November 2020

Attorneys know all too well the propensity of apathetic or discontented defendants for evasive litigation strategies, but a recent case serves as an important reminder that a willful failure to participate in a lawsuit, even at times of significant personal hardship, may have dire consequences.

In Kramer v. Traditional Escrow, Inc., No. G058522, 2020 Cal. App. LEXIS 972 (Cal. Ct. App. Oct. 20, 2020), Michelle Kramer (“Kramer”) filed a lawsuit against her employer, Traditional Escrow, Inc. and Annette Scherrer-Cosner (“Cosner”), seeking a $20,030.90 commission payment. Kramer’s allegations were never heard in court, however, after Cosner made the case a procedural mess that fell apart long before trial.

A Litigation Stymied by Personal Distractions

Cosner’s troubles began when her counsel withdrew from her case and she was left unrepresented. Without any representation and in the middle of a contentious divorce, Cosner missed Kramer’s calls and letters of service and failed to appear at her own deposition and settlement conference. Kramer also contacted Cosner’s divorce attorney, Paul Nelson (“Nelson”), but even Kramer’s erroneous suggestion to Nelson that Cosner was in default—default had not yet been entered—was not enough to secure Cosner’s participation in the lawsuit. Shortly after the communication between Kramer and Nelson, the trial court did in fact enter a default and default judgment of $1,617,201.65 against Cosner.

Kramer and the trial court did not hear from Cosner until more than six months after the default judgment. By that time, Cosner had retained new counsel and filed a motion to set aside the default and default judgement. Attempting to mitigate her neglect, Cosner explained that she was suffering from PTSD and anxiety from her divorce, which led her to hire a caregiver and sporadically move between friends’ homes. There was also virtually no way of reaching Cosner during this time, she argued, because she failed to renew her PO Box and did not have a functioning voicemail.

After hearing Cosner’s justifications for her absence from the litigation, the trial court granted Cosner’s motion to set aside the default and default judgment under California Code of Civil Procedure section 473(b). Kramer appealed.

California Code of Civil Procedure Section 473(b)

Section 473(b) allows courts to set aside a default or default judgment in “exceptional circumstances” due to a party’s “mistake, inadvertence, surprise, or excusable neglect.” The elements that a party must satisfy under section 473(b) are: (1) a satisfactory excuse for not presenting a defense, (2) a meritorious defense, and (3) diligence in seeking to set aside the default. Rappleyea v. Campbell, 8 Cal. 4th 975, 982 (1994). The Court of Appeal analyzed the first and third elements of section 473(b).

1. Satisfactory Excuse Element

A defendant will have a satisfactory excuse for not litigating the case if she can show that an outside influence, and not the defendant’s own negligence, was the reason for her failure to participate in the lawsuit. Here, the outside influence was Kramer’s misrepresentation to Nelson that Cosner was in default when she was not. Prior to this misrepresentation, however, Cosner had already failed to (1) inform the court and Kramer of her new address, (2) pay her PO Box renewal fee, (3) check her mail, and (4) maintain a working voicemail. Therefore, regardless of Kramer’s misrepresentation, the Court of Appeal concluded that Cosner was not going to present a defense because she was not paying attention to the lawsuit.

2. Diligence Element

The court then analyzed whether Cosner acted diligently after learning that she was in default. Like the satisfactory excuse analysis, Cosner’s failure to respond showed that she failed to act diligently. Moreover, it did not matter that Cosner was mistaken in her belief that default had been entered, because she still had an obligation to respond to it. Indeed, a reasonable assumption is that most litigants would respond even more diligently after believing that a default had been entered against them.

Conclusion

Kramer is a reminder that parties to a litigation should never shut their eyes and hope that the dispute will go away. Despite the myriad issues a party might be facing outside of the lawsuit, litigants are still required to make themselves available to the court and the parties and to respond diligently. While the court may grant relief for missed deadlines in “exceptional circumstances,” relief is granted less frequently as the case advances. Unfortunately for Cosner, her neglect of a $20,000 lawsuit, whether intentional or inadvertent, resulted in exposure to more than $1.6 million in damages.

For more information contact the authors:

Sterling Henderson

shenderson@gibbsgiden.com

(310) 734-3316

Mr. Henderson is a partner practicing in the Los Angeles office and is also licensed in the states of Alaska and Washington. He represents a variety of corporate and individual clients, including business and property owners, general contractors, subcontractors, and material suppliers, in a wide range of complex business, commercial, and construction negotiations and disputes. Mr. Henderson specializes in the prosecution and defense of litigation matters involving claims for breach of contract and construction-related claims, including construction delay, mechanics liens, payment and performance bonds, and judgment enforcement proceedings. He is also experienced in the defense of civil and administrative malpractice actions and insurance matters and has advised on several real estate and commercial transactions.

Paul MacCabe is a third year law student at Loyola Law School and a law clerk at Gibbs Giden focusing on the areas of civil litigation, real estate transactions, and construction law.

Mr. MacCabe can be reached at pmaccabe@gibbsgiden.com.

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