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Oregon Supreme Court, 2019

Shriners Hosps. for Children v. Cox

Shriners Hosps. for Children v. Cox
Oregon Supreme Court · Decided February 7, 2019 · SC S064390
434 P.3d 422; 364 Or. 394 (Pacific Reporter, Third Series)

Counsel

Richard L. Grant, Richard L. Grant, P.C., Portland, argued the cause and filed the brief for petitioners on review., George W. Kelly, Eugene, argued the cause and filed the brief for respondent on review Michael A. Cox., **396The 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, 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 **398accruing 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., 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 the matter for me. I did not find out that he had done nothing on the case until much later discovering that a default judgment had been entered against me.", On defendant's appeal, the Court of Appeals vacated the trial court's order and remanded the case to the trial court for further proceedings. The Court of Appeals reasoned that, if defendant had not been personally served, the default judgment was "void." The court noted that, although ORCP 71(B)(1) provides that motions to set aside some judgments must be made within a "reasonable time," " 'there is no timeliness requirement for moving to set aside a void judgment.' ", *426Shriners Hospitals for Children , 280 Or.App. at 132, 380 P.3d 999 (quoting Estate of Selmar A. Hutchins v. Fargo , 188 Or.App. 462, 468, 72 P.3d 638 (2003) ). It accordingly rejected the trial court's conclusion that defendant had not moved to set aside the default judgment within a reasonable time. The Court of Appeals also concluded that judicial estoppel did not bar defendant from moving to set aside the judgment under ORCP 71. Id. at 133-34, 380 P.3d 999. It remanded the case for the **401trial court to resolve whether defendant had, in fact, been personally served on November 28, 2007., In our view, defendant places too much significance on the generic label "void" without asking whether the reasons for attaching that label to a judgment matter. As explained below, the reasons for holding a judgment entered without subject matter jurisdiction void lead to the conclusion that a party will not be judicially estopped from later seeking to set it aside. However, as courts and commentators have recognized, a different conclusion follows when a judgment is void because service was improper. In those circumstances, they have recognized that a party may be estopped. We first explain why the various reasons that a judgment may be labeled as void will affect whether a party may be estopped from setting it aside. We then explain why we conclude that, in light of the trial court's factual findings, defendant was estopped from setting aside the default judgment in this case.

Shriners Hosps. for Children v. Cox

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Opinion of the Court

A judgment may be void because the court that entered it lacked subject matter jurisdiction. Garner v. Garner , 182 Or. 549, 561-62, 189 P.2d 397 (1948). A party cannot stipulate or consent to subject matter jurisdiction, id. , and the Oregon courts accordingly have recognized that generally a party cannot be judicially estopped from later **402seeking to set aside a judgment entered without subject matter jurisdiction, Carey v. Lincoln Loan Co. , 342 Or. 530, 534 n. 2, 157 P.3d 775 (2007). As the court observed in Carey , "[j]udicial estoppel generally does not prevent a party to a case from challenging a court's subject matter jurisdiction, even after the party has invoked or consented to jurisdiction of the court." Id. ; see also Wink v. Marshall , 237 Or. 589, 592, 392 P.2d 768 (1964) (same); Garner , 182 Or. at 561-62, 189 P.2d 397 (same).

This court also has described a judgment entered either without personal jurisdiction or as a result of improper service as void. However, unlike subject matter jurisdiction, the defenses of lack of personal jurisdiction and insufficient or improper service will be "waived" if a defendant does not assert them in a timely fashion. See ORCP 21 G(1) (providing that a defendant will waive those defenses if they are not raised either in an ORCP 21 motion or in the first responsive pleading); Decker v. Wiman , 288 Or. 687, 693, 607 P.2d 1370 (1980) (explaining that the defense of lack of personal jurisdiction can be waived by a voluntary appearance or by consent).8 That is, a defendant may consent to a court's adjudication of his or her obligations and rights even though the court otherwise lacked personal jurisdiction over the defendant *427or service was improper or insufficient. See id.9

For that reason, even though courts have sometimes described a default judgment entered without personal jurisdiction or proper service as "void," they have long recognized that a party may be estopped from seeking to set the judgment aside. Restatement (Second) of Judgments § 66 comment a (1982). As the Restatement explains:

"A judgment purporting to determine the rights of the parties, though lacking effect of its own force because of invalidity, can * * * be adopted as a consensual resolution of **403the parties' rights. The party who obtained the judgment expresses his [or her] assent to the terms by obtaining the judgment; the other party expresses adherence by some act following the judgment in which the judgment is recognized as determinative."

Id.

Given that rationale, the authors of the Restatement distilled the following rule from the cases:

"Relief from a default judgment on the ground that the judgment is invalid will be denied if
"(1) The party seeking relief, after having had actual notice of the judgment, manifested an intention to treat the judgment as valid; and
"(2) Granting the relief would impair another person's substantial interest of reliance on the judgment."

Restatement § 66.10 Sometimes, a party will manifest his or her acceptance of a judgment expressly. Id. comment b. More commonly, a party will manifest his or her intention to treat the judgment as valid either by accepting its benefits or by not denying the validity of the judgment when placed in a position where he or she would be expected to do so. Id. As the comment makes clear, however, "in the absence of such circumstances, silence is not a manifestation of assent." Id.

Consistently with the Restatement , courts have held that manifesting an intention to treat the judgment as valid, coupled with reliance, will bar a party from arguing that the judgment is invalid due to improper or insufficient service. See, e.g. , Price v. Price , 169 N.C.App. 187, 609 S.E.2d 450 (2005) (party judicially estopped from challenging a prior judgment because the service of process was insufficient); MacDougall v. Kutina , 798 So.2d 30, 32 (Fla. Dist. Ct. App. 2001) (party estopped from challenging dissolution judgment on grounds of defective service of process when he later stated at another hearing that he had no problem with paying rehabilitative **404alimony); City of Newark v. (497) Block 1854 , 244 N.J. Super. 402, 409-12, 582 A.2d 1006 (N.J. Super. Ct. App. Div. 1990) (An owner who did not receive notice of a suit foreclosing its equity of redemption was estopped from challenging the validity of the resulting judgment; the owner's "abstention from any challenge [to the judgment after learning of it] and his successful but aborted 1986 bid for the properties 'manifested an intent to treat the judgment as valid.' ").

To be sure, courts have recognized that delay in contesting the validity of a judgment is not enough, standing alone, to manifest an intention to treat the judgment as valid. Johnson v. State, Dept. of Rev. ex rel. Lamontagne , 973 So.2d 1236 (Fla. Dist. Ct. App. 2008) ; Sprang v. Petersen Lumber, Inc. , 165 Ariz. 257, 798 P.2d 395 (Ariz. Ct. App. 1990). However, they have also recognized that, if a party has manifested such an intention, the party may be estopped from seeking to set the judgment aside for insufficiency of service. Johnson , 973 So.2d at 1239 ; Sprang , 165 Ariz. at 265, 798 P.2d 395.

*428With those principles in mind, we turn to the facts of this case. We note, as an initial matter, that defendant's attorney (Renshaw) expressly accepted the validity of the default judgment in his discussions with Shriners' attorney (Grant). The trial court reasonably could have found on this record that, when Renshaw spoke with Grant on January 14, 2008, Renshaw acknowledged "the inability of the defendant Mack Woods to set aside the Default Order and Judgment for lack of a meritorious defense." Renshaw was defendant's agent and, as such, had authority to bind defendant in discussing matters within his authority-i.e. , in discussing Shriners' claims against defendant.11

Beyond that, defendant affirmatively treated the default judgment as valid when he used it to establish the damages that, he argued, flowed from his former lawyer's malpractice. Defendant did not merely acknowledge the default judgment's existence; he implicitly acknowledged its **405validity when he asked the jury to rely on it to determine the extent to which his former attorney's failure to file a notice of lis pendens had damaged him. Defendant cannot assert that the judgment is an accurate measure of some or all of the damages that he sustained as a result of a third party's actions without implicitly acknowledging its validity. Nor can it be said that the default judgment was merely a proxy for defendant's obligations under the note. Not only did the default judgment conclusively establish those obligations (and remove the possibility of any defenses to the enforcement of the note), but it imposed additional obligations that were only inchoate in the note. The judgment included attorney fees, court costs, and pre- and post-judgment interest. To put the point simply, defendant's obligations under the note were repayment of $ 137,000 plus accrued interest; by defendant's own calculation in the malpractice action, his obligation under the judgment exceeded $ 221,000.

Defendant's use of the default judgment in the malpractice action is difficult to distinguish from the first illustration in section 66 of the Restatement . That illustration states:

"A brings an action against B for settlement of accounts and division of property jointly owned by them. Inadequate notice is given to B. Judgment by default is entered, of which B becomes aware. In a subsequent negotiation with C, B describes his interest in the property by reference to the terms of the judgment. This may be regarded as a sufficient manifestation by B of an intention to treat the division of property by the judgment as binding on him."

Restatement § 66 illustration 1. Using the default judgment to establish some or all the damages that a third party owes him was a stronger manifestation of defendant's intention to treat the judgment as binding on him than B's description of his property in the illustration.

We also conclude that granting defendant relief in this case "would impair another person's substantial interest of reliance on the judgment." Restatement § 66(2). As noted above, the parties have framed the issue in this case as one of judicial estoppel. Specifically, Shriners has argued, and we agree, that (1) defendant received a benefit in his **406malpractice claim (he recovered damages that he measured by reference to the default judgment); (2) this proceeding is a different proceeding from the malpractice action; and (3) defendant has taken inconsistent positions in the two proceedings.12 See Hampton Tree Farms, Inc. v. Jewett , 320 Or. 599, 611, 892 P.2d 683 (1995) (listing those elements of judicial estoppel). *429We explained in Hampton Tree Farms that judicial estoppel protects " 'the judiciary, as an institution, from the perversion of judicial machinery.' " Id. at 609, 892 P.2d 683 (quoting Edwards v. Aetna Life Ins. Co. , 690 F.2d 595, 599 (6th Cir. 1982) ). It is the court's reliance that the doctrine protects. In this case, the trial court and the jury in the malpractice action (to say nothing of Hill and Hill's insurer) relied on defendant's implicit assertion that the default judgment was a valid measure of the damages that flowed from Hill's malpractice. Defendant can hardly rely on the default judgment in the malpractice action to establish that he owes Shriners the principal amount of the loan, pre- and post-judgment interest, and the attorney fees that Shriners incurred in suing on the note and then seek to have the default judgment set aside to avoid paying Shriners the very funds that he told the court, the jury, and Hill he owed Shriners.

We summarize our conclusions briefly. Other courts have recognized that judicial estoppel can prevent a party from setting aside a default judgment entered without proper service. We agree with those decisions. We also conclude that, in the circumstances of this case, judicial estoppel prevents defendant from seeking to set aside the default judgment. We accordingly reverse the Court of Appeals decision and remand the case to the Court of Appeals so that it can consider the issues that it did not decide initially.

The decision of the Court of Appeals is reversed. The case is remanded to the Court of Appeals for further proceedings.

ORCP 21 G(1) does not use the term "waive" in a strict sense. As used in that rule, the term does not refer to the intentional relinquishment of a known right. Rather, it describes the effect of failing to assert the defense (whether known or unknown) of lack of personal jurisdiction or insufficient or improper service in a timely fashion.

Personal jurisdiction and service are related but separate concepts. Figueroa v. BNSF Railway Co. , 361 Or. 142, 146, 390 P.3d 1019 (2017). The former refers to a court's authority to require a defendant to appear and to respond to charges. The latter is the means by which a court exercises that authority over a defendant. Id.

The cases following the Restatement generally have involved defective service, as this case does. In light of this court's decisions stating that a party will not be judicially estopped from moving to set aside a judgment for lack of subject matter jurisdiction, we limit our holding to the issue this case presents: whether a party can be judicially estopped from setting aside a judgment that is invalid because of defective service.

Although Renshaw had been retained to represent defendant in the dissolution proceeding, defendant stated in his sworn declaration that he "believed that Mr. Renshaw was handling the Shriners' situation." Defendant thus manifested his intention to have Renshaw represent him both in the dissolution proceeding and in connection with Shriners' efforts to collect on the note.

Defendant argues on review that he did not take inconsistent positions in the malpractice action and in moving to set aside the judgment aside. We reach a different conclusion. In the malpractice action, defendant held out the default judgment as a valid measure of the damages that he sought to recover from a third party; in the motion to set aside the default judgment, defendant has argued that the default judgment is void and unenforceable.

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