Servatron, Inc. v. Intelligent Wireless Products, Inc. ( 2015 )

FILED
MARCH 24, 2015
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
SERVATRON, INC. a Washington )
corporation, ) No. 32251-3-III
)
Respondent, )
)
v. )
) PUBLISHED OPINION
INTELLIGENT WIRELESS )
PRODUCTS, INC., a Washington )
corporation; CYFRE, LLC, a California )
limited liability company, )
)
Defendants, )
)
LA WRENCE KOVAC and JANE DOE )
KOVAC, husband and wife, and the )
marital community composed therein, )
)
Appellants. )
FEARING, J. - We address today a reoccurring issue: whether a defendant
"appeared" in a lawsuit such that the plaintiff needed to afford him notice before entering
a default judgment. We do not applaud the conduct of defendant's counsel in this appeal,
and we encourage practitioners to protect their clients by always timely entering a formal
notice of appearance with the court and opposing counsel. Nonetheless, we hold that
No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
Lawrence Kovac's California attorney made a sufficient "appearance" for purposes of
CR 55. We reverse the trial court's refus'al to vacate a default judgment in favor of
plaintiff Servatron, Inc., against defendants Lawrence Kovac and his wife.
PROCEDURE
The facts underlying the lawsuit and entailing the substantive dispute between the
parties bear little relevance to the issue on appeal. On December 23, 2011, Servatron
sued Intelligent Wireless Products, Inc. (IWP), Cyfre, LLC, and Lawrence and Jane Doe
Kovac, alleging, (1) breach of contract, (2) breach of implied covenant of good faith and
fair dealing, (3) unjust enrichment, and (4) tortious interference. Jane Doe Kovac is a
fictitious name for the wife of Lawrence Kovac. Servatron alleged that IWP failed to pay
for orders of cell phone amplifiers that it placed with Servatron. Servatron also alleged
that IWP, Cyfre, and the Kovacs interfered with Servatron's attempts to resell goods in its
possession that IWP ordered but for which IWP did not pay. Among other relief
requested, Servatron sought the piercing of IWP's corporate veil to hold Cyfre and the
Kovacs, both IWP shareholders, personally liable for IWP's breach and tortious
interference. Lawrence Kovac was CEO of IWP, until it was administratively dissolved
on November 22,2009.
Servatron personally served IWP, Cyfre, and the Kovacs in California during
January and February of2012. Lawrence Kovac hired California attorney, Faraz
2
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
Mobassernia, on Wilshire Boulevard in Santa Monica, to investigate and represent him
and his wife in Servatron's suit.
In April 2012, Faraz Mobassernia contacted Servatron's attorney, Michael Atkins,
and told him he represented IWP, Cyfre, and the Kovacs. On April 5,2012, Mobassernia
wrote to Atkins:
Please contact my office to discuss the parameters of this matter. I
emailed the court in Washington and I have to get a response from them
regarding the filing of this complaint. I do not see a case number on the
face of the summons or complaint. Please call me at your earliest
convenience.
Clerk's Papers (CP) at 146. Atkins responded the same day:
Here's the case number: 11-2-05197-2.
I will check with my client about your request for 30 more days to
investigate before answering.
CP at 146.
The parties held a phone conference to settle the case, after which Atkins sent a
settlement proposal to Mobassernia on April 30. After receiving no response, Atkins
wrote Mobassernia on June 4,2012, stating:
We need your clients' acceptance of our basic settlement terms by
Friday [June 8, 2012] or Servatron is going to move forward with the
default process and/or litigation.
CP at 181. Mobassernia requested an additional week to respond due to Lawrence
Kovac's mother's imminent death. Servatron agreed. On June 5, Atkins wrote to
Mobassernia:
3
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
In light of Lawrence's mother's situation, we'll agree to extend the
deadline as you requested until 6/15. However, we need the defendants to
accept our settlement terms by then or we'll go into litigation mode­
including moving for default. We ' re not willing to drag things out any
longer than that.
CP at 154. On June 6,2012, Michael Atkins wrote Faraz Mobassemia: "Here ' s the
scheduling order in case we move back to the litigation track." CP at 154.
On June 15, 2012, Faraz Mobassernia sent Michael Atkins an "agreement for IP
[intellectual property] rights" and stated he would call shortly. CP at 180. On June 21,
Mobassemia wrote again to Atkins:
Please call me to discuss developments on this case. Tried calling
both your phone numbers, computer operator comes on the phone asking
for your 10 digit number.
CP at 179. Atkins replied that he was in China and stated:
If your clients agree to the settlement terms in my last substantive
email, we can work toward settling. Based on your last substantive
message to me, your clients reject many of those terms. Therefore, I don't
know that further talks would be productive. If something has changed,
please describe what has changed in an email, which is easier for me to
address while I'm on the road.
CP at 179.
Faraz Mobassemia replied:
Your client is selling the product to USA Technologies after being
fully aware that it does not have the right to do so (ergo your client's
. th
request In e sett i ) ..... w h
ement at' s gOing
. on ????
....
CP at 179. Michael Atkins, in turn, replied:
4
No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
I don't understand what you mean. Servatron has the right to sell the
product under the UCC in an effort to defray what your client owes. If you
have contrary authority, please send it so we can consider it. However, the
UCC is quite clear on this point.
CPat179.
On June 18, Faraz Mobassemia wrote to Michael Atkins, in part:
Here is an email discussing our issues, direct from my client point by
point.. ..call to discuss.
Here are the simple issues
Thanks for organizing the call last week. Based on our discussion,
Servatron would be willing to settle along the following terms:
CP at 186.
All written communications between counsel had been bye-mail.
Communications between counsel ended after Michael Atkins' June 21 missive. Neither
IWP, Cyfre, nor the Kovacs filed a notice of appearance or answer with the court after the
failed settlement negotiations.
On July 11, 2012, Servatron moved for entry of default, without serving the
motion on Faraz Mobassernia, IWP, Cyfre, or the Kovacs. In an affidavit in support of
the motion, Michael Atkins declared that he told defendants that Servatron would "go
into litigation mode-including moving for default" after June 15,2012. CP at 29. The
trial court granted the motion and entered an order of default on July 19,2012.
On October 15, 2012, Servatron moved for entry of a default judgment. Again, it
did not serve this motion on defendants or Faraz Mobassernia. The trial court granted
5
No. 3225I-3-III
Servatron, Inc. v. Intelligent Wireless
Servatron's motion the same day and awarded Servatron's requested damages and
injunctive relief, while holding Cyfre and Lawrence and Jane Doe Kovac jointly and
severally liable for the judgment against IWP.
On October 31, 2013, Servatron served a California collection action on Lawrence
and Jane Doe Kovac. On December 11,2013, the Kovacs hired Washington counsel,
and, on December 20, 2013, the Kovacs moved to set aside the default judgment under
CR 60(b). The Kovacs argued that their delay in moving to vacate was justified because
they did not learn of the judgment until Servatron served them with a collection action in
California and they earlier believed Servatron had decided not to pursue litigation.
In response to the motion to vacate the default judgment, Servatron argued that the
Kovacs never appeared in the lawsuit and, therefore, it need not have given them notice
ofa default hearing. Servatron also contended it complied with CR 55's notice
requirement by telling the Kovacs it would move for default if they did not reach a
settlement during negotiations. The trial court denied Lawrence and Jane Doe Kovac's
motion to vacate the default judgment, in part, because the Kovacs did not file their
motion within one year and because of the couple's neglect in not resolving the dispute.
LA W AND ANALYSIS
We must decide whether Lawrence and Jane Doe Kovac "appeared" in the
lawsuit, entitling them to notice when Servatron sought an order of default and default
6
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
judgment. If the answer is "yes" we must decide if the Kovacs timely sought to vacate
the default judgment.
CR 55 Appearance Requirement
The Kovacs contend that settlement negotiations and communications through
their California attorney and with Servatron after the suit began constituted substantial
compliance with CR 55's appearance requirement, sufficient to entitle them to notice of
Servatron's motions for default. We agree.
When the facts surrounding the adequacy of a party's appearance under CR 55 are
undisputed, this court reviews de novo whether that party has established its appearance
as a matter of law. Meade v. Nelson, 174 Wn. App. 740, 750, 300 P.3d 828, review
denied, 178 Wn.2d 1025,312 P.3d 652 (2013); Rosander v. Nightrunners Transp., Ltd.,
147 Wn. App. 392,399, 196 PJd 711 (2008). In Sacotte Constr. Inc. v. Nat 'I Fire &
Marine Ins. Co., 143 Wn.App.410,415, 177P.3d 1147 (2008),DivisionTwo of this
court applied an abuse of discretion standard of review when addressing the trial court's
failure to vacate a default judgment. In that case, the parties disputed whether the acts
constituting the formal appearance actually occurred. In our appeal, the underlying facts
are based on written communications filed with the court. The only dispute is what
conclusion to draw from the writings.
CR 55(a)(3) reads:
7
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
Notice. Any party who has appeared in the action/or any purpose
shall be served with a written notice of motion for default and the
supporting affidavit at least 5 days before the hearing on the motion.
(Emphasis added.) Under CR 55(a)(3), if a party has "appeared" before a motion for
default has been filed, that party is entitled to notice of the motion before the trial court
may enter a valid default order. Smith v. Arnold, 127 Wn. App. 98, 103, 110 P.3d 257(2005), abrogated on other grounds by Morin v. Burris, 160 Wn.2d 745, 161 P.3d 956(2007). Consequently, if a defendant has appeared but is not given proper notice prior to
entry of the order of default, the defendant is entitled to vacation of the default judgment
as a matter of right. Gutzv. Johnson, 128 Wn. App. 901, 912, 117 P .3d 390 (2005);
Pro!'l Marine Co. v. Those Certain Underwriters at Lloyd's, 118 Wn. App. 694, 708, 77
P .3d 658 (2003); Colacurcio v. Burger, 110 Wn. App. 488, 497, 41 P.3d 506 (2002); In
re Marriage o/Daley, 77 Wn. App. 29, 31, 888 P.2d 1194 (1994); Shreve v. Chamberlin,
66 Wn. App. 728, 731,832 P.2d 1355 (1992). Default judgments are disfavored because
it is the policy of the law that controversies be determined on the merits rather than by
default. Griggs v. Averback Realty, Inc., 92 Wn.2d 576, 581, 599 P.2d 1289 (1979);
Dlouhy v. Dlouhy, 55 Wn.2d 718, 721, 349 P.2d 1073 (1960); Colacurcio v. Burger, 110
Wn. App. at 494.
CR 4(a)(3) reads, in relevant part:
A notice of appearance, if made, shall be in writing, shall be
signed by the defendant or his attorney, and shall be served upon the person
whose name is signed on the summons.
8
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
RCW 4.28.210 states:
A defendant appears in an action when he or she answers, demurs,
makes any application for an order therein, or gives the plaintiff written
notice of his or her appearance.
A defendant need not strictly follow CR 4(a)(3) or RCW 4.28.210.
Because default judgments are disfavored, the concept of "appearance" is to be
construed broadly for purposes ofCR 55. Colacurcio, 110 Wn. App. at 495; City ofDes
Moines v. Pers. Prop. Identified as $81,231,87 Wn. App. 689, 696, 943 P.2d 669 (1997).
The Kovacs do not rely on a formal written appearance filed with the court. Washington
courts repeatedly allow informal acts to constitute an appearance. Meade v. Nelson, 174
Wn. App. 740 (2013); Prof'l Marine Co., 118 Wn. App. at 708; Colacurcio, 110 Wn.
App. at 495. If a party actually appeared or substantially complied with the appearance
requirements, he is entitled to receive such notice. Morin v. Burris, 160 Wn.2d 745, 755,
161 P.3d 956 (2007). Substantial compliance may be satisfied informally. Morin v.
Burris, 160 Wn.2d at 749.
Morin v. Burris, 160 Wn.2d 745 is the latest pronouncement from our state high
court on this subject. Under Morin, the defendant's informal appearance must be based
on action occurring after the service of the lawsuit. Morin v. Burris, 160 Wn.2d at 755.
A party's conduct after litigation has commenced will determine whether he has
"appeared" in a matter for the purpose ofCR 55(c). Morin v. Burris, 160 Wn.2d at 755.
9
No. 32251-3-II1
Servatron, Inc. v. Intelligent Wireless
A court must examine whether a defendant's postlitigation conduct was designed to and,
in fact, did apprise the plaintiff of the defendant's intent to litigate the case. Morin v.
Burris, 160 Wn.2d at 755; Meade v. Nelson, 174 Wn. App. at 749. Mere intent to defend
is not enough. The defendant must go beyond merely acknowledging that a dispute
exists and instead acknowledge that a dispute exists in court. Morin v. Burris, 160 Wn.2d
at 756.
Meade v. Nelson, 174 Wn. App. 740 contains similarities to this appeal. The
Meade court held postlitigation contact between the plaintiffs attorney and defendant's
attorney constituted a sufficient appearance. The defendant, through his attorney,
responded to a settlement offer and discussed potential evidentiary issues. This court
upheld the trial court's vacation of an order of default.
The Kovacs substantially complied with CR 55's appearance requirement. The
Kovacs' attorney contacted Servatron's lawyer by phone and e-mail after Servatron filed
suit, informed him that he represented the Kovacs with regard to the suit's dispute, and
acknowledged the pending litigation. Settlement negotiations took place after Servatron
sued the Kovacs. As in Meade, the parties debated matters related to litigation, such as
whether Servatron was entitled to resell goods identified to its contracts with IWP.
Servatron knew that the Kovacs would defend the case as illustrated by conduct and
statements of Servatron' s counsel. When Faraz Mobassernia told Michael Atkins that the
former had contacted the clerk, Atkins provided Mobassernia the case number. Atkins
10
No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
later forwarded a case schedule to Mobassernia.
Servatron argues that the Kovacs could not substantially comply with CR 55's
appearance requirement because their attorney, Faraz Mobassernia, was not licensed to
practice in Washington. Servatron relies on Seek Systems, Inc. v. Lincoln Moving/Global
Van Lines, Inc., 63 Wn. App. 266, 818 P.2d 618 (1991), for the proposition that a
person's abilityto appear in the litigation is essential to satisfying appearance
requirements. Servatron maintains that because Mobassernia did not tell Servatron that
the Kovacs intended to hire local counsel, or that Mobassernia intended to appear pro hac
vice, he could not substantially comply with the appearance requirements on the Kovacs' .
behalf.
In Seek Systems, Inc. v. Lincoln Moving/Global Van Lines, Inc., the defendant's
. customer service representative called plaintiffs counsel and informed counsel that he
would forward a bill of lading. The service representative likely never forwarded the bill
and took no other action to defend the case. This court wrote: "we assume that a single
phone call can constitute a notice of appearance if the caller is one who could appear for
the defendant." 63 Wn. App. at 270. In ruling the defendant had not appeared, this court
noted that no attorney had called on behalf of the defendant, among other factors.
We consider Sacotte Constr. Inc. v. Nat 'I Fire & Marine Ins. Co., 143 Wn. App.
410 (2008) more parallel. In Sacotte, we clarified that "when an attorney appears for a
defendant, it is the defendant who has made the appearance, not the attorney." 143 Wn.
11No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
App. at 416. We held that a defendant's informal appearance is not negated by the fact
that an opposing party could move to disqualify the attorney who made the initial
informal appearance on the defendant's behalf. The defendant's attorney who made the
contact in Sacotte held a conflict of interest that would bar him from representing the
defendant in the lawsuit.
Consistent with Sacotte and despite later changing its answer, Servatron admitted
at court that, ifFaraz Mobassernia filed a formal appearance with the court despite not
being licensed in Washington, the Kovacs would sufficiently appear. Wash. Court of
Appeals oral argument, Servatron, Inc. v. Intelligent Wireless Prod. Inc., No. 32251-3-111
(Jan. 27, 2015), at 7 min., 23 sec. (on file with court). We agree. Mobassernia's lack of
license might subject him to sanctions and subject him to a disqualification, just as
defendant's counsel was subject to a motion for disqualification in Sacotte . Still,
Mobassernia's appearance would constitute an appearance for Lawrence and Jane Doe
Kovac. If Mobassernia could enter an operational formal notice of appearance, his
conduct should be sufficient for an effective informal appearance.
CR 60 Timely Motion To Vacate Default
Servatron argues, and the trial court agreed: even if the order of default should not
have been entered, the Kovacs' motion to set aside the default judgment was untimely
under CR 60(b). Servatron maintains that failure to provide notice of a motion for default
under CR 55 renders the subsequent judgment voidable, rather than void, thereby
12
No. 32251-3-111
Servatron, inc. v. intelligent Wireless
precluding a court from granting a defendant relief under CR 60(b)(5). We disagree.
The lack of notice rendered the judgment void, and the Kovacs could vacate the judgment
at any time.
CR 60 reads, in relevant part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly
Discovered Evidence; Fraud; etc. On motion and upon such terms as are
just, the court may relieve a party or his legal representative from a final
judgment, order, or proceeding for the following reasons:
(I) Mistakes, inadvertence, surprise, excusable neglect or
irregularity in obtaining a judgment or order;
(2) For erroneous proceedings against a minor or person of unsound
mind, when the condition of such defendant does not appear in the record,
nor the error in the proceedings;
(3) Newly discovered evidence which by due diligence could not
have been discovered in time to move for a new trial under rule 59(b);
(5) The judgment is void;
The motion shall be made within a reasonable time and for reasons
0), (2) or (3) not more than 1 year after the judgment, order, or proceeding
was entered or taken.
CR 60(b) provides eleven grounds for a trial court to vacate a default judgment,
the first three of which must be brought within one year of the entry of the judgment or
order. CR 60(b )(5) impliedly directs a court to vacate a default judgment that is void
regardless if the motion is not brought within a reasonable amount of time.
Washington courts have repeatedly and consistently held that, if a party otherwise
entitled to notice under CR 55 does not receive such notice, the trial court lacks the
authority to enter the judgment. An aggrieved party is entitled as a matter of right to have
13
No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
the order of default set aside and any resulting default judgment vacated. Tiffin v.
Hendricks, 44 Wn.2d 837, 847,271 P.2d 683 (1954); Hous. Auth. o/Grant County v.
Newbigging, 105 Wn. App. 178, 190, 19 P.3d 1081 (2001); Shreve v. Chamberlin, 66
Wn. App. at 731 (1992). A trial court holds a nondiscretionary duty to vacate a void
judgment. Allstate Ins. Co. v. Khani, 75 Wn. App. 317, 323, 877 P.2d 724 (1994). There
is no time limit to bring a motion to vacate a void judgment. Ahten v. Barnes, 158 Wn.
App. 343, 350, 242 P.3d 35 (2010). A party can wait several years to vacate a void
default judgment. Brenner v. Port o/Bellingham, 53 Wn. App. 182, 188,765 P.2d 1333(1989); In re Marriage 0/ Markowski, 50 Wn. App. 633, 635, 749 P.2d 754 (1988).
Servatron relies on In re Marriage o/Mu Chai, 122 Wn. App. 247, 254-55, 93
P.3d 936 (2004), for the proposition that "any attempt to vacate a default judgment based
on an irregularity that does not call into question the court's jurisdiction must be made
through CR 60(b)(1), not CR 60(b)(5)." Br. ofResp't at 24. By this argument, Servatron
seeks to distinguish between an order of default without notice and a default judgment
without notice. Chai does not make such an explicit distinction, but rather is consistent
with the decisions cited above:
Where a court lacks jurisdiction over the parties or the subject
matter, or lacks the inherent power to make or enter the particular order,
its judgment is void. A motion to vacate a void judgment may be brought
at any time, and the court must vacate the judgment as soon as the defect
comes to light.
Chai, 122 Wn. App. at 254 (emphasis added) (footnotes omitted).
14
No. 32251-3-111
Servatron, Inc. v. Intelligent Wireless
Servatron overcomplicates the analysis found in Chai. The Kovacs were entitled
to notice of the motion for default. They did not receive that notice. Therefore, the trial
court lacked the authority to enter the order of default. Just as the order is invalid, so too
is the judgment. Both existing case law and common sense defies affirming a default
judgment, while simultaneously setting aside the order on which it is based.
Servatron cites two aging decisions in support of its argument that the default
judgment was voidable, not void: Person v. Plough, 174 Wash. 160, 24 P.2d 591 (1933);
and Chehalis Coal Co. v. Laisure, 97 Wash. 422, 166 P. 1158 (1917). In each case, the
Supreme Court ruled that a default judgment was voidable when the plaintiff failed to
provide notice to the defendant of a default motion. Thus, in each case the defendant
needed to show a valid defense to obtain a vacation of the default. The two decisions
lend support to Servatron's contention that its failure to provide notice of the motion for
default merely renders a subsequent judgment obtained on that successful motion
voidable, and not void, therefore necessitating that such a motion to vacate be brought
within one year pursuant to CR 60(b)( 1). We decline to follow the decisions for two
reasons. First, the high court decided Plough and Chehalis Coal before adoption of
Washington's Civil Rules in 1967. Second, the two decisions conflict with more recent
decisions such as Tiffin v. Hendricks, 44 Wn.2d at 847; White v. Holm, 73 Wn.2d 348,
352,438 P.2d 581 (1968); Gage v. Boeing Co., 55 Wn. App. 157, 165,776 P.2d 99115
No. 32251-3-III
Servatron, Inc. v. Intelligent Wireless
(1989); Morin v. Burris, 160 Wn.2d at 753 (2007); and Meade v. Nelson, 174 Wn. App.
at 750.
Lawrence and Jane Doe Kovac argue that they hold meritful defenses. When a
default order is void, the court need not decide whether the defendant has a defense to the
claim. Colacurcio, 110 Wn. App. at 497; Leen v. Demopolis, 62 Wn. App. 473, 477,815
P.2d 269 (1991). Therefore, we make no comment on the Kovacs' defenses.
Jane Doe Kovac also argues that this court lacked personal jurisdiction over her
since she had no contact with the State of Washington. Because we vacate the order of
default and default judgment, we do not address this question. During oral argument,
Jane Kovac agreed this court should not address personal jurisdiction if it vacates the
default judgment. Wash. Court of Appeals oral argument, supra, at 7 min., 23 sec.
CONCLUSION
We vacate the order of default and the default judgment entered against Lawrence
and Jane Doe Kovac. We remand the case to the superior court for further proceedings.
WE CONCUR:
Lawrence-Berrey, J.
16