Applied Underwriters v. Oceanside Laundry ( 2018 )


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    09/07/2018 08:11 AM CDT
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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
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    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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    APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
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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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    APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
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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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    APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
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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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    APPLIED UNDERWRITERS v. OCEANSIDE LAUNDRY
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    300 Neb. 333
    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.