Arapahoe County District Court No. 17CV32889 Honorable
Elizabeth Beebe Volz, Judge.
Montgomery Little & Soran, P.C., John R. Riley, Greenwood
Village, Colorado, for Plaintiffs-Appellants
No
Appearance for Defendant-Appellee
OPINION
FREYRE
JUDGE.
¶
1 In this negligence action between plaintiff homeowners,
John and Sandra Ferraro, and defendant contractor, Frias
Drywall, LLC, premised on Frias's failure to test for
asbestos before beginning renovation, we must decide two
issues that no Colorado court has considered - one procedural
and one substantive.
¶
2 The procedural question asks: After an entry of default but
before entry of the default judgment, may a court sua sponte
reconsider liability at the damages hearing and dismiss the
case for failure to state a claim? We answer that question
"yes," and hold that a court may reconsider whether
the unchallenged facts set forth in the complaint state a
legitimate cause of action after default is entered, because
this holding furthers the goal of a just, speedy, and
inexpensive determination of civil actions. C.R.C.P. 1(a).
¶
3 The substantive question asks: Did amendments to the
Department of Public Health and Environment Regulations,
adding "single-family residential dwellings" to the
asbestos regulations, create a duty to inspect for asbestos
before beginning construction? And, if so, who has the
inspection duty - the contractor or the homeowner? We answer
the first substantive question "no," contrary to
the district court, and hold that the plain language of the
regulatory amendments does not create an inspection duty for
single-family dwellings. Absent a duty, the holding in
Corcoran v. Sanner, 854 P.2d 1376
(Colo.App. 1993), that a contractor has no duty to inspect
for asbestos before beginning construction, applies here and
supports the court's judgment dismissing the case on
alternative grounds. For these reasons, we affirm the
court's judgment on different grounds and disapprove its
conclusion that a homeowner has the duty, under the
regulations, to inspect for asbestos.
I.
Factual and Procedural Background
¶
4 The Ferraros entered into an oral contract with Frias to
remove the popcorn ceiling from their home. After Frias
completed the work, the Ferraros became concerned by the
significant amount of residual dust and decided to test for
asbestos. The samples tested positive. The Ferraros then
hired an asbestos abatement company and spent $18, 390 to
remove the asbestos from their home.
¶
5 Alleging that Frias had negligently failed to test for
asbestos before beginning construction, the Ferraros filed
their complaint seeking reimbursement of more than $41, 000
for asbestos abatement, contaminated personal items, and
replacement carpet. They also requested annoyance and
inconvenience damages of approximately $41, 000. They claimed
that Frias owed them a duty to test for asbestos before
beginning renovation. Frias never responded to the complaint.
¶
6 The Ferraros moved for entry of default, and the clerk
entered a default. They then moved for a default judgment.
The district court granted the motion in part and set a
hearing to determine damages. At the hearing, the court asked
the Ferraros to address whether Frias had a duty to inspect
for asbestos and requested briefing. The Ferraros responded
with two arguments. First, they asserted that the clerk's
entry of default rendered Frias liable as a matter of law, so
the court had no authority to reconsider, sua sponte, whether
they had a viable cause of action. Second, they asserted that
the amended asbestos regulations impose a duty on contractors
to inspect for asbestos in single-family residences.
Alternatively, they argued that because Occupational Safety
and Health Administration (OSHA) standards require
contractors to protect their employees, these same standards
required contractors to inspect single-family residences for
asbestos before beginning construction.
¶
7 The court disagreed with their contentions. Because
Colorado had never decided the procedural issue, the court
relied on federal authorities interpreting Fed.R.Civ.P. 55,
which is substantially similar to C.R.C.P. 55. It found
persuasive cases interpreting the federal rule to permit a
court to examine the sufficiency of a legal claim after a
default is entered.
¶
8 As well, it agreed with the Ferraros that the amended
regulations created an inspection duty for single-family
dwellings and, thus, that Corcoran is no longer good
law. See generally Dep't of Pub. Health &
Env't Reg. 8, 5 Code Colo. Regs. 1001-10. And it found
that the regulations do not specify who owes that duty.
Therefore, it applied common law negligence factors to the
facts in the complaint to find that the inspection duty rests
with the homeowner, not the contractor. It denied the motion
to enter default judgment and dismissed the case without
prejudice. The judgment is final for purposes of our review
because the complaint fails to allege a viable cause of
action and cannot be refiled. Therefore, the court's
dismissal effectively constitutes a dismissal with prejudice.
Wilbourn v. Hagan, 716 P.2d 485, 485 (Colo.App.
1986).
II.
Dismissal After Entry of Default
¶
9 The Ferraros contend that the clerk's entry of default,
after Frias failed to respond, established liability as a
matter of law and precluded the court from further
considering this issue. We are not persuaded.
A.
Standard of Review and Law
¶
10 Whether to set aside a default judgment is a decision
within the court's discretion that we review for an abuse
of discretion. Meyer v. Haskett, 251 P.3d 1287,
1293-94 (Colo.App. 2010). Therefore, we similarly review its
decision to set aside a clerk's entry of default for an
abuse of discretion. A court abuses its discretion when its
decision is manifestly arbitrary, unreasonable, or unfair, or
misapplies the law. Sebastian v. Douglas Cty., 2016
CO 13, ¶ 18; In re Estate of Runyon, 2014 COA
181, ¶ 9.
¶
11 A default judgment comprises two steps: "entry of
default" by the clerk and "entry of default
judgment" by the court. See C.R.C.P. 55(a);
see also Singh v. Mortensun, 30 P.3d 853, 855
(Colo.App. 2001) ("[W]e note that the entry of default
and the entry of a default judgment are separate and
distinct."). When the party against whom relief is
sought fails to respond or otherwise defend the action, the
court clerk "shall enter [the party's]
default." C.R.C.P. 55(a); see also Plaza del Lago
Townhomes Ass'n v. Highwood Builders, LLC, 148 P.3d
367, 372 (Colo.App. 2006). The "entry of default"
accepts the complaint's allegations and establishes the
defendant's liability, but it does not establish damages.
Dickinson v. Lincoln Bldg. Corp., 2015 COA 170M,
ΒΆΒΆ 22-23. Indeed, "[w]hen a default has been
entered, but damages have ...