Tuesday, May 11, 2010
C.A.: Relief From Default Statute Applies to In-House Counsel
By STEVEN M. ELLIS, Staff Writer
State law requiring relief from default or dismissal due to an attorney’s mistake, inadvertence, surprise or neglect applies to in-house counsel, the Fourth District Court of Appeal has ruled.
Div. Three held Friday that an Orange County lawyer who concealed a class action against his employer and allowed a $4 million default judgment to be taken came within the mandatory provisions of Code of Civil Procedure Sec. 473, even though he was also a corporate officer.
Family-managed G & M Oil Company—which operates Chevron, Valero and Shell gas stations throughout California—sought to vacate the judgment in a class action by cashiers alleging wage and hour law violations after learning of then-Vice President and General Counsel Michael Gray’s neglect.
Gray, who was related by marriage to company founder and Chief Executive Officer George Pearson, served as G & M’s in-house counsel and its registered agent for service of process from 2001 to 2009. However, he failed to defend against the suit after receiving service in early 2007, leading to the default judgment in December 2008.
Corporate Agent Theory
Opposing the company’s motion, the class plaintiffs argued that Gray’s misconduct as in-house attorney could be imputed to the company on the theory that he was a corporate officer or agent. They contended that Gray’s conduct was his client’s conduct as a matter of law, precluding the judgment from being set aside under Sec. 473’s mandatory provisions.
The statute, which allows a court to set aside defaults or default judgments, requires a court to do so if an application is filed within six months after the judgment is entered accompanied by an attorney’s sworn affidavit attesting to his or her mistake, inadvertence, surprise or neglect.
Gray submitted such an affidavit and Pearson indicated in a response to the class plaintiffs that Gray never actually held any management responsibilities, despite his title.
Orange Superior Court Judge Stephen J. Sunvold granted the request in May 2009, vacating the judgment and ordering Gray to pay class plaintiffs’ counsel about $17,000 in fees.
The Court of Appeal affirmed Sunvold’s decision in an opinion by Presiding Justice David G. Sills.
Addressing whether in-house counsel came within Sec. 473, Sills said Gray did because he was in an attorney-client relationship with G & M and was acting as an attorney insofar as he was responsible for handling the suit.
The justice further noted that nothing in Sec. 473 suggested corporations or other business entities that choose to be represented in litigation by in-house counsel “should be at some disadvantage vis-ŕ-vis the negligence of their attorneys that would not apply when they elect to retain outside counsel,” adding that “both in-house and outside attorneys on retainer have the same duties to their…‘clients.’ ”
Sills then rejected the class plaintiffs’ contention that Gray’s status as a corporate officer made a difference, writing that “[t]he statute speaks of an ‘attorney’s sworn affidavit attesting to his or her mistake,’ etcetera, leading to a default, and makes no differentiation between attorneys who are corporate officers and those who are not.”
He said any implied exception for in-house counsel who double as corporate officers would have to be “read into” the law, adding:
“This case however—this case of all cases—is particularly inappropriate for the judicial creation of such an implied exception.”
No ‘Implied Exception’
Noting “a distinction between corporate counsel who provide ‘strictly legal services’ to a corporation, and corporate counsel who ‘step out’ of their role as ‘legal advisor’ and provide services of a ‘nonlegal business nature,’ ” Sills said there was no need to “carve out” an implied exception because Gray was “only acting in his capacity as a lawyer…, and was most certainly not acting in any role as a corporate officer.”
Attorney Gregory N. Karasi of Spiro Moss in Los Angeles represented the class plaintiffs. He said his clients “respectfully disagree” with the court’s opinion, but had made no decision on whether to appeal.
Karasi also pointed out that the decision left his clients free to go forward with the litigation and noted that “there is still a certified class.”
G & M was represented in its motion to vacate and on appeal by attorneys from Littler Mendelson in Los Angeles, who could not be reached for comment. Counsel included Tony Skogen, Fermin Llaguno and Keith Jacoby.
Justices Eileen C. Moore and Richard M. Aronson joined Sills in his opinion.
The case is Gutierrez v. G & M Oil Company, Inc., 10 S.O.S. 2461.
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