Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Kern County. Super. Ct. No. CV256074 Louis P. Etcheverry, Judge.
Law Offices of Michael T. Whittington and Michael T. Whittington for Defendant and Appellant.
Phillip W. Gillet, Jr. for Plaintiff and Respondent.
OPINION
Kane, J.
Plaintiff Danial Dearmore, a property owner in a Kern County subdivision, brought this action to quiet title to an adjacent parcel of land (the adjacent lot) based on a claim of adverse possession. The adjacent lot was allegedly owned by defendant Kerrnita Park Community Water System District (Kerrnita Park), a dissolved corporation. Plaintiff sued Kerrnita Park along with “All Persons Unknown” claiming any right or title to the adjacent lot. An adjoining property owner, defendant Roberta Thomas, filed an answer contesting plaintiff’s claim. Although Thomas appeared in the action individually, it is not disputed that she was a shareholder and the agent for service of process of Kerrnita Park. Kerrnita Park failed to answer the complaint and, on plaintiff’s request, its default was entered by the court. The next day, plaintiff and Thomas announced they had agreed to a stipulation for entry of judgment whereby they would split the adjacent lot between the two of them. When the trial court entered judgment based on the stipulation, Kerrnita Park promptly moved to set aside its default and the resulting judgment. The motion was denied by the trial court and this appeal by Kerrnita Park followed. We conclude the trial court abused its discretion because Kerrnita Park was entitled to relief under Code of Civil Procedure section 473. Further, the trial court’s use of a stipulated judgment procedure amounted to a default judgment in a quiet title action, which was contrary to the applicable statute. Accordingly, we reverse the judgment, vacate the order denying relief from default and remand for further proceedings consistent with this opinion.
Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.
FACTS AND PROCEDURAL HISTORY
Plaintiff’s complaint to quiet title was filed on August 2, 2005. Plaintiff alleged therein that he is the owner of real property and improvements at a specific address on Vineyard Street in Bakersfield, California. He further alleged that Kerrnita Park is the owner of an adjoining parcel of land located on the north boundary of plaintiff’s property, which for convenience we refer to as the “adjacent lot.” Plaintiff claimed that he has adversely possessed the adjacent lot for at least five years, including payment of taxes, and therefore he sought a judicial determination quieting title to the adjacent lot in his name. The complaint was brought against Kerrnita Park and “all persons unknown, claiming any legal or equitable right, title, estate, lien, or interests in” the adjacent lot. (Capitalization omitted.)
On August 10, 2005, the trial court ordered that service of summons on Kerrnita Park shall be made by publication.
On February 2, 2006, Thomas appeared as a defendant in the quiet title action as “a person claiming interest in the property described in the complaint.” Thomas filed a motion to strike the complaint on the ground that it was not verified as required by law. The trial court granted the motion, and on March 10, 2006, plaintiff filed a first amended complaint to quiet title. The first amended complaint included a verification signed by plaintiff.
Thomas filed a demurrer to the first amended complaint because of newly added wording that plaintiff “has paid or has attempted to pay” (underscoring omitted) all property taxes concerning the adjacent lot, rather than alleging that all such taxes were paid by plaintiff, as the original complaint had done. The demurrer was sustained with leave to amend and on June 27, 2006, plaintiff filed a verified second amended complaint to quiet title.
Thomas filed her answer to the second amended complaint on August 1, 2006. The answer generally denied plaintiff’s claims of adverse possession and asserted that the second amended complaint failed “to state facts sufficient to constitute a cause of action against this answering defendant.” The answer was unverified and did not set forth any claim by Thomas to the adjacent lot.
On August 30, 2006, a proof of service of summons was filed by plaintiff, showing that on August 28, 2006, personal delivery of the summons and complaint were made on “ROBERTA THOMAS” as “[a]gent for service of process … for [Kerrnita] Park Community Water System,” a dissolved corporation, “[as allowed by Corporations Code section 2011(b) & (c)].”
We note that Corporations Code section 2011, subdivision (b), allows a summons and complaint to be served on a dissolved corporation by delivering a copy thereof to “an officer, director or … to any agent upon whom process might be served at the time of dissolution.” (See also § 416.20 [service of summons on dissolved corporation].) Subdivision (c) of Corporations Code section 2011 provides as follows: “Every such corporation shall survive and continue to exist indefinitely for the purpose of being sued in any quiet title action. Any judgment rendered in any such action shall bind each and all of its shareholders or other persons having any equity or other interest in such corporation, to the extent of their interest therein.…”
Kerrnita Park never filed an answer or other responsive pleading.
On December 13, 2006, one day before Kerrnita Park’s default was entered, Thomas filed a mandatory settlement conference statement indicating she had reached a verbal settlement to divide the adjacent lot between plaintiff and herself. Thomas disclosed in her mandatory settlement conference statement that she was aware of other claimants who had asserted that she cannot claim title to the property because (a) she was on the board of Kerrnita Park, (b) owed fiduciary duties to Kerrnita Park, and (c) if Kerrnita Park owned the property, then it would be subject to disposition under Corporations Code section 2010, subdivision (c). Her position was that Kerrnita Park did not own the adjacent lot, and that any claims of individual shareholders (presumably Freeman and Mills) were already defaulted and hence untimely.
Thomas does not deny the claim that she was on the board of Kerrnita Park, but she argues such issues were untimely or moot. (See fn. 6, post).
Corporations Code section 2010, subdivision (c), provides: “Any assets inadvertently or otherwise omitted from the winding up continue in the dissolved corporation for the benefit of the persons entitled thereto upon dissolution of the corporation and on realization shall be distributed accordingly.”
Freeman and Mills were individually named as defendants in the caption of the second amended complaint and their defaults were entered on September 26, 2006.
On December 14, 2006, plaintiff filed a request for entry of default against defendant Kerrnita Park. The court duly entered the requested default on December 14, 2006.
At the mandatory settlement conference held on December 15, 2006, counsel for plaintiff and for defendant Thomas announced their clients had agreed to a stipulation for entry of judgment as a means of settling the case. The stipulation was that plaintiff and Thomas would split the adjacent lot between the two of them along an agreed boundary. A written “STIPULATED COURT JUDGMENT” was prepared, signed by the trial court and entered on February 26, 2007. The judgment included a finding by the trial court that “[a]ll named Defendants were properly served with a copy of the summons and complaint[,]” and that “[a]ll Defendants, other than Roberta Thomas, failed to answer the complaint or appear and defend the action within the time allowed by law.”
On March 21, 2007, Kerrnita Park filed its motion to set aside both the default and the judgment. Relief was sought pursuant to sections 473 and 473.5. In addition, Kerrnita Park argued the use of a stipulated judgment procedure in this case was essentially a judgment by default, which was therefore contrary to section 764.010 prohibiting entry of a judgment by default alone (i.e., without evidence of title) in a quiet title action.
On June 28, 2007, the trial court issued its order denying the motion. The order explained that relief under section 473 was denied because Kerrnita Park failed to make a sufficient showing of “surprise.” Relief was also denied because “Kerrnita Park or persons who could or were acting for it had notice of this case, but did nothing to protect its interests.” As to section 764.010, the order stated the action was essentially one for “adverse possession,” therefore the provision relating to quiet title did not apply. Kerrnita Park timely filed its notice of appeal.
DISCUSSION
I. Trial Court’s Denial of Relief Under Section 473 Was Abuse of Discretion
Under section 473, subdivision (b), a trial 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.” A motion for relief from default and default judgment under section 473 is addressed to the sound discretion of the trial court and will not be disturbed on appeal unless there is a clear showing of abuse. (H.D. Arnaiz v. County of San Joaquin (2002) 96 Cal.App.4th 1357, 1368; Davis v. Thayer (1980) 113 Cal.App.3d 892, 904.) However, the trial court’s discretion is not unlimited and must be “‘“exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.”’ [Citations.]” (Elston v. City of Turlock (1985) 38 Cal.3d 227, 233; Stafford v. Mach (1998) 64 Cal.App.4th 1174, 1180.)
Moreover, because of the strong policy favoring trial on the merits, “a trial court order denying relief is scrutinized more carefully than an order permitting trial on the merits.” (Elston v. City of Turlock, supra, 38 Cal.3d at p. 233.) “Where, as here, the trial court denies the motion for relief from default, the strong policy in favor of trial on the merits conflicts with the general rule of deference to the trial court’s exercise of discretion. [Citation.] Unless inexcusable neglect is clear, the policy favoring trial on the merits prevails. [Citation.] Doubts are resolved in favor of the application for relief from default [citation], and reversal of an order denying relief results [citation]. Reversal is particularly appropriate where relieving the default will not seriously prejudice the opposing party. [Citations.]” (Id. at p. 235.)
Section 473 requires the moving party to demonstrate the existence of mistake, inadvertence, surprise or excusable neglect. (Davis v. Thayer, supra, 113 Cal.App.3d at p. 905 [“the moving party must present a reasonable excuse”].) Here, Kerrnita Park moved for relief from default and judgment under section 473 on the ground of “surprise.” The “surprise” referred to in section 473 is “‘“some condition or situation in which a party … is unexpectedly placed to his injury, without any default or negligence of his own, which ordinary prudence could not have guarded against.”’” (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 611, quoting Credit Managers Assn. v. National Independent Business Alliance (1984) 162 Cal.App.3d 1166, 1173.)
The pleading on which default was taken, the second amended complaint, was served on Kerrnita Park by personal delivery to Thomas as the designated agent for service of process. It was not disputed that at the time the second amended complaint was served, Thomas was the person listed with the California Secretary of State’s office as the agent for service of process on behalf of Kerrnita Park. Additionally, Thomas admitted that she was a shareholder and corporate secretary of Kerrnita Park. And, although not entirely clear, it appears she may have also been on the board of Kerrnita Park.
Thomas’s mandatory settlement conference statement refers to the fact that other people have made the contention she cannot personally claim an interest in the property because “she was on the board.” Thomas did not deny being on the board, but said the arguments were moot or untimely.
In support of its motion, Kerrnita Park submitted declarations of two of its shareholders, Monty Freeman and Virgil Mills. In their declarations, Freeman and Mills claimed the adjacent lot belonged to “[Kerrnita Park], a former corporation, and/or [its] shareholders which consist of 27 individuals and metered properties.” Freeman and Mills stated they did not become aware that the second amended complaint had been served on Thomas as agent for Kerrnita Park until months later, when they independently reviewed the court file. They asserted in their declarations that they believed Thomas would take necessary steps to protect the interests of Kerrnita Park, in accordance with her fiduciary duties to the corporation, or at least that she would not do anything prejudicial thereto. It allegedly came as a surprise that Thomas, after receiving service of process of the second amended complaint on behalf of Kerrnita Park, would fail to take any action to protect the corporation from a default or to alert all interested shareholders that a default was imminent. Freeman and Mills also expressed great surprise that after doing nothing to prevent a default against Kerrnita Park, Thomas would enter a settlement that benefitted her personally to the detriment of the interests of Kerrnita Park.
In opposition to the motion, Thomas submitted her own declaration stating that she told Freeman and Mills that by hiring an attorney and filing an answer in the litigation, she was pursuing her own individual claim and she was not representing the interests of the corporation.
The trial court allowed the parties to submit supplemental declarations. Freeman’s supplemental declaration asserted that Thomas, at an April 2006 meeting, told shareholders that she hired an attorney who would be looking after and protecting the interests of the other homeowners and of Kerrnita Park. In her supplemental declaration, Thomas vehemently denied making any such statement. Rather, when she was asked at the April 2006 meeting if her attorney could represent Kerrnita Park and the other interested parties, she merely advised the group that she would “inquire of [her attorney] whether he could represent me as well as other interested parties and the water district itself.” According to Thomas’s supplemental declaration, she later told Freeman and Mills that her attorney would not be representing anyone besides her due to conflicts of interest. Thomas also pointed out that Freeman and Mills had appeared at numerous hearings in the action and they would not have misunderstood the nature of her involvement in the case.
We conclude, based on our review of the facts and circumstances presented to the trial court and the strong policy favoring trial on the merits, that the trial court abused its discretion when it failed to grant Kerrnita Park’s motion for relief from the default and stipulated judgment under section 473. Our conclusion is based on the following considerations.
First, the second amended complaint, which was the operative pleading in the action, was served on Kerrnita Park by delivery to Thomas as agent for service of process on behalf of Kerrnita Park. Aside from the purported service by publication, this was the only effort to serve Kerrnita Park. It appears that Thomas, after receiving service of the second amended complaint on behalf of Kerrnita Park, took no action to inform interested shareholders of this critical fact. Indeed, shareholders Freeman and Mills aver in their declarations that they did not learn the second amended complaint had been delivered to Thomas as Kerrnita Park’s agent for service of process until they independently searched the court file months after the service occurred. We believe Thomas’s silence and inaction as agent for service of process -- particularly where her relationship to the corporation included that of a co-shareholder and a position of corporate responsibility with presumed fiduciary duties -- could not have been reasonably anticipated by Kerrnita Park or its shareholders. To the contrary, it would be reasonably expected that Thomas, as a corporate agent, would take steps to notify the interested shareholders long before a default was imminent.
Plaintiff has not sought to support the default based on the publication of the original summons. The reason for that is apparent. As noted by Kerrnita Park, the publication of summons regarding the original complaint did not comply with the applicable legal requirements for publication of summons in a quiet title action. These legal requirements include, in addition to publication of the summons (with a description of the real property), the posting of the summons in a conspicuous place on the real property and the recording of a notice of pendency of action. (See §§ 763.020, 763.030.) Furthermore, “[w]henever the court orders service by publication, the court before hearing the case shall require proof that the summons has been served, posted, published as required, and that the notice of pendency of action has been filed.” (§ 763.040.) Here, no such proof of service was ever filed to establish the necessary facts of valid publication, posting of summons on the real property, and recording of a notice of pendency of action.
To the extent that Freeman and Mills may have learned before Kerrnita Park’s default of the service of process on Thomas, as agent for Kerrnita Park, we note they are only two of the apparently 27 shareholders. Further, in light of Thomas’s duties to the corporation, they could reasonably assume under the circumstances that if nothing had been done by Thomas to prevent default and if such default was imminent, she would have actively informed the interested shareholders.
Second, the nature of Thomas’s involvement in the quiet title action was ambiguous and this circumstance reasonably contributed to Kerrnita Park’s surprise. Even though Thomas previously appeared in the action, the second amended complaint failed to name her individually as an interested party, despite the fact that plaintiff was required by section 762.010 of the quiet title law to name as defendants all persons having adverse claims to the title. Moreover, Thomas’s answer to the second amended complaint did not, as another section of the quiet title law requires, set forth “[a]ny claim the defendant has” to the disputed real property (§ 761.030); nor did Thomas avail herself of her right to file a cross-complaint to set forth such a claim to title (see § 761.040). Thus, it reasonably appeared from the pleadings that Thomas was simply defending the action -- a position reasonably consistent with her status as a shareholder of Kerrnita Park. Coincidentally, the trial court’s minutes of the December 15, 2006 mandatory settlement conference reflected, albeit mistakenly, that Thomas’s attorney was also representing Kerrnita Park. In short, the uncertainty regarding the nature of Thomas’s involvement and interest in the action further supports the conclusion that relief was warranted based on reasonable surprise. Under the circumstances, Kerrnita Park could not have reasonably anticipated the taking against it of a default and stipulated judgment by which Thomas suddenly emerged with title and ownership (as split with plaintiff) of the adjacent lot that had allegedly belonged to Kerrnita Park.
Third, although not explicitly mentioned as a basis for “surprise,” Kerrnita Park’s motion in the trial court objected to the stipulated judgment and requested that it be set aside because a quiet title judgment must be based on proof of title, rather than on a mere default. (See § 764.010.) We believe the objection implicitly supported the argument for “surprise” because a defendant in a quiet title action is entitled to rely on the assumption that this statutory condition for relief (i.e., that plaintiff’s title will be established based on evidence thereof) will be followed. Here, immediately after the entry of default against Kerrnita Park, Thomas stipulated to entry of a judgment that effectively eliminated the requirement for any proof of title, all to her own personal benefit and to the detriment of Kerrnita Park.
In light of the strong policy favoring trial on the merits, we believe the circumstances summarized above compellingly demonstrated the existence of “surprise” as a basis for relief from default and the stipulated judgment. We conclude the trial court abused its discretion when it failed to grant the motion pursuant to section 473.
In view of this conclusion, it is unnecessary to reach Kerrnita Park’s alternative argument that the default should have been set aside under section 473.5.
II. Trial Court’s Use of Stipulated Judgment Procedure Violated Section 764.010
Plaintiff’s second amended complaint alleged that defendant Kerrnita Park was the record owner of the adjacent lot to which plaintiff asserted a claim of adverse possession. After Kerrnita Park’s default was taken, plaintiff and Thomas agreed to a stipulation for entry of judgment by which the two of them would split the ownership of the adjacent lot along an agreed boundary line. The trial court entered judgment pursuant to the stipulation, noting therein that “[a]ll defendants other than … THOMAS had their defaults entered by the clerk upon … plaintiff’s application.”
Section 764.010 provides: “The court shall examine into and determine the plaintiff’s title against the claims of all the defendants. The court shall not enter judgment by default but shall in all cases require evidence of plaintiff’s title and hear such evidence as may be offered respecting the claims of any of the defendants, other than claims the validity of which is admitted by the plaintiff in the complaint. The court shall render judgment in accordance with the evidence and the law.” This provision means that in quiet title actions, a plaintiff does not have a right to entry of a default judgment in his or her favor as a matter of course, but must prove his claim to title by competent evidence. (Yeung v. Soos (2004) 119 Cal.App.4th 576, 580-581.)
Here, the stipulated judgment procedure used by the trial court was, in regard to its effect on Kerrnita Park, plainly a default judgment. We reject the trial court’s attempt to distinguish the statutory requirements of the quiet title law on the ground that the instant case was for “adverse possession,” since a claim of adverse possession is a recognized ground for seeking a quiet title remedy (see, e.g., § 761.020). That is precisely the cause of action that was alleged here. Plaintiff sought to quiet title to the adjacent lot based on his claim of adverse possession. The plaintiff’s pleading, in both its form and substance, was manifestly one for quiet title. Consequently, the trial court erred by failing to require evidence in support of the claims of title prior to entering judgment. On remand, the trial court shall conduct the required evidentiary hearing pursuant to section 764.010 prior to entry of any judgment quieting title.
DISPOSITION
The judgment is reversed. The order denying relief from default is vacated. The matter is remanded with instructions that an evidentiary hearing pursuant to section 764.010 must be held before any judgment quieting title can be entered. Costs on appeal are awarded to Kerrnita Park.
WE CONCUR: Levy, Acting P.J., Cornell, J.