Shurtleff v. State Farm Fire

• Decision Date: 27 April 2011
• Docket Number: No. 1 CA-CV 09-0053,1 CA-CV 09-0053
• Parties: JOYCE SHURTLEFF and JOSEPH MILLER, Plaintiffs/Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellee.
• Court: Arizona Court of Appeals

JOYCE SHURTLEFF and JOSEPH MILLER, Plaintiffs/Appellants,

v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellee.

No. 1 CA-CV 09-0053

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT E

Dated: April 27, 2011

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

Not for Publication-(Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV2007-019765

The Honorable Richard L. Nothwehr, Commissioner

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

Arnett & Arnett, P.C.

By Wayne C. Arnett

Mark W. Arnett

Attorneys for Appellants

Chandler

Broening Oberg Woods & Wilson, P.C.

By James R. Broening

Wm. Rinaudo Phillips

Brian W. Purcell

Attorneys for Appellee

Phoenix

GEMMILL, Judge ¶1 Appellants Joyce Shurtleff and Joseph Miller ("Plaintiffs") obtained a default judgment against State Farm Fire and Casualty Company. The trial court awarded compensatory damages for breach of contract and bad faith, as well as punitive damages for bad faith. State Farm filed a motion to set aside the portion of the default judgment awarding punitive damages. The trial court granted the motion and ordered that State Farm could file an answer to the punitive damage allegations of the complaint. Plaintiffs then filed a motion to set aside the portion of the default judgment awarding compensatory damages for bad faith. The court denied this motion. Plaintiffs now appeal these decisions.

¶2 For the reasons that follow, we reverse the trial court's decision to grant the motion to set aside the punitive damage portion of the default judgment and its decision to permit State Farm to file an answer, but we affirm the court's denial of Plaintiffs' motion to set aside the compensatory damages portion of the default judgment.

FACTS AND PROCEDURAL BACKGROUND¹

¶3 State Farm insured Plaintiffs under a renter's policy. In August 2005, Plaintiffs were in the process of moving when the Budget rental truck containing nearly all their personalbelongings was stolen from a hotel parking lot in Mesa. After the theft, Plaintiffs lived in their Dodge pickup truck for about a month and a half. Eventually they saved enough money to move to Prescott. During this time, Plaintiffs nearly lost their pickup truck to repossession, and Shurtleff experienced depression.

¶4 In January 2006, Plaintiffs sent State Farm an itemized list of the property stolen from the rental truck. They calculated the value of their stolen property to be over $86,000. State Farm made a $500 payment to them in January, a $10,000 payment in February, and a $25,232 payment in March, for a total of $35,732. The personal property coverage limit on the insurance policy was $58,834.

¶5 In October 2007, Plaintiffs filed a two count complaint against State Farm alleging breach of contract and breach of the duty of good faith and fair dealing (in other words, the tort of bad faith). After service of process, State Farm failed to answer or otherwise respond. In February 2008, a default judgment damages hearing was held and the trial court entered default judgment in favor of Plaintiffs, awarding them $23,102 in damages for breach of contract (the balance of their policy limit), $20,000 in compensatory damages on the bad faith claim, and $80,000 in punitive damages for bad faith.

¶6 In March 2008, State Farm filed a motion based on Rule 60(c)(6), Arizona Rules of Civil Procedure, to set aside the punitive damages portion of the judgment. It asserted that there was no evidence presented at the default judgment hearing that would support a finding that State Farm had acted with the requisite "evil mind" and that awarding punitive damages was therefore contrary to law, unjust, and inequitable. After a hearing, the trial court granted State Farm's motion and set aside the award of punitive damages, explaining its decision as follows:

[T]here [was] insufficient evidence presented at the default hearing to sustain an award of punitive damages. The court concludes that it is in the best interests of justice to set aside the judgment.

The court also authorized State Farm to file an answer to the complaint focused solely on the issue of punitive damages.

¶7 In July 2008, Plaintiffs filed a motion to set aside the compensatory damages portion of the default judgment. They asserted that, "[i]f the parties are going to go to a jury on the amount of punitive damages for bad faith, the issue of the amount of compensatory damages for bad faith should also be decided by that same jury." After briefing and argument, the trial court denied the motion. Plaintiffs timely appealed, and we have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(C) (2003).

ANALYSIS

¶8 On appeal, Plaintiffs challenge the trial court's rulings on the two motions for relief under Rule 60(c)(6) of the Arizona Rules of Civil Procedure. Under Rule 60(c), a party may be relieved from a final judgment for the following reasons:

(1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(d); (3) fraud

(whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released or discharged, or a prior judgment on which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.

The rule allows for relief from judgments that, because of extraordinary circumstances, are unjust and cannot be remedied by law. Panzino v. City of Phoenix, 196 Ariz. 442, 445, 1 5, 999 P.2d 198, 201 (2000).

¶9 To obtain relief under Rule 60(c)(6), a party must show that: (1) the reason for setting aside the judgment is not one of the reasons set forth in the preceding five clauses; and that (2) the "other reason" advanced justifies relief. Id. at 1 6. The subsection applies only when the court's interest in the finality of judgments is outweighed by "extraordinarycircumstances of hardship or injustice." Minjares v. State, 223 Ariz. 54, 61, 1 28, 219 P.3d 264, 271 (App. 2009) (quoting Webb v. Erickson, 134 Ariz. 182, 187, 655 P.2d 6, 11 (1982)) (emphasis added). There are no specific circumstances that must exist to qualify as sufficiently extraordinary, unique, or compelling to justify relief under Rule 60(c)(6), Park v. Strick, 137 Ariz. 100, 105, 669 P.2d 78, 83 (1983), and this

determination must be made on a case-by-case basis, Gorman v. City of Phoenix, 152 Ariz. 179, 182, 731 P.2d 74, 77 (1987).

¶10 Whether to set aside a default judgment is within the sound discretion of the trial court and we will not disturb the court's ruling absent a clear abuse of discretion. Hirsch v. Nat'l Van Lines, Inc., 136 Ariz. 304, 308, 666 P.2d 49, 53 (1983); Daystar Investments, L.L.C. v. Maricopa County Treasurer, 207 Ariz. 569, 572, 1 13, 88 P.3d 1181, 1184 (App. 2004); Gen. Elec. Capital Corp. v. Osterkamp, 172 Ariz. 191, 193, 836 P.2d 404, 406 (App. 1992). However, where the facts are not disputed, and there are few or no conflicting procedural, factual or equitable considerations, "the resolution of the question is one of law or logic. In such cases, we must, if appropriate, substitute our judgment for that of the trial court, and if the trial court vacated entry of default without legal grounds, that constitutes an abuse of discretion." Daystar Investments, L.L.C, 207 Ariz. at 572, 1 13, 88 P.3d at1184 (citations omitted). Similarly, an abuse of discretion may occur when a trial court commits an error of law in the process of exercising its discretion. Kohler v. Kohler, 211 Ariz. 106, 107, 1 2, 118 P.3d 621, 622 (App. 2005).

The Trial Court Erred in Granting

State Farm's Motion for Rule 60(c)(6) Relief

¶11 Plaintiffs first contend the trial court erred in granting State Farm's motion to set aside the punitive damages portion of the default judgment. They assert there was no legal or equitable reason to set aside the award and State Farm did not show the "extraordinary circumstances of hardship or injustice" necessary for Rule 60(c)(6) relief. We agree.

¶12 In January 2008, Plaintiffs filed an application for entry of default. Although the record does not reveal that a formal default was in fact entered by the clerk, see Ariz. R. Civ. P. 55(a) (stating clerk shall enter default upon written application), the parties and the trial court proceeded as though default had in fact been entered. Notwithstanding this apparent technical omission, a fair reading of the record reveals that State Farm was in default status and remains in default.

¶13 State Farm's default constitutes a judicial admission that it is liable for punitive damages. See Hawke v. Bell, 136 Ariz. 18, 21, 663 P.2d 1009, 1012 (App. 1983) (entry of defaultconstitutes judicial admission of liability); Camacho v. Gardner, 6 Ariz. App. 590, 593, 435 P.2d 719, 722 (1967) (stating default is judicial admission of plaintiff's right to recover), vacated on other grounds 104 Ariz. 555, 456 P.2d 925 (1969); see also Waller v. Rymer, 668 S.E.2d 470, 472-73 (Ga. Ct. App. 2008) (defendants' liability for punitive damages was established by entry of default); Duvall v. Maxey, 249 S.W.3d 216, 222-23 (Mo. Ct. App. 2008) (same). Therefore, the only issue for determination at the default hearing was the amount of damages to be awarded to Plaintiffs for their claims. Plaintiffs testified regarding their losses and the conduct of the insurance agent. After taking the matter under advisement, the court issued a judgment awarding Plaintiffs $80,000 in punitive damages, an amount substantially less than suggested by Plaintiffs'...