MANELLA, J. —
In the underlying action, appellant James Bae and a corporation related to him asserted claims arising from a foreclosure sale
In November 2010, appellant initiated the underlying action. The original complaint identified plaintiff as "James Bae dba C & H Natural Food," and named as defendants Center Bank and respondent.
On January 27, 2011, respondent filed a "declaration of nonmonetary status" pursuant to Civil Code section 2924l, which sets forth a procedure by which the trustee to a deed of trust may avoid liability for monetary awards relating to a nonjudicial foreclosure. (Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 350-351 [85 Cal.Rptr.3d 532] (Kachlon).) To invoke the procedure, "[t]he trustee must file a declaration of nonmonetary status stating that it reasonably believes it was named as a defendant solely in its capacity as trustee, and not for misconduct in its duties. If no party timely objects, `the trustee shall not be required to participate any further in the action or
Respondent's declaration under Civil Code section 2924l disclaimed any financial interest in the underlying promissory note and real property, and asserted respondent's "reasonable belief" that it had been named as a defendant solely because "it was the trustee or agent of the trustee ... on the subject [d]eed of [t]rust...." The declaration was executed under penalty of perjury by attorney Richard S. Stone, respondent's counsel. Appellant filed no objection to the declaration, and never attempted to challenge or attack it in subsequent proceedings.
In March 2011, a first amended complaint was filed. The complaint identified plaintiff as "C & H Natural Food, a Nevada Corporation" (C & H), and asserted claims for conversion, negligence, and civil conspiracy against respondent, Center Bank, and LWL Investment Group, LLC (LWL). The complaint alleged that in 2007, FX Global, Inc., also known as SG Global, Inc. (SG), bought the Glen Ivy property. In order to do so, SG obtained a $5 million loan from Center Bank secured by a promissory note and trust deed. Later, in 2009, appellant provided SG with a $5 million loan secured by a promissory note and second deed of trust on the property. In October 2010, shortly after a chapter 7 bankruptcy petition was filed regarding SG, Center Bank assigned its deed of trust to LWL, and respondent was hired as the trustee company for Center Bank and LWL. According to the complaint, in November 2010, notwithstanding the bankruptcy proceedings and stay, LWL and respondent "forced" a foreclosure sale, at which LWL bought the property.
In July 2011, C & H filed two requests for the entry of respondent's default by the superior court clerk. The requests were mailed to respondent, but no copy was mailed to respondent's counsel. On July 21, 2011, the clerk entered respondent's default.
In August 2012, C & H requested a default judgment, seeking damages totaling $3 million. Accompanying C & H's showing in support of the default judgment was a declaration from appellant, who identified himself as "the principal" of C & H. Also accompanying the showing was a declaration from C & H's counsel, notwithstanding respondent's filing of its statement of nonmonetary interest, declared that: "To date, [respondent] has not appeared in this action." No declaration was filed stating that C & H's request for
On November 20, 2014, respondent filed a motion to set aside the default and default judgment on the basis of Code of Civil Procedure section 128, subdivision (a)(8), which authorizes the superior court "[t]o amend and control its ... orders so as to make them conform to law and justice."
Supporting the motion was a declaration from respondent's attorney Stone, who stated: "I first learned of the default and the default judgment against respondent on November 3, 2014, when I received notice that [C & H] had levied on [respondent's] accounts.... Even though I was identified as [respondent's] counsel of record on the [Civil Code] section 2924l declaration..., I did not receive any of the documents filed with the [c]ourt after that declaration ... was filed."
In opposing the motion, C & H maintained that subdivision (a)(8) of Code of Civil Procedure section 128 afforded no basis for relief from the default and default judgment. C & H further argued that the motion was untimely under section 473, subdivision (b), and section 473.5 of the Code of Civil Procedure, and that respondent could demonstrate no basis for relief on equitable grounds.
On January 23, 2015, following a hearing, the trial court granted respondent's motion, and set aside the default and default judgment. This appeal followed.
Appellant contends the trial court erred in granting relief from the default and default judgment. We disagree.
Under Code of Civil Procedure section 473, subdivision (b), a party may seek relief on the grounds of "mistake, inadvertence, surprise, or excusable neglect" within "a reasonable time," but not more than six months after the entry of the default or default judgment. Code of Civil Procedure sections 473.5 permits the court to set aside a default or default judgment if the defendant, "through no inexcusable fault of his own, [received] no actual notice" of the action, provided that relief is requested within a reasonable time, but not more two years after the entry of the default judgment. (Judicial Council of Cal., com., reprinted at 15 West's Ann. Code Civ. Proc. (1979 ed.) foll. § 473.5, pp. 398-399.) In addition, under subdivision (d) of Code of Civil Procedure section 473, the court may set aside orders and judgments that are "`void,'" including orders and judgments void for want of fundamental jurisdiction or personal jurisdiction. (Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1249 [25 Cal.Rptr.3d 372].) In some instances, that relief is subject to the time period specified in Code of Civil Procedure section 473.5, for example, when the party seeking relief maintains that the judgment, although facially valid, is void due to lack of proper service of process. (Gibble v. Car-Lene Research, Inc. (1998) 67 Cal.App.4th 295, 301, fn. 3 [78 Cal.Rptr.2d 892].)
Apart from any statute, courts have the inherent authority to vacate a default and default judgment on equitable grounds such as extrinsic fraud or extrinsic mistake. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981 [35 Cal.Rptr.2d 669, 884 P.2d 126] (Rappleyea); Olivera v. Grace (1942) 19 Cal.2d 570, 575 [122 P.2d 564].) "Extrinsic fraud usually arises when a party is denied a fair adversary hearing because he has been `deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense.'" (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471 [82 Cal.Rptr. 489, 462 P.2d 17] (Kulchar); see 8 Witkin, Cal. Procedure (5th ed. 2008) Attack on Judgment in Trial Court, § 225, p. 832.) In contrast, the term "extrinsic mistake" is "broadly applied when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits. [Citations.] `Extrinsic mistake is found when [among other
A party may seek equitable relief from a default and default judgment by filing a motion in the pertinent action or initiating an independent action. (Rappleyea, supra, 8 Cal.4th at p. 981; County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1228-1229 [113 Cal.Rptr.3d 147].) "[A] motion brought to do so may be made on such ground even though the statutory period [for relief under Code of Civil Procedure section 473, subdivision (b)] has run...." (Gorham, supra, 186 Cal.App.4th at p. 1229.) Because a motion for equitable relief is "direct," rather than "collateral," extrinsic fraud or mistake may be demonstrated by evidence not included in the judgment roll or record relating to the judgment.
Here, our focus is on the equitable doctrine of extrinsic mistake. As respondent filed its motion to set aside the default and default judgment more than two years after the entry of the default judgment, the trial court could not order relief under Code of Civil Procedure section 473, subdivision (b), or section 473.5. Although the record does not disclose why the court set aside the default and default judgment, we are obliged to uphold that discretionary ruling, "if ... correct on any basis, regardless of whether such basis was actually invoked." (In re Marriage of Burgess (1996) 13 Cal.4th 25, 32 [51 Cal.Rptr.2d 444, 913 P.2d 473].) As explained below (see pt. B. of the Discussion, post), the ruling was proper on the basis of equitable mistake.
In Rappleyea, the plaintiff arranged for personal service of the complaint and summons on the two defendants, who were Arizona residents. (Rappleyea, supra, 8 Cal.4th at p. 978.) The defendants chose to proceed in propria persona, but were assisted by an attorney, who phoned the court clerk to determine the fee for filing an answer. (Ibid.) The clerk misadvised the attorney that the required fee was $89 (the payment for filing an answer by a single defendant), rather than $159 (the payment for filing an answer by two defendants). (Ibid.) Upon receiving the defendants' answer and a check for $89, the clerk rejected them. (Ibid.) In December 1990, before the defendants sent back their answer with the correct payment, the plaintiff successfully applied for the entry of their default. (Id. at pp. 978-979.) Although the plaintiffs' counsel warned the defendants that they were potentially subject to a default judgment, he misadvised them that no relief from the default was available under subdivision (b) of Code of Civil Procedure section 473. (Rappleyea, supra, at p. 979.) Later, they filed an untimely motion for relief under that provision, which was denied. (Id. at p. 980.) In January 1992, after one unsuccessful attempt to prove damages, the plaintiff secured the entry of a default judgment awarding him approximately $200,000. (Ibid.)
Our Supreme Court concluded that the record mandated relief from the default and default judgment on the basis of equitable mistake. (Rappleyea, supra, 8 Cal.4th at pp. 980-985.) The court determined that the defendants had demonstrated the existence of a meritorious defense, as their answer contained appropriate denials of the complaint's allegations, and they submitted a declaration from an attorney stating that they had a "`very good'" defense. (Id. at p. 983.) The court further determined that the defendants had a satisfactory excuse for failing to file a timely answer, in view of the clerk's "ministerial" mistake regarding the filing fee for the answer. (Id.) at
In holding that relief was proper, the court noted with approval the discussion of equitable mistake in Baske. (Rappleyea, supra, 8 Cal.4th at p. 983.) There, the defendant was an elderly woman proceeding in propria persona. (Baske, supra, 125 Cal.App.3d at pp. 40-41.) After being served with the complaint, she asked the clerk to file certain responsive documents she characterized as "`a pleading for [her] rights,'" but the clerk did not do so, and entered a default at the plaintiff's request. (Id. at p. 42.) Following the issuance of a default judgment, the defendant secured assistance of counsel. (Ibid.) Almost a year and a half after entry of the clerk's default, she filed a motion to set aside the default judgment, which the trial court granted. (Ibid.) In affirming that ruling under the doctrine of equitable mistake, the appellate court concluded that the defendant's responsive documents set forth a meritorious defense, that the clerk erred in failing to recognize them as an answer, and that the "passage of time" between the entry of default and the motion to set aside the default judgment did not bar equitable relief. (Id. at p. 46.)
Under the statutory scheme, "[t]he trustee [of a deed of trust] is not a true trustee with fiduciary duties, but rather a common agent for [pertinent parties].... The scope and nature of the trustee's duties are exclusively defined by the deed of trust and the governing statutes. No other common law duties exist." (Kachlon, supra, 168 Cal.App.4th at p. 335, citation omitted.)
We find no error in the trial court's decision to set aside the default and default judgment. As explained below, the record supports relief on the basis of extrinsic mistake under the three-part test set forth in Rappleyea.
We conclude that respondent demonstrated a meritorious defense to the claims asserted in the complaints, which asserted claims based on alleged irregularities relating to the foreclosure sale of the Glen Ivy property. The original complaint alleges that "without giving the proper notices," respondent and Center Bank "improperly foreclosed" on the property, notwithstanding the existence of a bankruptcy stay. The first amended complaint similarly alleges that respondent and the other defendants "caused a foreclosure on the ... [p]roperty while SG was in bankruptcy, thereby violating the automatic stay," but omits any reference to lack of proper notices.
Respondent's declaration of nonmonetary status under Civil Code section 2924l, coupled with the evidence supporting its motion to set aside the default and default judgment, suffice to show a meritorious defense regarding the alleged misconduct. The declaration of nonmonetary status, executed under penalty of perjury by attorney Stone, asserted respondent's "reasonable belief" that the original complaint alleged no specific wrongful act by it. In view of that assertion, the declaration effectively denied that respondent, as trustee, had engaged in any of the alleged improper conduct regarding the foreclosure sale, including the failure to provide required notices. Furthermore, in seeking relief from the default and default judgment, respondent
In addition, respondent's unchallenged declaration of nonmonetary interest established a meritorious defense to the relief sought in appellant's application for a default judgment, which requested $3 million in damages plus pre-judgment interest. As discussed above (see pt. B. of the Discussion, ante), the declaration of nonmonetary interest shielded respondent from liability for damages to appellant.
Like the defendants in Rappleyea and Baske, respondent demonstrated a satisfactory excuse for not presenting its defense, namely, the mistaken entry of a default and default judgment. For the reasons discussed below, respondent's unchallenged declaration for nonmonetary interest shielded it from the default and default judgment, notwithstanding respondent's failure to file any pleading or motion ordinarily required to avoid the entry of default, as specified in Code of Civil Procedure section 585, subdivision (b).
Although the record shows that appellant mailed respondent a copy of its application for entry of default by the clerk, there is no evidence that it served respondent's counsel. Appellant's applications for entry of default lack the affidavit attesting that they had been mailed to respondent's attorney, as does his completed form application for entry of a default judgment. Furthermore, in support of the motion to set aside the default and default judgment, respondent's counsel stated in a declaration that he first learned of the default proceedings when appellant attempted to levy on respondent's bank accounts. On appeal, appellant does not challenge that showing or suggest that it provided notice of the default proceedings to respondent's counsel.
In view of the undisputed facts, we conclude that respondent, upon receiving the request for entry of default, was entitled to rely on its declaration of nonmonetary status to shield it from a default and default judgment. For the reasons discussed above (see pt. C.2. of the Discussion, ante), that declaration mandated the denial of the request for entry of default. Furthermore, the fact that respondent's counsel lacked knowledge of appellant's applications for entry of default and default judgment necessarily prevented him from providing legal advice to respondent regarding the potential for errors in the default proceedings. As respondent's counsel first learned of the default proceedings when appellant tried to enforce the judgment, the record discloses no lack of diligence by respondent foreclosing equitable relief.
Appellant contends that neither the failure to comply with Code of Civil Procedure section 587 nor the ignorance of respondent's counsel regarding the default proceedings supports equitable relief, as respondent received notice of the application for entry of default by the clerk. We disagree, as the noncompliance with the affidavit requirement and the related ignorance of respondent's counsel were prejudicial.
Here, the requisite prejudice was shown, as despite its receipt of the request for entry of default by the clerk, respondent was entitled — as a matter of law — to believe that no default or default judgment could be entered against it. As noted above, appellant's failure to serve respondent's counsel prevented him from taking precautions against the erroneous entry of a default or default judgment.
The decisions upon which appellant relies are distinguishable, as they involved defendants who were aware of default proceedings and — unlike respondent — had no legal basis to believe a default judgment could not be entered regardless of whether they responded to the proceedings. In two of the cases, the appellate court held that equitable relief was unavailable to a defendant who knew that a default had been entered, and placed unreasonable reliance on another person or entity to set the default aside. (McCreadie v. Arques (1967) 248 Cal.App.2d 39, 45-48 [56 Cal.Rptr. 188] [trial court did not abuse its discretion in finding defendant failed to demonstrate diligence where he waited over a year after being personally notified of the entry of default judgment to seek relief]; Cruz, supra, 146 Cal.App.4th at pp. 506-507 & fn. 8 [diligence in attacking default judgment not shown where defendant was served with requests for default and default judgment, "received additional notices regarding the progression of the action ... yet did nothing about them," and had repeated indications its insurer was taking no action to set aside default].) In the remaining cases, the appellate court concluded that noncompliance with the affidavit requirement in Code of Civil Procedure section 587 was insufficient to support relief from a default judgment because the defendant had adequate notice of the default proceedings. (Taylor v. Varga (1995) 37 Cal.App.4th 750, 753-755 [43 Cal.Rptr.2d 904]; see id. at p. 760 [any deficiency in affidavit not prejudicial where defendants' insurer — which defendants had asked to provide defense in action — "had actual notice of all the relevant proceedings"]; Rodriguez, supra, 174 Cal.App.4th at pp. 536-537 [noncompliance with affidavit requirement not prejudicial where defendants and their counsel were informed of default proceedings].) In contrast, respondent was fully entitled to believe that no default could be entered
The judgment is affirmed. Respondent is awarded its costs on appeal.
Willhite, Acting P. J., and Collins, J., concurred.
Those conditions are satisfied here. Before the trial court, appellant argued that although equitable relief was potentially available on theories of extrinsic fraud and mistake, respondent could demonstrate no basis for equitable relief. On appeal, the parties have discussed the propriety of affirming the trial court's ruling on the basis of extrinsic mistake, and appellant has not suggested that he was denied an opportunity to present relevant evidence. As explained below (see pt. C. of the Discussion, post), the facts material to the application of the doctrine of extrinsic mistake are undisputed.
In any event, apart from any legal requirement regarding notice of default proceedings, the failure to notify defense counsel of those proceedings may justify relief from a default judgment. (6 Witkin, Cal. Procedure, supra, Proceedings Without Trial, § 162, p. 603.) Here, appellant's failure to comply with Code of Civil Procedure section 587 in connection with the request for entry of default, coupled with his failure to inform respondent and its counsel of the later default proceedings, supported relief on the basis of extrinsic mistake, regardless of any legal requirement of notice relating to those proceedings. (Turner v. Allen (1961) 189 Cal.App.2d 753, 758 [11 Cal.Rptr. 630] [lack of adequate notice of default proceedings to defendant and defendant's counsel amounted to extrinsic mistake, notwithstanding absence of legal requirement of notice to counsel].)
