was not a default, default judgment or dismissal within the meaning of that provision of the statute; and (2) there was "insufficient evidence of extrinsic fraud in this case based on the record provided to [the court]."
When the court denied plaintiffs' motion for relief from the sanction orders, it granted them additional time to respond to the pending summary judgment motions. No responses were filed. Accordingly, Ropers's summary judgment motions were granted on February 23, 2015. Gordon and Illinois Union were granted summary judgment on March 20, 2015.
F. Feldman's Motion for Reconsideration
On March 9, 2015, Feldman filed an in pro. per. motion for reconsideration of the order denying plaintiffs' motion for relief from the discovery sanction orders. Feldman argued that he was entitled to reconsideration under Code of Civil Procedure section 1008 because new or different facts had come to light. Feldman also argued these new facts proved that plaintiffs were the victims of extrinsic fraud.
In support of his motion, Feldman submitted a March 2015 declaration from Machado. Machado reiterated that he was counsel of record in the malpractice cases until he was substituted out in July 2014; that he was solely responsible for the discovery violations that resulted in the sanction orders; and that all of the plaintiffs were completely blameless. However, Machado also added some additional facts to his declaration, including the following: (1) 13 documents that were filed in this case under Machado's signature were never signed by him; (2) Machado suspected the documents had been signed either by Morrissey or by Morrissey's wife, Tracey McCarroll, "claiming" to be Machado's paralegal; and (3) Machado was previously asked to investigate activities of Morrissey and McCarroll, but declined to do so out of fear he would be sued for malpractice.
In his March 2015 declaration, Machado also stated that he had never appeared in this action via Court Call. Nor did he ever agree that an attorney from Ropers named Melissa Dubbs could communicate directly with plaintiff David Feldman. Finally, Machado made the following statements about his relationship with Morrissey and McCarroll: "Michael T. Morrissey is not now nor has he ever been an employee of my firm and has never had my permission to sign my name to any document or make appearances via Court Call using my name. [ ] Tracey McCarroll is not now nor has she ever been an employee of my firm."
As additional support for his motion for reconsideration, Feldman filed another declaration that he executed in March 2015. Feldman repeated the narrative in his November 2014 declaration, providing additional details including the following: (1) All counsel insisted that Feldman serve as the "sole contact point between all the other plaintiffs and counsel"; (2) Most of the plaintiffs meet the definition of an elder under the Welfare and Institutions Code; (3) After Jeffrey Berger was substituted in as plaintiffs' counsel, Morrissey and McCarroll refused to turn over plaintiffs' case files which meant that plaintiffs had to reconstruct all of their discovery responses; and (4) After the court denied plaintiffs' motion for relief from the sanction orders, Machado "advised" the plaintiffs that he "had no knowledge of what Morrissey had been doing" in this case.
At a May 20, 2015 hearing before Judge McBride, Feldman appeared "pro se." Attorney Jeffrey Berger identified himself as counsel for the plaintiffs "except for Mr. Feldman," and stated that he "just joined" Feldman's motion. Feldman argued first, presenting a convoluted story about how he mistakenly believed that Machado was acting as plaintiffs' counsel in these cases. Apparently, Feldman hired Morrissey to represent him in another malpractice case in San Jose that arose out of the same shareholder litigation that gave rise to these cases. After Morrissey filed some initial papers in the San Jose case, he was suspended from practicing law. When Feldman said they needed another lawyer, Morrissey brought in Machado. Machado was amenable but busy, so it was agreed that Morrissey would do the "drafting" and Machado would supervise and appear in court. When these cases were subsequently filed, Feldman agreed to continue the arrangement. However, after the evidentiary sanction orders were entered, Feldman and the other plaintiffs learned that they had been defrauded because Machado was never really their lawyer and Morrissey was not a lawyer at all, which meant they had not been represented by anyone.
After Feldman completed his argument, the court heard from other counsel, including Mr. Berger, although the court noted that plaintiffs had not filed a timely notice of joinder in the motion. At the end of the hearing, the court denied Feldman's motion on the merits. The court stated that it was not required to make findings, but noted for the record that new facts had not been presented, and, to the extent Machado's declaration could be construed as new information, Feldman failed to demonstrate that he had been diligent in his efforts to garner this information prior to the original hearing on the motion for relief from the sanction orders.
III. DISCUSSION
Courts have inherent equitable powers to vacate or set aside judgements or orders entered because of extrinsic fraud or mistake. (Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 737 (Aldrich).) Orders exercising these equitable powers are reviewed for abuse of discretion. (Id. at pp. 736-737.)
Appellants contend that the trial court abused its discretion by refusing to set aside the judgments on the ground of extrinsic fraud. As respondents point out, appellants did not move to set aside the judgments on any ground. However, plaintiffs did assert extrinsic fraud as one basis for their motion to set aside the evidentiary sanction orders, and Feldman moved for reconsideration of the order denying plaintiffs relief on that ground. Thus, the denial of this equitable relief may be challenged on appeal from the resulting judgments. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980; see, e.g., Huh v. Wang (2007) 158 Cal.App.4th 1406, 1413-1414 (Huh).) Indeed, respondents do not contend otherwise.
It is important to clarify at the outset that appellants no longer contend they were entitled to relief under section 473(b). Under that statute, a trial court has discretion to "relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect." (§ 473(b).) And, when a timely application for relief is accompanied by an attorney's sworn declaration attesting to his or her "mistake, inadvertence, surprise, or excusable neglect," then the court must vacate a default, default judgment, or dismissal, unless it finds that the default or dismissal was not caused by the attorney's mistake, inadvertence, surprise or neglect. (Ibid.)
Here, appellants never attempted to invoke the discretionary relief provision of section 473(b), and for good reason: that relief is only available in cases of excusable error. " 'A party who seeks relief under section 473 on the basis of mistake or inadvertence of counsel must demonstrate that such mistake, inadvertence, or general neglect was excusable because the negligence of the attorney is imputed to his client and may not be offered by the latter as a basis for relief.' [Citation.]" (Zamora v. Clayborn Contracting Group, Inc. (2002) 28 Cal.4th 249, 258.) In other words, attorney conduct that falls below the professional standard of care is not excusable. "To hold otherwise would be to eliminate the express statutory requirement of excusability and effectively eviscerate the concept of attorney malpractice.' [Citation.]" (Ibid.; see also Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1112.)
In the trial court, appellants produced extensive evidence that Machado was responsible for the discovery sanctions, but they did not attempt to excuse his mistakes. Instead, they attempted to invoke the mandatory relief provision of section 473(b) based on Machado's declaration of fault. The trial court found that mandatory relief afforded by section 473(b) is limited to a "default, default judgment or dismissal," and thus does not extend to an evidentiary sanction order. Because appellants do not challenge this ruling on appeal, we need not address the pertinent law. (See, e.g., Huh, supra, 158 Cal.App.4th at pp. 1416-1417.) The fact remains, however, that the trial court was presented with evidence that Machado was solely responsible for the evidentiary sanction orders. Machado was counsel of record for both sets of plaintiffs and his half a dozen sworn declarations are strong evidence that he is solely responsible for the discovery violations. This evidence of Machado's fault is inconsistent with appellants' theory that the judgments are the result of extrinsic fraud.
Extrinsic fraud is defined as "the circumstance in which 'the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent.' [Citation.]" (Capron v. State (1966) 247 Cal.App.2d 212, 223-224.) "The vital question is 'whether the successful party has by inequitable conduct, either direct or insidious in nature, lulled the other party into a state of false security, thus causing the latter to refrain from appearing in court or asserting legal rights.' [Citation.]" (Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 291.) In the present case, the trial court was not presented with evidence that respondents engaged in any conduct that prevented appellants from presenting their case. To the extent appellants were stymied, the evidence identifies Machado as the source of the problem. Thus, evidence of Machado's negligent handling of the malpractice cases supports the trial court's conclusion that the evidentiary sanction orders were not the product of extrinsic fraud.
In this court, appellants ignore the role that Machado played in this case, and ask us to focus exclusively on Morrissey's "positive misconduct," which they characterize as extrinsic fraud. Obviously though, Machado's conduct is crucially relevant. Equally important, appellants ignore evidence Feldman provided in his declarations and at the hearing on his motion for reconsideration, which establishes that plaintiffs, Machado and Morrissey all participated in and agreed to an arrangement pursuant to which Morrissey performed attorney tasks that Machado was too busy to handle. Machado's failure to supervise Morrissey properly was not extrinsic fraud.
Appellants contend that Morrissey committed fraud by impersonating Machado and forging his signatures. First, the only evidence that Morrissey impersonated Machado was Feldman's hearsay. Second, Feldman suspected that Morrissey was a forger, but there was no evidence of that. Third, in any event, Morrissey's alleged fraud was not extrinsic because (1) his alleged appearances at hearings did not prevent plaintiffs from participating in the discovery proceedings; and (2) he was not affiliated with the defendants, but was hired by plaintiffs to represent them behind the scenes in these cases.
We agree with the trial court's observation at the May 2015 hearing that Machado's final declaration, which was indisputably signed by him, was carefully worded to skirt many relevant issues. For example, Machado stated that he did not authorize Morrissey to sign his name on documents, but he did not make that same representation with respect to McCarroll.
Appellants rely heavily on Carroll v. Abbott Laboratories, Inc. (1982) 32 Cal.3d 892, 900 (Carroll), a case that reinforces our conclusions. That personal injury action was dismissed as a sanction for discovery violations. However, the trial court subsequently granted the plaintiff relief from the dismissal pursuant to the discretionary relief provision of section 473(b). The Supreme Court held that the trial court erred by vacating the dismissal because plaintiff had failed to show that his attorney's conduct was excusable. As the court explained, "[i]n general, a party who seeks relief under section 473 on the basis of mistake or inadvertence of counsel must demonstrate that such mistake, inadvertence, or general neglect was excusable 'because the negligence of the attorney . . . is imputed to his client and may not be offered by the latter as a basis for relief.' [Citation.] The client's redress for inexcusable neglect by counsel is, of course, an action for malpractice. [Citations.]" (Id. at p. 898.)
In reaching its decision, the Carroll court refused to apply an exception to the rule that the negligence of an attorney is imputed to his client. (Carroll, supra, 32 Cal.3d at pp. 898-899.) The so-called "positive misconduct" exception was developed in case law to address situations in which a client was " 'effectually and unknowingly deprived of representation.' [Citation.]" (Id. at p. 899.) The Carroll court found that this exception is properly applied in cases involving "a total failure on the part of counsel to represent the client" because when the attorney's conduct is tantamount to a de facto abandonment "it would [be] unconscionable to apply the general rule charging the client with the attorney's neglect." (Id. at p. 900.) However, the court cautioned that the exception "should be narrowly applied, lest negligent attorneys find that the simplest way to gain the twin goals of rescuing clients from defaults and themselves from malpractice liability, is to rise to ever greater heights of incompetence and professional irresponsibility, while, nonetheless, maintaining a beatific attorney-client relationship." (Ibid.) Ultimately, the Carroll court held that the positive misconduct exception did not apply to the case at bar because, although the plaintiff's attorney grossly mishandled a routine discovery matter, he did not abandon his client. (Ibid.)
Appellants ignore the fact that Carroll reinforces our conclusion that appellants' redress for Machado's allegedly inexcusable neglect is an action for malpractice against him. Instead, they attempt to invoke the positive misconduct exception to the imputation rule, which the Carroll court tacitly approved but declined to apply. If appellants had invoked this exception in the trial court (something we do not find), we would reach the same conclusion that was reached in Carroll. There is evidence that Machado grossly mishandled routine discovery matters, but the record does not establish that he abandoned his clients. Appellants attempt to evade this conclusion by focusing exclusively on Morrissey. They argue that Morrissey engaged in positive misconduct in the form of active deceit, which was "clearly intentional and amounted to 'abandonment' of Appellants." The most obvious problem with this argument is that Morrissey was not appellants' attorney in this case. Machado was appellants' attorney of record, and evidence before the trial court supports the conclusion that Machado did not abandon his clients.
In their reply brief, appellants contend there can no longer be any dispute that both Machado and Morrissey were guilty of positive misconduct amounting to abandonment because the Santa Clara District Attorney has "weighed in" by filing a complaint formally charging them with conspiracy to engage in the unauthorized practice of law. Appellants request that we take judicial notice of that complaint as substantive proof that they have been defrauded. We deny that request. Unproven allegations in a criminal complaint that was filed after the judgments were entered in this case are irrelevant to the question whether the trial court abused its discretion by denying appellants equitable relief from the evidentiary sanction orders.
Furthermore, even when an attorney's neglect is so extreme that it amounts to positive misconduct/abandonment, the person seeking relief must be " ' "relatively free from negligence." ' [Citation.]" (Seacall Development, Ltd. v. Santa Monica Rent Control Bd. (1999) 73 Cal.App.4th 201, 205.) In this case, appellants were not relatively free from negligence. They retained Morrissey knowing that he was suspended from practicing law, and they continued to employ him even after he was disbarred. They used Machado as their counsel of record precisely because Morrissey could not play that role. And they never informed the court or the defendants of this arrangement until after the evidentiary sanction orders were entered against them.
Appellants insist that when a disbarred attorney purports to represent a party the way Morrissey allegedly did here, that party is the victim of extrinsic fraud and entitled to equitable relief. As support for this argument, appellants rely primarily on Lovato v. Santa Fe Internat. Corp. (1984) 151 Cal.App.3d 549 (Lovato). In that case, the defendant retained attorney Black, who successfully demurred to several of plaintiff's claims before filing an answer and commencing discovery. However, around six months into the litigation, Black was suspended from practicing law and ordered to inform his clients of the suspension. Black did not inform defendant of his suspension, but after defendant heard the news from a third party, it fired Black and replaced him with new counsel. However, because of a "mistake," a substitution of attorney was never "accomplished." (Id. at p. 552.) Thereafter, unbeknownst to defendant, Black purported to continue representing it. Plaintiff, "apparently" unaware of the suspension, served discovery on Black, who obtained several extensions, explaining that plaintiff's request might need to be reviewed by " 'new counsel.' " (Ibid.) In the end, the discovery was never answered. Defendant's answer was stricken as a sanction for the discovery violation and plaintiff obtained a default judgment. (Id. at pp. 552-553.)
On appeal, a divided court reversed the Lovato judgment. (Lovato, supra, 151 Cal.App.3d at p. 554.) The majority found the judgment was void under the due process clause because the defendant never received actual or constructive notice of the discovery requests and orders that were all served on its former counsel. In addition, the court found that even if the judgment was not void for lack of notice, relief from default should have been granted because "Black's positive misconduct constituted extrinsic fraud." (Ibid.) As support for this conclusion, the court found that Black "fraudulently and without authority" purported to represent the defendant after he was suspended by the bar and fired by the defendant; that Black accepted interrogatories from plaintiff on defendant's behalf with assurances they would be answered; and that Black never told defendant about the interrogatories. (Id. at p. 555.) Furthermore, Black continued to "sa[y] nothing" to either plaintiff or defendant while the discovery problem developed into a sanction. "As a result," the court found, defendant was "deprived of any opportunity to present its case in court." (Ibid.)
The Lovato majority rejected the contention that the default judgment resulted from the defendant's neglect rather than Black's misconduct. After weighing the relative degrees of fault, the court concluded that defendant was " 'relatively free from personal neglect.' [Citation.]" (Lovato, supra, 151 Cal.App.3d at p. 555.) The court acknowledged that the defendant failed to monitor the case after it fired Black. But it also observed that the plaintiff "failed to investigate [the defendant's] sudden loss of interest," even though it had been informed by Black that there might be " 'new counsel' " for the defense, and it "certainly" should have suspected something was wrong. Furthermore, and crucially, the court found that if not for Black's "active deceit," the true facts would have been discovered prior to entry of default. (Ibid.)
The present case is materially different from Lovato. Appellants hired Morrissey to work on their cases knowing he had been suspended by the bar, and then retained Machado because he was associated with Morrissey. Appellants also knew that Morrissey would play an active role in the case because Machado was so busy, and they continued to allow him to play that crucial role even after he was disbarred. Under these circumstances, if Morrissey impersonated Machado during court appearances, that conduct was not extrinsic fraud with respect to these plaintiffs because they knew that Morrissey was actively representing them. Furthermore, and equally crucial, there is no causal link between Morrissey's alleged appearances at court hearings and the sanction orders; appellants were not sanctioned because of those appearances, whoever made them. Thus, appellants have failed to establish that Morrissey's alleged fraud precluded them from presenting their case.
Appellants argue they are entitled to relief under the reasoning of Lovato because comparing their conduct to Morrissey's demonstrates that they were relatively free from negligence. We reiterate that the evidence is thin with regard to Morrissey's actual conduct during the discovery proceedings. Furthermore, we are not persuaded by appellants' superficial claim that they are blameless, which is based on an assumption that they are vulnerable because they are "elderly." Appellants continue to ignore undisputed evidence that they hired Morrissey to perform substantive legal work on this case knowing he had been suspended; that they retained Machado as their formal counsel primarily because he was associated with Morrissey; and that they continued to employ Morrissey knowing that he had been disbarred. These facts support the finding that appellants were not relatively free from negligence.
Appellants also rely on Lovato, supra, 151 Cal.App.3d at pages 555-556, for the proposition that respondents should not be rewarded for taking advantage of Morrissey's misconduct. But there is no evidence that respondents were aware of the unorthodox situation that appellants created. Nor is there any evidence that respondents had reason to suspect that Morrissey had gone "rogue" while Machado's back was turned, if indeed that is what actually happened.
Appellants repeatedly contend they were unaware of Morrissey's "misconduct" and of the discovery problems and sanction orders prior to May 2014, when Feldman checked the court website for himself. Regardless, appellants actively participated in creating the situation that allowed these events to unfold by retaining an unlicensed person to represent them and then hiring a licensed attorney whose primary function was to make it possible to keep the arrangement a secret. This fact alone distinguishes cases like Lovato, which involved litigants who did not knowingly employ an unlicensed legal representative. (See also Aldrich, supra, 170 Cal.App.3d at p. 732 [unbeknownst to plaintiff, after counsel filed an amended complaint, he was suspended from practicing law and essentially disappeared from the case]; Russell v. Dopp (1995) 36 Cal.App.4th 765, 777 [the representation of a client by an unlicensed person is a "fraud on unknowing clients" (italics added)].)
This appeal rests on the contention that "Appellants have been denied any opportunity to adjudicate their claims, through no fault of their own." Failing to substantiate this contention, appellants have not demonstrated that the trial court abused its discretion by denying their request for equitable relief.
IV. DISPOSITION
The judgments are affirmed. Respondents are awarded costs of appeal.
/s/_________
RUVOLO, P. J. We concur: /s/_________
REARDON, J. /s/_________
STREETER, J.