Opinion
A148285
03-29-2018
SUSAN MALL, Plaintiff and Respondent, v. THE ZIN GROUP, LLC, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Sonoma County Super. Ct. No. SCV-257380)
Defendant The Zin Group, LLC (Zin Group) appeals an order denying a motion to side aside a stipulated judgment against Zin Group. Zin Group contends the stipulated judgment was collusive because only one of the two managing members of Zin Group, Jeffrey Mall, agreed to enter into the stipulated judgment that benefitted Jeffrey's wife, plaintiff Susan Mall. Scott Silva, the other managing member of Zin Group, claims he did not consent to the stipulated judgment.
Because Jeffrey and Susan Mall share the same last name, we will refer to them by their first names. We intend no disrespect by this practice.
We agree with the trial court that Silva's claims stem from a disagreement with his business partner over the operation of Zin Group and do not justify setting aside a facially valid judgment. Accordingly, we shall affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Zin Group is a limited liability company that is owned equally by Jeffrey and Silva. Both Jeffrey and Silva are managing members of Zin Group. The primary business of Zin Group was the operation of Zin Restaurant and Wine Bar in Healdsburg. The restaurant ceased operations in 2014.
Jeffrey's wife, Susan, worked for Zin Group's restaurant as the manager of its catering operation. In 2014 and 2015, Susan made three loans to Zin Group totaling $81,000. The loan documents were signed by Jeffrey on behalf of Zin Group. According to Susan, the loan proceeds were used to pay taxes and overdue invoices owed by Zin Group. Silva alleges he was unaware of the loans and did not authorize them. He also claims the loan proceeds were used to fund unauthorized withdrawals from Zin Group for the personal use of Jeffrey and Susan.
In 2015, Zin Group entered into a contract to sell its business assets. Susan agreed to allow other third-party creditors of Zin Group to be paid before her loans were repaid. After other creditors' claims were satisfied, the sole remaining asset of Zin Group was a sum of money totaling approximately $78,450.66. Silva, as a 50 percent owner and managing member of Zin Group, refused to permit the sums claimed by Susan to be paid out of the escrow set up to facilitate the sale of Zin Group's business assets.
In June 2015, Susan filed a breach of contract action against Zin Group. She sought $81,000 in damages resulting from the failure of Zin Group to repay the three loans she made to it.
Silva and Jeffrey, as managing members of Zin Group, each retained separate counsel to represent Zin Group. The attorney retained by Silva filed an answer to the complaint on behalf of Zin Group on August 12, 2015. The attorney retained by Jeffrey entered into a stipulated judgment on behalf of Zin Group in favor of Susan in the amount of $78,450.66. Jeffrey signed the stipulation on behalf of Zin Group. The stipulation for entry of judgment was signed by the trial court judge and filed on August 13, the day after Zin Group had filed the answer prepared by the lawyer retained by Silva. A judgment was entered on August 18, and notice of entry of the judgment was served on August 24.
Six months later, in late February 2016, Silva filed a motion and application for leave to file a complaint in intervention and to set aside the stipulated judgment. Silva argued the stipulated judgment between Susan and her husband on behalf of Zin Group was void and should be set aside on equitable grounds. He claimed he was entitled to mandatory intervention under Code of Civil Procedure section 387 because his interest in the sole remaining asset of Zin Group was impaired by the stipulated judgment adverse to Zin Group. He sought to file a complaint in intervention alleging causes of action against Jeffrey for breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty. He also sought declaratory relief against all parties, including Susan. As stated in the introductory sentence of the proposed complaint in intervention, the dispute underlying that proposed complaint was "the ownership and operation of Zin restaurant through the LLC, named Zin Group, LLC, and the joint ownership or real property [in Healdsburg]."
All further statutory references are to the Code of Civil Procedure.
Susan opposed Silva's motion, arguing that the intervention was untimely, that the complaint in intervention expanded the issues beyond those relevant to the complaint, and that Silva had offered no grounds to set aside a validly entered judgment. Susan noted that the judgment had already been satisfied. Zin Group filed both a joinder in, and an opposition to, Silva's motion. The attorney retained by Silva to represent Zin Group filed the joinder, while the attorney retained by Jeffrey to represent Zin Group joined in Susan's opposition to the motion.
The trial court denied Silva's motion. The court reasoned in part as follows: "A valid judgment was entered. [Susan] received payment from the LLC pursuant to the judgment. The nature of Silva's claims stem from his disagreement with his business partner. An action between . . . a creditor of the LLC (plaintiff herein) and the LLC is not an appropriate forum for the owners of the LLC to resolve their disagreements regarding the operation of the LLC. Any disputes between the owners of [Zin Group] should be decided in a separate action. . . . [¶] Denying Silva's motion for leave to intervene will not prevent him from bringing his claims in a separate action; however, allowing Silva to assert unrelated issues would complicate the current action which has already been resolved, judgment entered, and judgment collected." This timely appeal followed.
DISCUSSION
On appeal, Zin Group contends the court erred in denying the motion to set aside the stipulated judgment, which it characterizes as collusive and fraudulent. It urges three separate grounds supporting the request to set aside the judgment—(1) relief under section 473, subdivision (b) for mistake, inadvertence, surprise, or excusable neglect (2) relief under section 473, subdivision (d) because the judgment is void, and (3) equitable relief based upon extrinsic fraud. As we explain, none of the asserted grounds justifies setting aside the judgment.
We begin by noting that Zin Group acknowledges in its briefing on appeal that Silva and Jeffrey "are each 50% owners of [Zin Group] and have equal authority to bind [Zin Group] to third parties" subject to "their fiduciary duties to the other and not to engage in self-dealing." In other words, there appears to be no dispute that either Jeffrey or Silva individually has authority to bind Zin Group, absent a showing that a unilateral decision by one managing member violates fiduciary duties owed to the other. Here, the gravamen of Zin Group's claim is that Jeffrey engaged in self-dealing and violated fiduciary duties owed to Silva by unilaterally entering into loan agreements and by settling the litigation between Jeffrey's wife and Zin Group.
"To obtain discretionary relief under section 473, [subdivision (b)], the moving party must show the requisite mistake, inadvertence, or excusable neglect." (Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 694.) We will not disturb the trial court's discretionary ruling " ' "absent a clear showing of abuse." ' " (Ibid.)
Zin Group cannot establish the necessary mistake, inadvertence, or excusable neglect to justify setting aside the judgment. The judgment was not entered as a result of Zin Group's neglect, but rather as a result of a conscious decision by a managing member who had authority to bind Zin Group. In its appellate briefing, Zin Group's primary complaint seems to be that it was deprived of a trial on the merits. But, as the trial court recognized, Zin Group and Silva are not prevented from pursuing their claims in a separate action. Accordingly, we discern no abuse of discretion in denying relief under section 473, subdivision (b).
Under section 473, subdivision (d), a party may seek to set aside a judgment on the ground it is facially void. (See Trackman v. Kenney (2010) 187 Cal.App.4th 175, 181.) But Zin Group can make no such showing. On its face, the judgment is valid. The stipulation for entry of judgment is signed by Zin Group's counsel and by Jeffrey, who Zin Group acknowledges is authorized to act on behalf of Zin Group. Zin Group has failed to explain how the judgment is void on its face. Instead, it focuses on evidence outside the four corners of the judgment concerning whether Jeffrey breached fiduciary duties owed to Silva and colluded with Susan to enter the judgment. Those allegations do not bear upon whether the judgment is facially void.
Zin Group next contends it is entitled in equity to set aside the judgment because it was procured through extrinsic fraud. It is well settled that a judgment obtained through extrinsic fraud may be set aside long after the judgment is final in an independent suit in equity. (Lazzarone v. Bank of America (1986) 181 Cal.App.3d 581, 596.)
Zin Group relies upon Skouland v. Skouland (1962) 201 Cal.App.2d 677, 678, for the proposition that a judgment procured through extrinsic fraud may be attacked either by an independent action or by a motion in the same action. But that case does not assist Zin Group. There, a party filed a motion supported by affidavits to set aside a final judgment on grounds of extrinsic fraud. The party opposing the motion submitted its own set of affidavits. (Id. at p. 678.) The appellate court affirmed the trial court's denial of the motion. Although the appellate court acknowledged the matter could be resolved by motion in the same action or an independent suit, it concluded the trial court did not "abuse its discretion in declining to consider setting aside the judgment on affidavits alone" where the parties submitted conflicting affidavits. (Id. at p. 679.) The court noted it was clear the trial court did not decide the question of whether there had been extrinsic fraud, so that the challenged order denying the motion to set aside the judgment would not preclude an independent suit in equity under principles of res judicata. (Ibid.)
In this case, much like in Skouland v. Skouland, the court was asked to decide the motion to set aside the judgment based on conflicting declarations. The court did not abuse its discretion in declining to grant the motion. Because there is a factual dispute about whether the judgment was procured through extrinsic fraud, that issue is best left to an independent suit in equity where the court may consider oral testimony as well as other evidence bearing upon the parties' contentions. At oral argument in the trial court below, Silva's counsel acknowledged that Silva could bring all of his claims in a separate lawsuit but expressed concern that res judicata principles might preclude such a suit. But, as Skouland v. Skouland makes clear, the order denying the motion to set aside the judgment does not preclude such a suit where the court did not decide the question of whether there had been extrinsic fraud. (Skouland v. Skouland, supra, 201 Cal.App.2d at p. 679.) The trial court here did not decide whether there had been any extrinsic fraud and, indeed, expressly stated that Silva's claims should be decided in a separate action. Therefore, we conclude the court did not err in denying the motion to set aside the stipulated judgment.
As a final matter, Zin Group contends the court abused its discretion in denying Silva's motion for leave to intervene. The claim fails for a variety of reasons. First, it is unclear whether Zin Group has standing to pursue this issue on behalf of Silva, who did not file a notice of appeal. The notice of appeal lists Zin Group as the sole appellant. Further, because there are no grounds to set aside the judgment and reinstate the action, we do not even need to reach the question of whether Silva should be allowed to intervene. In any event, as noted, Silva has a remedy available to him to vindicate his rights by filing a separate lawsuit.
DISPOSITION
The order of March 8, 2016, denying the motion to set aside the judgment and to permit Scott Silva to intervene is affirmed. Each party shall bear its own costs on appeal.
/s/_________
McGuiness, Acting P.J. We concur: /s/_________
Pollak, J. /s/_________
Jenkins, J.
Retired Presiding Justice of the Court of Appeal, First Appellate District, Division Three, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------