This article originally appeared in The Recorder on June 13, 2018.
Today’s case counsels plaintiffs’ attorneys not to be shrinking violets when they plead damages. But to reach that point, it first illustrates a basic rule of statutory construction: Statutes mean exactly what they say, unless they don’t. These at least seem to be the guiding principles behind the Fourth District Court of Appeal Division One’s recent decision Airs Aromatics, LLC v. CBL Data Recovery Technologies, Inc.
Back in 2011, Airs sued CBL for breach of contract. The complaint did not have much to say about damages, except that Airs pleaded it had “suffered damages in an amount to be proven at trial, but estimated to exceed $25,000.00.” This bare-bones allegation elevated the case into unlimited jurisdiction but revealed little about what Airs was demanding. CBL answered, and discovery ensued. In a settlement conference, Airs demanded $5 million. After about a year, CBL apparently decided it had had enough of litigation and stipulated to withdraw its answer, allowing Airs to take a default.
Airs then asked the court to enter judgment in its favor in excess of $3 million, a request it backed up with documentary evidence. The court awarded Airs $3,016,802.90 in a November 2012 judgment – millions more than the complaint had alleged.
CBL seems not to have been in much of a rush to do anything about this judgment, but in April of 2017 it finally got around to filing a motion to set aside the default judgment. It based its motion on Code of Civil Procedure sections 580(a), which limits a default judgment to the amount stated in the complaint, and 473(d), under which a court “may . . . set aside any void judgment or order.”
The trial court denied the motion on the ground that CBL plainly knew what it was getting into when it allowed a default to be taken against it. It had engaged in discovery, had received a settlement demand millions of dollars above the judgment amount, and had sat by idly while Airs pressed for the default judgment. Consequently, according to the Superior Court, the judgment was not void and did not need to be set aside.
CBL appealed the denial of its set-aside motion and found a more sympathetic ear in the Court of Appeal. That court focused on the fact that Code of Civil Procedure section 580(a) appears to state a bright-line rule: “The relief granted to the plaintiff, if there is no answer, cannot exceed that demanded in the complaint.” It was therefore irrelevant whether CBL had adequate notice, whether it had a reasonable opportunity to defend, and whether it had assumed the risk of an adverse judgment.
In so holding, the Court of Appeal quoted the California Supreme Court, in In re Marriage of Lippel, to the effect that section 580 “means what it says and says what it means” – i.e., is strictly construed in accordance with its plain language. The apparent source for the quoted phrase is Lewis Carrol’s depiction of a mad tea party in Alice’s Adventures in Wonderland, in whichthe March Hare and the Mad Hatter berate Alice for meaning what she says but not saying what she means.
Airs also advanced a fallback argument that brought the Court of Appeal face to face with a conundrum similar to Alice’s. Airs pointed out that, regardless of whether section 580(a) renders void a default judgment exceeding the amount pleaded, section 473(d), the basis for CBL’s motion to be relieved of the judgment, says quite plainly that the court “may” set aside a void judgment. Airs contended that the use of the word “may” gave the trial court discretion over whether to grant the motion. If this is what statute means, then the denial of Airs’s set-aside motion was merely an exercise of the trial court’s discretion, making it very difficult to overturn on appeal.
On this question, though, the Court of Appeal concluded that the Legislature had not really meant what it said or, at least, had not said what it meant. “It would be anomalous for a court to lack fundamental jurisdiction to enter a particular default judgment under section 580 but nevertheless retain discretion under section 473, subdivision (d) to not set that judgment aside.” Anomalous or not, it seems odd that section 580(a) must be interpreted according to its “plain language” but section 473(d) need not.
The Court of Appeal did not attempt to explain or justify the seeming inconsistency in its reasoning, but it probably could have. In California, as held in Lungren v. Deukmejian, the “plain meaning” rule does not prohibit a court from determining whether the literal meaning of a statute comports with its purpose. And, as Tarrant Bell Property, LLC v. Superior Court held, in determining whether the Legislature intended a statute to be mandatory or permissive, use in a statute of the word “may” is often considered indicative but not dispositive or conclusive, and the court may properly look at other indicia of legislative intent. It could well be argued that section 473(d)’s apparent purpose is to prevent the enforcement of void judgments, and so, notwithstanding the use of the word “may,” the Legislature was signaling that such judgments should not be allowed to stand.
The Court of Appeal did not let CBL completely off the hook. Instead of just paring the judgment back to the $25,000 pleaded, it gave Airs a choice. Airs can accept the $25,000 judgment, or it can amend its complaint to state a higher amount, thereby reopening the litigation at square one. So much for using a default judgment to bring litigation to a quick conclusion.
It is hard to say what this decision teaches about determining when the Legislature means what it says or says what it means. But its bottom-line lesson does bring to mind another popular catchphrase: When you plead damages, you really should go big or go home.
On Appeals is a monthly column by the attorneys of the California Appellate Law Group LLP*, the largest appellate specialty boutique in Northern California. Charles Kagay is of counsel with the firm. He has decades of experience handling appeals that involve complex or novel legal questions and is certified by the State Bar as a California appellate specialist. Find out more about Charles and the California Appellate Law Group LLP at www.calapplaw.com.
*In July 2022, the California Appellate Law Group was renamed the Complex Appellate Litigation Group.
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