Filed 10/17/17 Kennedy v. Zaghi CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Cecelia Kennedy appeals from an order denying her motion for relief from an adverse summary judgment on her cross-complaint against Farhad Zaghi. (Code Civ. Proc., § 473, subd. (b).)[1] Summary judgment was entered after Kennedy’s attorney failed to work on the case for two months and substituted out of the case days before opposition was due, leaving Kennedy on her own to seek a continuance in vain. We conclude that Kennedy’s attorney abandoned her at a critical juncture of the litigation and shall reverse the order denying relief.

Factual Background

In January 2013, Kennedy borrowed $550,000 from Zaghi secured by a deed of trust on her commercial property in San Francisco. At the close of escrow, the loan proceeds were embezzled by a man retained by Kennedy to be her loan broker. The purported loan broker, Karem Akil, used Kennedy’s name to set up a bank account he controlled into which the loan proceeds were deposited by the escrow company.[2]

Kennedy, who never received the loan proceeds, made no payments on the loan. In May 2013, Zaghi began foreclosure proceedings on the property securing the loan and, the next month, filed a lawsuit against Kennedy demanding the court appoint a receiver to take possession of the property and deliver rental income.

On September 17, 2013, Kennedy filed a cross-complaint against Zaghi and other parties, including Akil and the escrow company. She alleged that Akil’s fraud and identity theft rendered the loan from Zaghi void and unenforceable. Kennedy’s motion for a temporary restraining order to stop the foreclosure of her property was denied and Zaghi acquired the property at a trustee’s sale on September 25, 2013. In March 2014, Kennedy filed a second amended cross-complaint that elaborated on her allegations and added a claim for wrongful foreclosure. The parties conducted discovery, including interrogatories and depositions.

On July 15, 2015, Zaghi moved for summary judgment on Kennedy’s cross-complaint. The hearing was set for October 7, 2015 with Kennedy’s opposition due by September 23. On September 15, eight days before Kennedy’s opposition papers were due, Kennedy’s attorney filed a substitution of attorneys stating that Kennedy was substituting into the case in his place. On September 21, Kennedy requested a two-month continuance of the summary judgment hearing to allow her time either to retain new counsel or prepare opposition papers. Zaghi opposed the continuance request. He argued that Kennedy had delayed proceedings in the past and sought to delay the summary judgment hearing by signing a substitution of attorney form on August 14, 2015 and holding it for a month before filing it. The trial court denied the continuance request.

Kennedy did not file opposition to Zaghi’s motion for summary judgment and the trial court announced its decision to grant the motion at the hearing on October 7, 2015, which Kennedy attended in propria persona. The court issued a written summary judgment order on November 16, finding that Zaghi “met his burden to show that none of the causes of action asserted against him . . . has merit, and there was no opposition to the motion filed.” Judgment in favor of Zaghi on the cross-complaint was filed that same day.

On November 30, 2015, Kennedy, represented by new attorneys, filed a motion for reconsideration and to vacate summary judgment. (§ 1008.) Kennedy argued that the trial court erred in denying her request for a continuance, which prevented her from presenting evidence sufficient to raise a triable issue of fact precluding summary judgment. Zaghi opposed the motion and the court denied it on February 11, 2016.

On May 3, 2016, Kennedy filed a motion for relief from summary judgment on grounds of mistake, inadvertence, surprise or excusable neglect. (Code Civ. Proc., § 473, subd. (b).) She asserted that her former attorney abandoned her days before opposition papers were due on the summary judgment motion and she was unable to retain replacement counsel to represent her on the motion despite diligent efforts to do so. Zaghi opposed the motion and the court denied it on May 27, 2016. Kennedy filed a timely notice of appeal from that order.

Discussion

1. General principles applicable to a motion for relief

“It is well established that ‘ “a motion for relief under . . . section 473 is addressed to the sound discretion of the trial court and in the absence of a clear showing of abuse thereof the exercise of that discretion will not be disturbed on appeal.” ’ [Citations.] That discretion, however, ‘ “is not a capricious or arbitrary discretion, but an impartial discretion, guided and controlled in its exercise by fixed legal principles. It is not a mental discretion, to be exercised ex gratia, but a legal discretion, to be exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.” ’ ” (Carroll v. Abbott Laboratories, Inc. (1982) 32 Cal.3d 892, 897-898.)

“It is the policy of the law to favor, whenever possible, a hearing on the merits. Appellate courts are much more disposed to affirm an order when the result is to compel a trial on the merits than when the default judgment is allowed to stand. [Citation.] Therefore, when a party in default moves promptly to seek relief, very slight evidence is required to justify a trial court’s order setting aside a default.” (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.)

2. Facts established on the motion for relief

We summarize the essential facts set out in the motion papers, including declarations by Kennedy and her former attorney, Michael Rooney.[3] As noted earlier, Zaghi initiated foreclosure proceedings in May 2013 and filed suit against Kennedy the following month. Kennedy retained Rooney to represent her a couple months later, in August 2013, and he filed a cross-complaint and conducted discovery on her behalf.

Rooney states that he and Kennedy negotiated a fee agreement at the outset of his representation and that, around January 2015, Kennedy “became unable to continue under the terms” of the agreement. Kennedy agrees that, at or about this time, Rooney “suggested” she look for new counsel but believed he would continue to represent her until she found new counsel. Rooney says “we attempted for months to find other counsel. The first attempt was a meeting I suggested with a very capable litigator who indicated he would be willing to be flexible on the terms. However, all parties involved were unable to come to an agreement.”

Zaghi filed his motion for summary judgment on July 15, 2015. According to Kennedy, it was sometime after that motion was filed that Rooney said “he had become ‘over-worked,’ and would no longer be able to represent” her. Rooney’s account is somewhat different. He says it was “on or about late June 2015,” when work on the case increased and he was informed of Zaghi’s intention to file a summary judgment motion, that he “stopped work and informed Ms. Kennedy.” However, Rooney also says it was July 3, 2015, when “I conveyed to Ms. Kennedy that I would have to withdraw under the terms of our [attorney fee] agreement well in advance of the motion for summary judgment oppositions coming due, and I encouraged her to find other counsel to take over the case immediately.” Rooney declares: “Once the motions were filed and served [on July 15, 2015], it became apparent that, as a sole practitioner, I would not be able to dedicate the time and energy to this case on my own without hiring on help as well as putting in considerable time myself, which I was not going to be able to do with the budgeting concerns that had emerged.” But, at that time, Rooney did not petition to withdraw, file a substitution of counsel, or seek a continuance of the summary judgment motion. Rooney remained attorney of record on the case through September 2015, during which time he spoke with other attorneys about taking the case.

Kennedy declares that, in August 2015, Rooney “repeatedly asked me to sign a substitution of attorneys form.” She states, “I was nervous about signing the substitution of attorneys form without first having another attorney to represent me, and worried about how it would affect my case if I had no attorney and was representing myself. However, Mr. Rooney assured me that it would actually be better for me to represent myself. In an email on August 14, 2015, he said ‘[w]e should go ahead and have the substitution signed and filed now, so that the court will go easy on you with getting an extension on the MSJ deadlines.’ ”

On that same date, Rooney prepared a substitution form, signed it, and mailed it to Kennedy. Rooney declares he sent the form to Kennedy “in lieu of my having to file a motion to withdraw.” On August 25, Rooney emailed Kennedy saying “I have reached out to a few attorneys, who I am waiting to get back to me. In the meantime, we should still move forward to sub me out, as the attorney search may take time.” Kennedy declares “I was so concerned about the situation that I discussed the matter with a friend, Tyrone Moore.” On that same day, August 25, Moore emailed Rooney about “the form to sub out attorneys.” Moore asked “How do[es] this work when there is no new attorney found yet? Does this make [Kennedy] more exposed because she now has no legal representation? [¶] . . . I hope this move does not make it easier for them to complete their illegal action against [Kennedy].” Rooney responded to Moore and Kennedy: “Actually, I’m suggesting this course of action to protect [Kennedy]. The court is more likely to allow her extra time (I will help to draft the request for continuance when the time comes) if she has no counsel and is looking for counsel. The court was very gracious with this before, and because people have the right to find an attorney, I expect he will do so again.” Rooney explained that “the need to withdraw is simply a financial necessity for me in seeing the piles of work they are putting on us, and my need to work on other cases to pay my bills” and ended his message with the reassurance that he would help Kennedy obtain a continuance.

Kennedy signed the attorney substitution form and, according to Rooney, returned it to him around September 10, 2015. Given the chronology of events, it appears Kennedy signed the form sometime between August 25 and September 10, not on the August 14, 2015 date typewritten next to the signature line that was apparently inserted by Rooney when he prepared the form. Rooney filed the form on September 15, 2015.

Kennedy continued attempts to find a new attorney. She had been in discussions with attorney Tad Devlin and, on September 10 wrote an email asking Rooney to explain to Devlin the “next step” in the case. Rooney informed Devlin that opposition to Zaghi’s summary judgment motion was due on September 24 (actually, September 23) and opposition to another party’s summary judgment motion was due October 22. Rooney suggested “requesting a continuance for new counsel.” Devlin did not assume representation but continued “evaluating” the matter until early October 2015, when representation was declined.

Meanwhile, on September 15, Kennedy went to Rooney’s office to pick up her case files. Kennedy declares that the files “were all disorganized in a big box” and Rooney did nothing to help her prepare a continuance, despite earlier promises to do so. Rooney told Kennedy “he was going on a vacation, and ‘good luck.’ ” Rooney took a month long vacation and provided no additional assistance to Kennedy.

On September 16 or 17, Kennedy sought legal assistance from Bayview Hunter’s Point Community Legal (Bayview). A Bayview attorney, Hilary Hammell, agreed to assist Kennedy for the limited purpose of seeking a continuance. Hammell asked Zaghi’s counsel to stipulate to a continuance and, when refused, filed a motion in the trial court. Hammell explained, in a declaration to the court, that “[o]ur office lacks capacity to substitute in on her case on such short notice,” but “f a continuance were granted, our office would be able to consider taking her case. We would need at least two months to prepare.” The motion was made, and denied, on September 21, 2015. Two weeks later, Kennedy found an attorney to represent her. Representation began on October 6, 2015, just one day before the court granted Zaghi’s unopposed summary judgment motion.

3. [i]Kennedy is entitled to relief

Section 473 “permits relief for ‘excusable’ neglect. The word ‘excusable’ means just that: inexcusable neglect prevents relief.” (Carroll v. Abbott Laboratories, Inc., supra, 32 Cal.3d at p. 895.) Absent extenuating circumstances, an attorney’s failure to prepare timely opposition to a motion is not excusable. (Huh v. Wong (2007) 158 Cal.App.4th 1406, 1423-1425.) “Further, as a general rule an attorney’s inexcusable neglect is chargeable to the client.” (Carroll, supra, at p. 895.) “However, an exception to this general rule has developed. “ ‘[E]xcepted from the rule are those instances where the attorney’s neglect is of that extreme degree amounting to positive misconduct, and the person seeking relief is relatively free from negligence. [Citations omitted.] The exception is premised upon the concept the attorney’s conduct, in effect, obliterates the existence of the attorney-client relationship, and for this reason his negligence should not be imputed to the client.’ ” (Carroll, supra, at p. 898.) The common element in cases applying this exception “is a total failure on the part of counsel to represent the client: each attorney had de facto substituted himself out of the case. Under such circumstances it would have been unconscionable to apply the general rule charging the client with the attorney’s neglect.” (Id. at p. 900.)

Such are the circumstances here. Attorney Rooney had de facto substituted himself out of the case at or before the time the summary judgment motion was filed on July 15, 2015. Kennedy could not pay his fees so Rooney, by his own admission, “stopped work.” Rooney declares: “Once the motions were filed and served [on July 15, 2015], it became apparent that, as a sole practitioner, I would not be able to dedicate the time and energy to this case on my own without hiring on help as well as putting in considerable time myself, which I was not going to be able to do with the budgeting concerns that had emerged.” Rooney tried to find replacement counsel but that effort was bound to fail given the pending summary judgment motion, as new counsel would need time to become familiar with the case and to prepare opposition. By August 2015, Rooney was urging Kennedy to assume her own representation and assured her the court would “go easy” on a self-represented party and grant a continuance, which he promised to help draft. Rooney did not receive Kennedy’s consent to the substitution until September 10 – just 13 days before opposition was due—and did not file the substitution form until September 15. After filing the substitution form, Rooney went on a one-month vacation and left Kennedy on her own to request a continuance.

The result of Rooney’s inaction and procrastination was that Kennedy was effectively without counsel from the time Zaghi’s summary judgment motion was filed on July 15 until she reluctantly assumed her own representation on September 15, just days before opposition was due. Had Rooney promptly moved to withdraw from the case when the summary judgment motion was filed, the court would have been alerted to the situation and Kennedy’s legitimate need for a continuance to retain new counsel. Instead, he remained attorney of record for two months after the motion was filed, while taking no steps to prepare an opposition, and then substituted Kennedy into the case to seek a continuance on her own. The substitution just days before opposition was due was denounced by Zaghi as gamesmanship, as indeed it was. But the gamesmanship was on the part of Rooney, not Kennedy, who gambled that a “gracious” trial court would grant a continuance to an unrepresented party.

Zaghi argues that Kennedy was inexcusably negligent in failing to retain an attorney sooner, as she knew from at least January 2015 that Rooney wanted out of the case. Zaghi points to Rooney’s declaration, in which the attorney declares that Kennedy became unable to pay his fees around January 2015, at which time he and Kennedy sought replacement counsel. But Rooney also declares that he did not stop working on the case until late June 2015, at the earliest, and it was the filing of the summary judgment motion on July 15 that made Rooney’s “need to withdraw . . . a financial necessity.” But Rooney did not move to withdraw at that time, and he and Kennedy continued their efforts to find new counsel. There is no evidence that Kennedy’s efforts in this regard were less than diligent. Moreover, Rooney assured Kennedy that the best course of action was to apply for a continuance as an unrepresented party and the court would give her sufficient time to retain counsel to oppose the motion. We find no basis for faulting Kennedy’s conduct under these circumstances and, to the extent she was negligent, it is excusable. “ ‘[A] reasonably prudent person under the same or similar circumstances’ might have made the same error.” (Bettencourt v. Los Rios Community College Dist. (1986) 42 Cal.3d 270, 276.) “In addition, ‘[unless] inexcusable neglect is clear, the policy favoring trial on the merits prevails.’ ” (Ibid.)

4. Kennedy’s motion for relief was brought within a reasonable time

A motion for relief “shall be made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken.” (§ 473, subd. (b).) Here, the motion was filed on May 3, 2016, five and one-half months after the summary judgment order and judgment were entered on November 16, 2015. Zaghi contends Kennedy unreasonably delayed bringing the motion.

Attorney Tiffany Norman became counsel of record for Kennedy on October 14, 2015. On November 30, Kennedy’s new attorneys filed a motion for reconsideration and to vacate summary judgment. The court denied the motion on February 11, 2016, noting, among other things, that no proposed opposition to the summary judgment motion had been presented to the court. The motion for relief was filed less than three months later, on May 3, 2016, accompanied by a lengthy opposition to the summary judgment motion.

Attorney Norman declared that she filed the motion for relief as soon as possible. Norman explained that she could not have filed the motion sooner because she had undertaken “numerous actions” on Kennedy’s behalf, including successful opposition to another party’s summary judgment motion, and was “also engaged in protracted litigation” for another client. Norman said the motion for relief required more time than usually required by such motions because of the need to submit a proposed opposition to Zaghi’s summary judgment motion.

Whether a motion for relief is brought within a reasonable time “depends primarily on the facts and circumstances of each individual case, but definitively requires a showing of diligence in making the motion after the discovery of the default.” (Stafford v. Mach (1998) 64 Cal. App.4th 1174, 1181.) A substantial delay requires a “satisfactory explanation.” (Id. at p. 1187.) Norman provided a satisfactory explanation. The newly retained attorney came into a case after the prior attorney had not worked on it for months and was confronted with an adverse summary judgment and another party’s pending summary judgment motion. A motion for reconsideration was promptly filed and, when that was denied, a motion for relief filed three months later. That is not an unduly long period of time given that a motion for relief “shall be accompanied by a copy of the answer or other pleading proposed to be filed therein, otherwise the application shall not be granted” (§ 473, subd. (b)). Here, opposition to a summary judgment motion, not a simple pleading, was required. The opposition papers (a memorandum of points and authorities, statement of disputed facts, and supporting declarations) total almost 500 pages. Kennedy’s newly retained attorney took steps within “a reasonable time” to set aside the summary judgment.

5. Kennedy’s proposed summary judgment opposition warrants consideration

Zaghi argues that Kennedy’s proposed opposition to the summary judgment motion fails to demonstrate she will prevail on the motion if relief is granted. As previously noted, an application for discretionary relief must “be accompanied by a copy of the answer or other pleading proposed to be filed therein.” (§ 473, subd. (b).) Zaghi notes that the purpose of this requirement is “to screen out those applications for relief that do not assert a potentially meritorious defense.” (County of Stanislaus v. Johnson (1996) 43 Cal.App.4th 832, 837.) The statute does not, however, require a substantive determination that a filing accompanying a motion for relief will ultimately prevail on the issues it raises as a prerequisite to granting relief. It is sufficient if the proposed filing asserts a potentially meritorious defense, so that granting the relief requested is not an idle act. Kennedy’s proposed opposition raises a number of potentially meritorious legal and factual issues that cannot be resolved without a careful review of the proffered evidence and an opportunity for rebuttal. We express no opinion on the ultimate success of Kennedy’s claims. We find only that she is entitled to a hearing on the merits.

Disposition

The order denying relief from the summary judgment order and summary judgment is reversed. The case is remanded to the trial court with directions to grant Kennedy’s motion for relief, to vacate the judgment, and to permit filing of the proposed opposition to Zaghi’s summary judgment motion. Kennedy shall recover costs incurred on appeal upon timely application in the trial court. (Cal. Rules of Court, rule 8.278.)

Pollak, J.

We concur:

McGuiness, P.J.

Siggins, J.