Friday, May 7, 2010

Fourth District Upholds Order Vacating $4M Class Default Judgment in Gutierrez v. G&M Oil Company, Inc.

On May 7, 2010, the Fourth District, Division 3, issued an interesting opinion in Gutierrez v. G&M Oil Company, Inc., __ Cal.App.4th __ (2010), holding that an in-house counsel’s act of concealing a wage class action from the board of the company was not, by virtue of his position, attributable to the company for purposes of Cal. Code Civ. Proc. § 473.

The case concerned an appeal of a trial court order setting aside a $4M class-wide default judgment that occurred when the in-house counsel decided to try his hand at some class litigation. After secretly accepting service of the complaint, and attending a couple of CMC hearings, the attorney apparently decided to call it a day, hiding the existence of the suit from his employer. [Is it just me, or are the facts of this case starting to parallel that episode of Leave It To Beaver entitled “The Haircut” (see “plot”)]. Subsequent to learning of the lawsuit, and the resulting $4M default judgment, the employer hired outside counsel, who thereafter had the judgment set aside under Section 473.

On appeal, the Court rejected plaintiff counsel’s argument that Section 473 was not available because the in-house counsel’s misconduct was attributable to the company, as a matter of law, by virtue of the in-house counsel relationship. Slip Opinion, at 8. Relying on the California Supreme Court’s decisions in General Dynamics Corp. v. Superior Court, 7 Cal.4th 1164 (1994) and PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084 (2000), the Court reasoned that the in-house counsel was acting in his capacity of counsel, and as such, was an “independent third party” for purposes of Section 473. Slip Opinion, at 8-11.

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