STATE FARM FIRE & CASUALTY COMPANY, Plaintiff and Respondent, v. Gary P. PIETAK, Defendants and Appellants et al.
Defendant Gary P. Pietak appeals from a trial court ruling denying his motion under Code of Civil Procedure section 473 1 to “reopen” an interpleader action dismissed by plaintiff State Farm Fire & Casualty Company (State Farm) so that he may file a cross-complaint against State Farm.
Pietak contends that, in refusing his request, the trial court abused its discretion under section 473, subdivision (b)'s “discretionary” provision, and violated the “mandatory” relief provision of that section. We reverse.
FACTS AND PROCEDURAL HISTORY
In 1994, Pietak purchased a homeowners insurance policy (the policy) from State Farm on his house and property located in Garden Valley. Bank of America, the mortgage holder, was identified by Pietak on the insurance policy as an additional insured.
Pietak's house was destroyed in a fire on August 7, 1994. He made a claim to State Farm for the benefits of the policy. Following investigations by local fire authorities and fire investigators retained by State Farm, both of whom concluded that the fire had been intentionally set, State Farm declared Pietak's policy void and denied his claim.
After the fire, Pietak stopped making payments on his mortgage; Bank of America foreclosed and acquired title to the property at the trustee's sale. Thereafter, Bank of America made its own claim to State Farm for the policy proceeds, in the amount of $90,696.56.
Pietak initiated an action against State Farm for breach of the express terms of the policy, and breach of the implied covenant of good faith and fair dealing Pietak v. State Farm Fire & Casualty Co. (Super.Ct. El Dorado County, No. PV-001353). In September 1996, shortly before the date scheduled for trial, Pietak dismissed his complaint without prejudice.
In December 1996, State Farm filed the instant complaint in interpleader (the interpleader), and simultaneously deposited with the clerk of the court the sum of $90,696.56. It named as defendants Pietak, Bank of America, and several attorneys who had represented Pietak, each of whom had claimed an interest in the policy's benefits. State Farm alleged that, in part because Pietak has refused to abandon or release his claim against the policy in favor of Bank of America, it “is unable to determine which of the defendants' respective claims is valid or to whom this $90,696.56 should be paid without risking double or multiple liability.” The interpleader also set forth in detail the facts upon which State Farm contends it relied in its decision to deny Pietak's claim to the policy proceeds, including factual bases for State Farm's conclusions that Pietak intentionally set fire to his own home, breached the “Concealment or Fraud” condition of the policy, and failed after the fire to provide State Farm with information as required by the policy.
Pietak filed an answer to the interpleader in August 1997, asserting that he is entitled to a “set-off against other monies” owed to him by State Farm, and purporting by way of affirmative defense to give “notice to Plaintiff and to the Court that a lawsuit will be filed in U.S. District Court for the Eastern District in Sacramento for breach of insurance contract referred to above and for other causes of action shortly, a file copy of said pleading will be promptly filed with this Court.”
Pietak then filed an action in the United States District Court for the Eastern District of California against State Farm (the federal action), alleging that State Farm (1) breached its obligations under the policy, including the implied duty of good faith and fair dealing; (2) breached fiduciary duties owed to Pietak; (3) defamed him, violated his privacy, and/or abused legal process by falsely asserting that he committed arson and cultivated marijuana on his property; and (4) converted to its own use the policy proceeds belonging to him.
Meanwhile, in the interpleader action, Bank of America filed a motion asserting its priority claim to the entire sum deposited by State Farm, and requesting disbursement to it of that sum, less State Farm's allowable attorney fees and costs. State Farm filed a memorandum in support of Bank of America's motion and filed its own motion for an order that it be “discharged from [the] case and from all liability involving the rights and obligation of the parties to this action arising out of the facts and circumstances set forth in the Interpleader Complaint,” including the funds deposited in the court.
Pietak filed no opposition to either motion.
Instead, he entered into a stipulation with State Farm and Bank of America in which he agreed that the deposited funds would be disbursed to Bank of America, less State Farm's allowable attorney fees and costs. No hearing was requested on the respective motions by State Farm and Bank of America. The trial court entered an order granting the motions,2 and State Farm dismissed the interpleader with prejudice.
State Farm then brought a motion in federal court to dismiss the federal action. It argued that, because the federal action brought by Pietak is based upon the same facts and transactions as State Farm's interpleader (i.e., the validity of the insurance contract and whether Pietak is entitled to any proceeds of the policy), Pietak was required to raise his claims to the insurance proceeds in a cross-complaint in the interpleader action, and his failure to do so bars the later-filed federal action (§§ 426.10, subd. (c), 426.30, subd. (a) 3 ).
Pietak responded by filing a request for relief in the instant action, pursuant to section 473, subdivision (b), in which he sought to reopen the case and sought leave to file a cross-complaint against State Farm. The accompanying memorandum of points and authorities states Pietak's counsel read and interpreted a statute governing interpleader, section 386, subdivision (d),4 to mean Pietak was not required to file a cross-complaint in the interpleader action to preserve his claims against State Farm. If his interpretation was erroneous, the memorandum argues, the mistake was excusable because the statute is “ambiguous.” In fact, the memorandum states that, when Pietak answered the interpleader, “it had already been decided” that he would pursue the filing of a complaint against State Farm in federal court to receive “a ‘fresh start’ with the court system.” Moreover, Pietak's counsel claims he was unfairly “ambushed” by State Farm's dismissal of the interpleader because State Farm had agreed to a later status conference, rather than announcing its intention to dismiss. Counsel was “surprised” by State Farm's motion to dismiss the federal court action because its counsel had voiced no objection to Pietak's stated intention to file an action in federal court. Finally, the memorandum urged the trial court to reject State Farm's expected opposition to the motion on the grounds that State Farm had offended equity by asserting “inconsistent legal position[s],” and that equity would be further offended if Pietak were denied a hearing on the merits of his claims against State Farm.
A declaration submitted in support of Pietak's motion by his attorney, James Ireijo, states: “I have prepared the within Memorandum Of Points And Authorities and the same is true to the best of my information and belief.” Ireijo later submitted a second declaration, whose single substantive paragraph states: “I had no authority from my client to dismiss the breach of contract claims, breach of implied covenant of fair dealing and good faith, defamation, and other claims against STATE FARM by PIETAK when this case was dismissed.”
While Pietak's motion was pending, State Farm's motion to dismiss the federal action was granted.
The trial court denied Pietak's motion to reopen the interpleader action and for leave to file a cross-complaint against State Farm.5
Section 473, subdivision (b), permits a party or the party's legal representative to be relieved from the consequences of a dismissal entered as a result of mistake, inadvertence, surprise, or neglect. Two aspects of subdivision (b) achieve this end. First, it provides for discretionary relief; it states the “court may, upon any terms as may be just, relieve a party or his or her legal representative from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect.” A grant of relief under this provision is a matter of trial court discretion. (J.A.T. Entertainment, Inc. v. Reed (1998) 62 Cal.App.4th 1485, 1491, 73 Cal.Rptr.2d 365.)
Subdivision (b) of section 473 also includes an “attorney affidavit,” or “mandatory,” provision. It states in pertinent part: “Notwithstanding any other requirements of this section, the court shall, whenever an application for relief is [timely], is in proper form, and is accompanied by an attorney's sworn affidavit attesting to his or her mistake, inadvertence, surprise or neglect, vacate any ․ (2) resulting default judgment or dismissal entered against his or her client, unless the court finds that the default or dismissal was not in fact caused by the attorney's mistake, inadvertence, surprise, or neglect.” Under the “mandatory” provision of section 473, subdivision (b), “a party is relieved from the consequences of his or her attorney's mistake, inadvertence, surprise, or neglect and relief is available regardless of whether the attorney's neglect is excusable.” (J.A.T. Entertainment, Inc. v. Reed, supra, 62 Cal.App.4th at p. 1492, 73 Cal.Rptr.2d 365.)
Pietak contends the trial court was required to grant relief from dismissal of the interpleader action under the mandatory portion of section 473, subdivision (b), because his failure to file his claims against State Farm was due to attorney neglect. We are not persuaded. Pietak's application for relief does not satisfy the procedural requisites of the mandatory provision.
Relief under the mandatory provision of section 473, subdivision (b), is available only when the application is accompanied by “an attorney's sworn affidavit attesting to his or her mistake, inadvertence, surprise, or neglect” which resulted in a dismissal or default being taken against the attorney's client. (§ 473, subd. (b).) This indispensable admission by counsel for the moving party that his error resulted in the entry of a default or dismissal from which relief is sought is commonly referred to as an “attorney affidavit of fault.” (See Generale Bank Nederland v. Eyes of the Beholder Ltd. (1998) 61 Cal.App.4th 1384, 1387, 72 Cal.Rptr.2d 188; J.A.T. Entertainment, Inc. v. Reed, supra, 62 Cal.App.4th at p. 1492, 73 Cal.Rptr.2d 365.)
No such affidavit was filed by Pietak's attorney, Ireijo. Except for its purported avowal of the contents of the memorandum of points and authorities, Ireijo's first declaration chiefly authenticates documents filed in support of Pietak's motion. The second declaration states only that counsel lacked authority to dismiss affirmative claims on Pietak's part which were not then on file in the instant proceeding. Because neither declaration contains any sworn admission of mistake, inadvertence, surprise, or error, Pietak has not demonstrated that he is entitled to relief under the mandatory provision of section 473, subdivision (b).
Pietak asserts on appeal that Ireijo “filed his Memorandum and Declaration and admitted that he erroneously, for the sake of argument, misread the interpleader statute as not requiring the filing of ‘compulsory’ cross-complaints,” apparently believing Ireijo had satisfied the requirement of a sworn affidavit of fault by affirming the arguments raised in the accompanying legal memorandum. Pietak does not explain why his attorney's affirmation of the contents of a legal memorandum should be deemed adequate to satisfy the requirement of “an attorney's sworn affidavit attesting” to fault within the meaning of section 473, subdivision (b), and, without deciding whether the procedure employed by Ireijo may ever justify mandatory relief, we conclude relief is not justified here. The legal memorandum Ireijo prepared contains no real concession of error on his part. Indeed, the memorandum states, “Ireijo submits that this [is] not a case of neglect on his part.” The memorandum argues that counsel's interpretation of section 386 was correct and suggests the decision not to file a cross-complaint in the instant matter was an intentional, strategic determination to file a “fresh” complaint on Pietak's behalf in federal court. Absent a straightforward admission of fault by Ireijo, Pietak cannot obtain relief under the mandatory provision of section 473.6
Under the discretionary portion of section 473, subdivision (b), Pietak contends the trial court abused its discretion in denying his request to reopen the interpleader so that he may file a cross-complaint against State Farm because his initial failure to do so was the result of excusable neglect.
A ruling on a motion for discretionary relief under section 473 shall not be disturbed on appeal absent a clear showing of abuse. (Carroll v. Abbott Laboratories, Inc. (1982) 32 Cal.3d 892, 897-898, 187 Cal.Rptr. 592, 654 P.2d 775; Yeap v. Leake (1997) 60 Cal.App.4th 591, 598, 70 Cal.Rptr.2d 680.) As the Supreme Court explained in In re Marriage of Connolly (1979) 23 Cal.3d 590, 598, 153 Cal.Rptr. 423, 591 P.2d 911: “Although precise definition is difficult, it is generally accepted that the appropriate test of abuse of discretion is whether or not the trial court exceeded the bounds of reason, all of the circumstances before it being considered. [Citations.] We have said that when two or more inferences can reasonably be deduced from the facts, a reviewing court lacks power to substitute its deductions for those of the trial court.” (See also Yeap v. Leake, supra, 60 Cal.App.4th at p. 598, 70 Cal.Rptr.2d 680.)
“The burden of affirmatively demonstrating error is on the appellant. This is a general principle of appellate practice as well as an ingredient of the constitutional doctrine of reversible error.” (Fundamental Investment etc. Realty Fund v. Gradow (1994) 28 Cal.App.4th 966, 971, 33 Cal.Rptr.2d 812.) The order of the lower court is “ ‘presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness.’ ” (Schnabel v. Superior Court (1993) 5 Cal.4th 704, 718, 21 Cal.Rptr.2d 200, 854 P.2d 1117.) Accordingly, because the trial court's order denying defendant's motion for relief does not state its reasons, and defendant has provided no reporter's transcript of the proceedings, we presume that the trial court's rejection of Pietak's motion was based on any rationale supported by the record. (See Generale Bank Nederland v. Eyes of the Beholder, Ltd. (1998) 61 Cal.App.4th 1384, 1398-1399, 72 Cal.Rptr.2d 188.)
Initially, we find no merit in Pietak's contention he was “surprised” by State Farm's dismissal of the interpleader action. The term “surprise,” as used in section 473, refers to “ ‘some condition or situation in which a party ․ is unexpectedly placed to his injury, without any default or negligence of his own, which ordinary prudence could not have guarded against’ ” (Credit Managers Assn. v. National Independent Business Alliance (1984) 162 Cal.App.3d 1166, 1173, 209 Cal.Rptr. 119.)
The record belies Pietak's claim that he was surprised by State Farm's dismissal of the interpleader. After he stipulated to disbursement of the deposited funds, Pietak received a copy of State Farm's letter to the clerk of the court requesting that its enclosed request for dismissal be filed as soon as the funds had actually been disbursed, and made no objection to the dismissal. It may be inferred that the trial court concluded Pietak anticipated State Farm would dismiss the interpleader once the deposited funds had been disbursed, and that the dismissal thus was not unexpected. This was a reasonable inference under the circumstances.7
This brings us to the crux of Pietak's contention. He argues the failure to file a cross-complaint in the interpleader action was attributable to his attorney's reasonable misinterpretation of the interpleader statute, section 386, which led him to the erroneous conclusion the filing of a cross-complaint was not compulsory.
An honest mistake of law is a valid ground for relief when the legal problem posed “ ‘is complex and debatable.’ ” (McCormick v. Board of Supervisors (1988) 198 Cal.App.3d 352, 360, 243 Cal.Rptr. 617; Brochtrup v. INTEP (1987) 190 Cal.App.3d 323, 329, 235 Cal.Rptr. 390.) The controlling factors in determining whether a mistake of law is excusable are the reasonableness of the misconception and the justifiability of the failure to determine the correct law. (Ibid.) “[W]here the court finds that the alleged mistake of law is the result of professional incompetence based upon erroneous advice [citation], general ignorance of the law or lack of knowledge of the rules [citation], or unjustifiable negligence in the discovery or research of the law, laxness or indifference [citations][,] normally relief will be denied.” (Fidelity Fed. Sav. & Loan Assn. v. Long (1959) 175 Cal.App.2d 149, 154, 345 P.2d 568.) There is nothing in section 473 to suggest it “was intended to be a catch-all remedy for every case of poor judgment on the part of counsel which results in dismissal.” (Huens v. Tatum, supra, 52 Cal.App.4th at p. 264, 60 Cal.Rptr.2d 438.)
The trial court apparently concluded that the claimed mistake of law by Pietak's counsel did not amount to excusable neglect under the circumstances presented. Pietak contends this was an abuse of discretion in light of the reasonableness of counsel's misconception and the justification for his failure to determine the correct law. We agree.
Pietak's motion for relief indicates attorney Ireijo consulted a single statute, section 386, in deciding whether to file a cross-complaint in the interpleader action. There is no indication Ireijo also attempted to inform his decision to seek a “fresh start” in federal court with a glance at the statutes pertaining to cross-complaints in general, or those governing compulsory cross-complaints, in particular.
Nevertheless, we cannot find fault in counsel's conclusion, from a review of section 386 alone, that he was not required to file his cross-complaint in the interpleader action. On the contrary, there is a respectable body of law which suggests Pietak was actually precluded from injecting such claim into the proceedings.
An interpleader action is traditionally viewed as two suits: one between the stakeholder and the claimants to determine the stakeholder's right to interpleader, and the other among the claimants to determine who shall receive the funds interpleaded. (Conner v. Bank of Bakersfield (1917) 174 Cal. 400, 402, 163 P. 353; Lincoln Nat. Life Ins. Co. v. Mitchell (1974) 41 Cal.App.3d 16, 19, 115 Cal.Rptr. 723.) As against the stakeholder, claimants may raise only matters which go to whether the suit is properly one for interpleader, i.e., whether the elements of an interpleader action are present. (Conner v. Bank of Bakersfield, supra, 174 Cal. at p. 403; , 163 P. 353 4 Witkin, Cal. Procedure (4th ed. 1997) Pleadings, § 228, pp. 291-292.)
In Los Angeles v. Amidor (1903) 140 Cal. 400, 73 P. 1049, a municipal corporation assessed parcels of land, including that of Bohrmann, for the cost of widening a street, collected $4,889.57, and paid out all but $310.74 for the construction work. In consideration of an assessment against Bohrmann of $580, he conveyed a strip of land valued at $345 and paid $235 in cash. Later it was determined the municipality was without authority for the proposed improvement and it commenced an interpleader action to determine who would receive the remaining $310.74. (At pp. 400-401, 73 P. 1049.)
Bohrmann filed an answer and cross-complaint seeking return of both the land and cash conveyed to the municipality. The trial court sustained the municipality's demurrers to the cross-complaint and the Supreme Court affirmed, explaining: “The action was on its face an action of interpleader. If appellant considered the complaint insufficient as a complaint in interpleader, he should have demurred to it, and if his demurrer had been held good the action would have ended. But in such case a defendant cannot, by a counterclaim or cross-complaint, change the character of the action. [Citation.] The only relief which a defendant can have against the plaintiff in such a suit is to have the action dismissed.” (140 Cal. at p. 401, 73 P. 1049.)
In Conner v. Bank of Bakersfield, supra, 174 Cal. 400, 163 P. 353, Planz drew a check for $3,799.66 on defendant bank payable to bearer but when plaintiff presented the check the bank refused payment. The bank initiated an interpleader action and it was determined the plaintiff was entitled to payment. The plaintiff then filed an action to recover the lost interest and other damages resulting from the bank's delay in payment. The defendant's demurrers were sustained without leave to amend. (Id. at pp. 400-401, 163 P. 353.)
The Supreme Court reversed. The defendant had raised, among other things, a plea of another action pending because the interpleader action was not yet final. The court concluded this was not a valid basis for demurrer because the claim for losses occasioned by the delay in payment could not be raised in the interpleader action. (174 Cal. at p. 403, 163 P. 353.) The court explained the only relief available to the claimant against the stakeholder in the interpleader action was to have the action dismissed. (Ibid.)
Notwithstanding the foregoing authorities, recent decisions have involved independent claims raised by claimants against stakeholders in interpleader actions where the merits of those claims were addressed. (See, e.g., Pacific Loan Management Corp. v. Superior Court (1987) 196 Cal.App.3d 1485, 1489, 242 Cal.Rptr. 547; Royal Ins. Co. v. Cole (1993) 13 Cal.App.4th 880, 883-890, 16 Cal.Rptr.2d 660; National Life & Accident Ins. Co. v. Edwards (1981) 119 Cal.App.3d 326, 329-330, 336-339, 174 Cal.Rptr. 31.) However, the propriety of including such claims in an interpleader action was not raised. Cases are not authority for propositions not considered therein. (McKeon v. Mercy Healthcare Sacramento (1998) 19 Cal.4th 321, 328, 79 Cal.Rptr.2d 319, 965 P.2d 1189.) Furthermore, these decisions are consistent with the notion that interpleader is a mechanism available to a stakeholder to avoid litigation over a stake to which it claims no interest. The stakeholder may simply deposit the sum and walk away from the action. However, because the remedy is for the benefit of the stakeholder, presumably the stakeholder may waive it. Thus, if a stakeholder does not object to an independent claim raised by a claimant, there is no reason to believe it cannot be considered in the interpleader action. In effect, the stakeholder has chosen to forego the remedy and to resolve the independent claim in the same action.
Although section 386 has undergone a number of changes since the early Supreme Court decisions discussed above (see Stats.1951, ch. 1142, § 1, p. 2911; Stats.1970, ch. 563, § 1, p. 1136; Stats.1975, ch. 670, § 1, p. 1462), such revisions do not cast doubt on the vitality of those cases. Thus, it was reasonable for Pietak to conclude he was not required to assert his bad faith claim in the interpleader action.8
Even if counsel had considered section 426.30, there is no reason to believe he would have reached a different conclusion. As noted previously, section 426.30, subdivision (a), says: “Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.” (Italics added.) At the very least, it is arguable section 386 is an exception to the compulsory cross-complaint rule of section 426.30. Certainly it was reasonable for Pietak to have thought so. Given the state of the law on this issue, we conclude the trial court erred in concluding Pietak's error was inexcusable. Relief by way of section 473, subdivision (b), is warranted.
The judgment is reversed and the matter remanded to the trial court with directions to grant Pietak's section 473, subdivision (b), motion. Appellant is awarded his costs on appeal.
1. Further section references are to the Code of Civil Procedure unless otherwise designated.
2. Pietak objected to the form of the order proposed by State Farm, on the grounds that “it may [sic ] too broadly written and might be construed to waive/release Mr. Pietak's pending federal court case against State Farm. Mr. Pietak's case involves the same factual background and context but is a breach of contract/insurance bad faith action and not an interpleader.”
3. Section 426.30, subdivision (a), provides that “Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.”Section 426.10, subdivision (c), defines “related cause of action” to mean “a cause of action which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.”
4. Section 386, subdivision (d), provides: “A defendant named in a complaint to compel conflicting claimants to interplead and litigate their claims, or a defendant named in a cross-complaint in interpleader, may, in lieu of or in addition to any other pleading, file an answer to the complaint or cross-complaint which shall be served upon all other parties to the action and which shall contain allegations of fact as to his ownership of or other interest in the amount or property and any affirmative defenses and the relief requested. The allegations in such answer shall be deemed denied by all other parties to the action, unless otherwise admitted in the pleadings.”
5. The record before us contains no record of what transpired at the hearing, or on what grounds the court denied Pietak's motion.
6. Having so concluded, we need not decide whether Pietak was precluded from obtaining mandatory relief because he voluntarily agreed to State Farm's dismissal of the action. (See Huens v. Tatum (1997) 52 Cal.App.4th 259, 265, 60 Cal.Rptr.2d 438.)
7. Although Pietak asserts in passing that “fairness and equity in this situation should surely be on the side of Pietak by this surprising event,” we disregard this claim (to the extent it purports to be an assertion that equitable principles require us to set aside State Farm's dismissal) as perfunctorily asserted without indication it is intended to be a discrete contention. (People v. Turner (1994) 8 Cal.4th 137, 214, fn. 19, 32 Cal.Rptr.2d 762, 878 P.2d 521.)
8. It might in fact be argued Pietak is now precluded from asserting such claim in this action and therefore section 473, subdivision (b), relief was properly denied on this basis alone. However, such argument is barred by the federal court's judgment finding Pietak's claim a mandatory cross-complaint. The federal court judgment, right or wrong, is now final and binding on these parties.
DAVIS, Acting P.J., and PUGLIA*, J., concur.