California Strengthens the Obligation to Notify Regarding Possible Default
| Publication year | 2022 |
| Author | Written by Kermit D. Marsh |
Written by Kermit D. Marsh*
In 2022, the Court of Appeal decided Shapell Socal Rental Properties, LLC v. Chico's Fas, Inc. (2022) 85 Cal.App.5th 198 (Shapell). Shapell demonstrates the serious consequences that can befall a party by seeking a default without first notifying the affected party's known legal counsel. In the words of the Court of Appeal, "[t]he policy of the state is that the parties to a lawsuit 'shall cooperate.' Period. Full stop." The Court of Appeal also expressed disapproval of tactics designed "to produce a substantial possibility of default."
California has long favored decisions on the merits over determination by default.1 In 1984, the California Legislature codified that preference in Code of Civil Procedure section 583.130, which "was passed to curb what the Legislature considered an inappropriate rise in motions to dismiss for lack of prosecution-sometimes brought, like this one, as soon as a time limit was exceeded."2 Section 583.130 states:
It is the policy of the state that a plaintiff shall proceed with reasonable diligence in the prosecution of an action but that all parties shall cooperate in bringing the action to trial or other disposition. Except as otherwise provided by statute or by rule of court adopted pursuant to statute, the policy favoring the right of parties to make stipulations in their own interests and the policy favoring trial or other disposition of an action on the merits are generally to be preferred over the policy that requires dismissal for failure to proceed with reasonable diligence in the prosecution of an action in construing the provisions of this chapter.
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In 2007, the State Bar of California adopted the California Attorney Guidelines of Civility and Professionalism. Section 15 of the Guidelines expressly provides: "An attorney should not take the default of an opposing party known to be represented by counsel without giving the party advance warning."
In 2019, the Court of Appeal decided LaSalle v. Vogel (2019) 36 Cal.App.5th 127. In LaSalle, plaintiff Angele LaSalle (LaSalle) sued her attorney, Joanna T. Vogel (Vogel), for legal malpractice. LaSalle served the complaint on Vogel. Thirty-five days went by. On the 36th day after service of the complaint, LaSalle's counsel sent a letter and an email to Vogel on Thursday, threatening entry of default unless a responsive pleading was received "by the close of business the next day."3 Not receiving a response by that deadline, LaSalle's counsel filed a request for entry of default the following Monday.4 Vogel acted and found an attorney. The hired attorney filed a motion to set aside the default.
The trial court denied Vogel's motion to set aside the default.5 On appeal, the Court of Appeal visited cases in which courts addressed issues of incivility and unprofessionalism. In one case, in 1994, a California appellate court "lambasted attorneys who were cluttering up the courts with what were essentially personal spats."6 In another case, in 1997, another California appellate court "urged bench and bar to practice with more civility. The law should not create an incentive to take the scorched earth, feet-to-the-fire attitude that is all too common in litigation today."7
As a part of its analysis, the Court of Appeal in LaSalle stressed the importance of disposing litigation on the merits. It stated that the policy to dispose of litigation on procedural grounds, such as to prevent unreasonable delays in litigation, "is less powerful" than that which seeks to dispose of litigation on the merits.8 It noted that the ethical obligation to warn opposing counsel of an intent to take a default is now reinforced by a statutory policy that all parties "cooperate in bringing the action to trial or other disposition."9 To emphasize the importance of due process, the Court of Appeal stated: "We all learned in law school that due process requires not just notice, but notice reasonably calculated to reach the object of the notice."10
The Court of Appeal reversed, finding that "the trial judge here abused his discretion in not setting aside the default."11 The Court cited the following factors in finding that the trial court abused its discretion: (1) email and a mailed letter the day before the plaintiff imposed deadline, with no telephone call ("[E]mails are a lousy medium with which to warn opposing counsel that a default is about to be taken. . . . [T]he telephone was easily available and orders of magnitude more certain.");12 (2) the "unreasonably short" deadline of a single day;13 (3) absence of prejudice to plaintiff ("When evaluating a motion to set aside a default judgment on equitable grounds, the 'court must weigh the reasonableness of the conduct of the moving party in light of the extent of the prejudice to the responding party.'");14 (4) the multiple issues raised by the underlying claim (some cases are suited for defaults and others are not);15 (5) the presence of a potentially meritorious defense to at least part of the claim;16 and (6) the defendant's effort to seek relief, despite being imperfect.17 The Court of Appeal reversed and awarded Vogel her costs on appeal.18
Less than three years after LaSalle, a different panel of the Court of Appeals, Fourth District, Division Three, the same Court of Appeal that ruled in LaSalle, again faced the issue of a plaintiff rapidly seeking entry of default without adequate warning to known counsel for the defendant in Shapell Socal Rental Properties, LLC v. Chico's Fas, Inc. (2022) 85 Cal. App.5th 198. The Court of Appeal in Shapell was unsparing in its assessment of the plaintiff, plaintiff's counsel, and the trial court that denied relief from default.
In May 2015, the plaintiff, Shapell Socal Rental Properties, LLC (Shapell) and the defendant,
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Chico's FAS, Inc. (CFI) entered into a lease.19 Shapell sent a notice of default under the lease to CFI at CFI's corporate headquarters in Florida.20 CFI responded with a letter, asserting that it was not in default.21 Shapell then sent a formal 10-day notice to pay or quit by overnight mail to CFI's corporate headquarters in Florida.22 In response to the notice, CFI's legal counsel (Foley & Mansfield) sent a letter to Shapell which requested that Shapell communicate with Foley & Mansfield by email regarding any lease issues.23
Shapell filed an unlawful detainer complaint.24 Shapell served the summons and complaint on an employee at CFI's Laguna Beach store and also mailed a copy of the complaint to CFI's Laguna Beach store.25 Despite having previously communicated with CFI's corporate headquarters in Florida, Shapell did not communicate with CFI's corporate headquarters regarding the complaint.26 Shapell did not communicate with CFI's counsel, Foley & Mansfield.27 Shapell did not serve CFI's designated agent for service of process in California and did not have copies of the summons and complaint served on CFI's counsel or corporate offices.28
Shapell next filed a request for entry of default and default judgment against CFI, which Shapell mailed to CFI's Laguna Niguel store.29 Once again, Shapell did not communicate with CFI's corporate headquarters in Florida, with CFI's counsel Foley & Mansfield, or with CFI's designated agent for service of process in California.30
The trial court issued a default judgment in favor of Shapell.31
Upon learning of the default and default judgment, CFI filed for relief from default and default judgment.32 CFI contended that its corporate headquarters and legal counsel, Foley & Mansfield, were unaware of the unlawful detainer action until Shapell notified CFI of the default judgment.33 CFI argued that service of the complaint did not comply with the lease, which required service on the corporate headquarters in Florida, that the designated agent in California had not been served, that CFI's headquarters and legal counsel, Foley & Mansfield had not been notified, and that the employee in Laguna Niguel had failed to inform corporate headquarters in Florida of the complaint.34
Shapell responded that CFI knew that it was in default under the lease, that the complaint had been served on the property in question in compliance with the California Code of Civil Procedure, and that Shapell's counsel (Hamburg Karic Edwards & Martin) "had no obligation to notify CFI's counsel about the Complaint or an intent to seek a default judgment."35
The trial court denied the motion for relief from default and default judgment.36 CFI appealed.37
The criteria for relief from default are established in California Code of Civil Procedure section 473(b), pursuant to which a trial court may "set aside a default judgment upon a showing that the default resulted from mistake, inadvertence, surprise, or excusable neglect."38 Motions for relief must be made within six months after entry of the default. The moving party bears the burden to show good cause for relief.39
California Code of Civil Procedure section 473.5 authorizes a trial court to set aside a default or default judgment "[w]hen service of a summons has not resulted in actual notice to a party in time to defend the action" Under that statute, the moving party must show, by affidavit, that his or her lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect.
The Court of Appeal noted that an order granting or denying relief under Section 473(b) or 473.5 is reviewed under the abuse of discretion standard.40 "However...
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