Pena v. Seguros La Comercial, S.A.

• Decision Date: 04 September 1985
• Docket Number: No. 83-1928,83-1928
• Citation: 770 F.2d 811
• Parties: Jose Luis PENA, Plaintiff-Appellee, v. SEGUROS LA COMERCIAL, S.A., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 811

770 F.2d 811

3 Fed.R.Serv.3d 13

Jose Luis PENA, Plaintiff-Appellee, v. SEGUROS LA COMERCIAL, S.A., Defendant-Appellant.

No. 83-1928.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 14, 1985.

Decided Sept. 4, 1985.

Bryce C. Anderson, Concord, Cal., for plaintiff-appellee.

Jose Luis Pena, pro se.

A. Alan Hanshaw, Carolyn Knoblock, John Iurino, Waterfall, Economidis, Caldwell & Hanshaw, Tucson, Ariz., for defendant-appellant.

Appeal from the United States District Court for the District of Arizona.

Before BARNES and WALLACE, Circuit Judges, and STEPHENS, Senior District Judge. ^*

BARNES, Senior Circuit Judge:

This is an appeal by Seguros La Comercial, S.A., a Mexican corporation ("Seguros") from an April 4, 1983 order of the United States District Court for Arizona, denying appellant's motion, made under Fed.R.Civ.P. 60(b), ¹ to set aside a default judgment. The default judgment was obtained by Appellee Jose Luis Pena ("Pena") on December 13, 1982, after Seguros failed to answer or appear in Pena's action for tortious breach of insurance contract, which was based upon diversity of citizenship, 28 U.S.C. Sec. 1332. We affirm.

I. BACKGROUND

Pena, a twenty-two year old part-time University of Arizona student, purchased a two-day insurance policy on his automobile on April 9, 1982, prior to entering Mexico for a weekend trip from Tucson, Arizona to Puerto Penasco, Mexico. This insurance policy, which provided personal liability and bodily injury coverage while in effect, was issued by Seguros, and purchased from the Gringo Pass Insurance Agency in Lukeville, Arizona. The Gringo Pass Insurance Agency is a broker authorized to sell the Seguros policies in Arizona. In addition, the automobile which was owned by Pena and his mother, was covered by an insurance policy issued by Allstate Insurance Company of Chicago, Illinois.

On April 10, 1982, while Pena was in Mexico en route to Puerto Penasco, another vehicle crossed the center divider of the highway and struck the Pena family automobile. The collision totally destroyed the family's automobile and injured Pena and his two passengers. Pena filed an accident report with police at the scene of the accident.

Thereafter, Pena spoke with and notified a Seguros agent in Puerto Penasco of the accident. The name and address of this Seguros agent appeared on a pamphlet stapled to the front of Pena's policy at the time it was purchased, and the pamphlet indicated that the individual with whom Pena spoke was an authorized claims representative for Seguros.

Upon returning to Arizona after the accident, Pena stopped at the Lukeville office of the Gringo Pass Insurance Agency from which he had previously purchased the Seguros policy, and notified an employee of that office of the accident. Pena was informed by both the claims representative in Puerto Penasco and the employee at the Gringo Pass Insurance Agency that he would be sent the necessary papers and claim forms to be completed and filed with Seguros.

Thereafter, Pena attempted on numerous occasions to notify Seguros of the accident and obtain payment under the policy. He submitted claim forms and accident and police reports and sent certified letters to Seguros' Mexico City office, requesting payment. The letters were sent to both the Mexico City address, which was provided on the Seguros claim forms, and also to the address which Seguros provided to the Arizona Department of Insurance. Pena also re-contacted the Gringo Pass Insurance Agency and Seguros' authorized claims representative in Puerto Penasco, Mexico.

Pena put the Gringo Pass Insurance Agency on notice, also sending notice to Seguros at its Mexico City office, of his intent to file a civil action for bad faith against Seguros unless a response was forthcoming. On August 10, 1982, having received no satisfactory response or payment on his claim from Seguros, Pena filed a pro se complaint in the federal district court in Arizona, claiming bad faith tortious breach of insurance contract, and seeking compensatory and exemplary damages.

Pena served the summons and complaint on the Arizona Department of Insurance ("Department"), as Seguros' authorized agent for receipt of service, on August 11, 1982, and on August 12, 1982, the Department forwarded these documents by registered mail to Seguros at the incorrect Mexico City address Seguros had left on file with the Department. After the documents were returned undelivered to the Department, Pena served a summons and complaint on Milton Silverman, a Seguros salesman in Tucson, and he filed an affidavit of service on Silverman with the district court clerk. Pena also advised by telephone the Seguros agent in Tijuana, Mexico, of the filing of the complaint, and confirmed the telephone conversation in writing to Seguros' Mexico City office. This written communication was never acknowledged.

In addition to the above attempts by Pena and the Department to serve Seguros, the Clerk of the district court attempted to serve the summons and complaint on Seguros, by registered mail to its Mexico City address, on September 30, 1982. However, this attempt at service was returned, unexecuted, to the district court.

During the pendency of this action, Pena recovered the amount of his loss from the accident under an Allstate policy carried by the driver of the automobile which struck the Pena family vehicle. Upon recovering his damages from Allstate, Pena signed a release form thereby absolving Allstate from any further liability.

After Seguros failed to answer or appear, the district court held a hearing on Pena's motion for default judgment, and granted the motion on December 13, 1982. The district court found that Pena had effectively served Seguros, under Arizona law, by serving the Arizona Department of Insurance, ² and that he had given actual notice to Seguros of the pendency of the action.

The district court awarded Pena $18,000 compensatory damages, which consisted of $12,000 for damage to his automobile plus $2,000 each for bodily injury to Pena and his two passengers, neither of whom were included as parties in Pena's suit. In addition, the court awarded Pena $10,000 exemplary damages for Seguros' bad faith, plus court costs and interest on the judgment.

Seguros moved to vacate the default judgment under Fed.R.Civ.P. 60(b), on February 16, 1983, and the district court denied the motion. The court entered its findings on April 4, 1983, and at that time set aside $4,000 of the award of compensatory damages, thereby disallowing Pena's recovery for bodily injury to his two passengers, which was not properly recoverable under the policy. Seguros filed a timely notice of appeal.

II. DISCUSSION

We must resolve two issues in this appeal:

(1) Whether the district court abused its discretion by denying Seguros' motion to vacate the default judgment; and

(2) Whether this appeal is frivolous thereby entitling Pena to attorneys' fees.

A. Standard of Review

We review the district court's grant or denial of a motion to vacate a judgment under Rule 60(b) for an abuse of discretion, Plotkin v. Pacific Telephone & Telegraph Co., 688 F.2d 1291, 1292 (9th Cir.1982), and we will reverse a ruling on such motions under Fed.R.Civ.P. 60(b) "only upon a clear showing of abuse of discretion." Ellis v. Brotherhood of Railway, Airline & Steamship Clerks, 685 F.2d 1065, 1071 (9th Cir.1982) (emphasis added); affirmed in relevant part, 466 U.S. 435, 104 S.Ct. 1883, 80 L.Ed.2d 428 (1984).

B. Policy Considerations

While a district judge has discretion to grant or deny a Rule 60(b) motion to vacate a default judgment, that discretion is limited by two important policy considerations. First, Rule 60(b) is remedial in nature and therefore must be liberally applied. See Patapoff v. Vollstedt's, Inc., 267 F.2d 863, 865 (9th Cir.1959). Second, default judgments are generally disfavored. Whenever it is reasonably possible, cases should be decided upon their merits. Id. As a consequence of these two policies, " '[w]here timely relief is sought from a default judgment and the movant has a meritorious defense, doubt, if any, should be resolved in favor of the motion to set aside the judgment so that cases may be decided on their merits.' (7 J. Moore, Fed.Prac. p 60.19, at 232-233; Butner v. Neustadter, supra, 324 F.2d at 786)." Schwab v. Bullock's, Inc., 508 F.2d 353, 355 (9th Cir.1974).

The appellant relies heavily on Schwab v. Bullock's, Inc., supra, and several other cases which were decided before it. However, although this court is still influenced by the policies relied upon in Schwab, the test has been refined to reflect the competing policy that a motion to vacate does not become a substitute for appeal. See Falk v. Allen, 739 F.2d 461, 463 (9th Cir.1984) (per curiam). See also Inryco, Inc. v. Metropolitan Engineering Co., 708 F.2d 1225, 1230 (7th Cir.) (need "extraordinary circumstances" to vacate default judgment), cert. denied, --- U.S. ----, 104 S.Ct. 347, 78 L.Ed.2d 313 (1983). A district court has discretion to deny a rule 60(b) motion to vacate a default judgment if (1) the plaintiff would be prejudiced by granting it, (2) the defendant has no meritorious defense, or (3) the defendant's culpable conduct led to the default. Falk, 739 F.2d at 463.

This test is consistent with this Circuit's recent en banc statement on the importance of finality:

there is a compelling interest in the finality of judgments which should not lightly be disregarded. See Matton Steamboat Co. v. Murphy, 319 U.S. 412, 415, 63 S.Ct. 1126, 1128, 87 L.Ed. 1483 (1943) (per curiam); Hernandez-Rivera v. Immigration & Naturalization Service, 630 F.2d 1352, 1354 (9th Cir.1980); Selph v. Council of City of Los Angeles, 593 F.2d 881, 882 (9th Cir.1979).

Rodgers v. Watt, 722 F.2d 456, 459 (9th Cir.1983) (en banc).

C. The Test Under Rule 60(b) and Its Application

In order to uphold the district court's denial of Seguros' ...