Lapour Dc One v. Jml Energy

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

LAPOUR DC ONE LLC, Plaintiff/Appellee,

v.

JML ENERGY RESOURCES LLC, Defendant/Appellant.

No. 1 CA-CV 19-0195
FILED 2-25-2020

Appeal from the Superior Court in Maricopa County
No. CV2018-052699
The Honorable Steven K. Holding, Judge Pro Tempore (Retired)

AFFIRMED IN PART; VACATED AND REMANDED IN PART

COUNSEL

Shein Phase Adkins, P.C., Scottsdale
By David E. Shein, Erik Daniel Smith
Counsel for Plaintiff/Appellee

Sanders & Parks, P.C., Phoenix
By Jasmina Richter, Vincent Miner
Counsel for Defendant/Appellant
 LAPOUR DC ONE v. JML ENERGY
Decision of the Court

MEMORANDUM DECISION

Judge David B. Gass delivered the decision of the Court, in which Presiding
Judge Lawrence F. Winthrop and Judge Maria Elena Cruz joined.

G A S S, Judge:

¶1 JML Energy Resources, LLC (JML) appeals from the superior
court’s denial of its motion to set aside a default judgment in favor of
LaPour DC One, LLC (LaPour). JML is not entitled to relief from the entry
of default; however, JML was entitled to a hearing on damages because the
amount stated in the complaint was not a sum certain or a sum that could
be made certain by calculation. Accordingly, this court affirms the entry of
default, vacates the judgment, and remands for a damages hearing.

FACTUAL AND PROCEDURAL HISTORY

¶2 LaPour’s claims arise from a 2011 lease it entered with Central
State Shingle Recycling, LLC (CSSR) and CSSR’s owner, Scott Yelton
(Yelton). In 2014, the parties added JML as a lessee in an addendum to the
original lease. Yelton and Jason McCullar (McCullar) are principals of JML.

¶3 On June 29, 2018, LaPour filed a complaint against JML,
Yelton, McCullar, and CSSR (collectively, defendants). LaPour alleged
defendants breached the lease terms by failing to (1) pay rent and other
amounts due, (2) maintain the property in good repair, (3) comply with all
applicable laws and ordinances, and (4) return the property to LaPour
in the same condition it was received. Specifically, LaPour alleged
defendants—in violation of federal and state law—placed, and then failed
to remove, “approximately 200,000 tons of asphalt roofing shingles and
associated roofing debris containing non-friable asbestos” on the property.

¶4 On July 17, 2018, LaPour personally served JML’s statutory
agent. LaPour personally served Yelton on July 29, 2018, and McCullar on
August 13, 2018. Defendants did not timely answer the complaint. On
August 15, 2018, LaPour applied for entry of default as to JML and provided
notice to JML’s statutory agent. JML did not move to set aside the

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application for default. On August 29, 2018, the default against JML became
effective.1 See Ariz. R. Civ. P. 55(a)(4).

¶5 On September 7, 2018, JML moved to set aside the entry of
default. After full briefing and oral argument, the superior court denied the
motion without comment. LaPour then moved the superior court to enter a
default judgment of $8,159,879.82 for unpaid rent and fees, remediation
expenses, and attorney fees. JML objected to the entry of a default judgment
without a damages hearing and moved for reconsideration of the order
denying the motion to set aside entry of default. The superior court denied
JML’s motion for reconsideration without comment. Without a hearing, the
superior court also found LaPour’s claim was for a sum certain and entered
judgment for $8,159,879.82 ($8,139,100.00 in damages and $20,779.82 in
attorney fees).

¶6 JML moved to set aside the default judgment. The superior
court denied the motion, again without comment. JML timely appealed.
This court has jurisdiction under A.R.S. § 12-2101(A)(2). See also Kline v.
Kline, 221 Ariz. 564, 568, ¶ 11 (App. 2009) (orders refusing to set aside a
default judgment are appealable).

ANALYSIS

¶7 This court reviews the superior court’s denial of a motion to
set aside an entry of default or a default judgment for an abuse of discretion.
Richas v. Superior Court, 133 Ariz. 512, 514-15 (1982). The superior court may
set aside entry of default for good cause. See Ariz. R. Civ. P. 55(c). The good
cause necessary to set aside an entry of default under Rule 55(c) “is the same
as that required for relief from a judgment by default” under Rule 60(b).
Richas, 133 Ariz. at 514. A motion to set aside a default judgment may be
granted only if the moving party shows: (1) it acted promptly in seeking
relief; (2) the failure to file a timely answer was due to mistake,
inadvertence, surprise, or excusable neglect; and (3) it had a meritorious
defense. Daou v. Harris, 139 Ariz. 353, 358-59 (1984); Richas, 133 Ariz. at 514.

I. JML’s failure to file a timely answer was not the result of excusable
neglect.

¶8 A failure to answer is excusable “when the neglect or
inadvertence is such as might be the act of a reasonably prudent person

1 On September 5, 2018, LaPour applied for default as to Yelton. All
defendants filed a response to the complaint two days later, curing Yelton’s
default. As such, this appeal deals exclusively with JML’s default.

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under similar circumstances, or when it involves a clerical error which
might be made by a reasonably prudent person who attempted to handle
the matter in a prompt and diligent fashion.” Beal v. State Farm Mut. Auto.
Ins. Co., 151 Ariz. 514, 518 (App. 1986). JML offers two reasons justifying its
neglect: (1) JML’s principals were not checking the mail at its North
Carolina office because they were out of town on business; and (2) LaPour
sent them an email suggesting they submit a detailed remediation plan by
August 28, 2018. These reasons, standing alone or in concert, do not rise to
the level of excusable neglect.

¶9 The parties’ focus in their briefs on “culpability” under the
analogous Federal Rules of Civil Procedure 55 and 60 is not instructive. See
TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 696-97 (9th Cir. 2001),
overruled on other grounds by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141
(2001). Arizona courts have not adopted the federal “culpability” standard.
Instead, Arizona courts consistently define good cause and excusable
neglect as set forth in Daou, 139 Ariz. at 358-59, and Richas, 133 Ariz. at 514.
This court, therefore, relies on Arizona precedent to determine whether
JML acted with excusable neglect. See State v. Goracke, 210 Ariz. 20, 22, ¶ 9
(App. 2005) (Arizona courts are not bound by federal cases “absent a
controlling constitutional consideration.”).

¶10 Looking to Arizona law, the failure of JML’s managers to
monitor receipt of mail—even during a business-related absence—does not
constitute excusable neglect, and the superior court did not abuse its
discretion in rejecting this argument. JML’s managers had actual
knowledge of the lawsuit (through personal service on them individually),
and further knew JML was a named party. Accordingly, they had reason to
suspect or at least anticipate service of process on JML’s duly-appointed
statutory agent. As such, they had every reason to expect their deliberate
failure to monitor business mail or, at a minimum, stay in phone contact
with JML’s statutory agent, and their failure to promptly retain counsel and
timely file an answer would have adverse consequences for JML.

¶11 The failure of JML and its principals to act promptly under
these circumstances is not the conduct of a reasonably prudent person,
especially given the complaint sought $7,000,000.00 in damages. See Daou,
139 Ariz. at 359 (“mere carelessness is not sufficient reason to set aside a
default judgment.”). See also Searchtoppers.com, L.L.C. v. TrustCash LLC, 231
Ariz. 236, 241-42, ¶¶ 21-23 (App. 2012) (defendant’s failure to send the
complaint to his attorney until a week after he received the application for
default was not excusable neglect).

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¶12 JML’s principals also could not reasonably believe they were
in settlement negotiations with LaPour. Reliance on assurances from an
opposing party may constitute excusable neglect justifying failure to act.
See Evans v. C & B Dev. Corp., 4 Ariz. App. 1, 2 (1966). A party, however,
does not establish excusable neglect by relying on a unilateral subjective
belief the opposing party is not going to pursue its rights in a pending
action. See Villalba v. Villalba, 131 Ariz. 556, 557 (App. 1982). JML’s failure to
respond was not mere inadvertence. At best, JML’s inaction was based on
a unilateral belief or unreasonable assumption.

¶13 Yelton and McCullar say they reasonably believed no formal
answer was necessary because they had until August 28 to offer a detailed
remediation plan. Yelton and McCullar rely on an August 7 email from
LaPour, which said:

[Y]ou are both probably aware of the details in the complaint
filed on behalf of LaPour DC One. Responding to the
complaint is just the beginning of the effort and expense that
will likely go on for some time and the result will be
damaging in many ways for years to come.

[LaPour] may consider working with you toward a
settlement. If you are interested, I suggest you present a
detailed plan outlining your plan to participate in the
remediation no later than August 28, 2018 at a meeting in
Phoenix.

¶14 The email does not suggest LaPour would dismiss the
complaint, stay the litigation, or otherwise relieve defendants from the
obligation to comply with the rules of civil procedure. Further, nothing in
the email suggests LaPour was extending the deadline to answer. Indeed,
it says filing an answer is “just the beginning.” Later events make JML’s
reliance on the email even more unreasonable.

¶15 When McCullar met with LaPour in person on August 13,
after having received this email, LaPour personally served hum with the
complaint. LaPour’s actions evidenced an intention to avail itself of all legal
remedies at its disposal. JML also acknowledged LaPour made no attempt
to negotiate a settlement at the August 13 meeting. Finally, even assuming
the email can somehow be construed as providing an extension, that
extension was plainly limited—and conditioned—on JML submitting a
detailed remediation plan no later than August 28. JML failed to submit any
remediation plan at all, let alone by the deadline imposed by LaPour. As

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such, JML knowingly assumed the risk that LaPour would proceed and
exercise all rights and remedies arising from JML’s failure to timely defend,
including pursuing the entry of default and a default judgment. Under
these facts, JML reasonably should have understood LaPour did not intend
to suspend the lawsuit to proceed with settlement talks.

¶16 If, as they claim, McCullar and Yelton actually believed they
were in settlement negotiations and LaPour would not pursue default
proceedings, their belief is belied by a complete lack of evidence. Because
substantial evidence supports the superior court’s ruling based on lack of
excusable neglect, this court need not address whether JML acted promptly
or offered a meritorious defense.

II. LaPour’s damages were not for a sum certain.

¶17 Courts may enter a default judgment without an evidentiary
hearing on damages “[i]f the plaintiff’s claim is for a sum certain or a sum
that can be made certain by computation.” Ariz. R. Civ. P. 55(b)(1)(A). In all
other cases, the defendant is entitled to a hearing to determine the amount
of damages. Ariz. R. Civ. P. 55(b)(2)(D). See also Searchtoppers.com, 231 Ariz.
at 239, ¶ 12.

¶18 Here, LaPour alleged JML was liable for the following
damages: (1) unpaid rent and fees of $1,139,100.00; and (2) property
restoration expenses of “not less than $7,000,000[.00].” LaPour further
alleged the unpaid rent and fees continued to accrue. The property
restoration expenses included the costs of debris removal, returning the
property to its original leased condition, and “fines and levees [sic] from
Defendants’ misconduct.”

¶19 JML argues it is entitled to an evidentiary hearing under Rule
55(b)(2) because the damages are not for a sum certain. JML is correct.

A claim is not for a “sum certain” merely because it is for a
specific amount. A contrary holding would permit almost any
unliquidated claim to be transformed into a claim for a sum
certain merely by placing a monetary amount on the item of
claimed damage even though such amount has not been
fixed, settled, or agreed upon by the parties and regardless of
the nature of the claim.

Beyerle Sand & Gravel, Inc. v. Martinez, 118 Ariz. 60, 63 (App. 1977) (internal
citation omitted).

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¶20 The cost of property restoration expenses in the complaint is
an unsubstantiated estimate. The complaint does not explain how LaPour
calculated the cost of debris removal or the cost to return the property to its
original condition. Similarly, the unverified complaint neither includes
specific allegations—let alone admissible evidence—regarding these
expenses, nor the various figures and dates needed to calculate the amount
of unpaid rent and fees. See, e.g., Franchise Holding II, LLC v. Huntington
Rests. Grp., Inc., 375 F.3d 922, 929 (9th Cir. 2004). Moreover, LaPour failed
to identify any violation citations by a government entity or detail what
fines or fees were imposed or were owed. Bare allegations do not constitute
admissible proof of liquidated damages. In sum, LaPour failed to establish
its damages were for a sum certain or could be made certain by
computation. The superior court, therefore, abused its discretion in denying
JML a damages hearing. See Rule 55(b)(2).

ATTORNEY FEES ON APPEAL

¶21 Both parties request an award of attorney fees on appeal
under A.R.S. §§ 12-341 and -341.01 and the terms of the lease. Those terms
allow the prevailing party in an action involving the leased property to
recover reasonable attorney fees. Because both parties prevailed in part on
appeal, we deny both requests for attorney fees.

CONCLUSION

¶22 Because JML did not show it was entitled to relief under Rule
55(c) or 60(b), the superior court’s entry of default is affirmed. Because
LaPour’s damages were not for a sum certain, the default judgment is
vacated and remanded for a hearing on damages.

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

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