Opinion
G053992
09-20-2018
MCINERNEY & DILLON, P.C., Plaintiff and Appellant, v. WENDY ALTER HERMANN, Defendant and Respondent.
McInerney & Dillon, William H. McInerney, Jr., Deborah J. Wilson and Timothy L. McInerney for Plaintiff and Appellant. Law Office of Jewell J. Hargleroad, and Jewell J. Hargleroad for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2008-00116241) OPINION Appeal from a judgment of the Superior Court of Orange County, Geoffrey T. Glass, Judge. Affirmed as modified. McInerney & Dillon, William H. McInerney, Jr., Deborah J. Wilson and Timothy L. McInerney for Plaintiff and Appellant. Law Office of Jewell J. Hargleroad, and Jewell J. Hargleroad for Defendant and Respondent.
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In June 2009, appellant McInerney & Dillon (McInerney), obtained a default money judgment for $841,747.15 against respondent Wendy Alter Hermann, and a declaration that it had a lien on any and all proceeds Hermann obtained from three matters. Seven years later, the trial court summarily granted Hermann's motion to set aside and vacate the default judgment. McInerney contends no legal basis supports the trial court's order. For the reasons stated below, we conclude the court properly exercised its discretion in determining the lien was void and unenforceable, but erred in vacating the money judgment, which was not void on its face and equitable relief was not justified due to Hermann's lack of due diligence. Accordingly, we affirm in part, reverse in part, and remand the matter for further proceedings.
I.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. Complaint and Default Judgment
On December 17, 2008, McInerney filed a complaint against Hermann, alleging that Hermann breached her written agreement to pay legal fees, which totaled $841,747.15. According to the complaint, McInerney represented Hermann in three matters from September 2003 through July 2007. The complaint sought the unpaid fees in damages for breach of contract and a declaration the attorney's lien in the written contract was valid.
"An attorney's lien 'upon the fund or judgment which he has recovered for his compensation as attorney in recovering the fund or judgment . . . is denominated a "charging lien."'" (Fletcher v. Davis (2004) 33 Cal.4th 61, 66 (Fletcher), quoting Goodrich v. McDonald (N.Y. 1889) 19 N.E. 649, 651.)
Hermann did not answer the complaint. On April 17, 2009, McInerney filed a request for entry of default. In support, McInerney produced an attorney declaration attesting to the fact that Hermann owed $841,747.15 and the most recent invoices sent to Hermann. On June 1, 2009, the superior court entered a default judgment in favor of McInerney and against Hermann on the complaint. The judgment stated that McInerney was entitled to recover from Hermann the sum of $841,747.15 and that McInerney had a charging lien in the same amount against any proceeds recovered in three matters (Estate of Jane Alter, David v. Hermann and In re Jane Alter Living Trust). B. Motion to Set Aside and Vacate Default Judgment
Seven years later, on June 9, 2016, Hermann moved to set aside and vacate the default judgment. Hermann sought relief under Code of Civil Procedure section 473, subdivision (d), and under the trial court's equitable powers, arguing that the default judgment was void or entered as a result of extrinsic fraud or extrinsic mistake. Specifically, Hermann argued the judgment was void because McInerney failed to comply with rule 3-501 of the California Rules of Professional Conduct, which requires McInerney to serve her with the Notice of Client's Right to Arbitration. She also disputed that she owed $841,747.15, noting that the invoices attached to the application for entry of default lacked specificity. Finally, Hermann argued the charging lien authorized in the default judgment was void because there was no agreement on one of three matters (Estate of Jane Alter).
All further statutory citations are to the Code of Civil Procedure, unless stated otherwise.
All further rule citations are to the California Rules of Professional Conduct, unless stated otherwise.
In opposition, McInerney argued Hermann failed to demonstrate she was entitled to equitable relief on the basis of extrinsic fraud or mistake. McInerney asserted it had served Hermann with the Notice of Client's Right to Arbitration more than two months before filing the complaint and attached a copy of the signed proof of service. McInerney further argued it had produced sufficiently detailed invoices to support the amount of damages. Finally, McInerney argued that Hermann was not entitled to equitable relief because she had not shown diligence or excuse to explain why she waited seven years before challenging the default judgment. It noted that following the entry of default judgment, Hermann was served with numerous documents and letters concerning the judgment.
In reply, Hermann disputed that she received the Notice of Client's Right to Arbitration, claiming that the signature on the proof of service was not hers. Hermann further argued the charging lien in the written contract was unenforceable under Fletcher, supra, 33 Cal.4th 61, for failure to comply with rule 3-300. C. Trial Court's Ruling
On August 5, 2016, the trial court summarily granted Hermann's motion to set aside and vacate the default judgment. McInerney timely appealed. D. Requests for Judicial Notice
McInerney requests we judicially notice seven documents: three documents relating to its withdrawal from representing Hermann in the three matters, and four documents relating to notice of liens filed in two of the matters. As to the first three documents, we grant McInerney's request for judicial notice, but we deny the request to judicially notice the remaining four documents. We note that according to McInerney, two of the requested documents are already in the record on appeal. The remaining two documents are not certified copies and McInerney's belated attempt to supplement its motion with certified copies is untimely.
Hermann also requests we judicially notice various documents McInerney had filed with the State Bar listing its partners. Hermann argued the documents showed attorney Neil Bui was not an interested party in this matter because he was not a partner with McInerney during the time it performed legal work for her. We deny Hermann's request for judicial notice because she failed to demonstrate the relevance and materiality of the requested documents. Whether attorney Bui is an interested party has no relevance to whether the default judgment was void.
II.
DISCUSSION
McInerney contends the trial court erred in setting aside and vacating the default judgment under either section 473, subdivision (d), or its inherent equitable powers because the default judgment was not void on its face and Hermann could not show due diligence. Section 473, subdivision (d), provides: "The court . . . may, on motion of either party after notice to the other party, set aside any void judgment or order." "A trial court has no statutory power under section 473, subdivision (d) to set aside a judgment that is not void: Once six months have elapsed since the entry of a judgment, 'a trial court may grant a motion to set aside that judgment as void only if the judgment is void on its face.' [Citation.]" (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 495-496 (Cruz).) "A judgment or order is said to be void on its face when the invalidity is apparent upon an inspection of the judgment-roll." (Gibbons v. Clapp (1929) 207 Cal. 221, 224) "The judgment roll consists of the pleadings and certain other formal papers filed with the clerk of the trial court." (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 667, p. 738.) "We review de novo a trial court's determination that a judgment is void." (Cruz, supra, 146 Cal.App.4th at p. 496.)
Aside from section 473, a trial court has inherent equitable power to set aside a judgment on the grounds of extrinsic fraud or mistake. (Olivera v. Grace (1942) 19 Cal.2d 570, 575-576.) "Extrinsic fraud usually arises when a party is denied a fair adversary hearing because he has been 'deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense.'" (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471 (Kulchar).) Extrinsic mistake applies to circumstances outside the litigation that has unfairly cost a party a hearing on the merits. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981 (Rappleyea).) However, "[w]hen a default judgment has been obtained, equitable relief may be given only in exceptional circumstances." (Ibid.) A party in default must show a meritorious defense, a satisfactory excuse for not presenting a defense to the original action, and due diligence in seeking to set aside the default once discovered. (Rappleyea, supra, 8 Cal.4th at p. 982 [extrinsic mistake]; accord, Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 294 (Aheroni) [extrinsic fraud or mistake].) Because a motion for equitable relief is "direct," rather than "collateral," extrinsic fraud or mistake may be demonstrated by evidence not included in the judgment roll or record relating to the judgment. (Munoz v. Lopez (1969) 275 Cal.App.2d 178, 183-184.) We review the court's exercise of its equitable power to set aside a default judgment for an abuse of discretion. (Rappleyea, supra, 8 Cal.4th at p. 978.) A. Charging Lien
McInerney's complaint sought a judgment declaring that it had "an attorneys lien against any and all proceeds recovered or accrued by" Hermann in three cases. The default judgment granted the requested relief. Hermann contends the trial court properly vacated the default judgment with respect to the charging lien because McInerney failure to comply with rule 3-300 rendered the lien void and unenforceable.
Rule 3-300, which is entitled "Avoiding Interests Adverse to a Client," provides: "A member shall not ... knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied: [¶] (A) The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and [¶] (B) The client is advised in writing that the client may seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and [¶] (C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition." In Fletcher, supra, our Supreme Court held that failure to comply with rule 3-300 renders a charging lien unenforceable. (Fletcher, supra, 33 Cal.4th at pp. 66- 67.) Here, a charging lien was included in the retainer agreement between the parties, but the complaint does not allege and no evidence was presented that Hermann was advised to seek the advice of an independent lawyer and given a reasonable opportunity to do so. Thus, McInerney failed to comply with rule 3-300, and therefore the charging lien is void and unenforceable.
McInerney contends that Hermann is precluded from raising "factual disputes" about the charging lien, noting that Hermann's failure to answer the complaint has "'the same effect as an express admission of the matters well pleaded in the complaint.'" (Steven M. Garber & Associates v. Eskandarian (2007) 150 Cal.App.4th 813, 823 (Garber), quoting 6 Witkin, Cal. Procedure (4th ed. 1997) Proceedings Without Trial, § 153, p. 570.) The complaint never alleged compliance with rule 3-300, however. Moreover, a "judgment that is void on the face of the record is subject to either direct or collateral attack at any time." (OC Interior Services, LLC v. Nationstar Mortgage, LLC (2017) 7 Cal.App.5th 1318, 1327.)
McInerney argues the 2003 fee agreement is not controlled by Fletcher, a 2004 case. Relying on County of Los Angeles v. Faus (1957) 48 Cal.2d 672, 680-681 (Faus) and Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 305 (Moradi-Shalal), McInerney argues that "[w]here a constitutional provision or statute has received a given construction by a court of last resort, and contracts have been made or property rights acquired in accordance with the prior decision," "[j]udicial decisions are not applied retroactively to impair contracts made or property rights acquired in accordance with the prior rule." In those cases, however, our Supreme Court overruled its earlier decisions. (See Faus, supra, 48 Cal.2d at pp. 678-679 [overruling a rule of evidence set forth in a line of cases, including City of Los Angeles v. Cole (1946) 28 Cal.2d 509]; Moradi-Shalal, supra, 46 Cal.3d at p. 292 [overruling Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880].) Here, prior to Fletcher, no "court of last resort" had construed rule 3-300 as not applying to charging liens in hourly fee agreements. Indeed, Fletcher cited pre-2003 authority supporting its interpretation. (See Fletcher, supra, 33 Cal.4th at p. 70.) We also note that Fletcher invalidated a lien provision in a 1995 fee agreement. (Id. at p. 64.) Fletcher therefore applies to the 2003 fee agreement at issue.
Finally, McInerney argues its failure to comply with rule 3-300 renders the judgment voidable, not void, because the trial court had fundamental jurisdiction over the parties and subject matter. The trial court did not have jurisdiction to enforce a charging lien obtained in violation of rule 3-300. (See McIntosh v. Mills (2004) 121 Cal.App.4th 333, 336 & 346 [doctrine of illegality applies to fee-sharing agreement violative of California Rules of Professional Conduct].) Thus, that part of the default judgment declaring McInerney had a valid charging lien is void. (See Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1523 [illegal lien provision may be severed from fee agreement; "Fletcher did not state that noncompliance with rule 3-300 invalidates an underlying fee agreement or precludes an attorney from recovering a specified contractual fee."]; see also Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 495 [where challenged judgment only partially exceeded the trial court's jurisdiction, court could have modified the judgment to save that portion which was not void].) Accordingly, the trial court properly exercised its discretion to set aside and vacate that part of the default judgment. B. Money Judgment
McInerney contends that independent of the charging lien in the fee agreement, it has a lien in the Estate of Jane Alter matter pursuant to section 708.410, which provides a mechanism for judgment creditors with money judgments to obtain a lien. The existence and validity of any such judgment lien is not before us.
The default judgment awarded McInerney $841,747.15 in damages, the amount of unpaid legal fees and costs due under the 2003 fee agreement. Although the trial court did not explain the basis for its decision to set aside and vacate the default judgment, Hermann raised several grounds for relief from default.
1. Notice of Client's Right to Arbitration
Hermann contends the default judgment was void because McInerney did not give her notice of her right to arbitration of attorney fees, as required by Business and Professions Code section 6201, subdivision (a). Under that statute, failure to give the notice shall be "a ground for the dismissal of the action." We note there is a factual dispute whether Hermann was served with the required notice, but even had Hermann not been properly served, the default judgment was not void. The failure to provide a client with the required arbitration notice does not deprive the trial court of jurisdiction over an attorney's action to collect fees. (Aheroni, supra, 205 Cal.App.3d at pp. 294-295.) Rather, the burden is on the client to move for dismissal of the action based on failure to provide the arbitration notice. (Ibid.) Thus, the lack of the required notice renders the ensuing default judgment voidable, not void. (See Christie v. City of El Centro (2006) 135 Cal.App.4th 767, 780 ["The difference between a void judgment and a voidable one is that a party seeking to set aside a voidable judgment or order must act to set aside the order or judgment before the matter becomes final."].) Where the client failed to move for dismissal of the action on this ground, he or she is not entitled to relief from a subsequent default judgment. (Aheroni, supra, 205 Cal.App.3d at p. 295.) Here, the record does not show that Hermann moved for dismissal of the action before the default judgment was entered. Accordingly, she was not entitled to have the default judgment set aside as void.
2. Fees Incurred in Estate of Jane Alter
Next, Hermann contends awarding fees incurred in the matter of Estate of Jane Alter is void. Although Hermann acknowledges the complaint alleged the parties had a written agreement for fees incurred in Estate of Jane Alter, she notes no such agreement appears in the judgment roll and argues that McInerney has conceded the absence of any separate fee agreement for Estate of Jane Alter. Hermann further notes the billing invoices submitted with the application for entry of default did not include work done on Estate of Jane Alter. We conclude Hermann's argument is not cognizable on appeal because it is, in essence, a challenge to the sufficiency of the evidence supporting the default judgment.
As noted above, a defendant's failure to answer a complaint has the same effect as an express admission of the matters well pleaded in the complaint. (Garber, 150 Cal.App.4th at p. 823.) Thus, the "'sufficiency of the evidence cannot be reviewed on an appeal from a default judgment.' [Citation.]" (In re Matthew S. (1988) 201 Cal.App.3d 315, 320.) Here, the complaint pled that a written agreement existed between the parties for fees incurred in Estate of Jane Alter, and therefore Hermann cannot challenge that factual allegation on appeal. Additionally, even if we interpret Hermann's challenge as a claim that McInerney committed fraud on the court, i.e., it misrepresented that it had a written agreement in Estate of Jane Alter to obtain the default judgment, Hermann cannot demonstrate prejudice. As Hermann herself stated, the billing invoices submitted with the application for entry of default detailed expenses from two other matters. Those invoices are sufficient to support a finding that McInerney was entitled to recover $841,747.15 for its legal work on those two matters. Thus, even were the fees incurred for work on Estate of Jane Alter excluded from the judgment, McInerney still would be entitled to a money judgment in the amount of $841,747.15.
3. Billing Invoices
In a related argument, Hermann contends the money judgment is void because the invoices submitted in support of entry of default did not comply with Business and Professions Code section 6148, subdivision (b). That subdivision provides: "All bills rendered by an attorney to a client shall clearly state the basis thereof. Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney's fees and costs. Bills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses." However, failure to comply with the billing requirements "renders the agreement voidable at the option of the client, and the attorney shall, upon the agreement being voided, be entitled to collect a reasonable fee." (Bus. & Prof. Code, § 6148, subd. (c).) As no evidence showed Hermann sought to void the fee agreement for failure to comply with the billing requirements, she is not entitled to relief from the default judgment. (Aheroni, supra, 205 Cal.App.3d at p. 295.)
To the extent Hermann contends the invoices are insufficient to prove the amount of damages, that contention is not cognizable on appeal. "Because the default confesses th[e] properly pleaded facts, a plaintiff has no responsibility to provide the court with sufficient evidence to prove them—they are treated as true for purposes of obtaining a default judgment. [Citation.]" (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281-282.) Accordingly, as this court has stated, there is no authority for an appellate court to "review the evidence presented at the prove-up hearing on an appeal from a motion to vacate the default judgment filed long after the judgment has become final." (Sporn v. Home Depot USA, Inc. (2005) 126 Cal.App.4th 1294, 1303.
4. Equitable Relief
Finally, Hermann contends she is entitled to equitable relief from the default judgment based on extrinsic fraud or mistake. Hermann argues that McInerney knew when it served her with the complaint that she was not represented because the (former) McInerney lawyer who had represented her was embroiled in an employment dispute with McInerney. Hermann further contends McInerney was aware that she was suicidal, as she had been hospitalized for a suicide attempt "hardly a year prior to [McInerney's] abandonment" of her as a client. Finally, Hermann argues that McInerney misled her about her arbitration rights. According to Hermann, after receiving the complaint, she contacted a McInerney attorney to request an extension of time to respond and informed him that she had not been served with the Notice of Client's Right to Arbitration. The attorney told her that she had lost her right to request arbitration because she failed to respond to the two arbitration notices.
On the merits, no evidence below shows Hermann was entitled to equitable relief. Hermann's evidence does not show that McInerney fraudulently concealed from her the existence of the complaint and any viable defenses to the complaint. (See Kulchar, supra, 1 Cal.3d at p. 471 [extrinsic fraud occurs where party deliberately kept ignorant about action or fraudulently prevented from presenting a defense].) Hermann concedes she received the complaint. The fact that Hermann had been hospitalized almost a year before McInerney stopped representing her in July 2007 does not show she was suicidal in December 2008, when the complaint was served, or during the seven years before she finally challenged the default judgment. Finally, it was not reasonable for Hermann to rely on McInerney's representation that she had waived her right to arbitrate the fee dispute. McInerney had withdrawn from representing Hermann for more than a year, and it was clearly adverse to her with respect to the fee dispute. We also note that its representation that Hermann had waived her right to arbitration was not clearly fraudulent, as McInerney reasonably could believe that Hermann had been served with the required arbitration notice.
In any event, Hermann has not demonstrated entitlement to equitable relief from the default judgment. To obtain equitable relief, Hermann must show (1) a meritorious defense, (2) a satisfactory excuse for not presenting a defense to the original action, and (3) due diligence in seeking to set aside the default once discovered. (Rappleyea, supra, 8 Cal.4th at p. 982.) Even if Hermann could satisfy the first two elements, she cannot meet the third. Hermann does not dispute that she knew of the default judgment shortly after its entry on June 1, 2009. But she did not move to vacate the judgment until June 9, 2016, more than seven years later, and offers no explanation for the delay. Thus, Hermann is not entitled to equitable relief. (Lee v. An (2008) 168 Cal.App.4th 558, 566 [delay of more than two years before motion to vacate default judgment precluded equitable relief].)
III.
DISPOSITION
The judgment is modified to strike the award of a charging lien. As modified the judgment is affirmed. The parties are to bear their own costs on appeal.
ARONSON, ACTING P. J. WE CONCUR: FYBEL, J. IKOLA, J.