Court Opinion

ID: 3181002
Source: CourtListenerOpinion
Date Created: 2016-02-29 15:27:21.566931+00
Date Added: 2024-06-11T09:20:22.572485
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF NEVADA

                NEVADA DIRECT INSURANCE                                No. 66561
                COMPANY, A NEVADA COMPANY,
                Appellant,
                vs.
                EMILY ADKINS FIELDS; FARMERS
                INSURANCE COMPANY; WILLIAM
                                                                            FILED
                DOUGLAS O'DELL; MICHAEL SMITH;                              FEB 26 2016
                AND SHARON SMITH,
                                                                          TRACE K LINDEMAN
                Respondents.                                           CLERK OF SUPREME COURT
                                                                       Br
                                                                            DEPUTY CLERK

                          ORDER VACATING JUDGMENT AND REMANDING

                            This is an appeal from a declaratory judgment following a
                bench trial. Eighth Judicial District Court, Clark County; Abbi Silver,
                Judge. The district court issued its judgment before this court handed
                down its decision in Torres v. Nevada Direct Insurance Co., 131 Nev., Adv.
                Op. 54, 353 P.3d 1203 (2015). "When legal, not factual, issues are at play,
                this court reviews de novo a district court order resolving a request for
                declaratory relief."   Las Vegas Taxpayer Accountability Comm. v. City
                Council of Las Vegas, 125 Nev. 165, 172, 208 P.3d 429, 433 (2009). We
                vacate and remand.
                            On September 8, 2010, appellant Nevada Direct Insurance
                filed a complaint for declaratory relief against its insured, Gay Kuperman.
                Nevada Direct's complaint sought a declaration that Kuperman's failure to
                cooperate extinguished its duties to defend and indemnify Kuperman
                against claims arising out of a car accident in which Kuperman was
                involved. On October 6, 2011, Nevada Direct obtained a default judgment

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                   against Kuperman, but its declaratory judgment action continued against
                   the other named defendants, including respondents Michael and Sharon
                   Smith, who were injured in the accident. 1 In a separate suit, the Smiths
                   sued Kuperman, obtaining a judgment against him in excess of his
                   $15,000/$30,000 policy limits.
                                On cross-motions for summary judgment, the district court
                   held that Nevada Direct's statutory duty to pay minimum policy limits
                   survived Kuperman's breach of his duty to cooperate and Nevada Direct's
                   default judgment against him The district court then assigned
                   Kuperman's extra-contractual rights to the Smiths, despite the default
                   judgment against Kuperman and the lack of any counter- or cross-claims
                   by the Smiths. On September 10, 2014, after a bench trial, the district
                   court sua sponte vacated Nevada Direct's by then three-year-old default
                   judgment against Kuperman. In its final order, the district court made
                   findings of fact that Nevada Direct argues exceed the scope of the
                   declaratory action. 2
                         Default Judgment
                                Generally, once a default judgment is entered, a court may
                   set it aside pursuant to NRCP 60.     See NRCP 55(c). But when an action
                   joins multiple parties, a• default judgment "as to one or more but fewer
                   than all of the parties" is not a "final judgment" unless certified as such
                   under NRCP 54(b), which the default judgment against Kuperman was

                         'None of the respondents except the Smiths filed answering briefs,
                   despite an order from this court directing them to do so.

                         2 Because we vacate the district court's order in its entirety, we need
                   not address the district court's findings of fact.

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                 not. Rae v. All Am. Life & Cas.     Co., 95 Nev. 920, 922, 605 P.2d 196, 197
                 (1979) ("In the absence of [an NRCP 54(b)] determination, a decision
                 affecting fewer than all parties is 'subject to revision at any time before
                 the entry of judgment' as to all parties."). Rather than the stricter
                 standards of NRCP 60(b), the standard for setting aside an entry of
                 default under NRCP 55(c) applies to non-final default judgments.            See
                 Dassault Systemes, SA v. Childress,        663 F.3d 832, 840 (6th Cir. 2011);
                 FDIC v. Francisco Inv. Corp., 873 F.2d 474, 478 (1st Cir. 1989). 3
                                NRCP 55(c) allows a "court to set aside an entry of default Tor
                 good cause shown."       Intermountain Lumber & Builders Supply, Inc. v.
                 Glens Falls Ins. Co., 83 Nev. 126, 129, 424 P.2d 884, 886 (1967). The "good
                 cause" standard under NRCP "55(c) is broad in scope, and includes the
                 'mistake, inadvertence, surprise or excusable neglect' referred to in Rule
                 60(b)(1)." Id. Federal cases construing Fed. R. Civ. P. 55(c)'s analogous
                 "good cause" standard analyze three factors: (1) "whether [the defaulting
                 party] engaged in culpable conduct that led to the default; (2) whether [the
                 defaulting party] had a meritorious defense; or (3) whether reopening the
                 default judgment would prejudice [the moving party]." Franchise Holding
                    LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922, 926 (9th Cir. 2004).
                       Culpable Conduct
                               "If a defendant 'has received actual or constructive notice of
                 the filing of the action and failed to answer,' its conduct is culpable."   Id.
                 (quoting Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc.,
                 840 F.2d 685, 690 (9th Cir. 1988)). Here, Nevada Direct served Kuperman

                       3 The   parties do not note this distinction, instead assuming NRCP 60
                 controls.

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                 by publication. For the first time on appeal, respondents argue that
                 Nevada Direct's default judgment against Kuperman was void for lack of
                 proper service, alleging that the second and third amended complaints
                 were never served on Kuperman. However, the judgment was not void for
                 lack of personal service. NRCP 5(a) states: "No service need be made on
                 parties in default for failure to appear except that pleadings asserting new
                 or additional claims for relief against them shall be served upon them in
                 the manner provided for service of summons in Rule 4." Federal courts
                 have interpreted the term "default" for purposes of service as failing to
                 appear and answer within the required period, even when the clerk has
                 not yet entered that party's default.       Cutting v. Town of Allenstown,   936
                 F.2d 18, 21 n.1 (1st Cir. 1991). Nevada Direct was not required to serve
                 Kuperman with its second and third amended complaints because they did
                 not assert new claims for relief against him. Service by publication is
                 authorized in Nevada and was 1 appropriately made here. The failure to
                 answer or otherwise respond thus was "culpable" under controlling case
                 law.
                        Meritorious Defense
                             Federal law holds that, "[t]o justify vacating the default
                 judgment . . [the defaulting party must] present the district court with
                 specific facts that would constitute a defense"; "[a] mere general denial
                 without facts to support it is not enough to justify vacating a default or
                 default judgment." Franchise Holding, 375 F.3d at 926 (internal quotation
                 omitted). Here, since the district court acted sua sponte and Torres
                 entitled Nevada Direct to prevail against Kuperman as a matter of law,
                 the second of the three Fed. R. Civ. P. 55(c) factors, too, weighs in favor of
                 Nevada Direct. We note, however, that in Epstein v. Epstein, 113 Nev.
                 1401, 1405, 950 P.2d 771, 773 (1997), this court stated that, "a party need
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                  not show a meritorious defense in order to have a court set aside a default
                  judgment."4 As the parties briefed this case under NRCP 60, not NRCP
                  55, see note 3, supra, we decline to examine the extent to which, if at all,
                  Epstein applies to circumstances such as those presented here and
                  evaluate this case based on the first and third Rule 55(c) factors.    See also
                  Chiara v. Belaustegui, 86 Nev. 856, 859, 477 P.2d 857, 858 (1970) ("As a
                  policy matter, we believe that a defendant against whom a default
                  judgment has been entered should not be relieved of that default judgment
                  without demonstrating the reason why it should be set aside.").
                        Prejudice
                              "To be prejudicial, the setting aside of a judgment must result
                  in greater harm than simply delaying resolution of the case."           United
                  States v. Signed Personal Check No. 730 of Yubran S. Mesle,           615 F.3d
                  1085, 1095 (9th Cir. 2010) (quoting TCI Grp. Life Ins. Plan v. Knoebber,
                  244 F.3d 691, 701 (9th Cir. 2001)). Here, the default judgment the district
                  court set aside was in place for almost three years. The separate liability
                  case against Kuperman, in the meantime, proceeded to judgment. Given
                  Nevada Directs declaratory judgment that it owed no duty to defend or
                  indemnify Kuperman, it is difficult to avoid the conclusion that undoing

                        4 Epsteinrelied on Price v. Dunn, 106 Nev. 100, 787 P.2d 785 (1990),
                  disagreed with on other grounds by NC-DSH, Inc. v. Garner, 125 Nev. 647,
                  218 P.3d 853 (2009), and Peralta v. Heights Medical Center, Inc., 485 U.S.
                  80 (1988). Epstein, Price, and Peralta all dealt with defective process or
                  service, or fraud on the court. "[W]here a person has been deprived of
                  property in a manner contrary to the most basic tenets of due process, 'it is
                  no answer to say that in his particular case due process of law would have
                  led to the same result because he had no adequate defense upon the
                  merits." Price, 106 Nev. at 104, 787 P.2d at 788 (quoting Peralta, 485 U.S.
                  at 86-87).

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                 the declaratory judgment is prejudicial to Nevada Direct. Although
                 Nevada Direct should have moved to certify the default judgment under
                 NRCP 54(b), the district court erred when it set aside the default
                 judgment sua sponte. Neither the district court nor any party made a good
                 cause showing to set the default declaratory judgment aside, much less
                 demonstrated a lack of prejudice to Nevada Direct, who presumably relied
                 upon it in its handling of the liability suit against Kuperman. And, under
                 Torres, the entry of the default judgment appears correct as a matter of
                 law, especially when coupled with the later summary judgment against
                 Nevada Direct and in favor of the Smiths on the statutory minimum
                 benefits liability claim.
                       Assignment of Rights
                              "[R]ights of action held by a judgment debtor are personal
                 property subject to execution in satisfaction of a judgment."     Gallegos v.
                 Malco Enters. of Nev., Inc., 127 Nev. 579, 582, 255 P.3d 1287, 1289 (2011).
                 When assigning rights of action, NRS 21.320 governs. Id. at 580, 255 P.3d
                 at 1288. Although Nevada does not recognize a private right of action by a
                 third-party claimant against an insurance company for bad faith, a third-
                 party claimant may bring a claim for bad faith with a proper assignment
                 of rights in a supplementary proceeding.       Id. at 583, 255 P.3d at 1289
                 (citing Wilson v. Bristol W. Ins. Grp., No. 2:09-CV-00006-KJD-GWF, 2009
                 WL 3105602, at *2 (D. Nev. Sept. 21, 2009)).
                             A "supplementary proceeding" is "held in connection with the
                 enforcement of a judgment, for the purpose of identifying and locating the
                 debtor's assets available to satisfy the judgment."   Black's Law Dictionary
                 (8th ed. 2004). Addressing proceedings supplementary to execution, NRS
                 21.320 states: "The judge or master may order any property of the

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                         judgment debtor not exempt from execution, in the hands of such debtor or
                         any other person, or due to the judgment debtor, to be applied toward the
                         satisfaction of the judgment." In Nevada, a supplementary proceeding is
                         "incident to the original suit" and "is not an independent proceeding or the
                         commencement of a new action." See State ex rel. Groves v. First Judicial
                         Dist. Court, 61 Nev. 269, 276, 125 P.2d 723, 726 (1942); see also 30 Am.
                         Jur. 2d Executions and Enforcements of Judgments §          584 (2005) ("In
                         jurisdictions where a proceeding supplemental is not an independent
                         action, but is merely a proceeding to enforce an earlier judgment,
                         proceedings supplemental are conducted in the same court that entered
                         the judgment against the defendant, usually under the same cause
                         number. In fact, proceedings supplemental may be filed only in the trial
                         court issuing the underlying judgment." (footnotes omitted)).
                                     Here, a proceeding supplementary to execution would have
                         been proper in the tort action involving the Smiths and Kuperman, not the
                         declaratory judgment action underlying this appeal. The Smiths
                         requested a judicial assignment of Kuperman's rights against Nevada
                         Direct in the tort action after obtaining a default judgment in excess of
                         $1.5 million against Kuperman, but the district court in that case denied
                         it. The Smiths should have renewed or appealed the denial of that
                         request, rather than requesting an assignment of rights in the declaratory
                         relief case giving rise to this appeal. Of note, the Smiths never filed any
                         counterclaims against Nevada Direct in this declaratory relief case, and
                         did not cross-claim against Kuperman. After Nevada Direct was ordered
                         to pay out the policy limits, there was no requested relief from the Smiths
                         against Kuperman or Kuperman's insurer, Nevada Direct, in the
                         declaratory relief case warranting an assignment of rights. Thus, the

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                    district court erred in granting the Smiths' request for judicial assignment
                    of rights.
                                 This court has previously considered declaratory judgment
                    when an insured individual has failed to cooperate with the insurer. In
                    Torres, the insurer obtained a declaratory judgment establishing that its
                    insured's lack of cooperation extinguished its duty to defend and
                    indemnify its insured. 131 Nev., Adv. Op. 54, 353 P.3d at 1205. While
                    denying the injured third party direct extra-contractual rights against the
                    insurer, this court held that Nevada's absolute-liability statute, NRS
                    485.3091(5)(a), kept the duty to pay the minimum coverages to the injured
                    party alive. Id. at 1207. In light of Torres, the district court should have
                    ended this case with the default judgment against Kuperman and the
                    summary judgment in favor of the Smiths. 5 Nevertheless, the district
                    court held a bench trial on the issues of liability, causation, and damages.
                    Reaching those issues amounted to clear error because they were
                    unrelated to the issues framed by the pleadings in the declaratory relief
                    action—especially given that respondents never filed any counterclaims or
                    cross-claims. Further, the issue of prejudice to Nevada Direct by reason of
                    Kuperman's return to Israel did not require determination after summary
                    judgment because NRS 485.3091 provides that Nevada Direct's policy
                    limits are "absolute whenever injury or damage covered by the policy
                    occurs."

                          5We  recognize that the district court action included additional
                    defendants beyond Kuperman and the Smiths, but those defendants have
                    not participated in this appeal despite being named as respondents. See
                    note 1, supra.

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                              For these reasons, we
                              ORDER the judgment of the district court VACATED AND
                REMAND this matter to the district court for proceedings consistent with
                this order.

                                                                                J.
                                                      Pickering

                cc:   Eighth Judicial District Court Dept. 15
                      Ara H. Shirinian, Settlement Judge
                      Murchison & Cumming, LLC/Las Vegas
                      Richard Harris Law Firm
                      Ganz & Hauf/Las Vegas
                      Law Office of Lisa A. Taylor
                      Eighth District Court Clerk

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