Shapell Socal Rental Props., LLC v. Chico's Fas, Inc.

• Decision Date: 17 October 2022
• Docket Number: G060411
• Parties: SHAPELL SOCAL RENTAL PROPERTIES, LLC, Plaintiff and Respondent, v. CHICO'S FAS, INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

85 Cal.App.5th 198

300 Cal.Rptr.3d 209

SHAPELL SOCAL RENTAL PROPERTIES, LLC, Plaintiff and Respondent,

v.CHICO'S FAS, INC., Defendant and Appellant.

G060411

Court of Appeal, Fourth District, Division 3, California.

Filed October 17, 2022

As Modified October 31, 2022

As Modified on Denial of Rehearing November 15, 2022

Foley & Mansfield, Margaret I. Johnson and Angela V. Sayre, Monrovia, for Defendant and Appellant.

Klapach & Klapach, Joseph S. Klapach, Beverly Hills; Hamburg Karic Edwards & Martin, Gregg A. Martin and Ann S. Lee, Los Angeles, for Plaintiff and Respondent.

OPINION

SANCHEZ, J.

INTRODUCTION

An attorney has both an ethical and statutory obligation to warn opposing counsel, if counsel's identity is known, of an intent to seek a default and to give counsel a reasonable opportunity to file a responsive pleading. In LaSalle v. Vogel (2019) 36 Cal.App.5th 127, 137, 248 Cal.Rptr.3d 263 ( LaSalle ), a panel of this court confirmed that obligation directly, unequivocally, and without qualification. The LaSalle court concluded the ethical obligation is rooted in decades of case authority and, the LaSalle court concluded, is reinforced by a statutory obligation arising under Code of Civil Procedure section 583.130.¹ ( LaSalle, supra , at pp. 135-137, 248 Cal.Rptr.3d 263.) The LaSalle court urged a return to the professionalism represented by section 583.130 and expressed the hope that before seeking a default counsel would act with " ‘dignity, courtesy, and integrity.’ " ( LaSalle , at p. 141, 248 Cal.Rptr.3d 263.)

This case demonstrates the unfortunate reality that some members of the legal profession have not demonstrated the yearned-for professionalism and that the hopes expressed in LaSalle remain a dream. In this unlawful detainer action, counsel for plaintiff Shapell Socal Rental Properties, LLC (Shapell) requested and obtained a default and default judgment against defendant Chico's FAS, Inc. (CFI) in direct violation of the ethical and statutory obligations confirmed in LaSalle. In the course of the underlying lease dispute, CFI had asked Shapell to direct communications regarding the subject lease to CFI's counsel. Despite that request, and despite LaSalle — which was on the books at the time — Shapell's counsel never communicated with CFI's counsel about an intent to seek a default and default judgment before requesting one from the trial court. Shapell's counsel not only failed to notify CFI's counsel of the complaint, counsel also as we shall explain, effected service of the complaint and the request for entry of default and default judgment in a way intentionally and precisely calculated to create a strong possibility of a default.

CFI brought a motion under sections 473, subdivision (b) ( section 473(b) ) and 473.5 to set aside the default and default judgment. In that motion, CFI called out Shapell on its counsel's ethical and statutory violation. Shapell's response was to call CFI's argument "specious" — a nose-thumbing at LaSalle.

The trial court inexplicably denied CFI's motion and failed to address the breach of ethical and statutory duties by Shapell's counsel. We cannot abide that result. Several factors applicable to motions for relief from default, along with counsel's breach of ethics and of section 583.130, support our decision to reverse the order denying CFI's motion to set aside the default and default judgment.

FACTS AND PROCEDURAL HISTORY

I.FACTS

CFI is a national chain of retail stores that sells women's clothing. Shapell owns and manages commercial real estate.

In May 2015 Shapell and CFI entered into a lease for property in Laguna Niguel, California for use as a retail store (the Lease). Two provisions of the Lease are of particular importance here:

1. Section 32.E, entitled "NOTICES," states: "Any notice or demand required or permitted by law or by any of the provisions of this Lease shall be in writing. All notices or demands by Landlord to Tenant shall be deemed to have been properly given when sent by registered or certified mail, postage prepaid, or via overnight delivery service, addressed to Tenant at the address set forth in the Fundamental Lease Provisions. All notices or demands by Tenant to Landlord shall be deemed to have been properly given when sent by registered or certified mail, postage prepaid or overnight delivery service, addressed to Landlord at the address set forth in the Fundamental Lease Provisions. Either party hereto may change the place to which notices are to be given by advising the other party in writing. If any notice or other document is sent by mail or overnight delivery service as aforesaid, the same shall be deemed served, delivered, and received when such notice is received or delivery is refused by the recipient party."

2. Section 3.E granted CFI a one-time right to unilaterally terminate the Lease following the fifth full year of the Lease term if store revenues did not exceed a minimum annual sales expectation of $1.5 million. Section 3(E) states in part, "The Lease shall automatically terminate at 11:59 p.m. on the sixtieth (60^th) day following delivery of written notice of termination to Landlord." The Lease refers to this right to terminate the Lease as the "kick-out right."

CFI made no rent payments for April, May, and June 2020. In May 2020, CFI's chief operating officer hosted a conference call for its landlords and announced CFI's intent to withhold rents or pay reduced rents and expressed the hope that its landlords would accept reduced payments. From July through December 2020 CFI paid Shapell half of the monthly rent due under the Lease. Beginning in January 2021, CFI resumed paying the full amount but did not make up the prior shortfalls.

By letter dated August 17, 2020, Shapell provided CFI formal notice that it was in default of the Lease due to failure to pay rent. The Letter was sent to CFI's corporate office in Fort Myers, Florida. In a letter to Shapell dated August 24, 2020, CFI asserted it was not in default or breach of the Lease.

In October 2020, Shapell served CFI with a formal 10-day notice to pay rent or quit (the 10-day notice). The notice advised CFI it was in default of the Lease for failure to pay rent, property taxes, insurance, and common area maintenance payments in the total amount of $51,335.42. The 10-day notice was served on CFI by overnight mail sent to its corporate office in Fort Myers, Florida.

In response to the 10-day notice, CFI's legal counsel (Foley & Mansfield) sent a letter to Shapell dated October 22, 2020. The letter advises Shapell that CFI had retained Foley & Mansfield "for all real estate disputes and affirmative claims arising out of the effects of COVID-19 in the retail sector." The letter requests Shapell to "direct ... communications to [Foley & Mansfield] via email concerning [CFI] or its brands or concerning your lease(s) for any such store(s)."

In November 2020, Shapell filed a summons and unlawful detainer complaint against CFI (the Complaint). Shapell's counsel did not communicate with CFI's counsel about the Complaint or accepting service of it. Instead, on November 20, 2020, at 5:05 p.m., a registered process server appeared at the CFI's store in Laguna Niguel and personally served the Complaint on a store employee named "Terra J."

On November 23, 2020, copies of the Complaint were sent by first class mail to CFI at the Laguna Niguel store. Shapell's counsel did not have the summons and the Complaint served on CFI's registered agent for service of process in California and did not have copies of the summons and Complaint mailed to CFI's counsel or corporate offices.

On December 11, 2020, Shapell filed a request for entry of default and default judgment against CFI. The request for entry of default was mailed to the Laguna Niguel store address. A judgment by default was entered on December 22, 2020. Shapell's counsel did not warn or in any way notify CFI's counsel of an intent to request entry of default and default judgment.

By letter dated February 17, 2021, CFI gave notice of its intent to terminate the Lease pursuant to the section 3.E of the Lease. The letter stated, "Such termination shall be effective 60 days following Landlord's receipt of Tenant's notice." CFI gave a second notice of intent to terminate the Lease by letter dated April 13, 2021, which also stated, "Such termination shall be effective 60 days following Landlord's receipt of Tenant's notice ...." The letter added, "to preserve Tenant's termination rights set forth in Section 3 E of the Lease, we are giving notice to terminate."

II.CFI'S MOTION TO SET ASIDE THE DEFAULT AND DEFAULT JUDGMENT

In March 2021, CFI filed a motion pursuant to section 473.5 to set aside the default and in the alternative to set aside the default and default judgment pursuant to section 473(b). CFI argued service of the Complaint did not result in actual notice because (1) service did not comply with the agreed terms of the Lease, which required service on CFI at its corporate office in Florida, and (2) service was not made on CFI's registered agent for service of process in California. CFI also argued its failure to answer the Complaint was due to inadvertence, surprise, mistake, or excusable neglect in that the Complaint was served on "an ordinary store associate," who made an honest mistake by not forwarding the Complaint to CFI's corporate office, and neither Shapell nor its legal counsel contacted Foley & Mansfield to notify it of the complaint or of an intent to seek a default judgment.

In support if its motion, CFI submitted the declaration of its counsel of record, Angela V. Sayre, and its senior director of real estate legal, David T. Graham. Sayre declared, "Neither[ ] I nor anyone from Foley & Mansfield ever received any communication from Plaintiff Shapell or its counsel at Hamburg, Karic[,] Edwards & Martin LLP advising that a Complaint had been filed or served." Graham declared: "On December 30, 2020, [CFI] received an unsolicited email...