No Boundry, LLC v. Hoosman

• Decision Date: 22 January 2021
• Docket Number: No. 19-0431,19-0431
• Parties: NO BOUNDRY, LLC, Appellee, v. Cornell HOOSMAN, Appellant.
• Court: Iowa Supreme Court

953 N.W.2d 696

NO BOUNDRY, LLC, Appellee,

v.Cornell HOOSMAN, Appellant.

No. 19-0431

Supreme Court of Iowa.

Submitted December 16, 2020

Filed January 22, 2021

Todd Schmidt (argued) of Iowa Legal Aid, Dubuque, Nathan Peters of Iowa Legal Aid, Waterloo, and Alexander Vincent Kornya of Iowa Legal Aid, Des Moines, for appellant.

Charles P. Augustine (argued) of Klatt, Augustine, Treinen & Rastede, P.C., Waterloo, for appellee.

McDonald, J., delivered the opinion of the court, in which all participating justices joined. McDermott, J., took no part in the consideration or decision of the case.

McDONALD, Justice.

Cornell Hoosman stands to lose his home for $220 in delinquent but disputed property taxes. Hoosman claims he is legally disabled and is exempt from paying property taxes. Hoosman alleges he has been trying to resolve the property tax issue with Black Hawk County for some time. Plaintiff No Boundry, LLC, obtained title to Hoosman's home by way of a tax sale deed. No Boundry filed its petition for recovery of real property and obtained a default judgment awarding it immediate and exclusive possession of Hoosman's home. The district court denied Hoosman's motion to set aside the default judgment. The court of appeals affirmed the district court, and we granted Hoosman's application for further review. The question presented is whether the district court erred in denying Hoosman's motion to set aside the default judgment.

The record reflects the following. No Boundry obtained title to Hoosman's home by way of a tax sale deed issued by the Treasurer of Black Hawk County dated November 30, 2018, and filed December 11. No Boundry filed a petition for recovery of real property on January 14, 2019, in which it sought immediate and exclusive possession of Hoosman's home. No Boundry personally served the petition and original notice on Hoosman two days later. Hoosman did not timely file an answer. No Boundry served on Hoosman its ten-day notice of intent to file an application for default and default judgment. See Iowa R. Civ. P. 1.972(2). After waiting the required time, No Boundry sought the entry of default and default judgment. The district court entered default judgment on February 21 and issued a writ of removal on February 25.

Hoosman took action approximately two weeks after the district court issued the writ of removal. On March 13, Hoosman filed an application in which he sought to enjoin his removal from the property. In the application, Hoosman averred that he has been legally disabled since June 2013 and that, because of his legal disability, he is exempt from paying property taxes. The application further averred that Hoosman received a letter of exemption from the Iowa Department of Human Services and that Hoosman presented the letter of exemption to the Black Hawk County Supervisors Office, which took no action.

The day after Hoosman filed his application, Hoosman filed his motion to set aside the default judgment. In the motion, Hoosman stated he is legally disabled as evidenced by medical records. The motion stated Hoosman was found to be incompetent in two criminal matters. Hoosman asserted he had a statutory basis for defending against the claim. Specifically, he asserted he had a statutory right of redemption afforded persons with a legal disability under Iowa Code section 447.7(2).

Hoosman and his counsel appeared before the district court at order hour the following day. Order hour is a time set aside for the court to hear motions and address other miscellaneous matters brought to the court's attention. Order hour typically is unscheduled and informal. A court reporter was not available during this particular order hour. Following a hearing on Hoosman's motion, the district court entered an order denying the motion to set aside. The district court's order did not make any findings or provide any reason for denying Hoosman's motion. The order stated: "The court heard the arguments of counsel and finds that the application for injunction and the motion to set aside default and stay writ should be denied."

Hoosman filed a motion to enlarge and amend the district court's denial of his motion to set aside. In the motion, Hoosman alleged the district court did not allow him to submit medical evidence in support of his motion to set aside. Hoosman alleged that he is legally disabled and not competent to defend himself. He alleged he needs a guardian ad litem. Attached to the motion to enlarge and amend was a psychologist's report prepared for the purposes of evaluating Hoosman's competency to stand trial in an unrelated criminal matter. In the report, the psychologist opined Hoosman was not competent to stand trial. The district court declined to rule on the motion to enlarge and amend because the writ already had been executed by the sheriff and because Hoosman already had filed his notice of appeal.

This brings us to the question presented. We begin our answer to the question by noting there is a longstanding policy in our state favoring the resolution of legal disputes on the merits. See Wharff v. Iowa Methodist Hosp. , 219 N.W.2d 18, 21 (Iowa 1974) ("The general policy in this jurisdiction has been to allow trial on the merits."); Hobbs v. Martin Marietta Co. , 257 Iowa 124, 129, 131 N.W.2d 772, 775 (1964) ("[C]ourts prefer a trial on the merits."); Newell v. Tweed , 241 Iowa 90, 95, 40 N.W.2d 20, 23 (1949) ("Courts look with favor upon trials and the rights of a litigant should not be denied proper hearing by strict application of legal formalities."). Pursuant to this longstanding policy, default judgments are disfavored. This court will resolve all doubt on whether a default judgment should be set aside in favor of setting aside the default judgment. See Brandenburg v. Feterl Mfg. Co. , 603 N.W.2d 580, 584 (Iowa 1999). "We are more reluctant to interfere with a court's grant of a motion to set aside a default and a default judgment than with its denial." Id. We are not alone in this regard. "Courts almost universally favor a trial on the merits, and, when there has been a reasonable excuse shown for the default, there should be no objection to such a trial to those who are reasonably diligent." Barto v. Sioux City Elec. Co. , 119 Iowa 179, 186, 93 N.W. 268, 271 (1903).

With that principle in mind, we turn to the text of the relevant rule. Iowa Rule of Civil Procedure 1.977 provides "[o]n motion and for good cause ... the court may set aside a default or the judgment thereon, for mistake, inadvertence, surprise, excusable neglect or unavoidable casualty." Rule 1.977 further provides "[s]uch motion must be filed promptly after the discovery of the grounds thereof, but not more than 60 days after entry of the judgment. Its filing shall not affect the finality of the judgment or impair its operation." "The burden is on the movant to plead and prove good cause." Cent. Nat'l Ins. Co. of Omaha v. Ins. Co. of N. Am. , 513 N.W.2d 750, 754 (Iowa 1994). "Good cause is a sound, effective, and truthful reason. It is something more than an excuse, a plea, apology, extenuation, or some justification, for the resulting effect." Id. ; see also Hansman v. Gute , 215 N.W.2d 339, 342 (Iowa 1974).

Although the movant bears the burden to plead and prove good cause, our case law requires a liberal construction of the rule to afford an opportunity for adjudication on the merits. See Brandenburg , 603 N.W.2d at 584 (stating disfavor of denials of motions to set aside default judgment is consistent with the purpose of the rule); Whitehorn v. Lovik , 398 N.W.2d 851, 853–54 (Iowa 1987) (en banc) (holding the purpose of the rule is "to allow determination of controversies on their merits rather than on the basis of nonprejudicial inadvertence or mistake" given the weight of "justice inherent in a trial on the merits"); First Nat'l Bank in Lenox v. Claiser , 308 N.W.2d 1, 3 (Iowa 1981) (en banc) ("Because trial on the merits is favored, a liberal approach is to be taken in granting relief from defaults."); Handy v. Handy , 250 Iowa 879, 885, 96 N.W.2d 922, 926 (1959) ("[T]he liberality of Rule 236 [now rule 1.977 ] and its construction is aimed to assure, if possible, that all litigants have a fair opportunity to have their cases decided by the courts on the merits.").

Hoosman argues default judgment should be set aside on the ground of excusable neglect. See Cent. Nat'l Ins. Co. of Omaha , 513 N.W.2d at 753, 755–56 (identifying excusable neglect as a ground for setting aside default and default judgment). In determining whether the movant has established excusable neglect we look at the particular facts and circumstances of each case. No single fact is dispositive. Relevant considerations include the cause for the movant's failure to timely answer, whether the movant intended to defend, whether the movant asserted a meritorious defense in good faith, and whether the movant ignored or willfully defied the rules of procedure. See id. at 756. We address each of these considerations in turn.

It appears the cause for Hoosman's failure to timely answer was his alleged legal disability. In his motion papers, Hoosman asserted that he is legally disabled, that he receives disability income, that his disability is recognized by the Iowa Department of Human Services, and that he may have been adjudged incompetent in at least two criminal matters. He further alleged that he needed the assistance of a guardian ad litem to assist him in defending against this claim.

Hoosman's claimed disability was supported by the competency evaluation attached to his motion to enlarge and amend. The twelve-page competency evaluation was prepared by a psychologist for the purposes of evaluating Hoosman's competency to stand trial in a criminal matter. The report shows Hoosman suffered from a severe mental impairment

of a permanent nature. Hoosman had intracranial surgery in June of 2012 that left him with headaches. The psychologist concluded Hoosman's...