McMichael v. Encompass PAHS Rehab. Hosp.

• Decision Date: 09 January 2023
• Docket Number: 22SA264
• Citation: 2023 CO 2
• Parties: In Re Patricia McMichael and Lynette McMichael, Plaintiffs: v. Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton. Defendant
• Court: Colorado Supreme Court

2023 CO 2

In Re Patricia McMichael and Lynette McMichael, Plaintiffs: v. Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton. Defendant

No. 22SA264

Supreme Court of Colorado, En Banc

January 9, 2023

In this original proceeding, the supreme court concludes that a trial court did not err in (1) vacating its default judgment against a limited liability company ("LLC") after finding excusable neglect under C.R.C.P. 60(b); and (2) granting the LLC's motion to change venue. The court determines that the trial court did not abuse its discretion by choosing to hear the matter on the merits. It further concludes, applying the holding announced today in this matter's companion case, Nelson v. Encompass PAHS Rehabilitation Hospital, LLC, 2023 CO 1, ___ P.3d ___ that an LLC's residence, for venue purposes, is determined based on the residence of the LLC, not the residences of its members.

Accordingly the supreme court discharges the rule to show cause.

Original Proceeding Pursuant to C.A.R. 21 Boulder County District Court Case No. 22CV30294 Honorable Patrick Butler Judge

Rule Discharged

Attorney for Plaintiffs: Rhoden Law Firm Garry J. Rhoden Craig, Colorado

Attorneys for Defendant: Rodman & Rodman, LLC John R. Rodman Brendan P. Rodman Cala R. Farina Sheridan S. Couture Denver, Colorado

Attorneys for Boulder County District Court: Philip J. Weiser, Attorney General Bianca E. Miyata, Assistant Solicitor General Denver, Colorado

JUSTICE BERKENKOTTER delivered the Opinion of the Court, in which CHIEF JUSTICE BOATRIGHT, JUSTICE MÁRQUEZ, JUSTICE HOOD, JUSTICE GABRIEL, JUSTICE HART, and JUSTICE SAMOUR joined.

OPINION

BERKENKOTTER, JUSTICE

¶1 In this original proceeding under C.A.R. 21, we review the trial court's order (1) vacating its prior default judgment against Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton ("Encompass"); and (2) granting Encompass's motion to change venue from Boulder County to Arapahoe County. We conclude that the trial court did not abuse its discretion by choosing to hear this matter on the merits despite Encompass's thirteen-day delay in responding to the complaint. Further, applying our holding in the lead companion case announced today, Nelson v. Encompass PAHS Rehabilitation Hospital, LLC, 2023 CO 1, ___ P.3d ___, we conclude that the trial court did not err in transferring venue from the Boulder County District Court to the Arapahoe County District Court. Because the residence of a limited liability company ("LLC"), for venue purposes, is the residence of the LLC, rather than the residences of its members, the county designated in the complaint was not the proper county, and Encompass was entitled to a change of venue as a matter of right. Accordingly, we discharge the rule to show cause.

I. Facts and Procedural History

¶2 Patricia and Lynette McMichael ("the McMichaels") are the co-personal representatives for the estate of Charles McMichael ("Mr. McMichael"). The McMichaels allege that Mr. McMichael sustained injuries and died after falling on at least three occasions at a rehabilitation hospital owned by Encompass. The McMichaels sued Encompass, asserting claims for negligence; medical negligence; negligent hiring, supervision, retention, and training; and premises liability. Although Mr. McMichael was a resident and Encompass is a resident of Arapahoe County, and the alleged torts occurred at Encompass's rehabilitation hospital in Arapahoe County, the McMichaels filed their lawsuit in Boulder County.

¶3 After the McMichaels filed their complaint in May 2022, Encompass failed to file a timely response. The McMichaels moved for default judgment, which the trial court granted. Thirteen days after a response to the complaint was due, Encompass filed two separate pleadings with the court: (1) its attorneys' entry of appearance and (2) a motion to set aside the default judgment. In its motion, Encompass argued that the default judgment should be set aside because the McMichaels' counsel failed to confer with Encompass's counsel before filing the motion for default judgment. This was particularly problematic, Encompass explained, because the McMichaels' lawyer had been actively engaged for months in communication with its lawyer about, among other things, the proper venue for the case.^[1] In Encompass's view, the failure by the McMichaels' attorney to mention the motion for default judgment appeared to be a calculated effort to unfairly and prejudicially disadvantage Encompass. Encompass further argued that Boulder County was not the proper venue as Mr. McMichael was a resident of Arapahoe County, Encompass was a resident of Arapahoe County, the alleged torts occurred in Arapahoe County, and Encompass was a Colorado resident.

¶4 After weighing the pertinent factors under Buckmiller v. Safeway Stores, Inc., 727 P.2d 1112, 1116 (Colo. 1986), and Craig v. Rider, 651 P.2d 397, 400-01 (Colo. 1982), the trial court vacated the default judgment. It noted that counsel for the McMichaels failed to confer with counsel for Encompass despite his obligation to do so and despite the "ongoing discussions" between the parties before the default judgment motion was filed. The court further concluded that the short delay did not prejudice the McMichaels. Accordingly, the trial court granted Encompass's motion to set aside the default judgment so the matter could be heard on its merits.

¶5 Encompass then moved for a change of venue pursuant to C.R.C.P. 98(f), reiterating that (1) neither party was a resident of Boulder County, (2) the alleged torts did not take place in Boulder County, and (3) Encompass was not an out-of-state resident (meaning the McMichaels could not properly designate a Colorado county of its choosing in which to file its complaint). After careful analysis, the trial court found that venue was not proper in Boulder County, and granted Encompass's motion to change venue to Arapahoe County.^[2]

¶6 The McMichaels then filed a petition for a rule to show cause pursuant to C.A.R. 21, which we granted.

II. Analysis

¶7 We start by discussing our original jurisdiction to hear this matter pursuant to C.A.R. 21. Then, we explain the pertinent standard of review and relevant legal principles before turning to consider whether the trial court abused its discretion either by vacating the default judgment or by granting Encompass's motion to change venue.

A. Original Jurisdiction and Standard of Review

¶8 This court may exercise its original jurisdiction in those "extraordinary circumstances 'when no other adequate remedy' is available." People in Int. of A.C., 2022 CO 49, ¶ 6, 517 P.3d 1228, 1233 (quoting C.A.R. 21(a)(1)). "[W]e have historically cabined" our original jurisdiction to those matters where "an appellate remedy would be inadequate, a party may suffer irreparable harm, or a petition raises an issue of first impression that has significant public importance." People v. A.S.M., 2022 CO 47, ¶ 9, 517 P.3d 675, 677.

¶9 We choose to exercise our original jurisdiction here to review the trial court's orders granting Encompass's motion to set aside the default judgment and its motion to change venue. The trial court in this case and in Nelson, this matter's companion case, reached conflicting conclusions regarding how to determine an LLC's residence for purposes of analyzing venue under C.R.C.P. 98. Further, exercising our original jurisdiction is appropriate because of the risk of irreparable harm to the parties involved when "[t]he trial court's order setting aside the default judgment forecloses all avenues for collecting the default judgment." Nickerson v. Network Sols., LLC, 2014 CO 79, ¶ 8, 339 P.3d 526, 529 (exercising our original jurisdiction to review an order setting aside default judgment).

¶10 With respect to the standard of review, we emphasize that weighing the relevant factors for relief pursuant to C.R.C.P. 60(b)(1) remains within the province of the trial court. Sebastian v. Douglas Cnty., 2016 CO 13, ¶ 18, 366 P.3d 601, 606. Thus, we review a trial court's order to set aside a default judgment under C.R.C.P. 60(b) for an abuse of discretion. Nickerson, ¶ 10, 339 P.3d at 529. "Even if [we] . . . disagree with the trial court's disposition of a motion, [we] must respect the decision unless the movant proves that the trial court's judgment was 'manifestly arbitrary, unreasonable, or unfair.'" Sebastian, ¶ 18, 366 P.3d at 606 (quoting Goodman Assocs., LLC v. WP Mountain Props., LLC, 222 P.3d 310, 314 (Colo. 2010)).

B. Default Judgment

¶11 Default judgments are disfavored. This is because default judgment is "the harshest of all sanctions," which is why it "should be imposed only in extreme circumstances." Beeghly v. Mack, 20 P.3d 610, 613 (Colo. 2001); see R.F. v. D.G.W., 560 P.2d 837, 839 (Colo. 1977) ("A judgment by default is not designed to be a device to catch the unwary or even the negligent."). Disposing of a case on procedural grounds rather than on the merits warrants serious caution and should only occur in the rarest of occasions. See People v. Davenport, 998 P.2d 473, 475 (Colo.App. 2000). Courts possess other tools, such as sanctions, to impose lesser punishments on negligent counsel where default judgments are not appropriate. See id. When deciding whether to set aside a default judgment, a court's underlying goal must be to "promote substantial justice." Buckmiller, 727 P.2d at 1116.

C. Setting Aside a Default Judgment

¶12 Review of a trial court's order setting aside a default judgment is deferential both because "the criteria for vacating a default judgment should be liberally construed," and because a trial court's order setting...