Lords v. Newman

• Decision Date: 19 September 1984
• Docket Number: No. 84-141,84-141
• Citation: 41 St.Rep. 1793,688 P.2d 290,212 Mont. 359
• Parties: Merlin L. LORDS and Judy Lords, Plaintiffs and Respondents, v. Josephine J. NEWMAN, W.D. Webb and Ida May Webb, Defendants and Appellants.
• Court: Montana Supreme Court

Page 290

688 P.2d 290

212 Mont. 359

Merlin L. LORDS and Judy Lords, Plaintiffs and Respondents, v. Josephine J. NEWMAN, W.D. Webb and Ida May Webb, Defendants

and Appellants.

No. 84-141.

Supreme Court of Montana.

Submitted on Briefs June 28, 1984.

Decided Sept. 19, 1984.

Murray, Kaufman, Vidal & Gordon, Daniel W. Hileman, Kalispell, for defendants and appellants.

Brian J. Smith, Polson, for plaintiffs and respondents.

HASWELL, Chief Justice.

The defendants appeal from a default judgment entered by the Flathead County District Court.

Appellant, Josephine Newman, purchased the San Rose Motel near Kalispell, Montana, from the plaintiffs in April 1982. Part of the purchase price was a $10,000 promissory note executed by Newman and her parents, W.D. Webb and Ida May Webb. Newman made one monthly payment on the note. When the second payment came due, she deducted the cost of repairing certain items at the motel and sent a check for the difference to the sellers. The Lords rejected the payment, and the present action for collection was filed in Lake County June 15, 1983.

W.D. Webb was served with a summons and complaint on July 15, 1983. Ida Webb and Newman were never served. Newman did learn of her father's service and brought his copy of the complaint to Lee Simmons, an attorney she had previously consulted concerning the collection dispute.

At her meeting with Simmons, Newman made it clear that neither she nor her mother had been served with process. Newman also did not authorize Simmons to represent her in the matter. Her request was that Simmons take care of the matter for her father.

Despite the meeting with Newman, Lee Simmons made a general appearance on behalf of all three defendants on August 5, 1983, when he filed motions to dismiss and change venue. This was the first and final act taken by Simmons in the case. Unknown to the defendants, Simmons ceased practicing law in August 1983 and essentially disappeared from sight. Opposing counsel consented to Simmons' motion to change venue to Flathead County. As Simmons could not be located, the plaintiffs paid the defendants' filing fee to effect the change of venue. Although the action was transferred to Flathead County, the default of Ida Webb was entered in Lake County October 4, 1983. This default was later set aside on the parties' stipulation.

Proceeding in Flathead County, the plaintiffs filed a notice of intent to take default on November 30, 1983. This notice was mailed to Simmons without response. The defendant Newman also attempted to contact Simmons to check on the progress of the case. The defendants were unaware that the plaintiffs were seeking default. The clerk of the court entered default against Newman and W.D. Webb on December 6, 1983.

The defendants first learned that Simmons had entered an appearance on their behalf when a title insurance report indicated that a default had been entered against them. On December 20, 1983, defendants retained new counsel and filed a motion to set aside the entry of default. This motion was heard on January 19, 1984, and on January 24, 1984, the court denied the motion. Judgment was entered February 2, 1984, and the court certified the judgment as a final judgment under Rule 54(b), M.R.Civ.P., for purposes of appeal.

A motion to amend the judgment was made by defendants' counsel on February 15, 1984. The court at the January hearing expressed a reluctance to set aside the default because this action might prejudice a future malpractice action against Simmons. The motion to amend was based on the defendants' discovery that Simmons carried no malpractice insurance, the potential claim was not covered by the client security fund and Simmons had no property from which to satisfy a judgment. The District Court failed to rule upon the motion, and it was deemed denied on March 9, 1984. On March 16, 1984, defendants filed their notice of appeal.

The primary issue raised by appellants is whether the District Court erred in denying the motion to set aside the entry of default.

Standard of Review

Of first importance is determining what standard of review should be applied in this case. The task is complicated by the fact that the parties have cited recent decisions of this Court in which diametrically opposed standards were applied in similar default situations.

The appellants assert that "no great abuse" of discretion by the trial court need be found before a decision can be reversed. Language from our decisions in Kootenai Corp. v. Dayton (1979), 184 Mont. 19, 601 P.2d 47, and Little Horn State Bank v. Real Bird (1979), 183 Mont. 208, 598 P.2d 1109, is cited in support of their proposition.

The respondents claim that "manifest abuse" must be shown before the action of the trial court can be disturbed. They cite our decisions of Schmidt v. Jomac, Inc. (Mont.1982), 639 P.2d 517, 39 St.Rep. 130, and Purington v. Sound West (1977), 173 Mont. 106, 566 P.2d 795, and language therein in support of their "manifest abuse" standard.

Examining the four above-cited cases and their underlying precedent, we discern that the apparent confusion over the proper standard of review is not solely a contemporary phenomenon. The standard has been variously described over the years. However, the sometimes contradictory statements in the case law may be reconciled so that a coherent approach emerges for the review of default judgments.

An underlying concern to any review of default is that every litigated case should be tried on the merits and that judgments by default are not favored. This principle has been enunciated in practically all of our decisions addressing the issue and is the cornerstone of appellate review of default.

A second principle that constantly appears in our case law is that trial courts are vested with a certain amount of discretion when they are considering a motion to set aside a default. It has been stated that these matters are within the "sound discretion" of the trial court.

Two harmonious standards of review have emerged from this Court's attempt to observe the guiding principles of review on motions to set aside a default. Whether one or the other standard of review is used depends on what action the trial court took with the motion.

The first standard properly arises in instances when a trial court has granted the motion to vacate the default and opened up the action for trial on the merits. In these circumstances, the public policy considerations of letting the parties have their day in court and respecting the trial court's sound discretion combine synergistically to justify a strict standard of review: the action of the trial court will only be set aside upon a showing of manifest abuse. Decisions in our case law representative of this approach are Kosonen v. Waara (1930), 87 Mont. 24, 285 P. 668, and Eder v. Bereolos (1922), 63 Mont. 363, 207 P. 471. An alternative manner of articulating this strict standard has been that an order setting aside default will be reversed only in exceptional cases. McClurg v. Flathead Cty. Com'rs (Mont.1980), 610 P.2d 1153, 37 St.Rep. 801; see also, Kootenai, supra; Holen v. Phelps (1957), 131 Mont. 146, 308 P.2d 624.

The second standard of review arises where a trial court has considered but denied a motion to set aside the default. In these instances the reviewing court weighs the conflicting concerns of respecting the trial court's sound discretion while recognizing the policy favoring trial on the merits. The resulting standard of review is that no great abuse of discretion need be shown to warrant reversal. Cases representative of this standard are Strnod v. Abadie (1962), 141 Mont. 224, 376 P.2d 730; Cure v. Southwick (1960), 137 Mont. 1, 349 P.2d 575; Waggoner v. Glacier Colony of Hutterites (1953), 127 Mont. 140, 258 P.2d 1162; Reynolds v. Gladys Belle Oil Co. (1926), 75 Mont. 332, 243 P. 576; and Brothers v. Brothers (1924), 71 Mont. 378, 230 P. 60. An alternative expression of this "no great abuse" standard is that only "slight abuse" is sufficient to reverse an order refusing to set aside a default. See, Madson v. Petrie Tractor & Equipment Co. (1938), 106 Mont. 382, 77 P.2d 1038.

Finally there are cases that recognize both standards of review and simply state that a stronger showing of abuse need be made to warrant reversal where a trial court has opened a default than where it has refused to do so. See for example, Beadle v. Harrison (1920), 58 Mont. 606, 194 P.2d 134. Other jurisdictions have examined results and noted that an appellate court is more likely to affirm a lower court ruling setting aside a default judgment than affirm a refusal to do so. Franklin v. Bartsas Realty, Inc. (1979), 95 Nev. 559, 598 P.2d 1147; Paulsen v. Continental Porsche Audi, Inc. (1980), 49 Or.App. 793, 620 P.2d 1384; Griggs v. Averbeck Rlty., Inc. (1979), 92 Wash.2d 576, 599 P.2d 1289. One treatise has succinctly stated this observation by noting:

"An appellate court, owing to the remedial character of the statutes and the policy of applying them liberally to permit an opportunity to present a substantial defense where that right would otherwise be lost, listens somewhat more readily to an appeal from an order denying relief than to one granting relief. While it will usually sustain the action of the court below, whether for or against the motion--even though upon the same state of facts it would have sustained an opposite conclusion--it is much more disposed to affirm an order when the result is to compel a trial upon the merits than it is when the judgment has been allowed to stand and it appears that a substantial defense could be made. This explains what might otherwise seem to be a conflict in some of the decisions." 1 Freeman on Judgments (5th ed.), Sec. 291 at 579.

Presently there does appear to be a conflict in some of our decisions. The apparent conflicts have stemmed from the inadvertent paraphrasing of the two standards of review...