Servatron, Inc. v. Intelligent Wireless Prods., Inc.

• Decision Date: 24 March 2015
• Docket Number: No. 32251–3–III.,32251–3–III.
• Citation: 346 P.3d 831,186 Wash.App. 666
• Parties: SERVATRON, INC. a Washington corporation, Respondent, v. INTELLIGENT WIRELESS PRODUCTS, INC., a Washington corporation; CYFRE, LLC, a California limited liability company, Defendants, Lawrence Kovac and Jane Doe Kovac, husband and wife, and the marital community composed therein, Appellants.
• Court: Washington Court of Appeals

186 Wash.App. 666

346 P.3d 831

SERVATRON, INC. a Washington corporation, Respondent

v. INTELLIGENT WIRELESS PRODUCTS, INC., a Washington corporation; CYFRE, LLC, a California limited liability company, DefendantsLawrence Kovac and Jane Doe Kovac, husband and wife, and the marital community composed therein, Appellants.

No. 32251–3–III.

Court of Appeals of Washington, Division 3.

March 24, 2015.

Michael G. Atkins, Atkins Intellectual Property, PLLC, Seattle, WA, David John Corbett, David Corbett PLLC, Tacoma, WA, for Respondent.

Keith Patrick Scully, Charlotte Celeste Kuhn, Newman Du Wors LLP, Seattle, WA, for Appellants.

Opinion

FEARING, J.

¶ 1 We address today a reoccurring issue: whether a defendant “appeared” in a lawsuit such that the plaintiff needed to afford him notice before entering a default judgment. We do not applaud the conduct of defendant's counsel in this appeal, and we encourage practitioners to protect their clients by always timely entering a formal notice of appearance with the court and opposing counsel. Nonetheless, we hold that Lawrence Kovac's California attorney made a sufficient “appearance” for purposes of CR 55. We reverse the trial court's refusal to vacate a default judgment in favor of plaintiff Servatron, Inc., against defendants Lawrence Kovac and his wife.

PROCEDURE

¶ 2 The facts underlying the lawsuit and entailing the substantive dispute between the parties bear little relevance to the issue on appeal. On December 23, 2011, Servatron sued Intelligent Wireless Products, Inc. (IWP), Cyfre, LLC, and Lawrence and Jane Doe Kovac, alleging, (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) unjust enrichment, and (4) tortious interference. Jane Doe Kovac is a fictitious name for the wife of Lawrence Kovac. Servatron alleged that IWP failed to pay for orders of cell phone amplifiers that it placed with Servatron. Servatron also alleged that IWP, Cyfre, and the Kovacs interfered with Servatron's attempts to resell goods in its possession that IWP ordered but for which IWP did not pay. Among other relief requested, Servatron sought the piercing of IWP's corporate veil to hold Cyfre and the Kovacs, both IWP shareholders, personally liable for IWP's breach and tortious interference. Lawrence Kovac was CEO of IWP, until it was administratively dissolved on November 22, 2009.

¶ 3 Servatron personally served IWP, Cyfre, and the Kovacs in California during January and February of 2012. Lawrence Kovac hired California attorney, Faraz Mobassernia, on Wilshire Boulevard in Santa Monica, to investigate and represent him and his wife in Servatron's suit.

¶ 4 In April 2012, Faraz Mobassemia contacted Servatron's attorney, Michael Atkins, and told him he represented IWP, Cyfre, and the Kovacs. On April 5, 2012, Mobassemia wrote to Atkins:

Please contact my office to discuss the parameters of this matter. I emailed the court in Washington and I have to get a response from them regarding the filing of this complaint. I do not see a case number on the face of the summons or complaint. Please call me at your earliest convenience.

Clerk's Papers (CP) at 146. Atkins responded the same day:

Here's the case number: 11–2–05197–2.

I will check with my client about your request for 30 more days to investigate before answering.

CP at 146.

¶ 5 The parties held a phone conference to settle the case, after which Atkins sent a settlement proposal to Mobassemia on April 30. After receiving no response, Atkins wrote Mobassemia on June 4, 2012, stating:

We need your clients' acceptance of our basic settlement terms by Friday [June 8, 2012] or Servatron is going to move forward with the default process and/or litigation.

CP at 181. Mobassernia requested an additional week to respond due to Lawrence Kovac's mother's imminent death. Servatron agreed. On June 5, Atkins wrote to Mobassemia:

In light of Lawrence's mother's situation, we'll agree to extend the deadline as you requested until 6/15. However, we need the defendants to accept our settlement terms by then or we'll go into litigation mode—including moving for default. We're not willing to drag things out any longer than that.

CP at 154. On June 6, 2012, Michael Atkins wrote Faraz Mobassernia: “Here's the scheduling order in case we move back to the litigation track.” CP at 154.

¶ 6 On June 15, 2012, Faraz Mobassernia sent Michael Atkins an “agreement for IP [intellectual property] rights” and stated he would call shortly. CP at 180. On June 21, Mobassernia wrote again to Atkins:

Please call me to discuss developments on this case. Tried calling both your phone numbers, computer operator comes on the phone asking for your 10 digit number.

CP at 179. Atkins replied that he was in China and stated:

If your clients agree to the settlement terms in my last substantive email, we can work toward settling. Based on your last substantive message to me, your clients reject many of those terms. Therefore, I don't know that further talks would be productive. If something has changed, please describe what has changed in an email, which is easier for me to address while I'm on the road.

CP at 179.

¶ 7 Faraz Mobassernia replied:

Your client is selling the product to USA Technologies after being fully aware that it does not have the right to do so (ergo your client's request in the settlement).... what's going on? ? ? ?

CP at 179. Michael Atkins, in turn, replied:

I don't understand what you mean. Servatron has the right to sell the product under the UCC in an effort to defray what your client owes. If you have contrary authority, please send it so we can consider it. However, the UCC is quite clear on this point.

CP at 179.

¶ 8 On June 18, Faraz Mobassernia wrote to Michael Atkins, in part:

Here is an email discussing our issues, direct from my client point by point.... call to discuss.

Here are the simple issues

....

Thanks for organizing the call last week. Based on our discussion, Servatron would be willing to settle along the following terms:

CP at 186.

¶ 9 All written communications between counsel had been by e-mail. Communications between counsel ended after Michael Atkins' June 21 missive. Neither IWP, Cyfre, nor the Kovacs filed a notice of appearance or answer with the court after the failed settlement negotiations.

¶ 10 On July 11, 2012, Servatron moved for entry of default, without serving the motion on Faraz Mobassernia, IWP, Cyfre, or the Kovacs. In an affidavit in support of the motion, Michael Atkins declared that he told defendants that Servatron would “go into litigation mode—including moving for default” after June 15, 2012. CP at 29. The trial court granted the motion and entered an order of default on July 19, 2012.

¶ 11 On October 15, 2012, Servatron moved for entry of a default judgment. Again, it did not serve this motion on defendants or Faraz Mobassernia. The trial court granted Servatron's motion the same day and awarded Servatron's requested damages and injunctive relief, while holding Cyfre and Lawrence and Jane Doe Kovac jointly and severally liable for the judgment against IWP.

¶ 12 On October 31, 2013, Servatron served a California collection action on Lawrence and Jane Doe Kovac. On December 11, 2013, the Kovacs hired Washington counsel, and, on December 20, 2013, the Kovacs moved to set aside the default judgment under CR 60(b). The Kovacs argued that their delay in moving to vacate was justified because they did not learn of the judgment until Servatron served them with a collection action in California and they earlier believed Servatron had decided not to pursue litigation.

¶ 13 In response to the motion to vacate the default judgment, Servatron argued that the Kovacs never appeared in the lawsuit and, therefore, it need not have given them notice of a default hearing. Servatron also contended it complied with CR 55's notice requirement by telling the Kovacs it would move for default if they did not reach a settlement during negotiations. The trial court denied Lawrence and Jane Doe Kovac's motion to vacate the default judgment, in part, because the Kovacs did not file their motion within one year and because of the couple's neglect in not resolving the dispute.

LAW AND ANALYSIS

¶ 14 We must decide whether Lawrence and Jane Doe Kovac “appeared” in the lawsuit, entitling them to notice when Servatron sought an order of default and default judgment. If the answer is “yes” we must decide if the Kovacs timely sought to vacate the default judgment.

CR 55 Appearance Requirement

¶ 15 The Kovacs contend that settlement negotiations and communications through their California attorney and with Servatron after the suit began constituted substantial compliance with CR 55's appearance requirement, sufficient to entitle them to notice of Servatron's motions for default. We agree.

¶ 16 When the facts surrounding the adequacy of a party's appearance under CR 55 are undisputed, this court reviews de novo whether that party has established its appearance as a matter of law. Meade v. Nelson, 174 Wash.App. 740, 750, 300 P.3d 828, review denied, 178 Wash.2d 1025, 312 P.3d 652 (2013) ; Rosander v. Nightrunners Transp., Ltd., 147 Wash.App. 392, 399, 196 P.3d 711 (2008). In Sacotte Constr., Inc. v. Nat'l Fire & Marine Ins. Co., 143 Wash.App. 410, 415, 177 P.3d 1147 (2008), Division Two of this court applied an abuse of discretion standard of review when addressing the trial court's failure to vacate a default judgment. In that case, the parties disputed whether the acts constituting the formal appearance actually occurred. In our appeal, the underlying facts are based on written communications filed with the court. The only dispute is what conclusion to draw from the writings.

¶ 17 CR 55(a)(3) reads:

Notice. Any party who has appeared in the action for any purpose shall be served with a written notice of motion for default and the supporting affidavit at least 5 days before the hearing on the motion.

(Emphasis added.) Under CR 55(a)(3), if a party has “appeared”...