In Fu v. Rhodes, 2013 UT App 120, ___ P.3d ___, the Utah Court of Appeals considered a challenge to a default judgment entered as a sanction under rule 37 of the Utah Rules of Civil Procedure. The opinion raises an interesting question about whether—and how—default judgments entered under rule 55 might be different from default judgments entered under rule 37.
The underlying facts are straightforward. Yuanzong Fu filed a complaint against three individuals, asserting several causes of action, and the defendants filed an answer. Id. ¶ 2-3. But as the litigation proceeded, the defendants failed to comply with Mr. Fu’s discovery requests or the stipulated discovery plan. Id. ¶ 3. Mr. Fu filed a motion to compel, and the court granted his motion, warning that “[i]f . . . Defendants fail[ed] to provide all requested discovery within ten days . . . , Defendants’ Answer [would] be stricken and [Fu would] be entitled to judgment as prayed for in the Complaint.” Id. ¶ 4. But despite this warning, the defendants failed to provide all the requested documents. Id. Sanctioning the defendants for these failures pursuant to rule 37 of the Utah Rules of Civil Procedure, the district court struck their answer and entered a default judgment against them. Id. ¶ 5-6.
The defendants presented two arguments on appeal. First, they argued that the trial court abused its discretion when it imposed “the most severe sanction available under Rule 37.” Id. ¶ 10. The court of appeals quickly disposed of that contention, noting that the defendants failed to provide the requested discovery despite warnings from the district court, which afforded them two opportunities to be heard before entering the default judgment. Id. ¶ 11.
Second, the defendants argued that “even if striking their Answer was appropriate, the facts alleged in the Complaint do not support recovery under the legal theories [Mr. Fu] pleaded and, therefore, the trial court erred in entering judgment against” the defendants. Id. ¶ 12. Citing American Towers Owners Association, Inc. v. CCI Mechanical, Inc., 930 P.2d 1182, 1194 (Utah 1996)—a case that considered a default judgment entered for failure to answer—the defendants argued that although rule 37 permits a court to sanction a party by entering a default judgment against it, “that power is tempered by the requirement that the entry of judgment be supported by the well-pleaded allegations of the complaint.” Fu, 2013 UT App 120, ¶ 12.
In response, Mr. Fu argued that the court should not consider this argument because the defendants failed to preserve it in the district court. Id. ¶ 14. Thus, the central issue before the court of appeals was Mr. Fu’s argument that a party must preserve in the district court a challenge to the entry of default judgment as a discovery sanction. A majority of the panel of the court of appeals agreed. Judge McHugh dissented, concluding that a party may raise such a challenge for the first time on appeal. Id. ¶ 30 (McHugh, J., dissenting).
Notably, the decisions upon which both opinions relied did not concern default judgments entered under rule 37, but rather default judgments arising out of a party’s failure to appear. The majority read the precedent as requiring that, in order to appeal from a default judgment entered for failure to appear, a party must have preserved its challenge in the district court. Id. ¶ 15. In her dissenting opinion, Judge McHugh reached the opposite conclusion, stating her belief “that a party appealing from a default judgment entered as a result of the failure to appear can challenge the sufficiency of the complaint to support the judgment for the first time on appeal.” Id. ¶ 27 (McHugh, J., dissenting).
But perhaps a more interesting question is one the opinion did not reach: whether the defendants could have actually prevailed on their argument that a court may not enter a default judgment as a sanction under rule 37 if the allegations in the complaint fail to establish an actionable claim.
The Utah Rules of Civil Procedure permit a court to enter a default judgment against a party in two situations. First, rule 55 permits entry of default judgment if a party “has failed to plead or otherwise defend” the action. With respect to this rule, it is well established that a court may only enter a default judgment if the court first determines that the factual allegations in the complaint establish an actionable claim. This is because a party who fails to appear effectively admits the allegations in the complaint; thus, default serves as a sort of procedural consequence:
[A] default judgment is valid only if the well-pled facts show that the plaintiff is entitled to judgment as a matter of law. The uncontroverted allegations of the complaint must be sufficient on their face to establish a valid claim against the defaulting party. Only well-pled facts alleged in the pleadings of the nondefaulting party are binding and can support the default judgment. . . . On appeal from a default judgment, a defendant may contest the sufficiency of the complaint and its allegations to support the judgment.
Skanchy v. Calcados Ortope SA, 952 P.2d 1071, 1076 (Utah 1998) (internal citations and quotation marks omitted).
Second, as discussed above, rule 37(b)(2) permits entry of default judgment if a party fails to comply with a discovery order. But under this rule, there is no similar requirement that the contents of the complaint have any bearing on whether default judgment is appropriate. Unlike a party who fails to appear, a party who fails to comply with a discovery order does not admit the allegations in the complaint. Under rule 37, the default is not a procedural consequence, but rather a punishment. Thus, it is entirely unclear whether a party challenging the entry of default judgment under rule 37 could ever prevail on a theory that the complaint failed to establish an actionable claim.