Milwaukie Lumber Co. v. Veristone Fund I, LLC

• Decision Date: 29 March 2021
• Docket Number: 82052-4-I
• Parties: MILWAUKIE LUMBER COMPANY, Respondent, v. VERISTONE FUND I, LLC, Appellant.
• Court: Washington Court of Appeals

MILWAUKIE LUMBER COMPANY, Respondent,
v.
VERISTONE FUND I, LLC, Appellant.

No. 82052-4-I

Court of Appeals of Washington, Division 1

March 29, 2021

UNPUBLISHED OPINION

VERELLEN, J.

A party who willfully ignores a summons and complaint cannot later take advantage of the court's authority to vacate a default judgment entered in the action. Because the trial court found Veristone Fund I, LLC willfully ignored a properly served summons and complaint and substantial evidence supports its findings, the court did not abuse its discretion by denying Veristone's motions to vacate.

An award of compound postjudgment interest is strongly disfavored. Because the judgments entered by the trial court award compound postjudgment interest without explicit contractual authorization, the court erred.

The trial court awarded the Milwaukie Lumber Company (MLC) attorney fees without entering findings of fact, and it entered sanctions against Veristone without identifying a clear legal basis or entering findings of fact. Because findings of fact are required to allow review of both, remand is required.

Therefore, we affirm in part, reverse in part, and remand for further proceedings.

FACTS

Veristone financed the development of five lots in Camas, Washington. The parcels at issue here are Lot 2, Lot 3, and Lot 4. Veristone received and recorded multiple deeds of trust on each lot.

MLC entered into a supply contract with Emerald Valley Development for sale and delivery of building materials to the lots. MLC made its last delivery to Lot 2 on July 19, 2017. On September 29, it filed a lien on Lot 2 for $38, 027.95. MLC made its last deliveries to Lots 3 and 4 in December. On February 22, 2018, MLC filed liens on Lots 3 and 4 for $28, 022.77 and $15, 143.63, respectively.

On May 11, 2018, MLC filed summonses and complaints-one for each lot-to foreclose its three liens and have it declared the first-position lienholder. MLC alleged Veristone's deeds of trust were inferior to its liens. On May 30, a process server delivered the summonses and complaints to Veristone. About two weeks later, MLC filed amended complaints that were nearly identical to the original complaints and mailed them to Veristone.

Veristone never appeared. On July 2, MLC moved for entry of default judgments. The court granted its motions the same day, entering default judgments declaring MLC's interests superior to Veristone's.

On August 24, Veristone moved to vacate the default judgments. The court denied its motions, finding that Veristone had been properly served. The court explained Veristone "chose not to respond" and had "a strategic reason why they waited to bring this motion to set aside."^[1]

MLC sought entry of judgments against Emerald Valley and requested attorney fees. Veristone opposed those efforts. In its reply to Veristone's opposition filings, MLC requested "its fees for having to respond to this improper objection as sanctions under CR 11 ."^[2] The court entered judgments identifying MLC as the creditor and Emerald Valley as the debtor. It awarded postjudgment interest of two percent per month based on MLC's contract with Emerald Valley. The court entered judgments for $87, 128.41, including $29, 577 in attorney fees, on Lot 2; $66, 275.14 on Lot 3; and $49, 926.03 on Lot 4. The court also entered orders requiring that Veristone pay MLC $29, 577 for the Lot 2 litigation, $66, 275 for Lot 3, and $49, 926 for Lot 4.

Veristone appeals.

ANALYSIS

I. Vacating Default Judgment

We review a trial court's decision on a motion to vacate a default judgment under CR 60(b)(1) for abuse of discretion.^[3] A court abuses its discretion where its decision rests on untenable grounds or was made for untenable reasons.^[4]

A. Vacation For Mistakes, Inadvertance, Surprise, or Excusable Neglect

A motion to vacate default judgment under CR 60(b)(1) presents a guestion of eguity reguiring the trial court to balance Washington's preference for resolving disputes on their merits with the value placed upon an organized, responsive, and responsible judiciary.^[5] The court weighs four factors when deciding this question:

(1) That there is substantial evidence extant to support, at least prima facie, a defense to the claim asserted by the opposing party

(2) that the moving party's failure to timely appear in the action, and answer the opponent's claim, was occasioned by mistake, inadvertence, surprise or excusable neglect

(3) that the moving party acted with due diligence after notice of entry of the default judgment; and

(4) that no substantial hardship will result to the opposing party.^[6]

But when a defendant caused the default by willfully failing to appear, the second factor outweighs the others because equity demands the judgment stand to avoid rewarding misconduct.^[7] "[E]quity will not allow for vacation of [a default] judgment if the actions leading to default were willful. Willful defiance of the court's authority can never be rewarded in an equitable proceeding."^[8] The movant has the burden of demonstrating that equity favors vacating the judgment.^[9]

MLC argues the court correctly denied Veristone's motions to vacate because it found Veristone was properly served and willfully failed to appear. Veristone contends it was not properly served with summonses, so it could not have intentionally failed to appear. If Veristone was properly served and chose to ignore the summonses, then, regardless of the strength of its defenses, the court did not abuse its discretion by denying the motions to vacate for all three lots.^[10]

We review a ruling about proper service of process de novo.^[11] But Veristone did not challenge the validity of the professional process server's affidavit of service, making it presumptively correct.^[12] Veristone also did not challenge the court's finding of fact that it was properly served, making the finding a verity on appeal.^[13] Instead, Veristone argues the court erred by relying upon written testimony and evidence, rather than live testimony, to determine service was proper. Because the decision to decide a motion on affidavits is "purely discretionary, "^[14] we review the court's ruling for abuse of discretion.

CR 43(e) governs taking evidence on motions. CR 43(e)(1) provides that a trial court considering a motion "may hear the matter on affidavits" or "may direct that the matter be heard wholly or partly on oral testimony or depositions." But when a determination requires evaluating witness credibility to resolve an issue of fact, the trial court can abuse its discretion by not holding an evidentiary hearing.^[15]

In Rivard v. Rivard, divorced parents petitioned the court to clarify the father's visitation schedule.^[16] The parties filed "sharply conflicting" affidavits, and the trial court heard argument on the matter before adopting the father's proposed visitation schedule.^[17] The mother appealed and argued the trial court's decision was an abuse of discretion because it decided the motion without holding an evidentiary hearing.^[18] The Supreme Court upheld the decision to resolve the matter solely on the affidavits because they "contained ample evidence upon which a ruling could be made as to visitation rights," and the mother did not otherwise show an abuse of discretion.^[19]

By contrast, the court in Woodruff v. Spence remanded for the taking of live testimony when a buyer moved to vacate a seller's default judgment due to ineffective service of process.^[20] The seller submitted an affidavit of service stating the buyer had been personally served on January 20, 1992, at his house in Renton.^[21] The buyer submitted an affidavit stating he was not served, a declaration stating he was in Bellingham on January 20, and declarations from two people who were at his house on January 20 denying that a process server visited that day.^[22] The court concluded the affidavits and declarations presented an issue of fact that could be resolved only by assessing credibility.^[23]

Here, MLC presented a valid affidavit of service and a declaration from the professional process server detailing how he served Veristone. He swore to personally serving Veristone's registered agent, Meghann Good, at Veristone's office with summonses and complaints, several exhibits, and notices of assignment to a judicial department. His declaration explained he asked the receptionist for Good, and the receptionist said she would get her. A woman identifying herself as Good appeared, looked at the documents, and acknowledged service. The server's contemporaneous handwritten notes, which were attached to his declaration, described Good's appearance.^[24] A different affidavit of service from a different process server's recent personal service on Good largely corroborated this description.

Veristone submitted two declarations from Good contesting service. She declared, "I do not recall ever being personally served" and explained Veristone's internal record-keeping system did not show "that I, or anyone else at Veristone, received the Summons and Complaint on May 30, 2018."^[25] She contested the process server's description of her.^[26] Veristone did not provide any evidence to corroborate Good's statements about service or its record-keeping system.

Veristone fails to show the court abused its discretion by declining to hold an evidentiary hearing. Good's general denial of having been served and bare assertion about Veristone's record-keeping system do not compel an evidentiary hearing. The process server's valid affidavit is presumptively correct, ^[27] and MLC corroborated it with the process server's detailed declaration and supporting notes. The minimal variations between the process server's description of Good and her description of herself are not compelling. As in Rivard, the evidence submitted was sufficient to decide the matter, even though the...