Aimers v. Moshiri

Filed 3/22/07 Aimers v. Moshiri CA2/1

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

APPEAL from a judgment of the Superior Court of Los Angeles County, Mary Ann Murphy, Judge. Reversed.

Law Offices of H. Michael Soroy and H. Michael Soroy for Plaintiff and Appellant.

Law Offices of Todd F. Haines, Todd F. Haines and David A. Leeds for Defendant and Respondent.

______________________________

In a prior action, Al Moshiri sued Albert Aimers and iLive, Inc., the corporation Aimers chaired. A default judgment was entered against Aimers as a terminating sanction. He moved to vacate the judgment on the grounds of extrinsic fraud or mistake. The superior court denied the motion. Aimers appealed. In an unpublished opinion, we affirmed, rejecting Aimerss argument that the motion should have been granted (Moshiri v. Aimers (Dec. 23, 2005, B182836)).

While the prior action was on appeal, Aimers filed this suit against Moshiri, alleging a cause of action for declaratory relief, seeking to set aside the default judgment on the same grounds asserted in the motion to vacate. Moshiri demurred based on the doctrines of res judicata and collateral estoppel. After we filed our decision affirming the prior judgment, the court below sustained the demurrer to the second amended complaint without leave to amend, stating that Aimerss contentions had been raised and rejected in the prior action.

We conclude that the demurrer should have been overruled and therefore reverse. The denial of the prior motion to vacate the default judgment did not preclude an independent action in equity seeking the same relief. Where, as here, extrinsic fraud or mistake is asserted, a motion is not an adequate means of resolving the contentions of the former defendant, and a subsequent action is permitted so that discovery may be taken and oral testimony presented on the issue.

I

BACKGROUND

We accept as true the following allegations of the complaint and matters that may be judicially noticed. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

On July 20, 2001, Moshiri filed an action against Aimers, iLive, Inc., and others (Moshiri v. Aimers (Super. Ct. L.A. County, 2001, No. BC254547)). Aimers was the nonexecutive chairman of iLive, Inc.s board of directors. iLive, Inc., retained Laurence Ring, Esq., to represent Aimers and the corporation. Aimers was aware of the litigation, but Ring did not tell him he had been sued in his individual capacity. Through Ring, Aimers demurred to the complaint and the first amended complaint. By motion granted on February 5, 2003, Ring was relieved as counsel of record. A notice was sent to Aimers at a company address to inform him of the withdrawal and the dates of the final status conference and the trial. Aimers proceeded without counsel.

A mediation was scheduled for March 31, 2003. Aimers did not appear at the mediation but talked by telephone with the mediator and Moshiris attorney and was told he had been sued in his individual capacity. Nor did Aimers appear at a post mediation status conference.

As a result, the superior court vacated the dates for the final status conference and the trial and issued an order to show cause directing Aimers to appear in court on May 27, 2003, to explain why terminating sanctions should not be imposed. Moshiri, who had earlier served interrogatories and requests for admissions and had received no responses, scheduled discovery motions to be heard on the same date. Aimers did not file an opposition to the order to show cause or the discovery motions. Nor did he appear on May 27. The superior court granted the discovery motions, imposed terminating sanctions, and struck Aimerss answer for failure to participate in the proceedings. A further order to show cause was issued, directing Aimers to appear in court on July 10 to show cause why a default judgment should not be entered against him.

On August 13, 2003, Moshiri filed and gave notice of a request to enter default and a default judgment in the amount of $500,000. On August 22, Aimerss default was entered. A default judgment as requested was entered on October 15. Notice of entry of the judgment was given on October 17, 2003.

On February 18, 2005, Aimers filed a motion to vacate the default judgment, stating that he had not been served with the summons or original complaint or the second amended complaint. Aimers also claimed that because Attorney Ring did not tell him he was being sued in his individual capacity, Aimers did not authorize Ring to represent him in that capacity, nor did Aimers make an appearance in that capacity. Further, after Ring withdrew from the case, all papers were served on Aimers at iLive, Inc., in Irvine, California, and Aimers did not receive actual notice of them, including the default papers. Aimers also argued that Ring had a conflict of interest by representing both Aimers and iLive, Inc., because the two defendants had adverse interests. More specifically, Moshiri had sued Aimers individually for breach of a contract between Moshiri and iLive, Inc., and Aimers had no personal liability for the contract. As a result, according to Aimers, he and iLive, Inc., could have filed cross-complaints against each other for indemnification, and a joint and several judgment against Aimers and iLive, Inc., would have permitted Moshiri to satisfy a corporate debt out of Aimerss personal assets. Finally, Aimers had a meritorious defense to the action because he did not sign the contract between Moshiri and iLive, Inc., he was not personally liable for corporate contracts, and Moshiri breached the contract in any event.

In support of the motion, Aimers filed a declaration stating: (1) he had never been personally served with the summons and complaint; (2) he did not receive a copy of the second amended complaint in his individual capacity; (3) the president of iLive, Inc., executed the retainer agreement with Ring to represent iLive, Inc., and purportedly on behalf of Aimers; (4) Aimers did not retain Ring or any attorney to act on his behalf; (5) Aimers did not know that he was named as a defendant in his individual capacity; and (6) if Aimers had known he was being sued in his individual capacity, he would have retained separate counsel because Ring had a conflict of interest in representing both the corporation and him.

Moshiri filed opposition to the motion. On the opening page, Moshiri stated that Aimers seeks relief from [the] Judgment on the non-credible allegations that he did not have notice of these proceedings, and, otherwise was simply unaware that he was personally named as an individual DEFENDANT. . . . The Declaration of AIMERS submitted in support of the . . . motion contains perjured testimony . . . . Moshiri submitted a declaration from his attorney, David Leeds, in which Leeds stated that on March 31, 2003, at the time of the mediation, Leeds told Aimers by telephone that Moshiri had sued him personally and was seeking a judgment directly against him.

Moshiri also submitted documents in opposition to Aimerss motion, including: (1) the face page of the complaint, which stated that Aimers was sued as an individual; (2) a proof of service, showing that the summons and complaint were personally served on Aimers as an individual defendant; (3) several additional proofs of service, showing that beginning February 20, 2003  with the notice of ruling on Rings motion to be relieved as counsel of record  all papers and notices were mailed to Aimers at iLive Inc., 2102 Business Center Drive, Irvine, California 92612; and (4) a letter from Aimers to Moshiris attorney, dated April 25, 2003 (showing iLive, Inc.s address as 19800 McArthur Blvd., Suite 300, Irvine, California 92612), in which Aimers inquired about the status of the case because I understand that I have been named personally.

Aimers filed a reply, essentially repeating the points made in the moving papers. In a declaration, he stated that the service address used by the superior court and Moshiri  2102 Business Center Drive  was iLive, Inc.s old address, and the company had vacated those premises on or about January 30, 2003  about a month before the old address was first used for service.

On March 15, 2005, the superior court denied the motion to vacate, stating that Aimers was aware of what was transpiring in the case, he actually used the service address to which the court papers and notices were sent, and he had all the information related to the case. Aimers appealed.

Before this court, Aimers repeated the same arguments. In an unpublished opinion we rejected them all, explaining: (1) Aimers had been personally served with the summons and original complaint; (2) the second amended complaint was served on Ring while Ring was still representing Aimers; (3) any confusion about Aimerss service address was his own fault because he had an obligation to keep the superior court informed of his current address; (4) the record did not establish a conflict of interest on Rings part; and (5) assuming Ring had a conflict of interest, Aimers did not explain how the conflict excused Aimerss failure to respond to discovery and to appear in court while he was representing himself. (Moshiri v. Aimers, supra, B182836, pp. 1012). Moshiri requested attorney fees as a sanction for a frivolous appeal. We denied the request, noting that [i]t is a close call. (Id., p. 12.)

Meanwhile, on May 20, 2005, Aimers filed this action against Moshiri. A first amended complaint followed. Moshiri filed a demurrer that was sustained with leave to amend. A second amended complaint (complaint) was filed, alleging a cause of action against Moshiri for declaratory relief. The complaint sought to set aside the default judgment rendered in the prior case. Aimers recited the procedural history leading up to the default judgment. He also described the grounds set forth in his motion to vacate the judgment, noting it had been denied.

In one paragraph, Aimers alleged that he suffered a default judgment in the amount of half a million dollars in the underlying action and subsequently sought to vacate same by a motion supported by affidavits. However, said motion was denied without any testimony being presented. Accordingly, Aimers filed the within action as a distinct and cumulative remedy in equity.

Moshiri demurred, arguing that the doctrines of res judicata and collateral estoppel barred the action. Aimers filed opposition, contending that an independent action to vacate the default judgment was permitted on the grounds of extrinsic fraud or mistake.

The trial court sustained the demurrer without leave to amend, stating that [e]very single thing in this complaint was raised and actually litigated in the superior court in the prior action . . . . It was actually litigated in the Court of Appeal. And it was actually decided by the Court of Appeal. The trial court ruled that collateral estoppel barred the action, commenting that Aimerss argument to the contrary seemed extremely frivolous. Judgment was entered in favor of Moshiri. Aimers appealed.

II

DISCUSSION

In reviewing the ruling on a demurrer, we are guided by long-settled rules. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . . We also consider matters which may be judicially noticed. . . . When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, citations omitted; accord, Code Civ. Proc.,  452.)

Collateral estoppel is one aspect of the broader doctrine of res judicata. . . . Where res judicata operates to prevent relitigation of a cause of action once adjudicated, collateral estoppel operates . . . to obviate the need to relitigate issues already adjudicated in the first action. . . . The purposes of the doctrine are said to be to promote judicial economy by minimizing repetitive litigation, to prevent inconsistent judgments which undermine the integrity of the judicial system, [and] to protect against vexatious litigation. (Syufy Enterprises v. City of Oakland (2002) 104 Cal.App.4th 869, 878, citation omitted.)

Traditionally, collateral estoppel has been found to bar relitigation of an issue decided at a previous proceeding if (1) the issue necessarily decided at the previous [proceeding] is identical to the one which is sought to be relitigated; (2) the previous [proceeding] resulted in a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party at the prior [proceeding]. []  It is implicit in this three-prong test that only issues actually litigated in the initial action may be precluded from the second proceeding under the collateral estoppel doctrine. . . . An issue is actually litigated [w]hen [it] is properly raised, by the pleadings or otherwise, and is submitted for determination, and is determined . . . . (People v. Carter (2005) 36 Cal.4th 1215, 1240, italics omitted.)

In Estudillo v. Security Loan etc. Co. (1906) 149 Cal. 556 (Estudillo), the plaintiffs had suffered a default judgment in a prior action in which their motion to set aside the judgment was denied. They subsequently filed a suit to vacate the judgment, alleging the same facts of which they were aware when they brought the motion. The second action was dismissed on demurrer. The Supreme Court reversed, concluding that res judicata and collateral estoppel did not apply. As the court explained: The burden of proof rests upon no one more heavily than upon a plaintiff seeking relief upon the ground of fraud, and he ought not to be unduly hampered as to the means of making proof. In support of a motion he is limited to ex parte affidavits of voluntary witnesses unless the court in its discretion permits a wider latitude. In a separate suit he may bring unwilling witnesses into court by subpoena, and he may take their depositions. The remedy is ampler and more efficacious, and the case is one which demands the amplest and most efficacious remedy. . . .

. . . In [a subsequent] action to set aside a judgment on the ground of fraud, neither the judgment thus sought to be vacated, nor an order [in the prior case] refusing to set aside a default . . . can be set up as a bar to the [subsequent] action. From which it would seem to follow that in such a case as this the correct practice would be to move promptly under section 473 of the Code of Civil Procedure [in the prior action], and if defeated in that proceeding to commence a separate action for relief upon the ground of the [former] plaintiffs fraud  a practice to be commended as convenient and expeditious in case the motion should be granted, and as affording the injured party all the advantage of a regular trial of the issue of fraud if the more summary proceeding prove[s] ineffectual. (Estudillo, supra, 149 Cal. at pp. 564565.)[1]

It is well settled in California that a judgment procured by extrinsic fraud or mistake may be attacked either by a motion in the same action or by an independent action in a court having equity jurisdiction, and that each remedy is distinct and cumulative. (Rohrbasser v. Lederer (1986) 179 Cal.App.3d 290, 297, italics added; accord, Olivera v. Grace (1942) 19 Cal.2d 570, 575576.)

As discussed more recently by Division Four of this court: [W]here the issue is whether the prior denial of a motion in the underlying case to set aside a default and default judgment should be given collateral estoppel effect so as to bar a subsequent independent action in equity to set aside the prior judgment, a long line of cases has established a rule that such prior order does not collaterally estop the subsequent action. . . .

[T]he reason for this rule is: in the motion procedure the moving party is limited to presenting ex parte affidavits of voluntary witnesses, unless the trial court in its discretion permits a greater latitude. The party does not have the right to produce oral testimony or to compel witnesses to attend for deposition or cross-examination. In other words, the motion procedure does not involve all the aspects of full litigation. The remedies of a motion in the underlying case and an independent action in equity are cumulative. The motion procedure is simpler and more convenient. The party should be entitled to resort first to the convenient and expeditious remedy, without penalty of the bar of collateral estoppel if the motion is denied. Despite denial of the motion, the party may then pursue an independent action that affords the party all the advantages of a regular trial of the issue. (Groves v. Peterson (2002) 100 Cal.App.4th 659, 667668 (Groves); see Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006)  5:463 to 5:465, pp. 5‑109 to 5‑110.)

Nevertheless, [a]nother line of cases has branched off to create an exception to the general rule. These cases hold that collateral estoppel will bar the subsequent independent action in equity if the record of the prior proceedings shows the moving party was in fact given a hearing on the motion that was the equivalent of a trial with oral testimony. (Groves, supra, 100 Cal.App.4th at p. 668; see Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra,  5:466 to 5:467, pp. 5‑110 to 5‑111; see also Barker v. Hull (1987) 191 Cal.App.3d 221, 223224, 226227 [motion in prior action to vacate default judgment was entitled to collateral estoppel effect in subsequent suit for damages where hearing on motion was continued so that parties could engage in discovery].)

But the exception barring an independent action does not require that the party who lost the prior motion show that he or she requested the right to produce oral testimony and that the request was denied. (Groves, supra, 100 Cal.App.4th at pp. 668669.) [S]uch a requirement . . . not only runs against the grain of the rationale allowing these distinct and cumulative remedies, but also fails to recognize that in certain courts such as the Central District of the Los Angeles County Superior Court . . . a request to present oral testimony in support of a motion is rarely, if ever, granted. . . . []  Thus, the practical consequences of such a requirement would be to eliminate the use of the summary disposition of issues on motion as envisioned by the Estudillo court, because of the severe restrictions which are presently imposed on the use of oral testimony to support a motion. (Groves, supra, at p. 669; see also id. at p. 669, fn. 4; Super. Ct. L.A. County, Local Rules, rule 9.1(b); Cal. Rules of Court, rule 3.1306(a).)

In the present case, we accept as true Aimerss assertion that the motion to vacate the default judgment was decided on the papers without an opportunity to conduct discovery or to present oral testimony. Further, Moshiri did not argue in this case, below or on appeal, that the complaint fails to state a cause of action for extrinsic fraud or mistake. Consequently, we cannot say that if Aimers proves his allegations, he would not be entitled to relief.

In the prior action, Aimers supported his motion with declarations and exhibits. In opposing the motion, Moshiri argued that Aimerss evidence was non-credible and perjurious. Moshiri submitted written evidence of his own, contradicting Aimerss submission. The superior court resolved the evidentiary conflicts in Moshiris favor based solely on the written record. Under Estudillo and Groves, Aimers may pursue this action in equity because the motion process did not provide him with a full opportunity to challenge the opposing evidence. The trial court therefore abused its discretion in sustaining the demurrer to the second amended complaint.

III

DISPOSITION

The judgment is reversed. Appellant is entitled to costs on appeal.

NOT TO BE PUBLISHED.

MALLANO, Acting P. J.

We concur:

VOGEL, J.

ROTHSCHILD, J.

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[1]Section 473, subdivision (b) of the Code of Civil Procedure permits a judgment to be set aside on the grounds of mistake, inadvertence, surprise, or excusable neglect.