Court Opinion

ID: 4381910
Source: CourtListenerOpinion
Date Created: 2019-03-28 17:02:03.57231+00
Date Added: 2024-06-11T14:50:02.079525
License: Public Domain

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  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

         GAINEY RANCH COMMUNITY ASSOCIATION, et al.,
                      Plaintiffs/Appellees,

                                         v.

                      RUNE KRAFT, Defendant/Appellant.

                              No. 1 CA-CV 18-0179
                                FILED 3-28-2019

           Appeal from the Superior Court in Maricopa County
                          No. CV2017-000765
          The Honorable David W. Garbarino, Judge Pro Tempore

                                   AFFIRMED

                                APPEARANCES

Mulcahy Law Firm PC, Phoenix
By Beth E. Mulcahy, Paige Holton, Lauren Vie

Mandel Young PLC, Phoenix
By Robert A. Mandel
Co-Counsel for Plaintiffs/Appellees

Rune Kraft, Wilmington, DE
Defendant/Appellant
                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

                      MEMORANDUM DECISION

Judge Kent E. Cattani delivered the decision of the Court, in which
Presiding Judge David D. Weinzweig and Judge James P. Beene joined.

C A T T A N I, Judge:

¶1           Rune Kraft appeals from the superior court’s adverse rulings
in a homeowners’ association suit against him for breach of contract and
foreclosure based on unpaid assessments. For reasons that follow, we
affirm.

             FACTS AND PROCEDURAL BACKGROUND

¶2            Gainey Ranch Community Association and The Pavilions
Council of Co-Owners are homeowners’ associations (master and sub-
association, respectively; collectively, the “HOAs”) for planned
communities in Scottsdale. All properties within the planned communities
are required to pay periodic assessments to the homeowners’ associations.

¶3           In August 2015, Gainey Ranch filed a complaint in justice
court against Kraft and Kraft’s closely-associated entity Transcycle. The
complaint alleged that Kraft and/or Transcycle owned a property within
the planned community and had failed to pay required assessments. Kraft
answered the complaint, generally denying all allegations.

¶4            The case eventually went to a bench trial, and the justice court
held Transcycle in default, no one having appeared to represent the entity.
The court also dismissed the complaint against Kraft based on evidence that
Kraft had transferred ownership to Transcycle before any assessments
became delinquent. Over Kraft’s objection, the court ruled that the
dismissal would be without prejudice.

¶5            After those rulings but before judgment was entered, Gainey
Ranch discovered that the continuously-accruing damages had surpassed
the justice court’s $10,000 jurisdictional limit, and the justice court granted
a request to transfer the case to superior court. See Ariz. Const. art. 6, §
32(C); see also Ariz. Rev. Stat. (“A.R.S.”) § 22-201(B). The justice court
concurrently entered a judgment of dismissal without prejudice as to Kraft.

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                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

¶6            Gainey Ranch then moved to amend the complaint in
superior court, as relevant here, to add The Pavilions as a plaintiff, increase
the amount of damages to more than $40,000 (as of the time of amendment),
add a foreclosure count, and re-add Kraft as a defendant.1 Noting that the
dismissal as to Kraft was without prejudice, the HOAs explained that the
amended complaint re-added Kraft as a defendant because further
investigation showed that both Kraft and Transcycle were record owners of
the property. The superior court granted the motion, and the HOAs filed
the amended complaint on March 30, 2017. With leave of court (granted
after multiple unsuccessful service attempts), the HOAs served Kraft and
Transcycle with the amended complaint by alternative means on June 8,
2017.

¶7            Meanwhile, both before and after service of the amended
complaint, Kraft filed several variously-captioned documents asserting that
the case against him had already been fully resolved at trial in justice court,
accusing the HOAs of fraud on the court, and seeking to unwind the
transfer from justice court to superior court. The superior court struck or
denied these filings, and in mid-June expressly ordered Kraft to file an
answer to the complaint by June 30, 2017.

¶8            Instead, on June 30, Kraft filed a petition for removal to
federal court. On September 26, 2017, the district court found that it lacked
subject matter jurisdiction (insufficient amount in controversy as well as
lack of complete diversity of citizenship, see 28 U.S.C. § 1332(a)), and
remanded the case to superior court.

¶9           One day after the remand order, the HOAs filed applications
for default, and the superior court issued orders that the default
proceedings would be heard by Commissioner Garbarino. Kraft did not
respond, and the default became effective 10 business days later, on
October 11. See Ariz. R. Civ. P. 55(a)(4), 6(a)(2).

¶10            Because Kraft had appeared in the matter, the HOAs then
noticed a default hearing for October 25, 2017. See Ariz. R. Civ. P.
55(b)(1)(A), (b)(1)(C)(ii), (b)(2)(A). In response, Kraft sought to vacate the
default hearing, asserting that the case remained in federal court (remand
order notwithstanding) because he had filed a motion for reconsideration

1      The amended complaint also added as defendants two judgment
creditors of Kraft and Transcycle who held a judgment lien against the
property. The HOAs later entered a stipulated judgment as to lien priority
with those judgment creditors, who are not parties to this appeal.

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                    GAINEY RANCH, et al. v. KRAFT
                        Decision of the Court

of the remand. The district court denied the motion for reconsideration that
same day, and the superior court declined to vacate the default hearing.

¶11          Kraft appeared telephonically at the default hearing. The
court took testimony and heard argument from both sides regarding the
HOAs’ calculation of damages in the amount of $78,879.39 (unpaid
assessments of $14,394, late fees of $3,781.94, administrative fees of $195,
and legal fees and costs totaling $60,508.45) and took the matter under
advisement.

¶12           The next day—before the superior court had rendered a
ruling on awardable damages—Kraft filed a second petition to remove the
case to federal court. Over the next week, Kraft filed three more documents
in superior court generally challenging the propriety of the completed
default hearing, asserting among other arguments that the case remained
subject to federal jurisdiction, the superior court had previously prohibited
any filings, the superior court had denied the application for entry of
default, the HOAs’ allegations were false and fraudulent, and Kraft had
timely and adequately contested the case. After the federal district court
again remanded the case, the superior court addressed and dismissed all of
Kraft’s objections to the default proceedings. The court also issued an
under advisement ruling from the default hearing, limiting the portion of
attorney’s fees that could be pursued against Kraft personally. Consistent
with that ruling, the HOAs then filed their application for attorney’s fees
and supporting affidavit.

¶13           Thereafter, on November 28, 2017, Kraft filed an answer to the
first amended complaint. He concurrently filed a motion to dismiss and a
document captioned “Objection,” urging that he had already prevailed on
the merits after trial in justice court. The next day, Kraft filed two more
documents raising many of the same issues presented in his challenges to
the default hearing. In the wake of these filing, the HOAs moved to
designate Kraft a vexatious litigant under A.R.S. § 12-3201.

¶14            The superior court denied all of Kraft’s arguments either on
the merits or as immaterial in the wake of entry of default, struck his answer
and motion to dismiss, and entered a judgment for foreclosure, as well as a
personal judgment against Kraft and Transcycle for $56,133.65 ($18,370.94
in delinquent assessments and fees, $36,403.00 in attorney’s fees, and
$1,359.71 in costs).

¶15          Kraft then filed a motion to set aside the default judgment,
again arguing that he had won a final judgment on the merits after trial in

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                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

justice court, that he had properly and timely defended the action, and that
the allegations of the complaint were false. At the same time, he filed three
other documents asserting variously that the superior court had deprived
him of an opportunity to be heard, that the federal court retained
jurisdiction of the case, and that he had timely responded to the complaint
given previous superior court orders prohibiting filings and purportedly
denying the HOAs’ application for entry of default. Two days later, he filed
a motion to strike the application for entry of default on some of the same
bases.

¶16            At this point, the superior court designated Kraft a vexatious
litigant for purposes of this lawsuit. The court recounted that Kraft’s filings
were “not . . . well grounded” and repeatedly “restyle[d] and restate[d]
claims” in an attempt to relitigate matters previously resolved against him.
The court found Kraft’s filings lacked substantial justification and were
offered for the purpose of harassment and delay, and thus ordered that
Kraft seek leave of court before filing any new motions or pleadings.

¶17            After two more filings from Kraft, the court denied the motion
to set aside the default judgment along with Kraft’s various other motions.
Without seeking leave of court, Kraft then filed six more documents
(characterized as motions or requests) reasserting several of the arguments
referenced above. Kraft also timely appealed after denial of his motion to
set aside the default judgment.

                               DISCUSSION

¶18           Kraft appeals from the default judgment entered against him,
the superior court’s denial of his motion to set aside the default judgment,
and the court’s order designating him a vexatious litigant. We address each
contention in turn.

I.     Default Judgment.

¶19           When a defendant does not plead or otherwise defend within
the time required by the Arizona Rules of Civil Procedure, the plaintiff may
apply for entry of default. Ariz. R. Civ. P. 55(a). Default is entered when
the application is filed with the clerk of the court and becomes effective 10
days later, unless the defendant pleads or otherwise defends during that
period. Ariz. R. Civ. P. 55(a)(4), (5). As relevant here, the court conducts a
hearing to determine the amount of damages, then enters a default
judgment. Ariz. R. Civ. P. 55(b)(2)(A), (D)(ii).

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                      GAINEY RANCH, et al. v. KRAFT
                          Decision of the Court

¶20            A default judgment is not independently appealable unless
the default was not authorized by Rule 55 or the appeal addresses a
jurisdictional question. Hirsch v. Nat’l Van Lines, Inc., 136 Ariz. 304, 311
(1983). Instead, the primary remedy for an allegedly erroneous default
judgment is a motion to set aside based on the grounds for relief from
judgment under Rule 60(b), an avenue that Kraft pursued. See Ariz. R. Civ.
P. 55(c); Hirsch, 136 Ariz. at 311.

¶21            Accordingly, to the extent Kraft challenges the superior
court’s jurisdiction, we consider the argument as an appeal from the default
judgment itself, over which we have jurisdiction under A.R.S. § 12-
2101(A)(1). We address Kraft’s other claims of error as challenges to the
denial of his motion to set aside the default judgment. We have jurisdiction
over this facet of the appeal under A.R.S. § 12-2101(A)(2).

       A.      Direct Appeal from the Default Judgment.

¶22            Kraft’s core contention is that the superior court lacked
jurisdiction to render judgment because the justice court had already held
trial and resolved the case in his favor by entering a judgment of dismissal.
Even assuming a prior adjudication on the merits would create a
jurisdictional defect rather than simply a claim-preclusive effect, but see In
re Gen. Adjudication of All Rights to Use Water in Gila River Sys. & Source, 212
Ariz. 64, 69–70, ¶ 14 (2006), Kraft’s argument fails because the dismissal was
(explicitly, and over Kraft’s objection) without prejudice.

¶23           “An order of dismissal without prejudice is not a final
determination of the controversy on its merits, and is no bar to the
prosecution of another suit timely commenced, founded upon the same
cause of action.” State ex rel. Hess v. Boehringer, 16 Ariz. 48, 51 (1914); see also
Workman v. Verde Wellness Ctr., Inc., 240 Ariz. 597, 600, ¶ 7 (App. 2016)
(acknowledging that dismissal without prejudice “is not a final judgment
because the plaintiff can refile the action”). Even after the justice court
dismissed the case against Kraft due to a suggestion that Kraft had
transferred the property when the assessments were current, because the
dismissal was without prejudice, the HOAs remained free to amend their
complaint (with leave of court) to reassert claims against Kraft once further
investigation supported their allegation that Kraft remained a record owner
of the property when assessments became delinquent.

       B.      Denial of Motion to Set Aside the Default Judgment.

¶24            After default judgment is entered, the defaulting party may
seek to set aside the judgment on any basis justifying relief from judgment.

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                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

See Ariz. R. Civ. P. 55(c), 60(b). Although Kraft’s briefing does not use this
framework, we construe his arguments as assertions that the judgment
should have been set aside due to “mistake, inadvertence, surprise, or
excusable neglect” or under the catch-all provision for “any other reason
justifying relief.” Ariz. R. Civ. P. 60(b)(1), (6).

¶25           To set aside a default judgment based on excusable neglect,
the defendant must show (1) excusable neglect that explains the failure to
timely defend, (2) a prompt and diligent request for relief from the
judgment, and (3) a meritorious defense to the underlying complaint. Ariz.
R. Civ. P. 60(b)(1); Hirsch, 136 Ariz. at 309; see also Richas v. Superior Court,
133 Ariz. 512, 515 (1982) (noting that the rule requires “‘excusable neglect,’
not ‘unexplained neglect’’’). Neglect is “excusable” for these purposes if a
reasonably prudent person might have acted in the same manner under the
circumstances. City of Phoenix v. Geyler, 144 Ariz. 323, 331–32 (1985). The
catch-all ground requires a showing of extraordinary hardship or injustice,
and it encompasses only reasons outside the grounds for relief enumerated
in Rule 60(b)(1)–(5). Davis v. Davis, 143 Ariz. 54, 57 (1984). We review the
court’s denial of the motion to set aside on these bases for an abuse of
discretion. See Ezell v. Quon, 224 Ariz. 532, 536, ¶ 15 (App. 2010).

¶26           Kraft asserts that he complied with the requirement to “plead
or otherwise defend” by filing a motion to dismiss in federal court in
conjunction with his first removal petition. But no motion to dismiss
appears in the superior court’s record before entry of default, and Kraft
offers no authority for relying on a document filed solely in a forum that
lacked subject matter jurisdiction as an adequate defense to an action.
Moreover, Kraft offers no excuse for not at the very least promptly refiling
any such answer or other defense after the federal court remanded the case
to superior court.

¶27           Kraft claims he should have been afforded additional time to
answer the complaint after the federal court’s September 26, 2017 remand
order (which also summarily denied his motion to dismiss), and that the
HOAs’ application for entry of default (filed the day after the remand order)
was thus premature. See Ariz. R. Civ. P. 12(a)(2)(A) (extending the time for
filing a responsive pleading for 10 days after notice of denial of a motion to
dismiss). But Kraft failed to meet even the extended deadline he now
proposes. Even after the application for entry of default—which itself
provides a 10-day grace period to file an answer or other defense, see Ariz.
R. Civ. P. 55(a)(5)—Kraft did not file any answer or defense for more than
two months.

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                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

¶28           Kraft further argues that a scheduling order issued July 14,
2017, which set a status conference for October 27 and prohibited new
motions until that time, prevented him from timely defending the action.
But the court previously ordered Kraft to answer the complaint by June 30,
a deadline that had already passed by the time of the July 14 order.

¶29            Kraft also asserts that the default proceedings were improper
because the superior court denied the HOAs’ application for entry of
default. But the superior court did not do so. To support his interpretation,
Kraft relies on a selectively-edited excerpt from the superior court’s minute
entry order: quoting that “no action will be taken . . . on the above
referenced document(s),” but omitting the operative language that “no
action will be taken by this division.” (Emphasis added.) As the superior
court previously explained, the order on which Kraft relies said nothing
about granting or denying the application, but rather advised the parties
that any resulting default hearing would be held before Commissioner
Garbarino, not the superior court judge (Judge Gass) otherwise assigned to
the case.

¶30            Additionally, Kraft faults the superior court for denying his
motion to set aside without providing findings of fact or conclusions of law.
But Kraft never requested such findings or conclusions, and the court was
not required to provide them in ruling on the motion to set aside. See Ariz.
R. Civ. P. 52(a)(3), 55(c), 60(b). Moreover, Kraft’s motion to set aside largely
reiterated arguments that he had previously raised, and the court’s prior
rulings had already addressed most of the arguments in substantial detail.

¶31            Finally, Kraft asserts that the default judgment should have
been set aside because Commissioner Garbarino, who presided over the
default proceedings, should have disqualified himself. According to Kraft,
“Kraft and the companies that he is involved with, have multiple ongoing
disputes” with Commissioner Garbarino’s former employer (the legal wing
of a national title insurance company), which Kraft claims requires
disqualification due to an unspecified “personal bias or prejudice” under
Rule 2.11(A)(1) of the Arizona Code of Judicial Ethics. But Kraft fails to
specify any proceeding in which Commissioner Garbarino appeared as an
attorney against him (or was otherwise involved) and fails to detail any
basis for his allegation of bias. The court thus did not abuse its discretion
by denying disqualification and by declining to set aside the default
judgment.

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                     GAINEY RANCH, et al. v. KRAFT
                         Decision of the Court

II.    Vexatious Litigant.

¶32           Kraft also challenges the superior court’s ruling designating
him a vexatious litigant, arguing that the court failed to specify any filing
made for purposes of harassment or without substantial justification.
Because a vexatious litigant order is in effect a grant of injunctive relief, we
have jurisdiction under A.R.S. § 12-2101(A)(5)(b). See Madison v. Groseth,
230 Ariz. 8, 13, ¶ 16 n.8 (App. 2012). As a grant of injunctive relief, we
review the order for an abuse of discretion. See Flying Diamond Airpark, LLC
v. Meienberg, 215 Ariz. 44, 47, ¶ 9 (App. 2007); see also De Long v. Hennessey,
912 F.2d 1144, 1146 (9th Cir. 1990).

¶33            If a pro se litigant in a noncriminal case engages in “vexatious
conduct,” the superior court is authorized to designate that person a
“vexatious litigant,” meaning the person is required to seek leave of court
before filing new pleadings, motions, or other documents. A.R.S. § 12-
3201(A)–(C); see also Madison, 230 Ariz. at 14, ¶ 17. “Vexatious conduct”
includes “[u]nreasonably expanding or delaying” the proceedings, taking
positions “without substantial justification,” and the “[r]epeated filing of
documents or requests for relief that have been the subject of previous
rulings by the court in the same litigation.” A.R.S. § 12-3201(E)(1)(b), (c),
(f). The litigant must be afforded notice and an opportunity to oppose the
order, and the court must adequately explain the basis for its determination.
Madison, 230 Ariz. at 14, ¶ 18.

¶34            Here, the superior court’s designation had ample support. As
the court described, Kraft’s filings repeatedly “rehash[ed]” issues that had
already been addressed. For instance, Kraft argued in at least 12 different
filings that the justice court had previously rendered a final judgment on
the merits (an argument he pursues again on appeal), and the superior
court denied that argument at least five different times. Similarly, Kraft
repeatedly claimed that the federal court retained jurisdiction over the case,
even after remand. See 28 U.S.C. § 1447(d) (stating that remand orders are
“not reviewable on appeal or otherwise”); Things Remembered, Inc. v.
Petrarca, 516 U.S. 124, 127–28 (1995) (preclusion of review applies to remand
based on lack of subject-matter jurisdiction); Seedman v. U.S. Dist. Court, 837
F.2d 413, 414 (9th Cir. 1988) (“This language [in § 1447(d)] has been
universally construed to preclude not only appellate review but also
reconsideration by the district court.”). And he claimed in at least seven
different filings (and again on appeal) that default was never entered
against him, even though the court repeatedly explained to the contrary.
Accordingly, the superior court did not abuse its discretion by designating
Kraft a vexatious litigant for purposes of the current lawsuit.

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                   GAINEY RANCH, et al. v. KRAFT
                       Decision of the Court

III.   Attorney’s Fees and Costs on Appeal.

¶35           The HOAs seek an award of attorney’s fees and costs on
appeal under the terms of the declarations governing the properties in the
planned communities. As the declarations provide for recovery of all
collection costs, including attorney’s fees, we award the HOAs their costs
and reasonable attorney’s fees incurred on appeal upon compliance with
ARCAP 21.

                             CONCLUSION

¶36          The judgment and the vexatious litigant order are affirmed.

                        AMY M. WOOD • Clerk of the Court
                        FILED: AA

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