KRIEGLER, J.
In this breach of guarantee action, defendants and appellants Abraham Iny and Benjamin Iny appeal from the judgment against them and in favor of plaintiff and respondent Cathay Bank.
On December 23, 2008, the bank filed a complaint against the Inys for breach of loan guarantees on two loans: a loan of $12,331,500 to Acama Villas, LP (Acama); and a loan of $9,918,400 to Aqua Vista Villas, LP (Aqua Vista).
The Inys, by their attorney Krane & Smith, denied the allegations of the complaint and interposed affirmative defenses.
On June 16, 2009, the bank served a First Inspection Demand and First Set of Form Interrogatories on Krane & Smith, with a response deadline of July 21, 2009. The Inys failed to respond by July 21, 2009. The bank granted a first extension to August 4, 2009. The Inys failed to respond by August 4, 2009. The bank granted a second extension to November 2, 2009, to respond substantively and without objection and to produce responsive documents. The Inys failed to respond by November 2, 2009. The bank granted a third extension to November 30, 2009. The Inys failed to respond by November 30, 2009. Attorney James H. Lehr of Krane & Smith requested another extension because his father died over the weekend of November 30, 2009. The bank granted a fourth extension to December 2, 2009. There was no response by December 2, 2009, and Lehr failed to contact the bank to discuss any problems he might be having complying with discovery.
The bank prepared a Motion to Compel Responses and for an award of sanctions. The parties reached an agreement concerning compliance with discovery. On December 18, 2009, the trial court entered the parties' agreement as an order of the court requiring the Inys to respond without objections by December 22, 2009. The Inys did not comply with the order.
February 22, 2010 was the trial date, and the final status conference was set for February 11, 2010.
On January 4, 2010, the bank filed a motion for sanctions against the Inys pursuant to Code of Civil Procedure sections 2023.030, 2030.290, and 2031.300,
The Inys filed no opposition. They did not file a request for an extension of time to file opposition or for a continuance of the hearing on the motion.
Benjamin was represented by Lehr, and Abraham was represented by the law firm of Bensamochan & Poghosyan. As Benjamin walked into the hearing, Lehr gave Thomas M. Robins, III, the bank's attorney, the Inys' written responses to the document requests and an envelope of documents, but no interrogatory responses. Lehr told the trial court he failed to comply with the discovery order and to file written opposition to the motion for sanctions because his firm had a "terrible backlog" and had lost two attorneys. He did not have enough time to both respond to discovery and file opposition to the motion, so he opted to respond to discovery. "All I can say . . . is that we're trying, and we've got in trouble with many cases because of the loss of the two attorneys in the firm, and we're really trying to do our best." Robins stated that, when he granted the extension in consideration of the death of Lehr's father's, Lehr agreed to the new deadline and never told Robins about any problem of a backlog. Robins argued that, with February 22 as the trial date and discovery already cut-off, he would have no opportunity to depose the Inys before trial.
The trial court concluded: "The court has broad discretion in the area of terminating sanctions once its order has been disobeyed. Counsel's accession to the facts set forth by Mr. Robins relative to the lead-up of the original motion gives the court pause with respect to compliance with the requirements of discovery. [¶] Then the December 22 order was apparently stipulated to with no apparent efforts as communicated to [the bank] that it was sought to be complied with. A motion was filed subsequent to that. Again, nothing happened in the meantime. No opposition." "The opposition papers were due before the substitution [of Abraham Iny's counsel.] . . . [¶] Then there's really no reason why—when Abraham was still represented by counsel, he was aware of the order, and certainly Abraham violated this 12-22 order, as did Benjamin, and did not file opposition timely." The trial court noted that, under the rules dealing with the prosecution of fast-track cases, the court must not let blameless clients suffer, but this policy does not apply to discovery sanctions. The trial court granted the motion, struck the Inys' answer, and ordered their default entered.
On February 5, 2010, Benjamin and, on February 8, 2010, Abraham filed motions to set aside the January 27, 2010 order striking the Inys' answer and entering their default, on the ground that the Inys' failure to comply with the trial court's December 18, 2009 discovery order was the result of Lehr's mistake, inadvertence, surprise, or neglect and not the fault of the Inys.
Lehr declared that, when he joined Krane & Smith, a small litigation firm, on October 15, 2009, the firm had a backlog of work. He inherited the caseload of an attorney who had abruptly departed, leaving cases with unmet deadlines. Lehr's caseload was "overwhelming," and he constantly had to put out fires. As other cases had deadlines that were more pressing, Lehr agreed to a court-ordered discovery response deadline of December 22, 2009. During this period, Lehr was "still struggling to catch up with the backlog of work, including multiple matters that could result in bad consequences if not addressed immediately." "[T]riaging a number of matters, I could only hope that I was calculating correctly which matters that were neglected for the moment could be put off temporarily without blowing up and becoming a problem." Lehr did not tell the Inys that the trial court had ordered responses served by December 22, 2009. The Inys were completely unaware of the discovery situation. After the bank filed the motion for sanctions, Lehr told the Inys that terminating sanctions would not be ordered if he served the discovery responses by the time of the hearing.
With hindsight, Lehr "believe[d] he was lulled into a false sense that the bank would not seek terminating sanctions, and that, at any first-time hearing in court, so long as [he] produced the discovery responses, the worst that would happen would be the imposition of monetary sanctions." Lehr intended to prepare the discovery responses and an opposition to the motion based on service of the discovery responses. However, he did not have time to prepare written opposition to the motion. He brought responses to all discovery requests and responsive documents to the hearing and served them on Robins. Lehr expressed his shame and deep regret for violating a court order and failing to timely respond to discovery.
Poghosyan declared her firm was retained by Abraham on January 11, 2010. Abraham told her he heard the phrase "terminating sanctions" at a mediation session on January 7, 2010, and did not know what it meant or whether there would be a hearing. Despite numerous requests, Lehr did not give Poghosyan a copy of his firm's file until February 17, 2010. Lehr told Poghosyan he was working on the discovery responses, and the two agreed Lehr would prepare the responses on behalf of both Iny brothers. Poghosyan did not read the motion for terminating sanctions until January 25, 2010.
Abraham declared he was not aware of any of the history of the bank's discovery demands or the court-ordered December 22, 2009 deadline for discovery responses. He was not aware of the motion for terminating sanctions until the January 7, 2010 mediation. When he learned what the term "sanctions" meant, he terminated Krane & Smith and substituted Poghosyan's firm.
Benjamin declared that, "at least by early December 2009," he provided Lehr with the information to be used in preparing the discovery responses and believed the responses were being prepared in a timely manner. In early January 2010, he became aware a sanctions motion had been filed because discovery responses had not been served on the bank. He was not aware the trial court had issued an order compelling discovery responses. In early January 2010, Lehr told him terminating sanctions were not justified and the worst that would happen is the Inys would have to pay monetary sanctions. He understood Lehr was preparing the discovery responses to bring to the hearing.
The Inys let the original due date and the first three extended due dates for responding to the bank's discovery requests go by without responding or requesting an extension. When Lehr agreed to a court-ordered stipulation to file written responses without objections by December 22, 2009, he told Robins "[w]e're in the midst of preparing substantive responses [to the discovery] so that you'll have this in advance of the mediation, set for January 9, 2010." Lehr told Robins the Inys wanted to file a cross-complaint against the bank for negligent supervision of the projects and have the bank dismiss the lawsuit. Robins rejected these requests.
The Inys let the December 22, 2009 court-ordered deadline lapse without contacting the bank's counsel or responding to the discovery.
On December 31, 2009, Robins informed Lehr of the amount claimed by the bank, exclusive of receiver and attorney fees, after the nonjudicial foreclosure sale of the properties and advised Lehr the bank would be filing a motion for terminating sanctions for violation of the trial court's order. On January 4, 2010, Robins advised both Lehr and Samuel Krane, the head of Krane & Smith, of the service and filing of the motion for terminating sanctions.
At the mediation on January 7, 2010, an in-house counsel for the bank stated in the presence of the Inys and counsel that the bank had filed a motion for terminating sanctions earlier that week because the Inys had failed to comply with the trial court's discovery order and the bank fully intended to prosecute the motion to a conclusion of terminating sanctions. Lehr made no excuses or apologies for failing to comply with the trial court's December 18, 2009 order and did not state he was in the process of preparing responses.
Counsel for the Inys did not communicate with Robins about discovery or the January 27, 2010 hearing on the motion for terminating sanctions. Counsel for Abraham filed a motion to continue the trial, which the trial court denied on January 21, 2010.
On January 27, 2010, minutes before the trial court took the bench, Lehr gave to Robins a three-inch stack of documents and written responses to the document demands, but not responses to the interrogatories. Lehr told the trial court he made a mistake in not including the interrogatory responses in the materials he gave to Robins. Following the January 27, 2010 hearing, Lehr's secretary e-mailed the Inys' interrogatory responses to Robins.
Contrary to Lehr's representation in his declaration that his inability to respond to discovery was the result of overwork caused by the firm's recent loss of two attorneys, the firm's letterheads revealed the firm remained at the same staffing level throughout the relevant period, except for the addition of Lehr. Moreover, one of the attorneys referred to by Lehr who left Krane & Smith and was rehired was only gone from the firm from, at most, October 16, 2009, to October 26, 2009. It was not until this motion to set aside default that Poghosyan revealed it took until February 17, 2010, for her to receive the file.
At the January 27, 2010 hearing, the trial court vacated the February 22, 2010 trial date. Because of Robins's preexisting trial schedule, the bank would not be able to have its case tried until June or July 2010 if the trial court vacated the default.
Lehr argued that he acted stupidly but in good faith. Robins argued the bank was prejudiced by the loss of its trial date and by the fact the discovery responses were wholly inadequate.
The trial court was "struck by [Lehr's] comment to [his] clients that the possibility of a terminating sanction is remote, if at all applicable; that the only thing the court would do would be to order the discovery and, therefore, not to worry about it. [¶] The court is struck by the fact that over these months, you made judgment calls as to what to do first and did not pursue this particular issue with the — in the manner that it should have been pursued based upon your judgment. Not upon neglect, but based upon your opinion — apparently wrong — that the court would not take the steps it did. [¶] So why is this not a judgment call as opposed to neglect?"
The trial court denied the motions, finding the default was not caused by Lehr's "neglect" under section 473, subdivision (b). "There is no question that Lehr at all times was aware of this discovery obligations, but that he consciously made decisions to not live up to them. . . . [¶] . . . [¶] `"[T]he purpose of the statute is to relieve the hardship on those parties who have lost their day in court solely because of counsel's inexplicable failure to act. Section 473, subdivision (b) was never intended to be a `catch-all remedy for every case of poor judgment on the part of counsel which results in dismissal."' [(Gotschall v. Dailey (2002) 96 Cal.App.4th 479, 483.)] [¶] If relief were to be afforded in this case, the purposes of the discovery sanctions statute would be undermined. . . . [¶] Here, there was no abandonment of the client[.] There was nothing `inexplicable' about Lehr's conduct. He was intimately involved in the discovery issues at all relevant stages of the proceedings. He deliberately put the matter on a `back burner' in view of the other alleged `fires' he was extinguishing. He erred in believing the Court would not issue terminating sanctions. He gambled and lost. He bears the blame. Unfortunately for him, the blame is not of the sort meant to be relieved by [section] 473[, subdivision (b)]."
On April 5, 2010, judgment by default was entered in favor of the bank and against the Inys in the amount of $7,374,309.97.
The Inys contend: (1) it was an abuse of discretion to issue terminating sanctions; and (2) the trial court erred as a matter of law in denying their motions to set aside the default under section 473, subdivision (b). We need not decide the first issue, because we conclude the trial court erred in denying the motions to set aside the default.
"[I]f the prerequisites for the application of the mandatory provision of section 473, subdivision (b) exist, the trial court does not have discretion to refuse relief." (Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612.) The applicability of the mandatory relief provision is a question of law subject to de novo review, unless the determination turns on disputed facts. (Ibid.) We review for substantial evidence the trial court's findings on disputed facts. (Carmel, Ltd. v. Tavoussi (2009) 175 Cal.App.4th 393, 399.)
Section 473, subdivision (b) provides in pertinent part: "The court may, upon any terms as may be just, relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect. . . . Notwithstanding any other requirements of this section, the court shall, whenever an application for relief is made no more than six months after entry of judgment, is in proper form, and is accompanied by an attorney's sworn affidavit attesting to his or her mistake, inadvertence, surprise, or neglect, vacate any (1) resulting default entered by the clerk against his or her client, and which will result in entry of a default judgment, or (2) resulting default judgment or dismissal entered against his or her client, unless the court finds that the default or dismissal was not in fact caused by the attorney's mistake, inadvertence, surprise, or neglect."
The mandatory relief provision provides "relief from . . . defaults and default judgment[s] based on [trial counsel's] declaration of fault." (Matera v. McLeod (2006) 145 Cal.App.4th 44, 63; compare Gotschall v. Dailey, supra, 96 Cal.App.4th at pp. 483-485 [the mandatory relief provision does not apply to complaints dismissed for inability to establish an essential element, such as causation].)
"Under the traditional discretionary provisions of section 473, a party seeking relief on the basis of its attorney's neglect must show that the neglect was excusable. The attorney's inexcusable neglect was traditionally imputed to the client, whose redress was a malpractice action against the attorney. [Citation.] The press of an attorney's other business has not been considered excusable neglect. [Citation.] . . . [¶] An entirely different standard exists under the mandatory relief provisions enacted in 1988. These require the court to grant relief if the attorney admits neglect, even if the neglect was inexcusable. [Citations.] The purpose of this law is to relieve the innocent client of the burden of the attorney's fault, to impose the burden on the erring attorney, and to avoid precipitating more litigation in the form of malpractice suits. [Citation.] . . . [¶]. . . The only exception to mandatory relief is when the trial court `finds that the default or dismissal was not in fact caused by the attorney's mistake, inadvertence, surprise, or neglect.' (§ 473 . . . .)" (Metropolitan Service Corp. v. Casa de Palms, Ltd. (1995) 31 Cal.App.4th 1481, 1486-1487; accord, Solv-All v. Superior Court (2005) 131 Cal.App.4th 1003, 1009; In re Marriage of Hock & Gordon-Hock (2000) 80 Cal.App.4th 1438, 1446.)
All that the mandatory provision requires is an attorney declaration the default occurred because of the attorney's own neglect and a motion to vacate filed within six months of the default judgment. (Metropolitan Service Corp. v. Casa de Palms, Ltd., supra, 31 Cal.App.4th at p. 1488.) "The policy of the law favors determination on the merits, not by default. (Elston v. City of Turlock (1985) 38 Cal.3d 227, 233, 235.)" (Metropolitan Service Corp. v. Casa de Palms, Ltd., supra, at p. 1488.)
"Neglect" encompasses deliberate acts or omissions. (Solv-All v. Superior Court, supra, 131 Cal.App.4th at p. 1010 [the attorney neglect requirement was satisfied where counsel fell on his sword and, without refutation, absolved his clients of all responsibility].) This interpretation comports with the legislative purpose of the provision. (Ibid.) "From the client's point of view, it doesn't matter a whit whether the default was due to gross carelessness or bad strategy; either way, the client is the one stuck with the judgment resulting from the attorney's error. In both cases, it is the attorney's `neglect' to carry out his duty to his client that causes the problem. In both cases, the client should be entitled to relief if the attorney admits that the inaction was his responsibility." (Ibid.) If counsel acknowledges his neglect might be determined to be inexcusable and "confirms that any act or omission, careless or deliberate, which led to the entry of the default was done without the client's knowing participation, . . . relief under the mandatory provisions of section 473 is required[,]" unless the trial court made a contrary finding based on conflicting evidence in the record. (Id. at p. 1012.)
The Inys contend they were entitled to relief from default under the mandatory relief provision of section 473, subdivision (b), because their failure to comply with discovery was solely attributable to Lehr's incompetence, neglect, and wrongheaded efforts to handle his workload. We conclude the Inys are entitled to relief.
The conditions for mandatory relief were satisfied here. The motions for relief were filed within six months of the judgment and were accompanied by Lehr's affidavit of neglect. Nothing in the record suggests that the Inys were in any way responsible for, complicit in, or aware of, any of the discovery violations. Nothing in the record contradicts their declarations they were ignorant of the discovery abuses and the discovery order. The trial court did not find the Inys participated in the abuses. "The evidence in the record is uncontradicted and can support only one conclusion as a matter of law: that fault is solely attributed to counsel for appellant." (Yeap v. Leake (1997) 60 Cal.App.4th 591, 602 [Court of Appeal reversed the trial court's denial of motion to vacate default based on attorney declaration of neglect].)
That counsel's neglect of the discovery obligations in this lawsuit was part of a deliberate allocation of his time to his caseload does not take his neglect out of the mandatory relief rule. (Solv-All v. Superior Court, supra, 131 Cal.App.4th at p. 1010.) To the extent that the mandatory relief provision does not apply where counsel's discovery abuses are part of a deliberate litigation strategy, as opposed to a deliberate workload management strategy, there is no evidence in the record supporting a conclusion that Lehr's neglect was part of a litigation strategy. (Compare Pagarigan v. Aetna U.S. Healthcare of California, Inc. (2007) 158 Cal.App.4th 38, 45-46 [mandatory relief provided for in section 473, subdivision (b) does not apply where trial court reasonably suggested counsel's inaction was part of a deliberate litigation strategy to delay the case]; Jerry's Shell v. Equilon Enterprises, LLC (2005) 134 Cal.App.4th 1058, 1066, 1073 [evidence in the record supports the conclusion that the default was part of counsel's litigation strategy].)
"The court shall, whenever relief is granted based on an attorney's affidavit of fault, direct the attorney to pay reasonable compensatory legal fees and costs to opposing counsel or parties." (§ 473, subd. (b).) Further, "[w]henever the court grants relief from a default, default judgment, or dismissal based on any of the provisions of this section, the court may do any of the following: [¶] (A) Impose a penalty of no greater than one thousand dollars ($1,000) upon an offending attorney or party. [¶] (B) Direct that an offending attorney pay an amount no greater than one thousand dollars ($1,000) to the State Bar Client Security Fund. [¶] (C) Grant other relief as is appropriate." (§ 473, subd. (c).) Accordingly, on remand, the trial court must determine the amount of fees and costs to be awarded pursuant to section 473, subdivision (b), and the relief, if any, to be ordered pursuant to section 473, subdivision (c). (See Yeap v. Leake, supra, 60 Cal.App.4th at p. 602.)
The order denying relief from default and the judgment are reversed. The matter is remanded to the trial court for further proceedings. The trial court shall direct that legal fees and costs be paid to the bank pursuant to section 473, subdivision (b), and shall determine what relief, if any, shall be ordered pursuant to section 473, subdivision (c). The parties shall bear their own costs on appeal.
We concur:
TURNER, P. J.
MOSK, J.
