Civil Procedure: Setting Aside Default Judgment— Rule 60 (c)(6) Meritorious Defense   

Gonzalez v. Nguyen, __Ariz. Adv. Rep. __ No. CV-17-0117-PR (April 12, 2018) (J. Bolick)

DEFENDANT NEED NOT SUBMIT EVIDENCE OUTSIDE EXISTING RECORD TO ESTABLISH MERITORIOUS DEFENSE IN SUPPORT OF MOTION TO SET ASIDE DEFAULT JUDGMENT UNDER RULE 60 (c) (6) NOR ESTABLISH “EXCUSABLE NEGLECT”

Defendant rear-ended the plaintiff while driving a van of his employer. The police report stated the crash occurred at 10 miles per hour and that there was “no injury.” Plaintiff claimed severe injuries requiring surgery, physical therapy and loss of employment. Plaintiff's counsel communicated with defendant's insurer and  demanded $716,242.50, including $600,000 for pain and suffering, and offering to settle for $695,000. Suit was filed and served. No responsive pleading was filed. Plaintiff applied for entry of default again serving defendant and sending copies to its insurer. Defendant did not appear at the default hearing and a default judgment was entered in the amount of $667,279.56.

A month and a half later the defendant filed a Rule 60 (c) Ariz. R. Civ. Proc.  motion to vacate the judgment's damage award. The defendant agreed to admit liability and only contest damages if the motion was granted. The trial court granted the motion to set aside. The trial court expressed disdain for the casual way the carrier handled the claim but felt the damage award was inflated and justice required it be set aside for a trial on the merits.  The Arizona Court of Appeals reversed and reinstated the default judgment holding a meritorious defense must be proven by evidence extraneous to the existing record and that there was no showing of “excusable neglect.” The Arizona Supreme Court reversed the court of appeals and affirmed the trial court.

 Rule 60 (c) (6) allows the court to set aside a default judgment for “any reason justifying relief from the operation of the judgment.”  The trial court has wide discretion when applying this rule, recognizing the law favors resolution on the merits and “if the trial court has doubt about whether to vacate a default judgment, it should rule in favor of the moving party” while simultaneously recognizing there is a “principle of finality in proceedings which should be given effect.” The supreme court recognized this standard was in conflict and seeks here to clarify the rule.

 To obtain relief under this rule the defendant must assert a “meritorious defense.” This burden is “minimal,”  requiring only “some legal justification for the exercise of the power, some substantial evidence to support it.”  In so ruling the supreme court expressly disavowed language in prior cases setting forth a higher standard such as, “when our systemic commitment to finality of judgments is outweighed by extraordinary ircumstances of hardship or injustice.”

Further the court held that the meritorious defense need not be supported by evidence extraneous to the existing record. “Rather, if the motion relies on evidence of a meritorious defense that appears in the record, the rule plainly vests authority in the trial court to grant relief, and we disavow language in prior decisions that suggests evidence outside the extant record is necessary.” Here the court found the police report and an affidavit from plaintiff's counsel attesting that Gonzalez incurred $68,683.58 in medical bills and $42,558.92 in lost wages, far less than the default judgment amount, adequately supported the trial judge's determination that a meritorious defense existed.

Finally, the supreme court rejected the notion that under Rule 60 (c)(6) “excusable neglect” must be shown in addition to a meritorious defense. Excusable neglect is the element required in Rule60 (c)(1) which is separate and distinct from Rule 60(c)(6). Each of the six elements in Rule 60 are mutually exclusive.