California Case Law Update

Author: Kimberli Raines

Requests for Admissions

St. Mary v. Superior Court
2014 WL 346102

Facts: Petitioner Lisa St. Mary (St. Mary) brought an action below for damages, alleging fraud and other claims arising out of an investment of $475,000. She sued, among others, Thomas Schellenberg and his wife, Katherine Mills. Schellenberg and Mills each propounded requests for admissions (RFAs) directed to St. Mary, which consisted collectively of 119 individual RFAs. After making two written requests for a two-week extension to respond, and after Schellenberg denied the extension request one day after the due date for the responses, counsel for St. Mary served responses to the RFAs. They were served four days late, on July 16, 2012. Four days later, real parties, without any attempt to meet and confer, filed a motion with the superior court requesting that the 119 RFAs in their entirety be deemed admitted, pursuant to Code of Civil Procedure section 2033.280, subdivision (b). Schellenberg never filed a motion to compel further responses. Instead they requested that the RFA’s be deemed admitted.
The court granted the Motion as to the Schellenberg RFAs, deemed 41 of the 105 RFAs admitted, and awarded sanctions in favor of real parties. The court’s order omitted any reference to the Motion to deem admitted the 14 RFAs propounded by Mills upon St. Mary.

Holding: A trial court erred in deeming an investment promoter’s requests for admission (RFA) to be admitted on the basis that some of the investor’s individual responses to the RFAs were inadequate, when the promoter raised the issue in a reply brief on the promoter’s motion to challenge the lateness of the investor’s response.
This procedure bypassed four steps of the statutorily required process to deem responses admitted: (1) a motion to compel further responses, (2) an order compelling further responses; (3) noncompliance with an order compelling further responses; and (4) a motion to deem specific RFAs admitted based upon noncompliance with a prior order compelling further RFA responses.

In concluding that the court abused its discretion by misapplying section 2033.280 and effectively granting a motion under section 2033.290 that was never made, we cannot ignore the potentially drastic consequences to a civil litigant of having RFAs deemed admitted, given the fact that an RFA that is admitted is “conclusive in the action as to the party making it.”

The purpose of the RFA procedure is to expedite trials and to eliminate the need for proof when matters are not legitimately contested. The RFA device is not intended to provide a windfall to litigants. Nor is the RFA procedure a “gotcha” device in which an overly aggressive propounding party—who rejects facially reasonable requests for a short discovery extension and thereafter files the wrong discovery motion after service of a slightly tardy proposed RFA response that is substantially Code-compliant—may obtain a substantive victory in the case by having material issues deemed admitted.

RFAs are not to be deemed admitted unless the party to whom RFAs are propounded fails to respond prehearing to RFAs in a manner that is substantially Code-compliant, or they are recalcitrant and violates a court order compelling further responses that are deficient Furthermore, the order deeming admitted the 41 RFAs, to the extent that it may substantially impact St. Mary’s ability to prove her case, undermines public policy that promotes controversies being resolved through trials on the merits.

The Court of Appeal warned that the RFA procedure is not intended to provide a windfall to litigants, and concluded that the trial court’s order undermined the public policy that promotes controversies being resolved through trials on the merits.

Stay of Enforcement of Judgement

Sharifpour v. Tam Le
2014 WL 346114
Cal. App. 4th Dist

Facts: Sina and Shekoufeh Sharifpour obtained a $712,682.89 judgment against Tam and Kim Le. The court ordered that enforcement of the Sharifpours’ judgment against the Les be stayed pending trial against other defendants. The Sharifpours then settled with the remaining defendants. At a November 27, 2012 status conference, the Les informed the court of their intention to file a motion for stay of enforcement of the judgment pending appeal. The court extended the existing stay until January 31, 2013.

The Les then filed a motion for a post judgment setoff of amounts paid by three settling defendants and a stay of enforcement of the judgment. The Les argued the enforcement of the judgment should be stayed until the court ruled on their setoff motion and the appellate proceedings were concluded.

The court denied the setoff without prejudice, explaining that it could not grant the request while the appeal from the judgment was pending. It granted the request for a stay of enforcement of the judgment and did not require an undertaking. The court noted in its minute order that the Sharifpours had not filed an opposition to the request for a stay and that it construed their failure to file an opposition as their consent.

Holding: The trial court lacked the power to stay enforcement of the money judgment pending appeal without an undertaking over the objection of the plaintiffs, even though defendants’ motion for a post judgment setoff of amounts paid by three settling defendants had not yet been determined, and even though the plaintiffs neglected to file an opposition to the defendants’ motion for the stay. Since defendants’ motion for the stay did not request that the trial court waive the requirement of an undertaking, and plaintiffs’ failure to file opposition to the motion for a stay could not be characterized as “consent” to the lack of an undertaking under the statute.

Jurisdiction – Diversity of Citizenship

Carolina Cas Ins. Company v. Team Equipment
WL 407389
Ninth Circuit Court of Appeal

Facts: Despite its name, Carolina is an insurance company incorporated in Iowa and with its principal place of business in Florida. Carolina issued a corporate liability and directors and officers’ liability insurance policy to U.S. Dry Cleaning Corp. (“Dry Cleaning”) that was effective between January 2009 and January 2011. The policy excluded from coverage losses “for which the Insureds are not financially liable or which are without legal recourse to the Insureds.”

Dry Cleaning purchased dry cleaning stores from Team Equipment, Inc. and two affiliated entities (collectively, “Team Equipment”) in February 2008. For partial payment of the purchase price, Dry Cleaning issued notes to Team Equipment. Two years later, Team Equipment filed an action against Dry Cleaning and certain of its officers, directors, and affiliated entities to enforce the notes. Team Equipment settled its claims against Dry Cleaning in June 2011 and agreed to “limit the enforcement of any judgment or award …, including attorney’s fees, solely to the proceeds of [Dry Cleaning’s] Insurance Policy.” Team Equipment also released its claims against the Underlying Defendants.

Carolina filed a complaint in the United States District Court for the Central District of California against Team Equipment, Dry Cleaning, and the other Underlying Defendants for a declaratory judgment that Carolina was not liable under Dry Cleaning’s insurance policy. Carolina alleged that, because the defendants had agreed to limit the enforcement of the judgment to the proceeds from Dry Cleaning’s insurance policy, the settlement constituted a loss for which there was no recourse to the Insureds and which was therefore outside the scope of coverage. The asserted basis of jurisdiction was diversity of citizenship under 28 U.S.C. § 1332.

The district court dismissed the complaint, without prior notice to Carolina, seventeen days after it was filed. Carolina had not yet served the complaint, nor had any of the defendants responded to it. The district court ruled that Carolina had “not adequately alleged the facts essential for … subject matter jurisdiction.” First, the district court observed that two of the entity defendants were LLCs, but Carolina had not alleged the citizenship of the LLCs by alleging the citizenship of their members. (“[A]n LLC is a citizen of every state of which its owners/members are citizens.”). Instead, Carolina had alleged the states under whose laws the LLCs were organized and where they had their principal places of business, as if the LLCs were corporations.

As to the individual defendants, the district court noted that Carolina had alleged their states of residency and not their states of citizenship, as required for diversity jurisdiction. Finally, the court observed that Carolina had made its allegations “on information and belief,” not on knowledge, and held that this was insufficient to allege jurisdiction. The court dismissed the complaint under FRCP 12(h)(3), which provides that “[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”

Carolina filed a motion to alter or amend the judgment. As part of the motion, Carolina submitted a proposed amended complaint. Carolina advised the court in its moving papers that it was unable to determine the citizenship of the LLCs, because their organizational filings did not list their members. As a result, Carolina alleged simply that the members of the LLCs were “citizens of neither Iowa nor Florida.” As to the eight individual defendants, Carolina alleged that four of them were citizens of California and that four of them were citizens of neither Iowa nor Florida. Carolina continued to make its allegations on information and belief but made clear that the basis for its allegations were the four complaints or proposed complaints filed in the underlying action.

The district court denied the motion for reconsideration and held that the proposed amended complaint also suffered from jurisdictional defects. The district court pointed out that Carolina had not alleged the principal place of business of one of the corporate defendants, USDC Tuchman Indiana, Inc., and had simply stated that it was “unknown.” The court faulted Carolina for not being able to specify the citizenship of the members of the LLCs and held that it was insufficient to allege simply that they were not citizens of Iowa or Florida. And, the court again rejected Carolina’s attempt to plead jurisdictional allegations on information and belief.

Carolina appealed, arguing that the district court should not have dismissed the complaint or denied Carolina leave to amend.

Holding: The novel issue presented by this case is how a plaintiff may allege diversity jurisdiction where the facts supporting jurisdiction are not reasonably ascertainable by the plaintiff. Carolina explained in its motion for reconsideration that it had made efforts to determine the citizenship of the two LLCs and four of the eight individual defendants but it was unable to do so from publicly available information. The business filings that Carolina submitted to the district court show that information necessary to determining the citizenship of the LLCs could not be determined from the public filings of those companies. Furthermore, Carolina reported that it was not able to allege the citizenship of some of the individual defendants based on their residency, as there was no information about their residency in the underlying complaints.

The court held that the original complaint should not have been dismissed without leave to amend. Also, that when information regarding a defendant that is necessary to establish diversity of citizenship is not reasonably available to a plaintiff, the plaintiff should be permitted to plead jurisdictional allegations as to those defendants on information and belief and without affirmatively asserting specific details regarding the citizenship of those defendants. The diversity issue is better addressed after the defendants have had an opportunity to respond to the complaint.

ABOUT THE AUTHOR: Kimberli C. Raines specializes in the defense of personal injury, wrongful death, insurance bad faith and general liability matters. Ms. Raines is admitted to practice in all California state and federal courts. Contact her at kraines@tysonmendes.com.

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