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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

TELEKENEX IXC, INC., a Delaware corporation, Respondent, v. CHARLOTTE RUSSE, INC., a California corporation, Appellant.

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No. 64192-1-I DIVISION ONE

UNPUBLISHED FILED: November 15, 2010

Cox, J. -- A trial court may set aside an order of default and default judgment where there is substantial evidence to support, prima facie, a defense to the opposing party's claims and certain other criteria are met.1 This determination is subject to review for abuse of discretion.2 Where the trial court denies a trial on the merits, we may more readily decide that the trial court abused its discretion.3 Here, Charlotte Russe Incorporated ("Charlotte") has established a prima

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White v. Holm, 73 Wn.2d 348, 352, 438 P.2d 581 (1968); CR 60(b)(1). Griggs v. Averbeck Realty, Inc., 92 Wn.2d 576, 582, 599 P.2d 1289 White, 73 Wn.2d at 351-52.

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(1979).
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No. 64192-1-I/2 facie case of economic duress in connection with its entering into an agreement with Telekenex IXC, Inc. ("IXC"). Moreover, Charlotte has satisfied the other criteria required to set aside an order of default and default judgment under White v. Holm4 and other authority. We reverse the order denying Charlotte's motion to set aside the default judgment and remand for further proceedings. In December 2004, Charlotte entered into a Master Service Agreement ("MSA") with AuBeta Network Corporation ("AuBeta") for communication services at its retail stores. They later extended the MSA through April 1, 2009. On that date, the MSA would automatically continue month-to-month until terminated with either 90 days notice by AuBeta or 30 days notice by Charlotte. On Wednesday, March 25, 2009, less than a week before the MSA would have turned month-to-month, Tom Hunsinger from AuBeta e-mailed Giri Durbhakula, Charlotte's Vice President of Technology. He stated that Telekenex had acquired AuBeta and that Charlotte would need to "make a commitment to Telekenex to avoid service disruption" by Friday, March 27, 2009. Durbhakula received a proposed amendment to the MSA ("Amendment") at 8:48 p.m., Thursday, March 26. The following morning, Hunsinger advised Durbhakula to have the Amendment "in by end of day to avoid service disruption." Hunsinger and Brandon Chaney, CEO of IXC and Telekenex, Inc. ("Telekenex"), then granted Durbhakula an extension until Monday, March 30, 2009. On Monday afternoon, Chaney e-mailed Durbhakula to remind him that the Amendment must

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73 Wn.2d 348, 352, 438 P.2d 581 (1968).

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No. 64192-1-I/3 be "executed today or your service could be disconnected by the underlying carriers." Durbhakula signed the Amendment, but stated: [We have] an existing agreement with AuBeta, which we believe should be honored. Despite our multiple requests, no one has explained why this agreement is somehow no longer valid. Instead, we have been presented with a demand that we sign up for a long term commitment or service to 185 of our stores will be shut off today . . . . [I]t has been made clear repeatedly that our service would be shut off if we do not sign up to a long term commitment.[5] In May 2009, Durbhakula told Chaney that Charlotte believed the Amendment was unenforceable. On June 4, 2009, counsel for Charlotte sent a letter to Chaney describing Charlotte's position. Charlotte also filed a Complaint for Declaratory and Injunctive Relief against Telekenex in California Superior Court. On June 29, 2009, that court issued a Temporary Restraining Order, enjoining Telekenex from terminating Charlotte's service. Meanwhile, on June 11, 2009, IXC sued Charlotte for breach of contract in King County Superior Court, regarding the same MSA and Amendment. IXC served a summons and complaint on Charlotte's registered agent the next day, but these pleadings were lost and Charlotte did not answer. IXC moved for default on July 9, 2009, and the motion was granted the same day. On July 13, 2009, IXC moved for entry of a default judgment. The judgment was entered the next day. IXC served five writs of garnishment based on that default judgment on July 24, 2009. On July 29, 2009, Durbhakula received a fax from Wells Fargo notifying
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Clerk's Papers at 172.

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No. 64192-1-I/4 him that it received a writ. Durbhakula immediately contacted Charlotte's counsel who called IXC's counsel to discuss the default judgment. On July 30, 2009, Charlotte asked IXC to stipulate to vacate the default judgment and quash the writ of garnishment. IXC refused. On August 3, 2009, Charlotte moved to vacate the default judgment and to quash the writ of garnishment. On August 27, 2009, the trial court denied Charlotte's motion. Charlotte appeals. Vacation of Default order and Judgment Charlotte argues that the trial court abused its discretion in refusing to grant its motion to vacate the default judgment. We agree. CR 60(b) provides for relief from orders and judgments based on certain criteria. Under White, the moving party has the burden to prove two primary and two secondary factors before a court will vacate a default judgment.6 The primary factors are (1) that there is substantial evidence supporting a prima facie defense and (2) that the failure to timely appear and answer was occasioned by mistake, inadvertence, surprise, or excusable neglect.7 The secondary factors are (1) that the defendant acted with due diligence after receiving notice of the default judgment and (2) that the plaintiff will not suffer a substantial hardship if the default judgment is vacated.8 The overriding concern is whether or not
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White, 73 Wn.2d at 352.

Little v. King, 160 Wn.2d 696, 703-04, 161 P.3d 345 (2007) (citing White, 73 Wn.2d at 352).
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Id. at 704 (citing White, 73 Wn.2d at 352).

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No. 64192-1-I/5 justice is done.9 A decision on a motion to vacate a default judgment is discretionary and will not be disturbed unless the trial court abused its discretion.10 "[W]here the determination of the trial court results in the denial of a trial on the merits an abuse of discretion may be more readily found than in those instances where the default judgment is set aside and a trial on the merits ensues."11 Here, the secondary factors for vacating a default judgment are met and are undisputed. First, Charlotte acted diligently upon notice of the default judgment. The court entered the default judgment on July 14, 2009, and IXC served the writs of garnishment on July 24, 2009. Charlotte learned of the default five days later and moved to vacate the default judgment five days after that. Second, IXC does not argue that it will suffer a substantial hardship if the default judgment is vacated. In any event, we see no such hardship. Thus, the primary factors are the only ones at issue in this appeal. Substantial Evidence of a Defense Charlotte argues that it has presented substantial evidence of a strong defense of duress to IXC's claims. We agree. In Washington, "business compulsion" is a type of duress where a party is "compelled to suffer a serious business loss or make payment to his detriment."12
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Id. at 703 (citing Griggs, 92 Wn.2d at 582). Griggs, 92 Wn.2d. at 582. White, 73 Wn.2d at 351-52. Nord v. Eastside Ass'n Ltd., 34 Wn. App. 796, 798, 664 P.2d 4 (1983)

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No. 64192-1-I/6 In order to prevail on this defense, the "victim" must prove "both that the offending party applied the immediate pressure and also that he caused or contributed to the underlying circumstances which led to the victim's vulnerability."13 A party must show more than stress of pecuniary necessity to force entry into the contract.14 The Washington Pattern Jury Instructions on duress state that "[a] party may rescind a contract on the ground of duress if the party proves by clear, cogent, and convincing evidence that [it] agreed to the contract because of an improper threat by the other party that left no reasonable alternative."15 The instruction is based in part on the Restatement (Second) of Contracts

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