Court Opinion

ID: 4257269
Source: CourtListenerOpinion
Date Created: 2018-03-22 17:10:17.629172+00
Date Added: 2024-06-11T14:45:47.449080
License: Public Domain

The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.

                                                                  SUMMARY
                                                              March 22, 2018

                                2018COA44

No. 17CA0407, Minshall v. Johnston — Civil Procedure —
Process — Substituted Service

     This case emphasizes that district courts entering C.R.C.P. 4(f)

orders must exercise meaningful discretion in determining whether

the person to whom process is delivered is properly designated for

substituted service under Rule 4(f). Thus, a division of the court of

appeals vacates the district court’s order denying David K.

Johnston’s motion to set aside the judgment and remands for the

district court to determine whether service on a registered agent of

a corporation founded by Johnston was “reasonably calculated to

give actual notice” to Johnston, as required by Rule 4(f).
COLORADO COURT OF APPEALS                                        2018COA44

Court of Appeals No. 17CA0407
City and County of Denver District Court No. 15CV34174
Honorable Catherine Lemon, Judge
Honorable Edward D. Bronfin, Judge

Richard G. Minshall and Vicky L. Minshall,

Plaintiffs-Appellees,

v.

David K. Johnston,

Defendant-Appellant.

                         ORDER VACATED AND CASE
                        REMANDED WITH DIRECTIONS

                                 Division VII
                         Opinion by JUDGE BERGER
                        Bernard and Vogt*, JJ., concur

                          Announced March 22, 2018

Gleason Wells, P.C., Todd A. Wells, Denver, Colorado, for Plaintiffs-Appellees

Semmens Law, P.C., Damon M. Semmens, Denver, Colorado, for Defendant-
Appellant

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2017.
¶1   The district court entered a default judgment against defendant,

 David K. Johnston, when he failed to respond to a complaint filed

 by plaintiffs, Richard G. Minshall and Vicky L. Minshall. Johnston

 was not personally served with process; instead, the court

 permitted substituted service under C.R.C.P. 4(f) on the registered

 agent of Aries Staffing LLC (Aries), a corporation of which Johnston

 was a co-owner and shareholder.

¶2   Some six months after he claimed that he learned about the

 entry of the default judgment, Johnston moved pro se to set it

 aside. He vaguely asserted in the district court, and explicitly

 argues here, that the judgment was void because the Minshalls did

 not properly serve him with process. The district court denied the

 motion and Johnston appeals.

¶3   We agree with most of the district court’s analysis. However, the

 record is insufficient to determine whether service on Aries’

 corporate agent for service of process, Incorp Services Inc. (Incorp),

 was “reasonably calculated to give actual notice” of the case to

 Johnston. See C.R.C.P. 4(f). Because that is an essential condition

 of valid substituted service under Rule 4(f), we must vacate the

 district court’s order denying Johnston’s motion to set aside the

                                    1
 judgment and remand for the court to determine whether service on

 Incorp was “reasonably calculated to give actual notice” to

 Johnston. We reject all of Johnston’s other contentions.

             I.     Relevant Facts and Procedural History

¶4   The Minshalls alleged in their complaint that they made two

 loans to Aries, neither of which was repaid. Johnston was not an

 obligor on either loan.

¶5   Johnston was a co-founder and shareholder of Aries. The

 Minshalls pleaded that Aries was Johnston’s alter ego and that

 Johnston was liable for Aries’ debts, including the two loans. See In

 re Phillips, 139 P.3d 639, 644 (Colo. 2006) (“Individual liability is

 appropriate when the corporation is merely the alter ego of the

 shareholder . . . .”). In addition to the alter ego claim, the Minshalls

 pleaded claims of breach of contract and unjust enrichment against

 Aries, and claims of promissory estoppel, deceit based on fraud or

 false representation, and negligent misrepresentation against both

 Aries and Johnston.

¶6   The Minshalls served Aries through its corporate agent for service

 of process, Incorp. Aries defaulted, and the district court entered a

 default judgment against Aries, which Aries did not appeal.

                                    2
¶7   The Minshalls had great difficulty, however, attempting to serve

 Johnston personally under C.R.C.P. 4(e). Because the Minshalls

 were unsuccessful in personally serving Johnston, they moved to

 serve him by mail, purportedly under Rule 4(f). The district court

 correctly denied that motion because

            Rule 4(f) does not allow for service on a party
            by mail. Rather Plaintiffs’ motion must
            identify a separate, appropriate person on
            whom process will be hand delivered. Because
            Plaintiffs’ Motion does not identify such a
            person, substitute service under rule 4(f) is not
            proper.

¶8   The Minshalls then filed an amended motion under Rule 4(f), this

 time procedurally complying with that rule by designating a

 “person,” Incorp, as the “appropriate person on whom process will

 be hand delivered.” The court granted the amended motion and the

 Minshalls served Johnston though Incorp as authorized by the

 court’s order. (Incorp had already been served when service was

 obtained on Aries, so it was served a second time.)

¶9   When Johnston failed to answer the complaint, the court entered

 a default judgment against him. Months later, he moved pro se

 (without identifying any particular rule in support of his motion) to

 set aside the judgment, claiming he only learned of the complaint

                                    3
  when the Minshalls recorded a judgment lien on his property in

  Georgia.

      II.  While The Minshalls Complied With Some of Rule 4(f)’s
        Requirements, The Record Is Insufficient To Determine If All of
                     The Requirements Were Satisfied

¶ 10 Johnston raises the same argument on appeal (now through

  counsel) that we liberally construe his motion to set aside the

  default judgment to have raised before the district court that the

  judgment entered against him is void for lack of jurisdiction under

  C.R.C.P. 60(b)(3). See C.J.C. 2.6 cmt. 2; People v. Bergerud, 223
P.3d 686, 696-97 (Colo. 2010) (we must construe pro se arguments

  liberally).

                A.   Applicable Law and Standard of Review

¶ 11 C.R.C.P. 55(c) provides that “[f]or good cause shown the court

  may set aside an entry of default and, if a judgment by default has

  been entered, may likewise set it aside in accordance with Rule

  60(b).” Rule 60(b)(3) requires a court to set aside a void judgment

  when a proper application is made. First Nat’l Bank of Telluride v.

  Fleisher, 2 P.3d 706, 714 (Colo. 2000).

¶ 12 A judgment is either void or it is not. Accordingly, we review de

  novo the district court’s ruling on a Rule 60(b)(3) motion. Goodman

                                    4
  Assocs., LLC v. WP Mountain Props., LLC, 222 P.3d 310, 314 (Colo.

  2010). The burden to establish that a judgment is void is on the

  party claiming the judgment is void, and that movant must

  demonstrate the invalidity of the judgment by clear and convincing

  evidence. Id. at 315.

¶ 13 Rule 4 prescribes the means by which a defendant must be

  served with process. If service does not conform to Rule 4’s

  requirements, the court does not obtain personal jurisdiction over

  the defendant and any resulting judgment is void. Goodman

  Assocs., 222 P.3d at 315.

¶ 14 Rule 4(f) recognizes that sometimes it will be difficult, if not

  impossible, to obtain personal service on a defendant. Thus, the

  rule prescribes an alternative method to effectuate service. Rule 4(f)

  provides as follows:

             In the event that a party attempting service of
             process by personal service under section (e) is
             unable to accomplish service, and service by
             publication or mail is not otherwise permitted
             under section (g), the party may file a motion,
             supported by an affidavit of the person
             attempting service, for an order for substituted
             service. The motion shall state (1) the efforts
             made to obtain personal service and the
             reason that personal service could not be
             obtained, (2) the identity of the person to

                                      5
            whom the party wishes to deliver the process,
            and (3) the address, or last known address of
            the workplace and residence, if known, of the
            party upon whom service is to be effected. If
            the court is satisfied that due diligence has
            been used to attempt personal service under
            section (e), that further attempts to obtain
            service under section (e) would be to no avail,
            and that the person to whom delivery of the
            process is appropriate under the circumstances
            and reasonably calculated to give actual notice
            to the party upon whom service is to be
            effective, it shall:

            (1) authorize delivery to be made to the person
            deemed appropriate for service, and

            (2) order the process to be mailed to the
            address(es) of the party to be served by
            substituted service, as set forth in the motion,
            on or before the date of delivery. Service shall
            be complete on the date of delivery to the
            person deemed appropriate for service.

  (Emphasis added.)

                              B.   Analysis

     1.   The Due Diligence Requirement of Rule 4(f) Was Satisfied

¶ 15 In his motion to set aside the default judgment, Johnston stated

  that “due to the fact that the Minshalls were fully aware of

  [Johnston’s] location and non-affiliation with Aries Staffing LLC, the

  service of process was improper.” We liberally construe this as

  preserving the argument, which Johnston raises on appeal, that the

                                    6
  Minshalls did not exercise due diligence in attempting to serve

  Johnston personally, a necessary condition precedent to serving

  him by substituted service under Rule 4(f).

¶ 16 It is undisputed that the Minshalls complied with the procedural

  requirements of Rule 4(f) by filing an affidavit from the process

  server detailing his numerous unsuccessful attempts to serve

  Johnston. From this affidavit and the information in, or attached

  to, the Minshalls’ motion for substituted service, the district court

  found that the Minshalls had hired an investigator to identify

  Johnston’s address and that another investigator had attempted to

  serve Johnston four times at that address to no avail.

¶ 17 The Minshalls also investigated the address where Johnston’s

  vehicle was registered and determined that he no longer lived there.

  The Minshalls attempted to serve Johnston at Aries, his last known

  “usual workplace,” but Aries’ offices were vacant. And the

  Minshalls tried to contact Johnston through their son (who had

  previously worked with Johnston) and through Johnston’s realtor.

¶ 18 Due diligence does not require that the plaintiffs actually succeed

  in serving the defendant or that the plaintiffs exhaust every possible

  option in attempting to do so. Willhite v. Rodriguez-Cera, 2012 CO
7
  29, ¶ 35. Instead, “‘[d]ue diligence’ is commonly understood as

  ‘[t]he diligence reasonably expected from, and ordinarily exercised

  by, a person who seeks to satisfy a legal requirement or to

  discharge an obligation.’” Owens v. Tergeson, 2015 COA 164, ¶ 44

  (quoting Black’s Law Dictionary 553 (10th ed. 2014)).

¶ 19 This record overwhelmingly supports the district court’s finding

  that the Minshalls exercised the diligence required by Rule 4(f).1

  2.   Johnston’s Argument that Incorp Is Not a “Person” Within The
              Meaning of Rule 4(f) Is Not Properly Before Us

¶ 20 Johnston next argues that Incorp, the “person” on whom

  substituted service was authorized by the court’s Rule 4(f) order,

  was not a “person” and thus did not meet Rule 4(f)’s “person”

  requirement.

¶ 21 Johnston did not make this argument in the district court and

  while, as noted above, we (and the district court) must interpret pro

  se pleadings and motions liberally, liberal construction does not

  1 It is unnecessary for us to determine in this case the precise
  standard of review applicable to a trial court’s determinations
  underlying an order authorizing substitute service under C.R.C.P.
  4(f) because we would reach the same conclusions irrespective of
  which standard of review we apply: de novo, abuse of discretion, or
  clear error.

                                    8
  include inventing arguments not made by the pro se party.

  Because we do not address arguments made for the first time on

  appeal, we do not further address this “person” argument. Estate of

  Stevenson v. Hollywood Bar & Cafe, Inc., 832 P.2d 718, 721 n.5

  (Colo. 1992); Silverview at Overlook, LLC v. Overlook at Mt. Crested

  Butte Ltd. Liab. Co., 97 P.3d 252, 257 (Colo. App. 2004).

   3.   The Record Is Insufficient To Determine Whether The Person
          On Whom Substituted Service Was Made Complied With
                                   Rule 4(f)

¶ 22 Finally, in his motion to set aside the default judgment, Johnston

  argued that it was improper for the Minshalls to serve Incorp when

  they “were aware that [Johnston] [had] ended his affiliation with

  Aries.” We liberally construe this as preserving the argument that

  Johnston expressly makes on appeal: that substituted service on

  Incorp (Aries’ registered agent) was not “reasonably calculated to

  give actual notice” to Johnston of the suit.

¶ 23 In their amended (and lengthy) motion for substituted service,

  the Minshalls addressed only cursorily the critical requirement of

  Rule 4(f) that service on the designated person must be “reasonably

  calculated to give actual notice” of suit to the named defendant.

  The Minshalls’ only statement directed to that essential condition

                                    9
  was that “because Defendant Johnston is a co-owner of Aries,

  service on Aries’ registered agent is appropriate under the

  circumstances and is reasonably calculated to give Defendant

  Johnston actual notice.”2

¶ 24 Under Colorado law, a corporation and its natural person

  shareholders are distinct legal persons. Phillips, 139 P.3d at 643.

  The Minshalls do not cite, and we have not found, any legal

  authority supporting the proposition that service on the registered

  agent of a corporation is sufficient, by itself, to effectuate valid

  service on a “co-owner” of a corporation.

¶ 25 Giving effect to the legal separateness of a corporation and its

  shareholders under Colorado law, we conclude that the fact that a

  person is a shareholder of a corporation does not, without more,

  render the corporation’s registered agent a proper person for

  substitute service under Rule 4(f).3

  2 In a different section of the Minshalls’ motion for substituted
  service, they alleged that they attempted to serve one of “Johnston’s
  partners/co-founders at Aries’ principal office” at least suggesting
  that Johnston was a co-founder of Aries.
  3 The fact that Johnston may also have been a “co-founder” of Aries

  may have some relevance in determining whether service on Incorp

                                      10
¶ 26 But we do not exclude the possibility that the nature of the

  relationship between the registered agent, the corporation, and the

  shareholder-defendant could justify substituted service on the

  corporation’s registered agent.

¶ 27 For example, if the defendant were an active participant in the

  affairs of the corporation, service on the corporation’s registered

  agent might be “reasonably calculated to give actual notice” to the

  defendant. Or, if the defendant has some separate relationship

  with the registered agent, by contract, familial tie, or otherwise, the

  registered agent may well be an appropriate person for substitute

  service. See Willhite, ¶¶ 4-6 (discussing, but not ruling on, trial

  court’s decision to grant substitute service on the Colorado-based

  sister of a Mexican resident under Rule 4(f)). These examples are by

  no means exclusive.

  was “reasonably calculated to give actual notice” to Johnston under
  Rule 4(f). But this information, either considered by itself or
  coupled with the allegation that Johnston is a “co-owner,” is
  insufficient to meet the Minshalls’ burden under Rule 4(f). For
  example, if Johnston had been a founder of the corporation, but
  had left the corporation years earlier, the fact that he was a
  co-founder would appear to have little relevance to the “reasonably
  calculated” inquiry.

                                    11
¶ 28 The ultimate determination of whether service on the proposed

  designated person is “reasonably calculated” to give notice to the

  named defendant is a question the trial court must resolve before

  authorizing service under Rule 4(f). But we emphasize that the trial

  court’s duties in this respect are very limited. It is solely the

  burden of the party seeking substitute service to allege sufficient

  facts to support a determination that service on the proposed

  designated person is “reasonably calculated to give actual notice” of

  suit to the defendant.

¶ 29 The court is not required to investigate the alleged facts. It may

  (indeed, it must because this is an ex parte proceeding) assume the

  truth of the facts alleged by the moving party.

¶ 30 Viewed in this light, the record here is insufficient for us to

  determine whether service on Incorp was “reasonably calculated to

  give actual notice” to Johnston as required by Rule 4(f). Other than

  showing that Aries engaged Incorp to act as its agent for service of

  process, the record is devoid of any indication of a separate

  relationship between Incorp and Johnston or other facts which

  would support the required finding under Rule 4(f).

                                     12
¶ 31 Accordingly, we remand this case to the district court to

  determine whether service on Incorp under Rule 4(f) was

  “reasonably calculated to give actual notice” to Johnston. The

  question is not whether Incorp notified Johnston of the service or

  suit; according to Johnston, that did not occur. Instead, the

  question is whether, when the district court authorized substituted

  service on Incorp, that service was “reasonably calculated to give

  actual notice” to Johnston as required by Rule 4(f).4 In making this

  determination on remand, the court, in its discretion, may hold a

  hearing or require the Minshalls to provide additional information

  in writing.

¶ 32 If the court finds that Incorp was not a person properly

  designated for substituted service under Rule 4(f), the court must

  4 We recognize that, in entering the default judgment against
  Johnston, the district court also found that a copy of the process
  was mailed to Johnston’s last known address, as required by Rule
  4(f). The court’s findings rejecting Johnston’s arguments regarding
  the sufficiency of the mailing are well supported by the record. But
  mailing of process alone, as the court recognized when it properly
  denied the original motion for substituted service, is not sufficient
  to give the court jurisdiction over a defendant. C.R.C.P. 4(f). Only
  when it is coupled with compliance with the other requirements of
  Rule 4(f) is service by mail sufficient. Id.

                                   13
  vacate the judgment against Johnston and allow Johnston to

  defend against the allegations of the complaint. If, however, the

  court finds that Incorp was a person properly designated for

  substituted service under Rule 4(f), then the court’s order denying

  Johnston’s motion to set aside the judgment will stand affirmed,

  subject only to Johnston’s right to appeal the determinations made

  on remand.

                            III.   Conclusion

¶ 33 The order denying Johnston’s motion to set aside the default

  judgment is vacated and the case is remanded for the further

  proceedings directed above.

       JUDGE BERNARD and JUDGE VOGT concur.

                                    14