Can an Alter Ego Defendant be Added to a Judgment in California?

This issue was the subject of the recent decision in Hacker v. Fabe, where the trial court granted a motion by the Labor Commissioner to amend a judgment to add Ron Hacker as an alter ego judgment debtor. 

 

Hacker appealed and contended there was “virtually no evidence” he commingled his assets or operations with those of the judgment debtor; the original judgment was not renewed during the 10-year limitation period; the doctrine of laches bared the alter ego motion; and the denial of an earlier alter ego motion barred the current motion under res judicata principles. 

 

The appellate court found that Hacker’s arguments lacked merit and affirmed the trial court’s order and judgment. 

 

The litigation began in 2005, when Jacqueline Fabe, an attorney, filed a claim for unpaid wages with the Labor Commissioner against her employer, 1538 Cahuenga Partners, LLC (Cahuenga or the company). Fabe obtained an award of almost $13,000. 

 

A month after Fabe filed her claim, Cahuenga and its principal, Hacker, filed a malpractice suit against Fabe. Fabe filed a retaliation claim with the Commissioner. She prevailed on her retaliation claim, and the Commissioner sued Cahuenga, seeking damages (Fabe’s defense costs) for the illegal retaliation. Fabe also cross-complained in the malpractice suit, seeking indemnity for her legal expenses. 

 

Later, an amended judgment was entered in favor of the Commissioner for more than $297,000, plus interest, and in favor of Fabe for more than $101,000 (to be offset against any recovery by the Commissioner). 

 

For years thereafter, the Commissioner and Fabe sought to enforce the judgment, without success. 

 

In 2020, the Commissioner filed a motion to amend the judgment to add Mr. Hacker as the alter ego of Cahuenga. The motion stated the approaching 10-year anniversary of the judgment prompted the Commissioner to seek to amend that judgment in order to create the possibility of obtaining some justice for Fabe. 

 

The court entered the second revised amended judgment adding Hacker as an alter ego judgment debtor. 

 

The essence of the alter ego doctrine is that justice be done. What the formula comes down to, once shorn of verbiage about control, instrumentality, agency, and corporate entity, is that liability is imposed to reach an equitable result.

A corporate identity may be disregarded—the “corporate veil” pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. 

Under the alter ego doctrine, then, when the corporate form is used to perpetuate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.

 

In California, two conditions must be met before the alter ego doctrine will be invoked. 

 

First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. 

 

Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.

 

Factors for the trial court to consider include the commingling of funds and assets of the two entities, identical equitable ownership in the two entities, use of the same offices and employees, disregard of corporate formalities, identical directors and officers, and use of one as a mere shell or conduit for the affairs of the other. No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.

 

The court cited Hacker’s complete control over Cahuenga, his control of the litigation, his sharing of attorneys with Cahuenga, his transfer of the company immediately after the judgment, and his destruction of relevant records of assets. 

 

It is reasonable to infer from Hacker’s manipulation of the company and destruction of its records that the separate personalities of the corporation and the shareholder do not in reality exist.

 

The essence of the alter ego doctrine is that justice be done, and Hacker did show no abuse of discretion in the trial court’s alter ego ruling. 

 

Hacker next argued that the judgment was not renewed within the 10-year renewal period, and so had expired and cannot be enforced. He was mistaken. 

 

A judgment is enforceable “upon entry” and “upon the expiration of 10 years after the date of entry of a money judgment,” the judgment “may not be enforced”. 

 

The Commissioner filed an alter ego motion to amend the judgment before the 10-year renewal period had expired. 

 

Hacker wrongfully contended the 10 years run from the date of the original judgment.

 

When an amended judgment is entered, the 10-year period within which the judgment must be enforced or renewed commences upon the date of entry of the amended or modified judgment.

If, in light of the lapse of time and other relevant circumstances, a court concludes that a party’s failure to assert a right has caused prejudice to an adverse party, the court may apply the equitable defense of laches to bar further assertion of the right. 

 

For purposes of laches, a defendant has been prejudiced by a delay when the defendant has changed his position in a way that would not have occurred if the plaintiff had not delayed.

 

Hackers unsupported assertions did not establish either unreasonable delay or prejudice.

 

LESSONS:

 

1.         A corporate identity may be disregarded—the “corporate veil” pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. 

 

2.         First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. 

 

3.         Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.

 

4.         The essence of the alter ego doctrine is that justice be done.

 

Must Purchaser of Property in Foreclosure Sale Perfect Title before Eviction?

In the recent decision in Homeward Opportunities Fund I Trust v. Taptelis, the California Court of Appeal ruled that upon purchasing property in a nonjudicial foreclosure sale under a borrower’s deed of trust, the new owner must perfect title under the sale before seeking to evict the trustor/borrower. 

Although the recording of a trustee’s deed is typically sufficient to raise a conclusive presumption of title under the sale as to a bona fide purchaser for value without notice, plaintiff Homeward Opportunities Fund I Trust (Homeward), the beneficiary under a deed of trust executed by defendant-borrower Ilias Louie Taptelis, purchased the trust property subject to Taptelis’s duly recorded lis pendens, and its notice of Taptelis’s pending wrongful foreclosure action. 

 

Homeward thereafter served Taptelis with notice to quit the premises and obtained a judgment of unlawful detainer against him, without first expunging the lis pendens. 

 

Because the lis pendens clouded Homeward’s title under the sale, and Taptelis was denied the opportunity to assert it in the unlawful detainer trial as a defense to Homeward’s claim of title, the unlawful detainer judgment was reversed. 

 

Taptelis borrowed $1.24 million from Recovco Mortgage Management to purchase property located at Fennel Court. To secure the loan, he executed a Deed of Trust. 

 

Taptelis defaulted on the loan, a Notice of Default and Election to Sell Under Deed of Trust was recorded. 

 

As stated in the Notice of Default, Taptelis needed to pay $87,221.09 to cure the default. 

 

The Notice of Trustee’s Sale was recorded. 

 

Two weeks later, Taptelis filed a civil action challenging the foreclosure and naming various involved entities as defendants, including Homeward.  

 

Two days prior to the foreclosure sale, Taptelis had a lis pendens recorded in connection with the wrongful foreclosure action.

 

The Santa Clara County recorded Quality’s Trustee’s Deed Upon Sale, and the Fennel Court property was sold to Homeward pursuant to the Deed of Trust through a public auction.

 

Homeward served notice to quit on Taptelis. Taptelis did not vacate the property, so Homeward initiated the unlawful detainer suit. 

 

Homeward filed its verified unlimited civil unlawful detainer complaint, and alleged that it had obtained ownership of the property pursuant to a nonjudicial foreclosure. Homeward sought to wrest possession of the property from Taptelis. 

 

On appeal, Taptelis made a series of contentions ranging from threshold challenges to Homeward’s unlawful detainer action to fallback challenges to the evidence on which the trial court relied. 

 

The appellate court rejected Homeward’s contention that Taptelis’s appeal was moot and concluded that the title under the trustee’s sale had not been duly perfected because Homeward had resolved neither the lis pendens nor the underlying litigation.

 

As Taptelis noted, even if he could no longer regain possession of the property, his appeal was not moot because a reversal would potentially entitle him to restitution. 

 

Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale. 

 

The foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee. 

 

After the notice of default is recorded, the trustee must wait approximately three calendar months before proceeding with the sale. 

 

After the specified time period has elapsed, a notice of sale must be published, posted and mailed at least 20 days before the sale and recorded at least 20 days before the sale. 

 

The property must be sold at public auction to the highest bidder. 

 

The trustee’s sale is deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 21 calendar days after the sale.

 

A recital in the trustee’s deed of compliance with all requirements regarding service of the notice of default shall constitute prima facie evidence of compliance and conclusive evidence thereof in favor of bona fide purchasers for value and without notice. 

 

Thus, once a deed reciting that all legal requirements have been satisfied has been transferred to a buyer at a foreclosure sale, the sale can be successfully attacked on the grounds of procedural irregularity only if the buyer is not a bona fide purchaser. 

 

A bona fide purchaser is one who has purchased property for value without notice of any defects in the title of the seller.

 

Notice of a pending action, or a lis pendens, may be recorded in an action which would, if meritorious, affect title to, or the right to possession of, specific real property.

 

Although the pendency of the action does nothing to confer any rights in the property in and of itself, the recording of the lis pendens provides constructive notice of the litigation, such that any judgment later obtained in the action relates back to the filing of the lis pendens. 

 

A lis pendens clouds title until the litigation is resolved or the lis pendens is expunged, and any party acquiring an interest in the property after the action is filed will be bound by the judgment. 

 

In other words, a party obtaining an interest in the property subsequent to the lis pendens takes with constructive notice of the pending action and will be bound by the judgment in that action.

 

If the pleading filed by the claimant does not properly plead a real property claim, the lis pendens must be expunged upon motion.

 

On such motions, the court shall direct that the prevailing party be awarded the reasonable attorney’s fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust.

 

Unlawful detainer actions are authorized and governed by Code of Civil Procedure section 1161 et seq. The statutory scheme is intended and designed to provide an expeditious remedy for the recovery of possession of real property.

 

Unlawful detainer actions are of limited scope, generally dealing only with the issue of right to possession and not other claims between the parties, even if related to the property.

 

As a result, an unlawful detainer judgment usually has limited res judicata effect and will not prevent one who is dispossessed from bringing a subsequent action to resolve questions of title. 

 

Where the property has been sold under a power of sale contained in a deed of trust executed by the holdover possessor, or a person under whom such person claims, a plaintiff seeking a judgment of unlawful detainer must establish that the title under the sale has been duly perfected.

 

Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt which includes good record title, but is not limited to good record title, as between the parties to the transaction. The court in an unlawful detainer action has jurisdiction to determine the validity of such defenses.

 

However, an unlawful detainer action does not permit the defendant to litigate every possible issue related to the plaintiff’s claim of ownership. Matters affecting the validity of the trust deed or primary obligation itself, or other basic defects in the plaintiff’s title, are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment.

 

The parties disputed whether anything beyond recordation of the trustee’s deed was necessary for Homeward to duly perfect title under the sale, clearing the way for the service of the notice to quit. 

 

In Taptelis’s view, Homeward needed to at least expunge each lis pendens he had noticed (or else resolve the wrongful foreclosure litigation altogether) to duly perfect title. The trial court effectively rejected this view, precluding Taptelis from introducing evidence of the lis pendens or the pending wrongful foreclosure litigation. 

 

The new owner must perfect title before serving the three-day written notice to quit. 

 

A notice to quit served before the condition is satisfied is premature and void. 

 

As Homeward acknowledged, Taptelis’s lis pendens clouded title. Because the lis pendens was recorded prior to the foreclosure sale (a sale in fact conducted for Homeward’s benefit), Homeward was on notice of that cloud on title before it nominally purchased the property from Quality, the trustee Homeward had selected. 

 

Insofar as the propriety of Taptelis’s lis pendens could not be litigated in the unlawful detainer action itself, Homeward was required to, at its option, either expunge the lis pendens or resolve the wrongful foreclosure litigation before it could serve the notice to quit necessary to initiate an unlawful detainer action. 

 

It was undisputed that Homeward did not resolve Taptelis’s lis pendens at any time prior to entry of judgment in this unlawful detainer action. 

 

Accordingly, Homeward improperly prosecuted and prevailed on its unlawful detainer action while Taptelis’s lis pendens continued to cloud Homeward’s title. 

 

LESSONS:

 

1.         Where the property has been sold under a power of sale contained in a deed of trust executed by the holdover possessor, or a person under whom such person claims, a plaintiff seeking a judgment of unlawful detainer must establish that the title under the sale has been duly perfected.

 

2.         Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale. The foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee. After the notice of default is recorded, the trustee must wait approximately three calendar months before proceeding with the sale. 

 

3.         Because the lis pendens clouded Homeward’s title under the sale, and Taptelis was denied the opportunity to assert it in the unlawful detainer trial as a defense to Homeward’s claim of title, the unlawful detainer judgment was reversed. 

 

What is a Tenancy at Will in California?

In the recent case of Borden v. Stiles, the California appellate court explored the issues involving the tenancy at will in that case.

Defendant Loretta Stiles lived in a Laguna Woods residential unit (the property) that was owned by Dan Blechman. Stiles was permitted to live at the property by Blechman without provision for the payment of rent or the duration of her stay. 

 

Stiles had worked for Blechman for many years and, instead of being paid a salary, he allowed her to live at the property beginning in 2011 and also paid her expenses. 

 

After Blechman passed away, the administrator of his estate, plaintiff Alex R. Borden, served Stiles with a 30-day notice to quit the property. 

 

After Stiles refused to leave the property, he filed an unlawful detainer action. 

 

Borden filed a motion for summary judgment against Stiles. Stiles in turn filed a motion for summary judgment against Borden, arguing Borden’s notice to quit failed to state just cause for terminating her tenancy, as required by the California Tenant Protection Act of 2019 at Civil Code section 1946.2.

 

The parties agreed in their respective motions that Stiles had a tenancy at will. 

 

The trial court concluded section 1946.2 applied to Stiles’s tenancy and consequently granted Stiles’s motion and denied Borden’s motion on the ground Borden’s 30-day notice failed to state just cause for terminating the tenancy as defined in the statute. 

 

The Appellate Division of the Orange County Superior Court reversed the decision, and published its decision because its analysis involves the interplay of statutes enacted almost 150 years ago regarding the hiring of real property with the relatively recently enacted section 1946.2. 

 

Evidence suggested the tenancy at issue was created by a hiring under section 1925, because it showed Blechman permitted Stiles to live at the property in exchange for work she had performed for him at unspecified times. 

 

Such a tenancy that is “terminable at the pleasure of one of the parties,” however, would have terminated under section 1934 when Stiles was notified of Blechman’s death. 

 

At that point, Stiles would have become a holdover tenant, and no longer in lawful occupation of the property. 

 

Because section 1946.2, subdivision (i)(3) defines “‘[t]enancy’” to be “the lawful occupation of a residential real property”, section 1946.2 would not apply to such an unauthorized occupancy. 

 

 

The record, however, is silent on the specifics regarding the timeframe in which Stiles performed work for Blechman in exchange for her tenancy, when Blechman passed away, when Stiles was notified of his death, and whether thereafter Borden had potentially entered into a tenant relationship with Stiles. 

 

Because triable issues of material fact existed as to whether Stiles was in lawful occupation of the property within the meaning of section 1946.2, subdivision (i)(3), summary judgment should not have been entered in either party’s favor.

 

The relevant evidence offered by the parties in support of and in opposition to the motions was undisputed and very limited in scope, confirming the following facts: 

(1) Blechman orally agreed to allow Stiles to take possession of the property without any specified term or reservation of rent; 

(2) Stiles took possession of the property, had continuously occupied the property for more than 12 months, and had never paid money for her occupancy; 

(3) Borden was made administrator of the estate of Dan Blechman; 

(4) Borden served a 30-day notice to quit which did not state a just cause reason under section 1946.2; and 

(5) after the notice period expired and Stiles continued to occupy the property, Borden initiated the unlawful detainer action. 

 

The parties stipulated if section 1946.2 were to apply, none of the exemptions specified in that section would apply. 

Unlawful detainer actions are authorized and governed by state statute. The statutory scheme is intended and designed to provide an expeditious remedy for the recovery of possession of real property. 

The remedy is available in only three situations: to a lessor against a lessee for unlawfully holding over or for breach of a lease; to an owner against an employee, agent, or licensee whose relationship has terminated; and to a purchaser at an execution sale, a sale by foreclosure, or a sale under a power of sale in a mortgage or deed of trust against the former owner and possessor. 

Section 1946.2, subdivision (a) provides in relevant part: “Notwithstanding any other law, after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property shall not terminate the tenancy without just cause, which shall be stated in the written notice to terminate tenancy.”

Subdivision (b) of section 1946.2 sets forth two types of just cause—at-fault just cause and no-fault just cause—necessary to terminate a tenancy. The following circumstances establish at-fault just cause: default in the payment of rent; a breach of a material term of the lease; maintaining, committing, or permitting the maintenance or commission of a nuisance; committing “waste”; the circumstance where the tenant had a written lease that terminated on or after January 1, 2020, and the tenant refused to execute a written extension or renewal of a lease with similar terms; certain criminal activity by the tenant; assigning or subletting the premises in violation of the lease; the tenant’s refusal to allow the owner to enter the property; using the premises for an unlawful purpose; an employee, agent, or licensee’s failure to vacate after their termination as an employee, agent, or licensee; and when the tenant fails to deliver possession of the residential property after providing the owner written notice of intent to terminate the hiring of the real property. 

Section 1946.2 no-fault just cause includes the circumstances when the owner, or the owner’s spouse, domestic partner, children, grandchildren, parents or grandparents intend to occupy the residential real property; the withdrawal of the residential property from the rental market; an order for the owner to comply with certain orders by a governmental agency or local ordinances that necessitate vacating the property; and the owner’s intent to demolish or to substantially remodel the residential real property.

Section 1946.2 also requires an owner, under specified circumstances, to provide relocation assistance, waive rent for the final month of tenancy, and comply with notice requirements.  

Significantly, section 1946.2, subdivision (i)(3) provides, for the purposes of that statute, the term tenancy means the lawful occupation of a residential real property and includes a lease or sublease. 

After noting it was undisputed Stiles was a tenant at will, the trial court granted Stiles’s motion for summary judgment on the ground section 1946.2 applies to tenancies at will. 

The Appellate Division affirmed the judgment after concluding section 1946.2 applies to tenancies at will if the tenant has continuously and lawfully occupied the subject residential real property for 12 months. 

A tenancy at will is an estate which simply confers a right to the possession of premises leased for such indefinite period as both parties shall determine such possession shall continue. 

The tenant at will is in possession by right with the consent of the landlord either express or implied, and he does not begin to hold unlawfully until the termination of his tenancy. His estate is a leasehold and he holds in subordination to the title of the landlord.

A permissive occupation of real estate, where no rent is reserved or paid and no time agreed on to limit the occupation, is a tenancy at will. 

Here, Stiles’s tenancy may very well have been properly characterized as a tenancy at will in light of the undisputed evidence Blechman had provided Stiles a tenancy of indefinite duration that did not involve the payment of rent. 

But the proper characterization of Stiles’s tenancy was not dispositive in the resolution of this appeal because evidence in the record, which showed Stiles might have hired the property from the now deceased Blechman, creates triable issues of material fact whether a condition precedent to section 1946.2’s application was satisfied—whether Stiles was in lawful occupation of the property within the meaning of section 1946.2(i)(3). 

Upon Stiles receiving notice of Blechman’s death, if her tenancy was based on a hiring, it would have automatically terminated by operation of law. 

Absent subsequent events that might have created a new tenancy (e.g., Borden and Stiles entering an agreement, Borden granting Stiles permission to continue occupancy, or Borden accepting rent from Stiles), Stiles’s status in continuing to occupy the property following receipt of notice of Blechman’s death would be that of a holdover tenant. 

Such an occupancy would be unlawful, rendering section 1946.2 inapplicable to the eviction proceedings initiated by Borden, because tenancy is lawful occupation of residential real property.

The record, however, was silent regarding when Blechman passed away, when Stiles was notified of his death, and whether thereafter Borden had potentially entered into a new tenant relationship with Stiles. 

While a tenancy at will is, by definition, an agreement whereby a tenant is granted permission to occupy real property without provision for the payment of rent, it would appear that definition does not preclude a landowner from giving possession and use of real property for a reward other than rent within the meaning of section 1925. 

For example, an agreement whereby landowner son permitted father to remain on the land coupled with the father’s agreement to take care of the land could be deemed to establish a tenancy at will.

In any event, the evidence shows Stiles’s tenancy might have arisen out of a hiring, and if so, regardless of whether it was tenancy at will or some other form of tenancy, it would have terminated upon her receipt of notice of Blechman’s death, by operation of section 1934. 

As triable issues of material fact therefore exist regarding the threshold issue whether Stiles was in lawful occupation of the property within the meaning of section 1946.2, subdivision (i)(3), summary judgment should not have been granted in favor of either party.

LESSONS:

1.         While a tenancy at will is, by definition, an agreement whereby a tenant is granted permission to occupy real property without provision for the payment of rent, it would appear that definition does not preclude a landowner from giving possession and use of real property for a reward other than rent within the meaning of Civil Code section 1925. 

 

2.         If the tenancy at issue was created by a hiring under Civil Code section 1925, such a tenancy that is “terminable at the pleasure of one of the parties,” would have terminated under Civil Code section 1934 when notified of ther landlord's death. At that point, the tenant becomes a holdover tenant, and no longer in lawful occupation of the premises.

Must a Trial Court Always Grant Relief From a Jury Waiver?

In Tricoast Builders, Inc. v. Fonnegra, a recent unanimous decision affirming the ruling by a judge in the Chatsworth Courthouse, the California Supreme Court ruled it depends if a trial court must always grant relief from a jury waiver.

The California Constitution provides that all civil litigants have the right to trial by jury, but they may waive that right in a manner prescribed by statute. (Cal. Const., art. I, § 16.) 

 

The statute implementing this provision, Code of Civil Procedure section 631, sets forth various acts and omissions that constitute jury waiver, including failing to make a timely jury demand and failing to timely deposit a jury fee in accordance with statutory requirements. 

 

Waiver does not categorically foreclose trial by jury; a litigant that has waived jury trial may seek relief from the waiver, and the trial court has discretion whether to grant relief, on such terms as may be just. 

 

The issue presented in the trial court was: Must a trial court always grant relief from a jury waiver if proceeding with a jury would not cause hardship to other parties or to the trial court? 

 

The Supreme Court concluded that the answer is no; a trial court’s discretion is not so constrained. 

 

The presence or absence of hardship is always a primary consideration, and it is often dispositive in cases where the litigant has given timely notice that it desires a jury trial and seeks relief from mere technical statutory waiver, such as failure to post the required jury fee at the correct time or in the correct amount. 

 

But a request for relief from jury waiver always calls for consideration of multiple factors in addition to hardship, including the timeliness of the request and the reasons supporting the request. 

 

If a litigant challenges the denial of relief from jury waiver for the first time on appeal of the judgment of the trial court, must the litigant show actual prejudice to obtain reversal, or will prejudice be presumed? 

 

The Supreme Court concluded that, where the constitutional right of jury trial has been validly waived, prejudice from the denial of section 631(g) relief will not be presumed but must be shown. 

 

In this case, plaintiff TriCoast Builders, Inc. (TriCoast) waived jury trial, but unsuccessfully sought relief from waiver when its opponent dropped his jury demand on the day of trial. 

 

After a bench trial, the court entered judgment against TriCoast. 

 

Appealing that adverse judgment, TriCoast’s sole claim of prejudice concerns the efforts it wasted in preparing for a jury trial that had been requested, then belatedly waived, by the other side. 

 

These were, however, costs that can never be recouped, even if TriCoast were granted the do-over it seeks, and that have nothing to do with the fairness of the trial TriCoast received. 

Because TriCoast failed to establish the prejudice necessary to justify reversing the trial court’s judgment, the judgment of the Court of Appeal, which reached the same conclusion on this issue, was affirmed. 

 

The issues in this case arose from litigation between TriCoast, a general building contractor, and homeowner Nathaniel Fonnegra. 

 

Fonnegra hired TriCoast to handle repairs on his house after it was damaged by a fire. Unhappy with the quality of TriCoast’s work, Fonnegra terminated the contract and hired a new contractor. 

 

TriCoast sued Fonnegra for damages and to enforce a mechanics lien on his property.

Pretrial proceedings in the case spanned four years, during which Fonnegra demanded a jury trial. 

 

TriCoast did not demand a jury or post fees, and thus waived its right to a jury trial. 

 

TriCoast nonetheless prepared for a jury trial because of Fonnegra’s demand. 

 

After years of pretrial proceedings, the case was set for a jury trial to begin on September 23, 2019. The minute order for that day’s proceedings stated that the “NATURE OF PROCEEDINGS” would be a “JURY TRIAL.” 

 

On the morning of September 23, however, Fonnegra informed the court that he was “willing to waive a jury.” 

 

TriCoast immediately objected, stating that it was “going to post fees today for a jury trial. We’re not waiving. We prepared for a jury trial, we’d like a jury trial.” 

 

Fonnegra responded that TriCoast had already waived its jury right by failing to timely post fees. The trial court agreed. Though TriCoast had offered to post fees that day, the court concluded this offer to post fees came too late, so was going to be a court trial. 

 

TriCoast requested a jury trial notwithstanding its earlier waiver. TriCoast argued that it had prepared for a jury trial given Fonnegra’s demand, that it had a right to a jury trial, and that Fonnegra’s decision to revoke his jury demand on the morning of trial was “unfair, to put it mildly.” 

 

The trial court denied this request for relief from jury waiver, explaining: “When the fees haven’t been paid, and you haven’t paid them, the party that did pay them has waived the jury trial, so that’s it.” 

 

In its order denying relief, the trial court simply noted it had denied TriCoast’s oral request for relief, find that Plaintiff not having paid jury fees, waived trial by jury. 

 

The trial court noted that TriCoast could challenge the ruling by filing a petition for an extraordinary writ if it wished, but TriCoast did not do so. 

 

Instead, TriCoast, Fonnegra, and the court proceeded with a bench trial. After a seven-day trial, the court ruled in favor of Fonnegra. 

 

The Court of Appeal majority held that the trial court did not, in fact, abuse its discretion. The majority reasoned that the request for relief was untimely because TriCoast did not demand a jury or offer to post fees until the day of trial. 

 

The majority acknowledged TriCoast’s argument that granting relief would not have caused any harm, and it recognized that other appellate courts had stated that a motion to be relieved of a jury waiver should be granted unless, and except, where granting such a motion would work serious hardship to the objecting party.

 

But the majority distinguished these cases as involving situations where the initial jury waiver was the result of a mistake — for example, where the party mistakenly failed to post jury fees after giving notice it desired jury trial. 

 

Courts generally use the word “waiver” to refer to the intentional relinquishment of a known right or privilege — making the term “inadvertent waiver” seem like something of a contradiction in terms. 

 

But under section 631 both intentional and unintentional relinquishments of the jury trial right are deemed “waivers.” Accordingly, courts have used the term “inadvertent waiver” in this context to refer to a mistaken failure to comply with statutory requirements for demanding a jury under section 631, resulting in an unintentional relinquishment of the right to a jury trial. 

 

In this case, it was undisputed that TriCoast’s jury waiver had been intentional. 

 

The majority went on to opine that, even in cases involving mistaken or inadvertent jury waivers, hardship is not necessarily dispositive; rather, prejudice to the parties is just one of several factors the trial court may consider” in exercising its discretion under section 631(g).  

 

Under the California Constitution, trial by jury is an inviolate right and shall be secured to all” in civil as well as criminal cases. 

 

But like most constitutional rights, the right to jury trial can be waived. In criminal cases, waiver requires “the consent of both parties expressed in open court by the defendant and the defendant’s counsel. In civil cases, by contrast, the right may be waived by the consent of the parties expressed as prescribed by statute.

 

The current version of section 631 provides that a party may waive the right to a jury trial in any one of several ways, including, as relevant here, failing to announce that a jury is required at or near the time the case is first set for trial, or by failing to timely pay a $150 nonrefundable jury fee, typically on or before the date scheduled for the initial case management conference.

 

 At least one party on each side of the dispute must timely post the jury fee in order to preserve the jury right for that “side of the case.

 

Payment of the fee by a party on one side of the case shall not relieve parties on the other side of the case from waiver because failure to pay the jury fee constitutes waiver unless another party on the same side of the case has paid that fee. 

 

Waiver in the manner prescribed by section 631 is not necessarily the end of the line. Following section 631’s enactment, courts consistently held that a trial court has the discretion to proceed with a jury trial even though the jury right had been waived. 

 

For example. although the statute requires the payment of the jury fee in all cases, cases have made clear that the requirement does not apply to indigent litigants. 

 

It is within the discretion of the trial court to disregard the waiver and try the case by a jury because section 631(g),  states in full: “The court may, in its discretion upon just terms, allow a trial by jury although there may have been a waiver of a trial by jury.” 

 

TriCoast did not dispute that it had waived its jury right; at no point in four years of pretrial proceedings did TriCoast ask for a jury, nor did TriCoast deposit the required jury fee. 

 

TriCoast argued, however, that the trial court in this case erred when it refused to allow TriCoast to proceed with the jury trial that Fonnegra had demanded, then waived on the day of trial. 

 

TriCoast relied on a line of cases stating that, in cases of inadvertent waiver, it is an abuse of discretion to deny relief from jury waiver in the absence of any showing that proceeding with a jury trial would have harmed the other side. 

 

Disagreeing, Fonnegra relied on a different line of cases identifying additional factors trial courts should consider in deciding whether to grant relief from jury waiver. 

 

The Supreme Court agreed with Fonnegra that section 631(g) does not limit a trial court’s discretion in the manner TriCoast suggested. 

 

The text does not state that a court must grant relief from waiver in the absence of a showing of hardship. It instead states only that the court may grant relief “in its discretion upon just terms.” 

This open-ended grant of discretion does not direct courts to narrow their focus to any single factor. Rather, it suggests that courts should consider all factors relevant to whether granting relief in the particular situation before them would be “just.”

 

Considered as a whole, the body of appellate case law addressing section 631(g) reveals a considerable degree of consensus about the relevant considerations. 

 

Among these, the primary consideration is indeed whether granting relief from waiver would result in any hardship to other parties or to the court, such as delay in rescheduling the trial for a jury or inconvenience to witnesses. 

 

Courts have also regularly considered other factors, including the timeliness of the request; whether the requester is willing to comply with applicable requirements for payment of jury fees; and the reasons supporting the request. 

 

But these cases involving mere technical statutory waiver raise different considerations from cases in which a party at first opted against invoking the jury right, then later seeks relief from the consequences of that choice. And in all events, in every case the trial court properly considers all relevant factors in deciding whether it should exercise its discretion to grant relief to a litigant. 

 

The Court of Appeal in this case held that the trial court was not required to grant TriCoast’s request for relief from waiver once it was established that no harm would result from proceeding with a jury trial. 

 

It is nonetheless unclear whether the trial court in this case exercised its discretion in a manner consistent with the law as Supreme Court described it. 

 

TriCoast never communicated a desire for jury trial before it made its oral request for relief from waiver, and TriCoast does not dispute that its decision not to invoke the jury right was an intentional one. 

 

But its request for relief from waiver was not, as far as the record reveals, driven by gamesmanship or desire for tactical advantages. Rather, though TriCoast did not wish for a jury trial, Fonnegra had demanded one, so TriCoast had prepared its case accordingly. 

 

When Fonnegra decided to waive the jury on the morning of trial, TriCoast sought relief that would enable it to reinstate the jury trial so that it could present the case in the manner it had prepared for. 

 

So far as the record in this case revealed, the trial court denied TriCoast’s motion simply because TriCoast had failed to make a deposit of jury fees. But under section 631, a party’s failure to deposit jury fees simply means jury trial was waived. 

 

It is not a sufficient reason for denying relief from waiver. Nor was there any concern that TriCoast was unable or unwilling to pay the required fees; in making its request for relief from waiver, TriCoast offered to post fees that very day. 

 

The Court of Appeal opined that the trial court properly denied TriCoast’s request as untimely because it was made on the first day scheduled for trial. 

 

As a general matter, it is of course true that a party cannot wait until the morning of trial to invoke its right to a jury. But context is important. 

 

As TriCoast made clear to the trial court, it was asking for relief from waiver because it had prepared for a jury trial demanded by the other side for some four years, and then was told, on the morning of trial, that there would be no jury after all. 

 

TriCoast made this request on the day of trial because it was not until then that its opponent waived jury trial. TriCoast’s request for relief from waiver, based as it was on Fonnegra’s 11th-hour decision to waive, simply could not have been made earlier than it was. 

 

Under present law, each side must make its own timely jury demand and pay its own fees, and there is nothing to stop a party that has timely demanded a jury trial from dropping that demand on the eve of trial, or even during the trial itself. 

 

Payment of the fee by a party on one side of the case does not relieve parties on the other side of the case from waiver.

 

If the other side objects, however, it may ask that the case go forward as a jury trial and it is not barred from relief under that provision merely because it has not made its own timely jury demand. 

 

The Court of Appeal was correct that the trial court can consider other factors aside from hardship to the opposing party when it is deciding whether to exercise its discretion to grant relief from a jury trial waiver. 

 

The Supreme Court did not decide whether the trial court properly exercised its discretion. Because TriCoast raised the issue for the first time on appeal of the trial court’s judgment, TriCoast must show it was prejudiced by the trial court’s denial of its request for relief from waiver. Because TriCoast had not made that showing, reversal of the judgment was not warranted. 

 

LESSONS:

 

1.         Determine as soon as possible if a jury trial is desired, and when in doubt, post the jury     fees that are currently only $150.

 

2.         Under present law, each side must make its own timely jury demand and pay its own fees, and there is nothing to stop a party that has timely demanded a jury trial from dropping that demand on the eve of trial, or even during the trial itself. 

 

3.         Payment of the fee by a party on one side of the case does not relieve parties on the other side of the case from waiver.