PULTE HOMES CORPORATION, Plaintiff and Appellant, v. WILLIAMS MECHANICAL, INC., Defendant and Respondent.
No. E064710
Fourth Dist., Div. Two.
Aug. 9, 2016.
267
Graham & Associates and Bruce N. Graham for Plaintiff and Appellant.
Morrow & White, William D. Morrow; Geoffrey A. Kraemer and Jesse S. Abrams for Defendant and Respondent.
OPINION
RAMIREZ, P. J.—Pulte Homes Corporation (Pulte) filed this action against Williams Mechanical, Inc. (Williams), for defective performance of a plumbing subcontract. Even before the action was filed, however, Williams was defunct; first, it was suspended by the Secretary of State, and thereafter, it dissolved voluntarily.
Pulte served Williams by effecting service on an attorney whom Williams had designated as its agent for service of process. The attorney, however, did
Pulte then notified Williams’s liability insurer of the default judgment. About four and a half months later, the insurer retained counsel to represent Williams, and Williams’s counsel filed a motion to set aside the default judgment. The trial court granted the motion.
Pulte appeals, contending:
(1) Williams lacks the capacity to defend this action because it has been suspended.
(2) Williams failed to establish that it was entitled to relief from the default and default judgment.
We will hold that the trial court abused its discretion by ruling that Williams was entitled to relief. Accordingly, we need not decide whether Williams had the capacity to defend.
I
FACTUAL BACKGROUND
The following facts are taken from the evidence submitted in connection with the motion to set aside.1
On February 16, 2011, Williams was suspended by the Secretary of State. On June 29, 2012, while Williams was still suspended,2 its sole director filed a certificate of dissolution.
According to the records of the Secretary of State, Williams’s agent for service of process was Matt H. Morris. Morris was an attorney. On November 25, 2013, Pulte served a summons and complaint on Morris by substituted service. Morris admitted that he received the summons and complaint, but he
Actually, Williams’s liability insurer was First Specialty Insurance Corp. (First). On April 2, 2015, Pulte’s attorney contacted First and notified it of the litigation. He provided a copy of the default judgment and a “cursory case summary.” First’s adjuster asked him for “copies of all relevant documents including but not limited to contracts, payment records, pleadings, defect list, and evidence of damages.” On April 3, 2015, and on “several” subsequent occasions, First’s adjuster again requested documents “pertinent to [First]’s coverage investigation.” On July 20, 2015, Pulte’s attorney provided some, though not all, of the requested documents.
According to First’s adjuster, between April 2 and July 20, 2015, she was “led to believe” that the underlying litigation involved only one home; on July 20, 2015, she realized for the first time that it involved “up to 26 homes.” On August 17, 2015, First retained counsel to represent Williams. On August 21, 2015, Williams’s counsel filed the motion to set aside.
II
PROCEDURAL BACKGROUND
In 2013, Pulte filed this action against Williams. In it, Pulte seeks $69,576 based on Williams’s allegedly negligent performance of a subcontract for the installation of plumbing in two residential construction projects.
Williams failed to file a timely response to the complaint. On January 7, 2014, the trial court entered Williams’s default.3 On March 10, 2015, it entered a default judgment against Williams.
On August 21, 2015, Williams filed a motion to set aside the default and the default judgment. The motion was brought under
In its opposition, Pulte argued, among other things, that Williams was a suspended corporation and therefore lacked the capacity to file the motion.
In reply, Williams argued that it was actually a dissolved corporation, and therefore it had the capacity to file the motion under
The trial court granted the motion. In its minute order, it stated: “Court finds current status is: [d]issolved [c]orporation.” Thus, it set aside the default and the default judgment.
Acting on Pulte’s supersedeas petition, which Williams did not oppose, we stayed the trial court proceedings for the duration of the appeal.
III
THE EFFECT OF WILLIAMS’S SUSPENSION AND DISSOLUTION*
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV
WILLIAMS’S RIGHT TO RELIEF
Pulte contends that Williams failed to establish that it was entitled to relief from the default and default judgment.
The trial court did not expressly rule that Williams had established a right to relief. It also did not specify whether it was granting relief under
* See footnote, ante, page 267.
Williams’s motion was filed less than six months after entry of the default judgment, but more than six months after entry of its default. The trial court therefore could not set aside the default under
We therefore conclude that Williams was not entitled to relief under
B. Relief Under Code of Civil Procedure Section 473.5.
It is undisputed that Attorney Morris received actual notice. It is also undisputed that, when Williams dissolved, he was its agent for service of process. Williams argues, however, that service on an agent does not provide actual notice to the principal, citing Rosenthal v. Garner (1983) 142 Cal.App.3d 891 [191 Cal.Rptr. 300].
In Rosenthal, the Rosenthals sued Garner and mailed the summons and complaint to Attorney Duffy. Previously, Duffy had represented Garner in related litigation. However, Duffy did not tell Garner about the Rosenthals’
The appellate court held that Garner was entitled to have the default set aside based on lack of actual notice. (Rosenthal v. Garner, supra, 142 Cal.App.3d at pp. 895–898.) In particular, it held that actual notice to Duffy was not actual notice to Garner. It stated: “[R]espondents assert that
We may accept that imputed notice is not actual notice to an individual defendant; however, it can be actual notice to a corporate defendant. “[A] corporation, as an artificial entity created by law, can only act in its affairs through its natural person agents and representatives.” (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146 [16 Cal.Rptr.3d 555].) Thus, a person cannot have actual notice through an agent, but a corporation can have actual notice only through an agent who has the appropriate authority.
Presumably notice to the board of directors or to the president of a corporation would be sufficient to constitute actual notice; indeed, in the case of a functioning corporation, it is arguable that it is necessary. (See
We therefore conclude that Williams had actual notice of the action, and therefore it was not entitled to relief under
C. Equitable Relief.
“Apart from any statute, courts have the inherent authority to vacate a default and default judgment on equitable grounds such as extrinsic fraud or extrinsic mistake. [Citations.]” (Bae v. T.D. Service Co. of Arizona (2016) 245 Cal.App.4th 89, 97 [199 Cal.Rptr.3d 282].)
“‘One ground for equitable relief is extrinsic mistake—a term broadly applied when circumstances extrinsic to the litigation have unfairly cost a party a hearing on the merits.’ [Citation.] But for a party to qualify for such equitable relief on this basis, courts have developed a three-part test: first, the defaulted party must demonstrate it has a meritorious case; second, it must articulate a satisfactory excuse for not presenting a defense to the original action; and third, the moving party must demonstrate diligence in seeking to set aside the default once it was discovered. [Citation.]” (Lee v. An (2008) 168 Cal.App.4th 558, 566 [85 Cal.Rptr.3d 620].)
“Because of the strong public policy in favor of the finality of judgments, equitable relief from a default judgment or order is available only in
“We review a challenge to the trial court’s denial of a motion to vacate a default on equitable grounds for abuse of discretion. [Citation.]” (Sakaguchi v. Sakaguchi (2009) 173 Cal.App.4th 852, 862 [92 Cal.Rptr.3d 717].)
1. Forfeiture.*
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. A satisfactory excuse.
“Extrinsic mistake exists when the ground for relief is not so much the fraud or other misconduct of one of the parties as it is the excusable neglect of the defaulting party to appear and present his claim or defense. [Citation.]” (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 503 [52 Cal.Rptr.3d 862].) “Relief on the ground of extrinsic fraud or mistake is not available to a party if that party has been given notice of an action yet fails to appear, without having been prevented from participating in the action. [Citation.]” (Ibid.)
Statutory law allows an action against a dissolved corporation, although the plaintiff’s recovery is limited to the corporation’s “undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.” (
In this case, Morris did not even try to notify anyone on behalf of Williams. Williams now claims that Morris “did not have any means of notifying anyone.” However, there was no evidence of that. Morris testified that Williams was dissolved, but he did not testify that he did not know how to reach any of the former directors, officers, or employees of Williams; he also did not testify that he did not have access to Williams’s books and records. Likewise, he testified that he did not have any information
* See footnote, ante, page 267.
We need not decide whether Morris owed a duty to either Williams or First to make an effort to notify them. We recognize that he was no longer Williams’s attorney. Also, it is at least arguable that Williams’s dissolution terminated his authority to act as its agent for service of process. He had no past or present relationship whatsoever with First. (Certainly he was not likely to get paid for his efforts.) Still, in light of the statutory directive that a dissolved corporation may be served by serving its agent for service of process at the time of dissolution, anybody who steps up to be a corporation’s agent for service of process faces at least the possibility of being served on behalf of the corporation after it has dissolved. We therefore hold that a dissolved corporation cannot claim excusable neglect when its agent for service of process at the time of dissolution has not made any effort to notify it and has not shown that an effort, if made, would have failed.
Accordingly, we conclude that Williams did not show a satisfactory excuse.
3. Diligence.
Williams does not dispute that the diligence (or lack thereof) of First must be imputed to it. (See Scognamillo v. Herrick (2003) 106 Cal.App.4th 1139, 1149 [131 Cal.Rptr.2d 393] [“a blameless insured” can be denied relief from default based on “the inexcusable neglect of its insurer“].)
First became aware of the default judgment on April 2, 2015, at the latest. It responded by asking Pulte’s counsel for “all relevant documents.” With the possible exception of the pleadings, the specific documents that it requested—“contracts, payment records, . . . defect list, and evidence of damages“—related to the validity (or the amount) of Pulte’s underlying claim; they did not relate to coverage or to the validity of the default judgment.
First claims it did not receive any documents until July 20, 2015, and even then it did not receive all the documents it had requested. This is not a sufficient excuse for its failure to file a motion for equitable relief in the interim.
The declaration of First’s adjuster contains no plain statement that First failed to file a motion earlier because it had not yet received the documents. She described the documents that she requested as “pertinent” to a coverage
She did claim that, until she received the documents, she was “led to believe” that the underlying litigation involved only one home. However, she did not explain why it would matter whether the underlying litigation involved one home or 26 homes. Finally, even after she received the documents, she delayed another month before retaining counsel for Williams. She did not explain this additional delay.
We therefore conclude that Williams did not show diligence.
V
DISPOSITION
The order appealed from is reversed. The trial court is directed to reinstate the default and the default judgment. Pulte is awarded costs on appeal against Williams.
Hollenhorst, J., and McKinster, J., concurred.