Arbogast Family Trust v. River Crossings

• Citation: 191 P.3d 39,2008 UT App 277
• Decision Date: 17 July 2008
• Docket Number: No. 20070395-CA.,20070395-CA.
• Parties: ARBOGAST FAMILY TRUST, by and through Rodney J. ARBOGAST as Trustee, Plaintiff and Appellee, v. RIVER CROSSINGS, LLC, a Nevada limited liability company, Defendant and Appellant.
• Court: Court of Appeals of Utah

191 P.3d 39

2008 UT App 277

ARBOGAST FAMILY TRUST, by and through Rodney J. ARBOGAST as Trustee, Plaintiff and Appellee, v. RIVER CROSSINGS, LLC, a Nevada limited liability company, Defendant and Appellant.

No. 20070395-CA.

Court of Appeals of Utah.

July 17, 2008.

Scott M. Lilja and Nicole M. Deforge, Salt Lake City, for Appellant.

Chad J. Utley and Tyler T. Todd, St. George, for Appellee.

Before GREENWOOD, P.J., McHUGH and ORME, JJ.

OPINION

McHUGH, Judge:

¶ 1 River Crossings, LLC (River Crossings) appeals the trial court's denial of its rule 60(b) motion to set aside a default judgment. See Utah R. Civ. P. 60(b). We affirm.

BACKGROUND

¶ 2 Arbogast Family Trust (Arbogast) provided River Crossings a $2,450,000 loan. The loan was to be repaid with interest by September 16, 2005. If repayment was more than five days late, the loan agreement provided for "[a] late payment penalty of [s]ix percent." River Crossings repaid the loan in full on October 7, 2005. Because the loan was not repaid within five days of September 16, 2005, Arbogast claimed it was entitled to a late payment penalty of over $148,000, plus interest. River Crossings stated that it was granted an extension of time to repay the loan and therefore contested that it owed any additional amount. Because of the dispute between the parties, River Crossings directed that approximately $178,000 be held in escrow until the dispute was resolved. These funds were eventually deposited with the trial court.

¶ 3 On January 10, 2006, Arbogast filed a complaint for declaratory judgment, seeking to obtain the funds held in escrow. Because River Crossings had previously informed Arbogast that it was represented by counsel and because of difficulties serving River Crossings directly, the trial court granted Arbogast's motion for alternate service. Accordingly, Arbogast served River Crossings' Nevada legal counsel, Black, LoBello & Sparks (BLS), with the complaint.¹ Counsel for Arbogast granted BLS at least two extensions to make a settlement offer, to seek Utah counsel, or both. According to River Crossings, counsel for Arbogast then told BLS in June 2006 that he would not seek default without first notifying it.

¶ 4 On June 28, 2006, BLS communicated a settlement offer to Arbogast's counsel. The next day, counsel for Arbogast sent a letter to BLS rejecting the offer. The letter also stated as follows:

My client has previously granted your client an extension of time within which to answer the complaint. However, given the present state of the case, I am, on behalf of my client, hereby requesting that your client file an Answer to the complaint within twenty (20) days of the date of this letter.

¶ 5 On June 30, the BLS attorney primarily responsible for the River Crossings matter was terminated. However, the June 29 letter was addressed to two other members of the firm who had taken responsibility for the case. On July 25, River Crossings' managing member sent an e-mail to Arbogast's principal. Although the e-mail requested that Arbogast's principal call River Crossings' managing member in order to "discuss the direction of [the] lawsuit," no further communication occurred. Six days later — approximately four months after service of the complaint and more than thirty days after the June 29 letter requesting an answer — Arbogast obtained a certificate of default from the court clerk. Arbogast did not provide River Crossings a copy of this certificate or its subsequent request for default judgment. On August 10, the trial judge entered a default judgment. Notice of the judgment was sent to River Crossings on August 15.

¶ 6 River Crossings filed a rule 60 motion to set aside the default judgment on September 26, 2006, and arguments were held February 21, 2007.² During arguments, River Crossings' Utah legal counsel acknowledged that "this is a close case." Counsel also conceded that a formal appearance had not been entered and that "[Arbogast] didn't need to give notice [of the default motions] under Rule 5(2)(a)." In fact, counsel declared that he was "not claiming that because an appearance was made notice should have been given." The trial court determined "that [River Crossings'] actions and inactions in this matter d[id] not rise to the level of excusable neglect, inadvertence, surprise or mistake." The trial court also found that although BLS did not formally appear in the action, "counsel's notification and communications with [Arbogast]'s counsel constitute an appearance and there was adequate notice . . . given to [River Crossings], pursuant to the June 29, 2006 letter." Accordingly, the court denied River Crossings' motion. River Crossings appeals.

ISSUES AND STANDARDS OF REVIEW

¶ 7 River Crossings presents three arguments on appeal. First, River Crossings argues that the default judgment should have been set aside because Arbogast failed to provide the notice required by rule 5(a) of the Utah Rules of Civil Procedure. "[T]he interpretation of a rule of procedure is a question of law that we review for correctness." Brown v. Glover, 2000 UT 89, ¶ 15, 16 P.3d 540.

¶ 8 Second, River Crossings argues that "the district court abuse[d] its limited discretion in refusing to set aside the default judgment." "[A] trial court has broad discretion in deciding whether to set aside a default judgment." Lund v. Brown, 2000 UT 75, ¶ 9, 11 P.3d 277. However, "the court's discretion is not unlimited." Id.

¶ 9 Third, River Crossings argues that the trial court's "refus[al] to set aside the default judgment [was] based on faulty findings of fact." This court will reverse a trial court's factual findings only if the marshaled evidence demonstrates that they are clearly erroneous. See Bingham Consolidation Co. v. Groesbeck, 2004 UT App 434, ¶ 14, 105 P.3d 365.

ANALYSIS

I. Rule 5(a)

¶ 10 Because of River Crossings' statements before the trial court and Arbogast's arguments on appeal, we begin by addressing whether River Crossings' rule 5 arguments were preserved.³ "`[A]s a general rule, claims not raised before the trial court may not be raised on appeal.'" Tschaggeny v. Milbank Ins. Co., 2007 UT 37 ¶ 20, 163 P.3d 615 (alteration in original) (quoting State v. Cram, 2002 UT 37, ¶ 9, 46 P.3d 230).

Two policy considerations underlie th[is] preservation rule. First, the rule exists to give the trial court an opportunity to address the claimed error, and if appropriate, correct it. Second, requiring preservation of an issue prevents a party from avoiding the issue at trial for strategic reasons only to raise the issue on appeal if the strategy fails.

Id. (citations and internal quotation marks omitted).

¶ 11 In this case, River Crossings' trial counsel did very little to raise the rule 5 issue before the trial court⁴ and actually made statements during oral arguments that conflict with its position on appeal. Nevertheless, the trial court specifically considered this issue and expressly found

[t]hat pursuant to [the Utah Rules of Civil Procedure] Rule 5(a)(2), [River Crossings'] counsel has not formally appeared in the instant action. Nevertheless, [River Crossings'] counsel's notification and communications with [Arbogast]'s counsel constitute an appearance and there was adequate notice [ ] given to [River Crossings], pursuant to the June 29, 2006 letter, that an answer was required to be filed in response to [Arbogast]'s complaint.

The trial court's findings do not simply mirror River Crossings' concessions but instead demonstrate a deeper analysis, which expressly addresses the application of rule 5. River Crossings does not challenge the trial court's finding that an appearance was entered, but rather the court's legal interpretation of rule 5 as stated in its ruling. Neither of the two policy considerations for the preservation requirement prevent our review where the trial court has actually ruled on the issue, and River Crossings' arguments do not suggest a strategic decision to postpone review. We therefore hold that, under the facts of this case, this issue is sufficiently preserved for appellate review.⁵ Cf. Pratt v. Nelson, 2007 UT 41, ¶ 24, 164 P.3d 366 (determining issue was preserved where trial court received some notice of the issue and "made a specific ruling on the issue" even though petitioner did not address it in a timely manner).

¶ 12 Having determined that this issue is properly before us, we turn now to its merits. Rule 5(a) declares that "every judgment, every order . . ., every pleading . . ., every paper . . ., every written motion . . ., and every written notice, appearance, demand, offer of judgment, and similar paper shall be served upon each of the parties." Utah R. Civ. P. 5(a)(1). The rule "expresses the general principle that notice of all proceedings[, including default proceedings,] must be provided to all parties." Lund, 2000 UT 75, ¶¶ 20-27, 11 P.3d 277. However, "[n]o service need be made on parties in default . . . for failure to appear." Utah R. Civ. P. 5(a)(2).

¶ 13 River Crossings argues that the trial court correctly determined that it had entered an appearance, but erred when it ruled that "adequate notice was given to [River Crossings] pursuant to the June 29, 2006 letter." Because we agree with Arbogast's argument that the trial court erred when it determined that River Crossings had entered an appearance, we need not address River Crossings' contention regarding the sufficiency of notice.

¶ 14 Two cases from the Utah Supreme Court have interpreted rule 5 and addressed what constitutes an appearance. In Central Bank & Trust Co. v. Jensen, 656 P.2d 1009 (Utah 1982), defense counsel contacted the plaintiff's counsel after the complaint was filed, advised counsel that he was representing the defendants, and discussed the complaint. See id. at 1010. The next day, defense counsel wrote a letter "requesting copies of the pleadings and all other documents." Id. The plaintiff's counsel "answered the letter,...