Wednesday, November 25, 2009
Bad Legal Advice Requires Setting Aside of Default, Court Rules
Panel Blasts Lawyer’s Decision Not to Respond Based on Belief Service Was Defective
By KENNETH OFGANG, Staff Writer
Two defendants who failed to answer a complaint based on their lawyer’s advice that the court lacked jurisdiction, and then failed to raise the attorney’s bad advice as grounds for setting aside the default, were entitled to have the ensuing judgment set aside, the Sixth District Court of Appeal ruled yesterday.
The court overturned a default judgment in favor of Standard Microsystems Corp. in an action against Winbond Electronics Corp. and Winbond Israel Ltd. Standard says the Winbond entities misappropriated the design of a microchip used in making personal computers.
Standard sued in 2007 after Hewlett-Packard Co., which previously purchased Super I/O chips from Standard, decided to buy them from Winbond instead. Standard alleged in its complaint that the Winbond chip was a “clone” of Standard’s.
Standard served the two corporations by mail at their respective headquarters in Taiwan and Israel. According to evidence presented at subsequent hearings, Winbond attorney Yitai Hu, then of Akin Gump, advised the defendants that service was invalid and that they did not need to respond.
Standard delayed seeking a default after an associate of Hu’s suggested that the parties seek a settlement. But Standard’s attorney notified the associate in January 2008, more than a month after both defendants were served, that his client would seek defaults within days unless the Winbond entities agreed to acknowledge jurisdiction, and to respond to the merits of the complaint and provide discovery within a month.
Not hearing back, the plaintiff’s counsel subsequently requested and obtained clerk’s defaults against both defendants, who subsequently moved to set aside the default and quash service of process on grounds of defective service. Santa Clara Superior Court Judge James C. Emerson denied the motion, holding that service was valid under California law and was not rendered invalid by treaty.
The trial judge also denied discretionary relief under Code of Civil Procedure Sec. 473(b), saying the defendants’ mistaken belief that service was improper did not constitute mistake, surprise, inadvertence, or excusable neglect. He subsequently held a prove-up hearing and granted an injunction barring the defendants from transferring the SIO technology to HP, except for a “Restricted Purpose.”
In May of last year, shortly after the final judgment was entered, the defendants engaged new counsel, who moved for mandatory relief under Sec. 473. In support of the motion, he offered a declaration from Hu in which the defendant’s ex-attorney explained that it was his advice to his clients that the court lacked jurisdiction, and his decision not to answer the complaint and to seek only discretionary relief under Sec. 473.
Emerson denied the motions for mandatory relief based on attorney fault, saying the defendants’ former counsel was “very competent” and that he was concerned that the defendants were engaged in gamesmanship, “when you bring the motion under the section which doesn’t admit fault, and then when you lose that many, many months have passed and you bring a motion admitting attorney fault.”
But Presiding Justice Conrad Rushing, writing for the Court of Appeal, said the defendants had made a sufficient showing of attorney fault to require that the judgment be set aside.
Hu, the presiding justice said, was wrong about the law. California expressly permits service on defendants outside the country by certified mail, return receipt requested, he noted.
Nor, Rushing said, could a reasonable argument be made that service was invalid under the Hague Service Convention, because Taiwan is not a party to it and Israel, which is a party, does not prohibit service of foreign process by mail.
“No prudent lawyer would gamble his client’s right to a defense on such a rationale,” the presiding justice wrote. “Indeed, although we wish to refrain from declaiming too emphatically upon factual issues that are not strictly necessary to the decision before us, we believe a prudent lawyer would emphatically warn against such a dangerously passive strategy, and would permit his client to pursue it, if at all, only after making certain that the client understood the likelihood that it was likely to produce a judgment—and quickly.”
Rather than adopt a “do-nothing” approach—which Hu said he did in the expectation that he would “receive notice of any application for entry of default before default was entered so that we could respond”—the defense should have filed a motion to quash service, the presiding justice explained.
The case is Standard Microsystems Corporation v. Winbond Electronics Corporation, H033266.
Copyright 2009, Metropolitan News Company