Creditors Adjustment Bureau v. Harper

Filed 3/25/09 Creditors Adjustment Bureau v. Harper CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

Plaintiff Creditor Adjustment Bureau, Inc. (CAB) appeals an order granting defendant Bruce Harpers motion for equitable relief from default and default judgment. On appeal, plaintiff does not dispute that defendant has a meritorious defense. Rather, plaintiff claims that defendant failed to articulate a satisfactory excuse for not presenting a defense to the complaint and failed to show reasonable diligence in seeking to set aside the default judgment. Finding no abuse of discretion, we affirm.

BACKGROUND

A. Harpers Default

CAB is a collection agency and an assignee of John Deere Landscapes doing business as United Green Mark with respect to goods sold and delivered to Harper. After attempts to collect the $49,218.85 balance failed, CAB filed a complaint against Harper on January 17, 2007.

On April 7, 2007, defendant was personally served with the summons and complaint by a registered process server. On April 11, 2007, CAB mailed a notice of hearings to Harper, which listed the following dates: 1) OSC: re: Proof of Service set for May 14, 2007; 2) OSC: re: Answer/Default set for June 21, 2007; and 3) Case Management Conference set for July 30, 2007.

On May 8, 2007, CAB sent a letter to Harper, advising him that a default would be taken if he failed to file a responsive pleading within seven days. Harper did not answer the complaint within the specified time period, and CAB requested an entry of default on May 21, 2007; Harpers default was entered on May 25, 2007. Thereafter, the trial court entered a default judgment against Harper on June 29, 2007.

B. Harpers Motion to Vacate Default and Default Judgment under Code of Civil Procedure section 473.5

On February 15, 2008, Harper filed a motion to set aside the default and default judgment under Code of Civil Procedure section 473.5,[1] on the grounds that the summons and complaint were not timely served. In his declaration, Harper averred that he did not receive the summons and complaint until April 11, 2007. He also stated that he received the notice of scheduled hearings, listing the Answer/Default hearing for June 21, 2007 on April 17, 2007. Harper stated that he called the superior court on April 18, 2007 to verify the correct hearing dates, and that he believed he had until June 21, 2007 to answer the complaint. Harper further explained that on June 7, 2007, he mailed his answer to the superior court. However, his answer could not be filed because CAB had filed a request for entry of default on May 21, 2007, one month prior to Court requirements.

The trial court heard and denied the motion on April 2, 2008. In its written ruling, the trial court, citing section 437.5, subdivision (a), explained that although it appeared that Harper may have misunderstood the  Notice of Hearings  to mean that he had until June 21, 2007 to file his answer, this was not the same as not having  actual notice . . . in time to defend the action.  The trial court determined that Harper had  actual notice . . . in time to defend the action, no later than April 11, 2007, which is when he states he received the summons and complaint . . . .

C. Harpers Motion for Equitable Relief from Default and Default Judgment

1. Harper Advises Court of Additional Procedural History

On or about June 17, 2008, Harper filed a motion for equitable relief from default and default judgment. In his declaration, Harper averred that he had been given misinformation from the clerks office regarding the deadline for filing an answer. According to Harper, the clerks office confirmed the answer due date as June 21, 2007 and this date was confirmed to be noted in the [c]ourts file during a [c]ourt appearance on February 15, 2008 . . . . Harper explained that on June 7, 2007, he mailed a copy of his answer to CAB and sent it to the court for filing, but it was returned without ever having been filed due to the entry of default. Harper stated that CAB failed to serve him with its May 21, 2007 request for entry of default and did not otherwise notify him about it.

Harper also advised the court that on July 17, 2007, he filed an Application and Notice of Hearing for Order to Set Aside the Right to Attach Order issued on June 29, 2007. Harper explained that he requested a hearing date for August 8, 2007, with the intent of setting aside the default judgment dated June 29, 2007. Thereafter, on August 7, 2007 the trial court issued a tentative ruling in favor of Harper. CAB did not appear at the August 8, 2007 hearing; the trial court granted the relief requested and Harper filed the order setting aside the attachment order and mailed a copy to CAB. As of this date, Harper believed that the default judgment had been set aside.

However, on February 1, 2008, Harpers bank sent him a letter advising him of a request for production of business records that had been filed regarding his account. Harper explained that this was the first date he learned that the default judgment was still in effect. Then, on February 7, 2008, CAB executed a writ of attachment against a bank account belonging to Harpers wife, even though she was not a named defendant in the underlying action. Thereafter, on February 15, 2008, Harper filed his motion to set aside the default and default judgment under section 473.5, which the court subsequently denied on April 2, 2008.

2. Hearing and Trial Court Ruling

The trial court issued a tentative ruling on August 6, 2008, denying Harpers motion. In so ruling, the trial court explained that although [Harper] now states he was given misinformation as to the deadline date for response, he did not mention such misadvice [sic] in his previous motion.

On August 6, 2008, Harper appeared in pro per at the hearing on the motion for equitable relief. At the hearing, Harper and his wife (collectively, the Harpers) explained that they did not have enough money to hire an attorney, and that they had been trying to no avail to defend themselves. In attempting to defend themselves, the Harpers called the court clerk who told them that they had until June 21st to turn in [their] answer. The Harpers explained their confusion and frustration about learning that a default judgment had been entered on June 29, 2007.

Counsel for CAB argued that the Harpers had been on notice about the answer due date since the May 8, 2007 letter advising them of the impending default proceedings if an answer was not received within seven days. The Harpers denied any knowledge about the May 8, 2007 letter. The Harpers reiterated that they served CAB with a copy of the answer, and attempted to file it with the court, but it was returned. The Harpers estimated that CAB knew about their attempted answer as early as June 9, 2007.

Following oral argument on the motion for equitable relief from default and default judgment, the trial court took the matter under submission. In its August 12, 2008 order after hearing, the trial court granted Harpers motion. The instant appealed followed.

DISCUSSION

A. Applicable Law and Standard of Review

Where, as here, a motion for relief from default is filed after the six-month statutory deadline set forth in section 473, the only possible basis for relief is the inherent, equitable power of the court to set aside a judgment on the ground of extrinsic fraud or mistake. (Olivera v. Grace (1942) 19 Cal.2d 570, 578; Sporn v. Home Depot USA, Inc. (2005) 126 Cal.App.4th 1294, 1300.) Although the trial court did not explicitly say so, the trial court apparently relied on the ground of extrinsic mistake as a basis for granting relief in this case.

Extrinsic mistake exists when the ground for relief is not so much the fraud or other misconduct of one of the parties as it is the excusable neglect of the defaulting party to appear and present his claim or defense. [Citation.] If such neglect results in an unjust judgmentone entered without a fair adversary hearingthe [defaulted party] may have a basis for equitable relief. [Citation.] (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 503.)

However, equitable relief is unavailable if the defaulted party has been given notice of the action yet fails to appear, without having been prevented from participating in the action. (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471.) Rather, to set aside a judgment based upon extrinsic mistake, three elements must be satisfied. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 982 (Rappleyea).) First, the party seeking relief must establish a meritorious defense. (Ibid.) Second, the defaulted party must articulate a satisfactory excuse for not presenting a defense to the original action. (Ibid.) Finally, the moving party must demonstrate diligence in seeking to set aside the default once it was discovered. (Ibid.; see also Stiles v. Wallis (1983) 147 Cal.App.3d 1143, 1147-1148.)

In the order granting Harpers motion for equitable relief from default, the trial court stated, without further articulation, that [a]lthough this is a close question, the court concludes that [Harper] has demonstrated the requisite exceptional circumstances.  We review this order for an abuse of discretion. (Cruz v. Fagor America, Inc,, supra, 146 Cal.App.4th at p. 503.) The burden of showing an abuse of discretion rests on the appellant. (Broadway Fed. etc. Loan Assoc. v. Howard (1955) 133 Cal.App.2d 382, 401.) On review we may not substitute our judgment for that of the trial courts express or implied findings if they are supported by substantial evidence. (People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143.)

B. The Trial Court Did Not Abuse Its Discretion in Granting Equitable Relief

CAB does not contest that Harper has a meritorious defense. However, CAB insists that Harper has not established a satisfactory excuse for not presenting a defense and has not demonstrated that he was diligent in seeking to set aside the default once it had been discovered.

We agree with the trial court that this was a close case. Although CAB provided a copy of its May 8, 2007 letter advising Harper of the impending default, Harper and his wife denied any knowledge of this letter. Inasmuch as issues of credibility are within the province of the trier of fact, we presume this conflict was resolved in favor of Harper. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925-926.)

The record also fails to establish that Harper was notified of CABs May 21, 2007 request for entry of default. According to Harper, he called the court clerk on April 18, 2007 to verify the answer due date, and was told he had until June 21, 2007 to answer the complaint. Consistent with this information, Harper attempted to file his answer on June 7, 2007; however, the answer was returned without filing, due to CABs request for entry of default that had been filed on May 21, 2007. At the hearing on the motion for equitable relief, Harper explained that CAB had been served with the answer and, thus it had been on notice of his meritorious defense as early as June 9, 2007.

The record reflects that Harper made a good faith and reasonable effort to defend himself by serving CAB with his answer and by attempting to file his answer with the court within what he believed to be the permissible time frame. These facts support the trial courts implied finding that Harper articulated a satisfactory excuse for not presenting a defense.

In addressing the diligence requirement, CAB asserts there is nearly a nine-month delay between the time Harper first learned of the default proceedings (June 2007) and the filing of his first motion to set aside the default and default judgment (February 2008). By reason of this delay, CAB argues that Harper has failed miserably to satisfy even a superficial level of diligence. In support of this assertion, CAB cites to authority stating that unexplained delays of more than three months in seeking relief from default warrant denial of relief. (See Caldwell v. Methodist Hospital (1994) 24 Cal.App.4th 1521; Billings v. Health Plan of America (1990) 225 Cal.App.3d 250; Kendall v. Barker (1988) 197 Cal.App.3d 619.) CABs argument regarding Harpers alleged lack of diligence is belied by the record and the applicable law. First, contrary to CABs contention, the record does not establish that Harper waited nine months before attempting to set aside the default and default judgment. Rather, the record reflects that, less than a month after learning of the default, Harper attempted, albeit mistakenly, to set aside the default and default judgment via his July 17, 2007 motion to set aside the attachment order.

Second, even assuming arguendo that there was a nine-month delay, CABs authority is, nevertheless, inapposite, as all the cases cited pertain to motions under section 473, in which the outside limit for seeking relief is six months. (See  473, subd. (b); Caldwell v. Methodist Hospital, supra, 24 Cal.App.4th at pp. 1524-1525 [plaintiff failed to act diligently in filing statutory motion approximately three months after case dismissed]; Billings v. Health Plan of America, supra, 225 Cal.App.3d at pp. 253, 259 [order granting statutory relief reversed where plaintiffs delayed five months in seeking relief from dismissal]; Kendall v. Barker, supra, 197 Cal.App.3d at pp. 622-623, 625 [defendant not entitled to statutory relief from default where waited nearly six months before filing motion].)

Where, as here, the party seeks relief on equitable grounds, the statutory time limits do not apply. (See Rappleyea, supra, 8 Cal.4th at p. 981.) Rather, as Rappleyea explains, a party seeking equitable relief must proceed diligently. (Id. at pp. 983-984.) Although parties seeking equitable relief are not confined to statutory time limits, there are, nevertheless, public policy limitations on seeking relief outside the six-month period set forth in section 473, subdivision (b).  Beyond this period there is a strong public policy in favor of the finality of judgments and only in exceptional circumstances should relief be granted. [Citations.] (Rappleyea, supra, at p. 983.)

In the instant case, the trial court determined that such exceptional circumstances warranted granting Harpers request for relief. Under the criteria set forth in Rappleyea, we cannot say that the trial court abused its discretion. Of the three items a defendant must show to win equitable relief from default, diligence is the most inextricably intertwined with prejudice. If heightened prejudice strengthens the burden of proving diligence, . . . reduced prejudice weaken[s] it. . . . [] Prejudice to a plaintiff is obviously less if judgment has not been entered when a defendant seeks equitable relief. (Rappleyea, supra, 8 Cal.4th at pp. 983-984.) Although judgment had been entered when Harper sought equitable relief, we nevertheless conclude that the prejudice to CAB from granting Harpers motion was minimal. CAB waited nearly eight months before attempting to execute the judgment. The slow pace of CABs actions does not reflect a great urgency to recover on Harpers default liability. We conclude that the trial courts implied finding that Harper sufficiently demonstrated diligence is supported by the record and is consistent with the view espoused in Rappleyea.

Finally, there is nothing in the record supporting CABs assertion that the trial court improperly granted extraordinary lenient relief to Harper due to his in pro per status. Contrary to CABs assertion, the change in the tentative ruling and reference to this case as a close call does not suggest that the trial court viewed the case with a  sympathetic eye.  Rather, the trial courts decision to change its initial ruling and reference to the close nature of the case reflects that the trial court carefully exercised its broad discretion in granting the relief from default and default judgment.[2]

DISPOSITION

The order granting Harpers motion for equitable relief from default and default judgment is affirmed. Parties to bear their own costs on appeal.

_________________________

Sepulveda, J.

We concur:

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Reardon, Acting P.J.

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Rivera, J.

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[1] All further undesignated statutory references are to the Code of Civil Procedure.

[2] To the extent CAB argues that the trial courts leniency is further established by the refusal to award CAB its postjudgment fees and costs, we note that the propriety of that ruling is not presently before us.