BRANDSTETTER v. CITY INVESTMENT CORPORATION (1988)

Zachary Brandstetter (hereafter appellant or Brandstetter) appeals from two orders denying motions to vacate a default judgment in favor of City Investment Corporation (hereafter City Investment).

On June 27, 1984, Brandstetter filed a complaint against City Investment for specific performance of certain deeds of trust and appointment of a receiver.   The complaint alleged that City Investment had defaulted on three promissory notes secured by deeds of trust on separate properties.   Apart from filing a memorandum in opposition to City Investment's demurrer, Brandstetter has taken no action to pursue the complaint.

Upon filing an answer, City Investment countered with a cross-complaint, alleging two causes of action relevant to this appeal—breach of contract and fraud.¹  Both causes of action state that “Cross-defendant Zachary Brandstetter, a licensed real estate broker, was to arrange loans for real property owned by Cross-complainant” and refer vaguely to “deeds of trust” and “loans.”   They proceed to allege various breaches and deceptions in very general terms without specifically identifying any transaction between the parties.   Only two allegations mention monetary figures.   The action for breach of contract alleges that “Cross-complainant has paid Cross-defendant in excess of $50,000.00 for services allegedly performed.”   The action for fraud alleges:  “Cross-complainant paid compensation to Zachary Brandstetter in the amount of $50,000.00.   Payments and other monies were paid to Cross-defendants in an amount in excess of $400,000.00.”   No allegation in the cross-complaint discloses what, if anything, City Investment received in exchange for the monies it paid to Brandstetter or the nature of their agreements and course of dealing.

In addition, the City Investment filed an “Exemplary Damages Attachment” which alleges malice, fraud and oppression in brief, conclusory language.   The two causes of action and the “Exemplary Damages Attachment” were appended to a document denominated “Complaint—Contract,” which prays for damages of “Amount to be determined at time of trial” and “Exemplary damages in the amount of One Million dollars.”

The cross-complaint was served on Brandstetter's attorneys of record, the firm of Hooper, Kendall & Kubancik.   The next month, a member of the firm, Joseph Kubancik, had two conversations with Daniel Kass, who was both president of the respondent City Investment Corporation and an attorney of record in the case.   Kubancik asserts that he thought Kass had granted him an “․ informal open extention [sic] and would not take a default without calling first.”

Acting as attorney for City Investment, Kass nevertheless entered a default on the cross-complaint on April 23, 1985.   After the default was entered, Kubancik continued to pursue settlement negotiations with Kass, calling him on several occasions from May through July, in an effort to arrive at a settlement agreement.   Unfortunately, his professional relationship with Brandstetter was interrupted in September.   Brandstetter informed one of his associates that he had retained another attorney, Harry Price, to handle the case, and a messenger service delivered the files to Price's office.   Price was never able to work out a satisfactory fee arrangement with Brandstetter and consequently never filed a substitution of attorney's form.   Although Price had the file in his possession, he insists that he thought that Kubancik was continuing to handle the case.

Shortly after the six-month period of Code of Civil Procedure section 473 had elapsed, City Investment applied for a default judgment.   To avoid a hearing under Code of Civil Procedure section 585, subdivision (b), it filed a declaration under subdivision (d) of that section which stated a claim for $404,639.22 in actual damages and $250,000 in punitive damages.   In reliance on this declaration, the superior court of San Mateo County entered a judgment for these amounts, totalling $654,639.22.

Brandstetter learned of the judgment in a conversation with another attorney and immediately contacted “Messrs. Kendall, Kubancik and Price” requesting that they act to have the judgment set aside.   He ultimately retained his original attorney, Kubancik, who moved to have the judgment vacated chiefly on the ground that it was void under Code of Civil Procedure section 580.   The motion was denied in an order dated December 26, 1985.   Brandstetter then retained another firm of attorneys, which moved for a reconsideration of the order on the ground that the judgment was secured by extrinsic mistake or fraud.   This motion was also denied.   Brandstetter then filed a notice of appeal from the order denying the motion to vacate the judgment and from the order denying the motion for reconsideration.

Invoking the “one final judgment” rule, respondent contends that no appeal may be taken from a judgment on the cross-complaint while the original complaint is still pending in the trial court.   It cites two of a long line of cases holding that orders sustaining a demurrer to a cross-complaint are not appealable (Lemaire v. All City Employees Assn. (1973) 35 Cal.App.3d 106, 109, 110 Cal.Rptr. 507;  County of Santa Clara v. Support, Inc. (1979) 89 Cal.App.3d 687, 703, 152 Cal.Rptr. 754), and offers Sjoberg v. Hastorf (1948) 33 Cal.2d 116, 117, 199 P.2d 668, as a controlling precedent.   In that case, plaintiffs brought suit for payment due under a construction contract, and the defendants petitioned for an order compelling arbitration of the dispute.   Upon denial of the petition, the defendants filed a notice of appeal.   The Supreme Court found that the defendants' petition was “․ essentially a cross-complaint for specific performance of a contract to arbitrate” and held that the order denying the petition was not appealable:  “Under California procedure there is ordinarily only one final judgment in an action.  [Citations.]  A cross-complaint is not considered sufficiently independent to allow a separate final judgment to be entered upon it.”  (Id. at pp. 117–118, 199 P.2d 668.)

 Preliminarily, we note Brandstetter did not appeal from the default judgment itself but rather from the order denying the motion to vacate the judgment and the order denying the motion for reconsideration.   An order denying a motion to vacate a judgment may be appealable under Code of Civil Procedure section 904.1, subdivision (b), as an order made after an appealable judgment where the moving party lacked an effective opportunity to appeal from the judgment itself (Estate of Baker (1915) 170 Cal. 578, 582, 150 P. 989;  Title Ins. & Trust Co. v. Calif. etc. Co. (1911) 159 Cal. 484, 488, 114 P. 838;  Spellens v. Spellens (1957) 49 Cal.2d 210, 228, 317 P.2d 613;  Daley v. County of Butte (1964) 227 Cal.App.2d 380, 389, 38 Cal.Rptr. 693;  Cope v. Cope (1964) 230 Cal.App.2d 218, 228, 40 Cal.Rptr. 917;  9 Witkin, Cal. Procedure (3rd ed. 1985) Appeal, § 112, pp. 129–130) or attacks the judgment as void for lack of trial court jurisdiction.  (John Siebel Associates v. Keele (1986) 188 Cal.App.3d 560, 564, fn. 3, 233 Cal.Rptr. 231;  County of Ventura v. Tillett (1982) 133 Cal.App.3d 105, 110, 183 Cal.Rptr. 741.)   But there is no right to appeal from the denial of a motion to vacate a nonappealable judgment.  (9 Witkin, Cal. Procedure, op. cit. supra, § 111, p. 128.)   Thus, we must consider whether the judgment on the cross-complaint is appealable under the one final judgment rule.

Sjoberg v. Hastorf, supra, and related cases were decided in a procedural context that changed fundamentally in 1971 under a reform of the statutes governing cross-complaints.  (5 Witkin, Cal. Procedure, op. cit. supra, Pleading, §§ 1076–1101, pp. 491–522)  Under the former Code of Civil Procedure section 442, a cause of action could be brought by cross-complaint only if it related to “․ the contract, transaction, matter, happening or accident upon which the action ․ relates․” Code of Civil Procedure section 428.10, subdivision (a) has now eliminated the requirement that the cross-complaint relate to the same subject matter as the original complaint;  it provides simply that “[a] party against whom a cause of action has been asserted in a complaint or cross-complaint may file a cross-complaint setting forth ․ [¶ a]ny cause of action he has against any of the parties who filed the complaint or cross-complaint against him.”   The court's premise in Sjoberg v. Hastorf —that the cross-complaint is not “sufficiently independent” from the complaint—thus does not necessarily hold true today.   Although the language of Sjoberg was echoed in a recent decision (County of Santa Clara v. Support, Inc., supra, 89 Cal.App.3d at p. 703, 152 Cal.Rptr. 754), the holding of the decision has lost its logic in cases where the cross-complaint has little subject-matter connection with the original proceeding.   The courts have long recognized an exception to the final judgment rule where ruling on a collateral proceeding requires the performance of an act or the payment of money.  (Trimble v. Steinfeldt (1986) 178 Cal.App.3d 646, 224 Cal.Rptr. 195;  Bauguess v. Paine (1978) 22 Cal.3d 626, 634, fn. 3, 150 Cal.Rptr. 461, 586 P.2d 942;  In re Marriage of Skelley (1976) 18 Cal.3d 365, 134 Cal.Rptr. 197, 556 P.2d 297;  Wisniewski v. Clary (1975) 46 Cal.App.3d 499, 502, 120 Cal.Rptr. 176.).   Although this “collateral proceeding” exception has never been applied to a cross-complaint, the rationale of the rule now applies fully to cross-complaints alleging grievances that are substantially collateral to the original complaint.

A 1986 amendment to Code of Civil Procedure section 585 recognizes the changed procedural context.   A new subdivision (e) was added which provides that, upon a cross-defendant's failure to file responsive pleadings, a default may be entered on the cross-complaint.  “However, no judgment may separately be entered on that cross-complaint unless a separate judgment may, in fact, be properly awarded on that cross-complaint and the court finds that a separate judgment on that cross-complaint would not substantially delay the final disposition of the action between the parties.”   The subdivision thus acknowledges that in some cases a separate judgment may “be properly awarded” on the cross-complaint.

 The cross-complaint in this case could not have been filed before 1971.   The allegations regarding “deeds of trust” and “loans” fail to identify the property and transactions involved in the complaint and do no more than raise a possibility that there may be some overlap between the complaint and cross-complaint.   While the complaint and cross-complaint might call for separate trials (and, of course, separate judgments) under Code of Civil Procedure section 1048, even if they were tried together, the connection between the two is loose enough that a judgment on the cross-complaint should not be vitiated by failure to join it to the judgment on the complaint.

The cases denying appeal from a judgment or order on a cross-complaint have generally promoted judicial efficiency without sacrificing the litigants' right to appellate review.   Typically, the question at issue may be raised at the conclusion of a proceeding pending in the lower court.  (E.g., Fleuret v. Hale Constr. Co. (1970) 12 Cal.App.3d 227, 90 Cal.Rptr. 557.)   But in Keenan v. Dean (1955) 134 Cal.App.2d 189, 285 P.2d 300, the court was confronted with an unusual circumstance in which there could not be a later right to appeal.   The action was commenced in the municipal court and then transferred to the superior court when the defendant filed a cross-complaint alleging damages above the jurisdictional limit of the municipal court.   The superior court struck the cross-complaint, requiring the case to be remanded to the municipal court.   Neither the municipal court nor the appellate department of the superior court then had power to review the propriety of the superior court's order striking the cross-complaint.   In effect carving an exception to the Sjoberg v. Hastorf rule, the Court of Appeal allowed an appeal from the superior court's order striking the cross-complaint.   Its reasoning is pertinent to the present case:  “Unless the propriety of that order can be reviewed on this appeal its propriety cannot be reviewed at all․  Since the propriety of such judgment cannot otherwise be reviewed it is necessarily a final judgment and therefore appealable.”  (Id. at p. 192, 285 P.2d 300.)

If we were to refuse to consider this appeal, it is doubtful that Brandstetter could obtain a later review of the order denying his motion to vacate the default judgment.   He might, perhaps, attempt to revive the cause of action alleged in the complaint.   But a judgment on the complaint could not in any event incorporate the previous default judgment on the cross-complaint.   A dismissal of the appeal on the “one final judgment” rule would drive the parties to further litigation without providing Brandstetter any future review of the court's ruling on his motions to vacate the default judgment.²

Brandstetter's contention that the default judgment is void presents separate issues with respect to the judgment of compensatory and punitive damages.   The award of $404,639.22 as compensatory damages comes squarely within the holding of Becker v. S.P.V. Construction Co. (1980) 27 Cal.3d 489, 165 Cal.Rptr. 825, 612 P.2d 915.  Becker concerned a complaint against a building contractor in which the plaintiffs sought damages “ ‘in excess of $20,000 ․ or according to proof.’ ”  (Id. at p. 492, 165 Cal.Rptr. 825, 612 P.2d 915.)   Following the defendants' failure to respond to the complaint, the trial court held a hearing on the issue of damages and entered a judgment by default against the defendants for $26,457.50 in compensatory damages.   More than eight months later, the trial court granted defendant's motion to vacate the judgment on the ground that it was void under Code of Civil Procedure section 580.

 Section 580 states that “[t]he relief granted to the plaintiff, if there be no answer, cannot exceed that which he shall have demanded in his complaint․”  It has long been held that the pertinent language of section 580, “[t]he relief ․ demanded in his complaint,” refers to the relief asked in the prayer —“the feature of the pleading to which alone reference may be had in default cases, to ascertain what relief the plaintiff seeks;  ․” (Brooks v. Forington (1897) 117 Cal. 219, 220, 48 P. 1073;  Gudarov v. Hadjieff (1952) 38 Cal.2d 412, 416, 24 P.2d 621;  Thorson v. Western Development Corp. (1967) 251 Cal.App.2d 206, 212–213, 59 Cal.Rptr. 299.)   The requirement has constitutional and jurisdictional implications.   In Burtnett v. King (1949) 33 Cal.2d 805, 808, 205 P.2d 657, the court noted, “[t]he essence of the policy underlying section 580 of the Code of Civil Procedure, supra, is that in default cases, defendant must be given notice of what judgment may be taken against him—a policy underlying all precepts of jurisprudence and protected by our constitutions.”   The court held, moreover, that the statute relates to the power of the court.  (Id. at p. 807, 205 P.2d 657;  accord Swycaffer v. Swycaffer (1955) 44 Cal.2d 689, 692–693, 285 P.2d 1.)   A judgment in violation of section 580 is consequently void and subject to collateral attack.

Applying these principles, Becker v. S.P.V. Construction Co., supra, 27 Cal.3d at pp. 494–495, 165 Cal.Rptr. 825, 612 P.2d 915, held that a prayer for damages according to proof does not in itself provide “adequate notice of a defaulting defendant's potential liability.”   Such a prayer for damages “passes muster under section 580 only if a specific amount of damages is alleged in the body of the complaint.”   Because the complaint alleged damages of only $20,000, “the trial court exceeded its jurisdiction under section 580 insofar as it awarded damages in excess of that amount.”   It was irrelevant that the complaint also prayed for $100,000 in punitive damages.  “Since compensatory and punitive damages are different remedies in both nature and purpose, a ‘demand or prayer for one is not a demand legally, or otherwise, for the other, or for both.’ ”   The court remanded the case to the trial court with directions to modify the judgment by striking the award of damages in excess of $20,000.

 In the present case, the prayer of the cross-complaint similarly demands “damages of Amount [sic] to be determined at time of trial,” but, unlike Becker, the body of the complaint fails entirely to allege a specific amount of damages.   The allegations on damages allege only:  “[e]xact amount unknown at this time, plus future damages to be determined at time of trial.”   Other allegations convey the implication that City Investment was swindled out of funds paid to Brandstetter, but that cannot be facilely equated with allegations of monetary loss.   The cryptic language of the cross-complaint does not state sufficient facts concerning the nature of the transactions between the parties to permit any reasonable inference as to the nature and extent of the defendant's losses.

 The judgment of $250,000 as punitive damages presents a more difficult question.   While Civil Code section 3294 provides that punitive damages cannot be awarded in the absence of actual damages, this rule does not require a judgment for actual or compensatory damages;  the award of punitive damages can be predicated on a finding that plaintiff suffered an actionable wrong and incurred a legally recognized injury.  (Topanga Corp. v. Gentile (1967) 249 Cal.App.2d 681, 691, 58 Cal.Rptr. 713;  Esparza v. Specht (1976) 55 Cal.App.3d 1, 9, 127 Cal.Rptr. 493;  Werschkull v. United California Bank (1978) 85 Cal.App.3d 981, 1003–1004, 149 Cal.Rptr. 829.)   This point was minutely examined in Weiss v. Blumencranc (1976) 61 Cal.App.3d 536, 131 Cal.Rptr. 298.   The plaintiff sued for dissolution of a partnership, appointment of a receiver, accounting, and punitive damages.   A default judgment was entered in his favor.   After plaintiff presented testimony on his damages at an ex parte hearing, the trial court awarded a judgment of $20,000 as punitive damages, but subsequently reconsidered its action and entered an order vacating the award of punitive damages.   On appeal, the court found the issue to be whether the award of punitive damages was void pursuant to Civil Code section 3294, subdivision (a), which provides:  “In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”  (Emphasis added.)   Ordering the trial court to reinstate the judgment of punitive damages, the court held that the phrase, “in addition to the actual damages,” did not require a judgment of actual damages but only the allegation and proof of actual damages as a prerequisite to a valid award of punitive damages.   The plaintiff had “․ alleged with sufficient particularity the fraudulent actions of Blumencranc” and had presented testimony as to his damages at the ex parte hearing.  (Id. at p. 544, 131 Cal.Rptr. 298.)

 The present case, however, does not come within the rule stated in Blumencranc because there was inadequate pleading and proof of damages.   In respondent's “Exemplary Damages Attachment,” the entire text of its allegations of malice, fraud, and oppression is as follows:  “Cross-defendants concealed and suppressed material facts with the intention of deceiving and defrauding Cross-complainants as set forth in the allegations of this cross-complaint.  [¶]  Defendants are continuing their acts of malice and oppression by refusing to make any attempt to mitigate damages.”   The cause of action for fraud contains further allegations that Brandstetter “concealed facts” or “information,” but it fails to reveal the actual nature of the respondent's grievance.   In Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872, 141 Cal.Rptr. 200, the court held that a conclusory allegation of fraud is insufficient to state a cause of action for punitive damages.   The holding gains renewed validity in view of the 1980 amendment of Civil Code section 3294 which defines in detail the elements of “malice,” “oppression,” and “fraud” required for a judgment of punitive damages.   The respondent's pleadings contain no allegations that touch upon these detailed provisions of section 3294.

Unlike Blumencranc, the court in this case did not conduct an ex parte hearing on the issue of punitive damages before entering judgment but relied instead on cross-complainant's declaration.   The declaration contains no more detailed allegations of malice, oppression, or fraud than those in the complaint.   But in an effort to establish Brandstetter's net worth, it recites:  “cross-defendant related to me on more than one occasion that he owned property in San Mateo and Santa Clara counties having a value in excess of $3,000,000.00․  I also learned from the Recorder's Office ․ of a deed of trust in the amount of $2,200,00.00 executed by cross-defendant to Hamilton Savings Bank.”   Evidence of a defendant's “wealth” is indeed necessary for a proper determination of punitive damages.  (Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc. (1984) 155 Cal.App.3d 381, 390, 202 Cal.Rptr. 204.)   But the declaration did not state facts “within the personal knowledge of the affiant” that may provide the basis for a default judgment under Code of Civil Procedure section 585, subdivision (d).

 Finally, urging that the default judgment be set aside on the ground of extrinsic mistake or fraud, Brandstetter cites a line of cases commencing with Daley v. County of Butte, supra, 227 Cal.App.2d 380, 38 Cal.Rptr. 693, and culminating in the recent Supreme Court decision, Carroll v. Abbott Laboratories, Inc. (1982) 32 Cal.3d 892, 187 Cal.Rptr. 592, 654 P.2d 775.  Code of Civil Procedure section 473, which had long provided the exclusive basis for setting aside a default judgment on the ground of the neglect of counsel, offers relief only on a motion showing the neglect of counsel to be excusable.   The client's remedy for inexcusable neglect has been held to be an action for malpractice.  (Id. at p. 898, 187 Cal.Rptr. 592, 654 P.2d 775.)   In Daley v. County of Butte, supra, 227 Cal.App.2d 380, 38 Cal.Rptr. 693, the court was faced with an extreme case of inexcusable neglect, amounting to positive misconduct of counsel.   Exercising the court's inherent equity powers to set aside judgments on the basis of extrinsic fraud or mistake, the court held:  “Under these unusual circumstances, where the client was unknowingly deprived of effective representation, she will not be charged with responsibility for the misconduct of her nominal counsel of record.”  (Id. at p. 392, 38 Cal.Rptr. 693.)   The decision was followed on similar facts in Orange Empire Nat. Bank v. Kirk (1968) 259 Cal.App.2d 347, 66 Cal.Rptr. 240 and Buckert v. Briggs (1971) 15 Cal.App.3d 296, 93 Cal.Rptr. 61.

Carroll v. Abbott Laboratories, Inc., supra, 32 Cal.3d 892, 187 Cal.Rptr. 592, 654 P.2d 775, presented a case of negligence rather than positive misconduct.   Plaintiff's counsel failed to respond to a discovery request, causing his client's complaint to be dismissed, and then moved for relief under Code of Civil Procedure section 473.   The trial court granted the motion to vacate the judgment.   On appeal, the Supreme Court reversed the order.   The court distinguished the Daley line of cases, concluding:  “The case before us is, however, quite different.   Though counsel grossly mishandled a routine discovery matter, no abandonment of the client appears.”   (Id. at p. 900, 187 Cal.Rptr. 592, 654 P.2d 775.)

Brandstetter cannot point to “positive misconduct,” amounting to an abandonment of the client, and he was himself partly responsible for his attorneys' confusion.   When he learned of the default judgment, he turned again to his original attorney, Kubancik, who stood ready to represent him.   On appeal, Brandstetter faces a further difficulty.  “The rule is firmly-established that the granting or denying of a motion to vacate a default rests in the sound discretion of the trial court, and that the order will not be disturbed unless an abuse of discretion clearly appears.”  (Orange Empire Nat. Bank v. Kirk, supra, 259 Cal.App.2d 347, 352, 66 Cal.Rptr. 240.)   The trial court did not clearly abuse its discretion in denying Brandstetter's motion to vacate the default judgment under the principles of Carroll v. Abbott Laboratories, Inc.

The case is remanded with instructions to grant appellant's motion to vacate the default judgment.   Costs to appellant.

FOOTNOTES

1.   A cause of action for declaratory relief was not carried to default judgment and does not figure in this appeal.

2.   City Investment's final contention that “appellant has failed to proceed properly in order to have this appeal heard” by failing to file an answer under Code of Civil Procedure section 473 is without merit.   This procedural formality has no relevance to the right of appeal and does not affect the appellant's theories that the judgment is void and was taken by extrinsic mistake or fraud.

NEWSOM, Associate Justice.

ELKINGTON, Acting P.J., and HOLMDAHL, J., concur.