Jordan v. Daniels Insurance Agency, Inc.

OPINION RIORDAN, Justice. Daniels Insurance Agency, Inc. (Daniels) brought suit in district court to vacate or modify an arbitration award rendered in favor of Larry R. Jordan (Jordan). The district court confirmed the arbitration award. Daniels appealed to this Court, and we reversed the district court’s decision and remanded the case for further proceedings. Daniels Insurance Agency, Inc. v. Jordan, 99 N.M. 297, 657 P.2d 624 (1982). The district court then vacated the arbitration award and ordered a second arbitration. Jordan filed a motion to vacate the order, which the district court denied. Jordan appealed to this Court, and this Court dismissed the appeal because the order was not a “final judgment” and therefore nonappealable. The second arbitration resulted in an award in favor of Daniels. The district court confirmed the second arbitration award. Jordan appeals. We reverse and remand. The issue we address is whether the district court erred in setting aside the first arbitration award on an oral motion of default. On February 24, 1977, Jordan and Daniels entered into a written employment agreement which included an arbitration clause and a restrictive covenant prohibiting certain post-employment business activities by Jordan. The arbitration clause provided that all disputes between the parties were to be arbitrated in accordance with the Rules of Commercial Arbitration of the American Arbitration Association (AAA). On November 5, 1980, Jordan terminated the employment agreement. Daniels attempted to enforce the covenant not to compete. The matter was submitted to arbitration, and an award was entered in favor of Jordan. Daniels filed a motion in district court to vacate or modify the arbitration award alleging that the arbitrator was partial and acted in excess of his powers. Jordan, through his attorney, Joe C. Diaz (Diaz), answered and counterclaimed for confirmation of the arbitration award. The district court confirmed the arbitration award in favor of Jordan and determined that the rules of the AAA were applicable; that under those rules the district court lacked jurisdiction over the subject matter; and that the parties should not be permitted to file findings of fact or conclusions of law in the court proceeding. Daniels appealed to this Court. On appeal, Jordan was represented for the first time by Raymond W. Schowers (Schowers). We reversed and remanded the case to the district court to review the record and to determine whether it supported confirmation, vacation, or modification of the arbitration award. Id. We directed the district court to “enter a new judgment or to order a new arbitration hearing in accordance with its findings * * *' *” Id. at 300, 657 P.2d at 627. On March 30, 1983, the district court mailed notice to Daniels and to Diaz setting a hearing for May 20, 1983, on Daniels’ motion to vacate or modify the arbitration award. Diaz had ceased representing Jordan before the appeal but had not withdrawn pursuant to NMSA 1978, Civ.P. Rule 89 (Repl.Pamp.1980). Diaz did not attend the May 20 hearing nor did he notify Jordan or Schowers of it; therefore, neither Jordan nor Schowers attended. At the May 20 hearing, with only Daniels’ counsel present, the district court entertained Daniels’ oral motion for default judgment and subsequently entered an order vacating the arbitration award, ordering a second arbitration, and appointing a new arbitrator. Jordan filed a motion to vacate the district court’s order on the ground that Schowers had not received notice of the hearing. The district court denied Jordan’s motion. Jordan appealed to this Court. Upon Daniels’ motion, this Court entered a mandate dismissing the appeal. The second arbitration was held and William McBee (McBee) appeared as alternate counsel on behalf of Jordan. McBee objected to the appointment of the arbitrator on the ground that the district court exceeded its authority and objected to the proceedings as not being conducted in accordance with the rules of the AAA. McBee stated these objections and then withdrew from further participation in the arbitration hearing. The second arbitrator made findings of fact and conclusions of law in favor of Daniels. The second arbitration award prohibited Jordan from competing with Daniels for a specified period of time within a specified distance; required that for the next two years Jordan pay Daniels 50% of gross commissions earned from clients acquired by Jordan from Daniels; required Jordan to pay $158,789.94 as damages for breach of contract; and assessed the costs of the arbitration proceedings against Jordan. The district court confirmed the second arbitration award. Jordan appeals, raising four issues. We address only one issue since it is dispositive of this case. At the hearing on Daniels’ motion to modify or vacate the arbitration award, counsel for Daniels stated: In the default of the appearance of Mr. Jordan, either personally or through counsel, I would move the Court to grant the request * * * to vacate the arbitration award, and * * * to name a new arbitrator and to order an arbitration before him. Counsel for Daniels further stated: I would rest on the record, and in the absence of an appearance, ask the Court to grant the relief sought. The district court agreed, stating: I can see no reason not to, unless I get word Mr. Diaz, by reason of the distance, has been hampered for reasons beyond his control. After ascertaining that Diaz would not be attending the hearing (for undetermined reasons), the district court stated: All right, then * * * I’ll entertain [Daniels’] motion for a default judgment. The district court thereafter vacated the first arbitration award and ordered a second arbitration. Default judgments are disfavored by the law, Franco v. Federal Building Service, Inc., 98 N.M. 333, 334, 648 P.2d 791, 792 (1982), as are litigants who attempt to take advantage of an opponent’s surprise, mistake, neglect, or inadvertence. Gengler v. Phelps, 89 N.M. 793, 797, 558 P.2d 62, 66 (Ct.App.1976). Therefore, procedural safeguards such as NMSA 1978, Civ.P. Rule 55(b) (Repl.Pamp.1980) have been established to insure that every litigant receives his day in court. Rule 55(b) provides in pertinent part: If the party against whom judgment by default is sought has appeared in the action, he (or, if appearing by representative, his representative) shall be served with written notice of the application for judgment at least three days prior to the hearing on such application * * * * (Emphasis added.) We firmly believe that “the failure to give notice pursuant to [Rule 55(b)] coupled with the giving of a default judgment without hearing or notice of hearing, when matters stood at issue, constitutes a violation of the due process clause of our constitution.” Adams & McGahey v. Neill, 58 N.M. 782, 786, 276 P.2d 913, 916 (1954) (emphasis added). In the present case, there is no evidence that Diaz, Jordan, or Schowers were ever served with written notice of an application for default judgment. Nevertheless, the district court entertained and granted the oral motion for default judgment in violation of Rule 55(b). We therefore determine that Daniels failed to comply with the notice requirement of Rule 55(b) and that the district court erred in entertaining and granting Daniels’ default judgment motion. This case is again remanded to the district court to determine whether the arbitration record supports confirmation, modification, or vacation of the first arbitration award. Daniels Insurance Agency, Inc. v. Jordan, 99 N.M. at 300, 657 P.2d at 627. We again direct the district court to enter a new judgment or to order a new arbitration hearing in accordance with its findings. Id. IT IS SO ORDERED. FEDERICI, C.J., and SOSA, Senior Justice, concur. WALTERS, J., dissenting.