Court Opinion

ID: 2924451
Source: CourtListenerOpinion
Date Created: 2015-09-11 18:02:44.705304+00
Date Added: 2024-06-11T15:22:08.951907
License: Public Domain

Filed 9/11/15
                          CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                     DIVISION THREE

CHRISTOPHER WARREN, JR.,                         B253271

        Plaintiff and Respondent,                (Los Angeles County
                                                 Super. Ct. No. PC053343)
        v.

CHRISTOPHER WARREN, SR., et al.,

        Defendants and Appellants.

        APPEAL from an order of the Superior Court of Los Angeles County, Stephen P.
Pfahler, Judge. Reversed.
        Law Office of Charles K. Wake and Charles K. Wake for Defendants and
Appellants.
        Greenberg & Bass and James R. Felton for Plaintiff and Respondent.
                              _________________________
                                    INTRODUCTION
       Before the default may be entered of a defendant in an action for an accounting,
must the plaintiff give notice of the damages sought? One line of cases concludes that
notice of damages must be given before a default is entered in an accounting action.
Another line concludes notice need not be given. Here, plaintiff and appellant
Warren, Jr., (Warren, Jr.) did not give notice of damages to defendants and appellants
Christopher Warren, Sr., (Warren, Sr.) and Share the Night, Inc. (STN) before their
default was entered in this accounting action.
       Although we agree with cases finding that a plaintiff in an action for accounting
need not give notice of damages before a defendant’s default is entered, we also find that
an exception to that rule applies: where, as here, plaintiff knew what his damages were
and defendants did not have access to that information, notice must be given before
default is entered. We therefore reverse the order denying defendants’ motion to set
aside their default and default judgment.
                                     BACKGROUND
       Brook Kerr and Warren, Sr., are Warren, Jr.’s, parents. In 2001, when Warren, Jr.,
was a minor, Kerr and Warren, Sr., formed STN, a family loan out corporation.
Warren, Jr.’s, earnings from his work as an actor were deposited into the company’s
account, and his “life” expenses were paid from it. In 2008, Warren, Jr., turned 18. He
continued to deposit his earnings into STN, and STN continued to pay his expenses. But,
in 2011, when Warren, Jr., asked to be paid a salary from STN, his request was refused.
Warren, Jr., then learned that his parents had used a “vast majority” of the funds for their
personal expenses.
       Based on these allegations, Warren, Jr., on July 11, 2012, filed a complaint for
breach of oral contract, breach of fiduciary duty, and for an accounting against his parents
and STN.1 The complaint did not specify a damage amount but did allege that “hundreds

1
      Around the same time Warren, Jr., filed his action, Kerr was pursuing a divorce
from Warren, Sr.

                                             2
of thousands of dollars had been spent on Kerr and Warren Sr. in derogation of their
fiduciary duties.”
       When all defendants failed to answer the complaint, Kerr’s and STN’s defaults
were entered on October 17, 2012. Warren, Sr.’s, default was entered on February 25,
2013. The request for entry of default specified that Warren, Jr., sought $337,186.68 in
damages plus costs. Warren, Jr., also submitted a prove-up package consisting of a
summary of the case, his attorney’s declaration, the declaration of STN’s accountant,
Mark Varshawsky, and Warren, Jr.’s, declaration. Varshawsky prepared STN’s 2008-
2010 tax returns and a schedule of expenses for those years. Based on his analysis of the
documents, Warren, Jr., was entitled to distribution of $337,186.68.
       Judgment by default in the amount of $338,096.13 was entered on March 8, 2013
against all defendants.2
       Less than six months later, on August 2, 2013, Warren, Sr., and STN moved to set
aside the default and default judgment because Warren, Sr., was not properly served;
plaintiff failed to give notice of damages prior to entry of default; and the default and
judgment were obtained through mistake, inadvertence, surprise or excusable neglect.
(Code Civ. Proc. § 473, subd. (b).)3 Warren, Jr., opposed the motion.
       On October 9, 2013, the trial court denied the motion without addressing the
notice issue.4

2
       A writ of execution was issued, and the Los Angeles County Sheriff levied on
bank accounts held by defendants. Warren, Sr., also moved to quash the writs of
execution.
3
       All statutory references are to the Code of Civil Procedure.
4
       The court did find that Warren, Sr., made a general appearance in the action by
personally participating in a case management conference. The court addressed section
473, subdivision (b), finding that although the motion alluded to attorney neglect so
extreme it constituted client abandonment, the motion failed to brief the issue. The court
therefore denied the motion without prejudice as to that issue only.

                                              3
                                        DISCUSSION
       Warren, Sr., and STN contend that the default and default judgment must be set
aside because Warren, Jr., failed to give notice of damages before obtaining their
defaults. We agree.
       On appeal from an order denying relief from default or a default judgment, we will
not disturb the trial court’s factual findings where they are based on substantial evidence.
(Falahati v. Kondo (2005) 127 Cal. App. 4th 823, 828.) “This does not end the matter,
however, because whether the default and default judgment complied with constitutional
and statutory requirements are questions of law as to which we exercise independent
review.” (Ibid.)
       In the case of a defendant’s default, “[t]he relief granted to the plaintiff, if there is
no answer, cannot exceed that demanded in the complaint” or in a statement required by
section 425.11. (§ 580, subd. (a); see also In re Marriage of Lippel (1990) 51 Cal. 3d
1160, 1166 [“It is a fundamental concept of due process that a judgment against a
defendant cannot be entered unless he was given proper notice and an opportunity to
defend”].) “[T]he primary purpose of . . . section [580] is to guarantee defaulting parties
adequate notice of the maximum judgment that may be assessed against them.”
(Greenup v. Rodman (1986) 42 Cal. 3d 822, 826; see also Los Defensores, Inc. v. Gomez
(2014) 223 Cal. App. 4th 377, 398.)
       What notice is due when, as here, the complaint seeks an accounting raises
conflicting principles:5 the nature of an accounting action does not lend itself to
specificity with respect to alleging damages in the complaint; but “due process requires
notice of the limits of financial liability for a defaulting defendant.” (Ely v. Gray (1990)
224 Cal. App. 3d 1257, 1263 (Ely).) “These principles seem at first glance to catch a
plaintiff in a bind where he is due no accounting if a sum is specified and cannot receive
a default judgment if a sum is not specified.” (Id. at p. 1262.)

5
       Although the complaint also contains breach of contract and breach of fiduciary
duty causes of action, the gist of the action is for an accounting.

                                               4
       Cases have resolved the conflict differently. The complaint in Ely, for example,
asked for a dissolution of partnerships and an accounting, but it did not specify a sum due
to the plaintiff. (Ely, supra, 224 Cal.App.3d at p. 1260.) The plaintiff’s request for entry
of default did not specify an amount owed. (Ibid.) No amount was specified until the
day the court ordered entry of default, at which time the plaintiff testified about sums
owed. Judgment was granted for the plaintiff. In reversing the judgment, Ely analogized
an action for an accounting to one for personal injury or wrongful death, which, by
statute (§ 425.11) may not allege the amount sought. (Ely, at p. 1263.) In such a case,
before a default may be taken, the plaintiff must give notice of the amount and nature of
the damages sought to be recovered. (Ibid.) Ely likewise found that a “plaintiff who
seeks an accounting has the solution of postcomplaint and predefault notice to the
defendant of the amount plaintiff will seek to prove due him if the defendant defaults. . . .
[T]he notice must be given with adequate time for the defendant to respond before a
default is entered.” (Ibid.; accord, Van Sickle v. Gilbert (2011) 196 Cal. App. 4th 1495,
1527; Finney v. Gomez (2003) 111 Cal. App. 4th 527, 541-542.)
       By contrast, Cassel v. Sullivan, Roche & Johnson (1999) 76 Cal. App. 4th 1157
(Cassel), disagreed with Ely’s analogy to personal injury or wrongful death actions
because in those actions the “damages are completely within the plaintiff’s knowledge”
and “a defendant who has no prior notice of the damages sought will be deprived of his
or her due process rights, and will be unable to reasonably assess the amount he or she
will be liable by defaulting.” (Cassel, at p. 1163.) But, where the plaintiff seeks an
accounting and, as in Cassel, the defendant-law partnership possesses the financial
information from which it could calculate the amount of its liability, “the complaint need
only specify the type of relief requested, and not the specific dollar amount sought. We
foresee no danger that defaulting defendants will be taken by surprise by judgments
entered against them, because, like spouses facing property division, they will be in
possession of the essential information necessary to calculate their potential exposure.”
(Id. at pp. 1163-1164; but see Van Sickle v. Gilbert, supra, 196 Cal.App.4th at p. 1527
[“The fact that the defendant may have access to materials from which it can calculate the

                                              5
extent of its liability is not a substitute for notice from the plaintiff of the amount of
money the plaintiff is seeking”].)
       We agree with Cassel that an action for an accounting is not like one for personal
injury or for wrongful death. Generally, the defendant, not the plaintiff, in an accounting
action has the information necessary to determine its liability for damages. Generally,
the plaintiff does not have equal access to that information. Therefore, the defendant’s
due process right to notice of potential liability will not be offended by the plaintiff’s
failure to serve a predefault notice of damages in accounting actions.
       Given the specific circumstances before us, however, this case does not fall under
that general rule. In Cassel, the defendant-law partners possessed information “at least
equal to (and according to Cassel’s complaint, greater than) that possessed by Cassel
regarding the partnership’s financial status from which Cassel’s interest would be
calculated.”6 (Cassel, supra, 76 Cal.App.4th at p. 1163.) Here, STN was not a law
partnership. STN was a “family loan out corporation” to which Warren, Jr., contributed
his earnings. Warren, Jr., clearly had access to the essential information from which he
could calculate the amount due him; specifically, Warren, Jr.’s, prove up package
included the declaration of STN’s accountant, Varshawsky. Based on 2008-2010 tax
returns for STN that “were provided to” Varshawsky and a schedule of expenses, he
calculated the distribution owed to Warren, Jr.
       Warren, Sr., raised an issue as to whether he had access to this information.
Warren, Sr., submitted his declaration stating that Kerr managed the family finances,
including funds received by STN for Warren, Jr.7 Kerr essentially cut Warren, Sr., off
financially by, for example, blocking his access to jointly held accounts, turning off his
cell phone, failing to pay his credit cards, and colluding with Warren, Jr., against

6
        Cassel’s judgment was taken directly from the partnership’s financial statement
for the six-month period ending just before Cassel’s withdrawal from the partnership.
(Cassel, supra, 76 Cal.App.4th at p. 1163.)
7
       No evidentiary objections were made to Warren, Sr.’s, declaration.

                                               6
Warren, Sr. 8 Warren, Jr., submitted no evidence disputing that Warren, Sr., was
essentially locked out of the family corporation, and the trial court made no findings on
that issue. Warren, Jr., therefore might have had access greater than Warren, Sr.’s, to the
pertinent information. Under these circumstances, where Warren, Jr., had access to the
necessary information before filing his request for entry of default, and Warren, Sr., has
raised an issue as to his (Warren, Sr.’s) access to that information, we will not apply
Cassel.
       Nor can we find that defendants had sufficient notice of the damages based on the
complaint. A defendant must receive notice of liability a reasonable time before default
is entered so that the defendant can make a reasoned decision whether to take action.
(Schwab v. Rondel Homes, Inc. (1991) 53 Cal. 3d 428, 435; see Schwab v. Southern
California Gas Co. (2004) 114 Cal. App. 4th 1308, 1322 [statement of damages must be
served within a reasonable time before default is entered, although there is no hard and
fast rule regarding the minimum amount of notice that will satisfy due process].) The
complaint’s only possible reference to damages was a vague statement that “hundreds of
thousands of dollars had been spent on Kerr and Warren Sr. in derogation of their
fiduciary duties” to Warren, Jr. This does not constitute reasonable notice of defendants’
potential liability.

8
      Warren, Sr., submitted, for example, documents indicating that Kerr and
Warren, Jr., were using the same attorney on another matter.

                                             7
                                    DISPOSITION
      The order denying the motion to set aside the default and default judgment is
reversed. Defendants and appellants to recover costs on appeal.

      CERTIFIED FOR PUBLICATION

                                                       ALDRICH, J.

We concur:

             EDMON, P. J.

             JONES, J.


        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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