The Arizona Court of Appeals Division One holds that for a default judgment to be valid, the factual allegations in a complaint admitted by default by a non-resident defendant must establish that the exercise of personal jurisdiction over the defendant comports with due process.

Smith & Wesson entered into a settlement agreement with Airsplat to resolve patent litigation initiated in the District of Arizona.  Later, Smith & Wesson sued Airsplat in Arizona state court, alleging that Airsplat breached the terms of the settlement agreement by failing to make a $40,000 payment to Smith & Wesson.  After Airsplat failed to plead or otherwise defend, Smith & Wesson filed an application for entry of default.  The day after the default became effective, Airsplat filed a motion to dismiss for lack of personal jurisdiction.  Smith & Wesson opposed, arguing that the motion was untimely in light of the default.  Along with its reply, Airsplat filed a motion for enlargement of time, arguing that its failure to timely respond to the complaint was the result of excusable neglect—the failure of its computerized docketing system.  The trial court denied Airsplat’s motion for enlargement of time, and Airsplat remained in default.  Accepting the jurisdictional facts alleged in the complaint as true, the trial court concluded that it had personal jurisdiction over Airsplat and entered default judgment in favor of Smith & Wesson.

The Arizona Court of Appeals vacated the default judgment and dismissed the action without prejudice for lack of personal jurisdiction over Airsplat.  The Court concluded that the trial court did not abuse its discretion in denying Airsplat’s motion for enlargement of time.  Airsplat’s stated reason for delay did not explain its failure to timely respond to the complaint before Smith & Wesson sought entry of default, and the Court cautioned that a party that fails to timely take advantage of the “second chance” afforded by Arizona Rule of Civil Procedure 55(a)(3) “does so at its own peril.”

A judgment entered by default, however, is invalid if the court lacked personal jurisdiction over the defendant.  An entry of default serves as a judicial admission of well-pleaded facts in the complaint.  In order to lead to a valid judgment after entry of default, therefore, a complaint must include well-pleaded facts sufficient to demonstrate valid personal jurisdiction that comports with due process.  Because Smith & Wesson’s complaint failed to plead sufficient facts to establish personal jurisdiction over Airsplat, the Court of Appeals vacated the default judgment and dismissed the action without prejudice.

Chief Judge Thumma authored the opinion; Judges Jones and Judge Thompson concurred.