Fortney v. Hudsloan Enters.

1

JESSICA FORTNEY et al., Plaintiffs and Respondents;

KIRSTEN WRIGHT, Plaintiff and Appellant, v. HUDSLOAN ENTERPRISES, INC., et al., Defendants and Respondents.

H049864

California Court of Appeals, Sixth District

December 21, 2023

NOT TO BE PUBLISHED

(San Benito County Super. Ct. No. CU1700060)

BROMBERG, J.

In February 2018, the trial court approved the settlement of a wage and hour class action against Hudsloan Enterprises, Inc. (Hudsloan); Lularoe, LLC; and LLR, Inc. (collectively Defendants). In August 2021, three and one-half years later a class member, appellant Kirsten Wright, moved to vacate the judgment approving the settlement based on fraud. The trial court denied the motion on the ground that Wright failed to demonstrate extrinsic (as opposed to intrinsic) fraud. We agree and affirm.

I. Facts and Procedural History

Hudsloan is a marketing company that hires sales representatives, or "consultants," to sell clothing, primarily through in-home events. Wright alleges she began working for Hudsloan in August 2016 and continued to do so for about two years.

In early May 2017, approximately eight months after Wright began working for Hudsloan, another sales representative, Jessica Fortney, sued Defendants, claiming that they had misclassified sales representatives as independent contractors, failed to pay minimum wages for all hours worked, and failed to reimburse for necessary expenses. The following month, Fortney amended her complaint to add similar claims on behalf of a putative class of individuals who contracted with Defendants as independent retailers after January 1, 2012.

Prior to filing her initial complaint, Fortney had engaged in mediation and reached a settlement with Defendants, and in October 2017, she moved for provisional certification of the class and preliminary approval of the class action settlement. Later that month, the trial court granted the motion and scheduled a hearing in February 2018 on final approval of the settlement. Pursuant to this order, the parties engaged a claims administrator, which sent out notices of the settlement and claims forms to class members. As appellant Wright was a member of the putative class, the claims administrator mailed the class notice and claim forms to the address that Wright had used while working for Defendants.

Fortney subsequently moved for final approval of the class action settlement. She advised the court that notice had been mailed to 9,826 class members with only four notices remaining undeliverable. Finding that this was the best notice practicable under the circumstances, and that the terms of the settlement were "fair, adequate and reasonable," the trial court approved the settlement. On February 15, 2018, the trial court entered final judgment in accordance with the terms of the settlement, retaining jurisdiction to enforce and interpret its order and the settlement agreement.

Three and one-half years later, on August 17, 2021, appellant Wright moved to vacate the judgment based on extrinsic fraud. Wright informed the trial court that, although she had lived at the address where the claims administrator mailed her notice "for some of the time" that she worked for Defendants, she did not believe that she "still resided there" at the time the notice was mailed to her, and she never received notice. Instead, Wright first learned of the settlement in December 2020, after she filed a class action lawsuit against two of the defendants for the same claims.

In moving to vacate the judgment, Wright accused Fortney and Defendants of defrauding the trial court because they failed to disclose that class counsel had been co-counsel with defense counsel on at least a dozen cases, was defense counsel's "de facto business partner," and therefore had an irremediable conflict of interest. Other indicia of the alleged fraud included that the parties had entered into the settlement before the case was filed without any formal discovery, the settlement was a claims-made settlement with a reversionary provision, the parties failed to submit sufficient evidence to permit the trial court to conduct an independent evaluation of the settlement, and Fortney's counsel obtained over $1.4 million in attorney fees in exchange for an actual payout of $1.8 million that was only a small percentage of the Defendants' actual liability.

On December 27, 2021, after holding a hearing, the trial court denied the motion. The court noted that, while Wright denied receiving a notice of claim, she "stops shy of claiming she was not properly served" with the notice and instead "claims that she does not believe she resided there" at the time the notice was mailed. As a consequence, the court concluded that Wright's failure to contest the class action settlement was "primarily due to the alleged lack of notice," which was "not related to any allegations of misconduct or fraud attributed to anyone," and therefore she had not established any extrinsic fraud that might justify setting aside the judgment. The court also noted that, even after retaining counsel, Wright took eight months to file her motion to vacate, "which indicates a lack of diligence."

On February 24, 2022, Wright filed a timely notice of appeal.

II. Discussion

Even after the time for appeal or for a direct attack under California Code of Civil Procedure section 473 has expired, courts have inherent, equitable authority to set aside judgments based on extrinsic fraud. (See, e.g., Westphal v. Westphal (1942) 20 Cal.2d 393, 397 (Westphal); In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051, 1060-1070.) Orders denying such relief are reviewed for abuse of discretion. (See, e.g., Hudson v. Foster (2021) 68 Cal.App.5th 640, 661 (Hudson); see also Philippine Exp. &Foreign Loan Guar. Corp. v. Chuidian (1990) 218 Cal.App.3d 1058, 1077 ["[A] motion in the trial court to set aside a judgment is addressed to its sound discretion and will not be reversed on appeal without a clear showing of abuse of that discretion"].) There was no abuse of discretion here.

As Justice Traynor wrote long ago, "[t]he final judgment of a court having jurisdiction over persons and subject matter can be attacked in equity after the time for appeal or other attack has expired only if the alleged fraud or mistake is extrinsic rather than intrinsic." (Westphal, supra, 20 Cal.2d at p. 397.) "Extrinsic fraud . . . arises when one party has in some way fraudulently been prevented from presenting his or her claim or defense." (Sporn v. Home Depot USA, Inc. (2005) 126 Cal.App.4th 1294, 1300 (Sporn); see also Westphal, at p. 397 ["Fraud or mistake is extrinsic when it deprives the unsuccessful party of an opportunity to present his case to the court"].)

By contrast, after the time for appeal and direct attack has expired, courts lack authority to vacate a final judgment for fraud "when the fraud or mistake is 'intrinsic' that is, when it 'goes to the merits of the prior proceedings.'" (Kulchar v. Kulchar (1969) 1 Cal.3d 467, 472-473 (Kulchar).) There is a" 'public policy underlying the principle of res judicata that there must be an end to litigation,'" which" 'requires that the issues involved in a case be set at rest by a final judgment, even though a...