Midwest Developers v. Goma Corp.

• Decision Date: 27 November 1984
• Docket Number: No. 83-258,83-258
• Citation: 360 N.W.2d 554,121 Wis.2d 632
• Parties: MIDWEST DEVELOPERS, Plaintiff-Respondent, v. GOMA CORPORATION, Don Goben, Barbara Goben, and Goben Cars, Inc., Defendants- Appellants.
• Court: Wisconsin Court of Appeals

Page 554

360 N.W.2d 554

121 Wis.2d 632

MIDWEST DEVELOPERS, Plaintiff-Respondent, v. GOMA CORPORATION, Don Goben, Barbara Goben, and Goben Cars Inc., Defendants- Appellants.

No. 83-258.

Court of Appeals of Wisconsin.

Submitted on Briefs April 10, 1984.

Opinion Released Nov. 27, 1984.

Opinion Filed Nov. 27, 1984.

Donald L. Heaney, Michael J. Lawton, Kenneth B. Axe and Isaksen, Lathrop, Esch, Hart & Clark, Madison, for defendants-appellants.

Leslie Brodhead Griffith and Ross & Chatterton, Madison, for plaintiff-respondent.

Before GARTZKE, P.J., DYKMAN, J., and BRUCE F. BEILFUSS, Reserve judge.

DYKMAN, Judge.

Defendants Goma Corporation (Goma), Goben Cars, Inc. (Goben Cars), and Don and Barbara Goben appeal from a default judgment of $357,390.93 granted as a sanction for their failure to comply with a discovery order. Appellants, represented on appeal by different counsel, argue that: (1) the trial court lacked the power to impose the sanction; (2) they were denied due process of law guaranteed by the fourteenth amendment to the United States Constitution because the court held no hearing and made no finding as to their contempt, good faith or ability to comply with the discovery order before granting default judgment; (3) the trial court erred by ordering judgment against all defendants for the acts of Goma; and (4) the trial court granted a default judgment without an evidentiary hearing to determine the amount of damages. Because we conclude the court had the power to impose the sanction, that defendants were afforded due process, that it was not error to grant a default judgment when defendants had chosen not to challenge the amount of damages claimed and not error to order judgment against the officers of a corporation, we affirm.

Don Goben was the sole stockholder in Goma, its organizer, president, chief operating officer, chair of the board of directors and treasurer. His wife, Barbara, was Goma's secretary. Goma acted as a holding company for Goben Cars, of which Don Goben was president. Goma also negotiated automobile leases with federal government agencies, and procured investors who would buy the automobiles which became subject to the leases. It acted as trustee for the lease payments received from the federal government.

The leases required Goma to perform all repair and maintenance service on the automobiles during the lease term. Goma retained a portion of each lease payment to cover the maintenance and repair costs and the balance was to be remitted to the investors. At the end of the lease term the investors could choose whether to take possession of the cars or allow Goma to sell them back to Goben Cars. The initial investors focused only on the tax benefit from the arrangement.

Three investors assigned their interests to Midwest Developers (Midwest). Midwest expected to profit on the sale of the cars after the leases expired. However, two of the three investors had previously agreed that Goma could sell their cars back to Goben Cars. The third, Meyer, had not. Goma refused to deliver any of the cars to Midwest. In June 1976 Midwest brought this action against Goma, Goben Cars, and the Gobens for an accounting of all receipts and disbursements relevant to the cars, for return of vehicles for which leases had terminated, and for removal of Goma as trustee.

Defendants counterclaimed, stating that they had supplied an accounting of all sums due under the lease agreements. On February 2, 1977, Judge Torphy ordered that discovery be completed by April 1, 1977 and that defendant "furnish disposition information ... (i.e. sales price, charges against cars for preparation for sale, etc.) by 2/15/77 on cars already disposed of and within 10 days after each disposition thereafter." Defendants' undated response to Midwest's pre-trial interrogatories objected to almost all the requests for information because they were "irrelevant, immaterial, unduly burdensome upon defendants, confidential business information", but stated that Don and Barbara Goben and an employee, O.B. Baker, represented "each and every employee or agent of defendants, Goma Corp., and Goben Cars, Inc., authorized to act on behalf of said defendants in respect to the execution and performance of the contracts ...."

The record contains no transcript or clerk's notes of the trial that was held July 11, 1977.

The trial court's memorandum decision of February 17, 1978, stated: "With regard to all cars the plaintiff, as the 'owner' or 'purchaser' pursuant to exhibits 3, 7 and 11, is entitled to a full accounting from Goma, the trustee, as to lease payments, credits, debits, loan payments, maintenance charges, sale, etc." (Emphasis in original.) The court found that Goma had refused to account to Midwest and ordered it to do so within 30 days of the judgment which was entered March 20, 1978. It also ordered Goma, Goben Cars, Don and Barbara Goben to immediately deliver to Midwest written authorization to recover possession of the Meyer vehicles that were not presently leased to the U.S. government, together with executed titles and a statement as to the whereabouts of the cars.

Midwest brought an order to show cause to be heard April 6, 1978 why defendants should not be punished for contempt because they had failed to comply with the court's judgment requiring execution and delivery to Midwest of title to the Meyer vehicles. Midwest's accompanying affidavit stated that defendants had refused to deliver title "until certain demands relating to the vehicles not the subject of this law suit are complied with." The affidavit stated that Midwest had effected a sale of three vehicles, but because of its inability to deliver title, one purchaser now refused to continue with the purchase and the remaining two purchasers were about to cancel their purchases. There is no record of whether a hearing on the order was held on April 6, 1978 as scheduled.

Midwest also brought an order to show cause to be heard April 26, 1978 why judgment should not be granted against defendants in the sum of $276,673.84 because of their failure to give the accounting within 30 days as required by the court's interlocutory judgment of March 17, 1978. The accompanying affidavit included an estimate of the unaccounted lease proceeds. The estimate was based on a report prepared by defendants' accountant and Midwest's review of the lease documents. There is no order or transcript of the hearing in the record. Midwest, in a June 2, 1978 affidavit, stated that the judge, at defendants' request, extended the time for defendants to present an accounting to June 1, 1978.

On June 2, 1978 Midwest moved for sanctions for the failure of defendants to furnish an accounting and requested the court to grant judgment against defendants in the sum of $276,673.84 or to require defendants to post a bond of $300,000 to guarantee payment of judgment, costs and interest in the action as a condition of the presentation of further testimony. An accompanying affidavit made by Byron Frenz, an officer of and attorney for Midwest, alleged that the accounting given by defendants dated July 22, 1976 failed to list the defendant's gross receipts from the leases. The affidavit also said that the information Midwest received June 1, 1978 included a copy of a letter dated May 26, 1978 from O.B. Baker to defendants' attorney in which he said:

We are mailing you today, under separate cover, the Income and Expense Work Sheets on cars that were owned by [the investors]. You will note that the expense sections (maintenance, etc.) have not been totaled and are not complete.

We have spent an estimated 80 man hours on this work and estimate that it will take an additional 30 to 40 hours to complete. Prior to November of 1975, this company did not maintain expense records on each individual car which means that we must check each and every maintenance bill paid by the company to find expenses that would pertain to the above mentioned vehicles.

....

To properly compute our overhead expenses, it will be necessary to find out the number of vehicles operating each month during the period of these contracts ....

I give you the above to help you understand the time and work involved in compiling this information. We will continue to work on this and keep you posted on progress....

The Frenz affidavit also said that the statements made in one letter as to the maintenance expense records were directly contrary to statements made by Goben at trial, and that neither the contracts nor the judgment of the court in any way authorized the payment of "overhead expenses" and the determination of such overhead expenses was not required in order to make an accounting. The Frenz affidavit also said that Goma had moved a substantial portion or all of its operations to Florida; that on the numerous occasions Frenz had attempted to contact Don Goben he had been advised that Goben was out of the country.

After a hearing, the trial court entered an order July 2, 1978 requiring defendants to account for the disposition of the repurchase price of the vehicles sold before July 22, 1978 whose government lease had terminated, and to respond to Midwest's interrogatories by August 1, 1978.

July 31, 1978 Midwest renewed its motion for sanctions and moved the court to grant judgment against defendants in the sum of $276,673.84 or to require defendants to post a bond sufficient to guarantee payment of judgment, costs and interest. In an accompanying affidavit Frenz stated that defendants had not accounted for the repurchase price of the cars resold to Goben Cars. On July 26, 1978 defendants moved for a protective order to block Midwest's discovery of defendants' tax returns.

The record contains no transcript but includes clerk's notes of the August 21, 1978 hearing on Midwest's motion for sanctions and defendants' motion for a protective order. The clerk's notes show that defendants' counsel stated that the boxes...