Unfortunately, in many legal actions including divorce actions, the Respondent or Defendant inaccurately believes that if they avoid service of the legal papers, they can avoid the legal action altogether. In a recent decision, a California Appellate Court has ruled that substantial evidence supports that substituted service was proper where after several attempts to personally serve the Defendant, process server served the co-resident who stated that Defendant was not at home and where Defendant’s name appeared on the community’s directory.
In the case of First American Title Insurance, Company v. Banerjee (decided on December 29, 2022), Plaintiff One, a real estate broker, filed a lawsuit, in 2017, against Defendant One, a rental property company, and Defendant Two, the president and alleged alter ego of Defendant One, for breach of contract. Plaintiff One also included in its complaint a promissory estoppel cause of action against the escrow agent. In its complaint, Plaintiff One alleged Defendants signed a commission agreement in which Plaintiff One was to arrange for a tenant to lease a property owned by Defendant One that would then pay a three percent (3%) commission fee to Plaintiff One if the tenant decided to buy the property. In 2016, the tenant purchased the property in question from Defendant One for approximately $5 million. Plaintiff One demanded the escrow agent (Plaintiff Two) to hold $145,000, which represented the three percent (3%) commission fee, as well as $6,000 in outstanding lease fees. Although Plaintiff Two initially stated it would hold the funds, it ultimately did not pay Plaintiff One.
Plaintiff One served Defendants the Summons and the Complaint through substituted serviced. In the declaration of due diligence, the process server stated that the service was attempted at an address in Pleasanton on six occasions in March 2017. On the final attempt, a person at the Pleasanton address denied knowing either Defendants. The process server then attempted service at a Dublin address on seven occasions. The Dublin address was listed on the California Secretary of State’s website as the mailing address for Defendant One. This residence was in a gated community and the process server was unable to gain access through the gates during the first seven attempts. No one answered the intercom calls, although Defendant Two’s name was listed on the directory. On an eighth attempt at the Dublin address, the process server served the documents by substituted service on a “co-resident” who stated that Defendant Two was not at home. The process server also mailed the documents to the Dublin address.
In June 2017, Trial Court entered default judgments against both Defendants after they failed to file a response to the Complaint.
In July 2017, Plaintiff Two filed a cross-complaint against Defendants for indemnity and contribution. A proof of service indicted that Defendant Two was personally served the Summons and Cross-complaint by a process server in September 2017.
Plaintiff One subsequently settled its claims with Plaintiff Two and assigned its claims against Defendants to Plaintiff Two. In June 2019, Trial Court entered an order substituting Plaintiff Two as the sole plaintiff in the action. Plaintiff Two then filed a request for default judgment against Defendants in December 2019, and Trial Court entered the default judgment against Defendants in May 2020.
In June 2020, Defendants filed a motion to set aside the default and default judgment, arguing (1) the judgment against them was void for failure to state a cause of action against them; (2) the judgment was void because service of the original Summons and Complaint was improper; and (3) the default judgment should be set aside for mistake, inadvertence, surprise, or excusable neglect, pursuant to California Code of Civil Procedure Section 473(b). In support of this argument, Defendant Two submitted a declaration that he did not reside at the Dublin address when the original Summons and Complaint were served by substituted service. Trial Court denied the motion to set aside the default judgment. Defendants appealed, but California Court of Appeals has not affirmed Trial Court’s decision.
The California Court of Appeals has ruled that substantial evidence supports Trial Court’s decision that substituted service was proper. A defendant challenging a default judgment may seek relief through either a direct appeal from the judgment, a motion to set aside the judgment, or a collateral attack on the judgment but “each avenue has . . . limitations on the type of errors that can be addressed”. Pursuant to California Supreme Court decision in Christerson v. French (1919) 180 Cal. 523, a default judgment is not void if the court has jurisdiction of the parties and the subject matter, whether or not the complaint states a cause of action, so long as it apprises defendant of the nature of plaintiff’s demand. In this case, since Defendants chose to attack the default judgment by a motion to set aside the judgment under Code of Civil Procedure Section 473(d), Defendants must demonstrate that the Complaint did not apprise Defendant Two of the nature of Plaintiff One’s demand. To the contrary, Plaintiff One’s Complaint apprised Defendant Two of the nature of its demand to enforce the commission agreement that Defendant Two signed on behalf of Defendant One and that Defendant Two was being sued as an alter ego of Defendant One. Under Appellate Court’s decision in Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, in a direct appeal, appellate court reversed a default judgment against individual defendants because the Complaint did not state a cause of action against them where the Complaint did not plead evidence relating to alter ego liability. In this case, had Defendants directly appealed from the default judgment, rather than filed a motion to set aside the judgment based on Code of Civil Procedure Section 473(d), they could have relied on the reasoning of Vasey to attack the Complaint for failure to state a cause of action. The Appellate Court further stated that it is not bound by and disagrees with the decision in Grappo v. McMills (2017) 11 Cal.App.5th 996, [affirming an order setting aside a default judgment and suggesting judgment was void for failure to state a claim] and, thus, Grappo does not apply. Accordingly, this Court affirmed the order denying the motion to set aside the default and default judgment.
