Magnolia Mountain v. Ski Rio Partners
| Decision Date | 12 December 2005 |
| Docket Number | No. 24,740.,24,740. |
| Citation | 131 P.3d 675,2006 NMCA 027 |
| Parties | MAGNOLIA MOUNTAIN LIMITED PARTNERSHIP, a Texas limited partnership, Plaintiff-Appellee, v. SKI RIO PARTNERS, LTD., a Texas limited partnership, Defendant-Appellant. |
| Court | Court of Appeals of New Mexico |
Scheuer, Yost & Patterson, Donald A. Walcott, Charles V. Henry, IV, Santa Fe, NM, for Appellee.
Holland & Hart, L.L.P., Bradford Berge, Robert J. Sutphin, Jr., Santa Fe, NM, for Appellant.
{1} In this case, we decide whether the trial court abused its discretion in refusing to set aside a default judgment of foreclosure on a finding that the defendant had not presented a meritorious defense. Holding that the trial court acted within its discretion, we affirm.
{2} This case arises out of a default judgment of foreclosure entered in favor of Plaintiff-Appellee, Magnolia Mountain Limited Partnership. Defendant-Appellant, Ski Rio Partners, does not dispute that the note was in default, but many of the other pertinent facts are disputed. Defendant's basic argument is that although it was properly served with a complaint for foreclosure, it did not answer the complaint because it relied to its detriment on Plaintiff's assertion that if Defendant cooperated, Plaintiff would not actually pursue foreclosure. Under established New Mexico law, a defendant seeking to set aside a default judgment must show grounds for relief under Rule 1-060(B) NMRA, which the foregoing facts tend to establish, and one or more meritorious defenses. Sunwest Bank v. Roderiguez, 108 N.M. 211, 213, 770 P.2d 533, 535 (1989). As discussed fully below, New Mexico case law generally requires us to accept all facts pleaded by the defendant in a motion to set aside a default judgment as true. See id. at 214-15, 770 P.2d at 536-37. Over the course of this litigation, however, Defendant has put forth at least four different versions of the disputed facts. Thus, we begin by setting forth the procedural history of the case and briefly explaining Defendant's factual allegations at each stage of the proceedings below.
{3} In 1998, Plaintiff sold Defendant some property in Northern New Mexico known as the Ski Rio Resort. The property was the subject of a mortgage and promissory note for $400,000 executed by Plaintiff and Defendant. Defendant asserts that it was "arguably in default" and admits that "it had not made all payments timely." After sending several demand letters threatening immediate foreclosure, Plaintiff filed its foreclosure complaint on February 28, 2003. Defendant was properly served with the complaint on March 10, 2003. Defendant did not answer the complaint. Plaintiff moved for an entry of default judgment on April 24, 2003, and on May 6, 2003, Judge Sam Sanchez entered the default judgment. A sale was conducted by a special master on June 4, 2003, at which Plaintiff bought the property.
{4} On August 8, 2003, Defendant moved to set aside the default judgment. In its motion, Defendant argued that Plaintiff's actions constituted fraud, misrepresentation, and misconduct, and that such a showing was all that was required to set aside the judgment under Rule 1-060(B)(3). Defendant argued that it was not required to show "that there would have been a different result had the fraud not occurred."
{5} In support of its arguments, Defendant attached an affidavit from its Project Manager, George Wollmann, which alleged the following facts. Upon receiving the foreclosure complaint, Defendant immediately contacted David Hendricks, the owner of the Plaintiff partnership. Mr. Hendricks stated that "if [Defendant] did not disagree with the dollar amount sought in the summons that [it] did not need to file an answer." Mr. Wollmann had suggested getting a New Mexico attorney, but one of Defendant's partners "did not want to waste the money if it was not necessary." Mr. Wollmann voiced this concern to Mr. Hendricks, who responded that "if [Defendant] did not disagree with the amount there was no reason to get an attorney to file an answer." Mr. Hendricks also said that there would be "plenty of opportunities to cure the defaults and that a lot of things had to happen and that the foreclosure process was very slow in New Mexico." Finally, there was a possibility that Defendant would sell the resort, and Mr. Hendricks told Defendant that if the planned sale went through, the sale would "occur before foreclosure and eliminate the controversy." In its motion, Defendant alleged that, because it trusted Mr. Hendricks, it chose not to answer the complaint.
{6} Defendant's motion also asserted that before and after the complaint was filed, it was trying to sell the resort and had found a potential buyer who was in the process of obtaining financing. Mr. Hendricks had "suggested" that Defendant "could sell the Resort before Mr. Hendricks took further action." Mr. Hendricks was an active participant in the negotiations with the potential buyer, cooperating in ironing out the details relating to water rights. Even after he had "secretly" obtained the default judgment and had bought the property at the foreclosure sale, Mr. Hendricks continued to pretend to cooperate with Defendant in its efforts to sell the resort. Because Mr. Hendricks had "led [Defendant] to believe that . . . he was content waiting for the sale . . . or making other arrangements," Defendant took no actions regarding the foreclosure complaint.
{7} After argument, Judge Sanchez granted Defendant's motion and set aside the judgment, allowing Defendant to answer the complaint. Defendant answered the complaint and also for the first time deposited $528,854.05, which it characterized as the sum demanded by Plaintiff plus interest, into the court registry. Defendant included in its answer a third-party complaint against Mountain Highlands L.L.C., the current owner of the property, which was later dismissed from the case. Then, Plaintiff filed a motion asking Judge Sanchez to reconsider his decision setting aside the judgment. Before Judge Sanchez ruled on the motion to reconsider, Mountain Highlands removed him from the case by exercising a peremptory excusal. The case was reassigned to Judge Peggy Nelson.
{8} In both the response to Defendant's initial motion to set aside and the motion for reconsideration, Plaintiff argued that allegations of fraud were not alone sufficient to set aside a default judgment. Instead, Plaintiff asserted that a default judgment should be set aside only if a defendant can also show one or more meritorious defenses to the underlying action. Thus, Defendant filed an answer to the original foreclosure complaint alleging five defenses on the merits: unclean hands, waiver, laches, estoppel, and a separately numbered defense that "Plaintiff's claims are barred in whole or part by Plaintiff's own fraudulent conduct." Defendant also included a counterclaim, which sought damages and other relief.
{9} In support of its claims, Defendant modified its factual allegations as follows, but no new affidavits were ever filed. Defendant now claimed that it had been "negotiating" with Mr. Hendricks since December 2002, and that throughout the negotiations, Mr. Hendricks was "well aware of [Defendant's] intentions to either pay the amount owing. . . or sell the property to a third party." Mr. Hendricks "knew or should have known that Ski Rio had the ability to pay the amount owing . . . on short notice." Further, Mr. Hendricks "assured" Defendant that there was no reason to get an attorney or file a response to the foreclosure complaint. Mr. Hendricks made these "assurances" knowing they were false and with the intent to deceive Defendant so that it would not respond to the complaint.
{10} After hearing argument, Judge Nelson found that Defendant's response to the complaint did not assert any meritorious defenses. She then reinstated the default judgment. Judge Nelson allowed Defendant to file supplemental briefing on the issue of meritorious defenses. In the supplemental briefing, Defendant asserted several new defenses and made the following modifications to its factual allegations. Plaintiff, through Mr. Hendricks, "introduced" Defendant to the potential buyer of the property. Plaintiff told Defendant that "Plaintiff understood that it would get paid from the proceeds of the sale prior to any foreclosure taking place." As a result, Plaintiff indicated that the foreclosure was "no longer an issue." Finally, Mr. Hendricks "promised that he would not have to foreclose the property" so long as Defendant sold it to a particular buyer.
{11} After supplemental briefing and another hearing, Judge Nelson again denied the motion to set aside the default judgment. This appeal followed. In its appellate briefs, Defendant has yet again revised its facts. Now it alleges as follows. Defendant had told Plaintiff that it Defendant "accepted [Plaintiff's] promise that [Plaintiff] would not foreclose." The result was that Plaintiff "secretly foreclosed on the mortgage and promissory note, robbed [Defendant] of its redemption rights, purchased the property for itself, and thereafter sold it for a handsome profit."
{12} We generally review a trial court's denial of a motion to set aside a default judgment for abuse of discretion. Sunwest Bank, 108 N.M. at 213, 770 P.2d at 535. Our Supreme Court has specifically held that the meritorious defense component of the analysis is also reviewed for abuse of discretion. Id. at 214, 770 P.2d at 536 ().
{13} We first address the standard for conducting the meritorious defense analysis,...
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