v. Johnston

2018 COA 44, 417 P.3d 957

• Court: Colorado Court of Appeals
• Decided: March 22, 2018
• Docket: 17CA0407, Minshall
• Status: Published

Opinion

The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.

SUMMARY March 22, 2018

2018COA44

No. 17CA0407, Minshall v. Johnston — Civil Procedure — Process — Substituted Service

This case emphasizes that district courts entering C.R.C.P. 4(f)

orders must exercise meaningful discretion in determining whether

the person to whom process is delivered is properly designated for

substituted service under Rule 4(f). Thus, a division of the court of

appeals vacates the district court’s order denying David K.

Johnston’s motion to set aside the judgment and remands for the

district court to determine whether service on a registered agent of

a corporation founded by Johnston was “reasonably calculated to

give actual notice” to Johnston, as required by Rule 4(f). COLORADO COURT OF APPEALS 2018COA44

Court of Appeals No. 17CA0407 City and County of Denver District Court No. 15CV34174 Honorable Catherine Lemon, Judge Honorable Edward D. Bronfin, Judge

Richard G. Minshall and Vicky L. Minshall,

Plaintiffs-Appellees,

v.

David K. Johnston,

Defendant-Appellant.

ORDER VACATED AND CASE REMANDED WITH DIRECTIONS

Division VII Opinion by JUDGE BERGER Bernard and Vogt*, JJ., concur

Announced March 22, 2018

Gleason Wells, P.C., Todd A. Wells, Denver, Colorado, for Plaintiffs-Appellees

Semmens Law, P.C., Damon M. Semmens, Denver, Colorado, for Defendant- Appellant

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5(3), and § 24-51-1105, C.R.S. 2017. ¶1 The district court entered a default judgment against defendant,

David K. Johnston, when he failed to respond to a complaint filed

by plaintiffs, Richard G. Minshall and Vicky L. Minshall. Johnston

was not personally served with process; instead, the court

permitted substituted service under C.R.C.P. 4(f) on the registered

agent of Aries Staffing LLC (Aries), a corporation of which Johnston

was a co-owner and shareholder.

¶2 Some six months after he claimed that he learned about the

entry of the default judgment, Johnston moved pro se to set it

aside. He vaguely asserted in the district court, and explicitly

argues here, that the judgment was void because the Minshalls did

not properly serve him with process. The district court denied the

motion and Johnston appeals.

¶3 We agree with most of the district court’s analysis. However, the

record is insufficient to determine whether service on Aries’

corporate agent for service of process, Incorp Services Inc. (Incorp),

was “reasonably calculated to give actual notice” of the case to

Johnston. See C.R.C.P. 4(f). Because that is an essential condition

of valid substituted service under Rule 4(f), we must vacate the

district court’s order denying Johnston’s motion to set aside the

1 judgment and remand for the court to determine whether service on

Incorp was “reasonably calculated to give actual notice” to

Johnston. We reject all of Johnston’s other contentions.

I. Relevant Facts and Procedural History

¶4 The Minshalls alleged in their complaint that they made two

loans to Aries, neither of which was repaid. Johnston was not an

obligor on either loan.

¶5 Johnston was a co-founder and shareholder of Aries. The

Minshalls pleaded that Aries was Johnston’s alter ego and that

Johnston was liable for Aries’ debts, including the two loans. See In

re Phillips, 139 P.3d 639, 644 (Colo. 2006) (“Individual liability is

appropriate when the corporation is merely the alter ego of the

shareholder . . . .”). In addition to the alter ego claim, the Minshalls

pleaded claims of breach of contract and unjust enrichment against

Aries, and claims of promissory estoppel, deceit based on fraud or

false representation, and negligent misrepresentation against both

Aries and Johnston.

¶6 The Minshalls served Aries through its corporate agent for service

of process, Incorp. Aries defaulted, and the district court entered a

default judgment against Aries, which Aries did not appeal.

2 ¶7 The Minshalls had great difficulty, however, attempting to serve

Johnston personally under C.R.C.P. 4(e). Because the Minshalls

were unsuccessful in personally serving Johnston, they moved to

serve him by mail, purportedly under Rule 4(f). The district court

correctly denied that motion because

Rule 4(f) does not allow for service on a party by mail. Rather Plaintiffs’ motion must identify a separate, appropriate person on whom process will be hand delivered. Because Plaintiffs’ Motion does not identify such a person, substitute service under rule 4(f) is not proper.

¶8 The Minshalls then filed an amended motion under Rule 4(f), this

time procedurally complying with that rule by designating a

“person,” Incorp, as the “appropriate person on whom process will

be hand delivered.” The court granted the amended motion and the

Minshalls served Johnston though Incorp as authorized by the

court’s order. (Incorp had already been served when service was

obtained on Aries, so it was served a second time.)

¶9 When Johnston failed to answer the complaint, the court entered

a default judgment against him. Months later, he moved pro se

(without identifying any particular rule in support of his motion) to

set aside the judgment, claiming he only learned of the complaint

3 when the Minshalls recorded a judgment lien on his property in

Georgia.

II. While The Minshalls Complied With Some of Rule 4(f)’s Requirements, The Record Is Insufficient To Determine If All of The Requirements Were Satisfied

¶ 10 Johnston raises the same argument on appeal (now through

counsel) that we liberally construe his motion to set aside the

default judgment to have raised before the district court that the

judgment entered against him is void for lack of jurisdiction under

C.R.C.P. 60(b)(3). See C.J.C. 2.6 cmt. 2; People v. Bergerud, 223

P.3d 686, 696-97 (Colo. 2010) (we must construe pro se arguments

liberally).

A. Applicable Law and Standard of Review

¶ 11 C.R.C.P. 55(c) provides that “[f]or good cause shown the court

may set aside an entry of default and, if a judgment by default has

been entered, may likewise set it aside in accordance with Rule

60(b).” Rule 60(b)(3) requires a court to set aside a void judgment

when a proper application is made. First Nat’l Bank of Telluride v.

Fleisher, 2 P.3d 706, 714 (Colo. 2000).

¶ 12 A judgment is either void or it is not. Accordingly, we review de

novo the district court’s ruling on a Rule 60(b)(3) motion. Goodman

4 Assocs., LLC v. WP Mountain Props., LLC, 222 P.3d 310, 314 (Colo.

2010). The burden to establish that a judgment is void is on the

party claiming the judgment is void, and that movant must

demonstrate the invalidity of the judgment by clear and convincing

evidence. Id. at 315.

¶ 13 Rule 4 prescribes the means by which a defendant must be

served with process. If service does not conform to Rule 4’s

requirements, the court does not obtain personal jurisdiction over

the defendant and any resulting judgment is void. Goodman

Assocs., 222 P.3d at 315.

¶ 14 Rule 4(f) recognizes that sometimes it will be difficult, if not

impossible, to obtain personal service on a defendant. Thus, the

rule prescribes an alternative method to effectuate service. Rule 4(f)

provides as follows:

In the event that a party attempting service of process by personal service under section (e) is unable to accomplish service, and service by publication or mail is not otherwise permitted under section (g), the party may file a motion, supported by an affidavit of the person attempting service, for an order for substituted service. The motion shall state (1) the efforts made to obtain personal service and the reason that personal service could not be obtained, (2) the identity of the person to

5 whom the party wishes to deliver the process, and (3) the address, or last known address of the workplace and residence, if known, of the party upon whom service is to be effected. If the court is satisfied that due diligence has been used to attempt personal service under section (e), that further attempts to obtain service under section (e) would be to no avail, and that the person to whom delivery of the process is appropriate under the circumstances and reasonably calculated to give actual notice to the party upon whom service is to be effective, it shall:

(1) authorize delivery to be made to the person deemed appropriate for service, and

(2) order the process to be mailed to the address(es) of the party to be served by substituted service, as set forth in the motion, on or before the date of delivery. Service shall be complete on the date of delivery to the person deemed appropriate for service.

(Emphasis added.)

B. Analysis

1. The Due Diligence Requirement of Rule 4(f) Was Satisfied

¶ 15 In his motion to set aside the default judgment, Johnston stated

that “due to the fact that the Minshalls were fully aware of

[Johnston’s] location and non-affiliation with Aries Staffing LLC, the

service of process was improper.” We liberally construe this as

preserving the argument, which Johnston raises on appeal, that the

6 Minshalls did not exercise due diligence in attempting to serve

Johnston personally, a necessary condition precedent to serving

him by substituted service under Rule 4(f).

¶ 16 It is undisputed that the Minshalls complied with the procedural

requirements of Rule 4(f) by filing an affidavit from the process

server detailing his numerous unsuccessful attempts to serve

Johnston. From this affidavit and the information in, or attached

to, the Minshalls’ motion for substituted service, the district court

found that the Minshalls had hired an investigator to identify

Johnston’s address and that another investigator had attempted to

serve Johnston four times at that address to no avail.

¶ 17 The Minshalls also investigated the address where Johnston’s

vehicle was registered and determined that he no longer lived there.

The Minshalls attempted to serve Johnston at Aries, his last known

“usual workplace,” but Aries’ offices were vacant. And the

Minshalls tried to contact Johnston through their son (who had

previously worked with Johnston) and through Johnston’s realtor.

¶ 18 Due diligence does not require that the plaintiffs actually succeed

in serving the defendant or that the plaintiffs exhaust every possible

option in attempting to do so. Willhite v. Rodriguez-Cera, 2012 CO

7 29, ¶ 35. Instead, “‘[d]ue diligence’ is commonly understood as

‘[t]he diligence reasonably expected from, and ordinarily exercised

by, a person who seeks to satisfy a legal requirement or to

discharge an obligation.’” Owens v. Tergeson, 2015 COA 164, ¶ 44

(quoting Black’s Law Dictionary 553 (10th ed. 2014)).

¶ 19 This record overwhelmingly supports the district court’s finding

that the Minshalls exercised the diligence required by Rule 4(f).1

2. Johnston’s Argument that Incorp Is Not a “Person” Within The Meaning of Rule 4(f) Is Not Properly Before Us

¶ 20 Johnston next argues that Incorp, the “person” on whom

substituted service was authorized by the court’s Rule 4(f) order,

was not a “person” and thus did not meet Rule 4(f)’s “person”

requirement.

¶ 21 Johnston did not make this argument in the district court and

while, as noted above, we (and the district court) must interpret pro

se pleadings and motions liberally, liberal construction does not

1 It is unnecessary for us to determine in this case the precise standard of review applicable to a trial court’s determinations underlying an order authorizing substitute service under C.R.C.P. 4(f) because we would reach the same conclusions irrespective of which standard of review we apply: de novo, abuse of discretion, or clear error.

8 include inventing arguments not made by the pro se party.

Because we do not address arguments made for the first time on

appeal, we do not further address this “person” argument. Estate of

Stevenson v. Hollywood Bar & Cafe, Inc., 832 P.2d 718, 721 n.5

(Colo. 1992); Silverview at Overlook, LLC v. Overlook at Mt. Crested

Butte Ltd. Liab. Co., 97 P.3d 252, 257 (Colo. App. 2004).

3. The Record Is Insufficient To Determine Whether The Person On Whom Substituted Service Was Made Complied With Rule 4(f)

¶ 22 Finally, in his motion to set aside the default judgment, Johnston

argued that it was improper for the Minshalls to serve Incorp when

they “were aware that [Johnston] [had] ended his affiliation with

Aries.” We liberally construe this as preserving the argument that

Johnston expressly makes on appeal: that substituted service on

Incorp (Aries’ registered agent) was not “reasonably calculated to

give actual notice” to Johnston of the suit.

¶ 23 In their amended (and lengthy) motion for substituted service,

the Minshalls addressed only cursorily the critical requirement of

Rule 4(f) that service on the designated person must be “reasonably

calculated to give actual notice” of suit to the named defendant.

The Minshalls’ only statement directed to that essential condition

9 was that “because Defendant Johnston is a co-owner of Aries,

service on Aries’ registered agent is appropriate under the

circumstances and is reasonably calculated to give Defendant

Johnston actual notice.”2

¶ 24 Under Colorado law, a corporation and its natural person

shareholders are distinct legal persons. Phillips, 139 P.3d at 643.

The Minshalls do not cite, and we have not found, any legal

authority supporting the proposition that service on the registered

agent of a corporation is sufficient, by itself, to effectuate valid

service on a “co-owner” of a corporation.

¶ 25 Giving effect to the legal separateness of a corporation and its

shareholders under Colorado law, we conclude that the fact that a

person is a shareholder of a corporation does not, without more,

render the corporation’s registered agent a proper person for

substitute service under Rule 4(f).3

2 In a different section of the Minshalls’ motion for substituted service, they alleged that they attempted to serve one of “Johnston’s partners/co-founders at Aries’ principal office” at least suggesting that Johnston was a co-founder of Aries. 3 The fact that Johnston may also have been a “co-founder” of Aries

may have some relevance in determining whether service on Incorp

10 ¶ 26 But we do not exclude the possibility that the nature of the

relationship between the registered agent, the corporation, and the

shareholder-defendant could justify substituted service on the

corporation’s registered agent.

¶ 27 For example, if the defendant were an active participant in the

affairs of the corporation, service on the corporation’s registered

agent might be “reasonably calculated to give actual notice” to the

defendant. Or, if the defendant has some separate relationship

with the registered agent, by contract, familial tie, or otherwise, the

registered agent may well be an appropriate person for substitute

service. See Willhite, ¶¶ 4-6 (discussing, but not ruling on, trial

court’s decision to grant substitute service on the Colorado-based

sister of a Mexican resident under Rule 4(f)). These examples are by

no means exclusive.

was “reasonably calculated to give actual notice” to Johnston under Rule 4(f). But this information, either considered by itself or coupled with the allegation that Johnston is a “co-owner,” is insufficient to meet the Minshalls’ burden under Rule 4(f). For example, if Johnston had been a founder of the corporation, but had left the corporation years earlier, the fact that he was a co-founder would appear to have little relevance to the “reasonably calculated” inquiry.

11 ¶ 28 The ultimate determination of whether service on the proposed

designated person is “reasonably calculated” to give notice to the

named defendant is a question the trial court must resolve before

authorizing service under Rule 4(f). But we emphasize that the trial

court’s duties in this respect are very limited. It is solely the

burden of the party seeking substitute service to allege sufficient

facts to support a determination that service on the proposed

designated person is “reasonably calculated to give actual notice” of

suit to the defendant.

¶ 29 The court is not required to investigate the alleged facts. It may

(indeed, it must because this is an ex parte proceeding) assume the

truth of the facts alleged by the moving party.

¶ 30 Viewed in this light, the record here is insufficient for us to

determine whether service on Incorp was “reasonably calculated to

give actual notice” to Johnston as required by Rule 4(f). Other than

showing that Aries engaged Incorp to act as its agent for service of

process, the record is devoid of any indication of a separate

relationship between Incorp and Johnston or other facts which

would support the required finding under Rule 4(f).

12 ¶ 31 Accordingly, we remand this case to the district court to

determine whether service on Incorp under Rule 4(f) was

“reasonably calculated to give actual notice” to Johnston. The

question is not whether Incorp notified Johnston of the service or

suit; according to Johnston, that did not occur. Instead, the

question is whether, when the district court authorized substituted

service on Incorp, that service was “reasonably calculated to give

actual notice” to Johnston as required by Rule 4(f).4 In making this

determination on remand, the court, in its discretion, may hold a

hearing or require the Minshalls to provide additional information

in writing.

¶ 32 If the court finds that Incorp was not a person properly

designated for substituted service under Rule 4(f), the court must

4 We recognize that, in entering the default judgment against Johnston, the district court also found that a copy of the process was mailed to Johnston’s last known address, as required by Rule 4(f). The court’s findings rejecting Johnston’s arguments regarding the sufficiency of the mailing are well supported by the record. But mailing of process alone, as the court recognized when it properly denied the original motion for substituted service, is not sufficient to give the court jurisdiction over a defendant. C.R.C.P. 4(f). Only when it is coupled with compliance with the other requirements of Rule 4(f) is service by mail sufficient. Id.

13 vacate the judgment against Johnston and allow Johnston to

defend against the allegations of the complaint. If, however, the

court finds that Incorp was a person properly designated for

substituted service under Rule 4(f), then the court’s order denying

Johnston’s motion to set aside the judgment will stand affirmed,

subject only to Johnston’s right to appeal the determinations made

on remand.

III. Conclusion

¶ 33 The order denying Johnston’s motion to set aside the default

judgment is vacated and the case is remanded for the further

proceedings directed above.

JUDGE BERNARD and JUDGE VOGT concur.