Tentative Ruling

Judge Donna Geck
Department 4 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Kimberly M Jones vs 1664 EVR LLC
Case No: 18CV05766
Hearing Date: Fri Feb 07, 2020 9:30

Nature of Proceedings: Motion: Vacate and Set Aside Default and Default Judgment

TENTATIVE RULING: The motion of defendant 1664 EVR, LLC for order vacating and setting aside the default and default judgment entered against it is granted. Defendant shall immediately file and serve its response to the complaint. Defendant’s request for monetary sanctions is denied.

BACKGROUND:

On April 13, 2016, plaintiff Kimberly M. Jones (“Jones”) and defendant 1664 EVR, LLC (“1664 EVR”), a California limited liability company, entered into a written lease agreement for Jones and her children to occupy a single family residence owned by 1664 EVR, located at 1664 East Valley Road, Santa Barbara, California (the “Subject House”). The rent was $32,000.00 per month and the security deposit was $45,000.00. Jones and her children occupied the Subject House for eighteen months and vacated the property on October 31, 2017. After Jones vacated the property, 1664 EVR returned her security deposit to her, less $11,473.00 for cleaning and repairs. Jones objected to 1664 EVR’s retention of a portion of her security deposit, claiming that when she vacated the Subject House the property was in better condition than when she moved in and that there was no damage other than ordinary wear and tear.

Jones filed her complaint on November 26, 2018, alleging causes of action against 1664 EVR for (1) bad faith retention of security deposit in violation of Civil Code Section 1950.5, (2) breach of contract, and (3) rescission and restitution. Jones alleges that at the time 1664 EVR executed the lease for the Subject House, its status as a California limited liability company had been suspended and that it did not have the capacity to conduct business or enter into contracts. Because 1664 EVR was not lawfully entitled to do business or to contract, Jones alleges that she is entitled to rescission of the lease agreement and restitution of the amount she paid in rent ($576,000.00), plus the amount of the security deposit ($45,000.00).

On January 11, 2019, 1664 EVR’s default was taken. On May 2, 2019, based on the evidence presented, the court entered a default judgment in favor of Jones and against 1664 EVR in the amount of $703,251.00, including damages of $610,419.00, interest of $91,312.00, costs of $520.00, and attorney’s fees of $1,000.00. 1664 EVR now moves the court for an order vacating and setting aside the default and default judgment on the grounds that it was never served with the summons and complaint and that the default and default judgment are void ab initio.

ANALYSIS:

Requests for Judicial Notice

1664 EVR has requested that the court take judicial notice of Exhibit A consisting of conformed copies of Articles of Organization and Statements of Information of 1664 EVR filed with the Secretary of State on July 10, 2008, July 28, 2008, and July 29, 2019, and a conformed copy of Business Search – Entity Detail of 1664 EVR from the Secretary of State website showing the company as “active,” Exhibit B consisting of conformed copies of Grant Deed recorded October 31, 2007 with the Santa Barbara County Recorder’s Office conveying real property located at 1664 East Valley Road, Santa Barbara, California to James Nigro and Grant Deed recorded July 24, 2008, conveying the subject property from James Nigro to 1664 EVR, Exhibit C consisting of conformed copies of Articles of Organization and Statements of Information of JimBob, LLC filed with the Secretary of State on July 5, 2016, August 15, 2016, and June 23, 2018, and a conformed copy of Grant Deed recorded August 31, 2016 transferring the subject property from 1664 EVR to JimBob, LLC, Exhibit D consisting of conformed copies of Certificate of Revivor and Certificate of Relief from Contract Voidability issued to 1664 EVR by the Franchise Tax Board on July 31, 2019, and Exhibit E consisting of a conformed copy of the complaint filed in the Los Angeles County Superior Court on April 12, 2019, Case No. 19STCV12833.

Jones has requested that the court take judicial notice of Exhibit A consisting of a conformed copy of the Certificate of Status of 1664 EVR issued by the Secretary of State showing the company was suspended by the Secretary of State on August 25, 2015 and by the Franchise Tax Board on November 2, 2015.

The above exhibits are properly the subject of judicial notice as official acts of the legislative, executive, and/or judicial departments of this state. Evid. Code §452, subd. (c). The complaint in Case No. 19STCV12833 is properly the subject of judicial notice as a record of the superior court. Evid. Code §452, subd. (d).

Evidentiary Objections

Jones has objected to portions of the declarations of Samuel Arsht, Christopher Jacobs, James Nigro, and Robert Schnell submitted in support of 1664 EVR’s motion. The court declines to rule on all of Jones’s objections since most of the objected to statements and exhibits played no part in the ruling that follows. However, as to those matters that were considered, the court rules:

1. Arsht Declaration, pages 35:27-36:5: Overruled. Personal knowledge. Evid. Code §702. Party admission. Evid. Code §1220. Also, the hearsay rule is not implicated when the issue is whether certain things were said or done and not whether those things were true or false. Am-Cal Investment Company, Inc. v. Sharlyn Estates, Inc. (1967) 255 Cal.App.2d 526, 541.

2. Jacobs November 11, 2019 Declaration, page 2:9-15. Overruled. Personal knowledge. Evid. Code §702.

3. Jacobs November 11, 2019 Declaration, page 2:18-21. Overruled. Personal knowledge. Evid. Code §702.

4. Jacobs November 11, 2019 Declaration, page 2:24-28. Overruled. Personal knowledge. Evid. Code §702.

5. Jacobs November 11, 2019 Declaration, page 3:2-8. Overruled. Personal knowledge. Evid. Code §702.

6. Schnell Declaration, page 30:3-5. Overruled. Personal knowledge. Evid. Code §702.

7. Schnell Declaration, page 30:6-18. Overruled. Personal knowledge. Evid. Code §702.

Motion to Vacate and Set Aside Default and Default Judgment

The court is authorized to vacate and set aside a default and default judgment when service of the summons and complaint did not result in actual notice to the defendant in time to defend the action. Code Civil Procedure Section 473.5 provides:

“(a) When service of a summons has not resulted in actual notice to a party in time to defend the action and a default or default judgment has been entered against him or her in the action, he or she may serve and file a notice of motion to set aside the default or default judgment and for leave to defend the action. The notice of motion shall be served and filed within a reasonable time, but in no event exceeding the earlier of: (i) two years after entry of a default judgment against him or her; or (ii) 180 days after service on him or her of a written notice that the default or default judgment has been entered.

“(b) A notice of motion to set aside a default or default judgment and for leave to defend the action shall designate as the time for making the motion a date prescribed by subdivision (b) of Section 1005, and it shall be accompanied by an affidavit showing under oath that the party’s lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect. The party shall serve and file with the notice a copy of the answer, motion, or other pleading proposed to be filed in the action.

“(c) Upon a finding by the court that the motion was made within the period permitted by subdivision (a) and that his or her lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect, it may set aside the default or default judgment on whatever terms as may be just and allow the party to defend the action.”

Additionally, the court may set aside any void judgment or order. Code of Civil Procedure Section 473, subdivision (d), provides:

“The court may, upon motion of the injured party, or its own motion, . . . set aside any void judgment or order.”

1664 EVR asserts that it did not receive actual notice of the summons and complaint in time to defend the action. 1664 EVR was formed and filed its Articles of Organization with the California Secretary of State on July 10, 2008. (Dfd. RJN, Ex. A.) On July 28, 2008, 1664 EVR filed its Statement of Information with the Secretary of State that listed Christopher A. Jacobs, 21 East Carrillo Street, Santa Barbara, California 93101, as the company’s agent for service of process and James Nigro (“Nigro”) and Robert Schnell (“Schnell”) as the owners and managers of the company. (Ibid.) At the time 1664 EVR was formed, Nigro was the owner of the Subject House, having acquired the property in October 2007. (Dfd. RJN, Ex. B.) On July 24, 2008, Nigro transferred title to the Subject House to 1664 EVR by grant deed. (Ibid.)

On April 13, 2016, 1664 EVR as landlord and Jones as tenant entered into a one year lease agreement for the Subject House. (Comp., Ex. 1.) The rent was $32,000.00 per month and the security deposit was $45,000.00. (Comp., Ex. 1, ¶¶ 2.B., 4.A.) In July 2016, Nigro and Schnell formed JimBob, LLC (“JimBob”), a California limited liability company, for purposes of acquiring additional properties to lease. (Nigro Dec., ¶4; Schnell Dec., ¶3.) On July 5, 2016, JimBob filed its Articles of Organization with the California Secretary of State and on August 15, 2016, the company filed its initial Statement of Information, which listed Nigro and Schnell as the owners and managers of the company. (Dfd. RFN, Ex. C.) After forming JimBob, Nigro and Schnell recorded a grant deed on August 31, 2016, transferring ownership of the Subject House from 1664 EVR to the new company. (Ibid.)

On February 7, 2017, JimBob as assignee of 1664 EVR and landlord and Jones as tenant entered into a six month extension of the lease for the Subject House that extended the lease term to October 30, 2017, at the same monthly rent of $32,000.00. (Schnell Dec., ¶6, Ex. 3.) Pursuant to the lease extension, Jones made rent payments to JimBob on checks dated November 2, 2016 (before Jones and JimBob formally signed the lease extension) in the amount of $96,000.00 and on August 1, 2017 in the amount of $94,515.77 (from which Jones had deducted “oven repairs”). (Nigro Dec., ¶7, Ex. 1.) Jones and her children vacated the Subject House on November 1, 2017. (Schnell Dec., ¶6.) After Jones and her family moved out, JimBob paid $9,340.00 to clean and repair the property. (Schnell Dec., ¶7.) In November 2017, JimBob sent plaintiff a check in the amount of $33,527.00, which represented the amount of the security deposit plaintiff had paid, less $11,473.00 for cleaning and repairs ($9,340.00), plus two extra days of rent ($2,233.00). (Ibid.)

On November 26, 2018, plaintiff filed her complaint against defendant for (1) bad faith retention of security deposit in violation of Civil Code Section 1950.5, (2) breach of contract, and (3) rescission and restitution. Before filing her complaint, Jones had learned that 1664 EVR had been suspended by the California Secretary of State, effective August 25, 2015, and by the California Franchise Tax Board, effective November 2, 2015, for failing to satisfy its filing requirements. (Jones Dec., ¶15; Ptf. RJN, Ex. A.) Like a corporation, a suspended limited liability company is disqualified from exercising any right, power, or privilege. Corp. Code §17713.10, subd. (c). While aware that 1664 EVR had been suspended, Jones chose to serve the summons and complaint on Christopher A. Jacobs (“Jacobs”), the company’s purported agent for service of process according to the Secretary of State website. Jones retained registered process server Colleen Dennis to serve Jacobs. (Dennis Dec., ¶6, Ex. A.)

On November 29, 2018, at approximately 12:58 p.m. in the afternoon, Dennis went to the business address listed on the Secretary of State website for Jacobs at 21 East Carrillo Street, Santa Barbara, California 93101. (Dennis Dec., ¶5.a.) When Dennis entered the office, she was greeted by a receptionist. (Dennis Dec., ¶5.b.) Dennis told the receptionist that she was there to serve Jacobs with legal documents. (Dennis Dec., ¶5.c.) In response, the receptionist stated that she accepts service of all legal documents for all tenants of the building. (Ibid.) Dennis handed the receptionist an envelope with Jacob’s name written across the front of it that contained the summons and complaint. (Ibid.) The receptionist took the envelope and did not inform Dennis that Jacobs was not a tenant of the building. (Dennis Dec., ¶5.d.) The next day, Dennis mailed a copy of the summons and complaint by first class mail to Jacobs at 21 East Carrillo Street, Santa Barbara, California 93101. (Dennis Dec., ¶5.e.)

1664 EVR did not answer the complaint and its default was taken on January 11, 2019. (Request for Entry of Default, filed 1-11-19.) The Proof of Service of Summons, which Dennis signed under penalty of perjury and filed with the court on November 30, 2018, states (1) that Dennis served the summons and complaint on Jacobs on November 29, 2018, (2) that Jacobs was 1664 EVR’s agent for service of process, and (3) that the documents were “personally delivered” to Jacobs at 21 East Carrillo Street, Santa Barbara, California 93101. (Proof of Service of Summons, filed 11-30-18.) Thereafter, on May 2, 2019, the court entered a default judgment against 1664 EVR for $703,251.00, including damages of $610,419.00, interest of $91,312.00, costs of $520.00, and attorney’s fees of $1,000.00. (Judgment, filed 5-2-19.)

1664 EVR asserts that it was never served with the summons and complaint and that the proof of service is false. 1664 EVR learned for the first time that a default judgment had been entered against it in July 2019, after Jones filed a separate lawsuit against JimBob, 1664 EVR, Nigro, and Schnell in the Los Angeles County Superior Court, Case No. 19STCV12833. (Dfd. RJN, Ex. E; Arsht Dec., ¶7, Ex. E.) After learning of the default judgment and reviewing the Proof of Service of Summons, the attorneys for 1664 EVR did a “Google” search of Jacobs and discovered that he is an attorney with Brownstein Hyatt Farber and Schreck, LLP in Santa Barbara. (Arsht Dec., ¶8.) The attorneys contacted Jacobs and he provided them with an initial declaration and then an updated declaration in which he states:

● He has not occupied any space at 21 East Carrillo Street in Santa Barbara since January 2014;

● 21 East Carrillo is presently occupied by a bank as its primary tenant;

● He was not present at 21 East Carrillo Street on November 29, 2018 at any time and was not personally served with the summons and complaint at that address or any other address;

● He has not received by mail or any other form of service any pleading or other document in the present action, including the default or default judgment; and

● He is no longer the agent for service of process for 1664 EVR.

(Jacobs November 11, 2019 Dec., ¶¶ 4-11.)

As discussed above, when service of a summons and complaint has not resulted in actual notice to a party in time to defend the action and a default or default judgment is entered against the party, the party may file a motion to set aside the default and default judgment and for leave to defend the action. Code Civ. Proc. §473.5, subd. (a). The motion must be filed and served within a reasonable time, but in no event exceeding the earlier of (1) two years after entry of the default judgment against the party or (2) within 180 days after service on the party of written notice that the default or default judgment has been entered. Ibid. The motion must be accompanied by a declaration under oath showing that the party’s lack of actual notice in time to defend the action was not caused by the party’s avoidance of service or inexcusable neglect. Code Civ. Proc. §473.5, subd. (b). The motion must also be accompanied by a copy of the answer or other pleading proposed to be filed in the action. Ibid.

The requirements of Section 473.5 have all been met in this case. First, it is clear that 1664 EVR did not receive actual notice of the lawsuit in time to defend the action. 1664 EVR was never served with the summons and complaint. (Jacobs November 11, 2019 Dec., ¶6.) Second, 1664 EVR’s motion is timely as it was brought shortly after defendant learned of the action and well within the two year period required by subdivision (a) of the statute. (Arsht Dec., ¶7.) The court file does not reflect that 1664 EVR was ever served with written notice that a default and default judgment had been entered against it. Third, attached to the motion are copies of the pleadings that 1664 EVR proposes to file in the action, entitled “[Proposed] Notice of Demurrer and Demurrer to Third Cause of Action of Complaint” and “[Proposed] Notice of Motion and Motion to Strike Portions of Complaint.” (Arsht Dec., ¶20, Ex. N.) Finally, no evidence has been presented that 1664 EVR’s lack of notice in time to defend the action was caused by its avoidance of service or inexcusable neglect.

Jones argues that 1664 EVR is not entitled to relief under Section 473.5 because its lack of notice was caused by its neglect in failing to update its Statement of Information with the California Secretary of State, which listed Jacobs as its agent for service of process, and failing to remain in good corporate status. However, 1664 EVR cannot be held responsible for Jones’s failure of service. Code of Civil Procedure Section 416.40 provides alternative methods of service of a summons and complaint on a limited liability company. Besides service on the company’s designated agent for service of process, a summons may also be served on the “president or other head of the [company], a vice-president, a secretary or assistant secretary, a treasurer or assistant treasurer, [or] a general manager.” Code Civ. Proc. §416.40, subd. (b). Here, Jones could easily have served 1664 EVR’s managers, Nigro and Schnell, since both were also principals of JimBob, the company with whom she had entered into the lease extension in February 2017, and because she knew their physical addresses as well as their telephone numbers and email addresses. (Dfd. RFN, Ex. C; Nigro Dec., ¶9, Ex. 2.) Information about Nigro and Schnell was also available from the Secretary of State based on 1664 EVR’s last Statement of Information. (Dfd. RJN, Ex. A.)

A plaintiff has the burden to properly effect service on a defendant so that the defendant has actual notice in time to defend the action. Rosenthal v. Garner (1983) 142 Cal.App.3d 892, 895 (“actual notice” as used in Section 473.5 does not mean constructive notice, but, rather, genuine knowledge of a party litigant). In this case, service was never effected on 1664 EVR and it had no actual notice of the lawsuit until after the default and default judgment were entered. In fact, it appears that Jones either intentionally or negligently sought to effect service on 1664 EVR in a way that was unlikely to provide actual notice of the action. Jones knew that 1664 EVR had been suspended and that its Statement of Information with the Secretary of State was over eleven years old and had not been updated, yet she chose to serve the summons and complaint on Jacobs, 1664 EVR’s purported agent, instead of on Nigro or Schnell. The court is also troubled by the fact that the Proof of Service of Summons, which provided the basis for both the default and default judgment, erroneously states that Jacobs was personally served with the summons when, as the process server now admits, that plainly was not the case. (Dennis Dec., ¶5.c.)

While the court has discretion to deny relief from default, unless inexcusable neglect is shown, the policy favoring trial on the merits requires that an application for relief from default be granted. As the Rosenthal court stated:

“In a case of this character . . . a legal discretion [is] not an arbitrary one. [Citation omitted.] It is also well established that it is the policy of the law to bring about a trial on the merits whenever possible, so that any doubts which may exist should be resolved in favor of the application, to the end of securing to a litigant his day in court and a trial upon the merits. . . . Even in a case where the showing under section 473 is not strong, or where there is any doubt as to setting aside a default, such doubt should be resolved in favor of the application.”

Id., at 898 (internal quotes omitted).

Code of Civil Procedure Section 473, subdivision (d), provides additional authority for setting aside a default judgment where the judgment is void. “[C]ompliance with the statutory procedures for service of process is essential to establish personal jurisdiction [and] a default judgment entered against a defendant who was not served with a summons in the manner prescribed by statute is void.” Dill v. Berquist Construction Company (1994) 24 Cal.App.4th 1426, 1444. There is no time limitation on seeking relief from a judgment that is void for lack of personal jurisdiction. Pittman v. Beck Park Apartments, Ltd. (2018) 20 Cal.App.5th 1009, 1021. Here, the default judgment is clearly void since no service was ever effected on 1664 EVR. In her opposition, Jones argues that 1664 EVR was served with the summons via substituted service, but the receptionist at 21 East Carrillo Street in Santa Barbara was never authorized to accept service on behalf of 1664 EVR or Jacobs, its purported agent.

Code of Civil Procedure Section 415.20, subdivision (a), provides:

“In lieu of personal delivery of a copy of the summons and complaint to the person to be served as specified in Section 416.10, 416.20, 416.30, 416.40, or 416.50, a summons may be served by leaving a copy of the summons and complaint during usual office hours in his or her office or, if no physical address is known, at his or her usual mailing address, other than a United States Postal Service post office box, with the person who is apparently in charge thereof, and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served at the place where a copy of the summons and complaint were left . . . .”

No substituted service was effected in this case because Jacobs was not a tenant in the building (and had not been for over four years) where the process server delivered the summons and complaint.

Finally, a suspended limited liability company may apply for reinstatement and cure any voidable contracts. Revenue and Taxation Code Section 23305.1 provides, in relevant part:

“(a) A taxpayer may make application to the Franchise Tax Board for relief from the voidability provisions of Section 23304.1 . . . . .

“(c)(1) Upon satisfaction of the conditions specified in subdivision (a) . . . , the following shall apply:

“(A) All contracts entered into during the period for which relief is granted that have not been rescinded by a final court order pursuant to Section 23304.5 may be enforced in the same manner and to the same extent, with regard to both the parties to the contract and any third parties, as if the contract had never been voidable.

“(B) Any sale, transfer, or exchange of real property in California during the period for which relief is granted and which the taxpayer at that time was not entitled to sell, transfer, or exchange by reason of subdivision (d) of Section 23302 and which has not been rescinded by a final court order pursuant to Section 23304.5, shall be as valid as if the taxpayer had not been subject to subdivision (d) of Section 23302 at the time of the sale, transfer, or exchange.”

1664 EVR does not dispute that it was suspended by the California Secretary of State on August 25, 2015 and by the Franchise Tax Board on November 2, 2015 for failure to satisfy its filing requirements. (Nigro Dec., ¶11; Schnell Dec., ¶10.) However, on July 31, 2019, less than a month after learning it was suspended, 1664 EVR was relieved of the suspension and is now in good standing. The Certificate of Revivor issued by the Franchise Tax Board states:

“This Limited Liability Company [1664 EVR, LLC] was relieved of suspension or forfeiture and is now in good standing with the Franchise Tax Board.”

(Dfd. RJN, Ex. D.)

On that same date, July 31, 2019, 1664 EVR was issued by the Franchise Tax Board a Certificate of Relief from Contract Voidability, which relieved the company from contract voidability from November 2, 2015 through July 31, 2019. The Certificate states:

“The limited liability company is hereby granted relief from contract voidability under section 23305.1 of the California Revenue and Taxation Code. All contracts entered into during the period for which relief is granted may be enforced in the same manner and to the same extent by all parties to any contracts and any third parties as if the contracts had not become voidable under section 23304.1 of the Revenue and Taxation Code.”

(Dfd. RJN, Ex. D.)

On July 29, 2019, 1664 EVR filed its 2019 Statement of Information with the California Secretary of State, reflecting a current business address of 10291 Century Woods Drive, Los Angeles, California 90067, with Schnell as its agent for service of process. (Dfd. RJN, Ex. A.) This is the same address listed for Schnell on 1664 EVR’s original Statement of Information filed on July 28, 2008 and on JimBob’s August 15, 2016 Statement of Information. (Dfd. RJN, Exs. A, C.) Because 1664 EVR has been reinstated in good standing and relieved from contract voidability, including the lease with Jones, the company may legally defend the action.

Based on the foregoing, the court will grant 1664 EVR’s motion for order vacating and setting aside the default and default judgment in the case. 1664 EVR shall immediately file and serve its response to the complaint. The proposed pleadings attached to defendant’s motion will not be accepted in lieu of the originals. 1664 EVR’s request for monetary sanctions against Jones for refusing to voluntarily set aside the default and default judgment will be denied. The court does not find that sanctions are warranted by the facts in the case.