Have You Been Served?

A recently decided California Fourth Appellate District opinion holds that a subcontractor that was defaulted in a construction defect case was not entitled to relief from the default judgment.  (Pulte Homes Corporation v. Williams Mechanical, Inc. (2016) Cal.App.4th, 2016 WL 4199093.)  Pulte Homes Corporation sued Williams Mechanical (“Williams”) for breach of a plumbing contract.  At the time, Williams was either a suspended or a dissolved corporation.  Pulte served its Complaint on Matt H. Morris, an attorney designated with the Secretary of State as the agent for service of process in Williams’ corporate filings.  Mr. Morris failed to notify Williams or its liability insurance company of the lawsuit, and no response was filed on its behalf.  Pulte requested entry of default, obtained a default judgment, and then notified Williams’ liability insurer, First Specialty Insurance, of the default judgment.  Less than six months after entry of the default judgment, but more than six months after entry of the default, First Specialty retained counsel who successfully moved to set aside the judgment.  Pulte appealed the order setting aside the default.

On appeal, Pulte raised two issues:  (1) Because it was a suspended corporation, Williams could not defend itself; and (2) Williams had failed to prove it was entitled to relief. In response, Williams gave three legal bases for its request to set aside the default judgment:

  1. Code of Civil Procedure section 473: Williams failed to respond to the Complaint through its own mistake, inadvertence, surprise, or excusable neglect;
  2. Code of Civil Procedure section 473.5: Williams did not receive actual notice of the proceedings; and,
  3. Equitable extrinsic mistake:  Circumstances extrinsic to the litigation unfairly cost Williams a hearing on the merits.

The appellate court ruled that Williams was not entitled to relief under any of the legal bases cited:

  1. Ultimately, “. . . a dissolved corporation cannot claim excusable neglect when its agent for service of process at the time of dissolution has not made any effort to notify it and has not shown that an effort, if made, would have failed.” (Pulte Homes Corporation v. Williams Mechanical, Inc., supra at 18.)  Because Williams had waited beyond the statutory limit to file its motion, the trial court was not permitted to set aside the default and, therefore, could not set aside the default judgment. (Howard Greer Custom Originals v. Capritti (1950) 35 Cal.2d 886, 888);
  2. The court rejected Williams’ argument that First Specialty, as insurer for the defunct corporation, should have been served with the lawsuit on behalf of Williams. The only way a corporation can have actual notice is through a person who has the appropriate authority; when a corporation has been dissolved and thus has no directors or officers, notice to the person who was designated by the corporation as its agent for service of process is actual notice.  (Jeppi v. Brockman Holding Co. (1949) 34 Cal.2d 11, 17); and
  3. Williams’ circumstances were not exceptional.  “Because of the strong public policy in favor of the finality of judgments, equitable relief from a default judgment or order is available only in exceptional circumstances.” (County of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1229-30.)

Because it found in favor of Pulte on the second issue of whether Williams was entitled to relief, the Court did not reach Pulte’s first issue of whether Williams’ corporate status prevented it from defending itself.  The default and default judgment stand.