Xpress Lube appeals a district court order denying its motion to set aside a default judgment awarded to Larry Sewell after he fell into a service pit at Xpress Lube, owned by Bruce Anderson. Sewell, having sustained injuries, initially attempted to negotiate a settlement with Anderson’s insurance carrier, Travelers, but was unsuccessful. Following eight months of negotiations, Sewell filed a lawsuit naming only Xpress Lube as the defendant, without informing Travelers of his intent to sue.
The process server delivered the summons and complaint to an employee at Xpress Lube, who did not forward them to Anderson immediately. After several days, Anderson sent the documents to his insurance agent, who mistakenly faxed them to an incorrect number, preventing Travelers from receiving the complaint. Subsequently, Sewell filed a motion for default judgment, which was granted by the district court on December 6, 2011, awarding Sewell $600,000 without an evidentiary hearing. Xpress Lube’s motion to set aside the default was denied, leading to the current appeal.
On December 8, 2011, Anderson learned from his insurance agent that the complaint against him had not been received by Travelers after obtaining the motion for default judgment and the judgment itself. That same day, Travelers hired counsel who sought to have Sewell agree to set aside the default, which Sewell's counsel declined. On December 21, 2011, Xpress Lube filed a motion to set aside the default judgment and submitted a proposed answer to Sewell’s complaint. The district court held a hearing on April 17, 2012, and announced its decision to deny the motion, with Sewell’s counsel submitting a proposed order reflecting this ruling the following day, which was entered by the court on April 19, 2012. Xpress Lube objected before learning of the order's entry, leading to the district court vacating it. Xpress Lube then filed another motion to set aside the default judgment or reconsider. On May 2, 2012, Sewell opposed this motion and submitted another proposed order, which denied Xpress Lube's motions and stated that Anderson was personally liable for the judgment against Xpress Lube. The district court signed this order on May 4, 2012, and it was entered on May 8, 2012.
Xpress Lube appealed, arguing that the district court wrongly refused to set aside the default judgment for lack of jurisdiction under rule 60(b)(4) of the Utah Rules of Civil Procedure, or alternatively on the grounds of mistake, inadvertence, or excusable neglect under rule 60(b)(1). Additionally, Xpress Lube contested the award of $600,000 in nonliquidated damages to Sewell without an evidentiary hearing. The appeal was retained by the court, which has jurisdiction under Utah Code section 78A-3-102(3)(j). The standard of review indicates that while district courts have broad discretion in such matters, this discretion is not absolute and should favor granting relief to allow for a hearing when justified. An appeal regarding a district court's refusal to set aside a default judgment based on jurisdiction is a question of law, with no discretion granted to the district court, as proper service is also a legal question.
The district court's adherence to Rule 55 of the Utah Rules of Civil Procedure, which mandates an evidentiary hearing for damages, raises a legal question without deference to the district court's decision. Under Rule 60(b)(4), a judgment can be deemed void if the court lacked jurisdiction over the subject matter or parties or if due process notice requirements were unmet. A judgment is void solely based on the court's lack of jurisdiction, independent of any separate defense.
Xpress Lube contends that the judgment is void due to improper service, as the process server merely left copies of the summons and complaint with an employee, Deuel. In contrast, Sewell argues that Deuel's role as a responsible employee satisfies the service requirements. However, Sewell incorrectly cites Rule 4(d)(1)(E), which applies to corporations or partnerships, whereas Xpress Lube is a sole proprietorship owned by Anderson. Therefore, service on a sole proprietorship must be directed to the individual owner under Rule 4(d)(1)(A). The proper defendant in this case is Anderson, not Xpress Lube as a business entity.
Courts have consistently determined that the appropriate defendant in lawsuits against a proprietorship is the sole proprietor. In Patterson v. V. M Auto Body, the Ohio Supreme Court ruled that a lawsuit cannot be maintained against a defendant solely using a fictitious business name, as the name lacks separate legal recognition. Similarly, in Coldwell Banker Manning Realty, Inc. v. Cushman, Wakefield of Connecticut, Inc., a Connecticut court found that a nonexistent entity cannot have standing in a lawsuit. The court emphasized that a trade name does not create a legal entity capable of being sued, and thus, jurisdiction cannot be established through a trade name alone. In Fried v. Wellesley Mazda, it was noted that using a "doing business as" designation does not form a separate legal entity for litigation purposes. Consequently, valid service required personal delivery to Anderson, the sole proprietor of Xpress Lube.
Despite Anderson having found the summons and complaint on his desk, this knowledge does not replace the need for proper service. Jurisdiction is conferred by proper service of process, not merely by the defendant's knowledge of the lawsuit. As established in Murdock v. Blake, proper issuance and service of summons are crucial for court jurisdiction, and insufficient service cannot be remedied by mere notice.
Sewell contended he should be excused from serving Anderson because it was impossible to identify the owner of Xpress Lube before filing the case. However, Sewell's only action to determine the business's ownership involved checking a Utah state database. He did not explore further avenues, such as visiting the business location, asking employees, searching for a business license, or consulting with Travelers, with whom he had negotiations. The process server also failed to inquire about Xpress Lube's ownership when leaving documents with Deuel. Given these circumstances, the argument that it was impossible for Sewell to ascertain the owner’s identity is unconvincing.
The district court lacked jurisdiction to issue the default judgment because the sole proprietor was not properly served, rendering the judgment void under rule 60(b)(4) of the Utah Rules of Civil Procedure. Xpress Lube contends that the court erred by not vacating the default judgment under rule 60(b)(1) due to mistake, inadvertence, or excusable neglect. Xpress Lube argues that the failure to respond to the complaint was due to an error by its insurance agent, who sent the documents to the wrong fax number after they were delivered to him by Anderson.
To obtain relief under rule 60(b)(1), a movant must show that the motion is timely, there exists a basis for relief, and a meritorious defense is alleged. Xpress Lube's motion was deemed timely, filed within fifteen days of the default judgment. The court found that Xpress Lube demonstrated due diligence, as the failure to act was attributed to the reasonable neglect of a prudent person. Xpress Lube had taken steps to resolve the claims, including promptly notifying its insurance agent and attempting to file an answer.
Sewell did not contest that the failure to respond was due to the insurance agent's mistake but instead focused on the conduct of Travelers during pre-litigation negotiations. However, the critical issue remained whether Xpress Lube's failure to respond was due to mistake, inadvertence, or excusable neglect.
Sewell claims he mailed a motion for default to Xpress Lube on November 21, 2011, two weeks prior to the default being entered. However, Anderson received notice of the default proceedings only when the order was mailed on December 8, 2011, after which he sought to have the default set aside. The court found sufficient grounds for relief under rule 60(b)(1) and assessed whether Anderson had presented a meritorious defense. A meritorious defense requires a clear and specific claim that could prevent recovery by the opposing party. Xpress Lube provided several defenses, including allegations of Sewell's negligence, questions regarding the attribution of his medical damages, and the lack of support for his claims of lost wages, given his age and unemployment at the time. These defenses were deemed sufficient to qualify as meritorious under the applicable rule. The district court's refusal to set aside the default judgment was identified as an abuse of discretion.
Furthermore, Xpress Lube contended that the court erred by entering a default judgment of $600,000 without an evidentiary hearing on damages. The court agreed with Xpress Lube, noting that under rule 55(b)(2), a hearing is necessary when damages are unliquidated. While a default judgment typically establishes liability, the non-defaulting party must still provide competent evidence for the amount of recoverable damages. Even defaulting defendants are generally entitled to a hearing for unliquidated damages, reinforcing the need for judicial review in such cases.
Rule 55(b)(2) mandates that a district court must conduct a hearing on damages when the damages are unliquidated, regardless of the allegations made in the complaint. Liquidated damages can be specifically calculated, while unliquidated damages cannot be determined with mathematical precision. In personal injury cases, claims often include elements that are inherently uncertain, such as pain and suffering and future lost wages, which means that the damages cannot be treated as liquidated merely because they are listed in the complaint.
Sewell incorrectly asserted that he clearly outlined his damages in the complaint, which totaled $600,000. However, the district court erred by entering a default judgment for this amount without holding an evidentiary hearing, thus abusing its discretion. The court's failure to conduct such a hearing compromised its ability to ascertain the validity of the claims presented.
The ruling concludes that the district court's judgment was void due to improper service on Xpress Lube, as the sole proprietor needed to be served. Additionally, even if jurisdiction had been established, the default judgment would still be vacated due to timely filing of a motion based on mistake or excusable neglect, as Xpress Lube presented a meritorious defense. Consequently, the court's default judgment is reversed, and the case is remanded for further proceedings.
