NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC14541803)
Robert Wayne Dills asks us to set aside a default judgment against him that is predicated on entry of a default that he contends should have been set aside under Code of Civil Procedure section 473 on account of his mistake. We agree and reverse both the order denying relief from entry of default and the default judgment.
Clerk's Entry of Default
In May 2011, Adam P. Noah and Melinda Scully Noah (the Noahs) engaged Robert Wayne Dills, a licensed general contractor, to build a second home for them in Lakeport. They entered into a written construction contract with Greater Bay Builders, Inc. (Dills' corporation), with Dills signing the contract on behalf of the corporation. Suffice it to say that the construction did not go as planned. The Noahs terminated the contract in August 2013, and filed suit against Dills individually and doing business as the corporation on September 24, 2014. Dills was served on October 14, 2014, by substituted service on a co-occupant of his home, and a copy of the summons and complaint was then mailed to him at the same address. The complaint sought damages, punitive damages, and equitable and declaratory relief, including disgorgement of all compensation paid to Dills. The complaint also named as a codefendant American Contractors Indemnity Company (ACIC), alleged to be the surety that issued Dills' contractor's license bonds. On November 25, 2014, ACIC filed a cross-complaint for interpleader and injunctive relief against Greater Bay Builders, Inc. and others.
Neither Dills nor the corporation responded to the Noahs' complaint. On December 3, 2014, the Noahs' attorney filed and served on Dills a request for entry of default against Dills individually, and a separate request for entry of default against Greater Bay Builders, Inc. The clerk entered the separate defaults against Dills and Greater Bay Builders, Inc. that same day.
Dills Moves to Set Aside the Entry of Default Against Him
On May 14, 2015, Dills filed a motion to set aside the default against him, relying on his declaration, which stated, in pertinent part:
"2. I formed the corporation Greater Bay Builders, Inc., ('Corporation') to perform construction work and to protect me from personal liability on construction contracts. On May 5, 2011, Plaintiffs entered into a construction contract with the Corporation for Plaintiffs' construction project. . . . On August 23, 2013, Plaintiffs terminated the construction contract.
"3. I was not personally served with the complaint but when I reviewed the complaint, I understood that all of the claims arose out of the construction contract project between the Corporation and the Plaintiffs. The Corporation could not afford to defendant [sic] itself in the lawsuit so I decided that the Corporation would file bankruptcy.
"4. I have no legal training. As I formed the Corporation to protect myself from personal liability and the Corporation entered the contract with the Plaintiffs, I believed that if the Corporation filed bankruptcy, the entire case and all claim [sic] including the claims against myself would be discharged in bankruptcy. I did not respond to the complaint as I believed that filing bankruptcy for the Corporation would discharge all claims related to the construction contract, the subject of the complaint in this action.
"5. I then contacted Michael Fallon, a bankruptcy attorney in Santa Rosa, California to file a Corporate Bankruptcy. Mr. Fallon advised me that he would require an up front retainer of $4,500 to file the Corporate Bankruptcy. I saved up money for Mr. Fallon's retainer and met with Mr. Fallon in late April, 2015. It was at this appointment that I became aware of my mistake as to the effect of a Corporate bankruptcy on my personal liability even though the Corporation contracted with Plaintiffs and I did not.
It is not clear why Dills' declaration refers to February 5, 2015. That is the date on which ACIC filed its request for entry of default against Greater Bay Builders on its cross-complaint. Only Dills (and not his company) sought relief from default, and the only relief Dills sought was as against the Noahs, which was entered two months earlier on December 3, 2014.
Dills' attorney, Marshall Bluestone, also signed a declaration in support of his client's motion. Bluestone stated that he was "contacted by Mr. Dills on April 29, 2015 about setting aside the default entered against him. On April 29, 2015, I left a message with Plaintiff's attorney's office, speaking with associate attorney Mr. Jennings, asking to speak with Mr. Carroll, the lead attorney on this matter about the default that had been entered. After not receiving a return call, I called again on Monday May 4th and spoke to Mr. Jennings again who informed me he would pass the message to Mr. Carroll. I also informed Mr. Jennings that there was potential insurance coverage for Plaintiffs' claims that might be a potential source of money to resolve the case. Again, I received no response. My office called and talked to Mr. Jennings a few days later asking to set up a time for me to speak with Mr. Carroll but received no response."
The Noahs opposed Dills' motion to set aside default, with declarations from their attorney Michael Brooks Carroll and Adam Noah (Noah).
Noah stated that by May 2013, "some 12 months past the represented and agreed upon completion date, our Lakeport Home remained substantially incomplete. [¶] In May 2013, my wife and I advised Mr. Dills that we were considering terminating the contract and then suing Mr. Dills individually and his company for nonperformance and his false representations and promises. [¶] Mr. Dills then engaged an attorney, James Sell, to communicate with us about our claims against Mr. Dills and his company. [¶] After a meeting with Mr. Dills and his attorney, where we again voiced our intentions to hold Mr. Dills personally liable if our home did not get finished, on May 26, 2013, my wife and I executed 'Addendum #1 to May 10, 2011 Construction Contract' drafted by Mr. Dills' counsel, Mr. Sell, setting 'a date of completion' of June 28, 2013" which awarded liquidated damages in the amount of $200 per day if the completion date was not met, and giving the Noahs the unilateral right to terminate the project if the completion date was not met.
Noah stated that after Dills and his company "failed to diligently work on our Lakeport Home and did not meet the June 28 completion date," there were further written communications to Dills and his attorney between June and August, including an email questioning whether Dills had "abandoned the project." According to Noah, "Mr. Dills ignored these communications and was indifferent to our demands that he perform his duties to us."
The Noahs retained attorney Carroll in August 2013. Carroll's declaration opposing relief from default stated that he "drafted and assisted Plaintiffs in serving upon Mr. Dills individually (and upon James Sell, the attorney who had represented Mr. Dills in a prior meeting with Plaintiffs) a written termination of the Plaintiffs' Construction Contract . . . and a demand upon Mr. Dills personally for payment of delay damages for his failure to complete the Plaintiffs' Lakeport home as agreed. [¶] Such demand further specifically advised Mr. Dills that Plaintiffs had claims against him individually 'as the licensed contractor.' "
Carroll stated that in September 2013, he had a "series of telephone and email communications about the claims Plaintiffs were asserting" with Dills' attorney Mr. Sell, and that he "specifically advised Mr. Sell that Plaintiffs intended to sue Mr. Dills personally—not just his company—if Mr. Dills did [sic] comply with my clients' demands and resolve their claims against him." Carroll continued that in May 2014, after the matter was still not resolved and at the instruction of his clients to make "one final effort to obtain Mr. Dills' attention to and compliance with their monetary demands before we were required to file suit," he sent a final demand letter to Dills on May 22, 2014. The letter bore this salutation: "Dear Mr. Dills, individually and for Greater Bay Builders, Inc. (hereinafter, 'you')." The letter made repeated references to Dills' individual liability. Carroll again made contact with Dills' attorney, Sell, a point he reiterated in his declaration. As Carroll wrote, "[i]n connection with the making of this final demand, I again contacted Mr. Dills' attorney, Mr. Sell, and I again communicated that Plaintiffs intended to assert legal claims against Mr. Dills personally if he continued to ignore their demands and claims again him."
For example, it stated: "This Final Pre-Arbitration Notice and Final Demand letter is directed to Mr. Dills individually and as the person designated with the State of California Contractors State License Board as the 'Responsible Managing Officer' to be responsible for 'securing the full compliance' of Greater Bay Builders, Inc. as a licensed contractor with the California Contractor Licensing Laws, and as the controlling person and owner of and the controlling person and owner of [sic] Greater Bay Builders, Inc."
On September 24, 2014, the Noahs, as they had threatened, filed their lawsuit against Dills individually and against his company. As we have mentioned, ACIC filed its cross-complaint a week later on November 25.
Carroll's declaration states that on October 21, 2014, ACIC served Dills with a demand that he "resolve and remove the lawsuit from the bond immediately" or that he should have "your attorney respond in writing offering to defend ACIC pursuant to the obligations owed to ACIC under the indemnity agreement." On November 17, 2014, ACIC's lawyers sent a letter to Dills, identifying themselves as representing the "bonding company that issued you and/or your company . . . [a] Contractor's License Bond—the bond you are required to maintain in order to uphold your license;" informing him that ACIC had received "multiple claims on your contractors license bond," and that the Noahs are "alleg[ing] you are in violation of one or more of the California Business and Professions Code Sections;" and notifying him that ACIC "will be interpleading your bond due to the fact that the claims now exceed the penal sum of your bond" and that "[y]ou will be responsible for any and all fees and costs we incur defending the claims."
Proceedings in the Trial Court
Dills filed a motion to set aside the default on May 14, 2015, noticed for hearing on July 22, 2015. By this time the Noahs had already filed a request for default prove-up hearing, which was scheduled to be heard on July 16, 2015, before Judge Charles Crompton. Notably, the motion for default prove-up hearing was filed on May 1, 2015, just days after Bluestone had spoken to one of the Noahs' attorneys and asked to speak to lead attorney Carroll (without success) about the default that had been entered against Dills.
The prove-up hearing was held as scheduled on July 16, but no judgment was entered that day. Judge Crompton indicated his intent to grant judgment in favor of the Noahs against Dills and Greater Bay Builders, jointly and severally in the total amount of $1,020,906.86, but took the matter under submission.
On July 22, 2015, Judge Suzanne Bolanos, sitting in the law and motion department, presided over the hearing on Dills' motion to set aside entry of default. Dills' counsel informed the court that Greater Bay Builders had filed for corporate bankruptcy on July 17, 2015. In response to the question as to why there was "such an extended delay in answering and thereinafter to set aside the default," Dills' counsel responded that when Dills was sued he believed filing corporate bankruptcy would protect him from separate personal liability, which was a misunderstanding of the law. Dills did not think there was any "urgency" to respond to the state court complaint because the bankruptcy court would be the place to respond to the claims, and so he saved up the $4,500 that his bankruptcy attorney told him was required for a retainer before he was able to meet with the bankruptcy attorney in late April 2015. As soon as he realized from his bankruptcy attorney that there actually was an "urgency" to respond, Dills retained Bluestone within days. Bluestone told the court that, as counsel, he had "contacted the plaintiff's office for two weeks trying to get them to set aside. I never got a response to [sic] them for two weeks, and then I filed this motion within two weeks of meeting with my client . . . ." Bluestone emphasized, in response to the court's question about why Dills waited until July to file the bankruptcy, that it was a corporate bankruptcy, that Dills was not moving to set aside the default against the corporation, but that Dills did immediately move to set aside the default against him personally upon learning that he had been mistaken about what the federal bankruptcy filing would do for him.
The Noahs' counsel, Carroll, emphasized at oral argument that Dills was "represented by an attorney, an experienced attorney by the name of James Sell" when the dispute arose between the parties, and that the written communications to attorney Sell and Dills, before the filing of the complaint, make clear that Dills would be sued personally. He reiterated that "Mr. Sell was representing Mr. Dills through all of these communications that led up to the filing of the complaint." The Noahs' counsel noted that Dills' declaration does not explain "why he just didn't simply go to Mr. Sell and say what do I do about this complaint," and that it was not credible for Dills as a licensed contractor to state he didn't understand he could be personally liable.
When the court asked for confirmation that Dills was represented by an attorney at the time he was served with the complaint, the Noahs' attorney demurred, "I don't know that, and I would be speculating."
We note that despite the repeated references by the Noahs' counsel to Mr. Sell at the hearing and in the Noahs' papers in opposition as a basis to deny relief from default, there is nothing in the record suggesting that the Noahs' attorney ever made any effort to contact Sell after the complaint was filed on September 24, 2014, or at any time before filing the request for entry of default, despite having been in communication with Sell sometime after May 22, 2014.
The Noahs' position was that even if Dills could show that he had made a genuine mistake of law, he could not meet his burden of establishing excusable neglect sufficient to warrant relief from default because he did not take efforts to ascertain the correctness of his erroneous belief.
After hearing argument from counsel, the trial court took the matter under submission. Shortly thereafter, the court issued a written order denying Dills' motion to set aside default, finding that the "evidence submitted by Dills does not establish an excusable mistake of law" pursuant to Code of Civil Procedure section 473, subdivision (b). In support of that conclusion the trial court wrote, "Dills states that he mistakenly 'believed filing for bankruptcy for the Corporation would discharge all claims related to the construction contract, the subject of the complaint in this action.' [¶] . . . Dills was served with the complaint in November 2014. Dills' declaration is silent on when he made the determination to file for bankruptcy on behalf of the corporation. Dills states he hired a bankruptcy attorney in April 2015, four months after his answer to the complaint was due. Dills fails to explain how making a decision to file for bankruptcy four months after his answer was due excuses his failure to answer."
All further statutory references are to the Code of Civil Procedure unless otherwise noted.
After Judge Bolanos denied the motion to set aside entry of default, Judge Crompton entered judgment against Dills and Greater Bay Builders in the amount of $1,020,906.86. The Noahs claimed at the prove-up hearing that after terminating the contract they incurred $72,180 in "actual out of pocket costs to correct the code violations and the deficiencies in the work . . . and to complete the . . . contractual scope of work abandoned" by defendants. They were awarded this sum in the judgment. The $1 million-plus judgment included, among other things, disgorgement of $513,290 paid to Greater Bay Builders upon a finding that defendants violated state contractor's licensing statutes concerning under reporting of worker's compensation payments, which resulted in the automatic suspension of defendants' license by operation of law; prejudgment interest in excess of $183,000; $50,000 for "front-end loading" of invoices, in violation of Business and Professions Code sections 17200 and 7160; $50,000 for diminution in value based upon having to disclose in the future the corrected work on the home; $11,800 in fees for failure to complete the work on time, plus interest; $21,000 in statutory damages under state contractor's licensing statutes ($11,000 per plaintiff); and $55,000 in attorney fees.
Dills filed a timely appeal.
Section 473, subdivision (b) permits a court "upon any terms as may be just [to] relieve a party . . . from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect." A party seeking this relief must accompany the request with a copy of the answer or other proposed pleading to be filed, and the party must seek the relief within a "reasonable time, in no case exceeding six months" after the judgment, dismissal or order was taken. (Ibid.) Lack of prejudice to the opposing party is not required by statute, but it may be considered in determining whether the moving party acted diligently. (Weil and Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017) ¶¶ 5:362; 5:380.) The burden rests with the party opposing relief to show such prejudice, and "where the aggrieved party makes a strong showing of diligence in seeking relief after discovery of the facts, and the other party is unable to show prejudice from the delay, the original negligence in allowing the default to be taken will be excused on a weak showing." (Aldrich v. San Fernando Valley Lumber Co. (1985) 170 Cal.App.3d 725, 740.)
Relief is available for mistakes of law, as the statute makes clear. As Witkin amplifies, "Ignorance of the law is distinct. As the court said in A & S Air Conditioning v. John J. Moore Co. (1960) 184 Cal.App.2d 617 . . . 'The issue of which mistakes of law constitute excusable neglect presents a fact question; the determining factors are the reasonableness of the misconception and the justifiability of lack of determination of the correct law. . . . Although an honest mistake of law is a valid ground for relief where a problem is complex and debatable, ignorance of the law coupled with negligence in ascertaining it will certainly sustain a finding denying relief.' (184 C.A.2d 620.) . . . [¶] There is nothing basic in the distinction between mistake of law and ignorance of law. The cases indicate that the determining factor is the reasonableness of the misconception. In the simplest terms, a mistake that a good attorney might very well make is excusable; a blunder of a poor attorney may not be. But there is no test; the judge has broad discretion and could decide most of the cases either way." (8 Witkin, Cal. Procedure (5th ed. 2008) Attack on Judgment in Trial Court, § 153, p. 747.)
As Witkin summarizes, the relief provided by section 473 is "highly favored and is liberally applied." (8 Witkin, Cal. Procedure, supra, § 144, p. 736, and cases cited therein.) We recently explained in Grappo v. McMills (2017) 11 Cal.App.5th 996, 1005-1006: "The law concerning section 473 relief was set forth by the Supreme Court in Elston v. City of Turlock (1985) 38 Cal.3d 227, 233: 'A motion seeking such relief lies within the sound discretion of the trial court, and the trial court's decision will not be overturned absent an abuse of discretion. [Citations.] However, the trial court's discretion is not unlimited and must be " 'exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice.' " [Citations.] [¶] Section 473 is often applied liberally where the party in default moves promptly to seek relief, and the party opposing the motion will not suffer prejudice if relief is granted. [Citations.] In such situations "very slight evidence will be required to justify a court in setting aside the default." [Citations.] [¶] Moreover, because the law strongly favors trial and disposition on the merits, any doubts in applying section 473 must be resolved in favor of the party seeking relief from default [citations].' (Accord, Shamblin v. Brattain (1988) 44 Cal.3d 474, 478 ['very slight evidence is required to justify a trial court's order setting aside a default'].)"
For these reasons, a trial court order denying a motion for relief under section 473 is " 'scrutinized more carefully than an order permitting trial on the merits.' " (Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681, 695 (Fasuyi), quoting McCormick v. Board of Supervisors (1988) 198 Cal.App.3d 352, 360.) We described in Fasuyi how this review works in practice: "Last year we elaborated on the concept of abuse of discretion, in People v. Jacobs (2007) 156 Cal.App.4th 728. Holding that there was an abuse of discretion in denying a continuance, we ended our discussion with this observation: 'In Concord Communities v. City of Concord (2001) 91 Cal.App.4th 1407, 1417 our colleagues in Division Four of this court observed that "Abuse of discretion has at least two components: a factual component . . . and a legal component. [Citation.] This legal component of discretion was best explained long ago in Bailey v. Taaffe (1866) 29 Cal. 422, 424: 'The discretion intended, however, is not a capricious or arbitrary discretion, but an impartial discretion guided and controlled in its exercise by fixed legal principles. It is not a mental discretion, to be exercised ex gratia, but a legal discretion, to be exercised in conformity with the spirit of the law and in a manner to subserve and not to impede or defeat the ends of substantial justice. . . .' " '
" 'All this is well described in Witkin where, likewise citing the still vital Bailey v. Taaffe, supra, 29 Cal. 422, 424, the author distills the principle as follows: "Limits of Legal Discretion. [¶] The discretion of a trial judge is not a whimsical, uncontrolled power, but a legal discretion, which is subject to the limitations of legal principles governing the subject of its action, and to reversal on appeal where no reasonable basis for the action is shown. [Citation.] . . ." (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 358, pp. 406-407.)' (People v. Jacobs, supra, 156 Cal.App.4th at pp. 737-738.)" (Fasuyi, supra, 167 Cal.App.4th at pp. 695-696.)
Here, Dills met the procedural prerequisites for relief. The entry of default was filed on December 3, 2014, and the motion to set aside the default was filed on May 14, 2015, along with a proposed answer denying the allegations and raising affirmative defenses.
The only question is whether Dills established a reasonable mistake and, if so, whether he acted promptly to seek relief. Dills relies principally on Viles v. State (1967) 66 Cal.2d 24, 27-29 (Viles). In Viles, the plaintiff was ignorant of the law requiring a government claim to be filed within 100 days. Plaintiff did not seek advice of counsel until nine months after a car accident, having been informed by insurance representatives that the statute of limitations for wrongful death was one year. Only then did he learn from counsel that the time for presenting the claim had passed. Two weeks later, Viles' attorney filed a petition in the superior court to present a late claim pursuant to section 912 of the Government Code, which was denied. (Id. at p. 28.) The Supreme Court concluded that the trial court had abused its discretion in denying the petition. Noting that the showing for relief under then Government Code section 912, subdivision (b)(1) was the same as that required under section 473 for relief from a default judgment, the Supreme Court wrote, "An examination of the cases applying section 473 of the Code of Civil Procedure discloses that not every mistake of law is excusable [citations] but that an honest mistake is excusable, the determining factor being the reasonableness of the misconception [citations]." (Id. at p. 29.) The court concluded that Viles' mistake was not an "unreasonable misconception nor one that the average prudent man in the conduct of important business affairs would not have formed." (Id. at pp. 29-30.) And as to the showing of reasonable diligence after discovering his default, the Supreme Court concluded that filing the petition for relief within two weeks after consulting an attorney was reasonable. "Where, as here, plaintiff's mistake was the actual cause of his failure to comply with the 100-day requirement, his application to the board could obviously not have been made until he discovered his mistake, and the delay was, therefore reasonable under the circumstances." (Id. at p. 32.) The Supreme Court concluded that denial of this petition for relief was an abuse of discretion by the trial court.
The Supreme Court in Viles wrote that although the "well-established rule" is not to reverse except for abuse of discretion, "[t]his rule . . . does not preclude reversal of an order denying relief where adequate cause for such relief is shown by uncontradicted evidence or affidavits of the petitioner, nor should it be employed to defeat the liberal policies of remedial statutes designed for that purpose." (Viles, supra, 66 Cal.2d at pp. 28-29.)
The Supreme Court in Viles noted that section 912 had since been repealed, and a new procedure for obtaining judicial relief was now codified at Government Code section 946.6. (Viles, supra, 66 Cal. 2d at p. 27, fn. 2.) --------
Dills also contends that the trial court relied upon facts that were unsupported and contrary to the undisputed evidence, and thus that its conclusion is based on errors. That appears to be the case. Although the trial court's order concludes that the "evidence submitted by Dills" failed to establish an excusable mistake of law, its denial of relief from default is based on an apparent misreading of Dills' declaration. The trial court's order states that Dills was "silent" on when he determined to file for bankruptcy, and that he "failed to explain" how "making a decision to file for bankruptcy four months after his answer was due excuses his failure to answer." But as we have described the evidence, Dills' declaration strongly implies that he made the determination to file for bankruptcy on behalf of the corporation after he read the complaint and knew that the corporation could not afford to defend itself ("so I decided that the Corporation would file for bankruptcy"), and he "then" contacted the bankruptcy attorney. As to the second statement by the trial court that Dills "fail[s] to explain how making a decision to file for bankruptcy four months after his answer was due excuses his failure to answer," we read the uncontroverted declaration as providing the explanation. Dills made the decision to file bankruptcy at the time he was served with the complaint, not four months after his answer was due. Dills' underlying mistake was his erroneous belief that the corporate bankruptcy would address all of the claims against him arising out of the construction contract, and he embarked on that mistaken course immediately by contacting a bankruptcy attorney and saving the money for the retainer, all the while mistakenly believing that there was no urgency to respond because the corporate bankruptcy would resolve the issues in the civil lawsuit. As soon as he met with the bankruptcy attorney, he immediately sought out a civil attorney, because only then did he realize that the path he had pursued was not a substitute for responding to the civil complaint.
Respondents do not dispute that the facts that underlie the trial court's order are not found in the evidence. They argue that even if the trial court "misconstrued" Dill's declaration, any such error would be harmless because the purported mistake of law was not objectively reasonable, in light of the legal notices given to "Dills and his counsel" that claims were being asserted against Dills personally; Dills' status as a licensed contractor who should have known better; and his failure to exercise diligence to determine the correct law until he met with a bankruptcy attorney in April 2015.
We conclude that Dills established on the uncontroverted record that his mistake was reasonable. He had no legal training; he believed that his corporation would protect him from individual liability on the construction contract at issue, and that if the corporation filed bankruptcy, the entire case would be discharged in bankruptcy. As in Viles, his mistake was in believing there was no urgency to respond, and this mistake was the cause of his initial failure to respond to the complaint, a mistake he then immediately tried to remedy as soon as he saw bankruptcy counsel. The issue is not, as the Noahs argue, whether Dills knew that claims were being asserted against him personally. He obviously did. The issue is whether, once sued, Dills made a mistake that corporate bankruptcy laws would absolve him of personal liability. The Noahs cite no authority that makes this mistake objectively unreasonable.
We turn to the issue of prejudice. Although lack of prejudice is not required by section 473, subdivision (b) for discretionary relief, "it may lighten the moving party's burden: If granting the relief will not prejudice the opposing party (other than losing the advantage of the default), 'the original negligence in allowing the default to be taken will be excused on a weak showing.' [Aldrich v. San Fernando Valley Lumber, Co., Inc. (1985) 170 Cal.App.3d 725, 740 (emphasis added) . . . .] [¶] The burden of showing prejudice is on the opposing party." (Weil & Brown, Cal. Practice Guide, supra, §§ 5:362-5:363 pp. 5-106 - 5-107.) The Noahs contend that they need not establish prejudice because Dills has failed to present grounds for relief, but that in any event they would be prejudiced if Dills is relieved from default. They point to a letter from the license bond surety to Dills, shortly after the lawsuit was filed, referring to unspecified "multiple claims" being asserted against Dills' contractors license bond; from this the Noahs contend they would lose their judgment lien priority against whatever those claims are that are not reduced to judgment. They also assert that Dills, under the contractor licensing laws, cannot regain use of his license until the judgment is paid; and further that setting aside the default would "render worthless" the $4,125 in attorneys fees and $127 in court costs incurred in entering the default and presenting their case at the prove-up hearing.
Dills contends that the Noahs have not shown prejudice, and we agree. Other than losing the advantage of default, evidence of other liens is pure speculation on this record. Further, lien priority from a default is a benefit of a default and any "prejudice" is simply losing the advantage of a default. The Noahs have not suggested that they would be unable to present their case on the merits. The resources spent at the prove-up hearing presumably have produced work product that can be used at trial. Nor is the asserted penalty—that Dills cannot be a licensed contractor—prejudice against the Noahs in making their case against Dills on the merits.
As our Supreme Court wrote in Elston, "[u]nless inexcusable neglect is clear, the policy favoring trial on the merits prevails." (Elston v. City of Turlock, supra, 38 Cal.3d at p. 235.) Given all of the facts and circumstances of this case, including the absence of prejudice, we conclude that inexcusable neglect is not clear and that it was an abuse of discretion on the uncontroverted record not to relieve Dills from entry of default. It follows that there was thus no basis for the default judgment subsequently entered against Dills by Judge Crompton.
We close with an observation. The Noahs rely on the fact that Dills was represented by Mr. Sell, an "attorney of experience and competence" in the months leading up to the filing of the complaint and chastise Dills for not explaining why he did not consult with Sell upon being served with the complaint. Given this, we are struck by the fact that the Noahs' counsel never reached out to Mr. Sell when no response to the complaint was forthcoming. Although we have stated in Fasuyi, supra, 167 Cal.App.4th at page 703 that we do not hold that a plaintiff's attorney has a legal duty to warn a defendant's attorney before taking a default, the fact that it did not happen here could hardly escape our notice.
It bears repeating, as we noted in Fasuyi, that Section 15 of the California Attorney Guidelines of Civility and Professionalism (Guidelines), promulgated by the State Bar in 2007, has a particular guideline regarding defaults, and states that "An attorney should not take the default of an opposing party known to be represented by counsel without giving the party advance warning. [¶] For example an attorney should not race opposing counsel to the courthouse to knowingly enter a default before a responsive pleading can be filed. This guideline is intended to apply only to taking a default when there is a failure to timely respond to complaints, cross-complaints, and amended pleadings." (Guidelines, p. 12; Fasuyi, supra,167 Cal.App.4th at p. 702, fn. 10.)
A leading practice treatise could not be clearer on this point. Weil and Brown have an extended discussion about taking a default under the bold faced heading "Ethical Obligation to Warn Opposing Counsel," with the following PRACTICE POINTER: "If you're representing plaintiff, and have had any contact with a lawyer representing defendant, don't even attempt to get a default entered without first giving such lawyer written notice of your intent to request entry of default, and a reasonable time within which defendant's pleading must be filed to prevent your doing so. . . . [¶] . . . [I]f you fail to give such notice, courts will usually set aside the default, so that the net result may be a waste of your time and your client's money." (Weil & Brown, Cal. Practice Guide, supra, ¶¶ 5:65, 5:71, pp. 5-18 - 5-19.)
The default judgment and the order denying relief from default are reversed, with instructions that the trial court vacate the default and allow Dills to file a responsive pleading. Dills shall recover his costs on appeal.
Miller, J. We concur: /s/_________
Richman, Acting P.J. /s/_________