Levine v. KEYBANK NAT. ASS'N

• Decision Date: 28 October 2004
• Citation: 861 A.2d 678,2004 ME 131
• Court: Maine Supreme Court
• Parties: Ira LEVINE v. KEYBANK NATIONAL ASSOCIATION.

861 A.2d 678

2004 ME 131

Ira LEVINE v. KEYBANK NATIONAL ASSOCIATION.

Supreme Judicial Court of Maine.

Argued: June 9, 2004.

Decided: October 28, 2004.

Rebecca S. Webber (orally), John W. Conway, Linnell, Choate & Webber, L.L.P., Auburn, for plaintiff.

Bruce B. Hochman (orally), Teresa M. Cloutier, Lambert Coffin, Portland, for defendant.

Panel: SAUFLEY, C.J., and CLIFFORD, RUDMAN, DANA, ALEXANDER, CALKINS, and LEVY, JJ.

LEVY, J.

[¶ 1] KeyBank National Association appeals from a judgment entered in the Superior Court (Androscoggin County, Delahanty, J.) adjudging KeyBank trustee in the amount of $264,422.95. KeyBank challenges the court's denial of its motions made pursuant to M.R. Civ. P. 4B(j) and 55(c), and challenges the application and constitutionality of 14 M.R.S.A. § 2614 (2003).¹ Levine cross-appeals from the judgment, challenging the court's conclusion that Levine was only entitled to a portion of the amount due under a severance agreement he had with PhycoGen, Inc. We affirm the judgment.

I. CASE HISTORY

[¶ 2] Ira Levine was the founder, president, and CEO of PhycoGen, Inc. In March of 2000, Levine and PhycoGen terminated their relationship and entered into a severance agreement that called for Levine to receive periodic payments over five years totaling $625,000. In October of 2001, Levine filed a complaint against PhycoGen for breach of the severance agreement because it had stopped making the periodic payments. At that time, he also filed an ex parte motion for attachment and trustee process pursuant to M.R. Civ. P. 4A(g) and 4B(i).² He alleged that PhycoGen owed him a total of $444,711.25 pursuant to the severance agreement. The court approved the attachment and trustee process in the amount of $450,000.

[¶ 3] Levine served KeyBank with a trustee summons in October 2001, notifying it "to file a written statement under oath WITHIN 20 DAYS [of service] indicating what property you have in your possession or control belonging to said Defendant(s), if any, to the value of ($450,000)." The summons also contained the following warning notifying KeyBank that if it failed to file its disclosure statement, it could become liable for the full amount of the attachment:

IMPORTANT WARNING

IF YOU FAIL TO FILE SUCH A STATEMENT (EVEN IF YOU INDICATE YOU HAVE NO SUCH PROPERTY) WITHIN THE TIME STATED ABOVE, YOU WILL BE DEFAULTED AND THE COURT WILL FIND THAT YOU HAVE SUCH PROPERTY IN THE STATED VALUE AND YOU MAY BECOME LIABLE TO PLAINTIFF IN THAT AMOUNT.

KeyBank did not file a disclosure statement or otherwise respond to the summons, and the clerk entered KeyBank's default on November 26, 2001. Notice of the default was mailed to KeyBank that same day.

[¶ 4] Levine subsequently moved for a default judgment against KeyBank. The court denied the request, without prejudice, in January 2002, reasoning that "[b]ecause the plaintiff must succeed on his claim against defendant PhycoGen before he has a right to claim attached property, the court cannot grant a judgment against [KeyBank] until the liability of PhycoGen has been established and ... a final judgment in a certain amount has been entered." The court did, however, order that KeyBank "is declared to be a trustee up to the sum of $450,000."

[¶ 5] Soon after the January order, KeyBank appeared in the action and filed, among other things, its trustee disclosure, a general denial to the complaint, a motion to intervene, a motion to set aside the entry of default pursuant to M.R. Civ. P. 55(c), an objection to the entry of a default judgment, and a motion pursuant to M.R. Civ. P. 4B(j) to dissolve or modify the underlying ex parte attachment order and to vacate or modify the January order adjudging KeyBank trustee. KeyBank's trustee disclosure reported that the bank held $7693.04 belonging to PhycoGen.

[¶ 6] The court denied KeyBank's motion to dissolve or modify the ex parte order of attachment and trustee process pursuant to M.R. Civ. P. 4B(j) by an order entered in February 2002. The court subsequently denied KeyBank's motion to set aside the entry of default pursuant to M.R. Civ. P. 55(c) by an order entered in June 2002. It did, however, grant KeyBank's motion to intervene "to the extent that it may participate and defend in any hearing to set damages for judgment."

[¶ 7] The court held an evidentiary hearing on damages and issued a written decision and judgment in October 2003. The court found that PhycoGen owed Levine a balance of $444,711.25 pursuant to the severance contract. The court also determined, however, that because the acceleration clause of the severance agreement had not been triggered, Levine was only entitled to $264,422.95 from KeyBank — the total of the outstanding payments due through October 31, 2003, the date of judgment. This appeal followed.

II. DISCUSSION

A. KeyBank's Rule 4B(j) Motion to Dissolve or Modify the Trustee Process

[¶ 8] Rule 4B(j) provides that "any person having an interest in goods or credits that have been attached on trustee process pursuant to an ex parte order under [Rule 4B(h)] may appear... and move the dissolution or modification of the trustee process." M.R. Civ. P. 4B(j). The court denied KeyBank's motion pursuant to Rule 4B(j), finding that KeyBank, as a party in default, was precluded from seeking relief on the question of its liability as trustee while the default was in place. KeyBank contends that, despite its status as a defaulted trustee, it had standing to challenge the underlying attachment order pursuant to the plain language of Rule 4B(j). We disagree.

[¶ 9] The court's authority to enter a default against KeyBank is grounded in 14 M.R.S.A § 2614, which then provided that "[w]hen a person summoned as trustee neglects to appear and answer to the action, he shall be defaulted and adjudged trustee as alleged." See Butler v. D/Wave Seafood, 2002 ME 41, ¶ 16, 791 A.2d 928, 932

(citing Coombs v. Gov't Employees Ins. Co., 534 A.2d 676, 678 (Me.1987)). KeyBank, as a party against whom a default had been entered, was required to have the default set aside pursuant to M.R. Civ. P. 55(c) before it could utilize M.R. Civ. P. 4B(j) to obtain relief from an ex parte trustee process. Cf. Oliver v. Martin, 460 A.2d 594, 595 (Me.1983). Rule 4B(j) is designed to afford a trustee an immediate opportunity to be heard following its receipt of an ex parte trustee summons, and it is not an alternative avenue for challenging a default.

[¶ 10] Here, KeyBank sought relief pursuant to Rule 4B(j) more than three months after the court's ex parte approval of the trustee process, and after the clerk's entry of a default based on the bank's failure to answer the summons or otherwise appear. If we were to adopt KeyBank's view and hold that a defaulted party can attack an underlying attachment order without first demonstrating good cause for its default as required by Rule 55(c), the good cause requirement would be rendered ineffective. We conclude instead that a trustee in default must first obtain relief pursuant to Rule 55(c) before it can avail itself of the benefits of Rule 4B(j).³

[¶ 11] The court also concluded that even if it were to entertain KeyBank's motion, the motion would have to be denied because KeyBank had failed to challenge by affidavit any of the findings in the ex parte order, as required by the rule. See M.R. Civ. P. 4B(j). Levine points out, for example, that KeyBank failed to assert by affidavit that no mediation had occurred prior to litigation, as required by the agreement between Levine and PhycoGen. The court stated that "[t]he only affidavit filed in support of the motion is from a [KeyBank] employee stating that PhycoGen has an account with [KeyBank]." KeyBank contends that Rule 4B(j) did not require it to challenge by affidavit Levine's failure to submit to mediation because the severance agreement contains a mediation provision. This argument is unpersuasive, however, because the mediation agreement was between PhycoGen and Levine, and PhycoGen's default in response to Levine's complaint resulted in the waiver of the mediation requirement. See M.R. Civ. P. 55(b).

[¶ 12] Accordingly, the court did not err in determining that KeyBank, as a party against whom a default had been entered, did not have the right to be heard pursuant to M.R. Civ. P. 4B(j) while its default remained in place.

B. KeyBank's Rule 55(c) Motion to Set Aside Entry of Default

[¶ 13] Separate from its Rule 4B(j) motion, KeyBank moved to set aside the court's entry of default under Rule 55(c) which provides, "[f]or good cause shown the court may set aside an entry of default." M.R. Civ. P. 55(c). In order to "establish `good cause,' a party must show a good excuse for his or her untimeliness and a meritorious defense." Truman v. Browne, 2001 ME 182, ¶ 9, 788 A.2d 168, 170. "We review a trial court's ruling on a motion to set aside a default for abuse of discretion and will vacate the judgment only `if the denial works a plain and unmistakable injustice against the defendant.'" Id. (quoting LaFosse v. Champagne, 2000 ME 81, ¶ 10, 750 A.2d 1254, 1256). "We give `considerable deference to the presiding justice's decision on such a motion because of his familiarity with the case and his superior position to evaluate the credibility and good faith of the parties who appeared before him.'" Hamby v. Thomas Realty Assocs., 617 A.2d 562, 563 (Me.1992) (quoting Porges v. Reid, 423 A.2d 542, 544 (Me.1980)).

[¶ 14] KeyBank contends that the court committed an unsustainable exercise of discretion in denying the bank's motion because the court "appears to have based its ruling on the mere fact that KeyBank had recently been involved in another matter involving default as a trustee, ... culminating in the decision of Butler v. D/Wave Seafood, 2002 ME 41, 791 A.2d 928." KeyBank asserts that this demonstrates that the court failed to undertake "the case-by-case, fact-based analysis required when making a good cause...