Alken-Ziegler, Inc. v. Waterbury Headers Corp., Docket No. 111783.

Citation461 Mich. 219,600 N.W.2d 638
Decision Date12 October 1999
Docket NumberDocket No. 111783.
PartiesALKEN-ZIEGLER, INC., Plaintiff-Appellant, v. WATERBURY HEADERS CORPORATION, Defendant-Appellee, and Waterbury Headers, Inc., Defendant.
CourtSupreme Court of Michigan

600 N.W.2d 638
461 Mich. 219

ALKEN-ZIEGLER, INC., Plaintiff-Appellant,
v.
WATERBURY HEADERS CORPORATION, Defendant-Appellee, and
Waterbury Headers, Inc., Defendant

Docket No. 111783.

Supreme Court of Michigan.

October 12, 1999.


600 N.W.2d 639
Smith, Haughey, Rice & Roegge (by Jon D. Vander Ploeg), Grand Rapids, for the plaintiff-appellant

Dingeman, Dancer & Christopherson, P.L.C. (by Mark R. Dancer and Michael J. Daray), Traverse City, for the defendant-appellee.

Opinion

PER CURIAM.

We must decide in this contract action whether the circuit court abused its discretion in denying the motion by defendant Waterbury Headers Corporation to set aside the default entered because of its failure to respond to the plaintiff's summons and complaint. We hold that the circuit court did not abuse its discretion, and we thus reverse the judgment of the Court of Appeals.

I

Plaintiff Alken-Ziegler, Inc., manufactures cold-formed steel products at its factory in Kalkaska. In May 1991, the plaintiff contracted with Waterbury Headers, Inc., of Connecticut to convert one of the plaintiff's machines so that it could make a different type of product. The plaintiff paid the contract price, but a dispute arose regarding whether the machine had been properly converted.

In May 1994, the plaintiff filed suit in Kalkaska Circuit Court against Waterbury Headers, Inc. (Waterbury # 1). Waterbury # 1 sought summary disposition on the basis that the circuit court lacked jurisdiction. The circuit court denied summary disposition, and the Court of Appeals denied Waterbury # 1's application for leave to appeal, for failure to persuade the court of the need for immediate appellate review.1

In the meantime, having learned that Waterbury # 1 had sold substantial assets to a New York company called Waterbury Headers Corporation (Waterbury # 2), the plaintiff filed an amended complaint in March 1996 that named Waterbury # 2 as

600 N.W.2d 640
a defendant on a theory of successor liability. The resident agent for Waterbury # 2 was served with the summons and complaint by registered mail at the beginning of April 1996

The deadline for Waterbury # 2 to file a reply under MCR 2.108(A)(2) was the first of May 1996. When no answer arrived, the plaintiff requested that Waterbury # 2 be defaulted pursuant to MCR 2.603(A)(1). The default was entered by the court clerk about three weeks later.

The plaintiff then requested a default judgment under MCR 2.603(B), and the matter was scheduled for an early July 1996 hearing to determine damages. No defendant appeared at the hearing, but the court took testimony from the plaintiff's president and chief operating officer concerning damages. At the conclusion of the hearing, the court approved an award of $337,453.93, and directed the plaintiff's counsel to prepare an order.

In mid-July 1996, Waterbury # 2 moved to set aside the default. Waterbury # 2 also objected to the proposed order of default judgment. It submitted affidavits from its president and from the chairman of the board of Waterbury # 1.

In his affidavit, the Waterbury # 2 president stated that upon receiving the plaintiff's summons and complaint, he had contacted the board chairman of Waterbury # 1 about providing defense and indemnification, as agreed upon between Waterbury # 1 and Waterbury # 2 under their asset-purchase agreement. According to Waterbury # 2, the board chairman promised to take care of the matter.

In his affidavit, the board chairman of Waterbury # 1 acknowledged that he had been contacted by Waterbury # 2, and that he had promised to retain counsel to provide Waterbury # 2 with a defense. He said that because of his travel schedule he did not advise Waterbury # 1's counsel of the conversation, but assumed that counsel would respond.

The circuit court heard argument in early September 1996 on Waterbury # 2's motion to set aside the default. Counsel for Waterbury # 1 stated on the record that he did not oppose the motion. The circuit court denied the motion, however, and gave the defense thirty days to file objections to the proposed judgment or to settle the matter.

In mid-November 1996, the parties stipulated to the dismissal of Waterbury # 1 without prejudice.

At the conclusion of a hearing in early December 1996, and over Waterbury # 2's objections, the circuit court signed a $337,453.93 default judgment in the plaintiff's favor. The order denying Waterbury # 2's motion to set aside the default was signed that same day.

The Court of Appeals reversed,2 and the plaintiff seeks leave to appeal.

II

MCR 2.603(D) governs motions to set aside a default. The court rule provides, in pertinent part:

(1) A motion to set aside a default or a default judgment, except when grounded on lack of jurisdiction over the defendant, shall be granted only if good cause is shown and an affidavit of facts showing a meritorious defense is filed.

The Court of Appeals emphasized that a trial court's decision regarding whether to set aside a default will not be disturbed absent an abuse of discretions Park v. American Casualty Ins. Co., 219 Mich. App. 62, 66, 555 N.W.2d 720 (1996).3 Citing Reed v. Walsh, 170 Mich.App. 61, 64, 427 N.W.2d 588 (1988), the panel then explained that, for the purpose of applying MCR 2.603(D), what "good cause" means:

600 N.W.2d 641
(1) A substantial irregularity or defect in the proceeding upon which the default is based.
(2) A reasonable excuse for failure to comply with the requirements that created the default.
(3) Some other reason showing that manifest injustice would result if the default is not set aside.

Noting that Waterbury # 2 did not allege an irregularity in the proceeding below, the Court of Appeals thus examined whether the defendant had presented a reasonable excuse for the default, and whether a manifest injustice would result from enforcing the default judgment.

The Court of Appeals was not persuaded that Waterbury # 2 had a satisfactory explanation for its failure to answer the complaint and summons. Although the president of Waterbury # 2 had contacted an officer of Waterbury # 1 and obtained an assurance that Waterbury # 1 would provide legal counsel and indemnification, Waterbury # 2 then disregarded the matter until after the default was entered. This was neither diligent nor reasonable. A party is responsible for any action or inaction by the party or the party's agent. Levitt v. Kacy Mfg. Co., 142 Mich.App. 603, 609, 370 N.W.2d 4 (1985)...

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