Cessna Finance Corp. v. Bielenberg Masonry Contracting, Inc.

• Decision Date: 26 August 1983
• Docket Number: No. 82-2573,82-2573
• Citation: 715 F.2d 1442
• Parties: CESSNA FINANCE CORPORATION, Plaintiff-Appellee, v. BIELENBERG MASONRY CONTRACTING, INC., Defendant, Paul Bielenberg, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1442

715 F.2d 1442

CESSNA FINANCE CORPORATION, Plaintiff-Appellee, v. BIELENBERG MASONRY CONTRACTING, INC., Defendant Paul Bielenberg, Defendant-Appellant.

No. 82-2573.

United States Court of Appeals Tenth Circuit.

Aug. 26, 1983.

Michael W. Ellwanger of Kindig, Beebe, Rawlings, Nieland & Killinger, Sioux City, Iowa, for defendant-appellant.

Dennis L. Gillen of Depew & Gillen, Wichita, Kan., for plaintiff-appellee.

Before SETH, Chief Judge, and HOLLOWAY and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed.R.App.P 34(a); Tenth Cir.R. 10(e). The cause is therefore ordered submitted without oral argument.

Paul Bielenberg appeals from the district court's denial of his motion to set aside a default judgment. The judgment arose out of an action on a sales contract brought by Cessna Finance Corporation (Cessna) against Bielenberg Masonry Contracting, Inc. as purchaser and Bielenberg as guarantor. Bielenberg failed to answer or to enter an appearance, and a default judgment was granted against him. Bielenberg's subsequent motion to set aside the default judgment was denied. On appeal, Bielenberg asserts that the judgment was the result of "mistake, inadvertance, or excusable neglect," that he has a meritorious defense to Cessna's claim, and that he is therefore entitled to relief under Federal Rule of Civil Procedure 60(b)(1). We disagree and affirm.

I. FACTUAL BACKGROUND

Bielenberg is the president of Bielenberg Masonry Contracting, Inc. (the Corporation). In late 1979, the Corporation purchased a used Cessna airplane for $85,000 on an installment sales contract, giving a downpayment of $25,000 and agreeing to pay the balance over a five-year term. Bielenberg executed the contract as president of the Corporation. He also signed a Guaranty of Payment under the terms of which he personally assumed "all obligations or liabilities to Cessna Finance Corporation." Both the contract and the guaranty were assigned to Cessna Finance Corporation. The Corporation failed to make the required payments, and on June 17, 1981, the aircraft was peacefully repossessed by agreement of the parties.

On June 19, 1981, Cessna notified Bielenberg and the Corporation by letter that the aircraft had been repossessed and that the balance owed for redemption was $52,297.32. No repossession costs or expenses had been incurred at that date. Defendants were advised that the airplane could be redeemed until July 3, after which it would be offered for private sale, and that they would be obligated to make good any deficiency upon sale. Bielenberg was notified by blind postscript:

"As you are aware, we hold your personal guarantee on the performance of the above account. Therefore, we have no choice but to insist that you make arrangements immediately to pay our contract in full. If it is necessary that we dispose of the collateral as outlined in the foregoing letter, we shall look to you for payment if there is any deficiency resulting."

Rec., supp. vol. 1, at 13.

On September 16, Cessna informed Bielenberg and the Corporation by letter that Cessna was in the process of selling the airplane, and enclosed a copy of the bid solicitation letter that had been distributed to the Cessna dealer organization. Defendants were further informed: "As previously indicated, your right to redeem shall continue until we have sold the aircraft or entered into a contract for its sale. Unless we hear from you, however, the aircraft will be sold to the highest acceptable bidder on the date so indicated." Id. at 14. Cessna again notified Bielenberg by blind postscript:

"[W]e hold your personal guarantee on the performance of the above account. If it is necessary that we dispose of the collateral as outlined in the foregoing letter, we shall look to you for payment of any deficiency resulting."

Id.

On November 13, Cessna advised the Corporation by letter that the aircraft had been sold for $45,557. The letter stated that $12,370.82 in repossession and storage costs had been incurred prior to sale, and that a deficiency of $19,111.14 thus existed.

"Under the terms of the security agreement, the above deficiency is your responsibility and therefore, we are making demand that the balance listed above be retired immediately.

"We will expect to hear from you by December 14, 1981 as to what arrangements have been made to pay this deficiency."

Id. at 15. Once again, Bielenberg was informed by blind postscript that he was being held responsible for the deficiency because of his guarantee.

When the Corporation did not pay the deficiency, Cessna began an attempt to collect from Bielenberg personally. After a series of communications between Bielenberg's attorney and counsel for Cessna, Cessna was told that Bielenberg would not enter into any negotiations for payment of the deficiency. Consequently, on April 26, 1982, Cessna filed this diversity suit in Kansas district court. On April 29, the Corporation filed for Chapter 11 Bankruptcy in Iowa district court. On April 30, Bielenberg was personally served with two copies of Cessna's complaint: one on him individually, and one as president of Bielenberg Masonry Contracting, Inc.

Neither Bielenberg nor the Corporation filed a responsive pleading, and ultimately a default judgment was entered on June 9. Cessna's attorney sent Bielenberg's attorney a copy of the Journal Entry of Judgment.

Bielenberg filed a motion in district court to set aside the default judgment, arguing that he was entitled to relief under Federal Rule of Civil Procedure 60(b)(1). The trial court denied Bielenberg's motion, and this appeal resulted.

II.

RULE 60(b)(1)

Rule 60(b) provides that "[o]n motion and upon such terms as are just, the court may relieve a party ... from a final judgment ... for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect ...." Fed.R.Civ.P. 60(b)(1). This court has followed other jurisdictions in declaring that Rule 60(b) is an extraordinary procedure permitting the court that entered judgment to grant relief therefrom upon a showing of good cause within the rule. It is not a substitute for appeal, and must be considered with the need for finality of judgment. Brown v. McCormick, 608 F.2d 410, 413 (10th Cir.1979). As the Fifth Circuit has noted, the rule

"seeks to strike a delicate balance between two countervailing impulses: the desire to preserve the finality of judgments and the 'incessant command of the court's conscience that justice be done in light of all the facts.' "

Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th Cir.1981) (quoting Banker's Mortgage Co. v. United States, 423 F.2d 73, 77 (5th Cir.1970) (emphasis in original)). Rule 60(b) "should be liberally construed when substantial justice will thus be served." Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1385 (10th Cir.1981) (citing Pierce v. Cook & Co., 518 F.2d 720, 722 (10th Cir.1975) (en banc)), cert. denied, 455 U.S. 1019, 102 S.Ct. 1716, 72 L.Ed.2d 137 (1982).

Additional considerations come into play when the 60(b) motion concerns a default judgment. As the District of Columbia Circuit has noted,

"strong policies favor resolution of disputes on their merits: '[T]he default judgment must normally be viewed as available only when the adversary process has been halted because of an essentially unresponsive party. In that instance, the diligent party must be protected lest he be faced with interminable delay and continued uncertainty as to his rights. The default judgment remedy serves as such a protection.' "

Jackson v. Beech, 636 F.2d 831, 836 (D.C.Cir.1980) (quoting H.F. Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C.Cir.1970) (per curiam)). We do not favor default judgments because the court's power is used to enter and enforce judgments regardless of the merits of the case, purely as a penalty for delays in filing or other procedural error. See id. at 835. However, a workable system of justice requires that litigants not be free to appear at their pleasure. We therefore must hold parties and their attorneys to a reasonably high standard of diligence in observing the courts' rules of procedure. See Seven Elves, 635 F.2d at 401; Gomes v. Williams, 420 F.2d 1364, 1366 (10th Cir.1970). The threat of judgment by default serves as an incentive to meet this standard.

The guidelines governing a district court's consideration of a Rule 60(b)(1) motion, and any ensuing appeal, are well established. The rule requires that a movant demonstrate mistake, inadvertence, surprise, or excusable neglect. In addition, to avoid frivolous litigation in default judgment cases, "courts have established the further requirement that a movant demonstrate the existence of a meritorious defense." Olson v. Stone (In re Stone), 588 F.2d 1316, 1319 (10th Cir.1978). In the present case, the trial court held that Bielenberg failed to satisfy either prong of this test. Because we dispose of this appeal on the first ground, we need not address Bielenberg's claim of a meritorious defense.

Justification for relief--in this case, the existence of excusable neglect--is litigated on the merits. "[A] party seeking to establish excusable neglect must plead and prove it. The opposing party is entitled to present controverting evidence demonstrating the absence of excusable neglect ...." Id. The trial court must determine whether excusable neglect has in fact been established, resolving all doubts in favor of the party seeking relief. Jackson, 636 F.2d at 836; see 7 J. Moore & J. Lucas, Moore's Federal Practice p 60.19 at 232-33 (2d ed. 1978).

The district court is vested with a great deal of discretion in its decision to grant or deny a Rule 60(b) motion. Gomes, 420 F.2d at 1366. On appeal, the...