No. 04-232
IN THE SUPREME COURT OF THE STATE OF MONTANA
2005 MT 164
KRIST MATTHEWS,
Plaintiff and Respondent,
v.
DON K CHEVROLET and JOHN DOES 1 and 2,
Defendants and Appellants.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DV 2003-282(C),
Honorable Stewart E. Stadler, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
John R. Quatman, Quatman & Quatman, Whitefish, Montana
For Respondent:
Dean D. Chisholm, Kaplan & Chisholm, Columbia Falls, Montana
Submitted on Briefs: August 18, 2004
Decided: June 28, 2005
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
Don K Chevrolet (Don K) appeals from the order entered in the Eleventh Judicial
District Court, Flathead County, denying its motion to set aside the entry of
the default and the default judgment awarding $185,000 in damages to Krist
Matthews (Matthews). We affirm.
We restate the issue on appeal as follows:
Did the denial of Don K’s motion to set aside the entry of the default and
the default judgment constitute a slight abuse of discretion?
FACTUAL AND PROCEDURAL BACKGROUND
Matthews is one of five employees whose employment was terminated by Don K in
what he describes was a “housecleaning” by Don K’s management.
Of the five, Wade Fish was the first to challenge the termination by filing
suit against Don K. The four other employees, including Matthews, who were
all, like Fish, represented by Dean Chisholm (Chisholm), sought to consolidate
their claims into one action against Don K by moving to join Fish’s action
as additional parties. However, Don K, who was represented on all the claims
by Jack R. Quatman (Quatman), opposed the request, and the District Court
denied it, requiring the employees to file individual actions.
Matthews then filed his own action, alleging that Don K wrongfully terminated
his employment and withheld wages. On or about September 11, 2003, Chisholm
forwarded the summons and complaint, with an acknowledgment of service, to
Quatman, who had previously advised Chisholm that he would accept service on
behalf of Don K in all of the individual actions. The summons advised Don K
that “in case of your failure to appear or respond, judgment will be taken
against you, by default, for the relief prayed for in the Complaint,”
within twenty days after service of the summons.
On October 14, 2003, Quatman signed the acknowledgment of service and gave it,
with the summons and complaint, to his legal assistant, who was to mail the
acknowledgment of service to Chisholm, calendar the due date for filing of the
answer, and open a file. The assistant mailed the signed acknowledgment of
service to Chisholm, who filed it with the District Court. However, the
assistant failed to calendar the answer’s due date, and further, misfiled
Matthews’ summons and complaint in the Fish file. An answer was not filed
within twenty days of Quatman’s acknowledgment of service, and
thereafter, on November 7, 2003, Chisholm filed a praecipe for default, which
was entered by the Clerk of Court.
Chisholm then requested a hearing on entry of a default judgment and damages,
which was set for December 11, 2003, and filed a notice of hearing with the
Clerk of Court. On December 4, 2003, Chisholm wrote a letter to Quatman
advising that Chisholm had caused a default to be entered against Don K in
Matthews’ action, stating “I am not thrilled about having taken the
default, but frankly, after your client said he wanted to play hardball and
requested Rule 11 sanctions against me, I am not entirely morose either.”
Chisholm further advised that a hearing had been scheduled on judgment and
damages for December 11, 2003. However, no one attended the hearing on behalf
of Don K and an appearance was not otherwise filed in the action. Following the
hearing on December 11, 2003, for which Matthews traveled from Washington to
testify, the District Court entered a default judgment against Don K for
$185,000.
On December 18, 2003, a writ of execution was issued by the District Court
requiring the sheriff to satisfy the judgment against the property of Don K.
On January 7, 2004, Don K filed an ex parte
motion to stay the writ of execution, which was granted by the District Court,
and also filed a motion to set aside the default and the default judgment.
The District Court did not rule on the motion within sixty days, and,
therefore, it was denied by operation of Rule 60(c), M.R.Civ.P. Don K appeals
therefrom, challenging the entry of the default and the default judgment. The
amount of damages awarded by the District Court is not challenged.
STANDARD OF REVIEW
In reviewing a default judgment, we are guided by the principle that every
litigated case should be decided on its merits; judgments by default are not
favored. Peak Dev., LLP v. Juntunen
, 2005 MT 82, ¶ 8, 326 Mont. 409, ¶ 8, __ P.3d __, ¶ 8.
When an appeal is from a denial of a motion to set aside a default judgment,
our standard of review is that only a slight abuse of discretion need be shown
to warrant reversal. Peak, ¶ 8; Lords v. Newman
(1984), 212 Mont. 359, 364, 688 P.2d 290, 293. The party seeking to set aside
a default judgment has the burden of proof. Peak, ¶ 8.
DISCUSSION
Did the denial of Don K’s motion to set aside the entry of the default and
the default judgment constitute a slight abuse of discretion?
Don K argues that the District Court should have granted its motion to set
aside the default and the default judgment because it satisfied the good cause
criteria under Rule 55(c), M.R.Civ.P., and also satisfied the more stringent
excusable neglect standard under Rule 60(b)(1), M.R.Civ.P. Further, Don K
contends that the facts establish “extraordinary circumstances” which
justify setting aside the default judgment pursuant to Rule 60(b)(6),
M.R.Civ.P.
Recently, in
Essex Ins. Co. v. Jaycie, Inc.
, 2004 MT 278, 323 Mont. 231, 99 P.3d 651, we clarified the standards to be
applied in setting aside defaults and default judgments. We held that when the
issue is setting aside an entry of default judgment under Rule 60(b)(1),
M.R.Civ.P., either alone or in conjunction with an entry of default, we will
apply the Blume standard. Essex, ¶ 12 (referencing
Blume v. Metro. Life Ins. Co.
(1990), 242 Mont. 465, 467, 791 P.2d 784, 786 (overruled in part on other
grounds)). We clarified the criteria that must be satisfied by a defaulting
party to set aside a default judgment, as follows:
(1) the defaulting party proceeded with diligence; (2) the defaulting
party’s neglect was excusable; (3) the defaulting party has a meritorious
defense to the claim; and (4) the judgment, if permitted to stand, will affect
the defaulting party injuriously.
Essex, ¶ 11.
See also Peak, ¶ 11. Essex
was decided while this case was pending, and the parties did not have the
benefit of our holding for their briefing. Nonetheless, both parties have
offered arguments in accordance with the Blume
standard for setting aside a default judgment, and therefore, have provided an
appropriate analysis, consistent with Essex, for our consideration.
On behalf of Don K, counsel argues that his failure to file an answer to
Matthews’ complaint was not due to mere carelessness or ignorance of the
law, but was a result of his law practice being in a “state of
confusion.” He notes that his office relocated in “September 2003,
at or about the same time as Matthews’ complaint was served,” and
that his legal assistant was experiencing personal problems during that time.
He explains that these problems contributed to his assistant’s failure to
calendar the answer and her misfiling of the summons and complaint in the Fish
file, as well as to his inattentiveness in failing to make further inquiries on
the matter.
Examination of the record reveals that there was ample opportunity to answer
Matthews’ complaint. Counsel’s affidavit in support of the motion to
set aside the judgment states that the move of his law practice occurred “
;late September through early October.” Thus, the acknowledgment of
service, mailed to counsel’s office on or about September 11, 2003,
arrived a few weeks before the move, and was not signed, which commenced the
twenty-day time period to file an answer, until October 14, 2003, well after
the move was completed. Matthews sought entry of default on November 7, 2003,
four days after the twenty-day period had expired, approximately one month
after the office move, and about fifty-seven days after the summons and
complaint had originally been provided with the acknowledgment of service.
We do not doubt that the referenced personal and professional difficulties
contributed to the failure to answer the complaint. However, even if we were
to conclude that these problems constituted excusable neglect for failing to
timely answer the complaint, that was not the end of the matter. We cannot
ignore the fact that Chisholm thereafter forwarded a letter which gave notice
that a default had been entered against Don K, and, further, advised of the
scheduled hearing on Matthews’ request for a default judgment and damages.
Despite this notice, which Don K does not affirmatively challenge in its
briefing on appeal1
, Don K neither participated in the default judgment hearing nor filed an
appearance in the action. Following the hearing, for which Matthews traveled
from out-of-state to testify, the District Court entered a judgment for
damages, and thereafter, issued a writ of execution. At that point, the lack
of attention to Matthews’ complaint was a serious disregard of the
judicial process, and cannot be considered excusable neglect under Rule
60(b)(1), M.R.Civ.P., and the Blume
test. “Such a conclusion would fail to recognize the significance of the
entry of judgment and undermine respect for the courts.” Peak
, ¶ 16. So concluding, we need not address the additional elements of the
Blume test.
We then turn to Don K’s argument that this situation demonstrates “
extraordinary circumstances” justifying setting aside the default judgment
pursuant to Rule 60(b)(6), M.R.Civ.P. We note initially that Don K’s
argument here is summarily made with no offer or explanation of authority
demonstrating that relief under Rule 60(b)(6) has been granted by this Court,
or under equivalent rule by other courts, in these or similar circumstances.
We have clarified what situations in which Rule 60(b)(6), M.R.Civ.P. is to be
applied:
[R]elief is available under Rule 60(b)(6), M.R.Civ.P., for situations other
than those enumerated in the first five subsections of the rule. Rule 60(b)(6)
applies when the movant demonstrates each of the following elements: 1)
extra-ordinary circumstances including gross neglect or actual misconduct by an
attorney; 2) the movant acted to set aside the judgment within a reasonable
time period; and 3) the movant was blameless.
Bahm v. Southworth
, 2000 MT 244, ¶ 14, 301 Mont. 434, ¶ 14, 10 P.3d 99, ¶ 14
(referencing Karlen v. Evans
(1996), 276 Mont. 181, 190, 915 P.2d 232, 238);
see also Klapprott v. United States
(1949), 335 U.S. 601, 614-15, 69 S.Ct. 384, 390, 93 L.Ed. 266, 277 (“In
simple English, the language of the ‘other reason’ clause [of Rule
60(b)(6) is] for all reasons except the five particularly specified [in Rule
60(b)(1)-(5)] . . . .”). Thus, had Don K established that the
circumstances surrounding its failure to answer constituted excusable neglect,
it would have been eligible for relief under Rule 60(b)(1), M.R.Civ.P., which
is mutually exclusive from relief available under Rule 60(b)(6), M.R.Civ.P.
Further, we cannot conclude from our case law that counsel’s actions
constituted gross negligence or actual misconduct required by the Rule. In
Lords v. Newman
(1984), 212 Mont. 359, 688 P.2d 290, which addressed an entry of default,
defendants argued that the district court erred in denying their motion to set
aside the default in light of the actions of their attorney, Simmons. Contrary
to defendants’ instructions, Simmons entered a general appearance in an
action on behalf of all the defendants, despite the fact that all of them had
not yet been served, and despite the fact that he was not authorized to
represent all of the defendants. Lords
, 212 Mont. at 361, 688 P.2d at 291-92. This was the first and only action
Simmons took in this case, as he then “essentially disappeared from
sight,” leaving the defendants, who had now appeared in the matter against
their wishes, unrepresented. Lords
, 212 Mont. at 361, 688 P.2d at 292. After making repeated inquiries, learning
that Simmons had made an appearance, and learning that an entry of default had
been entered, the defendants immediately retained new counsel and filed a
motion to set aside the default, which the court denied. We reversed the
district court on the basis of the attorney’s conduct:
In the case at bar, Simmons’ actions do not constitute mere bungling of
his duties or ineffective representation. Simmons totally abandoned his
clients and disappeared from sight. To add insult to injury, before
disappearing, Simmons made a general appearance on behalf of the clients who
had neither been served with process nor authorized him to act.
Under these circumstances we find it unconscionable to apply the general rule
charging the client with the attorney’s neglect. [Defendant’s]
testimony indicates that reasonable attempts were made to check on the progress
of the case. Where an attorney’s failure to represent a client
constitutes actual mis-conduct, the client should be granted relief from the
default.
Lords
, 212 Mont. at 367-68, 668 P.2d at 295. In contrast, counsel here did not
appear without Don K’s authorization, act in conflict with Don K’s
direct instructions or completely abandon Don K’s interests. Indeed,
counsel was actively representing Don K in the four allied actions, and moved
to set aside the default in this action. Clearly, any neglect arising from
moving the office or personal problems did not rise to the misconduct at issue
in Lords.
Don K argues that it “was never served and was totally blameless” and
further asserted, by counsel’s affidavit, that “[f]ailure to answer
the complaint was not attributable to the client since the client did not know
of the pending law suit.” However, the record discloses that Don K had
notice of this claim, with the other four plaintiffs’ claims, early in the
litigation, when Matthew and other plaintiffs attempted to consolidate their
claims by joining Fish’s action as co-plaintiffs. Don K opposed the
consolidation of the claims, and wanted each plaintiff to file separate
actions. It is incongruous for Don K to seek relief because of “the
misfiling of Matthews’ paperwork in a similar action involving the same
client” within counsel’s office, when it was Don K’s litigation
strategy which spawned the multiple suits in the first place. Under these
circumstances, we cannot conclude that Don K is completely innocent in the
matter or that “the movant was blameless” for purposes of Rule
60(b)(6), M.R.Civ.P. Therefore, in accordance with the general rule, any
neglect of counsel here is properly charged to the client.
The District Court’s denial of Don K’s motion to set aside the entry
of default and default judgment did not constitute a slight abuse of
discretion. Affirmed.
/S/ JIM RICE
We Concur:
/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
Justice John Warner, dissenting.
I must disagree with the Court’s decision to affirm the default judgment
against Appellant Don K Chevrolet. In my opinion the Court reaches the wrong
conclusion because it applies the slight abuse of discretion standard to its
analysis, rather than giving a liberal interpretation to the provisions of Rule
60(b), M.R.Civ.P., concerning relief from a default judgment.
The same year Montana became a state, this Court held that the correct standard
for reviewing the denial of a motion to set aside a default is as follows:
In the case of Watson v. San Francisco etc. R. R. Co.
, 41 Cal. 20, the court says: "As a general rule, however, in cases
where, as here, the application is made so immediately after default entered as
that no considerable delay to the plaintiff is to be occasioned by permitting
a defense on the merits, the court ought to incline to relieve. The exercise
of the mere discretion of the court ought to tend, in a reasonable degree at
least, to bring about a judgment on the very merits of the case; and, when the
circumstances are such as to lead the court to hesitate upon the motion to open
the default, it is better, as a general rule, that the doubt should be
resolved in favor of the application."
The above, we think, recites the correct principle which should guide courts on
a question of this kind.
Benedict v. Spendiff
(1889), 9 Mont. 85, 88, 22 P. 500. With remarkable consistency, the Court has
articulated the essence of this principle for 116 years.
In
Brothers v. Brothers
(1924), 71 Mont. 378, 230 P. 60, Justice Rankin remarked “[n]o great
abuse of discretion by the trial court in refusing to set aside a default need
be shown to warrant a reversal, for the courts universally favor a trial on the
merits.” Brothers
, 71 Mont. at 379, 230 P. at 61. This led to the later statement in
Madson v. Petrie Tractor & Equipment Co.
(1938), 106 Mont. 382, 388, 77 P.2d 1038, 1040, “[s]ince courts
universally favor trial on the merits, slight abuse of discretion in refusing
to set aside a default judgment is sufficient to justify a reversal of the
order.” Thus, a new standard was born and this Court has since said that
a slight abuse of discretion is all that is required to reverse a District
Court order denying a motion to set aside a default judgment. To me, the
modifier “slight” is more of a distraction than of any help, because
a District Court either abuses its discretion or it doesn’t.
Nevertheless, the adjective does not impair application of the underlying
principle. So, if the standard is applicable, “slight” does no harm.
Several times in the recent past this Court has based its decision on whether a
district court slightly abused its discretion concerning a default judgment,
even though the motion to set aside such judgment was deemed denied because
there was no ruling within the time provided by the Montana Rules of Civil
Procedure. Peak Development, LLP v. Juntunen,
2005 MT 82, ¶ 7, 326 Mont. 409, ¶ 7, 110 P.3d 13, ¶ 7;
Sun Mountain Sports, Inc. v. Gore
, 2004 MT 56, ¶ 8, 320 Mont. 196, ¶ 8, 85 P.3d 1286, ¶ 8;
Tschida v. Rowe
, 2003 MT 192, ¶ 6, 316 Mont. 503, ¶ 6, 74 P.3d 1043, ¶ 6;
In re Marriage of Winckler
, 2000 MT 116, ¶ 1, 299 Mont. 428, ¶ 1, 2 P.3d 229, ¶ 1. In
these cases it is possible that the district court exercised discretion by not
ruling. Thus, application of the slight abuse of discretion standard in these
opinions is not altogether unjustifiable.
However, in this case the District Court took the trouble to prepare and file a
“Notice Of Denial” as follows:
This matter is before the Court on Defendant’s Motion To Set Aside Final
Judgment Of Default. It was not the Court’s intention to deny the motion
by failing to rule within the required 60 day time period. The file was not
calendered as a 60 day motion and when brought to the Court’s attention
the 60 day period had expired. The Court now enters the following:
NOTICE
The partys [sic] are hereby put on notice that by operation of law the Court is
without jurisdiction to rule on Defendant’s motion and it is deemed
DENIED as of March 9, 2004.
Because of an acknowledged mistake in calendering this case, the District Court
did not exercise any discretion at all. The slight abuse of discretion
standard should not be applied under these circumstances. This Court makes the
decision here by itself and should acknowledge that fact.
Considering the record presented, recognizing the policy that a decision on the
merits is preferable, and applying the rule that when the circumstances are
such as to lead the court to hesitate upon the motion to open the default, it
is better, as a general rule, that the doubt should be resolved in favor of the
motion to set aside and I must cast my vote for a trial on the merits.
A lawyer’s misfiling of a pleading in another active file of the same
client has been found sufficient to set aside a default judgment by the
District Court, and such decision affirmed by this Court. Keller v. Hanson
(1971), 157 Mont. 307, 485 P.2d 705. A substantial factor in the decision of
the District Court to enter the default judgment in question, and in the
decision of this Court not to set it aside, is that counsel for Don K Chevrolet
did not appear even though he was sent a letter by Matthews’ counsel
advising him that a default had been entered and that a hearing for entry of a
default judgment was scheduled. I too find this matter of significance.
According to Don K Chevrolet’s counsel, he had no idea that a default had
been entered. As soon as he discovered that the complaint had been misfiled in
his office, he checked at the courthouse and found the default judgment. He
immediately moved to set it aside. He filed a brief and an affidavit stating
the reasons why his client had made no appearance. He did not mention the
letter from Matthews’ lawyer advising him a default had been taken, or the
notice of the hearing to enter a default judgment, in either his brief or his
affidavit. Copies of the letter and notice were appended to counsel for
Matthews’ response brief. Then, in his reply brief, which he refers to in
his reply brief filed in this Court, counsel for Don K Chevrolet stated to the
District Court:
. . . Counsel has referred to a letter which he sent to the office noticing the
default hearing date. That letter was never received at this office. Had it
been received, I would have immediately filed a motion to set aside the default
and I most definitely would had [sic] been at the court hearing.
The District Court, because of its own mistake, developed no record on this
matter, and gave no consideration at all to whether Don K Chevrolet’s
counsel actually did receive the letter and notice. There is no way for this
Court to make a determination of the credibility of counsel’s statement
that the letter and notice were not received. This state of affairs is in no
way the fault of Don K Chevrolet or its counsel.
The entry of a default judgment that includes $88,608 in punitive damages which
requires proof by clear and convincing evidence, § 27-1-221(5), MCA; the
understandable mistake of counsel; the short delay between the time of entry of
the default judgment and the motion to set it aside; and the subsequent
mistake which led to a complete lack of consideration by the District Court;
cause me to hesitate. Thus, I am constrained by the time honored rule to
resolve the doubt in favor of setting aside the judgment. I dissent.
/S/ JOHN WARNER
Justice Patricia O. Cotter joins in the dissent of Justice Warner.
/S/ PATRICIA O. COTTER
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