Creditors Adjustment Bureau, Inc. v. C.D. Container, Inc.

CREDITORS ADJUSTMENT BUREAU, INC., Plaintiff and Appellant, v. C.D. CONTAINER, INC., Defendant and Respondent.

B288672

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION FIVE

January 9, 2019

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. VC066259)

APPEAL from order of the Superior Court of Los Angeles County, Lori Ann Fournier, Judge. Affirmed.

Law Offices of Kenneth J. Freed, Kenneth J. Freed and Mark F. Didak, for Plaintiff and Appellant.

Tredway, Lumsdaine & Doyle, Brandon L. Fieldsted, for Defendant and Respondent.

____________________ Plaintiff and Appellant Creditors Adjustment Bureau, Inc. (the Bureau) appeals from an order setting aside default judgment and quashing and recalling writ of execution in favor of Defendant and Respondent C.D. Container, Inc. (the Company) in this debt collection action. On appeal, the Bureau contends the trial court erred in granting the Company's motion to set aside default judgment because (1) service of the summons and complaint resulted in actual notice to the Company as a matter of law under section 473.5;¹ (2) the Company did not meet its burden of proof under section 473, subdivision (b); (3) the trial court should evaluate the credibility of declarations in support of the set aside motion; (4) the Company did not exercise diligence in seeking relief; and (5) the Bureau's evidentiary objections should have been sustained. We affirm the order. The trial court did not abuse its discretion granting relief because the Company properly showed excusable neglect under section 473, subdivision (b).²

FACTS AND PROCEDURAL HISTORY

The Complaint and Entry of Default

On April 21, 2017, the Bureau filed a summons and complaint against the Company for debts owed to the State Compensation Insurance Fund, and subsequently assigned to the Bureau. The debts accrued from the Company's failure to make workers compensation insurance premium payments. The proof of service of summons and complaint executed by a registered California process server indicates substitute service was made on "Liliana De La Cruz, Registered Agent [¶] (authorized to receive service of process)" at the Company's correct street address in Pico Rivera. The proof of service states that the summons and complaint were served on May 1, 2017 by leaving the documents with "Yesenia Hernandez, Person in Charge," and later that same day mailing by first-class, postage prepaid, copies of the documents to the same address.

On June 28, 2017, the Bureau filed a request for entry of default. On July 20, 2017, following the Bureau's request for entry of judgment, the court entered default judgment against the Company for $183,492, inclusive of damages, interest, and attorney fees. Copies of the requests for entry of default and default judgment were purportedly mailed to the Company at the same address listed in the proof of service of summons and complaint.

The Company's Motion to Set Aside Default Judgment

On December 27, 2017, the Company filed a motion to set aside default judgment and quashing and recalling writ of execution on the grounds of lack of notice under section 473.5, and excusable neglect under section 473, subdivision (b). In support of its motion, the Company filed declarations by the Company's general manager, Liliana De La Cruz, and its attorney of record. Liliana³ declared: She is the General Manager of the Company and has been its registered agent for service of process since 2010. Liliana promptly reviews all documents and mail directed to her attention. Whenever she receives anything pertaining to legal proceedings, it is her customary practice to contact the Company's regular outside counsel. This is the first time a default judgment has been entered against the Company. On November 13, 2017, Liliana received a letter from the Company's bank informing it of a notice of levy under writ of execution. This was the first time Liliana learned about a potential lawsuit. In response, she contacted the Company's attorney on November 16, 2017. Liliana never received the summons, complaint, or any other document referencing the lawsuit except for the notice from the Company's bank.

The Company's attorney stated that his firm has served as the Company's outside counsel since 2009. The attorney first learned about the lawsuit around November 28, 2017, when he received a follow-up email from Liliana. Counsel did not see Liliana's initial November 16, 2017 email to him about the bank levy because he was out of the office and then working on other urgent matters during the Thanksgiving holiday. After reviewing the case online, the attorney's office contacted the office of counsel for the Bureau, which would not send over trial court documents and advised that such documents were publicly available through the court. The Company's attorney had to order copies of the relevant documents from the court, which he received on December 5, 2017.

The Company attached a proposed answer to the complaint. The Company denied the allegations set forth in the complaint and asserted 23 affirmative defenses.

The Bureau's Opposition and the Company's Reply

The Bureau opposed the motion, contending the Company was properly served five related documents by substitute service—the summons, complaint, a June 15, 2017 default warning letter, a request for default, and a request for default judgment—none of which were returned to the sender via mail. The documents imparted notice of the lawsuit. The Company could not show excusable neglect because it did not provide a declaration from Hernandez orany reasonable explanation for what could have happened. The Company did not exercise reasonable diligence in seeking relief because it failed to provide an explanation for waiting over six weeks from learning of the lawsuit to filing the motion.

The Bureau also objected to portions of Liliana's declaration on the following grounds:⁴ (2) Liliana's statement that "[n]one of the other officers or managers of the company received any documents related to this lawsuit, and as a result, they were also completely unaware of the lawsuit until I told them about it after November 13, 2017," lacks foundation, calls for speculation, and is lacking in personal knowledge; and (3) Liliana's statement that "I respectfully request that the Court set aside the entry of default and the default judgment based on lack of notice and excusable neglect, so that the company can defend itself in this action," constitutes improper legal conclusions, and is vague and ambiguous as to any viable defense.

The Company filed a reply that included a supplemental declaration by Liliana, and declarations by three other family members (Diego, Jose, and Juan), who are the only other officers and General Managers of the Company. As stated in the reply declarations, the Company is a family-owned and operated business. The Company officers and family members often speak to one another. Hernandez, the receptionist who is identified as the recipientof the summons and complaint, resigned from the Company and was not available to sign a declaration. Hernandez or other Company employees may have misplaced mail relating to the lawsuit because, in January 2017, the roof collapsed in the Company's building. After the collapse, the building was undergoing significant renovations that disrupted the flow of mail and business in general, and many employees were displaced from their usual work spaces. Liliana was locked out of her office for several months in the spring and summer of 2017 and was working out of conference rooms and co-workers' offices. From the date of the collapse in January through August or September 2017, mail was not reaching its intended recipients. Diego, Jose, and Juan each signed declarations stating they first learned about the lawsuit on November 13, 2017, when Liliana told them about it. Neither Diego, Jose, nor Juan have reviewed any documents associated with the lawsuit.

After he sought and obtained the public trial court documents on December 5, 2017, the Company's attorney prepared the set aside motion by December 22, but had to wait to file until December 27 because of the holidays.

The Trial Court Hearing and Ruling

Prior to the hearing, the court issued a tentative ruling, subject to hearing, granting the Company's motion to set aside default judgment because the Company was not "properly served with Notice of Summons and Complaintand did not receive actual notice of the pendency of this action . . . and that further grounds exist to set aside the default and default judgment entered herein pursuant to [sections] 473.5 and 473(b)."

At the hearing on February 1, 2018, the Bureau argued that the summons and complaint were substitute served on the Company's receptionist, which constituted actual knowledge. The Company disagreed, contending that substitute service does not constitute actual notice or knowledge of a lawsuit. The Company also argued that excusable neglect warranted relief because it "neglected to file a response because they didn't know about the case." The Bureau argued that relief under section 473, subdivision (b) was not warranted because the Company did not provide a meritorious defense.

Following the hearing, the court issued an order granting the set aside motion, adopting the same language used in its tentative ruling. The court overruled the three evidentiary objections the Bureau had made to Liliana's first declaration. The Bureau filed a timely notice of appeal.⁵

DISCUSSION

Discretionary Relief under Section 473, Subdivision (b)

The Bureau contends the trial court erred when it set aside the Company's...