IN RE: the MARRIAGE OF Katalin and Horst J. ROEDER. (1988)

This marriage dissolution proceeding was filed by respondent Katalin Roeder (Wife) on November 3, 1978.   Appellant Horst J. Roeder (Husband) failed to answer, and his default was entered on January 18, 1979.   Not until April 3, 1984, did Wife request a default hearing to divide the parties' community property.   Husband's motion in equity to set aside his default on grounds of extrinsic mistake was denied.   The court held a default hearing at which only Wife was permitted to present evidence, and the court divided the community property, worth over $2 million.   We construe Husband's appeal to be from the judgment.

In denying Husband's motion to set aside his default, the trial court found that Husband had failed to establish good cause, based on Husband's delay of over five years in moving to set aside the default.   The court's finding of Husband's delay is supported by the court's resolution of conflicting evidence in the declarations submitted to it.   Nevertheless, we hold that the trial court's conclusion to deny the motion to set aside the default was an abuse of discretion, because it did not give sufficient consideration to Wife's extraordinary delay in enforcing the 1979 entry of default or to the policy of the law in favor of hearing cases on their merits.

By way of background,¹ Husband and Wife owned extensive commercial and rental income property.   The parties separated in 1978.   Husband had an attorney and was properly served with notice of the entry of his default in January 1979, but failed to move to set aside the default.   Wife requested that the dissolution of marriage be bifurcated from the property issues, and an interlocutory judgment of dissolution only, reserving jurisdiction on property issues, was entered on March 26, 1979.

Not until April 3, 1984, did Wife request entry of final judgment of dissolution and a default hearing on the reserved issues of property.   From 1979 to 1984, the parties had continued to file joint income tax returns.   Apparently in 1979 the parties agreed between them that the business of which Wife was sole manager, Pompash Hair Fashions, would be Wife's, and that the business of which Husband was the sole manager, Allecat, Inc., would be his.   As to their rental properties, they agreed that Husband would continue to manage them, as he had during the marriage, pending settlement or division by the court.

After separation Husband used income from their rental units to purchase additional residential rental units.   He took title to these properties in both parties' names, husband and wife as joint tenants, and he conceded these were community property.   Wife gave her consent to these acquisitions, although she had no knowledge of the form in which Husband took title.

The record supports the trial court's rejection of Husband's claims that Wife “never mentioned a single, solitary word until April of 1984 about this divorce proceeding,” or that he “assumed that she had abandoned the proceeding and that she had decided not to go forward with the divorce.”   This was contradicted by Wife's declaration that “I have never stated that I did not intend to pursue this action, and since our separation in August 1978 up to the present time I have repeatedly told Horst that I had filed, and was pursuing our divorce, and the division of our community property.”

The declarations of Husband, Wife, and Wife's attorney also addressed the subject of settlement negotiations.   When she requested bifurcation of the dissolution and property issues in 1979, Wife “believed, due to the extensive nature of our property holdings, that it would be better if Horst and I sat down and worked out a fair division of the property.”   Wife and Wife's attorney submitted statements that during the five-year period between court filings there were attempts at negotiation, but these declarations were vague as to time.   Wife's declaration referred to tentative agreements reached apparently in 1979 and then skipped to 1983 or early 1984 as the time when she “realized that there was no prospect of negotiating any kind of fair settlement with Horst.”   Similarly, Wife's attorney produced copies of correspondence with Husband's attorneys in 1978 and ending April 9, 1979, and beginning again on April 4, 1984, after Wife had filed in court the request for final judgment of dissolution and hearing on property issues.” ²  As to the intervening period, the attorney's declaration showed no correspondence but stated simply, “During the ensuing period, every reasonable effort was made by Katalin and this office to persuade [Husband] and his attorneys to resolve the property and business aspects of this matter․  [¶]  In late 1983, however, it became apparent that it would be impossible to reach a satisfactory mutual settlement․”  Thus the record leaves entirely unclear the nature of any alleged negotiations between 1979 and 1984.

In moving to set aside his default, Husband was requesting to be heard on the merits of the valuation of the parties' extensive holdings and the manner in which they should be divided.   The trial court rejected Husband's motion, finding that, although there would be no prejudice to Wife in setting aside Husband's default, Husband had not met his burden of showing good cause to vacate the default.   No doubt the court had in mind the principle cited by Wife and stated in Weitz v. Yankosky (1966) 63 Cal.2d 849, 856–857, 48 Cal.Rptr. 620, 409 P.2d 700:  “One moving in equity to set aside a default judgment must act diligently in making his motion after he learns of the default judgment.   This requirement is sometimes put in terms of laches [citations], but this is not the appropriate doctrine, because laches requires a finding of prejudice caused by the delay [citations]․  [¶]  [T]he fact that plaintiff fails to show any prejudice resulting from defendant's claimed lack of diligence, although important, is not decisive.”

 Nevertheless, the trial court's ruling fails to take into account the unusual circumstances of this case.   In the usual case, a party invoking the equitable powers of the court based on the doctrine of extrinsic mistake is seeking to vacate a prior final judgment.   In those situations the policy in favor of hearing cases on their merits must be balanced against another strong policy favoring the finality of judgments.  (See In re Marriage of Wipson (1980) 113 Cal.App.3d 136, 141, 169 Cal.Rptr. 664.)   In the instant case, on the other hand, Wife secured the entry of default in 1979 but had delayed for more than five years any attempt to enforce the default by obtaining a default judgment on the property issues.   Trial had not already occurred;  Wife was just getting around to asking for a trial by default.   Husband sought to vacate the default so that he might be heard on the valuation of extensive property holdings, worth between $2 million and $3 million, and their allocation between the parties.   It appeared he was ready for trial and that no significant delay would be caused by vacating the default.³  No prejudice to Wife appeared.   Under all the circumstances, the policy of the law to have every case tried on its merits (Weitz v. Yankosky, supra, 63 Cal.2d at pp. 854–855, 48 Cal.Rptr. 620, 409 P.2d 700) outweighed the relative weakness of Husband's excuse, and the trial court abused its discretion in denying Husband's motion to vacate the entry of default.  (See Elston v. City of Turlock (1985) 38 Cal.3d 227, 233–234, 211 Cal.Rptr. 416, 695 P.2d 713 [order denying relief from default is often reviewed more closely than order granting relief].)  Occasionally a plaintiff who has secured entry of default may, by delay, lose the right to secure default judgment.  (See Brown v. Pacific Tel. & Tel. Co. (1980) 105 Cal.App.3d 482, 486, 164 Cal.Rptr. 445 [a plaintiff may waive defendant's default];  Brown v. Ridgeway (1983) 149 Cal.App.3d 732, 735, 197 Cal.Rptr. 327 [former Code of Civil Procedure section 581a, subdivision (c), evinced strong legislative policy to encourage diligent prosecution of default matters to final judgment within three years].)  Under the unusual circumstances here, Husband's default should have been set aside so that his evidence could be heard in addition to Wife's.⁴

The judgment is reversed and the trial court is directed to set aside the entry of default.   Costs on appeal are awarded to Husband.

FOOTNOTES

1.   Many pertinent facts are undisputed.   Where the evidence was in conflict, we assume in support of the trial court's ruling that the trial court found in accordance with the declarations submitted by Wife.

2.   The 1984 correspondence indicated that Wife's attorney would be willing to discuss settlement of the property issues, but that he had no intention of stipulating to set aside Husband's default.

3.   Through his motion for relief Husband sought to testify at the already-scheduled default hearing;  when that hearing was held only two weeks after the denial of Husband's motion for relief from default, Husband already had his appraiser's reports which he unsuccessfully sought to have considered by the court.

4.   Since we conclude the default judgment should be reversed because the trial court abused its discretion in refusing to set aside the entry of Husband's default, we need not consider Husband's additional contentions that the trial court exceeded its jurisdiction by entering default judgment dividing certain community property not specifically enumerated in Wife's 1979 petition, that the trial court was required to dismiss the action on its own motion pursuant to former Code of Civil Procedure section 581a, subdivision (c), or that we should review the sufficiency of Wife's evidence to support the partition of one property, the valuation of certain other properties or the award of attorney's fees.

ASHBY, Associate Justice.

FEINERMAN, P.J., and HASTINGS, J.*, concur.