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Karton v. Dougherty

February 17, 2009; as modified March 18, 2009

DAVID S. KARTON, A LAW CORPORATION, PLAINTIFF AND RESPONDENT,
v.
WILLIAM RUSSELL DOUGHERTY, DEFENDANT AND APPELLANT.



APPEAL from an order of the Superior Court of Los Angeles County. Helen I. Bendix, Judge. Reversed with directions. (Super. Ct. No. BC206243)

The opinion of the court was delivered by: Rothschild, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

In 1999, David S. Karton, a law corporation, (Karton) sued former client William Russell Dougherty for allegedly unpaid fees and costs. The Los Angeles County Superior Court entered a default judgment against Dougherty in the amount of $86,676.88. The judgment included an award of attorney's fees, pursuant to the parties' retainer agreement.

Karton succeeded in collecting $56,000 on the judgment within two months of its entry. Since then, he has vigorously pursued further collection efforts against Dougherty in California, Pennsylvania, and Tennessee. In addition, he has twice returned to the superior court to request awards of the attorney's fees he has incurred in enforcing the judgment. Both times, he failed to give notice to Dougherty that he was seeking such relief. Both times, the court granted his requests in their entirety. With the most recent such award, entered in February 2007, the principal amount of the judgment has ballooned to $1,146,578.36, plus $159,679.92 in interest.

After Dougherty learned of the February 2007 award, he filed a motion for relief from it, invoking both Code of Civil Procedure section 473 and the court's inherent equitable powers. The trial court denied the motion, and Dougherty appealed.

We reverse and direct the trial court to grant Dougherty's motion and vacate the February 2007 award. We further conclude that the default judgment itself is void on the face of the record and must be set aside.

BACKGROUND

I. Complaint, Proof of Service, Default, and Default Judgment

In June 1996, Dougherty retained Karton to represent him in a marital dissolution action. The written retainer agreement provided that if Karton's monthly bills were "not paid in full within thirty (30) days," then Karton reserved "the right to charge simple interest at the rate of ten percent (10%) per annum on the unpaid portions of the monies owed[.]" The agreement also contained the following attorney's fees provision: "In the event legal services are commenced in connection with the enforcement of this agreement or the collection of the fees and/or the costs, whether in the form of a demand, a court action, or an arbitration proceeding, the prevailing party (to the extent permitted by law) shall be entitled to legal fees for services, as well as court and/or arbitration costs."

On March 2, 1999, Karton filed suit against Dougherty in Los Angeles County Superior Court, seeking to recover $65,246.63 in allegedly unpaid fees and costs, plus "interest thereon at the rate of ten percent (10%) per annum." Karton filed a first amended complaint on March 12, 1999.

On March 24, 1999, Karton filed a proof of service of the summons and first amended complaint. The first page of the proof of service identifies the process server as "William Russell Dougherty," the "Person served and title" as "Margaret Guzman -- Reception," the "Person with whom left; title or relationship to person served" as "Margaret Guzman -- Reception," and the "Date and time of delivery" as March 16, 1999, at 3:30 p.m. The proof of service identifies the manner of service as "Substituted service." There is, however, no attached affidavit showing reasonable diligence in first attempting personal service. The proof of service also fails to state both the date on which the papers were mailed to the person to be served and the date and place of execution of the proof of service. The proof of service was signed by Paul Kern, a registered process server.

The superior court file contains a document issued by the court and dated April 29, 1999, stating that "[t]he request for entry of a civil default submitted" in Karton's action against Dougherty "has been turned down" because the proof of service was defective. The file does not contain the request for entry of default to which this document corresponds.

On May 5, 1999, Karton filed another request for entry of default and a second proof of service. On the same day, the clerk entered the default as requested.

The second proof of service states that "William Russell Dougherty" was both the process server, the "Person served and title," and the "Person with whom left; title or relationship to person served," and it identifies the "Date and time of delivery" as March 17, 1999, at 3:30 p.m. It identifies the manner of service as "(Personal service) By personally delivering copies to the person served." It is signed by Paul Kern and states that it was executed on March 17, 1999.

On June 7, 1999, the trial court entered a minute order denying without prejudice Karton's request for entry of default judgment, partly on the ground that Karton had failed "to submit [a] computation of interest (only a bottom line number is provided)." The court ordered Karton "to submit new papers with the above-mentioned problems corrected within 20 days."

On July 8, 1999, the court entered a minute order again denying without prejudice Karton's request for entry of default judgment, partly on the ground that the "computation of prejudgment interest does not appear to be correct," and attaching the court's own computation. The court again ordered Karton "to submit new papers with the above-mentioned problems corrected within 15 days."

On July 23, 1999, Karton filed a declaration and a memorandum of points and authorities in support of his request for entry of default judgment. In his memorandum of points and authorities he claimed he was "entitled to interest of $17,431.38 through June 30, 1999," but he gave no explanation of how he derived that number. His declaration said nothing about interest, and he attached no other documents supporting the claimed amount of interest.

On August 11, 1999, Karton filed a declaration in support of his request for default judgment. Attached as exhibits were his retainer agreement with Dougherty, his billing statements to Dougherty, and a spreadsheet that displayed the amounts and dates of Karton's bills, the amounts and dates of Dougherty's payments, and the interest accrued on unpaid bills. According to the spreadsheet, the total amount of unpaid fees and costs was $79,349.90, and the total interest was $2,446.51, for a combined total of $81,796.41 as of May 21, 1999. In the declaration to which the spreadsheet was attached, Karton stated: "The total of principal plus interest through May 21, 1999, is $81,796.41. The daily interest is $22.04. Inasmuch as I have used the principal sum of $65,246.63 (i.e. without interest) for purposes of default, the difference between $81,796.41 and $65,246.63 is $16,549.78; that is the amount of interest that is requested." Karton's statement that he "used the principal sum of $65,246.63 . . . for purposes of default" was presumably a reference to his operative first amended complaint, which alleged only $65,246.63 in unpaid fees and costs. Thus, although Karton's own calculations showed less than $2,500 in accrued interest on outstanding fees and costs of $79,349.90, and Karton's first amended complaint alleged only $65,246.63 in outstanding fees and costs, Karton requested an interest award of $16,549.78.*fn2

On August 11, 1999, the trial court entered default judgment in the principal sum of $65,246.63, plus accrued prejudgment interest of $18,224.82*fn3 through August 6, 1999, plus costs of $679.50 and attorney's fees of $2,525.93, for a total of $86,676.88 as of August 6, 1999, with prejudgment interest continuing to accrue at the rate of $22.04 per day until entry of judgment. The judgment further provides that the court "expressly reserves jurisdiction to modify attorney[']s fees and costs incurred after the date hereof."

The superior court file contains a letter from Wells Fargo bank dated August 27, 1999, informing Dougherty that Karton had levied on roughly $51,000 in Dougherty's accounts. It is undisputed that by October 4, 1999, Karton had seized approximately $56,000 of Dougherty's funds in partial satisfaction of the default judgment.

II. Dougherty's Motions to Vacate and Other Applications

Dougherty filed a number of motions and other applications in the trial court, seeking to set aside the default or stay the proceedings. None was successful.

On July 23, 1999 (i.e., after entry of default but before entry of the default judgment), Dougherty filed a request for a stay. In a supporting declaration, Dougherty's counsel stated that Dougherty had requested arbitration of the fee dispute before the Los Angeles County Bar Association. He further stated that the bar association had found that the request was timely, rejecting Karton's contention that it was not. On that basis, Dougherty requested "a stay of these proceedings pending arbitration." On July 30, 1999, the court entered a minute order denying Dougherty's request on the ground that "Defendant has no standing."

On September 3, 1999 (i.e., after entry of the default judgment), Dougherty filed an ex parte application for a stay and "return of property" pending a hearing on a motion to set aside the default judgment. On the same day, the court entered a minute order denying the ex parte application "without prejudice."

On September 7, 1999, Dougherty filed a motion to set aside the default and default judgment, to be heard on October 5, 1999. On October 4, 1999, Dougherty petitioned for bankruptcy protection. He did not appear for the October 5 hearing on his motion to set aside, and the superior court placed the motion off calendar.

On September 29, 1999, Dougherty filed an ex parte application for a temporary restraining order enjoining any further collection efforts by Karton and requiring him to return property already seized, pending a hearing on the motion to vacate that was calendared for October 5, 1999. On the same day, the court entered a minute order denying the ex parte application.

On November 4, 1999, Dougherty filed a motion to set aside the default, to be heard on December 1, 1999. The superior court file contains no minute order or notice of ruling concerning the motion, and the trial court's docket reflects that no hearing was held on December 1, 1999.

On December 21, 1999, Dougherty filed a motion to set aside the default, to be heard on January 3, 2000. In opposition, Karton contended that the action was stayed because of Dougherty's bankruptcy filing. On January 3, 2000, the trial court denied the motion "without prejudice."

On February 18, 2000, the bankruptcy court entered a stipulated order modifying the bankruptcy stay to permit the superior court to decide "all motions, including to set aside the default and default judgment, and all other matters that may be properly brought before it, including those pertaining to the further liquidation of the KARTON claim." The stipulation, signed by counsel for both Karton and Dougherty, recited that the superior court had denied without prejudice Dougherty's previous motions to vacate the default and default judgment because the court had believed that the bankruptcy stay prohibited the court from ruling on the motions.

On April 14, 2000, Dougherty filed a motion to set aside the default, to be heard on May 4, 2000. On May 4, 2000, the trial court entered a minute order placing the motion "off ...


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