LREP Arizona LLC v. 597 Broadway Realty LP et al

Filing 51

ORDER granting 36 Rule 60 Motion to Vacate Judgment. The Clerk's judgment (Doc. 18 ) is VACATED and the Clerk is directed to reopen this case. Plaintiff's request for an order directing garnishee Charles Schwab & Co., Inc. to liquidate certain securities and disburse the proceeds to Plaintiff (Doc. 45 ) is DENIED as moot in light of this order. Plaintiff shall serve Defendants with the summons and complaint by no later than 4/27/2018 and file proof thereof with the Court. Signed by Judge Douglas L Rayes on 4/10/18. (DXD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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LREP Arizona LLC,
Plaintiff,

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ORDER

v.

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No. CV-16-04015-PHX-DLR

597 Broadway Realty LP, et al.,

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Defendants.

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Before the Court is Defendants’ Rule 60 Motion to Vacate Judgment, which is

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fully briefed. (Docs. 36, 44, 46.) For the following reasons, Defendants’ motion is

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granted.1

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I. Background

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On November 18, 2016, Plaintiff filed a complaint against Defendants alleging a

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single count for breach of contract. (Doc. 1.) That same day, Plaintiff filed what was

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styled as a Stipulated Motion for Entry of Judgment, which indicated that the parties

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agreed and consented to the terms of the proposed judgment and that Defendants agreed

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to the allegations set forth in the complaint. (Doc. 3.) The matter initially was referred to

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Magistrate Judge Deborah M. Fine for a report and recommendation (“R&R”). On

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December 15, 2016, Magistrate Judge Fine issued an R&R recommending for a number

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Defendants’ request for oral argument is denied because the issues are
adequately briefed and oral argument will not aid the Court’s resolution of the motion.
See Fed. R. Civ. P. 78(b); LRCiv. 7.2(f).

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of reasons that the Court deny the stipulated motion without prejudice. (Doc. 6.)

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On December 28, 2016, Plaintiff filed written objections to the R&R. (Doc. 9.)

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Several months later, Plaintiff filed a motion asking the Court to continue the case on the

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inactive calendar because the parties were discussing settlement. (Doc. 11.) The Court

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granted the request and ordered that the case would be dismissed on June 15, 2017

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unless, before then, the parties filed a stipulation to dismiss or moved for a status

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conference. (Doc. 12.)

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On May 24, 2017, Plaintiff moved to reinstate the case on the active calendar

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because the parties had not reached a settlement. (Doc. 13.) The Court held a telephonic

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conference to discuss the motion on June 21, 2017. (Doc. 15.) Only counsel for Plaintiff

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appeared. Counsel for Plaintiff confirmed that Defendants had not yet been served. At

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the conclusion of the conference, the Court granted the motion and ordered that Plaintiff

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serve Defendants within 60 days.

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On July 25, 2017, before the expiration of that service deadline, the Court issued

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an order sustaining Plaintiff’s objections to Magistrate Judge Fine’s R&R and granting

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the parties’ Stipulated Motion for Entry of Judgment in a modified form. (Doc. 17.) The

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Clerk entered judgment the same day, and thereafter Plaintiff filed several applications

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for writs of garnishment to collect on the stipulated judgment. (Docs. 18, 19, 21, 23, 25,

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34.) On September 8, 2017, Defendants moved to vacate the judgment pursuant to

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Federal Rule of Civil Procedure 60, arguing that they had not been served with the

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summons, complaint, or any order of the Court, and that they first learned of this action

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when a garnishee answered a writ and froze one of Defendant’s retirement investment

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savings accounts. (Doc. 36.)

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II. Legal Standard

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Rule 60(b) provides for relief from judgment under the following circumstances:

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(1) mistake, inadvertence, surprise, or excusable neglect;

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(2)
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to move for
a new trial under Rule 59(b);

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(3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged;
it is based on an earlier judgment that has been reversed or
vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.

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“Rule 60(b) is meant to be remedial in nature and therefore must be liberally applied.”

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Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). When evaluating a motion to set aside a

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judgment, the Court considers three factors: “(1) whether the plaintiff will be prejudiced,

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(2) whether the defendant has a meritorious defense, and (3) whether culpable conduct of

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the defendant led to the default.” Id.

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III. Discussion

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Defendants contend that Plaintiff’s failure to serve them with the summons and

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complaint renders the judgment entered in this case void and authorizes the Court to set

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aside the judgment under Rule 60(b)(1), (4), and/or (6). The Court agrees. “Defendants

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must be served in accordance with Rule 4(d) of the Federal Rules of Civil Procedure, or

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there is no personal jurisdiction.” Jackson v. Hayakawa, 682 F.2d 1344, 1347 (9th Cir.

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1982). “A person is not bound by a judgment in a litigation to which he or she has not

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been made a party by service of process.” Mason v. Genisco Tech. Corp., 960 F.2d 849,

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851 (9th Cir. 1992). It is undisputed that Plaintiff did not serve Defendants with the

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summons and complaint prior to entry of judgment.

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In response, Plaintiff argues that Defendants waived service of process because the

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terms of the parties’ July 14, 2016 Forbearance and Consent Agreement stated that

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Defendants “consent to the filing of the Stipulated Motion for Entry of Judgment and the

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Order of Judgment,” “agree to admit all of the allegations of the Lawsuit,” and “waive

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any defenses thereto.” (Doc. 44 at 4.) The Court disagrees for three reasons. First,

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although Defendants might have agreed to the filing of the Stipulated Motion for Entry of

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Judgment, the agreement does not state that they agreed to waive service of the summons

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and complaint. Second, although service of process is a waivable right, the procedure for

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doing so is governed by Rule 4(d), which was not complied with here. Finally, at the

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conclusion of the June 21, 2017 telephonic conference, the Court ordered Plaintiff to

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serve Defendants within 60 days. Accordingly, the Court finds that it was without

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jurisdiction to enter the stipulated judgment.

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As for the three factors informing the Rule 60(b) inquiry, the Court finds that they

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weigh in Defendants’ favor. First, Plaintiff will not be meaningfully prejudiced by the

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Court reopening this case. “To be prejudicial, the setting aside of a judgment must result

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in greater harm than simply delaying resolution of the case.” Smith v. Smith, No. CV-13-

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02611-PHX-DGC, 2014 WL 1651961, at *2 (D. Ariz. Apr. 23, 2014) (internal quotation

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and citation omitted). Moreover, “a case should, whenever possible, be decided on the

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merits.”

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meritorious defenses. Of particular note, Defendants argue that Plaintiff’s breach of

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contract action is barred by the applicable statute of repose, and that a statute of repose

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cannot be waived. Finally, Defendants’ default is not the result of culpable conduct.

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Rather, it appears that the Court inadvertently ruled on the R&R and the objections

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thereto prior to service being effectuated. Defendants should not be penalized for the

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Court’s oversight.

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IV. Conclusion

Falk, 739 F.2d at 463.

Second, Defendants have raised some potentially

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For the foregoing reasons, the Court grants Defendants’ motion to vacate the

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judgment. In the interests of justice, the Court also will extend Plaintiff’s deadline to

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serve Defendants with the summons and complaint.

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IT IS ORDERED as follows:

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1. Defendants’ Rule 60 Motion to Vacate Judgment (Doc. 36) is GRANTED.

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The Clerk’s judgment entered on July 25, 2017 (Doc. 18) is VACATED. The Clerk is

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directed to reopen this case.

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2. Plaintiff’s request for an order directing garnishee Charles Schwab & Co., Inc.

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to liquidate certain securities and disburse the proceeds to Plaintiff (Doc. 45) is DENIED

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as moot in light of this order.

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3. Plaintiff shall serve Defendants with the summons and complaint by no later
than April 27, 2018 and file proof thereof with the Court.
Dated this 10th day of April, 2018.

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Douglas L. Rayes
United States District Judge

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