First Bank of the Lake v. White

• Decision Date: 30 November 2009
• Docket Number: No. SD 29505.,SD 29505.
• Citation: First Bank of the Lake v. White, 302 S.W.3d 161 (Mo. App. 2009)
• Parties: FIRST BANK OF THE LAKE, a Missouri banking corporation, Plaintiff-Respondent, v. Tracy L. WHITE, Sr. and Sharon L. White, Individually and as husband and wife, and Jerry W. Buck and Janet K. Buck, Individually and as husband and wife, and Leland C. Nollau and Thelma Nollau, Individually and as husband and wife, Defendants-Appellants.
• Court: Missouri Court of Appeals

302 S.W.3d 161

FIRST BANK OF THE LAKE, a Missouri banking corporation, Plaintiff-Respondent, v. Tracy L. WHITE, Sr. and Sharon L. White, Individually and as husband and wife, and Jerry W. Buck and Janet K. Buck, Individually and as husband and wife, and Leland C. Nollau and Thelma Nollau, Individually and as husband and wife, Defendants-Appellants.

No. SD 29505.

Missouri Court of Appeals, Southern District, Division Two.

November 30, 2009.

Motion for Rehearing and Transfer Denied December 22, 2009.

Application for Transfer Denied March 2, 2010.

Hugh L. Marshall, McDowell, Rice, Smith & Buchanan, P.C., Kansas City, MO, for Appellants.

Michael L. McDorman and J. Aaron Ellsworth, McDorman & Dunklee, L.L.C, Lake Ozark, MO, for Respondents.

GARY W. LYNCH, Presiding Judge.

Tracy L. White, Sr. and Sharon L. White, Jerry W. Buck and Janet K. Buck, and Leland C. Nollau and Thelma Nollau ("Defendants") appeal the denial of their motion, brought pursuant to Rules 74.05(d) and 74.06(b), to set aside a default judgment entered against them and in favor of First Bank of the Lake ("Plaintiff").¹ Finding that the motion court did not abuse its discretion in determining that the motion to set aside was not brought within a reasonable time, as required by both rules, this Court affirms.

Factual and Procedural Background

Defendants guaranteed the payment of various promissory notes owed by Wildwood Development, LLC ("Wildwood") to Plaintiff that were secured by Wildwood's real estate and personal property. Beginning in April 2007, after Wildwood had defaulted in the payment of these notes, Plaintiff, through its attorney Michael McDorman, initiated collection activities, including (1) repossession of the personal property held as collateral, (2) foreclosure of the real estate with a sale date scheduled for May 11, 2007, and (3) filing, on April 16, 2007, the petition in the underlying action against Defendants seeking a money judgment on their guarantees in the total principle amount of $8,592,191.51, plus interest and attorney fees.

In response, Defendants, through their attorney Robert W. Pohl, contacted attorney R. Pete Smith to represent them in addition to Pohl, to resist Plaintiff's collection actions, including Smith's filing of a Chapter 11 bankruptcy for Wildwood, if necessary. During April and May of 2007, Pohl and Smith communicated with McDorman on several occasions seeking to come to some agreement with Plaintiff which would at least minimize Defendants' exposure to the money they had already invested in Wildwood and, at best, provide some partial return of that investment if the real estate could be sold in the near future. Following a telephone conversation between the three attorneys on May 8, 2007, Smith sent McDorman a letter outlining what he claimed was an agreement reached during that telephone call, which included the release of Defendants on their guarantees. Smith closed this letter with the paragraph: "If this is erroneous, call me immediately, as we will need to go forward with the Chapter 11 filing. Please work out all details with Bob Pohl." McDorman made no response to Smith specifically directed to the contents of this letter, although the foreclosure sale was thereafter continued by Plaintiff for two ten-day periods, as referenced in the letter.

In the meantime, all Defendants were served on May 14 and 16, 2007, with summons in the underlying action on their guarantees. Defendants immediately contacted Pohl, who in turn contacted Smith to advise of such service. Neither attorney, however, contacted McDorman or the trial court about the status of this case, nor did either attorney file any responsive pleading on Defendants' behalf. On June 25, 2007, Plaintiff moved for and the trial court granted a default judgment in the total amount of $4,599,221.90 in Plaintiff's favor and against Defendants.²

One of Defendants became aware of the default judgment in early September 2007, and contacted Pohl, who in turn contacted Smith. By letter dated September 13, 2007, to McDorman, Smith expressed his "shock" at the entry of the default judgment and demanded that the judgment be released because it "was contrary to our contractual agreement and was fraudulent." In response, by letter dated October 1, 2007, McDorman told Smith:

I will withhold at this time a formal response to this letter as we are still attempting to work out a complete resolution to this matter through Bob Pohl. In the event that it does in fact fail, you will have a complete and full response to your inquiry of September 13, 2007.

McDorman and Smith had no further communication on this issue.

On May 22, 2008, concerned that almost one year had passed since the entry of the default judgment, Smith directed his law partner to file on Defendants' behalf a motion to set aside the judgment claiming good cause and a meritorious defense entitling them to relief under Rule 74.05(d) and claiming Plaintiff's fraud, misrepresentation, and misconduct in procuring the judgment entitling them to relief under Rule 74.06. Following an evidentiary hearing, the motion court not only denied the motion on its merits, but also found that it was not filed within a reasonable period of time. Defendants timely appealed, claiming that the motion court erred in denying them relief under Rule 74.05 (Point I), that the motion court erred in denying them relief under Rule 74.06 (Point II), and that the motion court erred in finding that their motion was untimely (Point III). Our adverse decision on Defendants' last point is dispositive of this appeal.

Standard of Review

"The party moving to set aside a default judgment has the burden of proof to convince the trial court that the party is entitled to relief." Hinton v. Proctor & Schwartz, Inc., 99 S.W.3d 454, 458 (Mo App.2003). Upon review of a motion court's decision on a motion to set aside a default judgment, appellate review is for abuse of discretion, and a motion court's discretion upon its denial of a motion to set aside a default judgment is much narrower than the wider discretion afforded a decision to grant a motion to set aside a default judgment "because of the public policy favoring the resolution of cases on the merits and the `distaste our system holds for default judgments.'" Brungard v. Risky's Inc., 240 S.W.3d 685, 686 (Mo. banc 2007) (quoting Cont'l Basketball Ass'n v. Harrisburg Prof'l Sports, Inc., 947 S.W.2d 471, 473 (Mo.App.1997)). "However, the generalization that the law favors a trial on the merits must be carefully applied to the facts of each case because `the law defends with equal vigor the integrity of the legal process and procedural rules and, thus, does not sanction the disregard thereof.'" Boatmen's First Nat'l Bank, Raytown Banking Ctr. v. Krider, 844 S.W.2d 10, 12 (Mo.App.1992) (quoting Sprung v. Negwer Materials, Inc., 775 S.W.2d 97, 100 (Mo. banc 1989)).

The movant in a Rule 74.06 motion for relief from a judgment, likewise, has the burden of proving to the trial court that he or she was entitled to relief. Owens v. Owens, 869 S.W.2d 324, 326 (Mo. App.1994). The motion court is afforded broad discretion when acting on a Rule 74.06 motion, and an appellate court should not interfere unless the record demonstrates an abuse of the motion court's discretion. Jeffries v. Jeffries, 840 S.W.2d 291, 293 (Mo.App.1992).

"Judicial discretion is abused only when that ruling was clearly against the logic of the circumstances then before the trial court and is so arbitrary and unreasonable as to shock the sense of justice and indicate a lack of careful consideration." Nervig v. Workman, 285 S.W.3d 335, 338 (Mo.App.2009) (citing State ex rel. Wyeth v. Grady, 262 S.W.3d 216, 219 (Mo. banc 2008)). "If reasonable minds could differ on the propriety of the ruling, no abuse of discretion has occurred." Id. (citing Heritage Warranty Ins., RRG, Inc. v. Swiney, 244 S.W.3d 290, 291-92 (Mo.App. 2008)).

Discussion

Rule 74.05(b) provides, in part, that "[t]he motion shall be made within a reasonable time . . . after the entry of the default judgment." Similarly,³ Rule 74.06(c) provides, in part, that "`[t]he motion shall be made within a reasonable time . . . after the judgment or order was entered."

The term "reasonable time" has yet to be explicitly defined in the context of either Rule 74.05(d) or Rule 74.06(b). A sooner-better-than-later concept under Rule 74.05(d) was discussed in Bell v. Bell, 849 S.W.2d 194 (Mo.App.1993): "It makes sense that the sooner the mistake is discovered, and acted upon, the more receptive the courts should be to a motion to set aside. Prompt action to set aside a judgment is less threatening to the stability of the final judgment rule than action taken substantially later." Id. at 198. The Western District of this Court, in Magee v. Magee, 904 S.W.2d 514, 518 (Mo.App. 1995), as well as in Bell, supra, considered this concept in analyses of whether the defendant had established good cause under Rule 74.05(d). In Myers v. Pitney Bowes, Inc., 914 S.W.2d 835, 838 (Mo.App. 1996), Billingsley v. Ford Motor Co., 939 S.W.2d 493, 498 (Mo.App.1997), and Heintz Elec. Co. v. Tri Lakes Interiors, Inc., 185 S.W.3d 787, 794 (Mo.App.2006), the concept of sooner-better-than-later was utilized in analyses of what constituted "reasonable time."

The Eastern District of this Court, in Engine Masters, Inc. v. Kirn's, Inc., 872 S.W.2d 644 (Mo.App.1994), discussed the "reasonable time" requirement of Rule 74.05(d) and noted that, aside from a sooner-better-than-later observation, at that time, there was "little in Missouri case law to help determine what is a reasonable time in which to move to set aside a default judgment." Id. at 646. There, the defendant was advised of the default judgment one week after entry and filed a motion to set it aside 316 days after its entry. The Court noted that there were no circumstances beyond the defendant's control, no novel questions of...