Reservation Operations Ctr. LLC v. Scottsdale Ins. Co., DA 17-0580

• Decision Date: 29 May 2018
• Docket Number: DA 17-0580
• Citation: 2018 MT 128,419 P.3d 121,391 Mont. 383
• Parties: RESERVATION OPERATIONS CENTER LLC, a Montana Limited Liability Company, d/b/a National Parks Reservations, Plaintiff and Appellee, v. SCOTTSDALE INSURANCE COMPANY, a Foreign Corporation; Payne Financial Group, Inc., a Montana Corporation; PayneWest Insurance, Inc., a Montana Corporation; and Does 1-10, Defendants and Appellants.
• Court: Montana Supreme Court

391 Mont. 383

419 P.3d 121

2018 MT 128

RESERVATION OPERATIONS CENTER LLC, a Montana Limited Liability Company, d/b/a National Parks Reservations, Plaintiff and Appellee,

v.SCOTTSDALE INSURANCE COMPANY, a Foreign Corporation; Payne Financial Group, Inc., a Montana Corporation; PayneWest Insurance, Inc., a Montana Corporation; and Does 1-10, Defendants and Appellants.

DA 17-0580

Supreme Court of Montana.

Submitted on Briefs: March 28, 2018

Decided: May 29, 2018

For Appellants: Dale R. Cockrell, Moore, Cockrell, Goicoechea & Johnson, PC, Kalispell, Montana

For Appellee: David C. Berkoff, Berkoff Law Firm, P.C., Missoula, Montana

Justice Jim Rice delivered the Opinion of the Court.

¶1 Scottsdale Insurance Company (Scottsdale) appeals from the deemed denial of its motion to set aside the default judgment entered against it by the Eleventh Judicial District Court, Flathead County. We reverse the entry of the default judgment and remand for further proceedings, addressing the following issue:

Did the District Court err in denying, by operation of law, Scottsdale’s M. R. Civ. P. 60(b)(4) motion to set aside the default judgment?

FACTUAL AND PROCEDURAL BACKGROUND

¶2 This action arises out of an insurance coverage dispute between Scottsdale, the Payne Defendants (Payne) and Reservation Operations Center, LLC, d/b/a National Parks Reservations (NPR). In 2011, Payne served as NPR’s procuring agent to secure commercial insurance coverage from Scottsdale. It is alleged that Payne also attempted to procure for NPR an Employment Practices Liability Policy (EPL) from Scottsdale. NPR believed Payne had obtained EPL coverage from Scottsdale, but apparently it was not secured. In 2015, NPR notified Scottsdale of a pregnancy discrimination claim brought by an NPR employee and sought coverage for the claim under the EPL policy, which Scottsdale denied. NPR filed a grievance against Scottsdale with the Office of the Montana State Auditor, Commissioner of Securities and Insurance (Commissioner). Scottsdale offered to provide retroactive EPL coverage upon several conditions, but later withdrew the offer. On October 26, 2015, NPR delivered a demand letter to Scottsdale, indicating that NPR would initiate litigation for refusal to provide coverage and including a courtesy copy of NPR’s proposed complaint.

¶3 On November 6, NPR filed a Complaint and Demand for Jury Trial (Complaint), naming Scottsdale and Payne. Because Scottsdale is a foreign insurer,¹ NPR was statutorily required to serve Scottsdale through the Commissioner’s office by providing the Commissioner duplicate copies of the Summons and Complaint, along with a $10 filing fee. On April 5, 2016, the Commissioner signed an acknowledgment of service of documents received from NPR. In turn, the Commissioner was statutorily required to forward the Complaint and Summons to Scottsdale. Further facts regarding NPR’s and the Commissioner’s compliance with the statutory requirements governing the service of process will be discussed herein.

¶4 Scottsdale failed to appear and, upon NPR’s request, the clerk of court entered a default on May 18, 2016. On January 12, 2017, the District Court entered a partial default judgment against Scottsdale, holding that Scottsdale breached its duty to defend NPR in the pregnancy discrimination claim, and was liable for all fees, costs, settlements, and consequential damages. After an initial damages hearing, the District Court concluded that NPR was entitled to $515,758.02 in compensatory damages, and after a separate punitive damages hearing, awarded NPR $4,641,822.18 in punitive damages, with accruing interest at 10% per annum, entering a final judgment on May 9, 2017.

¶5 On July 7, Scottsdale appeared and moved to set aside the default judgment. Scottsdale argued that both NPR and the Commissioner had failed to strictly comply with foreign insurer service requirements under § 33-1-603(1), MCA, and, thus, the default judgment was void pursuant to M. R. Civ. P. 60(b)(4). Scottsdale asserted NPR failed to serve duplicate copies of both the Summons and Complaint upon the Commissioner, and that the Commissioner failed to include a copy of the Complaint in its mailing to Scottsdale. In support of its motion, Scottsdale submitted affidavits from the employee who opened the mailing from the Commissioner, as well as record retention employees. NPR opposed the motion and countered with affidavits from NPR’s attorney and the Commissioner’s Chief Legal Counsel.

¶6 After 60 days passed without a ruling on the motion by the District Court, on September 7, 2017, Scottsdale’s motion to set aside the default judgment was deemed denied under M. R. Civ. P. 60(c)(1).² Scottsdale appeals.

STANDARD OF REVIEW

¶7 "Our standard of review of a district court’s ruling on a motion pursuant to M. R. Civ. P. 60(b) depends on the nature of the final judgment, order, or proceeding from which relief is sought and the specific basis of the Rule 60(b) motion." Essex Ins. Co. v. Moose’s Saloon, Inc. , 2007 MT 202, ¶ 16, 338 Mont. 423, 166 P.3d 451. "Where the movant seeks relief under Rule 60(b)(4), on the ground the judgment is void, we review the district court’s ruling de novo, as the determination that a judgment is or is not void is a conclusion of law." In re Guardianship & Conservatorship of Anderson , 2009 MT 344, ¶ 8, 353 Mont. 139, 218 P.3d 1220 (citing Essex , ¶ 16 ).³

DISCUSSION

¶8 A default judgment is a final decision of a court of law. Wittich Law Firm, P.C. v. O’Connell , 2013 MT 122, ¶ 25, 370 Mont. 103, 304 P.3d 375. " Rule 60(b) is an exception to the doctrine of finality of judgments only insofar as it allows relief from an otherwise final judgment ‘where a party was wronged through no fault of its own.’ " Wittich Law Firm, P.C. , ¶ 25 (citation omitted). A judgment is void under M. R. Civ. P. 60(b)(4) where the court issuing the judgment lacked jurisdiction. Greater Missoula Area Fedn. of Early Childhood Educators v. Child Start, Inc ., 2009 MT 362, ¶ 21, 353 Mont. 201, 219 P.3d 881. Personal jurisdiction is only obtained through "strict compliance" with the rules of service. Blaskovich v. Blaskovich , 249 Mont. 248, 250, 815 P.2d 581, 582 (1991). Defective service of process constitutes proper grounds to set aside a default judgment. Mont. Prof’l Sports, LLC v. Nat’l Indoor Football League, LLC , 2008 MT 98, ¶ 23, 342 Mont. 292, 180 P.3d 1142. "[A]ctual knowledge of a lawsuit is no substitute for proper service." Semenza v. Kniss , 2005 MT 268, ¶ 16, 329 Mont. 115, 122 P.3d 1203.

¶9 "In reviewing a default judgment, we are guided by the principle that a case should be decided on its merits; judgments by default are not favored." Nikolaisen v. Advance Transformer Co. , 2007 MT 352, ¶ 14, 340 Mont. 332, 174 P.3d 940 (citation omitted). If doubt exists concerning whether a default should be set aside, the doubt should be resolved in favor of the motion to set it aside. Sun Mt. Sports, Inc. v. Gore , 2004 MT 56, ¶ 29, 320 Mont. 196, 85 P.3d 1286 (citation omitted). "The party seeking to set aside a default has the burden of proof." Mont. Prof’l Sports, LLC , ¶ 21.

¶10 Did the District Court err in denying, by operation of law, Scottsdale’s M. R. Civ. P. 60(b)(4) motion to set aside the default judgment?

¶11 A plaintiff must serve a foreign insurer through the Commissioner. See § 33-1-601, -602, MCA. Three tasks must be performed to complete service of process upon a foreign insurer: (1) the plaintiff must provide the Commissioner⁴ with duplicate copies of the Summons and Complaint; (2) the plaintiff must pay the Commissioner a $10 service fee; and (3) the Commissioner must "promptly" forward a copy of the Summons and Complaint by certified mail to the person designated by the insurer to receive the service. See § 33-1-603(1), MCA. "Process served upon the commissioner and a copy of the process forwarded as provided in this section constitutes service of the process upon the insurer." Section 33-1-603(3), MCA. To determine whether service was properly effectuated under these provisions, we turn to the parties’ arguments and a de novo review of the record.

A. NPR’s service upon the Commissioner.

¶12 Scottsdale first argues that NPR failed to provide the Commissioner with duplicate copies of the Complaint as required by § 33-1-603(1), MCA. Scottsdale also faults the Commissioner for not maintaining a log or other record to verify the number of copies of service documents received by that office, because here the question of whether duplicate copies were received by the Commissioner cannot be confirmed by an internal office record. NPR responds that the record demonstrates NPR strictly performed the service tasks required by statute.

¶13 Scottsdale’s contention that "NPR provided only a single copy of the Complaint and Demand for Jury Trial" is very brief and relies only upon an inference drawn from a cover letter from David Berkoff, counsel for NPR, to the Commissioner, that refers to a singular "Complaint," as opposed to a plural reference to that document. However, review of the record as a whole eliminates the validity of this objection.

¶14 NPR submitted affidavits from Berkoff and Jesse Laslovich, the Commissioner’s Chief Legal Counsel. Berkoff attested that on December 4, 2015, he instructed his paralegal to forward duplicate copies of the Summons and Complaint to the Commissioner. Berkoff’s December 4, 2015 cover letter to the Commissioner stated the following documents were enclosed:

1. Original and copy of Summons for Scottsdale Insurance Company;

2. Copy of Complaint and Demand for Jury Trial; and,

3. Plaintiff’s First Discovery Requests to Defendant Scottsdale Insurance Company.

We note here that the Complaint was a 21-page document, and that the First Discovery Requests was a 16-page document.

¶15 Berkoff attested that in January 2016, he received a call from Darla Sautter, legal secretary at the Commissioner’s office, indicating that the $10 service fee had been omitted, but...