Bae v. T.D. Serv. Co.

• Decision Date: 25 February 2016
• Docket Number: B262921
• Citation: 245 Cal.App.4th 89,199 Cal.Rptr.3d 282
• Court: California Court of Appeals Court of Appeals
• Parties: James BAE, Plaintiff and Appellant, v. T.D. SERVICE COMPANY, Defendant and Respondent.

245 Cal.App.4th 89

199 Cal.Rptr.3d 282

James BAE, Plaintiff and Appellant,

v.T.D. SERVICE COMPANY, Defendant and Respondent.

B262921

Court of Appeal, Second District, Division 4, California.

Filed February 25, 2016

Law Offices of Deborah R. Bronner and Deborah R. Bronner for Plaintiff and Appellant.

The Dreyfuss Firm and Lawrence J. Dreyfuss, Houston, for Defendant and Respondent.

MANELLA, J.

In the underlying action, appellant James Bae and a corporation related to him asserted claims arising from a foreclosure sale against several defendants, including respondent T.D. Service Company of Arizona. Respondent filed an unchallenged declaration of nonmonetary status under Civil Code section 2941l , asserting that it had been named as a defendant solely in its capacity as trustee under the pertinent deed of trust, and not due to any wrongful conduct in its performance as trustee. After respondent filed no answer in the action, the clerk entered respondent's default, and the trial court issued a default judgment against respondent awarding appellant $3,000,000 in damages. Respondent filed a motion for relief from the default and default judgment, which the trial court granted. Appellant contends the court erred in setting aside the default and default judgment. We reject his challenges to that ruling and affirm.

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

In November 2010, appellant initiated the underlying action. The original complaint identified the plaintiff as "James Bae dba C & H Natural Food," and named as defendants Center Bank and respondent.¹ The complaint alleged the following facts: Center Bank provided appellant with a mortgage secured by real property located in Glen Ivy, and respondent acted as the trustee company for Center Bank. In August 2010, an involuntary chapter 7 bankruptcy petition was filed regarding the property (11 U.S.C. § 701 et seq. ). In September 2010, despite knowledge of the bankruptcy proceeding, the defendants issued a notice of a foreclosure sale without seeking relief from the bankruptcy stay. Center Bank bought the property at the foreclosure sale, which occurred in November 2010. The complaint asserted claims for wrongful foreclosure, violation of a bankruptcy stay, failure to provide notice of default on a mortgage (Civ.Code, § 2923.5 ), and tortious infliction of emotional distress.

On January 27, 2011, respondent filed a "declaration of nonmonetary status" pursuant to Civil Code section 2924l, which sets forth a procedure by which the trustee to a deed of trust may avoid liability for monetary awards relating to a nonjudicial foreclosure. (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 350–351, 85 Cal.Rptr.3d 532 (Kachlon ).) To invoke the procedure, "[t]he trustee must file a declaration of nonmonetary status stating that it reasonably believes it was named as a defendant solely in its capacity as trustee, and not for misconduct in its duties. If no party timely objects, ‘the trustee shall not be required to participate any further in the action or proceeding, [and] shall not be subject to any monetary awards as and for damages, attorneys' fees or costs.’ " (Id. at p. 351, 85 Cal.Rptr.3d 532, quoting Civ.Code, § 2924l, subd. (d), italics omitted.)

Respondent's declaration under Civil Code section 2924l disclaimed any financial interest in the underlying promissory note and real property, and asserted respondent's "reasonable belief" that it had been named as a defendant solely because "it was the trustee or agent of the trustee ... on the subject [d]eed of [t]rust...." The declaration was executed under penalty of perjury by attorney Richard S. Stone, respondent's counsel. Appellant filed no objection to the declaration, and never attempted to challenge or attack it in subsequent proceedings.

In March 2011, a first amended complaint was filed. The complaint identified the plaintiff as "C & H Natural Food, a Nevada Corporation" (C & H), and asserted claims for conversion, negligence, and civil conspiracy against respondent, Center Bank, and LWL Investment Group, LLC (LWL). The complaint alleged that in 2007, FX Global, Inc., also known as SG Global, Inc. (SG) bought the Glen Ivy property. In order to do so, SG obtained a $5 million loan from Center Bank secured by a promissory note and trust deed. Later, in 2009, appellant provided SG with a $5 million loan secured by a promissory note and second deed of trust on the property. In October 2010, shortly after a chapter 7 bankruptcy petition was filed regarding SG, Center Bank assigned its deed of trust to LWL, and respondent was hired as the trustee company for Center Bank and LWL. According to the complaint, in November 2010, notwithstanding the bankruptcy proceedings and stay, LWL and respondent "forced" a foreclosure sale, at which LWL bought the property.

In July 2011, C & H filed two requests for the entry of respondent's default by the superior court clerk. The requests were mailed to respondent, but no copy was mailed to respondent's counsel. On July 21, 2011, the clerk entered respondent's default.²

In August 2012, C & H requested a default judgment, seeking damages totaling $3,000,000. Accompanying C & H's showing in support of the default judgment was a declaration from appellant, who identified himself as "the principal" of C & H. Also accompanying the showing was a declaration from C & H's counsel, notwithstanding respondent's filing of its statement of nonmonetary interest, declared that: "To date, [respondent] has not appeared in this action." No declaration was filed stating that C & H's request for default judgment had been mailed to respondent or its counsel. On August 3, 2012, the trial court entered a default judgment in favor of C & H and against respondent awarding C & H $3,000,000 in damages and $460 in costs. Nothing in the record suggests the judgment was served on respondent or its counsel.

On November 20, 2014, respondent filed a motion to set aside the default and default judgment on the basis of Code of Civil Procedure section 128, subdivision (a)(8), which authorizes the superior court "[t]o amend and control its ... orders so as to make them conform to law and justice."³ Respondent contended its unchallenged declaration under Civil Code section 2924l excused it from participation in the action and shielded it from liability for damages. Respondent further maintained that C & H's service of the first amended complaint was defective, and that neither C & H's request for entry of default nor its request for a default judgment nor the default judgment itself were mailed to respondent's counsel of record.

Supporting the motion was a declaration from respondent's attorney Stone, who stated: "I first learned of the default and the default judgment against respondent on November 3, 2014, when I received notice that [C & H] had levied on [respondent's] accounts.... Even though I was identified as [respondent's] counsel of record on the [Civil Code] section 2924l declaration ..., I did not receive any of the documents filed with the [c]ourt after that declaration ... was filed."

In opposing the motion, C & H maintained that subdivision (a)(8) of Code of Civil Procedure section 128 afforded no basis for relief from the default and default judgment. C & H further argued that the motion was untimely under section 473, subdivision (b), and section 473.5 of the Code of Civil Procedure, and that respondent could demonstrate no basis for relief on equitable grounds.

On January 23, 2015, following a hearing, the trial court granted respondent's motion, and set aside the default and default judgment. This appeal followed.

DISCUSSION

Appellant contends the trial court erred in granting relief from the default and default judgment. We disagree.

A. Relief from a Default and Default Judgment

"Although a trial court has discretion to vacate the entry of a default or subsequent judgment, this discretion may be exercised only after the party seeking relief has shown that there is a proper ground for relief, and that the party has raised that ground in a procedurally proper manner, within any applicable time limits." (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 495, 52 Cal.Rptr.3d 862 (Cruz ).) Code of Civil Procedure section 473 and 473.5 authorize challenges to defaults and default judgments on various grounds within certain periods.

Under Code of Civil Procedure section 473, subdivision (b), a party may seek relief on the grounds of "mistake, inadvertence, surprise, or excusable neglect" within "a reasonable time," but not more than six months after the entry of the default or default judgment. Code of Civil Procedure section 473.5 permits the court to set aside a default or default judgment if the defendant, "through no inexcusable fault of his own, [received] no actual notice" of the action, provided that relief is requested within a reasonable time, but not more two years after the entry of the default judgment. (Judicial Council of Cal., com., reprinted at 15 West's Ann.Code Civ., Proc. (1979 ed.) foll. § 473.5, pp. 398–399.) In addition, under subdivision (d) of Code of Civil Procedure section 473, the court may set aside orders and judgments that are " ‘void,’ " including orders and judgments void for want of fundamental jurisdiction or personal jurisdiction. (Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1249, 25 Cal.Rptr.3d 372.) In some instances, that relief is subject to the time period specified in Code of Civil Procedure section 473.5, for example, when the party seeking relief maintains that the judgment, although facially valid, is void due to lack of proper service of process. (Gibble v. Car–Lene Research, Inc. (1998) 67 Cal.App.4th 295, 301, fn. 3, 78 Cal.Rptr.2d 892.)

Apart from any statute, courts have the inherent authority to vacate a default and default judgment on equitable grounds such as extrinsic fraud or extrinsic mistake. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981, 35...