(Santa Clara County Super. Ct. No. CV099297).Trial Judge: The Honorable James C. Emerson.
The opinion of the court was delivered by: Rushing, P.J.
CERTIFIED FOR PUBLICATION
Plaintiff Standard Microsystems Corporation brought this action accusing a Taiwanese corporation and an Israeli corporation of misappropriating the design of a microchip used in manufacturing personal computers. Both defendants were advised by their California attorney that the attempt to serve them by mail was ineffective, and that they were under no obligation to answer the complaint. When plaintiff took their default, the same attorney sought relief on the ground that service was void, or that defendants themselves were guilty of mistake, surprise, inadvertence, or excusable neglect in believing it to be void. The trial court found that the defaults were the result of a calculated strategy resting on a mistake of law, which did not constitute excusable neglect. It denied relief and entered a default judgment. Defendants then engaged new counsel, who moved for relief from the default judgment, as well as the underlying default, on the ground that both were the results of the fault of defendants‟ first attorney-an assertion that, if borne out, would ordinarily entitle them to mandatory relief under Code of Civil Procedure section 473, subdivision (b) (§ 473(b).). The trial court again denied relief. We hold that this was error because the undisputed facts plainly established the attorney fault necessary to trigger a right to mandatory relief. We also reject plaintiff‟s argument that relief was barred by Code of Civil Procedure section 1008 (§ 1008), which restricts motions for reconsideration and renewals of previously denied motions. Although the later motion may have been, in part, a renewal of the first motion within the terms of section 1008, the relief that made it so was ancillary to, and necessary to effectuate, the greater object of the second motion, which neither sought reconsideration nor the issuance of an order the court had previously declined to grant. Further, to the extent a literal application of section 1008 might conflict with the provisions of section 473(b), the latter must prevail. Accordingly, we will reverse the judgment.
A. Complaint, Service, Default
Plaintiff Standard Microsystems Corporation (Standard) and defendant Winbond Electronics Corporation (WEC) market competing microchips of a type known as a Super I/O or SIO, which provides multiple functions in a personal computer, such as power management and controlling ports and input devices. Prior to summer 2007, plaintiff sold SIO‟s to Hewlett-Packard Co. (HP), a manufacturer of personal computers, for at least one of the latter‟s product lines. In 2007, HP decided to purchase SIO‟s for the coming model year from WEC instead.
On November 20, 2007, plaintiff initiated this action with a complaint alleging that the SIO developed and sold by WEC and a related corporation, defendant Winbond Israel, Ltd. (WIL), was a "clone" that "provide[d] the functionality" of the chip plaintiff had previously developed for HP.*fn1 In developing and manufacturing it, plaintiff alleged, defendants had used trade secrets belonging to, and wrongfully acquired from, plaintiff. It prayed for compensatory damages, disgorgement of sums by which defendants were unjustly enriched, imposition of a constructive trust on trade secrets in their possession, and injunctive relief.
On November 24, 2007, plaintiff‟s attorney mailed copies of the summons and complaint to both defendants, by registered mail-return receipt requested, addressed to their respective headquarters in Taiwan and Israel. A WEC manager later declared that the papers were received at its Taiwan offices on November 24.*fn2 Those mailed to WIL apparently reached its offices on December 13, 2007.
It is not cogently disputed that within 10 days of receiving the summons and complaint, T. Y. Huh, the head of WEC‟s legal division, began communicating about the matter with Yitai Hu, then a partner with the firm of Akin Gump, who already represented WEC in another matter. Hu believed that the service by mail had not been effective to confer jurisdiction over either defendant. He later acknowledged advising them, on that basis, that "that they were not required to answer the complaint under U.S. law." Hu did not advise defendants of the possibility of moving to quash service, which would have shielded them against a default. (See Code Civ. Proc., §§ 418.10, subd. (a)(1), 585, subd. (a), 586, subd. (a)(4); see id., § 412.20, subd. (a)(3).)
On December 13, SMSC mailed requests for production of documents to both defendants. Huh later declared that he remained "concerned about Winbond‟s obligation to respond to the complaint," and therefore asked Hu, on or around December 19, 2007, "to double-confirm whether the service of SMSC‟s complaint was effective or not and reminded him that Winbond must answer by December 29 if the service was valid.*fn3 Mr. Hu confirmed his previous advice, that neither WEC nor [WIL] had been validly served and that we need do nothing. He warned us that SMSC would take the opposite position to lure Winbond into appearing early." Huh asked Hu "to provide a strategy for resolving this case at an early stage, if possible," and on December 20, Hu "recommended that we authorize him to contact with [sic] SMSC‟s legal counsel for the purpose of agreeing on a date for Winbond to answer SMSC‟s complaint so that we could move the case forward."
Pursuant to this strategy, on the next day Hu‟s associate Elizabeth Rader contacted SMSC‟s attorney Chris Scott Graham by phone, indicating that she "wanted to work out a time for Winbond to respond." Graham responded by e-mail on December 23, 2007, saying that he would be traveling for the following week but that upon his return, and upon receiving confirmation of her authority to represent defendants, he would call her when his schedule allowed. She wrote him on January 3, 2008, confirming that her firm had been "formally authorized and instructed" by defendants "to speak with SMSC‟s counsel about the attempted service of the complaint and other discovery-related documents." She continued, "We do not believe SMSC‟s attempted service on either [defendant] was effective. We would like to reach an agreement on a date that [defendants] would answer or otherwise respond to SMSC‟s complaint."
Graham and Rader spoke by telephone on January 4, 2008. In a letter memorializing the conversation, Graham wrote that he believed the deadline for responding to the complaint had already passed, but that "as a professional courtesy and in light of your representation that the Winbond entities will not challenge jurisdiction or service, at this time [Standard] agrees to extend to January 11, 2008, the time in which the Winbond entities may file either an answer or demurrer." He expressed a willingness to discuss settlement, but "because of the time sensitive nature of the business in which these devices are used and reflective of the desire of [Standard] to address this situation expeditiously, at this time Winbond must respond to the formal discovery already served consistent with the requirements of the Code of Civil Procedure."
Rader later declared that in this conversation she and Graham had disagreed over the effectiveness of the attempted service on defendants. Graham told her, however, "that he was not inclined to seek default, because Winbond was offering to respond. I told Mr. Graham that Winbond would be willing to voluntarily accept service, if SMSC provided a longer extension of time to respond to the Complaint. Mr. Graham told me that he could offer at the very least a one-week extension, and would discuss a longer extension with SMSC."
On January 11, Rader wrote to Graham alluding to the parties‟ disagreement "about whether [Standard‟s] attempted service by mail was effective." She expressed appreciation for his "professional courtesy in granting us a purported extension of time to respond until January 11, 2008," but asserted that since "service was ineffective," defendants‟ "time to respond ha[d] not even begun," nor was any response to Standard‟s discovery requests "legally required." She described defendant‟s earlier offer as one to "voluntarily accept service of process and agree to answer or demur in exchange for a significant additional time to respond." She indicated that the extension "should be long enough to allow the parties to try to resolve this matter without litigation." She asserted that Graham had agreed, in their earlier conversation, to "take that proposal back to SMSC and seek their agreement." She reiterated defendants‟ offer to voluntarily appear and defend, but conditioned it on an extension of "at least one month from today." She expressed a willingness to engage in informal discovery, impliedly in connection with such an extension.
Graham later declared that on January 14, 2008, he told Rader that Standard would request entry of default as to both defendants unless they agreed to respond to the complaint and the outstanding discovery by February 11, waiving any jurisdictional objections. He told her that in the absence of a response to this proposal by January 16, 2008, Standard would seek defaults on January 18.
On January 17, Graham e-mailed Rader that he had heard nothing since their January 14 conversation, and that Standard was therefore left with "no option but to move forward to have default entered against Winbond. Since [her firm had] not formally entered an appearance, no further notification of these proceedings will be sent to your attention. Rather, we will continue to follow the procedures specified in the Code of Civil Procedure and deal with Winbond directly."
On January 22, 2008, acting pursuant to an ex parte order of that date finding proper service on both defendants, the clerk entered their defaults.
B. Motion for Relief from Default
On January 24, Akin Gump filed a notice of appearance stating that it had been "retained by defendants . . . to represent them in this action," while reserving to defendants any jurisdictional challenge they might have. In a cover letter transmitting this filing to Graham, Rader asked him to withdraw his request for default and wrote further, "Although we are unable to agree to respond to your discovery requests by the early February deadline that you proposed, we are willing to work something out to reach a resolution in this matter. We are prepared to move to set aside default and quash service. Winbond would prefer, however, to resolve this action quickly." The record does not contain a reply.
On February 8 and 11, 2008, respectively, WIL and WEC filed separate motions to set aside the default and quash service of process.*fn4 Although both notices of motion cited section 473(b), the only cogent legal argument offered by either was that service had been defective. That is, the argument was cogent as to WIL, which argued that the service on it "failed to comply with the Hague Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters ("Hague Service Convention‟) in serving the summons and complaint . . . ." The gist of the supporting argument was that the Hague Service Convention, to which Israel is a signatory, does not contemplate the service of process, as distinct from other materials, by mail. WIL acknowledged that one California decision had held otherwise, but dismissed that case as "not determinative" in view of contrary authority. In doing so it either overlooked or ignored the fact that the cited decision, Denlinger v. Chinadotcom Corp. (2003) 110 Cal.App.4th 1396, 1399-1400, came out of this court, which would have appellate jurisdiction over any ruling the trial court might make. Nor did it acknowledge that we had, in that decision, pointedly examined conflicting authorities and concluded that the "the better, and more modern, view" is that in the absence of specific objection by the adhering country, the convention allows service by mail. (Id. at pp. 1400-1405.) Instead defendants countered with a case decided shortly after Denlinger that, without citing it, acknowledged the conflicting lines of authority and declined to decide which to follow since the service there was defective under California law. (In re Alyssa F. (2003) 112 Cal.App.4th 846, 853.)
WEC‟s jurisdictional challenge was, if anything, weaker than WIL‟s. It acknowledged that the Hague Service Convention did not apply to service in Taiwan, but argued that the attempted service on it was nonetheless defective because not accomplished in the manner "prescribed by Taiwanese law, namely, letters rogatory or judicial assistance by Taiwanese courts." "Because service was defective under
For convenience, and particularly when distinguishing them from the later motion to vacate the judgment, we will often refer to these motions collectively as "the first motion," or equivalent.
Taiwanese law," it contended, "any judgment in the action is unenforceable in Taiwan." (Italics added.)
Both defendants also suggested that they had acted reasonably in the events leading to the default. WIL asserted that it had made good faith efforts to negotiate its entry into the action. WEC asserted that it had reacted to the complaint reasonably, diligently, and promptly; that its efforts to participate in the litigation were "hampered by the process of retaining U. S. counsel and a belief that negotiations were ongoing"; that the law strongly favors resolution of cases on their merits; and that Standard would suffer no prejudice from granting relief. It also argued that relief was justified by its "reasonable belief that service was defective," a belief Huh declared he had held. There was no suggestion that his belief was shared by, let alone that it originated with, defendants‟ attorney Hu; nor did either motion otherwise suggest that the default was the product of neglect or mistake by counsel.
In opposition to the motions for relief, plaintiff argued that service on both defendants complied with California law and that the Hague Service Convention did not invalidate it as to either. In the case of WEC, it did not apply at all, because Taiwan was not a signatory to the treaty. In the case of WIL, plaintiff contended that service by mail was effective under this court‟s holding in Denlinger, supra, 110 Cal. App. 4th 1396. Plaintiff asserted that Israel has "affirmatively stated that it has no objection to this provision of the Hauge [sic] Convention." Plaintiff further argued that defendants‟ defaults were the product of "willful failure to respond rather than any "mistake, inadvertence, surprise or excusable neglect.‟ " In a footnote it observed, "As WEC neither based its Motion on attorney fault, nor filed the required attorney affidavit of fault, the "mandatory‟ provision[s] of Section 473(b) do not apply."
At the first hearing on these motions, after an in camera discussion of "in limine requests," the court observed, "What it comes down to in my mind is whether there‟s adequate room under 473 to grant your request, and unfortunately when I review the correspondence that‟s gone on between the two of you, I see this not as an active mistake, inadvertence, surprise, excusable neglect, but in fact a calculated maneuver on behalf of Winbond to delay this matter. [¶] I say that I‟m not-I don‟t really like to take sides because I know this was very strenuously argued in my chambers, but when I‟ve read- and I didn‟t know all the facts of the case when I read the-when I had you in my chambers because those are very short sessions, but at this time having read all the correspondence and e-mail between the two counsel, I‟m led to believe that this was a calculation on the part of Winbond and not anywhere close to mistake, inadvertence, surprise or excusable neglect."
However the court did not rule at that time, but apparently allowed further time for defendants to submit additional briefing, which they did in the form of a joint reply memorandum. Here they directly asserted for the first time that if the service on them had not been defective, then they were entitled to relief under section 473(b) because the defaults were the result of their mistake, surprise, or excusable neglect in supposing service to have been defective. In a supplemental declaration, Huh averred that WEC‟s "general practice" when named as a defendant was to "fully defend any such action," but to deal with questions of jurisdiction by "negotiat[ing] a date to answer or otherwise respond ot the complaint . . . . To the best of my knowledge, Winbond has negotiated due dates for its responsive pleadings in each of the cases in which Winbond has been a defendant in state and federal courts, and has, in each instance, answered each such complaint." Defendants argued, "If the court finds that service on Winbond was proper, then Winbond‟s belief that the service was improper was a reasonable mistake of law." Again no mention was made of the fact, as later appeared, that Hu had told defendants the service was defective, that they had no obligation to respond to it, and that they should not do so.
On April 15, 2008, the court issued a formal order denying both motions. It found that both defendants had "received valid service," and continued, "There is no factual support for defendants‟ assertion that default was entered due to mistake, inadvertence, surprise or excusable neglect. The court does not find credible defendants‟ assertion that they lacked familiarity with court procedures. "Absent an "attorney affidavit of fault," an attorney‟s mistake of law is charged to the client, and mere ignorance of the law or negligence in conducting legal research is not excusable neglect.‟ (Weil & Brown, Cal. Prac. Guide: Civ. Pro. Before Trial (The Rutter Group 2007) ¶ 5:313, p. 5-84, citing Anderson v. Sherman (1981) 125 Cal.App.3d 228, 237-238.) Defendants‟ mistaken belief that service was improper does not amount to excusable neglect or a mistake of law which would justify relief in this instance. If defendants believed service to be improper, defendants could have filed a motion to quash. The evidence reflects defense counsel‟s attempt to negotiate a lengthy extension of time to respond. The court notes that any stipulation to extend the time to respond by more than 15 days requires a court order. (See California Rules of Court, rule 3.110, subds. (d) and (e).) While attempting to settle this litigation is laudable, defendants had an obligation to file a responsive pleading or affirmatively seek the appropriate relief from this court. Defendants‟ counsel received adequate warning of plaintiffs intent to seek default. The default shall not be set aside pursuant to Code of Civil Procedure section 473, subdivision (b)."
After a prove-up hearing on May 9, 2008, the court entered judgment in the form requested by plaintiff‟s counsel, which included imposition of a constructive trust and an injunction restraining defendants "and those in active concert or participation" with them from "possessing, obtaining, transferring, disclosing or using in any way or form any of the SMSC Trade Secrets including, but not limited to, in the form of the Winbond Super I/O and/or any other device or product developed through and/or with the use of any of the SMSC trade secrets." It permitted Winbond to continue to "provide the Winbond Super I/O to Hewlett Packard Company," but "only for [a] Restricted Purpose" as there set out. This was, inferentially, an accommodation to HP, whose motion to intervene in the action had been taken off calendar on the day of the second hearing on defendants‟ motions.
C. Motion to Vacate Judgment
On May 20, 2008, after consulting with representatives of the firm of Finnegan, Henderson, Farabow, Garrett & Dunner, defendants engaged Steven Morissett of that firm to represent them. On June 19, he filed a motion on defendants‟ behalf seeking "mandatory relief from entry of default and default judgment or, in the alternative, discretionary relief from entry of default and default judgment." The central contention in support of the motion was that defendants‟ original attorneys had "failed to provide the proper advice and take the proper actions once default became a palpable threat."
The motion was accompanied by a declaration from Attorney Hu in which he stated that at the time defendants‟ defaults were taken, he believed that neither had received proper service, and on that basis had told defendants "that they were not required to answer the complaint under U.S. law." He acknowledged that defendants were relying upon and following his advice in failing to respond to the complaint. He did not advise them to "file a motion to quash," or "otherwise respond to the complaint," before the entry of default. He acknowledged his responsibility, "as legal counsel for my clients, . . . for advising them to file a motion to set aside the default, and for preparing such a motion. When preparing the motion, I believed that the Court would set aside any default because of an invalid service of process. I did not include any argument showing that there was a "mistake, inadvertence, surprise, or excusable neglect‟ in WEC and [WIL]‟s motions." Perhaps most curiously, he averred that he had also acted in reliance on an expectation that he would "receive notice of any application for entry of default before default was entered so that we could respond."
A further declaration was submitted from Huh, who said among other things that Winbond had engaged Attorney Hu because he and his then-firm, Akin Gump, "were already [Winbond‟s] counsel of record in an unrelated patent litigation in the U.S. District Court in Utah." Huh declared that defendants had "sought legal information and instructions" from retained counsel "on the[ir] legal obligations . . . in responding to the complaint . . . . Based on legal advice we received, we believed that the service of process on WEC and [WIL] was improper and ineffective and that neither WEC nor [WIL] was obligated to answer the complaint. We further believed and expected that our retained U.S. attorney would advise us what actions were necessary and take any necessary steps to preserve Winbond‟s rights, since no one at [Winbond] had authority to appear or knew what to do in the California courts. [¶] . . . Not until January 15, 2008, did [Winbond] first learn that [Standard] was threatening default. However, at this same time we also believed that our retained U.S. attorneys had essentially negotiated the extension [Winbond] needed to fairly respond to the complaint and discovery requests. We were assured by our retained U.S. attorney, Mr. Hu, that the risk of [plaintiff ] seeking or obtaining a default was minimal. We were never informed, nor were we aware, that there were procedures by which Winbond could challenge the service of process by filing a motion to quash service before [Standard] filed an application for entry of default and to test the sufficiency of the mail service in Taiwan and Israel without risking default. [¶] . . . [Winbond] did not learn that [Standard] had filed papers applying for entry of default until after the Clerk‟s default was already entered. [Winbond] received a copy of the application for entry of default, sent by regular mail, on January 28, 2008. I was informed that Winbond‟s attorneys would be moving to set aside the default. [¶] . . . On May 12, 2008, [Winbond] learned that a final default judgment had entered against it, including a permanent injunction." These averments were echoed in a declaration by WIL manager Mizrahi, who also stated that WIL had no legal staff of its own, that this was the first American action ever brought against it, and that its management had decided to coordinate its defense with that of WEC. Accordingly, "[WIL] did not manage the legal case, but relied on WEC and our U.S. counsel to protect [WIL]‟s legal rights."
Standard filed an opposition memorandum in which it repeatedly characterized the motion to vacate as a "motion for reconsideration." It contended that because the motion did not comply with section 1008, the relief it sought was beyond the court‟s jurisdiction. It further contended that defendants had failed to establish that the defaults or default judgments were the product of attorney fault because the affidavit from attorney Hu was not "straightforward" and ...