It is ordered that the opinion filed herein on May 29, 2014, be modified as follows:
On page 17, add the following new paragraph at the end of footnote 8:
This modification does not affect a change in the judgment. The petition for rehearing is DENIED. Appellant's request for judicial notice is DENIED.
O'LEARY, P. J. and BEDSWORTH, J., concurs.
FYBEL, J.
Michael Grissom, a used car dealer, obtained a commercial line of credit from Dealer Services Corporation (DSC). Grissom drew on the line to acquire vehicles to be sold at his dealership, American Family Auto. Under the terms of the agreement between Grissom and DSC, DSC had a lien on each of the vehicles, securing the money advanced to Grissom from the line of credit. DSC learned that Grissom had sold or otherwise disposed of some of the vehicles without repaying the line of credit, and therefore asserted its right under the parties' agreement to repossess the remaining vehicles on which it had liens.
Grissom sued DSC for breach of contract and negligent misrepresentation; DSC cross-claimed for breach of contract, fraud, conversion, and a common count for money had and received. After a bench trial, judgment was entered in DSC's favor in the amount of $556,088.24. Grissom appeals.
During the presentation of the case-in-chief on his complaint, Grissom, who was representing himself in propria persona, filed a substitution of counsel, substituting in retained counsel. The substitution was filed before DSC began its defense to Grissom's case or its own case on its cross-complaint against Grissom. The trial court refused to allow the substitution because Grissom had not filed a formal, noticed motion, and because DSC would suffer prejudice if the substitution were permitted.
The trial court prejudicially erred in denying Grissom his constitutionally protected due process right to counsel of his choice. The judgment must be reversed. Although the court made a legally incorrect decision, we wish to emphasize that at all times, the court permitted Grissom, a self-represented litigant, a full and fair opportunity to be heard.
In addition to reversing the judgment, we address and decide legal issues, which are not mooted by the reversal of the judgment and are necessary to the decision. Those issues relate to the court's rulings on the demurrer to Grissom's claim for unfair competition, denial of discovery sought by Grissom, and rejection of Grissom's lender's license and usury defenses. On all of these issues, we disagree with Grissom's arguments. Our rulings on these issues will be the law of the case throughout the subsequent progress of this case. (People v. Barragan (2004) 32 Cal.4th 236, 246-247.)
DSC provides commercial lines of credit, called flooring lines, to automobile dealerships. The dealerships use the flooring lines to purchase an inventory of vehicles to sell to the public. The vehicles purchased by the dealerships secure the flooring line loans. DSC obtained a California finance lender's license on May 27, 2009.
Grissom is a car salesman and automobile sales event promoter. In May 2006, he opened a used car dealership as a sole proprietorship under the name American Family Auto. At the urging of Alfred King, a used car wholesaler who was working with him, Grissom entered into an agreement with DSC to obtain a flooring line. Grissom signed a floor plan application, demand promissory note and security agreement, term sheet, power of attorney, and sole proprietor's certificate. Grissom and King both signed personal guarantees. King cosigned the floor plan application; the application identified King as a guarantor, not an owner.
Grissom's flooring line from DSC became active on August 29, 2006, and 19 loans to purchase vehicles were initiated in the next three days. Grissom claimed he was unaware of the loans until he received an account report dated September 8, 2006, which showed Grissom owed DSC almost $130,000. Grissom used the DSC flooring line to buy 12 more cars at an auction, in an effort to max out the flooring line. Ultimately, DSC loaned almost $200,000 on Grissom's flooring line in 40 separate loans.[
In late September and October 2006, DSC conducted audits of Grissom's inventory. The audits revealed that Grissom had sold some of the cars he bought using the DSC flooring line, but had not paid DSC back. As permitted by the parties' agreement, DSC repossessed 13 of the vehicles it had funded. Grissom's dealership failed soon thereafter. In addition to owing money to DSC, Grissom was unable to pay a supplier from whom he had directly obtained two vehicles (without using the DSC flooring line); that supplier made a claim against Grissom's dealer surety bond insurance company. Grissom's bond was cancelled and his dealership's license was revoked. Grissom was also unable to pay his taxes to the State Board of Equalization.
In July 2007, Grissom sued DSC and two DSC employees, Claudia Rogers and Rosa Macias.
DSC filed a cross-complaint against Grissom for breach of contract, a common count for money had and received, conversion, and fraud.[
In January 2011, the court first set the case for trial on June 3, 2011. At a hearing in March 2011, the trial court granted Grissom's attorney's motion for leave to withdraw. The court ordered a 30-day stay of all proceedings for Grissom to find a new attorney. The court refused to vacate the trial date, but told Grissom he could file a motion for a continuance after he retained a new attorney. After the 30-day stay expired, Grissom's newly retained attorney filed an ex parte application for a continuance of the trial. The trial court denied the request. Grissom's attorney immediately substituted out, leaving Grissom in propria persona.
A court trial began on June 14, 2011. On June 20, Ephraim Obi attempted to substitute in as counsel for Grissom, but the court refused to allow the substitution. At the conclusion of the trial, the court issued a statement of decision in favor of DSC on all of Grissom's claims and on all claims in its cross-complaint. The court awarded DSC $123,398.61 in compensatory damages, plus prejudgment interest, and $1 in punitive damages. Judgment was entered.
Grissom filed a motion for a new trial, which was denied. DSC's motion for contractual attorney fees was granted. An amended judgment, awarding DSC a total of $556,088.24, was entered, and Grissom timely appealed.[
On the fifth day of what would ultimately be a nine-day trial, just before Grissom was to start his testimony in his case-in-chief on the complaint, he asked the court for permission to substitute in retained counsel. The newly retained attorney, Ephraim Obi, initially advised the court he was only going to ask questions of Grissom during Grissom's testimony. (The parties had earlier stipulated that Grissom could testify in a narrative form.) Obi then told the court he had filed a substitution of attorney form with the clerk's office, and was attempting to substitute in as Grissom's counsel for the remainder of the trial. The substitution of attorney form does not purport to limit Obi's scope of representation in any way.
Counsel for DSC and for the other defendants still in the case objected to Grissom substituting in a new attorney during trial. Their objection was based on the prejudice they claimed they would suffer based on concessions they had made due to Grissom's in propria persona status, such as paying the entirety of the court reporter's fees, withholding objections to testimony, and withholding objections to the admission of exhibits.
The court denied Grissom's substitution of counsel on two grounds: the lack of a formal, noticed motion to substitute in as counsel and the prejudice to the other parties. The court permitted Obi to confer with Grissom during breaks. Grissom later renewed his request to substitute Obi in as counsel; the request was again denied.
In a civil action, a party has a due process right to appear through counsel retained at the party's own expense. (Roa v. Lodi Medical Group, Inc. (1985) 37 Cal.3d 920, 925-926; In re Kathy P. (1979) 25 Cal.3d 91, 102; Kim v. Orellana (1983) 145 Cal.App.3d 1024, 1027.) A civil litigant may change its counsel at any time, and the trial court generally does not have the discretion to refuse to accept a consensual substitution of attorney. (Code Civ. Proc., § 284, subd. 1; Hock v. Superior Court (1990) 221 Cal.App.3d 670, 673.) The trial court does, however, have discretion to deny a motion to substitute counsel before or during trial, when the substitution would require a continuance of the trial. (In re Z.N. (2009) 181 Cal.App.4th 282, 294; see Code Civ. Proc., §§ 177, subd. 1, 128, subd. (a).) In this case, Grissom did not request a continuance of the trial when he sought to substitute Obi in as counsel; Obi was in the courtroom and stated he was prepared to begin questioning Grissom immediately.
There is no support for the trial court's refusal to grant the substitution of counsel due to the lack of a formal, noticed motion. No state or local rule of court requires a motion to consensually substitute counsel in for a party representing himself or herself in propria persona.
We next consider whether this decision was prejudicial to Grissom. We hold that a rebuttable presumption of prejudice applies when the constitutional right to counsel is denied to a civil litigant. In a criminal case, prejudice is presumed when the defendant is denied counsel because the consequences of deprivation of counsel are "`necessarily unquantifiable and indeterminate.'" (United States v. Gonzalez-Lopez (2006) 548 U.S. 140, 150; see Mickens v. Taylor (2002) 535 U.S. 162, 166.) It is no less difficult to quantify the prejudice suffered by a civil litigant denied the right to counsel during trial. In an analogous situation, where juror misconduct occurs in either a criminal or a civil case, a presumption of prejudice arises because of the practical difficulty in establishing actual prejudice. (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 416-417.)
In this case, DSC failed to rebut the presumption of prejudice to Grissom. The trial court's refusal to allow a substitution of attorney occurred at a critical moment during the trial. Grissom was midway through the presentation of his case-in-chief; he had already questioned two witnesses. After the substitution was sought and rejected, Grissom called and questioned four more witnesses, and provided his own testimony in a narrative form. When Grissom rested his case-in-chief, DSC recalled two of Grissom's witnesses, and called three additional witnesses. After DSC rested its defense, the parties provided closing arguments only for Grissom's complaint. In support of its cross-complaint, DSC called two witnesses, and read from Grissom's deposition transcript. Both sides rested as to DSC's cross-complaint, with Grissom apparently failing to call any additional witnesses in rebuttal to, or in defense against, DSC's claims.
We agree with DSC that the state of the record before us is such that there would be substantial evidence to support a judgment in DSC's favor. When we consider the record as a whole, however, particularly in light of the timing of the request to substitute in counsel vis-à-vis the status of the trial proceedings, we cannot say the evidence in DSC's favor was so overwhelming that DSC can be said to have rebutted the presumption of prejudice.
We could stop the analysis at this point because DSC did not rebut the presumption of prejudice. In addition, however, Grissom has shown actual prejudice. On appeal, Grissom identifies many ways in which he claims an attorney would have made a difference in this case after denial of his request to substitute in counsel. We need not address each one; however, we will address two issues we believe are compelling and most indicative of the prejudice Grissom suffered as a self-represented litigant. First, Grissom argues that an attorney would have contested DSC's claims for fraud, conversion, money had and received, and DSC's request for punitive damages. While evidence supporting DSC's claims was admitted during Grissom's case-in-chief (and particularly before the point at which he sought to substitute in counsel), an attorney might have offered compelling evidence rebutting that evidence, or argued the evidence did not support the elements of the causes of action or the damage claims.
Second, Grissom argues that if the trial court had not refused to accept the substitution of attorney, Grissom would not have been forced to testify in a narrative form. This argument is compelling. The assistance of an attorney in framing questions and presenting Grissom's testimony in a linear and coherent fashion might well have made a difference in what evidence was admitted and how that evidence was perceived by the court. Grissom was unquestionably the key witness in his own case and in defense of DSC's claims. The prejudice he suffered by providing his testimony in a narrative form cannot be understated.
Reversal of the trial court's denial of Grissom's right to substitute in retained counsel requires reversal of the judgment. We will address and decide in this opinion certain appealable legal issues that were decided by the court and are not mooted by the reversal of the judgment.
DSC demurred to Grissom's fourth amended complaint, arguing, in part, that Grissom had not pled standing to assert a claim for violation of the unfair competition law under Business and Professions Code section 17200 (the UCL), and that Grissom had not stated facts sufficient to support that cause of action. The trial court sustained the demurrer without leave to amend. "We independently review the ruling on a demurrer and determine de novo whether the pleading alleges facts sufficient to state a cause of action. [Citation.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. [Citation.] We construe the pleading in a reasonable manner and read the allegations in context. [Citation.] `We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court's stated reasons. [Citation.]' [Citation.]" (Entezampour v. North Orange County Community College Dist. (2010) 190 Cal.App.4th 832, 837.)
For an individual to have standing to bring a claim for violation of the UCL, he or she must "ha[ve] suffered injury in fact and ha[ve] lost money or property as a result of the unfair competition." (Bus. & Prof. Code, § 17204.) Grissom's claim for violation of the UCL in the fourth amended complaint alleged, in relevant part:
In the fourth amended complaint, Grissom failed to allege he suffered injury in fact and lost money or property as a result of DSC's alleged acts of unfair competition. Grissom did not allege DSC's lack of a lender's license caused him injury. Further, although Grissom alleged he suffered damages as a result of DSC's misrepresentations, no misrepresentations are alleged in the fourth amended complaint.
The remaining question is whether the trial court abused its discretion in sustaining the demurrer without leave to amend. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Grissom, as the plaintiff, bore the burden of proving a reasonable probability that any defect in the pleading could be cured by amendment. (Ibid.) In his opposition to the demurrer, Grissom stated that if the trial court disagreed with his contention the fourth amended complaint stated a cause of action, "Plaintiff can surely amend the pleading to avoid any deficiency the court should find," without differentiating between any of the different causes of action. At the hearing on the demurrer, after the court announced its tentative ruling to sustain the demurrer without leave to amend as to all but the breach of contract and negligent misrepresentation claims, Grissom's counsel said, "with regard to the sustaining of the demurrer without leave as to the conversion, the conspiracy, and the intentional interference of the [ad]vantage of contact, however it's plead[ed]. I believe that those can be stated and stated well. And I would ask the Court to give me a single shot at it." Counsel did not specifically ask the court for leave to amend the UCL claim.
In his opening brief, Grissom argues the trial court abused its discretion in refusing to grant leave to amend because, "[a]t the very least, it was readily apparent that Grissom could amend his complaint to state a cause of action for unfair competition based on DSC's violation of the [California Finance Lenders Law]. Grissom should be entitled to restitution of all fees and interest that DSC collected from Grissom while illegally lending money in California." But, as noted ante, the complaint alleged that DSC had violated the California Finance Lenders Law (Fin. Code, § 22000 et seq.) by failing to obtain a lender's license. The fourth amended complaint fails to allege that Grissom suffered any loss as a result of DSC's lack of a license or that DSC made material misrepresentations regarding its lack of a license; the request for leave to amend fails to include a statement that Grissom could make such required allegations in yet another amended complaint.
There is no reasonable possibility Grissom could amend the fourth amended complaint to properly allege standing to bring the UCL claim. The trial court did not abuse its discretion in sustaining the demurrer to the UCL claim without leave to amend.
In April 2009, Grissom served a deposition subpoena for the production of business records on the Department of Corporations (the discovery subpoena). The discovery subpoena requested the "complete case file and investigation reports, with copy of any actions or notices by the department to any company or individual in case numbered CAS-40215-0062BR." DSC filed a motion to quash the discovery subpoena. The trial court granted the motion without prejudice, to enable Grissom to exhaust the administrative remedy of seeking the documents under the California Public Records Act (Gov. Code, § 6250 et seq.). Grissom did not serve another deposition subpoena duces tecum on the Department of Corporations, and nothing in the appellate record shows what, if any, documents he obtained through a public records request.
In May 2011, Grissom served a trial subpoena duces tecum on the Department of Corporations (the trial subpoena). The trial subpoena demanded the appearance of the Department of Corporations deputy commissioner of enforcement, and the production of "[a]ll documents that relate, mention or refer to the Settlement Agreement between the California Department of Corporations and Dealer Services Corporation signed by you June 25, 2009," and "[a]ny document referring to the Department of Corporations [sic] requests, demands, orders or notice to Dealer Services [sic] to stop, cease or refrain from making loans in California." (Some capitalization omitted.) The Department of Corporations filed an application to quash the trial subpoena. The trial court granted the application on the ground that the only documents being sought were protected by a settlement privilege. (The settlement agreement itself was in Grissom's possession; he had attached a copy of it to his opposition to the application to quash the trial subpoena.)
On appeal, Grissom argues that the trial court abused its discretion in quashing both the discovery subpoena and the trial subpoena.
As to the discovery subpoena, the trial court granted the motion to quash so Grissom could exhaust the administrative remedy of seeking the documents in question by means of a public records request. We are unaware of any requirement that a party in litigation pursue a public records request before serving discovery on a government agency. (See Code Civ. Proc., § 2020.010 [deposition subpoena may be used to obtain pretrial discovery from "a person who is not a party to the action"]; Kling v. Superior Court (2010) 50 Cal.4th 1068, 1074 ["`Documents and records in the possession of nonparty witnesses and government agencies other than the agents or employees of the prosecutor are obtainable by subpoena duces tecum'" (italics added)].)[
As to the trial subpoena, in the application to quash, the Department of Corporations averred that the settlement agreement was a public document previously provided by the Department of Corporations to Grissom, and that no order for DSC to desist or refrain from certain activity had been issued. However, Grissom attached to his opposition to the application to quash the trial subpoena excerpts from the deposition of DSC's general counsel, who testified DSC had received a letter from the Department of Corporations requesting that DSC stop doing business in California until a lender's license was issued. Based on this evidence, nonprivileged documents responsive to the trial subpoena were likely to exist in the Department of Corporations's records. The trial court erred by granting the application to quash the trial subpoena.
Even if the trial court erred in quashing the discovery subpoena or the trial subpoena, Grissom must establish prejudice to succeed on appeal. Although Grissom fails to explain explicitly what documents he believes would have been produced in response to the discovery subpoena or trial subpoena, based on the context of the parties' arguments, we presume they are documents relevant to Grissom's contention that DSC violated the California Finance Lenders Law by failing to obtain a lender's license from the State of California. As explained in detail post, DSC's lack of a valid lender's license at the time it entered into the contract with Grissom does not void or invalidate the contract. The loan from DSC to Grissom was a commercial loan, not a consumer loan. Even if DSC violated the California Finance Lenders Law by making a loan to Grissom without having a valid lender's license from the Department of Corporations, the California Finance Lenders Law only makes such a loan voidable if it were a consumer loan. Further, as explained ante, the demurrer to the UCL claim—which was based on the lack of a valid lender's license—was properly sustained. The documents sought by the discovery subpoena and the trial subpoena would not be relevant to any issue in this case. Any error by the trial court in quashing the discovery subpoena for Grissom's failure to first seek the documents by means of a public records request or in quashing the trial subpoena was not prejudicial.
Grissom argues that the trial court erred by failing to consider his defenses to DSC's claims—DSC's lack of a lender's license, and usury. Grissom argues that although no ruling on those issues had been made before trial, the court erroneously believed the issues had already been decided against Grissom.
Different portions of the California Finance Lenders Law apply to commercial and consumer loans. (Fin. Code, § 22001, subds. (b) & (c).) Grissom argues that because DSC violated the portion of the California Finance Lenders Law that requires a lender to be licensed by the State of California (Fin. Code, § 22100, subd. (a)), the contract between DSC and Grissom was void and unenforceable, citing Financial Code section 22750, subdivision (b), which reads as follows: "If any provision of this division is willfully violated in the making or collection of a loan, whether by a licensee or by an unlicensed person subject to this division, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction."
DSC does not dispute it was not licensed under the California Finance Lenders Law at the time it entered into the contract with Grissom; it does, however, dispute the legal significance of that failure. We need not determine whether DSC's lack of a lender's license in August 2006 constitutes a willful violation of the California Finance Lenders Law, however, because Financial Code section 22750 does not apply to commercial loans, such as the flooring line between DSC and Grissom. (Central Valley Ranch, LLC v. World Wide Investments, LLC II. (E.D.Cal., Jan. 24, 2012, No. 1:10cv00020 LJO DLB) 2012 U.S.Dist. Lexis 7953, pp. *11-*13 [commercial loans were not void, despite lender's failure to be licensed in California; Financial Code section 22750 applies only to consumer loans]; WF Capital, Inc. v. Barkett (W.D.Wn., Aug. 2, 2010, No. C10-524RSL) 2010 U.S.Dist. Lexis 78086, pp. *15-*16 [same]; In re Jesse & Joan (Bankr. N.D.Cal. 2001) 266 B.R. 192, 193 [same]; see Fin. Code, § 22001, subd. (c) [commercial loans not subject to article 2 of chapter 4 of the Financial Code, in which section 22750 appears].)[
The trial court did not err in preventing Grissom from pursuing DSC's lack of a lender's license because it was not a valid defense to any claims raised by DSC. Even accepting Grissom's contention that DSC misled the trial court as to whether there had been a definitive ruling on the exclusion of the lender's license defense, it was irrelevant as the issue was not, and could not have been, before the court.[
Grissom also argues that because DSC did not have a valid lender's license from the State of California in 2006, DSC was subject to the interest rate limitations of article XV, section 1 of the California Constitution. Because, Grissom argues, the interest rate charged by DSC was higher than the constitutional rate, the interest rate was usurious. Grissom filed a motion in limine before trial to exclude evidence of alleged damages in excess of California's usury limits. When the case was called for a bench trial, Grissom asked for a ruling on the motion:
Grissom's appellate briefs do not provide any citations to the reporter's transcript showing where he objected to DSC's evidence based on the usury defense.
Even if the interest rate in the parties' agreement was usurious under California law, it would not invalidate the contract or prevent DSC from recovering the amount owed by Grissom, plus interest at the legal rate. (Epstein v. Frank (1981) 125 Cal.App.3d 111, 122-123.) A contract incorporating an interest rate valid under the laws of another state but usurious under California law is not invalid if the other state has a substantial relationship to the parties or their transaction, or there is another reasonable basis for the parties' choice of law. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464-465.) Grissom does not explain whether Indiana law, which was provided for in the contract, permits a higher rate of interest. The state in which a commercial lender is based has a substantial relationship to the transaction.[
The judgment is reversed. Because each party prevailed in part, both shall bear their own costs on appeal.
O'LEARY, P. J. and BEDSWORTH, J., concurs.
