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Court of Appeal:
Relief From $3.9 Million Default Judgment Wrongly Denied
By SANDRA HONG, Staff Writer
A judge abused his discretion in denying a request for relief from a $3.9 million judgment by a small Philadelphia television network that, unbeknownst to its majority shareholders, was put up as collateral in an overseas investment scam involving a former U.S. congressman, an unnamed Libyan oil minister, and a southern California lending firm, the Fourth District Div. Three Court of Appeal has held.
The opinion by Acting Presiding Justice William W. Bedsworth, filed Thursday, reverses an order by Orange Superior Court Judge Glenn R. Salter, who denied a motion to vacate a default judgment against Philadelphia Television Network Inc. (“PTNI”). Justices Richard D. Fybel and Thomas M. Goethals joined in the opinion.
Bedsworth noted that Salter expressed concerns over his ruling on the motion but decided it must be denied based on the judgment already being two years old and that the defaulted borrowers were “highly sophisticated businessmen and political leaders” in Pennsylvania, yet were lured into forking over large sums of cash to shadowy individuals abroad in promise of great returns.
No Relevance
“Now, one might be forgiven for wondering what this colossus of cons has to do with the low power television station in Philadelphia and its owner, PTNI,” Bedsworth wrote. “The answer, based on the record before us, is: absolutely nothing.
“Which is precisely our point.”
Bedsworth determined that Code of Civil Procedure §473.5(c) clearly gave Salter discretion to vacate the default and default judgment on equitable grounds, as requested by PTNI.
Section 473.5(c) allows a court to “set aside the default or default judgment on whatever terms as may be just and allow the party to defend the action” upon finding the defendant’s “lack of actual notice in time to defend the action was not caused by his or her avoidance or service or inexcusable neglect.”
‘Manifest Injustice’
Bedsworth added that to preserve Salter’s ruling in light of the underlying circumstances of the case—which Bedsworth described as a dizzying “jungle” of facts worthy of a Tom Clancy novel—would be a “manifest injustice.”
He remarked:
“We fear leaving the trial court’s discretion undisturbed in this case would result in such an injustice. If not vacated, the default judgment gives the imprimatur of legality and enforceability to wrongdoing—arguable usury in furtherance of a fraudulent, potentially unlawful scheme. To make matters worse, the judgment would pin the financial burden of the wrongdoers’ risk-taking on an innocent third party who had no stake in the scheme.”
Jungle of Facts
Luxury Asset Lending (“LAL”), a lending firm with an office in Newport Beach, secured four loans totaling $530,000 for two prominent figures in Philadelphia political circles: Richard Glanton, the largest shareholder of PTNI, and former U.S. Rep. Curtis Weldon, D-Penn.
At the time, Weldon and Glanton had already handed over significant amounts of money to invest in what they believed was a $350 million wealth fund of a former Libyan oil minister whose identity was never revealed. They even took a trip to Ghana in 2015 to meet with purported client representatives, who managed to persuade the men that even more funds were needed to go through with the deal.
Glanton was then introduced to Brian Roche of LAL in March 2016 to secure the additional funds. Glanton signed on behalf of PTNI as a co-borrower to secure the loans without obtaining corporate approval or informing other shareholders, in violation of the shareholders agreement.
2016 Complaint
After the deal was exposed as a scam, LAL attempted to collect on its loan. It filed a complaint against Glanton and Weldon in Orange Superior Court in October 2016, seeking $3.79 million plus $530,000 in exemplary damages against Glanton. It alleged Glanton misrepresented his ability to pledge or transfer his PTNI shares under the shareholders agreement.
LAL filed proofs of service of summons showing Weldon was served in November 2016 and Glanton served, both individually and on behalf of PTNI, in October 2016 at Glanton’s home address in Princeton, New Jersey.
No other shareholders at PTNI were given notice, nor was the company served notice at its registered business address. The next-largest shareholder to Glanton was Eugene Cliett, who was aware Glanton was indebted to LAL and had declared bankruptcy but was not aware of the full scope of PTNI’s exposure until well after the judgment was entered.
Default Judgment
LAL’s requested default judgment against PTNI, Glanton, and Weldon was entered April 6, 2017.
PTNI finally filed a motion to vacate and set aside default judgment on April 5, 2019, seeking equitable relief under 473.5, 473(d), and 587. During a hearing, Salter asked why Cliett waited a year after finding out about the judgment to file a motion. PTNI’s counsel responded:
“The only thing that prevented us was practicality, your Honor.”
In determining Salter erred in denying PTNI relief because its motion was untimely, Bedsworth pointed to PTNI’s explained reasons for delay:
“Because of the deception by Roche, LAL, and Glanton, by the time if found out about the judgment, PTNI was facing the loss of its most valuable asset: its FCC license. Being a small company with limited resources facing litigation on three fronts, ‘practicality,’ as PTNI’s counsel aptly put it, necessitated extinguishing the most threatening fire first—the proceedings before the FCC.…The flames started by the default judgment had spread far beyond their origins in the Orange County Superior Court by the time PTNI came to know of it. We think it eminently reasonable for PTNI to have tried to obtain relief in its home jurisdiction first, before seeking to vacate the judgment in California as a last resort.”
The case is Luxury Asset Lending v. Philadelphia Television Network, 2020 S.O.S. 5159.
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