Coyness is Nice. Just Not When Seeking a Default Judgment

Public Domain. Library of Congress

As Morrissey of the Smith’s sang: Coyness is nice, but Coyness can stop you, from saying all the things in life you’d like to.

It’s not uncommon in litigation to see a complaint asking for “damages according to proof.” Call it laziness. Call it hiding the ball. Call it coy, even. I call it risky.

And here’s why: If a defendant doesn’t appear and you need to seek a default judgment against him, her, or it, you are barred from doing so, since you are limited to recovering the amount you sought. And last I checked, something of nothing is nothing.

In Yu v. Liberty Surplus Insurance Corporation, California Court of Appeals for the Fourth District, Case No. G054522 (December 11, 2018), one plaintiff found this out the hard way, although perhaps not quite in the way they expected it.

Yu v. Liberty Surplus Insurance Corporation

In Yu, Bann-Shiang Liza Yu hired Automatic Teller Modules, Inc. (ATMI) to design and build a hotel. Not judging, but with a name like that, one might expect problems. And problems there were.

After the hotel opened, Yu filed a complaint against ATMI alleging various construction defects and seeking damages of “not less than $10 million dollars.” ATMI in turn filed a cross-complaint against various subcontractors on the project, including Fitch Construction and Fitch Plastering (collectively, “Fitch Entities”). ATMI’s cross-complaint sought “compensatory damages according to proof.”

While the case was pending Yu and ATMI settled. Pursuant to the settlement, ATMI assigned its cross-complaint to Yu who, stepping into the shoes of ATMI, obtained a default judgment against the Fitch Entities in the amount of $1.2 million. Yu then sued the insurance carriers of the Fitch Entities to collect on the default judgment, but the trial court voided the underlying default judgment finding that ATMI’s cross-complaint did not state an amount of damages.

Yu appealed.

The Court of Appeal Decision

On appeal, the 4th District Court of Appeal noted that:

Procedural due process requires that a defendant be given notice of the existence of a lawsuit and notice of the specific relief which is sought in the complaint served upon him. The law underlying this principal is simple: a defendant who has been served with a lawsuit has the right, in view of the relief which the complaint is seeking from him, to decide not to appear and defend. However, a defendant is not in a position to make such a decision if he or she has not been given full notice.

While there are exceptions to this rule, such as in cases involving personal injury or wrongful death, or when the a plaintiff is seeking punitive damages (in which case, no punitive damage amount may be stated), this rule is so generally accepted, explained the Court of Appeal, that it has been codified in numerous statutory provisions. Code of Civil Procedure Section 425.10 requires that complaints and cross-complaints state :the amount demanded.” Similarly, Code of Civil Procedure Section 580 states that “[t]he relief granted to the plaintiff, if there is no answer, cannot exceed the amount demanded in the complaint.” And, Code of Civil Procedure Section 585 provides that, in an action arising upon contract or judgment for the recovery of money or damages only, a default judgment is limited to “the principal amount demanded in the complaint.”

In response to Yu’s argument that the cross-complaint “incorporated by reference” the $10 million alleged in the complaint, the Court of Appeal disagreed. “The phrase ‘incorporation by reference’ is almost universally understood, by both lawyers and nonlawyers,” explained the Court, “to mean the inclusion, within body of a document, of text which, although physically separate from the document, becomes as much a part of the document as if it had been typed directly” (emphasis in original). And here, held the Court, ATMI’s cross-complaint did not clearly and unequivocally incorporate Yu’s complaint and, in fact, contradicted the complaint by stating that damages were “in an amount precisely unknown.”

Moreover, held the Court of Appeal, the fact that a final defect list and cost of repair report were allegedly served on the Fitch Entities also did not provide adequate notice since due process requires “formal notice” to a defendant of its potential liability, namely, compliance with the Code of Civil Procedure, not “actual notice.”

Conclusion

So, there you have it. If you’re going to sue, state the amount you are suing for. Don’t be coy about it.

And if you’re into 80’s shoegazing music, here’s Ask from the Smiths:

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