Gookin v. State Farm Fire and Cas. Ins. Co.

• Decision Date: 03 February 1992
• Docket Number: No. 91-130,91-130
• Parties: Warren L. GOOKIN and Marjorie E. Gookin, for themselves and All Other Similarly Situated State Farm Fire and Casualty Policyholders, Appellants (Plaintiffs), v. STATE FARM FIRE AND CASUALTY INSURANCE COMPANY, Appellee (Defendant).
• Court: Wyoming Supreme Court

Page 229

826 P.2d 229

Warren L. GOOKIN and Marjorie E. Gookin, for themselves and All Other Similarly Situated State Farm Fire and Casualty Policyholders, Appellants (Plaintiffs), v. STATE FARM FIRE AND CASUALTY INSURANCE COMPANY, Appellee (Defendant).

No. 91-130.

Supreme Court of Wyoming.

Feb. 3, 1992.

Jack Gage and Robert T. Moxley of Gage and Moxley, Cheyenne, for appellants.

George E. Powers, Jr. of Godfrey & Sundahl, Cheyenne, for appellee.

Before THOMAS, CARDINE, and MACY, JJ., BROWN, Ret. J., and LANGDON, District Judge.

LANGDON, District Judge.

This action came before the court to determine if appellants pleaded a cause of action for consumer fraud and undisclosed substitution of inferior product sufficiently to withstand a motion to dismiss; however, the bulwark issue is whether the appellants' substituted service of process under Wyo.Stat. § 26-3-122 (1983) was sufficient to provide jurisdiction for this action. We shall reverse, holding that the district court lacked jurisdiction due to ineffective service of process and failure to comply with due process.

I. FACTS

On August 1, 1985, an intense hail and rain storm struck the City of Cheyenne, Wyoming. The storm, four tornadoes it spawned and the effects of the unusually large accumulations of water and hail produced heavy damage to many residences. State Farm Fire and Casualty Insurance Company (State Farm), an Illinois corporation, provided insurance coverage to a number of homeowners who suffered damage including Warren and Marjorie Gookin (Gookins).

Exactly four years later, on August 1, 1989, appellants filed a complaint in the First Judicial District Court instituting a class action proceeding under W.R.C.P. 23. ¹ The Gookins were the named representatives of the class. ² The complaint alleged State Farm acted in bad faith and failed to properly investigate claims resulting from the storm. At the same time, appellants' filed a jury demand and a motion to disqualify the district court judge. The complaint and a summons issued on August 1, 1989 were never served. Instead, appellants prepared an amended complaint which was filed and served on September 29, 1989.

The amended complaint contained three counts: bad faith failure to investigate claims; promissory estoppel; and consumer fraud and undisclosed substitution of an inferior product. The amended complaint and an alias summons issued on September 29, 1989 were delivered along with the jury demand and the disqualification motion from the August 1, 1989 filing. Also included was a motion to certify a class, interrogatories and document production requests. The package was delivered en masse on September 29, 1989 to the Wyoming State Insurance Commissioner as substituted service under Wyo.Stat. § 26-3-122.

State Farm moved to quash service on October 19, 1989 contending that appellants failed to effect proper service under the statute. State Farm argued the statute required an additional notice and a copy of process be sent by registered mail to the company within ten days of the substituted service. Additionally, State Farm said appellants must file an affidavit to show compliance with the notice provision.

The next day, appellants responded with a document styled as a "Notice of Service." This document asserted that service of process had been completed "by receipt of a return receipt by the Wyoming State Insurance Commissioner on October 12, 1989." Appellants filed additional documents on October 23, 1989, including an affidavit and a notice to State Farm that the affidavit required by Wyo.Stat. § 26-3-122(d)(iii) had been filed. This affidavit, by one of appellants' attorneys, stated the attorney was advised that the Wyoming State Insurance Commissioner mailed service of process to State Farm, and the Wyoming State Insurance Commissioner received a return receipt on October 12, 1989. On November 27, 1989, appellants filed a United States Postal Service Express Mail label addressed to State Farm in Bloomington, Illinois. Appellants' stated notice of service and "copies of pleadings" were mailed to State Farm on October 20, 1989 and received on October 23, 1989.

A hearing was held on the motion to quash service on December 19, 1989. The hearing was not recorded. After supplemental briefing, the motion to quash service was denied without elaboration in a decision letter by the district court.

After the motion to quash was denied, State Farm filed an answer to the action which again stated that service of process had been improper and no personal jurisdiction had been obtained. After resisting discovery attempts, State Farm moved to dismiss the promissory estoppel and consumer fraud and undisclosed substitution of inferior product counts. The district court granted the motion to dismiss the promissory estoppel count, which is not at issue in this appeal, and found that the fraud count had not been pleaded with particularity as required by W.R.C.P. 9(b). The district court granted the Gookins leave to amend the complaint to restate the fraud complaint.

Appellants filed a second amended complaint on September 12, 1990. The complaint contained two counts: bad faith failure to investigate and pay claims; and consumer fraud and undisclosed substitution of inferior product. State Farm responded by simultaneously filing an answer and a motion to dismiss the fraud count. The answer reaffirmed that service of process was insufficient and personal jurisdiction was lacking. A hearing, again not recorded, on the motion to dismiss was conducted on October 17, 1990. The fraud count was ordered dismissed again for failure to comply with W.R.C.P. 9(b). Appellants were allowed to file yet another amended complaint to attempt to restate the fraud allegation with particularity.

Appellants filed their third amended complaint on November 1, 1990. This complaint alleged two counts: bad faith failure to investigate and pay claims; and consumer fraud and undisclosed substitution of inferior product. State Farm's answer restated the challenge to jurisdiction and personal service it maintained throughout these proceedings. State Farm also moved to dismiss the fraud count challenging that it was barred by the statute of limitations applicable to the Wyoming Consumer Protection Act and failed to state the fraud claim with particularity. Appellants responded that their claim only incorporated fraud provisions of the Consumer Protection Act as a subset of a common law fraud claim. The district court heard arguments on the motion in another apparently unrecorded proceeding. The fraud claim was ordered dismissed, with prejudice, for failure to comply with W.R.C.P. 9(b). The district court also found that action under the Wyoming Consumer Protection Act was barred by both the nature of the insurance contract and the statute of limitations. The action comes before this court under a W.R.C.P. 54(b) entry of final judgment. Appellants filed a timely notice of appeal. The bad faith claim remains at issue in the district court.

II. DISCUSSION

Our standard of review for jurisdictional issues, including sufficiency of process, should be familiar to every litigant. The Wyoming Supreme Court "has the inherent power, and the duty, to address jurisdictional defects on appeal even though they have not been called to our attention by a litigant." Robbins v. South Cheyenne Water and Sewage Dist., 792 P.2d 1380, 1384 (Wyo.1990). "The first and fundamental question on every appeal is that of jurisdiction; this question cannot be waived; it is open for consideration by the reviewing court whenever it is raised by any party, or it may be raised by the court of its own motion." Gardner v. Walker, 373 P.2d 598, 599 (Wyo.1962). When a lower court acts without jurisdiction, this court will notice the defect and have jurisdiction on appeal, not on the merits, but merely for the purpose of correcting the error of the lower court in maintaining the suit. United States v. Corrick, 298 U.S. 435, 440, 56 S.Ct. 829, 832, 80 L.Ed. 1263, reh'g denied 298 U.S. 692, 56 S.Ct. 951, 80 L.Ed. 1410 (1936).

The proper service of process is necessary to acquire jurisdiction under the due process provisions of both the federal and Wyoming constitutions. Wyo. Const. art. 1, § 6; U.S. Const. amend. XIV, § 1. The federal constitution restrains state court actions against non-resident defendants.

The Due Process Clause of the Fourteenth Amendment operates as a limitation on the jurisdiction of state courts to enter judgments affecting rights or interests of nonresident defendants. See Shaffer v. Heitner, 433 U.S. 186, 198-200, [97 S.Ct. 2569, 2577, 53 L.Ed.2d 683] (1977). It has long been the rule that a valid judgment imposing a personal obligation or duty in favor of the plaintiff may be entered only by a court having jurisdiction over the person of the defendant. Pennoyer v. Neff, 95 U.S. [ (5 Otto) ] 714, 732-733, (1878); International Shoe Co. v. Washington, 326 U.S., at 316, [66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) ]. The existence of personal jurisdiction, in turn, depends upon the presence of reasonable notice to the defendant that an action has been brought, Mullane v. Central Hanover Trust Co., 339 U.S. 306, 313-314, [70 S.Ct. 652, 657, 94 L.Ed. 865] (1950), and a sufficient connection between the defendant and the forum State to make it fair to require defense of the action in the forum. Milliken v. Meyer, 311 U.S. 457, 463-464, [61 S.Ct. 339, 343, 85 L.Ed. 278] (1940).

Kulko v. Superior Court of California In and For City and County of San Francisco, 436 U.S. 84, 91, 98 S.Ct. 1690, 1696, 56 L.Ed.2d 132, reh'g denied 438 U.S. 908, 98 S.Ct. 3127, 57 L.Ed.2d 1150 (1978). While a court may have subject matter jurisdiction, it is clear that without adequate notice to the defendant and opportunity to be heard, jurisdiction does not exist for the proceeding. Goss v. Goss, 780 P.2d 306, 310 (Wyo.1989); see 62B Am.Jur.2d, Process § 4 (1990)....