Court Opinion

ID: 9353557
Source: CourtListenerOpinion
Date Created: 2023-01-12 01:49:17.235301+00
Date Added: 2024-06-11T17:07:33.893777
License: Public Domain

The Supreme Court of the State of Colorado
                  2 East 14th Avenue • Denver, Colorado 80203

                                  2023 CO 2

                       Supreme Court Case No. 22SA264
                    Original Proceeding Pursuant to C.A.R. 21
               Boulder County District Court Case No. 22CV30294
                        Honorable Patrick Butler, Judge

                                     In Re
                                   Plaintiffs:

                   Patricia McMichael and Lynette McMichael,

                                       v.

                                  Defendant:

   Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health
                  Rehabilitation Hospital of Littleton.

                               Rule Discharged
                                    en banc
                                January 9, 2023

Attorney for Plaintiffs:
Rhoden Law Firm
Garry J. Rhoden
      Craig, Colorado

Attorneys for Defendant:
Rodman & Rodman, LLC
John R. Rodman
Brendan P. Rodman
Cala R. Farina
Sheridan S. Couture
      Denver, Colorado
Attorneys for Boulder County District Court:
Philip J. Weiser, Attorney General
Bianca E. Miyata, Assistant Solicitor General
      Denver, Colorado

JUSTICE BERKENKOTTER delivered the Opinion of the Court, in which
CHIEF JUSTICE BOATRIGHT, JUSTICE MÁRQUEZ, JUSTICE HOOD,
JUSTICE GABRIEL, JUSTICE HART, and JUSTICE SAMOUR joined.

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JUSTICE BERKENKOTTER delivered the Opinion of the Court.

¶1    In this original proceeding under C.A.R. 21, we review the trial court’s order

(1) vacating its prior default judgment against Encompass PAHS Rehabilitation

Hospital, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton

(“Encompass”); and (2) granting Encompass’s motion to change venue from

Boulder County to Arapahoe County. We conclude that the trial court did not

abuse its discretion by choosing to hear this matter on the merits despite

Encompass’s thirteen-day delay in responding to the complaint. Further, applying

our holding in the lead companion case announced today, Nelson v. Encompass

PAHS Rehabilitation Hospital, LLC, 2023 CO 1, P.3d __, we conclude that the trial

court did not err in transferring venue from the Boulder County District Court to

the Arapahoe County District Court. Because the residence of a limited liability

company (“LLC”), for venue purposes, is the residence of the LLC, rather than the

residences of its members, the county designated in the complaint was not the

proper county, and Encompass was entitled to a change of venue as a matter of

right. Accordingly, we discharge the rule to show cause.

                         I. Facts and Procedural History

¶2   Patricia and Lynette McMichael (“the McMichaels”) are the co-personal

representatives for the estate of Charles McMichael (“Mr. McMichael”). The

McMichaels allege that Mr. McMichael sustained injuries and died after falling on

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at least three occasions at a rehabilitation hospital owned by Encompass. The

McMichaels sued Encompass, asserting claims for negligence; medical negligence;

negligent hiring, supervision, retention, and training; and premises liability.

Although Mr. McMichael was a resident and Encompass is a resident of Arapahoe

County, and the alleged torts occurred at Encompass’s rehabilitation hospital in

Arapahoe County, the McMichaels filed their lawsuit in Boulder County.

¶3    After the McMichaels filed their complaint in May 2022, Encompass failed

to file a timely response. The McMichaels moved for default judgment, which the

trial court granted. Thirteen days after a response to the complaint was due,

Encompass filed two separate pleadings with the court: (1) its attorneys’ entry of

appearance and (2) a motion to set aside the default judgment. In its motion,

Encompass argued that the default judgment should be set aside because the

McMichaels’ counsel failed to confer with Encompass’s counsel before filing the

motion for default judgment. This was particularly problematic, Encompass

explained, because the McMichaels’ lawyer had been actively engaged for months

in communication with its lawyer about, among other things, the proper venue for

the case.1 In Encompass’s view, the failure by the McMichaels’ attorney to mention

1 Encompassfurther explained that (1) the McMichaels’ attorney also represented
Floyd Nelson (in what became this matter’s companion case) in his Boulder

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the motion for default judgment appeared to be a calculated effort to unfairly and

prejudicially disadvantage Encompass. Encompass further argued that Boulder

County was not the proper venue as Mr. McMichael was a resident of Arapahoe

County, Encompass was a resident of Arapahoe County, the alleged torts occurred

in Arapahoe County, and Encompass was a Colorado resident.

¶4   After weighing the pertinent factors under Buckmiller v. Safeway Stores, Inc.,

727 P.2d 1112, 1116 (Colo. 1986), and Craig v. Rider, 651 P.2d 397, 400–01 (Colo.

1982), the trial court vacated the default judgment. It noted that counsel for the

McMichaels failed to confer with counsel for Encompass despite his obligation to

do so and despite the “ongoing discussions” between the parties before the default

judgment motion was filed. The court further concluded that the short delay did

not prejudice the McMichaels. Accordingly, the trial court granted Encompass’s

motion to set aside the default judgment so the matter could be heard on its merits.

¶5   Encompass then moved for a change of venue pursuant to C.R.C.P. 98(f),

reiterating that (1) neither party was a resident of Boulder County, (2) the alleged

torts did not take place in Boulder County, and (3) Encompass was not an out-of-

state resident (meaning the McMichaels could not properly designate a Colorado

county of its choosing in which to file its complaint). After careful analysis, the

County District Court case against Encompass and (2) it is represented by the same
attorney in both cases.

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trial court found that venue was not proper in Boulder County, and granted

Encompass’s motion to change venue to Arapahoe County.2

¶6       The McMichaels then filed a petition for a rule to show cause    pursuant to

C.A.R. 21, which we granted.

                                     II. Analysis

¶7      We start by discussing our original jurisdiction to hear this matter pursuant

to C.A.R. 21. Then, we explain the pertinent standard of review and relevant legal

principles before turning to consider whether the trial court abused its discretion

either by vacating the default judgment or by granting Encompass’s motion to

change venue.

                A. Original Jurisdiction and Standard of Review

¶8     This court may exercise its original jurisdiction in those “extraordinary

circumstances ‘when no other adequate remedy’ is available.” People in Int. of A.C.,

2022 CO 49, ¶ 6, 517 P.3d 1228, 1233 (quoting C.A.R. 21(a)(1)).          “[W]e   have

historically cabined” our original jurisdiction to those matters where “an appellate

remedy would be inadequate, a party may suffer irreparable harm, or a petition

raises an issue of first impression that has significant public importance.” People v.

A.S.M., 2022 CO 47, ¶ 9, 517 P.3d 675, 677.

2 In
   Nelson, a different Boulder District Court judge reached the opposite
conclusion in ruling on a motion to change venue involving the same issues.

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¶9   We choose to exercise our original jurisdiction here to review the trial court’s

orders granting Encompass’s motion to set aside the default judgment and its

motion to change venue. The trial court in this case and in Nelson, this matter’s

companion case, reached conflicting conclusions regarding how to determine an

LLC’s residence for purposes of analyzing venue under C.R.C.P. 98. Further,

exercising our original jurisdiction is appropriate because of the risk of irreparable

harm to the parties involved when “[t]he trial court’s order setting aside the

default judgment forecloses all avenues for collecting the default judgment.”

Nickerson v. Network Sols., LLC, 2014 CO 79, ¶ 8, 339 P.3d 526, 529 (exercising our

original jurisdiction to review an order setting aside default judgment).

¶10   With respect to the standard of review, we emphasize that weighing the

relevant factors for relief pursuant to C.R.C.P. 60(b)(1) remains within the province

of the trial court. Sebastian v. Douglas Cnty., 2016 CO 13, ¶ 18, 366 P.3d 601, 606.

Thus, we review a trial court’s order to set aside a default judgment under

C.R.C.P. 60(b) for an abuse of discretion. Nickerson, ¶ 10, 339 P.3d at 529. “Even if

[we] . . . disagree with the trial court’s disposition of a motion, [we] must respect

the decision unless the movant proves that the trial court’s judgment was

‘manifestly arbitrary, unreasonable, or unfair.’” Sebastian, ¶ 18, 366 P.3d at 606

(quoting Goodman Assocs., LLC v. WP Mountain Props., LLC, 222 P.3d 310, 314 (Colo.

2010)).

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                               B. Default Judgment

¶11   Default judgments are disfavored. This is because default judgment is “the

harshest of all sanctions,” which is why it “should be imposed only in extreme

circumstances.” Beeghly v. Mack, 20 P.3d 610, 613 (Colo. 2001); see R.F. v. D.G.W.,

560 P.2d 837, 839 (Colo. 1977) (“A judgment by default is not designed to be a

device to catch the unwary or even the negligent.”). Disposing of a case on

procedural grounds rather than on the merits warrants serious caution and should

only occur in the rarest of occasions. See People v. Davenport, 998 P.2d 473, 475

(Colo. App. 2000). Courts possess other tools, such as sanctions, to impose lesser

punishments on negligent counsel where default judgments are not appropriate.

See id. When deciding whether to set aside a default judgment, a court’s

underlying goal must be to “promote substantial justice.” Buckmiller, 727 P.2d at

1116.

                          C. Setting Aside a Default Judgment

¶12   Review of a trial court’s order setting aside a default judgment is deferential

both because “the criteria for vacating a default judgment should be liberally

construed,” and because a trial court’s order setting aside a default judgment will

not be disturbed unless the record reflects a clear abuse of discretion. Sumler v.

Dist. Ct., 889 P.2d 50, 56 (Colo. 1995). With this understanding, we turn next to the

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three pertinent factors courts should consider in connection with a request to

vacate a default judgment.

¶13   Pursuant to C.R.C.P. 60(b), a court may relieve a party from a final judgment

entered because of excusable neglect. A party seeking to set aside a default

judgment bears the burden of showing that the default judgment should be set

aside by clear and convincing evidence. See Borer v. Lewis, 91 P.3d 375, 380–81

(Colo. 2004). In Buckmiller, we laid out three criteria that courts should consider

when determining whether to relieve a party of a default judgment                under

C.R.C.P. 60(b): “(1) whether the neglect that resulted in entry of judgment by

default was excusable; (2) whether the moving party has alleged a meritorious

claim or defense; and (3) whether relief from the challenged order would be

consistent with considerations of equity.” 727 P.2d at 1116; see also Craig, 651 P.2d

at 402. “[A] trial court may deny a motion to set aside a default judgment for

failure to satisfy any one of the three criteria.” Buckmiller, 727 P.2d at 1116; see also

Goodman Assocs., 222 P.3d at 321 (“[W]hile our decisions have itemized the

necessary considerations in a list of separate factors which by themselves can be a

basis for denial of the motion, in application the factors are not so easily confined

or separated.”). With these principles in mind, we now turn to the trial court’s

analysis.

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¶14   First, excusable neglect: “A party’s conduct constitutes excusable neglect

when the surrounding circumstances would cause a reasonably careful person

similarly to neglect a duty.” In re Weisbard, 25 P.3d 24, 26 (Colo. 2001) (quoting

Tyler v. Adams Cnty. Dep’t of Soc. Servs., 697 P.2d 29, 32 (Colo. 1985)). “Common

carelessness and negligence do not amount to excusable neglect.” Id. (quoting

Tyler, 697 P.2d at 32). We have further held that a trial court, “in determining

whether a party has established excusable neglect under C.R.C.P. 60(b), should not

impute the gross negligence of an attorney to the client for the purpose of

foreclosing the client from rule 60(b) relief.” Buckmiller, 727 P.2d at 1116.

¶15   Here, the trial court found Encompass established excusable neglect.

Encompass explained that the reason for its delayed response was a docketing

oversight in its lawyer’s office. Because we defer to the trial court’s findings and

its apparent conclusion that the default resulted from “honest mistakes rather than

willful misconduct, carelessness or negligence,” we conclude the trial court did

not abuse its discretion in finding excusable neglect. Plaza del Lago Townhomes

Ass’n v. Highwood Builders, LLC, 148 P.3d 367, 374 (Colo. App. 2006) (quoting

Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th Cir. 1981)). We note that we may

have reached a similar conclusion if the trial court had come out the other way,

but we cannot say on this record that the trial court’s decision was manifestly

arbitrary, unreasonable, or unfair. See Sebastian, ¶ 18, 366 P.3d at 606 (holding that

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even if we “disagree with the trial court’s disposition of a motion, [we] must

respect the decision unless the movant proves that the trial court’s judgment was

‘manifestly arbitrary, unreasonable, or unfair.’” (quoting Goodman Assocs.,

222 P.3d at 314)).

¶16   Turning to the second Buckmiller factor, we note that Encompass set forth a

potentially meritorious defense based on its reference to the report by the

Colorado Department of Public Health and Environment regarding Mr.

McMichael’s death, which cited no deficiencies in the treatment and care he was

provided by Encompass.

¶17   Finally, we turn to the equitable considerations at issue here. In assessing

whether equitable considerations warrant setting aside default judgments, we

have instructed trial courts to “take into account the promptness of the moving

party in filing the rule 60(b) motion, the fact of any detrimental reliance by the

opposing party on the order or judgment of dismissal, and any prejudice to the

opposing party if the motion were to be granted.” Buckmiller, 727 P.2d at 1116.

These considerations are analyzed in light of our preference for resolving cases on

the merits. Craig, 651 P.2d at 402–03 (“Resolution of disputes on their merits is

favored, and we have been receptive to promptly filed motions to set aside default

judgments.”). When weighing these equitable considerations, the underlying goal

is “to promote substantial justice.” Goodman Assocs., 222 P.3d at 319.

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¶18   Here, equitable considerations lean heavily toward vacating the default

judgment. Encompass’s delayed responsive pleading was filed just thirteen days

past its deadline. Moreover, the trial court acted well within its discretion in

considering counsel’s failure to tell Encompass’s counsel about the motion for

default judgment.

¶19   The parties engaged in extensive negotiations concerning possible early

mediation before the McMichaels filed their complaint. Counsel also discussed

their dispute regarding venue and spoke about the case the day before the motion

for default judgment was filed. Despite these discussions, counsel for the

McMichaels never mentioned the default judgment motion to opposing counsel.

¶20   The McMichaels contend, however, that the trial court abused its discretion

by considering this information because they were not obliged to confer with

Encompass’s counsel at all. To support their position, they point to the court of

appeals’ holding in Plaza del Lago, 148 P.3d 367. We are unpersuaded.

¶21   In Plaza del Lago, the division held that the movants had no obligation to

confer with opposing counsel under C.R.C.P. 55(b) when they “did not file a

responsive pleading or otherwise communicate with the trial court in a manner

that was sufficient to indicate to the court that it was aware of the proceedings and

intended to participate in them.” Id. at 371. However, the division in Plaza del Lago

did not address an attorney’s broader obligation to confer under C.R.C.P. 121,

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section 1-15(8). But even assuming without deciding that section 1-15 of C.R.C.P.

121 did not apply here, the trial court did not abuse its discretion in considering

the specific circumstances surrounding counsel’s communications—or lack

thereof—when considering the prejudice to the McMichaels and whether the

equities weighed in favor of granting or denying the motion to set aside the default

judgment.

¶22   Next, the McMichaels argue that the equities weigh in their favor because

they would face tremendous prejudice if we let the trial court’s ruling vacating the

default judgment stand. They contend that the decedent’s widow, petitioner

Patricia McMichael, faces pain and trauma from the court’s order excusing

Encompass’s thirteen-day delay, and that vacating the default judgment has

“generat[ed] a sense of hopelessness and frustration.” While we are sympathetic

to these concerns, we are disinclined to dispose of such serious matters on

procedural grounds instead of the case’s merits. See Craig, 651 P.2d at 402–03

(“Resolution of disputes on their merits is favored, and we have been receptive to

promptly filed motions to set aside default judgments . . . .”).

¶23   Here, we are persuaded that the trial court rightly found no         material

prejudice to the McMichaels from such a short delay. This is especially so given

that the delay may well have been avoided entirely if counsel for the McMichaels

had alerted Encompass’s counsel of his plan to seek default judgment.      Because

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the delay here was fairly minor and did not cause the McMichaels substantive

prejudice, we conclude that the trial court did not abuse its discretion in vacating

the default judgment.

            D. Whether Encompass Waived its Venue Challenge

¶24   Parties waive venue-related challenges by entering “a general appearance

and pleading [on] the merits.” Slinkard v. Jordan, 279 P.2d 1054, 1056 (Colo. 1955)

(quoting Kirby v. Union Pac. Ry., 119 P. 1042, 1054 (Colo. 1911)). Venue challenges

are also “waived unless the motion is interposed at the earliest possible moment.”

Kirby, 119 P. at 1054. In determining whether a party has waived its challenge to

improper venue, courts must look to “an intention to waive the express statutory

privilege as to the place of trial . . . or which could be held to constitute a waiver

in fact.” People v. Dist. Ct., 182 P. 5, 6 (Colo. 1919). Moreover, “[u]nless it is

necessary to enforce procedural rules to protect substantive rights, litigation

should be determined on the merits, rather than on technical application of

procedural rules.” Davenport, 998 P.2d at 475 (quoting Watson v. Fenney, 800 P.2d

1373, 1375 (Colo. App. 1990)).

¶25   Here, Encompass filed a general appearance. However, the general

appearance was filed along with Encompass’s motion to set aside the default

judgment, which explicitly argued that the default judgment order should be set

aside because “venue is not proper.” Moreover, once the trial court       vacated its

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order for default judgment, Encompass promptly filed its motion challenging

venue in Boulder County. Because Encompass timely challenged the

appropriateness of venue in Boulder County, we conclude that Encompass did not

waive its objection to the trial court’s venue.

                   E. Venue Is Not Proper in Boulder County

¶26   The McMichaels assert that the trial court abused its discretion in granting

Encompass’s motion to change venue because it should have looked to the

residence of the LLC’s members to determine venue. They argue that this is how

federal courts analyze diversity subject matter jurisdiction pursuant to 28 U.S.C.

§ 1332, and that we should follow the same approach here to determine where an

LLC resides for purposes of venue.

¶27   But as we explain today in Nelson, the concerns underlying federal diversity

subject matter jurisdiction are distinguishable from those involved in determining

proper state court venue. For that reason and because LLCs, like corporations, are

distinct from the collection of individuals who run or own them, we concluded

that the residence of an LLC for venue purposes is properly determined by the

residence of the LLC itself, not by the residences of its members.     Nelson, ¶ 29,

  P.3d      .

¶28      Here,   because   (1) Mr.   McMichael    resided   in   Arapahoe   County,

(2) Encompass resides in Arapahoe County, (3) the alleged torts took place in

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Arapahoe County, and (4) Encompass is a Colorado resident, the trial court

properly granted Encompass’s motion to change venue from Boulder County to

Arapahoe County.

                                III. Conclusion

¶29   The trial court did not abuse its discretion when it vacated the default

judgment order against Encompass. Further, Encompass did not waive its

challenge to venue in Boulder County. Finally, applying the rule announced today

in Nelson that the venue of an LLC is determined by the residence of the LLC,

rather than the residences of its members, we conclude that the trial court did not

err by granting Encompass’s motion to change venue from Boulder County to

Arapahoe County. Accordingly, we discharge the rule to show cause.

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