Kramer v. Traditional Escrow, Inc.

Decision Date20 October 2020
Docket NumberG058522
Citation56 Cal.App.5th 13,270 Cal.Rptr.3d 101
CourtCalifornia Court of Appeals Court of Appeals
Parties Michelle KRAMER, Plaintiff and Appellant, v. TRADITIONAL ESCROW, INC., et al., Defendants and Respondents.

Henry J. Josefsberg, Long Beach, for Plaintiff and Appellant.

Stephens Friedland, John B. Stephens, Irvine, and Timothy A. Spivey for Defendants and Respondents.

OPINION

MOORE, J.

Plaintiff Michelle Kramer filed this wage and hour lawsuit against her employer, defendants Traditional Escrow, Inc. (Traditional), and its alleged alter ego, Annette Scherrer-Cosner (Cosner; collectively defendants). A few months after defendants answered the initial complaint, their counsel withdrew, and defendants subsequently chose not to participate in this case. Plaintiff continued to serve defendants with all case documents, including an amended complaint, at their address of record. But, in violation of the California Rules of Court, defendants changed their mailing address without giving notice to plaintiff or the trial court. As a result, they did not receive any of the documents that plaintiff served on them after their counsel withdrew. Eventually, default and default judgment were entered against them due to their failure to answer the amended complaint.

Defendants filed a motion to set aside the default and vacate the default judgment, arguing they were entitled to equitable relief because they had been prevented from responding to the amended complaint due to extrinsic fraud and extrinsic mistake. The trial court granted the motion, finding that defendants were unaware the complaint had been amended. It also found that after filing the amended complaint, plaintiff's counsel misrepresented to Cosner's divorce attorney, who was unaffiliated with this matter, that defendants were in default and could not file an answer. Plaintiff appeals the trial court's ruling, arguing equitable relief was unwarranted.

We agree. Equitable relief from a default judgment is reserved for exceptional circumstances. None exist here. To the extent defendants were unaware of the amended complaint, it was due to their own negligence. They chose not to participate in the proceedings. They also missed every document served on them, including the amended complaint, because they failed to inform the trial court and plaintiff of their current mailing address. Indeed, defendants made themselves unreachable by any means. They could not be reached by phone or e-mail, missing multiple phone calls from plaintiff and an e-mail from the trial court. Defendants cannot deliberately neglect this lawsuit and go off-grid, so to speak, and then complain that they lacked notice of the proceedings. Besides, about a month prior to entry of default, defendants received actual notice that an amended complaint had been filed. Yet they did nothing.

Nor is equitable relief warranted based on the alleged misrepresentation made by plaintiff's attorney that defendants were in default. If defendants were misled, it was due to their own negligence. They failed to pay any attention to this lawsuit and missed every notice from plaintiff because they had made themselves unreachable. Moreover, defendants have not explained why they failed to act after the misrepresentation occurred. This lack of diligence bars them from seeking relief.

Simply put, there are no exceptional circumstances warranting relief. Thus, we reverse the trial court's order.

IFACTS AND PROCEDURAL HISTORY
A. Defendants Answer Complaint and their Counsel Withdraw

Plaintiff filed this lawsuit against Traditional and Cosner in May 2017. Traditional was an independent escrow company that provided services throughout Southern California. It stopped operating and wound up its business in 2016. Cosner was one of its principals, whom plaintiff asserted was the alter ego of Traditional.

The initial complaint alleged plaintiff was formerly employed by Traditional as an escrow manager and paid on a salary and commission basis. It sought relief based on two general theories. First, defendants owed plaintiff a $20,030.90 commission payment. Second, defendants misclassified plaintiff as an exempt employee, rather than an hourly worker, and owed her unpaid overtime and premium wages for missed meal and rest breaks. Based on these two theories, the initial complaint set forth several claims to recoup the commission payment, several wage and hour claims, a claim for civil penalties under the Private Attorneys General Act ( Lab. Code, § 2698 et seq. ; PAGA), and a claim for violation of Business and Professions Code section 17200 (UCL) against defendants.1 Despite the multiple claims and theories, the only specific sum of money identified in the initial complaint was the $20,030.90 commission payment.

Defendants answered the complaint in September 2017 through their counsel, Miller Miller Menthe, LLP (the Miller firm). Trial was initially set for June 2018. In early April 2018, the Miller Firm filed a motion to withdraw as defendants' counsel and to continue the trial date, which was granted. The court's signed order granting the Miller firm's motion (the withdrawal order) listed Cosner's home in Irvine (the Cosner residence) as defendants' address and also listed their phone number and e-mail address. The withdrawal order also stated there was a mandatory settlement conference on September 28, 2018. The Miller firm served defendants with the withdrawal order by mail on June 19, 2018, at the Cosner residence.2 Defendants knew their counsel had withdrawn and do not deny receiving the withdrawal order.

B. First Default Entered and Complaint Amended

Near the end of June 2018, plaintiff noticed Cosner's deposition for Monday, July 16, 2018, and served Cosner at the Cosner residence. On the Friday before the deposition, plaintiff's counsel, Henry Josefsberg, called Cosner using the phone number listed on the withdrawal order and left a message with the date, time, and location of the deposition. Cosner did not appear at the deposition, so Josefsberg called her again. Cosner did not pick up, so he left a message and then documented Cosner's nonappearance with the court reporter.

Following the missed deposition, plaintiff sent a meet and confer letter to defendants at the Cosner residence. The letter was returned by the United States Postal Service (USPS) with instructions to forward the letter to PO Box 28600 in Anaheim (PO Box 28600). Plaintiff resent the meet and confer letter to defendants at PO Box 28600. The letter was not returned, but plaintiff did not hear anything from defendants. As such, plaintiff filed a motion to compel Cosner's deposition and served defendants at both the Cosner residence and PO Box 28600 on August 9, 2018. Defendants did not oppose the motion to compel or appear at the hearing, so the court granted the motion and issued $3,722.40 in monetary sanctions against Cosner.

Defendants also did not appear at the mandatory settlement conference on September 28, 2018. At the conference, plaintiff made an oral motion to strike defendants' answer, which the court granted. The court also vacated the trial date and set a default prove-up hearing for October 26, 2018. The court issued a minute order with these rulings. The court clerk served defendants with the minute order at the Cosner residence and by e-mailing it to the e-mail address listed on the withdrawal order. Plaintiff also gave formal notice of the court's rulings to defendants at the Cosner residence and PO Box 28600.

Prior to the prove-up hearing, plaintiff filed an ex parte motion for leave to file a first proposed amended complaint (amended complaint). The theories of liability and causes of action in the amended complaint were the same as the initial complaint. The only amendment was to plaintiff's prayer, which was revised to set forth the exact monetary relief sought as required by Code of Civil Procedure section 580.3 While the prayer in the initial complaint contained boilerplate statements for relief, the amended prayer requested precise amounts for plaintiff's claims and specific sums of attorney fees, costs, and interest. Together, the proposed amended complaint sought over $1.75 million.

Plaintiff served the ex parte motion on defendants at the Cosner residence and PO Box 28600 on October 9, 2018. Josefsberg called defendants that same day using the phone number on the withdrawal order. He left a message informing them that plaintiff would be moving ex parte for leave to file an amended complaint to make "substantive amendments to the Prayer of the original Complaint dollar amounts of damages, penalties, and interest."

Josefsberg also stated the date, time, and location of the hearing.

Defendants did not appear at the ex parte hearing, and the trial court granted the ex parte motion and deemed the amended complaint filed. It also executed plaintiff's proposed order with revisions. The proposed order, which had been served on defendants with the ex parte motion, stated that defendants were not entitled to file any responsive pleadings to the complaint and that their answer had been stricken. The court struck these portions and made its own interlineations. Thus, the signed order stated that "Defendants are entitled to file any responsive pleadings to the First Amended Complaint." The order did not specify defendants' deadline to respond.

Plaintiff served defendants at the Cosner residence and PO Box 28600 with both the amended complaint and notice of the order granting leave to amend, which contained a copy of the signed order. Tracking documents from the USPS show both documents were delivered to both addresses.

C. The Stipulation and Second Default Entered

While this lawsuit was pending, Cosner was embroiled in a long-running, contentious divorce proceeding. She was represented in the divorce by attorney Paul Nelson. Nelson has never been defendants' counsel of record in this matter.

There is some dispute as to what happened...

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