Opinion
NOT TO BE PUBLISHED
Marin County Super. Ct. No. CV090405.
Reardon, J.
This is an appeal from an order denying appellants’ motion to set aside a default and default judgment. We affirm the order denying appellants relief. However, because the judgment exceeds the $7 million in damages asserted in the complaint, we order the judgment modified to reflect that amount.
Appellants are Siamak Taromi, individually and doing business as Tarom Construction Group, Inc. (Tarom Construction), and Tarom Group, Inc. (Tarom Group).
I. BACKGROUND
A. Complaint
“[A] default admits the allegations of the complaint.” (Sporn v. Home Depot USA, Inc. (2005) 126 Cal.App.4th 1294, 1303.) The following factual summary derives from that pleading: Respondents Rodeo Lane LLC (Rodeo), Paradise Found LLC (Paradise) and Aston Asset Management Group LLC (Aston) are California limited liability companies. Respondent J.T. Hansen was a 50 percent ownership member of these companies. Appellant Siamak Taromi, who does business as Tarom Construction Company, Inc., was also a member of each of the LLC’s. Hansen and Taromi executed an operating agreement which formed each company.
As well, Taromi was an officer and the principal owner of Tarom Group, Inc., a company in the business of general contracting and real property development.
Taromi served as a manager of each of the LLC’s until July 10, 2008, at which time respondents demanded his resignation upon discovering extensive self-dealing, fiduciary fraud, and other widespread misconduct; he promptly resigned. Thereafter, Hansen became the successor manager.
In January 2009 respondents filed a complaint alleging eight causes of action. Hansen sued Taromi for fraud, breach of contract, and bad faith. Aston sued Taromi for fraud; that cause of action alleged collusion between Taromi and Glenn Larsen, another member of Aston, but a nonparty to the lawsuit. All the LLC’s sued Tarom Construction and Tarom Group for breach of contract. All respondents sued (1) Taromi for breach of fiduciary duty; (2) Tarom Construction and Tarom Group for negligence; and (3) all appellants for an accounting.
The complaint prayed for damages in the amount of $7 million or according to proof. In connection with the fraud causes of action, the complaint alleged that Taromi made certain false representations, including that $2.5 million in cash going to Larsen in exchange for his membership interest in Aston would go to him alone, when in fact significant portions were diverted to Taromi; and that the $2.5 million purchase price for Hansen’s interest was a fair market valuation which had not been influenced or inflated by Taromi’s manipulations.
B. Service of Complaint; Default and Default Judgment
On February 2, 2009, after several attempts to personally serve Taromi, the complaint was subserved on his son and co-occupant, Sanjar Taromi, at the home address. This was followed by service by first-class mail sent February 3, 2009. Respondents served Tarom Group and Taromi, individually and doing business as Tarom Construction, on February 19 and March 3, 2009, respectively, by hand-service on Taromi as the agent designated for service of both companies.
Appellants did not respond to the complaint. On March 26, 2009, the trial court entered the default of Tarom Group; on April 3, 2009, it entered Taromi’s default individually and doing business as Tarom Construction. The requests for entry of default were served on appellants by mail on the same dates.
Zachary Paschal, the insurance claims adjuster for appellants’ general liability insurer, declared that he received notice of the lawsuit on May 12, 2009, indicating that the complaint was “left” with appellants’ insurance broker “by an unknown source.” Paschal tried to contact Taromi but could not locate a working telephone number for him; nor could he find contact information from the Contractors’ Licensing Board’s Web site. Contacting counsel for respondents, he was not informed of the defaults and, based on the conversation, was “unaware of any urgency concerning the matter.”
On May 15, 2009, respondents requested entry of default judgment, seeking four awards totaling $11,029,993, as follows: (1) judgment in favor of Hansen and against Taromi in the amount of $7,443,283 ($6,798,568 demand plus $644,715 in interest); (2) judgment in favor of Aston and against Taromi, in the amount of $2,000,000 plus $700 in costs; (3) judgment in favor of Aston and against Tarom Group in the amount of $1,087,000; and (4) judgment in favor of Rodeo Lane and against Tarom Group, in the amount of $499,010. The points and authorities submitted with the request for default judgment detailed the particulars of each award sought.
The court entered default judgment with respondents’ submission.
Paschal stated that he made several attempts to obtain information and reach the clerk’s office and was finally able to review the file on June 1, 2009, at which time he “discovered” that entries of default and default judgment had been filed. The next day Taromi, through counsel, filed a chapter 7 bankruptcy petition.
C. Motion to Set Aside
On August 7, 2009, appellants moved under Code of Civil Procedure section 473, subdivision (b) to set aside the default and default judgment. The papers asserted that Taromi “was dealing with the imminent, devastating financial collapse of his personal business matters” and his “short delay in responding to the Complaint” was the result of excusable neglect; further, equitable grounds dictated that appellants be given their day in court.
All statutory references are to the Code of Civil Procedure.
Respondents’ opposition highlighted the prejudice that would accrue should appellants prevail in vacating the default and default judgment. In his reply, Taromi avowed again that he was dealing with devastating financial collapse and “believed that I was judgment-proof and bound for bankruptcy.” Further: “I could not afford to defend myself in this action” and “I did not believe my general liability insurance would cover this action.”
The trial court found no excusable neglect and denied the motion. It concluded that the evidence concerning Paschal’s effort in dealing with the situation was irrelevant to the issue of excusable neglect. This appeal followed.
II. DISCUSSION
A. Default Judgment Void As to Excess Above Demand
Appellants first attack the default judgment as void because it exceeded the amount pled in the complaint. We agree, and reverse and remand with directions to enter a modified judgment. As well we address respondents’ counter argument that appellants have waived this issue, and dispatch appellants’ position that the judgment is void in its entirety and not subject to modification such that the defaults should be vacated, thereby giving them an opportunity to respond to an amended and re-served complaint.
1. Legal Framework
It is the law in California that relief not demanded by complaint cannot be granted by default: “The relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint....” (§ 580, subd. (a).) The main purpose of this section “is to guarantee defaulting parties adequate notice of the maximum judgment that may be assessed against them.... ‘The notice requirement of section 580 was designed to insure fundamental fairness.’ ” (Greenup v. Rodman (1986) 42 Cal.3d 822, 826.) When the award is in excess of the amount pleaded in the complaint, the excess damages are outside the trial court’s jurisdiction under section 580, and the default judgment is void as to that amount. (Id. at pp. 830-831; Julius Schifaugh IV Consulting Services, Inc. v. Avaris Capital, Inc. (2008) 164 Cal.App.4th 1393, 1396.) In this situation, the trial court has discretion to permit a plaintiff to accept a reduced judgment or amend the complaint, thus putting the entire matter back at issue.
2. No Waiver of Issue
Respondents maintain appellants have waived this issue for failure to raise it below. However, due to its jurisdictional nature, a claim that a judgment is void because it exceeds the relief demanded in the complaint may be raised at any time. (People ex rel. Lockyer v. Brar (2005) 134 Cal.App.4th 659, 666.)
Respondents counter that this no-waiver rule does not apply because the due process policy concerns underpinning enforcement of section 580 are absent here. Specifically, they maintain that appellants cannot assert prejudice based on the “purported” discrepancy between the amount sought in the complaint and the amount awarded, because Taromi’s decision not to respond to the complaint was based on his determination that he was judgment proof and on the road to bankruptcy. If the amount in the complaint persuaded him of this reality, a greater amount would only have corroborated his decision not to bother with an answer.
Respondents cite no on-point authority for their prejudice argument. They call our attention to Castaic Clay Manufacturing Co. v. Dedes (1987) 195 Cal.App.3d 444, in which the civil judgment after trial was in excess of the amount set forth in the complaint. There, the holding that the defendant was not prejudiced made perfect sense because the parties had actually tried the issue ofdamages in an amount exceeding the limits in the pleadings. (Id. at pp. 449-450.) It is precisely when there is no trial that formal notice of potential liability is crucial. (Greenup v. Rodman, supra, 42 Cal.3d at pp. 826-827.) Moreover, section 580, subdivision (a) could not be clearer: If there is no answer, the relief cannot exceed the demand in the complaint; there is no exception for absence of prejudice. Further, since actual notice is not enough to satisfy section 580 (Greenup v. Rodman, supra, at p. 826), how could lack of prejudice substitute for deficient formal notice in the complaint?
In any event, respondents’ absence of prejudice argument is not persuasive in the particulars of this case. A discrepancy of several million dollars between the amount pleaded and the amount awarded could be material to a decision to default, notwithstanding a party’s “belief” that he or she is judgment proof. Respondents ask us to speculate that Taromi would have responded the same way based on a $7 million or a $10-$11 million prayer. A “belief” is just a “belief”; whether Taromi was judgment proof had not been established. Notice of a higher threshold potential judgment could make a difference and this court is in no position to speculate.
3. Default Judgment Not Hopelessly Ambiguous
Appellants charge that the default judgment is void because the demand for damages in the complaint was hopelessly ambiguous. Thus they request vacation of the default and default judgment and an opportunity to respond to an amended and re-served complaint.
Appellants characterize the prayer as ambiguous because it does not allocate the $7 million sought between Taromi and Tarom Group. Appellants cite no relevant authority to support this proposition. And in any event, the complaint clearly alleged that each defendant “is the agent, principal, co-conspirator, joint venturer, partner, employee, and alter ego” of each of the others, and “acting within the course and scope of such relationships, ... at all material times there has been a unity of interest between them [such that]... it would be unfair to recognize any corporate or other business separateness.” These allegations of agency, conspiracy, alter ego and unity of interest were sufficient to put appellants on notice that theories of group liability and alter ego liability were being pursued, such that each could be liable for any award against the other. (See Steinfeld v. Foote-Goldman Proctologic MedicalGroup, Inc. (2003) 50 Cal.App.4th 1542, 1550, regarding unapportioned settlement offer: in complaint the plaintiff alleged singular theory against two defendants, but even a potential theory against one defendant only, not included in the complaint, “would be swept up by [plaintiff’s] agency allegations.”)
4. No De Facto Amendment
Relying on Jackson v. Bank of America (1986) 188 Cal.App.3d 375 (Jackson), appellants also complain that the argument and evidence presented at the prove-up hearing constituted a de facto amendment of the complaint. There, the complaint did not allege any conduct on the part of the bank which caused the plaintiff to suffer the damages asserted therein, and the evidence at the prove-up hearing pertained to events that occurred after the complaint had been filed. (Id. at pp. 388, 390.) On these facts the court directed that the default be vacated, and thereafter the plaintiff could amend and serve his complaint anew. (Id. at pp. 390-391.)
Appellants insist that certain allegations in respondents’ application for default judgment constituted a de facto amendment to the complaint. These allegations were to the effect that Taromi misappropriated portions of cash contributions that Hansen made to the various projects in order to acquire title to some of the very properties he was contributing as capital to the enterprises. Therefore, under the reasoning of Jackson, appellants claim they are entitled to an opportunity to respond to the amended complaint.
A material amendment to a complaint opens a default since it allows the plaintiff to prove matters not in issue when the default was taken. (Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1744.) When a plaintiff “wholly departs from the existing complaint at a hearing on damages, beyond the limitations of the doctrine of curable variance, the trial court should hew to the complaint. [Citation.] In such a case the court should deny relief or limit relief to that which is appropriate considering only the evidence which is within this pale. If the trial court errs and awards a judgment which is utterly unwarranted under the unamended complaint, as in Jackson, the defendant’s remedy is a motion for a new trial (new judgment hearing) or an appeal from the default judgment.” (Id. at p. 1745.) Advocating for this procedure and against the Jackson “de facto” amendment of the complaint approach, the Ostling court further explained: “This procedure protects the defaulting defendant from the prospect of damages that are insupportable under the complaint with which he has been served.” (Ostling v. Loring, supra, at pp. 1746-1747.)
Here, the prove-up materials did not amount to a wholesale departure from the complaint, as they did in Jackson, where in essence the complaint failed to state a cause of action and the evidence of damages was predicated entirely on events occurring after the complaint had been filed.
The complaint alleged that Taromi induced Hansen to enter into operating agreements with Paradise and Rodeo based on the false representations that Taromi intended to contribute to each entity equity in certain real property that would equal Hansen’s cash contributions, and that Taromi and Hansen would thus merit 50 percent of the membership interests of these LLC’s. Further, as part of the inducement, Taromi falsely represented that he would serve faithfully as the manager and not convert funds or engage in self-dealing, and would reveal all material facts regarding the operation and activities of the enterprises. Hansen reasonably relied on these representations in executing the operating agreements, and suffered significant monetary damages as a proximate result of the false representations.
In his declaration supporting the application for default judgment, Hansen averred as to Paradise that “the alleged collective equity in the real properties contributed by Taromi was not even close to the $1.1 million I was induced to pay him. In fact, Taromi actually took my $1.1 million and used it to acquire title to some of the properties and to pay down personal debts he had previously incurred to acquire his interests in the real properties. In other words, contrary to the factual representations made to me by Taromi, he actually used my contribution to finance his own contribution, economically rendering us far from [equal co-owners]. He breached his fiduciary duties by failing to disclose this information to me after he became Managing Member.” As to Rodeo, Hansen stated: “I was induced to sign an Operating Agreement for Rodeo and to contribute cash by [Taromi’s] representations... that if I gave him $3.5 million, I would become an equal member of Rodeo with him because he would at the same time be matching my payment with an equal amount of equity in the real properties which he would then cause to be contributed to Rodeo. Thus, he represented that we would be equal principals.... He also represented to me that he would become the Managing Member responsible for day-to-day affairs of the LLC and would comply with his fiduciaries [sic] duties to me, including those which required him to make full disclosure of all material facts relative to the LLC business. These representations were false.... In truth, Taromi used my cash to help acquire the interests in the real property whose equity... he would be contributing, and the equity was not even close to equal to my cash contribution. I relied on Taromi’s representations in paying him $3.5 million....”
In the full light of day it is apparent that the declaration is not a departure from the complaint, but rather conforms to that pleading. The declaration sets forth evidence in support of the judgment requested on the cause of action against Taromi for fraud. (Cal. Rules of Court, rule 3.1800(a)(2).) The statements about misappropriation are consistent with the cause of action as set forth in the complaint, setting forth in more detail the nature of the fraud, and support the judgment requested.
Appellants are, however, correct that the complaint does not allege that Hansen made any loan to Rodeo based on Taromi’s representations; it only alleges that he was fraudulently induced to make a capital contribution. The declaration, however, mentions further investment in terms of a loan to Rodeo of $1,265,867. Appellants assert that there is no basis to allocate between the excess and nonexcess portions of the judgment against Taromi, and hence the evidence submitted in the application for judgment constituted a de facto amendment to the complaint. This is not the case. Hansen declared that as to the Rodeo investment, he personally suffered damages in the amount of $4,765,867, comprised of his $3.5 million cash contribution plus the further loan of $1,265,867. Excising the loan amount is a straightforward arithmetical action, and in any event this point is essentially irrelevant because as we explain below, the default judgment must be reduced by more than this amount.
Appellants also complain that the declaration refers to a further $2 million cash contribution to Aston based on Taromi’s misrepresentations, notwithstanding that the complaint mentioned no additional contributions. This accusation is not accurate. The complaint did mention $2.5 million in cash to buy Larsen’s interest, whereas the amount asked for at the prove-up hearing was only $2 million.
5. Default Judgment Must Be Modified
Appellants are correct that the $11,019,993 judgment exceeds the amount specified in the complaint and is void as to the excess. Of this amount, $700 is attributable to allowable costs and $671,382 (rounded) is claimed as interest on Hansen’s award. Thus the damages award was $10,347,911, or $3,347,911 inexcess of the pleadings. The judgment must be modified accordingly.
Respondents are adamant that appellants had explicit notice in the complaint of at least $9.5 million in potential liability: $7 million in the prayer, plus $2.5 million which Taromi and Larsen colluded to divert from Aston. They claim the additional $2.5 million complies with section 580 because “it is a hard-number amount” that explicitly notified Taromi of the amount Aston was seeking for fraud. We fail to divine how the $2.5 million specified in the body of the complaint can be separated from the upper limit of $7 million sought in the prayer. The sense of the complaint is that one element of damages was pled with specificity, and that element was subsumed in the prayer for “damages in the amount of $7,000,000 or according to proof.” It is true that allegations of the complaint may cure a defective prayer for damages. (Greenup v. Rodman, supra, 42 Cal.3d at p. 829.) In Greenup, the prayer requested a specific sum in exemplary and punitive damages, but all other damages were subject to proof or as the court deemed just. However, the allegations of the complaint gave the defendant notice that the plaintiff was claiming at least $15,000 in compensatory damages, and judgment for compensatory damages in that amount therefore would be proper. (Id. at p. 830.) Here, the prayer set forth an explicit amount of compensatory damages and was not defective; increasing that amount by adding in specific items from the body of the complaint is illogical.
Specifically, the complaint stated that the plaintiff suffered damage “ ‘ in an amount that exceeds the jurisdictional requirements of this court.’ ” (Id. at p. 830.) At the time, courts of limited jurisdiction were subject to the requirement that the amount in controversy exceed $15,000.
B. Trial Court Properly Denied Section 473 Relief
Appellants further press that we should reverse the trial court’s order denying their motion for relief from default under section 473, subdivision (b). This statute empowers the court to relieve a party or his or her attorney “from a judgment, ... taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect.” (Ibid.) A request for relief under this provision is largely entrusted to the trial court’s discretion. Its discretionary order will not be overturned absent a clear showing of abuse of that discretion, and factual inferences which the court draws are presumed correct. Nonetheless the law does favor, where possible, disposing of cases on the merits and thus any doubts in applying section 473 must be resolved in favor of the party seeking relief. (Shapiro v. Clark (2008) 164 Cal.App.4th 1128, 1139.)
Here, the only showing of diligence in seeking relief concerned the diligence of Taromi’s insurer. More significantly, although Taromi argued excusable neglect, he did not demonstrate this element of relief. As the trial court stated: “The only evidence submitted by the plaintiff is that he made a conscious decision not to respond.” “Where the default occurred as a result of a deliberate refusal to act, and relief is sought after a change of mind, the remedy is clearly inappropriate.” (8 Witkin, Cal. Procedure (5th ed. 2008) Attack on Judgment in Trial Court, § 158, pp. 754-755, and cases cited.) The trial court did not abuse its discretion in denying the motion.
Finally, appellants contend that respondents failed to meet their burden of proving they suffered prejudice, citing Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 740. What Aldrich said is that a court may properly consider prejudice in determining whether the moving party acted diligently. (Ibid.) Here there was no occasion to undertake a prejudice analysis because there was no showing of diligence on Taromi’s part.
III. DISPOSITION
We affirm the order denying appellants’ motion for relief from default. We reverse the default judgment with directions that the trial court modify the judgment by reducing the element of damages to $7 million, as set forth herein. This modification should include a reduction of the award in favor of Hansen by at least $1,265,867. We direct respondents to submit a revised allocation of the judgment to the court and appellants, with revised prejudgment interest on the revised award to Hansen. In all other respects we affirm the default judgment. Costs to appellants on appeal.
We concur: Ruvolo, P.J., Rivera, J.