(Super. Ct. No. 30-2009-00120560) Appeal from a judgment of the Superior Court of Orange County, John C. Gastelum, Judge. Reversed and remanded with directions.
The opinion of the court was delivered by: Bedsworth, Acting P. J.
CERTIFIED FOR PUBLICATION
We reluctantly return in this case to the question of default
judgments with a cautionary tale - well, three actually. The first is
a tale for plaintiff's attorneys, who may assume a defendant's default
is an unalloyed gift: an opportunity to obtain a big judgment with no
significant effort. It is not. Instead, when a defendant fails to
timely respond to the complaint, the first thing plaintiff's counsel
should do (after offering an extension of time to respond)*fn1
is review the complaint with care, to
ascertain whether it supports the specific judgment the client seeks.
If not, a motion to amend is in order. In this case, counsel for
plaintiff Gil Kim failed to do that. Instead, he simply asked the
court to enter defendants' defaults on the complaint as initially
alleged. Unfortunately for Kim, the factual allegations of that
complaint do not support any judgment in his favor.
And even when the allegations of a complaint do support the judgment plaintiff seeks, he is not automatically entitled to entry of that judgment by the court, simply because defendant defaulted. Instead, it is incumbent upon plaintiff to prove-up his damages, with actual evidence. It is wholly insufficient to simply declare, as Kim did here, that defendants' breach of one or more promissory notes "caused [him] tremendous financial loss," and that a judgment of "$5 million against each defendant, for a total of $30 million . . . would be a reasonable sum." That evidence may establish the amount Kim feels entitled to recover, but it fails utterly to demonstrate what he is legally entitled to recover. Kim's failure to offer any significant evidence to support his damage claims precludes any monetary judgment in his favor.
We consequently reverse the default judgment entered in Kim's favor, and remand the case to the trial court with directions to enter judgment in defendants' favor.
The second cautionary tale is for trial courts. And it's not the first time we have told this tale. As we previously explained in Heidary v. Yadollahi (2002) 99 Cal.App.4th 857, 868, "[i]t is imperative in a default case that the trial court take the time to analyze the complaint at issue and ensure that the judgment sought is not in excess of or inconsistent with it. It is not in plaintiffs' interest to be conservative in their demands, and without any opposing party to point out the excesses, it is the duty of the court to act as gatekeeper, ensuring that only the appropriate claims get through. That role requires the court to analyze the complaint for itself -- with guidance from counsel if necessary -- ascertaining what relief is sought as against each defaulting party, and to what extent the relief sought in one cause of action is inconsistent with or duplicative of the relief sought in another. The court must then compare the properly pled damages for each defaulting party with the evidence offered in the prove-up." Unfortunately, the trial court in this case seems not to have done that, and instead simply gave Kim what he asked for - which in this case was $30 million. Even more unfortunately, this trial court is certainly not alone in doing so, even since Heidary was published. (See, e.g., Electronic Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161 [$8 million in compensatory damages awarded on a complaint alleging $50,000 in damages].) We need to shore this up. The court's role in the process of entering a default judgment is a serious, substantive, and often complicated one, and it must be treated as such.
And third, this case is a cautionary tale for appellate counsel. Those who practice before this court are expected to comport themselves honestly, ethically, professionally and with courtesy toward opposing counsel. The fact a respondent has no obligation to file a brief at all, in no way excuses his counsel's misconduct if he chooses to do so. The conduct of Timothy J. Donahue, Kim's counsel herein, which included seeking an extension of time to file his brief under false pretenses, and then filing a brief which was not just boilerplate, but a virtual copy of a brief for another case - including a boilerplate accusation of misconduct against appellants' counsel and a boilerplate request for sanctions based on a purportedly "frivolous" appeal - will not be countenanced. Donahue's response to this court's notice, informing him that we were contemplating the imposition of sanctions on our own motion, was both truculent and dismissive, going so far as to assert that we must have issued the notice in error. We did not. Nor did we appreciate him responding to our order that he appear to address possible sanctions against him by sending in his stead an attorney who had not been informed sanctions were being considered, and knew nothing about our order. Donahue's conduct on appeal was inappropriate in nearly every respect, and we hereby sanction him in the amount of $10,000.
Gil Kim's unverified complaint, filed March 25, 2009, alleges defendants Matt Jennings and Rob Jennings are "sophisticated businessmen, licensed investment brokers and/or experienced in selling investments to the general public." It further alleges that "[o]ver the last several years," the Messrs. Jennings "opened up and formed several companies and businesses," including Westmoore Partners, Inc., Honolulu Harry's, Inc., Westmoore Capital, Inc., and Temecula Harry's Pacific Grill, each of which is also named as a defendant.
According to the complaint, the two Jenningses "would mix, mingle and shuffle money between the different companies, close one and open another one. This was designed to hide assets and evade potential creditors."
All six defendants were allegedly "jointly involved in, owned and operated a global multi-level marketing business, and . . . sought investment money from plaintiff." Although Kim initially thought defendants were "honest, reputable and forthright," he learned only "within the last year," after defendants had "taken" his money, that this was untrue.
Allegedly, defendants initially borrowed only "a little bit of money" from Kim, and promised a substantial return. And in fact, Kim acknowledges that "[i]n the beginning, defendants paid a substantial return," although he asserts they did so "as bait, to entice [him] to loan more money." This alleged enticement was apparently effective, as Kim asserts he did loan defendants more money, again relying upon their promise "to repay the loans with a substantial return."
Defendants then allegedly enticed Kim to once again lend them even more money, "by informing [him] that they really didn't need his money." Then, in August of 2006, Matt and Rob Jennings, acting on behalf of the other defendants, allegedly promised to make monthly payments, in the amount of $13,020.85, on an office building owned by Kim, in exchange for Kim's investment of $1,250,000. However, according to Kim, defendants "had no intention of repaying the loan."
Kim attaches to his complaint, and incorporates by reference, seven promissory notes which reflect defendants' alleged indebtedness to him. He asserts that within the last year, defendants have each "acknowledged responsibility to pay on the seven notes, and have promised to pay [him]." However, "defendants have never followed through on [the] promises and the money remains outstanding."
The first promissory note reflects that on February 28, 2003, Westmoore Partners, Inc., promised to pay Kim $25,000, on the maturity date of March 28, 2003 - only 30 days later. Interest payments of $750 per month were due on the 28th of each month, starting on February 28, 2003. It provides that a default occurs if Westmoore Partners fails to pay the principal and interest on the maturity date.
The second promissory note reflects that on May 29, 2003, Westmoore Partners, Inc., promised to pay Kim $25,000, on the maturity date of December 29, 2003 - only seven months later. Interest payments of $750 were due on the 29th of each month, "starting February 28, 2003."*fn2 It provides that a default occurs if Westmoore Partners fails to pay the principal and interest on the maturity date.
The third promissory note reflects that on June 10, 2003, Honolulu Harry's, Inc., promised to pay Kim $50,000, on the maturity date of August 10, 2003 - two months later. Interest payments of $1,500 per month were due on the 10th of each month, starting on July 10, 2003. It provides that a default occurs if Honolulu Harry's, Inc., fails to pay the principal and interest on the maturity date.
The fourth promissory note reflects that on August 6, 2003, Matt Jennings promised to pay Kim $78,750, on or before October 6, 2003 - two months later. The note further specifies that the funds are "immediately due and payable" upon sale of a specified piece of real property owned by Matt Jennings. This note does not specify an interest rate, but includes "closing costs" of 5 percent as part of the principal amount due, and provides for interest of 19 percent per annum in the event of default in the payment of principal when due.
The fifth promissory note reflects that on July 27, 2005, Westmoore Capital, Inc., promised to pay Kim $60,000, on the maturity date of July 27, 2006 - one year later. Interest payments of $2,000 were due on the 27th of each month, starting on July 27, 2005.*fn3 It provides that a default occurs if Westmoore Capital fails to pay the principal and interest on the maturity date.
The sixth promissory note reflects that on July 27, 2005, Westmoore Capital, Inc., also promised to pay Kim $100,000, on the maturity date of July 27, 2006 - again, one year later. Interest payments of $2,000 were due on the 27th of each month, starting on July 27, 2005. It provides that a default occurs if Westmoore Capital fails to pay the principal and interest on the maturity date.
Nowhere does Kim allege that the maturity dates of any of these first six promissory notes were ever extended, either orally or in writing. By their terms, each required full payment of the indebtedness on dates between March of 2003 and July of 2006, inclusive - meaning the latest note was to be fully performed nearly three years prior to the filing of Kim's complaint.
The seventh promissory note reflects that on August 16, 2006, Temecula Harry's Pacific Grill, LLC, promised to pay Kim $1,250,000 on the "maturity date," which is defined as being "at such time as Harry's Pacific Grill restaurant located in Temecula, CA and owned and operated by [Temecula Harry's Pacific Grill] is sold or substantially all of its assets are transferred, except for any transfer or sale to Westmoore Capital Group, LLC or any other Westmoore affiliated entity." Pending the maturity date, Temecula Harry's is obligated to pay interest at a rate of 12.5 percent per annum on the 15th of each month, but - remarkably - only so long as it has the "cash available" to do so. Also of note, any interest which is not paid when due "shall accrue and will be payable at such time as the Company has sufficient funds to pay any interest which is in arrears."
As additional consideration for this seventh promissory note, Kim was also entitled to "a prorated portion of 80% of the annual net income from the operation of the Temecula restaurant . . . in excess of $470,000," until such time as either Kim converted some or all of his loan into "membership interests" in Temecula Harry's Pacific Grill, or the loan principal was repaid. Finally, this seventh promissory note includes a provision specifying that it reflects the entire agreement between the parties with respect to the subject matter, supersedes all prior agreements and understandings, and cannot be amended except by signed written agreement.
While it is somewhat inconsistent with the conclusory allegation that defendants had no intention of repaying him, Kim also alleges that until approximately one year prior to the filing of the complaint (i.e., until March of 2008), defendants did comply with their loan obligations. However, they allegedly stopped doing so "within the last year." With respect to defendants' alleged obligation to make monthly payments of $13,020.85, on an office building he owned, Kim specifically asserts that "as of January 2009, defendants were behind, by more than $78,125," a number which equates to six months of arrearages. Finally, Kim alleges that although he requested defendants disclose "where the investments were placed," they refused to specify, and refused to account for the money.
Kim's first cause of action is for breach of contract. In support of this claim, he incorporates all of his factual allegations, and further alleges that defendants "by their actions, payments, statements and signatures," became obligated to perform under the promissory notes attached as exhibit 1, and that "[a]fter making some payments, and agreeing to make further payments, defendants breached the contract . . . and said breach occurred within the last one year." As a result of the breach, he "suffered loss and harm."
Kim's second cause of action is for negligent misrepresentation, and in support of that cause of action, he incorporates all prior allegations, and further alleges "[d]efendants had a special relationship with [him]" and they undertook a duty to exercise due and reasonable care in "advising and speaking to [him]." Defendants allegedly breached that duty by "unreasonably and improperly fail[ing] to warn [him]" and "improperly advis[ing him.]" Kim alleges that he was harmed by these breaches and "reserves the right to perform discovery, and prove the extent and amount of damages caused by defendants."
Kim's third cause of action is for professional negligence, and in support of that cause of action, he incorporates all prior allegations, and further alleges that at all relevant times, defendants were "acting as investment brokers," and made numerous representations to him that he relied upon. He also alleges defendants "concealed material facts and material information from [him]," despite having "the ability to disclose true information." He asserts defendants acted unreasonably in failing to disclose true information. He alleges that he was "misled and relied upon the lack of full disclosure," and suffered consequent "loss and harm." He again reserves the right to "perform discovery, and present evidence of the full extent of loss and harm."
Kim's fourth cause of action is for conversion, and states, without explanation, that it is alleged "in the alternative." In support of that claim, Kim incorporates all prior allegations, and alleges additionally that "[i]nstead of using [Kim's] money as agreed for business purposes, defendants took the money, squandered the money, enjoyed the money and used the money for their own personal pleasure." Kim asserts defendants "formed the intent to misuse the money and to spend it, [and they] knew that their use of [his] money . . . was improper, unauthorized and unlawful." He alleges that defendants' conduct was "willful, wanton, malicious, oppressive and fraudulent," and claims an entitlement to punitive damages. Conversion is the only cause of action for which Kim seeks punitive damages.
Kim's final cause of action is for "unfair business practices."*fn4 In addition to incorporating all prior allegations, it is supported with additional allegations that defendants "are licensed investment brokers" and he is a "consumer and member of the general public." Defendants are alleged to "have violated Business and Professions Code section 17200," and to have "taken [his] money and wasted it, spent it and enjoyed it, for their own personal benefit." He alleges defendants "took advantage of [him], tricked [him] and fooled [him.]"
Kim's complaint specifies no amount of damages or harm caused to him by defendants' alleged actions, other than the failure to pay $13,020.85 per month, starting sometime in 2008, which amounted to an alleged debt of "more than $78,125" by January of 2009. However, when Kim served defendants with the complaint, on May 11, 2009, he also served each with formal "Statement[s] of Damages," which recites that it is for "personal injury or wrongful death," and which claims that Kim had suffered special damages consisting of "property damage" of $500,000, "unpaid fees" of $1.5 million, and "loan payments" of $2 million. Only the "loan payments" claim is consistent with the facts pleaded by Kim in his complaint.*fn5 The complaint includes no allegation of either property damage or unpaid fees of any kind. The statements also reflected that Kim reserved the right to seek punitive damages of $5 million against each defendant.*fn6
Defendants did not timely respond to Kim's complaint. Kim requested and obtained entry of their ...