Nikolaisen v. Advance Transformer Co.

• Decision Date: 19 December 2007
• Docket Number: No. 05-727.,05-727.
• Citation: 340 Mont. 332,2007 MT 352,174 P.3d 940
• Parties: Robert NIKOLAISEN, Judy Nikolaisen, and Plentywood Electric, Inc., Plaintiffs and Appellees, v. ADVANCE TRANSFORMER CO. and John Does I-III, Defendants and Appellants.
• Court: Montana Supreme Court

174 P.3d 940

2007 MT 352

340 Mont. 332

Robert NIKOLAISEN, Judy Nikolaisen, and Plentywood Electric, Inc., Plaintiffs and Appellees, v. ADVANCE TRANSFORMER CO. and John Does I-III, Defendants and Appellants.

No. 05-727.

Supreme Court of Montana.

Submitted on Briefs October 31, 2007.

Decided December 19, 2007.

For Appellant: Gerald B. Murphy and Matthew Braukmann, Moulton, Bellingham, Longo & Mather, Billings, Montana.

For Appellees: Loren J. O'Toole, III, O'Toole Law Firm, Plentywood, Montana.

Justice JOHN WARNER delivered the Opinion of the Court.

¶ 1 The Plaintiffs, Plentywood Electric and Robert and Judy Nikolaisen (collectively "Plentywood"), seek damages from Advance Transformer Co. ("Advance") incurred when a fire destroyed Plentywood Electric. The fire was allegedly caused by a defective light ballast manufactured by Advance. The District Court of the Fifteenth Judicial District entered a default judgment in favor of Plentywood. Advanced moved for relief from the judgment. The motion was deemed denied as the District Court did not rule on it within the time provided. Advance now appeals from the denial of its motion to set aside the default judgment.

ISSUES

¶ 2 Advance raises four issues on appeal. However, we determine that the District Court erred in not granting Advance's motion to set aside the default judgment pursuant to M.R. Civ. P. 60(b)(4), based on improper service of process. Therefore, we do not fully discuss the other issues Advance raises.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 On November 19, 2002, a fire destroyed Plentywood Electric, owned by the Nikolaisens. The State Fire Marshall investigated the fire the following day and, according to Plentywood, concluded that a ballast manufactured by Advance had caused the fire. Within days, Plentywood notified Advance of the fire.

¶ 4 Upon notification of the potential claim against it, Advance and its insurer, Travelers Insurance Co. ("Travelers"), retained an investigator to visit the fire scene and inspect the ballast. Plentywood's insurer, Austin Mutual, also sent an investigator to inspect the scene and the ballast. The two investigators examined the ballast in January 2003 and again in August 2003. Robert Erhardt, the Director of Technical Relations for Advance, attended the August 2003 inspection. In Erhardt's opinion, Advance had several defenses to liability.

¶ 5 On November 18, 2004, Austin Mutual, asserting a subrogation claim for payments it had made to Plentywood, filed suit against Advance, but did not serve its complaint. On November 19, 2004, Plentywood filed a complaint against Advance, seeking recovery of the uninsured portion of its alleged loss. Likewise, Plentywood made no attempt at that time to serve its summons and complaint.

¶ 6 On February 10, 2005, Plentywood's counsel sent Advance a demand letter for approximately $760,578.00, representing its claimed uninsured loss. The letter was addressed to Advance's office in Rosemont, Illinois, but was not directed to a particular individual. The letter stated that Plentywood would file a complaint if it did not receive Advance's reply by March 1, 2005. This letter reached Erhardt on or around February 15, at which time he contacted Tim Costello, the Technical Specialist for Travelers, and tendered the claim to Travelers. Erhardt also provided a copy of Plentywood's demand letter to Costello. On February 17, 2005, Costello contacted Plentywood's counsel and requested documentation supporting its claim. He also asked that counsel direct all future correspondence on the claim to him. During the several communications between them, Plentywood's counsel at no time mentioned that he had already filed a complaint against Advance.

¶ 7 On March 4, 2005, Plentywood's counsel provided the documentation that Travelers had requested. Counsel again indicated his intent to file a complaint against Advance if he did not hear from Travelers or Advance by March 20. On March 25, 2005, Costello contacted Plentywood's attorney and informed him that, based on Advance's conclusion that valid defenses to the claim existed, an offer would not be forthcoming. Again, Plentywood's counsel did not mention that he had already filed a complaint.

¶ 8 On April 5, 2005, Plentywood's counsel filed an amended complaint against Advance. Despite knowing Advance's address, and having had prior contact with both Advance and its insurer Travelers, counsel did not advise either that he had filed the amended complaint. Nor did counsel make any attempt to serve Advance directly. Rather, on April 19, counsel for Plentywood filed an affidavit with the District Court for the purpose of having the Montana Secretary of State appointed as Advance's agent for service of process pursuant to M.R. Civ. P. 4(D)(2)(f). The Clerk of the District Court appointed the Montana Secretary of State as Advance's agent for service and on April 20, the Secretary of State was served with the original and the proper number of copies of the summons and the amended complaint, as well as a copy of Plentywood's counsel's affidavit. On April 25, 2005, the Secretary of State mailed the documents, return receipt requested, to Advance Transformer Co., at its address in Illinois provided by Plentywood's counsel.

¶ 9 On May 9, 2005, a courier employed by Advance signed for and accepted the documents. On May 11, 2005, the Secretary of State received the return receipt.

¶ 10 On June 8, 2005, after receiving no answer to the amended complaint, Plentywood's counsel requested entry of default against Advance, and the Clerk of District Court entered the default. On July 12, 2005, Plentywood's counsel moved for entry of a default judgment in the amount of $1,301,487.19, representing Plentywood's claimed uninsured loss, Austin Mutual's loss payments under its policy with Plentywood, and $165.00 in costs. On July 18, 2005, the District Court held a hearing on the matter. The record does not indicate that Plentywood's counsel informed the presiding judge that he had previously been in contact with Advance, that Advance was insured by Travelers, that he had been communicating with Travelers, or that Plentywood's claim had been denied. The District Court entered default judgment in favor of Plentywood in the amount of $1,301,487.19 together with interest at a rate of 10% until paid in full, pursuant to § 25-9-205(1), MCA.

¶ 11 On September 19, 2005, just after the 60 day window when Advance could obtain relief from the default judgment under M.R. Civ. P. 60(b)(1), Plentywood's counsel obtained an authenticated copy of the default judgment. Advance maintains that on September 30, 2005, it first discovered that Plentywood had filed a complaint against it and that a default judgment had been entered in the District Court. Both Costello and Erhardt state that they had no contact with Plentywood or Austin Mutual between March 25 and September 30, 2005.

¶ 12 Once Advance discovered the default judgment, it immediately retained counsel. On October 11, 2005, Advance moved to set aside the default judgment and filed an answer to Plentywood's amended complaint. Advance argued in its motion that no one "in authority at Advance" ever received the summons and amended complaint; therefore, service was inadequate, the default judgment should be set aside, and it should have the opportunity to defend.

¶ 13 Plentywood objected to the motion and moved to strike Advance's answer. The District Court did not act on the motion. On December 19, 2005, the District Court entered an order stating that since more than 60 days had elapsed since Advance filed its motion to set aside the default judgment, it was deemed denied. Advance filed a timely appeal.

STANDARDS OF REVIEW

¶ 14 In reviewing a default judgment, we are guided by the principle that a case should be decided on its merits; judgments by default are not favored. Matthews v. Don K Chevrolet, 2005 MT 164, ¶ 9, 327 Mont. 456, ¶ 9, 115 P.3d 201, ¶ 9 (citations omitted). We generally review the denial of a motion to set aside a default judgment for only a slight abuse of discretion. The party seeking to set aside a default judgment has the burden of proof. Matthews, ¶ 9. However, we will also review a district court's conclusions of law to determine if they are correct. Fonk v. Ulsher, 260 Mont. 379, 383, 860 P.2d 145, 147 (1993). Whether the district court has jurisdiction over the case is a conclusion of law. Semenza v. Kniss, 2005 MT 268, ¶ 9, 329 Mont. 115, ¶ 9, 122 P.3d 1203, ¶ 9.

DISCUSSION

¶ 15 Advance argues the District Court abused its discretion when it denied the motion to set aside the default judgment because Plentywood did not correctly serve Advance as required by M.R. Civ. P. 4(D)(2), (3).

¶ 16 A default judgment may be set aside if the judgment is void. M.R. Civ. P. 60(b)(4). If the plaintiff does not properly serve the defendant pursuant to M.R. Civ. P. 4(D), the judgment is void because without proper service the district court does not obtain personal jurisdiction over a party. See Ihnot v. Ihnot, 2000 MT 77, ¶ 8, 299 Mont. 137, ¶ 8, 999 P.2d 303, ¶ 8. Each step of the procedure prescribed by Rule 4(D) requires strict and literal compliance to support a judgment based on substituted or constructive service. Shields v. Pirkle Refrigerated Freightlines Inc., 181 Mont. 37, 43-44, 591 P.2d 1120, 1124 (1979), overruled on other grounds, Roberts v. Empire Fire & Marine Ins. Co., 276 Mont. 225, 228, 915 P.2d 872, 873 (1996); Ihnot, ¶ 13. See also Joseph Russell Realty Co. v. Kenneally, 185 Mont. 496, 502, 605 P.2d 1107, 1110 (1980).

¶ 17 M.R. Civ. P. 4(D) outlines the procedure for service of summons upon an out-of-state corporation, such as Advance. Reference to several parts of the Rule is necessary.

¶ 18 Rule 4(D)(2)(e) provides that service may be had upon a corporation doing business in Montana by delivering a copy of the summons and complaint to an officer, director, manager, or associate...