Roundtable v. Schmedding

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
ROUNDTABLE VENTURES, LLC, Plaintiff/Appellee,
v.
KATIE SCHMEDDING, Defendant/Appellant.
No. 1 CA-CV 16-0614
FILED 1-30-2018
Appeal from the Superior Court in Maricopa County
No. CV 2015-091753
The Honorable Margaret Benny, Commissioner
The Honorable David K. Udall, Judge
VACATED AND REMANDED
COUNSEL
Ivan & Kilmark, PLC, Glendale
By Florin V. Ivan, Justin M. Clark
Counsel for Defendant/Appellant
Lawyer For Less, PLLC, Phoenix
By Gil Hacohen
Counsel for Plaintiff/Appellee
ROUNDTABLE v. SCHMEDDING
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Michael J. Brown delivered the decision of the Court, in
which Judge Maria Elena Cruz and Judge John C. Gemmill1 joined.
B R O W N, Judge:
¶1 This case arises out of Katie Schmedding’s alleged refusal to
honor a real estate purchase agreement between her and Roundtable
Ventures, LLC (“Roundtable”). Because the superior court’s entry of
default was ineffective, thus rendering the default judgment void, we
vacate the judgment and remand for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 On December 9, 2015, Roundtable filed an amended
complaint alleging breach of contract, breach of the implied covenant of
good faith and fair dealing, and fraudulent misrepresentation.2 When
Schmedding failed to answer, Roundtable submitted an application for
default pursuant to Arizona Rule of Civil Procedure (“Rule”) 55(a). Six
days later, Schmedding filed a pro per motion to dismiss the application for
default, arguing in part the complaint was defective; Roundtable
misrepresented its identity; she cancelled the purchase agreement; service
and venue were improper; the contractual terms were unconscionable,
ambiguous, and vague; she never received a “title report”; and she did not
breach the agreement. Schmedding also denied “each and every other
allegation not answered herewithin [sic],” and requested dismissal of the
amended complaint with prejudice.
1 The Honorable John C. Gemmill, Retired Judge of the Arizona Court
of Appeals, Division One, has been authorized to sit in this matter pursuant
to Article VI, Section 3 of the Arizona Constitution.
2 Justin Fromstein was the named plaintiff in the original complaint.
After the superior court informed the parties that the real estate purchase
agreement was entered between Roundtable and Schmedding, Roundtable
became the sole plaintiff in the amended complaint.
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ROUNDTABLE v. SCHMEDDING
Decision of the Court
¶3 Notwithstanding Schmedding’s filing, Roundtable moved for
default judgment under Rule 55(b), seeking specific performance under the
real estate purchase agreement, or in the alternative, “a sum certain plus
attorney’s fees.” Schmedding then filed two additional motions to dismiss
and an answer to Roundtable’s motion for default judgment. Roundtable
moved to strike the pending motions to dismiss and contended in part that
Schmedding’s motions to dismiss did not meet the “otherwise defends”
requirement under Rule 55(a). The motion to strike and motions to dismiss
were ultimately denied.3
¶4 The superior court then set an evidentiary hearing for
Roundtable’s motion for default judgment, allowing Schmedding to
dispute the “amount of damages and costs requested.” When Schmedding
did not appear “[a]fter a significant wait time,” the court proceeded with
the hearing, finding in part that entry of default was properly entered, the
real estate purchase agreement was a “valid, enforceable contract,” and
Roundtable “fulfilled its obligations under the contract.” The court entered
a default judgment on May 19, 2016, ordering Schmedding to comply with
the purchase agreement’s terms for the sale of the property and awarding
Roundtable attorneys’ fees and costs. Schmedding’s counsel then filed a
notice of appearance.
¶5 Because Schmedding failed to comply with the default
judgment, the superior court set a hearing to address her lack of
compliance. Schmedding filed a memorandum of points and authorities in
preparation for the hearing, arguing in part that entry of default was
ineffective and that the default judgment was entered in violation of the
automatic stay arising from her filing of a bankruptcy petition on May 17,
2016. At the hearing, the court found that Schmedding failed to comply
with the default judgment and ordered her to “take immediate steps to
complete her performance and complete the sale.”
¶6 After Schmedding again failed to comply with the superior
court’s orders, Roundtable moved for relief under Rule 70, which gives the
3 At a hearing held on April 6, 2016, Commissioner Benny referred the
pending motions to Judge Udall (the “assigned” judge) for consideration.
Judge Udall subsequently denied Roundtable’s motion to strike, but
seemingly denied only two of Schmedding’s three motions to dismiss.
Commissioner Benny, however, clarified that two of the motions to dismiss
were duplicate filings. Thus, when Judge Udall denied one of the duplicate
motions, he necessarily denied the other duplicate motion, thereby
resolving all three motions to dismiss.
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ROUNDTABLE v. SCHMEDDING
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court authority to enforce a court order requiring a specific act to be
performed. In response, Schmedding requested that the superior court set
aside the entry of default and default judgment under Rules 55(c) and 60(b).
Among other things, Schmedding argued the default judgment should be
vacated because the entry of default never became effective. In a judgment
filed September 14, 2016, the court granted Roundtable’s motion for Rule
70 relief and denied Schmedding’s motion to set aside entry of default and
default judgment, finding in part that the filing of “bankruptcy was a delay
tactic to avoid the entry of default judgment or to make the default
judgment void,” and that “Schmedding’s own misleading facts cannot be a
basis to support a Rule 55(c) or Rule 60(c) [sic] request.” Schmedding then
filed a notice of appeal.
JURISDICTION
¶7 Roundtable argues this court lacks jurisdiction over the
September 14 judgment because it does not include Rule 54(c) language and
is therefore not a final appealable order. Appeals are generally only
allowed from final judgments, Ghadimi v. Soraya, 230 Ariz. 621, 622, ¶ 7
(App. 2012), but may be pursued from other rulings as authorized in
Arizona Revised Statutes (“A.R.S.”) section 12-2101(A), Brumett v. MGA
Home Healthcare, L.L.C., 240 Ariz. 420, 425, ¶ 2 (App. 2016).
¶8 In the September 14 judgment, the superior court denied
Schmedding’s request to set aside the entry of default and default
judgment, and, in combination with its September 13, 2016 judgment,
granted Roundtable Rule 70 relief. Under A.R.S. § 12-2101(A)(2), an appeal
may be taken “[f]rom any special order made after final judgment.” The
denial of a motion to set aside default judgment is appealable as a special
order made after final judgment, which requires neither Rule 54(b) nor 54(c)
language. See Brumett, 240 Ariz. at 428-29, ¶¶ 14-15. We therefore have
jurisdiction to consider whether the superior court properly denied
Schmedding’s request to set aside default judgment. Because we conclude
the default judgment is void based on an ineffective entry of default, we
need not address whether the court properly granted Rule 70 relief or
whether there was “good cause” under Rule 55(c) to set aside entry of
default.
DISCUSSION
¶9 Under Rules 55(c) and 60(b)(4), a final default judgment may
be set aside when it is void. We generally review orders refusing to vacate
a default judgment for an abuse of discretion, but review de novo the
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Decision of the Court
specific question as to whether a judgment is void. BYS Inc. v. Smoudi, 228
Ariz. 573, 577-78, ¶¶ 14, 18 (App. 2012). A court commits reversible error
when it does not set aside a void judgment, which may be challenged at
any time. Master Fin., Inc. v. Woodburn, 208 Ariz. 70, 74, ¶ 19 (App. 2004).
The issues on appeal are limited to those raised in the motion to set aside.
Hirsch v. Nat’l Van Lines, Inc., 136 Ariz. 304, 311 (1983).
¶10 Schmedding argues, as she did in her request to set aside, the
default judgment should be vacated because the entry of default is
ineffective. Under Rule 55(a)(2), entry of default must be requested by
filing a written application for default. This filing “constitutes entry of
default,” which becomes “effective 10 days after the application for entry of
default is filed” unless the “party claimed to be in default pleads or
otherwise defends” within those 10 days. Rule 55(a)(4)-(5). If entry of
default is entered even though the party in default pled or otherwise
defended, the entry of default is ineffective, making any subsequent default
judgment void. See Corbet v. Superior Court In & For Cty. of Maricopa, 165
Ariz. 245, 247-48 (App. 1990); see also Ruiz v. Lopez, 225 Ariz. 217, 223, ¶¶ 21,
23 (App. 2010) (affirming superior court’s order vacating entry of default
and default judgment because entry of default was ineffective, resulting in
a void judgment).
¶11 Roundtable’s application for default was filed on December
29, 2015. Schmedding filed a motion to dismiss on January 4, 2016, six
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calendar days later, which is well within the 10-day grace period for
ensuring entry of default does not become effective. Although Roundtable
argues that Schmedding did not plead or otherwise defend in this action,
Roundtable does not explain why the January 4 motion to dismiss does not
satisfy the “otherwise defends” requirement of Rule 55(a)(5).
¶12 The only possible explanation Roundtable gives is that the
motion to dismiss is “void” because the superior court denied the motion.
Simply because the court denied the motion, however, does not mean the
motion to dismiss was “void” or Schmedding failed to defend. The law is
clear that motions to dismiss satisfy the “otherwise defends” requirement
of Rule 55(a)(5), especially when, as here, the motion to dismiss presents
defenses under Rule 12(b) and merits-based arguments. See Coulas v. Smith,
96 Ariz. 325, 329 (1964) (“The words ‘otherwise defend’ refer to attacks on
4 Justin Fromstein filed an application for default on November 4,
2015. But during the hearing on that date, at which Schmedding appeared,
the superior court directed that another application for default be filed,
which led to the December 29 application.
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the service, or motions to dismiss, or for better particulars, and the like,
which may prevent default without presently pleading to the merits.”);
Prutch v. Town of Quartzsite, 231 Ariz. 431, 436, ¶¶ 17-18 (App. 2013) (finding
no abuse of discretion in denying a motion for entry of default because the
claimed party in default otherwise defended by filing a motion to dismiss
for improper venue under Rule 12(b)(3)). Thus, the fact that a motion to
dismiss is ultimately denied does not mean the motion did not constitute
the assertion of a substantive defense under Rule 55.
¶13 Nor are we persuaded by Roundtable’s alternative argument
that the improper entry of default constitutes harmless error. See Rule 61
(directing court to “disregard all errors and defects that do not affect any
party’s substantial rights”). A void default judgment due to an ineffective
entry of default is not a harmless defect because the “defaulted party loses
all rights to litigate the merits of the cause of action.” Tarr v. Superior Court
In & For Pima Cty., 142 Ariz. 349, 351 (1984).
¶14 In sum, Roundtable’s December 29 application for default
never became effective because it was void as soon as Schmedding
otherwise defended her position by filing a motion to dismiss within the
10-day grace period. See Rule 55(a)(4) (stating that the “filing of the
application for default constitutes the entry of default,” but is not
“effective” until 10 days after the application filed); Corbet, 165 Ariz. at 248
(finding that because an answer was timely filed, “the entry of default was
void”). To obtain a valid default judgment, Roundtable would have needed
to file a new application for default, and if Schmedding failed to timely
defend, then entry of default could have become effective. Accordingly, the
superior court erred in denying Schmedding’s request to set aside the
ineffective entry of default and the resulting void default judgment.5
CONCLUSION
¶15 Because the entry of default never became effective, the
resulting default judgment is void. We therefore vacate the entry of default
and default judgment, and remand for further proceedings. We deny
Roundtable’s request for attorneys’ fees incurred on appeal, but award
5 Given this conclusion, we need not address Schmedding’s argument
that the default judgment is void because it was entered while an automatic
bankruptcy stay was in effect or any of the other arguments she raises on
appeal. Additionally, we deny as moot Roundtable’s motion to strike
portions of Schmedding’s reply brief because the matters complained of do
not affect our analysis.
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ROUNDTABLE v. SCHMEDDING
Decision of the Court
taxable costs to Schmedding upon her compliance with Arizona Rule of
Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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