Flexsteel Industries, Inc. v. Morbern Industries Ltd.

Decision Date17 March 1976
Docket NumberNo. 57175,57175
Citation239 N.W.2d 593
PartiesFLEXSTEEL INDUSTRIES, INC., a Minnesota Corporation, Appellee, v. MORBERN INDUSTRIES LIMITED, a Canadian Provincial Corporation, Appellant.
CourtIowa Supreme Court

Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellant.

O'Connor, Thomas, Wright, Hammer, Bertsch & Norby, Dubuque, for appellee.

Heard before MOORE, C.J., and MASON, RAWLINGS, UHLENHOPP and HARRIS, JJ.

MASON, Justice.

This court granted defendant permission, pursuant to rule 332, Rules of Civil Procedure, to take an interlocutory appeal from an order of the trial court denying defendant's motion to set aside a default under rule 236, R.C.P. The order granting default dated February 12, 1974, recited that defendant was in default for failure to file an appearance or pleading and its default was entered of record against defendant. A hearing on plaintiff's claim for damages was set for March 15.

Plaintiff, Flexsteel Industries, Inc., is a Minnesota corporation authorized to do business in the state of Iowa with its principal office in Dubuque. Defendant, Morbern Industries Limited, is a provincially incorporated company organized under the laws of the Province of Ontario, Canada, with its principal place of business in Cornwall, Ontario. Beginning in 1969, plaintiff purchased 'vinyl-coated fabrics' from defendant, a manufacturer and distributor of that product. Plaintiff manufactures and sells furniture and for a time used defendant's vinyl fabric for upholstery. Some $274,552.00 was paid by plaintiff to defendant.

According to the petition, filed December 6, 1973, defendant's vinyl, after application to pieces of furniture, 'became brittle and cracked.' This precipitated the return of the furniture for repair and replacement, the rescission of contracts, expenses and loss of good will.

In division 1 of its petition plaintiff claims relief for an alleged breach by Morbern of its implied warranty of fitness which plaintiff relied on in its use of the vinyl-coated fabrics. In division 2 plaintiff relies on defendant's alleged breach of an implied warranty of merchantability and Morbern's knowledge of the purpose for which plaintiff intended to use the product. In the third division plaintiff's claim for relief is predicated on defendant's alleged negligence in the manufacture, sale and distribution of the product involved in four specified particulars. Plaintiff asked $350,000.00 damages be awarded.

Service of original notice on defendant was made by filing with the secretary of state on December 11, 1973, duplicate copies of the original notice and by mailing on December 21 by registered mail a notification of said filing with the secretary of state to defendant at the address of its principal office in Cornwell, Ontario, Canada, pursuant to section 617.3, The Code, 197o. The original notice notified defendant that unless it appeared and defended within 60 days of the date of filing with the secretary of state, default would be entered.

In his affidavit which is a part of the record before us Ronald Thompson, president of defendant, maintains that he received the original notice and petition on December 19, 1973, and that on the same day he delivered copies to Mr. James Carr of the Underwriters Adjustment Bureau of Cornwall, Ontario, who was locally involved in the case. Thompson also notified Mr. Bill Hackbarth of Whittaker Corporation, Los Angeles, a parent company of defendant. These actions were taken to enable defendant's insurer, Pacific Indemnity Group, to learn the facts and handle the defense.

Affiant further stated that at all times it was the intention to defend the action and its insurance carriers had been handling the matter on defendant's behalf for a considerable period. After notifying the insurance carrier of the filing of the suit defendant inquired from Carr and Hackbarth whether the matter was progressing and the appearance and defense were, in fact, being handled by the insurer within the period set in the original notice and was informed by both sources 'that there was no problem and this was indeed so.'

In any event, the job of investigating plaintiff's claims against defendant fell upon Gordon J. Renner, 'Casualty Claims Supervisor' for Pacific Indemnity. An affidavit by Mr. Renner disclosed he notified the Des Moines law firm of Bradshaw, Fowler, Proctor and Fairgrave (defendant's attorneys) of the claim February 11, 1974. Renner informed attorney Michael Figenshaw of this law firm that service on defendant had been attained December 18, 1973. It was Renner's understanding the 60 day period was tolled on that date rather than on December 11, date of filing with the secretary of state.

Renner immediately forwarded Figenshaw the 'suit papers involved' so that there would be sufficient time to appear within the 60 day period as it commenced from December 18. Upon receipt of the papers, Figenshaw realized the mistake. February 13 he informed Renner time had run out.

Meanwhile, February 12, the trial court entered an order declaring defendant to be in default. February 19 defendant filed a motion to set aside the default. This motion was supported by the previously discussed affidavit of Mr. Renner. Later, the affidavit by defendant's president, Ronald Thompson, was filed in support of the motion.

March 7, 1974, defendant filed answer separately pleading to each division of the petition by admitting the preliminary or introductory paragraphs of each division, those concerning the corporate status of each party and the location of their principal offices or places of business. Defendant also admitted a course of dealing between plaintiff and defendant for the purchase and sale of defendant's products. Defendant denied the specific paragraphs in division 1 pertaining to the theory of implied warranty for fitness, those in division 2 relative to the implied warranty of fitness for the purposes for which plaintiff intended to use the products and those paragraphs in division 3 alleging negligence of the defendant and proximate cause. Defendant also denied those paragraphs of each division regarding damages.

March 25, the trial court overruled defendant's motion to set aside the default for the reason there was an insufficient showing defendant possessed a 'meritorious defense,' as well as the fact defendant 'failed to account, in any manner, for the delay in acting between the receipt of the Original Notice in the Los Angeles office of Defendant's insurance company and February 11, 1974 * * *,' the date the Des Moines law firm was contacted.

April 9, 1974, defendant's application for interlocutory appeal was granted.

The appeal presents as issues for review the questions: (1) whether the trial court abused its discretion in refusing to set aside default for the reason defendant's failure to appear was due to mistake, inadvertence, misunderstanding or excusable neglect of another; and (2) did defendant make a prima facie showing of a meritorious defense?

I. Plaintiff and defendant cite and distinguish a multitude of Iowa cases bearing upon rule 236, Rules of Civil Procedure, which prescribes when and to what extent actions to set aside a default may be taken. It provides:

'On motion and for good cause shown, and upon such terms as the Court prescribes, but not ex parte, the Court may set aside a default or the judgment thereon, for mistake, inadvertence, surprise, excusable neglect or unavoidable casualty. Such motion must be filed promptly after the discovery of the grounds thereof, but not more than sixty days after entry of the judgment. Its filing shall not affect the finality of the judgment or impair its operation.'

This rule has been exhaustively analyzed in several cases and the analysis need not be repeated here. See Davis v. Glade, 257 Iowa 540, 133 N.W.2d 683; Hannan v. Bowles Watch Band Co., 180 N.W.2d 221 (Iowa 1970); In Re Estate of Staab, 192 N.W.2d 804 (Iowa 1971); and Dealers Warehouse Co. v. Wahl & Associates, 216 N.W.2d 391 (Iowa 1974).

In Williamson v. Casey, 220 N.W.2d 638, 639 (Iowa 1974), this court reiterated the well settled rules of review in this type of action:

'A proceeding under rule 236 is at law. A trial court has wide discretion in making its ruling. The burden is on the movant to plead and prove good cause to set aside the default or judgment thereon. Good cause is shown only if one of the grounds in the rule is proved. We are bound by trial court findings of fact if supported by substantial evidence. * * * (citing authority). We view the evidence in its light most favorable to the court's ruling.'

Likewise, it has been '* * * held several times the trial court has a broad discretion in ruling on such a motion as this and we will not interfere with its order in the absence of a showing of abuse of such discretion. * * * (citing authority). Also, we are more reluctant to interfere with the grant of such a motion than with its denial. * * * (citing authority).' Insurance Co. of No. Amer. v. Sperry & Hutchison Co., 168 N.W.2d 753, 756 (Iowa 1969).

'A 'good cause' is a sound, effective, and truthful reason. It is something more than an excuse, a plea, apology, extenuation, or some justification, for the resulting effect.' It also requires 'at least a claimed defense asserted in good faith.' Svoboda v. Svoboda, 245 Iowa 111, 118, 60 N.W.2d 859, 863; Hobbs v. Martin Marietta Co., 257 Iowa 124, 128, 131 N.W.2d 772, 775.

'To be careless and inattentive, as the terms are applied here, means to give the matter no care, no attention, approaching gross neglect or willful procrastination. Edgar v. Armored Carrier Corp., * * * 256 Iowa 700, 707, 128 N.W.2d 922, 926; Sioux City Vinegar Mfg. Co. v. Boddy, et al., 108 Iowa 538, 79 N.W. 350.' Hobbs v. Martin Marietta Co., 257 Iowa at 131--132, 131 N.W.2d at 777.

'As previously defined by this court, unavoidable casualty or misfortune means some casualty or misfortune growing...

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    ...228 (Iowa 1974). With respect to questions of law, this court is not bound by trial court determinations. Flexsteel Ind., Inc. v. Morbern Ind. Ltd., 239 N.W.2d 593, 596 (Iowa 1976); In re Estate of Northup, 230 N.W.2d 918, 921 (Iowa I. In this division plaintiffs' first and third contention......
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