Opinion
No. 59879-1-I.
April 28, 2008.
Appeal from a judgment of the Superior Court for King County, No. 04-2-24097-2, Sharon S. Armstrong, J., entered March 23, 2007.
Reversed and remanded by unpublished per curiam opinion.
The trial court has broad discretion to vacate default judgments. But the record in this case does not indicate a valid basis for the trial court's decision. Accordingly, we reverse the order vacating the default judgment and remand for reinstatement of the default judgment in favor of Northlake Apartments.
FACTS
In 1999, respondent Egypt Limited Partnership sold a 59-unit apartment building to appellant Northlake Apartments LLC for about $6.5 million. Urban Ventures Corporation was Egypt's general partner. After the sale, Egypt transferred more than $2 million to Brian Regan, who was Egypt's only limited partner and Urban Ventures' sole shareholder. By about 2000, Regan had filed a final tax return for Egypt and dissolved Urban Ventures.
On September 4, 2004, Northlake filed this action for damages against Egypt for breach of the purchase and sale agreement. Northlake alleged, among other things, that the apartment building did not comply with the city code, had been improperly repaired, and suffered from several additional deficiencies. Northlake did not name Regan or Urban Ventures as parties.
On May 5, 2005, the trial court entered a default judgment in favor of Northlake for $1,973,627. In support of the judgment, Northlake submitted declarations indicating that it had unsuccessfully attempted to serve the summons and complaint on Urban Ventures, Egypt's registered agent, at the address listed on the secretary of state's website and that it had subsequently served the secretary of state in accordance with RCW 25.10.040, the uniform limited partnership act. The secretary of state mailed the summons and complaint to Egypt's last address, but the mailing was returned as undeliverable.
Brian Regan learned of the default judgment and Northlake's lawsuit against Egypt in June 2005. In September 2005, Northlake deposed Regan under CR 30(b)(6). Regan indicated that he was unable to locate any documents or computer records related to Egypt, but recalled that he had dissolved Urban Ventures shortly after Egypt sold the apartments to Northlake. In September 2006, Northlake filed a motion for recovery of assets, seeking an order voiding Egypt's transfer of funds to Regan. The trial court denied the motion without prejudice. Northlake also filed a separate action against Regan, alleging that he had improperly withdrawn funds from Egypt. That action is still pending.
On December 26, 2006, Egypt moved to vacate the default judgment. Egypt argued that service of process was deficient because Northlake failed to serve Regan or exercise due diligence in finding Egypt's registered agent and that the default judgment was therefore void. In support of the motion, Regan stated that he did not file a motion to vacate earlier "because I had not been named in the original lawsuit, had no notice of the lawsuit, and the judgment had been entered against an entity I believed no longer existed."
Following a hearing, the trial court rejected Egypt's contentions that service of process was deficient, expressly finding that service was valid under RCW 25.10.040(3). But the court further found that Regan did not receive actual notice of the lawsuit before entry of the default judgment. And after noting the "potential for some likely defenses under the contract" and the presence of an arbitration clause in the purchase and sale agreement, the court granted the motion to vacate.
The other thing that concerns me somewhat is that this was set up as an arbitration agreement, and so I think that what I will do is vacate the default judgment, not because of invalid service, but because of timely action notice and because this was pursued in the court without an opportunity to do any kind of arbitration.
Motion to Vacate Default Judgment (Feb. 16, 2007) at 30.
DECISION
Northlake contends that after determining service of process was valid, the trial court necessarily rejected Egypt's claim that the default judgment was void under CR 60(b)(5). Northlake argues that the trial court therefore erred in relying on the existence of potential defenses and the arbitration clause as the basis for vacating the default judgment.
We review the trial court's determination of whether to vacate a default judgment for an abuse of discretion. White v. Holm, 73 Wn.2d 348, 351, 438 P.2d 581 (1968). There is a strong policy favoring the resolution of disputes on their merits; proceedings to set aside a default judgment are equitable in nature "and the relief sought or afforded is to be administered in accordance with equitable principles and terms." Morin v. Burris, 160 Wn.2d 745, 754, 161 P.3d 956 (2007).
"Default judgment is largely governed by CR 55, but CR 60 also sets forth when a judgment may be vacated or set aside." Morin, 160 Wn.2d at 754. Under CR 55(c)(1), the trial court may set aside a default judgment "in accordance with rule 60(b)." CR 60, in turn, "sets out specific grounds upon which a party may apply to set aside a default judgment." Morin, 160 Wn.2d at 754. In its motion to vacate, Egypt's primary contention was that service of process was invalid and that the default judgment was therefore void under CR 60(b)(5). See In re Marriage of Markowski, 50 Wn. App. 633, 635-36, 749 P.2d 754 (1988) (default judgment entered without personal jurisdiction is void). Egypt argued that Northlake did not exercise due diligence in trying to find Egypt's registered agent and that it should have served Regan.
The trial court agreed with Northlake that service of process was valid under Washington's uniform limited partnership act. RCW 25.10.040(2) requires each limited partnership to maintain an agent for service of process. "If a limited partnership fails to appoint or maintain a registered agent in this state, or if its registered agent cannot with reasonable diligence be found, then the secretary of state shall be an agent of such limited partnership upon whom any such process, notice, or demand may be served. . . ." RCW 25.10.040(3). The evidence was undisputed that Egypt failed to maintain a registered agent. Regan conceded that he dissolved Urban Ventures long before Northlake filed this action. Accordingly, the trial court properly found that service was proper under RCW 25.10.040(3).
Although the trial court found that service of process was valid, it nonetheless vacated the default judgment based on Regan's lack of actual notice, the existence of potential defenses, and the arbitration clause. But nothing in the record indicates the trial court's rationale for relying on these grounds. Egypt asserts that Northlake could have served Regan. But the mere existence of alternative methods of service does not render Northlake's compliance with RCW 25.10.040(3) invalid. Nor has Egypt cited any relevant authority suggesting that Northlake was obligated to serve Regan in order to satisfy due process. Consequently, nothing in the trial court's decision suggests that it found the default judgment to be void under CR 60(b)(5) because of Regan's lack of notice or Northlake's failure to serve Regan.
Similarly, the mere existence of potential defenses or an arbitration clause is not a basis under CR 60(b) for vacating a default judgment. In its ruling, the trial court did not identify the significance of these grounds or indicate that it was considering the four factors that a moving party must demonstrate when moving to vacate a judgment under CR 60(b), including whether Egypt acted with due diligence after notice of the default judgment. See White, 73 Wn.2d at 352. Nor has Egypt suggested that any of the other applicable grounds set forth in CR 60(b) support the trial court's decision.
Egypt argues that the trial court's decision should be affirmed on the alternative ground that service of process was constitutionally deficient and that the default judgment was therefore void. But Egypt relies on authorities and statutes involving the service of process on individuals and has submitted no legal argument addressing the propriety of the specific service requirements governing limited partnerships in RCW 25.10.040. Accordingly, we do not consider these contentions further. See Howell v. Spokane Inland Empire Blood Bank, 117 Wn.2d 619, 624, 818 P.2d 1056 (1991). Egypt also maintains that the trial court has broad authority to vacate default judgments outside the parameters of CR 60(b). But this argument is not persuasive because it rests on isolated phrases from several cases that are taken out of context. Nor did the trial court indicate that it was relying on such broad authority in this case.
In summary, the record on appeal does not support the trial court's decision. Accordingly, we reverse the order of vacation and remand for reinstatement of the default judgment.