Century Cmty. Lending Co. v. Saleh

Decision Date24 July 2013
Docket NumberB240487
PartiesCENTURY COMMUNITY LENDING COMPANY, Cross-complainant and Respondent, v. JACKIE SALEH, Cross-defendant and Appellant.
CourtCalifornia Court of Appeals

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County

Super. Ct. No. EC051593)

APPEAL from an order of the Superior Court of Los Angeles County, Laura A. Matz, Judge. Reversed with directions.

Alexander & Yong, Jeffrey S. Yong and John J. Aumer for Cross-defendant and Appellant.

Bergman Dacey Goldsmith, Gregory M. Bergman, Richard A. Fond and Omar H. Bengali for Cross-complainant and Respondent.

INTRODUCTION

Cross-defendant Jackie Saleh appeals from an order denying her motion to vacate a default and default judgment entered against her and in favor of cross-complainant Century Community Lending Company. She contends the trial court abused its discretion in denying her motion, which sought relief on equitable grounds. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND
A. The Loan

Jackie Saleh (Jackie) and her husband Salah Saleh (Salah)1 owned property located at 11835 Vanowen Street in North Hollywood. The property consisted of a liquor store and a separate residence in which the Salehs lived with their two sons.

Salah talked to representatives of Century Community Lending Company (CCLC) about obtaining a loan to build a 10-unit apartment building on the property. As a condition for the loan, CCLC had to approve the contractor for the apartment project. CCLC chose Urban Pacific Construction, Inc. (Urban) as the general contractor.

On December 1, 2008 the Salehs formed Samax Development, LLC (Samax) for the sole purpose of acting as the borrower and developer for the apartment project, and contracted with Urban to act as general contractor. Salah was the sole member of Samax. On February 11, 2009 the Salehs executed a grant deed transferring their interests in the property to Samax. The Salehs recorded the grant deed on April 10, 2009.

On April 8, 2009 CCLC and Samax executed a construction loan agreement in which CCLC agreed to lend Samax $1,782,500 to finance the apartment project. Although Jackie was not a member of Samax, she executed the loan agreement, thepromissory note, and deed of trust, along with Salah. The Salehs also personally guaranteed the construction loan.

On October 27, 2009 CCLC declared the loan in default and recorded a notice of default. A trustee's sale occurred on February 18, 2010. The trustee's deed upon sale stated that the "Grantee herein was the foreclosing Beneficiary," the "amount of the unpaid debt together with costs was $535,174.54," and the "amount paid by the Grantee at the Trustee's Sale was $535,174.54."

B. The Litigation

On November 24, 2009 Urban sued Samax, Salah, CCLC, and the Century Housing Corporation (CHC) for breach of contract, common count, foreclosure of mechanic's liens, and violation of Civil Code section 3260.1.2 When Salah and Samax failed to file a timely answer, Urban filed a request to enter their defaults, which the trial court granted. Salah and Samax then retained attorney Robert Y. Lee, who filed a motion to set aside the defaults, along with a proposed answer and cross-complaint. On May 28, 2010 the trial court granted the motion, which Urban did not oppose, and allowed Salah and Samax to file an answer to the complaint. That same day, Samax and Salah filed a cross-complaint against Urban, CCLC, and CHC for negligence, breach of contract, negligent misrepresentation, fraud, civil conspiracy, and unlawful business practices in violation of Business and Professions Code section 17200.

On July 29, 2010 CCLC filed a cross-complaint for breach of contract against the Salehs, and served it on Lee. On August 16, 2010 Lee signed a notice and acknowledgement of receipt on behalf of Jackie for CCLC's cross-complaint. The notice specified that the party CCLC was serving was "Jackie Saleh." On September 21, 2010 CCLC filed the notice and acknowledgment of receipt of service signed by Lee.

C. The Default Judgment

Lee did not file a response to CCLC's cross-complaint on behalf of the Salehs. On September 21, 2010 CCLC filed a request for entry of default against them. The trial court entered their default the same day.

On October 1, 2010 Lee filed an answer to CCLC's cross-complaint on behalf of Salah and Samax, which CCLC had not named as a cross-defendant. Lee did not file any responsive pleading on behalf of Jackie. On October 25, 2010 the trial court took notice of the default previously entered against the Salehs and struck the answer that Lee filed.

Meanwhile, on October 12, 2010 CCLC had filed a motion to compel a judicial reference pursuant to Code of Civil Procedure section 638 to adjudicate the claims in the cross-complaint by Samax and Salah and the cross-complaint by CCLC. Lee, whom CCLC had served with a copy of the motion, did not file an opposition. On November 5, 2010 the trial court granted the unopposed motion, finding pursuant to Code of Civil Procedure section 638 that reference agreements existed between the parties to both cross-complaints. The trial court appointed Judge Patricia Collins as the judicial referee.

On January 21, 2011 the trial court held a default prove up hearing on CCLC's cross-complaint against the Salehs. Lee did not appear. The trial court entered default judgment in favor of CCLC and against the Salehs for $134,712.10, consisting of $121,117.67 in damages, $7,333.43 in prejudgment interest, and $6,261.00 in attorneys' fees.

On March 14, 2011 Urban failed to appear for trial. Lee, who did appear in court that day, moved to dismiss Urban's complaint. The trial court granted the motion and dismissed the complaint without prejudice.

D. The Motion to Set Aside
1. The Motion

On February 23, 2012 the Salehs, now represented by new and their current counsel, filed a motion to set aside the defaults and default judgment entered against them and in favor of CCLC, as well as the order compelling judicial referenceproceedings. The motion was "based upon the positive misconduct of moving parties' former counsel, Robert Lee, who abandoned moving parties in connection with these proceedings, leading to the entry of both the default judgment and the order granting judicial reference." The Salehs argued that "Attorney Lee abandoned Moving Parties, and unbeknownst to them stipulated to the suspension of his license during his purported representation." The Salehs further argued that the parties had been diligent in trying to set aside the default, default judgment, and the order for judicial reference proceedings.

2. State Bar Proceedings Against Lee

New counsel for the Salehs attached to his declaration in support of the motion copies of documents and orders from In re Robert Yun Lee, State Bar Court Case No. 10-C-00210. These documents showed that on December 8, 2009 Lee had pleaded guilty to misdemeanor battery, after which the State Bar had instituted disciplinary proceedings against him. On December 17, 2010 the State Bar Court approved a stipulation between Lee and the State Bar in which Lee, among other things, agreed to an actual suspension of 60 days. On April 21, 2011 the Supreme Court issued an order suspending Lee from the practice of law for two years, stayed execution of the suspension, and placed him on probation for two years on the condition, among others, that the State Bar actually suspend him for 60 days. Lee's suspension was effective on May 21, 2011.3 At no time did Lee tell Jackie or Salah about his proceedings before the State Bar or that he had entered into a stipulation providing that he would be suspended from the practice of law.

3. Jackie's Declaration

In her supporting declaration Jackie stated that Salah had retained Lee "to handle the litigation involving him, Samax, CCLC and others." Although Lee "accepted service of the CCLC cross-complaint on [Jackie's] behalf through a notice of acknowledgement and receipt executed on August 16, 2010," Lee never told Jackie that she had been named in the lawsuit. In fact, Jackie never spoke to Lee about the case. Jackie further stated that "[a]t no time did Attorney Lee ever advise me that defaults had been entered against me and my husband on the CCLC cross-complaint, or what the default meant as far as not being able to present a defense to the CCLC cross-complaint." Jackie added that Lee never advised her that the court had entered a default judgment against her and her husband.

According to Jackie, "[f]rom October 2010 forward" she and her husband "were pretty much in the dark as to what Attorney Lee was doing in this matter, if anything." Jackie recalled that Salah had sent an email and called Lee to inquire about the case "but received little or no response" from Lee. Jackie also remembered that Salah received a telephone call from a CCLC representative and then spoke with Lee about the matter. Based on that conversation, Jackie "assumed" Lee "was still handling the matter for [her] husband and Samax." (Jackie did not "assume" Lee was "handling the matter" for her because she did not know she was a party.) After attending a hearing with Lee, Salah told Jackie that "the matter would now proceed before a referee and/or Judge Collins."

In May or June 2011 Salah learned that the court had entered a default judgment against them. Salah attempted to contact Lee without success. Jackie stated that at some point Salah reviewed the file and "became aware of a hearing set for August 3, 2011. Because of my husband's inability to get a hold of Attorney Lee, and because there was a 'judgment' entered against me, my husband and I both attended the...

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