Opinion
H042191
08-20-2018
SPECIALIZED BICYCLE COMPONENTS INC., Plaintiff and Respondent, v. PALMER SPORTS GROUP, LLC, et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-14-CV-262862)
Pursuant to a stipulation for entry of judgment, the trial court entered judgment in favor of respondent, Specialized Bicycle Components Inc. (Specialized), and against appellants, Mark Palmer and Palmer Sports Group, LLC (PSG). Appellants did not appeal. Instead, nine months later, they moved to set aside the stipulated judgment under Code of Civil Procedure section 473 and to compel arbitration. They now appeal from the denial of that motion. We shall affirm.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
I. BACKGROUND
A. The Parties
Specialized designs, markets, and sells high end recreational and performance bicycles and bicycle equipment. The company sells its goods to retailers on credit, typically requiring payment in 90 days.
Pursuant to an asset purchase agreement and promissory notes dated June 30, 2011, PSG purchased the assets of North County Bicycles, LLC, a wholly owned subsidiary of Specialized. In July 2011, Specialized and PSG entered into a Dealer Alliance Agreement, which authorized PSG to sell and service Specialized bicycles and equipment at two B & L Bike and Sports locations in Solano Beach and San Diego. The Dealer Alliance Agreement provided that "Specialized has the sole discretion to determine the terms [on which] credit is extended." Among other things, the Dealer Alliance Agreement obligated PSG to "[p]ay all amounts due Specialized in accordance with applicable credit and payment terms . . . ." More specifically, the Dealer Alliance Agreement required PSG to pay "the extended credit relative" to a particular product "within thirty calendar days" of the sale of that product by PSG. If payment to Specialized is not timely made after the sale of a product, the product is considered "sold out of trust." In the Dealer Alliance Agreement, Specialized and PSG waived their jury trial rights and agreed "that all disputes arising hereunder shall be decided by binding arbitration before a retired Superior Court Judge in the State of California, County of Santa Clara, pursuant to California law."
PSG's CEO and owner, Mark Palmer, personally guaranteed PSG's debt to Specialized.
B. The Credit Terms
PSG fell behind on its payments to Specialized. By October 25, 2013, PSG owed Specialized nearly $1.6 million. PSG, Palmer, and Specialized entered into an agreement for the payment of PSG's debt to Specialized over the course of five years (Credit Terms). In the Credit Terms, the parties agreed that PSG owed Specialized $1,598,522.70 as of October 25, 2013, which the agreement termed the "2013 Indebtedness." Per the Credit Terms, the 2013 Indebtedness consisted of "an outstanding balance under the Dealer Agreement totaling $1,536,204.60 and the combined outstanding balance under the Inventory Note and the Purchase Note (both, as defined in the Asset Purchase Agreement) of $62,318.10."
Paragraph 4 of the Credit Terms imposed various "Financial Terms and Obligations" on PSG, including requiring it to give the Specialized USA Financial Analyst remote access to "Quickbooks Company" and "POs/Inventory system." The Credit Terms incorporated by reference "the Asset Purchase Agreement and Promissory Notes . . . and all other exhibits of the Asset Purchase Agreement . . . ." Paragraph 10 of the Credit Terms, entitled "Default," authorized Specialized to declare a default in various circumstances, including: (1) if PSG "does not make the payments due as set forth herein"; (2) if PSG "breaches any of the promises, obligations and covenants set forth in these terms"; and (3) if PSG does not comply with "the Dealer Agreements." Paragraph 10 further provided that, "[i]n the event of Default (other than a bankruptcy filing)[, PSG and Palmer] stipulate to entry of judgment against them, jointly and severally for the full amounts of the 2013 Indebtedness, less amount paid prior to Default, plus accrued interest, attorney's fees and costs." Paragraph 10 also stated that PSG and Palmer would execute a Stipulation for Entry of Judgment and authorized Specialized to file that Stipulation in court and to seek entry of judgment against PSG and Palmer "[i]f [PSG or Palmer] defaults before the Indebtedness is paid in full." In paragraph 19 of the Credit Terms, entitled "Arbitration," PSG, Palmer, and Specialized waived their jury trial rights and agreed "that all disputes arising hereunder will be decided by binding arbitration before a retired Superior Court Judge in the State of California, County of Santa Clara, pursuant to California law."
C. The Stipulation for Entry of Judgment
In November 2013, PSG, Palmer, and Specialized signed a Stipulation for Entry of Judgment. In it, the parties stipulated, among other things, that "[j]udgment in the amount of $1,555,364.00 jointly and severally against PSG and [Palmer] and in favor of Specialized may be entered forthwith, less credit for payments made pursuant to the Credit Terms" plus Specialized's "attorney's fees and costs incurred in preparing the Credit Terms, this stipulation and having the judgment entered and its enforcement." The parties further stipulated that, "[i]n the event of a Default under the Credit Terms entitling Specialized to entry of judgment, Specialized's counsel shall submit, along with the Stipulated Judgment, a declaration attaching a copy of the Credit Terms and setting forth all payments made pursuant to the Credit Terms, if any."
D. Procedural History
Specialized filed the Stipulation for Entry of Judgment and the supporting declaration of Jeanne Mitchell, Specialized's National Credit Manager, on March 26, 2014. Mitchell declared that, as of March 24, 2014, PSG owed Specialized $1,727,424.42. Mitchell declared that PSG had breached the Credit Terms by (1) selling goods it purchased on credit from Specialized to consumers without paying Specialized for those goods (i.e., selling out of trust); (2) failing to "cooperate[]" with the "financial controls required by [paragraph 4 of] the Credit Terms," including failing to provide financial statements; and (3) failing to make payments due under the promissory note executed in connection with PSG's purchase of North County's assets. Mitchell declared that Palmer and PSG had not made any payments on the 2013 Indebtedness. Specialized sought entry of judgment against Palmer and PSG in the amount of $1,555,364 plus $1,065 in attorney's fees and $1,305 in costs. Appellants were personally served with Specialized's filing in San Diego on March 29, 2014.
On April 3, 2014, appellants filed a motion to compel arbitration, request for attorney's fees, and request to stay action. That motion sought arbitration under the Dealer Alliance Agreement and the Credit Terms. While the motion and supporting memorandum did not articulate any disputes needing resolution by arbitration, appellants' attorney declared in a supporting declaration that "there exists a genuine dispute as to whether plaintiff has the right to seek entry of judgment, given that defendants did not breach any covenant set forth in the November 2013 agreement titled Credit Terms." Appellants noticed their motion for a May 8, 2014 hearing.
On April 15, 2014, the superior court entered judgment in favor of Specialized and against appellants in the full requested amount of $1,557,734.00. The judgment, which the court signed on April 11, 2014, indicated the court had "considered the stipulation of the parties" and the supporting declarations submitted by Specialized.
Also on April 15, 2014, PSG and Palmer filed an Opposition to Request for Entry of Stipulated Judgment, in which they requested that the court refrain from entering the stipulated judgment until after the scheduled May 8, 2014 hearing on their motion to compel arbitration.
Specialized sent a Notice of Entry of Judgment to appellants' counsel on April 28, 2014. Appellants did not appeal from the stipulated judgment.
Nine months later, on January 26, 2015, appellants moved to set aside the stipulated judgment pursuant to section 473 and to compel arbitration. In support of the motion to set aside judgment, appellants argued that they did not breach the Credit Terms because they were not required to repay the 2013 Indebtedness until 2018, such that Specialized was not entitled to judgment. Appellants also argued that the stipulated judgment should be set aside because the court entered it without giving them an opportunity to be heard. They cited S.E.P. Associates v. Peto (1975) 49 Cal.App.3d 305 (S.E.P. Associates) for the proposition that "[a] stipulation calling for entry of judgment on the happening of a condition does not justify entry of judgment without a noticed hearing at which the court may determine that the condition did in fact occur."
Failure to make payments towards the 2013 Indebtedness was not one the contract breaches Specialized asserted at the time it sought entry of judgment. Appellants' motion and supporting memorandum did not address the asserted breaches, which included selling out of trust, failing to provide financial statements, and delinquency under the terms of the promissory note executed in connection with PSG's purchase of North County's assets.
Appellants claimed they were unable to move to set aside the stipulated judgment earlier due to "extreme financial hardship" occasioned by Specialized confiscating PSG's merchandise, which left appellants "with almost no income for several months." Appellants' papers did not indicate the subdivision of section 473 on which they were relying. However, they made reference to the six-month time limit set forth in subdivision (b), suggesting they were relying, at least in part, on that subdivision.
As to the motion to compel arbitration, appellants reiterated the argument set forth in the April 3, 2014 motion to compel arbitration that arbitration should be compelled under the Dealer Agreement and the Credit Terms.
On March 4, 2015, the trial court denied the motion to set aside the stipulated judgment and to compel arbitration, finding "insufficient evidence to indicate that the stipulated judgment was entered as the result of fraud, mistake, surprise or excusable neglect" and "no reasonable justification for filing this motion more than 6 months after entry of the judgment."
Appellants timely appealed from that post-judgment order on March 30, 2015.
II. DISCUSSION
On appeal, appellants argue the judgment is void because it was entered without giving them an opportunity to be heard, in violation of their due process rights, and should be set aside pursuant to section 473, subdivision (d). They say the trial court erred in denying their motion on grounds of delay because section 473, subdivision (d) sets forth no deadline for filing a motion to set aside a void judgment. Specialized responds that appellants forfeited the contentions that the judgment is void and that section 473, subdivision (d) governs by failing to raise them below.
A. Forfeiture
"An appellate court ordinarily will not consider arguments made for the first time on appeal. [Citations.] 'The general rule confining the parties upon appeal to the theory advanced below is based on the rationale that the opposing party should not be required to defend for the first time on appeal against a new theory that "contemplates a factual situation the consequences of which are open to controversy and were not put in issue or presented at the trial." [Citation.]' [Citation.] This rule does not apply, however, if the new argument raises a pure issue of law on undisputed facts. [Citations.] On appeal, a party may raise a new issue of law based on undisputed facts [citation] and may even 'change the legal theory he relied upon at trial, so long as the new theory presents a question of law to be applied to undisputed facts in the record' [citation]." (C9 Ventures v. SVC-West, L.P. (2012) 202 Cal.App.4th 1483, 1491-1492.)
We will address appellants' appellate contentions on the merits. As an initial matter, it is not clear that they are being raised for the first time on appeal. It is true that appellants did not refer to the judgment as "void" below. They did, however, cite to S.E.P. Associates, a case reversing as void a judgment entered pursuant to a written stipulation where "the stipulation left open for subsequent determination the occurrence of a condition which was a prerequisite to the entry of judgment" and "contain[ed] no express waiver of the right to a hearing," reasoning that "appellants should be afforded an opportunity to present evidence at a hearing . . . before the entry of judgment." (S.E.P. Associates, supra, 49 Cal.App.3d at p. 308.) And while appellants did not cite to section 473, subdivision (d) below, they did rely on section 473 generally. Further, appellants motion to set aside judgment was based, at least in part, on the absence of an opportunity to be heard. That is the essence of their argument in appeal.
Even, if we were to characterize appellants' legal theory on appeal as "new," we would consider it because it raises a pure issue of law on undisputed facts—namely, whether the stipulated judgment is void because it was entered without giving appellants an opportunity to be heard. (Nixon Peabody LLP v. Superior Cour (2014) 230 Cal.App.4th 818, 822 [whether a judgment is void is a question of law].)
B. Legal Principles — Section 473 and Void and Voidable Judgments
Relief from a judgment obtained by "mistake, inadvertence, surprise, or excusable neglect" is available under section 473, subdivision (b) where application for such relief is "made within a reasonable time, in no case exceeding six months, after the judgment . . . was taken." (§ 473, subd. (b).) Section 473, subdivision (d) authorizes the court to "set aside any void judgment" "on motion of either party after notice to the other party . . . ." That provision "does not place any time limit on bringing such a motion." (Tearlach Resources Limited v. Western States Internat., Inc. (2013) 219 Cal.App.4th 773, 779.)
A judgment is void where the court that rendered it lacked "fundamental jurisdiction," meaning it had no " ' " 'power to hear or determine the case [due to] an absence of authority over the subject matter or the parties.' " ' " (Kabran v. Sharp Memorial Hospital (2017) 2 Cal.5th 330, 339.) Put differently, " '[a] judgment is void if the court rendering it lacked subject matter jurisdiction or jurisdiction over the parties.' " (Pajaro Valley Water Management Agency v. McGrath (2005) 128 Cal.App.4th 1093, 1100.) For example, "if a defendant is not validly served with a summons and complaint, the court lacks personal jurisdiction and a default judgment in such action is subject to being set aside as void." (Lee v. An (2008) 168 Cal.App.4th 558, 564 (Lee).) Where a court with fundamental jurisdiction acts "in excess of its jurisdiction or defined power, . . . the judgment [is] voidable," not void. (In re Marriage of Goddard (2004) 33 Cal.4th 49, 56.)
C. The Judgment is Not Void
Here, the court had personal jurisdiction over appellants: they stipulated "to in personam jurisdiction in the State of California, County of Santa Clara" in the Credit Terms; they were personally served with process in the State; and they made a general appearance in the action by seeking affirmative relief (i.e., an order compelling arbitration). (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017) ¶ 4:2, p. 4-1 ["Service of summons on a defendant within the state . . . generally establishes personal jurisdiction over that defendant"]; Serrano v. Stefan Merli Plastering Co., Inc. (2008) 162 Cal.App.4th 1014, 1028-1029 (Serrano) ["A court acquires personal jurisdiction over a party that makes a general appearance in an action even if no summons is served on that party" and "seeking affirmative relief or opposing a motion on the merits, ordinarily constitute[s] a general appearance"].)
The court also had subject matter jurisdiction. "The California Constitution confers broad subject matter jurisdiction on the superior court. (Cal. Const., art. VI, § 10.) [While t]he subject matter jurisdiction of the superior court is limited in certain circumstances, . . . such as in areas of exclusive federal jurisdiction [citation], matters within the exclusive jurisdiction of an administrative agency [citation], and where jurisdiction is vested in a reviewing court as a result of the filing of a notice of appeal [citation][, n]one of those circumstances was present" in this contract action. (Serrano, supra, 162 Cal.App.4th at p. 1029.)
Because the court had both personal and subject matter jurisdiction, it had fundamental jurisdiction. As such, the judgment is not void.
Appellants contend the judgment is void because it was issued without giving them an opportunity to be heard in violation of their due process rights. But California courts have held that, where fundamental jurisdiction is not lacking, the issuance of an order or judgment without due process constitutes an act in excess of jurisdiction that renders the order or judgment voidable, not void. For example, in Lee, the trial court entered default judgment against the appellant for failure to appear at a case management conference and denied her subsequent section 473, subdivision (d) motion to vacate. (Lee, supra, 168 Cal.App.4th at pp. 562-563.) On appeal, the appellant argued the judgment was void because she was not given notice that her failure to appear could result in terminating sanctions. (Id. at p. 562.) The court of appeal acknowledged that "the due process requirement that appellant be given notice of potential sanctions and an opportunity to be heard prior to their imposition" had not been satisfied. (Id. at p. 565.) Nevertheless, because "the [trial] court had fundamental jurisdiction over the parties and the subject matter," the court of appeal reasoned that the imposition of "terminating anctions without adequate prior notice" constituted an act in excess of the trial court's jurisdiction, which rendered the judgment voidable, not void. (Id. at p. 565.) As such, the "[a]ppellant was not entitled to relief under section 473, subdivision (d) . . . ." (Id. at p. 566.)
Johnson v. E-Z Ins. Brokerage, Inc. (2009) 175 Cal.App.4th 86 (Johnson) likewise involved a motion to set aside and vacate a default judgment entered as a terminating sanction without notice or an opportunity to be heard. Following Lee, the court of appeal concluded that the "default judgment . . . [was] not void, but at most [was] voidable, because the trial court had fundamental jurisdiction over the parties and the subject matter." (Id. at p. 99.)
Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351 (Rooney) and S.E.P. Associates, on which appellants rely for their contention that lack of an opportunity to be heard renders a judgment void, are not contrary. In Rooney, judgment was entered against defendants pursuant to a written stipulation without notice or an opportunity to be heard and defendants' motion to set aside the judgment was denied. The stipulation left "open for subsequent determination" certain "essential element[s] of a complete judgment," namely, "the amount of the contemplated judgment and the occurrence of prerequisites for its entry." (Id. at pp. 369-370.) In entering judgment, the trial court simply accepted the "plaintiffs' declarations as conclusive proof of the fact of default and the amount due . . . without first giving defendants an opportunity to be heard in opposition to plaintiffs' showing." (Id. at p. 370.) Our Supreme Court concluded "[t]his was error," given the stipulation contained "no express waiver of the right to a hearing . . . ." (Ibid.) The Rooney court reversed the order denying defendants' motion to set aside the judgment, reasoning the judgment was "void . . . because . . . defendants were given no notice of hearing nor were they afforded an opportunity to be heard." (Id. at p. 372.) S.E.P. Associates likewise involved a judgment entered pursuant to a written stipulation without notice to defendants or an opportunity to be heard and the subsequent denial of a motion to vacate and set aside the judgment. (S.E.P. Associates, supra, 49 Cal.App.3d at pp. 306-307.) Following Rooney, on appeal from the judgment, the court of appeal reversed.
Neither Rooney nor S.E.P. Associates had occasion to distinguish between void and voidable judgments. In both cases, relief was sought within section 473, subdivision (b)'s six-month time limit. (Rooney, supra, 10 Cal.3d at pp. 368, 357, fn. 3 [judgment was signed on September 3, 1971 and the motion to set aside judgment was filed later that month]; S.E.P. Associates, supra, 49 Cal.App.3d at pp. 307 [judgment was entered on April 15, 1974 and the motion to vacate and set aside the judgment was denied on July 26, 1974]; Lee, supra, 168 Cal.App.4th at p. 566 [finding unpersuasive case holding "that orders imposing terminating sanctions for discovery violations without adequate prior notice were void," as the court there "did not have to distinguish void or voidable orders for the purpose of deciding whether relief could be sought after the six-month period in section 473, subdivision (b)"].) And S.E.P. Associates was decided on appeal from the judgment itself, not from the order denying the motion to set aside judgment. (S.E.P. Associates, supra, at p. 306.)
Though neither party cites it, Brown v. Williams (2000) 78 Cal.App.4th 182 also merits discussion. There, the court stated broadly that "Section 473 empowers a trial court to set aside any judgment or order that is void as a matter of law, for example, because the court lacked subject matter jurisdiction, or because the summons and complaint were not properly served, so that the court lacked personal jurisdiction over a defendant, or otherwise because the judgment or order violated a party's due process rights to notice and an opportunity to be heard." (Id. at p. 186, fn. 4, italics added.) The authority Brown cites for that proposition can be traced back to McDonald v. Mabee (1917) 243 U.S. 90 (McDonald), which held that a judgment issued by a court that lacked personal jurisdiction over the defendant was void. In some cases, such as McDonald, lack of notice deprives the court of personal jurisdiction and thus of fundamental jurisdiction, such that the ensuing judgment is void. This is not such a case.
Brown cited Reid v. Balter (1993) 14 Cal.App.4th 1186, which relied on Lovato v. Santa Fe Internat. Corp. (1984) 151 Cal.App.3d 549, which in turn relied on City of Los Angeles v. Morgan (1951) 105 Cal.App.2d 726, which cited McDonald. --------
As appellants argue, the facts of this cases are similar to Rooney. But that means that, at best, the judgment is voidable. A voidable judgment may be set aside under subdivision (b) of section 473, not subdivision (d). (Dhawan v. Biring (2015) 241 Cal.App.4th 963, 973.) Alternatively, appellants could have asserted their argument that the court erred in entering the stipulated judgment without giving them an opportunity to be heard on direct appeal.
D. The Trial Court Properly Denied the Motion
Appellants do not argue on appeal that the trial court erred in denying their motion under section 473, subdivision (b). Any such argument would be meritless as appellants failed to seek relief from judgment within six months. "The six-month limit [for relief under section 473, subdivision (b)] is mandatory; a court has no authority to grant relief under [the provision], unless an application is made within the six-month period." (Arambula v. Union Carbide Corp. (2005) 128 Cal.App.4th 333, 340.)
Having properly denied appellants relief from judgment, the trial court was correct to deny their motion to compel arbitration. The only dispute appellants identify for resolution in arbitration is whether they defaulted under the Credit Terms; that issue was resolved by the stipulated judgment.
III. DISPOSITION
The order denying appellants' motion to set aside stipulated judgment and to compel arbitration is affirmed. Specialized shall recover its costs on appeal.
/s/_________
ELIA, J. WE CONCUR: /s/_________
GREENWOOD, P. J. /s/_________
MIHARA, J.