Opinion
D057433 Super. Ct. No. 37-2009-00055806-CU-CO-NC
09-29-2011
PALA BAND OF MISSION INDIANS, Plaintiff and Respondent, v. ANTHONY J. ARAND et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
APPEAL from a judgment of the Superior Court of San Diego County, Earl H. Maas, III, Judge. Dismissed as to appellant Envirepel, Inc.; reversed and remanded with directions as to remaining appellants.
Defendants appeal from a default judgment awarding $2 million in compensatory damages to plaintiff Pala Band of Mission Indians (Pala). We dismiss the appeal as to defendant EI because EI is a suspended corporation. As to each remaining appellant, we determine the judgment, or a portion of the judgment, is void because it exceeded the damage amount specifically sought in the complaint. (Code of Civ. Proc., § 580, subd. (a).) We reverse and remand with directions.
Defendants are: Anthony J. Arand; Envirepel, Inc. (EI); Envirepel Energy, Inc. (Energy); and Arand and Arand (A&A), a California partnership.
Statutory references are to the Code of Civil Procedure unless otherwise specified.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Complaint
On June 1, 2009, Pala filed a complaint against four defendants: (1) EI, a corporation with which Pala had contractual relationships; (2) Energy, a corporation allegedly wholly owned by EI; (3) Anthony Arand, an alleged director and president of EI and Energy; and (4) A&A, a California partnership of which Arand is a partner. The complaint alleged the following facts.
On June 1, 2005, Pala and EI entered into a stock purchase agreement in which Pala agreed to purchase one million shares of EI common stock for one dollar per share. Before the shares were issued, Arand signed a "Repurchase Agreement," promising to repurchase Pala's one million shares at the purchase price if Pala "desired to liquidate" the shares. Arand signed this agreement in his capacity as an individual and as EI's president.
Eight months later, in February 2006, Pala informed Arand it wanted to sell its EI stock back to EI "pursuant to the Repurchase Agreement." Arand responded that "there would be no performance under the Repurchase Agreement until [Pala] released EI from its obligations" under an earlier agreement.
After several months of negotiations, in July 2006, a tentative agreement was reached by the parties. Under the proposed agreement, EI agreed to repurchase Pala's EI stock at one dollar per share, for a total of $1 million, in return for Pala releasing its claims against EI and its affiliates based on the Repurchase Agreement. Although Arand signed the proposed settlement agreement, Pala's governing representatives decided not to sign the agreement.
Less than two years later, in May 2008, Pala informed Arand it was now willing to sign an updated version of the proposed settlement agreement containing essentially the same terms as the original proposed agreement (whereby EI would repurchase Pala's shares for $1 million).
The next month, Arand's attorney informed Pala that EI was "no longer interested" in repurchasing Pala's shares and "that EI had not achieved the capitalization goals originally intended but was still a functioning entity." But Arand's attorney said Arand wanted to meet with Pala representatives "to discuss a proposed exchange of the Tribe's EI shares for shares of Energy," a corporation that was wholly owned by EI.
Pala expressed a willingness to discuss the proposed stock exchange but demanded that Pala's representatives be allowed to inspect and copy EI's accounting records. When Arand ignored this demand, in September 2008, Pala sent another letter repeating its request to inspect EI's books.
Several weeks later, Arand notified Pala that "Energy was the corporation he was using to pursue utility contracts" and invited Pala representatives to visit Energy's offices. In response, Pala "reminded" Arand of the statutory requirements that Pala (as an EI shareholder) be permitted to inspect EI's books and of Pala's intention to bring legal action if Arand refused this request. Several days later, Pala advised Arand that Pala representatives planned to visit EI's office to inspect and copy EI records.
On November 18, 2008, Pala representatives met with Arand at Energy's offices after finding EI offices closed. During the meeting, Pala representatives renewed their demand to inspect and copy the EI documents. Arand responded that the documents were not available, but promised to provide copies to Pala's attorney at a later date. Arand also stated that Pala's EI shares had been converted to shares in Energy, but produced no documentation to support this claim and provided no explanation as to the manner in which this purported conversion occurred. At this meeting, Arand said Pala's "shares of Energy were then worth about $2.00 per share."
Three days later, Arand sent Pala's counsel an email stating that "Pala is not currently a stock holder [of Energy]." (Italics added.) The complaint alleges: "This statement directly contradicted Arand's representation at the November 18, 2008 meeting that [Pala's] shares in EI previously had been converted to shares in Energy." Shortly after, Arand sent numerous documents to Pala, including a list of Energy's shareholders as of October 20, 2008 (which did not include Pala). These documents "contained no information regarding the status of [Pala's] EI shares, other than showing that [Pala] was not included on the list of Energy shareholders."
Pala's complaint also contained allegations about Energy's September 2005 confidential private placement memorandum ("Memorandum") offering 2.5 million shares of Energy common stock at $1.50 per share. According to the Memorandum, these stock shares would be sold to investors under "a procedure whereby EI, the parent company of Energy would tender for cancellation an equal number of its shares of Energy common stock[.]" The Memorandum also stated that Energy proposed to exchange shares of Energy common stock for stock in various other companies. The Memorandum stated that at the successful conclusion of the proposed exchanges and offerings, EI would own 3,260,583 shares of Energy common stock, and that its percentage ownership of Energy was to be diluted from 100 percent ownership to 32.6 percent ownership. The complaint alleged "the current list of shareholders of Energy do not include either EI or [Pala]," but that "all other former shareholders of EI have been issued one share of Energy common stock for every share of EI common stock owned by each of them as of the termination date of the offering of shares pursuant to the [Memorandum]."
Based on these alleged facts, the complaint asserted six causes of action.
In the first cause of action ("Breach of Contract"), Pala alleged defendants Arand and EI agreed to repurchase Pala's one million shares at the "purchase price" ($1 per share) and these defendants "breached and repudiated the Repurchase Agreement by failing to tender the purchase price as required by that agreement . . . ." Pala alleged it "has been damaged by Defendants' breach of the Repurchase Agreement in an amount to be proven at trial." (Italics added.) In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against the two contracting parties: (1) "Arand, in his individual capacity"; and (2) EI.
In the second cause of action ("Deceit"), Pala alleged that on November 18, 2008, Arand falsely represented that Pala's one million shares of EI stock had been converted to one million shares of Energy stock, and that Arand's misrepresentations were made on behalf of himself and each defendant. Pala alleged that Arand made these representations to "induce [Pala] to forbear in its efforts to obtain the EI corporate books of account and records." Pala further alleged that "Arand made the representations with the intent to deceive [Pala] as to the disposition and true value of its 1,000,000 shares of EI stock and to conceal illegal conduct by Arand, EI and Energy in converting [Pala's] shares to another purpose, and to thereby induce [Pala] not to pursue its demand" for a repurchase under the Repurchase Agreement. Pala alleged it "has been damaged by Arand's actions in an amount to be proven at trial." In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against each of the four defendants.
In the third cause of action ("Breach of Oral Agreement"), Pala alleged that "Arand's statements to [Pala] representatives during the November 18, 2008 meeting . . . constituted promises made by Arand, in his individual capacity and on behalf of A&A, EI and Energy that the Tribe's shares of EI had been or would be converted to shares of Energy." Pala further alleged that Arand failed to provide "evidence that [Pala's] shares of EI common stock have been converted to shares of Energy . . . and instead has provided information that is either contradictory or indicates that no such conversion has occurred." Pala alleged it relied on Arand's representations that its "EI shares had been or would be converted to Energy shares by deferring legal action and incurring legal and other costs and expenses in seeking to determine the current status of the Tribe's shares of EI." Pala alleged it "has been damaged in an amount to be proven at trial." In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against each of the four defendants.
In the fourth cause of action ("Fraud"), Pala alleged "Arand's actions, in his individual capacity and on behalf of A&A, EI and Energy constitute fraud in that he suppressed or concealed material facts" pertaining to "the true disposition of its shares of EI stock." Pala alleged it "has been damaged by Arand's actions in an amount to be proven at trial." In the prayer for relief, Pala sought "compensatory damages in an amount according to proof" against each of the four defendants.
In the fifth cause of action ("Conversion"), Pala alleged that "Arand and Energy converted [Pala's] one million . . . shares of EI stock to their own purposes and have thereby deprived the Tribe of its property or the equivalent value represented by one million (1,000,000) shares of Energy common stock." Pala claimed it "has been damaged by Arand's and Energy's actions in an amount equal to the value of 1,000,000 shares of Energy common stock." In the prayer for relief, Pala sought compensatory damages in "an amount according to proof" against two of the defendants: Arand and Energy. Alternatively Pala sought an order requiring that Energy transfer to Pala one million shares of Energy common stock.
In the sixth cause of action ("Failure to Produce Corporate Books and Accounts for Inspection"), Pala alleged Arand failed to comply with statutory obligations to allow Pala to inspect EI's books and records. (See Corp. Code, § 1601.) Pala alleged these actions resulted in "costs and expenses for travel to corporate offices where such files are located or stored," attorney fees, and court filing fees and costs. In the prayer for relief, Pala sought "an amount according to proof, but not less than $30,000" and an order requiring an inspection of EI's books.
B. Proceedings After Complaint Filed
Pala served the complaint on defendants on July 2, 2009. Each defendant failed to answer or timely appear in the action. In August 2009, the court clerk entered a default against each defendant.
About three months later, on November 16, 2009, Pala filed an application for a default judgment and submitted supporting declarations and documentary evidence. After reviewing the documentation, the court entered a default judgment against each of the defendants for $2 million in compensatory damages, $10,000 in attorney fees, and $1,703.19 in costs. The judgment identifies the four defendants as: (1) Anthony Arand, in his individual capacity and his capacity as an officer of EI and Energy, (2) Energy, (3) EI, and (4) A&A.
Less than two months later, defendants moved to set aside the defaults and default judgment under section 473 on the grounds that the failure to answer the complaint was caused by mistake, inadvertence, surprise or excusable neglect. (§ 473, subd. (b).) Defendants also argued the judgment was void because the $2 million damage award was greater than the maximum amount requested in the complaint. After a hearing, the court denied the motion. The court found defendants' failure to answer resulted from a deliberate tactical decision, and not from a mistake or excusable neglect. The court also rejected defendants' argument that the judgment was improper based on the amount of damages awarded.
Defendants then filed a second motion to set aside the defaults and default judgment based on claimed extrinsic fraud and/or mistake. The court denied this motion, finding no extrinsic fraud or mistake. The court also reiterated its earlier conclusion that there was sufficient information in the complaint to put defendants on notice that Pala was seeking $2 million in damages.
DISCUSSION
I. Preliminary Matters
A. Scope of Appeal
Pala contends that defendants appealed only from the default judgment and not from the orders denying their motions to set aside the defaults. We agree.
A default judgment and an order denying a motion to set aside a default judgment are each separately appealable. (§ 904.1, subd. (a)(1), (2); see Jade K. v. Viguri (1989) 210 Cal.App.3d 1459, 1469.) Thus, an appellant is required to identify the judgment and order in the notice of appeal if the appellant intends to appeal from both matters. (See Polster, Inc. v. Swing (1985) 164 Cal.App.3d 427, 436.)
In this case, defendants' notice of appeal identifies only the "Default Judgment" as the matter from which the appeal is taken, and does not refer to the orders denying defendants' motions to set aside the judgment. The notice states that the appeal is from "the Default Judgment entered November 30, 2009 . . . ." Similarly, in the Civil Case Information Statement, defendants checked only the box stating the appeal is from a "Default judgment" and left blank the boxes corresponding to an appeal from an "order after judgment." In other portions of the form, defendants responded to questions about the dates of postjudgment orders, but made no attempt to indicate they were appealing from these orders.
Although a notice of appeal must be liberally construed, the notice of appeal defines the scope of the appeal by identifying the particular judgment or order being appealed. (Cal. Rules of Court, rule 8.100(a)(2); Morton v. Wagner (2007) 156 Cal.App.4th 963, 967; see Unilogic, Inc. v. Burroughs Corp. (1992) 10 Cal.App.4th 612, 624-625.) As this court has held, " '[t]he rule favoring appealability in cases of ambiguity cannot apply where there is a clear intention to appeal from only . . . one of two separate appealable judgments or orders. [Citation.] . . . "[A] notice of appeal will not be considered adequate if it completely omits any reference to the judgment [or order] being appealed." ' " (Colony Hill v. Ghamaty (2006) 143 Cal.App.4th 1156, 1172.)
Under these principles, we dismiss the portion of the appeal challenging the orders denying defendants' motions to set aside the default judgment. However, this dismissal does not affect defendants' section 580, subdivision (a) challenge to the amount of the damages awarded. This challenge can be raised directly by appealing from a default judgment. (See Julius Schifaugh IV Consulting Services, Inc. v. Avaris Capital, Inc. (2008) 164 Cal.App.4th 1393, 1396 (Julius Schifaugh).)
B. EI's Appeal Dismissed
In the default proceedings, the trial court found the undisputed facts showed EI and Energy were both suspended corporations and ruled that it would not entertain further motions on behalf of the corporations until a certificate of revivor was filed with the court. Pala contends EI remains a suspended corporation and therefore it is precluded from appealing from the judgment.
When its corporate rights are suspended, a corporation may not prosecute or defend an action and may not appeal from an adverse judgment. (See Reed v. Norman (1957) 48 Cal.2d 338, 343; Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20-21; Palm Valley Homeowners Assn., Inc. v. Design MTC (2000) 85 Cal.App.4th 553, 556.)
In its reply brief, EI does not challenge this rule, but argues that a "revivorship restores a corporate litigant's right to participate in the judicial process." We agree with this statement. (See Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4th 212, 218.) However, this rule is of no help to EI because there is no evidence that EI's corporate powers have been restored. EI had a full opportunity to present this evidence in the superior court or in this court by a motion for judicial notice or a motion to augment the record. Having failed to do so, EI has no right to appeal. We thus dismiss the appeal as to EI.
The trial court also found Energy was a suspended corporation. However, because Pala does not challenge Energy's capacity to appeal the judgment, we infer that Energy's corporate powers have been revived. Failure to timely raise the issue may result in a waiver of the objection. (See Color-Vue v. Abrams (1996) 44 Cal.App.4th 1599, 1605; Stewart v. San Fernando Ref. Co. (1937) 22 Cal.App.2d 661, 663-664.)
II. Two Million Dollar Judgment Exceeds Amount Requested in Complaint
Appellants contend the court erred in awarding damages that exceeded the amount of the damages demanded in the complaint. (§ 580, subd. (a).)
A. Legal Principles
Under section 580, except for personal injury and wrongful death cases, "[t]he relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint . . . ." (§ 580, subd. (a).) "[T]he primary purpose of the section is to guarantee defaulting parties adequate notice of the maximum judgment that may be assessed against them." (Greenup v. Rodman (1986) 42 Cal.3d 822, 826; accord Becker v. S.P.V. Construction Co., Inc. (1980) 27 Cal.3d 489, 494 (Becker); Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1174 (Electronic Funds).)
"Section 580 'ensure[s] that a defendant who declines to contest an action . . . [is] not subject[ed] . . . to open-ended liability' and operates as a limitation on the court's jurisdiction." (Stein v. York (2010) 181 Cal.App.4th 320, 325 (Stein).) "If a default judgment awarded against a defendant exceeds the relief demanded in the complaint [citation], or is a different form of relief than that demanded in the complaint [citation], the defendant is 'effectively denied a fair hearing.' " (Id. at p. 326.) Thus, "a default judgment awarding damages in excess of the amount allowed under section 580 is beyond the court's jurisdiction and . . . void." (Matera v. McLeod (2006) 145 Cal.App.4th 44, 59; accord Greenup v. Rodman, supra, 42 Cal.3d at p. 826.)
"It is fundamental to the concept of due process that a defendant be given notice of the existence of a lawsuit and notice of the specific relief which is sought in the complaint served upon him. 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. . . . [A] defendant is not in a position to make such a decision if he or she has not been given full notice." (In re Marriage of Lippel (1990) 51 Cal.3d 1160, 1166.)
Under section 580, the fact that the defendant may have actual or constructive notice of the amount of damages caused by his or her conduct is not sufficient. (Stein, supra, 181 Cal.App.4th at p. 326.) "[D]ue process requires 'formal notice.' " (Ibid.; Greenup v. Rodman, supra, 42 Cal.3d at p. 826.) "[T]he notice requirement of section 580 exists to insure fundamental fairness, and it should not be undermined by speculation about what a defendant may or may not know . . . ." (Janssen v. Luu (1997) 57 Cal.App.4th 272, 279.) " '[D]ue process requires that [defendants] know exactly what risk they assume by not responding to the pleading . . . .' " (Id. at p. 277.)
In determining whether the complaint supports a requested damage award, "courts must look to the prayer of the complaint or to 'allegations in the body of the complaint . . . .' " (People ex rel. Lockyer v. Brar (2005) 134 Cal.App.4th 659, 667 (Brar); Parish v. Peters (1991) 1 Cal.App.4th 202, 216; National Diversified Services, Inc. v. Bernstein (1985) 168 Cal.App.3d 410, 417-418.) In either case, the claimed damages must be set forth with specificity. "[N]o matter how reasonable [a damage amount] might appear in a particular case . . . [if] no specific amount of damages is demanded, the prayer cannot insure adequate notice of the demands made by the defendant. [Citations.] Consequently, a prayer for damages according to proof passes muster under section 580 only if a specific amount of damages is alleged in the body of the complaint." (Becker, supra, 27 Cal.3d at p. 494, italics added; see also Parish v. Peters, supra, 1 Cal.App.4th at p. 216 ["To pass constitutional muster, the complaint must either allege a specific dollar amount of damages in the body or prayer . . . ."], italics added.)
Because the statute embodies principles of fundamental fairness and adequate notice, "section 580 must be strictly construed." (Stein, supra, 181 Cal.App.4th at p. 325; see Levine v. Smith (2006) 145 Cal.App.4th 1131, 1137.) A "court has no power to enter a default judgment other than in conformity with section 580." (Becker, supra, 27 Cal.3d at p. 493; see In re Marriage of Lippel, supra, 51 Cal.3d at p. 1167 [" 'court's jurisdiction to render default judgments can be exercised only in the way authorized by statute "].) The issue whether the "default judgment complied with constitutional and statutory requirements are questions of law as to which we exercise independent review." (Falahati v. Kondo (2005) 127 Cal.App.4th 823, 828.)
B. Complaint Did Not Provide Adequate Notice Pala Was Seeking $2 Million
In the prayer portion of its complaint, Pala alleged it was entitled to recover compensatory damages "in an amount according to proof" on the first through fifth causes of action. On the sixth cause of action, Pala sought "not less than $30,000 . . . ." Standing alone, these allegations fail to support an award of $2 million in compensatory damages. (See Electronic Funds, supra, 134 Cal.App.4th at pp. 1173-1174; Levine v. Smith, supra, 145 Cal.App.4th at p. 1136 [$2.5 million default judgment is void when complaint prayed only for damages " 'in an amount according to proof' "].)
The body of the complaint similarly does not contain an allegation that Pala is seeking $2 million in damages. Pala nonetheless argues defendants should have inferred this request based on an allegation in the complaint that at the November 18, 2008 meeting Arand said Pala's Energy stock was "worth about $2.00 per share." The argument is without merit.
First, Pala's reliance on Arand's statement is premised on the assumption that the damages Pala was seeking were based on the value of Energy stock in November 2008. This assumption is unsupported by the complaint's allegations as to all causes of action except the conversion cause of action.
On the breach of contract claim (first cause of action), the alleged breach specifically pertained to the failure of Arand and EI to comply with the terms of the written Repurchase Agreement and to repurchase Pala's one million shares of EI stock. Pala alleged it was damaged by this breach in an amount equivalent to the "purchase price," which Pala alleged was $1 million. In light of these allegations, there is no basis to conclude that Pala gave notice it was seeking damages for the breach of the Repurchase Agreement in an amount equivalent to the value of Energy stock. Even assuming the value of the Energy stock was $2 per share, there is no allegation that Pala was entitled to this price for defendants' refusal to comply with the terms of the Repurchase Agreement, nor is there any showing that Pala sought double the amount of its initial investment for the breach of the Repurchase Agreement.
Second, with respect to the breach of oral contract (third cause of action), Pala alleged Arand orally stated that Pala's shares had been converted into Energy shares, and that by relying on these misrepresentations, Pala incurred costs resulting from "deferring legal action" and other "expenses to determine the current status of the Tribe's shares of EI." These allegations do not state or suggest that these identified costs and expenses were equivalent to the value of Energy stock, or that Pala's damages for breach of the oral agreement amounted to $2 million.
Similarly, with respect to the fraud causes of action (second and fourth causes of action), Pala alleged Arand falsely represented that Pala's "one million shares of EI stock had been converted to one million shares of Energy stock," and that the true facts were that the stock had not been converted and/or that Arand was unwilling to disclose the true disposition of the shares. Pala alleged these representations induced it to "forbear" in its efforts to obtain EI books and records and to refrain from pursuing its demands under the Repurchase Agreement. However, there is no information in the complaint that these consequences (the failure to obtain EI books and not to pursue its demands under the Repurchase Agreement) caused Pala to suffer $2 million in damages and/or that Pala would be seeking $2 million as compensatory damages for defendants' alleged fraud.
Likewise, on the cause of action for failure to produce corporate books (sixth cause of action), the allegations do not provide notice that Pala suffered costs equivalent to the value of Energy stock or that it would be seeking to recover this amount of damages. Instead, Pala alleged it incurred costs and fees in attempting to obtain access to the information, and that it was seeking "an amount according to proof, but not less than $30,000." This allegation at most supported a damage award of $30,000. (See Finney v. Gomez (2003) 111 Cal.App.4th 527, 533-536; Traci & Marx Co. v. Legal Options, Inc. (2005) 126 Cal.App.4th 155, 160 ["in a default proceeding in California, a prayer for relief 'in excess of' a specified dollar amount will result in an award of 'no more than' that dollar amount"].)
The only claim for which Pala sought the value of the Energy stock was the conversion cause of action in which Pala alleged: "[Pala] has been damaged by Arand's and Energy's actions in an amount equal to the value of 1,000,000 shares of Energy common stock." However, there is nothing in these allegations (contained in Paragraphs 50 through 52 of the complaint) showing Pala was claiming that the value of one million Energy shares was $2 million. Pala concedes the absence of this claim, but argues the $2 million value can be inferred from the sentence in Paragraph 29 of the complaint which alleges that Arand "represented" at the November 18, 2008 meeting "that the Tribe's EI shares previously had been converted to shares in Energy" and that "the Tribe's shares of Energy were then worth about $2.00 per share."
Viewed in context of the entire complaint, this single allegation about Arand's statement at the November 18 meeting was insufficient to fairly notify defendants that Pala was seeking $2 million for the conversion claim. The central focus of Pala's complaint is that Arand's comments at the November 18 meeting about Pala's Energy shares were intentional misrepresentations -- i.e., that he made knowing false statements for the purpose of inducing Pala to take action (or not take action) to protect its position with respect to its EI shares. The complaint specifically alleges that three days after the November 18 meeting, Arand emailed information to Pala making clear that Pala did not own Energy stock. Based on these allegations, it is untenable to conclude that defendants should have fairly read Paragraph 29 as suggesting that Pala believed the Energy stock was valued at $2 per share and would be seeking damages for its conversion claim based on the misinformation allegedly provided by Arand.
Additionally, even assuming there was fair notice in the complaint that Pala was alleging the Energy stock was valued at $2 per share in November 2008 based on Arand's statement, there is no reasonable basis to infer that Pala was alleging that the stock was worth this same amount when Pala filed the complaint and/or that Pala was specifically seeking this amount as damages for the conversion claim. Absent a specific allegation linking a factual allegation to requested damages, a complaint's general reference to a loss amount does not "operate as [a] distinct damage claim[]" to establish adequate notice of damages under section 580. (Heidary v. Yadollahi (2002) 99 Cal.App.4th 857, 866 [rejecting argument of adequate notice under section 580 where plaintiffs "fail[ed] to distinguish between allegations of damages, and allegations of fact which include numbers"].)Although a complaint need not necessarily allege a total amount of requested damages in a single statement to provide sufficient notice under section 580, subdivision (a), the calculation of the total amount of alleged damages must be clearly set forth to give the defendant "fair warning" that he or she may be subject to these damages. (Brar, supra, 134 Cal.App.4th at pp. 667-668; see also In re Marriage of Lippel, supra, 51 Cal.3d at pp. 1166-1167.)
Brar illustrates this principle. In Brar, the Attorney General filed a Business and Professions Code section 17200 complaint against an attorney who repetitively filed "shakedown" lawsuits against nail salons. (Brar, supra, 134 Cal.App.4th at p. 661.) The complaint's prayer sought damages in an amount of " 'no less than' $1 million," but the court awarded damages of $1,787,500 in civil penalties in a default judgment. (Id. at pp. 666, 667.) The reviewing court upheld this amount because allegations in the body of the complaint specifically stated the plaintiff was seeking a statutory penalty of $2,500 per violation of the unfair competition law, and the complaint alleged that approximately 500 nail salons had been named as Doe defendants in each of three separate lawsuits. (Id. at pp. 666-668.) Based on these allegations, the court found the defendant could have reasonably calculated potential damages from the face of the complaint of at least $3.75 million (1,500 x $2,500). (Ibid.)The Brar court thus held the complaint's allegations afforded the defendant "fair warning" of his potential liability, and upheld the $1.7 million judgment. (Id. at p. 668.)
In this case, there is no basis to similarly conclude defendants could calculate their potential liability for $2 million from the face of the complaint. The reference to Arand's statement about Energy's stock value in Paragraph 29 does not support a reasonable inference that defendants had "fair warning" Pala was seeking $2 million on the conversion claim (or any other claim). Pala cites to no case, nor has our research disclosed any California authority, in which a reviewing court has upheld a default judgment entered on a complaint without a specific damage amount or a specific basis to calculate the damage amount in the complaint. Section 580, subdivision (a) states that relief granted in a default judgment "cannot exceed that demanded in the complaint . . . ." The term "demand" connotes a specific request for a particular amount of claimed loss, and not facts requiring multiple inferences to determine the amount of requested damages. To satisfy section 580, subdivision (a), the complaint must contain sufficient information to permit the defendant to clearly understand the maximum amount of damages sought by the plaintiff. The complaint in this case did not meet this standard with respect to a $2 million damage award.
In its respondent's brief, Pala attempts to justify the $2 million damage award by relying on information in its application for a default judgment. This reliance is misplaced. When Pala filed this application, an entry of default had already been entered. Thus, defendants had already made their decision not to appear in the action and were therefore " 'out of court.' " (Title Ins. & Trust Co. v. King Land & Improv. Co. (1912) 162 Cal. 44, 46; see In re Marriage of Askmo (2000) 85 Cal.App.4th 1032, 1037; People v. One 1986 Toyota Pickup (1995) 31 Cal.App.4th 254, 259.) In deciding whether a default judgment amount is proper under section 580, subdivision (a), a court looks to the allegations of the complaint and not to information filed after a default is entered.
C. The Extent to Which the Judgment Was Void as to Each Appellant
A default judgment awarding damages is void in its entirety if the complaint does not specify any amount of damages. However, if the complaint seeks a specified amount of damages, but less than the amount awarded in the default judgment, the judgment is void only to the extent that the damages awarded exceed the amount requested. (See Greenup v. Rodman, supra, 42 Cal.3d at pp. 829-830; Becker, supra, 27 Cal.3d at p. 495; Janssen v. Luu, supra, 57 Cal.App.4th at p. 279.) Additionally, if a default judgment awards the plaintiff damages against multiple defendants, a court must look to the allegations of the complaint against each defendant in evaluating whether the judgment violates section 580, subdivision (a). The key issue is whether the complaint afforded the defaulting defendant adequate notice of the maximum judgment that could be assessed against it. (See Becker, supra, 27 Cal.3d at pp. 492-494.)
Under these principles, we conclude the default judgment is void only in part as to defendant Arand, and is void in its entirety as to defendants A&A and Energy.
As to defendant Arand, Pala named Arand as a party in each cause of action. In the first cause of action (breach of contract) Pala sought to recover the $1 million purchase price for Arand's breach of the Repurchase Agreement. Pala alleged Arand was a party to the agreement in his individual capacity and specifically sought damages against Arand for this breach. The complaint alleged that the Repurchase Agreement required Arand (and EI) to repurchase the one million shares at the purchase price, identified as $1 per share, and the complaint alleged that Arand refused to comply with this agreement. Because these allegations gave Arand fair notice Pala was seeking $1 million, the judgment against Arand is valid to the extent of a $1 million damage award plus attorney fees and costs.
As Pala's attorney acknowledged at oral argument, this $1 million judgment would necessarily include a requirement that Pala transfer its EI stock back to the seller.
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However, the portion of the judgment against Arand that awards more than $1 million in compensatory damages is void. As discussed, the second through fifth causes of action do not specify any amount of damages. The sixth cause of action (failure to produce corporate records) sought $30,000 for Pala's costs in seeking to obtain the EI corporate records, but Pala sought this amount against Arand only in his "capacity as director and chief executive officer of EI." Thus, these damages were not recoverable on a default judgment against Arand as an individual.
With respect to defendants Energy and A&A, there are no claims against these defendants that specify an amount of damages. These parties are not identified in the allegations of the first or sixth causes of action, nor are they included among the defendants identified in the prayer portion of the complaint on these causes of action. Additionally, the second through fifth causes of action do not specify any amount of damage. Thus, the default judgment against Energy and A&A is void.
As to defendant EI, the appeal is dismissed, and therefore the judgment remains valid.
D. Consequences of Default Judgment Entered in Violation of Section 580
Generally, when a judgment is void under section 580, a reviewing court will reverse and remand for the court to enter a new judgment awarding the proper amount of damages. (See Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1743.) Under this rule, the underlying entry of default remains and the court merely enters a new default judgment with the proper amount of damages.
However, the courts have recognized that in "the interest of fairness," when a default judgment violates section 580, subdivision (a), a court has the authority to give the plaintiff the option of: (1) requesting the court to award a new damages amount within the limits of the allegations of the existing complaint; or (2) requesting the court to vacate the entry of default and allowing the plaintiff to amend the complaint to specifically allege the full amount of damages. (Greenup v. Rodman, supra, 42 Cal.3d at p. 830; Julius Schifaugh, supra, 164 Cal.App.4th at pp. 1397-1398; Electronic Funds, supra, 134 Cal.App.4th at p. 1177.) If the plaintiff selects the latter option, the vacation of the default reopens all issues, including liability, and the defendant would be entitled to attack the amended pleading, answer the amended complaint, or once again default. (See Greenup v. Rodman, supra, 42 Cal.3d at p. 830; Julius Schifaugh, supra, at p. 1398.)
Under the circumstances here, we conclude that Pala should be given this option in this case.
DISPOSITION
EI's appeal is dismissed.
As to Arand, the judgment is reversed, and the cause remanded with instructions for the court to vacate the damage award, and impose damages of $1 million plus attorney fees and costs. Alternatively, upon remand, Pala may elect to amend its complaint as to Arand and specify a greater amount of alleged compensatory damages. If Pala elects this alternative, Arand's default will be reopened and Arand will have the opportunity to attack the amended pleading, answer the amended pleading, or default.
As to A&A and Energy, the judgment is reversed. The court is ordered to vacate the default judgment. Alternatively, Pala may elect to amend its complaint as to these defendants and specify the amount of compensatory damages being sought against them. If Pala elects this alternative, the defaults of A&A and Energy will be reopened and these defendants will have the opportunity to attack the amended pleading, answer the amended pleading or default.
The parties to bear their own costs on appeal.
HALLER, J. WE CONCUR:
MCCONNELL, P. J.
MCDONALD, J.