Gateway v. Millennium ( 2019 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
GATEWAY ONE LENDING & FINANCE LLC, Plaintiff/Appellee,
v.
MILLENNIUM AUTO SALES LLC, Defendant/Appellant.
No. 1 CA-CV 18-0105
FILED 1-22-2019
Appeal from the Superior Court in Maricopa County
No. CV2016-054220
The Honorable Steven K. Holding, Judge Pro Tempore
AFFIRMED
COUNSEL
The Sifferman Law Firm, P.L.L.C., Phoenix
By Mark S. Sifferman
Counsel for Plaintiff/Appellee
Wilenchik & Bartness, P.C., Phoenix
By Dennis I. Wilenchik, John D. Wilenchik, Lawrence J. Felder
Former Counsel for Defendant/Appellant
Millennium Auto Sales LLC, Mesa
Defendant/Appellant
GATEWAY v. MILLENNIUM
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Lawrence F. Winthrop delivered the decision of the Court,
in which Judge Maria Elena Cruz and Judge Kenton D. Jones joined.
W I N T H R O P, Judge:
¶1 Defendant/Appellant Millennium Auto Sales, LLC
(“Millennium”) appeals the superior court’s orders:
(1) Ordering Millennium to obtain new counsel within eight
days, and deeming Millennium’s pro se motion to extend
time to retain counsel to be moot;
(2) Striking Millennium’s pleadings when it failed to timely
obtain counsel;
(3) Entering a default judgment against Millennium; and
(4) Denying Millennium’s motions for post-judgment relief.1
Because we hold that the superior court did not err, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 The parties to this appeal had an agreement whereby
Millennium, a car dealer, could sell to Gateway One Lending & Finance
LLC (“Gateway”), a purchase money lender, retail installment sales
contracts initially executed between Millennium and its customers. As part
of this agreement, the certificates of title of the vehicles sold by Millennium
were not to include “warning—not actual mileage.” Alleging that
Millennium breached this provision of the contract with regard to one of its
sales, resulting in a separate lawsuit by a purchaser, Gateway filed a breach
of contract action against Millennium in August 2016.
1 Millennium has referred in passing to additional issues in its brief;
however, because Millennium does not develop or otherwise substantively
address these issues, they are waived on appeal. See AMERCO v. Shoen, 184
Ariz. 150, 154 n.4 (App. 1995); Arizona Rule of Civil Appellate Procedure
(“ARCAP”) 13(a)(7).
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¶3 On October 3, 2016, Millennium, through counsel, filed an
answer and counterclaim. The case was placed on the court’s arbitration
calendar, and the parties did little (if anything) to prosecute the case for
months. Meanwhile, in January 2017, Millennium’s attorney, Lyndon
Steimel, informed Millennium that he would soon be suspended by the
State Bar but would likely be reinstated within three months. In fact,
Steimel had been suspended for six months, during which time he
consented to disbarment. His order of disbarment was signed on May 23,
2017—a fact discovered by Millennium shortly thereafter.
¶4 Because of the parties’ inaction in the case, the court placed it
on the inactive calendar on May 24, 2017. Pursuant to Arizona Rule of Civil
Procedure (“Rule”) 38.1(d)(2), pending further specific developments as
outlined within the subsequent subsections of the Rule, the case was
presumptively set for dismissal 60 days later, on July 24. On July 18, in
anticipation of filing a motion for summary judgment on the merits of the
case, Gateway filed a motion for the court (1) to continue the case on the
inactive/dismissal calendar to October 13, 2017; and (2) to require
Millennium to retain new counsel by August 24, 2017.2
¶5 The court did not immediately rule on Gateway’s motions,
but on August 16—some three months after Millennium learned of
Steimel’s disbarment—the court ordered Millennium to retain new counsel
by August 24, and continued the case on the inactive/dismissal calendar
until October 13, 2017. The court’s order stated the case would be dismissed
without further notice “unless one of the actions specified in Rule 38.1(d)(2)
occurs prior to that date.” The court also stated in its order that if
Millennium failed to retain counsel by August 24, the court would deem its
answer and counterclaim “stricken and ineffective.” On appeal,
Millennium claims it never received a copy of the August 16 order.
¶6 Millennium did not retain new counsel by August 24;
accordingly, Gateway filed an application for the court to strike
Millennium’s answer and counterclaim and to enter its default, all in
accordance with Gateway’s July 18 motion and the court’s August 16 order.
2 The mailing certificate on Gateway’s motion provides that, in
addition to Steimel, copies of the motion were also mailed to Millennium at
the two addresses for Millennium then on file at the Arizona Corporation
Commission: Millennium Auto Sales, LLC c/o Paul Jones, Statutory Agent,
4939 W. Ray Road, Suite 4-350, Chandler, AZ 85226 and Millennium Auto
Sales, LLC c/o Paul Jones, Member, 1038 E. Cullumber, Gilbert, AZ 85234.
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GATEWAY v. MILLENNIUM
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Millennium did not file an answer or otherwise respond; accordingly, the
entry of default became effective ten days thereafter. On September 8, Paul
Jones, Millennium’s non-attorney representative, filed an untimely pro se
motion to extend time to retain new counsel. Gateway then filed a motion
for entry of judgment on September 28, and on October 17—nearly five
months after Steimel’s disbarment—the court entered judgment in favor of
Gateway for $42,940.29. On November 3, the court issued an order
deeming Jones’ motion to extend time to retain counsel moot in light of the
entry of default in favor of Gateway and because attorney Guy Roll had
filed a notice of appearance on behalf of Millennium on November 1.
¶7 Millennium’s new counsel filed a motion for a new trial, and
three weeks later, a motion to set aside the default judgment. In the latter,
Millennium alleged that the court erred by failing to sua sponte dismiss the
case from its inactive calendar on October 16 pursuant to Rule 38.1(d)(2);
and that Millennium had grounds for relief from the entry of default and
default judgment pursuant to Rule 60(b)(1), (4), and (6). In its motions,
Millennium did not identify any meritorious defense to the substance of
Gateway’s claims. The court denied both motions.
¶8 Millennium timely appeals. We have jurisdiction pursuant to
Article 4, Section 9, of the Arizona Constitution, and Arizona Revised
Statutes (“A.R.S.”) section 12-2101(A)(1) and (5)(a).
DISCUSSION
I. The Court Did Not Abuse Its Discretion in Striking Millennium’s
Pleadings When It Failed to Comply with the Court’s Order to
Retain Counsel
¶9 Millennium contends the superior court abused its discretion
when it ordered Millennium on August 16 to obtain counsel in eight days,
and then struck Millennium’s pleadings when Millennium failed to do so.
We review a superior court’s orders striking pleadings for an abuse of
discretion; however, a court’s discretion when striking pleadings or
entering default judgments “is more limited than when it employs lesser
sanctions.” Roberts v. City of Phoenix, 225 Ariz. 112, 119, ¶ 27 (App. 2010)
(internal quotation omitted) (citing Rivers v. Solley, 217 Ariz. 528, 530, ¶ 11
(App. 2008)). A court abuses its discretion where the record fails to provide
substantial support for its decision or the court commits an error of law in
reaching the decision. Grant v. Ariz. Pub. Serv. Co., 133 Ariz. 434, 456 (1982);
see also Torres v. N. Am. Van Lines, Inc., 135 Ariz. 35, 40 (App. 1982) (stating
a court’s discretionary decision is considered abusive if “manifestly
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GATEWAY v. MILLENNIUM
Decision of the Court
unreasonable, or exercised on untenable grounds, or for untenable
reasons”).
a. Adequacy of Time Allowed to Retain New Counsel
¶10 Millennium claims the court abused its discretion when it
gave Millennium only eight days from its August 16, 2017 order to retain
new counsel. Millennium’s assertion overlooks the fact that it was on notice
as early as January of 2017 that Steimel was suspended from the practice of
law and thus unable to provide continued representation and learned as
early as May of that same year that he had, in fact, stipulated to disbarment.
If that were not enough to prompt the immediate retention of new counsel,
Millennium was provided in July of 2017 with multiple copies of Gateway’s
motion seeking an order directing Millennium to retain substitute counsel
by August 24, 2017. That same motion explicitly requested the court order
that Millennium’s pleadings be stricken in the event it did not timely retain
new counsel. Millennium still did not retain new counsel, nor seek any
modification of the relief requested by Gateway. By the time the court
issued its order granting Gateway’s motion on August 16, Millennium had
known of Steimel’s disbarment for at least three months and had taken no
meaningful steps to secure substitute counsel. Millennium’s continued
reliance upon advice by Steimel about its options and its efforts to complain
to the State Bar about Steimel’s ethical violations do not excuse its failure to
timely act to protect its interests in this litigation.
¶11 In any event, the trial court was in the best position to
evaluate the reasonableness of Millennium’s conduct once Millennium
learned of Steimel’s disbarment, and on this record, we cannot say the
court’s order establishing a deadline of August 24 to finally secure
substitute counsel was either unreasonable or an abuse of discretion.3
3 Millennium cites to multiple cases in which courts granted more
time than eight days for corporate parties to retain new counsel; however,
Millennium wholly mischaracterizes the sole Arizona case to which it cites
in support of this contention—Boydston v. Strole Development Co., 193 Ariz.
47, 50, ¶ 14 (1998)—which holds only that the court “should give the
corporation a reasonable opportunity to cure the defect before dismissing
the appeal” and that “[r]easonableness will depend upon the
circumstances.” The other cases cited by Millennium are from foreign
jurisdictions and do not reflect the same circumstances present here—that
is, where the corporate party had several months’ time before the court’s
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b. The Appropriateness of Striking Millennium’s Pleadings
¶12 Striking a party’s pleadings is a severe sanction, and therefore
“must be based on a determination of willfulness or bad faith by the party
being sanctioned.” Estate of Lewis v. Lewis, 229 Ariz. 316, 324, ¶ 18 (App.
2012) (citation omitted). We have further stated, however, that “[f]ault
equivalent to gross negligence also will support such severe sanctions
against a noncomplying party.” Id. (citation omitted).
¶13 We have already detailed the repeated failure of Millennium
to timely act in the face of clear knowledge that it could not proceed without
new representation. Whether that conduct rises to the level of willful
misconduct or gross negligence was a factual determination the trial court
was in the best position to evaluate and, on this record, we will not disturb
its implicit finding in that regard.
c. Gateway Timely Prosecuted the Action and the Court Did
Not Abuse Its Discretion in Entering Judgment on October
13, 2017
¶14 Millennium argues, in part, that its failure to act reasonably
and/or to comply with the court’s order is excused by Gateway’s own
failure to timely prosecute its case. We disagree.
¶15 Once Gateway learned of Steimel’s disbarment, it advised the
court of that fact and asked the court to order Millennium to secure
substitute counsel by August 24 and, in the meantime, to extend the case on
the inactive calendar until Millennium complied with the court’s order.
Besides these actions, Gateway could do little to advance the case.
¶16 Millennium also argues that the case was only extended on
the inactive/dismissal calendar until October 13, at which time it should
have been automatically dismissed without any further notice.4 The
order during which it knew it was required to retain new representation.
See, e.g., 135 Bowery LLC v. 10717, LLC, 145 A.D.3d 1225, 1225-26 (N.Y. App.
Div. 2016) (stating defendant requested time to retain new counsel the
month after plaintiff filed its complaint); In re K.M.A., Inc., 652 F.2d 398, 399
(5th Cir. 1981) (giving appellant thirty days to retain counsel, when
appellant was represented by counsel at the lower court, and attempted to
file its appeal pro se).
4 Millennium alternatively asserts that the case should have been
dismissed on October 16 pursuant to the 60-day deadline of Rule 38.1(d)(2).
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GATEWAY v. MILLENNIUM
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implication is that the court somehow lacked jurisdiction to consider and
ultimately enter a judgment against Millennium on October 17. Although
the language of Rule 38.1(d)(2) is mandatory, the process is not self-
executing. The parties have an opportunity to demonstrate good cause to
extend the case by filing a Joint Report and a Proposed Scheduling Order,
and the court has discretion to grant that request. Here, however, because
of Millennium’s failure to act, Gateway could not file a joint report. As a
corporate entity, Millennium had to act through counsel, Ramada Inns, Inc.
v. Lane & Bird Advert., Inc., 102 Ariz. 127, 128 (1967) (“A corporation cannot
appear in court by an officer who is not an attorney, and it cannot appear
in propria persona.”), and without counsel, it could not sign the joint
application/report required by Rule 38.1(d)(2)(A).
¶17 More importantly, on August 30, Gateway took the
affirmative action of filing the entry of default, and thereafter, on September
28, submitted a properly-documented motion for default judgment, with
affidavits and exhibits supporting the relief requested. Both applications
were not only submitted well before the October 13 or 16 “deadlines” for
dismissal off the inactive calendar, but also were served directly on
Millennium. The default was effective August 30, and the default judgment
was entered on October 17. Under these circumstances, and with no order
of administrative dismissal having been signed, it was not an abuse of
discretion for the court to consider the merits of the pending motion and
enter the subject judgment.
d. The Court’s Compliance with Rule 16(h)(2)
¶18 Millennium argues that when the court struck Millennium’s
pleadings, it failed to award Gateway its “reasonable expenses, including
attorney[s’] fees, incurred as a result of [Millennium’s] conduct,” see Rule
16(h)(2), and—relying on Estate of Lewis, 229 Ariz. at 326, ¶ 26—that the
failure to do so signaled the court’s belief that Millennium’s non-
compliance was “either ‘substantially justified’ or that the court abused its
discretion by failing to consider even mandated and presumptive lesser
sanctions than dismissal and default.” Putting aside the fact that the
statement in Lewis relied on by Millennium is dicta, the facts there were
quite different. In Lewis, the court’s minute entry order directing Simon
Lewis to personally appear was not only ambiguous and at odds with the
court’s prior oral directive in open court, but his failure to appear in
compliance with the order was the direct result of his lawyer not conveying
the court’s order to him. Id. at 325-26. As such, it is not a surprise that the
appellate court reversed the sanction order.
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¶19 In contrast, Millennium had actual, direct knowledge of the
court’s clearly-expressed order and deadline to retain substitute counsel.
Furthermore, in its order entering judgment against Millennium the court
awarded Gateway its full attorneys’ fees and costs—presumably including
the expenses incurred as a result of Millennium’s failure to comply with the
court’s order to retain new counsel. Because we find no temporal
requirement in Rule 16(h)(2), the court did not err. See Adrian E. v. Dep’t of
Econ. Sec., 215 Ariz. 96, 99, ¶ 9 (App. 2007) (“The interpretation of a court
rule presents a question of law that we review de novo.”) (citation omitted).
II. The Court’s Entry of Default in Favor of Gateway, and Denial of
Millennium’s Subsequent Motions
¶20 We review a court’s entry of default and default judgment for
abuse of discretion. Roberts, 225 Ariz. at 119, ¶ 27. Again, however,
discretion here is more limited. Id. (citing Rivers, 217 Ariz. at 530, ¶ 11). In
alleging the court erred, Millennium claims that default judgment was
improper because of “mistake, inadvertence, surprise, or excusable
neglect,” Rule 60(b)(1); because the award was improper, Rule 55(b)(3); and
because the court did not consider lesser sanctions.
a. Rule 60(b)(1) and Motions to Set Aside Judgment and for a
New Trial
¶21 When reviewing an appellant’s claim that “default judgment
was taken against him through his mistake, inadvertence, surprise or
excusable neglect, the general test is whether his conduct might be the act
of a reasonably prudent person under the same circumstances.” Bateman v.
McDonald, 94 Ariz. 327, 329-30 (1963). Because Millennium does not allege
ignorance regarding Arizona’s requirement that corporations be
represented by a licensed attorney, neither mistake nor inadvertence
applies. Regarding surprise, Millennium alleges it never received the
court’s August 16, 2017 order for it to retain counsel. Millennium offers no
support for this and, as previously noted, Millennium was, over a period of
several months, provided with multiple copies of the relevant pleadings
and motions that led to the court’s orders that are the subject of this appeal.
Despite these repeated notices, warnings, and Gateway’s requests for
specific court orders detrimental to Millennium’s legal position,
Millennium took no meaningful action to protect its interests. On this
record, the court did not abuse its discretion in determining that
Millennium failed to carry its burden to demonstrate any excusable neglect
or any other ground for relief under Rule 60(b)(1).
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¶22 More importantly, Millennium presented the court with no
argument or admissible evidence documenting a meritorious defense to
either liability or, other than the Rule 55(b)(3) argument discussed below,
contesting the damages sought by Gateway. For the court to grant a motion
to set aside a default judgment, the moving party must show (1) excusable
neglect in failing to answer; (2) that relief was promptly sought; and (3) that
it possesses a meritorious defense. Baker Int’l Assocs. v. Shanwick Int’l Corp.,
174 Ariz. 580, 583 (App. 1993). Simply stated, the court did not err in
denying Millennium’s motion to set aside.
¶23 For the same reasons, we affirm the court’s denial of
Millennium’s motion for a new trial. Additionally, we find no merit in
Millennium’s argument that the court erred by not explicitly stating the
“legal basis” for its order denying the motion for a new trial. Arizona’s
Rules of Civil Procedure do not require the court to make such findings. See
generally Rule 52(a). Even so, if Millennium wanted such findings, it was
free to request them after the court issued its minute entry pursuant to Rule
52(b), which explicitly provides for such a motion, which “may accompany
a motion for a new trial under Rule 59.” Because Millennium did not make
any such request, however, the issue is waived. See Trantor v. Fredrikson,
179 Ariz. 299, 301 (1994) (“[B]y failing to [request findings when the court
failed to make them], a litigant is not in the position to complain about how
helpful findings would have been on appeal.”)
b. Rule 55(b)(3)
¶24 Rule 55(b)(3) requires that “[a] judgment by default must not
be different in kind from, or exceed in amount, that prayed for in a
pleading’s demand for judgment.” In its default judgment, the court
awarded Gateway $42,940.29 plus interest. Millennium argues, however,
that in its complaint Gateway claimed only $13,211.30. But Millennium
incorrectly derives this number from paragraphs 13 and 17 of Gateway’s
complaint, which state Gateway’s request for $10,211.30, representing the
unpaid balance of the third-party contract forming the basis of the parties’
dispute; and a request for $3,000 in attorneys’ fees.
¶25 Millennium’s argument overlooks paragraphs 6, 7, 14, and 16
of the complaint, in which Gateway further outlines unspecified contractual
damages owed to Gateway, resulting from the subject auto sale and the
third-party lawsuit, “in an amount to be determined upon proof of the
damage caused.” In its motion for default judgment—submitted over a
year after its complaint, during which period further interest and attorneys’
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fees accrued—Gateway requested nothing different in kind from that
which it requested in its complaint.
c. Consideration of Lesser Sanctions
¶26 Citing Roberts, Millennium argues the court erred when it
entered default judgment without first considering and rejecting lesser
sanctions. But Roberts holds only that a court must consider and reject lesser
sanctions “[w]hen considering the imposition of default judgment as a
sanction for discovery violations.” 225 Ariz. at 121, ¶ 31 (emphasis added).
The court in this case did not sanction Millennium for any discovery
violation. The sanction imposed here was triggered by Millennium’s failure
to comply with the court’s order to timely retain substitute counsel. As
previously noted, Millennium had several months to retain new counsel
but consciously failed to do so. Striking pleadings and entering judgment
in favor of Gateway as a sanction for a deliberate failure to comply with the
court’s order was well within the court’s discretionary authority.
III. Attorneys’ Fees and Costs on Appeal
¶27 Gateway requests its attorneys’ fees and costs pursuant to the
parties’ contract forming the basis of this dispute, which states in paragraph
14 that “[i]n any litigation . . . related to or arising from [this] Agreement,
the prevailing party shall be entitled to its reasonable attorney[s’] fees and
costs incurred.” “Contracts for the payment of attorney[s’] fees will be
enforced in accordance with the terms of the contract.” First Fed. Sav. &
Loan Ass'n of Phoenix v. Ram, 135 Ariz. 178, 181 (App. 1982); see also ARCAP
21(a)(2). We therefore award reasonable attorneys’ fees and costs to
Gateway upon its compliance with ARCAP 21(b).5
5 Millennium’s counsel on appeal withdrew after filing its opening
brief. Millennium did not retain new counsel to file a reply brief and has
no counsel of record as of this decision’s date of issue. If Millennium wishes
to file or respond to any post-decision motions, it must retain counsel to do
so.
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CONCLUSION
¶28 We affirm the superior court’s orders in this matter and
award Gateway its reasonable attorneys’ fees and costs on appeal subject to
compliance with ARCAP 21(b).
AMY M. WOOD • Clerk of the Court
FILED: AA
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