Webb v. Erickson

• Decision Date: 02 November 1982
• Docket Number: No. 15900-PR,15900-PR
• Citation: 655 P.2d 6,134 Ariz. 182
• Parties: James WEBB, Plaintiff-Appellant, v. Carl S. ERICKSON and Nancy J. Erickson, husband and wife, Defendants, and James M. Bates, Garnishee-Defendant-Appellee.
• Court: Arizona Supreme Court

Page 6

655 P.2d 6

134 Ariz. 182

James WEBB, Plaintiff-Appellant, v. Carl S. ERICKSON and Nancy J. Erickson, husband and wife, Defendants and James M. Bates, Garnishee-Defendant-Appellee.

No. 15900-PR.

Supreme Court of Arizona, In Banc.

Nov. 2, 1982.

Rehearing Denied Dec. 7, 1982.

Lawrence J. Marks, Phoenix, for plaintiff-appellant

Lebowitz & Frondorf by Shirley H. Frondorf, Phoenix, for garnishee-defendant-appellee.

FELDMAN, Justice.

At issue is whether the trial court erred in vacating a default judgment entered in favor of Appellant Webb and against Appellee Bates, a garnishee-defendant. The court of appeals held that the trial court's action was an abuse of discretion and reversed. Webb v. Erickson, 133 Ariz. ---, 655 P.2d 15 (App.1981). Bates petitioned this court for review. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5, and Rule 23, Rules of Civil Appellate Procedure, 17A A.R.S.

On August 5, 1975, appellant Webb obtained a default judgment against Carl and Nancy Erickson in the amount of $5,000 plus interest, and $1,500 in attorneys' fees. During 1975, Carl Erickson earned commissions by acting as the real estate agent in the sale of several houses. In order to collect on his judgment against Erickson, Webb caused several writs of garnishment to be served on parties whose houses had been sold by Erickson. One of these parties was Bates. On November 22, 1975, Webb served a summons and writ of garnishment on Bates at his home. The process served on Bates designated him as a garnishee-defendant in an action which was based upon the Webb/Erickson judgment.

The judgment was based on two promissory notes and a check for insufficient funds executed by Erickson.

In a subsequent affidavit, Bates stated that in November of 1975 he had just been released from the hospital after a seven-week stay resulting from injuries sustained in an industrial accident. During a two-year period, Bates had been hospitalized several times for treatment of pain and depression associated with the injury. In addition to his health problems, Bates was involved in divorce proceedings and subsequently lost custody of his two children.

Bates stated that in light of these conditions he did not clearly understand the process served on him in November of 1975. He assumed that the summons was not intended for him because he had never heard of James Webb and was not connected with any dispute between Webb and the Ericksons. While he probably knew that Carl Erickson was the real estate agent involved in the sale of his home, Bates was under the impression that the entire transaction was in escrow at the Minnesota Title Company at that time and that he had no control over payment of the real estate commission. As a result, Bates never answered the writ.

On February 27, 1976, Webb obtained a default judgment against Bates for the full amount of Webb's underlying judgment against Erickson pursuant to A.R.S. § 12-1583 (1956) (amended 1981). ¹ No copy of the default judgment was mailed to Bates. No execution was attempted.

Bates did not know that a judgment had been entered against him for the full amount of the Webb/Erickson judgment until more than three years later. In late March of 1979, Bates received a telephone call from Webb's attorney who informed him of the 1976 judgment, that interest had been accruing since that time and that Bates was "in trouble." The attorney told Bates that a reduction of the $6,500 judgment was possible if Bates would be willing to negotiate. Bates immediately contacted an attorney.

The record reflects that some negotiations took place between the parties after Bates was informed of the judgment, but no settlement was reached. On August 7, 1979, Webb served a writ of garnishment on Bates' employer, garnishing Bates' wages on the basis of the 1976 default judgment and seeking to collect the entire amount of Webb's judgment against the Ericksons.

On August 16, 1979, Bates filed a motion to vacate judgment pursuant to Rule 60(c), Rules of Civil Procedure, 16 A.R.S., and a motion to stay the execution of the judgment. After a response and oral argument, the superior court issued an order granting Bates' motion to vacate and set aside the default and quashing the writ of garnishment served on Bates' employer. A formal judgment to this effect was entered on September 19, 1979. Garnisher Webb appealed this decision to the court of appeals, which held that the trial court had abused its discretion, and reversed. Bates then petitioned this court for review. We granted review and now vacate the opinion of the court of appeals and affirm the judgment of the trial court.

Rule 55(c) of the Arizona Rules of Civil Procedure provides that an entry of default or judgment by default may be set aside "for good cause shown." The test of

good cause is the same for an entry or judgment of default. DeHoney v. Hernandez, 122 Ariz. 367, 371, 595 P.2d 159, 163 (1979). In order to obtain relief, Bates must show each of the following: (1) that his failure to answer was excused by one of the grounds set forth in Rule 60(c); (2) that he acted promptly in seeking relief from the entry of default; and (3) that he had a meritorious defense. Richas v. Superior Court, 133 Ariz. 512, 652 P.2d 1035 (1982).

RELIEF UNDER RULE 60(c)

Rule 60(c) sets forth the grounds upon which a party may be relieved from a default judgment. Rule 60(c) provides, in part:

On motion and upon such terms as are just the court may relieve a party ... from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence ...; (3) fraud ..., 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 motion shall be filed within a reasonable time, and for reasons (1), (2) and (3) not more than six months after the judgment, or order was entered or proceeding was taken.

The trial court did not specify which clause of 60(c) it relied upon in setting aside the default. In this situation, an appellate court may inquire into the applicability of any clause. Roll v. Janca, 22 Ariz.App. 335, 336, 527 P.2d 294, 295 (1974). Appellee Bates argues that relief was justified under clauses 4, 5 or 6 of Rule 60(c). Since we find that clause 6 authorized the action by the trial court, we need not consider clauses 4 or 5.

As noted above, Rule 60(c)(6) provides that a default judgment may be set aside for "any other reason justifying relief from the operation of the judgment." The wording of this clause places two separate limitations upon its application. First, the reason for setting aside the default must not be one of the reasons set forth in the five preceding clauses. Clause 6 and the first five clauses are mutually exclusive. Dunn v. Law Offices of Ramon R. Alvarez, 119 Ariz. 437, 439, 581 P.2d 282, 284 (App.1978); Sloan v. Florida-Vanderbilt Development Corp., 22 Ariz.App. 572, 576, 529 P.2d 726, 730 (1975); see also Cockerham v. Zikratch, 127 Ariz. 230, 235, 619 P.2d 739, 744 (1980). Second, the "other reason" advanced must be one which justifies relief. Leahy v. Ryan, 20 Ariz.App. 110, 112, 510 P.2d 421, 423 (1973); 7 Moore's Federal Practice, p 60.27, at 343 (2d ed. 1982).

We must also recognize, however, the broad equitable power of Rule 60(c)(6). It has been stated that clause 6 "vests power in courts adequate to enable them to vacate judgments whenever such action is appropriate to accomplish justice." Klapprott v. United States, 335 U.S. 601, 615, 69 S.Ct. 384, 390, 93 L.Ed. 266 (1949) ²; Arizona State Dept. of Economic Security v. Mahoney, 24 Ariz.App. 534, 536, 540 P.2d 153, 155 (1975); 11 Wright and Miller, Federal Practice and Procedure § 2864, at 211-12 (1973). We realize that clause 6 cannot be used to avoid the six-month limitation which applies to the first three clauses. This six-month limit was designed to ensure the finality of judgments; after six months the trial court's decision can no longer be attacked for the reasons specified in the first three clauses. Dunn v. Law Offices of Ramon R. Alvarez, supra; Sloan v. Florida-Vanderbilt Development Corp., supra. The need for finality, however, must give way in extraordinary circumstances. Klapprott v. United States, supra. Accordingly, clause 6 requires only that the motion be filed "within a reasonable time."

We have examined the record, therefore, to determine whether the facts support the trial court's presumptive discretionary finding that the facts here go beyond the factors enumerated in clauses 1 through 5 of Rule 60(c) and raise extraordinary circumstances of hardship or injustice justifying relief under the residual provision in clause 6. We believe that extraordinary circumstances justifying relief exist in this case.

Bates was a defaulting garnishee. This court has held that more liberality should be shown in setting aside a judgment against a defaulting garnishee than in setting aside a judgment against a defaulting defendant. Comision Monetaria v. Sonora Bank & Trust Co., 28 Ariz. 369, 372, 236 P. 1114, 1115 (1925); Gutierrez v. Romero, 24 Ariz. 382, 387, 210 P. 470, 472 (1922); see also Riggs v. Huachuca Investment Co., 2 Ariz.App. 527, 410 P.2d 149 (1966). The reason for this rule was stated in Gutierrez, supra:

The court should be even more liberal in allowing the belated garnishee to answer after default than in granting the privilege to an ordinary suitor defaulter, since he is a disinterested party in the proceedings, so far as any prospect of being benefited is concerned, yet an interested third person so far as the danger of being injured is...