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C.A. Says Linfield’s Award of $3.2 Million Was Contrary to Statute and Case Law
Egerton Says Default Judgment Cannot Include Recompense for Losses Where Dollar Amount Is Not Specified in Pleading
By a MetNews Staff Writer
A judge improperly awarded a default judgment that included more than $3 million based on a clause in a settlement agreement providing for “general, incidental, and/or consequential damages” in an amount “to be proven at trial,” the Court of Appeal for this district held yesterday, pointing out that the only dollar amount specified in the pleading was a total of $125,000 under two liquidated-damages provisions.
Justice Anne H. Egerton of Div. Three said in the unpublished opinion that the $3,240,784.27 award by Los Angeles Superior Court Judge Michael P. Linfield is invalid to the extent it exceeds $125,000. The opinion instructs:
“The case is remanded with instructions for the trial court to reinstate the default judgment after reducing the amount of monetary damages to $125,000 and recalculating prejudgment interest on that amount. The amounts awarded for sanctions, attorney fees, and costs shall not be disturbed.”
The total amount awarded by Linfield in favor of cross-complainant DWG International, LLC and against Hollywood and Ivar, LLC (“HAI”) and Freddy Braidi was $4,104,728.64.
Background of Dispute
HAI on May 20, 2020, sued DWG for breach of contract and wrongful eviction; a settlement agreement was entered into, specifying liquidated damages of $25,000 for leaving the premises in a shoddy condition and $100,000 if a liquor license were not transferred; DWG then cross-complained on Sept. 15, 2020 for breach of the settlement agreement.
The cross-defendant failed to answer timely and a default was entered. On June 1, 2021, Linfield reluctantly granted relief from default based on an affidavit of fault filed by HAI’s then-attorney, Sholom Goodman:
“Given the strong public policy of resolving disputes on its merits, the Court believes it must grant this motion. However, this court has previously expressed concerns that Mr. Goodman, Cross-Defendant’s counsel, is ‘playing games.’…Two months ago in this case, this Court ordered sanctions against Hollywood and Ivar, LLC and its attorney Mr. Goodman of $80,175.00 under CCP § 128.7….
“These actions of Mr. Goodman raise serious concerns in the Court’s mind as to the veracity of his declarations. However, the Court is not willing to turn today’s motion hearing into the type of evidentiary hearing that would be needed in order to determine if Mr. Goodman is telling the truth. That is beyond the scope of today’s hearing.”
After HAI replaced Goodman as its lawyer, misconduct on its part persisted and Linfield on Jan. 28, 2022, granted DWG’s motion for terminating sanctions. Linfield denied the motion by HAI and Braidi for relief from default, and the judge made his $4 million-plus award.
Egerton’s Opinion
In her opinion ordering that the award be vacated, Egerton cited Code of Civil Procedure §580(a) which provides that “[t]he relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint” and the California Supreme Court 2020 opinion in Sass v. Cohen in which then-Chief Justice Tani Cantil-Sakauye, now a private judge, declared:
“[I]n cases in which a plaintiff seeks money damages, section 580 limits a plaintiff’s relief in default to the dollar amount that has been demanded in the operative pleading.”
DWG argued that its prayer for “general, incidental, and/or consequential damages in a sum to be proven at trial” and its incorporation of the lease support Linfield’s award of $3,240,784.27 based on unpaid rent and other losses. Rejecting that contention, Egerton wrote:
“There are at least two problems with this contention. First, the cross-complaint asserts only one cause of action for breach of the parties’ settlement agreement—an agreement the parties apparently executed to resolve their competing claims about alleged breaches of the lease agreement. Even outside the default judgment context, relief is not available for a breach of contract claim that the plaintiff has not even asserted.”
The second flaw, she said, is that “the contention is plainly contrary to the interpretation of section 580 stated in Sass.”
Affidavit of Fault
HAI and Braidi appealed based not only on the amount of damages, but also Linfield’s denial of relief from the default that resulted from his striking the answer as a sanction. The appellants, pointing to Goodman’s affidavit of fault, argued that such an affidavit renders relief mandatory under Code of Civil Procedure §473(b).
In his March 28, 2022 order denying relief, Linfield said:
“As indicated in its January 28, 2022 Minute Order granting terminating sanctions, the Court found that Hollywood had been dishonest with the Court on at least five occasions….The Court also found that Hollywood was complicit in its attorney’s dishonest actions….Cross-Defendants cannot continue to use Section 473(b) to avoid the consequences of their misconduct. If the Court were to grant Hollywood’s motion and again vacate the dismissal of this action, they could continue to flout the Court’s orders and then, when defaulted yet again, simply change attorneys and seek further ‘mandatory’ relief under Section 473(b).
“The relief afforded by Section 473(b) was not intended for this situation.”
Egerton noted that it has been held in recent cases that relief is mandatory only where fault is attributable solely to the attorney, and said that Linfield “expressly found cross-defendants were willfully ‘complicit’ in the conduct that resulted in the imposition of terminating sanctions.” She wrote:
“Substantial evidence, including the fact that cross-defendants had failed to serve interrogatory responses or pay sanctions as ordered by the court even after retaining new counsel, supports the findings. The trial court did not abuse its discretion in denying cross-defendants’ motion, notwithstanding their former attorney’s affidavit of fault.”
The case is DWG International, LLC v. Hollywood and Ivar, LLC, B320786.
Miami Beach attorney Philip H. Stillman, a member of the State Bar of California, represented HAI and Braidi. Michael J. Saltz and Elana R. Levine of the Century City firm of Jacobson, Russell, Saltz, Nassim & de la Torre acted for DWG.
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