General Elec. Capital Corp. v. Osterkamp

• Decision Date: 21 January 1992
• Docket Number: No. 2,CA-CV,2
• Citation: 836 P.2d 398,172 Ariz. 185
• Parties: GENERAL ELECTRIC CAPITAL CORPORATION, Plaintiff/Appellant, v. Elizabeth OSTERKAMP, Defendant/Appellee. 91-0185.
• Court: Arizona Court of Appeals

Page 398

836 P.2d 398

172 Ariz. 185

GENERAL ELECTRIC CAPITAL CORPORATION, Plaintiff/Appellant, v. Elizabeth OSTERKAMP, Defendant/Appellee.

No. 2 CA-CV 91-0185.

Court of Appeals of Arizona,

Division 2, Department B.

Jan. 21, 1992.

As Amended on Denial of

Reconsideration March 5, 1992.

Review Denied Sept. 22, 1992. ^*

[172 Ariz. 186] Norling, Oeser & Williams by Steven H. Williams and Darrell E. Davis, Phoenix, for plaintiff/appellant.

Molloy, Jones & Donahue, P.C. by David J. Diamond, Tucson, for defendant/appellee.

OPINION

LACAGNINA, Judge.

In this appeal from orders setting aside default entered against Elizabeth Osterkamp and granting summary judgment in her favor, we must decide whether her counsel's misunderstanding of the effect of the 10-day grace period provided in Ariz.R.Civ.P. 55(a), 16 A.R.S., which resulted in his failure to file an answer within that period, is a sufficient reason for setting aside the default and the judgment under Ariz.R.Civ.P. 60(c)(1), 16 A.R.S. We hold that it is not and reverse.

FACTS AND PROCEDURAL HISTORY

On December 29, 1988, General Electric Capital Corporation filed a complaint against Nogales Hotel Properties Limited Partnership, doing business as Rio Rico Resort, for breach of a lease agreement between Nogales Hotel Properties and RCA Corporation, General Electric's predecessor in interest. On October 16, 1989, General Electric filed an amended complaint naming as defendants Horst and Elizabeth Osterkamp, husband and wife, in their capacity as general partners of Nogales Hotel Properties. ¹ On November 18, Elizabeth was personally served in California. On December 27, default was entered against Elizabeth, and in accordance with Rule 55(a)(2), it became effective if an answer was not filed by the end of the day on January 11, 1990.

On January 5, 1990, Hugh Knowlton, Elizabeth's California attorney, had a telephone conversation with Steven Williams, General Electric's attorney, from which Knowlton claims he understood that Williams had given Elizabeth until January 19 to retain Arizona counsel before he would file a motion for default judgment. Knowlton also claims that he understood from the conversation that Williams would accept either an answer being filed by that date, or an Arizona attorney representing Elizabeth contacting him by that date. In a letter to Elizabeth, Knowlton stated that Williams had told him "that he would not file the motion to enter defaults against [Elizabeth] until January 19, which should give you sufficient time to retain counsel. He also said that if he received confirmation from [Arizona counsel] prior to January 19 that such counsel has been retained by you in connection with the two cases, ² that would be sufficient reason for him to delay filing the motion for entry of defaults."

Williams stated in his affidavit that he spoke with Knowlton on January 5 and advised him that default had been entered against Elizabeth and that a motion for judgment by default would soon follow. Williams also stated that as a "professional courtesy" he would delay filing the motion for default judgment until January 19. He added, however, that he "did not agree to recognize as valid an answer by any defendant in plain recognition of the fact that defaults of all defendants had already been entered."

On January 5, Knowlton contacted a Tucson attorney (Arizona counsel), who later agreed to represent Elizabeth. On January 8, Arizona counsel received the summons and complaint and a copy of the application for entry of default, giving him three days in which to answer during the 10-day grace period. On January 11, the last day in which to answer, Arizona counsel and Williams had two or three telephone conversations. The first conversation was at about 3 p.m. Arizona counsel claims that during this conversation Williams confirmed that Elizabeth had an extension of time to file an answer until January 19 and extended the time to January 22. According to Arizona counsel, Williams stated that he was not sure whether default had been entered against Elizabeth. It is undisputed that during the second conversation Arizona counsel learned he no longer had whatever "extension" he believed Williams had granted.

Williams stated in his affidavit that at this point Arizona counsel told Williams that in his opinion, even if default had been entered against Elizabeth and even if the rule's 10-day grace period had run, his answer would still be valid if it was filed before Williams filed a motion to enter judgment by default. Arizona counsel has never disputed this fact in either of his affidavits. Williams also stated in his affidavit that he told Arizona counsel that under the rule a default is effective 10 days after the application for entry of default is filed and that once the grace period expires, a party must establish good cause, which includes a showing of both excusable neglect and a meritorious defense, before the default will be set aside. According to Williams, Arizona counsel believed this was a legal question, the subject of a motion to be filed with the court. Arizona counsel made this argument to the superior court in support of the motion to set aside default. In addition, Williams claimed that Arizona counsel requested and Williams agreed to delay the filing of any motion for judgment by default because Arizona counsel was leaving the state the next day and would not return until January 18. Williams made it clear, however, that under no circumstances would he stipulate to set aside the entry of default.

The last telephone conversation took place at approximately 4 p.m. on January 11 when Williams called Arizona counsel to confirm the date on which default was entered against Elizabeth. Arizona counsel admits in his affidavit that he knew at this point that default had been entered on December 27, making that day, January 11, the last day to file an answer within the 10-day grace period. In his affidavit, Williams stated that Arizona counsel then repeated his belief that any answer filed prior to a motion for judgment by default is valid. Williams claims that he again advised Arizona counsel that the rule states otherwise.

On January 12, Williams sent Arizona counsel a letter confirming his agreement not to file a motion for judgment by default until 12 days after Arizona counsel's return from his trip. In addition, Williams confirmed that he had told Arizona counsel that he "would not stipulate to setting aside the entry of default against any defendant and advised [him] that my position is that all defaults in these actions are effective and cannot be set aside unless good cause is shown in accordance with Rule 55(c)."

Arizona counsel stated in his affidavit that he had initially relied on the extension he thought Williams gave to Knowlton and did not file an answer on January 11. According to Arizona counsel, by the time Williams "changed his position," it was too late to prepare and file an answer on January 11. Arizona counsel also admitted that he knew January 11 was the last day to answer within the 10-day grace period. Arizona counsel concludes his affidavit by stating that "given the fact that Defendants believed they had until January 19 to file an Answer, it was not imprudent to utilize available time to undertake investigation and research before filing an Answer; and it was not imprudent to wait until January 19, 1990, to file the Answer."

On January 19, 1990, Arizona counsel filed an answer on behalf of Elizabeth. On January 29, he filed a motion to set aside entry of default. Admitting he knew January 11 was the last day to answer within the 10-day grace period, Arizona counsel argued:

Defendants also argue that, since their Answer was filed prior to any Motion for Default Judgment, no Judgment can be taken, and the Answer must be recognized as valid. Rule 55(b) states that a Judgment can be taken against a Defendant for "failure to appear." Here all Defendants have appeared. Thus, no Judgment can be entered and, inferentially, the Answer must be accepted as valid. Certainly, there is no rule authorizing Judgment to be taken where an Answer has been filed. Given the presumption in Arizona that defaults are not favored, this must mean that an Answer filed even after Entry of Default, but before Motion for Judgment, is valid. In any case, the rules certainly do not indicate to the contrary. Without clear authorization, no Judgment can be taken and the Answer filed must therefore be valid. [citation omitted].

The trial court granted Elizabeth's motion to set aside entry of default finding as follows: "Plaintiff assert[s] there was no agreement to extend time in which defendants could file answers in this case. Defendants argue they need only prove they had a reasonable belief that an extension existed." Elizabeth's later motion for summary judgment was also granted; the case was dismissed and she was awarded her attorneys' fees. General Electric appeals from that judgment. ³ , ⁴

STANDARD OF REVIEW

In general, the decision whether to set aside an entry of default is left to the sound discretion of the trial court and our review is limited to a finding of a clear abuse of that discretion. Richas v. Superior Court, 133 Ariz. 512, 652 P.2d 1035 (1982); State ex rel Corbin v. Marshall, 161 Ariz. 429, 778 P.2d 1325 (App.1989). If a court's decision is based upon "a determination of disputed questions of fact or credibility, a balancing of competing interests, pursuit of recognized judicial policy, or any other basis to which we should give deference," City of Phoenix v. Geyler, 144 Ariz. 323, 329, 697 P.2d 1073, 1079 (1985), we will not second-guess or substitute our judgment for that of the trial court. Id. However, where the facts are not disputed, and "there are few or no conflicting procedural, factual or equitable considerations, the resolution of the question is one of law or logic." Id., quoting State v. Chapple, 135...