Behm v. Clear View Techs.

• Decision Date: 08 October 2015
• Docket Number: H040032
• Citation: 241 Cal.App.4th 1,193 Cal.Rptr.3d 486
• Parties: Pamela BEHM, Plaintiff and Appellant, v. CLEAR VIEW TECHNOLOGIES, Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

241 Cal.App.4th 1

193 Cal.Rptr.3d 486

Pamela BEHM, Plaintiff and Appellant,

v.CLEAR VIEW TECHNOLOGIES, Defendant and Appellant.

H040032

Court of Appeal, Sixth District, California.

Filed October 8, 2015

As Modified October 16, 2015

Counsel for Plaintiff/Appellant Pamela Behn Grellas Shah: George Grellas, Dhaivat H. Shah, Cupertino, David I. Siegel

Counsel for Defendant/Appellant Clear View Technologies: Ropers: , Majeski, Kohn & Bentley, Michael J. Ioannou J. Mark Thacker, San Jose, Terry Anastassiou, San Francisco.

Walsh, J.^* Pamela Behm asserts that she was persuaded by the false representations of officers and directors of Clear View Technologies (CVT) to invest approximately $200,000 in the company. CVT claimed to be developing "BarMaster," a product that would measure pours of alcohol with such precision that it would save large sums of money for purveyors of adult beverages and reap great profits for CVT. When CVT had financial difficulties and Behm discovered the product did not have the viability she had been assured, she filed a lawsuit against CVT and its officers and directors seeking compensatory damages "in a sum exceeding $200,000."

During the course of the underlying litigation, CVT failed to produce discovery and to comply with court orders. Behm obtained terminating sanctions against CVT, and a default was entered against the company. Behm procured a default judgment for $1,264,668.83, including $924,000 in punitive damages. Thereafter, CVT moved to vacate the default and the default judgment, arguing that it did not have sufficient notice of the amount of punitive damages under Code of Civil Procedure section 425.115, subdivision (f)¹ and that it was entitled to mandatory relief from default under section 473, subdivision (b) because the default was incurred due to the mistake, inadvertence, surprise, or neglect of its prior attorney, Chang Yi. The trial court granted the motion in part, vacating the default judgment after finding the notice of damages was insufficient. However, it denied CVT's request to be relieved from the underlying default. Both Behm and CVT have appealed the court's order.

For the reasons set forth below, we affirm. Due process requires that when a plaintiff moves for discovery terminating sanctions and seeks punitive damages, a statement under section 425.115, subdivision (f) must be served a reasonable time before obtaining those sanctions. Notice must be sufficient to afford a defendant the opportunity to fairly appraise the full amount of damages sought by the time he or she needs to respond and oppose the motion.

FACTUAL AND PROCEDURAL BACKGROUND

On July 28, 2011, Behm filed a complaint against CVT alleging she was defrauded when she invested $200,000 in the company.² The complaint alleged a total of seven causes of action, some against CVT only, and the others against CVT and several other individual defendants consisting of officers and directors of CVT. These defendants included Paul Mula, Sr., and Paul Mula II. Though Behm did not request a specific amount of damages for emotional distress, lost wages, or punitive damages, she did request "compensatory damages of no less than $200,000, plus interest, or in such additional amount as is proven at trial."

According to Behm, she successfully served CVT and Mula II with her complaint. However, she was unsuccessful in her attempts to serve some of the other named defendants because CVT's offices were always closed when service attempts were made. In early September 2011, Behm asked Yi, who was representing CVT and the individual defendants, to accept service on behalf of CVT's employees and officers. Yi refused Behm's request. Subsequently, Behm served a special interrogatory on CVT asking it to produce the last known home addresses of each of the individual defendants, excluding Mula II. Behm also propounded on CVT a set of inspection demands, requesting some of CVT's business records.

CVT's response to the special interrogatory was due October 31, 2011. On that day, Yi requested an extension to finalize CVT's response by November 4, 2011. Behm agreed. By November 7, 2011, Behm had yet to receive a response, so she e-mailed Yi. Yi replied and explained that many of CVT's officers were not located in Santa Clara, so he had been unable to finalize discovery. That same day, Yi served CVT's response via mail. CVT's response consisted primarily of objections and included CVT's assertion that the interrogatory was now moot because Behm had failed to serve all the defendants within 60 days of filing her complaint.

On November 14, 2011, Behm filed an ex parte application to extend time to serve her complaint on the defendants that had yet to be served. The court granted Behm's application and ordered her to complete service as soon as possible.

Afterwards, Behm filed a motion to compel a response to her special interrogatory and her request for inspection of CVT's records. On January 30, 2012, CVT filed an opposition where it again argued that it need not provide the information because the time to serve the named defendants had expired. On February 16, 2012, the court granted Behm's motion to compel and ordered CVT to serve code-compliant verified responses to Behm's special interrogatory and to produce all documents responsive to Behm's inspection request by an extended deadline. The court further ordered CVT to pay monetary sanctions.

CVT failed to produce any documents responsive to Behm's request by the deadline. Subsequently, on April 2, 2012, Behm informed CVT that she would be seeking monetary and nonmonetary sanctions against the company for its discovery violations. Behm gave CVT a few weeks to comply with the court's orders, which it failed to do.

On April 27, 2012, Behm filed a motion for terminating sanctions. CVT did not oppose the motion.

Several weeks later and just prior to the hearing on Behm's motion set for June 8, 2012, a tentative ruling was issued by the court granting the motion for terminating sanctions, which order automatically became the order of the court on June 8, 2012, pursuant to California Rules of Court, rule 3.1308(a) and local court rule.³ In that ruling, the court indicated it would strike CVT's answer and would enter a default against the company.

On June 11, 2012, three days after the court adopted the ruling granting terminating sanctions, Behm served CVT a notice pursuant to section 425.115 reserving the right to seek $1 million in punitive damages.

On June 15, 2012, the court signed a written order that echoed the ruling adopted on June 8, 2012, granting Behm's motion for terminating sanctions. The order was filed on June 25, 2012.

On July 1, 2012, Yi filed a motion for reconsideration on behalf of CVT. The court denied the motion.

On March 5, 2013, Behm applied for a default judgment against CVT, requesting $1,264,668.83 in damages, which comprised of $200,000 in compensatory damages, $108,000 in emotional distress damages and lost wages, $32,487.67 in prejudgment interest, $924,000 in punitive damages, and $181.16 in court fees. Punitive damages were calculated as three times the total compensatory damages including the emotional distress damages sought by Behm. A few weeks later, the trial court granted Behm's application for a default judgment and awarded her all of the requested damages.

On June 10, 2013, CVT brought a motion to set aside the default and the default judgment pursuant to section 473, subdivision (b). At that point, CVT was no longer represented by Yi. The motion asserted that CVT was entitled to relief from default, because the default was solely the result of Yi's negligence and failures.⁴ CVT also argued that the award of damages to Behm violated its due process rights, because it was not adequately informed of the amount of compensatory and punitive damages that Behm would seek.

After a hearing, the court granted CVT's motion in part, vacating the default judgment on the basis that the award of compensatory and punitive damages in excess of the amount pleaded in the complaint violated CVT's due process rights.

However, the court left the default intact after finding Yi's affidavit of fault lacked credibility and declared that Behm was authorized to apply for another default judgment for the amount of compensatory damages alleged in the complaint. Both Behm and CVT have appealed from this order.

DISCUSSION

1. Behm's Appeal

On appeal, Behm argues that the court erred in vacating the default judgment and the award of punitive damages, because the punitive damages notice served on CVT was timely and comported with due process.

a. Standard of Review and Legal Framework

"Our standard of review is well articulated by the California Supreme Court in Elston v. City of Turlock (1985) 38 Cal.3d 227, 233, 211 Cal.Rptr. 416, 695 P.2d 713 : ‘A motion seeking [relief from default] lies within the sound discretion of the trial court, and the trial court's decision will not be overturned absent an abuse of discretion. [Citations.] However, the trial court's discretion is not unlimited and must be " ‘exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.’ " [Citations.] [¶] Section 473 is often applied liberally where the party in default moves promptly to seek relief, and the party opposing the motion will not suffer prejudice if relief is granted. [Citations.] In such situations "very slight evidence will be required to justify a court in setting aside the default." [Citations.] [¶] Moreover, because the law strongly favors trial and disposition on the merits, any doubts in applying section 473 must be resolved in favor of the party seeking relief from default [citations]. Therefore, a trial court order denying relief is scrutinized more carefully than an order permitting trial on the merits.’ " ( McCormick v. Board of Supervisors (1988) 198 Cal.App.3d 352, 359–360, 243 Cal.Rptr. 617.)

b. Notice of...