Neeme Systems Solutions, Inc. v. Spectrum Aeronautical, LLC – 3/24/2011

March 29, 2011

Arizona Court of Appeals Division One Holds That Arizona Rule of Civil Procedure 55(a)(1)(ii) Requires a Party Seeking an Entry of Default to Notify an Attorney Who is Known to Be Representing a Party in the Dispute at Issue in the Litigation, Regardless of Whether That Attorney has Formally Appeared or Otherwise Shown Any Particular Intention to Appear in the Litigation in the Future.

In 2007, Spectrum Aeronautical, LLC (“Spectrum”) and Neeme Systems Solutions, Inc. (“Neeme”) entered into a contract.  A short time later, Spectrum stopped making payments to Neeme.  On June 29, 2009, Spectrum filed a declaratory judgment action against Neeme in Utah, alleging that Spectrum overpaid Neeme on the contract and that Neeme failed to provide services it was obligated to perform (the “Utah Action”).  At the time, Spectrum was not represented by counsel.  On July 1, 2009, Neeme filed its own complaint against Spectrum in Arizona, alleging breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment (the “Arizona Action”).  Neeme served the complaint and summons on Spectrum’s statutory agent in Delaware.  Approximately one week later, Neeme filed a motion to dismiss the Utah Action.  Spectrum immediately hired counsel, which filed a notice of appearance in the Utah Action.  Spectrum did not, however, respond to the complaint in the Arizona Action (believing that its Utah counsel was handling the matter), causing Neeme to file an application for entry of default.  Neeme mailed copies of the application to Spectrum’s statutory agent, Spectrum’s principal place of business in California, and Spectrum’s office in Utah.  Several weeks later, having received no response from Spectrum, the trial court entered default judgment against Spectrum.  Spectrum immediately hired Arizona counsel who moved to set aside the default judgment.  Spectrum argued that Neeme had violated the requirements of Arizona Rule of Civil Procedure 55(a)(1)(ii) by failing to notify Spectrum’s attorney in Utah of the application for entry of default.  The trial court granted Spectrum’s motion to set aside the judgment and Neeme appealed. 

On appeal, the Court of Appeals affirmed, holding that Rule 55(a)(1)(ii) requires a party seeking an entry of default to send a copy of the application for entry of default to an attorney who is known to be representing the opposing party in the dispute, regardless of whether that attorney has formally appeared in the litigation.  Arizona Rule of Civil Procedure 55(a) establishes the notification procedures a party must follow when seeking entry of default against an opposing party that has failed to plead or otherwise defend in a timely manner.  “When a party claimed to be in default is known by the party requesting the entry of default to be represented by an attorney” Rule 55(a) requires the party seeking entry of default to send a copy of the application for entry of default “to the attorney for the party claimed to be in default.”  Ariz. R. Civ. P. 55(a)(1)(ii).  In this case, Neeme knew that Spectrum had hired counsel to represent it in the same contract dispute that formed the basis for the Arizona Action.  Although declining to consider whether the notice requirement applies in a variety of other circumstances such as when a party is known to be represented by an attorney in another matter, the Court of Appeals determined that, under these facts, Neeme was required by the plain language of the rule to send a copy of the application to Spectrum’s counsel in Utah “whether or not that attorney ha[d] formally appeared.”  Id.  According to the Court, Neeme’s failure to notify Hill was inconsistent with the purpose of Rule 55(a), which is to advise defaulting parties and their attorneys of the consequences that may result if they fail to take prompt action in the litigation.  Because the failure to comply with Rule 55(a) renders void any resulting default judgment, the Court concluded that the trial court had properly set aside the judgment under Arizona Rule Civil Procedure 60(c)(4).   

Judge Brown authored the opinion; Judges Barker and Downie concurred.