Caplis v. Caplis

• Decision Date: 08 June 2004
• Docket Number: No. 02-781,02-781
• Citation: 2004 MT 145,91 P.3d 1282
• Parties: STEPHEN CAPLIS and HOLLYWOOD TRAILER COURTS, INC., a Montana Corporation, Plaintiffs and Respondents, v. JAMES P. CAPLIS and JOHN M. CAPLIS, Defendants and Appellants.
• Court: Montana Supreme Court

2004 MT 145

91 P.3d 1282

STEPHEN CAPLIS and HOLLYWOOD TRAILER COURTS, INC., a Montana Corporation, Plaintiffs and Respondents, v. JAMES P. CAPLIS and JOHN M. CAPLIS, Defendants and Appellants.

No. 02-781

Supreme Court of Montana.

Submitted on Briefs: March 20, 2003

Decided: June 8, 2004

For Appellants: Perry J. Schneider, Milodragovich Dale Steinbrenner & Binney, Missoula, Montana.

For Respondents: W. Carl Mendenhall, Sean M. Morris, Worden Thane & Haines, Missoula, Montana.

Justice Patricia O. Cotter delivered the Opinion of the Court.

¶ 1 Plaintiffs and respondents, Stephen Caplis and Hollywood Trailer Courts, Inc., filed a Complaint in the Montana Fourth Judicial District Court, Missoula County, alleging that the defendants and appellants, James P. Caplis (James) and John M. Caplis (John), abused their positions as directors, officers and shareholders of Hollywood Trailer Courts, Inc. The defendants did not timely answer and the Clerk of the District Court entered their first default. This was followed by the entry of a default judgment.

¶ 2 Upon the defendants' request, the District Court set aside the default judgment and the defendants thereafter filed their Answers, Counterclaims and Demand for a Jury Trial. The defendants subsequently failed to attend a status conference, a show cause hearing to show why their second default should not be entered and the hearing prior to entry of final judgment. The District Court thereafter entered the defendants' second default judgment. It then denied their later motion made pursuant to Rule 60(b), M.R.Civ.P., to dismiss the second default judgment. The defendants appeal the District Court's denial of their Rule 60(b), M.R.Civ.P. motion and its dismissal of their counterclaims. We affirm.

¶ 3 We address the following issues on appeal:

¶ 4 1. Did the District Court abuse its discretion in denying Appellants' Motion for Relief from Judgment pursuant to Rule 60(b), M.R.Civ.P.?

¶ 5 2. Did the District Court err in dismissing Appellants' counterclaims with prejudice?

BACKGROUND

¶ 6 At the time Stephen Caplis (Stephen) and Hollywood Trailer Courts, Inc., filed the Complaint in this matter, Stephen was an officer, director and shareholder of Hollywood Trailer Courts, Inc., a Montana Corporation located in Missoula, Montana. Stephen and his two brothers, James and John, were at all times relevant to this action the three sole shareholders of Hollywood Trailer Courts.

¶ 7 The plaintiffs filed their Complaint on October 23, 2000. Neither James nor John responded to the Complaint and the plaintiffs thereafter requested entry of their default. The Clerk of the District Court for the Fourth Judicial District entered default judgment against the defendants on December 22, 2000, and on January 9, 2001, James and John filed a consolidated motion and brief to set aside the default, alleging inability to retain counsel subsequent to service and lack of personal service on James. On February 27, 2001, the District Court, finding good cause, set aside the default judgment and James and John, on March 21, filed separate but identical Answers, including five counterclaims against Stephen.

¶ 8 On November 21, 2000, the plaintiffs served their first discovery requests. Although John at no time answered this or any subsequent discovery request, James produced a substantial amount of documents. However, he failed to produce sufficient documents to account for over $150,000 in corporate assets. Among other incomplete discovery answers, James also failed to note the existence of various corporate bank accounts and likewise failed to declare the account and check numbers for checks that were not produced.

¶ 9 The plaintiffs served their second discovery requests on August 9, 2001. Neither James nor John answered any part of the second request for discovery. Thereafter, on October 9, 2001, the plaintiffs filed a motion to compel the defendants' responses. Prior to ruling on the plaintiffs' motion to compel, the defendants' attorney filed a motion to withdraw as attorney of record and the District Court granted the request in an Order dated October 22, 2001. In its order releasing the defendants' attorney of record, the District Court stated that the defendants "shall receive a copy of this order by mail addressed to the following address: John M. Caplis, c/o James P. Caplis, 303 Fitchburg Square, P.O. Box 249, Folsom, CA. 95630; and James P. Caplis, 303 Fitchburg Square, P.O. Box 249, Folsom, CA. 95630." The District Court further ordered that James and John "are hereby given notice

that, unless another attorney is made of record in regard to this matter, all further notices pertaining to the litigation shall be deliverable to them at the above-referenced address and shall be effective as service upon him for all matters regarding the above-entitled litigation.

In a separate order issued that same day, the District Court ordered that the defendants appoint another attorney or, failing that, appear in person at a status conference set for November 27, 2001. The order warned that, absent their presence or their attorney's presence, the action may proceed to judgment.

¶ 10 The defendants failed to respond to plaintiffs' motion to compel. Thus, on November 7, 2001, the District Court issued an Order granting the plaintiffs' motion to compel responses to discovery. The defendants then failed to appear, either in person or through counsel, at the November 27, 2001, status conference. The District Court thereafter issued an Order, dated December 11, 2001, giving the defendants twenty days from the date of the order to show cause why their default should not be taken and the case proceed to judgment. The District Court mailed the order to the defendants at the Folsom, California, address listed in its October 22 Order.

¶ 11 When the defendants failed to file further responsive pleadings within or subsequent to the twenty-day time limit, the plaintiffs, on January 2, 2002, filed a request for entry of default, the pleadings being again mailed to the Folsom, California, P.O. Box listed in the District Court's October 22 Order. On January 3, the District Court entered the defendants' second default. The District Court conducted a hearing on February 26, 2002, and, after receiving exhibits and hearing testimony, entered findings of fact and conclusions of law granting the plaintiffs the relief requested in their Complaint. On March 11, the plaintiffs served the defendants by mail with a notice of entry of the findings and conclusions. The District Court entered final judgment on March 28, 2002, and the plaintiffs served defendants, again by mail at the Folsom, California, P.O. Box, with a notice of entry of judgment on April 3, 2002.

¶ 12 The defendants thereafter retained counsel again, and, on April 24, filed a motion for relief from judgment and a request for trial on the their counterclaims. In their pleadings the defendants admitted receiving the plaintiffs' Rule 10(b), M.R.Civ.P., notice, via certified mail at the Folsom, California, P.O. Box, and acknowledged they were aware that a status conference had been set for November 27, 2001.

¶ 13 In a brief supporting their motion, James stated that he had changed his P.O. Box and that he did not request a change of address because he did not anticipate further mail being sent to that address "relevant to his ongoing activities." However, James later noted in his brief that he "was obviously mistaken with respect to any notices related to the subject of litigation sent to that address." Nevertheless, James argued to the District Court that, irrespective of his mistake, "it does not change the fact that he did not have any mail

forwarded to his new post office box, P.O. Box 192 by the Folsom California Post Office. Moreover, despite Plaintiffs' contentions to the contrary, it also does not change the fact that he terminated the use of P.O. Box 249 and failed to receive the notices regarding ongoing legal proceedings in the subject litigation sent to that address by Plaintiffs' counsel.

¶ 14 On August 19, 2002, the District Court in a summary order denied the defendants' motion for relief from judgment. On August 28, the defendants sought leave to file a motion to dismiss their counterclaims without prejudice, and a request for entry of final judgment. They argued that, because the District Court's summary order and final judgment did not specifically dispose of or refer to their counterclaims, it was interlocutory in nature and non-appealable. The District Court denied the defendants' motion stating:

This was simple judicial economy, as there was no need to address those matters in light of Defendants' default. However, by dint of their default, this Court intended and does now assert that the Judgment entered against them implicitly ruled on all issues in favor of Plaintiff. All of Defendants' counterclaims were dismissed with prejudice by that Judgment.

¶ 15 The defendants appeal from the District Court's October 7, 2002, Order.

STANDARD OF REVIEW

¶ 16 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. Sun Mountain Sports, Inc., v. Gore, 2004 MT 56, ¶ 10, 320 Mont. 196, ¶ 10, 85 P.3d 1286, ¶ 10. When 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. Gore, ¶ 10. The party seeking to set aside a default has the burden of proof. Gore, ¶ 10.

DISCUSSION

¶ 17 Did the District Court abuse its discretion in denying Appellants' Motion for Relief from Judgment pursuant to Rule 60(b), M.R.Civ.P.?

¶ 18 Rule 60(b), M.R.Civ.P., provides in part:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from final judgment, order, or proceeding for the following

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