Portland Gen. Elec. Co. v. Ebasco Servs., Inc.

• Decision Date: 21 May 2014
• Docket Number: CV05120776,A143752.
• Citation: 263 Or.App. 53,326 P.3d 1274
• Parties: PORTLAND GENERAL ELECTRIC COMPANY, an Oregon corporation, Plaintiff–Respondent, v. EBASCO SERVICES, INC., fka Esicorp, Inc.; et al, Defendants, and Lexington Insurance Company, Defendant–Appellant. EECI, Inc., a Nevada corporation, Third–Party Plaintiff, v. General Electric Company, A New York Corporation; et al., Third–Party Defendants.
• Court: Oregon Court of Appeals

263 Or.App. 53

326 P.3d 1274

PORTLAND GENERAL ELECTRIC COMPANY, an Oregon corporation, Plaintiff–Respondent,

v.EBASCO SERVICES, INC., fka Esicorp, Inc.; et al, Defendants,andLexington Insurance Company, Defendant–Appellant.

EECI, Inc., a Nevada corporation, Third–Party Plaintiff,

v.General Electric Company, A New York Corporation; et al., Third–Party Defendants.

CV05120776, A143752.

Court of Appeals of Oregon.

Submitted on Remand Dec. 18, 2013.

Decided May 21, 2014.

Daniel F. McNeil, Stephen F. Deatherage, and Bullivant Houser Bailey PC filed the opening and reply briefs for appellant. On the supplemental brief were Stephen F. Deatherage and Bullivant Houser Bailey PC.

Brian R. Talcott and Dunn Carney Allen Higgins & Tongue LLP filed the answering brief for respondent. With them on the supplemental brief was Thomas H. Tongue.

Before ORTEGA, Presiding Judge, and SERCOMBE, Judge, and HADLOCK, Judge.

HADLOCK, J.

The Supreme Court remanded this case to us to determine whether the default judgment entered by the trial court is void because plaintiff had filed an amended complaint seeking additional relief—attorney fees—without serving defendant Lexington Insurance Company with the amended complaint or, alternatively, whether the trial court erred in denying defendant's motion to set aside the default judgment on the ground of excusable neglect. PGE v. Ebasco Services, Inc., 353 Or. 849, 865–66, 306 P.3d 628 (2013) ( PGE II ). We conclude that the trial court had jurisdiction to enter judgment on the original complaint and did not err in denying defendant's motion to set aside the judgment. Accordingly, we affirm.

The material facts are not in dispute. Plaintiff settled a personal-injury action brought by a former employee who alleged that he was injured by exposure to asbestos at one of plaintiff's power plants. Plaintiff then sued “Certain Underwriters at Lloyd's London” and “Certain London Market Insurance Companies,” which had issued plaintiff insurance policies covering the period during which the asbestos exposure occurred. Plaintiff alleged that the insurers had breached the policies by refusing to indemnify it for the settlement. One of the policies was an excess liability policy providing coverage up to $5 million. Defendant had subscribed to a 16 percent share of the policy, giving it a maximum exposure of $800,000.

Plaintiff's complaint did not specify the amount of money for which plaintiff had settled the asbestos litigation, the monetary loss that resulted from defendant's alleged failure to indemnify plaintiff, or the amount of damages that plaintiff sought to recover. Nor did the complaint allege that plaintiff was entitled to recover its attorney fees.

The policy identified Mendes & Mount, a New York law firm, as an authorized agent for service of process for the subscribing insurers. In 2006, plaintiff served the complaint that initiated this action on that firm. Following its normal procedure, Mendes & Mount contacted Certain Underwriters at Lloyd's London to determine to whom the summons and complaint should be referred for defense. A Certain Underwriters representative instructed Mendes & Mount to forward the documents to Lane Powell PC, an Oregon law firm, which Mendes & Mount did. In 2007, plaintiff filed an amended complaint that, among other changes, added an allegation that plaintiff was entitled to recover its attorney fees in the action.¹ Plaintiff served the amended complaint directly on Lane Powell. In turn, Lane Powell filed an answer on behalf of the other subscribing insurers, but because it did not represent defendant and had not been instructed to file an answer on defendant's behalf, it did not do so. Nor did it alert defendant that the action had been commenced.

In 2009, plaintiff moved for an order of default and for a limited default judgment against defendant. The trial court granted the motion. In the order of default, the court referred to the original complaint, noting that defendant “was duly and regularly served with the summons and complaint” in 2006. The order makes no reference to the amended complaint. The court entered a limited default judgment awarding plaintiff $800,000 in monetary damages and $26,165.50 in attorney fees. Defendant learned of the default order and judgment shortly thereafter. Nearly six months later, defendant moved to set aside the default order and judgment on grounds of surprise, inadvertence, or excusable neglect.²

In support of its motion, defendant submitted affidavits from attorneys with Mendes & Mount and Lane Powell, among others. Defendant did not submit an affidavit from any of its own employees or from any employee of Certain Underwriters.

The trial court denied the motion, stating in its order, “I find no facts to support a conclusion of excusable neglect in the handling of this matter by [defendant], Mendes & Mount, Lane Powell, or Certain Underwriters at Lloyd's, London.”

Defendant appealed, raising three assignments of error. It renewed its contention based on excusable neglect but also raised two new arguments. First, defendant argued that the court lacked jurisdiction to enter a default judgment that exceeded the amount prayed for in the complaint. Defendant asserted that the complaint had not specified the amount that plaintiff sought from defendant and, therefore, that the court had lacked jurisdiction to award any damages. Second, defendant contended that the trial court had erred “because the complaint on which the default was entered was superseded by an unserved amended complaint claiming additional relief.”

In our first opinion in this case, we agreed with defendant that, because the complaint had not specified the amount of damages that plaintiff sought, the trial court lacked jurisdiction to award any damages and the judgment was, therefore, void. PGE v. Ebasco Services, Inc., 248 Or.App. 91, 100, 273 P.3d 165 (2012) ( PGE I ), rev'd,353 Or. 849, 306 P.3d 628 (2013). Plaintiff sought review, and the Supreme Court reversed our decision. PGE II, 353 Or. at 866, 306 P.3d 628. The court agreed that the complaint was defective and, consequently, that the judgment violated ORCP 67 C, but it held that the defect in the complaint was apparent on the face of the pleading, that defendant had had ample opportunity to challenge the defect, and, consequently, that the violation of ORCP 67 C was not “jurisdictional” in the sense that entry of the judgment deprived defendant of due process, rendering the judgment void. Id. at 864–65, 306 P.3d 628. The court remanded the case to us to address defendant's remaining assignments of error.³Id. at 865, 306 P.3d 628.

We begin with defendant's contention that the trial court erred in denying defendant's motion to set aside the judgment for excusable neglect. ORCP 71 B(1) provides, in pertinent part:

“On motion and upon such terms as are just, the court may relieve a party * * * from a judgment for the following reasons: (a) mistake, inadvertence, surprise, or excusable neglect[.] * * * The motion shall be made within a reasonable time, and for reasons (a), (b), and (c) not more than one year after receipt of notice by the moving party of the judgment.”

The party seeking relief must establish that the default was entered through mistake, inadvertence, surprise, or excusable neglect. Johnson v. Sunriver Resort Limited Partnership, 252 Or.App. 299, 308, 287 P.3d 1153 (2012), rev. den.,353 Or. 280, 298 P.3d 30 (2013). Whether certain conduct or inaction constitutes excusable neglect is a question of law that we review for legal error, but we review the trial court's ultimate decision whether to grant relief for abuse of discretion. Id. at 306, 287 P.3d 1153. However, the trial court's discretion “is controlled by fixed legal principles and must not be exercised arbitrarily, but, rather, it should be exercised to conform with the spirit of [ORCP 71] and not to defeat the ends of substantial justice.” Coleman v. Meyer, 261 Or. 129, 134, 493 P.2d 48 (1972).

This case is not on point with any other Oregon appellate case of which we are aware. However, prior cases establish several principles that guide our analysis here. First, to state the obvious, a party seeking relief from a default judgment on excusable-neglect grounds must offer some explanation for the party's failure to appear. See Lowe v. Institutional Investors Trust, 270 Or. 814, 818–19, 529 P.2d 920 (1974) (no abuse of discretion in denying motion for relief from default judgment where the defendant's registered agent had no recollection of having been served, could not find the summons and complaint in the defendant's records, and could not explain why the papers had not reached the defendant's legal department).

Nonetheless, a party's inability to explain precisely what went wrong is not necessarily fatal to a motion to set aside a default judgment. When the fate of the summons and complaint remains unknown, neglect may still be deemed excusable if the defendant had in place procedures for responding to lawsuits. For example, in Hiatt v. Congoleum Industries, 279 Or. 569, 569 P.2d 567 (1977), the summons and complaint were received by an employee in the defendant's mailroom (who was not the defendant's registered agent). “His instructions were to forward any legal document to the legal department and it was his practice to do so.” Id. at 574, 569 P.2d 567. On the occasion in question, the legal department did not receive the summons and complaint, and the mailroom employee had no memory of the incident and, therefore, could not explain what had happened. The Supreme Court held that those facts established excusable neglect as a matter of law. Id. at 577, 569 P.2d 567.

This court has since noted the significance of established procedures in showing excusable neglect. In Knox v. GenX Clothing, Inc., 215 Or.App. 317, 320, 329, 168 P.3d 1251 (2007), we affirmed the denial of the defendant's motion to set aside a default...