Wang v. EOS Petro, Inc.

• Decision Date: 13 January 2023
• Docket Number: B317659
• Parties: HENRY WANG et al., Plaintiffs and Respondents, v. EOS PETRO, INC. et al, Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

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HENRY WANG et al., Plaintiffs and Respondents, v. EOS PETRO, INC. et al, Defendants and Appellants.

B317659

California Court of Appeals, Second District, Seventh Division

January 13, 2023

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. 20STCV14071 Kristin S. Escalante and Patricia D. Nieto Judges. Reversed with directions.

McKown Bailey, Aaron M. McKown and Tony J. Cheng for Defendants and Appellants.

Hamrick & Evans, A. Raymond Hamrick III and Jonathan Dutton for Plaintiffs and Respondents.

SEGAL J.

INTRODUCTION

EOS Petro, Inc., Nikolas Konstant, and Umesh Patel (defendants) appeal from a default judgment against them and in favor of Henry Wang, Yam Sheun Kwok, and Qiongzhen Zheng (plaintiffs) after defendants failed to repay a number of loans. Limited in the arguments they can make on appeal from a default judgment, defendants contend that plaintiffs' complaint failed to state any cause of action, that plaintiffs did not submit sufficient evidence of their damages, that the judgment is void because it awards prejudgment interest at a usurious rate, and that plaintiffs were not entitled to attorneys' fees. We agree with defendants that the trial court erred in awarding prejudgment interest at a rate that exceeded the maximum allowable rate and in awarding attorneys' fees, but we disagree with defendants' other contentions. Therefore, we reverse the judgment and direct the trial court to enter a new judgment that awards interest at a legal rate and that does not include an award of attorneys' fees.

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiffs Sue Defendants for Failing To Repay Various Loans

In April 2020 plaintiffs filed this action, alleging causes of action for, among other things, breach of contract, money had and received, and receiving stolen property in violation of Penal Code section 496. Plaintiffs alleged that, in a series of six transactions in 2018, Konstant and Patel borrowed $347,000 from Wang, $250,000 from Kwok, and $100,000 from Zheng and that EOS Petro executed promissory notes in which it agreed to repay five of the six loans to Konstant and Patel. Plaintiffs alleged Konstant, Patel, and EOS Petro breached the loan agreements and promissory notes by failing to repay any principal or pay any interest.

B. The Trial Court Grants Plaintiffs' Request for a Default Judgment

After none of the defendants responded to the complaint, plaintiffs filed requests for entry of default, and in July 2020 the clerk entered the default of each defendant. In October 2020 plaintiffs applied for a default judgment. They requested as damages $697,000 in unpaid principal; prejudgment interest at the rates specified in the various loan agreements and promissory notes ($290,156 as of October 16, 2020, plus $338.50 per day thereafter); $8,860 in attorneys' fees under Penal Code section 496, subdivision (c), as provided by a schedule in the Los Angeles Superior Court Local Rules; and $944 in costs. Each plaintiff submitted a declaration stating the terms, and attached an unsigned copy, of each loan or promissory note.^[1] In December 2020 the trial court entered judgment against defendants in the amount of $1,017,270.

C. Defendants Move To Vacate the Default Judgment, and the Trial Court Enters an Amended Judgment

In May 2021 defendants filed a motion to vacate the default judgment. Defendants argued that the complaint failed to state any cause of action, that the prayer for relief in the complaint did not specify the amount of damages sought, that plaintiffs' evidence did not establish they were entitled to the damages they were requesting, that the court erred in making defendants' liability joint and several, and that plaintiffs were not entitled to attorneys' fees.

The court denied the motion in part and granted it in part. The court ruled plaintiffs' complaint "provided notice of the specific amounts owed by Defendants as to each Plaintiff" and "repeated notice of the total amount sought against Defendants by the three Plaintiffs." The court rejected defendants' contention that, by failing to attach signed loan agreements, plaintiffs did not allege sufficient facts to state causes of action for breach of contract. The court ruled defendants failed "to show why the unsigned documents would defeat the claims as a matter of law. At best, this would be a failure to present evidence of liability (i.e., that Defendants are not parties to the contracts), despite the pled allegations." The court also ruled plaintiffs' common count for money had and received "could support the judgment without a writing." Finally, the court ruled that, although the complaint alleged defendants were jointly and severally liable for the entire amount of damages, because each plaintiff was entitled to a different amount, the court could not enter a judgment that awarded each plaintiff the entire amount. Therefore, the court ordered plaintiffs "to submit a new proposed judgment consistent with the obligations" to Wang, Kwok, and Zheng, individually.

Plaintiffs submitted a revised proposed judgment, and defendants filed objections. The trial court agreed with defendants that the judgment against EOS Petro should be reduced to reflect the fact that EOS Petro guaranteed only five of the six loans. The trial court rejected defendants' argument that, because Konstant and Patel did not sign the loan agreements, "pre-judgment interest rates charged against Konstant and Patel should be the constitutional limit of 7% per annum, instead of the contracted rates." The court ruled that plaintiffs stated "a valid cause of action for breach of contract against [d]efendants, with the various interest rates asserted," and that "the breach of contract cause supports the contracted interest rates." Konstant and Patel timely appealed from the amended default judgment.^[2]

DISCUSSION

A. Applicable Law

A "'"judgment by default is said to 'confess' the material facts alleged by the plaintiff, i.e., the defendant's failure to answer has the same effect as an express admission of the matters well pleaded in the complaint."'" (Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281, italics omitted; see Steven M. Garber &Associates v. Eskandarian (2007) 150 Cal.App.4th 813, 823.) "The 'well-pleaded allegations' of a complaint refer to '"'all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.'"'" (Kim, at p. 281; see Carlsen v. Koivumaki (2014) 227 Cal.App.4th 879, 898.) If "the complaint properly states a cause of action, the only additional proof required for the judgment is that needed to establish the amount of damages." (Carlsen, at p. 898.) Although "the general rule [is] that the sufficiency of the evidence tendered in a default proceeding cannot be reviewed on an appeal from a default judgment," the general rule does not apply "as to damages which, despite default, require proof." (Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1745; accord, Scognamillo v. Herrick (2003) 106 Cal.App.4th 1139, 1150; see Sass v. Cohen (2020) 10 Cal.5th 861, 880 ["plaintiffs in default cases must still prove their damages to obtain monetary recovery"].)

B. Plaintiffs Pleaded Sufficient Facts To State Several Causes of Action

Defendants argue the default judgment is invalid because plaintiffs' complaint did not allege facts sufficient to state any cause of action. A "trial court may not enter a default judgment when the complaint's allegations do not state a cause of action." (Los Defensores, Inc. v. Gomez (2014) 223 Cal.App.4th 377, 392; see J.W. v. Watchtower Bible &Tract Society of New York, Inc. (2018) 29 Cal.App.5th 1142, 1162.) "We apply the de novo standard of review when considering whether a complaint alleges sufficient facts to state a cause of action." (J.W., at p. 1162; see Lee v. Hanley (2015) 61 Cal.4th 1225, 1230.) Our review is "akin to that triggered by a general demurrer, namely, whether the complaint lacks factual allegations indispensable to the asserted claims." (Los Defensores, at pp. 392-393.) "'"'[W]e accept as true all material facts alleged in the complaint, but not contentions, deductions or conclusions of fact or law.'"'" (City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 472; see Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.)

1. Plaintiffs Stated Causes of Action for Breach of Contract

Defendants contend the complaint did not state a cause of action for breach of contract because, while the complaint alleged defendants breached written loan agreements and promissory notes, plaintiffs in their "default prove-up package" submitted unsigned contracts. Defendants argue plaintiffs' "inability to produce signed agreements between the parties legally and factually precludes them from establishing, let alone prevailing, on any breach of written contract causes of action." But because defendants defaulted, plaintiffs did not have to produce evidence sufficient to "prevail on" their breach of contract causes of action. "A defendant's failure to answer the complaint has the same effect as admitting the well-pleaded allegations of the complaint, and as to these admissions no further proof of liability is required." (Carlsen v. Koivumaki supra, 227 Cal.App.4th at p. 898.)^[3] Plaintiffs had to allege only "the ultimate facts constituting the cause of action" for breach of a written contract (Carlsen v. Koivumaki, supra, 227 Cal.App.4th at p. 898), and they did that. A plaintiff alleging a cause of action for breach of contract must plead "(1) the existence of the contract, (2) the plaintiff's performance or excuse for nonperformance, (3) the defendant's...