Hilgeman v. American Mortg. Securities

• Decision Date: 27 January 2000
• Docket Number: No. 2 CA-CV 98-0236.,2 CA-CV 98-0236.
• Citation: 196 Ariz. 215,994 P.2d 1030
• Parties: David HILGEMAN and Elizabeth Renee Hilgeman, husband and Defendant/Appellant. v. AMERICAN MORTGAGE SECURITIES, INC., a Florida corporation, Defendant/Appellant.
• Court: Arizona Court of Appeals

994 P.2d 1030

196 Ariz. 215

David HILGEMAN and Elizabeth Renee Hilgeman, husband and Defendant/Appellant. v. AMERICAN MORTGAGE SECURITIES, INC., a Florida corporation, Defendant/Appellant.

No. -0236.

Court of Appeals of Arizona, Division 2, Department A.

January 27, 2000.

Fitzgibbons Law Offices, P.L.C. By Michele E. Emig and David A. Fitzgibbons III, Casa Grande, Attorneys for Plaintiffs/Appellees.

Law Offices of A. Thomas Cole By Terry J. Fong, Casa Grande, Attorneys for Defendant/Appellant.

OPINION

PELANDER, Presiding Judge.

¶ 1 Defendant/appellant American Mortgage Securities (AMS) appeals from the trial court's order denying AMS's motion to set aside a default judgment entered against it pursuant to Rules 54(b) and 55(b)(2), Ariz. R. Civ. P., 16 A.R.S. The judgment awarded $900,000 in compensatory and punitive damages to plaintiffs/appellees David and Elizabeth Hilgeman on their complaint.

¶ 2 Because the trial court did not clearly abuse its discretion in finding that AMS had been properly served with process, we affirm that aspect of the court's order which declined to set aside the judgment as void under Rule 60(c)(4), Ariz. R. Civ. P. We also affirm the trial court's denial of relief under Rule 60(c)(6), Ariz. R. Civ. P., insofar as AMS's liability, the compensatory damage award against it, and the Hilgemans' entitlement to punitive damages are concerned. But because of the unique constitutional safeguards relating to punitive damage awards and because the record is insufficient for us to evaluate or uphold that award, we vacate that aspect of the trial court's order and remand for a reported evidentiary hearing on the amount of punitive damages to be assessed against AMS.

BACKGROUND

¶ 3 The Hilgemans alleged in their complaint, and the trial court found in its judgment, the following facts. In September 1996, the Hilgemans purchased a home in Pinal County and secured it with a mortgage from AMS, a Florida corporation. Shortly thereafter, but before the first payment was due, AMS assigned, transferred, or sold the mortgage to Flagstar Bank, F.S.B. Claiming they did not receive notice of the transfer, the Hilgemans sent their first mortgage payment to AMS rather than Flagstar. AMS negotiated the check and did not notify or forward that payment to Flagstar.

¶ 4 In November 1997, the Hilgemans sued Flagstar and AMS, alleging various tort theories and violations of 12 U.S.C. § 2605. The Hilgemans sought unspecified compensatory and punitive damages allegedly resulting from AMS's failure to send their first mortgage payment to Flagstar and from AMS's acceptance of that payment and failure to credit their account. According to an affidavit of service in the record, a deputy sheriff in Florida served "Larry Bache, President" of AMS at its office in Florida on November 25. When AMS failed to answer the complaint or otherwise timely appear in the action, the Hilgemans applied for entry of default against it on January 28, 1998, pursuant to Rule 55(a), Ariz. R. Civ. P. The application stated that a copy of it was mailed that same date to "Larry Bache, President" at two different addresses for AMS in Florida, including the address where he had been served. The trial court entered default against AMS on January 28.

¶ 5 Several weeks later, the Hilgemans requested a hearing for purposes of obtaining a default judgment. Following an unreported evidentiary hearing on March 16, 1998, at which only Mr. Hilgeman testified, the trial court entered a default judgment against AMS. The judgment stated, inter alia, that AMS had breached fiduciary duties and an implied covenant of good faith and fair dealing; "[a]s a direct and proximate result of the breaches of [those] ... dut[ies]... [the Hilgemans] have suffered or incurred damages for emotional distress, humiliation, invasion of privacy, damage to their credit record and reputation, defamation, severe stress resulting in physical injury, medical bills and other damages"; and AMS's "conduct was outwardly aggravated, outrageous, malicious, and/or fraudulent, and committed with an `evil mind', entitling [the Hilgemans] to recover punitive damages." The trial court awarded the Hilgemans $180, 000 in compensatory damages, $720,000 in punitive damages, and approximately $4,000 in attorney's fees and costs.

¶ 6 In June 1998, after its Florida statutory agent had been served with Flagstar's cross-claim, AMS moved to set aside the default judgment pursuant to Rule 60(c)(4) and (6), primarily contending the judgment was void for lack of proper service. The trial court denied AMS's motion. After this court stayed AMS's appeal from that ruling and revested jurisdiction to allow the trial court to rule on unresolved issues it had raised relating to the punitive damage award, and after the parties submitted supplemental memoranda on those issues, the trial court denied AMS's renewed request to set aside that award. We have jurisdiction under A.R.S. § 12-2101(C). See Rosen v. Bd. of Med. Exam'rs, 185 Ariz. 139, 142, 912 P.2d 1368, 1371 (App.1995).

DISCUSSION

¶ 7 AMS contends it was entitled to relief under Rule 60(c)(4) because the default judgment was void due to improper service; equity required the trial court to set aside the judgment under Rule 60(c)(6); and the punitive damage award was unconstitutional and excessive. Although "it is a highly desirable legal objective that cases be decided on their merits," we review the trial court's refusal to set aside a default judgment only for "a clear abuse of discretion." Hirsch v. Nat'l Van Lines, Inc., 136 Ariz. 304, 308, 666 P.2d 49, 53 (1983); see also General Elec. Capital Corp. v. Osterkamp (General Elec. I), 172 Ariz. 185, 188, 836 P.2d 398, 401 (App.1992). Additionally, "[i]f 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,' we will not second-guess or substitute our judgment for that of the trial court." General Elec. I, 172 Ariz. at 188, 836 P.2d at 401, quoting City of Phoenix v. Geyler, 144 Ariz. 323, 329, 697 P.2d 1073, 1079 (1985).

I. Propriety of Service

¶ 8 In denying AMS's motion to set aside the default judgment under Rule 60(c)(4), the trial court found that "the evidence support[ed] that service was properly made on an agent of the company known as Larry Bache, and that AMS has failed to overcome the Affidavit of Service filed herein." AMS challenges that ruling. If a defendant is not properly served with process, any resulting judgment is void and must be vacated upon request. Marquez v. Rapid Harvest Co., 99 Ariz. 363, 365, 409 P.2d 285, 287 (1965); Martin v. Martin, 182 Ariz. 11, 14, 893 P.2d 11, 14 (App.1994). Under Rule 4.2(h), Ariz. R. Civ. P., service on a corporation located outside Arizona "shall be made on one of the persons specified in Rule 4.1(k)." That rule, in turn, provides that "[s]ervice upon a ... foreign corporation ... shall be effected by delivering a copy of the summons and of the pleading to a partner, an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process." Ariz. R. Civ. P. 4.1(k). Under Florida law, service is authorized "on any employee at the corporation's place of business" if the registered agent is not available when he should be under the statutes. See Fla. Stat. §§ 48.081(3), 48.091(2) (West, WESTLAW through end of 1999 1st Reg. Sess.).

¶ 9 AMS contends the Hilgemans failed to comply with Arizona's service requirements in the following respects: (1) they did not serve the person "registered with the Florida Department of Corporations as the [statutory] agent to receive service of process for AMS," J.R. Stirling, who also was AMS's president; (2) Bache, "even if he was served," was "not an officer, ... a managing or general agent ... an agent authorized by appointment or by law to receive service of process," or "an employee of AMS," but rather "was an independent contractor" who "never represented himself to be an officer of AMS and did not represent himself as such" to the process server; and (3) Bache "does not recall being served with this lawsuit" and, had he been served, he "would have remembered it and would have handed it to J.R. Stirling."

¶ 10 In support of those contentions, AMS relies primarily on Bache's deposition and on Stirling's affidavit and deposition testimony that Bache was not an officer of AMS. But, contrary to AMS's repeated assertions, the evidence relating to this issue is far from "undisputed." Rather, "[v]iewing the facts in the strongest light possible in favor of supporting the trial court's decision," Daou v. Harris, 139 Ariz. 353, 360, 678 P.2d 934, 941 (1984), we find substantial evidence that the Hilgemans properly served AMS through its agent, Bache.

¶ 11 First, the affidavit of service clearly states that the Florida deputy sheriff served "Larry Bache, President" at AMS's office. Second, that process server testified in deposition that, according to his records, he previously had served Bache as an officer of the company. Third, a letter that AMS purportedly had sent to the Hilgemans in September 1996, advising them of the change in mortgage holder, identified "Larry Bache[,] Vice-President" as the sender. Fourth, AMS's motion to set aside the default judgment and Stirling's affidavit specifically referred to Bache as "an employee" of AMS, contrary to its current position. Finally, an AMS employee testified in deposition that Bache worked full-time for AMS and occasionally signed checks for the company.

¶ 12 Thus, substantial evidence established that AMS had identified Bache as an officer or employee of the company even if, as AMS urges, he did not officially have that status. At a minimum, the record reflects that Bache was, at least ostensibly, an officer or employee of AMS...