Opinion
A154513
04-30-2020
SERGIO NIZ, Cross-Defendant and Appellant, v. RELIANCE MANAGEMENT GROUP, INC., Cross-Complainant 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. CIV523788)
Cross-defendant and appellant Sergio Niz appeals from a default judgment entered in favor of cross-complainant and respondent Reliance Management Group, Inc. (Reliance) in the amount of $599,936.96. We conclude the judgment cannot stand for several reasons and reverse.
BACKGROUND
Nearly a decade ago, in June 2012, Anna-Becky Redlich entered into a home improvement contract with Reliance, Forrest Linebarger (the sole officer and owner of Reliance), and Vox Management Design Group Inc. (Vox) to renovate her Hillsborough home ("Improvement" contract). Linebarger also owned several other entities, including Proline Sourcing, Inc.
Linebarger was the sole shareholder of Granite Peak Holdings, Inc., which was the sole shareholder of Reliance and Proline. Linebarger was also the CEO of both Reliance and Proline.
Proline entered into an independent contractor agreement with Paul Burton ("Proline-Burton" contract). Reliance subsequently assigned Burton to be the project manager on the Redlich project. Burton, in turn, arranged for subcontractors to perform the work, including Niz Construction Company (owned by appellant Sergio Niz) (collectively referred to as "Niz").
The Redlich project did not end amicably, and Reliance eventually terminated Burton as project manager after discovering an alleged "series of schemes to defraud Reliance on multiple projects," including the Redlich project. After Burton was fired, Redlich filed a complaint against Reliance, Linebarger, and Vox for breach of contract.
Reliance and Vox unsuccessfully moved to compel arbitration, and this court affirmed the denial order. (Redlich v. Reliance Management Group, Inc. (Mar. 11, 2015, A140313) [nonpub. opn.].)
In June 2015, Reliance filed a cross-complaint against Redlich and nine other parties, including Burton and Niz.
The allegations of the cross-complaint pertinent to this appeal include the following: "Burton, an independent contractor, was assigned to be Reliance's project manager." Burton "purposefully mislead Reliance in not informing Reliance of the revoked status of [Burton's contractor's] license." "[B]etween the months of December 2012 and June 2013" (the period during which the Redlich renovation work was performed), "Burton and Redlich became personally and romantically involved." "Burton began a series of schemes to defraud Reliance on multiple projects to which Reliance had assigned Burton as a project manager, by abusing and violating the trust and confidence . . . Reliance . . . had in Burton to enrich Burton and his co-conspirators at Reliance's expense."
"As one part of his scheme . . . Redlich and Burton began to defraud Reliance by having work on the [Redlich] Project performed 'on the side,' without Reliance's involvement." "Redlich's contract with Reliance was a 'cost plus' contract, whereby Reliance was to select the subcontractors and was entitled to charge a markup on the amounts billed for labor and materials on the [Redlich] Project." However, "Burton and Redlich secretly agreed that Burton would arrange for certain labor and materials to be performed directly by subcontractors, without notice to or consent of Reliance," and "Redlich would pay the subcontractors directly, plus a twenty-percent (20%) 'project management' fee paid to Burton, with no funds going to Reliance." The scheme was allegedly facilitated by a Reliance employee, who also had a romantic relationship with Burton, and who manipulated Reliance's billings and paperwork so that Reliance "would not notice" that "work being done on the [Redlich] Project was not being billed through Reliance."
Niz was allegedly "one of the contractors who performed work on the [Redlich] Project in furtherance of the scheme to defraud Reliance." "Niz and Burton conspired to defraud Reliance on other jobs in addition to the Redlich Project. Specifically, in exchange for large cash 'kickback' payments . . . Burton, in his role as a Project Manager for Reliance, hired Niz as a subcontractor on the Redlich and other Reliance projects, in Mountain View, Los Altos, San Jose and Woodside, California." "[I]n exchange for these cash payments, Burton hired Niz as Reliance's framing contractor by rigging the bidding process so that Niz received the contracts, in direct violation of the bidding processes established by Reliance."
Reliance also alleged that another subcontractor, Carrera Millwork (and its principals), participated "in Burton's scheme to defraud Reliance." Specifically, Carrera "knowingly allowed Burton to issue a false invoice to Reliance using Carrera['s] . . . name and contact information. Burton then 'approved' the fraudulent invoice for payment by Reliance." "After Reliance remitted payment to Carrera Millwork, [its principals] fraudulently and knowingly misdirected the payment to credit the amount to the account of West Coast Building & Development, a company solely owned by Burton's sister. . . . Reliance's payment was credited to Burton's 'on the side' construction projects." Burton, with the insider employee at Reliance, "then falsified Reliance's records to conceal the payment of the false invoice. Thus, Burton and West Coast Building & Development misappropriated Reliance's funds for their own benefit, with the assistance of Carrera Millwork" and its principals.
"In late 2013, when Reliance became aware of some of Burton's fraudulent activities described above, it ended its independent contractor relationship with Burton." "Soon thereafter," Redlich sued Reliance. Burton, in turn, "deliberately and intentionally interfered with Reliance's business in order to retaliate against Reliance and its owner."
Reliance based six causes of action on these operative allegations. It asserted, as against all cross-defendants, claims for fraud/deceit (first cause of action), negligent misrepresentation (second cause of action), conspiracy (third cause of action), and intentional interference with contractual relations (fourth cause of action). As to the first two causes of action, Reliance alleged it had "been damaged in an amount to be proven at trial, of greater than one million dollars." It made no damage allegation as to the third cause of action. As to the fourth cause of action, Reliance alleged it sustained "harm" "in an amount to be proven at trial but exceeding" $350,000. Reliance additionally asserted, against Burton only, a claim for intentional interference with prospective economic advantage (fifth cause of action), and against Burton and Redlich, a claim for breach of contract (sixth cause of action).
Notably, Reliance did not allege a breach of contract claim against Niz, and made no allegations based on, or pertaining to, any contract it may have had directly with Niz.
After Niz failed to file an answer, Reliance requested and the clerk entered its default. The remainder of the case, including the cross-claims against Burton, moved forward.
In November 2017, the court (Judge Jonathan Karesh) issued a "Statement of Decision" on a variety of issues tendered to the court pursuant to a stipulated set of facts and cross-motions for summary adjudication. The court made a number of rulings as to the enforceability of the Improvement contract and the Proline-Burton contract (which consisted of an " 'Independent Contractor Agreement for Consultant' " with an " 'Independent Contractor Non-Compete Agreement Addendum' ").
The rulings pertinent to this appeal are as follows: There was a triable issue of fact as to whether Redlich breached section 12.9 of the Improvement contract by directly communicating with the subcontractors and/or directing the work of the subcontractors hired by Reliance to perform the work. The two-year prohibition on communicating with and directing subcontractors was unenforceable under Business and Professions Code section 16600. The meaning of the term " 'work' " as used in the Improvement contract was ambiguous, and there was a triable issue of fact as to whether Redlich breached section 12.11 of the contract by directly retaining and paying contractors for additional work. There was a triable issue as to whether Reliance was, as it claimed to be, a third-party beneficiary of the Proline-Burton contract. "[T]he non-compete language in Sect. 2 of the [Proline-]Burton Contract" was "invalid as a matter of law." The anti-" 'Interference' " provision set forth in Section 4 of the Proline-Burton contract was not, as a matter of law, invalid as there "is a distinction between an unlawful covenant not to compete under Sect. 16600, and a provision prohibiting an employee (or here, an independent contractor) from improperly soliciting an employer's (Reliance's) customers/clients." There was a triable issue as to whether the additional work for which Redlich directly paid contractors and Burton was outside the scope of the Improvement contract, and therefore there was a triable issue as to whether "Burton's actions in arranging [for] and performing the Additional Work 'interfered' with Reliance's 'contracts and relationships.' "
Burton claimed Redlich had made all required payments to Reliance and that the additional work for which she paid directly "was outside the scope of the [Redlich] Project."
After several days of testimony (including by Burton and Niz) and additional briefing by the parties, the court (Judge Steven Dylina), in February 2018, issued two written orders and, finally, final judgment.
Prior to testimony, Reliance dismissed its cross-claim for conspiracy (third cause of action). This had no practical effect on the case, as there is no independent cause of action for "conspiracy." (Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1291.) "Instead, it is a theory of co-equal legal liability under which certain defendants may be held liable for 'an independent civil wrong' [citations] committed by others. A participant in the conspiracy 'effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy.' " (Ibid., quoting Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 511.) Reliance also alleged, as we have recited, a conspiracy masterminded by Burton throughout its cross-complaint.
One of the orders (filed on February 2, 2018 and based on evidence presented in early December 2017) is entitled, "Findings" and "Order . . . on Bifurcated Issues Decided By Court Trial On December 11, 2017."
The findings relevant to the instant appeal include the following: Under the terms of the Improvement contract, Reliance was entitled to charge Redlich a 23.5 percent mark-up (for overhead and profit) "on the total amount invoiced by subcontractors and suppliers" and charged to "Redlich for this project." Reliance did not bill Redlich in a manner consistent with terms of the contract, and the court would determine the differential later in the proceedings. The Improvement contract was "invalid, void, and unenforceable based on many deficiencies and provisions in violation of [Business and Professions Code] Section 7159." Accordingly, neither Redlich nor Reliance could enforce the contract. Redlich was subject to "no requirement" that she "hire Reliance to perform work in excess of that outlined in the Home Improvement Contract." The term " 'work' " under the Improvement contract meant, as Redlich claimed, work "within the scope of" the Improvement contract. Reliance could not "enforce" the Proline-Burton contract "either as a party or a third-party beneficiary." The Proline-Burton contract was not enforceable as to the Redlich renovation project. Reliance "did not prove that Burton performed work requiring a contractor's license."
Based on its findings, the court ruled that although Redlich could not recover for breach of contract, she might be entitled to other remedies—an issue the court would determine at a later date. Redlich was, however, entitled to judgment on Reliance's cross-claims for intentional interference with contractual relations (fourth cause of action) and for breach of contract (sixth cause of action). Burton was likewise entitled to judgment on these cross-claims.
The second order (also filed February 2, 2018 and based on additional evidence pertaining to the fraud claims and cross-claims presented from January 19 through 31, 2018) was entitled "Order On Certain Additional Issues." As pertinent here, the court ruled as follows: Pursuant to stipulation of the parties, Reliance's cross-claim for intentional interference with prospective business advantage (fifth cause of action against Redlich and Burton only) was dismissed with prejudice. After having heard additional evidence and considered additional argument by the parties, the court found against Redlich on her claims against Reliance and Vox Design for fraud, and on her claims for unfair business practices (Bus. & Prof. Code, § 17200). It also granted Redlich's motion for judgment (Code Civ. Proc., § 631.8) on Reliance's cross-claim for fraud (first cause of action). It denied Burton's motion for judgment on that cross-claim, leaving that claim pending.
The trial court subsequently issued (on February 21, 2018) its "Final Judgment After Court Trial." The court additionally entered judgment in favor of Burton "as to all claims and causes of action asserted by Reliance," thus resolving all cross-claims in his favor, including Reliance's cross-claim for fraud (first cause of action).
Both Redlich and Reliance have appealed from this judgment (A154316), and we do not address here any of the issues they raise in that appeal.
In the meantime, the consequences of Niz's default had become a matter of dispute. Redlich maintained judgment should be entered in favor of both Burton and Niz, since the cross-claims against Niz were predicated on its collaborating in Burton's allegedly wrongful conduct and Burton had fully defensed all claims against him. Reliance opposed this result on the ground Niz's default had been taken and he had never filed a motion to vacate. Niz was therefore, according to Reliance, not entitled to any consideration on the merits, and Reliance asked the court to set a prove-up hearing date. In its final judgment the court stated: "Judgment as to defaulting cross-defendant Sergio Niz shall be heard in the ordinary course after judgment of the non-defaulting cross-defendants, pursuant to C.C.P. § 579."
The default hearing took place roughly three months later (before Judge V. Raymond Swope). Redlich's counsel appeared but acknowledged she was not appearing for Niz.
At the hearing, Reliance's counsel made an offer of proof that Niz had defrauded Reliance in two different ways. First, he first asserted that, by defaulting, Niz had "admitted that he defrauded Reliance by submitting invoices, changed orders, material bills that were fraudulent, [and] did not reflect actual work that was performed." According to counsel, Reliance's contract, billing and payment records established that Reliance had "improperly paid" Niz $254,277.29.
Second, counsel asserted, "Niz also harmed Reliance by doing side work for Reliance's customers," which deprived Reliance of its profit on the work, and when Reliance "discovered this scheme," Niz "was terminated as a subcontractor." In this regard, counsel claimed that "with respect to the side work that was performed [on the Redlich project]," there had been "checks paid directly to Mr. Niz or to Paul Burton" for the side work "in the total [amount] of $72,008.33." Counsel went on to claim that while Niz was a subcontractor, Reliance's profits "disappeared" "[a]nd then after he and Mr. Burton were terminated, the losses reversed themselves." Based on the assertion that payments to Niz represented 25 percent of Reliance's "direct labor costs" during the time Niz and Burton were on Reliance jobs, counsel maintained that was "prima facie" evidence that additional "lost profits caused by Mr. Niz" as a result of the side-job scheme "would be at a minimum 24 percent of the total lost profit," which counsel claimed was $273,351.
All told, counsel asked for judgment in the amount of $599,936.96.
Reliance filed a memorandum, declarations and exhibits in support of its requested damages. Given the basis on which we decide this appeal we need not, and do not, discuss these materials in detail.
At this juncture, counsel for Redlich was allowed to address the court, stating her view that a default judgment "cannot be taken when there are several co-defendants that are sued based on joint liability." She pointed out the cross-claims against Niz were all "based on [an] alleged conspiracy with co-defendant Paul Burton," and Burton had prevailed on every cross-claim Reliance had alleged against him, including having been found not liable for fraud "after a full court trial." "The authorities are very clear," said counsel, "that a default judgment cannot be taken when several co-defendants are sued on joint liability and one of them answers and asserts defenses which would exonerate . . . the defaulting party from liability."
Reliance responded that Redlich's counsel was improperly "trying to argue the merits of this default prove up."
The court then commented Niz had no "standing to make any argument" and it did not "believe that I can acknowledge the arguments that had been made on his behalf for that very reason."
Counsel for Redlich responded that the court was "the gatekeeper" in a default hearing, and that Reliance's counsel was fully aware of the pertinent authorities and had had an obligation to the court to disclose them. She also claimed Reliance's prove up materials ignored "the actual allegations in the complaint because the complaint makes it clear that all of these allegations arise out of this alleged conspiracy, and that the alleged co-conspirator asserted his defenses and prevailed in trial."
The court ruled it had "no requirement to relitigate the underlying proceedings" and entered judgment in the amount sought by Reliance.
DISCUSSION
The Default Judgment Improperly Included Damages on a Fraud Claim Never Alleged Against Niz
We start with observations recently made by our brethren in Division Two of this court in Grappo v. McMills (2017) 11 Cal.App.5th 996 (Grappo):
" 'It is, of course, the case that there is no opposing party in a default judgment situation. Thus, cases properly recognize that in such situation "it is the duty of the court to act as gatekeeper, ensuring that only the appropriate claims get through." (Heidary v. Yadollahi (2002) 99 Cal.App.4th 857, 868 . . . [(Heidary)]; see Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1179 . . . .)
" 'California Judges Benchbook: Civil Proceedings Before Trial (CJER 2d ed. 2008) (Benchbook) is a treatise that "focuses on the judge's role." (Benchbook, supra, preface, p. v.) It provides "practical working tools to enable a judge to conduct proceedings fairly, correctly, and efficiently. [It is] written from the judge's point of view, giving the judge concrete advice on what to look for and how to respond." (Ibid.)
" 'Chapter 16 of the Benchbook deals with defaults and default judgments, and in its second section of advice states that "[a] judge may enter a default judgment against a defendant only if the plaintiff has precisely followed certain procedures that ensure that the defendant received sufficient notice of the pending action to make an informed choice as to whether to defend or ignore the plaintiff's claims. [Citations.]" When the plaintiff fails to comply with these procedures, the defendant need not suffer the consequences of a default judgment. [Citation.]' (Benchbook, supra, § 16.2, p. 371.) As the Court of Appeal put it in Lopez v. Fancelli (1990) 221 Cal.App.3d 1305, 1312 . . . , the first case cited in the Benchbook: "The rules pertaining to defaults and default judgments must be precisely followed to ensure that a defaulting defendant is aware of plaintiff's claims." ' " (Grappo, supra, 11 Cal.App.5th at p. 1012, quoting Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 691, italics added.)
Thus, " ' "[i]t is imperative in a default case that the trial court take the time to analyze the complaint at issue and ensure that the judgment sought is not in excess of or inconsistent with it. It is not in plaintiffs' interest to be conservative in their demands, and without any opposing party to point out the excesses, it is the duty of the court to act as gatekeeper, ensuring that only the appropriate claims get through. That role requires the court to analyze the complaint for itself—with guidance from counsel if necessary—ascertaining what relief is sought as against each defaulting party, and to what extent the relief sought in one cause of action is inconsistent with or duplicative of the relief sought in another. . . ." ' " (Grappo, supra, 11 Cal.App.5th at p. 1013, quoting Heidary, supra, 99 Cal.App.4th at p. 868.) As has been repeatedly emphasized, " '[t]he court's role in the process of entering a default judgment is a serious, substantive, and often complicated one, and it must be treated as such.' " (Grappo, at pp. 1013-1014.)
It is apparent the trial court did not analyze Reliance's cross-complaint with the requisite degree of care and, as a result, entered judgment on a fraud claim that was never alleged against Niz.
As we have recited in detail, Reliance alleged its fraudulent conduct claims with great specificity, as, indeed, it was required to do. (See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184 [fraud must be pled with particularity]; Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 989 [specificity requirement "gives the defendant notice of the definite charges to be met"].) And, as the allegations make clear, Reliance alleged different fraud claims against the two subcontractors it claimed were in cahoots with Burton.
As to Niz, Reliance alleged it conspired with Burton to perform side-work, whereby Reliance clients, such as Redlich, paid Niz and Burton directly for the work, thereby depriving Reliance of its ability to bill and charge its markup (which the trial court found was 23.5 percent) for the subcontracting work. Burton allegedly made sure his co-conspirator Niz would be on the job by accepting " 'kickback[s]' " and "rigging" the bidding process.
As to Carrera Millwork, Reliance alleged that "on at least one occasion" the sub-contractor worked with Burton to submit a "fraudulent" invoice to Reliance so that Reliance was "double-billed" for Carrera's work. With the help of a defalcating employee of Reliance, Carrera then "misdirected" the overpayment by Reliance to a company owned by Burton's sister and "falsified Reliance's records to conceal the payment of the false invoice."
In short, the only wrongdoing Reliance alleged as to Niz was that it collaborated with Burton in the side-work scheme, depriving Reliance of the 23.5 percent markup on subcontracting work it claimed it was entitled to under the terms of its Improvement contract with Redlich and other clients.
However, as we have also recited in detail, the trial court allowed Reliance to prove up damages not only for the side-work claim it actually alleged against Niz, but also for a fraudulent billing claim it never alleged as to Niz.
Reliance's counsel maintained this was proper because, by defaulting, Niz had "admitted that he defrauded Reliance by submitting invoices, changed orders, material bills that were fraudulent, [and] did not reflect actual work that was performed." (Italics added.) Not so.
Reliance never alleged Niz engaged in a fraudulent billing scheme whereby Reliance paid Niz more than it should have; it alleged only that Carrera Millwork did so. Thus, even acknowledging that Niz, by defaulting, admitted all "well pled[]" facts of the complaint (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281 (Kim)), what Niz "admitted" was that Carrera Millwork collaborated with Burton and a dishonest Reliance employee to submit a fraudulent bill to Reliance and funnel the duplicative payment to Burton. This "admission" does not, and cannot, support a claim of billing fraud by Niz resulting in overpayment by Reliance, and the trial plainly erred in allowing Reliance to prove up purported damages flowing from such a claim. (See Grappo, supra, 11 Cal.App.5th at p. 1014 [default judgment improper for numerous reasons, including because allegations indicated any wrong by the defendant was committed against a different party, not the named plaintiff]; Heidary, supra, 99 Cal.App.4th at pp. 866-867 [default judgment improper for numerous reasons, including because it included damages based on claims pertaining to defendants other than each defaulting defendant]; Nemeth v. Trumbull (1963) 220 Cal.App.2d 788, 791 [default judgment improper where complaint alleged wrongdoing by co-defendant, not defaulted defendant]; cf. In re Marriage of Lippel, supra, 51 Cal.3d at pp. 1166-1171 [default judgment that included child support improper where dissolution petition made no request for support; "[i]t is fundamental to the concept of due process that a defendant be given notice . . . of the specific relief which is sought" against him].)
" 'Substantively, "[t]he judgment by default is said to "confess" the material facts alleged by the plaintiff, i.e., the defendant's failure to answer 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 . . . .) The 'well-pleaded allegations' of a complaint refer to ' " 'all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.' " ' (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6 . . . , quoting Serrano v. Priest (1971) 5 Cal.3d 584, 591 [,superseded by statute on other grounds as stated in Crawford v. Huntington Beach Union High School Dist. (2002) 98 Cal.App.4th 1275, 1286]]. . . .) [¶] Because the default confesses those 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. (Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1746 . . . .) But that is all the default does. There is no penalty for defaulting. 'A defendant has the right to elect not to answer the complaint. (Greenup v. Rodman [(1986)] 42 Cal.3d [822,] 829. . . .)' " (Kim, supra, 201 Cal.App.4th at pp. 281-282, italics omitted.) And in order to intelligently exercise that right, the allegations of the complaint must apprise the defendant of the claim(s) made against it and maximum extent of any judgment. (See In re Marriage of Lippel (1990) 51 Cal.3d 1160, 1166 [a defendant "is not in a position to make such a decision [whether or not to default] if he or she has not been given full notice"]; Greenup, at p. 826 ["primary purpose of [Code of Civil Procedure section 580] is to guarantee defaulting parties adequate notice of the maximum judgment against them" "to insure fundamental fairness"].)
Accordingly, $254,277.29 of the judgment—the amount Reliance purportedly proved up and the court awarded for supposed billing fraud by Niz causing Reliance to pay Niz more than it should have—is unsustainable as exceeding the bounds of the claim asserted against Niz. (Heidary, supra, 99 Cal.App.4th at p. 868 ["The court cannot allow a plaintiff to prove different claims or different damages at a default hearing that those pled in the complaint."].) As to the Fraud Claim That Was Alleged Against Niz , a Default Judgment Was Improper Given Burton's Successful Defense of That Same Claim
As we have explained above, the only damages Reliance could pursue as to Niz flowed from the claimed wrongdoing Reliance alleged—that Niz colluded with Burton to perform side-work, thereby depriving Reliance of its right under Improvement contracts to bill, and charge a mark-up, for all subcontracting work.
However, even when a plaintiff adequately pleads a cause of action against a defaulting party, there is an exception to the propriety of entering a default judgment in a circumstance that arises infrequently—but which arose here.
That circumstance is where a default judgment is sought "against one of several codefendants if the other has raised defenses which, if proven, would establish the nonliability of the defaulting defendant." (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2019) § 5:264, p. 5-69.) "The rule is definitely established that where there are two or more defendants and the liability of one is dependent upon that of the other[,] the default of one of them does not preclude his having the benefit of his codefendants establishing, after a contested hearing, the nonexistence of the controlling fact; in such case the defaulting defendant is entitled to have judgment in his favor along with the successful contesting defendant." (Adams Mfg. & Engineering Co. v. Coast Centerless Grinding Co. (1960) 184 Cal.App.2d 649, 655 (Adams Mfg.).)
" 'In other words, [when] the defenses interposed by the answering defendant [go] to the whole right of the plaintiff to recover at all' "—" 'as distinguished from his right to recover as against any particular defendant' " based on personal defenses such as " 'infancy, coverture, or bankruptcy' "— and " 'when such defenses prove successful[,] they enure to the benefit of the defaulting defendant, and final judgment must therefore be entered not only in favor of the answering defendant, but in favor of the defaulting defendant as well.' " (Adams Mfg., supra, 184 Cal.App.2d at pp. 655-656, quoting Plott v. York (1939) 33 Cal.App.2d 460, 463; see Mirabile v. Smith (1953) 119 Cal.App.2d 685, 687-689 (Mirabile) [affirming writ prohibiting trial court from entering default judgment; since any judgment against the defaulting defendant would be "predicated upon a claimed partnership or joint venture liability" with the answering co-defendants, if "the defense presented by the appearing defendants is sustained, no judgment could or should be entered against [the] defaulting defendant"].) Were the law otherwise, "a grave injustice would result." (Mirabile, at p. 689.)
The principle recognized and applied in the cited cases applies here.
As our detailed recitation of the allegations against Niz demonstrates, Reliance's cross-claims against it—for fraud, negligent misrepresentation, conspiracy, and intentional interference with contractual relations—were based entirely on Niz's alleged conspiracy with Burton to perform side-work that was paid for directly by homeowners like Redlich—work that Reliance claimed was impermissible under the terms of its Improvement contract with Redlich and other homeowners. Reliance claimed Burton set the stage for this supposedly wrongful side-work by "rigging" the bidding process to ensure Niz's selection as a subcontractor, and that Niz played along by giving " 'kickback[s]' " to Burton. Reliance claimed it was harmed by this side-work scheme because it was deprived of its right to bill and charge a markup for all subcontracting work.
Burton vigorously—and successfully—defended against all of Reliance's cross-claims against him. Among other things, the trial court ultimately ruled Burton's alleged side-work arrangement was not prohibited by any contractual obligation owed to Reliance. Specifically, the court found the Improvement contract between Redlich and Reliance was "invalid, void, and unenforceable based on many deficiencies and provisions" in violation of Business and Professions Code section 7159. It also ruled Reliance could not enforce the Proline-Burton contract, either as a party or third-party beneficiary. Accordingly, the court found Reliance could not maintain its breach of contract claim or its intentional interference claim against Burton. It further found, after a full court trial, against Reliance of its fraud claim against Burton. These rulings and the judgment in favor of Burton necessarily eviscerated Reliance's cross-claims against Niz, as they were based on the identical allegations of wrongful side-work against Burton on which Burton prevailed.
In short, the defenses Burton raised as to Reliance's fraud, negligent misrepresentation and intentional interference claims and on which he prevailed, pertained equally to Niz. Accordingly, consistent with the authority discussed above, judgment should have been entered in favor of both Burton and Niz. Otherwise, "a grave injustice would result." (Mirabile, supra, 119 Cal.App.2d at p. 689.)
Reliance maintains the Adams Mfg./Mirabile principle does not apply because its cross-claims against Niz were broader in scope than its cross-claims against Burton, and therefore Burton's defenses did not wholly dispose of its cross-claims against Niz. Reliance points to the fact the trial court focused on the Redlich Improvement contract and the Redlich project, whereas its allegations against Niz encompassed additional projects, specifically "in Mountain View, Los Altos, San Jose and Woodside."
What Reliance overlooks is that it alleged exactly the same as to Burton. Its additional-projects allegation appears in Reliance's extensive "Background Allegations," which set forth the factual bases for all of its causes of action, including the first four causes of action asserted against all defendants, including Niz and Burton. Indeed, the additional-projects allegation is specifically incorporated by reference into each of these causes of action.
Reliance has also taken its additional-projects allegation out of context. The entirety of its allegation is as follows: "Specifically, in exchange for large cash 'kickback' payments (including payments in December 2012 of nine and ten thousand dollars from Niz,) Burton, in his role as a Project Manager for Reliance, hired Niz as a subcontract on the Redlich and other Reliance projects, in Mountain View, Los Altos, San Jose and Woodside, California." Reliance similarly, and specifically alleged in its dismissed conspiracy claim (asserted against both Niz and Burton) "that Burton organized and conspired with Redlich, Carrera Millwood, Niz, West Coast Building & Development, Monique Burton, and Larsen [Reliance's former employee], to scheme in performing work on the Project 'on the side' [(the operative allegations against Niz)] and to otherwise defraud Reliance of the benefits of its contracts with customers, including altering records, [and] issuing false invoices [(the operative allegations against Carrera Millwork)]." And in its intentional interference claim, Reliance specifically alleged: "Burton, at Redlich's specific request, coordinated and organized for all other named Cross-Defendants to intentionally interfere with the contract between Reliance and Redlich entered into in June 2012, and with other contracts with Reliance's customers to which Burton had been assigned as a project manager." Rather than supporting Reliance's claim that it alleged different and broader claims against Niz than it did against Burton, these allegations underscore it alleged identical claims against Niz and Burton.
Thus, Reliance's assertion that it alleged a different and broader fraud claim against Niz than it did against Burton is meritless, if not disingenuous. Reliance alleged the identical fraud claim against Niz and Burton—that they engaged in a side-work scheme not only on the Redlich project but on several other projects as well, which deprived Reliance of its claimed right to bill and add a markup for all subcontracting work on these projects. Thus, what Reliance is actually trying to rely on to avoid the Adams Mfg./Mirabile principle is the fact that it did not prove all of its allegations against Burton and put on a case focused on the Redlich project. While that may have been Reliance's tactical choice when it came time to prove its cross-claims against Burton, that does not change the fact Reliance alleged the identical fraud claim against Niz and Burton, and Burton fully defensed this claim on legal grounds and for lack of proof.
In light of our conclusion that the principle articulated in Adams Mfg. and Mirabile applies, we need not, and do not, address any of the other arguments Niz has raised on appeal.
DISPOSITION
The default judgment against Niz is reversed, with directions to enter judgment for Niz on Reliance's cross-claims against it. Costs on appeal to appellant.
/s/_________
Banke, J. We concur: /s/_________
Margulies, Acting P.J. /s/_________
Sanchez, J.