Fasuyi v. Permatex, Inc.
2008 Cal. App. LEXIS 1605, 167 Cal. App. 4th 681, 84 Cal. Rptr. 3d 351 (2008)
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Rule of Law:
A defendant's failure to file a timely response to a complaint may constitute excusable neglect sufficient to set aside a default judgment when the defendant reasonably relied on its insurer to defend the action, acted diligently to seek relief upon discovering the default, and the plaintiff will not suffer prejudice.
Facts:
- On or about August 25, 2004, Omotayo Fasuyi, a mechanic, was injured when a brake-cleaning product manufactured by Permatex, Inc. dripped onto his skin.
- After having difficulty serving the complaint, Fasuyi's counsel contacted the legal department of Illinois Tool Works, Inc. (ITW), Permatex's parent company.
- An ITW representative assisted Fasuyi's counsel by providing the correct information and address for Permatex's agent for service of process.
- On December 4, 2006, the summons and complaint were served on Permatex's agent.
- On December 12, 2006, a paralegal at ITW forwarded the summons and complaint to Permatex's insurance broker with instructions to have the insurers provide a defense.
- The following day, the insurance broker forwarded the documents to the appropriate insurers and received written confirmation of their receipt.
- The insurers failed to retain counsel or file a responsive pleading on Permatex's behalf within the required time.
- Without any warning or further communication to ITW's legal department, Fasuyi's counsel sought and obtained a default judgment.
Procedural Posture:
- On August 1, 2006, Omotayo Fasuyi filed a complaint for personal injuries against Permatex, Inc. in Alameda County Superior Court (trial court).
- Permatex, Inc. failed to file a timely responsive pleading after being served with the complaint.
- On February 14, 2007, Fasuyi's counsel filed a request for entry of default, which the court clerk entered the same day.
- On February 28, 2007, following a default prove-up hearing, the trial court entered a default judgment against Permatex for $236,500.
- On March 23, 2007, Permatex filed a motion to set aside the default and default judgment.
- On April 27, 2007, the trial court issued an order denying Permatex's motion.
- Permatex, as appellant, filed a timely notice of appeal to the California Court of Appeal, challenging both the judgment and the order denying its motion to set it aside. Fasuyi is the appellee.
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Issue:
Did the trial court abuse its discretion by denying a motion to set aside a default judgment under California Code of Civil Procedure section 473(b), where the defendant corporation promptly forwarded the complaint to its insurer for defense and the insurer subsequently failed to file a timely response?
Opinions:
Majority - Richman, J.
Yes. The trial court abused its discretion by denying the motion to set aside the default judgment. The law strongly favors resolving cases on their merits, and any doubts in applying Code of Civil Procedure section 473 must be resolved in favor of the party seeking relief from default. A trial court's order denying relief is scrutinized more carefully than an order granting it. Here, Permatex demonstrated excusable neglect by acting reasonably and promptly in forwarding the lawsuit to its insurance broker with the expectation that its insurers would provide a defense. The breakdown in process occurred after the case was tendered to the insurers, and Permatex's reliance on them was justified. Furthermore, Permatex acted with diligence by moving to set aside the judgment just 15 days after discovering it, and there was no showing of prejudice to Fasuyi. The court also noted that the 'quiet speed' of Fasuyi's counsel in seeking a default without any professional courtesy of a warning weighed in favor of granting relief.
Analysis:
This decision strongly reaffirms California's public policy favoring trial on the merits over default judgments. It clarifies that a corporate defendant's reasonable reliance on its insurance carrier to manage litigation can constitute 'excusable neglect' under CCP § 473(b), even if the insurer is itself negligent. The opinion serves as a powerful reminder to practitioners that while not a legal requirement, the ethical obligation to warn opposing counsel before seeking a default is a significant factor courts will consider when deciding whether to grant relief. This precedent will likely make it more difficult for trial courts to deny motions to set aside defaults in situations where the defendant acted diligently upon learning of the default and the plaintiff would not be substantially prejudiced.
