Hadford v. Credit Bureau of Havre, Inc.

• Decision Date: 20 July 1998
• Docket Number: I-I,D,No. 97-485,97-485
• Citation: 55 St. Rep. 727,962 P.2d 1198
• Parties: Penny HADFORD, Plaintiff and Appellant, v. CREDIT BUREAU OF HAVRE, INC., and John Doesefendants and Respondents.
• Court: Montana Supreme Court

Page 1198

962 P.2d 1198

1998 MT 179

Penny HADFORD, Plaintiff and Appellant, v. CREDIT BUREAU OF HAVRE, INC., and John Does I-IV, Defendants and Respondents.

No. 97-485.

Supreme Court of Montana.

Submitted on Briefs March 12, 1998.

Decided July 20, 1998.

Ward E. Taleff; Alexander, Baucus, Taleff & Paul, Great Falls, for Plaintiff and Appellant.

Bruce E. Swenson; Barron & Swenson, Havre, for Defendants and Respondents.

GRAY, Justice.

¶1 Penny Hadford (Hadford) appeals from the judgment entered by the Twelfth Judicial District Court, Hill County, on its order granting the summary judgment motion of Credit Bureau of Havre, Inc. (Credit Bureau) and denying her motion to further amend her complaint. We affirm.

¶2 We restate the issues on appeal as follows:

¶3 1. Did the District Court err in granting summary judgment to the Credit Bureau based on its conclusion that the Credit Bureau did not receive sufficient notice of the wrongful discharge action against Big Sky Billing Service, Inc.?

¶4 2. Did the District Court abuse its discretion in denying Hadford's motion to further amend her complaint to substitute Teddy Reber as a named defendant?

BACKGROUND

¶5 Hadford filed a complaint against Big Sky Billing Service, Inc. (Big Sky) in 1994 ¶6 Hadford discovered that Big Sky had no assets, but she continued to pursue the wrongful discharge action and obtained a default judgment against Big Sky in May of 1995. In an attempt to collect the default judgment, Hadford filed a complaint against the Credit Bureau and John Does I through IV in September of 1995. She alleged that she had obtained a default judgment against Big Sky; that the John Does were persons who "participated in the actions referred to herein" or the last designated directors of Big Sky; that Big Sky had been dissolved to avoid paying Hadford's claims; that the dissolution involved fraudulent conveyance, deceit, and constructive fraud; and that Big Sky was the alter ego of the Credit Bureau, which was liable for the default judgment obtained against Big Sky. She requested a judgment requiring the Credit Bureau and the John Does to pay the amount specified in her default judgment against Big Sky. A summons was issued and served on the Credit Bureau but no summonses were issued for the John Does.

alleging wrongful discharge and failure to pay overtime compensation (the wrongful discharge action). Hadford served the summons and complaint on Teddy Reber (Reber), president of Big Sky, who acknowledged service on Big Sky's behalf as its registered agent. Reber owned 50% of the common stock of Big Sky and was one of its two directors. The other director, Constance Reber, owned the remaining 50% of Big Sky's common stock. Neither director was named or served in the wrongful discharge action.

¶7 The Credit Bureau moved to dismiss Hadford's complaint for failure to state a claim on which relief could be granted. The District Court denied the motion and the Credit Bureau filed its answer.

¶8 Hadford subsequently amended her complaint to expand the allegations regarding the alter ego status of the Credit Bureau, the John Does, and Big Sky. She alleged that, as alter egos of Big Sky, the Credit Bureau and the John Does had actual or constructive notice that they were in jeopardy of personal liability in her wrongful discharge action and a fair opportunity to defend themselves in that action. The Credit Bureau moved to dismiss the amended complaint and the District Court again denied the motion.

¶9 The Credit Bureau then petitioned for a writ of supervisory control, requesting this Court to vacate the order denying its motion to dismiss and to direct the District Court to dismiss the amended complaint with prejudice. We denied the petition on June 25, 1996.

¶10 The Credit Bureau having answered the amended complaint during the pendency of proceedings in this Court, the District Court set an April 22, 1997, trial date. The Credit Bureau moved for summary judgment in March of 1997, arguing that it had insufficient notice of the wrongful discharge action to be held personally liable on the amount of the default judgment therein and that it was not the alter ego of Big Sky. In a supporting affidavit, Reber stated that the corporate activities of Big Sky and the Credit Bureau were kept separate and that all corporate formalities were followed. The Credit Bureau also submitted minutes from the annual shareholders' meetings of both corporations and other documents indicating that Reber was the sole shareholder and a director of the Credit Bureau. Hadford opposed the Credit Bureau's motion and moved to further amend her complaint to substitute Reber for John Doe I and to continue the trial.

¶11 The trial date was vacated and, after a hearing on both parties' motions, the District Court granted the Credit Bureau's motion for summary judgment and denied Hadford's motion to further amend her amended complaint. Judgment was entered accordingly and Hadford appeals from both the grant of summary judgment to the Credit Bureau and the denial of her motion to amend.

DISCUSSION

¶12 1. Did the District Court err in granting summary judgment to the Credit Bureau based on its conclusion that the Credit Bureau did not receive sufficient notice of the wrongful discharge action against Big Sky?

¶13 The District Court determined that, because the Credit Bureau had not received sufficient notice of--and an opportunity to defend against--Hadford's wrongful discharge action, no genuine issues of material fact existed regarding whether the Credit Bureau could be held liable for the default judgment therein. The District Court also determined that the notice issue was dispositive without regard to whether the Credit Bureau was the alter ego of Big Sky and, as a result, it did not reach the alter ego issue.

¶14 We review a district court's ruling on a motion for summary judgment de novo, applying the same Rule 56(c), M.R.Civ.P., criteria applied by the district court. Montana Metal Buildings, Inc. v. Shapiro (1997), 283 Mont. 471, 474, 942 P.2d 694, 696 (citation omitted). The moving party must establish both the absence of genuine issues of material fact and entitlement to judgment as a matter of law. Montana Metal Buildings, 283 Mont. at 474, 942 P.2d at 696 (citation omitted). Once the moving party has met its burden, the party opposing summary judgment must present evidence raising a genuine issue of material fact. Montana Metal Buildings, 283 Mont. at 474, 942 P.2d at 696 (citation omitted). The evidence must be substantial, "not mere denial, speculation, or conclusory statements." Klock v. Town of Cascade (1997), 284 Mont. 167, 174, 943 P.2d 1262, 1266 (citation omitted).

¶15 In this case, the District Court's order granting summary judgment is based on its conclusion that, because the Credit Bureau did not receive sufficient notice of the wrongful discharge action, the Credit Bureau cannot be held liable on the default judgment. We review a district court's conclusions of law to determine whether they are correct. Ash Grove Cement Co. v. Jefferson County (1997), 283 Mont. 486, 491-92, 943 P.2d 85, 89(citation omitted).

¶16 Rule 4 D, M.R.Civ.P., governs service of process on both individuals and corporations. "The purpose of serving a summons is to give notice to the defendant and thereby afford him the opportunity to defend himself or his property--an essential to due process of law." Haggerty v. Sherburne Mercantile Co. (1947), 120 Mont. 386, 396-97, 186 P.2d 884, 891. Service of process also provides the court with jurisdiction over the person or entity sued. In re Marriage of Grounds (1995), 271 Mont. 350, 352, 897 P.2d 200, 201 (citation omitted). Actual knowledge is not a substitute for valid service. Marriage of Grounds, 271 Mont. at 352, 897 P.2d at 201 (citation omitted).

¶17 Hadford concedes that the Credit Bureau was not served in the wrongful discharge action and that, generally, the lack of service would bar her from holding it liable for the default judgment obtained therein. She contends, however, that the Credit Bureau was Big Sky's alter ego and, as a result, it received adequate notice that it was in jeopardy of personal liability and an opportunity to defend. In effect, she argues that notice to Big Sky was notice to its alter egos. We disagree, and address the authorities on which Hadford relies in turn.

¶18 Hadford first urges that the following exception to the general rule requiring service, set forth in 62B Am.Jur.2d, Process, § 284, p. 977-78, fits perfectly with the facts of this case:

where the corporations have so intertwined their affairs and disregarded separate corporate forms that they are considered the same entity, ... there is interlocking management between the corporations, or the person served is of such status within the corporate hierarchy that the parent corporation should be notified of service of process against it.

However, Hadford fails to take into account the context in which the quoted exception appears.

¶19 The section preceding that quoted above states the general rule that service on the parent, subsidiary or affiliate of a corporate defendant generally does not constitute service on the defendant. 62B Am.Jur.2d, Process, § 283, p. 976-77. That general rule relates to a situation where a related corporation, rather than the corporate defendant named in the action, is served; such service generally is insufficient. The exception set forth in § 284, on which Hadford relies, relates to the same situation--namely, service on a related corporation rather than on the named corporate defendant; such service is sufficient to constitute service on the named corporate defendant under the circumstances outlined in § 284.

¶20 In the present case, the opposite procedural backdrop is present. Big Sky, the named corporate defendant in Hadford's wrongful discharge action, was served in that action and Hadford now attempts to...