Goodman Associates v. Wp Mountain Properts., 09SA144.

• Citation: 222 P.3d 310
• Decision Date: 11 January 2010
• Docket Number: No. 09SA144.,09SA144.
• Parties: In re GOODMAN ASSOCIATES, LLC, Plaintiff v. WP MOUNTAIN PROPERTIES, LLC, Defendant.
• Court: Supreme Court of Colorado

222 P.3d 310

In re GOODMAN ASSOCIATES, LLC, Plaintiff v. WP MOUNTAIN PROPERTIES, LLC, Defendant.

No. 09SA144.

Supreme Court of Colorado, En Banc.

January 11, 2010.

Martin, Lubitz & Hyman, LLC, Ira J. Bornstein, Denver, CO, for Plaintiff.

Foster Graham Milstein & Calisher LLP, Daniel K. Calisher, Stephen A. Fermelia, Julia R. Harvey, Denver, CO, for Defendant.

Chief Justice MULLARKEY delivered the Opinion of the Court.

I. Introduction

This case addresses whether a default judgment may be set aside when a defendant failed to respond to the complaint after service of process was hand delivered to an assistant of defendant's registered agent, but the registered agent failed to find the process papers in his in-box. After the trial court set aside its default judgment, the plaintiff, Goodman Associates, LLC ("Goodman"), filed this C.A.R. 21 petition seeking to reinstate the default judgment entered against the defendant, WP Mountain Properties, LLC ("WP").

We find that the trial court erred in setting aside the default judgment. Because service of process was adequate, the trial court had personal jurisdiction over WP, and the default judgment is not void under C.R.C.P. 60(b)(3). WP's neglect in failing to respond to the complaint was neither excusable nor a mistake and cannot justify setting aside the default judgment under C.R.C.P. 60(b)(1). No other provision of C.R.C.P. 60(b) permits the trial court to set aside the default judgment in this case. Accordingly, we direct the trial court to reinstate the default judgment in favor of Goodman.

II. Facts and Procedural History

Goodman's declaratory judgment and breach of contract action against WP arises out of a failed purchase and sale agreement between the parties. Under that agreement, Goodman was to purchase real property from WP along with a dwelling unit to be constructed on the property by WP. The underlying dispute concerned whether Goodman was entitled to a return of its earnest money deposit as a result of its inability to obtain financing as contemplated in the parties' financing contingency clause.

Within the time permitted for service, a process server for Goodman delivered a copy of the summons and complaint to the address that is both WP's principal office address and the address for Rick Hermes, who is the registered agent for WP, in addition to being WP's manager and one of its members. The summons and complaint were hand delivered to Melanie Stalzer, a WP employee. Goodman's return of service identified Stalzer as "Personal Assistant" for WP.

After service, WP did not appear or otherwise respond to the complaint within the time permitted. According to WP, the reason for its failure to act was that Stalzer placed the process papers in Hermes's in-box, which he did not regularly check; as a result, Hermes was not aware that WP had been served. WP asserts that Hermes learned of the lawsuit in January 2009, more than two months after service, when a title insurance company contacted him about the suit.

In an affidavit submitted to the trial court, Hermes described his office procedure and the circumstances surrounding the receipt of service. He first asserted that Stalzer "is not my secretary, bookkeeper, or managing agent. Rather, she is an assistant to [WP] generally, providing services for me in that capacity as well as for three other persons to whom she reports directly." He further stated, "I do not consider Ms. Stalzer to be my primary assistant. As concerns work she may do for me, Ms. Stalzer is generally involved in scheduling appointments and filing. I do not expect Ms. Stalzer to be aware of the day-to-day details of my work for WP."

Hermes described the controller of WP as the functional equivalent of his administrative assistant with respect to his mail. He stated that urgent documents were to be given to him personally or left on the seat of his chair rather than placed in his in-box. Hermes acknowledged that he did not regularly check his in-box on account of the volume of paper in it (over one foot in height) related to the thirty-seven companies he managed. Hermes described his workload as particularly busy in the last fiscal quarter of 2008 due to the collapse of the financial market. Finally, Hermes asserted that, with respect to service of process, he was accustomed to in-person delivery by a process server.

After the time for answering passed, Goodman moved for default judgment, and default judgment was entered. Goodman subsequently recorded a transcript of judgment in Grand and Eagle Counties. After the transcript was recorded and, according to WP, before it was aware of the lawsuit, WP sold property in Grand County that was subject to the judgment lien without first paying the judgment. Thereafter, Goodman filed a complaint for foreclosure against the purchaser of the Grand County property for the amount of the judgment lien. Four months after default judgment was entered, more than two months after it allegedly learned of the default judgment, and six weeks after the complaint for foreclosure was filed, WP simultaneously filed a motion to set aside the default judgment pursuant to C.R.C.P. 60(b) and a motion to stay proceedings in the foreclosure action.

In its motion to set aside the default judgment, WP asserted that Goodman did not properly serve WP pursuant to C.R.C.P. 4 when it served Stalzer because she was not a registered agent, manager, or member of WP and had no legal background or training. WP argued that the invalid service deprived the trial court of personal jurisdiction over WP, and therefore, the default judgment was void and should be set aside under C.R.C.P. 60(b)(3). WP alternatively argued that the other circumstances listed in C.R.C.P. 60(b) also existed and warranted vacating the judgment. Although WP did not expressly reference C.R.C.P. 60(b)(1) until it filed its reply in support of the motion, WP did initially argue that it had a meritorious defense, a necessary consideration under that subsection. As a defense, WP asserted that it did not owe Goodman the earnest money because Goodman failed to take reasonable steps to acquire financing and that it had its own claim for breach of contract based on that failure.

The trial court granted WP's motion, stating: "Upon review of the circumstances and for the reasons set forth in the Motion, the Court concludes that justice requires that this matter proceed to resolution on the merits. Therefore, the Court deems it appropriate to grant [WP]'s Motion." After receiving notice of the order setting aside judgment, the trial court in Grand County dismissed without prejudice Goodman's claims in the foreclosure action.

This petition by Goodman ensued, alleging that the trial court abused its discretion in granting WP's motion. In its reply in support of the petition, Goodman also requested that it be awarded the attorneys' fees and costs it incurred in filing this petition and responding to the motion below.

III. Jurisdiction and Standard of Review

A. Jurisdiction

We decided to exercise our original jurisdiction under C.A.R. 21 to review this case because no other adequate remedy is available. As we have previously held, "an appeal following a trial on the merits would not be an adequate remedy for a judgment lienor whose priority might be destroyed by the sale of the encumbered property by a judgment creditor whose rights attached subsequent to the default judgment." Weaver Constr. Co. v. Dist. Ct., 190 Colo. 227, 230, 545 P.2d 1042, 1044 (1976). This case is time sensitive and requiring it to proceed through trial before filing an appeal may endanger Goodman's ability to recover on its judgment lien.

B. Standard of Review

With the exception of C.R.C.P. 60(b)(3), the decision to grant relief under C.R.C.P. 60(b) is generally within the trial court's discretion and is reviewed for abuse of discretion. First Nat'l Bank of Telluride v. Fleisher, 2 P.3d 706, 713 (Colo.2000). Abuse of discretion exists where a decision is manifestly arbitrary, unreasonable, or unfair. Colo. Nat'l Bank v. Friedman, 846 P.2d 159, 167 (Colo.1993). However, we review de novo a trial court's decision to grant relief from a judgment pursuant to C.R.C.P. 60(b)(3) on the basis that it is void, e.g., for lack of personal jurisdiction over the defendant due to improper service of process. First Nat'l Bank, 2 P.3d at 713-14; see also In re Marriage of Stroud, 631 P.2d 168, 170 n. 5 (Colo.1981) ("[W]here the motion alleges that the judgment attacked is void, C.R.C.P. 60(b)(3), the trial court has no discretion. The judgment either is void or it isn't and relief must be afforded accordingly.").

IV. Analysis

"For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b)." C.R.C.P. 55(c). Here, a judgment by default had been entered. Pursuant to C.R.C.P 60(b), a court may relieve a party from a final judgment for the following reasons:

(1) Mistake, inadvertence, surprise, or excusable neglect;

(2) Fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;

(3) The judgment is void;

(4) The judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or

(5) Any other reason justifying relief from the operation of the judgment.

C.R.C.P. 60(b).

The issues before us are (1) whether Goodman's service of process was invalid and deprived the trial court of jurisdiction to enter a default judgment; and (2) if service was valid, whether WP's failure to answer or otherwise respond to the complaint constituted mistake, inadvertence, surprise, or excusable neglect. These questions implicate subsections (1) and (3) of C.R.C.P. 60(b).

Although Goodman contends that...