IN THE SUPREME COURT OF THE STATE OF NEVADA
NEVADA DIRECT INSURANCE No. 66561
COMPANY, A NEVADA COMPANY,
Appellant,
vs.
EMILY ADKINS FIELDS; FARMERS
INSURANCE COMPANY; WILLIAM
FILED
DOUGLAS O'DELL; MICHAEL SMITH; FEB 26 2016
AND SHARON SMITH,
TRACE K LINDEMAN
Respondents. CLERK OF SUPREME COURT
Br
DEPUTY CLERK
ORDER VACATING JUDGMENT AND REMANDING
This is an appeal from a declaratory judgment following a
bench trial. Eighth Judicial District Court, Clark County; Abbi Silver,
Judge. The district court issued its judgment before this court handed
down its decision in Torres v. Nevada Direct Insurance Co., 131 Nev., Adv.
Op. 54, 353 P.3d 1203 (2015). "When legal, not factual, issues are at play,
this court reviews de novo a district court order resolving a request for
declaratory relief." Las Vegas Taxpayer Accountability Comm. v. City
Council of Las Vegas, 125 Nev. 165, 172, 208 P.3d 429, 433 (2009). We
vacate and remand.
On September 8, 2010, appellant Nevada Direct Insurance
filed a complaint for declaratory relief against its insured, Gay Kuperman.
Nevada Direct's complaint sought a declaration that Kuperman's failure to
cooperate extinguished its duties to defend and indemnify Kuperman
against claims arising out of a car accident in which Kuperman was
involved. On October 6, 2011, Nevada Direct obtained a default judgment
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against Kuperman, but its declaratory judgment action continued against
the other named defendants, including respondents Michael and Sharon
Smith, who were injured in the accident. 1 In a separate suit, the Smiths
sued Kuperman, obtaining a judgment against him in excess of his
$15,000/$30,000 policy limits.
On cross-motions for summary judgment, the district court
held that Nevada Direct's statutory duty to pay minimum policy limits
survived Kuperman's breach of his duty to cooperate and Nevada Direct's
default judgment against him The district court then assigned
Kuperman's extra-contractual rights to the Smiths, despite the default
judgment against Kuperman and the lack of any counter- or cross-claims
by the Smiths. On September 10, 2014, after a bench trial, the district
court sua sponte vacated Nevada Direct's by then three-year-old default
judgment against Kuperman. In its final order, the district court made
findings of fact that Nevada Direct argues exceed the scope of the
declaratory action. 2
Default Judgment
Generally, once a default judgment is entered, a court may
set it aside pursuant to NRCP 60. See NRCP 55(c). But when an action
joins multiple parties, a• default judgment "as to one or more but fewer
than all of the parties" is not a "final judgment" unless certified as such
under NRCP 54(b), which the default judgment against Kuperman was
'None of the respondents except the Smiths filed answering briefs,
despite an order from this court directing them to do so.
2 Because we vacate the district court's order in its entirety, we need
not address the district court's findings of fact.
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not. Rae v. All Am. Life & Cas. Co., 95 Nev. 920, 922, 605 P.2d 196, 197
(1979) ("In the absence of [an NRCP 54(b)] determination, a decision
affecting fewer than all parties is 'subject to revision at any time before
the entry of judgment' as to all parties."). Rather than the stricter
standards of NRCP 60(b), the standard for setting aside an entry of
default under NRCP 55(c) applies to non-final default judgments. See
Dassault Systemes, SA v. Childress, 663 F.3d 832, 840 (6th Cir. 2011);
FDIC v. Francisco Inv. Corp., 873 F.2d 474, 478 (1st Cir. 1989). 3
NRCP 55(c) allows a "court to set aside an entry of default Tor
good cause shown." Intermountain Lumber & Builders Supply, Inc. v.
Glens Falls Ins. Co., 83 Nev. 126, 129, 424 P.2d 884, 886 (1967). The "good
cause" standard under NRCP "55(c) is broad in scope, and includes the
'mistake, inadvertence, surprise or excusable neglect' referred to in Rule
60(b)(1)." Id. Federal cases construing Fed. R. Civ. P. 55(c)'s analogous
"good cause" standard analyze three factors: (1) "whether [the defaulting
party] engaged in culpable conduct that led to the default; (2) whether [the
defaulting party] had a meritorious defense; or (3) whether reopening the
default judgment would prejudice [the moving party]." Franchise Holding
LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922, 926 (9th Cir. 2004).
Culpable Conduct
"If a defendant 'has received actual or constructive notice of
the filing of the action and failed to answer,' its conduct is culpable." Id.
(quoting Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc.,
840 F.2d 685, 690 (9th Cir. 1988)). Here, Nevada Direct served Kuperman
3 The parties do not note this distinction, instead assuming NRCP 60
controls.
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by publication. For the first time on appeal, respondents argue that
Nevada Direct's default judgment against Kuperman was void for lack of
proper service, alleging that the second and third amended complaints
were never served on Kuperman. However, the judgment was not void for
lack of personal service. NRCP 5(a) states: "No service need be made on
parties in default for failure to appear except that pleadings asserting new
or additional claims for relief against them shall be served upon them in
the manner provided for service of summons in Rule 4." Federal courts
have interpreted the term "default" for purposes of service as failing to
appear and answer within the required period, even when the clerk has
not yet entered that party's default. Cutting v. Town of Allenstown, 936
F.2d 18, 21 n.1 (1st Cir. 1991). Nevada Direct was not required to serve
Kuperman with its second and third amended complaints because they did
not assert new claims for relief against him. Service by publication is
authorized in Nevada and was 1 appropriately made here. The failure to
answer or otherwise respond thus was "culpable" under controlling case
law.
Meritorious Defense
Federal law holds that, "[t]o justify vacating the default
judgment . . [the defaulting party must] present the district court with
specific facts that would constitute a defense"; "[a] mere general denial
without facts to support it is not enough to justify vacating a default or
default judgment." Franchise Holding, 375 F.3d at 926 (internal quotation
omitted). Here, since the district court acted sua sponte and Torres
entitled Nevada Direct to prevail against Kuperman as a matter of law,
the second of the three Fed. R. Civ. P. 55(c) factors, too, weighs in favor of
Nevada Direct. We note, however, that in Epstein v. Epstein, 113 Nev.
1401, 1405, 950 P.2d 771, 773 (1997), this court stated that, "a party need
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not show a meritorious defense in order to have a court set aside a default
judgment."4 As the parties briefed this case under NRCP 60, not NRCP
55, see note 3, supra, we decline to examine the extent to which, if at all,
Epstein applies to circumstances such as those presented here and
evaluate this case based on the first and third Rule 55(c) factors. See also
Chiara v. Belaustegui, 86 Nev. 856, 859, 477 P.2d 857, 858 (1970) ("As a
policy matter, we believe that a defendant against whom a default
judgment has been entered should not be relieved of that default judgment
without demonstrating the reason why it should be set aside.").
Prejudice
"To be prejudicial, the setting aside of a judgment must result
in greater harm than simply delaying resolution of the case." United
States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d
1085, 1095 (9th Cir. 2010) (quoting TCI Grp. Life Ins. Plan v. Knoebber,
244 F.3d 691, 701 (9th Cir. 2001)). Here, the default judgment the district
court set aside was in place for almost three years. The separate liability
case against Kuperman, in the meantime, proceeded to judgment. Given
Nevada Directs declaratory judgment that it owed no duty to defend or
indemnify Kuperman, it is difficult to avoid the conclusion that undoing
4 Epsteinrelied on Price v. Dunn, 106 Nev. 100, 787 P.2d 785 (1990),
disagreed with on other grounds by NC-DSH, Inc. v. Garner, 125 Nev. 647,
218 P.3d 853 (2009), and Peralta v. Heights Medical Center, Inc., 485 U.S.
80 (1988). Epstein, Price, and Peralta all dealt with defective process or
service, or fraud on the court. "[W]here a person has been deprived of
property in a manner contrary to the most basic tenets of due process, 'it is
no answer to say that in his particular case due process of law would have
led to the same result because he had no adequate defense upon the
merits." Price, 106 Nev. at 104, 787 P.2d at 788 (quoting Peralta, 485 U.S.
at 86-87).
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the declaratory judgment is prejudicial to Nevada Direct. Although
Nevada Direct should have moved to certify the default judgment under
NRCP 54(b), the district court erred when it set aside the default
judgment sua sponte. Neither the district court nor any party made a good
cause showing to set the default declaratory judgment aside, much less
demonstrated a lack of prejudice to Nevada Direct, who presumably relied
upon it in its handling of the liability suit against Kuperman. And, under
Torres, the entry of the default judgment appears correct as a matter of
law, especially when coupled with the later summary judgment against
Nevada Direct and in favor of the Smiths on the statutory minimum
benefits liability claim.
Assignment of Rights
"[R]ights of action held by a judgment debtor are personal
property subject to execution in satisfaction of a judgment." Gallegos v.
Malco Enters. of Nev., Inc., 127 Nev. 579, 582, 255 P.3d 1287, 1289 (2011).
When assigning rights of action, NRS 21.320 governs. Id. at 580, 255 P.3d
at 1288. Although Nevada does not recognize a private right of action by a
third-party claimant against an insurance company for bad faith, a third-
party claimant may bring a claim for bad faith with a proper assignment
of rights in a supplementary proceeding. Id. at 583, 255 P.3d at 1289
(citing Wilson v. Bristol W. Ins. Grp., No. 2:09-CV-00006-KJD-GWF, 2009
WL 3105602, at *2 (D. Nev. Sept. 21, 2009)).
A "supplementary proceeding" is "held in connection with the
enforcement of a judgment, for the purpose of identifying and locating the
debtor's assets available to satisfy the judgment." Black's Law Dictionary
(8th ed. 2004). Addressing proceedings supplementary to execution, NRS
21.320 states: "The judge or master may order any property of the
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judgment debtor not exempt from execution, in the hands of such debtor or
any other person, or due to the judgment debtor, to be applied toward the
satisfaction of the judgment." In Nevada, a supplementary proceeding is
"incident to the original suit" and "is not an independent proceeding or the
commencement of a new action." See State ex rel. Groves v. First Judicial
Dist. Court, 61 Nev. 269, 276, 125 P.2d 723, 726 (1942); see also 30 Am.
Jur. 2d Executions and Enforcements of Judgments § 584 (2005) ("In
jurisdictions where a proceeding supplemental is not an independent
action, but is merely a proceeding to enforce an earlier judgment,
proceedings supplemental are conducted in the same court that entered
the judgment against the defendant, usually under the same cause
number. In fact, proceedings supplemental may be filed only in the trial
court issuing the underlying judgment." (footnotes omitted)).
Here, a proceeding supplementary to execution would have
been proper in the tort action involving the Smiths and Kuperman, not the
declaratory judgment action underlying this appeal. The Smiths
requested a judicial assignment of Kuperman's rights against Nevada
Direct in the tort action after obtaining a default judgment in excess of
$1.5 million against Kuperman, but the district court in that case denied
it. The Smiths should have renewed or appealed the denial of that
request, rather than requesting an assignment of rights in the declaratory
relief case giving rise to this appeal. Of note, the Smiths never filed any
counterclaims against Nevada Direct in this declaratory relief case, and
did not cross-claim against Kuperman. After Nevada Direct was ordered
to pay out the policy limits, there was no requested relief from the Smiths
against Kuperman or Kuperman's insurer, Nevada Direct, in the
declaratory relief case warranting an assignment of rights. Thus, the
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district court erred in granting the Smiths' request for judicial assignment
of rights.
This court has previously considered declaratory judgment
when an insured individual has failed to cooperate with the insurer. In
Torres, the insurer obtained a declaratory judgment establishing that its
insured's lack of cooperation extinguished its duty to defend and
indemnify its insured. 131 Nev., Adv. Op. 54, 353 P.3d at 1205. While
denying the injured third party direct extra-contractual rights against the
insurer, this court held that Nevada's absolute-liability statute, NRS
485.3091(5)(a), kept the duty to pay the minimum coverages to the injured
party alive. Id. at 1207. In light of Torres, the district court should have
ended this case with the default judgment against Kuperman and the
summary judgment in favor of the Smiths. 5 Nevertheless, the district
court held a bench trial on the issues of liability, causation, and damages.
Reaching those issues amounted to clear error because they were
unrelated to the issues framed by the pleadings in the declaratory relief
action—especially given that respondents never filed any counterclaims or
cross-claims. Further, the issue of prejudice to Nevada Direct by reason of
Kuperman's return to Israel did not require determination after summary
judgment because NRS 485.3091 provides that Nevada Direct's policy
limits are "absolute whenever injury or damage covered by the policy
occurs."
5We recognize that the district court action included additional
defendants beyond Kuperman and the Smiths, but those defendants have
not participated in this appeal despite being named as respondents. See
note 1, supra.
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For these reasons, we
ORDER the judgment of the district court VACATED AND
REMAND this matter to the district court for proceedings consistent with
this order.
J.
Pickering
cc: Eighth Judicial District Court Dept. 15
Ara H. Shirinian, Settlement Judge
Murchison & Cumming, LLC/Las Vegas
Richard Harris Law Firm
Ganz & Hauf/Las Vegas
Law Office of Lisa A. Taylor
Eighth District Court Clerk
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