NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
PABLO GONZALEZ, et al., Plaintiffs/Appellants,
v.
QUOC NGUYEN, et al., Defendants/Appellees.
No. 1 CA-CV 16-0141
FILED 3-21-2017
Appeal from the Superior Court in Maricopa County
No. CV 2014-052846
The Honorable Brian S. Rees, Judge Pro Tempore
REVERSED AND REMANDED
COUNSEL
Gregg Clarke Gibbons PC, Scottsdale
By Gregg Clarke Gibbons
Co-Counsel for Plaintiffs/Appellants
Lewis Roca Rothgerber Christie LLP, Phoenix
By Susan M. Freeman, Justin J. Henderson
Co-Counsel for Plaintiffs/Appellants
Jones, Skelton & Hochuli PLC, Phoenix
By William G. Caravetta, III, Kevin K. Broerman, Justin M. Ackerman
Counsel for Defendants/Appellees
GONZALEZ et al. v. NGUYEN et al.
Decision of the Court
MEMORANDUM DECISION
Judge Margaret H. Downie delivered the decision of the Court, in which
Presiding Judge Diane M. Johnsen and Judge James P. Beene joined.
D O W N I E, Judge:
¶1 Pablo and Randi Gonzalez (collectively, “Plaintiffs”)1 appeal
from an order setting aside a default judgment against Quoc Nguyen and
Dysart Hotel L.L.C. dba Quality Inn — Goodyear (“Dysart Hotel”)
(collectively, “Defendants”). For the following reasons, we reverse and
remand with instructions to reinstate the default judgment in favor of
Plaintiffs.
FACTS AND PROCEDURAL HISTORY
¶2 Nguyen was driving a vehicle owned by his then-employer,
Dysart Hotel, when he rear-ended Gonzalez’s truck on April 9, 2012.
Dysart Hotel advised its insurance carrier — Companion Commercial
Insurance Company (“Companion”) — of the claim through Companion’s
designated claims administrator, Precision Risk Management
(“Precision”). Precision in turn retained independent adjuster Carl
Warren & Company (“Carl Warren”) to assist with the Gonzalezes’ claim.
¶3 In May 2012, Carl Warren claims analyst Bill Sim advised
Plaintiffs’ counsel that “any future communications concerning
Mr. Gonzalez” should be directed to him. In September 2012, Plaintiffs’
counsel sent Sim “medical bills, medical records, and reports and other
documents” regarding the Gonzalezes’ claim.
¶4 Plaintiffs filed a negligence complaint against Defendants on
April 4, 2014. On August 12, 2014, Plaintiffs’ counsel sent Sim a detailed
demand letter, as well as a copy of the complaint. The demand letter
asserted damages of $716,242.50, including $600,000 for pain and
suffering, and offered to settle for $695,000. After receiving no response,
Plaintiffs’ counsel learned on October 14, 2014 that Sim had sent the file to
Gabriela Diaz at Precision due to the size of the demand. Diaz advised
1 References to “Gonzalez” in the singular are to Pablo Gonzalez.
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Decision of the Court
Plaintiffs’ counsel that Sim would call him by November 7, 2014. The
Gonzalezes’ lawyer thereafter left voice-mail messages for Diaz on
December 10, 11, and 15, but received no response.
¶5 Dysart Hotel was served on December 18, 2014, but it did
not respond to the complaint. On February 13, 2015, Plaintiffs’ counsel
left a voice-mail message for Diaz, stating that he was preparing to default
Defendants. He asked Diaz to call him immediately, but she did not
respond. Plaintiffs applied for entry of default against Dysart Hotel on
February 20, 2015, serving that filing on Dysart Hotel’s LLC member and
statutory agent, Sim, and Diaz.
¶6 On February 25, 2015, Plaintiffs’ attorney left Diaz a voice-
mail message advising that Dysart Hotel’s time to answer was running.
Diaz responded that they wished to “resolve the case and will ‘answer
accordingly.’” On February 27, 2015, Plaintiffs’ counsel advised Diaz:
“Please be aware that the Defendant has ten (10) judicial days by which to
file its Answer or the Default will become final,” and asked, “Does your
insured intend to file an answer? Please advise.” Diaz did not respond.
¶7 On April 20, 2015, Plaintiffs applied for entry of default and
served that filing on Dysart Hotel’s LLC member and statutory agent, on
Sim, and on Diaz. On June 2, 2015, Plaintiffs moved for a default
judgment against Dysart Hotel and Nguyen in an amount to be
determined at a hearing.2 Plaintiffs served that filing on Dysart Hotel
through its LLC member and statutory agent and also served Diaz and
Sim. The same individuals were also served with notice of the June 23,
2015 default judgment hearing.
¶8 No one appeared for Defendants at the default hearing.
Gonzalez testified about his loss of earnings, ongoing and permanent
problems with his right arm and neck, and continuing pain. The court
questioned Gonzalez and his attorney about damages and causation,
directed counsel to submit “a packet of damages,” and took the matter
under advisement. Plaintiffs thereafter submitted extensive medical
records, bills and damage calculations to the court, sending copies of the
documents to Dysart Hotel, Sim, and Diaz.
¶9 The court issued a default judgment against Defendants in
the sum of $667,279.56 on July 15, 2015.
2 Nguyen had been served by publication.
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Decision of the Court
¶10 On August 11, 2015, Defendants moved to vacate the default
judgment under Arizona Rule of Civil Procedure 60(c).3 After briefing
and oral argument, the court granted Defendants’ motion and vacated the
default judgment. Plaintiffs filed a timely notice of appeal. We have
jurisdiction pursuant to Arizona Revised Statutes (“A.R.S.”) section
12-2101(A)(2).
DISCUSSION
¶11 Whether to set aside a default judgment is a decision
entrusted to the superior court’s discretion, and we will affirm its ruling
absent a clear abuse of discretion. Richas v. Superior Court, 133 Ariz. 512,
514 (1982); Gen. Elec. Capital Corp. v. Osterkamp, 172 Ariz. 191, 193 (App.
1992). The court’s exercise of discretion, though, must be supported “by
facts or sound legal policy.” City of Phoenix v. Geyler, 144 Ariz. 323, 328–29
(1985). A court abuses its discretion if no evidence supports its conclusion
or the reasons given are clearly untenable, legally incorrect, or amount to a
denial of justice. Searchtoppers.com, L.L.C. v. TrustCash LLC, 231 Ariz. 236,
241, ¶ 20 (App. 2012).
¶12 When a party against whom a complaint has been filed fails
to respond as provided in the Arizona Rules of Civil Procedure, the
plaintiff may apply for entry of default. Ariz. R. Civ. P. 55(a). The default
becomes effective ten days after the filing of the application for entry of
default, unless the party alleged to be in default “pleads or otherwise
defends” within those ten days. Ariz. R. Civ. P. 55(a)(2)–(4). The court
may enter default judgment on motion of the plaintiff or after a hearing.
Ariz. R. Civ. P. 55(b). A court may set aside a final default judgment
under Rule 60(c) “[f]or good cause shown.” Ariz. R. Civ. P. 55(c); see also
Webb v. Erickson, 134 Ariz. 182, 185–86 (1982) (good cause standard applies
to setting aside entry of default and to setting aside a default judgment).
¶13 Defendants’ motion to vacate cited Rule 60(c) without
specifying any subparagraph of the rule. Plaintiffs’ response focused on
Rule 60(c)(1), arguing Defendants had proffered “insufficient facts upon
which the Court could predicate even a discretionary finding that the
failure to answer was due to ‘excusable neglect’” and analyzing factors
relevant to a Rule 60(c)(1) determination. In their reply, Defendants made
3 Rule 60 was revised effective January 1, 2017. Prior Rule 60(c) is
now Rule 60(b). We cite the rules in effect at the time of the superior
court’s ruling.
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no mention of Rule 60 and conceded “any reasonable person would have
not acted in the manner resulting in the default.” At oral argument in the
superior court, Defendants stated at one point that they were relying on
Rule 60(c)(6), but later argued that “in accordance with 60(c)(1),
inexcusable inadvertence, neglect and any other reason justifying relief,”
the default judgment should be set aside. On appeal, Defendants rely
solely on Rule 60(c)(6), so we confine our review to that provision.
¶14 A trial court may vacate a default judgment “when, but only
when, the moving party has made an adequate showing of each of the
following elements: (1) that it acted promptly in seeking relief from the
default judgment, (2) that its failure to file a timely answer was excusable
under one of the six subdivisions of Rule 60(c) . . . and (3) that it had a
meritorious defense.” United Imps. & Exps., Inc. v. Superior Court, 134 Ariz.
43, 45 (1982). Although the law “favors resolution on the merits” and
vests “broad discretion” in the trial court, its discretion to set aside a
default judgment “is a legal, and not an arbitrary or personal discretion.
There must be some legal justification for the exercise of the power, some
substantial evidence to support it.” Id.; see also Richas, 133 Ariz. at 514
(“[A] proper showing of facts is ‘a prerequisite to the exercise’ of the
discretion given the trial court.”).
¶15 The Gonzalezes first contend Defendants did not act
promptly in seeking relief. The record, though, supports Defendants’
contention that Plaintiffs not only failed to make this argument in the
superior court, they conceded the timeliness of the motion to vacate. We
therefore decline to address Plaintiffs’ contrary argument urged for the
first time on appeal. See In re MH 2008-002659, 224 Ariz. 25, 27, ¶ 9 (App.
2010) (“We do not consider arguments raised for the first time on appeal
except under exceptional circumstances.”).
¶16 Defendants assert that “[t]he default judgment came as a
complete surprise to Companion.” But it is undisputed that Companion
learned of Plaintiffs’ claim shortly after the accident and that its
designated agents — Precision and Carl Warren — received notice of all
relevant proceedings. See Mayhew v. McDougall, 16 Ariz. App. 125, 129
(1971) (Notice to independent adjuster acting for insurance company “was
equivalent to notice to the Balboa Insurance Company itself.”). This is not
a situation where an insured failed to advise its insurer of an action and
the insurer “through no fault of its own . . . has not had the opportunity of
defending a suit on the merits.” Camacho v. Gardner, 104 Ariz. 555, 560
(1969).
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Decision of the Court
¶17 In granting the motion to vacate, the superior court did not
mention the meritorious defense requirement. “To set aside a default
without substantial evidence as to each of the prongs amounts to an abuse
of discretion.” Sax v. Superior Court, 147 Ariz. 518, 521 (App. 1985); see also
Hilgeman v. Am. Mortg. Sec., 196 Ariz. 215, 221 (App. 2000) (Assertion that
default judgment was excessive was a “defense to the amount of damages
awarded by the trial court.”). The record does not suggest a meritorious
defense. “A showing of a meritorious defense requires a showing by
affidavit, deposition or testimony of some facts which, if proved at trial,
would constitute a defense.” United Imps., 134 Ariz. at 46; see also Richas,
133 Ariz. at 517 (“A meritorious defense must be established by facts and
cannot be established through conclusions, assumptions or affidavits
based on other than personal knowledge.”). An affidavit in support of a
motion to set aside “is sufficient if the facts set forth therein, taken as true,
show a substantial defense to the action.” Almarez v. Superior Court, 146
Ariz. 189, 192 (App. 1985).
¶18 Defendants’ motion to vacate appended an affidavit from
Precision claims manager Ignacio Nunez. Nunez avowed that Diaz “was
responsible for the day-to-day coordination of the adjustment of the
claim” and that “[t]he claims materials reveal an oversight or
administrative error in addressing Mr. Gonzalez’s Application for Default
Judgment.” Nunez further opined that “[v]acating the judgment and
allowing the case to be litigated will push the case to settlement.” Nunez
said nothing about potential defenses.
¶19 At oral argument on the motion to vacate, Defendants
implicitly conceded they lacked a non-speculative defense to the damages
award, stating: “At the end of . . . discovery, we may be dead wrong.
$660,000 may be reasonable. It may be reasonable given what we find in
the medical records. We don’t have complete medical records.” Counsel
later stated: “We’re just going forward on damages to see if, in fact, there
is a substantiation for $660,000 of damages in this case.” Yet at that point,
more than three years had elapsed since the accident, Defendants’ agents
had been in possession of Gonzalez’s medical records and lost earnings
calculations since at least July 2015, and nothing suggests that, through
the exercise of minimal diligence, they could not have obtained any
additional information deemed necessary to evaluate Plaintiffs’ August
2014 assertion of damages totaling $716,242.50.
¶20 Although “the showing of a meritorious defense need not be
strong . . . it must be greater than mere speculation.” Richas, 133 Ariz. at
517. The “conclusion of a lawyer or client, sworn or unsworn, that ‘a
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Decision of the Court
defense exists’ is evidence of nothing; it is a conclusion which carries no
weight and is insufficient to establish the element of meritorious defense.”
United Imps., 134 Ariz. at 46; see also U-Totem Store v. Walker, 142 Ariz. 549,
553 (App. 1984) (“A meritorious defense must be established by facts and
not through conclusions, assumptions or affidavits based on other than
personal knowledge.”); Hawke v. Bell, 136 Ariz. 18, 20 (App. 1983)
(superior court abused its discretion by setting aside a default judgment as
to damages when “no further evidence pertaining to the amount of
damages was presented”).
¶21 Not only did Defendants fail to articulate a non-speculative
defense, but the Gonzalezes’ evidence was substantial. See Camacho v.
Gardner, 6 Ariz. App. 590, 596 (1967) (“[W]hen proof of damage after a
default in an unliquidated damage case is as scanty as that presented to
the court here, an order setting aside a default judgment, but not the
default itself, is justified.”) modified on rehearing, 7 Ariz. App. 483 (1968),
vacated, 104 Ariz. 555 (1969). The superior court heard testimony and
avowals at the default judgment hearing and received post-hearing
documentation that included a narrative report by Gonzalez’s surgeon,
Stuart Kozinn, M.D. opining about causation and permanent impairment,
along with billing statements; medical records and bills of Paradise Valley
Pain Specialists/Dr. Paul Wang; medical records and bills of Spooner
Physical Therapy; medical records and bills of Stand-Up MRI; bills from
Scottsdale Healthcare; co-pay documentation; prescription
documentation; lost earnings calculations for Maricopa County Sheriff’s
Office; and lost earnings calculations for Salt River Tubing & Recreation.
¶22 In granting the motion to vacate, the superior court stated:
[T]he Court is presented with a dilemma. The Court seeks
justice — a fair result. As much as the Court would like to
think that its decision to grant the default in the full amount
requested, the Court admits that it has, as it had then, doubts
about the fairness of the amount of the judgment. Absent
scrutiny, it seemed fair. Given greater scrutiny, it seems
unjustly large. At the same time, it is supported by
significant bills, a permanent injury claim and significant
lost earnings. Nonetheless, it seems too large. On the other
hand, it is “unfair” for the insurance company to have
handled the claim in such a casual or indifferent manner as
to “let the chips fall where they may” and then plead the
injustice after the fact. So, the issue is whether the penalty
for their mistake is to force acceptance of the award or to
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Decision of the Court
allow the matter to proceed to a jury trial on damages. The
default in such a “tie” is to allow the case to be decided on
the merits. The Plaintiff gets the same result he would have
received had the Defendants timely answered. There is no
prejudice to the Plaintiff; he loses nothing except the added
time to reach ultimate justice.
Although the desire to achieve “a fair result” is laudable, the court did not
find (nor did the Defendants present) a necessary predicate for setting
aside the judgment — the existence of a meritorious defense.
Furthermore, it is the nature of default judgments that the court receives
one-sided, potentially incomplete information when setting damages.
Most defaulted defendants could assert that, had they been present to
contest the plaintiff’s evidence, the award would have been less. But
respect for the finality of judgments can give way only “in extraordinary
circumstances.” Webb, 134 Ariz. at 186; see also Panzino v. City of Phoenix,
196 Ariz. 442, 448, ¶ 19 (2000) (“Although our trial courts enjoy broad
discretion when deciding whether to set aside judgments under Rule
60(c), that discretion ‘is circumscribed by public policy favoring finality of
judgments and termination of litigation.’” (citation omitted)). Except for
the extraordinarily inept handling of the claim by Precision and Carl
Warren, no extraordinary circumstances are apparent in this record.
¶23 The superior court’s express finding that there was no
excusable neglect — a determination Defendants do not challenge — also
cuts against granting relief to Defendants. See Hilgeman, 196 Ariz. at 221
(“Although excusable neglect is not a prerequisite for obtaining relief from
a judgment under Rule 60(c)(6), a court may consider that factor in
determining whether to grant such relief under that rule.”); see also
Panzino, 196 Ariz. at 446, ¶ 11 (“We cannot consistently hold that although
Rule 60(c)(1) allows relief for judgment only for excusable neglect, Rule
60(c)(6) allows relief from inexcusable neglect.”).
¶24 Finally, Defendants’ “bait and switch[]” argument is
unavailing. Defendants knew more than six months before the default
proceedings that Plaintiffs were asserting damages in excess of $700,000.
Plaintiffs’ counsel explained that the complaint’s prayer for “an amount
no less than $75,000.00” was penned before all medical bills were received
and served simply as a placeholder amount to establish that the case was
not subject to compulsory arbitration. The superior court noted that it
was “clear that when the complaint was filed that number was
meaningless because [Plaintiffs] were already in the throes of making a
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demand for ten times that much” and later observed that “it would be
ludicrous to make a $75,000 demand on $68,000 in [medical] bills.”
CONCLUSION
¶25 For the foregoing reasons, we reverse the judgment of the
superior court and remand with instructions to reinstate the default
judgment and to conduct any proceedings necessary to address the issue
of interest on the default judgment. We award the Gonzalezes their
taxable costs on appeal contingent on compliance with Arizona Rule of
Civil Appellate Procedure 21. We grant that portion of Defendants’
motion to strike that relates to references in the reply brief to the Unfair
Claim Settlement Practices Act. We deny the remainder of that motion.
AMY M. WOOD • Clerk of the Court
FILED: AA
9