MacLean v. Newgioco

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

ELIZABETH J. MACLEAN, Plaintiff/Appellant,

v.

NEWGIOCO GROUP, INC., Defendant/Appellee.

No. 1 CA-CV 20-0164
FILED 3-16-2021

Appeal from the Court in Maricopa County
No. CV2019-008383
The Honorable Lindsay P. Abramson, Judge Pro Tempore

AFFIRMED

COUNSEL

Jaburg & Wilk PC, Phoenix
By Kraig J. Marton, David N. Farren
Counsel for Plaintiff/Appellant

Jennings, Strouss & Salmon PLC, Phoenix
By Jimmie W. Pursell, Jr., Daniel J.F. Peabody
Counsel for Defendant/Appellee
 MACLEAN v. NEWGIOCO
Opinion of the Court

OPINION

Judge Maurice Portley1 delivered the opinion of the Court, in which
Presiding Judge Lawrence F. Winthrop and Chief Judge Peter B. Swann
joined.

P O R T L E Y, Judge:

¶1 Elizabeth J. MacLean challenges the superior court order
setting aside a default judgment she obtained against her former employer,
Newgioco Group, Inc. (“NGI”). Because the court properly determined
MacLean had failed to comply with Arizona Rule of Civil Procedure
(“Rule”) 55 governing the default process, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 MacLean was hired by NGI, a Delaware corporation, to be its
Vice President of Finance and Accounting in September 2018. She signed
an executive employment agreement, which included a six-month
probationary term during which she could be terminated for any reason.
The agreement also included a “[n]otices” clause that provided “[a]ll
notices and other communications required or permitted hereunder will be
in writing and . . . provided . . . to the appropriate party at the address
specified below.” The clause then listed the name of a lawyer, the name and
address of a law firm in Toronto, Canada, a fax number, and also directed
a copy be sent to a named lawyer at a New York law firm.

¶3 Approximately two months later, MacLean accepted a
promotion to Chief Financial Officer and signed another executive
employment agreement, which also contained both the probationary term
and the “[n]otices” clause. The second agreement stated that it “replace[d]
and supercede[d]” the first agreement, and provided that disputes between
MacLean and NGI would be resolved by arbitration.

1 The Honorable Maurice Portley, Retired Judge of the Court of
Appeals, Division One, has been authorized to sit in this matter pursuant
to Article 6, Section 3, of the Arizona Constitution.

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 MACLEAN v. NEWGIOCO
Opinion of the Court

¶4 In May 2019, NGI terminated MacLean. The next month she
sent a demand for unpaid wages and unreimbursed expenses, and damages
due to her wrongful termination to NGI’s CEO, the board and its general
counsel, Julian Doyle. Later, MacLean began negotiations on a severance
package and reimbursements with NGI‘s Chief Executive Officer, and, on
at least one occasion, Mr. Doyle. The negotiations failed, and she filed this
suit against NGI in August 2019, alleging multiple claims, including breach
of contract and estoppel. She also asserted, among other allegations, that
she was outside the probationary period because NGI employed her for
nearly nine months. She attached both employment agreements to her
complaint.

¶5 MacLean served her complaint on NGI’s statutory agent.
When NGI did not file an answer or otherwise respond, MacLean filed her
application for entry of default and mailed it to the statutory agent. When
NGI did not timely respond, MacLean filed a motion for entry of a default
judgment without hearing and mailed it to the statutory agent. The superior
court subsequently entered a default judgment in the amount of $1,050,204
plus costs and accruing interest.

¶6 NGI moved to set aside the default judgment and entry of
default approximately three weeks later. After briefing and argument,
which included NGI’s assertion of potential meritorious defenses, the court
granted the motion; specifically finding MacLean did not comply with the
requirement in Rule 55(a)(2)(D) to provide notice to a company’s attorney.2

DISCUSSION

¶7 MacLean served NGI’s statutory agent with the complaint
then learned NGI’s statutory agent had been unsuccessful in contacting
NGI at its address in Toronto, Canada. MacLean’s application for default
did not include the names or addresses of any of the lawyers listed in her
executive employment agreements when she mailed it to NGI’s statutory
agent. Nor did she mail a copy to either lawyer when she filed and mailed

2 In a hearing memorandum MacLean filed with the superior court,
she argued that NGI had actual notice of the lawsuit and had been evading
service. The court denied MacLean’s attempt to introduce new evidence
through her hearing memorandum. We “will not disturb a trial court’s
ruling on the admissibility of evidence absent a clear abuse of discretion
and resulting prejudice.” Jimenez v. Wal-Mart Stores, 206 Ariz. 424, 427, ¶ 10
(App. 2003). MacLean has shown no such error.

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Opinion of the Court

her motion for default judgment without hearing on NGI’s statutory agent.
She obtained a default judgment, but it was subsequently set aside.

¶8 The issue we confront is whether MacLean’s failure to mail a
copy of the application for default to NGI’s counsel under Rule 55(a)(3)(B)
justified the superior court setting aside the judgment under Rule 60(b).
We review the interpretation of court rules de novo, Haroutunian v.
Valueoptions, Inc., 218 Ariz. 541, 544, ¶ 6 (App. 2008) (citation omitted), and
interpret court rules using the same principles applicable to the
interpretation of statutes, Fragoso v. Fell, 210 Ariz. 427, 430, ¶ 7 (App. 2005)
(citation omitted). “We view the facts in the light most favorable to
upholding the trial court’s ruling on a motion to set aside a default
judgment.” Ezell v. Quon, 224 Ariz. 532, 534, ¶ 2 (App. 2010). And we review
the court’s decision for an abuse of discretion. Blair v. Burgener, 226 Ariz.
213, 216, ¶ 7 (App. 2010).

¶9 Rule 55 controls the process to secure a default judgment
when a party fails to defend. The rule identifies the information that must
be included in the application for entry of default and a motion for default
judgment. Rule 55(a)(2), (b). Among other requirements, the rule requires
that an application for default must identify “any attorney known to
represent the party claimed to be in default in the action in which default is
sought or in a related matter.” Rule 55(a)(2)(D). Moreover, Rule 55(a)(3)(B)
also requires a plaintiff to mail a copy of the notice of the default application
to an attorney the plaintiff knows represents the defendant in the matter
“or in a related matter.”

¶10 Here, although both her executive employment agreements
identified NGI lawyers in Toronto and New York, she did not mail her
application for entry of default to any of them as required by the rule.
Instead, only after the entry of the default judgment did she send a letter to
NGI’s regulatory counsel. It was only then did NGI receive actual notice of
the complaint, the default application, and judgment.

¶11 MacLean contends she substantially complied with Rule 55
and cites to Barlage v. Valentine, 210 Ariz. 270 (App. 2005), Creach v. Angulo, 186 Ariz. 548 (App. 1996), and Ruiz v. Lopez, 225 Ariz. 217 (App. 2010).
Although these cases discuss substantial compliance of service in some
fashion, they are factually and legally distinguishable. Most importantly,
they were decided before the 2015 amendment to Rule 55, which added the
requirement that a plaintiff must serve the application for entry of default
on any lawyer the plaintiff knows is representing the defendant “in the

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Opinion of the Court

action in which default is sought or in a related matter.” See Order
Amending Rule 55(a)(1)(ii), R-15-0021 (Ariz. 2015).

¶12 The 2015 amendment was in response to the State Bar of
Arizona’s petition to amend the rule, which stated that the change was
necessary to “clarify the potential ambiguity regarding the breadth of the
attorney notification requirement.” Petition to Amend Rule 55 at 4, R-15-
0021 (2015). In the petition, the State Bar explained that “the proposed
change makes clear that the obligation to provide notice should be read
broadly, as is consistent with the purpose of the default rule.” Id. at 1.

¶13 We presume that the Arizona Supreme Court meant what it
said in enacting the 2015 amendment. See Potter v. Vanderpool, 225 Ariz. 495,
499–500, ¶ 13 (App. 2010). And the 2015 amendment is consistent with our
jurisprudence favoring decisions on the merits. See Richas v. Superior Court, 133 Ariz. 512, 514 (1982). Thus, mere service of the default filings on a
statutory agent without serving the application for entry of default and the
motion for default judgment on a defendant’s lawyers known to a plaintiff
is not sufficient to perfect the default process. See Fragoso, 210 Ariz. at 430,
¶ 7 (we interpret court rules using the same principles applicable to the
interpretation of statutes). As a result, MacLean did not comply with the
requirements of Rule 55 by merely serving NGI’s statutory agent.
Accordingly, the court did not abuse its discretion when it set aside
MacLean’s default judgment.3

ATTORNEYS’ FEES

¶14 NGI requests its reasonable attorneys’ fees on appeal
pursuant to A.R.S. § 12-341.01. Because MacLean’s claims arise out of the
employment agreement and allege several contract-based claims, we grant
NGI its reasonable attorneys’ fees upon compliance with ARCAP 21. We
also award NGI its appellate costs. A.R.S. § 12-341.

3 We review decisions made under Rule 60(b) for an abuse of
discretion; given the resolution in this case, the court did not abuse its
discretion to set aside MacLean’s default judgment and entry of default
and, in fact, could not have denied that motion given the lack of notice to
counsel.

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Opinion of the Court

CONCLUSION

¶15 The order setting aside the entry of default and default
judgment is affirmed.

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

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