Sole Energy Co. v. Hodges

• Decision Date: 05 April 2005
• Docket Number: No. G032002.,No. G031282.,No. G032102.,G031282.,G032002.,G032102.
• Citation: 26 Cal.Rptr.3d 823,128 Cal.App.4th 199
• Court: California Court of Appeals Court of Appeals
• Parties: SOLE ENERGY COMPANY et al., Plaintiffs and Respondents, v. Morris V. HODGES et al., Defendants and Appellants.

26 Cal.Rptr.3d 823

128 Cal.App.4th 199

SOLE ENERGY COMPANY et al., Plaintiffs and Respondents, v. Morris V. HODGES et al., Defendants and Appellants.

No. G031282.

No. G032002.

No. G032102.

Court of Appeal, Fourth District, Division 3.

April 5, 2005.

As Modified April 26, 2005.

Brady, Vorwerck & Ryder, Ravi Sudan, Glendora, and James Brady, Walnut Creek, for Defendants and Appellants Morris V. Hodges, Hillcrest Beverly Oil Corporation, and Kaymor Petroleum Products.

Law Offices of Norman Rasmussen, Norman Rasmussen; Blumberg Law Corporation and Ave Buchwald, Long Beach, for Defendant and Appellant Nevadacor Energy, Inc.

Hornberger & Brewer, Nicholas W. Hornberger and James F. Lindsay, Los Angeles, for Plaintiffs and Respondents.

OPINION

FYBEL, J.

INTRODUCTION

The trial court entered the defaults of four defendants as a sanction for their discovery abuses. Default judgment was entered against them in an amount exceeding $27 million, and the defendants appealed.

We reverse the judgment because the defendants did not receive notice their defaults might be entered as a discovery sanction and were not provided an opportunity to be heard on the matter. The defendants were denied due process because sanctions for the abuse or misuse of discovery may not be awarded ex parte. (Code Civ. Proc., § 2023, subd. (b).) The notice of motion for the discovery sanctions was also deficient. (Id., § 2023, subd. (c).) Thus, the orders entering the defendants' defaults and the subsequent default judgment are void.

FACTS AND PROCEDURAL HISTORY

I. The Original Complaint

On May 25, 2000, Sole Energy Company, a Texas corporation (Sole Energy Corporation), filed a verified complaint asserting causes of action for intentional interference with contractual relations, intentional interference with prospective economic advantage, fraud, and breach of contract. The named defendants were Petrominerals Corporation (Petrominerals), Morris V. Hodges, Daniel H. Silverman, Nevadacor Energy, Inc. (Nevadacor), Kaymor Petroleum Products (Kaymor), and Hillcrest Beverly Oil Corporation (HBOC). For this appeal, Hodges, HBOC, Kaymor, and Nevadacor are referred to collectively as defendants.

The complaint was based on a letter of intent dated December 16, 1999, from Sole Energy Company, LLC, to Nevadacor. (Sole Energy Company, LLC, was a precursor to Sole Energy Corporation, and was never formed as a limited liability company.) The letter of intent proposed an entity identified as Sole Energy Company purchase from Nevadacor the stock and oil- and gas-related assets of HBOC.

Defendants answered and eventually filed a motion for summary judgment. They argued in their motion that Sole Energy Corporation, which was formed on December 30, 1999, could not assert any claims arising out of the December 16 letter of intent. The trial court granted the motion for summary judgment. The order granting summary judgment and the judgment were entered on September 19, 2001.

On the same day, Sole Energy Corporation filed a motion for reconsideration. On September 20, 2001, Sole Energy Corporation filed a motion for leave to file an amended complaint, which would name four new proposed plaintiffs: Sole Energy Company, a partnership (Sole Energy Partnership); Thomas A. Swaney; Richard F. Borghese; and Harwood Capital Corporation (collectively referred to as plaintiffs). The trial court deemed the motion for reconsideration to be a motion for a new trial, granted it, and granted the motion for leave to amend. Defendants, along with Petrominerals and Silverman, appealed from the order granting a new trial, and the order granting leave to amend. (That appeal is the subject of the opinion in the companion case, Sole Energy Co. v. Petrominerals Corp. (Apr. 5, 2005, G030091) 128 Cal.App.4th 187, 26 Cal.Rptr.3d 790 (Sole Energy I).)

II. The First Amended Complaint

Plaintiffs' first amended complaint was filed on December 6, 2001. Petrominerals and Silverman moved for a stay of proceedings in light of the pending appeal. Hodges, HBOC, and Kaymor joined in the motion. On March 8, 2002, the trial court (1) stayed further proceedings involving Sole Energy Corporation only; (2) ruled the first amended complaint could proceed as to the newly added plaintiffs; (3) ordered defendants to answer the first amended complaint by April 2, 2002; and (4) set a trial date of July 22, 2002.

Nevadacor answered the first amended complaint. Hodges, HBOC, and Kaymor did not answer. (Petrominerals and Silverman also answered the first amended complaint, but are not parties to this appeal.)

III. HBOC and Kaymor Discovery Dispute

On May 10, 2002, plaintiffs noticed the depositions of HBOC and Kaymor through their persons most knowledgeable. HBOC and Kaymor failed to appear at the depositions. On May 28, plaintiffs applied ex parte for orders shortening time for a hearing on motions to compel HBOC's and Kaymor's depositions. The motions sought orders compelling attendance and production of documents at the depositions. Each motion sought sanctions of $2,921 against HBOC, Kaymor, and their counsel.

HBOC and Kaymor failed to appear at the ex parte hearing. The trial court granted the orders shortening time for a hearing on the motions.

On June 7, 2002, the trial court (1) granted the motions to compel HBOC's and Kaymor's depositions; (2) ordered HBOC and Kaymor to appear for their depositions on June 14, 2002; (3) ordered HBOC and Kaymor to produce the documents requested without objection; and (4) imposed $750 in sanctions against HBOC and Kaymor, but not against their counsel. The written orders state: "Failure to appear & produce will result in sanctions."

Despite the trial court's orders, HBOC and Kaymor again failed to appear for their depositions on the ordered date. On June 18, 2002, plaintiffs again applied ex parte for orders shortening time for a hearing on motions to compel HBOC and Kaymor to attend their depositions and produce documents, and for sanctions. In the application relating to HBOC, plaintiffs asked the court to shorten the time and order the motion for sanctions to be heard "immediately." In the application relating to Kaymor, plaintiffs asked the court to hear the motion within 10 days of the ex parte application.

The court granted the applications, shortened the time, and conducted the hearing on plaintiffs' request for sanctions. As a sanction, the court ordered stricken the answers of Hodges, HBOC, and Kaymor, and ordered the entry of their defaults.

The declarations submitted in connection with the ex parte applications stated: "I gave notice to opposing counsel as [set] forth hereinbelow that attorneys for Plaintiffs would be appearing on June 18, 2002, at 8:30 a.m. in the Orange County Superior Court, in Department C-13, making Ex Parte Application for an Order Shortening Time for Motions for sanctions against Defendants Hillcrest Beverly Oil Corporation and Kaymor Petroleum Products and Blumberg Law Corporation; and for Monetary Sanctions in the Sum of $890.00 against Defendant Hillcrest Beverly Oil Corporation and Blumberg Law Corporation, its Counsel of Record, for Failure to obey a Court order compelling attendance and production of documents at deposition." On June 18, 2002 (the day the court entered ex parte the defaults of Hodges, HBOC, and Kaymor), plaintiffs served defendants' counsel by mail with the motions to compel and for sanctions against HBOC and Kaymor. In the motions, plaintiffs stated they were seeking monetary sanctions and, in the memorandum of points and authorities, advised the court it could also consider issue preclusion or terminating sanctions.¹

A written order striking the answers of Hodges, HBOC, and Kaymor and entering their defaults was entered on June 28, 2002. Hodges, HBOC, and Kaymor had not answered the first amended complaint, so the portion of the order striking their answers was moot.

A default prove-up hearing was held July 17, 2002. On July 25, the trial court entered default judgments against Hodges, HBOC, and Kaymor.

IV. Nevadacor Discovery Dispute

On May 10, 2002, Swaney served a request for production of documents on Nevadacor. Nevadacor failed to produce the documents, which were due June 10, 2002.

On July 2, 2002, plaintiffs filed two ex parte applications: (1) an application for an order shortening time for a hearing on a motion to compel Nevadacor to produce documents and "for Sanctions"; and (2) an application for an order extending the time for a hearing on a motion to compel Nevadacor to produce documents and "for Sanctions." Neither application identified the specific sanction sought.

The trial court granted neither application. Instead, on July 3, 2002, the court entered the following order: "Defendant NEVADACOR ENERGY, INC. through its counsel, Norman Rasmussen, is ordered to personally appear at 8:30 a.m. on JULY 16, 2002 in Dept. C-13 of the Orange County Superior Court and to bring with him the following documents."² The documents ordered to be brought to court were those showing HBOC's and Kaymor's net operating incomes. The record does not contain a motion to compel or any documents requesting or justifying any particular sanction against Nevadacor.

Nevadacor's attorney did not appear at the hearing on July 17, 2002. The trial court ordered Nevadacor's answer stricken.³ A formal order was entered July 25, 2002, striking Nevadacor's answer and directing the clerk of the court to enter Nevadacor's default nunc pro tunc to July 25.

V. The Postdefault Motions and Judgment

Hodges, HBOC, and Kaymor moved to modify the default judgments and to vacate the orders of June 7, 19 and 28, 2002. They argued that because the first amended complaint did not specify the amount of damages sought, the court could not award any damages against them, and therefore requested that the judgment be modified to award zero damages, or at most $100,000 because the first amended complaint alleged in the cause of...