Sass v. Cohen

• Decision Date: 07 March 2019
• Docket Number: B283122
• Citation: 32 Cal.App.5th 1032,244 Cal.Rptr.3d 441
• Court: California Court of Appeals Court of Appeals
• Parties: Deborah SASS, Plaintiff and Respondent, v. Theodore COHEN, Defendant and Appellant.

32 Cal.App.5th 1032

244 Cal.Rptr.3d 441

Deborah SASS, Plaintiff and Respondent,

v.Theodore COHEN, Defendant and Appellant.

B283122

Court of Appeal, Second District, Division 2, California.

Filed March 7, 2019

As Modified on Denial of Rehearing April 4, 2019

Law Offices of Robert S. Gerstein and Robert S. Gerstein for Plaintiff and Respondent.

Law Offices of James P. Wohl, James P. Wohl, Los Angeles, and Eileen P. Darroll, El Segundo, for Plaintiff and Respondent.

Snell & Wilmer, LLP, Keith M. Gregory, Los Angeles, and Todd E. Lundell, Costa Mesa, for Defendant and Appellant.

HOFFSTADT, J.

When a plaintiff files a lawsuit, the defendant can opt not to respond; the result is a default judgment for the plaintiff. ( Code Civ. Proc., §§ 580, subd. (a), 585, subds. (a) & (b).)¹ However, the relief awarded in such a default judgment "cannot exceed" the "type and amount of relief" sought in the plaintiff’s operative pleadings. ( § 580, subd. (a) ; Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 493-494, 165 Cal.Rptr. 825, 612 P.2d 915 ( Becker ).) This case presents two unsettled questions: (1) May a default judgment be entered for an amount in excess of the demand in the operative pleadings when the plaintiff seeks an accounting or valuation of a business; and (2) Should the comparison of whether a default judgment exceeds the amount of compensatory damages demanded in the operative pleadings examine the aggregate amount of non-duplicative damages or instead proceed on a claim-by-claim or item-by-item basis? We hold that actions alleging an accounting claim or otherwise involving the valuation of assets are not excused from limitations on default judgments and, in so doing, add our voice to the growing chorus of cases so holding. We also hold that the amounts of damages awarded and demanded are to be compared on an aggregate basis.

Applying these principles, the default judgment awarding compensatory damages of $ 2,806,532 in this case exceeds the $ 987,500 in compensatory damages specified in the operative complaint. It is void to the extent of the overage, and we remand to the trial court to determine whether to give the plaintiff the option to accept a modified default judgment in this reduced amount or to amend her complaint to demand greater relief (thereby giving the defendant an opportunity to avoid a default by responding to her amended pleading).

FACTS AND PROCEDURAL BACKGROUND

I. Facts

In May 2006, Theodore Cohen (Cohen) met Deborah Sass (plaintiff) in London. Cohen was married, but he and plaintiff began dating.

The next month, Cohen asked plaintiff to move to the United States with him so they could "merge their lives." In exchange, Cohen promised that "all property and income acquired ... during [their] relationship would be joint property" and that he would financially take care of her for the rest of her life. Cohen reaffirmed these promises in April 2011. Plaintiff accepted Cohen’s offer and moved in with him.

Cohen thereafter bought two houses. In late 2007, Cohen bought a condominium on Hollywood Boulevard in Los Angeles (the Hollywood house), telling plaintiff they would co-own the property. And in the summer of 2011, Cohen bought a house on Oakley Drive in Los Angeles (the Oakley house), and again said he and plaintiff would be co-owners.

Cohen also brought plaintiff into his business dealings. In 2006, Cohen formed a "digital entertainment consulting company" called Tag Strategic, LLC (Tag). Cohen was Tag’s sole member. Cohen told plaintiff he wanted her to help him build Tag’s business and promised to give her equity in the company. Toward that end, Cohen initially named her as Tag’s Vice President of Client Relations and later named her its Global Head of Business Development. After plaintiff worked for Tag for several years for no salary at all, Cohen in January 2009 promised to pay her a "token" salary of $ 5,000 per month. He ended up paying her $ 2,000 per month for a total of 10 months, even though she was working 70 hours a week for the company.

In June 2011, plaintiff bought stock in a restaurant and lounge, but put it in Cohen’s name.

In December 2012, plaintiff moved out of the Oakley house where she and Cohen were living. In April 2013, Cohen stopped paying plaintiff’s living expenses and plaintiff stopped working for Tag.

In October 2013, Cohen sold the Hollywood house but did not share any of the sale proceeds with plaintiff.

II. Procedural Background

A. The operative complaint

In August 2014, plaintiff sued Cohen and Tag.

In the operative, Second Amended Complaint (SAC), plaintiff alleged seven claims: (1) breach of contract against Cohen, for breaching their so-called Marvin agreement² to share the title on both houses, the sale proceeds from the Hollywood house, Tag’s profits, and Cohen’s income; (2) fraud against Cohen and Tag for Cohen’s misrepresentations that he would put plaintiff’s name on the deeds to both houses and that she would earn equity in Tag; (3) failure to pay plaintiff’s wages between May 2006 and April 2013 against Tag; (4) waiting time penalties under Labor Code section 203 for nonpayment of those wages against Tag; (5) quantum meruit against Cohen and Tag for the value of plaintiff’s services to Tag; (6) an accounting of the value of the two homes, Tag, Cohen’s income, and the restaurant/lounge stock against Cohen and Tag; and (7) a violation of the Uniform Fraudulent Transfer Act³ ( Civ. Code, § 3439 et seq. ) against Cohen and Tag, for shuttering Tag after the breakup to frustrate the collection of any judgment.⁴

Plaintiff’s prayer for relief for each of these claims in the SAC sought damages "in a sum to be proven at trial." However, plaintiff elsewhere in the SAC demanded (1) her "share of profits" in the Hollywood home, which she alleged was "in excess of $ 300,000," (2) "no less than $ 3,000,000, which represents 50% of the fair market value of (a) the Hollywood [h]ouse received by ... Cohen when he sold that house ... and (b) the Oakley [h]ouse," (3) "at least the sum of $ 700,000, which represents 50% of the revenue brought to Tag by [p]laintiff, along with an unknown sum which represents 50% of all profits earned by Tag," (4) unpaid wages from May 2006 to April 2013 less the "10 payments of $ 2,000," and (5) $ 25,000 for the stock in the restaurant/lounge. In the alternative, plaintiff demanded a constructive trust over "all income and property earned and purchased by [Tag and Cohen] since May 2006." On the fraud claim, plaintiff also sought "punitive and exemplary damages in a sum to be determined at trial."

B. Default, prove up and entry of default judgment

Neither Cohen nor Tag responded to the SAC, despite the trial court advising Cohen at a hearing on a discovery matter that his response was past due.

In February 2016, plaintiff filed and served on Cohen a Notice of Punitive Damages in which she "reserve[d] the right to seek $ 4,000,000 in punitive damages."

On March 10, 2016, the trial court’s clerk entered default as to Cohen and Tag on the SAC.

On October 4, 2016, the trial court conducted a "prove up" hearing for plaintiff to substantiate her damages.⁵ Plaintiff submitted the declaration of a forensic accountant who determined that plaintiff’s share of the total value of the two houses, Tag, Tag’s profits, her unpaid wages, and the restaurant/lounge stock came to $ 6,351,000.

The trial court issued a tentative ruling awarding plaintiff actual damages of $ 2,806,532, prejudgment interest of $ 43,547.70, and punitive damages of $ 88,984. Based chiefly on plaintiff’s expert’s calculations, the trial court calculated the actual damages as follows: (1) $ 126,504, which is one half of the $ 253,008.87 in proceeds from the sale of the Hollywood house; (2) $ 2,099,610, which is one half of the $ 4,199,219 ongoing value of Tag; (3) $ 444,918, which is one half of Tag’s bank account balances on January 4, 2013 (which the trial court used as the proxy for Tag’s profits); (4) $ 120,000 in unpaid salary, which is either one half of the promised monthly salary of $ 5,000 for 52 months (from January 2009 when that salary was promised to April 2013 when plaintiff stopped working for Tag) or the full amount of the promised salary for 28 months (from January 2011 through April 2013), less the $ 20,000 actually paid; (5) $ 5,000 in waiting time penalties, and (6) $ 10,500, which is one half of the $ 21,000 purchase price of the restaurant/lounge stock. Rather than award damages for the Oakley house still owned by Cohen, the court imposed a constructive trust and ordered Cohen to add plaintiff to the deed as half owner as a tenant in common. The court then awarded prejudgment interest at the statutory rate of 10 percent ( Civ. Code, §§ 3287, subd. (a), 3289, subd. (b) ) in the amounts of (1) $ 37,951.20 for the sale proceeds from the Hollywood house (from its sale date of October 2013 through October 2016), and (2) $ 5,596.50 for the purchase price of the stock (from its purchase in June 2011 through October 2016). The court awarded punitive damages of $ 88,984, which is one-tenth of the total amount the court used as the proxy for Tag’s profit.⁶

On October 7, 2016, the trial court entered a default judgment against Cohen and Tag awarding plaintiff the above described relief.

C. Cohen’s motion to vacate

On January 25, 2017, Cohen filed a motion to vacate the default judgment.⁷ In his reply brief in support of the motion, Cohen argued that the default judgment was void because the relief granted exceeded that demanded in the SAC.⁸ After granting plaintiff the opportunity to respond to this argument, the court issued a written ruling denying the motion to vacate. Based on Cassel v. Sullivan, Roche & Johnson (1999) 76 Cal.App.4th 1157, 90 Cal.Rptr.2d 899 ( Cassel ), the court ruled that "there is no notice requirement for damages sought before entry of default judgment" "where a plaintiff alleges a cause of action for accounting and knowledge of the debt due is within the...