Houlihan v. Evans

Filed 2/23/07 Houlihan v. Evans CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Patricia Y. Cowett, Judge. Reversed.

Robert Richard Evans appeals from a default judgment awarding injunctive relief against him in a lawsuit filed by (1) Regal Concepts, through its trustee Michael D. Houlihan, and (2) Lester Cooper (collectively plaintiffs). We conclude that the default judgment is void because it was based on an improperly entered order striking Evans's answer to the complaint and an improper entry of default. Accordingly, we reverse.

I

FACTUAL AND PROCEDURAL BACKGROUND

The complaint alleges that Regal Concepts was formed by Cooper in 1989 as an irrevocable trust, that "Evans acted as trustee [of Regal Concepts] from 1992 through January 15, 2004," and that "Cooper was and is the General Manager."

According to the complaint, after Cooper attended "a presentation by Evans concerning irrevocable domestic and foreign trusts to be used for estate and tax planning" in 1988, he "elected to form an irrevocable trust and two foreign trusts through the use of Evans' services." The complaint, filed April 22, 2004, states that although Cooper believed otherwise, "Evans admitted within the last several months that the foreign trusts were not in operation."

The complaint alleged that "[d]uring the last couple of years, Evans began making financial decisions for the trust unilaterally." According to the complaint, "Evans was removed and replaced as Trustee for Regal [Concepts] on January 15, 2004," but "refused to turn over Regal [Concepts'] books and records to the new Trustee." The complaint alleges that after he was removed as trustee, Evans withdrew $420,016 from a Regal Concepts bank account, which he used to purchase a home in which he resides.

The complaint contains five causes of action: fraud, breach of fiduciary duty, misappropriation, violation of Civil Code section 3345, and declaratory relief.^[1]The declaratory relief cause of action stated that plaintiffs "seek an order of this court ordering Evans to turn over all books and records of Regal [Concepts] to Houlihan. Further, Plaintiffs seek an order compelling Evans to turn over all money and personal property belonging to Regal." The complaint did not include a prayer for punitive damages.

Evans answered the complaint. As a sanction for failing to comply with discovery orders, on March 11, 2005, the trial court entered an order striking Evans's answer and entering default.^[2] Thereafter, the trial court held a prove-up hearing at which Cooper testified, followed by entry of a default judgment in favor of plaintiffs on May 26, 2005 (the May 2005 default judgment).

The May 2005 default judgment awarded compensatory damages in favor of Regal Concepts and Cooper in the amount of $513,016 and punitive damages in the amount of $500,000, which were trebled to $1.5 million. It also included an order (1) removing Evans as trustee of Regal Concepts as of February 4, 2004, and recognizing Houlihan as trustee; and (2) directing that Evans turn over to plaintiffs' counsel (a) "all books and records relating to Regal Concepts and Lester and Mina Cooper" [Cooper's wife], and (b) "all moneys collected on behalf of or belonging to Regal Concepts or the Coopers and money received or collected on behalf of Regal Concepts or the Coopers in the future."

Evans filed a motion to vacate the May 2005 default judgment. Evans argued, among other things, that the default judgment exceeded the trial court's jurisdiction because (1) the compensatory damages award was greater than the amount of damages alleged in the complaint, and (2) there was no prayer for punitive damages in the complaint or in any separate statement filed pursuant to Code of Civil Procedure section 425.115.^[3]

At a November 4, 2005 hearing, the trial court granted the motion to vacate the entirety of the May 2005 default judgment, including both the monetary and non-monetary portions.^[4]The trial court also stated that it would allow plaintiffs to file a statement of damages setting forth their demand for punitive damages to cure the problem that had caused the court to vacate the default judgment.

Counsel for Evans argued that the entry of default should be vacated as well. The trial court agreed, ruling that "the entry of default is set aside." However, the trial court also seemed to indicate that although the entry of default would be set aside, it would strike any new answer that Evans tried to file. Specifically, the trial court explained that "there were ample grounds to strike the answer established before, . . . so the answer still can be stricken. It's just that the default shouldn't have been entered." Assuming that it would enter a new default judgment after the statement of punitive damages was served, the trial court also set a "trial date" of December 12, 2005, for a new prove‑up hearing.

Within days of the order vacating the default judgment and the entry of default, plaintiffs served Evans with a statement of damages on a preprinted form. However, because Evans had filed a petition with the bankruptcy court, plaintiffs did not mark any boxes on the form to indicate that they were seeking compensatory or punitive damages. Instead, an attachment to the statement of damages stated that plaintiffs sought the same non-monetary relief that the trial court had already awarded in the now-vacated default judgment. The attachment specified the following relief:

"i. For an order removing [Evans] as Trustee of Regal Concepts effective February 4, 2004. For an order recognizing [Houlihan] as the Trustee of Regal Concepts from February 4, 2004 forward.

"j. For an order compelling [Evans] to immediately turn over to Plaintiffs' counsel all books and records relating to Regal Concepts and Lester and Mina Cooper. For an order compelling [Evans] to immediately turn over to Plaintiffs' counsel all moneys collected on behalf of or belonging to Regal Concepts or the Coopers."

Evans filed an answer on November 30, 2005, which was filed-stamped by the clerk of the court on that date. On December 8, 2005 30 days after serving the statement of damages  plaintiffs submitted an application for a new entry of default.

During the December 12, 2005 proceedings, after reviewing the court file and discussing the issue with counsel, the trial court determined that it "did . . . previously on November 4, 2005, set aside both the default and default judgment." (Italics added.) However, after establishing that the entry of default had been set aside, the trial court, without any explanation, concluded that the filing of Evans's November 30, 2005 answer was "incorrect," and stated, "I am striking the answer at this time." Without any answer on file, the trial court accordingly directed the clerk to enter default against Evans in response to the request that plaintiffs had submitted on December 8, 2005. ^[5]

The trial court then held an abbreviated prove-up hearing. At the trial court's urging, plaintiffs' counsel cut short his examination of Cooper and simply asked if Cooper "recall[ed] testifying here on May 12, 2005, in this courtroom,"^[6]and whether his testimony at that time "was . . . true and correct." After receiving affirmative responses to these two questions, plaintiffs' counsel requested a default judgment, and the trial court granted it. Consistent with the relief requested by plaintiffs in the statement of damages, but not in the complaint, the judgment stated:

"(a) [Evans] is removed as Trustee of Regal Concepts effective February 4, 2004. [Houlihan] is recognized as Trustee of Regal Concepts from [February 4, 2004] forward.

"(b) [Evans] is [o]rdered to immediately turn over to Plaintiffs' counsel all books and records relating to Regal Concepts and Lester and Mina Cooper.

"(c) [Evans] is ordered to immediately turn over to Plaintiffs' counsel all moneys collected on behalf of or belonging to Regal Concepts or the Coopers."

Evans appeals from the default judgment. Among other things, he argues (1) that the trial court exceeded its jurisdiction in awarding relief that was not requested in the complaint; (2) that the trial court erred in striking the answer that he filed on November 30, 2005; and (3) that the default judgment was improper because plaintiffs lack standing and the complaint fails to state a claim for relief. As we will explain, we agree that the trial court erred in striking the answer that Evans filed on November 30, 2005. Accordingly, we reverse the default judgment on that ground, and we need not address Evans's other contentions.

II

DISCUSSION

We turn to Evans's argument that the trial court erred in striking the answer that the clerk of the court accepted for filing on November 30, 2005. We find that issue to be dispositive of this appeal.

In support of his argument that the trial court erred in striking his answer, Evans cites case law establishing that if a plaintiff materially amends the complaint after default is entered, the amendment serves to "open[]" a default, after which a defendant may respond to the amended pleading. (See Ostling v. Loring (1994) 27 Cal.App.4th 1731, 1744 (Ostling).) Evans argues that by serving the statement of damages on him, plaintiffs effectively amended their complaint, and thus opened the default. Evans argues that because the default was opened, he was entitled to answer, and the trial court thus erred in striking his November 30, 2005 answer.

We agree with Evans that the trial court improperly struck the November 30, 2005 answer, but we reach this conclusion for reasons other than those advanced by Evans.^[7] As we will explain, we conclude that because the trial court had vacated the entry of default at the November 2, 2005 hearing, Evans was entitled to file an answer. We further conclude that the trial court had no legal ground to strike Evans's answer once it was on file.

There is no question that the entry of default was vacated on November 30, 2005, when Evans filed his answer. Although the trial court struck Evan's original answer on March 11, 2005, and entered default as a sanction for Evans's violations of discovery orders, on November 4, 2005, the trial court vacated the entry of default. Leaving no doubt that it had made such a ruling, the trial court confirmed at the December 12, 2005 proceeding that it "did . . . previously on November 4, 2005, set aside both the default and default judgment."^[8](Italics added.) Thus, on November 30, 2005, when Evans filed his answer with the clerk of the court, no entry of default was in effect.^[9] Evans was accordingly entitled to file an answer. (See Greenup v. Rodman (1986) 42 Cal.3d 822, 829 [when default was opened due to amendment of complaint, defendant was entitled to file an answer despite the fact that the defendant's answer had previously been stricken as a sanction for violating discovery orders].) The clerk of the court thus properly accepted Evans's answer for filing.

The trial court purported to strike Evans's answer at the December 12, 2005 proceeding, but it had no authority to do so. We note that the trial court provided no explanation for its order striking the answer. It merely stated that the filing of the answer was "incorrect."

Based on the trial court's discussion at the November 4, 2005 hearing, we infer that the trial court believed it had the authority to strike Evans's November 30, 2005 answer as a sanction for Evans's past violation of discovery orders, just as it had stricken Evans's original answer as a sanction for the same violations. If that was the trial court's reasoning, it was in error.

Section 2023.030 authorizes terminating sanctions for discovery abuses, but it requires notice and a hearing. "To the extent authorized by the chapter governing any particular discovery method or any other provision of this title, the court, after notice to any affected party, person, or attorney, and after opportunity for hearing, may impose the following sanctions against anyone engaging in conduct that is a misuse of the discovery process: [] . . . . [] (d) the court may impose a terminating sanction by . . . [] (1) An order striking out the pleadings or parts of the pleadings of any party engaging in the misuse of the discovery process." ( 2023.030, italics added.) "Discovery sanctions may not be ordered ex parte, and an order purporting to do so is void." (Sole Energy, supra, 128 Cal.App.4th at p. 208.)

Here, the trial court entered a terminating sanction striking Evans's November 30, 2005 answer without giving notice to the parties or an opportunity for them to be heard. Accordingly, the order striking the answer is void.

Having concluded that the trial court's order striking the November 30, 2005 answer is void, we conclude that the subsequent entry of default and default judgment against Evans are void as well because they were premised on the improper striking of the answer.

DISPOSITION

The default judgment and entry of default against Evans are vacated as void. The trial court is directed to reinstate the answer that Evans filed on November 30, 2005.

IRION, J.

WE CONCUR:

BENKE, Acting P. J.

O'ROURKE, J.

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^[1] Civil Code section 3345 provides for treble damages in actions brought by, on behalf of, or for the benefit of senior citizens or disabled persons, when certain predicate findings are made.

^[2] We note that the appellate record does not contain the trial court's order striking the answer and entering default, but we have examined that order in the superior court file.

^[3] All further statutory references are to the Code of Civil Procedure.

Section 425.115 establishes that a plaintiff may obtain an award of punitive damages in a default judgment only if, prior to entry of default, the plaintiff has served upon the defendant a statement setting forth the amount of punitive damages sought. ( 425.115, subd. (f) ["The plaintiff shall serve the statement upon the defendant pursuant to this section before a default may be taken, if the motion for default judgment includes a request for punitive damages"].) "[I]f punitive damages are to be awarded in a default judgment, the defendant must be notified of the specific amount sought prior to entry of the default." (Heidary v. Yadollahi (2002) 99 Cal.App.4th 857, 867.)

^[4] The trial court's reasoning was apparently contained in a tentative ruling issued prior to the hearing. That tentative ruling is neither in the appellate record nor in the superior court's case file. We base our recital of the trial court's ruling on the statements made by the trial court at the hearing on the motion to vacate the judgment.

^[5] In preparation for the December 12, 2005 proceeding, Evans filed a "trial brief." Among other things, the trial brief argued that the statement of damages was the functional equivalent of an amendment to the complaint and thus opened the default because it sought two items of relief that were not pled in the complaint  (1) removal of Evans as trustee; and (2) the turnover of any records relating to Lester and Mina Cooper. The trial court purported to reject this argument. It stated, "[T]he reason I found already that it wasn't an amendment to the complaint is that this complaint already requested damages . . . and, therefore, put the parties on notice of damages; and, therefore, the only technical problem was a separate statement of damages to be filed." However, the trial court failed to address Evans's argument that the statement of damages opened up the default by requesting certain non-monetaryrelief that was not sought in the complaint.

^[6] Counsel apparently misspoke. According to the record, the previous prove‑up hearing was held on May 23, 2005, not May 12, 2005.

^[7] Were it necessary to reach the issue of whether plaintiffs' statement of damages effectively amended the complaint and thus opened a default, we would conclude that it did not because a statement of damages purporting to demand equitable relief is ineffective. The Code of Civil Procedure allows a plaintiff to serve a statement of damages in two situations, neither of which are present here. (See  425.11 [a statement of damages may set forth the amount sought in a personal injury or wrongful death case];  425.115 [a statement of damages may give notice of the amount of punitive damages claimed].) No statutory provision permits a prayer for equitable relief to be set forth in a statement of damages. Although a proper statement of damages may effectively amend the complaint and thus open a default (see Sole Energy Co. v. Hodges (2005) 128 Cal.App.4th 199, 206 (Sole Energy)), the statement of damages in this case was improper and thus did not effectively amend the relief sought in the complaint. (Cf. Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161, 1177 [an improper statement of damages did not effectively amend the complaint and thus the court exceeded its jurisdiction in awarding a default judgment in the amount set forth in the improper statement of damages].) Because the statement of damages was ineffective to add to the relief sought in the complaint, its service on Evans could not have opened any default.

^[8] Because the parties had not addressed the issue, we gave them an opportunity, pursuant to Government Code section 68081, to address the following issue: "Should the default judgment be reversed as void on the . . . basis [that after] the trial court vacated the entry of default at the November 4, 2005 hearing, Evans had a right to file an answer, and thus the trial court improperly struck Evan's November 30, 2005 answer and improperly entered default against Evans." In response, plaintiffs submitted a letter brief arguing that the trial court did not vacate the entry of default at the November 4, 2005 hearing. We disagree. The trial court's statements at both the November 4 and December 25 hearings establish that it vacated the entry of default. Plaintiffs point out that according to Ostling, supra, 27 Cal.App.4th 1731, 1743, the trial court should not have vacated the entry of default merely because it had vacated a default judgment which improperly contained an award of punitive damages. We agree that under Ostling the trial court was not required to vacate the entry of default. However, the record shows that the trial court nevertheless clearly did so, perhaps in anticipation that plaintiffs would file a statement of damages and open up the default. Plaintiffs have taken no steps to challenge the order vacating the entry of default, and it remains a valid order.

^[9] We note that the answer appears to have been timely filed. The trial court did not specify a deadline for filing an answer, and by filing the answer 26 days after the trial court vacated the entry of default, Evans filed the answer within the 30-day period generally provided for the filing of a responsive pleading. (See  412.20, subd. (a)(3) [30 days to answer a complaint].)