Johnson v. Cash Store

• Decision Date: 08 May 2003
• Docket Number: No. 21435-4-III.,21435-4-III.
• Citation: 68 P.3d 1099,116 Wn.App. 833
• Court: Washington Court of Appeals
• Parties: Angela D. JOHNSON, a single woman, Respondent, v. The CASH STORE, aka Cottonwood Financial, Ltd a Texas Limited Partnership licensed to do business in Washington State, Appellant.

68 P.3d 1099

116 Wn.App. 833

Angela D. JOHNSON, a single woman, Respondent,

No. 21435-4-III.

Court of Appeals of Washington, Division 3, Panel Five

May 8, 2003

[Copyrighted Material Omitted] Brad E. Smith, Spokane, WA, Michael Fitzpatrick, Brennan, Steil, Basting & Macdougall, Janesville, WI, for Appellant.

Alan L. McNeil, Spokane, WA, for Respondent.

SCHULTHEIS, J.

Under Washington law, a company in the business of making small loans may advance up to $500 on the security of a postdated check, as long as the date of the postdated check is no more than 31 days after the date of the loan. RCW 31.45.010(4); 31.45.073(3). These so-called "payday loans" may be subject to interest or fees up to 15 percent of the principal amount borrowed. RCW 31.45.073(2).

The Cash Store, also known as Cottonwood Financial, Ltd., loaned Angela Johnson $500. In exchange, Ms. Johnson gave Cash Store a check postdated two weeks later for $575, including a $75 "Finance Charge." Clerk's Papers (CP) at 12. When Ms. Johnson was unable to pay the entire amount two weeks later, Cash Store offered to keep the $75 finance charge and to draw up a second loan agreement for $575 with a second postdated check due two weeks later. Ms. Johnson repeated this process 14 times over the next 7 months. Following a stop payment on the last postdated check, and alleged threats from Cash Store that it would bring criminal charges, Ms. Johnson finally paid off the loan. She then filed a complaint against Cash Store for unconscionability and violations of the Consumer Protection Act. Although the summons and complaint were served on the manager, Cash Store did not answer or appear. Consequently, Ms. Johnson obtained a default judgment. Cash Store's motion to vacate the judgment was denied.

On appeal, Cash Store contends vacation of the default judgment is appropriate under CR 60(b) because it presented at least a prima facie defense to Ms. Johnson's causes of action and its failure to respond was due to excusable neglect. Cash Store also contends the trial court erred in its computation of damages. We find that Cash Store's failure to appear was inexcusable. Further, we find that it failed to present a strong prima facie defense to Ms. Johnson's claims or to her request for damages. Consequently, we affirm.

FACTS

Cottonwood Financial, Ltd. is a Texas limited partnership licensed to do business in Washington as The Cash Store. Ms. Johnson was a single mother working as a manager for Jack in the Box in January 2000. Because she had paid a $300 veterinarian bill for treatment of her daughter's cat, she found that she needed additional money to pay bills that month. Ms. Johnson went to Cash Store on January 4 and requested a $250 loan. A Cash Store employee reportedly told her she would get a better finance rate for a $500 loan and she agreed to the greater amount. The "CONSUMER LOAN AGREEMENT" signed by Ms. Johnson set out the following disclosures: the amount paid to Ms. Johnson was $500; the annual percentage rate was 608.33 percent; the finance charge was $75; the amount financed was $500; and the total payment of $575 was due two weeks later. CP at 12. Ms. Johnson's postdated check for $575 was security for the loan. The agreement also informed her that if she paid the loan in full Before the due date, she would be charged a prepayment penalty equal to the difference between the finance charge and the interest accrued through the prepayment date.

Ms. Johnson realized she would not be able to pay $575 on the date it was due. The Cash Store employee reportedly told her to come in on the due date with $575 in cash and the store would roll the loan over. On January 13, Ms. Johnson went to Cash Store with $575 in cash, an employee took her money, gave her back the postdated check, and wrote a new consumer loan agreement. Ms. Johnson signed the new agreement, wrote a new check postdated two weeks later, and the Cash Store employee handed back the $500 in cash, keeping $75. This process was repeated 14 more times, with Ms. Johnson paying $75 each time.

By August 2000, Ms. Johnson had paid more than $1,100 in interest on a $500 loan that she still owed in its entirety. Although she had suffered from mild depression Before receiving the loan, her symptoms had worsened as her financial situation became more hopeless. She stopped payment on the August postdated check to Cash Store. Subsequently,Cash Store employees allegedly left frequent telephone messages requesting payment. Ms. Johnson finally accepted a telephone call from a Cash Store employee in October 2000. This employee reportedly told her that if she did not pay the $575 and a returned check fee of $25, the matter would be turned over to the police, who would issue a warrant for her arrest. Ms. Johnson allowed her trailer to go into foreclosure, moved in with her father, and paid Cash Store $600 by November 2000. She now owes over $20,000 for the deficiency on the foreclosure.

On November 13, 2001, Ms. Johnson filed a summons and complaint against Cash Store alleging unconscionability and Consumer Protection Act (CPA) violations in the making and enforcing of the loan terms, including usurious interest rates against public policy and unfair business practices in the form of harassment. That same day, a process server personally served the summons and complaint on Laura Fish, manager of the North Pines Road Cash Store in Spokane. Ms. Fish sent the summons and complaint back to Ms. Johnson's counsel in separate envelopes on November 15. In each envelope she attached a note stating that Ms. Johnson's debts were paid off in November 2000.

When Cash Store failed to appear or respond, Ms. Johnson filed a notice of intent to file for default judgment on December 19, 2001. This notice was mailed to the North Pines Road Cash Store and stated that the hearing on the motion for default judgment would be held on December 27, 2001 at 10 A.M. in the ex parte courtroom. The hearing was held and an order of default was entered on December 27. Cash Store did not appear.

Ms. Johnson's motion to set a hearing for damages was not sent to Cash Store.¹ At the hearing on damages held January 25, 2002, Ms. Johnson requested treble damages for the total amount paid to Cash Store (3 X $1,740 = $5,220), plus $42,000 for emotional distress (twice the value of the foreclosure costs), and attorney fees and costs. The trial court found the treble damages and attorney fees reasonable and awarded them, adjusted by a slightly lower rate. Noting that Ms. Johnson's depression was ongoing, the court limited her recovery for emotional distress to $15,000. The total judgment was $26,701.

On June 19, 2002, Ms. Johnson served a writ of garnishment on U.S. Bank to satisfy Cash Store's indebtedness, now equal to $27,739. Three weeks later, Cash Store filed a motion to vacate the default judgment. In the memorandum supporting the motion, Cash Store argued that its failure to respond was a mistake or excusable neglect due to its manager's inattention. It also asserted that its short-term loan operation complies with Washington law and is approved by the State Department of Financial Institutions (DFI). Cash Store attached affidavits from Ms. Fish and from Trevor Ahlberg, Cottonwood's chief executive officer (CEO). Mr. Ahlberg stated that the Washington Cash Stores had been audited in August and September 2000 by the DFI, which found no significant violations of state law. He also asserted that Cash Store had no policy to harass its clients or to threaten criminal sanctions.

Finding that Cash Store failed to establish a prima facie defense to the underlying action and further finding that its failure to appear was not due to excusable neglect or a mistake, the trial court denied Cash Store's motion to vacate the default judgment. The court also amended the order of judgment to add additional attorney fees for Ms. Johnson. Cash Store now appeals the order denying its motion to vacate judgment and the award of damages.

DEFAULT JUDGMENT

Any discussion of default judgments begins with the proposition that they are not favored in the law. Griggs v. Averbeck Realty, Inc., 92 Wash.2d 576, 581, 599 P.2d 1289 (1979). The overriding policy is that controversies should be determined on their merits, not by default. Id. (quoting Dlouhy v. Dlouhy, 55 Wash.2d 718, 721, 349 P.2d 1073 (1960)). On the other hand, the need for a responsive and responsible legal system mandates that parties comply with a judicial summons. Id.; Norton v. Brown, 99 Wash.App. 118, 123, 992 P.2d 1019 (1999), 3 P.3d 207 (Wash.App.2000).In determining whether a default judgment should be vacated, the court applies equitable principles to ensure that substantial rights are preserved and justice is done. Griggs, 92 Wash.2d at 581-82, 599 P.2d 1289; Norton, 99 Wash.App. at 123, 992 P.2d 1019. Justice is not done if hurried defaults are allowed, but neither is it done if continuing delays are permitted. Griggs, 92 Wash.2d at 582, 599 P.2d 1289.

A motion to vacate a default judgment pursuant to CR 60(b) is addressed to the sound discretion of the trial court.² Id. In deciding a motion to vacate, the court addresses two primary and two secondary factors that must be shown by the moving party: (1) that there is substantial evidence to support at least a prima facie defense to the claim asserted by the opposing party; (2) that the moving party's failure to timely appear and answer was due to mistake, inadvertence, surprise, or excusable neglect; (3) that the moving party acted with due diligence after notice of the default judgment; and (4) that the opposing party will not suffer substantial hardship if the default judgment is vacated. White v. Holm, 73 Wash.2d 348, 352, 438 P.2d 581 (1968); Norton, 99 Wash.App. at 123-24, 992 P.2d 1019. Establishment of the first factor avoids a useless subsequent trial. Griggs, 92 Wash.2d at 583, 599 P.2d 1289. The trial court examines the evidence and...