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Schutt Law Firm PLC v. Subrok, LLC

Feb 23, 2021
No. 1 CA-CV 20-0099 (Ariz. Ct. App. Feb. 23, 2021)


No. 1 CA-CV 20-0099


SCHUTT LAW FIRM PLC, Plaintiff/Appellee, v. SUBROK, LLC, Defendant/Appellant. AZ NORTH DEVELOPMENT, INC., et al., Garnishees/Appellees.

COUNSEL Law Offices of James E. Vieh PLC, Scottsdale By James E. Vieh Counsel for Defendant/Appellant Schutt Law Firm PLC, Scottsdale By Kenneth W. Schutt, Jr. Counsel for Plaintiff/Appellee

No. CV 2018-053383
The Honorable Gary L. Popham Jr., Judge Pro Tempore


COUNSEL Law Offices of James E. Vieh PLC, Scottsdale
By James E. Vieh
Counsel for Defendant/Appellant Schutt Law Firm PLC, Scottsdale
By Kenneth W. Schutt, Jr.
Counsel for Plaintiff/Appellee


Judge Jennifer B. Campbell delivered the decision of the Court, in which Presiding Judge D. Steven Williams and Judge James B. Morse Jr. joined. CAMPBELL, Judge:

¶1 Subrok, LLC ("Subrok") appeals from the superior court's denial of its motion to set aside a default judgment under Arizona Rules of Civil Procedure ("Rule") 60(d)(3). Asserting that the Schutt Law Firm, PLC ("the law firm") committed fraud on the court, Subrok contends that its motion to set aside, filed outside Rule 60(c)'s timeliness parameters, was not time-barred. For the following reasons, we affirm.


¶2 For several years, the law firm represented Subrok in litigation against AZ North Development, Inc. and other defendants ("the defendants"). At some point in the litigation, Subrok decided to change counsel and negotiate a settlement. When it terminated the law firm's representation, Subrok owed substantial legal fees and interest.

¶3 Although the law firm submitted numerous billing statements, Subrok paid only a fraction of the outstanding fees. After Subrok rejected its request for arbitration, the law firm filed a complaint alleging that Subrok's non-payment materially breached the parties' fee agreement. The law firm also claimed that the parties' fee agreement "provided for" a charging lien against Subrok's settlement proceeds.

¶4 After Subrok failed to answer the complaint within the prescribed period, the law firm applied for entry of default. When Subrok likewise failed to respond to the application for entry of default, the law firm moved for entry of default judgment. To support the motion, the law firm submitted: (1) an attorney's affidavit avowing that the law firm had properly served Subrok with both the application for entry of default and the affidavit on default—having provided the documents directly to the Arizona Corporation Commission and mailed copies of the documents to both Subrok's manager and attorney on the same day, and (2) affidavits and exhibits establishing the sum certain due and providing a calculation of prejudgment interest. The law firm also submitted a copy of the parties' signed fee agreement. Apart from establishing the hourly rate for services and the annual interest rate for outstanding fees, the fee agreement stated:

MEMORANDUM. Clients acknowledge receipt of the separate Memorandum Regarding Billings for Legal Services and Disbursements enclosed herewith.
The law firm attached an unsigned document entitled "Memorandum Regarding Billings for Legal Services and Disbursements" ("the memorandum") to the fee agreement. The memorandum states, in relevant part:
Attorney's Lien

The firm shall have a lien against the client's file and any proceeds recovered for the client from any settlement or judgment obtained in connection with this matter. The lien shall be equal to the total of fees and disbursements owed to the firm.

¶5 With no response from Subrok, the superior court entered a default judgment, finding: (1) the law firm properly served Subrok with the complaint through service on the Arizona Corporation Commission; (2) Subrok failed to plead or defend against the action within 20 days of service; (3) the law firm mailed applications for entry of default and affidavits on default to Subrok's manager and attorney; (4) Subrok failed to answer or file any other responsive pleading within 10 days after the law firm filed the entry of default; (5) the complaint's allegations are true and the law firm's sum certain and prejudgment interest calculations are correct; (6) Subrok received settlement proceeds of $85,000 (and real estate) in the underlying litigation; and (7) under the parties' fee agreement and addendum, an attorneys' charging lien attached to the settlement proceeds. Given these findings, the court entered judgment of $89,049.35 against Subrok and confirmed that the attorneys' charging lien "is valid against the settlement proceeds."

¶6 Nearly 15 months later, Subrok moved to set aside the default judgment pursuant to Rule 60(d)(3), arguing it was entitled to relief because the law firm committed fraud on the superior court. Specifically, Subrok challenged the sufficiency of service and asserted that the unsigned memorandum establishing a charging lien was fraudulent.

¶7 Without a hearing, the superior court found: (1) Subrok was properly served, (2) Subrok admitted the facts alleged in the complaint by failing to appear and defend, (3) "nothing in the record" supported Subrok's allegations of fraud, and (4) Subrok's motion was untimely. Accordingly, the court denied Subrok's motion to set aside the default judgment. Subrok timely appealed.


¶8 Subrok challenges the superior court's denial of its motion to set aside the default judgment. Asserting that the law firm committed fraud on the court by seeking fees "substantially in excess of anything to which [it] was entitled" and fabricating the "memorandum providing for a charging lien," Subrok contends the court incorrectly found its motion untimely.

¶9 As a preliminary matter, Subrok waived any claim that the amount of attorneys' fees was excessive by failing to raise that challenge in its motion to set aside the default judgment. Therefore, we do not address the claim on appeal. Hirsch v. Nat'l Van Lines, Inc., 136 Ariz. 304, 311 (1983) ("The scope of an appeal from a denial of a Rule 60 motion is restricted to the questions raised by the motion to set aside . . . .").

After the superior court entered a signed order denying Subrok's motion to set aside the default judgment, the law firm moved for additional findings and a new trial, contending that newly discovered evidence demonstrated that Subrok had actual, timely notice of the underlying complaint. In opposition to the law firm's motion, Subrok incorrectly claimed that its secondary basis for moving to set aside the default judgment was not insufficient service of process, but fraudulently excessive attorneys' fees. As support for this claim, Subrok submitted its attorney's sworn statement that the law firm's billing statements were "inflated" and unreasonable. Subrok did not present any legal argument contesting the amount of attorneys' fees, however, failing to identify a single fee that was allegedly false, duplicative, or unnecessary.

¶10 Likewise, Subrok contends that service of process through the Arizona Corporation Commission was "not valid service." But Subrok fails to explain why such a method of service was invalid, cite any legal authority, or develop a legal argument on appeal to support this claim. It has, therefore, waived any challenge to the sufficiency of service. See ARCAP 13(a)(7); see also Ritchie v. Krasner, 221 Ariz. 288, 305, ¶ 62 (App. 2009) ("Opening briefs must present and address significant arguments, supported by authority that set forth the appellant's position on the issue in question," and the "[f]ailure to do so can constitute abandonment and waiver of that claim.").

¶11 Therefore, the only question before us is whether the superior court improperly rejected Subrok's claim that the law firm committed fraud on the court by attaching a false and manufactured charging lien memorandum to the parties' fee agreement. The superior court "enjoy[s] broad discretion when deciding whether to set aside judgments," and we review its ruling for a clear abuse of that discretion. Woodbridge Structured Funding, LLC v. Ariz. Lottery, 235 Ariz. 25, 29, ¶ 21 (App. 2014); see also Skydive Ariz., Inc. v. Hogue, 238 Ariz. 357, 364, ¶ 24 (App. 2015). A court abuses its discretion when it makes an error of law, fails to consider the evidence, or if the record fails to provide substantial evidence to support its ruling. Grant v. Ariz. Pub. Serv. Co., 133 Ariz. 434, 456 (1982).

¶12 Under Rule 60(b)(3), a "court may relieve a party or its legal representative from a final judgment" when there has been "fraud . . . , misrepresentation, or other misconduct of an opposing party." To be timely, a motion pursuant to Rule 60(b)(3) "must be made within a reasonable time," and "no more than 6 months after the entry of the judgment." Ariz. R. Civ. P. 60(c)(1).

¶13 However, Rule 60(c)'s timeliness parameters do not "limit [a] court's power to set aside a judgment for fraud on the court." Ariz. R. Civ. P. 60(d)(3) (emphasis added). Rather, when a party has obtained a judgment by undermining "the integrity of the judicial process," either by committing an intentional act of fraud or suppressing material information with the intent to mislead the court, the court has the power to set aside the judgment "at any time." Cypress on Sunland Homeowners Ass'n v. Orlandini, 227 Ariz. 288, 299-300, ¶¶ 42-43 (App. 2011); see also Rogone v. Correia, 236 Ariz. 43, 48, ¶ 11 (App. 2014).

¶14 While a "false statement to the court about a matter in dispute rarely will constitute a fraud on the court," McNeil v. Hoskyns, 236 Ariz. 173, 178, ¶ 23 (App. 2014), submitting a manufactured document with the intent to deceive the court, as Subrok alleges occurred here, undoubtedly constitutes fraud on the court for purposes of Rule 60(d)(3). See Sloan v. Florida-Vanderbilt Dev. Corp., 22 Ariz. App. 572, 575 (1974) ("Of course, a party cannot present false evidence to establish a default judgment, for such would be a fraud on the court justifying relief under Rule 60(c)."). Moreover, although the purported fraud did not prevent Subrok from contesting the motion for default judgment earlier, a party's lack of diligence does not foreclose relief when a fraud on the court has occurred. See McNeil, 236 Ariz. at 178, ¶ 21. Therefore, given the nature of the fraud alleged, Subrok's Rule 60 motion was not time-barred.

¶15 In its opening brief, Subrok challenges only the superior court's finding that the motion to set aside was untimely. The court's finding regarding timeliness was secondary, however, to its primary finding that no evidence supports Subrok's allegations of fraud. Upon our careful review of the record, we conclude no evidence supports Subrok's contention that the law firm obtained the default judgment based on representations it knew to be false.

Although the opening brief's issues statement makes a fleeting reference to the superior court's other findings, its legal argument focuses solely on the timeliness issue. --------

¶16 At the outset, we note that while Subrok does not contest the validity of the parties' fee agreement, it fails to account for the document's signature page, which clearly and unequivocally states that a separate document, entitled "Memorandum Regarding Billings for Legal Services and Disbursements," supplements the terms of the contract. See United California Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 268 (App. 1983) (permitting incorporation by reference insofar as the reference is "clear and unequivocal" and the terms incorporated are "known or easily available to the contracting parties") (citation omitted). The unsigned memorandum, bearing that title, summarizes the law firm's billing "policies and procedures," covering topics such as travel expenses, minimum billable units, arbitration in the event of a fee dispute, and the imposition of an attorney's lien against settlement proceeds in the event outstanding fees are not paid. By signing the contract, Subrok expressly "acknowledge[d] receipt" of the addendum that it now contends was fabricated and appended to the fee agreement without its "knowledge or consent."

¶17 In its reply brief, Subrok contends, for the first time on appeal, that the law firm's correspondence to Subrok in January and August 2017, requesting a personal guarantee or security interest to ensure payment of outstanding fees, proves that the memorandum is fraudulent because such requests would have been wholly unnecessary had the memorandum been validly incorporated into the parties' fee agreement. By failing to raise this argument in its opening brief, Subrok waived it on appeal. In re Marriage of Pownall, 197 Ariz. 577, 583, ¶ 25 n. 5 (App. 2000) (holding issues raised for the first time in a reply brief are waived). Nonetheless, we find no merit to this claim because the correspondence at issue predated Subrok's September 2017 settlement agreement with the defendants, and therefore the memorandum's charging lien provision had no application when the correspondence was sent.

¶18 Consistent with the superior court's findings, nothing in the record substantiates Subrok's claim that the law firm committed fraud on the court. Compare Cypress, 227 Ariz. at 299, ¶ 41 (concluding a party's interpretations of the governing statute and contractual provisions were wholly indefensible, "specious, legally and logically unsound, and . . . so contrived to be little more than sophistry"). Therefore, the superior court did not abuse its discretion by denying Subrok's motion to set aside the default judgment.


¶19 For the foregoing reasons, we affirm. Subrok has requested an award of its attorneys' fees pursuant to A.R.S. § 12-341.01. We deny its request.

Summaries of

Schutt Law Firm PLC v. Subrok, LLC

Feb 23, 2021
No. 1 CA-CV 20-0099 (Ariz. Ct. App. Feb. 23, 2021)
Case details for

Schutt Law Firm PLC v. Subrok, LLC

Case Details

Full title:SCHUTT LAW FIRM PLC, Plaintiff/Appellee, v. SUBROK, LLC…


Date published: Feb 23, 2021


No. 1 CA-CV 20-0099 (Ariz. Ct. App. Feb. 23, 2021)