LUXURY ASSET LENDING, LLC, Plaintiff and Respondent, v. PHILADELPHIA TELEVISION NETWORK, INC., Defendant and Appellant.
G057766 (Super. Ct. No. 30-2016-00880965)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, FOURTH APPELLATE DISTRICT, DIVISION THREE
Filed 10/29/20
CERTIFIED FOR PUBLICATION
Glenn R. Salter, Judge. OPINION by BEDSWORTH, ACTING P. J.
Appeal from an order of the Superior Court of Orange County, Glenn R. Salter, Judge. Reversed and remanded with instructions.
Law Offices of Stuart A. Katz and Stuart A. Katz for Plaintiff and Respondent.
INTRODUCTION
Two powerful friends decided to take out significant loans in order to invest in a purported business opportunity overseas. The opportunity, by all accounts, was a complete bust and the friends were unable to pay the loans back. The lender sued to collect what was owed and foreclose on its secured interest in the offered collateral. The defendants failed to answer the lawsuit, and a default judgment was obtained. The lender began to execute on its judgment.
In truth, the purported business opportunity overseas was a scam. The friends had offered as collateral assets which were not theirs to encumber. The third party to whom the assets belonged had no idea they were being encumbered. And the “lender” was another investor in the scam intent not only on recouping its investment, but willing to take as much flesh and scorch as much earth as necessary to do so, all the while waving the default judgment about as a cudgel.
Today we take away the cudgel and send them back for Marquess of Queensbury fisticuffs.
FACTS
Appellant Philadelphia Television Network, Inc. (PTNI) is a company headquartered in the Commonwealth of Pennsylvania. PTNI has owned and operated WEFG-LD, a low power television broadcast station in Philadelphia. PTNI was the holder of a Federal Communications Commission (FCC) license for the station to produce and disseminate broadcasts. PTNI‘s two biggest shareholders were Eugene Cliett and Richard Glanton, with Glanton holding the largest block of shares. The PTNI shareholders agreement explicitly restricted the sale, transfer, or pledging of shares without allowing other shareholders a right of first refusal and made any transfer effected in violation of the restriction void.
Glanton is a prominent lawyer who counts among his clients and friends Wayne Curtis “Curt” Weldon, a former Pennsylvania congressman. Sometime around 2016, Weldon, through his numerous contacts, learned about an opportunity to pursue a foreign “transaction,” which he decided to share with Glanton. A more apt characterization for this “transaction” would be “scam.”
Winston Churchill famously likened the business of forecasting оne enemy‘s intentions to “a riddle wrapped in a mystery inside an enigma.” (Winston L.S. Churchill, First Lord of the Admiralty of Great Britain, address to BBC radio (Oct. 1, 1939).) As the narrative below will demonstrate, that describes rather aptly the transaction with which Glanton and Weldon chose to associate themselves.1
According to Glanton, he and Weldon were given the chance to manage the $350 million wealth fund of a former Libyan oil minister.2 After several months of purported due diligence, Glanton told Weldon he thought the deal was legitimate and suggested they travel to Ghana3 to take custody of the funds with the objective of investing them in American securities.
The trip occurred in the fall of 2015. After arriving in Ghana, Glanton and Weldon met with the client‘s representative and a local man named Kweku Amedume Thorpe (Kweku), who was purportedly connected to the President of Ghana and had acquired a reputation fоr “assist[ing]” Libyans in the country. To secure the release of the funds, Glanton and Weldon agreed to wire some $45,000 in “late storage” fees to a company named Standard Express Security which was purportedly holding the funds under the supervision of the Ghanaian Interior Ministry.
After paying these fees, Glanton, Weldon, Kweku, a client family representative, two Standard Express Security representatives, and a purported banker named Chris Obareki (Obareki) met at the Standard Express Security offices to inspect a box containing $100 million in denominations of $100. After observing the bills, they were told it — plus an additional two boxes — comprised the total corpus of funds to be invested. All three boxes were then brought to a bank called ECO Bank4 where they were inspected and counted.
Two days later, ECO Bank reported the money was real and totaled over $360 million. However, there was just one little snag. Every note contained “an allegedly invisible insignia in Arabic” which required removal in order to deposit the funds in the Central Bank of Ghana.5 The removal process would cost $2.4 million up front and those involved would have to pay for it out of pocket — the funds in the corpus could not be used. Kweku and Obareki said they would put up $900,000 of their own funds, and asked Glanton and Weldon to put up the remaining money. With some hesitation, Glanton and
Once the $2.4 million had been raised, Kweku and Obareki advised Glanton and Weldon the money had been seized by the Central Bank of Ghana‘s money laundering unit. In order to release the money, a $3.6 million fine had to be paid.6 Once again, Glanton and Weldon‘s overeager coventurers promised they would pay the majority of the fine if Glanton and Weldon would dig up another $800,000 to cover the remainder. But as per a by-now patently obvious pattern, Obareki and Kweku did not follow through. Once Glanton and Weldon had paid an additional $400,000, Obareki and Kweku reneged on their end of the deal. Too heavily invested to walk away, Glanton and Weldon raised the other half themselves, only to find that the corpus had been confiscated. By whom and why is, of course . . . unclear.
Enter stage left, Brian Roche (Roche) and his affiliate, respondent Luxury Asset Lending (LAL).7 Glanton was referred to Roche in or around March 2016 to secure a loan to help close the Ghana transaction. Roche and LAL purportedly conducted due diligence review of Glanton and Weldon and their stated assets and made four loans to them between April and July 2016, totaling $530,000. By the time Glanton and Weldon sought the final two loans of just $30,000 and $10,0008 respectively in June and July 2016, they were already in default on the first two loans of $240,000 and $250,000. In exchange for the additional $40,000 in funding, Roche and LAL insisted Glanton and Weldon pay back an additional (and eye-popping) $3.3 million. Not in the habit of saying no to a bad deal, Glanton and Weldon agreed.
Now, one might be forgiven for wondering what this colossus of cons has to do with the low power television station in Philadelphia and its owner, PTNI. The answer, based on the record before us, is: absolutely nothing.
Which is precisely our point.
PTNI had no perceptible interest in the Ghana scheme. It received none of the LAL loan funds. Yet unbeknownst to the majority of its shareholders, it
The Lawsuit
On October 13, 2016, LAL filed a complaint in Orange County Superior Court naming PTNI, Glanton, and Weldon as defendants.9 The complaint alleged 14 causes of action ranging from breach of contract to fraud, and sought $3.79 million along with $530,000 in exemplary damages against Glanton. Nine of the causes of action — for breach of contract, common counts (open book account and money lent), and foreclosure of security — were alleged against PTNI and Glanton. In its fraud claims against Glanton, LAL alleged he had misrepresented his ability to pledge or transfer his PTNI shares and concealed the restrictive provisions in the PTNI shareholders agreement.
On December 6, 2016, LAL filed three proofs of service of summons. These filings showed Weldon had been served on November 2, 2016, and Glanton had been served individually and on behalf of PTNI on October 25, 2016, at his home address in Princeton, New Jersey. The proof of service on Glanton as PTNI‘s CEO indicаtes the “Notice to the Person Served” section of the summons was filled out to reflect service upon a corporation. There is no evidence in the record that PTNI was served with process via any other method or at any other address.
Along with the proofs of service of summons, LAL filed a request for entry of default against all defendants, and their defaults were entered by the clerk that same date. But, as with the summons and complaint, LAL served PTNI with notice of entry of default only by mailing same to Glanton‘s Princeton address.
LAL submitted a default prove-up packet to the trial court on March 30, 2017, which included a declaration from Roche. Roche provided no details about the Ghana fiasco underlying the loans LAL was foreclosing, except to call it a “very large scale transaction.” He did, however, take noticeable care
None the wiser, the trial court entered LAL‘s proposed default judgment against PTNI, Glanton, and Weldon on April 6, 2017. The judgment totaled $3,897,919.22, inclusive of interest, attorney fees, and costs.
On April 14, 2017, Weldon filed a motion to set aside the default and default judgment against him. In support of the motion, he filed a declaration which contained bombshell details on LAL‘s role in the underlying transaction. Weldon claimed it was Roche who “facilitated and encouraged” the Ghana transaction by “leveraging his relationships” with African royalty and government figures. Roche had even “admitted that the entire transaction was a scam.” And apparently, Roche was using everything short of a crowbar to get Weldon and Glanton to repay the money “allegedly owed.”
Another illuminating point to come from the Weldon declaration concerned Roche‘s connection to LAL itself. Weldon said LAL‘s president was named Brian Quinn. In late November 2016, Weldon had e-mailed Quinn to ask whether he knew Roche had been harassing the defendants despite Glanton‘s attempts to settle the
litigation. In response, Quinn asked Weldon to call him so he could explain, ending with this: “Roche is a joke and not involved with me or my company. . . .”
By May 2017, LAL had stipulated to set aside Weldon‘s default, stay the litigation as to him, and submit it to binding arbitration. Glanton and PTNI remained as defaulted defendants and LAL was ready to execute on the judgment. But Glanton filed for Chapter 11 bankruptcy protection on July 13, 2017.11
This all left PTNI walking around with a big bull‘s-eye on its back. For almost a year it went untargeted while Glanton and LAL presumably negotiated. But on April 27, 2018, LAL advised the court it had assigned the nearly $3.9 million judgment against PTNI and Glanton to Newport Investment Grouр, LLC (Newport), a company controlled by Roche.12 Three days later, Newport filed a stipulation for an order pursuant to
Cliett‘s Knowledge of the Facts
This is not to say Cliett was completely in the dark during all of this. He was aware of Glanton‘s involvement in a transaction with Roche and LAL as early as April 2016, because Glanton was forwarding him some of his email correspondence with Roche. As soon as it obtained the default judgment, LAL filed a UCC Financing Statement with the Commonwealth of Pennsylvania naming PTNI as the debtor but there is no proof of service of these notices on PTNI in the record so far as we can see.14
Cliett was also aware of Glanton‘s bankruptcy; he knew in September 2017 that LAL was Glanton‘s largest creditor and the indebtedness topped $3 million. He also came to know of efforts by LAL to sell PTNI‘s аssets. Sometime around October 2017, he even came to know that LAL had obtained a judgment against Glanton.
Even though he knew these bits and pieces of information, however, the record leaves us with the impression Cliett was not aware of the full scope of PTNI‘s vulnerability until well after the judgment was entered. And neither Glanton nor Roche told him straight out, despite having multiple opportunities.
On September 21, 2016, Cliett wrote a hostile letter to Roche. He had heard Roche was trying to offer WEFG-LD for sale along with its FCC license, and was under the impression LAL premised the ability to do so on its claim to Glanton‘s shares. He was “not privy to the details” of Roche and Glanton‘s agreement, he said, but Glanton had no right under the shareholder agreement to pledge the shares as collateral for his loan in the first place.
Roche responded the same day in an e-mail to Cliett, Quinn, Patrick Schreiber and Stephen Park (two individuals who appear to have had a role with PTNI). He forwarded a copy of a “NOTICE OF PENDING SALE” he had issued for the television station, and warned the four — in all capital
Cliett was not cowed. In December 2017, he fired off another letter to Roche, repeating the admonition about Glanton‘s shares. Further, he wrote, even if Glanton had the right to pledge the shares, his stake did not give him the ability to bind the company to an asset sale. By this time, there was already a default judgment against PTNI that Cliett did not know about.
He would find out soon enough. On May 4, 2018, LAL filed an action in the Philadelphia Court of Common Pleas to domesticate the California judgment against PTNI and Glanton. Six days later, the Philadelphia court entered an assignment order similar to the one entered in the Orange County court.
Around this time, in May 2018, Cliett says, he was attempting to access FCC databases for company business and found he was locked out. He investigated and came to discover Glanton had filed an application to transfer PTNI‘s FCC license to Newport. He subsequently discovered the rest of the litigation trail following behind, in both California and Pennsylvania.
He had a decision to make. PTNI was not a large corporation with unlimited assets. There was now a battle going on between it and LAL/Newport on three different fronts — in California, in Pennsylvania, and before the FCC. Where was PTNI to start? Cliett says he sought the advice of FCC counsel, who said PTNI should start with the FCC proceeding and argue the license should not be transferred because the California judgment was void.
PTNI Fights Back
PTNI followed its counsel‘s advice and filed a request for dismissal before the FCC on June 5, 2018. That was granted on November 13, 2018. The FCC ruled the broadcast license was not an interest which could be foreclosed by a lender. However, it acknowledged its “staff have accommodated state court decisions” if proper paperwork has been filed showing there is a court-appointed trustee or receiver authorized to sell the license. Once a buyer has been found, the FCC has been open in the past to approving the transfer of the license from the trustee or receiver to the buyer. Once the sale is complete, the secured lender can collect from the proceeds of the sale. This protocol, FCC observed, had not been followed by Newport or Glanton. However, FCC left the door open to approving a future transfer compliаnt with the protocol.
Immediately after receiving the FCC‘s ruling, Newport went to the Philadelphia court and sought an emergency appointment of a receiver to take control of Glanton‘s and PTNI‘s assets, including the station‘s license, so a transfer could be effectuated; the court granted the request on November 19, 2018, appointing Joseph Bernstein of Spina & Company for the job. With a receiver appointed, the FCC approved the transfer of the license on November 28, 2018.
PTNI‘s first appearance in the Philadelphia proceedings did not occur until November 26, 2018, one week after the court appointed a receiver over its assets.17 It proceeded to try to overturn the assignment and receivership orders entered by the court in May and November 2018. And it received some sympathetic responses to those efforts. On December 19, 2018, it appealed the receivership order to the Pennsylvania appellate court, and three months later, the judge who entered the receivership order sent a letter to the appellate court seeking remand of the case because she had been unable to review all relevant documents filed in connection with the receivership petition, inсluding PTNI‘s response, and conduct a hearing. Another judge at the Philadelphia Court of
Common Pleas stayed the action pending the appeal. Newport sought reconsideration of this ruling, was denied, and filed its own appeal.
PTNI then sought an order in the Philadelphia court vacating the California default judgment and vacating the receivership orders. Pending the appeal, the judge denied the request on March 13, 2019. Only a little over a month remained until the two-year window for vacating the default under
The Motion to Vacate Default
PTNI filed its motion to vacate and set aside default judgment in this action on April 5, 2019. It sought relief under
Newport, the assignee of LAL‘s judgment, opposed, of course, complaining mainly that the motion was untimely and PTNI had waited too long tо take any action. It argued service of the summons and complaint on Glanton was sufficient notice to the
corporation, and Cliett and his “team of . . . lawyers” had been aware of the case for two years prior to taking action. It also pointed to the FCC‘s consent to transfer of WEFG-LD‘s license and the Philadelphia court‘s denial of PTNI‘s motion to vacate, insisting that PTNI was merely teeing up already-rejected arguments. The opposition was accompanied by Roche‘s declaration, to which he attached numerous pieces of correspondence with Cliett in an attempt to prove Cliett was aware all along of PTNI‘s exposure.
In its reply brief, PTNI protested LAL‘s characterization, arguing it only knew Glanton had borrowed money and had defaulted on the loan. It also claimed LAL was mischaracterizing what had gone on in the FCC and Pennsylvaniа proceedings. Further, it said, LAL was attempting to divert the court‘s attention away from the underlying transaction, which it called a “collusive and concealed scheme by Glanton, Weldon, and Roche (purporting to act for [LAL]) to invest in illicit overseas currency gathering operations in Ghana.”
This response may have sealed the deal for the trial court. It issued its under submission ruling on May 13, 2019, denying the motion, observing “the borrowers were highly sophisticated businessmen and political leaders within the Commonwealth of Pennsylvania.” It acknowledged PTNI‘s motion appealed to both its statutory and inherently equitable powers, but felt the “motion must be denied” because it was untimely for purposes of vacating the default, and in any event, PTNI had not sought relief from both the default and default judgment. Given its belief PTNI had been aware of the judgment as early as October 2017 and as late as May 2018, it did not feel PTNI had provided a “reasonable justification” for “pursu[ing] other avenues” rather than filing its motion earlier.
DISCUSSION
PTNI‘s arguments on appeal focus on two main issues: (1) whethеr the judgment was void; (2) assuming its validity, whether the trial court should have vacated the default and default judgment under its statutory or equitable powers. We need not decide the first issue because we find PTNI should prevail on the second.19 (See Natter v. Palm Desert Rent Review Com. (1987) 190 Cal.App.3d 994, 1001.)
I. Standard of Review
Trial court rulings on motions for relief from default are subject to an abuse of discretion standard. (See Henderson v. Pacific Gas & Electric Co. (2010) 187 Cal.App.4th 215, 230.) Even so, “[w]ith respect to setting aside a default judgment, it is the policy of the law to favor, whenever possible, a hearing on the merits, and appellate courts are much more disposed to affirm an order where the result is to compel a trial on the merits than they are when the judgment by default is allowed to stand and it
II. Relief Under Section 473.5
defendant must submit an affidavit showing the lack of actual notice was not due to its avoidance of service or inexcusable neglect. (
Here, the trial court seemingly denied relief under this provision for two reasons. First, it felt PTNI had not brought its motion within a reasonable time after it received actual notice of the default judgment in May 2018. Second, even if the judgment were vacated, the default would still be in place because PTNI‘s motion did not seek to vacate the default as well as the judgment. It is unclear to what extent either of these reasons predominates over the other. However, the trial court‘s language indicates it thought it would be an idle act to vacate a defaulted judgment and leave the default in place.
Generally speaking, this is true. (See Howard Greer Custom Originals v. Capritti (1950) 35 Cal.2d 886, 888-889 (Capritti).) In Capritti, the California Supreme Court affirmed the denial of a motion to vacate default judgment made after the defaulted defendant had sought unsuccessfully to vacate the entry of default. (Id. at p. 887.) After entry of judgment, the appellant filed a motion to vacate the judgment and it too was denied. (Id. at p. 888.) The appellant chose only to appeal the denial of the latter motion. (Ibid.) The high court held that to vacate the judgment in that context would be “abortive” as the default would still be of record. (Ibid.)
Here, the circumstances are quite different. PTNI only discovered the default well аfter judgment had been entered. Unlike the appellant in Capritti, it had not filed a previous motion to vacate the default and been denied. The trial court thus need not have left the default in place.
It was also error for the trial court to deny relief as untimely. PTNI‘s mоving declarations explained why the motion was brought almost one year after discovery of the judgment against it, and its counsel further explained the delay at the hearing. Because of the deception by Roche, LAL, and Glanton, by the time it found out about the judgment, PTNI was facing the loss of its most valuable asset: its FCC license. Being a small company with limited resources facing litigation on three fronts, “practicality,” as PTNI‘s counsel aptly put it, necessitated extinguishing the most threatening fire first — the proceedings before the FCC. Once it did so, it turned its attention to addressing the Pennsylvania proceedings only to discover Newport had already obtained a receivership and transfer of the license. The flames started by the default judgment had spread far beyond their origins in the Orange County Superior Court by the time PTNI came to know of it. We think it eminently reasonable for PTNI to have tried to obtain relief in its home jurisdiction first, before seeking to vacate the judgment in California as a last resort.
The trial court‘s reasoning on timeliness may well have been based on its observation of “direct evidence in the record suggesting the default judgment was well known by the individuals who now claim control of the defendant corporation at least as late as October 2017, and likely much earlier.” Though this direct evidence is not cited, we believe the trial court was referring to an e-mail from Cliett to the son of another PTNI shareholder dated October 29, 2017, where he states LAL “sued and obtained a judgement [sic] against” Glanton.
As we suggested in our summary of the facts in this case, and as PTNI has argued in its briefing here and in the trial court, a distinction must be drawn between PTNI‘s knowledge of a judgment against Glanton versus its knowledge of a judgment against it. The two situations naturally engender entirely different responses: A judgment against the company is critical; a judgement against a shareholder is tangential. So LAL and Roche‘s repeated claims of possessing a long paper trail showing Cliett‘s knowledge of the LAL loans rings hollow. At best, these documents demonstrate Cliett knew Glanton had
Cliett‘s letters to Roche are illuminating on this point. If Cliett knew PTNI was a co-borrower on the loans; if he knew PTNI had signed a security agreement pledging its assets as collateral; if he knew a default judgment had already been entered in California against the company, why fixate on Glanton‘s shares?
We also cannot ignore the conduct of LAL in the timeline. Had LAL and Roche desired to give actual notice to PTNI of the lawsuit, the default, or the default judgment, they could easily have done so by serving process, notices, and documents on PTNI at its then-registered address. Instead, time and again, LAL chose only to notify Glanton, a man by whom it claimed to have been defrauded! The possibilities we can conjure as to why LAL would do this strike us as unprofessional if not disreputable. But at the very least, it seems LAL did not want PTNI‘s other stakeholders to find out about the lawsuit or the judgment until it was too late. Such subterfuge ought not be rewarded.
It was an abuse of discretion for the trial court not to grant PTNI‘s request for relief under
III. Equitable Relief from Default and Default Judgment
“‘[A] trial court may vacate a default on equitable grounds even if statutory relief is unavailable.’ (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981.) The moving party carries the burden of proving that he or she is entitled to equitable relief. (Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 290–291.) We review a challenge to the trial court‘s dеnial of a motion to vacate a default on equitable grounds for abuse of discretion. (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981.)” (Sakaguchi v. Sakaguchi (2009) 173 Cal.App.4th 852, 862.) And “[w]hen a default judgment has been obtained, equitable relief may be given only in exceptional circumstances.” (Rappleyea v. Campbell, supra, 8 Cal.4th at p. 981.) These are such circumstances.
Equitable relief may be based on extrinsic fraud, which “usually arises when a party is denied a fair adversary hearing because he has been ‘deliberately kept in ignorance of the action or proceeding, or in some other
““‘Extrinsic mistake involves the excusable neglect of a party. [Citation.] When this neglect results in an unjust judgment, without a fair adversary hearing, and the basis for equitable relief is present, this is extrinsic mistake. [Citation.]” [Citation.]”
(Moghaddam v. Bone, supra, 142 Cal.App.4th at p. 290.) “To set aside a judgment based on extrinsic fraud or extrinsic mistake, the moving party must satisfy three elements: ‘First, the defaulted party must demonstrate that it has a meritorious case. Secondly, the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action. Lastly, the moving party must demonstrate diligence in seeking to set aside the default once it had been discovered.’ (Stiles v. Wallis (1983) 147 Cal.App.3d 1143, 1147–1148 (Stiles), italics added; see also Gibble [v. Car-Lene Research, Inc. (1998)] 67 Cal.App.4th [295,] 315.)” (Moghaddam, supra, 142 Cal.App.4th at 290, italics omitted.)
A more meritorious case is hard to find. And PTNI most certainly has a satisfactory excuse fоr not presenting a defense to the original complaint because Glanton never told his fellow shareholders the company needed to respond to it. But did PTNI show diligence in seeking to set aside the default after its discovery?
We think the Manson case provides useful guidance. There, an individual named Paula Black received service of a complaint mistakenly naming “Pamela” Black as a defendant. (Manson, supra, 176 Cal.App.4th at p. 41.) This person had been sued along with a Douglas Shinn for negligence in connection with a motor vehicle accident. The complaint alleged Shinn had been driving a car registered to Pamela Black at the time of the accident. (Id. at p. 40.) But the car Shinn drove at the time of the accident had been entrusted to his automotive shop by Paula Black‘s ex-husband for repairs,
The appellate court affirmed the trial court‘s ruling. The judgment had unjustly been taken against Paula Black without her knowledge because of the mistake in her name. She had acted diligently when served with process by contacting plaintiff‘s counsel, and plaintiff had taken judgment against her despite knowing there might be a mistake in the named defendants. She was delayed in coming to court to vacate the judgment because she had been advised by attorneys there was nothing she could do.
Granted, Ms. Black was a layperson and PTNI is a corporate entity. But there are parallels in the way both were misled to their detrimеnt concerning the nature of the proceedings of which they were aware. Ms. Black was aware a person of a similar name to hers with her address was a named defendant in a lawsuit. PTNI was aware its executive had taken out a personal loan and pledged his shares as collateral and the lender had obtained a judgment against him. Neither was aware they were actually defendants themselves until well after the judgments had been entered. In both cases, the plaintiff engaged in deceptive tactics. In Manson, plaintiff‘s counsel knew there may have been an error in the names in his complaint but proceeded to judgment anyway. Here, LAL and Roche failed to send notice of the lawsuit, default, and judgment to PTNI‘s registered address, serving only Glanton,
LAL points out that from mid-2018 onward, Cliett was able to mount a defense to Newport‘s second lawsuit in California. Why, it asks, could PTNI not have filed a motion to vacate in the court just across the street? It is a fair question to ask, although we note Newport did not sue PTNI in the second lawsuit; it sued Cliett and other individual defendants. Cliett‘s personal defense presumably entailed different resources from PTNI‘s corporate defense, though the two were at least somewhat intertwined. But even if we agreed PTNI should have filed its motion then, its neglect in failing to do so was excusable. By mid to late 2018, LAL already had a judgment from the Orange County court and PTNI‘s focus was on fighting it collaterally in the FCC and in Pennsylvania. In contrast, Newport had not yet reduced its claim against Cliett to a judgment, so it was rational for him to appear and defend against it in the forum where it was sought.
LAL reminds us often of the deference owed the trial court. We appreciate the need for deference and do not approach the question cavalierly. Yet, the diligence or reasonableness analysis in this context is not all that different from the analysis of the equitable defense of laches. Laches is “a failure on the part of a plaintiff to assert his rights in a timely fashion accompanied by a period of delay with consequent results prejudicial to the defendant.” (Rouse v. Underwood (1966) 242 Cal.App.2d 316, 323.) There, too, application of the defense is entrusted to the discretion of the trial court and
such discretion usually goes undisturbed by the appellate tribunal. (Ibid.) One exception, however, is in cases оf “manifest injustice.” (Ibid.)
We fear leaving the trial court‘s discretion undisturbed in this case would result in such an injustice. If not vacated, the default judgment gives the imprimatur of legality and enforceability to wrongdoing — arguable usury in furtherance of a fraudulent, potentially unlawful scheme. To make matters worse, the judgment would pin the financial burden of the wrongdoers’ risk-taking on an innocent third party who had no stake in the scheme. Glanton may have purported to be acting in his corporate capacity on behalf
LAL takes pains to describe the prejudice it will suffer should the judgment be unwound. For reasons that should by now be apparent, it will find no sympathy here. For all its emphasis on the sophistication of its adversaries, LAL was no neophyte either, as the words “luxury” and “asset” juxtaposed in its name are presumably meant to suggest. Yet it invested in a scam. It either failed to perform due diligence on the collateral Glanton pledged or it didn‘t care to perform it. It filed a lawsuit and — deliberately, by all appearances — failed to properly notify PTNI of the lawsuit, default, or default judgment. It withheld from the trial court material details about the transaction underlying the lawsuit. When PTNI discovered the judgment and fought back before the FCC, LAL‘s successor, Newport, weaponized the courts yet again and retaliated agаinst Cliett and others. We could continue with the list of affronts, but suffice it to say, should LAL and Newport‘s years-long investment in belligerence and sleight-of-hand come to naught, it seems to us a most deserved and appropriate return.
IV. The Assignment Order
In its motion before the trial court, PTNI requested that the April 2018 assignment order also be vacated. Because the trial court ruled the whole motion was not timely brought, it did not rule on the validity of the assignment order. In their briefing, the parties argue over whether the assignment order is still appealable, given its entry over two years ago. But in light of our decision today, we cannot see how this order can remain in place when there is no longer a judgment.
The assignment order was issued under authority of
The order denying the motion to vacate default judgment is reversed and remanded with instructions for the trial court to vacate the default, default judgment and assignment order entered April 30, 2018. Appellant to recover its costs on appeal.
BEDSWORTH, ACTING P. J.
WE CONCUR:
FYBEL, J.
GOETHALS, J.