Applied Underwriters v. Oceanside Laundry , 300 Neb. 333 ( 2018 )

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www.nebraska.gov/apps-courts-epub/
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Nebraska Supreme Court A dvance Sheets
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APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
Cite as 300 Neb. 333
A pplied Underwriters Captive R isk Assurance
Company, Inc., an Iowa corporation, appellee,
v. Oceanside Laundry, LLC, doing business
as Campus Laundry, appellant.
___ N.W.2d ___
Filed June 22, 2018. No. S-17-576.
1. Motions to Vacate: Appeal and Error. The decision to vacate an order
is within the discretion of the court; such a decision will be reversed
only if it is shown that the district court abused its discretion.
2. Judges: Words and Phrases. A judicial abuse of discretion exists when
the reasons or rulings of a trial judge are clearly untenable, unfairly
depriving a litigant of a substantial right and denying just results in mat-
ters submitted for disposition.
3. Service of Process: Waiver. A general appearance waives any defects
in the process or notice, the steps preliminary to its issuance, or in the
service or return thereof.
4. Jurisdiction: Pleadings: Parties. A party will be deemed to have
appeared generally if, by motion or other form of application to the
court, he or she seeks to bring its powers into action on any matter other
than the question of jurisdiction over that party.
5. Default Judgments. When determining whether to set aside a default
judgment, two competing interests must be considered: the right of a
litigant to defend the action on the merits and judicial efficiency.
6. Default Judgments: Proof: Time. Where a judgment has been entered
by default and a prompt application has been made at the same term
to set it aside, with the tender of an answer or other proof disclosing a
meritorious defense, the court should on reasonable terms sustain the
motion and permit the cause to be heard on the merits.
7. Default Judgments: Motions to Vacate: Words and Phrases. In the
context of a motion to vacate a default judgment, a meritorious or sub-
stantial defense or cause means one which is worthy of judicial inquiry
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APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
Cite as 300 Neb. 333
because it raises a question of law deserving some investigation and
discussion or a real controversy as to the essential facts.
8. Default Judgments: Motions to Vacate. Although a defendant seeking
to vacate a default judgment is required to present a meritorious defense,
it is not required that the defendant show he will ultimately prevail in
the action, but only that the defendant show that he has a defense which
is recognized by the law and is not frivolous.
Appeal from the District Court for Douglas County: J.
Michael Coffey, Judge. Reversed and remanded with
directions.
Kristopher J. Covi, of McGrath, North, Mullin & Kratz,
P.C., L.L.O., for appellant.
Jeffrey A. Silver for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, and Funke,
JJ., and Vaughan, District Judge.
Vaughan, District Judge.
INTRODUCTION
This appeal involves a default judgment against Oceanside
Laundry, LLC, doing business as Campus Laundry (Oceanside).
Applied Underwriters Captive Risk Assurance Company, Inc.
(AUCRA), filed a breach of contract action against Oceanside.
When Oceanside did not file a responsive pleading, the dis-
trict court for Douglas County granted AUCRA’s motion
for default judgment. The district court subsequently denied
Oceanside’s motion for reconsideration or, in the alterna-
tive, to set aside the default judgment on the basis of several
defenses. Oceanside now appeals the district court’s orders.
Because we conclude that Oceanside made prompt application
to set aside the default judgment and demonstrated at least
one meritorious defense in support of its motion, we reverse,
and remand with directions to vacate the default judgment and
allow Oceanside a reasonable time in which to file an appro-
priate responsive pleading.
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APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
Cite as 300 Neb. 333
BACKGROUND
Oceanside, a California-based limited liability company
doing business as Campus Laundry, entered a reinsurance
participation agreement (RPA) with AUCRA, an Iowa corpo-
ration with its principal place of business in Douglas County,
Nebraska. On December 12, 2016, AUCRA brought a breach
of contract action against Oceanside in the district court for
Douglas County.
Initially, AUCRA unsuccessfully attempted to serve process
on Oceanside via certified mail, using a California address for
Campus Laundry. AUCRA next filed a praecipe that requested
personal service at the same address by an authorized proc­
ess server in California. According to the proof of service,
on January 25, 2017, a civil process server personally served
“‘John Doe’ (Caucasian male, 30’s, 5′9″, 200 lbs., Brown eyes,
Brown hair) Person in Charge.”
Oceanside did not file a responsive pleading.
On March 23, 2017, AUCRA filed a motion for default judg-
ment and sent notice of the hearing to the same address it used
to serve Oceanside the summons.
At the hearing on the motion for default judgment, counsel
for Oceanside made an appearance and opposed the motion,
alleging improper service of process. The district court received
Oceanside’s affidavit evidence that AUCRA did not serve a
summons on any person authorized by the company to receive
service of process on its behalf.
In support of AUCRA’s motion for default judgment, it
offered an exhibit consisting of a copy of the RPA, a series of
statements for Oceanside’s account with AUCRA, and an affi-
davit designating the most recent balance as the amount due
and owing. The RPA provides that it shall be governed exclu-
sively by the laws of Nebraska and that any matter shall be
resolved exclusively by the courts of Nebraska. Additionally,
the RPA states that AUCRA may apply to a court of competent
jurisdiction for relief in the event of breach.
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APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
Cite as 300 Neb. 333
Oceanside’s counsel objected to AUCRA’s exhibit on rel-
evance grounds and argued that the balance cited by AUCRA
as the amount due and owing may not be accurate because
the balances fluctuate over time. The district court received
AUCRA’s exhibit over Oceanside’s objection. Oceanside’s
counsel then reiterated the position that the district court
should overrule the motion for default judgment based on
insufficient service.
On May 4, 2017, the district court found that Oceanside
was duly served pursuant to Neb. Rev. Stat. §§ 25-540 and
25-513.01 (Reissue 2016) and failed to file a responsive plead-
ing. Accordingly, the district court entered a default judgment
against Oceanside for moneys owed under the contract.
On May 22, 2017, Oceanside filed a motion to reconsider
or, in the alternative, to set aside the default judgment and
allow Oceanside to file a responsive pleading. In support of
the motion to set aside, Oceanside alleged as defenses lack of
personal jurisdiction and improper venue. Oceanside also chal-
lenged the amount due and owing, asserting that such amount
was unliquidated and based on terms found to be illegal and
void by another court of law.
At a hearing on Oceanside’s motions, Oceanside focused
on the motion to set aside the default judgment. The district
court received the affidavit of the chief executive officer of
Oceanside, doing business as Campus Laundry. He stated that
Campus Laundry had no connections to the State of Nebraska.
Instead, he stated that the RPA was purchased through a
California broker; that the RPA provided coverage for employ-
ees in California; that all payments were drawn from Campus
Laundry’s accounts in California; that all witnesses, docu-
ments, and other sources of proof were located in California;
and that the same dispute was being litigated in California.
Additionally, Oceanside presented the analysis and order of
the California Department of Insurance determining that the
RPA violates the California Insurance Code and the California
Code of Regulations and is void and unenforceable. In arguing
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against Oceanside’s motion to set aside, AUCRA’s counsel
pointed out that Oceanside had not offered any reason why
it failed to provide a responsive pleading to the complaint.
Oceanside’s counsel responded that Oceanside did not file a
responsive pleading because it did not want to waive the right
to challenge service of process.
On May 30, 2017, the district court overruled Oceanside’s
motion to reconsider or, in the alternative, to set aside the
default judgment, without explanation.
On June 2, 2017, Oceanside filed its notice to appeal the
district court’s May 4 and 30 orders.
ASSIGNMENTS OF ERROR
Oceanside assigns, rephrased, that the district court erred
in (1) granting AUCRA’s motion for default judgment against
Oceanside and (2) denying Oceanside’s motion to set aside
the default judgment after Oceanside showed meritorious
defenses.
STANDARD OF REVIEW
[1,2] The decision to vacate an order is within the discre-
tion of the court; such a decision will be reversed only if it is
shown that the district court abused its discretion.1 A judicial
abuse of discretion exists when the reasons or rulings of a trial
judge are clearly untenable, unfairly depriving a litigant of a
substantial right and denying just results in matters submitted
for disposition.2
ANALYSIS
On appeal, Oceanside disputes both the default judgment
and the district court’s denial of Oceanside’s motion to set
aside such default judgment. For the reasons stated below, we
1
Miller v. Steichen, 268 Neb. 328, 682 N.W.2d 702 (2004). See Carrel v.
Serco Inc., 291 Neb. 61, 864 N.W.2d 236 (2015).
2
Hartley v. Metropolitan Util. Dist., 294 Neb. 870, 885 N.W.2d 675 (2016).
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determine that the district court abused its discretion in deny-
ing Oceanside’s motion to set aside. Because we conclude that
the default judgment should be set aside, we need not consider
whether the district court correctly entered the default judg-
ment in the first place.3
We begin our analysis of the motion to set aside by noting,
as asserted by Oceanside, that the record in this case raises
questions about the validity of service of process and personal
jurisdiction. While we do not reach the issue of service of
proc­ess, we conclude that Oceanside has not waived every
objection to personal jurisdiction.
[3,4] Under Neb. Rev. Stat. § 25-516.01(1) (Reissue 2016),
the voluntary appearance of a party is the equivalent of service
of process. Section 25-516.01(2) goes on to state that participa-
tion in the proceedings on any issue other than the defenses of
lack of jurisdiction over the person, insufficiency of process,
or insufficiency of services of process, waives all such issues
except as to the objection that the party is not amenable to
proc­ess issued by a court of this state.4 Thus, a general appear-
ance waives any defects in the process or notice, the steps pre-
liminary to its issuance, or in the service or return thereof.5 A
party will be deemed to have appeared generally if, by motion
or other form of application to the court, he or she seeks to
bring its powers into action on any matter other than the ques-
tion of jurisdiction over that party.6
Here, counsel for Oceanside appeared at the hearing on
the motion for default judgment and opposed it, alleging
3
See Doty v. West Gate Bank, 292 Neb. 787, 874 N.W.2d 839 (2016)
(appellate court is not obligated to engage in analysis that is not necessary
to adjudicate case and controversy before it).
4
See Burns v. Burns, 293 Neb. 633, 879 N.W.2d 375 (2016). See, also,
Friedman v. Friedman, 290 Neb. 973, 863 N.W.2d 153 (2015).
5
Burns v. Burns, supra note 4. See, also, Friedman v. Friedman, supra
note 4.
6
Burns v. Burns, supra note 4.
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improper service of process. In objecting to evidence offered
by AUCRA, Oceanside’s counsel contested the balance cited
by AUCRA as the amount due and owing. Oceanside’s depar-
ture from the issue of service of process resulted in a general
appearance, and Oceanside has therefore waived that issue.7
However, we reach a different conclusion concerning per-
sonal jurisdiction. As noted above, § 25-516.01(2) provides,
among other things, that participation in the proceedings on
any issue other than the defense of lack of jurisdiction over
the person waives that defense, “except the objection that
the party is not amenable to process issued by a court of this
state.” Consequently, a party may waive objections to personal
jurisdiction based on defective service of process while retain-
ing objections to personal jurisdiction based on amenability to
service of process by a court of this state.8
Oceanside’s motion to set aside as well as evidence at the
resulting hearing alleged that the district court lacked personal
jurisdiction because Oceanside has no business ties to the State
of Nebraska, and Oceanside’s appellate brief contains similar
contentions. Oceanside, therefore, has argued that it is not ame-
nable to process issued by a court of this state. For purposes
of personal jurisdiction, the voluntary appearance of a party is
the equivalent of service of process.9 Thus, through its general
appearance at the hearing on the motion for default judgment,
Oceanside subjected itself to the jurisdiction of the district
court.10 But Oceanside’s general appearance did not waive the
issue of personal jurisdiction insofar as it relates to Oceanside’s
amenability to process issued by a Nebraska court.11
7
See Friedman v. Friedman, supra note 4 (party who contested service of
process and amount of garnishment entered general appearance).
8
See In re Petition of SID No. 1, 270 Neb. 856, 708 N.W.2d 809 (2006).
See, also, § 25-516.01(2).
9
§ 25-516.01(1); Burns v. Burns, supra note 4.
10
See id. See, also, Miller v. Steichen, supra note 1.
11
See Burns v. Burns, supra note 4.
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Having determined that Oceanside prospectively subjected
itself to the jurisdiction of the district court, our analysis
shifts to whether the district court erred in not setting aside
the default judgment on one of two alternate grounds: (1) that
Oceanside had demonstrated the existence of a meritorious
defense or (2) that the default judgment was void when it was
entered, because Oceanside was not amenable to process issued
by a court of this state and the district court therefore lacked
personal jurisdiction.12
[5,6] When determining whether to set aside a default judg-
ment, two competing interests must be considered: the right
of a litigant to defend the action on the merits and judi-
cial efficiency.13
Where a judgment has been entered by default and a
prompt application has been made at the same term to
set it aside, with the tender of an answer or other proof
disclosing a meritorious defense, the court should on rea-
sonable terms sustain the motion and permit the cause to
be heard on the merits.14
This court has also recognized that while it is the policy of the
law to give a litigant an opportunity to present his contention
in court and to give relief against slight and technical omis-
sions, it is the duty of the courts to prevent an abuse of proc­
ess, unnecessary delays, and dilatory and frivolous proceedings
in the administration of justice.15
At the hearing on AUCRA’s motion for default judgment,
Oceanside’s counsel explained that no responsive pleading had
been filed on behalf of Oceanside to avoid waiving the issue of
improper service of process. The record shows that Oceanside
12
See Miller v. Steichen, supra note 1.
13
Carrel v. Serco Inc., supra note 1.
14
Steinberg v. Stahlnecker, 200 Neb. 466, 467, 263 N.W.2d 861, 862 (1978).
See, also, Miller v. Steichen, supra note 1.
15
Miller v. Steichen, supra note 1; Steinberg v. Stahlnecker, supra note 14.
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next made a prompt application to set aside the default judgment
that followed. Under Neb. Rev. Stat. § 25-2001(1) (Reissue
2016), the district court has the inherent power to vacate or
modify its judgments or orders during term. The district court
for Douglas County has a term coextensive with the calendar
year.16 The district court entered the default judgment on May
4, 2017. On May 22, Oceanside filed its motion to reconsider
or, in the alternative, to set aside the default judgment and
allow Oceanside to file a responsive pleading. Thus, Oceanside
invoked the district court’s inherent power to vacate the default
judgment by filing its motion to set it aside within term.
AUCRA argues that Oceanside’s motion to set aside the
default judgment was effectively a motion to alter or amend
that was untimely filed more than 10 days after the entry of
judgment. While it is true that a motion to alter or amend must
be filed no later than 10 days after the entry of judgment,17 this
argument is misplaced. We have explained that a motion for
reconsideration is nothing more than an invitation to the court
to consider exercising its inherent power to vacate or modify
its own judgment.18 In some contexts, a motion for reconsidera-
tion may also be treated as a motion to alter or amend a judg-
ment for purposes of terminating the 30-day appeal period.19
The rule upon which AUCRA relies pertains to terminating the
appeal period, but timeliness of the appeal is not at issue in
this case.
[7,8] Given that Oceanside has made a prompt application
to set aside the default judgment, we turn to whether it ten-
dered proof disclosing a meritorious defense. In the context
16
See Rules of Dist. Ct. of Fourth Jud. Dist. 4-1(C) (rev. 1995).
17
See Neb. Rev. Stat. § 25-1329 (Reissue 2016).
18
County of Douglas v. Nebraska Tax Equal. & Rev. Comm., 296 Neb. 501,
894 N.W.2d 308 (2017).
19
Id. See, also, Neb. Rev. Stat. § 25-1912(3) (Reissue 2016); State v.
Bellamy, 264 Neb. 784, 652 N.W.2d 86 (2002).
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of a motion to vacate a default judgment, a meritorious or
substantial defense or cause means one which is worthy of
judicial inquiry because it raises a question of law deserving
some investigation and discussion or a real controversy as to
the essential facts.20 Although a defendant seeking to vacate a
default judgment is required to present a meritorious defense, it
is not required that the defendant show he will ultimately pre-
vail in the action, but only that the defendant show that he has
a defense which is recognized by the law and is not frivolous.21
We note that such meritorious defense need not be tendered
exclusively as a proposed answer, as AUCRA asserts, but may
also be in the form of “other proof.”22
In its motion to set aside the default judgment, Oceanside
alleged, in part, that AUCRA’s claim for amounts owed was
based on the terms of the RPA, which had been deemed illegal
and void by the commissioner of the California Department of
Insurance. At the hearing on Oceanside’s motion, Oceanside
presented evidence that it lacked ties to the State of Nebraska
but had significant ties to the State of California. Oceanside
further presented evidence that the California Department of
Insurance had determined that the RPA violates the California
Insurance Code and the California Code of Regulations and
is void and unenforceable. Taken as a whole, this evidence
begs the question whether the RPA is void for the purposes of
this litigation. And resolving the issue requires further judicial
inquiry. Accordingly, we conclude that Oceanside tendered
proof disclosing a meritorious defense.
In light of the meritorious defense promptly alleged by
Oceanside, we conclude that allowing the default judgment to
stand would unfairly deprive Oceanside of a substantial right
20
Miller v. Steichen, supra note 1; Carrel v. Serco Inc., supra note 1.
21
Id.
22
Steinberg v. Stahlnecker, supra note 14, 200 Neb. at 467, 263 N.W.2d at
862. See, also, Miller v. Steichen, supra note 1.
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and produce an unjust result. Therefore, we determine that
the district court abused its discretion in denying Oceanside’s
motion to vacate the default judgment.
While we conclude that Oceanside made a showing suf-
ficient to warrant setting aside the default judgment in order
to resolve the parties’ dispute on the merits, we express no
opinion as to whether Oceanside will ultimately prevail. We
further note that while we have resolved this appeal based on a
single meritorious defense, such defense is but one in an array
of defenses available to Oceanside on remand, as is a lack of
personal jurisdiction based on Oceanside’s amenability to serv­
ice by a court of this state.
CONCLUSION
For the foregoing reasons, we conclude that the district court
erred in overruling Oceanside’s motion to vacate the default
judgment, and we reverse, and remand with directions to the
district court to (1) vacate the default judgment entered against
Oceanside on May 4, 2017, and (2) give Oceanside a reason-
able time in which to file an appropriate responsive pleading.
R eversed and remanded with directions.
Papik, J., not participating.