CPF Vaseo Assocs., LLC v. Gray

Byrne responded by letter the following day. He disputed the substance of the Grays' position, noted CPF's intent to lien the Grays' California properties, and concluded, "If you obstruct this process, I might suggest that the person and client worrying about sanctions is not my client or my firm." Dowd's subsequent reply asserted that Byrne misunderstood the nature of the Arizona court order. He reiterated the demand for corrective action. Byrne did not respond.

Former section 128.5(f) specified that "[a]ny sanctions imposed" under section 128.5"shall be imposed consistently with the standards, conditions, and procedures set forth in subdivisions (c), (d), and (h) of Section 128.7." The central issue before us is the import of former section 128.5(f)'s cross-reference to section 128.7(c). The first paragraph of section 128.7(c) reads as follows:

"If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence."

The "conditions stated below" are delineated in subdivisions (c)(1) and (c)(2). Section 128.7(c)(1) provides a two-step process with a safe harbor waiting period: The moving party is to serve the sanctions motion on the offending party, but cannot file it with or present it to the court "unless, within 21 days of service of the motion, or any other period as the court may prescribe, the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected." Section 128.7(c)(2) provides a similar safe harbor period applicable when sanctions are sought on the court's own motion.

"If the alleged action or tactic is the making or opposing of a written motion or the filing and service of a complaint, cross-complaint, answer, or other responsive pleading that can be withdrawn or appropriately corrected, a notice of motion shall be served as provided in Section 1010, but shall not be filed with or presented to the court, unless 21 days after service of the motion or any other period as the court may prescribe, the challenged action or tactic is not withdrawn and appropriately corrected."

Section 128.5, subdivision (f)(1)(D) provides for a similar safe harbor period when sanctions are imposed on the court's own motion.

As chronicled in Nutrition Distribution , the relevant legislative history reports reflect that "the committee had adopted several amendments to the 2014 legislation reviving section 128.5 'to ensure that Section 128.5 would be "read in harmony with the salutary cognate provisions of section 128.7." ' (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 984, supra , as amended Apr. 20, 2017, at p. 8.) The 2017 amendment, the report continued, 'seeks to clarify the intent behind the enactment of [Assembly Bill No.] 2494 ... and abrogate several of the holdings under San Diegans [ for Open Government ].' ( Ibid. ; see id. at p. 7 [interpretation of [former section 128.5 ](f) by San Diegans for Open Government 'is inconsistent with [its] legislative history']; Sen. Judiciary Com., Rep. on Assem. Bill No. 984 (2017-2018 Reg. Sess.) as amended June 19, 2017, p. 3 ['Since [Assembly Bill No.] 2494 took effect, courts have interpreted provisions of Section 128.5 inconsistently and, at times, at odds with the intent of the Legislature. This bill seeks

At the hearing on the motion to vacate, the court initially indicated its tentative ruling to grant the motion to vacate on the ground that the Arizona order was "not a final money judgment." But the court was "disinclined" to order sanctions because (1) a directive in the Arizona order regarding out-of-state enforcement "was somewhat misleading and confusing" and (2) it did not see facts showing this to be "strictly [undue] harassment." The court then invited comments from counsel. Byrne argued the merits only; he did not address the issue of sanctions. Conversely, the Grays' counsel "urg[ed] the court to reconsider its ruling on the issue of sanctions." The court took the matter under submission, indicating it would take another look at the Grays' sanctions argument.

By written ruling issued a few days later (the June 2017 order), the court granted the motion to vacate the California Judgment, denied CPF's request for alternative relief, and granted the Grays' request for sanctions under section 128.5, former subdivision (a). With respect to the sanctions ruling, the court directed the Grays' counsel "to provide forthwith declarations that specify the amount sought and the manner of calculation" and "to prepare the final order, after the amount of sanctions are addressed, for the Court's signature."

A flurry of briefing ensued. CPF's filings generally contested the imposition of sanctions on the ground that no bad faith had been shown. The Grays' filings disputed that position and claimed a specific sum of fees and costs. The court ultimately ordered CPF and Byrne to pay the Grays $30,675.17 in fees and costs.

DISCUSSION

Section 128.5 authorizes sanctions for certain bad faith actions or tactics. (See

CPF and Byrne argue that, per former section 128.5(f), the Grays were obligated to comply with the safe harbor provision found in section 128.7(c)(1) before moving for sanctions under former section 128.5. They posit that the Grays' failure to comply with this procedural requirement is grounds for reversal of the sanctions order.

In addition to its reliance on the plain language of the statute, Nutrition Distribution found support for its statutory interpretation in section 128.5's legislative history. As originally introduced, Assembly Bill No. 2494 (which led to the 2014 revival of section 128.5 ) contained no cross-reference to section 128.7. ( Nutrition Distribution , supra , 20 Cal.App.5th at p. 127, 228 Cal.Rptr.3d 737 .) The cross-reference was added only after several letters of opposition were received that, among other things, pointed out the missing safe harbor period. ( Id. at p. 128, 228 Cal.Rptr.3d 737 .)

Beyond the legislative history, Nutrition Distribution relied on the subsequent 2017 amendment to section 128.5 and the related legislative reports as confirming its statutory reading. ( Nutrition Distribution , supra , 20 Cal.App.5th at pp. 129-130, 228 Cal.Rptr.3d 737 .) The amendment revised section 128.5, subdivision (f) to include specific "conditions and procedures" for sanctions imposed pursuant to that section, which generally mirror those in section 128.7. (See Nutrition Distribution , at p. 129, 228 Cal.Rptr.3d 737 .) Among those conditions is section 128.5, subdivision (f)(1)(B) :

Certainly, the Grays are correct regarding the nature of the judgment entered under the SSMJA. (See § 1710.25; Aspen International Capital Corp. v. Marsch (1991) 235 Cal.App.3d 1199 , 1203, 286 Cal.Rptr. 921 ( Aspen ) ["Upon simple application in conformance with the Act (§§ 1710.15, 1710.20), entry by the clerk of a judgment based upon the application is mandatory (§ 1710.25), constituting a ministerial act of the clerk and not a judicial act of the court [citations]"].) But we question their supposition that no corrective action could be taken. On this topic, we cannot help but find telling the fact that the Grays (via their counsel) explicitly requested corrective action in two letters to CPF's counsel. The first letter demanded, "You now must take immediate action to withdraw CPF's Application and move to vacate the [California Judgment]." The second explicitly "reiterate[d] our demand that you take immediate corrective action."

As far as the precise corrective actions CPF could have taken, we can conceive of several possibilities. Most simply, CPF could have agreed not to oppose the Grays' motion to vacate under section 1710.40, effectively stipulating to vacation of the California Judgment. Alternatively, it could have filed a motion to vacate the California Judgment under section 473, which allows a party to seek relief from a judgment due to mistake, inadvertence, surprise, or excusable neglect. (See also Zamora v. Clayborn Contracting Group , Inc. (2002) 28 Cal.4th 249 , 255, 121 Cal.Rptr.2d 187 , 47 P.3d 1056 [" ' "a party in whose favor a judgment has been rendered is entitled to relief from the judgment as well as the party against whom it is rendered" ' "].) Or perhaps CPF could have moved to correct the clerical error in the California Judgment, insofar as it deviated from the order of the Arizona court. (See Aspen , supra , 235 Cal.App.3d at pp. 1204-1205, 286 Cal.Rptr. 921 .) Point being, this conduct "could [have] be[en] appropriately corrected," and thus application of the safe harbor waiting period would promote its underlying aim. (

As we read the Grays' argument, they contend their "substantial compliance" with the safe harbor waiting provision was enough. This position, however, is staunchly foreclosed by a body of case law interpreting section 128.7's safe harbor provision: " 'Application of the doctrine of substantial compliance would be inconsistent with the plain language of the "safe harbor" provision.' " ( Barnes , supra , 74 Cal.App.4th at pp. 135-136, 87 Cal.Rptr.2d 594 , quoting Cromwell v. Cummings (1998) 65 Cal.App.4th Supp. 10 , 15, 76 Cal.Rptr.2d 171 ( Cromwell ).) "Strict compliance with the statute's notice provisions serves its remedial purpose and underscores the seriousness of a motion for sanctions." ( Galleria Plus , Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535 , 538, 101 Cal.Rptr.3d 803 ( Galleria Plus ).) As one court aptly put it, " '[c]lose' is good enough in horseshoes and hand grenades, but not in the context of the sanctions statute." ( Hart v. Avetoom (2002) 95 Cal.App.4th 410 , 414, 115 Cal.Rptr.2d 511 .)

It should thus come as no surprise that "informal notice of an intent to seek sanctions in the future cannot serve as a substitute to the requirements set forth in section 128.7 for a formal noticed motion." ( Barnes , supra , 74 Cal.App.4th at p. 136, 87 Cal.Rptr.2d 594 ; see also Martorana , supra , 175 Cal.App.4th at p. 700, 96 Cal.Rptr.3d 172 ["A party does not comply with the notice provisions of section 128.7 simply by sending a letter of its intent to seek sanctions to the offending party"].) Rather, "[u]nder section 128.7, the papers to be served on the opposing party as notice of intent to file a section 128.7 sanctions motion must be the same papers that are ultimately filed with the court no less than 21 days later." ( In re Marriage of Falcone & Fyke (2008) 164 Cal.App.4th 814 , 827, 79 Cal.Rptr.3d 588 ; see also Galleria Plus , supra , 179 Cal.App.4th at p. 538, 101 Cal.Rptr.3d 803 ["Section 128.7's incorporation of section 1010 is compulsory, not permissive"].) That certainly did not happen here. And the letters do nothing to save the Grays from their noncompliance, given that "[c]orrespondence to opposing counsel which threatens sanctions of an unknown nature at an unspecified time against unidentified persons, and which lacks citation to controlling authority, does not fulfill these statutory purposes." ( Cromwell , supra , 65 Cal.App.4th Supp. at p. 15, 76 Cal.Rptr.2d 171 ; accord, Martorana , at p. 700, 96 Cal.Rptr.3d 172 .)

In sum, we are compelled to reverse in light of the Grays' failure to comply with the safe harbor provision applicable to a sanctions motion under

DISPOSITION

The order awarding sanctions is reversed. Appellants shall recover costs on appeal.

WE CONCUR:

BENKE, Acting P.J.

GUERRERO, J.