Schooley v. Pena

• Decision Date: 17 May 2022
• Docket Number: 1 CA-CV 21-0216
• Parties: Joseph SCHOOLEY, Plaintiff/Appellant, v. Arturo PENA, Defendant/Appellee. Farmers Insurance Exchange, Garnishee/Appellee.
• Court: Arizona Court of Appeals

70 Arizona Cases Digest 14

510 P.3d 522

Joseph SCHOOLEY, Plaintiff/Appellant,

v. Arturo PENA, Defendant/Appellee.Farmers Insurance Exchange, Garnishee/Appellee.

No. 1 CA-CV 21-0216

Court of Appeals of Arizona, Division 1.

FILED May 17, 2022

Ahwatukee Legal Office PC, Phoenix, By David L. Abney, Co-Counsel for Plaintiff/Appellant

Phillips Law Group, Phoenix, By Sophia J. Augeri, Timothy G. Tonkin, Co-Counsel for Plaintiff/Appellant

Law Office of Broening Oberg Woods & Wilson, Phoenix, By Alicyn Freeman, Kelly Jancaitis, Co-Counsel for Garnishee/Appellee

Lewis Roca Rothgerber Christie LLP, Phoenix, By Lawrence A. Kasten, Steven J. Hulsman, Co-Counsel for Garnishee/Appellee

Judge Michael J. Brown delivered the opinion of the Court, in which Presiding Judge Randall M. Howe and Judge Brian Y. Furuya joined.

BROWN, Judge:

¶1 Joseph Schooley appeals the superior court's order setting aside a default judgment entered against Farmers Insurance Exchange ("Farmers") in a garnishment proceeding. He argues the court abused its discretion, asserting Farmers failed to show excusable neglect. Because Schooley failed to provide notice of his request for default judgment to Farmers’ attorney as required by Arizona Rule of Civil Procedure ("Rule") 55(a), we affirm.

BACKGROUND

¶2 Schooley sued Arturo Pena for personal injuries, alleging negligence and negligent infliction of emotional distress arising from Pena's discharge of a firearm while driving a car. At the time of the shooting, Pena ostensibly had $500,000 in liability coverage under a Farmers homeowner insurance policy belonging to his father. Schooley's attorney, Sophia Augeri, submitted a claim to Farmers seeking coverage under the policy. Farmers referred the claim to outside counsel, Alicyn Freeman, who denied the claim on Farmers’ behalf.

¶3 Pena failed to defend the action, and Schooley obtained a default judgment against him of $525,000. Augeri then contacted Freeman, again seeking coverage under the policy. After Freeman denied coverage a second time, Augeri threatened to file a bad faith claim and asserted Farmers would have to tender reimbursement in any event "when a writ of garnishment is served."

¶4 After Schooley obtained the writ, he served it and supplemental materials (collectively "garnishment packet") on the Arizona Department of Insurance, given that Farmers is a foreign insurer. See A.R.S. §§ 20-102(1), 20-221(B). The garnishment packet listed Pena as the debtor, but did not include the name of the policy holder (Pena's father) or the policy number, mention the coverage dispute, or identify Freeman as counsel. It is undisputed that Schooley did not send the packet to Freeman or her law firm.

¶5 The garnishment packet was forwarded to Farmers, but the intake employee could not find any reference to Pena in Farmers’ records. As Farmers later informed the superior court, because garnishment actions involving Farmers are typically filed by creditors seeking to garnish funds owed by Farmers’ employees or agents, the packet was internally misdirected and never reached Farmers’ legal department.

¶6 Schooley filed a petition for an order to show cause under A.R.S. § 12-1583 (outlining procedures if garnishee fails to answer or appear), alleging Farmers had defaulted by not responding to the garnishment writ within 10 days. The court issued a show-cause order, and Schooley served Farmers with the order through the Arizona Department of Insurance. Again, Schooley did not notify Freeman. As before, the show-cause order was misdirected within Farmers’ various accounting divisions.

¶7 Schooley filed two briefs with the superior court supporting the default judgment, but did not serve either of them on Farmers or Freeman. Farmers did not attend the show-cause hearing, where the court entered a default judgment against Farmers for approximately $530,000.

¶8 Two weeks later, Farmers moved to set aside the default judgment. Farmers asserted in part that relief was warranted because (1) Schooley did not abide by Rule 55 ’s requirement that notice be provided to Freeman, who was known to Schooley as Farmers’ attorney regarding the Pena claim; and (2) Farmers’ failure to respond constituted excusable neglect under Rule 60(b)(1). Although finding the evidence "thin," the court granted relief and set aside the judgment under Rule 60(b)(1). The court declined to rule on whether Rule 55 applied, doubting whether it was strictly applicable, but noting nonetheless that it informed how Schooley should have proceeded. Schooley timely appealed, and we have jurisdiction under A.R.S. § 12-2101(A)(2).

DISCUSSION

¶9 We review a court's decision on a motion to set aside a default judgment for an abuse of discretion. MacLean v. Newgioco Group, Inc. , 251 Ariz. 31, 33, ¶ 8, 484 P.3d 145, 147 (App. 2021). We review de novo the interpretation of statutes and rules, In re $11,660.00 U.S. Currency , 251 Ariz. 106, 108, ¶ 8, 485 P.3d 561, 563 (App. 2021), but view the facts in the light most favorable to upholding the court's decision, MacLean , 251 Ariz. at 33, ¶ 8, 484 P.3d at 147. We interpret the language of a rule in view of the entire text, considering the context and related provisions. See Nicaise v. Sundaram , 245 Ariz. 566, 568, ¶ 11, 432 P.3d 925, 927 (2019) ; State v. Hansen , 215 Ariz. 287, 289, ¶ 7, 160 P.3d 166, 168 (2007) (courts apply the same principles in interpreting statutes and rules). If the text is unambiguous, we apply it as written without using other methods of statutory interpretation. State v. Jurden , 239 Ariz. 526, 530, ¶ 15, 373 P.3d 543, 547 (2016).

A. Application of Rule 55

¶10 Farmers urges us to affirm on the grounds that Schooley failed to provide proper notice of the garnishment proceeding under Rule 55. Although the superior court declined to rule on this issue, in reviewing a judgment we will affirm the court's ruling "if the result was legally correct for any reason." Gen. Elec. Capital Corp. v. Osterkamp , 172 Ariz. 191, 193, 836 P.2d 404, 406 (App. 1992). Stated differently, "if the judgment can be sustained on any theory framed by the pleadings and supported by the evidence, we must affirm it." Id .

¶11 Rule 55 outlines the procedure in a typical civil case for obtaining a default judgment. Generally, when a plaintiff seeks a default judgment against a defendant who has not yet filed an answer or otherwise defended against the action, the plaintiff submits an "application for default." Ariz. R. Civ. P. 55(a)(1), (2). The application must, among other things, identify "any attorney known to represent the party claimed to be in default in the action in which default is sought or in a related matter ." Ariz. R. Civ. P. 55(a)(2)(D) (emphasis added). Additionally, the party seeking the entry of default must mail a copy of the application to the known attorney, "whether or not that attorney has formally appeared in the action." Ariz. R. Civ. P. 55(a)(3)(B). If the defendant fails to respond within 10 days, the party is deemed to have defaulted, and the plaintiff may request a default judgment as outlined under Rule 55(b). See Ariz. R. Civ. P. 55(a)(4),(5), and (b). But if the plaintiff fails to notify known counsel of the application for default, it would be improper to enter a default judgment. See MacLean , 251 Ariz. at 34, ¶ 13 n.3, 484 P.3d at 148 (suggesting that a Rule 60(b) motion cannot be denied if counsel was not notified as required under Rule 55 ).

¶12 A garnishment proceeding, however, is governed by specific statutory procedures not generally applicable in other civil actions. The circumstances in which a garnishor can obtain a default judgment against a garnishee are outlined in § 12-1583, which states:

If a garnishee fails to answer within the time specified in the writ, the judgment creditor for whom the writ has been issued may petition the court for the issuance of an order requiring the garnishee to appear before the court at a time and place specified in the order to answer the writ or to file and serve a copy of the answer on the judgment creditor for whom the writ has been issued, or on his attorney if the party is represented by counsel, at least five days before the appearance date. If the garnishee fails to appear or file and serve the answer after the service of the order requiring the appearance in person or answer upon the garnishee, the court may, after judgment has been rendered against the judgment debtor, render judgment by default against the garnishee for the full amount of the judgment against the judgment debtor .

(Emphasis added.) Section 12-1583 does not address whether civil procedure rules are also applicable to the default proceeding. Nonetheless, this court has held that Rule 55(b) applies when a party seeks a default judgment under § 12-1583 against a garnishee that has already appeared. Groat v. Equity Am. Ins. Co. , 180 Ariz. 342, 348, 884 P.2d 228, 234 (App. 1994). Relying on Groat , Farmers argues that Rule 55(a) applies when the garnishee has not yet appeared or defended, and the garnishor is thus required to notify known counsel of an application for default.

¶13 Schooley concedes that he did not notify Freeman of the garnishment proceedings. He argues nonetheless that Freeman did not represent Farmers in a "related matter," and was therefore not entitled to notice under Rule 55(a)(3)(B). Schooley notes that Freeman, on behalf of Farmers, declined to provide for Pena's representation in the underlying negligence case. He then suggests that because Freeman never stated she would represent Farmers in future proceedings, like the garnishment action, such proceedings are not related matters under the rule. Schooley construes the term "related matter" too narrowly. It is undisputed that Freeman represented Farmers in settlement negotiations with Schooley regarding his coverage claim, which is the sole basis for the garnishment proceedings and the default judgment against Farmers. The only reasonable construction of Rule 55...