Opinion
E068549
08-15-2018
RICKY E. LUGINBILL, Plaintiff and Respondent, v. VINCENT P. SALVA, Defendant and Appellant.
The Law Office of Jeff Grotke and Jeff Grotke for Defendant and Appellant. Law Offices of Roger S. Senders and Roger S. Senders for Plaintiff and Respondent.
ORDER MODIFYING OPINION
[NO CHANGE IN JUDGMENT]
The opinion filed in this matter on August 15, 2018, is modified as follows:
The first sentence of the last paragraph on page 7 of the opinion reading, "The fact that Luginbill was acting in his corporate capacity does not immunize him from personal liability" shall be deleted. It shall be replaced with the following sentence:
The fact that Salva was acting in his corporate capacity does not immunize him from personal liability.
Except for this modification, the opinion remains unchanged. This modification does not affect a change in the judgment.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
FIELDS
J. We concur: McKINSTER
Acting P. J. MILLER
J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. CIVDS1402063) OPINION APPEAL from the Superior Court of San Bernardino County. Donna G. Garza, Judge. Affirmed as modified. The Law Office of Jeff Grotke and Jeff Grotke for Defendant and Appellant. Law Offices of Roger S. Senders and Roger S. Senders for Plaintiff and Respondent.
I. INTRODUCTION
Plaintiff and respondent, Ricky E. Luginbill, obtained a default judgment against defendant and appellant, Vincent P. Salva, and defendant, United States Semiconductor Corporation (Semiconductor Corp.), for about $84,000. Salva advances several arguments for vacating the default judgment altogether, which we reject. But we agree with him that the court acted in excess of jurisdiction by awarding more than the damages demanded in the complaint (Code Civ. Proc., § 580, subd. (a)), as well as attorney fees, without any contractual or statutory basis. Luginbill does not truly dispute that he obtained an excessive default judgment in these respects and "stipulate[s]" to a reduced judgment. We therefore direct the trial court to enter a reduced judgment and, so modified, we affirm.
II. FACTS AND PROCEDURE
A. The Complaint
Luginbill filed this action in February 2014 against Salva, Semiconductor Corp., and NxGen Electronics, Inc. Luginbill checked the box on the form complaint (Judicial Council form PLD-C-001) indicating the action was a limited civil case demanding between $10,000 and $25,000. Despite this, from the beginning, the trial court classified this action as an unlimited civil case.
The court sustained the demurrer of NxGen Electronics, Inc. with leave to amend. Luginbill never filed an amended complaint and dismissed NxGen Electronics, Inc. from the action.
As to Salva and Semiconductor Corp., the complaint alleges causes of action for breach of contract and fraud. More specifically, it alleges Salva, on behalf of Semiconductor Corp., executed a promissory note promising to pay $11,500 plus interest of 7.5 percent per year to Luginbill. The principal amount and interest were due three months from the execution date. Semiconductor Corp. allegedly failed to pay on the promissory note.
Further, Salva allegedly knew that he and Semiconductor Corp. would not have the funds to repay Luginbill, he intentionally misrepresented their ability to repay, and he entered into the promissory note without any intention of performing under it. Luginbill's complaint seeks $11,500 in damages, interest at the rate of 7.5 percent per year, and attorney fees of $2,500. The complaint does not contain a request for punitive damages. B. The Requests for Entry of Default and Default Judgment
In April 2014, Luginbill filed a request for entry of default as to Salva and Semiconductor Corp. The clerk entered the default of both defendants.
Over a year later, in July 2015, Luginbill filed a request for court judgment against Salva and Semiconductor Corp. The request sought a judgment of $22,221.37, broken down as follows: $11,500 in damages demanded in the complaint; $1,701.37 in interest; $470 in costs; and $8,550 in attorney fees.
The court did not enter the requested judgment, and in January 2016, Luginbill filed an amended request for court judgment. This time, he sought a judgment of $78,733.93, including: $11,500 in damages demanded in the complaint; $50,000 in "special damages"; $2,303.93 in interest; $530 in costs; and $14,400 in attorney fees. According to the request, the $50,000 in special damages were purportedly set forth in a statement of damages. The register of actions reveals Luginbill filed an "amended" statement of damages with his request for default judgment, but the record on appeal does not contain a statement of damages. (Capitalization omitted.)
The court held a default prove-up hearing in January 2016. The record does not contain a reporter's transcript of these proceedings, but according to the minutes in the clerk's transcript, the court did not rule. Instead, it granted Luginbill's request to continue the matter so he could "obtain further evidence regarding [the] punitive damages claim."
In March 2016, Luginbill filed a declaration requesting "punitive damages in an amount deemed appropriate by the Court." The declaration set forth Luginbill's investigation into real properties owned by Salva, either in Salva's own name or as trustee of his father's trust, and Luginbill's valuation of the properties based on public records. Luginbill's counsel also filed a declaration setting forth his investigation into the value of other properties owned by Salva, either in Salva's own name or as trustee of his father's trust.
Shortly after Luginbill filed these declarations, Salva filed a motion to set aside his default or an alternative motion to quash service. Salva argued the court lacked jurisdiction over him because Luginbill never served him, and it lacked jurisdiction over Semiconductor Corp. and the corporation's agents because the corporation never conducted business in California.
The court scheduled the continued default prove-up hearing and the hearing on Salva's motion for the same date. At the hearing, it denied Salva's motion to set aside the default or quash service and entered a default judgment against Salva and Semiconductor Corp. jointly and severally. According to the register of actions, Luginbill filed a supplemental statement of damages on the date of the hearing, but the record on appeal does not contain that document.
The default judgment awarded Luginbill $84,464.64, consisting of: $11,500 in damages; $2,534.64 in interest; $19,900 in attorney fees; $530 in costs; and $50,000 in punitive damages. Salva filed a timely notice of appeal from the default judgment.
III. DISCUSSION
Salva contends we should reverse or vacate the judgment because: (1) the complaint's allegations of fraud are insufficiently specific; (2) the complaint does not plead facts sufficient to hold him personally liable with Semiconductor Corp.; and (3) the judgment was beyond the subject matter jurisdiction of the court, as the court treated this limited civil complaint as an unlimited case. He also contends that, at a minimum, we must reduce the default judgment to the damages sought in the complaint—which would not include punitive damages—and strike the attorney fees altogether because there is no statutory or contractual basis for them.
We reject these first three arguments for reversal but agree the judgment should be reduced to the damages stated in the complaint. The default judgment should exclude punitive damages and attorney fees. So reduced, Luginbill is entitled to a default judgment in the amount of $11,500, plus interest and costs. A. The Fraud Allegations Are Sufficiently Specific
A default judgment "'is said to "confess" the material facts alleged by the plaintiff, i.e., the defendant's failure to answer has the same effect as an express admission of the matters well pleaded in the complaint.'" (Steven M. Garber & Associates v. Eskandarian (2007) 150 Cal.App.4th 813, 823.) But if the well-pleaded allegations do not state a cause of action, the default judgment cannot stand. (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 282.) Thus, on appeal from the default judgment, we may consider a claim that the complaint fails to state a cause of action. (Ibid.)
"The elements of common law fraud are: '(1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.'" (AREI II Cases (2013) 216 Cal.App.4th 1004, 1021-1022.) A plaintiff must plead fraud claims with specificity. (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1008.) This means the plaintiff "'must allege facts showing how, when, where, to whom, and by what means the representations were made.'" (Ibid.)
Read as a whole, the complaint in this case alleges fraud with sufficient specificity. Salva asserts the allegations are insufficient because there are "no facts, dates, names, or any verbiage that specifically describe[s] the alleged fraudulent behavior." This is not accurate. The complaint alleges that, on or about May 3, 2013 (the date of the promissory note): (1) Salva assured Luginbill that the loan to Semiconductor Corp. would be repaid in three months; (2) Salva knew neither he nor Semiconductor Corp. would have the funds to repay Luginbill, and he never intended to perform under the promissory note; (3) Salva also concealed that Semiconductor Corp. was undercapitalized; and (4) Salva misrepresented and concealed these facts while intending to defraud Luginbill and induce him to loan Semiconductor Corp. $11,500. The complaint also alleges that Luginbill justifiably relied on Salva's assurances and was induced to loan the money, and as a result, he was wrongfully deprived of $11,500, plus interest. The complaint sets forth the particulars of Salva's alleged fraudulent behavior "'with sufficient specificity to allow [him] to understand fully the nature of the charge made.'" (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.) There is no failure to state a cause of action for lack of specificity. B. Salva May Be Held Personally Liable
Similarly, the complaint sufficiently pleads grounds for Salva's personal liability. Salva argues he cannot be held personally liable because the complaint pleads that he executed the promissory note on behalf of Semiconductor Corp. And the promissory note, which Luginbill attached to the complaint, shows he signed as "V.P." of the corporation.
The fact that Luginbill was acting in his corporate capacity does not immunize him from personal liability. Corporate directors and officers cannot be held vicariously liable for the corporation's torts in which they did not personally participate. (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 503.) But they are still liable for their own tortious conduct. (Ibid.) That is, individual officers or directors may be jointly liable with the corporation and may be joined as defendants if they personally authorized, directed, "'or in some meaningful sense actively participate[d] in the wrongful conduct.'" (Id. at pp. 503-504.) This is true "regardless of whether they acted on behalf of the corporation and regardless of whether the corporation is also liable." (Id. at p. 504.) "The reason for this rule is that otherwise, a director could inflict injuries upon others and then escape liability behind the shield of his or her representative character, even though the corporation might be insolvent or irresponsible." (Id. at p. 505.)
The complaint plainly alleges that Salva actively and personally participated in fraudulent conduct with respect to the promissory note. His default confessed these material allegations. He could, therefore, be held personally liable for his own tortious conduct.
In his reply brief, Salva mischaracterizes the judgment against him as "piercing the corporate veil" and argues Luginbill did not plead this remedy and thus should not recover against him. This argument is not well taken. The principle that officers and directors are liable for their own tortious conduct "does not depend on the same grounds as 'piercing the corporate veil,' . . . but rather on the officer or director's personal participation or specific authorization of the tortious act." (Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d at p. 504.) Alter ego liability is distinct from the basis for liability here. C. The Treatment of This Case as an Unlimited One Does Not Render the Default Judgment Void
Salva points out that Luginbill served him with a limited civil complaint, yet the court treated this as an unlimited civil case and entered a default judgment beyond the jurisdictional limit of a limited civil case. He contends the judgment "is therefore beyond the subject matter jurisdiction of the court, and must be vacated." On appeal from a default judgment, we may consider questions of jurisdiction. (Steven M. Garber & Associates v. Eskandarian, supra, 150 Cal.App.4th at p. 824.) While a judgment entered by a court lacking subject matter jurisdiction is void (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 196), there was no lack of subject matter jurisdiction here.
"The classification of civil cases as limited or unlimited has its roots in the historic division between municipal and superior courts. [Citation.] Historically, lower civil courts were divided into municipal courts, which had subject matter jurisdiction over cases where the amount in controversy was $25,000 or less, and superior courts, which had subject matter jurisdiction over cases involving more than $25,000." (Stratton v. Beck (2017) 9 Cal.App.5th 483, 491.) "In 1998, an amendment to the California Constitution 'unif[ied]' the two separate systems 'into a single superior court system having original jurisdiction over all matters formerly designated as superior court and municipal court actions.' [Citation.] 'After unification, the municipal courts ceased to exist. [Citation.] Now civil cases formerly within the jurisdiction of . . . municipal courts are classified as "limited" civil cases, while matters formerly within the jurisdiction of the superior court[] are classified as "unlimited" civil action[s].'" (Id. at p. 492; see also Code Civ. Proc., § 85, subd. (a) [the amount in controversy in a limited civil case may not exceed $25,000].)
Even though the classification of cases as either limited or unlimited has significant implications for the procedures and relief available, "[t]he classification of a civil case as limited or unlimited no longer affects the subject matter jurisdiction of the superior court." (Stratton v. Beck, supra, 9 Cal.App.5th at p. 492.) Both types of cases are within the subject matter jurisdiction of the superior court. Accordingly, the court was not fundamentally without subject matter jurisdiction here.
It is true that "if a case is designated as a limited civil case, the court has no authority (i.e., jurisdiction) to award a judgment in excess of $25,000." (Ytuarte v. Superior Court (2005) 129 Cal.App.4th 266, 274-275.) But that is not exactly what occurred in this case. The court awarded more than the $25,000 limit although the complaint called it a limited case, yet the court at all times treated it as an unlimited civil action and so designated it in the register of actions.
The court's treatment of this case as an unlimited one, despite the complaint's demand for only $11,500, has caused some confusion on appeal. After the record was filed and Salva filed his opening brief, we transferred this case to the appellate division of the San Bernardino County Superior Court, believing it to be an appeal from a limited civil case. (Code Civ. Proc., § 904.2.) The appellate division then certified this case for transfer back to this court, believing it "necessary to settle important questions of law" relating to jurisdiction. (Cal. Rules of Court, rule 8.1005 (a)(1) [permitting an appellate division to certify a case for transfer when "necessary to secure uniformity of decision or to settle an important question of law."].) We then issued an order accepting the transfer, noting that "[w]hile it is unclear that this case is truly an unlimited case," we would "assume[] jurisdiction" of it. (Capitalization omitted.)
Still, to the extent Salva is arguing that Luginbill served him with a limited civil complaint, and he had no notice that he could be liable for more than the $25,000 limit, we agree that was problematic. We address this notice issue in the next part. D. Luginbill Is Not Entitled to Punitive Damages and Attorney Fees
Due process requires that a plaintiff provide a defendant with sufficient notice of the relief the plaintiff seeks prior to entry of the defendant's default. (Behm v. Clear View Technologies (2015) 241 Cal.App.4th 1, 8.) "The logic underlying this principle is simple: a defendant who has been served with a lawsuit has the right, in view of the relief which the complainant is seeking from him, to decide not to appear and defend." (In re Marriage of Lippel (1990) 51 Cal.3d 1160, 1166.) But the defendant is in no position to make such a decision if he or she has not received full notice. (Ibid.)
To effectuate this due process principle, the amount demanded in the complaint generally sets a ceiling on the damages that the court may award in a default judgment. (Code Civ. Proc., §§ 580, subd. (a), 585, subd. (b); Greenup v. Rodman (1986) 42 Cal.3d 822, 824.) Punitive damages are one exception to this rule. This is because the complaint may claim punitive damages but should not state the specific amount demanded. (Civ. Code, § 3295, subd. (e); Wiley v. Rhodes (1990) 223 Cal.App.3d 1470, 1472.) Instead, the plaintiff satisfies the due process requirement by serving the defendant with a statement setting forth the specific amount of punitive damages sought. (Code Civ. Proc., §§ 425.115, subds. (b), (d), 580, subd. (a); Behm v. Clear View Technologies, supra, 241 Cal.App.4th at p. 9.) If the plaintiff wants a default judgment including punitive damages, the plaintiff must serve this statement before the defendant's default is taken. (Code Civ. Proc., § 425.115, subd. (f).) The punitive damages awarded by the default judgment are then limited to those demanded in the separately served statement. (Code Civ. Proc., §§ 580, subd. (a), 585, subd. (d).) When a default judgment awards more than that demanded by the complaint and the properly served statement of punitive damages, it is void as beyond the court's jurisdiction. (Greenup v. Rodman, supra, at p. 826; Behm v. Clear View Technologies, supra, at p. 9.)
In this case, the default judgment is void to the extent it awards punitive damages. The clerk entered Salva's and Semiconductor Corp.'s defaults in April 2014. There is no indication that Luginbill served defendants with a statement of punitive damages before that date. And, even if Luginbill could not have specified the amount of punitive damages in the complaint, the complaint does not claim such damages in general terms. Defendants thus had no notice that they might be liable for punitive damages before they defaulted. Even when Luginbill filed his first request for a court judgment (in July 2015), he did not request punitive damages. It was not until he filed his amended request (in January 2016, nearly two years after the clerk entered defendants' defaults) that he requested $50,000 in punitive damages. Rightly so, Luginbill does not dispute any of this and instead says he "will stipulate to an amended judgment" that strikes the $50,000 in punitive damages.
The problem with the $19,900 attorney fee award is not necessarily notice—the complaint demands attorney fees—but that Luginbill had no entitlement to attorney fees. Generally, each party bears his or her own attorney fees, unless a contract, statute, or some other law authorizes the recovery of fees. (Code Civ. Proc., §§ 1021, 1033.5, subd. (a)(10); Civ. Code, § 1717; Trope v. Katz (1995) 11 Cal.4th 274, 278-279.) Consistent with this rule, the plaintiff's request for entry of default judgment may request attorney fees only "if allowed by statute or by the agreement of the parties" (Cal. Rules of Court, rule 3.1800(a)(9)), and the court may grant that relief only if supported by evidence (see Code Civ. Proc., § 585, subd. (b) [upon application for a default judgment, the court shall grant the relief "as appears by the evidence to be just."]). But the contract on which Luginbill sued, the promissory note, contains no provision for recovery of attorney fees. Moreover, we are not aware of any statute or law that would authorize him to recover fees for garden variety breach of contract and fraud claims against two private parties. Luginbill does not argue that he was entitled to attorney fees by contract or statute and instead says he will also stipulate to strike attorney fees from the judgment.
Generally, when the default judgment awards damages exceeding those pleaded, we "modify the judgment to the maximum amount warranted by the complaint." (Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1743; see also Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 495.) Given that Luginbill has indicated he will accept a reduced judgment, we will direct the trial court to modify the judgment by striking the punitive damages and attorney fees award. (Becker v. S.P.V. Construction Co., supra, at p. 495; Greenup v. Rodman, supra, 42 Cal.3d at p. 831.) The modified judgment shall award Luginbill only the damages demanded in the complaint ($11,500), as well as interest and costs, since Salva has not challenged the interest and costs awards.
IV. DISPOSITION
The matter is remanded to the trial court with directions to modify the judgment for Luginbill against Salva and Semiconductor Corp., jointly and severally, by striking the punitive damages and attorney fee award. The modified judgment shall award Luginbill damages of $11,500, plus interest and costs. So modified, the judgment is affirmed. On appeal, each party shall bear his own costs. (Cal. Rules of Court, rule 8.278(a)(5).)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
FIELDS
J. We concur: McKINSTER
Acting P. J. MILLER
J.