Opinion
E064536
02-15-2017
KATHE POLOS et al., Plaintiffs and Appellants, v. BUSINESS ALLIANCE INSURANCE COMPANY, Defendant and Respondent.
Newmeyer & Dillion, Robert K. Scott, and Arya Firoozmand for Plaintiffs and Appellants. Borton Petrini, Rosemarie S. Lewis, and Edward J. Morales 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. INC10005309) OPINION APPEAL from the Superior Court of Riverside County. John W. Vineyard and Gloria Trask, Judges. Affirmed. Newmeyer & Dillion, Robert K. Scott, and Arya Firoozmand for Plaintiffs and Appellants. Borton Petrini, Rosemarie S. Lewis, and Edward J. Morales for Defendant and Respondent.
Judge Gloria Trask signed the order of dismissal and Judge John W. Vineyard signed the judgment of dismissal.
Appellants Kathe and John Polos appeal from the judgment dismissing their breach of contract action against respondent, Business Alliance Insurance Company for their failure to bring the action to trial within five years. (Code Civ. Proc., § 583.310.) Appellants contend the superior court was required to extend the five-year statute because prosecuting the action was rendered impracticable during the period when their counsel awaited appointment as special counsel in their separate bankruptcy case. They also contend the superior court abused its discretion by refusing their request, filed less than two months before the five-year dismissal deadline, to set trial for a date before that deadline.
We affirm.
I
FACTUAL BACKGROUND
Kathe and John Polos owned the Rock Garden Café restaurant in Palm Springs, California. On December 26, 2008, a sprinkler supply pipe in the restaurant failed, and the restaurant suffered significant damage from water and mold. Appellants filed a claim with their insurer, Business Alliance Insurance Company (BAIC), but they were unable to resolve the claim in its entirety.
On June 17, 2010, Appellants filed a civil action against BAIC for breach of contract and breach of implied covenant of good faith and fair dealing. On September 14, 2011, the parties agreed to private mediation to be completed by March 30, 2012. The parties appear to have failed to reach a mediated settlement, because on April 30, 2012, appellants requested and the superior court set the first trial date for September 24, 2012.
In the meantime, appellants retained separate counsel and filed a bankruptcy petition on March 26, 2012. The litigation with BAIC was listed as an asset in the bankruptcy case. Amrane Cohen was appointed to serve as trustee.
Appellants' counsel learned about the bankruptcy case on September 10 and informed the superior court on September 11, 2012. He indicated he had conferred with bankruptcy counsel and an attorney working for the trustee and was advised he was required to apply for employment through the trustee to proceed as plaintiffs' counsel in this case. Counsel said he was in the process of filing his application with the bankruptcy court and indicated there is a 21-day waiting period to allow creditors to respond before the bankruptcy court could approve the application. Counsel did not request and the superior court did not enter a stay of the contract action at this or any point.
Counsel used the requirement that he apply to serve as special counsel as a reason for continuing the trial date. The court vacated the September trial date and set a scheduling conference for December 20, 2012. The appellate record contains no evidence showing appellants made any effort to move the case forward until three days before the new scheduling conference, when counsel emailed the bankruptcy attorney. He reported he had "spoke[n] with your para-legal for Chapter 13 matters today who advised me that [the bankruptcy] is still pending, and therefore our civil case in Indio Court remains stayed" and asked to discuss the case because "I have an appearance on the matter on this Thursday in Indio and need to advise the court of the status." He proposed "having the stay removed so we can prosecute the case in the Indio court." The record does not include a response. Counsel again requested and obtained a continuance of the scheduling conference, which the court set for April 4, 2013.
BAIC contends it deposed appellants in September 2012 and they did not object to discovery on the ground the bankruptcy case was pending. However, a declaration filed with the superior court by BAIC's counsel on September 6 indicates BAIC deposed appellants on September 4 and 5. Appellants' counsel represented he learned of the bankruptcy on September 10, 2012.
A week before that date, on March 27, 2013, counsel's office reached out to the trustee's office for assistance. A paralegal for appellants' counsel emailed an attorney for the trustee saying, "We need your help as we have no experience in Bankruptcy proceedings and I have been unable to locate the local rule or code section that must be followed in order to make [a] motion or application for employment" as special counsel. The paralegal noted she had spoken to the trustee, Mr. Cohen, "a few months ago and he said he thought we made the motion or application under Local Rule 3015(g) of the Bankruptcy Code . . . and that we would be applying to be employed by the Bankruptcy estate so that we can be paid from the proceeds of the estate." She also said, "We previously thought the matter was stayed but Mr. Cohen explained it is not as we are not 'creditors.'" The trustee's attorney responded the same day that there are no forms for the kind of application counsel needed to file, but suggested using a different form as a guide.
The record contains almost no other information about the application process. Both parties' attorneys filed declarations in the superior court saying the bankruptcy trustee approved counsel's application as special counsel on April 1, 2013. Counsel requested the scheduling conference be continued two more times, until September 13, 2013. On August 15, 2013, the bankruptcy court approved counsel as special counsel. The appellate record does not include any explanation why the bankruptcy court did not approve the appointment for four months. Nor does it contain evidence of any efforts by appellants or their counsel to move the process along. On September 13, 2013, counsel informed the superior court of the bankruptcy court's action, and the superior court set trial for March 17, 2014.
On February 7, 2014, the parties asked for another continuance to "allow for critical Bankruptcy issues including the closing of the Bankruptcy case to resolve prior to trial," which they anticipated would occur in March 2014. The superior court granted the request and set trial for May 5, 2014. On April 21, 2014, the parties requested another continuance, again to allow completion of the bankruptcy case, which they anticipated would complete in July or August 2014. The superior court vacated the trial date and set trial for February 2, 2015.
Appellants received their discharge from the bankruptcy court on September 5, 2014 and the bankruptcy case was closed on October 16, 2014. Appellants informed the superior court of these developments on November 3, 2014 and requested the superior court schedule a status conference and return the case to "active calendar status."
The breach of contract action was ultimately transferred to the superior court in Riverside, which scheduled trial for March 23, 2015, then continued it to April 20, 2015. The superior court heard motions in limine on March 23 and March 26, 2015. Critical to the issues before us, BAIC filed a motion in limine to preclude evidence of mold damage, claiming it was irrelevant because such damage was not covered under the terms of the policy. The superior court tentatively granted the motion to exclude evidence of mold, but allowed the parties to brief and argue the issue further. The superior court heard additional argument on April 10, 2015 and granted the motion.
At the conclusion of the hearing, appellants' counsel stated he could not proceed to trial as the ruling was "outcome determinative" of his clients' claim. Counsel said he would file a "confession of judgment" and file an appeal. He further requested the April 20 trial date be vacated. The superior court vacated the trial date and scheduled an order to show cause hearing on the judgment for June 26, 2015.
However, on May 6, 2015, appellants filed an ex parte application to reset the trial date before the five-year mandatory dismissal deadline of June 17, 2015. The motion said counsel had "conducted an extensive review of all the evidence to be presented at trial and have determined that the case can proceed solely as a water loss claim." The superior court held a hearing on May 11, 2015 and scheduled the trial date for July 17, 2015, after the mandatory dismissal date. The reporter's transcript does not contain a transcript of this hearing.
On May 13, 2015, appellants filed an ex parte application to extend the five-year dismissal deadline to August 1, 2015. Counsel blamed the delay in bringing the matter to trial on the bankruptcy court's delay in appointing him as special counsel in the bankruptcy proceedings. He also blamed the unexpected death of former lead counsel, who passed away July 17, 2013.
Appellants do not raise this argument on appeal.
The trial court held a hearing on May 14, 2015 and denied the ex parte application because "you neglected to mention that we were in trial, that it was the court's ruling on the motion in limine that you determined was outcome determinative, and that it was . . . plaintiff's counsel who chose to vacate the trial date." (Italics added.) The court ruled there was not sufficient urgency to grant the ex parte application.
On June 3, 2015, appellants filed a motion to extend the five-year dismissal deadline. On June 18, 2015, BAIC filed a motion to dismiss for failure to bring the action to trial within the five-year deadline. The trial court denied the motion to extend the five-year deadline and granted the motion to dismiss.
II
DISCUSSION
A. Impossibility, Impracticability, or Futility
Appellants contend they could not timely prosecute their lawsuit due to impossibility, impracticability, or futility during the time it took for their attorney to receive his appointment as special counsel in the bankruptcy court. They argue the trial court should have tolled the five-year statutory period to bring the case to trial for the 10 months they waited to be approved by the bankruptcy trustee and court to act as special counsel.
"An action shall be brought to trial within five years after the action is commenced against the defendant." (§ 583.310, italics added.) "An action shall be dismissed by the court on its own motion or on motion of the defendant, after notice to the parties, if the action is not brought to trial within the time prescribed in this article. [¶] . . . The requirements of this article are mandatory and are not subject to extension, excuse, or exception except as expressly provided by statute." (§ 583.360, italics added.)
Unlabeled statutory citations refer to the Code of Civil Procedure.
"In computing the time within which an action must be brought to trial pursuant to this article, there shall be excluded the time during which any of the following conditions existed:
(a) The jurisdiction of the court to try the action was suspended.Only the third exception is at issue in this case.
(b) Prosecution or trial of the action was stayed or enjoined.
(c) Bringing the action to trial, for any other reason, was impossible, impracticable or futile." (§ 583.340.)
In determining whether the exception applies, the trial court must consider "'all the circumstances in the individual case, including the acts and conduct of the parties and the nature of the proceedings themselves. [Citations.] The critical factor . . . is whether the plaintiff exercised reasonable diligence in prosecuting his or her case.'" (Gaines v. Fidelity National Title Ins. Co. (2016) 62 Cal.4th 1081, 1100 (Gaines); see also Tamburina v. Combined Ins. Co. of America (2007) 147 Cal.App.4th 323, 336.) The application of an exception to the dismissal "requires a fact-sensitive inquiry and depends 'on the obstacles faced by the plaintiff in prosecuting the action and the plaintiff's exercise of reasonable diligence in overcoming those obstacles.'" (Brun v. E-Commerce Exchange, Inc. (2011) 51 Cal.4th 717, 731, italics added.) "'Reasonable diligence places on a plaintiff the affirmative duty to make every reasonable effort to bring a case to trial within five years, even during the last month of its statutory life.'" (Jordan v. Superstar Sandcars (2010) 182 Cal.App.4th 1416, 1420, italics added.)
"The statute refers to excluding 'the time during which . . . [b]ringing the action to trial, for any other reason, was impossible, impracticable, or futile.' [Citation.] . . . 'Under Section 583.340 the time within which an action must be brought to trial is tolled for the period of the excuse, regardless whether a reasonable time remained at the end of the period of the excuse to bring the action to trial. . . .' [Citation.] Thus, a condition of impossibility, impracticability, or futility need not take the plaintiff beyond the five-year deadline to be excluded; it will be excluded even if the plaintiff has a reasonable time remaining after the period to bring the case to trial." (Gaines, supra, 62 Cal.4th at pp. 1100-1101.)
Where, as here, the period of delay occurs early in a case, "[i]t would . . . be illusory to ask if it was impracticable for [appellants] to try the case during the period of the [delay] because the posture of the case would not have allowed for such a result. Rather, in these types of circumstances, courts have focused on the extent to which the conditions interfered with the plaintiff's ability to 'mov[e] the case to trial' during the relevant period." (Gaines, supra, 62 Cal.4th at p. 1101.)
"The question of impossibility, impracticability, or futility is best resolved by the trial court, which 'is in the most advantageous position to evaluate these diverse factual matters in the first instance.' [Citation.] The plaintiff bears the burden of proving that the circumstances warrant application of the . . . exception. [Citation.] . . . The trial court has discretion to determine whether that exception applies, and its decision will be upheld unless the plaintiff has proved that the trial court abused its discretion. [Citations.] Under that standard, 'the trial court's findings of fact are reviewed for substantial evidence, its conclusions of law are reviewed de novo, and its application of the law to the facts is reversible only if arbitrary and capricious.'" (Gaines, supra, 62 Cal.4th at p. 1100.)
Here, appellants contend it was impracticable for them to move their contract case toward trial while they awaited their counsel's appointment as special counsel in their bankruptcy case. However, appellants have done nothing to explain why or how the bankruptcy proceeding posed an obstacle. They cite the provision of the Bankruptcy Code which says a bankruptcy trustee may, with the court's approval and under specified circumstances, "employ, for a specified purpose . . . an attorney that has represented the debtor." (11 U.S.C. § 327(e).) They conclude "[o]nce the bankruptcy was initiated by Plaintiffs, only the bankruptcy trustee had the legal capacity to prosecute the action during the bankruptcy" and "the bankruptcy trustee did absolutely nothing with regard to moving this action forward." They also assert "the bankruptcy proceedings prohibited Plaintiffs' counsel from continuing with the action during this time." Section 327 of the U.S. Bankruptcy Code and Business and Professions Code section 6147, subdivision (b), which appellants cite are irrelevant to appellants' ability to move their contract case to trial while awaiting special counsel appointment in a separate action. It is a basic rule of appellate procedure that "'briefs must provide argument and legal authority for the positions taken," and when an appellant asserts a point "but fails to support it with reasoned argument and citations to authority, we treat the point as waived."' [Citation.] 'We are not bound to develop appellants' arguments for them.'" (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.) Because appellants have so poorly articulated why they could not pursue the contract litigation before their lawyer was named special counsel, they have waived that basis of appeal.
Business and Professions Code section 6147, subdivision (b) provides, "Failure to comply with" the requirements in subdivision (a) that contingency fee agreements include information such as the contingency fee rate and how disbursements and costs will affect the fee and recovery "renders the agreement voidable at the option of the plaintiff, and the attorney shall thereupon be entitled to collect a reasonable fee." --------
In any event, on the merits, appellants cannot show they acted diligently. As it happens, there does appear to be a legal basis for appellants' contention that the filing of the bankruptcy deprived them of the ability to prosecute the contract action. "[G]enerally all causes of action possessed by a bankrupt vest in the trustee" and "the bankruptcy trustee, not [the bankruptcy petitioner] ha[s] the legal capacity to prosecute [a separate action] during the bankruptcy." (Lauriton v. Carnation Co. (1989) 215 Cal.App.3d 161, 164-165 (Lauriton).) The bankruptcy does not automatically stay a cause of action listed as an asset or deprive the court of jurisdiction, but it does deprive the bankruptcy filer of standing to prosecute the suit without approval of the trustee or the bankruptcy court. (Danielson v. ITT Industrial Credit Co. (1988) 199 Cal.App.3d 645, 655-656 ["'After adjudication of bankruptcy and the appointment and qualification of a trustee, the bankrupt is without right to institute or prosecute an action, cross-action, or proceeding except on a cause of action not passing to a trustee'"].)
Neither party cited this principle or the relevant authority in briefs filed in this court. Nor did the parties establish the principle applies in this case. However, at minimum it suggests counsel for appellants should have acted diligently to ensure appellants could continue to prosecute their contract case while the bankruptcy case was pending. Appellants contend the contract action was an asset of the bankruptcy estate. Assuming, for the sake of argument, that was true, the action "was not totally out of appellant[s'] control. Appellant[s] could have sought relief from the bankruptcy court, such as (1) an order permitting the trustee to prosecute this lawsuit in appellant[s'] name[s], (2) an order compelling the trustee to maintain the action, (3) an order authorizing appellant[s] to prosecute the action on [their] own behalf, or (4) a formal order of abandonment." (Lauriton, supra, 215 Cal.App.3d at p. 165.)
Instead of actively pursuing such remedies, the record shows appellants acted in a dilatory fashion. First, they filed for bankruptcy on March 26, 2012, but did not tell counsel about it for over six months. Second, on September 11, 2012, after counsel learned of the bankruptcy, he moved to continue trial on the basis that he needed to file an application in the bankruptcy court to serve as special counsel. Yet counsel did little, if anything, to regain control over the case over the three months leading to the new scheduling conference. On December 17, 2012, only three days before the scheduling conference, he contacted a paralegal for the bankruptcy attorney who mistakenly told him the contract case was stayed. In an email later the same day counsel asked the bankruptcy attorney to discuss "the possibility of having the stay removed." The record does not contain her response. This correspondence shows counsel did nothing to move the case forward for more than three months after telling the superior court he would apply to be appointed special counsel. Indeed, it appears counsel did not even know the bankruptcy was still pending until he spoke with the bankruptcy paralegal.
In fact, the contract case was not stayed, automatically or otherwise. At some point, counsel learned this fact. On March 27, 2013, a paralegal for appellants' counsel contacted an attorney for the bankruptcy trustee and said, "We previously thought the matter was stayed but Mr. Cohen [the trustee] explained it is not as we are not 'creditors.'" She then asked for advice on how to submit such an application to be appointed special counsel because "we have no experience in Bankruptcy proceedings." The trustee's attorney provided some advice, and, though the record is not clear, it appears counsel succeeded in submitting an application within a matter of days. According to the parties' attorneys, the trustee approved the application and submitted it to the bankruptcy court on or around April 1, 2013. Thus, counsel failed to get the bankruptcy trustee and the bankruptcy court an application to approve his acting as special counsel for nearly seven months. This failure establishes appellants did not take all reasonable actions to advance the contract action while the bankruptcy was pending and before the bankruptcy court approved counsel's application to serve as special counsel in August 2013.
"Since appellant[s] did not use every reasonable effort to bring the action to trial, [they] did not exercise reasonable diligence in prosecuting this case." (Lauriton, supra, 215 Cal.App.3d at p. 165.) We therefore conclude the trial court did not abuse its discretion in not excluding the time during which appellants' counsel awaited appointment as special counsel in the bankruptcy case from the five-year period under sections 583.310 and 583.340.
B. Appellants' Request to Reset the Trial Date Within the Five-year Deadline
Appellants contend the trial court was required to reset the trial prior to the running of the five-year deadline consistent with Code of Civil Procedure section 36 and Rule of Court, rule 3.1335(a) because counsel had the reasonable but false belief his clients could not proceed to trial because of the trial court's ruling on the admissibility of mold evidence. They argue the trial court abused its discretion in failing to reset the trial date before the five-year deadline. We disagree.
First, BAIC correctly argues appellants failed to raise this issue in their notice of appeal. (Cal. Rules of Court, rule 8.100(a)(2).) It is a fundamental rule the notice of appeal must specify each particular order being appealed. This rule is jurisdictional. The Court of Appeal does not have power to hear an appeal of an order not specified in the notice. (See, e.g., Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 240.) We generally construe notices liberally in order to implement the "strong public policy in favor of hearing appeals on the merits." (Department of Industrial Relations v. Nielsen Construction Co. (1996) 51 Cal.App.4th 1016, 1023-1024.) This is especially so where, as here, the notice engenders no prejudice and causes no confusion concerning the scope of the appeal. (In re Marriage of Macfarlane & Lang (1992) 8 Cal.App.4th 247.) While we agree appellants did not include in their notice of appeal the denial of the ex parte order to set the trial within five years, we will reach the merits because BAIC was on notice of the issue and included counterarguments in its response.
The trial court denied appellants' motion to schedule the trial date before the five-year deadline approached because appellants did not provide sufficient exigent circumstances to support granting the motion. The determination whether to reset the trial date within five years necessarily starts with a review of the plaintiff's diligence in prosecuting the action. There must be some showing of excusable delay to receive a preferential trial date. (Howard v. Thrifty Drug & Discount Stores (1995) 10 Cal.4th 424.)
The trial court heard motions in limine on March 23 and March 26, 2015, in preparation for trial set for April 20, 2015. It was the resolution of one of BAIC's motions in limine, and appellants' response to it that ultimately frustrated the timely litigation of the case. BAIC sought to preclude evidence of damage from mold on the ground that it was irrelevant because not covered under the terms of the policy. When the superior court granted BAIC's motion, appellants' counsel stated he could not proceed to trial without the evidence and would instead file a "confession of judgment" and file an appeal. At appellants' request, the trial court vacated the trial date and scheduled an order to show cause hearing on the judgment for June 26, 2015.
By May 6, 2015, appellants had changed their minds. They filed an ex parte application to reset the trial before the five-year mandatory dismissal deadline of June 17, 2015. The motion contended counsel had "conducted a careful review of the evidence to be presented at trial and determined that the case could proceed solely as a water loss claim." The superior court held a hearing on May 11, 2015 and scheduled the trial date for July 17, 2015, after the mandatory dismissal date.
As this history shows, the real reason appellants' failed to litigate their case in a timely fashion was their counsel's tactical decision to pursue an immediate appeal on the motion in limine rather than keep the April 20 trial date. Appellants contend the unexpected ruling on the motion and their counsel's reasonable belief he could not proceed to trial adequately explain the delay in request to reset the trial within five years. They argue they acted diligently once they realized they could proceed with the case by bringing the ex parte request.
However, the record contains little to show appellants and their counsel acted diligently in determining the matter could proceed without evidence of mold damage. They offer no explanation as to what steps counsel took between April 10, 2015 and May 6, 2015, when appellants indicated they had changed their minds about seeking an appeal and filed a motion for a new trial date. There is no statement of diligence attached to the ex parte request. Rather counsel declared conclusorily "[u]pon further review of the evidence likely to be introduced at trial, Plaintiffs have determined that they can present the case solely as a water loss claim without making any reference to mold."
Counsel's declaration also states that on April 23, 2015 they "attempted to stipulate with BAIC" to continue the five-year dismissal date "but BAIC was unwilling to stipulate to such an extension." This occurred days after they determined they would file a confession of judgment, yet they did not file the request for new trial date until May 6, 2015. On these facts, we conclude the trial court did not abuse its discretion when it granted BAIC's motion to dismiss and refused to set trial prior to the running of the five-year deadline.
Appellants cite to Salas v. Sears, Roebuck & Co. (1986) 42 Cal.3d 342 (Salas). Salas, however, is not helpful to their argument. Salas confirms the trial court "does not have a mandatory duty to set a preferential trial date, even when the five-year deadline approaches. Its discretion is not wholly unfettered: it must consider the 'total picture' . . . including the condition of the court calendar, dilatory conduct by plaintiff, prejudice to defendant of an accelerated trial date, and the likelihood of eventual mandatory dismissal if the early trial date is denied." (Salas, at p. 349.) Here, appellants created the problem by asking the trial court to vacate the existing trial date, then acted in a dilatory manner in pursuing a new trial date, and on appeal present no evidence concerning the condition of the court calendar to suggest a date was available. On these facts, we cannot conclude the trial court abused its discretion in refusing appellants preferential treatment.
III
DISPOSITION
We affirm the judgment and award respondent costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
SLOUGH
J. We concur: HOLLENHORST
Acting P. J. CODRINGTON
J.