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Ferraro v. Frias Drywall, LLC

Court of Appeals of Colorado, Sixth Division

August 1, 2019

John Ferraro and Sandra Ferraro, Plaintiffs-Appellants,
v.
Frias Drywall, LLC, Defendant-Appellee.

          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 ...


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