Filed 8/24/17 Rezkalla v. Haddad CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. Raquel A. Marquez, Judge. Affirmed.

Law Office of Raymond I. Moniak and Raymond I. Moniak for Plaintiffs and Appellants.

Edward M. Palmer for Defendants and Respondents.

Plaintiffs and appellants Elia Rezkalla and Rezk Rezk (collectively, plaintiffs) sued defendants and respondents Wael Haddad and Jamal Jamil Khoury. In May 2014, the trial court entered a default judgment against Haddad and Khoury (collectively, defendants). In December 2015, the trial court granted relief from the default, vacating the default and default judgment. Plaintiffs contend the trial court erred by granting relief. We affirm.

FACTUAL AND PROCEDURAL HISTORY

A. COMPLAINT AND DEFAULT

Plaintiffs allegedly sold Bear Valley Ranch Market (the Market) to defendants. On March 5, 2013, plaintiffs filed a complaint against defendants.[1] On April 3, plaintiffs filed proofs of service reflecting the complaint, summons, and other documents were served upon defendants via substituted service. The proofs of service reflected the paperwork was served at the Market upon “Wally, night manager.” The complaint and summons were then mailed, via first-class mail, to defendants, at the Market.

On May 14, 2013, plaintiffs filed a request for entry of default. On January 29, 2014, the trial court returned plaintiffs’ application for entry of a default judgment because the complaint failed to state a cause of action. The court also vacated “all entries of default.” The court granted plaintiffs 30 days leave to amend the complaint. On March 3, plaintiffs filed a first amended complaint (FAC) setting forth various causes of action, including breach of contract.

In the FAC, plaintiffs alleged they entered into a contract with defendants, whereby defendants agreed to purchase the Market, including its inventory and equipment. Plaintiffs further alleged that in conjunction with the sale, plaintiffs and defendants executed a security agreement and installment note for the purchase of the Market’s inventory, equipment, and good will. The FAC reflects defendants agreed to make 48 monthly payments of $2,968. The agreement was allegedly secured by the Market’s inventory and equipment, such that plaintiffs could take and use the inventory and equipment in the event of defendants’ default. Plaintiffs alleged defendants did not make the agreed upon payments. In the FAC, plaintiffs sought possession of the Market, the inventory, and the equipment.

Defendants did not dispute that they owed money to plaintiffs for the inventory and equipment. Therefore, when defendants were served with the original complaint, they sought to negotiate a stipulated settlement for the alleged monetary damages suffered by plaintiffs. The original complaint only sought monetary damages. The FAC sought repossession of the real property, in addition to the monetary damages.

On May 12, plaintiffs requested an entry of default, and entry of a default judgment. The default was entered the same day. On May 14, plaintiffs filed proofs of service reflecting the FAC had been served via substituted service on March 3.[2] The proofs of service reflected the FAC was served upon “George Maida, Store Manager” and the FAC was mailed, via first class mail, to defendants at the Market.

On May 28, 2014, the trial court entered a default judgment against defendants. The trial court awarded plaintiffs $83,911.84 and ordered defendants to relinquish possession of the Market to plaintiffs. On June 20, 2014, the trial court issued a writ of possession. On April 20, 2015, the Riverside County Sheriff filed a return on the writ of possession reflecting that (1) on April 9, the sheriff posted a notice to surrender the Market at the Market; (2) on April 9, the sheriff mailed to defendants a notice to surrender the Market; and (3) on April 17, the sheriff placed plaintiffs “in quiet and peaceful possession” of the Market.

B. MOTION FOR RELIEF

Haddad first learned of the FAC when he was locked out of the Market on or about April 16, 2015. “To resolve the issue of temporary possession,” defendants agreed, in a verbal agreement, to pay plaintiffs $83,936.81. On April 17, 2015, Haddad gave plaintiffs’ attorney $40,000. On April 24, Haddad gave plaintiffs’ attorney $43,936.84. On October 1, plaintiffs’ attorney sent a letter to an escrow company “demanding a payoff of the judgment in the amount of $80,317.60.”

On October 26, defendants filed a motion to set aside the default and vacate the judgment. Defendants asserted they were not served with the FAC. After the original complaint was served, defendants negotiated with plaintiffs, and were still in the process of negotiations, believing a judgment had not been entered on the original complaint. Haddad submitted a declaration reflecting his attorney was negotiating a settlement of the original complaint, and that Haddad had not been served with the FAC.

Defendants’ former attorney, Jonathan Preston, who represented defendants after the original complaint was filed, submitted a declaration reflecting defendants did not dispute they owed money to plaintiffs. After the original complaint was filed, Preston negotiated with plaintiffs’ attorney on a stipulated judgment. Preston declared he was not served with the FAC. Preston asserted the FAC alleged a possessory interest in the entire Market (including the real property), whereas the original complaint concerned only money owed for the inventory.

George Maidaa, the person who was allegedly served with the FAC, submitted a declaration reflecting he only worked at the Market on weekends from March 1 through May 31, 2014. The FAC was allegedly served on a Tuesday. George Maidaa declared he was not served with or given any paperwork from March 1 through May 31, 2014.

C. OPPOSITION

Plaintiffs opposed defendant’s motion. Plaintiffs submitted the declaration of Sonja Baars. Baars declared that, on “March 3, 3014 [sic]” she went to the Market with two copies of the FAC and asked for defendants. A person who identified himself as “George Maida [sic],”[3] said defendants were not at the Market. Maidaa telephoned Haddad, who authorized Maidaa to accept service of the FAC. Baars left two copies of the FAC with Maidaa. The next day, Baars mailed copies of the FAC to defendants, at the Market, in separate envelopes.

D. HEARING

The trial court held a hearing on December 7, 2015. Plaintiffs asserted Baars’s declaration and the proofs of service for the FAC supported the finding that the FAC was properly served on defendants. Plaintiffs contended Maidaa’s declaration was problematic because the service occurred on a Monday, not on a Tuesday, as Maidaa declared. Plaintiffs conceded there was a substantial change in the FAC from the original complaint.

Defendants asserted they were never served with the FAC. Defendants, having received the original complaint, thought plaintiffs’ lawsuit only pertained to the money owed for the inventory and equipment. If defendants had been served with the FAC and seen plaintiffs were seeking possession of the real property, then “they would have fought” the FAC.

E. RULING

The trial court issued a written ruling. The trial court granted defendants’ motion for relief. The trial court found the FAC made substantive changes from the original complaint, and therefore needed to be personally served on defendants. The trial court found the FAC was not served on defendants. The trial court found Maidaa was not working on the day the FAC was alleged to have been served. The trial court further found that Preston was not served with the FAC. The court concluded that it “never acquired jurisdiction over the defendants, and the defaults and default judgment entered against them are void.”

DISCUSSION

A. PERSONAL JURISDICTION

Plaintiffs contend the trial court erred by finding the court never acquired personal jurisdiction over defendants. We agree the trial court’s reasoning was flawed. The trial court acquired personal jurisdiction over defendants when defendants were served with the summons and original complaint. (Code Civ. Proc., § 410.50.) There was no challenge to the summons and original complaint. Thus, the trial court had personal jurisdiction over defendants.

We review the trial court’s ruling, not its reasoning. (Coral Const., Inc. v. City and County of San Francisco (2010) 50 Cal.4th 315, 336.) Therefore, the flaw in the trial court’s reasoning does not necessitate a reversal of the judgment. We must examine if the trial court’s ruling was erroneous. (Ibid.)

B. SERVICE OF THE FAC

Plaintiffs contend the trial court erred by finding defendants were not personally served with the FAC.

We review the trial court’s ruling for an abuse of discretion. (Thompson v. Sutton (1942) 50 Cal.App.2d 272, 276.) ‘“Those affidavits favoring the contention of the prevailing party establish not only the facts stated therein but also all facts which reasonably may be inferred therefrom, and where there is a substantial conflict in the facts stated, a determination of the controverted facts by the trial court will not be disturbed.”’” (Zamora v. Clayborn Contracting Group, Inc. (2002) 28 Cal.4th 249, 257-258.)

Defaulting parties must have been given adequate notice of the maximum judgment that might be assessed against them. (Greenup v. Rodman (1986) 42 Cal.3d 822, 826.) “Adequate notice” equates with “formal notice” where the amendment concerns an increase in the amount of damages. Thus, formal notice of an amendment increasing damages must be given prior to a default being entered. (Engebretson & Co. v. Harrison (1981) 125 Cal.App.3d 436, 441-443.) “Where the defendant has failed to appear in the action, service of an amended complaint in the manner provided for service of summons . . . is an essential prerequisite to a valid default judgment.” (Id. at p. 443; see also Strosnider v. Superior Court in and for El Dorado County (1936) 17 Cal.App.2d 647, 653.)

“In lieu of personal delivery of a copy of the summons and complaint to the person to be served . . . a summons may be served by leaving a copy of the summons and complaint during usual office hours in his or her office . . . and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left.” (Code Civ. Proc., § 415.20, subd. (a).)

Plaintiffs conceded the FAC made a “substantial change” to the original complaint. The original complaint sought monetary damages for the missed payments related to the inventory and equipment. The FAC increased damages by also seeking repossession of the real property. Because the FAC increased the amount of damages sought, the FAC needed to be formally served, in the same manner a summons would be served. (Engebretson & Co. v. Harrison, supra, 125 Cal.App.3d at pp. 441-443.)

The trial court found the FAC was not served upon defendants. The trial court’s finding is supported by the declarations of Maidaa, Preston, and Haddad, who all declared the FAC was not served in the manner set forth in plaintiffs’ proof of service. Preston declared he was not served with the FAC. Haddad declared he was not served with the FAC. Maidaa declared he was not served with the FAC. Maidaa also declared he was not working on the night the FAC was served. There is nothing impossible or inherently improbable about defendants not being served. (See Romero v. Eustace (1950) 101 Cal.App.2d 253, 256-257.) Therefore, we defer to the trial court’s credibility determination. (Ibid.; Zamora v. Clayborn Contracting Group, Inc., supra, 28 Cal.4th at pp. 257-258.) Because the trial court’s finding is supported by the evidence, we conclude the finding is reasonable and the trial court did not err.

C. DILIGENCE

Plaintiffs contend the trial court erred by finding defendants acted diligently in seeking relief from the default and judgment.

When a default is entered without the defendant being given notice of the damages being sought, the trial court acts in excess of its jurisdiction.[4] (Van Sickle v. Gilbert (2011) 196 Cal.App.4th 1495, 1523; see also Thompson v. Cook (1942) 20 Cal.2d 564, 568.) “A default judgment which is in excess of jurisdiction may be set aside at any time either by motion or by an independent action in equity.” (Don v. Cruz (1982) 131 Cal.App.3d 695, 703.)

A default judgment rendered in excess of jurisdiction is voidable, not void. “‘The difference between a void judgment and a voidable one is that a party seeking to set aside a voidable judgment or order must act to set aside the order or judgment before the matter becomes final.’” (Lee v. Ji Hae An (2008) 168 Cal.App.4th 558, 565-566.) If a voidable judgment is entered, the party seeking to have the voidable judgment set aside must act diligently in seeking to have the judgment set aside. (County of Los Angeles v. Soto (1984) 35 Cal.3d 483, 492; see also Urias v. Harris Farms, Inc. (1991) 234 Cal.App.3d 415, 425 [“‘earliest practicable opportunity’”].)

We review the trial court’s ruling for an abuse of discretion. (H.A. Pulaski, Inc. v. Abbey Contractor Specialties, Inc. (1969) 268 Cal.App.2d 883, 886.) “The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason.” (Anastos v. Lee (2004) 118 Cal.App.4th 1314, 1318-1319.)

Haddad first learned of the FAC when he was locked out of the Market on or about April 16, 2015. “To resolve the issue of temporary possession,” defendants agreed, in a verbal agreement, to pay plaintiffs $83,936.81. On April 17, Haddad gave plaintiffs’ attorney $40,000. On April 24, Haddad gave plaintiffs’ attorney $43,936.84. On October 1, plaintiffs’ attorney sent a letter to an escrow company “demanding a payoff of the judgment in the amount of $80,317.60.” Defendants filed their motion for relief on October 26.

Defendants acted diligently because, upon learning of the FAC and default judgment, they immediately sought to reach a resolution with plaintiffs. Defendants believed the judgment to be resolved until, on October 1, they learned plaintiffs were seeking $80,317.60 allegedly in satisfaction of the judgment. Within one month, defendants sought to be relieved from the judgment. The trial court could reasonably conclude defendants acted diligently in seeking relief because it was not until October 1 that defendants realized plaintiffs had not applied the $83,936.84 to the judgment and were seeking to enforce the judgment.

Plaintiffs contend the trial court erred by believing defendants’ diligence evidence because defendants’ evidence is false and lacks credibility. For example, plaintiffs assert Haddad declared that he first learned of the FAC on April 16, 2015, but that evidence is contradicted by a document drafted by Preston in November 2014 concerning payments by defendants.

The document drafted by Preston provides, in relevant part, “It is hereby stipulated by and between the Plaintiff[s] and Defendants, that the Plaintiffs . . . shall retain judgment against the Defendants . . . for the total sum of $86,000 (Principal Balance of Note). [¶] Plaintiffs will accept payment of $86,000 . . . so long as Defendants timely pay the sum of $5,000.00 on January 1, 2015 and the amount of $2,968.00 per month, beginning February 1, 2015 and continuing thereafter until the judgment balance is paid in full. Provided that Defendants make the monthly payments in accordance with this stipulation, Defendants shall retain ownership of the store and Plaintiff shall forebear all further collection efforts, excepting the right of plaintiff to maintain an abstract of judgment on Defendants until the judgment is paid in full.” The document was signed by defendants on November 25, 2014. The document was not signed by plaintiffs.

Plaintiffs rely on the document to show defendants had knowledge of the default judgment in November 2014, approximately one year before they sought relief from the judgment. The document drafted by Preston is ambiguous. It does not reflect that a default judgment has been entered. The document reads, “the Plaintiffs . . . shall retain judgment against the Defendants . . . for the total sum of $86,000.00 (Principal Balance of Note).” One would reasonably expect, if defendants were aware a default judgment had already been entered, that the document would read, “Plaintiffs obtained a default judgment, dated May 28, 2014, for $83,911.84 and possession of the Market.” Due to the lack of reference to the judgment entered, the document can reasonably be read as though Preston was continuing to propose a stipulated judgment—unaware that a default judgment had already been entered on the unserved FAC. Because the document is ambiguous, it does not establish that defendants knew of the judgment in November 2014.

Plaintiffs contend defendants had knowledge of the default judgment in November 2014 when the abstract of judgment was recorded in Riverside and San Bernardino Counties. (See Govt. Code, § 27297.5, subd. (a) [notice of involuntary lien is sent within 10 days].) The abstract of judgment reflected the total amount of the judgment was $83,911.84. The original complaint only sought monetary damages. Defendants agreed they owed money to plaintiffs for the inventory and equipment, thus, defendants did not respond to the original complaint and sought to settle with plaintiffs.

Defendants could reasonably conclude the abstract of judgment related to the original complaint, which only sought monetary damages, because the abstract of judgment only reflected a monetary award. Defendants would not have known from the abstract of judgment that the FAC had been filed seeking repossession of the real property. Accordingly, the trial court could reasonably conclude defendants did not know of the FAC or the judgment associated with the FAC in November 2014.

D. DIFFERENT TRIAL JUDGE

Plaintiffs contend the trial court erred because the judge who granted the motion to vacate the judgment was not the same judge who issued the default judgment.

The default judgment was issued by Judge Burkhart. The motion to vacate the judgment was granted by Judge Marquez. The better practice is for a single trial judge to handle a case. (Elsea v. Saberi (1992) 4 Cal.App.4th 625, 630.) Plaintiffs provide no citation to where they raised this issue in the lower court. (Cal. Rules of Court, rule 8.204(a)(1)(C).) Our independent review of the record reflects plaintiffs did not raise this issue in the trial court.

Our review reveals that, after the original complaint was filed, the case was assigned to Department S303. The case remained in Department S303. Judge Marquez heard the motion for relief in Department S303. Due to plaintiffs’ failure to raise the issue in the trial court, we have no means of knowing why two judges were involved in the default judgment and motion for relief. For example, it is possible Judge Burkhart was unavailable to rule upon the motion for relief. (See Cal. Rules of Court, rule 3.1602 [unavailability of judge].) Because plaintiffs did not object in the trial court to Judge Marquez ruling on the motion for relief, there is no record as to this issue and we cannot provide a meaningful review. Accordingly, because the matter was not raised below, we deem the issue to be forfeited. (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 920, fn. 3; San Mateo Union High School District v. County of San Mateo (2013) 213 Cal.App.4th 418, 436.)

DISPOSITION

The judgment is affirmed. Respondents are awarded their costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

MILLER

Acting P. J.

We concur:

CODRINGTON

J.

FIELDS

J.