The Berkeley Center for Consumer Law and Economic Justice welcomes the California Supreme Court's unanimous decision in California Capitol Insurance Co. v. Hoehn, which will make it easier for consumers to set aside judgments that should never have been entered in the first place.
We especially appreciate the shout-out from the Court for the amicus brief that the we filed along with co-counsel OneJustice and Bay Area Legal Aid. (Slip op. at p. 8.) (More about that below.)
All too often in debt collection cases, consumers learn about cases against them only once their wages or bank accounts have been seized. The consumers never got notice of the case because they were never properly served with the summons and complaint. In these circumstances – when the judgment is void because the defendant was never served – for a court to impose a two-year time limit to seek to set aside the judgment would be Kafkaesque. How can a person be required to “set aside” a legal nullity? Yet that is precisely what a decades-old line of cases in the California courts of appeal has been requiring for decades.
And it is that line of cases, and that illogic, that the California Supreme Court has now overturned.
In California Capitol Insurance Co. v. Hoehn, the Court disapproved a series of appellate decisions that had borrowed a two-year time limit from a different statute and applied it to a motion to set aside a void judgment. (See a summary of the case here.) In concluding that neither the text of the relevant statute nor common sense could support the court of appeal’s rule, the Court pointed to our amicus brief to elucidate the “real-world difficulties” and impact of this judge-made procedural rule. That rule made it nearly impossible for defendants in consumer debt collection cases “attempting to obtain relief from unjust default judgments” to succeed, especially since “such judgments may be all too common” in the assembly line of debt collection litigation. (Slip op. at pp. 8-10.)
Yesterday’s decision is a landmark. It could affect a significant number of debt collection cases, which make up nearly a third of all cases in California’s civil courts. The vast majority of those cases result in default judgments against consumers who often were never properly apprised of the case. As the Supreme Court observed, based on research adduced in the Center’s brief:
That high default rate is likely attributable in part to inadequate and even fraudulent service. The filing of false affidavits to conceal a lack of lawful service has reportedly become a common practice among debt collectors and has been given its own name — "sewer service" — so denominated because the server throws the documents "down the sewer" and then falsifies its affidavit of service.
Only years later, when the consumer is subject to bank account levies or wage garnishments to execute on the default judgment –– and after the value of the judgment has spiraled far beyond the initial amount of the debt because of interest and fees –– does the consumer find out about the default judgment in their name. Yet despite the fact that the text of Code of Civil Procedure section 473(d) contains no time limit, courts in California have refused to allow the basic procedural recourse for consumers in this situation –– a motion to vacate –– unless the motion is brought within two years of the entry of default judgment.
No longer. The decision by the California Supreme Court reaffirms the fundamental due process right of all defendants, including consumers in debt collection litigation, to challenge judgments against them when they had no legal notice of the claims. As the Court recognized, “the right of civil defendants to proper service is essential to their basic due process right to notice and to their ability to defend against liability claims that may lead to unwarranted financial hardship.” (Slip op. at p. 23.) The judge-made two-year time limit is simply incompatible with that principle. The Court examined the text, statutory history, and various policy justifications for the two-year rule, but found that none overrode the plain text of the statute and animating due process tenets at play.
Justice Martin Jenkins’ unanimous opinion relies on the amicus brief that the Center, OneJustice, and Bay Area Legal Aid filed on behalf of a baker’s dozen of nonprofit organizations that represent and advocate on behalf of low and moderate-income California consumers facing debt collection lawsuits: Community Legal Aid of Southern California, East Bay Community Law Center, Impact Fund, Legal Aid Association of California, Legal Assistance for Seniors, Los Angeles Center for Law & Justice, Mental Health Advocacy Services, Neighborhood Legal Services, Public Counsel, and Western Center on Law & Poverty. The opinion drew on studies provided in the brief to describe the real-world problem of fraudulent service in debt collection cases and the practical challenges that unserved defendants in such cases have faced in challenging defaults. (See slip op. at pp. 22-23.) The Court also cited authorities provided in the brief to show how the arbitrary two-year time limit is based on a longstanding misreading of the law and is an outlier among other state courts and the federal court system. (See slip op. at p. 23, fn. 10.)
What does this case mean? It means that the California Supreme Court has put an end to four decades of unjustified concessions to the convenience of debt collectors. It means that consumers can stop wondering, "If I never knew about the judgment against me because I wasn’t properly served, how can there be a time limit on challenging it?" It means that fundamental rights to due process are available to more people today than they were yesterday. In other words, it means a lot.
The Center congratulates Cory Hoehn and his counsel Denyse F. Clancy at Kazan, McClain, Satterley & Greenwood for this important victory.