Little v. King

¶1 — A driver whose vehicle collided with another and an underinsured motorist insurer moved to vacate a default judgment. The driver, who had not filed an answer, came to the default judgment hearing but decided not to contest entry of judgment. The insurer, who was given notice of the litigation, chose not to intervene. We conclude that these moving parties have failed to make the required showing to set aside the judgment. We also conclude that because the insurer failed to intervene, it was not a party and was not entitled to notice of the hearing.

Chambers, J.

¶2 The driver and the insurer also complain that the trial judge did not enter formal findings of fact and conclusions of law. Findings of fact and conclusions of law are both desirable and required by CR 55(b)(2). When the findings and conclusions are missing or are defective, the proper remedy is remand for entry of adequate ones unless the appellate court is persuaded that sufficient basis for review is present in the record. In this case, we find the record is adequate for our review. We affirm the Court of Appeals and remand for reinstatement of judgment.

FACTS

¶3 On March 16, 1999, Annie King rear-ended Lisa Little’s automobile twice. The first time, both King and Little were in the far left lane on a freeway. The second time, they were merging back into traffic after exchanging insurance information. The record suggests that King was 16 or 17 years old at the time of the accidents.

¶4 At the time of the accidents, Little was driving on work-related business. Since 1984, Little had worked as an outside sales representative at Jim Little Staple Supply, Inc. Little immediately felt some neck and lower back pain but continued on because she had work to do and she thought the pain would pass.

¶5 The next day, Little consulted a chiropractor for back and neck spasms and was eventually referred to a neurosurgeon. Three months after the accidents, Little had a magnetic resonance image (MRI) done of the neck region of her cervical spine, which indicated to her doctor that surgery was needed. Five months after the accidents, Little had the first of two neck surgeries: “an anterior cervical discectomy and fusion” at the C5-6 level, using bone grafting and a metal plate to accomplish the fusion. Clerk’s Papers (CP) at 60. After this first surgery, Little experienced some improvement in her neck-related symptoms, primarily elimination of radicular pain in her arms. However, Little’s back and other neck pain remained. Little was referred to a pain management specialist and continued with treatment to her neck and back. This treatment included three selective transforaminal injections into her spine, pain medicine, and physical therapy. She also received further diagnostic testing, including a discogram and additional MRI studies. After the two accidents, Little initially returned to work on a reduced schedule, working 4-5 hours a day. Little reported that her last day of work was August 8, 2000, due to her medical condition.

¶6 In November 2001, Little had microdecompressive back surgery at three lumbar levels. According to her doctors, the neck region of Little’s cervical spine continued to deteriorate, as did her lumbar spine. Little’s treating doctors declared that it was more probable than not that the two accidents in March 1999 caused “spinal problems [that] are serious, and will permanently reduce her physical capacities, both work-related and in her recreational and family life.” CP at 116.

¶7 The parties learned that the coverage on King’s car had lapsed and thus she was an uninsured motorist at the time of the accident. Little was driving in the scope of her employment at the time, and her employer had uninsured motorist (UIM) coverage from The St. Paul Insurance Company. Little’s counsel was in communication with St. Paul both before and after formally bringing suit against King. This communication included a letter to St. Paul’s adjuster outlining Little’s medical condition and treatment, alerting the adjuster that Little was likely to be permanently disabled, and informing St. Paul that her past and future out-of-pocket expenses and wage loss alone could exceed $1 million. On May 22, 2002, Little’s counsel mailed St. Paul a copy of the summons and complaint, the order setting case schedule, and the notice of deposition of Ms. King. St. Paul would have been permitted to intervene in the case if it had moved to do so because it was at risk of liability by virtue of its UIM obligations. See Lenzi v. Redland Ins. Co., 140 Wn.2d 267, 280, 996 P.2d 603 (2000); Fisher v. Allstate Ins. Co., 136 Wn.2d 240, 245-46, 961 P.2d 350 (1998). St. Paul took no action to intervene.

¶8 Although youthful and uninsured, King did respond to the summons and complaint. While King did not file an answer, she did appear for her deposition. Despite receiving notice, St. Paul did not send a representative. On November 5, 2002, at St. Paul’s request, Little’s attorney sent St. Paul a copy of the transcript of the deposition, attached to a cover letter explaining that Little “continues to experience difficulties with her lumbar spine in particular.” CP at 413. Little’s attorney also enclosed Little’s most recent MRI study indicating “progressive disc protrusion at L4-5 with right neural foramen narrowing, these findings having an adverse effect on the right L-4 nerve root.” Id. Additional surgeries were performed.

¶9 Thirteen months after filing the complaint and eleven months after serving King and sending copies of the pleadings to St. Paul, Little moved for an order of default and default judgment (or, alternatively, for summary judgment) against King. Little filed a declaration of mailing, indicating that King was sent all documents related to the motions. Little continued to require medical attention during this time.

¶10 On May 23, 2003, a hearing was held on Little’s motions. Little appeared at the hearing through her attorney of record and King was present, without an attorney. Little submitted numerous documents relating to her medical condition, her medical expenses, and her future prognosis, including declarations from her two surgeons and her clinical psychologist, the postoperative reports, the MRI reports, her disability certifications, the medical consultation notes, medical bills she had submitted to the Department of Labor and Industries, and a copy of King’s deposition.

¶11 At the hearing, Judge Laura Gene Middaugh gave King an opportunity to file an answer and explained that if she did, default judgment would be denied. Judge Middaugh then adjourned the proceedings to give King the opportunity to draft and file an answer. When the court reconvened, King declined the judge’s invitation, explaining she had no real dispute with the factual allegations in the complaint, though she disputed the amount of damages as unreasonable.

¶12 Judge Middaugh did not immediately enter judgment because she was concerned about calculating damages based on the record before her, and she requested counsel supplement the record. After that information was received, the judge entered a default judgment in favor of Little for $2,155,835.58, consisting of $249,234.48 for past economic damages, $1,256,601.10 for future economic damages, and $650,000 for general damages. CP at 306. However, the trial court did not prepare findings of fact or conclusions of law. A few weeks later, Little’s attorney sent St. Paul a certified copy of the default judgment and a request for $2 million in uninsured motorist coverage payments.

¶13 About two weeks after that, St. Paul moved to intervene and vacate the default judgment. Subsequently, King, now represented by counsel, joined in St. Paul’s motion. A different judge granted King and St. Paul’s motions. Little appealed. The Court of Appeals reversed and we granted review. Little v. King, 156 Wn.2d 1020, 132 P.3d 735 (2006).

STANDARD OF REVIEW

¶14 We review a trial court’s decision on a motion to set aside a default judgment for abuse of discretion. Yeck v. Dep’t of Labor & Indus., 27 Wn.2d 92, 95, 176 P.2d 359 (1947). Among other things, discretion is abused when it is based on untenable grounds, such as a misunderstanding of law. Braam v. State, 150 Wn.2d 689, 706, 81 P.3d 851 (2003).

ANALYSIS

¶15 First, we note that St. Paul, unlike King, had not appeared in the action prior to the default judgment hearing. Since St. Paul had not appeared, it was not entitled to notice of this hearing. Dlouhy v. Dlouhy, 55 Wn.2d 718, 721, 349 P.2d 1073 (1960).1

¶16 We now turn to whether the trial court abused its discretion in vacating the default judgment under CR 60(b)(1).2 As a general matter, default judgments are not favored because “ ‘[i]t is the policy of the law that controversies be determined on the merits rather than by default.’ ” Griggs v. Averbach Realty, Inc., 92 Wn.2d 576, 581, 599 P.2d 1289 (1979) (alteration in original) (quoting Dlouhy, 55 Wn.2d at 721). But we also value an organized, responsive, and responsible judicial system where litigants acknowledge the jurisdiction of the court to decide their cases and comply with court rules. See Griggs, 92 Wn.2d at 581. The fundamental principle when balancing these competing policies is “ ‘whether or not justice is being done.’ ” Id. at 582 (quoting Widicus v. Sw. Elec. Coop., Inc., 26 Ill. App. 2d 102, 109, 167 N.E.2d 799 (1960)). This system is flexible because “ ‘[w]hat is just and proper must be determined by the facts of each case, not by a hard and fast rule applicable to all situations regardless of the outcome.’ ” Griggs, 92 Wn.2d at 582 (quoting Widicus, 26 Ill. App. 2d at 109).

¶17 A party moving to vacate a default judgment must be prepared to show (1) that there is substantial evidence supporting a prima facie defense; (2) that the failure to timely appear and answer was due to mistake, inadvertence, surprise, or excusable neglect; (3) that the defendant acted with due diligence after notice of the default judgment; and (4) that the plaintiff will not suffer a substantial hardship if the default judgment is vacated. White v. Holm, 73 Wn.2d 348, 352, 438 P.2d 581 (1968) (citing Hull v. Vining, 17 Wash. 352, 49 P. 537 (1897)). This is not a mechanical test; whether or not a default judgment should be set aside is a matter of equity. White, 73 Wn.2d at 351. Factors (1) and (2) are primary; factors (3) and (4) are secondary. Id. at 352-53.

¶18 The central issue in this case is whether King and St. Paul have presented substantial evidence of a prima facie defense. Neither King nor St. Paul argues a defense to liability. No one disputes that Little was injured in two rear-end collisions caused by King in quick succession. Instead, King and St. Paul essentially argue that the damages awarded were unreasonable and that preexisting conditions may have contributed to Little’s injury. Except in unusual circumstances, a party who moves to set aside a judgment based upon damages must present evidence of a prima facie defense to those damages. See CR 60(e)(1); White, 73 Wn.2d at 352. The amount of damages in a default judgment must be supported by substantial evidence. See, e.g., Shepard Ambulance, Inc. v. Helsell, Fetterman, Martin, Todd & Hokanson, 95 Wn. App. 231, 240-42, 974 P.2d 1275 (1999). It is not a prima facie defense to damages that a defendant is surprised by the amount or that the damages might have been less in a contested hearing. Shepard, 95 Wn. App. at 242.

¶19 The defendants provided no competent evidence of a prima facie defense to damages. The only thing offered was a declaration from an insurance adjuster stating that the adjuster had reviewed Little’s medical records and found reports of headaches, hip pain, and depression before the collisions. But the moving parties have simply not presented any evidence that would tend to show that Little’s preaccident aches, pains, and depression were related in any way to her postaccident condition. Even viewed in the light most favorable to the parties moving to set aside the default judgment, mere speculation is not substantial evidence of a defense. See White, 73 Wn.2d at 352.

¶20 We have long held that the mere existence of a preexisting condition is an insufficient basis to infer a causal relationship between the injury complained of and the preexisting condition. Vaughan v. Bartell Drug Co., 56 Wn.2d 162, 164, 351 P.2d 925 (1960) (reversible error to invite jury to speculate about contribution of preexisting condition when no evidence about it had been submitted); Greenwood v. Olympic, Inc., 51 Wn.2d 18, 23, 315 P.2d 295 (1957) (same). Without competent evidence of causation, evidence of other injuries is thus inadmissible. Such evidence would only invite the trier of fact to speculate without an appropriate factual basis. Wash. Irrigation & Dev. Co. v. Sherman, 106 Wn.2d 685, 691-92, 724 P.2d 997 (1986) (reversible error to allow trier of fact to speculate about preexisting conditions when only inadmissible hearsay evidence supported any causal connection to current injury).

¶21 The moving parties must present substantial evidence that the condition “ ‘ “probably5 or “more likely than not55 caused the subsequent condition, rather than that the accident or injury “might have,55 “could have,55 or “possibly did55 cause the subsequent condition.5 55 Ugolini v. States Marine Lines, 71 Wn.2d 404, 407, 429 P.2d 213 (1967) (quoting Orcutt v. Spokane County, 58 Wn.2d 846, 853, 364 P.2d 1102 (1961) and citing Bland v. King County, 55 Wn.2d 902, 342 P.2d 599, 351 P.2d 153 (1959)). They have not met this burden. It is a rare person who does not from time to time experience headaches or other pains, and mere speculation of a connection does not amount to substantial evidence of a defense.

¶22 Nor do the defendants meet their burden under the second primary element of White-, that the moving party’s failure to timely appear in the action was occasioned by mistake, inadvertence, surprise, or excusable neglect. King did respond and appear. But King made the deliberate choice, after being told of the consequence by the trial judge, not to prevent default judgment by filing an answer. The decision not to participate does not meet the standard required. Similarly, St. Paul knew about the accident, knew that it was Little’s underinsured motorist carrier, and knew that King was uninsured. Again, as surveyed above, St. Paul had ample opportunity to intervene in the case and elected not to. Similarly, its decision not to participate fails to satisfy White.

¶23 Where a party fails to provide evidence of a prima facie defense and fails to show that its failure to appear was occasioned by mistake, inadvertence, surprise, or excusable neglect, there is no equitable basis for vacating judgment. It is thus an abuse of discretion.

¶24 Lastly, St. Paul and King argue that the trial court did not abuse its discretion in vacating the default judgment because, under CR 60(b)(ll), the trial court may relieve a party from a default judgment on “[a]ny other reason justifying relief from the operation of the judgment.” St. Paul and King argue that “extraordinary circumstances” exist here: the trial court’s failure to enter findings of fact and conclusions of law when granting the default judgment. St. Paul and King are correct that CR 55(b)(2) requires findings of fact and conclusions of law to be filed.

¶25 But CR 55(b)(2) does not define what constitutes adequate findings of fact and conclusions of law or the consequences of failure to file them. We require findings and conclusions in part to allow appellate scrutiny of the trial court’s decision in uncontested cases. CR 55(b)(2). This protects the integrity of the justice system because it allows the reviewing court (and others) to evaluate the factual and legal basis for the trial court’s decision. “Judges and commissioners must not be mere passive bystanders, blindly accepting a default judgment presented to it. Our rules contemplate an active role for the trial court when the amount of a default judgment is uncertain.” Lenzi, 140 Wn.2d at 281. Here, King and St. Paul argue that they have been denied this safeguard. However, this case is a straightforward, admitted liability negligence action and the impact of the failure to enter formal findings is minor. The Court of Appeals correctly determined, “[w]hile the judgment does not contain express findings and conclusions, Judge Middaugh listed all the material she considered, and entered default judgment in Little’s favor in specific amounts (‘$249,234.48 for past economic damages, $1,256,601.10 for future economic damages, and $650,000.00 as general damages’).” Little v. King, noted at 127 Wn. App. 1021, 2005 Wash. App. LEXIS 977, at *18. The Court of Appeals found that “[t]his necessarily implies a finding of fact that Little suffered damages in the given amounts and the conclusion of law that Little was entitled to recover those sums from King.” Id. We agree and conclude that, in this case, these implied findings are sufficient to allow appellate review.

¶26 We note that if more formal findings of fact and conclusions of law were necessary for appellate review, remand for their entry would be appropriate, not vacation of the default judgment. See, e.g., Foxtrap, Inc. v. Foxtrap, Inc., 217 U.S. App. D.C. 130, 671 F.2d 636 (1982) (vacating the monetary award and remanding to the trial court to make findings of fact and conclusions of law because there were multiple theories of monetary remedies available and one finding did not satisfy the requirement to make clear the findings of fact and conclusions of law upon which its actions are grounded; findings were required under federal court rules); Frame v. S-H, Inc., 967 F.2d 194, 204 n.9 (5th Cir. 1992) (even assuming findings were required, reversal is not necessary when a full understanding of the issues on appeal can nevertheless be determined by the appellate court); Ackra Direct Mktg. Corp. v. Fingerhut Corp., 86 F.3d 852 (8th Cir. 1996) (noting that a court may remand when lack of findings by district court would substantially hinder review, but concluding that findings were not necessary in that case; findings were not required under federal court rules).3

CONCLUSION

¶27 We affirm the Court of Appeals and remand for reinstatement of judgment.

C. Johnson, Sanders, Owens, and Fairhurst, JJ., concur.

1 We decline to consider St. Paul’s argument that it had informally appeared as not timely raised. See BAP 2.5(a).

2 CR 60(b)(1) provides in relevant part that “[o]n motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment... for the following reasons: (1) Mistakes, inadvertence, surprise, excusable neglect or irregularity in obtaining a judgment.”

3 The parties also dispute the appropriate record for review. Given our disposition, we do not reach these arguments. Nor do we reach the issue of whether the existence of “unpublished” appellate opinions violates article I, section 10 of our state constitution. Little’s motion for attorney fees is denied.