Opinion
B321306
01-23-2024
CAPITAL ONE AUTO FINANCE, A DIVISION OF CAPITAL ONE, N.A., Plaintiff and Respondent, v. HOOMAN NISSANI et al., Defendants and Appellants.
Reeder McCreary, Duncan J. McCreary and Wabel Moussly for Defendants and Appellants. Doll Amir & Eley, Hunter R. Eley and Connie Y. Tcheng for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County Super. Ct. No. 21LBCV00298, Michael P. Vicencia, Judge. Affirmed.
Reeder McCreary, Duncan J. McCreary and Wabel Moussly for Defendants and Appellants.
Doll Amir & Eley, Hunter R. Eley and Connie Y. Tcheng for Plaintiff and Respondent.
EGERTON, J.
Defendants and brothers Hooman Nissani and Rayan Nissani appeal from a default judgment entered against them and their companies-co-defendants HC Automotive, Inc. (HC) and RHC Automotive, Inc. (RHC)-after they failed to post a $349,369 protective deposit on which the trial court had conditioned granting their motion for relief from default.They argue (1) the judgment is void because the trial court improperly permitted plaintiff Capital One Auto Finance, a Division of Capital One, N.A. (Capital One) to serve them by publication; and (2) the trial court abused its discretion in imposing the protective deposit as a condition to granting them relief from default. We find no error and affirm.
We refer collectively to the Nissani brothers, RHC, and HC as defendants. Appellants' opening brief states RHC, Rayan Nissani, and Hooman Nissani ask this court to reverse the default and default judgment but only the Nissani brothers filed a notice of appeal from the default judgment. Accordingly, neither RHC nor HC has appealed the default judgment entered in this matter.
FACTS AND PROCEDURAL BACKGROUND
1. Genesis of Capital One's lawsuit
Hooman and Rayan Nissani are brothers. They are the alleged principals of HC and RHC, respectively. In an earlier lawsuit, Horvath et al. v. HC Automotive, Inc., et al. (Super. Ct. L.A. County, 2016, No. BC620911), Laszlo Horvath (and another plaintiff, collectively "Horvath") alleged claims against HC and Capital One about a vehicle Horvath had bought from HC. Horvath's financing agreement had been transferred to Capital One. Horvath alleged HC failed to disclose the vehicle had been in an accident, required substantial repairs, and had been recovered after a theft. Horvath alleged no wrongdoing against Capital One-the claims against it were based solely on the fact Capital One was the holder of Horvath's financing agreement for the vehicle. Horvath added the Nissanis and RHC as defendants but later dismissed the Nissanis.
Capital One "tendered defense and indemnity" of the Horvath action to HC. HC accepted and retained counsel to defend it, Capital One, and RHC in the action. HC and RHC negotiated a settlement of the Horvath action, which included payment of Horvath's attorney fees and costs to be determined by motion. Horvath insisted Capital One be jointly and severally liable for payment of the attorney fees and costs award, however. Defendants' current counsel of record Duncan McCreary also was counsel of record for HC, RHC, the Nissani brothers, and Capital One in the Horvath action. He told Capital One about Horvath's insistence it be jointly and severally liable but assured Capital One defendants would pay the attorney fees and costs award in full.
HC was contractually obligated to defend and indemnify Capital One as to all claims alleged against it in the Horvath action.
To ensure Capital One would not be liable for any payments to Horvath under the settlement agreement, HC and RHC-together with the Nissanis-entered a supplemental agreement and acknowledgement with Capital One. Defendants agreed they would pay the full amounts due under the Horvath settlement agreement, including any attorney fees and costs award. They also agreed each was jointly and severally liable to Capital One for any amounts Capital One paid Horvath under the settlement agreement.
The Horvath court awarded Horvath $284,482.48 in attorney fees and costs on January 3, 2019. HC and RHC appealed, but the Court of Appeal affirmed the award. On March 23, 2021, Horvath recorded a judgment lien against HC, RHC, and Capital One in the amount of $345,923.35. Capital One's counsel sent defendants' counsel McCreary several emails about how and when defendants would pay the attorney fee award. On May 5, 2021, Horvath's counsel advised Capital One that $349,369.07 was owed. Capital One paid Horvath that amount.
Presumably, that amount included accrued interest on the original fee award issued more than two years earlier.
On May 21, 2021, Capital One advised defendants' counsel in writing that it had paid Horvath. Capital One demanded defendants immediately reimburse it as the supplemental agreement required. Counsel did not respond and defendants did not pay Capital One. On May 28, 2021, Capital One filed this action against defendants for breach of contract.
2. Capital One's service efforts
Capital One attempted to serve Hooman Nissani with the complaint, summons, and related documents at his home address five times on June 4, 7, 10, 11, and 13, 2021. According to the process server's declaration of diligence: on June 4 a woman told him over the intercom Hooman was not in, and she did not know when he would be; on June 7 and 10 he rang the intercom "a couple of times" but there was no response; on June 11 there was no activity "seen or heard" and no response at the intercom; and on June 13 he spoke with a woman over the intercom who said Hooman was not available. The process server noted, "clearly evading."
Capital One similarly attempted to serve Rayan Nissani at his home on June 3, 6, and 7, 2021, using the same process server. According to his declaration of diligence for Rayan: on June 3 he knocked on Rayan's apartment door a number of times but there was no response and "no activity seen or heard"; on June 6 he knocked "multiple times" and waited, but there was no response; and on June 7 he knocked "for a while" but received no response. The process server noted "an occupant looked through the peephole but they did not open the door, clearly evading."
When Capital One was unable to serve the Nissanis personally, it attempted to serve them by mail with a notice and acknowledgement of receipt on June 10, 2021 for Rayan, and on June 15, 2021 for Hooman. Neither returned a signed acknowledgement of receipt.
On August 4, 2021, Capital One's counsel emailed McCreary and asked if he was authorized to accept-or help facilitate-service for defendants. McCreary did not respond. Counsel last had heard from McCreary in April 2021 when she asked about defendants paying Horvath's fee award.
On August 6, 2021, Capital One applied for orders permitting service of the Nissanis by publication in the Los Angeles Daily Journal. On August 9, 2021, the court authorized Capital One to serve Hooman and Rayan Nissani by publication. Capital One published in the Los Angeles Daily Journal once a week for four weeks and filed a proof of publication on September 17, 2021. It also again mailed the documents to the Nissanis' home addresses on September 21, 2021. The court granted Capital One's application to serve RHC and HC through the Secretary of State as well.
3. Defendants' motion to set aside entry of default
On October 27, 2021, the court entered each defendant's default. On November 3, 2021, Capital One's counsel emailed McCreary-who had appeared that day on behalf of Hooman Nissani-to ask if he now was representing Hooman. Counsel also asked about McCreary's plans for the case and whether the Nissanis planned to reimburse Capital One for the Horvath attorney fees. She received no response.
On December 2, 2021, defendants filed a motion to set aside entry of default based on attorney fault under section 473, subdivision (b) of the Code of Civil Procedure. HC later withdrew from the motion because it had become an inactive corporation. McCreary declared he "inadvertently failed to file an [a]nswer" on defendants' behalf. Until he was made aware of the entries of default on November 2, 2021, he believed-due to an "administrative error"-he already had filed the answer he had prepared. He stated he contacted Capital One's counsel after the hearing on November 3, 2021, to try to reach a stipulation to set aside the default but received no response.
Undesignated statutory references are to the Code of Civil Procedure.
On December 7, 2021, Capital One's counsel called McCreary in response to a message he had left her. McCreary asked if Capital One would stipulate to set aside the default. Capital One's counsel in turn asked if defendants would pay Capital One the Horvath attorney fee award. She also commented that Capital One had served the Nissanis by publication because they had evaded many service attempts at their homes. McCreary said he would ask his clients about the payment and did not know about the service by publication. Capital One's counsel never heard from McCreary after their telephone call. She sent follow-up emails to him on December 9 and 21, 2021, and January 11, 2022, but received no response.
Capital One opposed defendants' motion. Among other things, it argued any relief from default should be subject to defendants' payment of a security or protective deposit in the amount of the default. In their reply, defendants argued for the first time that the defaults should be set aside because Capital One improperly obtained the orders to serve the Nissanis by publication and HC through the Secretary of State. They also argued imposition of a protective deposit was unwarranted as Capital One had not been prejudiced, and the deposit was not reasonably proportionate to Capital One's expense incurred in connection with the defaults.
4. The hearing on defendants' motion and the court's order
The court heard defendants' motion on February 8, 2022. In response to the trial court's questions, McCreary confirmed that, even though Capital One had agreed to be held jointly and severally liable with defendants for Horvath's attorney fees, defendants had agreed they would pay those attorney fees but had not.
The court heard extensive argument about whether an order setting aside the defaults should be conditioned on defendants' payment of a protective deposit in the amount Capital One had paid Horvath. The court noted the breach of contract action here was "special," in that "the plaintiff became obligated to pay [Horvath] based on the assurances of the defendant[s] that they would pay it. After the defendants didn't pay it, and the plaintiff[ ] became obligated to pay it, the evidence before me is that the defendant[s] and their attorney, who at one time represented Capital One, beg[a]n to delay."
The court also noted at least one defendant-HC-now was "having some trouble . . . during this delay," leaving Capital One with the risk of the companies going under due to the delays in defendants repaying Capital One as they undisputedly had agreed to do. The court found Capital One's request for a protective deposit justified. It granted defendants' motion for relief from default as to RHC and the Nissani brothers- HC having withdrawn its request for relief-on the condition they post a bond or cash in the amount Capital One had paid to Horvath, $349,369, within 20 days.
After the hearing, Capital One's counsel unsuccessfully tried to reach McCreary on February 8, February 28, and March 1, about how his clients wanted to proceed. She emailed McCreary again on March 7, 2022 to inform him Capital One would move forward with seeking entry of the default judgment as there was no indication defendants had posted the required bond.
In the meantime, on February 22, 2022, RHC and the Nissani brothers had filed a petition for writ of mandate asking this court for a stay and to vacate the trial court's requirement that they pay the $349,369 protective deposit to be relieved from the entry of default. We summarily denied their petition on February 25, 2022.
After no bond was filed, Capital One went ahead and filed-and served on McCreary-its declaration of interest calculations on March 8, 2022. On March 18, 2022, the court entered default judgment against defendants in the amount of $378,678.07, which included prejudgment interest and costs. Capital One served McCreary with notice of entry of judgment. 5. The Nissani brothers' motion for relief from default judgment and appeal
The Nissani brothers moved the court to set aside the default and default judgment under section 473, subdivision (d) on the ground the judgment was void for improper service of the complaint and summons. They argued that, because Capital One knew their home addresses, service by publication was invalid. Capital One opposed the motion. After a hearing on September 29, 2022, the court denied the motion. While their motion was pending-on May 13, 2022-Hooman and Rayan Nissani filed a notice of appeal from the March 18, 2022 default judgment.
There is no reporter's transcript of the September 29, 2022 hearing.
DISCUSSION
1. Standards of review
" 'A motion to vacate a default and set aside [a] judgment (§ 473) "is addressed to the sound discretion of the trial court, and in the absence of a clear showing of abuse . . . the exercise of that discretion will not be disturbed on appeal."' [Citation.] The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason." (Anastos v. Lee (2004) 118 Cal.App.4th 1314, 1318-1319.) The "trial court's express and implied factual determinations are not disturbed on appeal if supported by substantial evidence." (Giorgio v. Synergy Management Group, LLC (2014) 231 Cal.App.4th 241, 247 (Giorgio).) We review de novo the question of whether the entry of default and the default judgment are void for lack of proper service of process. (Ibid.)
2. Service was valid
The Nissanis moved to set aside the default and default judgment under section 473, subdivision (d) on the ground the service of the complaint by publication was void."' "[A] default judgment entered against a defendant who was not served with a summons in the manner prescribed by statute is void." '" (Rios v. Singh (2021) 65 Cal.App.5th 871, 880 (Rios).) Section 415.10 et seq. provide various methods to serve a summons. Under section 415.50, subdivision (a)(1), "[a] summons may be served by publication if upon affidavit it appears to the satisfaction of the court in which the action is pending that the party to be served cannot with reasonable diligence be served in another manner specified in [section 415.10 et seq.] and that . . . [¶] . . . [a] cause of action exists against the party upon whom service is to be made ...." Thus, "service by publication under [s]ection 415.50 is limited to instances where a better method of service specified in [s]ections 415.10 through 415.40 is not available, i.e., by delivering process to the defendant or his agent personally ([s]ections 415.10, 416.90), or at his dwelling house, usual place of abode, or usual place of business ([s]ection 415.20), or by means of ordinary first-class mail or airmail, or registered or certified airmail ([s]ections 415.30, 415.40)." (Judicial Council of Cal., com., § 415.50.)
"A number of honest attempts to learn the defendant's whereabouts through inquiry and investigation generally are sufficient." (Rios, supra, 65 Cal.App.5th at p. 880, citing Watts v. Crawford (1995) 10 Cal.4th 743, 749, fn. 5 (Watts).) "A plaintiff must show such efforts because it is generally recognized that service by publication rarely results in actual notice. [Citations.] Whether the plaintiff exercised the diligence necessary to justify resort to service by publication depends on the facts of the case. [Citation.] The question is whether the plaintiff took the steps a reasonable person who truly desired to give notice of the action would have taken under the circumstances. [Citation.] We review a trial court's finding that the defendant could not with reasonable diligence be served by a means superior to publication for substantial evidence. [Citation.]" (Rios, at pp. 880-881.)
Service by publication has been found to be a valid method of service in circumstances where the defendants appear to be evading service. (See Giorgio, supra, 231 Cal.App.4th at p. 249 [service by publication valid where plaintiff attempted personal service six times at address defendant had listed on an invoice but "no one answered the door" and out of country address was invalid]; Buchanan v. Soto (2015) 241 Cal.App.4th 1353, 1366-1367 [service by publication appropriate where deported defendant appeared to be "attempting to avoid service" when wife claimed not to have his current address despite being in telephone contact with him].) As explained in Miller v. Superior Court (1961) 195 Cal.App.2d 779, a defendant who "deliberately conceals himself to evade service of process is scarcely in a position to complain overmuch of unfairness in substitutive methods of notification enacted by the Legislature .... When it satisfactorily appears that a defendant by his own design successfully has secreted himself from the process server and thus thwarted personal service, it would indeed be anomalous to heed an assertion that he had been denied notice and an opportunity to be heard." (Id. at p. 786 [denial of motion to quash based on service by publication upheld where defendant intentionally concealed himself and may have fled state to avoid service].)
Here, Capital One presented evidence establishing- through its process server's declarations-it exercised reasonable diligence in attempting to serve the Nissanis personally at their residences on several occasions-five times at Hooman's home and three times at Rayan's home-but no one answered the door. The process server's declarations also support the trial court's implied finding that the Nissanis were attempting to avoid service. A woman twice answered the intercom at Hooman's home but said (1) he wasn't there, and she didn't know when he would be, and (2) he was "not available." And someone looked through the peephole at Rayan's apartment but did not open the door. The process server believed both defendants were "clearly evading."
Moreover, before applying to serve the brothers by publication, Capital One attempted to serve them by mail at their home addresses. The documents were not returned as undeliverable, but neither individual returned the acknowledgement of receipt. Defendants' counsel during the Horvath matter-who had defended Capital One in the same matter-also never responded to Capital One's counsel as to whether he could accept or facilitate service. We conclude Hooman's and Rayan's failure to return signed acknowledgements of receipt of the summons mailed to them, their avoidance of service of process, and their counsel's lack of response about accepting service, together with the process server's diligent efforts to serve each individual at his home, support the trial court's implied conclusion that resort to service by publication was justified. (See Rios, supra, 65 Cal.App.5th at p. 883.)
The Nissanis nevertheless argue service by publication was invalid solely because their home addresses were known. The Judicial Council comment to section 415.50 states the statute "provides a method for effecting service upon a defendant whose whereabouts are unknown and who has no known fixed location where service can be otherwise effected in a manner specified in this article." The comment notes the other methods of service delineated in sections 415.10 et seq. "make service by publication unnecessary except where a defendant's whereabouts and his dwelling house or usual place of abode, etc., cannot be ascertained with reasonable diligence, and where no person who may be served on his behalf can be located with reasonable diligence."
Relying on Watts, supra, 10 Cal.4th 743, and Mennonite Bd. of Missions v. Adams (1983) 462 U.S. 791 (Mennonite), the Nissanis essentially contend service by publication was inadequate for due process purposes because their addresses were known and they thus could have been served by other means, such as personally or by mail. The Watts court noted, "If a defendant's address is ascertainable, a method of service superior to publication must be employed, because constitutional principles of due process of law, as well as the authorizing statute, require that service by publication be utilized only as a last resort." (Watts, at p. 749, fn. 5.)
Capital One's applications for publication did not run afoul of this rule. It applied for the orders authorizing service by publication only after it became clear personal service, substitute service, and service by mail were unavailable- in other words, as a last resort. Moreover, Watts involved a different issue-whether a defendant whom the court had found could not be served with reasonable diligence in a manner other than by publication of the summons also" 'was not amenable to the process of the court'" for purposes of tolling the three-year period by which a defendant must be served. (Watts, supra, 10 Cal.4th at p. 745.)
The underlying facts in Mennonite-a case involving the issue of notice to a mortgagee of a pending tax sale of the mortgaged property-also are distinguishable. (Mennonite, supra, 462 U.S. at p. 795.) The Supreme Court there held when a mortgagee is identified in a publicly recorded mortgage, constructive notice by publication of the tax sale "must be supplemented by notice mailed to the mortgagee's last known available address, or by personal service." (Id. at p. 798.) The court explained the established principle that "notice by publication was not reasonably calculated to provide actual notice of the pending proceeding and was therefore inadequate to inform those who could be notified by more effective means such as personal service or mailed notice." (Id. at p. 795, citing Mullane v. Central Hanover Bank &Trust Co. (1950) 339 U.S. 306, 314.)
Here, it is undisputed Capital One-after following the requirements of Government Code section 6064 for service by publication-mailed the summons, complaint, and other documents to the Nissanis' home addresses by first-class mail. (See § 415.50, subd. (b) [order must direct a copy of the summons, complaint, and order for publication be "mailed to the party if his or her address is ascertained before the expiration of the time prescribed for publication of the summons"; publication must be made as provided under Gov. Code, § 6064].) Simply put, the Nissanis failed to show the service by publication here did not comply with section 415.50. (Rios, supra, 65 Cal.App.5th at p. 875.)
Nor do we find persuasive the Nissanis' argument Giorgio-relied on by Capital One-is inapplicable because the defendant there disputed he lived at the address where the plaintiff tried to serve him. (Giorgio, supra, 231 Cal.App.4th at p. 249.) As we said, substantial evidence supports the trial court's implied finding the Nissanis were evading service. The court did not explicitly make that finding at the hearing on the motion for relief from default, but as we have no reporter's transcript of the September hearing on the Nissanis' motion for relief from the default judgment, we presume the court did so then. (In re Marriage of Obrecht (2016) 245 Cal.App.4th 1, 9 [in the absence of a reporter's transcript, we" 'must . . . presume that what occurred at that hearing supports the judgment' "].) Moreover, neither Nissani submitted a declaration to explain his behavior in support of either motion.
Again, we do not disagree with the above courts' reasoning -and the statute's requirement-that notice by publication be permitted only where a defendant cannot, with reasonable diligence, be served by other means designed to provide actual notice. However, we cannot conclude the Nissanis' addresses had to be unknown for service by publication to be proper under the unique circumstances of this case. None of the other methods of service specified in section 415.10 through 415.40 was in fact available here. Despite repeated attempts, Capital One was unable to deliver process to the individual defendants personally -they would not come to the door-and was unable to leave the summons and complaint with another adult at their residences- again, no one would come to the door; the Nissanis did not sign the acknowledgements of receipt when Capital One attempted service by mail; and the Nissanis' and Capital One's joint counsel in the Horvath matter would not respond to counsel about who else could be served on the individual defendants' behalf.
Moreover, service through publication with the required mailing was effectual here. At the February 8, 2022 hearing, McCreary represented to the court that as of August 2021 he had not been retained yet to represent defendants in this matter, and "the way that the defendant [sic] became aware of the lawsuit was that there were certain mailings made by Capital One. There was an actual service on defendant [sic]." (Italics added.) McCreary also declared under penalty of perjury: "I inadvertently failed to file an Answer on behalf of Defendants after receipt of the Complaint and preparation of an answer, erroneously believing that I had already filed an Answer. This was a simple administrative error." In other words, defendants' counsel admitted they'd received service. Critically, counsel did not move to quash service in response to the complaint. Rather, he prepared-and believed he had filed-an answer.
Service thus comported with the requirements of due process as defendants received actual notice of the claims pending against them before they went into default, as their attorney admitted. In their motion for relief from the default judgment, the Nissanis emphasized their counsel's lack of knowledge about the service by publication. Section 415.50 does not require the defendant "actually see the publication" to constitute effective service, however. (Rios, supra, 65 Cal.App.5th at p. 882.) Defendants had actual notice of the lawsuit and the nature of Capital One's claims against them. (See ibid. [defendant's admission to plaintiff's investigator he was aware of plaintiff's lawsuit was admissible to show actual notice of the complaint].)
Under the unique circumstances of this case, we conclude Capital One's knowledge of defendants' addresses did not render its service by publication invalid. Substantial evidence supports a finding that the Nissanis could not with reasonable diligence be served personally or by mail-due to their apparent evasion of service-despite Capital One's knowledge of their home addresses.
3. The court did not abuse its discretion in conditioning relief from default on payment of the protective deposit
The Nissanis also argue the default judgment must be vacated because the court abused its discretion when it conditioned defendants' relief from default due to attorney mistake on their posting a bond, or making a cash deposit, in the amount Capital One paid Horvath. They contend the $349,369 protective deposit was not reasonably proportionate to Capital One's prejudice or expense. We disagree.
Section 473, subdivision (b) authorizes the court to grant relief from default "upon any terms as may be just." As the Nissani brothers note, courts have held the statute limits the conditions to be imposed "to those' "reasonably proportionate to the other party's prejudice or expense." '" (Shapiro v. Clark (2008) 164 Cal.App.4th 1128, 1147 (Shapiro).) As the court in Shapiro explained, "[s]trictly speaking this would suggest that conditions may only redress costs incurred as a result of the default. However, courts have 'occasionally upheld' the 'more burdensome condition' of 'a deposit of money or a bond to protect the plaintiff in the event of eventual recovery.' [Citations.] [¶] Such a condition is not beyond the court's power, or 'unreasonable or unjust per se.'" (Id. at pp. 1147-1148; see also Goodson v. Bogerts, Inc. (1967) 252 Cal.App.2d 32, 42 (Goodson) [under section 473 and case law, not only does the trial court have "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 general, the question of the appropriateness of such a condition "is vested in the discretion of the trial court, whose determination will not readily be disturbed on appeal. [Citation.] However, such a condition will be stricken as 'arbitrary and an abuse of discretion' if the burden it imposes upon the defendant is wholly out of proportion to the burden imposed on the plaintiff by the default and its vacation. [Citation.] In the consideration or review of such a condition, '[e]ach case must be determined upon its own peculiar facts and circumstances.'" (Shapiro, at p. 1148.)
As it does on appeal, Capital One relied on Goodson and Shapiro to support its request that defendants be required to post a protective bond if the court granted them relief from default. In Goodson, this District upheld a condition that the plaintiff/cross-defendant pay a protective deposit in the amount of the default judgment to be relieved from that judgment. (Goodson, supra, 252 Cal.App.2d at pp. 34-35, 44.) In doing so, the court noted the plaintiff/cross-defendant had not reimbursed defendant for expenditures it had made on the plaintiff/cross-defendant's behalf-giving rise to defendant's cross-complaint- and repeatedly had promised the defendant's attorney he would pay the claim but did not. (Id. at p. 43.) Noting defendant's concern over the plaintiff/cross-defendant's "willingness to satisfy the judgment and the availability of assets for that purpose," the court concluded the facts "reflect[ed] a tendency on plaintiff's part to avoid voluntary payment." (Ibid.)
Likewise, in Shapiro, the appellate court had "no difficulty in sustaining the requirement of security for the compensatory damages respondents were conceded to have sustained" as a condition to granting the appellant relief from a default judgment. (Shapiro, supra, 164 Cal.App.4th at pp. 1148-1149.) The court, however, found the trial court erred in including punitive damages in the amount to be secured, resulting in a sum that "exceed[ed] by nearly $1.3 million the highest figure for compensatory damages." (Id. at p. 1149.) The court noted punitive damages are a" 'windfall for plaintiffs,'" while "[t]he rationale for requiring a bond as a condition for relief from default is 'to protect the plaintiff in the event of eventual recovery.'" (Ibid.) To avoid further delay in the case, the Court of Appeal modified the trial court's order granting relief from default to condition it on appellant's posting of an undertaking in the amount of $400,000-a sum appellant's counsel appeared to have conceded was a reasonable estimate of compensatory damages. (Id. at p. 1150.)
Here, the protective deposit of $349,369 was based on Capital One's compensatory damages alone-the undisputed amount it had paid Horvath for his attorney fees-attorney fees defendants conceded through their counsel they had agreed to pay. Based on the specific facts before it-including defendants' continual delay-the court found Capital One's request for a bond to cover that payment was "certainly justified." The court thus reasonably exercised its discretion in imposing the protective bond as a condition to granting defendants relief from default.
Defendants argued below that the rationale in Shapiro and Goodson did not apply because those cases involved conditions to relief from default judgments, not defaults. Defendants argued the only "value" Capital One had lost was its attorney fees and costs incurred in obtaining the default and opposing defendants' motion, not a judgment for payment of its damages. On appeal, the Nissanis similarly contend the condition that defendants provide a protective deposit for Capital One's claimed damages was "entirely unreasonable and disproportionate to [its] prejudice or expense." They argue Capital One had not been prejudiced in the amount of $349,369, as no default judgment had been entered, and any delay in the case due to the setting aside of the default had been minimal.
We conclude not only that the difference between a default and a default judgment here is-as Capital One's counsel put it- "a distinction without a difference," but also the amount of the protective deposit is not "wholly out of proportion to the burden imposed on [Capital One] by the default and its vacation" under the" 'peculiar facts and circumstances'" of this case. (Shapiro, supra, 164 Cal.App.4th at p. 1148.) In response to defendants' counsel's argument that Capital One had cited no case where a protective deposit had been found appropriate in setting aside a default, the court noted the difference between the "value" of a default and a default judgment was "simply that you have not yet proved up your judgment .... That's the only difference in the value." Here, defendants' counsel conceded defendants had agreed to pay the Horvath attorney fee award but had not. This was, in the trial court's words, a "special breach of contract" case in that Capital One had paid the $349,369 only because defendants had not paid the fee award as agreed. The court noted Capital One would have had to demonstrate only that it had paid the money to Horvath for a default judgment to have been entered. And, based on the evidence before it, the court found defendants-having failed to live up to their agreement- began "to delay."
Capital One's counsel acknowledged default judgments had been entered in the cases it had cited upholding protective deposits (Shapiro and Goodson) but argued the "rulings in those actions didn't depend on the distinction between default and default judgment. It was on the facts."
The record supports that finding-Capital One's counsel's declaration, as noted by the court, describes a series of unanswered phone calls and emails, both before Capital One paid the Horvath fee award and afterward; assurances that went nowhere requiring Capital One to file this action; and the added delay caused by Capital One's inability to serve defendants "to the point where publication bec[a]me[ ] necessary." The court also found HC's suspension during this time indicated defendants-because they all were "related"-may not have been "as financially sound as they were when they initially promised they would pay the [Horvath] attorneys' fees, which might explain the delay."
The facts here are thus comparable to those in Goodson: defendants' conduct alleged in the complaint, and as set forth in Capital One's counsel's declaration, "reflect a tendency on [their] part to avoid voluntary payment." (Goodson, supra, 252 Cal.App.2d at p. 43.) Based on the evidence before it- and defendants' counsel's concession-the trial court reasonably could find defendants knew they owed Capital One at least the amount it had paid Horvath, they intentionally delayed their payment obligation-first by avoiding Capital One's queries and then by avoiding service-and there was a risk one or more defendants could become insolvent or create more delay to defer reimbursing Capital One under their agreement.
We see no reason why, in these circumstances, the trial court could not condition relief from default on the posting of a security bond despite a default judgment not having been entered yet. As Capital One's counsel argued-and with which we can infer the court agreed-there had been "an extraordinary pattern of delay" here. Requiring defendants to provide a protective deposit in the amount of Capital One's claimed compensatory damages-not including interest or costs-was neither an arbitrary nor unreasonable condition to granting defendants relief from their default and was designed to protect Capital One from further delay of repayment in the event of its" 'eventual recovery.'" (Shapiro, supra, 164 Cal.App.4th at p. 1148.)
The Nissanis nevertheless contend the condition was an abuse of discretion under Kirkwood v. Superior Court of Sacramento County (1967) 253 Cal.App.2d 198. There, the trial court conditioned defendants' relief from a $57,200 default judgment in a personal injury action on their posting a $50,000 bond. (Id. at pp. 199-200.) The insurance carrier's defense counsel had filed an answer on behalf of defendants 13 days late, unaware of the entry of default. (Id. at pp. 199-201.) The appellate court concluded the $50,000 bond was "out of all proportion to whatever prejudice or expense [the plaintiffs] may have suffered," as they had demonstrated no prejudice or expense other than attorney fees and costs. (Id. at pp. 201-202.) There also was evidence of $25,000 in insurance coverage. (Id. at p. 202.) Thus, the court concluded the "actual and potential penalties flowing" from the condition-e.g., if defendants could not find a surety willing to underwrite a bond-"would far outstrip the atonement evoked by 13 days of delay." (Ibid.) The same cannot be said here. As discussed, defendants'-and defense counsel's-delay and unresponsiveness is the reason Capital One had to file this action in the first place, and there is a risk, in the event Capital One prevails, its recovery will be further delayed. Capital One's prejudice and expense thus is not limited to defendants' default-related delay as in Kirkwood.
According to an inflation calculator, $50,000 in 1967 would be equivalent to more than $451,000 in today's dollars. (See <https://www.saving.org/inflation/inflation.php?amount =50000&year=1967> [as of Jan. 23, 2024], archived at <https://perma.cc/9SWP-PCS5>.)
Accordingly, considering the facts and circumstances of this case, we cannot say the court abused its discretion in requiring defendants to provide a protective deposit in the amount Capital One paid Horvath as a condition to granting their motion for relief from default. The court thus properly entered the default judgment against defendants, including the Nissanis, after they failed to comply with that condition.
DISPOSITION
The judgment is affirmed. Capital One is to recover its costs on appeal.
We concur: EDMON, P. J. LAVIN, J.