Winsor Law Group Blog

On March 16, 2021, Division One of the Arizona Court of Appeals ruled it was proper to set aside the entry of default and a default judgment when the plaintiff did not mail the application for entry of default to attorneys identified in an employment contract, notwithstanding the fact they had not appeared in the matter.  MacLean v. Newgioco Group, Inc., 1 CA-CV 20-0164 (Ariz.App. 2021)

Newgioco Group, Inc., (“NGI”) hired Elizabeth J. MacLean (“MacLean” as its Vice President of Finance and Accounting in September 2018 under the terms of a written employment agreement.  Two months later, NGI promoted MacLean to Chief Financial Officer under the terms of a new written employment agreement.  However, NGI terminated her employment in May 2019.  Following her termination, MacLean entered negotiations concerning a severance package and reimbursements, but filed suit following the failure of those negotiations.  She attached a copy of each employment contract to her complaint.  Both agreements contained a “notices” clause that required “[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, address, and fax number of an attorney in Toronto, Canada, and directed that a copy be sent to a named lawyer at a New York law firm.

MacLean served her complaint on NGI’s statutory agent.  When NGI did not answer or otherwise respond, she filed an application for entry of default and mailed it to NGI’s statutory agent.  She did not mail the application to NGI’s corporate office or to either of the attorneys identified in the “notices” clause of the employment agreements.  When NGI did not respond to the application for entry of default, MacLean sought entry of a default judgment and again mailed it only to NGI’s statutory agent. The Superior Court entered a default judgment in the amount of $1,050,204.00.  Following entry of the default judgment, MacLean sent a letter to NGI’s regulatory counsel informing him of the action, the default application, and the judgment.

Three weeks later, NGI appeared and moved to set aside the default judgment and entry of default.  The Superior Court granted the motion to set aside because MacLean did not comply with the requirement in Rule 55(a)(2)(D) to provide notice to NGI’s attorney.  MacLean appealed and the Court of Appeals affirmed the Superior Court’s decision to set aside the default judgment and entry of default.

The Court of Appeals ruled that the 2015 amendment to Rule 55 “makes clear that the obligation to provide notice should be read broadly.”  Thus, MacLean’s service of the default filings on NGI’s statutory agent did not satisfy Rule 55’s requirements because she knew the identity of NGI’s attorneys.

Rule 55(a)(2)(D) requires a party seeking default to 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)(3)(B) further requires that the party seeking entry of default mail a copy of the notice of the default application to an attorney the person knows to represent the defaulting party in the litigation or in a “related matter.”  Although the Court of Appeals did not expressly state it, the Court necessarily concluded that attorneys identified in the two employment agreements represented NGI in a “related matter,” and Rule 55 required MacLean to provide them with notice of her application for entry of default.

When seeking entry of default on a claim arising out of a contract, a litigant should consult the contract to determine whether an attorney is identified in the agreement who should receive notice of the application for entry of default.

Contact Winsor Law Group, PLC’s litigation practice group with questions concerning how to properly obtain a default judgment against an adverse party.