Opinion
D072252
01-25-2018
DEUTSCHE BANK NATIONAL TRUST COMPANY, Plaintiff and Respondent, v. GINA CASTILLO, Defendant and Appellant.
Gina Castillo, in pro. per., for Defendant and Appellant. Hinshaw & Culbertson, Daniel Sanchez-Behar and Gary E. Devlin for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2014-00083176-CU-OR-CTL) APPEAL from an order of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed. Gina Castillo, in pro. per., for Defendant and Appellant. Hinshaw & Culbertson, Daniel Sanchez-Behar and Gary E. Devlin for Plaintiff and Respondent.
Defendant Gina Castillo appeals from an order granting a motion to vacate a judgment entered in her favor and against plaintiff Deutsche Bank National Trust Company ("Deutsche Bank" or "the Bank"). The trial court entered the judgment after Deutsche Bank did not appear on the scheduled trial date because of its mistaken belief that the court had entered the voluntary dismissal of its action against Castillo when, in fact, the court clerk had rejected the request due to an error on the submitted form.
After discovering the judgment over a year and a half after it was entered, Deutsche Bank moved to vacate the judgment. The trial court found that the judgment was erroneously entered after Deutsche Bank's counsel's mistake deprived it of a fair hearing and that Deutsche Bank acted diligently to have the judgment set aside once it discovered the mistake. Accordingly, the court granted the motion to vacate the judgment.
Castillo contends the court abused its discretion in granting the motion because the judgment was the result of inexcusable neglect on the part of plaintiff's counsel and Deutsche Bank did not act diligently in seeking to vacate the judgment. Castillo also contends that the underlying complaint has no merit and Deutsche Bank lacks standing to pursue an action for judicial foreclosure. We conclude the court did not abuse its discretion and accordingly affirm.
FACTUAL AND PROCEDURAL BACKGROUND
As set forth in the complaint, this action arises from Castillo's alleged mortgage default. In 2003, Castillo purchased a home in Spring Valley. As part of obtaining a mortgage to fund the purchase, Castillo executed and recorded a promissory note in favor of her original lender, Equity 1 Lenders Group. To secure payment on the note, Castillo also executed and recorded a deed of trust identifying Mortgage Electronic Registration System (MERS) as beneficiary and nominee for Equity 1 Lenders Group and its "successors and assigns." In 2012, the promissory note and deed of trust were assigned to Deutsche Bank.
By the end of 2012, Castillo failed to make her mortgage payments. Despite Castillo's failure to make these payments, she executed and recorded a document entitled "Substitution of Trustee and Full Reconveyance," purporting to reconvey the deed of trust based on her assertion that the note had been paid in full.
Deutsche Bank then filed this lawsuit, alleging two causes of action. In the first cause of action, Deutsche Bank sought cancellation of Castillo's recorded document purporting to reconvey the deed of trust, which the Bank alleged was false and fraudulent. The second cause of action alleged that Castillo was in default on her payments under the note and sought judicial foreclosure of her property.
The complaint names Castillo and another individual, Raid Kiti, as defendants. The complaint alleges that Kiti has a recorded interest in the subject property. Mr. Kiti is not a party to the appeal.
In December 2014, almost one year after filing the complaint, Deutsche Bank decided to instead pursue a nonjudicial foreclosure and directed its counsel to dismiss the lawsuit against Castillo. On December 31, 2014, counsel filed a request for dismissal without prejudice, but the court clerk did not enter the dismissal based on an error by counsel on the form.
Counsel then filed a second request for dismissal on January 16, 2015, but the clerk again rejected the dismissal based on a different error on the form (i.e., counsel incorrectly indicated that fees had not been waived for one of the parties). Deutsche Bank's counsel later explained he was unaware the court did not enter the dismissal. In the same month that the second request for dismissal was filed and rejected (January 2015), the attorney responsible for handling the action for Deutsche Bank left his firm.
Consistent with Deutsche Bank's understanding that the action had been dismissed, Deutsche Bank made no further court appearances in the case. Neither Deutsche Bank nor Castillo appeared for a hearing on discovery motions in late January 2015, the same month Deutsche Bank's request for dismissal was submitted and rejected. When the court rescheduled the hearing for a date in February 2015, neither side appeared. Similarly, neither side appeared for a hearing on Castillo's motion for summary judgment in February 2015 or a trial readiness conference in March 2015.
Despite not appearing at earlier hearings, Castillo's counsel appeared on the date set for a jury trial in early April 2015; Deutsche Bank's attorneys were not present. The hearing was not reported, but the court's minute order indicates that Castillo's counsel made an oral motion for judgment on the complaint pursuant to Code of Civil Procedure section 631.8. The minute order indicates that the court granted the motion for judgment, but also placed the case "on the dismissal track as to any outstanding parties." At the same time, the court issued a "notice of dismissal by court," stating that the case would be dismissed without prejudice unless a judgment or dismissal was filed or a party appeared ex parte to show good cause why the case should not be dismissed. The court served this notice of dismissal on the parties, but the record contains no indication that the earlier minute orders (regarding the interim hearings and the trial date) were served by either the court or a party.
All further statutory references are to the Code of Civil Procedure. Section 631.8 states, in part: "After a party has completed his presentation of evidence in a trial by the court, the other party, without waiving his right to offer evidence in support of his defense or in rebuttal in the event the motion is not granted, may move for a judgment. The court as trier of the facts shall weigh the evidence and may render a judgment in favor of the moving party, in which case the court shall make a statement of decision as provided in Sections 632 and 634, or may decline to render any judgment until the close of all the evidence."
After the April 2015 court appearance, Castillo submitted a proposed judgment, which the court signed and entered on May 28, 2015. Rather than referencing section 631.8, the statute cited by counsel on the scheduled trial date, the judgment states that Castillo "moved for non suit pursuant to California Code of Civil Procedure section 581c" and the court "granted . . . non suit." The judgment states that it is "entered for Defendants and against Plaintiff." The record does not include any notice of entry of judgment served on Deutsche Bank or its counsel, although a proof of service was attached to the proposed judgment.
Over a year and a half after entry of judgment, Deutsche Bank filed a substitution of attorney and a motion to set aside and vacate the judgment. Deutsche Bank argued that its counsel mistakenly failed to appear at hearings based on a belief that the action had been dismissed, and that it only recently became aware of the entry of judgment. The Bank also argued that the judgment was procedurally improper and that it had a meritorious case against Castillo.
The trial court agreed and granted the motion. The court found the judgment was entered only because of the mistaken belief of Deutsche Bank's attorney that the case had been dismissed, which led to his failure to appear at the subsequent hearings and trial. The court further stated that the judgment was not proper, under either section 631.8 or section 581c, because Deutsche Bank did not make an opening statement or submit evidence at trial. The court also found that Deutsche Bank acted diligently in seeking to set aside the judgment. Accordingly, the court vacated the judgment and granted Deutsche Bank's request to dismiss the complaint without prejudice. Castillo appeals the court's order vacating the judgment.
DISCUSSION
A. Standard of Review
The parties agree that the trial court's decision is reviewed for an abuse of discretion. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 981 (Rappleyea).) Under this deferential standard of review, we must determine whether the trial court, applying the relevant legal principles, reached a ruling that is " 'so irrational or arbitrary that no reasonable person could agree with it.' " (Sargon Enterprises, Inc. v. University of Southern Cal. (2012) 55 Cal.4th 747, 773.) A trial court's ruling will be affirmed on appeal "unless it falls outside the bounds of reason." (People v. DeSantis (1992) 2 Cal.4th 1198, 1226.) We draw all reasonable inferences from the evidence and review the record in the light most favorable to the court's determinations. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478-479 (Shamblin).) We also defer to the court's findings supported by substantial evidence. (Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 1006 ["The abuse of discretion standard includes a substantial evidence component: 'We defer to the trial court's factual findings so long as they are supported by substantial evidence, and determine whether, under those facts, the court abused its discretion.' "].)
B. Equitable Relief from a Judgment Based on Extrinsic Mistake
The Code of Civil Procedure provides multiple avenues for an aggrieved party to move to set aside or vacate a default judgment. (§§ 473, subd. (b), 473.5, subd. (a), 663.) These statutes demonstrate a legislative preference for resolving a case on the merits rather than providing a windfall to a party due to the mistake of an adversary. (See, e.g., Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 696.) The statutes, however, also create limited time periods within which a party may seek relief. Once the statutory time periods have passed, the policy in favor of disposing of cases on the merits is overtaken by the strong public policy in favor of the finality of judgments. (Rappleyea, supra, 8 Cal.4th at p. 981.) When statutory relief is no longer available, the court may still provide equitable relief, but may do so only in "exceptional circumstances" upon a showing of an extrinsic fraud or mistake. (Id. at pp. 981-982.)
There is no dispute that the statutory time periods have passed and Deutsche Bank could seek only equitable relief. To consider a claim for equitable relief, the courts have created a three-pronged test: " '[f]irst, the defaulted party must demonstrate that it has a meritorious case. Second[], the party seeking to set aside the default must articulate a satisfactory excuse for not presenting a defense to the original action. Last[], the moving party must demonstrate diligence in seeking to set aside the default once ... discovered.' " (Rappleyea, supra, 8 Cal.4th at p. 982.)
Deutsche Bank also argues that the court could have set aside the judgment as void. (§ 473, subd. (d).) The trial court did not grant the motion on that basis and Deutsche Bank has not established that the judgment is void. A judgment is void when the court lacks jurisdiction to hear or determine the case due to an absence of authority over the subject matter or the parties. (Lee v. An (2008) 168 Cal.App.4th 558, 563-564.) If, however, a statute authorizes a prescribed procedure and the court acts contrary to the authority conferred, the court only exceeds its jurisdiction and the judgment is voidable. (Id. at p. 564.) According to Deutsche Bank, the judgment is void because the court erred when it relied on sections 631.8 and 581c to enter judgment in Castillo's favor. At most, this argument demonstrates judicial error that does not render the judgment void. It is undisputed that the court had jurisdiction over both the parties and subject matter of this lawsuit.
Considering the first prong of this test, a defendant against whom a default judgment is entered usually shows it has a meritorious case by submitting a proposed verified answer. (Rappleyea, supra, 8 Cal.4th at p. 975; Beard v. Beard (1940) 16 Cal.2d 645, 648 (Beard).) Historically, this requirement that the defendant must show it has a meritorious defense arose from a general rule against setting aside default judgments "unless it be made to appear prima facie that the judgment, as it stands, is unjust." (See, e.g., Parrott v. Den (1867) 34 Cal. 79, 81.) "The reason for the rule requiring an affidavit of merits is that a valid judgment should not be set aside unless it is made to appear, prima facie, that a different result would probably be reached." (Greenamyer v. Board of Lugo Elementary School Dist. (1931) 116 Cal.App. 319, 325 (Greenamyer).)
Here, the trial court was confronted with the reverse situation of a plaintiff failing to appear at trial, resulting in a judgment in favor of the defendant. In this scenario, the plaintiff obviously cannot demonstrate it has a meritorious case by submitting a verified answer. Instead, Deutsche Bank submitted a declaration from a loan servicer demonstrating that Castillo was, and remains, in default on her loan and that Deutsche Bank is the current beneficiary of the trust deed and promissory note. The trial court did not abuse its discretion in concluding that Deutsche Bank met its burden of establishing a prima facie case. (See, e.g., Beard, supra, 16 Cal.2d at p. 648 [moving party bears the burden of a prima facie showing of merit].)
In Rappleyea, the Supreme Court approved of the use of a declaration to establish that the party seeking to set aside a judgment has a meritorious case. (Rappleyea, supra, 8 Cal.4th at p. 982.)
Additionally, the trial court's ruling was supported by its finding that neither section 631.8 nor section 581c support entry of judgment against Deutsche Bank. The judgment itself purports to follow from the trial court's grant of Castillo's motion for nonsuit, but a court may grant nonsuit only after a plaintiff makes an opening statement. (Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 747-749; § 581c, subd. (a) ["Only after, and not before, the plaintiff has completed his or her opening statement, . . . the defendant . . . may move for a judgment of nonsuit."].) Similarly, Castillo originally moved pursuant to section 631.8 for a judgment against Deutsche Bank, but that section applies only after the plaintiff "has completed his presentation of evidence in a trial by the court." Neither statute supports entry of judgment against a party who, like Deutsche Bank, failed to appear on the date set for a jury trial and thus did not make an opening statement or present any evidence. The trial court did not abuse its discretion in inferring that "a different result would probably [have been] reached" (Greenamyer, supra, 116 Cal.App. at p. 325) absent Deutsche Bank's failure to appear or oppose entry of judgment.
We next must consider whether the trial court erred in finding Deutsche Bank demonstrated that the judgment was the result of an extrinsic mistake, i.e., whether it has a satisfactory excuse for failing to appear at trial. (Rappleyea, supra, 8 Cal.4th at pp. 982-983.) " 'Extrinsic mistake' refers to circumstances outside of the litigation that have prevented a party from obtaining a hearing on the merits." (Cruz v. Fagor America, Inc. (2007) 146 Cal.App.4th 488, 502 (Cruz).) "The term 'extrinsic' refers to matters outside of the issues framed by the pleadings, or the issues adjudicated." (Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 738 (Aldrich).)
Not every mistake by an attorney is sufficient to constitute an extrinsic mistake. When an attorney is aware of the relevant facts, but commits a mistake of law regarding the legal effect of those facts, such a mistake is intrinsic and cannot support setting aside a dismissal or default judgment. (Lennefelt v. Cranston (1964) 231 Cal.App.2d 171, 177-179.) Even if the mistake is extrinsic, it must be an excusable mistake because the negligence of an attorney is ordinarily imputed to his or her client. (Carroll v. Abbott Laboratories, Inc. (1982) 32 Cal.3d 892, 898 (Carroll); see also Aldrich, supra, 170 Cal.App.3d at pp. 738-739.)
However, an exception to this general rule applies when " '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.]' " (Carroll, supra, 32 Cal.3d at p. 898.) When such attorney neglect effectively and unknowingly deprives the plaintiff of representation, that plaintiff has been denied an opportunity to litigate its claim. (Id. at pp. 898-899.) The cases applying this exception "all boil down to this: Imputation of the attorney's neglect to the client ceases at the point where 'abandonment of the client appears.' " (Seacall Development, Ltd. v. Santa Monica Rent Control Bd. (1999) 73 Cal.App.4th 201, 205.) "Positive misconduct is found where there is a total failure on the part of counsel to represent his client." (Aldrich, supra, 170 Cal.App.3d at p. 739.)
In this case, counsel submitted a request for dismissal as instructed by Deutsche Bank in January 2015, but then effectively ceased representing its client. The attorney handling Deutsche Bank's case left his firm and Deutsche Bank's counsel thereafter: (1) failed to correct a minor error in the Bank's rejected request for dismissal; (2) repeatedly failed to appear to represent Deutsche Bank at numerous scheduled hearings and at trial; (3) took no action in response to the court's notice warning that the case would be dismissed; and (4) failed to object when Castillo's attorney submitted a proposed judgment. This inaction by counsel represents positive misconduct that effectively denied Deutsche Bank of representation and deprived it of an opportunity to litigate its claim. The trial court did not abuse its discretion in concluding that extrinsic mistake caused Deutsche Bank's failure to appear at trial.
Finally, we must consider whether the court abused its discretion in finding Deutsche Bank acted diligently in seeking to set aside the judgment. There is no outer time limit for demonstrating diligence sufficient to obtain equitable relief. It is well established, however, that the period is measured in months, not years, unless extenuating circumstances explain the delay. This court has held that an unexplained delay of nine months demonstrates a lack of diligence. (Cruz, supra, 146 Cal.App.4th at p. 506.) Under the statutory basis for relief, courts routinely require that a motion for relief from default be brought within three months of discovery of the default or default judgment. (Minick v. City of Petaluma (2016) 3 Cal.App.5th 15, 34; Stafford v. Mach (1998) 64 Cal.App.4th 1174, 1183-1184.)
Here, the trial court found that Deutsche Bank's new counsel discovered the judgment against the Bank—and that the court clerk rejected the earlier request for dismissal—in August 2016. Counsel then reserved a hearing date for the motion to set aside the judgment in December, within four months of discovering the judgment. Although the record does not disclose how Deutsche Bank eventually discovered the judgment, and Deutsche Bank arguably could have acted with more haste, we cannot say the court abused its discretion in finding that Deutsche Bank acted diligently in seeking to set aside the judgment. (Shamblin, supra, 44 Cal.3d at pp. 478-479 ["When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court."].) This is particularly true given the trial court's findings that (1) Deutsche Bank's counsel mistakenly believed the case was dismissed; and (2) Castillo's counsel made a motion for judgment at the trial call despite knowing that Deutsche Bank had filed two requests for dismissal and intended to have the case dismissed. Under these circumstances, we cannot conclude that the trial court abused its discretion in granting equitable relief.
C. Castillo's Standing Claim
In her opening brief, Castillo does not apply the relevant test for equitable relief from a judgment and instead argues Deutsche Bank "did not have any legal right to come back to Court and ask to vacate the Judgment when it did not even established [sic] its standing to sue." Castillo challenges the underlying merits of Deutsche Bank's claims; specifically, the assignment of the promissory note and deed of trust and the role of MERS as a nominee for the original lender. Castillo contends that because of errors in the assignment and breaks in the chain of title, Deutsche Bank is not the current beneficiary of the trust deed and, therefore, has no interest in this lawsuit sufficient to confer standing.
Castillo only addresses the relevant factors in her reply brief, contending the trial court erred in granting the motion to vacate. In a letter to the court, Deutsche Bank objected to the arguments raised by Castillo in her reply brief. "Points raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument." (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453.) However, we exercise our discretion to consider Castillo's arguments because Deutsche Bank fully briefed the issues in its respondent's brief and was not deprived of the opportunity to address the issues. (See, e.g., Jameson v. Desta (2009) 179 Cal.App.4th 672, 674, fn. 1.) To the extent the reply brief raises new issues beyond those addressing the relevant factors for considering a motion to vacate the judgment, those issues are deemed waived and not considered.
Castillo's arguments do not demonstrate that the trial court abused its discretion in granting Deutsche Bank's motion to vacate the judgment. First, although couched in terms of "standing," Castillo is essentially arguing that Deutsche Bank cannot prevail on its underlying causes of action. In addition to raising factual disputes that are not properly resolved for the first time on appeal, Castillo's claims do not demonstrate that Deutsche Bank lacked standing to file this lawsuit.
A judicial foreclosure action can be filed by a trustee named in a deed of trust, as well as a successor in interest. (See § 725a.) As an assignee, Deutsche Bank would ultimately need to prove to the court's satisfaction that the note was validly assigned. (Cockerell v. Title Ins. & Trust Co. (1954) 42 Cal.2d 284, 292; Neptune Society Corp. v. Longanecker (1987) 194 Cal.App.3d 1233, 1242.) These issues were not addressed by the trial court, however, because all the court did was vacate the prior judgment in Castillo's favor, and dismiss Deutsche Bank's lawsuit without prejudice. We cannot predict what the ultimate outcome of the case would have been if these issues had been litigated, but it does not affect our analysis of whether the court abused its discretion in setting aside the judgment. --------
Second, although the merits of the lawsuit are relevant to one of the factors considered by the trial court in considering a motion to vacate a judgment, all the trial court had to find here was that Deutsche Bank made a prima facie showing of merit. As discussed above, the trial court's findings on this issue did not constitute an abuse of discretion. Castillo's repeated denial of the truth of Deutsche Bank's allegations does not require a reversal of the court's order.
DISPOSITION
The order is affirmed.
GUERRERO, J. WE CONCUR: BENKE, Acting P. J. AARON, J.