Syelsky v. Edwards CA2/7 ( 2014 )

Filed 1/27/14 Syelsky v. Edwards CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
LISA SYELSKY and VLADIMIR B247866
SYELSKY,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. SC115235)
v.
JEFFREY EDWARDS,
Defendant and Respondent.
APPEAL, from a judgment of the Superior Court of Los Angeles County, Bobbi
Tillmon, Judge. Reversed with directions.
Law Offices of Ronald N. Richard and Nicholas A. Bravo for Plaintiffs and
Appellants.
Ezra Brutzkus Gubner, David Seror, Michael W. Davis for Defendant and
Respondent.
________________________
Appellants Vladimir and Lisa Syelsky sued Jeffrey Edwards, alleging breach of a
promissory note, breach of fiduciary duty, and fraud. After Edwards failed to answer the
complaint, the Syelskys obtained entry of default and, subsequently, a default judgment.
Edwards moved to set aside both the default and the default judgment. Over the
Syelskys’s objections, the trial court did so. We reverse, and remand for further
proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
The Syelskys filed a complaint on December 14, 2011 alleging that they had hired
Edwards in 2006 as a loan broker to obtain a line of credit on their residence. In the
course of that relationship, they agreed to loan money to him, for which he executed a
note, and later a deed of trust. Edwards failed to pay the sums owing, and the property
subject to the deed of trust was foreclosed on by the senior beneficiary. The complaint
alleged three causes of action for breach of the note, breach of Edwards’s fiduciary duty
as a broker, and fraud. The Syelskys’s attorney personally served the complaint on
Edwards on December 16, 2011.
Edwards failed to answer the complaint and on January 23, 2012, only 38 days
after service, the Syleskys served and filed a request for entry of default; the court entered
the default that same day. On May 1, 2012, the Syelskys sought judgment by default; the
court entered the judgment on May 11, 2012.
On November 9, 2012, Edwards moved to set aside the default judgment pursuant
to Code of Civil Procedure section 473(b).1 Edwards included a proposed answer,
generally denying the allegations of the complaint, with his pleadings. Edwards asserted
that his failure to file an answer was based, in part, on a conversation with the Sylelskys’s
attorney at the time of service. Edwards stated in his declaration that the attorney had
represented that it would be to Edwards’s benefit to allow the matter to proceed to
judgment, because the complaint was a technicality to allow the Syelskys to collect
1 All further statutory references, unless otherwise noted, are to the Code of Civil
Procedure.
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damages against Edwards’s former employer, which would then offset the amounts
Edwards owed on the loans.
The Syelskys opposed the motion, arguing both that the motion was untimely and
that Edwards had failed to make the necessary statutory showing. In Edwards’s reply, he
urged the court to consider both the statutory and equitable authority that permitted the
relief he sought.
The court heard the matter on March 20, 2013, and granted the motion on March
25, 2013, setting aside the default and the judgment, and ordering the proposed answer
deemed filed and served on that date. In its minute order, the court concluded that
Edwards had sufficiently demonstrated mistake, inadvertence, and/or excusable neglect
to warrant discretionary relief under section 473(b), and that the motion had been timely
filed. The Syelskys filed a timely appeal.
DISCUSSION
A. Mechanisms for Relief From Default
California law favors the resolution of cases on their merits, rather than by default.
(See Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980.) The Legislature has provided a
statutory mechanism for relief from default in section 473, which provides, in relevant
part: “The court may, upon any terms as may be just, relieve a party or his or her legal
representative from a judgment, dismissal, order, or other proceeding taken against him
or her through his or her mistake, inadvertence, surprise, or excusable neglect.
Application for this relief shall be accompanied by a copy of the answer or other pleading
proposed to be filed therein, otherwise the application shall not be granted, and shall be
made within a reasonable time, in no case exceeding six months, after the judgment,
dismissal, order, or proceeding was taken.”
We review the trial court’s determinations under the statute for abuse of
discretion, keeping in mind that “Code of Civil Procedure, section 473 . . . , is remedial in
its nature and is to be liberally construed. [Citation.] The policy of the law is to have
every litigated cause tried on its merits; and it looks with disfavor on a party who,
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regardless of the merits of his cause, attempts to take advantage of the mistake, surprise,
inadvertence, or neglect [the statute uses the term “excusable neglect”] of his adversary.
(14 Cal.Jur. 1075, § 116.) Reviewing courts have always looked with favor on orders
excusing defaults and permitting controversies to be heard on their merits. Such orders
are rarely reversed, and never unless it clearly appears that there has been a plain abuse of
discretion. [Citation.] Even in a case where the showing under section 473 of the Code
of Civil Procedure is not strong, or where there is any doubt as to the setting aside of a
default, such doubt should be resolved in favor of the application. [Citation.] All
presumptions will be indulged in favor of the correctness of the order, and the burden is
on the appellant to show that the court’s discretion was abused.” (Emphasis added.)
Andres v. Armstrong (1959) 168 Cal.App.2d 344, 347, quoting Hover v. MacKenzie
(1954) 122 Cal.App.2d 852, 856.
The statutory scheme imposes on a party the obligation to file a motion for relief
in a timely manner, and in any event within six months of the judgment, dismissal, order
or proceeding. (See, e.g., Huh v. Wang (2008) 158 Cal.App.4th 1406, 1418-1419
[motion for relief must be procedurally proper, and within time limits].) Because relief
from a default judgment, without relief from the default itself, would be illusory relief,
allowing another default judgment to be entered, the time generally runs from the entry of
the default, rather than from the time of the judgment. Rutan v. Summit Sports, Inc.
(1985) 173 Cal.App.3d 965, 970 (overruled by statute on other grounds, see Sugasawara
v. Newland (1994) 27 Cal.App.4th 294, 296-297.)
A trial court may also grant relief from default on equitable grounds, even where
the statutory requirements have not been met, by finding extrinsic fraud or mistake. “A
judgment against a party may be set aside in equity when it is obtained by extrinsic fraud
or mistake. (See 8 Witkin, Cal. Procedure (4th ed. 1997) Attack on Judgment in Trial
Court, § 223, pp. 727-728; id., § 231, pp. 741-742.) The ‘essential characteristic’ of
extrinsic fraud ‘is that it has the effect of preventing a fair adversary hearing, the
aggrieved party being deliberately kept in ignorance of the action or proceeding, or in
some other way fraudulently prevented from presenting his claim or defense.”’
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(8 Witkin, supra, § 223, p. 727.) Extrinsic mistake is ‘a term broadly applied when
circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits.
[Citations.]”’ (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981.) ‘“Relief is denied,
however, if a party has been given notice of an action and has not been prevented from
participating therein.”’ (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 472.) (Parage v.
Coudel (1997) 60 Cal.App.4th 1037, 1044.)
In this case, Edwards has presented evidence that he was affirmatively misled by
the Syelskys’s lawyer in an attempt to prevent him from challenging the complaint. He
asserts the doctrine of extrinsic fraud applies, and argues that doctrine includes efforts to
convince a party not to obtain counsel. (See Heymann v. Franchise Mortgage
Acceptance Corp. (2003) 107 Cal.App.4th 921, 926.) The question is whether the party
claiming the relief was “fraudulently prevented from fully participating in the
proceeding.” (Id.) This determination is within the discretion of the trial court.
B. The Relief Granted Exceeded the Statutory Provision On Which the Court
Relied
Here, the motion was filed within six months of the judgment, but almost nine
months after the entry of the default. As the trial court had discretion to view the separate
procedures as separate events, it would not have abused its discretion by finding the
motion to set aside the default judgment was timely, and addressing the default itself
separately. (Rutan v. Summit Sports, Inc., supra, 173 Cal.App.3d at pp. 965, 970
[because the default and the default judgment are separate procedures, one may be set
aside without the other under appropriate circumstances].)
The trial court did not do so, however, finding the motion timely without
distinguishing between the two events. The court also did not expressly consider whether
there were equitable grounds for relief. Although Edwards asserts on appeal that the trial
court’s determination should be affirmed on equitable grounds, the Syelskys assert that
argument was waived. We do not agree with either position.
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Edwards directed the trial court to Rappleyea, supra, in which the Supreme Court
recognized that a motion, not timely under the statute, could nonetheless be granted on
equitable grounds. “After six months from entry of default, a trial court may still vacate a
default on equitable grounds even if statutory relief is unavailable. [Citations.]” 8 Cal.
4th 975, 981. Where, as here, a default judgment has been entered, however, the trial
court must find exceptional circumstances to grant equitable relief. (Id.) In such a
circumstance, the Rappelyea court noted, courts have applied a three-part test to
determine whether equitable relief may be granted: first, the party seeking relief must
show a meritorious defense; second, that party must identify an excuse which the court
finds to be satisfactory for the failure to present the defense; and, finally, that party must
have acted diligently to set aside the default. (Id., 8 Cal.4th 975, 982, citing Stiles v.
Wallace (1983) 147 Cal.App.3d 1143, 1147-1148 and In re Marriage of Stevenot (1984)
154 Cal.App.3d 1051, 1071.)
The trial court did not, however, make this determination, which necessarily rests
on issues of fact. We decline to substitute our judgment for that of the trial court, but
instead remand to permit the trial court to consider the evidence and weigh the equities in
the first instance. (See Rutan v. Summit Sports, Inc., supra, 173 Cal. App.3d 965 at
p. 974.)
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DISPOSITION
We reverse the order setting aside the default and the default judgment, and
remand for the trial court to consider the factual showings of each party and to determine
whether to exercise its discretion to grant equitable relief. Each party is to bear its own
costs on appeal.
ZELON, J.
We concur:
PERLUSS, P. J.
WOODS, J.
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