Namaste Judgment Enforcement, LLC v. King

• Decision Date: 19 March 2020
• Docket Number: Court of Appeals No. 18CA2281
• Parties: NAMASTE JUDGMENT ENFORCEMENT, LLC, as Assignee of Todd Oltmans and Colleen McClary, Appellee, v. Michael Keith KING; Crown Investment Group, LLC, a Colorado limited liability company; and Crown Development Group, LLC, a Colorado limited liability company, Defendants-Appellants.
• Court: Colorado Court of Appeals

465 P.3d 78

NAMASTE JUDGMENT ENFORCEMENT, LLC, as Assignee of Todd Oltmans and Colleen McClary, Appellee,

v.Michael Keith KING; Crown Investment Group, LLC, a Colorado limited liability company; and Crown Development Group, LLC, a Colorado limited liability company, Defendants-Appellants.

Court of Appeals No. 18CA2281

Colorado Court of Appeals, Division VI.

Announced March 19, 2020

Van Remortel LLC, Fred Van Remortel, Denver, Colorado, for Plaintiff-Appellee

Michael Best & Friedrich LLP, Patrick J. Bernal, Broomfield, Colorado, for Defendants-Appellants

Opinion by JUDGE FREYRE

¶ 1 Defendants, Michael Keith King (Mr. King); Crown Investment Group, LLC, (Crown Investment); and Crown Development Group (Crown Development) — collectively, defendants — appeal the district court's order denying defendants’ motion to set aside a default judgment. Mr. King was allegedly the sole owner of both entities. The district court entered a default judgment against defendants in 2010 when they failed to respond to a complaint filed by plaintiffs, Todd Oltmans and Colleen McClary (investors). Because Mr. King had left the country, investors were unable to personally serve the defendants under C.R.C.P. 4(e), so investors moved for substituted service under C.R.C.P. 4(f). The court granted investors’ motion.

¶ 2 Mr. King returned to the United States in 2017 and learned of the default judgment when Namaste Judgment Enforcement, LLC (Namaste) — a collection agency to which investors had assigned their judgment — served a writ of garnishment on his bank in 2018. Once Mr. King discovered the default judgment, defendants moved to set aside the default judgment under C.R.C.P. 60(b)(3) as void for lack of proper service. After a hearing, the district court denied defendants’ motion.

¶ 3 In this appeal, we must interpret C.R.C.P. 4(f) — "Substituted Service" — to determine whether first-class mail of the summons and complaint to Mr. King's mother and brother-in-law constituted sufficient "delivery of process" under Rule 4(f)(1) to effect valid service under Rule 4(f)(2). We conclude that it did not. Accordingly, we reverse the district court's order denying the motion, vacate the default judgment, and remand for further proceedings to allow defendants to respond to the complaint.

I. Factual and Procedural Background

¶ 4 We draw the following factual history from investors’ complaint, subsequent motions filed by investors, and the transcript of the hearing on defendants’ motion to vacate the default judgment.

¶ 5 In 2007, Mr. King approached investors offering a "very secure" investment opportunity with Crown Investment. On July 16, 2007, Mr. King, in his capacity as "Managing Member" of Crown Investment, executed a promissory note whereby Crown Investment promised to repay investors their $35,000 investment in the company plus ten percent interest by August 17, 2007. Unbeknownst to investors, Mr. King transferred investors’ $35,000 to Crown Development and not Crown Investment.

¶ 6 Just before the note was due, Mr. King asked investors to extend the payment deadline in exchange for additional interest. Investors refused. Mr. King then promised to pay them within a matter of days but failed to do so, citing numerous reasons. About eight months after payment was due, investors received a check from Mr. King drawn on a Crown Investment bank account in the amount of $68,075. The check was returned for insufficient funds.

¶ 7 On March 30, 2010, investors filed a complaint in district court seeking to recover the promised funds. Although Crown Investment was the only signatory on the note, investors also brought claims against Crown Development and Mr. King under piercing the corporate veil and alter ego theories. Near the end of April 2010, Mr. King moved from Parker, Colorado, to Costa Rica, and remained out of the country for approximately seven years before returning to the United States and settling in Ashland, Oregon, in October 2017.¹

¶ 8 After filing the complaint, investors unsuccessfully attempted to serve defendants. They began by attempting service at the addresses on file at the Colorado Secretary of State's office for Crown Investment and Crown Development, and at Mr. King's personal residence in Parker, Colorado. The process server found the businesses’ addresses vacant and the personal residence surrounded by a fence and gated driveway that prevented access to the home.

¶ 9 Investors retained a second process server, who conducted surveillance of Mr. King's residence. According to the second process server, he spoke with Mr. King's tenant who lived at that address. The tenant claimed that many other process servers were trying to serve Mr. King and that Mr. King was on an extended vacation. Concluding that Mr. King was avoiding service of process, the process server then performed skip traces that showed that Mr. King had continued using the personal address in Parker to secure credit.

¶ 10 On July 22, 2010, investors filed a "Motion for Substituted Service on All Defendants" pursuant to C.R.C.P. 4(f). They requested authorization to send the summonses and complaint "as substituted service under Rule 4(f) by U.S. Mail" to: (1) Mr. King's personal address in Parker; (2) Mr. King's mother in Illinois; (3) Mr. King's second known address; (4) Mr. King's last known work address; (5) to Mr. King's brother-in-law in Colorado. Presumably, investors sought to substitute Mr. King's mother and brother-in-law for Mr. King and the other two defendants; however, the motion did not explain why service on those substituted persons was reasonably calculated to give actual notice to Mr. King. The court granted the motion on July 28, 2010, and according to investors’ counsel, the only mail that was returned as undeliverable was the one sent to Mr. King's personal address in Parker. Counsel provided no tracking or mail delivery confirmation documenting the receipt of the other mailings.

¶ 11 Neither Mr. King nor his businesses filed an answer or other responsive pleading by the August 20, 2010 deadline. Consequently, on September 1, 2010, investors filed a "Motion for Default Judgment Against All Defendants." On September 14, 2010, the district court granted the motion and entered judgment in the amount of $113,384.27, plus interest at the statutory rate of 8% "until this judgment is paid in full, along with costs of collection to include attorney fees." The note did not contain any fee-shifting language. In April 2017, investors assigned the judgment to Namaste.

¶ 12 In 2018, Namaste located Mr. King. Namaste obtained a "Writ of Garnishment with Notice of Exemption and Pending Levy" in the amount of $200,133.01 to seize funds from Mr. King's Chase bank account. It served the writ on Mr. King in May 2018.

¶ 13 On August 31, 2018, defendants moved to set aside the default judgment under C.R.C.P. 60(b)(3) and asserted that the judgment was void. Citing a violation of the right to due process, defendants claimed that investors had not exercised due diligence in determining that Mr. King could not be personally served and had failed to personally serve him. After a hearing, the district court found that investors had exercised due diligence in attempting personal service of process, and that they had "sent the documents to five different addresses including [those of] two close family members." The court denied defendants’ motion.

II. Motion to Set Aside Default Judgment

¶ 14 Defendants contend that the court erred by finding sufficient service of process and by denying their motion to set aside the judgment. They argue that service was invalid because investors’ counsel failed to personally serve the substituted persons in accordance with Rule 4(f)(1). We agree and hold that first-class mailing to a substituted person is insufficient delivery of process to satisfy due process and effect valid service.

A. Standard of Review and Relevant Law

¶ 15 We review de novo a district court's decision to grant relief from a judgment under C.R.C.P. 60(b)(3) on the basis that it is void, specifically when, as here, a party alleges lack of personal jurisdiction due to improper service of process. Goodman Assocs., LLC v. WP Mountain Props., LLC , 222 P.3d 310, 314 (Colo. 2010).

¶ 16 We apply statutory construction principles when interpreting procedural rules, beginning with the commonly understood and accepted meanings of their words, otherwise known as their plain language. Curry v. Zag Built LLC , 2018 COA 66, ¶ 23, 433 P.3d 125. If the rule is "clear and unambiguous on its face, then we need not look beyond the plain language." Vigil v. Franklin , 103 P.3d 322, 327 (Colo. 2004). We will also endeavor to "give effect to every word and render none superfluous." Lombard v. Colo. Outdoor Educ. Ctr., Inc. , 187 P.3d 565, 571 (Colo. 2008).

¶ 17 C.R.C.P. 55(c) permits a court, for good cause shown, to "set aside an entry of default and, if a judgment by default has been entered, [the court] may likewise set it aside in accordance with Rule 60(b)." As relevant here, Rule 60(b) provides that "the court may relieve a party...from a final judgment, order, or proceeding for the following reasons ... (3) the judgment is void." C.R.C.P. 60(b)(3). A default judgment is void if it "entered when the trial court lack[ed] personal jurisdiction over a defendant because of invalid service of process." Rainsberger v. Klein , 5 P.3d 351, 353 (Colo. App. 1999) (citing Weaver Constr. Co. v. Dist. Court , 190 Colo. 227, 545 P.2d 1042 (1976) ). "Where a judgment is set aside on jurisdictional grounds, it is vacated and of no force and effect." Weaver , 190 Colo. at 232, 545 P.2d at 1045.

¶ 18 It is well settled that a judgment entered against a defendant without valid service of process violates due process of law and is void. Id. When a party has attempted, but is unable to, accomplish personal service under Rule 4(e), such party may move for substituted service under Rule 4(f).

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