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December 16, 2015

Message from the Managing Principal

firm_thomas_prenovostAs we end this year, and begin the New Year, I want to take this opportunity to thank you for allowing our law firm to be your legal counsel.

We are redoubling our efforts to provide you with outstanding legal representation in 2016.

We are optimistic that 2016 will be a better year as our country continues to heal from the economic and social issues it faced in 2015 and the recent past, and takes on the challenges that face our great nation.

Let me end by wishing you and yours love, gratitude, friends to cherish, caring, sharing, lots of laughter, music, positive people in your life, prosperity, and good health in 2016.

Happy Holidays and All the Best!

Thomas J. Prenovost Jr., Esq.
Managing Principal
TPrenovost@pnbd.com

Legal Developments/Updates

The Importance of Damage Allegations when Defendant is in Default

Charles-HeintzA defendant who is in default in a lawsuit cannot participate in an action until either (a) the default is set aside (by motion or stipulation), or (b) default judgment is entered (whereupon the defendant can file an appeal). Stipulating to set aside the default may be more cost-effective than a motion for the same relief, but limited bargaining power can result in a stipulation which imposes unfavorable conditions upon the defendant (i.e., inability to attack pleadings, discovery limitations). In evaluating the responsive strategy, you should consider the Complaint’s damage allegations, the improper pleading of which can improve the defendant’s bargaining position. Under California law, the relief granted to a plaintiff, if there is no answer, cannot exceed the amount demanded in the Complaint, in the statement required for personal injury or death actions, or in the statement provided for punitive damages actions. Code Civ. Proc. § 580(a). Where the damage allegations in the body of the Complaint exceed the amount demanded in the prayer, the prayer controls. In such circumstances, a default judgment in excess of the prayer is void as to the excess. Importantly, a vague prayer for “damages according to proof” is legally sufficient only if a specific amount of damages is alleged in the body of the complaint. Thus, a default judgment which awards monetary relief where no specific monetary relief was demanded is void as being in excess of the court’s jurisdiction. When judgment is reversed because the damages awarded exceed those pled, the court typically modifies the judgment by reducing it to the amount specified in the Complaint. Alternatively, the plaintiff can amend the Complaint to state the full amount of damages, but the amendment vacates the default, and entitles the formerly-defaulted defendant to either attack the pleadings or answer the amended complaint. Consequently, a complaint which does not allege a specific amount of damages will have to be amended prior to entry of judgment if the plaintiff hopes to recover anything, and therein lies the opportunity to actually leverage the default. Therefore, it is imperative that counsel specifically allege the amount of damages sought to secure a default judgment for the alleged amount. Conversely, if you are a defendant and the Complaint is deficient pleaded, the Plaintiff may not have a valid judgment. Poorly pleaded damage allegations can render a default functionally worthless, and can be used against the plaintiff to avoid law and motion, negotiate better stipulation terms, or perhaps even settle the case. Charles M. Heintz, Esq. Associate Attorney cheintz@pnbd.com

Bankruptcy Law Update: Chapter '20' Debtors May Permanently Avoid Liens After New 9th Circuit Decision

firm_karel_rochaThe United States Court of Appeal for the 9th Circuit (which controls all bankruptcy cases filed in California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington) issued an important decision on October 1, 2015 pertaining to the permanent avoidance of liens in so-called "Chapter 20" bankruptcy cases (these are generally defined as Chapter 7 discharged cases which are almost immediately followed by a Chapter 13 case). Specifically, the 9th Circuit ruled that a Chapter 20 debtor may permanently avoid a mortgage deed of trust securing a disallowed claim even though the debtor is not eligible for a Chapter 13 discharge. (In re Blendheim 2015, 803 F.3d 477.) In the Blendheim case, a first priority lienholder (HSBC) filed a proof of claim in a Chapter 13 case that immediately followed the debtors' Chapter 7 discharge. The debtor objected to the proof of claim and the HSBC claim was ultimately disallowed. The bankruptcy court subsequently denied HSBC's motion to set aside the order disallowing HSBC's claim. Following this, the debtors promptly moved to strip/avoid the lien pursuant to Bankruptcy Code Section 506(d) and the Court approved a Chapter 13 Plan that would result in the mortgage lien being avoided at its conclusion even though the debtors were not eligible for a bankruptcy discharge. HSBC ultimately appealed to the 9th Circuit. The 9th Circuit first found that it could not consider the merits of the bankruptcy court's decision to disallow HSBC's claim because HSBC did not timely appeal the orders disallowing the claim and denying the bank's request for reconsideration. Therefore, Section 506(d) provided that the bank did not have a secured claim in bankruptcy. The 9th Circuit agreed that a bankruptcy discharge is not necessary to permanently avoid a lien. The appellate court noted that because a bankruptcy discharge, by definition, affects only a debtor's personal liability, it has never served as the historical means for ensuring that the Bankruptcy Code's various mechanisms for modifying or voiding a creditor's in rem (property) rights remained in place at the conclusion of a plan. The court added that allowing the debtors to avoid the lien did not conflict with the intent of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) to prevent abusive serial bankruptcy filings. Therefore, so long as a Chapter 20 debtor can show their Chapter 13 Plan was filed in good faith (intent to reorganize) the fact that the debtor is not eligible for a discharge will not affect the debtor's ability to avoid a mortgage lien. Karel Rocha, Esq. Principal krocha@pnbd.com

PRACTICE POINTER: Motions for Reconsideration

lauren_doddsCalifornia law provides several procedural mechanisms for obtaining a second "bite at the apple" (writs, appeals). However, none may be so efficient as the Motion for Reconsideration. If you have been working with your attorney for months on a motion, developing your facts, collecting every piece of documentary evidence and listening to your counsel discuss the finer points of the applicable law, it can be a little depressing to find out your motion/application was denied by little more than a two paragraph ruling. Enter California Code of Civil Procedure, section 1008. Under Section 1008, whenever an application/motion is made and it has been refused in whole or in part, granted or granted conditionally, any party affected by the order may, within ten days after service of notice of entry of that order, make an application to the same judge or court to reconsider the matter and modify, amend or revoke the prior order. (This procedure is not applicable to entered judgments.) However, a motion for reconsideration must be based on “new or different facts, circumstances or law.” This rule is very strictly construed, and you may not just ask the Court to review the same facts or ones that you simply failed to add to your motion previously. In other words, a court acts in excess of its jurisdiction when it grants a motion to reconsider that is not based on new or different facts, circumstances, or law. If you and your counsel agree that a motion or application was improperly denied, it is worth it to work quickly to determine if new facts or circumstances can be discovered, or a new law (which applies retroactively) has been passed, which can get you and your carefully prepared papers back in front of the judge. Further, even if your motion for reconsideration has been denied, you can renew that same motion by showing new or different facts, circumstances or law and such a renewed motion can be made after the 10-day limit. A motion for reconsideration isn’t a loophole and it has a high bar. But if new facts are discovered, or the Court’s ruling indicates that it was heavily influenced by a lack of certain facts, it’s definitely something to consider before that 10 day window runs out. Lauren M. Dodds, Esq. Associate Attorney ldodds@pnbd.com

News & Announcements

Cal_Dom._horz_logoWe are pleased to announce that Thomas J. Prenovost, Jr. has been appointed to the Board of Directors for the California Domestic Water Company (“CDWC”) by the City Council for the City of Brea. The CDWC was incorporated in 1902 as a mutual benfit coporation that sells water only to its stockholders as a not-for-profit company. The cities of Brea, La Habra, La Mirada and Whittier are direct and indirect shareholders in this corporation and as such, have the right to purchase water for its citizens from the CDWC. Mr. Prenovost will be serving a two-year term and provide oversight, direction and leadership in this unique public/private organization.