McKenzie Builders v. Super. >Ct.>























Filed 9/18/12 McKenzie Builders v. Super. Ct. CA6













>NOT TO BE PUBLISHED IN OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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



SIXTH
APPELLATE DISTRICT




>

MCKENZIE BUILDERS, INC., Petitioner, v. THE SUPERIOR COURT OF SANTA CLARA COUNTY, Respondent; EAST WEST BANK, Real Party in Interest.

H037334 (Santa Clara County Super. Ct. No. 1-10-CV-163513)

Seeking to foreclose its mechanic’s lien on an office
condominium project, petitioner McKenzie Builders, Inc. (McKenzie) timely sued
the project owner, Willow Glen Investments, LLC (Willow),
and 50 Doe defendants in February 2010.
A few weeks after the statute of
limitations to foreclose the lien expired, McKenzie learned that real party
in interest East West Bank (EWB) had a security interest in the project that
was subordinate to McKenzie’s interest.
McKenzie applied ex parte for
leave to file a second amended complaint adding EWB as a defendant. The superior court granted leave, and
McKenzie filed its amended pleading. EWB
answered, asserting as an affirmative defense that the 90-day statute of
limitations in former Civil Code section 3144 barred McKenzie’s mechanic’s lien
cause of action.

Instead of substituting EWB as a Doe defendant, McKenzie had
simply added EWB to the caption of its second
amended complaint. It made other
attempts to add EWB as a defendant, but those too were procedurally
defective. McKenzie did not seek leave
to file a Doe amendment until April 1,
2011, 397 days after the 90-day statute of limitations had
expired. The superior court denied the
motion as untimely.

In this writ petition challenging the superior court’s order,
McKenzie contends it was an abuse of discretion to deny leave “on the basis of
delay, without a[n express] finding of prejudice.” We conclude that the superior court’s order
incorporates an implicit finding of prejudice.
Accordingly, we deny the petition.



I. Background

In June 2008, Willow
hired McKenzie as the general contractor on an office condominium project. McKenzie started work later that month.

In August 2008, Willow
obtained a construction loan from United California Bank (UCB), securing its
note with a deed of trust, and an assignment of the contractor agreement with
McKenzie. The deed of trust was recorded
on August 21, 2008.

UCB went into receivership, and on November 6, 2009, EWB purchased its
assets and liabilities, which included the deed of trust securing UCB’s loan to
Willow.

On November 18, 2009,
McKenzie recorded a mechanic’s lien on the project, asserting that Willow
owed it $268,397.70. On February 10, 2010, six days before
the 90-day limitations period on an action to foreclose the lien expired,
McKenzie filed suit against Willow
and 50 Doe defendants, asserting causes of action for breach of contract,
foreclosure of the mechanic’s lien, quantum meruit, and account stated. A week later, McKenzie filed a first amended
complaint correcting the amount claimed.
Neither complaint named UCB or EWB as a defendant.

In December 2009, Willow
defaulted on its construction loan. In
January 2010, EWB recorded a notice of default and election to sell the
project, which it ultimately purchased at the foreclosure sale.

In March 2010, after McKenzie’s president learned that EWB’s
interest in the project was subordinate to McKenzie’s because McKenzie had
started work before UCB recorded its deed of trust, McKenzie applied ex parte
for leave to file a second amended complaint adding EWB as a defendant. The court granted the application, and McKenzie
filed its second amended complaint. EWB
answered, asserting as an affirmative defense that former Civil Code section
3144 barred the lien foreclosure claim against EWB.

In July 2010, McKenzie filed a motion to determine its lien
priority over EWB’s deed of trust. EWB
opposed the motion as prematurely filed, and the court denied it.

In December 2010, EWB moved for summary adjudication of the
foreclosure cause of action, asserting that it was “ ‘null and void’ as a matter of law” because McKenzie had
not named UCB or EWB as defendants until “well after” the statute of
limitations expired, and when it finally did so, it named EWB “as an additional
new defendant” instead of substituting it as a Doe defendant.

The parties stipulated to mediation, which was set for
February 2011. In its mediation
statement, EWB briefed the relation back doctrine, labeling it McKenzie’s “only
hope” of joining EWB as a defendant. The
mediation failed, and the next day, without leave of court, McKenzie filed a
“Doe Amendment” purporting to substitute EWB as “Doe 1.” EWB moved to strike the amendment, asserting
that McKenzie’s “unreasonable delay in filing the DOE amendment (10 months
after filing the [second amended complaint]) specifically prejudiced EWB.” EWB asked the court to order McKenzie to pay
EWB $9,083.50 in fees in the event the court denied EWB’s motion.

In March 2011, the court heard arguments on EWB’s motions to
strike and for summary adjudication. The
court struck the Doe amendment, ruling that allowing it to stand would “deprive
EWB of the opportunity to file an evidence-based motion arguing that [McKenzie]
unreasonably delayed filing the amendment.
(See A.N. v. >County> of Los Angeles (2009) 171 Cal.App.4th
1058, 1067 [A.N.].) . . . [T]he Court finds it is appropriate to grant
EWB’s motion . . . without prejudice to [McKenzie] bringing a noticed motion
for leave to substitute EWB for Doe 1.”
The court instructed McKenzie to “present evidence explaining the
reasons for the delay” and advised EWB to “present all arguments and evidence
why the proposed amendment should be denied.”


The court denied EWB’s motion for summary adjudication,
finding that McKenzie had no actual knowledge of EWB’s interest in the project
when it filed its original complaint, and therefore, it was not required to
name EWB in its original complaint. The
court found that McKenzie acquired actual knowledge on March 12, 2010 at the
latest; at that time it became incumbent on McKenzie to amend its complaint to
name EWB as an additional defendant. The
“ultimate question,” the court explained, was whether a Doe amendment would
relate back to the original complaint.
“Unreasonable delay in filing an amendment after actually acquiring
knowledge of a fictitiously named defendant’s identity can bar a plaintiff’s
resort to the fictitious name procedure,” the court wrote. “The defendant must show not only that the
plaintiff was dilatory but that [the] defendant suffered specific prejudice
from the delay, i.e., prejudice apart from the prejudice generally presumed
from the policy of the statute of limitations.
[Citation.] . . . [T]he issues of
unreasonable delay in filing a Doe amendment and prejudice should be heard in
the context of a noticed motion, brought by [McKenzie], for leave to file a Doe
amendment.”

On April 1, 2011, McKenzie filed a motion for leave to
substitute EWB as a Doe defendant.
McKenzie’s counsel explained in his supporting declaration that “[t]he
Doe Amendment was not filed before February 2, 2011, because EWB did not object
to its joinder via the [second amended complaint] until the summary
[adjudication] papers filed on December 22, 2011.” Counsel also asserted that “[i]n addition to
its non-objection, EWB participated in discovery and mediation as a party aware
of the claims against it.”

EWB argued that McKenzie’s unreasonable delay had prejudiced
it in at least four ways.
Notwithstanding “overwhelming evidence” that McKenzie knew UCB was the
construction lender, it failed to name any
lender in its complaint, an omission that gave UCB (and EWB as its successor-in-interest)
a statute of limitations defense.
Allowing McKenzie to belatedly substitute EWB as a defendant would
deprive EWB of that defense.

McKenzie’s failure to timely sue UCB also “deprived the FDIC
and EWB [of] the opportunity to properly value the loan at issue.” “Without doubt,” EWB argued, “if [McKenzie]
had a valid cause of action against UCB, the value of the loan would have been
less.” Additionally, “[McKenzie’s]
failure to timely sue UCB deprived the FDIC and EWB from properly determining
their respective set-offs and allowances with respect to the loss-sharing
provisions in the FDIC/EWB Assumption Agreement.”

Finally, EWB asserted that it had been forced to incur and
would continue to incur an estimated $50,000 attorney’s fees and costs in
connection with the mediation, its motion for summary adjudication, its motion
to strike the original Doe amendment, and its opposition to the motion for
leave to file the Doe amendment.

The court heard argument on April 26, 2011, and took the matter
under submission, telling the parties, “I still don’t know the answer to this
question.” “I didn’t have time to go
through all of this,” the court explained.
“And, frankly, it’s going to be an issue of digesting this in order to
make the decision. I’m not real clear on
which way this goes frankly.”

In a written order filed on July 13, 2011, the court denied
the motion. The “pivotal issue,” the
court ruled, was whether McKenzie’s motion was timely. “It was not.”
McKenzie had acquired knowledge of EWB’s junior interest in the project
“a few days before” March 12, 2010, when McKenzie applied ex parte to file its
second amended complaint. Since the
90-day statute of limitations (former Civ. Code, § 3144) had expired on
February 16, 2010, “[t]he only way” McKenzie could serve EWB was as a Doe
defendant. McKenzie did not utilize that
procedure until it filed the instant motion on April 1, 2011. “Although several efforts were made, such as
filing a first amended complaint, an ex
parte application to file a second amended complaint, and an >ex parte application seeking to name EWB
as a DOE defendant, none of them were the appropriate procedure.”

On August 9, 2011, McKenzie filed a motion for relief under
Code of Civil Procedure section 473, claiming that it had been deprived of its
day in court “solely because of the mistake or neglect” of its counsel. McKenzie acknowledged that prejudice to the
defendant can defeat such a motion but argued that no finding of prejudice had
been made. The record before us does not
indicate how (or if) the court ruled on that motion.

On September 9, 2011, McKenzie timely filed this writ petition
and requested a stay of proceedings in the superior court. We granted the stay request and issued an
order to show cause why a peremptory writ should not issue.



II. Discussion

McKenzie claims the superior court abused its discretion in
denying it leave to file its Doe amendment “on the basis of delay, without [an
express] finding of prejudice.” EWB
argues that the court’s July 13, 2011 order included an implicit finding of
prejudice. We agree with EWB.

“Where a complaint sets forth . . . a cause of action against
a defendant designated by fictitious name and his true name is thereafter
discovered and substituted by amendment, he is considered a party to the action
from its commencement” if both pleadings seek relief on the same general set of
facts. (Austin v. Massachusetts Bonding & Insurance Co. (1961) 56
Cal.2d 596, 599; Code Civ. Proc., § 474.)
However, unreasonable delay in filing an amendment after acquiring
actual knowledge of the Doe defendant’s identify can bar a plaintiff’s resort
to the fictitious name procedure. (>Smeltzley v. Nicholson Mfg. Co. (1977)
18 Cal.3d 932, 938-939.) “[A] defendant
named in an action by a Doe amendment . . . may challenge the amendment by way
of an evidence-based motion, which argues that the plaintiff ‘unreasonabl[y]
delayed’ . . . filing of the challenged amendment. ‘[U]nreasonable delay’ . . . includes a
prejudice element, which requires a showing by the defendant that he or she
would suffer prejudice from plaintiff’s delay . . . .” (A.N.,
supra, 171 Cal.App.4th at p. 1067; Sobek
& Associates, Inc. v. B & R Investments No. 24 (1989) 215
Cal.App.3d 861, 870 [where contractor seeking to foreclose a mechanic’s lien
belatedly substituted bank as a Doe defendant, reversing judgment against
successor investment company and remanding with instructions that the trial
court consider evidence of unreasonable delay and prejudice from the amendment
of the complaint].)

We review an order denying leave to amend a pleading for abuse
of discretion. (A.N., supra,> 171 Cal.App.4th at p. 1067.)

“ ‘A judgment
or order of the lower court is presumed
correct. All intendments and
presumptions are indulged to support it on matters as to which the record is
silent, and error must be affirmatively shown.’ ” (Denham
v. Superior Court (1970) 2 Cal.3d 557, 564.) “[W]hatever uncertainties may exist in the
findings of the court are to be so resolved, if reasonably possible, to support
the judgment rather than to defeat it.”
(Ensele v. Jolley (1922) 188
Cal. 297, 302-303.)

Here, the superior court expressly found that McKenzie
acquired knowledge of EWB’s interest in the project and knew that its own lien
was senior to EWB’s lien “a few days before . . . March 12, 2010,” but did not >properly seek to add EWB as a Doe
defendant until almost a year later.
McKenzie does not seriously challenge the court’s conclusion that its
motion was not timely. The only issue is
whether the order implicitly incorporates a finding of prejudice. We think it does.

It is apparent from the record before us that the court
understood the relevant inquiry. In its
order on EWB’s motions to strike and for summary adjudication, the court
explained that the “ultimate question” was whether the Doe amendment would
relate back to the original complaint.
Citing A.N., the court
apprised the parties that unreasonable delay can bar a plaintiff’s resort to
the fictitious name procedure if the defendant suffered prejudice. The court invited McKenzie to notice a motion
presenting “evidence explaining the reasons for the delay,” and it advised EWB
that its opposition should “present all arguments and evidence why the proposed
amendment should be denied.”

The parties briefed the prejudice issue at length. McKenzie cited the liberal policy in favor of
amendment and attributed what it characterized as only a “six month” delay to
“the actions and representations of EWB.”
When EWB “finally” raised an objection to its joinder, McKenzie
“immediately” filed its Doe amendment.
The delay was a mere “procedural error,” easily curable before
trial.

EWB countered McKenzie’s argument with four distinct
assertions of prejudice resulting from the unreasonable delay, claiming first
that the failure to timely name USB or EWB as a defendant caused EWB to
overvalue the loan, which “without doubt” would have been less had McKenzie had
a valid cause of action. The delay also
detrimentally affected EWB’s and the FDIC’s determination of their respective
set-offs and allowances with respect to the loss-sharing provisions in the
FDIC/EWB Assumption Agreement. EWB also
cited its “inability to locate former employees of UCB involved in the loan,”
who could provide “critical information.”
EWB also noted the “considerable” sums it had expended on fees “that
would not have been incurred had UCB and EWB been properly and timely
served.” The parties vigorously argued
these positions at the hearing.

Although the order the court issued several months later did
not include an explicit finding of prejudice, the record compels us to conclude
that such a finding was implied. (>A.N., supra, 171 Cal.App.4th at
p. 1068.) In A.N., the Court of Appeal affirmed an order quashing service of a
belated Doe amendment, finding that the trial court’s order, which did not
include express findings, “implicitly incorporate[d] a finding of
prejudice.” (A.N., at pp. 1068, 1070.)
The appellate court explained that its inference was confirmed by the
trial court’s expression of concern at the hearing about drawing the
belatedly-identified Doe defendants “ ‘into
this spinning vortex shortly before trial.’
” (A.N., at p. 1069.)

Here, as in A.N.,
the court’s statements throughout the proceedings confirm that it made an
implied finding that EWB was prejudiced by McKenzie’s dilatory filing. Where, as here, the court correctly explained
the legal standard, instructed the parties to brief the prejudice issue, heard
their arguments, and took the matter under submission for the express purpose
of “digesting” those positions, it would defy logic for us to suppose the court
ignored a critical component of the relevant inquiry. We thus infer a finding of prejudice, and
conclude that the court did not abuse its discretion in denying McKenzie’s
motion. (A.N., supra,> 171 Cal.App.4th at p. 1067.)

McKenzie’s efforts to distinguish A.N. do not change our conclusion.
We do not read A.N. to apply >only where there is “a lack of
preparatory time or a looming trial date,” nor do we find it significant that
McKenzie’s almost one-year delay was “less than half of the delay in >A.N.”
Here, EWB identified specific ways in which it was prejudiced by
McKenzie’s dilatory filing. McKenzie’s
writ petition nowhere challenges the adequacy of EWB’s showing of
prejudice. Its only assertion of error
is that the superior court’s order denying McKenzie’s motion for leave to file
a Doe amendment “made no mention of prejudice.”
As we have already explained, the lack of an express finding of
prejudice is of no moment here, because the order incorporates an implicit
finding of prejudice.



>

>

III. Disposition

The petition is denied, and the temporary stay is
vacated. Costs in this original
proceeding are awarded to real party in interest.











___________________________

Mihara,
J.







WE
CONCUR:











_____________________________

Premo,
Acting P. J.











_____________________________

Elia,
J.