Hovelson v. U.S. Swim & Fitness, Inc., C6-89-1228

• Decision Date: 09 January 1990
• Docket Number: No. C6-89-1228,C6-89-1228
• Citation: 450 N.W.2d 137
• Parties: Brenda HOVELSON, Respondent, v. U.S. SWIM & FITNESS, INC., et al., Appellants.
• Court: Minnesota Court of Appeals

Page 137

450 N.W.2d 137

Brenda HOVELSON, Respondent, v. U.S. SWIM & FITNESS, INC., et al., Appellants.

No. C6-89-1228.

Court of Appeals of Minnesota.

Jan. 9, 1990.

Review Denied March 16, 1990.

Syllabus by the Court

1. The trial court did not abuse its discretion in refusing to find excusable neglect in corporation's failure to answer a complaint served using a fictitious corporate name, when the defendant corporation did business and accepted service under that name.

2. Where there was a final judgment and no appeal was pending, the trial court did not err in hearing plaintiff's ex parte motion to amend the judgment to include defendant's other names.

3. The trial court erred in refusing to dismiss USSF Minnesota from the judgment, because the corporation was not served with process and its operations are independent of Scandinavian USSF.

Donald E. Horton, Horton & Associates, Minneapolis, for respondent.

Richard L. Leighton, Carroll & Leighton, P.A., Minneapolis, for appellants.

Heard, considered and decided by WOZNIAK, C.J., and PARKER and CRIPPEN, JJ.

OPINION

PARKER, Judge.

Appellants Scandinavian U.S. Swim & Fitness, Inc., an Ohio corporation (Scandinavian USSF), and U.S. Swim & Fitness Minnesota Inc., a Minnesota corporation (USSF Minnesota), appeal from an order denying their motions to vacate a default judgment and to dismiss USSF Minnesota from the judgment. The default judgment was initially entered against U.S. Swim & Fitness, Inc., a name which Scandinavian USSF uses when transacting business.

Appellants claim they are entitled to vacation of the default judgment pursuant to Minn.R.Civ.P. 60.02(a) (excusable neglect) or Rule 60.02(f) (any other reason justifying relief). USSF Minnesota further contends it should be dismissed from the judgment for lack of jurisdiction because it was never served with process.

The court found appellants had no excuse for failing to answer and there were no other grounds which justified reopening the default judgment. The court refused to dismiss USSF Minnesota, finding it was correctly added to the judgment as an alias of the defaulting defendant entity. We affirm in part and vacate in part.

FACTS

Appellant USSF Minnesota is incorporated in Minnesota. Appellant Scandinavian USSF is an Ohio corporation authorized to do business in Minnesota. On September 1, 1986, USSF Minnesota transferred ownership of its Minnesota U.S. Swim & Fitness Clubs to Scandinavian USSF. These two corporations share the same president and vice president.

Pursuant to Minn.Stat. Sec. 333.01 (1986), Greg Olson, president of both appellant corporations and a licensed attorney in Colorado, filed documents with the Minnesota secretary of state authorizing Scandinavian USSF to use the name U.S. Swim & Fitness as "an assumed name or corporate name."

In March 1985 Hovelson was hired by USSF Minnesota. She began as an instructor and in 1986 became a commission-only salesperson under manager Mike Brown. Hovelson's business cards furnished by USSF, the membership contracts she sold and the company letterhead used for memoranda to employees listed "U.S. Swim & Fitness, Inc." as her employer.

In May 1987 USSF changed the club membership fee structure from a large initial fee plus ongoing monthly dues to a small initial payment and monthly installments on an 18-month contract. After this change, sales commissions were paid over the 18-month period.

Hovelson claims she arranged with manager Brown to transfer to an instructor position and receive her commissions for the 18-month period following the transfer. Soon after this agreement, Brown fired Hovelson. In a tirade lasting 20 minutes and including obscenities directed at Hovelson in front of other sales employees, Brown accused Hovelson of poor sales performance and fired her. Hovelson immediately sought counsel and brought this action.

On January 31, 1989, Hovelson's counsel sent a letter and unsigned complaint to Bahram Akradi at the corporate address listed in the phone book. Akradi was vice president of the appellant corporations and was personally known to Hovelson. The letter notified Akradi that Hovelson had retained counsel and would be filing the enclosed unsigned complaint after February 8, 1989. The unsigned complaint cited "U.S. Swim & Fitness, Inc." as the defendant. The letter included an offer of settlement. Akradi forwarded these documents to Olson at his Colorado office. Olson acknowledges receipt of the documents and his decision not to respond to this pre-suit communication.

On February 24, 1989, a signed summons and complaint were served at the Bloomington office and accepted by the director of corporate programs. The documents were forwarded to Olson in Colorado. Olson claims he never received them. The complaint was not answered.

The Fourth Judicial District court administrator mailed a Notice of Judge Assignment to USSF at its Bloomington office, to the attention of Akradi. Appellants have not explained what happened to this notice.

At the default hearing Hovelson testified on her own behalf and submitted affidavits of two lay persons and an expert witness to support her claims. Referring to computer printout sheets provided by USSF during her employment, Hovelson explained her computation of unpaid commissions.

The referee who presided at the default hearing found in favor of Hovelson on her claims of breach of contract, violation of Minn.Stat. Sec. 181.145 (1988) by not paying her for commissions earned, defamation, fraud, intentional infliction of emotional distress, and negligent training and supervision of manager Brown. Judgment was ordered and entered for $77,920 for breach of contract and failure to pay earned commissions, and the sum of $77,080 for the other claims.

On April 21, 1989, the sheriff attempted to serve a writ of execution on USSF's bank account at Park National Bank. It was returned unsatisfied because the bank had no account in the name of "U.S. Swim & Fitness, Inc." On the same day, an attorney for Scandinavian USSF contacted Hovelson's attorney and told him there was no such corporation as USSF, Inc. He asked that the judgment be vacated; Hovelson declined.

After further investigation, Hovelson discovered that several companies were doing business under the U.S. Swim & Fitness name and that these companies shared the same president and vice president. On April 25 the trial court granted Hovelson's ex parte motion to amend the default judgment to include Scandinavian USSF and USSF Minnesota as defendants. Hovelson's attorney disclosed to the court the prior contact from an attorney for Scandinavian USSF.

Two days later the trial court granted Scandinavian USSF's temporary restraining order, quashing Hovelson's writ of execution and staying her collection efforts pending a later hearing and ruling on a motion to dismiss USSF Minnesota and to vacate the default judgment.

Scandinavian and Minnesota USSF did not supply a proposed answer or verified affidavits on the merits with its motion. After the hearing on its motion to vacate, Scandinavian USSF filed affidavits on the merits but did not file a proposed answer.

ISSUES

1. Did the trial court abuse its discretion in refusing to vacate the default judgment?

2. Did the trial court err in amending the default judgment to correct a misnomer upon Hovelson's ex parte motion?

3. Did the trial court err in refusing to release USSF Minnesota from the default judgment for lack of jurisdiction and improper joinder?

DISCUSSION

I

On review of a motion to vacate a default judgment, this court will not disturb the trial court's decision absent a showing of an abuse of discretion. Hinz v. Northland Milk & Ice Cream Co., 237 Minn. 28, 31, 53 N.W.2d 454, 457 (1952); Gelco Corp. v. Crystal Leasing, Inc., 396 N.W.2d 672, 674 (Minn.Ct.App.1986). There is a liberal policy of opening default judgments to allow the trial of causes on their merits. Taylor v. Steinke, 295 Minn. 244, 246, 203 N.W.2d 859, 860 (1973). In administering this policy, we are mindful that

[t]he discretionary power of the court to open a default judgment is not to be extended so as to encourage loose practice or be so limited as to make orderly procedure an end in itself rather than a means by which justice is administered.

Hinz, 237 Minn. at 32, 53 N.W.2d at 456-67.

To be granted relief from a default judgment and permit the party to answer, the party in default must demonstrate that (1) he has a reasonable defense on the merits, (2) he has a reasonable excuse for his failure to answer, (3) he has acted with due diligence after notice of the entry of judgment, and (4) no substantial prejudice will result to the other party. Hinz, 237 Minn. at 30, 53 N.W.2d at 456; see also Conley v. Downing, 321 N.W.2d 36, 40 (Minn.1982). A weak showing on one factor may be overcome by a strong showing on the other three factors. Guillaume & Associates, Inc. v. Don-John Co., 371 N.W.2d 15, 19 (Minn.Ct.App.1985).

The trial court found that USSF ¹ showed a reasonable defense on the merits, but did not conclude it was strong. Our review of the affidavits and memorandum in support of the motion to vacate the judgment show that the trial court's judgment was supported by the record.

USSF has not focused its analysis on a showing of its defense on the merits. USSF did not submit timely affidavits and presented the bulk of its argument on defenses after the hearing. In all cases where application is made for leave to answer and defend, the application "shall" be accompanied by a copy of the answer and an affidavit of merits. Minn.Dist.Ct.Code of Rules 22. Although it provided verified affidavits after the hearing on its motion to vacate the judgment, USSF has never filed a proposed answer.

USSF has not offered a reasonable defense to Hovelson's claim for unpaid commissions. The default judgment ordered payment of commissions due which normally would have been paid to Hovelson over an 18-month...