Opinion
NOT TO BE PUBLISHED
Sonoma County Super. Ct. No. SVC 234625
Haerle, J.
I. INTRODUCTION
Plaintiff and appellant, Gerald Adair, individually and as trustee of Triple-T Trust (hereafter Adair), appeals from a judgment following a court trial. Adair contends that the trial court erred, earlier in these proceedings, in conditionally granting his motion to set aside a default entered on a cross-complaint filed by defendant and respondent Terry Lee, individually, and as trustee of the Carl F. Brellow and Reva G. Brellow Trust, (hereafter Lee). Adair also argues that the default judgment improperly awarded punitive damages to Lee. We affirm the judgment with the exception of that portion of the award awarding punitive damages, which we reverse.
II. FACTUAL AND PROCEDURAL BACKGROUND
In April 2004, Adair filed a complaint against Lee seeking damages and declaratory relief. The complaint, and a second amended complaint filed in November 2004, concerned interest charged by Lee on promissory notes with Adair and sought declaratory relief regarding the parties’ “rights and duties” under the promissory notes and deeds of trust. A month later, Lee answered the complaint and filed a cross-complaint against Adair. This cross-complaint, which Adair failed to answer, is the subject of Adair’s appeal.
In their briefs, the parties provide us with extended summaries of the tangled web of personal and business relationships between Lee and Adair. However, because we are principally concerned with the trial court’s order setting aside a default judgment on the cross-complaint filed by Lee against Adair, we confine our statement of the facts to those matters which are relevant to that order.
Lee’s cross-complaint sought damages against Adair for breach of contract, fraud and deceit, negligent and intentional misrepresentation and money had and received. Lee sought compensatory damages in the sum of $1,318,000, for judgment on various promissory notes in the amount of $374,001.55, attorney fees, payment of $3,000 in taxes on the real property and $5,000,000 in punitive damages.
On February 1, 2005, the court entered a default against Adair on the cross-complaint. Almost a year later, on January 10, 2006, Adair moved to have the default and any default judgment set aside. At a hearing on January 25, 2006, the court granted a default judgment in which it awarded compensatory damages to the Brellow Trusts in the amount of $661,972.11 and punitive damages in the same amount. At the hearing, the court awarded compensatory damages to Lee individually in the amount of $215,500 and punitive damages in the amount of $215,500. However, the judgment the court ultimately signed awarded compensatory damages in the amount of $92,497.75 and punitive damages in the amount of $215,500. The court also awarded attorney fees in the amount of $3,750 and costs in the amount of $463.79.
At the hearing on Adair’s motion to set aside the default and default judgment, the court ordered as follows: “The default and default judgment entered against Gerald F. Adair, an individual and against Mr. Adair, as trustee of the Triple T Trust shall be vacated provided a bond in the amount of $250,000 is secured and lodged with the court by March 20, 2006, benefiting and payable to Terry Lee, an individual and Terry Lee as trustee of the Brellows Trust in the event damages are award[ed] against Gerald F. Adair individually or as trustee of the Triple T Trust, along with cross-defendant’s answer.” The court also ordered Adair to pay Lee $5,000 in costs and fees incurred by Lee relating to the default, default judgment and the setting aside of the orders. Adair did not post a bond.
A trial was held on the remaining cause of action in Adair’s complaint. Judgment was entered in favor of Lee on August 16, 2006. On October 24, 2006, Adair appealed this judgment, and also appealed from “[a]ll other orders and partial judgments previously entered in this action.”
Before this matter was fully briefed, Lee filed a motion to dismiss Adair’s appeal on the ground that it was untimely, because Adair should have appealed the default judgment after it was entered rather than at the conclusion of the trial on the complaint. Lee also argued that Adair’s notice of appeal did not indicate an appeal was being taken as to the court’s conditional order setting aside the judgment on default. We denied that motion to dismiss and, therefore, do not address these issues in this opinion, although Lee raises them in her brief on appeal. We now consider the appeal on its merits.
III. DISCUSSION
A. Propriety of Conditioning Relief from Default on Posting Bond
The parties discuss at length the source of the court’s authority for conditionally setting aside the default. Adair’s motion to set aside the default was filed eleven months after it was entered. Such a motion may be brought under Code of Civil Procedure, section 473.5, which permits relief from default after the six-month period specified in section 473 has expired, but before two years have elapsed, so long as the moving party can show lack of notice of the proceedings. (§ 473.5, subd. (a).)
All further statutory references are to the Code of Civil Procedure, unless otherwise noted.
In his moving papers, Adair argued that he did not receive notice of the proceedings because the application for entry of default was not mailed to his attorney of record at the time, James Bajgrowicz. He also contended that his attorney failed to obtain complete copies of the case file from the court and, if he had done so, he would have been able to make a timely motion for relief from attorney mistake under section 473, subdivision (b).
Adair, however, contends that, in fact, his motion was granted on the ground that the default was the result of extrinsic fraud, a motion that may be brought at any time. He also argues that when a court grants this form of relief, it may not impose any conditions. We reject this argument for the simple reason that the trial court did not grant his motion on this ground.
A court has the equitable power to order relief from default upon a showing of “ ‘extrinsic fraud or mistake.’ ” (Moghaddam v. Bone (2006) 142 Cal.App.4th 283, 290-291.) But before the court may do so, the moving party much show that it had a meritorious defense, a satisfactory excuse for not presenting a defense to the original action, and was diligent in seeking to set aside the default once it was discovered. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 982.) In his moving papers, Adair simply argued that the defaults were taken as a result of “attorney mistake,” not that he was entitled to equitable relief on the three grounds set out in Rappleyea, none of which the trial court made any findings on.
We turn now to the question of whether the trial court erred in imposing the bonding condition on the granting of relief. When a trial court sets aside a default under section 473.5, it may do so “on whatever terms as may be just” (§ 473.5, subd. (c).) This authority permits the court to impose “reasonable conditions to avoid prejudice or unfairness to plaintiff.” (Goya v. P.E.R.U. Enterprises (1978) 87 Cal.App.3d 886, 894-895.) We review these conditions for an abuse of discretion. (Ibid.)
Adair contends that the court erred in imposing a condition that he post a bond in the amount of $250,000 because such a condition was unreasonable and unrelated to any prejudice or unfairness to plaintiff. We disagree.
In a similar case, Goodson v. Bogerts, Inc. (1967) 252 Cal.App.2d 32, 35 (Goodson), the court conditioned an order granting relief from default on a cross-complaint on the cross-defendant depositing, in cash, the amount sought by the cross-complainant. The Goodson court upheld this order. In doing so, it relied on the general rule that a court order relieving a party from a default may be accompanied by “ ‘such terms as may be just . . . .’ ” The Goodson court then summarized the considerable authority permitting the imposition of a condition designed to protect the non-defaulting party by requiring some security for the damages sought by that party. The court explained that “[i]t appears from the statute and various authorities (Sheffler v. Hutchings, 124 Cal.App. 760; Airline Transport Carriers v. Batchelor, 102 Cal.App.2d 241; Reeves v. Hutson, 144 Cal.App.2d 445; Jacuzzi v. Jacuzzi Bros., Inc., 243 Cal.App.2d 1), not only that the trial court has the power to impose a condition of a protective deposit in granting a motion to vacate a default judgment, but the imposition of such a condition is not unreasonable or unjust per se. In Sheffler v. Hutchings (1932), 124 Cal.App. 760 [], the action to recover certain monies turned over by plaintiff to defendant for investment with guaranteed income was based on fraud and deceit. The trial court in granting defendant’s motion to set aside default imposed the condition that he file by a specified date a surety bond in a designated amount to guarantee judgment, costs and attorneys’ fees. ‘Appellant complains of the condition imposed by the court in its first order, claiming in his affidavit that it was not only unreasonable but was impossible to perform. But, in the absence of denials of the allegations of the complaint, the facts alleged therein must be taken as true, and it appears therefrom that appellant fraudulently and without any consideration therefor transferred title to whatever property in which he may have held an interest to his mother for the purpose of defeating any effort on the part of plaintiff to recover the money which was due her; that being so, it cannot be fairly said that the condition imposed was unreasonable nor that the inference drawn by the trial court that appellant could comply with the same is unsupported.’ ” (Goodson at p. 42.)
Adair contends that the imposition of a $250,000 bond was unreasonable because it greatly exceeded the compensatory damages awarded in the default judgment. This argument, however, is based on a misstatement of the amount of damages actually awarded, which Adair represents amounted to $92,497.75. In fact, the total amount of compensatory damages awarded upon default to Lee, as an individual, amounted to $92,497.75. However, the Brellow Trust, the other cross-complainant, was awarded $661,972.11. Given that the amount of the required bond was $250,000, well below the total amount of compensatory damages awarded, the imposition of a bond in this amount was not unreasonable.
Moreover, the bond was not unreasonable in light of the allegations of fraudulent behavior in the cross-complaint, which we must take as true, as the court did in Sheffler. The cross-complaint alleged that Adair took money and property from Lee, money which he promised to, but did not, repay and property which he promised to, but did not, reconvey. Here, as in Goodson, the conduct alleged in the cross-complaint “reflect[s] a tendency on [Adair’s] part to avoid voluntary payment.” (Goodson, supra, 252 Cal.App.2d at p. 43.) The court therefore, acted within its discretion in attempting to prevent any such further avoidance of payment.
Beyond arguing that the amount of the bond was unreasonable because it exceeded the amount of compensatory damages, Adair has made no other argument regarding why the imposition of this bond was unreasonable. For example, there is no evidence in this record that establishes that the bond was impossible to perform or worked some hardship. Although Adair expressed a brief objection to the imposition of the bond, an objection sufficient to preserve this issue for appeal, he did not provide the court with either argument or evidence about why the bond might be unreasonable. Accordingly, we conclude that the trial court’s conditional order granting relief from default was not an abuse of discretion.
Counsel’s only response when asked about the imposition of a condition to the granting of relief was as follows: “I think it is within the court’s discretion. I am not so sure about the bond issue, and I didn’t honestly come prepared to speak of it. I think it is within the court’s discretion, I would suspect, as to a bond and attorneys fees.” Although the original order required that Adair post a bond by March 24, 2006, Adair successfully sought four extra days within which to post this bond. He could have, but did not, object to the amount of the bond.
Finally, where it is shown that “the facts adduced before the lower court were legally sufficient to warrant an unconditional denial of the motion to vacate default judgment, ‘the question of the reasonableness of the conditions imposed becomes unimportant.’ (Sheffler v. Hutchings, [supra,] 124 Cal.App. 760, 764.)” (Goodson, supra, 252 Cal.App.2d at p. 44.) In seeking to set aside the default, Adair was required to show lack of notice of the pleadings. He filed a declaration stating that he thought his attorney had taken care of answering the cross-complaint. His attorney at that time, Bajgrowicz, was aware that the cross-complaint had been served, but had refused to continue working on the case. In a declaration, Bajgrowicz stated that he did not file any responsive pleadings, without explaining why he had not done so.
In light of the evidence that Adair did have actual notice of the cross-complaint, it is not surprising that the trial court referred to its decision as “a close call.” The court observed, however, that “I don’t have any sympathy, particular for Mr. Adair on his action, but I do think he was being denied his day in court because of legal maneuvering and his lawyer’s conduct,” referring to Mr. Bajgrowicz. The facts suggesting that Adair did in fact have actual notice that a cross-complaint had been filed before him were legally sufficient to warrant an unconditional denial of the motion to set aside the default. Therefore, even if the conditions imposed by the court were severe, we will not reverse its order.
B. Punitive Damages Award
Adair also contends that the default judgment was in error because it awarded punitive damages to Lee (1) without evidence of reprehensible conduct, (2) in an amount that was excessive compared to the harm to Lee, and (3) without evidence of Adair’s financial condition. We agree that the trial court erred in awarding punitive damages because Lee did not present any evidence of Adair’s financial condition at the prove-up hearing.
Just as she would have been required to prove her entitlement to punitive damages at trial, Lee was required to do so when she secured a default judgment. (§ 585; Taliaferro v. Hoogs (1963) 219 Cal.App.2d 559, 560.) Punitive damages are intended to punish wrongdoing, and may not exceed an amount necessary to meet this goal. (Adams v. Murakami (1991) 54 Cal.3d 105, 110.) When a punitive damages award is disproportionate to a defendant’s ability to pay, it may be found excessive. (Id. at p. 111.) Therefore, a showing of a defendant’s financial condition, in addition to information about the nature of the defendant’s misconduct and the amount of the compensatory damage award, is essential in making this determination. (Id. at p. 105.) The plaintiff has the burden of producing evidence of the defendant’s financial condition. (Id. at p. 123.)
Here, there is nothing in the record that indicates any evidence was provided to the court of Adair’s financial condition as an individual or of the financial condition of the Triple T Trust. The failure to do so makes it impossible for this court to determine whether the punitive damages awards were proportionate to their ability to pay and, therefore, is grounds for reversing this part of the judgment.
Lee, however, contends that, under Cummings Medical Corp. v. Occupational Medical Corp. (1992) 10 Cal.App.4th 1291, 1299-1300, an award is not excessive when it is based on the profit from a defendant’s misconduct, rather than a showing of the defendant’s financial condition. Thus, in Cummings, the cross-complainant on a default judgment proved compensatory damages on a fraud cause of action in a total amount of $1,598,300. However, because the cross-complaint only sought to recover $1 million in compensatory damages, the judgment on default was limited to $1 million. The trial court awarded $1 million in punitive damages. The Cummings court concluded this amount was “not unreasonable in light of the reprehensibility of Cummings’s conduct and the amount of compensatory damages proven (approximately $1.6 million).” (Id. at pp. 1300-1301.) The court went on to reason that “because the only evidence of Cummings’s financial condition was the profitability of the fraudulent conduct and $1 million of that profit was recovered . . . through compensatory damages, the punitive damage award must be reduced to $598,300, which represents the remaining illegal profit obtained by Cummings.” (Id. at p. 1301.)
Even were we to agree with this holding, which was criticized in Kenly v. Ukegawa (1993) 16 Cal.App.4th 49, 56-58, there is no evidence here that the punitive damages award was intended to recover the “profit” due to Adair’s fraudulent conduct. The trial court simply doubled the amount of compensatory damages it awarded, without making any finding about compensation for illegal profit. Nor was it the case that the compensatory damages awarded due to this conduct were limited by the amount of damages sought by Lee, as they were in Cummings. In sum, because there is nothing in the record that helps us evaluate the impact of this punitive damages award on Adair, it must be reversed.
IV. DISPOSITION
The default judgments against Adair are affirmed, with the exception of that portion of the judgment awarding punitive damages in the amount of $215,500 to Terry Lee and $661,972.11 to the Brellow Trust, which is reversed. The parties are to bear their own costs on appeal.
We concur: Kline, P.J. Lambden, J.