Opinion
G039375
9-5-2008
JUSTIN AYRE et al., Plaintiffs and Respondents, v. BENGAL INDUSTRIES DEVELOPMENT GROUP, INC., et al., Defendants and Appellants.
OBrien & Harter and David J. Harter; Chavos & Rau and Anthony G. Chavos, for Defendants and Appellants. Ropers, Majeski, Kohn & Bentley, Bradley P. Boyer, Terry Anastassiou and Jad T. Davis, for Plaintiffs and Respondents.
Not to be Published
Appellants Bengal Industries Development Group and Igal Israel appeal from an order denying their motions for relief from default under Code of Civil Procedure section 473. Bengal and Israel argue the court erred in rejecting their claim that the defaults were caused by either excusable neglect or extrinsic mistake or fraud. They also claim the court abused its discretion in denying their motions with prejudice, which precluded them from "curing any procedural defect in their motions."
All further statutory references are to the Code of Civil Procedure.
We affirm the order. The facts in this case were disputed, but the evidence was clearly sufficient to support the courts conclusions that Israel was at all times aware of the pendency of the complaint against both him and Bengal was neither confused nor misled about its status, and made a conscious decision to ignore it. Under these circumstances, neither Israel nor Bengal was entitled to relief from their defaults.
FACTS
Bengal and Israel entered into an agreement with respondents Nick Louis and Justin Ayre for the construction of improvements on a group of condominiums owned by Louis and Ayre in Newport Beach. The parties agreement contains a clause specifying that in the event of a dispute, the parties will first mediate, and then arbitrate.
Unfortunately, disputes did arise, and after attempts to resolve those disputes proved unsuccessful, Louis and Ayre filed their complaint against Bengal and Israel in superior court. The complaint was served on Bengal on December 27, 2006, and on Israel on January 20, 2007.
After learning of the complaint, Israel contacted Louis and Ayre and suggested the parties meet in person in a further attempt to resolve their differences. On January 30, 2007, Louis and Ayre filed a request for entry of Bengals default, and that default was entered.
On February 19, 2007, the parties had their in-person meeting. During the meeting, the parties discussed various issues, and Israel claims that Louis and Ayre specifically "agreed that the matter would be submitted to binding arbitration as required under Section D of the contract." Bengal and Israel contend that, as a result of that discussion, Israel reasonably understood the dispute would be submitted to binding arbitration, and thus no formal response to the pending complaint would be necessary.
Israel and Bengal do not acknowledge that Bengals default had already been entered as of the date of that meeting, and thus that any reassurances regarding its need to respond would have been moot.
By contrast, Ayre and Louis insist they never agreed to arbitrate their claims during the meeting, nor did they indicate they would stay the pending lawsuit. According to their version of the meeting, Israel simply dismissed the significance of the pending lawsuit, claiming he would not hire a lawyer to defend it, and threatening that if Louis and Ayre obtained a judgment against him, he would just declare bankruptcy.
On March 12, 2007, Louis and Ayre filed and served a request for dismissal of the punitive damages claim contained in their complaint. Notwithstanding the limited nature of that requested dismissal, Bengal and Israel say Israel interpreted the request as a request for dismissal of the entire complaint, consistent with what he perceived to be the parties agreement to submit the dispute to arbitration.
Also in mid-March, Bengal received a letter from the Contractors State Licensing Board stating Ayre had filed a complaint with it, and the complaint was then in the "mediation phase" of the Boards complaint handling process. The letter specifically informed Bengal that if the complaint was not resolved at the mediation stage, and the Board subsequently found violations of the licensing law, Bengals license "may be subject to disciplinary action." Israel claimed that he interpreted the letter as referring to the same complaint which had been filed with the court, and thus he construed the letter as a reinforcement of his understanding that the dispute would first proceed to mediation, and then binding arbitration, as called for in the parties contract.
Allegedly as a result of the meeting, the request for dismissal, and the letter from the Contractors Licensing Board, Bengal and Israel ignored the pending litigation. Thus, Israel did nothing when, on April 6, 2007, default was entered against Israel. Bengal and Israel also did nothing in response to the request for entry of court judgment filed on April 27, 2007. The court entered that judgment, in the amount of $232,715.28, on April 27, 2007, and notice of entry was served on Bengal and Israel on May 7, 2007.
It was not until June 5, 2007, nearly a month after the notice of entry was served on them, that Bengal and Israel — newly represented by counsel — sent correspondence to Louis and Ayre requesting that they set aside the defaults and agree to have the matter resolved on the merits in binging arbitration. Louis and Ayre refused.
Consequently, on June 27, 2007, Bengal and Israel filed their motions to be relieved from default, arguing that (1) the defaults had been the result of mistake, inadvertence or excusable neglect; and (2) the defaults had been caused by extrinsic mistake. Louis and Ayre opposed the motions, arguing the defaults had not been caused by any sort of mistake, inadvertence or excusable neglect; and further that the motions were procedurally defective in that they had not been accompanied by a proposed answer to be filed in the event court granted the requested relief.
After considering the parties written evidence and arguments, the court explained at the hearing that it disbelieved Israels claim the parties had reached an agreement not to proceed with the court case during their in-person meeting, and it further disbelieved his claim that he had been confused by the letter from the Contractors Licensing Board. As the court stated, "it sounds like . . . the plaintiffs gave him notice along every step of the way and he just kind of blithely ignored it."
Bengal and Israel argued they had acted reasonably in disregarding the pending court litigation, because it had been filed in violation of the parties original agreement to mediate and arbitrate any disputes. As their counsel explained: "[T]he agreement provides contractual obligations and the parties — the plaintiffs cannot unilaterally waive those provisions. . . . [T]he agreement is quite specific that it cannot be modified unless it is done so in writing signed by the parties. [¶] So you have an agreement that says if there is any dispute, whether it has to do with performance, interpretation of the terms, or what have you, it is subject to a mechanism within that contract that the parties agree to. That mechanism? That mechanism is first you submit the dispute to mediation, have to give notice of that. And if mediation fails, you must then submit that dispute to binding arbitration. [¶] Now you cant have a party just unilaterally saying . . . Im going to ignore all that and Im going to file a lawsuit; and if you dont do anything, that is now binding on you."
The court rejected that argument, noting, "we get breach of contract cases all the time that have arbitration clauses. And when somebody files suit on a breach of contract claim, on a contract that has an arbitration provision, the defendant either files an answer or files a motion to stay the proceeding and enforce the arbitration provision under the code sections that are designed for that purpose. [¶] Your client didnt do that. And when he didnt do that, its not plaintiffs who are waiving arbitration. Its your client by his conduct giving up legal rights. He had a right to make a motion to ask this Court to order them to comply with the arbitration provision, which he didnt do, and he can respond to the Complaint to stop the clock from ticking. If people just dont respond to lawsuits, that is what happens."
The court then denied the motions for relief from default — both on the merits and because Bengal and Israel had not complied with the requirement their motions be accompanied by a proposed answer. On the merits, the court reiterated that it was not persuaded the parties had entered into any agreement to pursue an arbitration, rather than the litigation, at their February, 2006 meeting, nor that Israel had been confused by the letter from the Contractors Licensing Board. Instead the court concluded that Israel understood the consequences of failing to respond to the complaint, and nonetheless "sat idly by as the default judgments approached."
I
Bengal and Israel contend the court abused its discretion in denying their motions to be relieved from default under section 473 (section 473.) Relying on this courts opinion in Mink v. Superior Court (1992) 2 Cal.App.4th 1338, 1343, they point out that "[t]he law strongly favors trial and disposition on the merits. Therefore, any doubts in applying section 473 must be resolved in favor of the party seeking relief."
Section 473, subdivision (b), states in pertinent part that "[t]he court may, upon any terms as may be just, 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. Application for this relief shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted, and shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken."
While we certainly agree with Mink rule, we also find it of no particular assistance here. In Mink, the facts were undisputed, and thus the sole issue to be resolved was whether relief was warranted under section 473 in light of those undisputed facts. Consequently, this courts task on appeal was to assess the scope of that law, and it was in that context that we concluded that any doubts should be resolved in favor of the party seeking relief.
Specifically, Mink involved a lawsuit filed against the developer of a housing tract by the owners of certain homes within that tract. The lawsuit had been filed on January 20, 1987, slightly less than 10 years after the official "notice of completion" date for the tract.
However, at some point during the litigation, the defendant filed a motion for summary adjudication, arguing that certain of plaintiffs claims were untimely, because the 10-year statute of limitations applicable to those claims had begun accruing from the date of final inspection — January 17, 1977 — rather than the date of final completion. After the trial court granted the motion, plaintiffs promptly moved for reconsideration, and then relief from default, pointing out that they had mistakenly failed to realize that January 17, 1987, had been a Saturday, and that Monday, January 19, 1987, had been a holiday — and thus that the deadline for filing their complaint had been extended to Tuesday, January 20, 1987, the very day it was actually filed.
Although the trial court concluded that plaintiffs "mistake" in failing to discover those facts was inexcusable and denied relief, this court disagreed. As we pointed out, plaintiffs had not been alone in their mistake, as defendant (who was presumed to have been acting in good faith when it filed the motion) had based its entire motion on the exact same error; i.e., contending that the limitations period had expired on January 17, 1987. Because both parties had made the same mistake, we noted that defendant was hardly in a position to contend that it was only plaintiffs error that was inexcusable.
In the instant case, by contrast, there were significant factual disputes relating to Israels contention he had reasonably understood no response to the complaint would be required. And contrary to what he and Bengal appear to be suggesting, nothing in Mink, or any other authority, required the trial court to give them any benefit of the doubt in resolving those factual disputes. As the moving parties, it was Bengals and Israels burden to prove the factual grounds warranting relief under the statute. As the trial court made abundantly clear, they failed to sustain that burden.
Because the trial court explicitly rejected Bengals and Israels factual claims, Waybright v. Anderson (1927) 200 Cal. 374, 379, is of no assistance to them. In Waybright, the court had concluded the appellants actually did believe the parties had entered into an agreement to pursue arbitration during the pendency of the case, and that, as a consequence, they reasonably concluded it was unnecessary to file amended pleadings. The court explained "`it is his belief and the reasonableness thereof that controls the question." (Ibid., quoting Savings Bank v. Schell (1904) 142 Cal. 505.) Here, by contrast, the trial court rejected Israels factual claims as to what he believed concerning the pending litigation, and thus there was simply no basis to conclude that he and Bengal had acted reasonably in choosing to ignore it.
Moreover, on appeal, we must indulge all factual inferences in favor of the trial courts decision. As we have already explained in Johnson v. Pratt & Whitney Canada, Inc. (1994) 28 Cal.App.4th 613, another appeal from an order denying relief under section 473, "[c]redibility is an issue for the fact finder. As we have repeatedly stated, we do not reweigh evidence or reassess the credibility of witnesses. (Orange County Employees Assn. v. County of Orange (1988) 205 Cal.App.3d 1289, 1293-1294.) "`"We have no power to judge of the effect or value of the evidence, to weigh the evidence, to consider the credibility of the witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom." [Citations.] (In re Stephen W. (1990) 221 Cal.App.3d 629, 642.) When, as here, `the evidence gives rise to conflicting reasonable inferences, one of which supports the findings of the trial court, the trial courts finding is conclusive on appeal. [Citations.] (Rubin v. Los Angeles Fed. Sav. & Loan Assn. (1984) 159 Cal.App.3d 292, 298.)" (Johnson v. Pratt & Whitney Canada, Inc., supra, 28 Cal.App.4th at pp. 622-623.)
In this case, then, we must defer to the trial courts explicit conclusion that Israel was not credible when he claimed Louis and Ayer had "agreed" at the February, 2007 meeting to pursue this case in arbitration. We must also defer to its conclusion Israel was not confused by the letter from the Contractors Licensing Board, and did not believe the Board had somehow taken over the complaint filed in court for purposes of mediation. And we must defer to its conclusion Israel actually did understand that if he did nothing in response to the complaint in this case, judgment might be entered against him and Bengal.
In light of these factual conclusions, we could not characterize the conduct of Israel (and by extension, Bengal), as either "inadvertent," "excusable" or "neglect." In fact, as Israel and Bengal themselves point out in their brief, "inadvertence" means a "lack of heedfulness or attentiveness, inattention, or fault from negligence," and excusable neglect "is generally defined as an error a reasonably prudent person under the same or similar circumstances might have made." (Citing Alderman v. Jacobs (1954) 128 Cal.App.2d 273, 277.) Simply stated, the evidence was more than sufficient to support the conclusion Israel was not in the least "inattentive." To the contrary, as even he acknowledges, he was at all times aware a complaint had been filed against both him and Bengal — and he thus apparently made a conscious decision to ignore it. Rather than hiring counsel to advise him how to best respond to the pending litigation — by filing an answer and/or a petition to compel arbitration — Israel chose instead to adopt a belligerent pose, and relied on the threat of bankruptcy to deter Louis and Ayer from pursuing their litigation. Such hardball conduct amounts to a strategic decision, rather than "inadvertence" or "neglect," and thus was not an eligible basis for relief under section 473. (Pagarigan v. Aetna U.S. Healthcare of California, Inc. (2007) 158 Cal.App.4th 38, 45 ["Designing conduct is not mistake, inadvertence, surprise, or neglect"]; Jerrys Shell v. Equilon Enterprises, LLC (2005) 134 Cal.App.4th 1058, 1073 ["if an `intentional strategic decision caused the default or dismissal to occur, section 473 relief [is] not available."].)
II
Bengals and Israels alternative claim is that relief should be granted on equitable grounds, due to "extrinsic mistake." (See Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981, [Defining extrinsic mistake as "a term broadly applied when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits"].)
However, here again, the trial courts factual determinations doom the claim. Stated simply, there is no basis upon which we might conclude that a "mistake" occurred, or that the default was somehow "unfair" to Bengal or Israel. To the contrary, the trial court expressly determined that Louis and Ayer "gave [Israel] notice along every step of the way and he just kind of blithely ignored it." The court also made clear its determination that Israel understood the ramifications of doing nothing in response to the pending litigation, and thus [he and Bengal] "have no one to blame for their predicament but their own failure to take formal defensive action." Equity does not compel relief under these circumstances.
Finally, the fact the parties original contract may have included an arbitration clause — and that Louis and Ayer allegedly "breached it" by filing the instant lawsuit — does not materially affect the equities here. As the trial court pointed out, the scenario presented in this case — in which one or more parties to a contract containing an arbitration clause nonetheless choose to proceed with a cause of action in court — is fairly common. More significant, this scenario includes a detailed statutory remedy, which describes in some detail how an opposing party who wishes to enforce the arbitration clause can do so. (§§ 1280 et seq.)
Of particular relevance is Code of Civil Procedure section 1281.4, which specifies that when a court determines that "an action or proceeding pending before a court of this State" must be arbitrated, "the court in which such action is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate." In other words, Bengal and Israel had a clear, statutory right to obtain a "halt" here — assuming they bothered to establish to the satisfaction of the court that the matter was subject to arbitration, as they claim it clearly was.
But because they failed to make any effort in that regard, they cannot now complain it is unfair that the court refused to treat them as though they had. The order is affirmed. Louis and Ayer shall recover their costs on appeal.
We concur:
ARONSON, J.
IKOLA, J.