Ness v. Digital Dial Communications, Inc.

• Decision Date: 07 July 1999
• Docket Number: No. 96-3436.,96-3436.
• Citation: 227 Wis.2d 592,596 N.W.2d 365
• Parties: Kenneth NESS and Susan Ness, Alan Knight, d/b/a Knight Land Surveying, Debra D. Honore and Patrick C. O'Donnell, Plaintiffs-Appellants, Douglas F. MANN, as receiver for Digital Dial Communications, Inc., Appellant, v. DIGITAL DIAL COMMUNICATIONS, INC., Defendant, U.S. BILLING, INC., and Zero Plus Dialing, Inc., Garnishees-Defendants-Respondents-Petitioners.
• Court: Wisconsin Supreme Court

227 Wis.2d 592

596 N.W.2d 365

Kenneth NESS and Susan Ness, Alan Knight, d/b/a Knight Land Surveying, Debra D. Honore and Patrick C. O'Donnell, Plaintiffs-Appellants, Douglas F. MANN, as receiver for Digital Dial Communications, Inc., Appellant, v. DIGITAL DIAL COMMUNICATIONS, INC., Defendant, U.S. BILLING, INC., and Zero Plus Dialing, Inc., Garnishees-Defendants-Respondents-Petitioners.

No. 96-3436.

Supreme Court of Wisconsin.

Oral argument May 27, 1999.

Decided July 7, 1999.

For the garnishees-defendants-respondents-petitioners there were briefs by Thomas L. Shriner, Jr., Douglas M. Hagerman, G. Michael Halfenger and Foley & Lardner, Milwaukee and oral argument by Thomas L. Shriner, Jr.

For the plaintiffs-appellants was a brief by David L. DeBruin, Douglas P. Dehler and Michael Best & Friedrich, LLP, Milwaukee and oral argument by David L. DeBruin.

For the appellant there was a brief by Terry E. Johnson and Peterson, Johnson, Murray, S.C., Milwaukee and oral argument by Terry E. Johnson.

¶ 1. N. PATRICK CROOKS, J

Petitioners, U.S. Billing, Inc. and Zero Plus Dialing, Inc., seek review of a published court of appeals decision, Ness v. Digital Dial Communications, Inc., 222 Wis. 2d 374, 588 N.W.2d 63 (Ct. App. 1998), which reversed a Racine County Circuit Court order. In that order, the circuit court granted a motion to vacate a default judgment against U.S. Billing, Inc. and Zero Plus Dialing, Inc. as garnishee defendants. The court of appeals reversed, holding that according to Wis. Stat. § 801.14(1) (1995-96),¹ an amended garnishment summons and complaint that was filed but not served on a defaulting party does not create a new twenty-day window for the defaulting party to answer the amended complaint.²See Ness, 222 Wis. 2d at 376. We affirm the court of appeals. A defaulting party cannot answer an amended complaint, thereby attempting to cure its default, when the party is already in default at the time the amended complaint is filed.³ This decision is in harmony with our decision in Holman v. Family Health Plan, 227 Wis. 2d 478, 481, 596 N.W.2d 358 (1999), which held that the default judgment in that case was a nullity.⁴

I.

¶ 2. The facts of this case are as follows. The plaintiffs are residents of Wisconsin, and representatives of a certified class that sued the defendant, Digital Dial Communications, Inc. (Digital Dial) for "slamming" — the unauthorized changing of consumers' long distance carrier. Plaintiffs obtained a $1 million default judgment against Digital Dial. The circuit court determined that Digital Dial was on the brink of insolvency and appointed a receiver, Douglas Mann for Digital Dial, to recover moneys that other entities owed Digital Dial. The receiver initiated garnishment actions against those who owed money to Digital Dial. U.S. Billing, Inc., (U.S. Billing) and Zero Plus Dialing, Inc., (Zero Plus) were among those entities.

¶ 3. U.S. Billing and Zero Plus are two businesses employed by Digital Dial to collect long distance fees that customers send to their local phone service carrier. The two corporations are related: both corporations are subsidiaries of U.S. Long Distance Corp., and the in-house counsel for both corporations is the same person. On April 19, 1996, the circuit court issued an injunction which required U.S. Billing and Zero Plus to turn over to Mann all of Digital Dial's assets within their possession or under their control.

¶ 4. Because Zero Plus and U.S. Billing were unclear about the court order, Racine County Circuit Court Judge Emily Mueller sent out a clarification, a Supplemental Order Regarding Appointment of a Receiver, describing in greater detail the extent to which Zero Plus and U.S. Billing needed to comply with the court order. On July 1, 1996, the in-house counsel for both corporations sent a letter to the receiver, stating that both entities would comply. However, a dispute remained as to whether moneys collected outside the state of Wisconsin were under the jurisdiction of the court. On July 11, 1996, the in-house counsel for both U.S. Billing and Zero Plus wrote to the receiver and disputed the receiver's claim that non-Wisconsin funds were subject to garnishment by a Wisconsin court. The in-house counsel for the garnishees held his position that his clients were responsible for a total of $9,449.18, only those moneys collected from Wisconsin consumers.

¶ 5. On June 27, 1996, the receiver filed a garnishment action against these two businesses, the garnishees. Zero Plus was served with the garnishment summons and the complaint through its registered agent in Wisconsin on July 1, 1996, and its in-house counsel was served on July 8, 1996. U.S. Billing is a Texas-based corporation, but rather than sending the summons and complaint to that corporation, Mann mistakenly sent them to a Wisconsin-based corporation also named U.S. Billing, Inc., on July 1, 1996. The Wisconsin-based U.S. Billing, Inc., promptly answered the complaint, disavowing any relationship to the events outlined in the complaint. The receiver, recognizing his error, sent the summons and complaint to the correct U.S. Billing on July 8, 1996, and through a registered agent in Texas, personally served U.S. Billing's in-house counsel on July 16, 1996.

¶ 6. Neither Zero Plus nor the Texas-based U.S. Billing answered the complaint. On July 22, 1996, Zero Plus defaulted. On July 29, 1996, the Texas-based U.S. Billing defaulted.

¶ 7. The receiver sent out a letter on August 19, 1996, to Zero Plus and U.S. Billing's in-house counsel, letting counsel know that the court order included all moneys, not just those collected from Wisconsin consumers.

¶ 8. On August 27, 1996, the receiver amended the caption of the complaint, correctly naming "U.S. Billing, a Texas Corporation" as the garnishee rather than the Wisconsin-based corporation that was originally on the complaint, so that the judgment docket would correctly identify the accurate corporation. The amended complaint also named Zero Plus as a garnishee. This amended complaint was not sent to U.S. Billing, pursuant to Wis. Stat. § 801.14(1).

¶ 9. On August 28, 1996, the receiver moved for a $1 million default judgment against Zero Plus and the Texas-based U.S. Billing. This motion for default judgment was for failure to answer the original garnishment complaint, though the amended complaint's caption was on the notice of motion.

¶ 10. On September 11, 1996, the motion to grant default judgment was heard. The garnishees filed an affidavit stating that the two corporations did not answer the complaint because they did hold certain of Digital Dial's assets. The garnishees did not assert any defense to the plaintiff's garnishment action. They also objected to the plaintiff's attempted garnishment of funds generated outside the state of Wisconsin, questioning both the jurisdiction of the court and the powers of the receiver. The circuit court found these reasons to be inapplicable and granted a default judgment against U.S. Billing and Zero Plus.

¶ 11. On September 16, 1996, U.S. Billing and Zero Plus filed a motion to vacate the default judgment. The garnishees filed a proposed answer to the original complaint, stating that $9,449.18 was the only amount at issue, that amount collected from Wisconsin consumers. The hearing on the motion to vacate was held October 11, 1996. The garnishees argued excusable neglect, but the circuit court disagreed, finding that the proposed answer failed to meet the criteria for a garnishment under Wis. Stat. § 812.11(1), and held that the default judgment would not be vacated. ¶ 12. The garnishees filed a second motion to vacate the default judgment on October 31, 1996, again including a proposed answer. The second motion to vacate the default judgment was heard on November 18, 1996. Though the garnishees raised alternative grounds for vacating the default judgment, the judge vacated the judgment solely on the ground that the original complaint on which the default judgment was based was superseded by the amended complaint filed on August 27, 1996. Because the garnishees had filed their proposed answer within 20 days of the amended complaint, they argued that the answer was timely and they were not in default. This time, the circuit court agreed and vacated the judgment.

¶ 13. The court of appeals reversed the circuit court's decision. Ness, 222 Wis. 2d at 376. It held that Wis. Stat. § 801.14 provides an exception to the service requirement. Id. at 380. The statute says, in part, "No service need be made on parties in default for failure to appear. . . ." Wis. Stat. § 801.14(1). The court of appeals stated that "an amended pleading that does not present any additional claims for relief against a defaulting party relates back to the time the original complaint was filed; therefore, it does not create another twenty-day response period for an answer." Id. at 383.

¶ 14. This court granted the garnishees' petition for review on January 12, 1999.

II.

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¶ 15. Circuit courts have discretion in deciding whether to grant a motion to vacate a default judgment. Marotz v. Marotz, 80 Wis. 2d 477, 483, 259 N.W.2d 524 (1977). A circuit court's discretionary decision is reviewed under an erroneous exercise of discretion standard. See id.⁵ A reviewing court will uphold a discretionary decision if the circuit court considered the relevant facts, properly interpreted and applied the law, and reached a reasonable determination. Hartung v. Hartung, 102 Wis. 2d 58, 66, 306 N.W.2d 16 (1981). The issue presented in this case is one of statutory construction, a question of law which we review de novo. J.L. Phillips & Assocs., Inc. v. E&H Plastic Corp., 217 Wis. 2d 348, 354, 577 N.W.2d 13 (1998).

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¶ 16. We conclude that a defaulting party cannot answer an amended complaint, thereby attempting to cure its default, when the party is already in default at the time the amended complaint is filed.⁶ Our...