Blain v. Stone & Kelso LLC

ZACHARY BLAIN, CHARLES BLAIN, AND GLOW ZONE MINI GOLF LLC, Plaintiffs/Appellees, v. STONE & KELSO LLC, AN ARIZONA LIMITED LIABILITY COMPANY;AND MICHELE SCHMIDT, Defendants/Appellants.

No. 2 CA-CV 2019-0032

ARIZONA COURT OF APPEALS DIVISION TWO

April 30, 2020

THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

NOT FOR PUBLICATION

See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f).

Appeal from the Superior Court in Pima County

No. C20183769

The Honorable Charles V. Harrington, Judge

The Honorable Lee Ann Roads, Judge Pro Tempore

AFFIRMED

COUNSEL

Law Office of Thomas Jacobs, Tucson

By Thomas Jacobs

Counsel for Plaintiffs/Appellees

Burris & MacOmber P.L.L.C., Tucson

By D. Rob Burris and Jennifer J. Maldonado

Counsel for Defendants/Appellants

MEMORANDUM DECISION

Judge Brearcliffe authored the decision of the Court, in which Presiding Judge Staring and Chief Judge Vásquez concurred.

BREARCLIFFE, Judge:

¶1 Appellant Stone & Kelso LLC appeals from the trial court's denial of its Motion to Set Aside Entry of Default and Default Judgment. Stone & Kelso contends the court erred in failing to vacate the default judgment because it is void, the plaintiffs' misrepresentations and misconduct caused it to default, on the grounds of mistake, or on the grounds of "any other reason justifying relief." It further contends that the court erred in refusing to set aside entry of default "for good cause." We affirm.

Factual and Procedural Background

¶2 "We view the facts in the light most favorable to upholding the trial court's ruling on a motion to set aside a default judgment." Ezell v. Quon, 224 Ariz. 532, ¶ 2 (App. 2010). Stone & Kelso owns a commercial building in Tucson and rents out individual units within the building. In January 2018, Stone & Kelso leased a commercial unit to Zachary Blain, Charles Blain, and Glow Zone Mini Golf LLC (collectively "Glow Zone").

¶3 In July 2018, Glow Zone filed a complaint against Daniel Eftimoff, an individual, and Stone & Kelso for breach of contract, unjust enrichment, and fraud, seeking compensatory and punitive damages, attorney fees and costs. Glow Zone served Stone & Kelso's statutory agent with the summons and complaint on August 2, 2018. Amy Burns, a member of Stone & Kelso, ultimately received the summons and complaint but Stone & Kelso did not thereafter answer or file any response to the complaint and summons.

¶4 On August 28, Glow Zone filed an Application for Default and Notice [of] Default. A copy of the Application and Notice was mailed to Stone & Kelso's statutory agent in Tucson (at the address at which the summons and complaint were served), and to Stone & Kelso directly at a different address in Tucson. The Application and Notice stated that "This default will be effective against defaulted parties named above 10 days afterthe filing of this application unless said parties plead or otherwise defend prior to the expiration of said 10 days." Stone & Kelso failed to file an answer or otherwise defend against the complaint within the next ten days, and, on September 14, Glow Zone filed a Motion for Entry of Default Judgment against Stone & Kelso.

¶5 On September 26, Glow Zone filed a Petition for Temporary Restraining Order claiming Stone & Kelso's agents were harassing them. A hearing was scheduled for the same day. A copy of the petition, notice of hearing, and other related documents were served on Stone & Kelso's statutory agent before the hearing. At the hearing, the trial court noted that Stone & Kelso received service but did not appear. The court issued the temporary restraining order and scheduled a hearing for a preliminary injunction on October 10.

¶6 Burns and Eftimoff¹ attended the October hearing. The trial court advised them that, because Stone & Kelso is a limited-liability company, it must be represented in court by counsel licensed in Arizona. The court also informed them of the consequences of default and that the company was already in default. Burns asked the court if they should be seeking a continuance of the hearing, and the court informed her that such a request on behalf of the company would also need to be through an attorney. After taking evidence from Glow Zone, the court granted the preliminary injunction.

¶7 Thereafter, a hearing on the motion for entry of judgment by default was set for November 27, 2018. Stone & Kelso was not present at that hearing, nor had Stone & Kelso in the intervening weeks either filed an answer to the complaint or otherwise defended against the action, or even entered a formal appearance through counsel. At the default judgment hearing, the trial court asked Glow Zone if it had given Stone & Kelso three days' notice of the hearing, because Stone & Kelso attended the October hearing. Glow Zone told the court that Stone & Kelso had been defaulted, had not entered any appearance through counsel, and therefore was not entitled to notice. As discussed more fully below, Glow Zone representatives Charles and Zachary Blain testified. The court entered judgment by default, finding that Stone & Kelso was in breach of contract and had been unjustly enriched, awarding Glow Zone $11,172.56 incompensatory damages, $50,000 in punitive damages, and $10,328.42 in attorney fees and costs.

¶8 The following week, counsel for Stone & Kelso filed a notice of appearance, and thereafter a Motion to Set Aside Entry of Default and Default Judgment. Stone & Kelso requested relief from the entry of default under Rule 55(c), Ariz. R. Civ. P., and from the default judgment under Rule 60(b)(1) and (6), Ariz. R. Civ. P., asserting its failure to timely answer the complaint resulted from "mistake, inadvertence, surprise, or excusable neglect," or was otherwise justified by Glow Zone's conduct. It supported the motion with an affidavit of Burns, who stated she is "not a lawyer and [is] not trained in the law," and that she "did not understand that Stone & Kelso had been served," "did not know that Stone & Kelso had a statutory agent that could accept service on [its] behalf," or that the complaint "was something that needed to be responded to officially." Stone & Kelso further claimed it could assert a meritorious defense if permitted to do so. After Stone & Kelso obtained the transcript from the default judgment hearing, it supplemented its Motion to Set Aside arguing that the evidence presented at the hearing did not support either the compensatory or punitive damages awards. The trial court denied the motion and this appeal followed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(2).

Analysis

¶9 In a civil action, a defendant must file an answer within twenty days after service of the summons and complaint. Ariz. R. Civ. P. 12(a)(1)(A). If a defendant fails to do so, the plaintiff may file an application for entry of default. Ariz. R. Civ. P. 55(a)(1). The default becomes effective ten days thereafter, unless, in the meantime, the defendant answers the complaint. Ariz. R. Civ. P. 55(a)(4)-(5). Once effective, and default is entered, the entry of default may be set aside by the court for good cause. Ariz. R. Civ. P. 55(c).

¶10 After entry of default, a plaintiff may file a motion for default judgment. Ariz. R. Civ. P. 55(b). If the damages sought in the complaint are for a sum certain or for a sum that can be computed with certainty, the court may enter judgment on plaintiff's motion without a hearing. Ariz. R. Civ. P. 55(b)(1)(A). Otherwise, the plaintiff must apply to the court for a default judgment after hearing, and, if the defendant has appeared in the action, the plaintiff must serve the defendant with written notice of the application for judgment and hearing date at least three days before the hearing. Ariz. R. Civ. P. 55(b)(2)(C). At any such hearing, the defaulted defendant may contest the plaintiff's claim for damages, but not liability.

Tarr v. Superior, 142 Ariz. 349, 351 (1984). Once a default judgment has been entered, whether with or without a hearing, a party may seek to have the judgment set aside under Rule 60(b), Ariz. R. Civ. P.² Ariz. R. Civ. P. Rule 55(c).

¶11 "A party seeking to set aside a default judgment must show that it sought relief from the judgment promptly, that the failure to timely answer the complaint was excusable under [Rule 60(b)], and that it had a meritorious defense to the action." BYS Inc. v. Smoudi, 228 Ariz. 573, ¶ 14 (App. 2012). "The trial court has broad discretion in deciding whether to vacate a default judgment, and this court will not disturb the trial court's ruling absent a clear abuse of discretion." Id. "An abuse of discretion exists when the court commits an error of law in reaching a discretionary conclusion." Webb v. Omni Block, Inc., 216 Ariz. 349, ¶ 6 (App. 2007).

Rule 60(b)(1), Ariz. R. Civ. P.

¶12 Stone & Kelso argues the trial court abused its discretion in failing to vacate the default judgment under Rule 60(b)(1), Ariz. R. Civ. P., which allows a court to "relieve a party or its legal representative from a final judgment, order, or proceeding for . . . mistake, inadvertence, surprise, or excusable neglect." Stone & Kelso asserts that Burns made "two significant but innocent mistakes." The first, not understanding the importance of the complaint and summons, and the second, believing that an answer was not required because later contact with Glow Zone's counsel "involved a good faith effort on the part of [Glow Zone] to resolve the outstanding issues between them . . . so as to keep the matter out of court." Although Stone & Kelso argues that its conduct amounts to "mistake," it is rather asserting "excusable neglect."

¶13 "To establish that its failure to timely file an answer is excusable, a party seeking relief must demonstrate that its actions were those of a reasonably prudent person under the circumstances. '[M]ere carelessness is not a sufficient reason to set aside a default judgment.'" Searchtoppers.com, L.L.C. v. TrustCash...