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Shriners Hospitals for Children v. Cox

Supreme Court of Oregon

February 7, 2019

SHRINERS HOSPITALS FOR CHILDREN, a Colorado nonprofit corporation; and Oregon Scottish Rite Clinics, an Oregon nonprofit corporation, Petitioners on Review,
v.
Michael A. COX, as Personal Representative for Mack A. Woods, Deceased, Respondent on Review, and BENNETT, HARTMAN, MORRIS & KAPLAN, LLP and Tyler Smith & Associates, P.C., Respondents on Review.

          Argued and submitted September 13, 2018

          On review from the Court of Appeals. [*] (CC CV07110578) (CA A155952)

          Richard L. Grant, Richard L. Grant, P.C., Portland, argued the cause and fled the brief for petitioners on review.

          George W. Kelly, Eugene, argued the cause and fled the brief for respondent on review Michael A. Cox.

          No appearance on behalf of respondents on review Bennett, Hartman, Morris & Kaplan, LLP, and Tyler Smith & Associates, P.C.

          Before Walters, Chief Justice, and Balmer, Nakamoto, Flynn, Duncan, and Nelson, Justices, and Kistler, Senior Justice pro tempore. [**]

         [364 Or. 395] Case Summary: Plaintiffs obtained a default judgment against defendant. Defendant subsequently prevailed as a plaintiff in a separate malpractice action, in which he used the default judgment to establish damages. Defendant then moved to set the default judgment aside, arguing that it was void because of improper service. The trial court denied the motion on timeliness grounds. The Court of Appeals reversed, holding that the motion was timely and that a party could not be estopped from setting aside a void judgment. Held: (1) Judicial estoppel can prevent a party from setting a judgment aside on the grounds that the judgment is void due to improper service; (2) In this case, where defendant had relied on the default judgment to establish damages in another lawsuit, judicial estoppel applied.

         [364 Or. 396] KISTLER, S. J.

         The primary question in this case is whether defendant is judicially estopped from setting aside a default judgment that, he contends, resulted from improper service.[1] The trial court found that, even if service were improper, defendant knew about the default judgment shortly after it was entered and used it to his benefit in two judicial proceedings. The trial court ruled that, in those circumstances, defendant waited too long to set it aside. The Court of Appeals reached a different conclusion. It reasoned that the default judgment was void; as a result, neither the passage of time nor other circumstances barred defendant from seeking to set the judgment aside. Shriners Hospitals for Children v. Woods, 280 Or.App. 127, 380 P.3d 999 (2016). We allowed Shriners' petition for review to consider that question. Because we conclude that, in the circumstances of this case, defendant was judicially estopped from setting the default judgment aside, we reverse the Court of Appeals decision and remand this case to the Court of Appeals.[2]

         Shriners brought this action against defendant to collect on a note and obtained a default judgment against him. Shriners' argument that defendant is judicially estopped from moving to set aside the default judgment is based on Shriners' claim that defendant used the default judgment to his advantage in two other judicial proceedings: a dissolution action between defendant and his wife and a malpractice action that defendant brought against one of his lawyers in the dissolution proceeding. In setting out the facts, we first describe the note that defendant signed and the initial phase of the dissolution proceeding. We then describe Shriners' action to collect the note and the default judgment, which occurred midway through the dissolution proceeding. We turn next to defendant's use of the default [364 Or. 397] judgment in the dissolution proceeding and the later malpractice action. Finally, we describe Shriners' efforts to garnish the proceeds of the malpractice action and defendant's motion to set aside the default judgment.

         During defendant's marriage, his wife borrowed $137, 000 from her aunt and used the money to improve property that she and defendant had purchased. On December 7, 2001, defendant signed a note to repay the loan, which was unsecured.[3] In 2002, defendant and his wife filed an action to dissolve their marriage. That action resulted in a dissolution judgment in 2004, a successful appeal by defendant, and a remand for a new trial in 2006. Woods and Woods, 207 Or.App. 452, 142 P.3d 1072 (2006). After the trial court entered the 2004 dissolution judgment but before the Court of Appeals remanded the case for a new trial, defendant's wife sold the marital home.[4] She spent the money that she received from the sale and did not use it to repay the loan to her aunt. Woods v. Hill, 248 Or.App. 514, 518, 273 P.3d 354 (2012).

         By November 2007, the dissolution proceeding had been remanded for a new trial, defendant had discharged the first attorney (Hill) who had represented him in the dissolution proceeding, and he had hired a new attorney (Renshaw) to represent him in the dissolution proceeding on remand. Also, by November 2007, defendant's note had been assigned to Shriners, the note was approximately five years overdue, and Shriners filed this action to collect the principal and interest due under the note. Shriners filed an affidavit of service in the collection action. In the affidavit, the process server stated under penalty of perjury that he had personally served a copy of the summons and complaint on defendant on November 28, 2007. Defendant did not appear in the collection action, and the trial court entered a default judgment against defendant on January 3, 2008. The default judgment established the amount that defendant owed on the note and the rate of interest and awarded Shriners court costs and attorney fees. Additionally, interest began [364 Or. 398] accruing on the attorney fees and court costs at a higher rate than on the amount owed under the note.

         On January 3, 2008, the day that the default judgment was entered, defendant's attorney (Renshaw) called Shriners' attorney (Grant), who was not able to take Renshaw's call. Grant returned Renshaw's call on Monday, January 7, 2008, but was not able to reach him. Later that day, Grant received a voice mail message personally from defendant.[5] On January 10, 2008, a week after the default judgment was entered, Grant mailed a demand for payment of the judgment with interrogatories to defendant, return receipt requested, and copied Renshaw with those documents. On January 11, defendant personally signed the return receipt showing that he had received the demand to pay the judgment and the interrogatories.

         On January 14, 2008, Grant and Renshaw discussed "the payment of the judgment as well as the inability of the defendant Mack Woods to set aside the Default Order and Judgment for lack of a meritorious defense." Later that month, Renshaw asked Grant to postpone enforcing the judgment until the remand hearing on the dissolution proceeding had concluded.

         At the conclusion of the remand hearing, the trial court entered a supplemental judgment in the dissolution proceeding. The supplemental judgment divided the proceeds of the sale of the marital property equally between defendant and his wife. The supplemental judgment also treated the debt represented by defendant's note and reduced to a judgment in Shriners' collection action as a marital debt. Specifically, the supplemental judgment divided the debt, "all accrued pre- and post-judgment interest and the award of attorney fees and costs in the money award" equally between defendant and his wife. The supplemental judgment provided that each party's obligation under the default judgment would be reduced by the proceeds from the sale of another parcel of land that they owned.

         Defendant was unhappy with the first attorney (Hill) who had represented him in the dissolution proceeding. [364 Or. 399] Defendant retained a third and later a fourth attorney, who pursued a malpractice action against Hill for, among other things, failing to file a notice of Us pendens during the dissolution proceeding. Defendant took the position in the malpractice action that, if Hill had filed a notice of Us pendens, defendant's wife would not have been able to sell the marital home without the proceeds of the sale being used to pay off defendant's note to the aunt. See Woods v. Hill, 248 Or.App. at 519.

         A jury found that Hill had committed malpractice, and defendant used the default judgment, plus accrued interest, to establish his damages. Specifically, defendant's attorney told the jury that "our calculation on the Shriner's judgment was damages of $221, 000-$221, 106.97," and he argued that the jury should hold Hill responsible for those and other damages.[6] The jury agreed. It found that defendant's damages were $274, 000, which were reduced to $180, 840 as a result of defendant's comparative negligence.

         In 2013, Shriners sought to garnish the proceeds from the malpractice action to satisfy its default judgment against defendant. In response, defendant moved to set aside the default judgment under ORCP 71 B(1). In support of his motion, defendant submitted a sworn declaration in which he stated that he had been out of town on November 28, 2007, and, as a result, had not been personally served with a copy of the summons and complaint on that date. His declaration then stated: "At the time I believed that Mr. Renshaw [his attorney in the dissolution proceeding] was handling the Shriners' situation and would take care of ...


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