Community Dental Services v. Tani

• Decision Date: 07 March 2002
• Docket Number: No. 00-56450.,00-56450.
• Citation: 282 F.3d 1164
• Parties: COMMUNITY DENTAL SERVICES, dba SmileCare Dental Group, Plaintiff-Appellee, v. Stuart TANI, DDS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

282 F.3d 1164

COMMUNITY DENTAL SERVICES, dba SmileCare Dental Group, Plaintiff-Appellee, v. Stuart TANI, DDS, Defendant-Appellant.

No. 00-56450.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 7, 2001.

Filed March 7, 2002.

As Amended on Denial of Rehearing and Rehearing En Banc April 24, 2002.^*

COPYRIGHT MATERIAL OMITTED

Dennis D. Burns, La Jolla, CA, for the defendant-appellant.

John F. Cannon, Steven M. Hanle, Edward S. Kim, Stradling Yocca Carlson & Rauth, Newport Beach, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Southern District of California, Robert H. Whaley, District Judge, Presiding.

Before BROWNING, REINHARDT and TALLMAN, Circuit Judges.

OPINION

REINHARDT, Circuit Judge.

This appeal arises from the denial of a motion for relief from default judgment under Fed.R.Civ.P. 60(b).¹ We hold that the appellant has demonstrated "extraordinary circumstances" that warrant setting aside the default judgment and therefore reverse the district court. See Fed.R.Civ.P. 60(b)(6).

BACKGROUND

The underlying dispute in this case centers on the use of the trademarked term, "SmileCare," to promote dental care services. The plaintiff-appellee, Community Dental Services d.b.a. SmileCare Dental Group ("CDS"), filed an action against defendant-appellant, Stuart Tani ("Tani"), for infringement of the trademark, dilution, and unfair competition as a result of Tani's use of the term "SmileCare" to promote his dental practice.²

In response to the filing of the action on May 13, 1999,³ Tani consulted with his financial advisor, Jeff Stein (an attorney who subsequently resigned from the California State Bar with charges pending). Stein recommended that Tani retain attorney Eugene Salmonsen as counsel and Tani did as advised. Stein continued to work with Salmonsen in representing Tani in the early stages of the case. Both parties orally agreed to an extension of time for the filing of an answer to the complaint. CDS forwarded a signed stipulation providing for a 10-day extension. However, Tani's counsel failed to file the stipulation, and also failed to file a timely answer. On July 14, 1999, CDS filed a request for entry of default. At the time of its request, CDS discovered that an answer had been filed one day earlier, on July 13. The answer was filed approximately two weeks late. Having not been served with a copy, CDS telephoned Stein who stated that CDS had indeed been served with a copy, but that he would send an additional copy as a courtesy. CDS again did not receive a copy of the answer.

At a preliminary case management conference on July 21, 1999, Stein and Salmonsen appeared on behalf of Tani; Stein again represented to CDS that he had sent the answer to CDS's counsel through overnight mail. CDS declared that it had never received the pleading.

On August 9, 1999, the magistrate judge ordered Salmonsen to serve the answer on CDS and to call CDS to discuss further the possibility of settlement. Salmonsen did not obey this court order. He failed to contact CDS for the court-ordered settlement conference call, and failed once again to give CDS a copy of Tani's answer. Subsequently, CDS made a motion to strike the answer and moved for a preliminary injunction and default judgment against Tani. At the hearing on these motions on October 18, 1999, Salmonsen appeared on Tani's behalf, but he did not file a written memorandum in opposition, and still did not provide CDS with a copy of the answer. After hearing oral arguments from both parties, the district court granted CDS's motions. The order of default judgment against Tani was mailed to Tani's office because Salmonsen had used that address as his address of record.⁴

On several occasions, Salmonsen and Stein represented to Tani that the litigation was proceeding smoothly. Tani continued to rely on both Salmonsen's and Stein's assurances that the case was going well. Tani asserts that it was not until he received the order for default judgment at his office in approximately April, 2000 that he became aware of the events that had been occurring with respect to his case.

Tani retained a new attorney, Daniel Levinson, to contest CDS's motion for a permanent injunction and entry of default judgment, in which CDS sought damages in the amount of over six and a half million dollars. On April 17, 2000, Levinson filed a memorandum in opposition and also asked the court to delay ruling on the damages issue until he had filed a motion to set aside the default judgment. Having still not received a motion for relief from Levinson on June 28, 2000, the court ordered Tani to pay CDS almost two million dollars in damages and prejudgment interest, costs, and attorneys' fees. The court also granted a permanent injunction prohibiting Tani from using the trademarked term.

Levinson subsequently filed a motion for relief from default judgment on behalf of Tani. The district court treated Levinson's motion as a motion under Fed. R. Civ. Pro. 60(b).⁵ The district court heard oral argument and denied the motion. The court reasoned that, although Stein and Salmonsen had represented to Tani that the litigation was proceeding smoothly, the acts and omissions of counsel (e.g. the repeated failure, even upon direct order of the court, to serve opposing counsel with the answer, the absence from various hearings) were chargeable to Tani. It added that Tani failed to establish that his former attorneys' conduct presented "extraordinary circumstances" warranting relief,⁶ and that even if he had proven such circumstances, Tani would not merit relief due to his own "culpable conduct." Tani timely appealed the denial of this motion.⁷

DISCUSSION

Under Federal Rule of Civil Procedure 60(b)(6), a default judgment may be set aside when there is any reason not previously considered in the Rule that justifies granting relief.⁸ We have held that a party merits relief under Rule 60(b)(6) if he demonstrates "extraordinary circumstances which prevented or rendered him unable to prosecute[his case]." Martella v. Marine Cooks & Stewards Union, 448 F.2d 729, 730 (9th Cir.1971) (per curiam); see also Pioneer Investment Servs. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 393, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). The party must demonstrate both injury and circumstances beyond his control that prevented him from proceeding with the prosecution or defense of the action in a proper fashion. United States v. Alpine Land & Reservoir Co., 984 F.2d 1047, 1049 (9th Cir.1993).

The district court concluded that Tani did not present "extraordinary circumstances" beyond his control because he was chargeable with his counsel's conduct. Under this circuit's precedent, a client is ordinarily chargeable with his counsel's negligent acts. Clients are "considered to have notice of all facts known to their lawyer-agent." Ringgold Corp. v. Worrall, 880 F.2d 1138, 1141-42 (9th Cir.1989). Because the client is presumed to have voluntarily chosen the lawyer as his representative and agent, he ordinarily cannot later avoid accountability for negligent acts or omissions of his counsel. Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962); see also Pioneer, 507 U.S. at 396-97, 113 S.Ct. 1489. While the above principles provide the general rule regarding the client-attorney relationship, several circuits have distinguished a client's accountability for his counsel's neglectful or negligent acts — too often a normal part of representation — and his responsibility for the more unusual circumstance of his attorney's extreme negligence or egregious conduct. This circuit, however, has not yet addressed the question whether a client is responsible for his counsel's gross negligence, or, to put the question differently, whether gross negligence may constitute "extraordinary circumstances" warranting relief under Rule 60(b)(6). We did, however, recently indicate that we might be willing to adopt the latter approach.

The circuits that have distinguished negligence from gross negligence in the present context have granted relief to the client where the default judgment was a result of his counsel's displaying "neglect so gross that it is inexcusable." Boughner v. Sec'y of Health, Educ. & Welfare, 572 F.2d 976, 978 (3d Cir.1978); see also Carter v. Albert Einstein Med. Ctr., 804 F.2d 805, 806 (3d Cir.1986) (reversing denial of plaintiff's R. 60(b) motion based on plaintiff's counsel's "blatant disregard for explicit [court] orders"); Shepard Claims Serv., Inc. v. William Darrah & Assocs., 796 F.2d 190, 195 (6th Cir.1986) ("Although a party who chooses an attorney takes the risk of suffering from the attorney's incompetence, we do not believe that this record exhibits circumstances in which a client should suffer the ultimate sanction of losing his case without any consideration of the merits because of his attorney's neglect and inattention."); L.P. Steuart, Inc. v. Matthews, 329 F.2d 234, 235 (D.C.Cir.1964) (stating that R. 60(b)(6) "is broad enough to permit relief when as in this case personal problems of counsel cause him grossly to neglect a diligent client's case and mislead the client"); Primbs v. United States, 4 Cl.Ct. 366, 370 (1984) (holding that normal attorney-client relationship does not bar Rule 60(b) relief when "the evidence is clear that the attorney and his client were not acting as one").¹⁰ These courts have concluded that an unknowing client should not be held liable on the basis of a default judgment resulting from an attorney's grossly negligent conduct, and that in such cases sanctions should be imposed on the lawyer, rather than on the faultless client. See Carter, 804 F.2d at 807; Steuart, 329 F.2d at 235.

We join the Third, Sixth, and Federal Circuits in holding that where the client has demonstrated gross negligence on the part of his counsel, a default judgment against the client may be set aside pursuant to ...